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 JUNE 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 August 2,  1999,  there  were  27,724,045  outstanding  shares of
American Pad & Paper Company common stock.

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

<CAPTION>
                                                     AMERICAN PAD & PAPER COMPANY

                                                 QUARTERLY PERIOD ENDED JUNE 30, 1999

                                                                 INDEX
                                                                                                             Page No.
PART I        FINANCIAL INFORMATION

     Item 1   Financial Statements (unaudited)

<S>                                                                                                              <C>
         Consolidated Balance Sheets as of
              June 30, 1999 and December 31, 1998.........................................................        3

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

         Consolidated Statements of Cash Flows for the six months
              ended June 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...........................................................................       19
     Item 2   Changes in Securities and Use of Proceeds...................................................       19
     Item 3   Defaults Upon Senior Securities.............................................................       19
     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   ....................................................................................       20
</TABLE>


<PAGE>
<TABLE>
<CAPTION>


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

                                                              June 30,           December 31,
                                                                1999                1998
                                                            --------------     --------------
ASSETS
Current assets:
<S>                                                        <C>                <C>
  Cash ..................................................   $          347     $        1,371
  Accounts receivable ...................................           36,757             60,660
  Inventories ...........................................          119,670            112,169
  Income taxes receivable ...............................            1,700              1,700
  Prepaid expenses and other current assets .............            2,515              1,240
  Deferred income taxes .................................               40                 40
                                                            --------------     --------------
    Total current assets ................................          161,029            177,180

Property, plant and equipment ...........................          150,008            152,198
Goodwill and intangible assets ..........................          181,179            185,805
Other ...................................................            2,533              2,654
                                                            --------------     --------------
  Total assets ..........................................   $      494,749     $      517,837
                                                            ==============     ==============

LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)
Current liabilities:
  Current portion of long-term debt .....................   $        2,592     $        1,236
  Accounts payable ......................................           40,494             49,598
  Accrued expenses ......................................           45,923             47,078
  Income taxes payable ..................................              300                300
  Restructuring reserve .................................            4,678              5,660
                                                            --------------     --------------
    Total current liabilities ...........................           93,987            103,872
                                                            --------------     --------------

Long-term debt ..........................................          388,033            373,675
Deferred income taxes ...................................           16,547             16,972
Other ...................................................            1,101              1,288
                                                            --------------     --------------
   Total liabilities ....................................          499,668            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, 27,724,045 and 27,724,045
    shares issued and outstanding, respectively .........              277                277
Additional paid-in capital ..............................          301,287            301,287
Accumulated deficit .....................................         (306,483)          (279,534)
                                                            --------------     --------------

    Total stockholders' equity(deficit)..................           (4,919)            22,030
                                                            --------------     --------------
    Total liabilities and stockholders' equity(deficit)..   $      494,749     $      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             Six Months ended
                                                     June 30,                       June 30,
                                            ---------------------------   ---------------------------
                                               1999            1998           1999           1998
                                            ------------   ------------   ------------   ------------
<S>                                        <C>            <C>            <C>            <C>
Net sales ...............................   $    134,051   $    146,724   $    271,681   $    308,319
Cost of sales ...........................        125,475        143,327        250,246        285,500
                                            ------------   ------------   ------------   ------------
  Gross profit ..........................          8,576          3,397         21,435         22,819

Operating expenses:
  Selling and marketing .................          5,375          5,504         10,255         10,193
  General and administrative ............          6,113          9,273         13,243         14,705
  Loss on sales of accounts receivable ..            710            714          1,449          1,461
  Amortization of intangible assets .....          1,286          1,608          2,571          3,195
  Write-down of intangible assets .......           --           41,000           --           41,000
  Management fees and services ..........            375            530            750          1,060
                                            ------------   ------------   ------------   ------------
Income (loss) from operations ...........         (5,283)       (55,232)        (6,833)       (48,795)

Other income (expense):
  Interest ..............................        (10,923)       (11,063)       (21,719)       (21,806)
  Other income, net .....................          2,023            (36)         2,329             15
                                            ------------   ------------   ------------   ------------
Loss before income taxes ................        (14,183)       (66,331)       (26,223)       (70,586)
Benefit from income taxes ...............           --          (10,394)          --          (12,564)
                                            ------------   ------------   ------------   ------------
Loss before cumulative effect of a change
   in accounting principle ..............        (14,183)       (55,937)       (26,223)       (58,022)

Cumulative effect of a change in
  accounting principle ..................           --             --              726           --
                                            ------------   ------------   ------------   ------------
Net loss ................................   $    (14,183)  $    (55,937)  $    (26,949)  $    (58,022)
                                            ============   ============   ============   ============

Basic loss per share

Loss before cumulative effect of a change
  in accounting principle ...............   $      (0.51)  $      (2.02)  $      (0.94)  $      (2.09)

Cumulative effect of a change in
  accounting principle ..................           --             --            (0.03)          --
                                            ------------   ------------   ------------   ------------
Net loss ................................   $      (0.51)  $      (2.02)  $      (0.97)  $      (2.09)
                                            ============   ============   ============   ============
Weighted average shares outstanding:
Basic ...................................         27,724         27,724         27,724         27,710
                                            ============   ============   ============   ============

     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)

                                                                             Six Months Ended
                                                                                  June 30,
                                                                        --------------   ----------------
                                                                             1999               1998
                                                                        --------------    ---------------

Cash flows from operating activities:
<S>                                                                    <C>               <C>
  Net loss ..........................................................   $      (26,949)   $      (58,022)
  Adjustments to reconcile net loss to net cash provided by (used in)
   operating activities:
    Deferred income taxes ...........................................             (425)             --
    Depreciation ....................................................            7,212             6,578
    Amortization of goodwill and intangible assets ..................            2,572             3,195
    Write-down of assets - Shade/Allied .............................             --              41,000
    Cumulative effect of change in accounting principle .............              726              --
    Amortization of debt issuance costs .............................            1,386             1,808
    (Gain) or loss on disposal of assets ............................           (1,880)              141
    Changes in assets and liabilities:
       Accounts receivable ..........................................           26,903            48,607
       Income taxes receivable ......................................             --               3,308
       Inventories ..................................................           (7,501)           13,661
       Prepaid expenses and other ...................................           (1,276)           (1,176)
       Income taxes payable .........................................             --             (12,748)
       Accounts payable .............................................           (9,104)          (22,942)
       Accrued expenses .............................................           (2,138)             (361)
       Other assets and liabilities .................................              (67)             (868)
                                                                        --------------    --------------
         Net cash provided by (used in) operating activities ........          (10,541)           22,181
                                                                        --------------    --------------

Cash flows from investing activities:
  Purchases of property and equipment ...............................           (8,672)           (8,694)
  Proceeds from sale of assets ......................................            5,531                14
                                                                        --------------    --------------
         Net cash used in investing activities ......................           (3,141)           (8,680)
                                                                        --------------    --------------

Cash flows from financing activities:
  Net borrowings on credit agreement and long-term debt .............           16,542            27,500
  Repayment of long-term debt .......................................             (827)           (1,055)
  Net repayment of accounts receivable financing facility ...........           (3,000)          (12,000)
  Debt issuance costs ...............................................              (57)           (1,393)
  Options and management stock purchase plan ........................             --                  11
                                                                        --------------    --------------
     Net cash provided by financing activities ......................           12,658            13,063
                                                                        --------------    --------------

Net increase (decrease) in cash .....................................           (1,024)           26,564
Cash, beginning of period ...........................................            1,371             4,855
                                                                        --------------    --------------
Cash, end of period .................................................   $          347    $       31,419
                                                                        ==============    ==============

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

<PAGE>


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



1.  Organization and Basis of Presentation

     Organization and Basis of Presentation

         American Pad & Paper  Company  (the  "Company")  is a holding  company,
which 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 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 June 30,  1999,  and the
results of its operations and its cash flows for the three months and six months
ended June 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.

     The Company's wholly owned subsidiary,  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
June 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 $207.3 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  rationalization  is  expected  to  result  in  an
approximate  14-18% reduction in  manufacturing  space and a net 7% reduction in
the workforce (approximately 250 employees, primarily in manufacturing).

     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 June
30, 1999,  122 employees  have been severed and  severance and benefit  payments
totaling $749,000 have been charged to the restructuring reserve.
<TABLE>
<CAPTION>

                                                    Initial                              Remaining
                                                  Restructuring         Amounts           Costs to
                                                      Charge         Used to date          Incur
                                                 ---------------    --------------     --------------
                                                                   (in thousands)
<S>                                             <C>                <C>                <C>
Severance and benefits ......................    $        1,848     $         (749)    $        1,099
Closing costs to exit facilities ............             2,484               (213)             2,271
Lease termination costs .....................               468                (66)               402
Property taxes after ceasing operations .....               941                (35)               906
                                                 --------------     --------------     --------------
 Total ......................................    $        5,741     $       (1,063)    $        4,678
                                                 ==============     ==============     ==============
</TABLE>

         The Company recorded one-time  implementation costs associated with the
rationalization  plan of $4.7  million in cost of sales  during the two quarters
ended  June  30,  1999.  These  expenses  represent  costs  to  move  equipment,
efficiency costs, and recruiting costs.  Estimated capital  expenditures of $2.8
million and  one-time  implementation  costs of $2.0 million that do not qualify
for current  recognition will be recorded  primarily in 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 savings of approximately $10.0 million.


3.  Accounts Receivable
<TABLE>
<CAPTION>

                                                             June 30,         December 31,
                                                              1999               1998
                                                         --------------     --------------
                                                                  (in thousands)
<S>                                                     <C>                <C>
Accounts receivable - trade .........................    $       32,700     $       59,936
Accounts receivable - other .........................             5,908              2,972
Less allowance for doubtful accounts and reserves for
 customers deductions and cash discounts ............            (1,851)            (2,248)
                                                         --------------     --------------
                                                         $       36,757     $       60,660
                                                         ==============     ==============
</TABLE>



<PAGE>



         On May 24,  1996,  the Company  entered into a $60.0  million  accounts
receivable financing facility.  At June 30, 1999 and December 31, 1998, accounts
receivable of $53.0  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.

<TABLE>
<CAPTION>

3.       Inventories

                                                              June 30,           December 31,
                                                               1999                  1998
                                                          --------------      ---------------
                                                                    (in thousands)
<S>                                                     <C>                  <C>
Raw materials .......................................    $       32,820       $       29,892
Work in process .....................................             5,604                5,440
Finished goods ......................................            86,111               77,788
                                                         --------------       --------------
                                                                124,535              113,120
LIFO reserve ........................................            (4,865)                (951)
                                                         --------------       --------------
                                                         $      119,670       $      112,169
                                                         ==============       ==============
</TABLE>


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

                                           Estimated
                                          Useful lives      June 30,            December 31,
                                            in years         1999                  1998
                                                         --------------       --------------
                                                                   (in thousands)
<S>                                          <C>        <C>                  <C>
Land.....................................                $        4,834       $        7,002
Buildings................................      40                32,912               34,585
Machinery and equipment..................     3-12              133,660              132,721
Office furniture and fixtures............     3-7                12,341               12,351
Construction in progress.................                        12,383                5,109
                                                         --------------       --------------
                                                                196,130              191,768
Less accumulated depreciation............                       (46,122)             (39,570)
                                                         --------------       -- -----------
                                                         $      150,008       $      152,198
                                                         ==============       ==============
</TABLE>


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

                                                             June 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 .......................           (30,153)           (26,368)
                                                         --------------     --------------
                                                         $      181,179     $      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.


6.       Accrued Expenses
<TABLE>
<CAPTION>

                                                              June 30,        December 31,
                                                               1999              1998
                                                          -------------     --------------
                                                                       (in thousands)
<S> .................................................   <C>                <C>
Acquisition integration costs .......................    $        5,270     $        6,190
Sales volume discounts ..............................            19,525             18,572
Salaries, wages and benefits ........................             4,498              4,922
Interest ............................................             3,366              3,808
Insurance reserves ..................................             5,908              5,550
Other ...............................................             7,356              8,036
                                                         --------------     --------------
                                                         $       45,923     $       47,078
                                                         ==============     ==============
</TABLE>


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

                                                            June 30,          December 31,
                                                             1999                1998
                                                         --------------     --------------
                                                                   (in thousands)
<S> .................................................   <C>                <C>
Revolving credit facility ...........................    $      250,855     $      235,150
13% Senior Subordinated Notes due 2005 ..............           130,000            130,000
Industrial revenue bonds ............................             6,815              7,165
Notes payable .......................................             1,128                584
Capitalized lease obligations .......................             1,827              2,012
                                                         --------------     --------------
                                                                390,625            374,911
Less current portion ................................             2,592              1,236
                                                         --------------     --------------
                                                         $      388,033     $      373,675
                                                         ==============     ==============
</TABLE>


     On March 5, 1999, the Company amended its revolving  credit  facility.  The
amendment  rescheduled a $25 million line  reduction  from December 31, 1999, to
March  31,  2000.  Other  changes  provided  for an  add-back  for  purposes  of
calculating cumulative EBITDA of $6.3 million in certain charges absorbed in the
fourth quarter of 1998,  and a more favorable  manner in which proceeds from the
sale of assets are applied to scheduled line reductions.  As amended, 50% of the
proceeds  from the sale of  assets  are  credited  against  the  scheduled  line
reduction of March 2000 and 50% to the  scheduled  reduction  of July 2000.  The
amended credit facility also provides for a permanent  reduction in availability
of $50  million  in July 2000.  This  amended  revolving  credit  facility  also
provided  that the interest  rate incurred by the Company will vary each quarter
through July 2001, depending on the Company's  consolidated debt to EBITDA ratio
at the  beginning  of each  quarter,  and  requires  the Company to meet certain
financial  tests  including  minimum EBITDA levels,  minimum  interest  coverage
ratios and maximum  leverage  ratios.  The Company  exceeded EBITDA  performance
targets  for the third and fourth  quarters  of 1998 as well as first and second
quarters of 1999,  as  measured  by the  agreement.  The  amendment  also limits
capital expenditures to $15.0 million per year in 1999 and 2000 and $7.5 million
through July 2001. The revolving credit facility matures in July 2001.
<PAGE>

8.       Related Party Transactions

     The  Company had an  outstanding  note  receivable  of $279,000 at June 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 which 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

     Management Changes. On March 17, 1999, the Company appointed James W. Swent
III as Co-Chairman  of the Board with Mr. Robert C. Gay. Also,  John H. Rodgers,
Senior Vice President, General Counsel and Secretary, and Jeffery K. Hewson were
appointed to the Board of Directors  replacing  Jonathan S. Lavine and filling a
newly created vacant position. Mr. Hewson has held executive positions including
President  of the  Beckley  Cardy  Group,  Chief  Executive  Officer  of  United
Stationers,  Inc.,  President  of ACCO World  Corporation  - U.S.  Division  and
Canada, and is a director of ISA International, a publicly held company in Great
Britain.

         On May 10,  1999,  the  Company  appointed  William L.  Morgan as Chief
Operating  Officer (COO).  Mr. Morgan,  59, joined  American Pad & Paper in July
1998 as Executive Vice  President,  Operations.  In his new position as COO, Mr.
Morgan  will focus on the  day-to-day  business  operations  for  manufacturing,
marketing,  sales,  purchasing,  logistics,  information  systems,  new  product
development and operational finance/accounting functions.

         On May 10, 1999, the Company  announced that its plant in Holland,  New
York,  will be  closed  and  consolidated  as part of the  Company's  previously
announced  rationalization  plan. The Holland plant is a  Williamhouse  Division
operation and will be  transferring  its production  capability into an existing
plant in Scottdale,  Pennsylvania.  The Holland plant employs  approximately 185
people  and will  continue  operations  at  reduced  levels  through  the end of
September 1999.

     On June 1,  1999,  the  Company  named  Lee E.  Meyer as  President  of its
Creative Card Division. Mr. Meyer, 46, will be responsible for all operations of
the Creative Card Division.  Mr. Meyer has over 20 years of industry experience.
His most recent position was President,  of Current Inc. and PaperDirect Inc., a
$225+ million  manufacturer and marketer of greeting cards and papers.  Prior to
that he held both executive and  operational  positions with Deluxe  Corporation
and Procter and Gamble.
<PAGE>

     Amendments  to Revolving  Credit  Facility.  On March 5, 1999,  the Company
amended its revolving credit facility.  The amendment  rescheduled a $25 million
line reduction from December 31, 1999, to March 31, 2000. Other changes provided
for an add-back for purposes of calculating cumulative EBITDA of $6.3 million in
certain  charges  absorbed in the fourth  quarter of 1998,  and a more favorable
manner in which  proceeds from the sale of assets are applied to scheduled  line
reductions. As amended, 50% of the proceeds from the sale of assets are credited
against the  scheduled  line  reduction  of March 2000 and 50% to the  scheduled
reduction  of July  2000.  The  amended  credit  facility  also  provides  for a
permanent  reduction in  availability  of $50 million in July 2000. This amended
revolving  credit  facility also provided that the interest rate incurred by the
Company will vary each quarter  through  July 2001,  depending on the  Company's
consolidated debt to EBITDA ratio at the beginning of each quarter, and requires
the Company to meet certain  financial  tests  including  minimum EBITDA levels,
minimum  interest  coverage  ratios and  maximum  leverage  ratios.  The Company
exceeded EBITDA performance targets for the third and fourth quarters of 1998 as
well as the first and second quarters of 1999, as measured by the agreement. The
amendment also limits capital expenditures to $15.0 million per year in 1999 and
2000 and $7.5 million through July 2001. The revolving  credit facility  matures
in July 2001.



<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 six months ended June 30, 1999 and
1998.
<TABLE>
<CAPTION>

Income Statement Data
                                              Three months ended June 30,       Six months ended June 30,
                                             ----------------------------     -----------------------------
                                                1999             1998             1999            1998
                                             ------------    ------------     ------------     ------------

<S> .....................................    <C>             <C>              <C>              <C>
Net sales ...............................          100.0%          100.0%           100.0%           100.0%
Cost of sales ...........................           93.6%           97.7%            92.1%            92.6%
                                             ------------    ------------     ------------     ------------
   Gross profit .........................            6.4%            2.3%             7.9%             7.4%
Operating expenses:
   Selling and marketing ................            4.0%            3.8%             3.8%             3.3%
   General and administrative ...........            4.6%            6.3%             4.9%             4.8%
   Loss on sale of accounts receivable ..            0.5%            0.5%             0.5%             0.5%
   Amortization of intangible assets ....            1.0%            1.1%             0.9%             1.0%
   Write-down of assets - Shade/Allied ..            0.0%           27.9%             0.0%            13.3%
   Management fees and services .........            0.3%            0.4%             0.3%             0.3%
                                             ------------    ------------     ------------     ------------
Income (loss) from operations ...........           -4.0%           -37.7%           -2.5%           -15.8%

Other income (expense):
   Interest .............................           -8.1%           -7.5%            -8.0%            -7.1%
   Other income, net ....................            1.5%            0.0%             0.9%             0.0%
                                             ------------    ------------     ------------     ------------
Loss before income taxes ................          -10.6%          -45.2%            -9.6%           -22.9%
Provision for (benefit from) income taxes            0.0%           -7.1%             0.0%            -4.1%
                                             ------------    ------------     ------------     ------------

Loss before cumulative effect of
  a change in accounting principle ......          -10.6%          -38.1%            -9.6%           -18.8%

Cumulative effect of a change in
  Accounting principle net of tax .......            0.0%            0.0%             0.3%             0.0%
                                             ------------    ------------     ------------     ------------
Net loss ................................          -10.6%          -38.1%            -9.9%           -18.8%
                                             ============    ============     ============     ============
</TABLE>


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

     Net sales  decreased to $134.1 million in 1999 from $146.7 million in 1998,
a decrease  of $12.6  million or 8.6%.  The  decrease  is  comprised  of a $17.0
million  decrease  in sales  partially  offset  by a $4.4  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  focused  effort  by the
Company's  superstore  customer 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  increased  to $8.6 million or 6.4% of net sales in 1999 from
$3.4 million or 2.3% of net sales in 1998.  This $5.2 million  increase in gross
profit margin is primarily  attributable to lower costs and operating  variances
as well as increased FIFO. These operating efficiencies were partially
offset by LIFO charges that exceed 1998  charges by $3.6  million.  In addition,
1999 cost of sales included $3.4 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  $5.4  million  incurred  in 1999
decreased $0.1 million from $5.5 million recorded in 1998.

     General and administrative  expenses decreased to $6.1 million in 1999 from
$9.3 million in 1998.  This decrease is primarily  attributable to the Company's
1998  reevaluation of certain assets,  which resulted in $1.7 million of charges
for the allowance for doubtful  accounts and one time  severance and  litigation
charges of $1.3 million in the second quarter of 1998.

         Losses on sales of accounts  receivable  decreased  to $0.7  million in
1999  from  $0.8  million  in 1998 due  primarily  to a lower  average  level of
accounts  receivable  sold to the third party trust in 1999. 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 $1.3
million in 1999 from $1.6  million in 1998.  The decrease of $0.3 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 three
months ended June 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 $0.4 million in 1999 from
$0.5 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 $11.1 million
in 1998,  representing  a decrease of $0.2 million.  The decline is due to lower
average  outstanding  debt levels during the second  quarter of 1999 compared to
the second quarter of 1998, partially offset by higher rates.

     The income tax provision  for the quarter ended June 30, 1999,  reflects an
effective  income tax benefit rate of 0% as compared with the  effective  income
tax  provision  rate of 15.7% for the quarter ended June 30, 1998. In the second
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  which 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 second  quarter of 1998, the
Company   lowered  its  effective  tax  rate  due  to  the  expected  effect  of
nondeductible expenses during 1998.


Six months ended June 30, 1999, compared to six months ended June 30, 1998

         Net sales  decreased to $271.7  million in 1999 from $308.3  million in
1998, a decrease of $36.6 million or 11.9%. The decrease is comprised of a $38.9
million  decrease  in sales  partially  offset  by a $2.3  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  focused  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 $21.4  million or 7.9% of net sales in 1999
from $22.8 million or 7.4% of net sales in 1998.  This $1.4 million  decrease in
gross profit  margin is primarily  attributable  to lower sales and LIFO charges
that  exceeded  1998 charges by $3.6  million.  In addition,  1999 cost of sales
included   $4.7   million  of   one-time   costs   associated   with  the  plant
rationalization   plan.  These  expenses  represent  costs  to  move  equipment,
efficiency costs, and recruiting costs. These variances were partially offset by
lower  standard  costs  and  operating  variances  as well as  increased  FIFO.
<PAGE>

         Selling  and  marketing  expenses  of $10.3  million  incurred  in 1999
increased  $0.1 million from $10.2 million  recorded in 1998.  This increase was
primarily due to increased marketing research and new product development.

         General and administrative  expenses decreased to $13.2 million in 1999
from  $14.7  million  in 1998,  or $1.5  million.  This  decrease  is  primarily
attributable to one time severance and litigation costs of $1.3 million in 1998.

         Losses on sales of accounts  receivable  decreased  to $1.4  million in
1999  from  $1.5  million  in 1998 due  primarily  to a lower  average  level of
accounts  receivable  sold to the third party trust in 1999.  The  decrease  was
caused by lower  eligible  receivables  partially  offset by higher  rates.  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 $2.6
million in 1999 from $3.2  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 six
months ended June 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 $0.8 million in 1999 from
$1.1 million for 1998,  representing  a decrease of $0.4 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 $21.7 million in 1999 from $21.8 million
in 1998,  representing an decrease of $0.1 million.  The decline is due to lower
average  outstanding debt levels during the  year-to-date  period ended June 30,
1999 compared to the year-to-date period ended June 30, 1998. This was partially
offset by higher rates.

     The income tax provision  for the six months ended June 30, 1999,  reflects
an effective income tax benefit rate of 0% as compared with the effective income
tax provision rate of 17.8% for the six months ended June 30, 1998. In the first
half 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  which would have been  provided by the loss.
The Company will continue this practice until the realization of it recorded net
operating  loss is reasonably  assured.  In the first half 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 six
months ended June 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.


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.
<PAGE>

         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 six months ended June 30,
1999, was $10.5 million as compared to net cash provided by operating activities
for the six months  ended June 30,  1998,  of $22.2  million.  This  decrease is
primarily the result of lower sales.

         Cash used in  investing  activities  for the six months  ended June 30,
1999 and  1998, was $3.1 million  and  $8.7  million,  respectively,  due to the
purchase of equipment, principally  production  equipment, offset by the sale of
assets.

         The  ability  of the  Company  to  meet  its  debt  service  and  other
obligations  and  reduce  its  total  debt  will be  dependent  upon the  future
performance of the Company and its subsidiaries.  In turn, such performance will
be subject to general economic  conditions and to financial,  business and other
factors, including factors beyond the Company's control.

         Although there can be no assurance,  management  believes  that,  based
upon cash on hand at June 30, 1999,  estimates of current and future operations,
and other available sources of funds including  availability under the revolving
credit facility and the accounts receivable financing facility at June 30, 1999,
of $14.3  million,  its  finances  will be  adequate  for 1999 to make  required
payments of principal  and interest on the Company's  debt, to fund  anticipated
capital expenditures, and to meet working capital needs.

     The amount of debt available under the Company's  current credit  agreement
decreases by $25 million in March 2000 and by an additional  $50 million in July
2000. Based on the Company's current level of operating results and the expected
operating  results in 1999 and 2000,  the  Company  expects  that the  scheduled
reduction  in July  2000 may  require  the  Company  to pursue  other  financing
alternatives,  including,  but not  limited  to,  refinancing  of its bank debt,
raising new private or public debt, raising  additional public equity,  reducing
capital expenditures, reducing operating costs, selling assets, or a combination
of these  efforts.  However,  no assurance can be given that the Company will be
able to complete the financing  alternatives  just described,  or that the other
measures will be sufficient to provide adequate  liquidity to meet the Company's
ongoing obligations.


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.
<PAGE>

         The Company has purchased a new certified Year 2000  compliant  version
of its existing software to upgrade critical  manufacturing,  distribution,  and
financial  applications.  The  upgrade  is  scheduled  for  completion  and full
installation  by December  31, 1999.  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 June 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. To complete Year 2000 readiness, $0.2 million of
capital  expenditures  will be  incurred  to  complete  the  purchase of related
hardware and approximately  $1.0 to $1.5 million is expected to be spent through
1999 for  implementation  of the upgraded  software,  consultant costs and other
Year 2000 readiness costs. The Company will fund these expenditures  through its
operating cash flow. 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.

     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
already 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  which  primarily  consist of making its existing
systems  Year 2000  compliant  in the event  that the  software  upgrade  is 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.
The committee's expectation is that full integrated testing will be completed by
October 31,  1999.  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 the
installation  of the  upgraded  software  and 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.

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

<PAGE>

these   cautionary   statements.   Certain   statements   contained  herein  are
forward-looking  statements and,  accordingly,  involve risks and  uncertainties
which 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.


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


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 which 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 June 30, 1999 and 1998.

         At June 30,  1999,  the Company  had  approximately  $250.9  million of
variable rate debt obligations outstanding with a weighted average interest rate
of 8.92%.  A  hypothetical  10% change in the effective  interest rate for these
borrowings,  assuming debt levels at June 30, 1999,  would have changed interest
expense by approximately $1.1 million for year-to-date June 30, 1999.


<PAGE>


                          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 June 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
                  None

ITEM 4            SUBMMISSION 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

          27.03                              Financial Data Schedule


    (b) Reports on Form 8-K.

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

(1)               Current Report on Form 8-K filed May 14, 1999, relating to the
                  Company's May 10, 1999, press releases. A press release on May
                  10, 1999,  announcing the  appointment of William L. Morgan as
                  Chief Operating Officer.

(2)               Current Report on Form 8-K filed May 14, 1999, relating to the
                  Company's May 10, 1999, press releases. A press release on May
                  10, 1999,  announced that its plant in Holland,  New York will
                  be closed and consolidated.

(3)               Current Report on Form 8-K filed June 3, 1999, relating to the
                  Company's  June 1, 1999,  press  release.  A press release on
                  June 1, 1999,  announcing  the  appointment of Lee E. Meyer as
                  President of its Creative Card Division.

(4)               Current  Report on Form 8-K filed July 26,  1999,  relating to
                  the Company's July 19, 1999,  press release.  A press release
                  on July 19, 1999,  announcing  reported  financial results for
                  the second quarter ended June 30, 1999.

<PAGE>


                                   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 August 4, 1999,
on their 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)