FORM 10-Q

              (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended March 31, 2003

                                       OR

              ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

           For the transition period from ___________ to _____________

                        Commission File Number: 333-60991

                                AKI HOLDING CORP.
             (Exact name of registrant as specified in its charter)

           Delaware                                            74-2883163
 (State or other jurisdiction of                            (I.R.S. Employer
  incorporation or organization)                           Identification No.)

                        Commission File Number: 333-60989

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

           Delaware                                            13-3785856
 (State or other jurisdiction of                            (I.R.S. Employer
  incorporation or organization)                           Identification No.)

        1815 East Main Street
          Chattanooga, TN                                         37404
(Address of principal executive offices)                        (Zip Code)

                                 (423) 624-3301
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days (X) Yes ( ) No

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2) ( ) Yes (X) No

As of April 30, 2003,  1,000 shares of common stock of AKI Holding  Corp.,  $.01
par value,  were outstanding and 1,000 shares of common stock of AKI, Inc., $.01
par value, were outstanding.

AKI, Inc. meets the  requirements set forth in General  Instruction  H(1)(a) and
(b) of Form 10-Q and is  therefore  filing  this form  with  reduced  disclosure
format.


<PAGE>


                       AKI HOLDING CORP. AND SUBSIDIARIES

                               INDEX TO FORM 10-Q


Part I.  FINANCIAL INFORMATION

         Item 1.  Financial Statements (unaudited)

                  AKI Holding Corp. and Subsidiaries

                      Consolidated Condensed Balance Sheet

                      -  March 31, 2003
                      -  June 30, 2002

                      Consolidated Condensed Statements of Operations

                      -  Three months ended March 31, 2003
                      -  Three months ended March 31, 2002
                      -  Nine months ended March 31, 2003
                      -  Nine months ended March 31, 2002

                      Consolidated Condensed Statement of Changes in
                      Stockholder's Equity

                      -  Nine months ended March 31, 2003

                      Consolidated Condensed Statements of Cash Flows

                      -  Nine months ended March 31, 2003
                      -  Nine months ended March 31, 2002

                      Notes to Consolidated Condensed Financial Statements


<PAGE>


         Item 1.  Financial Statements (unaudited) (continued)

                  AKI, Inc. and Subsidiaries

                      Consolidated Condensed Balance Sheet

                      -  March 31, 2003
                      -  June 30, 2002

                      Consolidated Condensed Statements of Operations

                      -  Three months ended March 31, 2003
                      -  Three months ended March 31, 2002
                      -  Nine months ended March 31, 2003
                      -  Nine months ended March 31, 2002

                      Consolidated Condensed Statement of Changes in
                      Stockholder's Equity

                      -  Nine months ended March 31, 2003

                      Consolidated Condensed Statements of Cash Flows

                      -  Nine months ended March 31, 2003
                      -  Nine months ended March 31, 2002

                      Notes to Consolidated Condensed Financial Statements


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

         Item 3.  Quantitative and Qualitative Discussions About Market Risk

         Item 4.  Controls and Procedures

Part II. OTHER INFORMATION

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

         Item 6.  Exhibits and Reports on Form 8-K


<PAGE>


                       AKI HOLDING CORP. AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS
         (dollars in thousands, except share and per share information)

<TABLE>
<CAPTION>

                                                                                  March 31,           June 30,
                                                                                    2003                2002
                                                                                -------------      -------------
                                                                                 (unaudited)         (unaudited)

<S>                                                                             <C>                <C>
ASSETS
Current assets
Cash and cash equivalents..................................................     $       1,253      $       1,875
Accounts receivable, net...................................................            21,830             23,796
Inventory..................................................................             7,941              8,014
Prepaid expenses...........................................................               834                667
Income tax receivable......................................................             1,892                  -
Deferred income taxes......................................................               977                977
                                                                                -------------      -------------

   Total current assets....................................................            34,727             35,329

Property, plant and equipment, net.........................................            17,406             19,616
Goodwill ..................................................................           153,277            153,277
Other intangible assets, net...............................................            11,772             13,142
Deferred charges, net......................................................             3,386              4,059
Deferred income taxes......................................................               392                692
Other assets...............................................................               177                164
                                                                                -------------      -------------

   Total assets............................................................     $     221,137      $     226,279
                                                                                =============      =============

LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Current portion of long-term debt..........................................     $       1,812      $       1,375
Accounts payable, trade....................................................             3,400              5,826
Accrued income taxes.......................................................                 -              2,007
Accrued compensation.......................................................             3,767              5,338
Accrued interest...........................................................             3,046              5,570
Accrued expenses...........................................................             3,851              3,642
                                                                                -------------      -------------

   Total current liabilities...............................................            15,876             23,758

Revolving credit line......................................................             8,900              2,750
Term loan..................................................................             6,750              8,125
Senior notes...............................................................           103,510            103,510
Promissory note to affiliate...............................................               355                  -
Senior discount debentures.................................................             8,832             15,901
Other non-current liabilities..............................................             1,712              2,338
                                                                                -------------      -------------

   Total liabilities.......................................................           145,935            156,382

Stockholder's equity
Common stock, $0.01 par 1,000 shares authorized;
    1,000 shares issued and outstanding....................................                 -                  -
Additional paid-in capital.................................................            93,656             93,656
Accumulated deficit........................................................            (3,036)            (7,583)
Accumulated other comprehensive income (loss)..............................               312               (446)
Carryover basis adjustment.................................................           (15,730)           (15,730)
                                                                                --------------     -------------

   Total stockholder's equity..............................................            75,202             69,897
                                                                                -------------      -------------


   Total liabilities and stockholder's equity..............................     $     221,137      $     226,279
                                                                                =============      =============

</TABLE>


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


<PAGE>


                       AKI HOLDING CORP. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                             (dollars in thousands)

<TABLE>
<CAPTION>

                                                              Three months ended                    Nine months ended
                                                      ---------------------------------    ---------------------------------
                                                      March 31, 2003     March 31, 2002    March 31, 2003     March 31, 2002
                                                      --------------     --------------    --------------     --------------
                                                        (unaudited)        (unaudited)       (unaudited)        (unaudited)

<S>                                                      <C>                <C>               <C>                <C>
Net sales......................................          $  28,954          $  35,472         $  90,998          $  85,182
Cost of goods sold.............................             18,549             20,357            57,768             53,000
                                                         ---------          ---------         ---------          ---------

   Gross profit................................             10,405             15,115            33,230             32,182

Selling, general and administrative expenses...              4,488              5,018            13,892             13,782
Amortization of goodwill.......................                  -              1,202                 -              3,605
Amortization of other intangibles..............                285                477               857                990
                                                         ---------          ---------         ---------          ---------

   Income from operations......................              5,632              8,418            18,481             13,805

Other expenses:
   Interest expense............................              3,565              4,182            10,978             11,918
   Management fees and other, net..............                100                 57               225                182
   Loss from early retirement of debt..........                204                  -                60                  -
                                                         ---------          ---------         ---------          ---------

   Income before income taxes..................              1,763              4,179             7,218              1,705

Income tax expense.............................                594              2,150             2,671              2,227
                                                         ---------          ---------         ---------          ---------

   Net income (loss)...........................          $   1,169          $   2,029         $   4,547          $    (522)
                                                         =========          =========         =========          =========

</TABLE>


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


<PAGE>


                       AKI HOLDING CORP. AND SUBSIDIARIES
       CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
                (dollars in thousands, except share information)

<TABLE>
<CAPTION>

                                                                                           Accumulated
                                             Common Stock      Additional                     Other        Carryover
                                             ------------       Paid-in      Accumulated   Comprehensive     Basis
                                           Shares   Dollars     Capital        Deficit         Loss        Adjustment     Total
                                           ------   -------     -------        -------         ----        ----------     -----

<S>                                         <C>     <C>        <C>            <C>            <C>           <C>          <C>
Balances, June 30, 2002 (unaudited).....    1,000   $    -     $  93,656      $  (7,583)     $   (446)     $ (15,730)   $  69,897

Net income (unaudited)..................                                          4,547                                     4,547

Other comprehensive income, net of tax:
   Foreign currency translation
     adjustment (unaudited).............                                                          758                         758
                                                                                                                        ---------

Comprehensive income (unaudited)........                                                                                    5,305
                                            -----   ------     ---------      ---------      --------      ---------    ---------

Balances, March 31, 2003 (unaudited)....    1,000   $    -     $  93,656      $  (3,036)     $    312      $ (15,730)   $  75,202
                                            =====   ======     =========      =========      ========      =========    =========

</TABLE>


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


<PAGE>


                       AKI HOLDING CORP. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                             (dollars in thousands)

<TABLE>
<CAPTION>

                                                                                                     Nine months ended
                                                                                           ------------------------------------
                                                                                           March 31, 2003        March 31, 2002
                                                                                           --------------        --------------
                                                                                             (unaudited)           (unaudited)

<S>                                                                                         <C>                   <C>
Cash flows from operating activities
   Net income (loss).....................................................                   $      4,547          $       (522)
   Adjustments to reconcile net income (loss) to net cash provided by
   (used in) operating activities:
     Depreciation and amortization of goodwill and other intangibles.....                          5,579                 8,378
     Amortization of debt discount.......................................                          1,352                 2,468
     Amortization of debt issuance costs.................................                            477                   433
     Deferred income taxes...............................................                            300                (1,153)
     Loss from early retirement of debt..................................                             60                     -
     Other...............................................................                            119                   180
     Changes in operating assets and liabilities:
       Accounts receivable...............................................                          1,966                (8,339)
       Inventory.........................................................                             73                  (465)
       Prepaid expenses, deferred charges and other assets...............                           (167)                 (152)
       Accounts payable and accrued expenses.............................                         (6,312)               (3,571)
       Income taxes......................................................                         (3,899)               (1,006)
                                                                                            ------------          ------------

         Net cash provided by (used in) operating activities.............                          4,095                (3,749)
                                                                                            ------------          ------------

Cash flows from  investing activities
   Purchases of equipment................................................                         (1,904)                 (888)
   Patents...............................................................                            (95)                  (62)
     Payments for acquisition, net of cash acquired......................                              -               (19,053)
                                                                                            ------------          ------------

         Net cash used in investing activities...........................                         (1,999)              (20,003)
                                                                                            ------------          ------------

Cash flows from financing activities
   Payments under capital leases ........................................                              -                  (503)
   Repayment of long-term debt...........................................                         (8,285)                    -
   Net proceeds on revolving loan........................................                          6,150                11,450
   Net proceeds (repayments) on term loan................................                           (938)                9,750
   Payments of loan closing costs........................................                              -                  (605)
   Net proceeds from promissory note to stockholder......................                            355                   350
                                                                                            ------------          ------------

         Net cash (used in) provided by financing activities.............                         (2,718)               20,442
                                                                                            ------------          ------------

Net decrease in cash and cash equivalents................................                           (622)               (3,310)
Cash and cash equivalents, beginning of period...........................                          1,875                 4,654
                                                                                            ------------          ------------

Cash and cash equivalents, end of period.................................                   $      1,253          $      1,344
                                                                                            ============          ============

Supplemental information
  Cash paid during the period for:
     Interest............................................................                   $     11,496          $     11,305
     Income taxes........................................................                          6,421                 4,479

</TABLE>


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


<PAGE>


                       AKI HOLDING CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
         (dollars in thousands, except share and per share information)

1.   BASIS OF PRESENTATION

          AKI, Inc. ("AKI") is the successor to Arcade Holding  Corporation (the
     "Predecessor"),  which was acquired by AHC I Acquisition,  Corp. ("AHC") in
     December  1997.  AHC was  organized for the purpose of acquiring all of the
     equity interests of the Predecessor and subsequent to such acquisition, AHC
     contributed  $1 and all of its  ownership  interest  to AKI  Holding  Corp.
     ("Holding") for all of the outstanding equity of Holding.  Accordingly, AKI
     is a wholly owned subsidiary of Holding, which is a wholly owned subsidiary
     of AHC.

          AKI is engaged in interactive  multi-sensory  advertising for consumer
     product  companies  and  has a  specialty  in the  design,  production  and
     distribution  of  sampling  systems  from its  Chattanooga,  Tennessee  and
     Baltimore,  Maryland  facilities  and  distributes  its  products in Europe
     through its French subsidiary, Arcade Europe S.A.R.L.

     Recently Issued Accounting Standards

          FASB Statement of Financial Accounting Standards No. 142 "Goodwill and
     Other  Intangible  Assets"  ("SFAS 142") was issued in June 2001.  SFAS 142
     changes the  accounting  and  reporting  for  acquired  goodwill  and other
     intangible  assets.  SFAS 142 is effective for fiscal years beginning after
     December  15,  2001 and must be applied  at the  beginning  of an  entity's
     fiscal  year.  The  adoption of SFAS 142  eliminates  the  amortization  of
     goodwill,  approximately  $4,800 in the fiscal  year  ended June 30,  2002,
     while requiring an initial test and subsequent  annual tests for impairment
     of goodwill.  The Company  completed its initial test of the carrying value
     of goodwill which resulted in no impairment.

          FASB Statement of Financial  Accounting  Standards No. 145 "Rescission
     of FASB  Statements No. 4, 44, and 64,  Amendment of FASB Statement No. 13,
     and Technical  Corrections" ("SFAS 145") was issued in April 2002. The most
     significant aspects of this pronouncement,  with respect to the Company, is
     the  elimination  of  SFAS  No.  4,   "Reporting   Gains  and  Losses  from
     Extinguishment  of  Debt".  As a result of the  elimination  of SFAS No. 4,
     gains and  losses  from  extinguishment  of debt  should be  classified  as
     extraordinary  items  only  if  they  meet  the  criteria  in APB  No.  30,
     "Reporting   the  Results  of   Operations   -   Discontinued   Events  and
     Extraordinary Items". The implementation of SFAS No. 145 will require gains
     or losses resulting from future early retirements of debt to be included in
     other income and  expenses  which could  materially  affect  income  before
     income  taxes.  In the nine month period ended March 31, 2003,  the Company
     reported an approximate $60 loss from early retirement of debt.

          FASB Statement of Financial  Standards No. 146  "Accounting  for Costs
     Associated  with Exit or Disposal  Activities"  ("SFAS  146") was issued in
     June 2002. SFAS 146 addresses financial  accounting and reporting for costs
     associated with exit or disposal  activities and nullifies  Emerging Issues
     Task  Force  (EITF)  Issue No.  94-3,  Liability  Recognition  for  Certain
     Employee Termination Benefits and Other Costs to Exit an Activity. SFAS 146
     requires  that a liability for a cost  associated  with an exit or disposal
     activity be recognized  and measured  initially at fair value only when the
     liability  is  incurred.  SFAS  146  is  effective  for  exit  or  disposal
     activities that are initiated after December 31, 2002. The Company does not
     anticipate  that the  provisions  of this  statement  will have a  material
     impact on the Company's reported results of operations, financial positions
     or cash flows.

          FASB Statement of Financial  Standards No. 149 "Amendment of Statement
     133 on  Derivative  Instruments  and Hedging  Activities"  ("SFAS 149") was
     issued in April 2003.  FASB  Statements No. 133  "Accounting for Derivative
     Instruments  and Hedging  Activities"  and No. 138  "Accounting for Certain
     Derivative Instruments and Certain Hedging Activities" establish accounting
     and reporting standards for derivative  instruments  including  derivatives
     embedded in other contracts  (collectively  referred to as derivatives) and
     for hedging activities. SFAS 149 amends SFAS 133 for certain decisions made
     by the  Board  as  part of the  Derivatives  Implementation  Group  ("DIG")
     process.  SFAS 149 contains  amendments relating to FASB Concepts Statement
     No. 7,  "Using  Cash  Flow  Information  and  Present  Value in  Accounting
     Measurements", and FASB


<PAGE>


                       AKI HOLDING CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
         (dollars in thousands, except share and per share information)

1.   BASIS OF PRESENTATION (continued)

     Statements No. 65, "Accounting for Certain Mortgage Banking Activities, No.
     91,   "Accounting  for   Nonrefundable   Fees  and  Costs  Associated  with
     Originating or Acquiring Loans and Initial Direct Costs of Leases", No. 95,
     "Statement of Cash Flows",  and No. 126,  "Exemption from Certain  Required
     Disclosures about Financial  Instruments for Certain  Nonpublic  Entities".
     The Company is presently evaluating the effect of this pronouncement.

          FASB  Interpretation  No. 45  "Guarantor's  Accounting  and Disclosure
     Requirements for Guarantees,  Including Indirect Guarantees of Indebtedness
     of Others" ("FIN 45") was issued in November 2002. FIN 45 elaborates on the
     disclosures  to be made by a guarantor in its interim and annual  financial
     statements  about its  obligations  under  certain  guarantees  that it has
     issued.  It also requires the  guarantor to recognize,  at the inception of
     the guarantee,  a liability for the fair value of obligation  undertaken in
     issuing the  guarantee.  The  disclosure  requirements  are  effective  for
     quarters ending after December 15, 2002 and the liability recognition is in
     effect for guarantees  initiated  after December 31, 2002. The Company does
     not  anticipate  that the provisions of this statement will have a material
     impact on the Company's reported results of operations, financial positions
     or cash flows.

          FASB   Interpretation  No.  46  "Consolidation  of  Variable  Interest
     Entities"  ("FIN  46") was  issued in  January  2003.  FIN 46  requires  an
     investor with a majority of the variable  interests in a variable  interest
     entity  ("VIE") to  consolidate  the entity and also requires  majority and
     significant variable interest investors to provide certain  disclosures.  A
     VIE is an entity in which the equity  investors  do not have a  controlling
     interest,  or the equity  investment at risk is insufficient to finance the
     entity's  activities without receiving  additional  subordinated  financial
     support from the other  parties.  For  arrangements  entered into with VIEs
     created prior to January 31, 2003, the provisions of FIN 46 are required to
     be adopted at the beginning of the first interim or annual period beginning
     after June 15, 2003. The Company is currently reviewing its investments and
     other  arrangements to determine whether any of its investee  companies are
     VIEs.  The Company  does not expect to identify any  significant  VIEs that
     would be consolidated,  but may be required to make additional disclosures.
     The  Company's  maximum  exposure  related  to any  investment  that may be
     determined to be in a VIE is limited to the amount invested. The provisions
     of FIN 46 are effective  immediately for all arrangements entered into with
     new VIEs created  after  January 31, 2003.  The Company has not invested in
     any new VIEs created after January 31, 2003.

          FASB  Statement  of  Financial   Standards  No.  148  "Accounting  for
     Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB
     Statement  No. 123"  ("SFAS  148") was issued in  December  2002.  FASB 148
     amends FASB  Statement  of  Financial  Standards  No. 123  "Accounting  for
     Stock-Based  Compensation"  ("FASB 123"), to provide alternative methods of
     transition  for a  voluntary  change  to the fair  value  based  method  of
     accounting for stock-based  employee  compensation.  In addition,  FASB 148
     amends  the  disclosure  requirements  of  FASB  123 to  require  prominent
     disclosures  in both  annual and  interim  financial  statements  about the
     method of accounting for stock-based  employee  compensation and the effect
     of the method used on reported  results.  The Company  does not  anticipate
     that the provisions of this  statement  will have a material  impact on the
     reported results of operations, financial positions or cash flows.

          If the Company had elected to recognize  compensation expense based on
     the fair value of the options at grant date as  prescribed by FASB 123, the
     net income (loss) would have been as follows:


<PAGE>


                       AKI HOLDING CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
         (dollars in thousands, except share and per share information)

1.   BASIS OF PRESENTATION (continued)

<TABLE>
<CAPTION>


                                                         Three months ended                Nine months ended
                                                             March 31,                         March 31,
                                                             ---------                         ---------
                                                       2003             2002             2003             2002
                                                       ----             ----             ----             ----

<S>                                                  <C>              <C>              <C>              <C>
    Net income (loss), as reported..........         $  1,169         $  2,029         $  4,547         $   (522)

    Deduct:  Total stock-based employee
    compensation expense determined
    under fair value based method for all
    awards, net of related tax effects......                5               16               16               48
                                                     --------         --------         --------         --------

    Pro forma net income (loss).............         $  1,164         $  2,013         $  4,531         $   (570)
                                                     ========         ========         ========         ========

</TABLE>

     Acquisition of Color Prelude business

          On December 18,  2001,  the Company  acquired  the business  including
     certain  assets and assumed  certain  liabilities  of Color  Prelude,  Inc.
     ("CP")  for  $19,423  including  direct  acquisition  costs  of  $540.  The
     acquisition  was accounted  for using the purchase  method of accounting in
     accordance with Statement of Financial Accounting Standards (SFAS) No. 141,
     "Business  Combinations".  The  purchase  price has been  allocated  to the
     assets and liabilities  acquired using estimated fair values at the date of
     acquisition and resulted in assigning value to goodwill totaling $407 which
     will not be amortized in accordance with Statement of Financial  Accounting
     Standards  (SFAS) No. 142,  "Goodwill  and Other  Intangible  Assets".  The
     following shows the allocation of the purchase price.


             Cash......................................  $      1
             Other current assets......................     5,680
             Property, plant and equipment.............     7,695
             Patents...................................     7,750
             Other intangible assets...................     1,069
             Goodwill..................................       407
                                                         --------

             Total allocation to assets................  $ 22,602
                                                         ========

             Current liabilities.......................  $  3,179
                                                         ========

          Patents  are  being  amortized  over  a  ten  year  period  and  other
     intangible assets are being amortized over periods ranging from one to four
     years.

     Interim financial statements

          The interim consolidated condensed balance sheet at March 31, 2003 and
     the interim  consolidated  condensed statements of operations for the three
     and nine months  ended March 31,  2003 and 2002,  the interim  consolidated
     condensed statements of cash flows for the nine months ended March 31, 2003
     and 2002 and the interim  consolidated  condensed  statement  of changes in
     stockholder's  equity  for  the  nine  months  ended  March  31,  2003  are
     unaudited, and certain information and footnote disclosure related thereto,
     normally  included in  financial  statements  prepared in  accordance  with
     generally accepted accounting  principles,  have been omitted. The June 30,
     2002  consolidated  condensed  balance  sheet was derived  from the audited
     balance  sheet  for the year  then  ended.  In  management's  opinion,  the
     unaudited interim consolidated condensed financial statements


<PAGE>


                       AKI HOLDING CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
         (dollars in thousands, except share and per share information)

1.   BASIS OF PRESENTATION (continued)

     were  prepared  following  the same  policies  and  procedures  used in the
     preparation  of the  audited  financial  statements  and  all  adjustments,
     consisting  only of normal  recurring  adjustments  to fairly  present  the
     financial  position,  results of operations  and cash flows with respect to
     the  interim  consolidated   condensed  financial  statements,   have  been
     included.  The  results  of  operations  for the  interim  periods  are not
     necessarily  indicative  of the  results for the entire  year.  The interim
     consolidated  condensed financial  statements should be read in conjunction
     with the financial statements and notes thereto for the year ended June 30,
     2002 as filed on Form 10-K.

     Reclassification

          Certain prior period  amounts have been  reclassified  to conform with
     the current period presentation.

2.   INVENTORY

          The following table details the components of inventory:

<TABLE>
<CAPTION>

                                                          March 31, 2003         June 30, 2002
                                                          --------------         -------------
                                                            (unaudited)           (unaudited)
<S>                                                         <C>                   <C>
              Raw materials
                  Paper..........................           $     2,177           $     2,027
                  Other raw materials............                 3,620                 4,369
                                                            -----------           -----------
                      Total raw materials........                 5,797                 6,396
              Work in process....................                 2,827                 2,468
              Reserve for obsolescence...........                  (683)                 (850)
                                                            ------------          -----------

              Total inventory....................           $     7,941           $     8,014
                                                            ===========           ===========

</TABLE>

3.   RETIREMENT OF DEBT

          In fiscal 2003,  Holding  purchased,  with proceeds from distributions
     from AKI, it's Senior  Discount  Debentures with a carrying value of $8,422
     and  unamortized  debt issuance cost of $197 for $8,285.  The  distribution
     from AKI was funded through  borrowings  under AKI's credit  agreement.  In
     accordance with SFAS 145, the loss from early retirement of debt, including
     write-off of debt issuance costs, is included in other income.

4.   AMORTIZATION OF GOODWILL

          In accordance with SFAS 142 goodwill is no longer being amortized. The
     following pro forma amounts reflect  goodwill  amortization  and net income
     had SFAS 142 been implemented at the beginning of fiscal 2002:

<TABLE>
<CAPTION>

                                                           Three months ended            Nine months ended
                                                               March 31,                     March 31,
                                                               ---------                     ---------
                                                           2003           2002          2003           2002
                                                           ----           ----          ----           ----

<S>                                                     <C>            <C>           <C>            <C>
       Net income (loss) as reported..............      $   1,169      $   2,029     $   4,547      $    (522)
       Goodwill amortization......................              -          1,202             -          3,605
                                                        ---------      ---------     ---------      ---------

       Pro forma net income.......................      $   1,169      $   3,231     $   4,547      $   3,083
                                                        =========      =========     =========      =========

</TABLE>


<PAGE>


                       AKI HOLDING CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
         (dollars in thousands, except share and per share information)

5.   COMPREHENSIVE INCOME

          Comprehensive  income consists of net income,  plus certain changes in
     assets and liabilities  that are not included in net income but are instead
     reported  within  a  separate  component  of  shareholders'   equity  under
     generally  accepted  accounting  principles.  The  Company's  comprehensive
     income (loss) was as follows:

<TABLE>
<CAPTION>

                                                                   Three months ended            Nine months ended
                                                                       March 31,                     March 31,
                                                                       ---------                     ---------
                                                                   2003           2002          2003           2002
                                                                   ----           ----          ----           ----

<S>                                                             <C>            <C>           <C>            <C>
       Net income (loss)...............................         $   1,169      $   2,029     $   4,547      $    (522)

       Other comprehensive income (loss), net of tax:
           Foreign currency translation
           adjustments.................................               392           (213)          758             85
                                                                ---------      ----------    ---------      ---------

       Comprehensive income (loss).....................         $   1,561      $   1,816     $   5,305      $    (437)
                                                                =========      =========     =========      =========

</TABLE>

6.   CONDENSED HOLDING COMPANY ONLY FINANCIAL STATEMENTS

          The following  condensed balance sheets at March 31, 2003 and June 30,
     2002 and condensed  statements  of  operations  and cash flows for the nine
     months ended March 31, 2003 and 2002 and the condensed statement of changes
     in  stockholder's  equity for the nine months  ended  December 31, 2002 for
     Holding have been prepared on the equity basis of accounting  and should be
     read in conjunction with the consolidated statements and notes thereto.

                                  BALANCE SHEET

<TABLE>
<CAPTION>

                                                                     March 31, 2003         June 30, 2002
                                                                      --------------         -------------
                                                                        (unaudited)           (unaudited)

<S>                                                                    <C>                   <C>
     Assets
     Investment in subsidiaries...............................         $    96,625           $    99,583
     Income tax receivable....................................               1,493                    46
     Deferred charges.........................................                 192                   422
     Deferred income taxes....................................               1,142                 1,923
                                                                       -----------           -----------

         Total assets.........................................         $    99,452           $   101,974
                                                                       ===========           ===========

     Liabilities
     Senior discount debentures...............................         $     8,832           $    15,901
                                                                        ----------            ----------

         Total liabilities....................................               8,832                15,901
                                                                       -----------           -----------

     Stockholder's equity
     Common Stock, $0.01 par value, 1,000 shares authorized
       1,000 shares issued and outstanding....................                   -                     -
     Additional paid-in capital...............................              93,656                93,656
     Accumulated deficit......................................              (3,036)               (7,583)
                                                                       -----------           -----------

         Total stockholder's equity...........................              90,620                86,073
                                                                       -----------           -----------

         Total liabilities and stockholder's equity...........         $    99,452           $   101,974
                                                                       ===========           ===========

</TABLE>


<PAGE>

                       AKI HOLDING CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
         (dollars in thousands, except share and per share information)

6. CONDENSED HOLDING COMPANY ONLY FINANCIAL STATEMENTS (Continued)

                             STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>

                                                                                Nine months ended
                                                                      ------------------------------------
                                                                      March 31, 2003        March 31, 2002
                                                                      --------------        --------------
                                                                        (unaudited)           (unaudited)


<S>                                                                    <C>                   <C>
     Equity in net income of subsidiaries.....................         $     5,327           $     1,178
     Interest expense.........................................               1,386                 2,530
     Loss from early retirement of debt.......................                  60                     -
                                                                       -----------           -----------

         Income (loss) before income taxes....................               3,881                (1,352)

     Income tax benefit.......................................                (666)                 (830)
                                                                       -----------           -----------

         Net income (loss)....................................         $     4,547           $      (522)
                                                                       ===========           ===========

</TABLE>


                  STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>

                                                          Common Stock          Additional
                                                          ------------            Paid-in      Accumulated
                                                       Shares       Amount        Capital        Deficit          Total
                                                       ------       ------        -------        -------          -----

<S>                                                      <C>      <C>           <C>            <C>            <C>
     Balances, June 30, 2002 (unaudited)...........      1,000    $       -     $   93,656     $    (7,583)   $    86,073

     Net income (unaudited)........................                                                  4,547          4,547
                                                     ---------    ---------     ----------     -----------    -----------

     Balances, March 31, 2003 (unaudited)..........      1,000    $       -     $   93,656     $    (3,036)   $    90,620
                                                     =========    =========     ==========     ===========    ===========

</TABLE>


<PAGE>


                       AKI HOLDING CORP. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
         (dollars in thousands, except share and per share information)

6. CONDENSED HOLDING COMPANY ONLY FINANCIAL STATEMENTS (Continued)

                             STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                     Nine months ended
                                                                           ------------------------------------
                                                                           March 31, 2003        March 31, 2002
                                                                           --------------        --------------
                                                                             (unaudited)           (unaudited)

<S>                                                                         <C>                   <C>
     Cash flows from operating activities
       Net income (loss)...........................................         $     4,547           $      (522)
         Adjustments to reconcile net income (loss) to net cash
           provided by (used in) operating activities:
              Net change in investment in subsidiaries.............              (5,327)               (1,178)
              Amortization of debt discount........................               1,352                 2,468
              Amortization of debt issuance costs..................                  34                    62
              Income tax receivable................................              (1,447)                    -
              Deferred income taxes................................                 781                  (830)
              Loss from early retirement of debt...................                  60                     -
                                                                            -----------           -----------

               Net cash provided by (used in) operating activities                    -                     -
                                                                            -----------           -----------

     Cash flows from financing activities
       Repayment of long-term debt.................................              (8,285)                    -
       Distribution from subsidiary................................               8,285                     -
                                                                            -----------           -----------
           Net cash provided by (used in) financing activities                        -                     -
                                                                            -----------           -----------

     Net increase (decrease) in cash and cash equivalents..........                   -                     -
     Cash and cash equivalents, beginning of period................                   -                     -
                                                                            -----------           -----------

     Cash and cash equivalents, end of period......................         $         -           $         -
                                                                            ===========           ===========

</TABLE>


<PAGE>


                           AKI, INC., AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS
         (dollars in thousands, except share and per share information)

<TABLE>
<CAPTION>

                                                                                  March 31,           June 30,
                                                                                    2003                2002
                                                                                -------------      -------------
                                                                                 (unaudited)         (unaudited)

<S>                                                                             <C>                <C>
ASSETS
Current assets
Cash and cash equivalents..................................................     $       1,253      $       1,875
Accounts receivable, net...................................................            21,830             23,796
Inventory..................................................................             7,941              8,014
Prepaid expenses...........................................................               834                667
Income tax receivable......................................................               399                  -
Deferred income taxes......................................................               977                977
                                                                                -------------      -------------

   Total current assets....................................................            33,234             35,329

Property, plant and equipment, net.........................................            17,406             19,616
Goodwill ..................................................................           153,277            153,277
Other intangible assets, net...............................................            11,772             13,142
Deferred charges, net......................................................             3,194              3,637
Other assets...............................................................               177                164
                                                                                -------------      -------------

   Total assets............................................................     $     219,060      $     225,165
                                                                                =============      =============

LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Current portion of long-term debt..........................................     $       1,812      $       1,375
Accounts payable, trade....................................................             3,400              5,826
Accrued income taxes.......................................................                 -              2,053
Accrued compensation.......................................................             3,767              5,338
Accrued interest...........................................................             3,046              5,570
Accrued expenses...........................................................             3,851              3,642
                                                                                -------------      -------------

   Total current liabilities...............................................            15,876             23,804

Revolving credit line......................................................             8,900              2,750
Term loan..................................................................             6,750              8,125
Senior notes...............................................................           103,510            103,510
Promissory note to affiliate...............................................               355                  -
Deferred income taxes......................................................               750              1,231
Other non-current liabilities..............................................             1,712              2,338
                                                                                -------------      -------------

   Total liabilities.......................................................           137,853            141,758

Stockholder's equity
Common stock, $0.01 par 100,000 shares authorized;
   1,000 shares issued and outstanding.....................................                 -                  -
Additional paid-in capital.................................................            92,258            100,543
Accumulated deficit........................................................             4,367               (960)
Accumulated other comprehensive income (loss)..............................               312               (446)
Carryover basis adjustment.................................................           (15,730)           (15,730)
                                                                                -------------      -------------

   Total stockholder's equity..............................................            81,207             83,407
                                                                                -------------      -------------

   Total liabilities and stockholder's equity..............................     $     219,060      $     225,165
                                                                                =============      =============

</TABLE>

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


<PAGE>


                           AKI, INC., AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                             (dollars in thousands)

<TABLE>
<CAPTION>

                                                              Three months ended                    Nine months ended
                                                      ---------------------------------    ---------------------------------
                                                      March 31, 2003     March 31, 2002    March 31, 2003     March 31, 2002
                                                      --------------     --------------    --------------     --------------
                                                        (unaudited)        (unaudited)       (unaudited)        (unaudited)

<S>                                                      <C>                <C>               <C>                <C>
Net sales......................................          $  28,954          $  35,472         $  90,998          $  85,182
Cost of goods sold.............................             18,549             20,357            57,768             53,000
                                                         ---------          ---------         ---------          ---------

   Gross profit................................             10,405             15,115            33,230             32,182

Selling, general and administrative expenses...              4,488              5,018            13,892             13,782
Amortization of goodwill.......................                  -              1,202                 -              3,605
Amortization of other intangibles..............                285                477               857                990
                                                         ---------          ---------         ---------          ---------

   Income from operations......................              5,632              8,418            18,481             13,805

Other expenses:
   Interest expense............................              3,184              3,306             9,592              9,388
   Management fees and other, net..............                100                 57               225                182
                                                         ---------          ---------         ---------          ---------

   Income before income taxes..................              2,348              5,055             8,664              4,235

Income tax expense.............................                911              2,439             3,337              3,057
                                                         ---------          ---------         ---------          ---------

   Net income..................................          $   1,437          $   2,616         $   5,327          $   1,178
                                                         =========          =========         =========          =========

</TABLE>


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


<PAGE>


                           AKI, INC., AND SUBSIDIARIES
      CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
                (dollars in thousands, except share information)

<TABLE>
<CAPTION>

                                                                                           Accumulated
                                             Common Stock     Additional                      Other        Carryover
                                             ------------       Paid-in      Accumulated   Comprehensive     Basis
                                           Shares   Dollars     Capital        Deficit         Loss        Adjustment     Total
                                           ------   -------     -------        -------         ----        ----------     -----

<S>                                         <C>     <C>        <C>            <C>            <C>           <C>         <C>
Balances, June 30, 2002 (unaudited).....    1,000   $    -     $ 100,543      $    (960)     $   (446)     $ (15,730)  $   83,407

Distribution to AKI Holding Corp........                          (8,285)                                                  (8,285)

Net income (unaudited)..................                                          5,327                                     5,327

Other comprehensive income, net of tax:
   Foreign currency translation
     adjustment (unaudited).............                                                          758                         758
                                                                                                                        ---------

Comprehensive income (unaudited)........                                                                                    6,085
                                            -----   ------     ---------      ---------      --------      ---------    ---------

Balances, March 31, 2003 (unaudited)....    1,000   $    -     $  92,258      $   4,367      $    312      $ (15,730)   $  81,207
                                            =====   ======     =========      =========      ========      =========    =========

</TABLE>


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


<PAGE>


                           AKI, INC., AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                             (dollars in thousands)

<TABLE>
<CAPTION>

                                                                                                     Nine months ended
                                                                                           ------------------------------------
                                                                                           March 31, 2003        March 31, 2002
                                                                                           --------------        --------------
                                                                                             (unaudited)           (unaudited)

<S>                                                                                         <C>                   <C>
Cash flows from operating activities
   Net income............................................................                   $      5,327          $      1,178
   Adjustments to reconcile net income to net cash provided by (used in)
    operating activities:
     Depreciation and amortization of goodwill and other intangibles.....                          5,579                 8,378
     Amortization of debt issuance cost..................................                            443                   371
     Deferred income taxes...............................................                           (481)                 (323)
     Other...............................................................                            119                   180
     Changes in operating assets and liabilities:
       Accounts receivable...............................................                          1,966                (8,339)
       Inventory.........................................................                             73                  (465)
       Prepaid expenses, deferred charges and other assets...............                           (167)                 (152)
       Accounts payable and accrued expenses.............................                         (6,312)               (3,571)
       Income taxes......................................................                         (2,452)               (1,006)
                                                                                            ------------          ------------

         Net cash provided by (used in) operating activities.............                          4,095                (3,749)
                                                                                            ------------          ------------

Cash flows from  investing activities
   Purchases of equipment................................................                         (1,904)                 (888)
   Patents...............................................................                            (95)                  (62)
   Payments for acquisition, net of cash acquired........................                              -               (19,053)
                                                                                            ------------          ------------

         Net cash used in investing activities...........................                         (1,999)              (20,003)
                                                                                            ------------          ------------

Cash flows from  financing activities
   Payments under capital leases.........................................                              -                  (503)
   Net proceeds on revolving loan........................................                          6,150                11,450
   Net proceeds (repayments) on term loan................................                           (938)                9,750
   Payments of loan closing costs........................................                              -                  (605)
   Net proceeds from promissory note to affiliate........................                            355                   350
   Distribution to parent................................................                         (8,285)                    -
                                                                                            ------------          ------------

         Net cash (used in) provided by financing activities.............                         (2,718)               20,442
                                                                                            ------------          ------------

Net decrease in cash and cash equivalents................................                           (622)               (3,310)
Cash and cash equivalents, beginning of period...........................                          1,875                 4,654
                                                                                            ------------          ------------

Cash and cash equivalents, end of period.................................                   $      1,253          $      1,344
                                                                                            ============          ============


Supplemental information
   Cash paid during the period for:
     Interest............................................................                   $     11,496          $     11,305
     Income taxes........................................................                          6,421                 4,479

</TABLE>


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


<PAGE>


                           AKI, INC., AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
         (dollars in thousands, except share and per share information)

1.   BASIS OF PRESENTATION

          AKI, Inc. ("AKI") is the successor to Arcade Holding  Corporation (the
     "Predecessor"),  which was acquired by AHC I Acquisition,  Corp. ("AHC") in
     December  1997.  AHC was  organized for the purpose of acquiring all of the
     equity interests of the Predecessor and subsequent to such acquisition, AHC
     contributed  $1 and all of its  ownership  interest  to AKI  Holding  Corp.
     ("Holding") for all of the outstanding equity of Holding.  Accordingly, AKI
     is a wholly owned subsidiary of Holding, which is a wholly owned subsidiary
     of AHC.

          AKI is engaged in interactive  multi-sensory  advertising for consumer
     product  companies  and  has a  specialty  in the  design,  production  and
     distribution  of  sampling  systems  from its  Chattanooga,  Tennessee  and
     Baltimore,  Maryland  facilities  and  distributes  its  products in Europe
     through its French subsidiary, Arcade Europe S.A.R.L.

     Recently Issued Accounting Standards

          FASB Statement of Financial Accounting Standards No. 142 "Goodwill and
     Other  Intangible  Assets"  ("SFAS 142") was issued in June 2001.  SFAS 142
     changes the  accounting  and  reporting  for  acquired  goodwill  and other
     intangible  assets.  SFAS 142 is effective for fiscal years beginning after
     December  15,  2001 and must be applied  at the  beginning  of an  entity's
     fiscal  year.  The  adoption of SFAS 142  eliminates  the  amortization  of
     goodwill,  approximately  $4,800 in the fiscal  year  ended June 30,  2002,
     while requiring an initial test and subsequent  annual tests for impairment
     of goodwill.  The Company  completed its initial test of the carrying value
     of goodwill which resulted in no impairment.

          FASB Statement of Financial  Accounting  Standards No. 145 "Rescission
     of FASB  Statements No. 4, 44, and 64,  Amendment of FASB Statement No. 13,
     and Technical  Corrections" ("SFAS 145") was issued in April 2002. The most
     significant aspects of this pronouncement,  with respect to the Company, is
     the  elimination  of  SFAS  No.  4,   "Reporting   Gains  and  Losses  from
     Extinguishment  of  Debt".  As a result of the  elimination  of SFAS No. 4,
     gains and  losses  from  extinguishment  of debt  should be  classified  as
     extraordinary  items  only  if  they  meet  the  criteria  in APB  No.  30,
     "Reporting   the  Results  of   Operations   -   Discontinued   Events  and
     Extraordinary Items". The implementation of SFAS No. 145 will require gains
     or losses resulting from future early retirements of debt to be included in
     other income and  expenses  which could  materially  affect  income  before
     income taxes.

          FASB Statement of Financial  Standards No. 146  "Accounting  for Costs
     Associated  with Exit or Disposal  Activities"  ("SFAS  146") was issued in
     June 2002. SFAS 146 addresses financial  accounting and reporting for costs
     associated with exit or disposal  activities and nullifies  Emerging Issues
     Task  Force  (EITF)  Issue No.  94-3,  Liability  Recognition  for  Certain
     Employee Termination Benefits and Other Costs to Exit an Activity. SFAS 146
     requires  that a liability for a cost  associated  with an exit or disposal
     activity be recognized  and measured  initially at fair value only when the
     liability  is  incurred.  SFAS  146  is  effective  for  exit  or  disposal
     activities that are initiated after December 31, 2002. The Company does not
     anticipate  that the  provisions  of this  statement  will have a  material
     impact on the Company's reported results of operations, financial positions
     or cash flows.

          FASB Statement of Financial  Standards No. 149 "Amendment of Statement
     133 on  Derivative  Instruments  and Hedging  Activities"  ("SFAS 149") was
     issued in April 2003.  FASB  Statements No. 133  "Accounting for Derivative
     Instruments  and Hedging  Activities"  and No. 138  "Accounting for Certain
     Derivative Instruments and Certain Hedging Activities" establish accounting
     and reporting standards for derivative  instruments  including  derivatives
     embedded in other contracts  (collectively  referred to as derivatives) and
     for hedging activities. SFAS 149 amends SFAS 133 for certain decisions made
     by the  Board  as  part of the  Derivatives  Implementation  Group  ("DIG")
     process.  SFAS 149 contains  amendments relating to FASB Concepts Statement
     No. 7,  "Using  Cash  Flow  Information  and  Present  Value in  Accounting
     Measurements", and FASB Statements No. 65, "Accounting for Certain Mortgage
     Banking Activities, No. 91, "Accounting for


<PAGE>


                           AKI, INC., AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
         (dollars in thousands, except share and per share information)

1.   BASIS OF PRESENTATION (continued)

     Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans
     and Initial Direct Costs of Leases", No. 95, "Statement of Cash Flows", and
     No. 126,  "Exemption  from Certain  Required  Disclosures  about  Financial
     Instruments  for Certain  Nonpublic  Entities".  The  Company is  presently
     evaluating the effect of this pronouncement.

          FASB  Interpretation  No. 45  "Guarantor's  Accounting  and Disclosure
     Requirements for Guarantees,  Including Indirect Guarantees of Indebtedness
     of Others" ("FIN 45") was issued in November 2002. FIN 45 elaborates on the
     disclosures  to be made by a guarantor in its interim and annual  financial
     statements  about its  obligations  under  certain  guarantees  that it has
     issued.  It also requires the  guarantor to recognize,  at the inception of
     the guarantee,  a liability for the fair value of obligation  undertaken in
     issuing the  guarantee.  The  disclosure  requirements  are  effective  for
     quarters ending after December 15, 2002 and the liability recognition is in
     effect for guarantees  initiated  after December 31, 2002. The Company does
     not  anticipate  that the provisions of this statement will have a material
     impact on the Company's reported results of operations, financial positions
     or cash flows.

          FASB   Interpretation  No.  46  "Consolidation  of  Variable  Interest
     Entities"  ("FIN  46") was  issued in  January  2003.  FIN 46  requires  an
     investor with a majority of the variable  interests in a variable  interest
     entity  ("VIE") to  consolidate  the entity and also requires  majority and
     significant variable interest investors to provide certain  disclosures.  A
     VIE is an entity in which the equity  investors  do not have a  controlling
     interest,  or the equity  investment at risk is insufficient to finance the
     entity's  activities without receiving  additional  subordinated  financial
     support from the other  parties.  For  arrangements  entered into with VIEs
     created prior to January 31, 2003, the provisions of FIN 46 are required to
     be adopted at the beginning of the first interim or annual period beginning
     after June 15, 2003. The Company is currently reviewing its investments and
     other  arrangements to determine whether any of its investee  companies are
     VIEs.  The Company  does not expect to identify any  significant  VIEs that
     would be consolidated,  but may be required to make additional disclosures.
     The  Company's  maximum  exposure  related  to any  investment  that may be
     determined to be in a VIE is limited to the amount invested. The provisions
     of FIN 46 are effective  immediately for all arrangements entered into with
     new VIEs created  after  January 31, 2003.  The Company has not invested in
     any new VIEs created after January 31, 2003.

          FASB  Statement  of  Financial   Standards  No.  148  "Accounting  for
     Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB
     Statement  No. 123"  ("SFAS  148") was issued in  December  2002.  FASB 148
     amends FASB  Statement  of  Financial  Standards  No. 123  "Accounting  for
     Stock-Based  Compensation"  ("FASB 123"), to provide alternative methods of
     transition  for a  voluntary  change  to the fair  value  based  method  of
     accounting for stock-based  employee  compensation.  In addition,  FASB 148
     amends  the  disclosure  requirements  of  FASB  123 to  require  prominent
     disclosures  in both  annual and  interim  financial  statements  about the
     method of accounting for stock-based  employee  compensation and the effect
     of the method used on reported  results.  The Company  does not  anticipate
     that the provisions of this  statement  will have a material  impact on the
     reported results of operations, financial positions or cash flows.

          If the Company had elected to recognize  compensation expense based on
     the fair value of the options at grant date as  prescribed by FASB 123, the
     net income would have been as follows:


<PAGE>


                           AKI, INC., AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
         (dollars in thousands, except share and per share information)

1.  BASIS OF PRESENTATION (continued)

<TABLE>
<CAPTION>

                                                         Three months ended                Nine months ended
                                                             March 31,                         March 31,
                                                             ---------                         ---------
                                                       2003             2002             2003             2002
                                                       ----             ----             ----             ----

<S>                                                  <C>              <C>              <C>              <C>
    Net income, as reported.................         $  1,437         $  2,616         $  5,327         $  1,178

    Deduct:  Total stock-based employee
    compensation expense determined
    under fair value based method for all
    awards, net of related tax effects......                5               16               16               48
                                                     --------         --------         --------         --------

    Pro forma net income....................         $  1,432         $  2,600         $  5,311         $  1,130
                                                     ========         ========         ========         ========

</TABLE>

     Acquisition of Color Prelude business

          On December 18,  2001,  the Company  acquired  the business  including
     certain  assets and assumed  certain  liabilities  of Color  Prelude,  Inc.
     ("CP")  for  $19,423  including  direct  acquisition  costs  of  $540.  The
     acquisition  was accounted  for using the purchase  method of accounting in
     accordance with Statement of Financial Accounting Standards (SFAS) No. 141,
     "Business  Combinations".  The  purchase  price has been  allocated  to the
     assets and liabilities  acquired using estimated fair values at the date of
     acquisition and resulted in assigning value to goodwill totaling $407 which
     will not be amortized in accordance with Statement of Financial  Accounting
     Standards  (SFAS) No. 142,  "Goodwill  and Other  Intangible  Assets".  The
     following shows the allocation of the purchase price.



             Cash......................................  $      1
             Other current assets......................     5,680
             Property, plant and equipment.............     7,695
             Patents...................................     7,750
             Other intangible assets...................     1,069
             Goodwill..................................       407
                                                         --------

             Total allocation to assets................  $ 22,602
                                                         ========

             Current liabilities.......................  $  3,179
                                                         ========

          Patents  are  being  amortized  over  a  ten  year  period  and  other
     intangible assets are being amortized over periods ranging from one to four
     years.

     Interim financial statements

          The interim consolidated condensed balance sheet at March 31, 2003 and
     the interim  consolidated  condensed statements of operations for the three
     and nine months  ended March 31,  2003 and 2002,  the interim  consolidated
     condensed statements of cash flows for the nine months ended March 31, 2003
     and 2002 and the interim  consolidated  condensed  statement  of changes in
     stockholder's  equity  for  the  nine  months  ended  March  31,  2003  are
     unaudited, and certain information and footnote disclosure related thereto,
     normally  included in  financial  statements  prepared in  accordance  with
     generally accepted accounting principles, have been omitted.


<PAGE>


                           AKI, INC., AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
          (dollars in thousands, except share and per share information

1.   BASIS OF PRESENTATION (continued)

     The June 30, 2002 consolidated condensed balance sheet was derived from the
     audited balance sheet for the year then ended. In management's opinion, the
     unaudited interim consolidated condensed financial statements were prepared
     following the same policies and procedures  used in the  preparation of the
     audited financial statements and all adjustments, consisting only of normal
     recurring adjustments to fairly present the financial position,  results of
     operations  and  cash  flows  with  respect  to  the  interim  consolidated
     condensed  financial  statements,   have  been  included.  The  results  of
     operations for the interim  periods are not  necessarily  indicative of the
     results for the entire year. The interim  consolidated  condensed financial
     statements should be read in conjunction with the financial  statements and
     notes thereto for the year ended June 30, 2002 as filed on Form 10-K.

     Reclassification:

          Certain prior period  amounts have been  reclassified  to conform with
     the current period presentation.

2.   INVENTORY

          The following table details the components of inventory:

<TABLE>
<CAPTION>

                                                          March 31, 2003         June 30, 2002
                                                          --------------         -------------
                                                            (unaudited)            (unaudited)
<S>                                                         <C>                   <C>
              Raw materials
                  Paper..........................           $     2,177           $     2,027
                  Other raw materials............                 3,620                 4,369
                                                            -----------            ----------
                      Total raw materials........                 5,797                 6,396
              Work in process....................                 2,827                 2,468
              Reserve for obsolescence...........                  (683)                 (850)
                                                            -----------            ----------

              Total inventory....................           $     7,941            $    8,014
                                                            ===========            ==========

</TABLE>

3.   DISTRIBUTION

          In fiscal 2003,  AKI paid  distributions  of $8,285 to Holding to fund
     the purchase of Holding Senior Discount  Debentures.  The  distribution was
     funded through borrowings under the amended and restated credit agreement.

4.   AMORTIZATION OF GOODWILL

          In accordance with SFAS 142 goodwill is no longer being amortized. The
     following pro forma amounts reflect  goodwill  amortization  and net income
     had SFAS 142 been implemented at the beginning of fiscal 2002:

<TABLE>
<CAPTION>

                                                           Three months ended            Nine months ended
                                                               March 31,                     March 31,
                                                               ----------                    ---------
                                                           2003           2002          2003           2002
                                                           ----           ----          ----           ----

<S>                                                     <C>            <C>           <C>            <C>
       Net income as reported.....................      $   1,437      $   2,616     $   5,327      $   1,178
       Goodwill amortization......................              -          1,202             -          3,605
                                                        ---------      ---------     ---------      ---------

       Pro forma net income.......................      $   1,437      $   3,818     $   5,327      $   4,783
                                                        =========      =========     =========      =========

</TABLE>


<PAGE>


                           AKI, INC., AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
          (dollars in thousands, except share and per share information

5.   COMPREHENSIVE INCOME

          Comprehensive  income consists of net income,  plus certain changes in
     assets and liabilities  that are not included in net income but are instead
     reported  within  a  separate  component  of  shareholders'   equity  under
     generally  accepted  accounting  principles.  The  Company's  comprehensive
     income was as follows:

<TABLE>
<CAPTION>

                                                                   Three months ended            Nine months ended
                                                                       March 31,                     March 31,
                                                                       ---------                     ---------
                                                                   2003           2002          2003           2002
                                                                   ----           ----          ----           ----

<S>                                                             <C>            <C>           <C>            <C>
       Net income......................................         $   1,437      $   2,616     $   5,327      $   1,178

       Other comprehensive income (loss), net of tax:
           Foreign currency translation
           adjustments.................................               392           (213)          758             85
                                                                ---------      ---------     ---------      ---------

       Comprehensive income............................         $   1,829      $   2,403     $   6,085      $   1,263
                                                                =========      =========     =========      =========

</TABLE>


<PAGE>


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     Item 2 is presented with respect to both AKI Holding Corp. and AKI, Inc. As
used  within Item 2, the term  "Company"  refers to AKI  Holding  Corp.  and its
subsidiaries  including  AKI, Inc.  ("AKI"),  the term  "Holding"  refers to AKI
Holding  Corp.  and the term "CP"  refers to the  business  acquired  from Color
Prelude, Inc.

General

     Our sales are  derived  primarily  through our  multi-sensory,  interactive
marketing  activities  primarily from the sale of printed advertising  materials
with sampling systems and products to fragrance, cosmetics and consumer products
companies,  and also from creative services.  Substantially all of our sales are
made  directly  to  our  customers  while  a  small  portion  are  made  through
advertising  agencies.  Each of our customer's  marketing programs is unique and
pricing is negotiated based on estimated costs plus a margin.  While our company
and its  customers  generally  do not enter into  long-term  contracts,  we have
long-standing relationships with the majority of our customer base.

Results of Operations

 Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002

     Net Sales.  Net sales for the three months  ended March 31, 2003  decreased
$6.5 million,  or 18.3%, to $29.0 million,  as compared to $35.5 million for the
three  months  ended March 31,  2002.  The  decrease in net sales was  primarily
attributable to sales of sampling  technologies for advertising and marketing of
cosmetics  by CP and a decrease in the sales of our core  sampling  technologies
for advertising and marketing of domestic  cosmetic  products and  international
fragrance  products  partially  offset by an  increase  in the sales of our core
sampling  technologies  for  advertising  and  marketing  of  domestic  consumer
products.

     Gross  Profit.  Gross  profit for the three  months  ended  March 31,  2003
decreased $4.7 million, or 31.1%, to $10.4 million, as compared to $15.1 million
for three months ended March 31, 2002. Gross profit as a percentage of net sales
decreased to 35.9% in the three  months ended March 31, 2003,  from 42.5% in the
three months ended March 31, 2002. The decrease in gross profit and gross profit
as a percentage  of net sales is  primarily  due to the decrease in sales volume
and changes in product mix.

     Selling,  General  and  Administrative   Expenses.   Selling,  general  and
administrative expenses for the three months ended March 31, 2003 decreased $0.5
million,  or 10.0%,  to $4.5 million,  as compared to $5.0 million for the three
months ended March 31, 2002. Selling,  general and administrative  expenses as a
percent of net sales  increased  to 15.5% in the three  months  ended  March 31,
2003,  from 14.1% in the three  months  ended March 31,  2002.  The  decrease in
selling,  general  and  administrative  expenses  is  primarily  related  to the
decrease in legal fees and incentive compensation expense partially offset by an
increase in office rent expense.

     Amortization  of  Goodwill.  Amortization  of goodwill for the three months
ended March 31, 2003 decreased $1.2 million, or 100%, to $0, as compared to $1.2
million for the three months ended March 31, 2002. The decrease in  amortization
of goodwill resulted from the adoption of FASB Statement of Financial Accounting
Standards No. 142,  "Goodwill  and Other  Intangible  Assets".  We completed our
initial test of the carrying value of goodwill which resulted in no impairment.

     Income from  Operations.  Income from operations for the three months ended
March 31, 2003 decreased $2.8 million, or 33.3%, to $5.6 million, as compared to
$8.4 million for the three months ended March 31, 2002.  Income from  operations
as a percentage of net sales  decreased to 19.3% in the three months ended March
31, 2003,  from 23.7% in the three months ended March 31, 2002.  The decrease in
income from  operations and income from  operations as a percentage of net sales
is principally the result of the factors described above.

     Interest  Expense.  Interest  expense for the three  months ended March 31,
2003  decreased  $0.6 million,  or 14.3%,  to $3.6 million,  as compared to $4.2
million for the three  months  ended March 31,  2002.  The  decrease in interest
expense,  including the  amortization of deferred  financing costs, is primarily
due to a  decrease  in  interest


<PAGE>


expense  related to retired  Senior  Discount  Debentures and a reduction in the
outstanding amounts of our credit facility.  Interest expense as a percentage of
net sales  increased to 12.4% in the three  months  ended March 31,  2003,  from
11.0% in the three months ended March 31, 2002.

     Interest  expense  for  AKI for the  three  months  ended  March  31,  2003
decreased  $0.1 million,  or 3.0%, to $3.2 million,  as compared to $3.3 million
for the three  months ended March 31,  2002.  The decrease in interest  expense,
including the  amortization of deferred  financing  costs, is primarily due to a
reduction in the outstanding amounts of our credit facility. Interest expense as
a percentage of net sales increased to 10.8% in the three months ended March 31,
2003, from 9.3% in the three months ended March 31, 2002.

     Income Tax Expense. Income tax expense for the three months ended March 31,
2003 decreased $1.6 million to $0.6 million.  The Company's  effective tax rate,
after consideration of non-deductible  goodwill  amortization in 2002, was 32.8%
in the three months  ended March 31,  2003,  and 39.1% in the three months ended
March 31, 2002.

     Income  tax  expense  for AKI for the three  months  ended  March 31,  2003
decreased  $1.5  million  to $0.9  million.  AKI's  effective  tax  rate,  after
consideration  of  non-deductible  goodwill  amortization,  was 39% in the three
months ended March 31, 2003 and 2002.


  Nine Months Ended March 31, 2003 Compared to Nine Months Ended March 31, 2002

     Net Sales.  Net sales for the nine months  ended  March 31, 2003  increased
$5.8  million,  or 6.8%,  to $91.0  million as compared to $85.2 million for the
nine  months  ended March 31,  2002.  The  increase  in net sales was  primarily
attributable to sales of sampling  technologies for advertising and marketing of
cosmetics by CP and an increase in the sales of our core  sampling  technologies
for  advertising and marketing of domestic  fragrance and consumer  products and
international  cosmetic products  partially offset by a decrease in the sales of
our core  sampling  technologies  for  advertising  and  marketing  of  domestic
cosmetic products and international fragrance products.

     Gross  Profit.  Gross  profit  for the nine  months  ended  March 31,  2003
increased  $1.0 million,  or 3.1%, to $33.2 million as compared to $32.2 million
for nine months ended March 31, 2002.  Gross profit as a percentage of net sales
decreased to 36.5% in the nine months  ended March 31,  2003,  from 37.8% in the
nine months ended March 31,  2002.  The increase in gross profit and decrease in
gross  profit as a percentage  of net sales is primarily  due to the increase in
sales volume and changes in product mix.

     Selling,  General  and  Administrative   Expenses.   Selling,  general  and
administrative  expenses for the nine months ended March 31, 2003 increased $0.1
million,  or 0.7%,  to $13.9  million as compared to $13.8  million for the nine
months ended March 31, 2002. Selling,  general and administrative  expenses as a
percent of net sales  decreased to 15.3% in the nine months ended March 31, 2003
from 16.2% in the nine months  ended March 31,  2002.  The  increase in selling,
general and  administrative  expenses is primarily related to the CP operations,
an increase in office rent expense and foreign  exchange losses partially offset
by a decrease in legal fees and incentive compensation expense.

     Amortization  of  Goodwill.  Amortization  of goodwill  for the nine months
ended March 31, 2003 decreased $3.6 million, or 100%, to $0, as compared to $3.6
million for the nine months ended March 31, 2002.  The decrease in  amortization
of goodwill resulted from the adoption of FASB Statement of Financial Accounting
Standards No. 142,  "Goodwill  and Other  Intangible  Assets".  We completed our
initial test of the carrying value of goodwill which resulted in no impairment.

     Income from  Operations.  Income from  operations for the nine months ended
March 31, 2003 increased $4.7 million,  or 34.1%, to $18.5 million,  as compared
to $13.8  million  for the  nine  months  ended  March  31,  2002.  Income  from
operations  as a percentage  of net sales  increased to 20.3% in the nine months
ended March 31,  2003,  from 16.2% in nine  months  ended  March 31,  2002.  The
increase in income from operations and income from operations as a percentage of
net sales is principally the result of the factors described above.


<PAGE>


     Interest Expense. Interest expense for the nine months ended March 31, 2003
decreased $0.9 million,  or 7.6%, to $11.0 million, as compared to $11.9 million
for the nine months  ended March 31,  2002.  The  decrease in interest  expense,
including the  amortization of deferred  financing  costs, is primarily due to a
decrease in  interest  expense  related to retired  Senior  Discount  Debentures
partially  offset by interest  payable on the term loan  incurred in  connection
with the CP acquisition. Interest expense as a percentage of net sales decreased
to 12.1% in the nine  months  ended  March 31, 2003 from 14.0% in the six months
ended March 31, 2002.

     Interest expense for AKI for the nine months ended March 31, 2003 increased
$0.2 million, or 2.1%, to $9.6 million, as compared to $9.4 million for the nine
months ended March 31, 2002.  The increase in interest  expense,  including  the
amortization of deferred  financing  costs, is primarily due to interest payable
on the term  loan  incurred  in  connection  with the CP  acquisition.  Interest
expense as a percentage of net sales decreased to 10.6% in the nine months ended
March 31, 2003, from 11.0% in the nine months ended March 31, 2002.

     Income Tax Expense.  Income tax expense for the nine months ended March 31,
2003 increased $0.5 million to $2.7 million.  The Company's  effective tax rate,
after consideration of non-deductible  goodwill  amortization,  was 36.1% in the
nine months  ended  March 31, 2003 and 39.5% in the nine months  ended March 31,
2002.

     Income  tax  expense  for AKI for the nine  months  ended  March  31,  2003
increased  $0.2  million  to $3.3  million.  AKI's  effective  tax  rate,  after
consideration of  non-deductible  goodwill  amortization,  was 39.0% in the nine
months ended March 31, 2003 and 2002.


Liquidity and Capital Resources

     We have substantial  indebtedness and significant debt service obligations.
As of March 31, 2003, we had consolidated indebtedness in an aggregate amount of
$130.2 million (excluding trade payables,  accrued  liabilities,  deferred taxes
and other non-current  liabilities),  of which  approximately $8.8 million was a
direct obligation of Holding relating to its debentures and approximately $121.3
million  was a direct  obligation  of AKI  relating  to its  notes,  term  loan,
revolving  loan and promissory  note to affiliate.  Borrowings at March 31, 2003
included $8.9 million  under the revolving  loan and $8.6 million under the term
loan and $0.4 million on the promissory note to affiliate.  At March 31, 2003 we
had $10.8 million  available  under the revolving  loan. At March 31, 2003,  AKI
also had $15.8 million in additional  outstanding  liabilities  (including trade
payables,   accrued   liabilities,   deferred   taxes  and   other   non-current
liabilities).

     Holding's   principal   liquidity   requirements   are  for  debt   service
requirements under the debentures.  AKI's principal  liquidity  requirements are
for debt service  requirements and fees under the notes, term loan and revolving
loan.  Historically,  we have funded our  capital,  debt  service and  operating
requirements  with a combination  of net cash provided by operating  activities,
together  with  borrowings  under  the  revolving  loan and  promissory  note to
affiliate.  During the nine months  ended March 31,  2003,  cash  totaling  $4.1
million was provided by operating  activities  resulting  from net income before
depreciation and amortization and a decrease in accounts  receivable,  partially
offset by decreases in accounts payable, accrued compensation,  accrued interest
and accrued  income  taxes.  During the nine months ended March 31,  2002,  cash
totaling  $3.7 million was used by  operating  activities  primarily  due to the
increase in accounts  receivable and a decrease in accrued  interest and accrued
income taxes,  offset  partially by an increase in accounts  payable and accrued
expenses.

     We define EBITDA as net income or loss plus income taxes; interest expense;
management fees and other,  net; and  depreciation,  amortization and impairment
loss of goodwill and amortization of other intangibles.  EBITDA is not a measure
of financial  performance under generally accepted  accounting  principles,  and
should  not be used by itself or in the place of net  income,  cash  flows  from
operating  activities  or other income or cash flow  statement  data prepared in
accordance  with  generally  accepted  accounting  principles  as a  measure  of
profitability  or liquidity.  We believe the  presentation of EBITDA is relevant
because  EBITDA is a  measurement  that we and our lenders  use when  evaluating
liquidity and establishing our interest rate on a portion of our debt. Investors
should be aware that EBITDA may not be comparable with similarly titled measures
presented by other companies and comparisons of such amounts could be misleading
unless all companies and analysts calculate such measures in the same manner.


<PAGE>


     The calculation of EBITDA for Holding is as follows (dollars in millions):

<TABLE>
<CAPTION>

                                                       Three months ended                  Nine months ended
                                                            March 31,                          March 31,
                                                            ---------                          ---------
                                                      2003             2002              2003              2002
                                                      ----             ----              ----              ----

<S>                                                 <C>              <C>               <C>               <C>
Net income (loss)........................           $    1.2         $    2.0          $    4.5          $   (0.5)

Income tax expense.......................                0.6              2.1               2.7               2.2
Interest expense.........................                3.5              4.2              11.0              11.9
Management fees and other, net...........                0.1              0.1               0.2               0.2
Loss from early retirement of debt.......                0.2                -               0.1                 -
Depreciation and amortization of
   goodwill and other intangibles........                1.9              3.1               5.6               8.4
                                                    --------         --------          --------          --------

EBITDA...................................           $    7.5         $   11.5          $   24.1          $   22.2
                                                    ========         ========          ========          ========

</TABLE>

         The calculation of EBITDA for AKI is as follows (dollars in millions):

<TABLE>
<CAPTION>

                                                       Three months ended                  Nine months ended
                                                            March 31,                          March 31,
                                                            ---------                          ---------
                                                      2003             2002              2003              2002
                                                      ----             ----              ----              ----

<S>                                                 <C>              <C>               <C>               <C>
Net income...............................           $    1.4         $    2.6          $    5.3          $    1.2

Income tax expense.......................                0.9              2.4               3.4               3.0
Interest expense.........................                3.2              3.3               9.6               9.4
Management fees and other, net...........                0.1              0.1               0.2               0.2
Depreciation and amortization of
   goodwill and other intangibles........                1.9              3.1               5.6               8.4
                                                    --------         --------          --------          --------

EBITDA...................................           $    7.5         $   11.5          $   24.1          $   22.2
                                                    ========         ========          ========          ========

</TABLE>

     On December  18, 2001 we amended and  restated  our credit  agreement  with
Heller  Financial,  Inc.  ("restated  credit  agreement").  The restated  credit
agreement  provides for: (1) a $10.0 million term loan which matures on December
31, 2006 with varying quarterly principal  installments beginning March 31, 2002
and (2) a  revolving  loan  commitment  up to a maximum of $20.0  million  which
expires  December 31, 2006.  Borrowings  under the revolving loan commitment are
limited to a borrowing  base  consisting of accounts  receivable,  inventory and
property,  plant and  equipment  which serve as collateral  for the  borrowings.
Interest on amounts  borrowed under the term loan and revolving loan accrue at a
floating  rate  based  upon  either  prime  plus  a  margin  of  1.75%  to  2.5%
(outstanding  borrowings averaged 6.0% at March 31, 2003) or LIBOR plus a margin
of 3.0% to 3.75% (outstanding  borrowings averaged 5.69% at March 31, 2003). The
Company  is  required  to pay  commitment  fees  on the  unused  portion  of the
revolving  loan  commitment.  In  addition,  the Company is required to pay fees
equal to 2.5% of the average daily outstanding amount of lender  guarantees.  On
November  15,  2002  we  amended  our  restated  credit  agreement  with  Heller
Financial,  Inc. The amendment  delayed  mandatory  prepayments of the term loan
from excess cash flow from fiscal years commencing with the year ending June 30,
2003 to fiscal years  commencing  with the year ending June 30, 2004;  increased
the aggregate cost of permitted  restricted  junior  payments for the purpose of
purchasing or repurchasing our Senior Notes and Senior Discount  Debentures from
$10.0  million  to $25.0  million;  and  increased  the  permitted  payment of a
management,  advisory,  consulting  or other  similar fee to an affiliate in the
aggregate  from $0.25  million to $0.4  million  per year.  The Company had $0.3
million of lender guarantees outstanding at March 31, 2003.


<PAGE>


     In the  nine  months  ended  March  31,  2003  and  2002,  we  had  capital
expenditures of approximately $1.9 million and $0.9 million, respectively. These
capital  expenditures  consisted  primarily  of the  purchase  of  manufacturing
equipment and upgrading our computer systems.

     On December 18, 2001, we acquired, through a newly formed subsidiary,  IST,
Corp., CP for an aggregate  purchase price of approximately  $19.1 million.  The
purchase price was financed  primarily by borrowings  under the restated  credit
agreement.

     We may from time to time evaluate additional potential acquisitions.  There
can be no assurance that  additional  capital sources will be available to us to
fund  additional  acquisitions  on  terms  that we find  acceptable,  or at all.
Additional  capital  resources,  if available,  may be on terms  generally  less
favorable   and/or  more  restricted  than  the  terms  of  our  current  credit
facilities.

     On October 15, 2002 and February 18, 2003, Holding purchased, with proceeds
from distributions from AKI, its 13.5% Senior Discount  Debentures due 2009 with
an  accreted  value  of $3.4  and  $5.0  million  for  $3.2  and  $5.1  million,
respectively.  AKI funded the distribution  through  borrowings under its credit
agreement.

     Capital  expenditures  for the  three  months  ending  June  30,  2003  are
currently  estimated  to be  approximately  $0.6  million.  Based on  borrowings
outstanding as of March 31, 2003, we expect total cash payments for debt service
for the three  months  ending June 30, 2003 to be  approximately  $0.6  million,
consisting  of $0.4 million in principal  payments  under the term loan and $0.2
million in interest and fees under the credit agreement.  We also expect to make
royalty  payments of  approximately  $0.5 million during the three months ending
June 30, 2003.

     At March 31,  2003,  Holding's  cash and cash  equivalents  and net working
capital  were $1.3  million  and $18.8  million,  respectively,  representing  a
decrease  in cash and cash  equivalents  of $0.6  million and an increase in net
working  capital of $7.3  million  from June 30,  2002.  The increase in working
capital  is  primarily  due to the  reduction  of  current  liabilities  and the
increase  in income tax  receivable  partially  offset by a decrease in accounts
receivable.

Seasonality / Cyclicality

     Our  sales and  operating  results  have  historically  reflected  seasonal
variations. Such seasonal and cyclical variations are based on the timing of our
customers' advertising campaigns and product launches,  which have traditionally
been  concentrated  prior to the  Christmas  and spring  holiday  seasons.  As a
result,  generally, a higher level of sales are reflected in our first and third
fiscal quarters ended September 30 and March 31 when sales from such advertising
campaigns  are  principally   recognized.   These  fluctuations  require  us  to
accurately  allocate our resources to manage our manufacturing  capacity,  which
often operates at full capacity during peak demand periods.  The severity of our
seasonal  sales  variations  has  decreased  over time as we have  developed and
acquired other sampling  technologies  for advertising and marketing of cosmetic
and consumer  products.  Sales of the CP products  subsequent to our acquisition
totaled  $14.7  million in the three months  ended June 30, 2002, a  significant
increase  compared  to CP's  historical  levels  due to sales  related  to a new
sampling  technology  and the major  introduction  of new  products by Mary Kay.
Sales of this magnitude will not occur in the three months ending June 30, 2003.

Recently Issued Accounting Standards

     FASB  Statement of Financial  Accounting  Standards  No. 142  "Goodwill and
Other Intangible  Assets" ("SFAS 142") was issued in June 2001. SFAS 142 changes
the accounting and reporting for acquired goodwill and other intangible  assets.
SFAS 142 is effective  for fiscal years  beginning  after  December 15, 2001 and
must be applied at the  beginning of an entity's  fiscal  year.  The adoption of
SFAS 142 eliminates the amortization of goodwill,  approximately $4.8 million in
fiscal 2002 and requires annual tests for impairment of goodwill.

     FASB Statement of Financial  Accounting  Standards No. 144  "Accounting for
the  Impairment  of Disposal of  Long-Lived  Assets"  ("SFAS 144") was issued in
August 2001. SFAS 144 requires that long-lived assets that are to be disposed of
by sale be  measured at the lower of book value or fair value less cost to sell.
SFAS 144 is effective for financial statements issued for fiscal years beginning
after  December  15,  2001.  The  Company  does not expect a material  impact in
implementing SFAS 144 on its future financial statements.


<PAGE>


     FASB  Statement of Financial  Accounting  Standards No. 145  "Rescission of
FASB  Statements  No. 4, 44, and 64,  Amendment  of FASB  Statement  No. 13, and
Technical  Corrections"  ("SFAS  145")  was  issued  in  April  2002.  The  most
significant aspects of this  pronouncement,  with respect to the Company, is the
elimination of SFAS No. 4, "Reporting  Gains and Losses from  Extinguishment  of
Debt".  As a result of the  elimination  of SFAS No. 4,  gains and  losses  from
extinguishment of debt should be classified as extraordinary  items only if they
meet the  criteria  in APB No.  30,  "Reporting  the  Results  of  Operations  -
Discontinued Events and Extraordinary Items". The implementation of SFAS No. 145
will require early  retirements of debt to be included in income from continuing
operations which could materially affect our income from continuing operations.

     FASB  Statement  of  Financial  Standards  No.  146  "Accounting  for Costs
Associated  with Exit or Disposal  Activities"  ("SFAS  146") was issued in June
2002. SFAS 146 addresses financial accounting and reporting for costs associated
with exit or disposal activities and nullifies Emerging Issues Task Force (EITF)
Issue No. 94-3, Liability  Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity.  SFAS 146 requires  that a liability  for a
cost  associated  with an exit or disposal  activity be recognized  and measured
initially  at fair  value  only  when the  liability  is  incurred.  SFAS 146 is
effective for exit or disposal  activities that are initiated after December 31,
2002. The Company does not anticipate that the provisions of this statement will
have a  material  impact  on  the  Company's  reported  results  of  operations,
financial positions or cash flows.

     FASB  Statement of Financial  Standards No. 149 "Amendment of Statement 133
on Derivative  Instruments  and Hedging  Activities"  ("SFAS 149") was issued in
April 2003. FASB  Statements No. 133 "Accounting for Derivative  Instruments and
Hedging  Activities" and No. 138 "Accounting for Certain Derivative  Instruments
and Certain Hedging Activities" establish accounting and reporting standards for
derivative   instruments  including  derivatives  embedded  in  other  contracts
(collectively  referred to as derivatives) and for hedging activities.  SFAS 149
amends  SFAS  133  for  certain  decisions  made  by the  Board  as  part of the
Derivatives  Implementation Group ("DIG") process.  SFAS 149 contains amendments
relating to FASB  Concepts  Statement  No. 7, "Using Cash Flow  Information  and
Present  Value  in  Accounting  Measurements",   and  FASB  Statements  No.  65,
"Accounting for Certain Mortgage  Banking  Activities,  No. 91,  "Accounting for
Nonrefundable  Fees and Costs Associated with Originating or Acquiring Loans and
Initial Direct Costs of Leases", No. 95, "Statement of Cash Flows", and No. 126,
"Exemption from Certain  Required  Disclosures  about Financial  Instruments for
Certain Nonpublic  Entities".  The Company is presently evaluating the effect of
this pronouncement.

     FASB   Interpretation   No.  45  "Guarantor's   Accounting  and  Disclosure
Requirements for Guarantees,  Including  Indirect  Guarantees of Indebtedness of
Others"  ("FIN  45") was  issued in  November  2002.  FIN 45  elaborates  on the
disclosures  to be made by a  guarantor  in its  interim  and  annual  financial
statements about its obligations under certain guarantees that it has issued. It
also requires the guarantor to recognize,  at the inception of the guarantee,  a
liability for the fair value of obligation  undertaken in issuing the guarantee.
The disclosure requirements are effective for quarters ending after December 15,
2002 and the liability  recognition is in effect for guarantees  initiated after
December 31, 2002. The Company does not  anticipate  that the provisions of this
statement  will have a  material  impact on the  Company's  reported  results of
operations, financial positions or cash flows.

     FASB  Interpretation  No. 46 "Consolidation of Variable Interest  Entities"
("FIN  46") was issued in January  2003.  FIN 46  requires  an  investor  with a
majority of the variable  interests  in a variable  interest  entity  ("VIE") to
consolidate  the entity and also  requires  majority  and  significant  variable
interest investors to provide certain  disclosures.  A VIE is an entity in which
the  equity  investors  do  not  have a  controlling  interest,  or  the  equity
investment at risk is  insufficient to finance the entity's  activities  without
receiving additional  subordinated financial support from the other parties. For
arrangements  entered  into with VIEs  created  prior to January 31,  2003,  the
provisions  of FIN 46 are  required to be adopted at the  beginning of the first
interim or annual period beginning after June 15, 2003. The Company is currently
reviewing its investments and other arrangements to determine whether any of its
investee  companies  are VIEs.  The  Company  does not  expect to  identify  any
significant  VIEs  that  would  be  consolidated,  but may be  required  to make
additional disclosures. The Company's maximum exposure related to any investment
that may be  determined  to be in a VIE is limited to the amount  invested.  The
provisions of FIN 46 are effective immediately for all arrangements entered into
with new VIEs created  after  January 31, 2003.  The Company has not invested in
any new VIEs created after January 31, 2003.


<PAGE>


     FASB Statement of Financial  Standards No. 148  "Accounting for Stock-Based
Compensation  - Transition  and  Disclosure - an Amendment of FASB Statement No.
123" ("SFAS 148") was issued in December 2002. FASB 148 amends FASB Statement of
Financial  Standards No. 123 "Accounting for  Stock-Based  Compensation"  ("FASB
123"), to provide  alternative  methods of transition for a voluntary  change to
the fair value based method of accounting for stock-based employee compensation.
In addition,  FASB 148 amends the disclosure requirements of FASB 123 to require
prominent  disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method  used on  reported  results.  The Company  does not  anticipate  that the
provisions of this statement will have a material impact on the reported results
of operations, financial positions or cash flows.

Critical Accounting Policies

     We have  chosen  accounting  policies  that we believe are  appropriate  to
accurately and fairly report our operating results and financial  position,  and
we apply those accounting policies in a consistent manner.

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles requires that we make estimates and assumptions
that affect the reported amounts of assets, liabilities,  revenues and expenses.
These  estimates  and  assumptions  are based on  historical  and other  factors
believed to be reasonable under the  circumstances.  We evaluate these estimates
and assumptions on an ongoing basis and may retain outside professional advisors
to assist in our evaluation.  We believe the following  accounting  policies are
the most  critical  because  they  involve the most  significant  judgments  and
estimates used in preparation of our consolidated financial statements:

     o    Allowance for doubtful accounts. We maintain an allowance for doubtful
          receivables for estimated  losses  resulting from the inability of our
          trade customers to make required payments. We provide an allowance for
          specific  customer  accounts  where  collection  is doubtful  and also
          provide a general  allowance  for other  accounts  based on historical
          collection and write-off experience.  Judgment is necessary and if the
          financial  condition  of our  customers  were  to  worsen,  additional
          allowances may be required.

     o    Inventories.  Our  inventories,  which  consist of raw  materials  and
          work-in-process,  are  valued at the  lower of cost or  market  value.
          Paper  inventory  uses the last-in,  first-out  (LIFO)  method and all
          other  inventories  use the  first-in,  first-out  (FIFO)  method.  We
          evaluate all of our raw  material  inventory  for slow moving  product
          based on  recent  usage,  projections  of  future  demand  and  market
          conditions.  For those units in inventory that are so  identified,  we
          estimate their market value based on current  realization  trends.  If
          the  projected  net  realizable  value is less than cost, we provide a
          provision  to  reflect  the  lower  value  of  that  inventory.   This
          methodology  recognizes  projected  inventory  losses at the time such
          losses are evident.

     o    Intangible  assets.  When we acquire other  companies or businesses we
          allocate  the   purchase   price,   including   expenses  and  assumed
          liabilities,   to  the  assets  and  liabilities   acquired  including
          intangible  assets and  goodwill.  We estimate the useful lives of the
          intangible assets by factoring in the  characteristics  of the related
          products  such  as:  existing  sales  contracts,   patent  protection,
          estimated future introductions of competing products and other issues.
          The  factors  that  drive  the  estimate  of the life of the asset are
          inherently uncertain.

     o    Long-lived  assets.  We review  our  property,  intangible  assets and
          goodwill  for possible  impairment  whenever  events or  circumstances
          indicate that the carrying  amount of an asset may not be recoverable.
          Assumptions  and estimates  used in the  evaluation of impairment  may
          affect the carrying value of long-lived assets,  which could result in
          impairment  charges  in  future  periods.   Such  assumptions  include
          projections of future cash flows and, in some cases,  the current fair
          value of the asset. In addition,  our  depreciation  and  amortization
          policies reflect judgments on the estimated useful lives of assets.

     o    Revenue recognition. We recognize revenue when the risks and reward of
          ownership  are  assumed  by the  buyer.  This  generally  occurs  upon
          delivery of product to the buyer.


<PAGE>


     o    Deferred  income tax  assets.  We have  recorded  deferred  income tax
          assets related to the temporary  differences between the tax bases and
          financial reporting bases of assets and liabilities.  An adjustment to
          income  tax  expense  would  be  required  in a  future  period  if we
          determine  that the  amount of  deferred  tax  assets  to be  realized
          differs from the net recorded amount.

Forward-Looking Statements

     The  information   provided  in  this  document  contains   forward-looking
statements that involve a number of risks and uncertainties. A number of factors
could  cause  actual  results,  performance  or  achievements  of our company or
industry results to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking  statements.  These
factors include,  but are not limited to: (1) economic conditions in general and
in our specific market areas;  (2) the significant  indebtedness of our company;
(3) changes in operating  strategy or  development  plans;  (4) the  competitive
environment  in the  sampling  industry  in general and in our  specific  market
areas;  (5) changes in prevailing  interest rates;  (6) changes in or failure to
comply with postal  regulations or other federal,  state and/or local government
regulations;  (7)  changes  in cost of goods and  services;  (8)  changes in our
capital  expenditure  plans;  (9) the  ability to attract  and retain  qualified
personnel;  (10) inflation; (11) liability and other claims asserted against us;
(12)  labor  disturbances  and other  factors.  We also  advise  you to read the
section entitled "Risk Factors" in the Company's annual report on Form 10K filed
with the SEC on September 24, 2002.

     In addition, such forward-looking statements are necessarily dependent upon
assumptions,  estimates and dates that may be incorrect or imprecise and involve
known and  unknown  risk,  uncertainties  and other  factors.  Accordingly,  any
forward-looking  statements  included herein do not purport to be predictions of
future  events  or  circumstances  and  may  not  be  realized.  Forward-looking
statements can be identified by, among other things,  the use of forward-looking
terminology  such as  "believes,"  "expects,"  "may,"  "should,"  "seeks,"  "pro
forma,"  "anticipates,"  "intends"  or the  negative of any such word,  or other
variations  or  comparable  terminology,   or  by  discussions  of  strategy  or
intentions. Given these uncertainties,  readers are cautioned not to place undue
reliance on such  forward-looking  statements.  We disclaim any  obligations  to
update any such factors or to publicly  announce the results of any revisions to
any of the  forward-looking  statements  contained  in this  document to reflect
future events or developments.



ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We  generate  approximately  20% of our sales from  customers  outside  the
United States,  principally in Europe.  International sales are made mostly from
our foreign  subsidiary  located in France and are primarily  denominated in the
local currency.  Our foreign subsidiary also incurs the majority of its expenses
in the local currency and uses the local currency as its functional currency.

     Our major principal cash balances are held in U.S.  dollars.  Cash balances
in foreign  currencies are held to minimum balances for working capital purposes
and therefore have a minimum risk to currency fluctuations.

     We periodically  enter into forward foreign currency exchange  contracts to
hedge certain  exposures  related to selected  transactions  that are relatively
certain as to both  timing  and amount and to hedge a portion of the  production
costs expected to be denominated in foreign currencies.  The purpose of entering
into these  hedge  transactions  is to minimize  the impact of foreign  currency
fluctuations  on the results of operations  and cash flows.  Gains and losses on
the hedging  activities  are recognized  concurrently  with the gains and losses
from the  underlying  transactions.  At March 31,  2003,  there  were no forward
exchange contracts outstanding.


<PAGE>


ITEM 4.  CONTROLS AND PROCEDURES

     (a) Evaluation of Disclosure  Controls and Procedures.  The Company's chief
executive  officer and chief financial  officer have evaluated the effectiveness
of the design and operation of the Company's  disclosure controls and procedures
(as defined in Exchange Act Rule  13a-14(c))  as of a date within 90 days of the
filing  date of this  quarterly  report.  Based on that  evaluation,  the  chief
executive  officer and chief financial officer have concluded that the Company's
disclosure  controls  and  procedures  are  effective  to ensure  that  material
information relating to the Company and the Company's consolidated  subsidiaries
is made known to such  officers by others  within these  entities,  particularly
during the period this quarterly  report was prepared,  in order to allow timely
decisions regarding required disclosure.

     (b)  Changes in  Internal  Controls.  There  have not been any  significant
changes  in the  Company's  internal  controls  or in other  factors  that could
significantly affect these controls subsequent to the date of their evaluation.




                            PART II OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)    Exhibits

                Exhibit 99.1   Certification pursuant to 18 U.S.C. Section 1350,
                               as adopted pursuant to Section 906 of the
                               Sarbanes-Oxley Act of 2002

                Exhibit 99.2   Certification pursuant to 18 U.S.C. Section 1350,
                               as adopted pursuant to Section 906 of the
                               Sarbanes-Oxley Act of 2002

         (b)    Reports on Form 8-K

                None


<PAGE>


                                   SIGNATURES

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

                                     AKI HOLDING CORP.

Date:  May 14, 2003                  By: /s/ Kenneth A. Budde
                                         -----------------------------------
                                         Kenneth A. Budde
                                         Senior Vice President &
                                           Chief Financial Officer
                                           (Principal Financial and Accounting
                                           Officer)


                                 CERTIFICATIONS

I, William J. Fox, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of AKI Holding Corp.;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;
     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and
     c)   presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and
     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls


<PAGE>


     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.

Date   May 14, 2003


/s/ William J. Fox
------------------------
William J. Fox
Chief Executive Officer


I, Kenneth A. Budde, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of AKI Holding Corp.;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;
     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and
     c)   presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and
     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date   May 14, 2003


/s/ Kenneth A. Budde
------------------------
Kenneth A. Budde
Chief Financial Officer



<PAGE>


                                     AKI, INC.

Date:  May 14, 2003                  By: /s/ Kenneth A. Budde
                                         -----------------------------------
                                         Kenneth A. Budde
                                         Senior Vice President &
                                           Chief Financial Officer
                                           (Principal Financial and Accounting
                                           Officer)


                                 CERTIFICATIONS

I, William J. Fox, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of AKI, Inc.;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;
     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and
     c)   presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and
     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


<PAGE>


Date   May 14, 2003


/s/ William J. Fox
------------------------
William J. Fox
Chief Executive Officer


I, Kenneth A. Budde, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of AKI, Inc.;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;
     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and
     c)   presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and
     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date   May 14, 2003


/s/ Kenneth A. Budde
------------------------
Kenneth A. Budde
Chief Financial Officer