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 September 30, 2000

                                       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

As of November 10, 2000, 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

                  AKI Holding Corp. and Subsidiaries

                      Consolidated Condensed Balance Sheet

                      -  September 30, 2000 (unaudited)
                      -  June 30, 2000 (unaudited)

                      Consolidated Condensed Statements of Operations

                      -  Three months ended September 30, 2000 (unaudited)
                      -  Three months ended September 30, 1999 (unaudited)

                      Consolidated Condensed Statement of Changes in
                      Stockholder's Equity

                      -  Three months ended September 30, 2000 (unaudited)

                      Consolidated Condensed Statements of Cash Flows

                      -  Three months ended September 30, 2000 (unaudited)
                      -  Three months ended September 30, 1999 (unaudited)

                      Notes to Consolidated Condensed Financial Statements


<PAGE>


         Item 1.  Financial Statements (continued)

                  AKI, Inc. and Subsidiaries

                      Consolidated Condensed Balance Sheet

                      -  September 30, 2000 (unaudited)
                      -  June 30, 2000 (unaudited)

                      Consolidated Condensed Statements of Operations

                      -  Three months ended September 30, 2000 (unaudited)
                      -  Three months ended September 30, 1999 (unaudited)

                      Consolidated Condensed Statement of Changes in
                      Stockholder's Equity

                      -  Three months ended September 30, 2000 (unaudited)

                      Consolidated Condensed Statements of Cash Flows

                      -  Three months ended September 30, 2000 (unaudited)
                      -  Three months ended September 30, 1999 (unaudited)

                      Notes to Consolidated Condensed Financial Statements

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

Part II. OTHER INFORMATION

         Item 6.  Exhibits and Reports on Form 8-K



<PAGE>


                       AKI HOLDING CORP. AND SUBSIDIARIES
             (A WHOLLY-OWNED SUBSIDIARY OF AHC I ACQUISITION CORP.)
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                (dollars in thousands, except share information)

<TABLE>
<CAPTION>
                                                                                SEPTEMBER 30,         JUNE 30,
                                                                                    2000                2000
                                                                                -------------      -------------
                                                                                 (UNAUDITED)         (UNAUDITED)

<S>                                                                             <C>                <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents..................................................     $         802      $       1,158
Accounts receivable, net...................................................            28,525             21,522
Inventory..................................................................             9,555              7,757
Prepaid expenses...........................................................               589                 92
Deferred income taxes......................................................               396                396
                                                                                -------------      -------------

   TOTAL CURRENT ASSETS....................................................            39,867             30,925

Property, plant and equipment, net.........................................            16,792             17,097
Goodwill, net..............................................................           161,270            162,472
Other intangible assets, net...............................................             6,952              7,174
Deferred charges, net......................................................             5,291              5,461
Deferred income taxes......................................................               477                720
Other assets...............................................................                87                 88
                                                                                -------------      -------------

   TOTAL ASSETS............................................................     $     230,736      $     223,937
                                                                                =============      =============

LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of capital lease obligations...............................     $         731      $         847
Accounts payable, trade....................................................             5,949              3,565
Accrued income taxes.......................................................             2,415                724
Accrued compensation.......................................................             2,171              3,965
Accrued interest...........................................................             3,015              5,695
Accrued expenses...........................................................             2,841              2,370
                                                                                -------------      -------------

   TOTAL CURRENT LIABILITIES...............................................            17,122             17,166

Long-term portion of capital lease obligations.............................               495                502
Revolving credit line......................................................             9,950              9,000
Senior notes...............................................................           107,510            107,510
Senior discount debentures.................................................            28,803             27,863
Promissory note to stockholder and affiliate...............................             4,745                  -
Deferred income taxes......................................................               234                663
Other non-current liabilities..............................................             2,457              2,399
                                                                                -------------      -------------

   TOTAL LIABILITIES.......................................................           171,316            165,103

STOCKHOLDER'S EQUITY
Common stock, $0.01 par 1,000 shares authorized;
    1,000 shares issued and outstanding....................................                 -                  -
Additional paid-in capital.................................................            88,935             88,935
Accumulated deficit........................................................           (12,892)           (13,829)
Accumulated other comprehensive loss.......................................              (893)              (542)
Carryover basis adjustment.................................................           (15,730)           (15,730)
                                                                                --------------     -------------

   TOTAL STOCKHOLDER'S EQUITY..............................................            59,420             58,834
                                                                                -------------      -------------


   TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY..............................     $     230,736      $     223,937
                                                                                =============      =============
</TABLE>










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


<PAGE>


                       AKI HOLDING CORP. AND SUBSIDIARIES
             (A WHOLLY-OWNED SUBSIDIARY OF AHC I ACQUISITION CORP.)
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                             (dollars in thousands)


<TABLE>
<CAPTION>



                                                                                 THREE MONTHS ENDED
                                                                                 ------------------
                                                                    SEPTEMBER 30, 2000         SEPTEMBER 30, 1999
                                                                    ------------------         ------------------
                                                                       (UNAUDITED)                 (UNAUDITED)

<S>                                                                    <C>                        <C>
Net sales.................................................             $    31,630                $    28,379
Cost of goods sold........................................                  18,825                     15,792
                                                                       -----------                -----------

   Gross profit...........................................                  12,805                     12,587

Selling, general and administrative expenses..............                   4,518                      4,158
Amortization of goodwill and other intangibles............                   1,419                      1,164
                                                                       -----------                -----------

   Income from operations.................................                   6,868                      7,265

Other expenses:
   Interest expense to stockholder and affiliate..........                     113                          -
   Interest expense, other................................                   4,291                      4,372
   Management fees and other, net.........................                      62                         63
                                                                       -----------                -----------

Income before income taxes................................                   2,402                      2,830

Income tax expense........................................                   1,465                      1,549
                                                                       -----------                -----------

   Net income ............................................             $       937                $     1,281
                                                                       ===========                ===========

</TABLE>
































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


<PAGE>



                       AKI HOLDING CORP. AND SUBSIDIARIES
             (A WHOLLY-OWNED SUBSIDIARY OF AHC I ACQUISITION CORP.)
       CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
                (dollars in thousands, except share information)

<TABLE>
<CAPTION>

                                                                                             ACCUMULATED
                                                                     ADDITIONAL                 OTHER      CARRYOVER
                                                   COMMON STOCK       PAID-IN   ACCUMULATED  COMPREHENSIVE   BASIS
                                                 SHARES   DOLLARS     CAPITAL     DEFICIT        LOSS      ADJUSTMENT    TOTAL
                                                 ------   -------     -------     -------        ----      ----------    -----


<S>                                              <C>      <C>         <C>        <C>         <C>           <C>         <C>
BALANCES, JUNE 30, 2000 (UNAUDITED) .......      1,000    $   --      $ 88,935   $(13,829)   $   (542)     $(15,730)   $ 58,834

Net income (unaudited) ....................                                           937                                   937

Other comprehensive income, net of tax:

   Foreign currency translation
     adjustment (unaudited) ...............                                                      (351)                     (351)
                                                                                                                       --------
Comprehensive income (unaudited) ..........                                                                                 586
                                              --------    --------    --------   --------    --------      --------    --------

BALANCES, SEPTEMBER 30, 2000 (UNAUDITED) ..      1,000    $   --      $ 88,935   $(12,892)   $   (893)     $(15,730)   $ 59,420
                                              ========    ========    ========   ========    ========      ========    ========

</TABLE>













































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


<PAGE>



                       AKI HOLDING CORP. AND SUBSIDIARIES
             (A WHOLLY-OWNED SUBSIDIARY OF AHC I ACQUISITION CORP.)
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                             (dollars in thousands)

<TABLE>
<CAPTION>



                                                                                        THREE MONTHS ENDED
                                                                                        ------------------
                                                                             SEPTEMBER 30, 2000    SEPTEMBER 30, 1999
                                                                             ------------------    ------------------
                                                                                 (UNAUDITED)          (UNAUDITED)
<S>                                                                              <C>                 <C>

CASH FLOWS FROM OPERATING ACTIVITIES
   Net income .......................................................            $       937         $     1,281
   Adjustments to reconcile net income to net cash used in
   operating activities:
     Depreciation and amortization of goodwill and other intangibles.                  2,506               2,212
     Amortization of debt discount...................................                    939               1,001
     Amortization of debt issuance costs.............................                    171                 199
     Deferred income taxes...........................................                   (186)              1,925
     Other...........................................................                   (292)                152
     Changes in operating assets and liabilities:
       Accounts receivable...........................................                 (7,003)             (6,654)
       Inventory.....................................................                 (1,798)               (174)
       Prepaid expenses, deferred charges and other assets...........                   (497)                 30
       Accounts payable and accrued expenses.........................                 (1,620)             (3,992)
       Income taxes..................................................                  1,691                (333)
                                                                                 -----------         ------------

         Net cash used in operating activities.......................                 (5,152)             (4,353)
                                                                                 ------------        ------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchases of equipment............................................                   (776)               (609)
   Payments for acquisitions, net of cash acquired...................                      -             (16,163)
                                                                                 -----------         ------------

         Net cash used in investing activities.......................                   (776)            (16,772)
                                                                                 ------------        ------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Payments under capital leases for equipment.......................                   (123)               (167)
   Net proceeds on line of credit....................................                    950              14,750
   Net proceeds from promissory note to stockholder and affiliate....                  4,745                   -
                                                                                 -----------         -----------

         Net cash provided by financing activities...................                  5,572              14,583
                                                                                 -----------         -----------

Net (decrease) in cash and cash equivalents..........................                   (356)             (6,542)
Cash and cash equivalents, beginning of period.......................                  1,158               7,015
                                                                                 -----------         -----------

Cash and cash equivalents, end of period.............................            $       802         $       473
                                                                                 ===========         ===========

SUPPLEMENTAL INFORMATION
  Cash paid during the period for:
     Interest, other.................................................            $     5,919         $     6,130
     Income taxes....................................................                     48                  89

</TABLE>












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


<PAGE>




                       AKI HOLDING CORP. AND SUBSIDIARIES
             (A WHOLLY OWNED SUBSIDIARY OF AHC I ACQUISITION CORP.)
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                (dollars in thousands, except share information)

1.   BASIS OF PRESENTATION

          Arcade Holding  Corporation (the  "Predecessor") was organized for the
     purpose  of  acquiring  all the  issued and  outstanding  capital  stock of
     Arcade,  Inc. ("Arcade") on November 4, 1993. Arcade is principally engaged
     in  interactive  advertising  for  consumer  products  companies  and has a
     specialty in the design,  production and  distribution of sampling  systems
     from  its  Chattanooga,  Tennessee  facilities,  and also  distributes  its
     products in Europe through its French  subsidiary,  Arcade Europe  S.A.R.L.
     DLJ  Merchant  Banking  Partners  II, L.P.  and certain  related  investors
     (collectively,  "DLJMBII") and certain members of the Predecessor organized
     AHC I Acquisition Corp. ("AHC") and AHC I Merger Corp. ("Merger Corp.") for
     purposes of acquiring the Predecessor.  On December 15, 1997,  Merger Corp.
     acquired  all of the equity  interests of the  Predecessor  and then merged
     with and into the  Predecessor  and the combined entity assumed the name of
     AKI, Inc. and  Subsidiaries  ("AKI").  Subsequent to the  acquisition,  AHC
     contributed  $1 and all of its  ownership  interest  in AKI to AKI  Holding
     Corp. ("Holding") for all of the outstanding equity of Holding.

     INTERIM FINANCIAL STATEMENTS

         The interim consolidated  condensed balance sheet at September 30, 2000
     and the interim  consolidated  condensed  statements of operations  for the
     three months ended  September 30, 2000 and 1999,  the interim  consolidated
     condensed statements of cash flows for the three months ended September 30,
     2000 and 1999 and the interim  consolidated  condensed statement of changes
     in  stockholder's  equity for the three months ended September 30, 2000 are
     unaudited, and certain information and footnote disclosure related thereto,
     normally included in the financial  statements  prepared in accordance with
     generally accepted accounting  principles,  have been omitted. The June 30,
     2000 consolidated  balance sheet was derived from the audited balance sheet
     of the Company for the year then ended.  In the opinion of management,  the
     unaudited interim consolidated condensed financial statements were prepared
     following  the same  policies and  procedures  used in  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.

2.   INVENTORY

         The following table details the components of inventory:

                                             SEPTEMBER 30, 2000   JUNE 30, 2000
                                             ------------------   -------------
                                                 (unaudited)        (unaudited)
              Raw materials

                  Paper.....................     $     3,589        $    3,944
                  Other raw materials.......           2,659             2,541
                                                 -----------        ----------

              Total raw materials...........           6,248             6,485
              Work in process...............           3,307             1,272
                                                 -----------        ----------

              Net inventory.................     $     9,555        $    7,757
                                                 ===========        ==========


3.   PROMISSORY NOTE TO STOCKHOLDER AND AFFILIATE

         In May 2000, the Company signed a promissory  note payable to AHC which
     allows the Company to borrow up to $10 million at such  interest  rates and
     due as agreed upon by the Company and AHC. At September 30, 2000 $4,745 was
     outstanding bearing interest at prime and is due December 31, 2002.


<PAGE>


                       AKI HOLDING CORP. AND SUBSIDIARIES
             (A WHOLLY OWNED SUBSIDIARY OF AHC I ACQUISITION CORP.)
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                (dollars in thousands, except share information)

4.   DERIVATIVE INSTRUMENTS

         Effective  July 1,  2000,  the  Company  adopted  Financial  Accounting
     Standard  No.  133,  "Accounting  for  Derivative  Instruments  and Hedging
     Activities"  ("FAS 133"),  as amended,  which  requires that all derivative
     instruments be reported on the balance sheet at fair value and  establishes
     criteria for designation and  effectiveness of hedging  relationships.  The
     cumulative  effect of adopting  FAS 133 as of July 1, 2000 was not material
     to the Company's financial statements.

         The Company  purchases  and sells it products in a number of  countries
     throughout  the world and, as a result,  is exposed to movements in certain
     foreign  currency  exchange  rates.  The primary  purpose of the  Company's
     foreign currency hedging activities is to manage the short-term  volatility
     associated with foreign  currency  purchases and sales in the normal course
     of  business.  The Company  primarily  utilizes  foreign  currency  forward
     exchange contracts with maturities of less than six months.

         The Company enters into certain foreign currency derivative instruments
     which do not meet hedge accounting  criteria.  These primarily are intended
     to  protect  against  exposure  related to  purchases  and sales in certain
     foreign  countries.  The fair value of these  instruments  at September 30,
     2000 was not  material  and the net impact of the related  gains and losses
     were not material.

5.   CONDENSED HOLDING COMPANY ONLY FINANCIAL STATEMENTS

          The following  condensed balance sheets at September 30, 2000 and June
     30, 2000 and condensed  statements of operations,  changes in stockholder's
     equity and cash flows for the three  months  ended  September  30, 2000 and
     1999 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>

                                                                    SEPTEMBER 30, 2000       JUNE 30, 2000
                                                                    ------------------       -------------
                                                                        (unaudited)           (unaudited)
<S>                                                                    <C>                   <C>
     ASSETS
     Investment in subsidiaries...............................         $   101,382           $    99,798
     Deferred charges.........................................               1,145                 1,167
     Deferred income taxes....................................               2,742                 2,427
                                                                       -----------           -----------

         TOTAL ASSETS.........................................         $   105,269           $   103,392
                                                                       ===========           ===========

     LIABILITIES
     Accrued income taxes.....................................         $       423           $       423
     Senior discount debentures...............................              28,803                27,863
                                                                       -----------           -----------

         TOTAL LIABILITIES....................................              29,226                28,286
                                                                       -----------           -----------

     STOCKHOLDER'S EQUITY
     Common Stock, $0.01 par value, 1,000 shares authorized;
       1,000 shares issued and outstanding....................                   -                     -
     Additional paid-in capital...............................              88,935                88,935
     Accumulated deficit......................................             (12,892)              (13,829)
                                                                       ------------          -----------

         TOTAL STOCKHOLDER'S EQUITY...........................              76,043                75,106
                                                                       -----------           -----------

         TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY...........         $   105,269           $   103,392
                                                                       ===========           ===========
</TABLE>

<PAGE>


                       AKI HOLDING CORP. AND SUBSIDIARIES
             (A WHOLLY OWNED SUBSIDIARY OF AHC I ACQUISITION CORP.)
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                (dollars in thousands, except share information)

5.   CONDENSED HOLDING COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)


                             STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>

                                                                               THREE MONTHS ENDED
                                                                               ------------------
                                                                    SEPTEMBER 30, 2000    SEPTEMBER 30, 1999
                                                                    ------------------    ------------------
                                                                        (unaudited)           (unaudited)

<S>                                                                    <C>                   <C>
     Equity in net income of subsidiaries.....................         $     1,584           $     1,969
     Interest expense.........................................                 962                 1,024
                                                                       -----------           -----------

         Income before income taxes...........................                 622                   945

     Income tax benefit.......................................                (315)                 (336)
                                                                       ------------          -----------

         Net income ..........................................         $       937           $     1,281
                                                                       ===========           ===========
</TABLE>


                  STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>

                                                                                ADDITIONAL
                                                           COMMON STOCK           PAID-IN      ACCUMULATED
                                                       SHARES       AMOUNT        CAPITAL        DEFICIT          TOTAL
                                                       ------       ------        -------        -------          -----

<S>                                                      <C>      <C>           <C>            <C>            <C>
     BALANCES, JUNE 30, 2000 (UNAUDITED)...........      1,000    $       -     $   88,935     $   (13,829)   $    75,106

     Net income (unaudited)........................                                                    937            937
                                                     ---------    ---------     ----------     -----------    -----------

     BALANCES, SEPTEMBER 30, 2000 (UNAUDITED)......      1,000    $       -     $   88,935     $   (12,892)   $    76,043
                                                     =========    =========     ==========     ============   ===========
</TABLE>



                             STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                                   THREE MONTHS ENDED
                                                                                   ------------------
                                                                        SEPTEMBER 30, 2000    SEPTEMBER 30, 1999
                                                                        ------------------    ------------------
                                                                            (unaudited)           (unaudited)

<S>                                                                        <C>                   <C>
     CASH FLOWS FROM OPERATING ACTIVITIES
       Net income.............................................             $       937           $     1,281
         Adjustments to reconcile net income to net cash
          provided by (used in) operating activities:.........
              Net change in investment in subsidiaries........                  (1,584)               (1,969)
              Amortization of debt discount...................                     939                 1,001
              Amortization of debt issuance costs.............                      23                    23
              Deferred income taxes...........................                    (315)                 (336)
                                                                           -----------           -----------

               Net cash provided by (used in) operating
               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
                (A WHOLLY-OWNED SUBSIDIARY OF AKI HOLDING CORP.)
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                (dollars in thousands, except share information)

<TABLE>
<CAPTION>
                                                                                SEPTEMBER 30,         JUNE 30,
                                                                                    2000                2000
                                                                                -------------      -------------
                                                                                 (UNAUDITED)         (UNAUDITED)

<S>                                                                             <C>                <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents..................................................     $         802      $       1,158
Accounts receivable, net...................................................            28,525             21,522
Inventory..................................................................             9,555              7,757
Prepaid expenses...........................................................               589                 92
Deferred income taxes......................................................               396                396
                                                                                -------------      -------------

   TOTAL CURRENT ASSETS....................................................            39,867             30,925

Property, plant and equipment, net.........................................            16,792             17,097
Goodwill, net..............................................................           161,270            162,472
Other intangible assets, net...............................................             6,952              7,174
Deferred charges, net  ....................................................             4,146              4,294
Deferred income taxes......................................................               477                720
Other assets...............................................................                87                 88
                                                                                -------------      -------------

   TOTAL ASSETS............................................................     $     229,591      $     222,770
                                                                                =============      =============

LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of capital lease obligations...............................     $         731      $         847
Accounts payable, trade....................................................             5,949              3,565
Accrued income taxes.......................................................             1,992                301
Accrued compensation.......................................................             2,171              3,965
Accrued interest...........................................................             3,015              5,695
Accrued expenses...........................................................             2,841              2,370
                                                                                -------------      -------------

   TOTAL CURRENT LIABILITIES...............................................            16,699             16,743

Long-term portion of capital lease obligations.............................               495                502
Revolving credit line......................................................             9,950              9,000
Senior notes...............................................................           107,510            107,510
Promissory note to affiliate...............................................             4,745                  -
Deferred income taxes......................................................             2,976              3,090
Other non-current liabilities..............................................             2,457              2,399
                                                                                -------------      -------------

   TOTAL LIABILITIES.......................................................           144,832            139,244

STOCKHOLDER'S EQUITY
Common stock, $0.01 par 100,000 shares authorized;
   1,000 shares issued and outstanding.....................................                 -                  -
Additional paid-in capital.................................................           107,348            107,348
Accumulated deficit........................................................            (5,966)            (7,550)
Accumulated other comprehensive loss.......................................              (893)              (542)
Carryover basis adjustment.................................................           (15,730)           (15,730)
                                                                                --------------     -------------

   TOTAL STOCKHOLDER'S EQUITY..............................................            84,759             83,526
                                                                                -------------      -------------

   TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY..............................     $     229,591      $     222,770
                                                                                =============      =============
</TABLE>










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


<PAGE>


                           AKI, INC., AND SUBSIDIARIES
                (A WHOLLY-OWNED SUBSIDIARY OF AKI HOLDING CORP.)
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                             (dollars in thousands)


<TABLE>
<CAPTION>


                                                                                THREE MONTHS ENDED
                                                                                ------------------
                                                                    SEPTEMBER 30, 2000         SEPTEMBER 30, 1999
                                                                    ------------------         ------------------
                                                                       (UNAUDITED)                 (UNAUDITED)

<S>                                                                    <C>                        <C>
Net sales.................................................             $    31,630                $    28,379
Cost of goods sold........................................                  18,825                     15,792
                                                                       -----------                -----------

   Gross profit...........................................                  12,805                     12,587

Selling, general and administrative expenses..............                   4,518                      4,158
Amortization of goodwill and other intangibles............                   1,419                      1,164
                                                                       -----------                -----------

   Income from operations.................................                   6,868                      7,265

Other expenses:
   Interest expense to affiliate..........................                     113                          -
   Interest expense, net..................................                   3,329                      3,348
   Management fees and other, net.........................                      62                         63
                                                                       -----------                -----------

Income before income taxes................................                   3,364                      3,854

Income tax expense........................................                   1,780                      1,885
                                                                       -----------                -----------

   Net income.............................................             $     1,584                $     1,969
                                                                       ===========                ===========
</TABLE>



































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


<PAGE>



                           AKI, INC., AND SUBSIDIARIES
                (A WHOLLY-OWNED SUBSIDIARY OF AKI HOLDING CORP.)
      CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
                (dollars in thousands, except share information)

<TABLE>
<CAPTION>

                                                                                             ACCUMULATED
                                                                     ADDITIONAL                 OTHER      CARRYOVER
                                                   COMMON STOCK       PAID-IN   ACCUMULATED  COMPREHENSIVE   BASIS
                                                 SHARES   DOLLARS     CAPITAL     DEFICIT        LOSS      ADJUSTMENT    TOTAL
                                                 ------   -------     -------     -------        ----      ----------    -----


<S>                                              <C>      <C>        <C>         <C>         <C>           <C>         <C>
BALANCES, JUNE 30, 2000 (UNAUDITED) .......      1,000    $   --     $ 107,348   $ (7,550)   $   (542)     $(15,730)   $ 83,526

Net income (unaudited) ....................                                         1,584                                 1,584

Other comprehensive income, net of tax:

   Foreign currency translation
     adjustment (unaudited) ...............                                                      (351)                     (351)
                                                                                                                       --------
Comprehensive income (unaudited) ..........                                                                               1,233
                                              --------    --------   ---------   --------    --------      --------    --------

BALANCES, SEPTEMBER 30, 2000 (UNAUDITED) ..      1,000    $   --     $ 107,348   $ (5,966)   $   (893)     $(15,730)   $ 84,759
                                              ========    ========   =========   ========    ========      ========    ========
</TABLE>












































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


<PAGE>



                           AKI, INC., AND SUBSIDIARIES
                (A WHOLLY-OWNED SUBSIDIARY OF AKI HOLDING CORP.)
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                             (dollars in thousands)



<TABLE>
<CAPTION>

                                                                                         THREE MONTHS ENDED
                                                                                         ------------------
                                                                             SEPTEMBER 30, 2000      SEPTEMBER 30, 1999
                                                                             ------------------      ------------------
                                                                                 (UNAUDITED)             (UNAUDITED)

<S>                                                                             <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income .........................................................         $     1,584            $     1,969
   Adjustments to reconcile net income to net cash used in operating
   activities:
     Depreciation and amortization of goodwill and other intangibles...               2,506                  2,212
     Amortization of debt issuance cost................................                 148                    176
     Deferred income taxes.............................................                 129                  2,261
     Other.............................................................                (292)                   152
     Changes in operating assets and liabilities:
       Accounts receivable.............................................              (7,003)                (6,654)
       Inventory.......................................................              (1,798)                  (174)
       Prepaid expenses, deferred charges and other assets.............                (497)                    30
       Accounts payable and accrued expenses...........................              (1,620)                (3,992)
       Income taxes....................................................               1,691                   (333)
                                                                                -----------            -----------

         Net cash used in operating activities.........................              (5,152)                (4,353)
                                                                                -----------            -----------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchases of equipment..............................................                (776)                  (609)
   Payments for acquisitions, net of cash acquired.....................                   -                (16,163)
                                                                                -----------            -----------

         Net cash used in investing activities.........................                (776)               (16,772)
                                                                                -----------            -----------

CASH FLOWS FROM FINANCING ACTIVITIES
   Payments under capital leases for equipment.........................                (123)                  (167)
   Net proceeds on line of credit......................................                 950                 14,750
   Net proceeds from promissory note to affiliate......................               4,745                      -
                                                                                -----------            -----------

         Net cash provided by financing activities.....................               5,572                 14,583
                                                                                -----------            -----------

Net (decrease) in cash and cash equivalents............................                (356)                (6,542)
Cash and cash equivalents, beginning of period.........................               1,158                  7,015
                                                                                -----------            -----------

Cash and cash equivalents, end of period...............................         $       802            $       473
                                                                                ===========            ===========


SUPPLEMENTAL INFORMATION
  Cash paid during the period for:
     Interest, other...................................................         $     5,919            $     6,130
     Income taxes......................................................                  48                     89

</TABLE>












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


<PAGE>




                           AKI, INC., AND SUBSIDIARIES
                (A WHOLLY-OWNED SUBSIDIARY OF AKI HOLDING CORP.)
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                (dollars in thousands, except share information)

1.   BASIS OF PRESENTATION

          Arcade Holding  Corporation (the  "Predecessor") was organized for the
     purpose  of  acquiring  all the  issued and  outstanding  capital  stock of
     Arcade,  Inc. ("Arcade") on November 4, 1993. Arcade is principally engaged
     in  interactive  advertising  for  consumer  products  companies  and has a
     specialty in the design,  production and  distribution of sampling  systems
     from  its  Chattanooga,  Tennessee  facilities,  and also  distributes  its
     products in Europe through its French  subsidiary,  Arcade Europe  S.A.R.L.
     DLJ  Merchant  Banking  Partners  II, L.P.  and certain  related  investors
     (collectively,  "DLJMBII") and certain members of the Predecessor organized
     AHC I Acquisition Corp. ("AHC") and AHC I Merger Corp. ("Merger Corp.") for
     purposes of acquiring the Predecessor.  On December 15, 1997,  Merger Corp.
     acquired  all of the equity  interests of the  Predecessor  and then merged
     with and into the  Predecessor  and the combined entity assumed the name of
     AKI, Inc. and  Subsidiaries  ("AKI").  Subsequent to the  acquisition,  AHC
     contributed  $1 and all of its  ownership  interest  in AKI to AKI  Holding
     Corp. ("Holding") for all of the outstanding equity of Holding.

     INTERIM FINANCIAL STATEMENTS

         The interim consolidated  condensed balance sheet at September 30, 2000
     and the interim  consolidated  condensed  statements of operations  for the
     three months ended  September 30, 2000 and 1999,  the interim  consolidated
     condensed statements of cash flows for the three months ended September 30,
     2000 and 1999 and the interim  consolidated  condensed statement of changes
     in  stockholder's  equity for the three months ended September 30, 2000 are
     unaudited, and certain information and footnote disclosure related thereto,
     normally included in the financial  statements  prepared in accordance with
     generally accepted accounting  principles,  have been omitted. The June 30,
     2000 consolidated  balance sheet was derived from the audited balance sheet
     of the Company for the year then ended.  In the opinion of management,  the
     unaudited interim consolidated condensed financial statements were prepared
     following  the same  policies and  procedures  used in  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.

2.   INVENTORY

         The following table details the components of inventory:

                                             SEPTEMBER 30, 2000   JUNE 30, 2000
                                             ------------------   -------------
                                                 (unaudited)        (unaudited)
              Raw materials

                  Paper.....................     $     3,589        $    3,944
                  Other raw materials.......           2,659             2,541
                                                 -----------        ----------

              Total raw materials...........           6,248             6,485
              Work in process...............           3,307             1,272
                                                 -----------        ----------

              Net inventory.................     $     9,555        $    7,757
                                                 ===========        ==========



3.   PROMISSORY NOTE TO AFFILIATE

         In May 2000, the Company signed a promissory  note payable to AHC which
     allows the Company to borrow up to $10 million at such  interest  rates and
     due as agreed upon by the Company and AHC. At September 30, 2000 $4,745 was
     outstanding bearing interest at prime and is due December 31, 2002.


<PAGE>

                           AKI, INC., AND SUBSIDIARIES
                (A WHOLLY-OWNED SUBSIDIARY OF AKI HOLDING CORP.)
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                (dollars in thousands, except share information)

4.   DERIVATIVE INSTRUMENTS

         Effective  July 1,  2000,  the  Company  adopted  Financial  Accounting
     Standard  No.  133,  "Accounting  for  Derivative  Instruments  and Hedging
     Activities"  ("FAS 133"),  as amended,  which  requires that all derivative
     instruments be reported on the balance sheet at fair value and  establishes
     criteria for designation and  effectiveness of hedging  relationships.  The
     cumulative  effect of adopting  FAS 133 as of July 1, 2000 was not material
     to the Company's financial statements.

         The Company  purchases  and sells it products in a number of  countries
     throughout  the world and, as a result,  is exposed to movements in certain
     foreign  currency  exchange  rates.  The primary  purpose of the  Company's
     foreign currency hedging activities is to manage the short-term  volatility
     associated with foreign  currency  purchases and sales in the normal course
     of  business.  The Company  primarily  utilizes  foreign  currency  forward
     exchange contracts with maturities of less than six months.

         The Company enters into certain foreign currency derivative instruments
     which do not meet hedge accounting  criteria.  These primarily are intended
     to  protect  against  exposure  related to  purchases  and sales in certain
     foreign  countries.  The fair value of these  instruments  at September 30,
     2000 was not  material  and the net impact of the related  gains and losses
     were not material.


<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") and the term "Holding"  refers to AKI
Holding  Corp.   and  the  term  "RHL"  refers  to  Retcom   Holdings  Ltd.  and
subsidiaries.

GENERAL

     The sales of our company are derived  through its  multi-sensory  marketing
activities  primarily  from  the  sale  of  sampling  systems  and  products  to
fragrance,  cosmetics and consumer  products  companies,  and also from creative
services.  Substantially  all of our  company's  sales are made  directly to its
customers  while a small  portion are made through  advertising  agencies.  Each
customer's  sampling  program  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,   our  company  has  had  long-standing
relationships with the majority of its customer base.

RETCOM HOLDINGS LTD. ACQUISITION

     On September 15, 1999, we acquired all of the issued and outstanding shares
of capital  stock of RHL at a purchase  price of  approximately  $12 million and
refinanced RHL's working capital  indebtedness of approximately $5 million.  The
purchase price and refinancing of indebtedness were financed by borrowings under
the credit agreement.

RESULTS OF OPERATIONS

      THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
                               SEPTEMBER 30, 1999

     NET  SALES.  Net sales for the  three  months  ended  September  30,  2000,
increased $3.2 million, or 11.3%, to $31.6 million, as compared to $28.4 million
for the three  months ended  September  30,  1999.  The  increase was  primarily
attributable  to  increases  in volume of domestic  and  international  sales of
sampling  technologies  to existing  customers for  advertising and marketing of
fragrances.

     GROSS PROFIT.  Gross profit for the three months ended  September 30, 2000,
increased $0.2 million,  or 1.6%, to $12.8 million, as compared to $12.6 million
for three months ended  September 30, 1999.  Gross profit as a percentage of net
sales  decreased  to 40.5% in the three months ended  September  30, 2000,  from
44.4% in the three months ended September 30, 1999. The decrease in gross profit
as a percentage of net sales is primarily due to competitive  pricing pressures,
increased  raw material  costs,  additional  premium  labor costs and  increased
overhead  costs.  The increase in raw  material  costs was  primarily  due to an
increase in paper  commodity  prices,  which  management  expects will remain at
current levels for the remainder of the fiscal year ending June 30, 2001.

     SELLING,  GENERAL  AND  ADMINISTRATIVE   EXPENSES.   Selling,  general  and
administrative expenses for the three months ended September 30, 2000, increased
$0.3 million, or 7.1% to $4.5 million, as compared to $4.2 million for the three
months  ended  September  30,  1999.  The  increase  in  selling,   general  and
administrative  expenses was primarily due to an increase in staffing levels and
compensation  and  additional  expenses  associated  with the  operation of RHL.
Selling, general and administrative expenses as a percent of net sales decreased
to 14.2% in the three months ended  September 30, 2000,  from 14.8% in the three
months ended September 30, 1999.

     INCOME FROM  OPERATIONS.  Income from operations for the three months ended
September 30, 2000 decreased $0.4 million, or 5.5%, to $6.9 million, as compared
to $7.3  million for the three  months ended  September  30,  1999.  Income from
operations as a percentage  of net sales  decreased to 21.8% in the three months
ended  September  30, 2000,  from 25.7% in the three months ended  September 30,
1999, principally as a result of the factors described above.

     INTEREST EXPENSE. Interest expense for the three months ended September 30,
2000 and 1999 was $4.4  million.  Interest  expense as a percentage of net sales
decreased to 13.9% in the three months ended  September 30,
<PAGE>


2000,  from  15.5% in the three  months  ended  September  30,  1999.  Increased
interest  expense  due to the use of the  credit  line  and  promissory  note to
stockholder and affiliate for working capital and the RHL acquisition was offset
by a decrease in interest  expense related to the repurchased and retired Senior
Discount Debentures and Senior Notes.

     Interest  expense for AKI for the three  months  ended  September  30, 2000
increased $0.1 million, or 3.0% to $3.4 million, as compared to $3.3 million for
the three months ended September 30, 1999.  Interest  expense as a percentage of
net sales  decreased to 10.8% in the three months ended September 30, 2000, from
11.6% in the three months  ended  September  30, 1999.  The increase in interest
expense,  including the  amortization of deferred  financing costs, is primarily
due to use of the credit  line and  promissory  note to  affiliate  for  working
capital and the RHL  acquisition  offset  partially  by the decrease in interest
expense related to the repurchased and retired Senior Notes.

     INCOME TAX EXPENSE. Income tax expense for the three months ended September
30, 2000 and 1999 was $1.5  million.  The Company's  effective  tax rate,  after
consideration of non-deductible  goodwill  amortization,  was 40.6% in the three
months ended  September 30, 2000, and 40.7% in the three months ended  September
30, 1999.

     Income tax expense for AKI for the three  months ended  September  30, 2000
decreased  $0.1  million  to $1.8  million.  AKI's  effective  tax  rate,  after
consideration  of  non-deductible  goodwill  amortization,  was 39% in the three
months ended September 30, 2000 and 1999.

     EBITDA.  EBITDA for the three months ended  September  30, 2000,  decreased
$0.1  million,  or 1.1%,  to $9.4  million,  as compared to $9.5 million for the
three months ended  September 30, 1999.  The decrease  principally  reflects the
decrease in income from operations  discussed  above.  EBITDA as a percentage of
net sales was 29.8% and 33.5% in the three months ended  September  30, 2000 and
1999,  respectively.  EBITDA is income from  operations  plus  depreciation  and
amortization of goodwill and other intangibles.

LIQUIDITY AND CAPITAL RESOURCES

     Our company has  substantial  indebtedness  and  significant  debt  service
obligations. As of September 30, 2000, our company had consolidated indebtedness
in an aggregate  amount of $152.2 million  (excluding  trade  payables,  accrued
liabilities,  deferred taxes and other  non-current  liabilities),  of which (1)
approximately  $28.8 million was a direct  obligation of Holding relating to its
debentures and (2)  approximately  $123.4 million was a direct obligation of AKI
relating to its notes,  revolving credit line,  promissory note to affiliate and
capital  leases.  Borrowings at September 30, 2000 included  $10.0 million under
the  revolving  credit  agreement  and $4.7  million on the  promissory  note to
affiliate  that were  incurred  to finance  the  acquisition  of RHL and provide
working  capital.  At September 30, 2000 our company had available  $9.4 million
under the revolving credit agreement.  At September 30, 2000, AKI also had $21.4
million in additional outstanding liabilities (including trade payables, accrued
liabilities,  deferred taxes and other  non-current  liabilities) and letters of
credit outstanding under the credit agreement in the amount of $0.6 million.

     In May 2000,  AKI signed a  promissory  note  payable to AHC I  Acquisition
Corp. ("AHC"), the sole stockholder of Holding, which allows AKI to borrow up to
$10  million at such  interest  rates and due as agreed  upon by AKI and AHC. In
July 2000, AKI borrowed $4.7 million under the  promissory  note at prime and is
due December  31,  2002.  Proceeds  from the  promissory  note were used to fund
working capital requirements. AKI does not currently anticipate borrowings under
the promissory note will exceed this amount.

     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 and the credit agreement.
Historically,  our company has funded its capital,  debt  service and  operating
requirements  with a combination  of net cash  provided by operating  activities
together with borrowings  under revolving  credit  facilities.  During the three
months  ended  September  30,  2000,  cash  totaling  $5.2  million  was used by
operating  activities  primarily due to the increase in accounts  receivable and
inventory and a decrease in accrued  interest and accrued  compensation,  offset
partially by an increase in accounts  payable and accrued  expenses.  During the
three months ended  September  30, 1999,  cash totaling $4.4 million was used by
operating  activities primarily due to the increase in accounts receivable and a
decrease in accrued interest,  offset partially by increases in accounts payable
and accrued expenses.

<PAGE>

     In the three  months  ended  September  30, 2000 and 1999,  our company had
capital   expenditures   of   approximately   $0.8  million  and  $0.6  million,
respectively.  These capital expenditures consisted primarily of the purchase of
manufacturing  equipment,  furniture  and  fixtures and  upgrading  its computer
systems.

     On September 15, 1999, we acquired all of the issued and outstanding shares
of capital stock of RHL at a purchase price of  approximately  $12.2 million and
refinanced RHL's working capital  indebtedness of approximately $5 million.  The
purchase price and refinancing of indebtedness were financed by borrowings under
the credit agreement, a portion of which was subsequently repaid with cash flows
from operating activities.

     Our  company  may  from  time  to  time   evaluate   additional   potential
acquisitions.  There can be no assurance that additional capital sources will be
available  to our  company  to fund  additional  acquisitions  on terms that our
company finds acceptable, or at all.

     In  September  1999,  AHC  consummated  a private  placement  to DLJMBII of
15,000,000 shares of its common stock at a purchase price of $1.00 per share. As
of October 31, 2000,  AHC had purchased  $11.8  million of Holding Corp.  Senior
Discount  Debentures and $7.5 million of AKI, Inc., Senior Notes. The debentures
and notes were contributed to Holding Corp. and subsequently retired.

     Capital  expenditures  for the  twelve  months  ending  June  30,  2001 are
currently  estimated  to be  approximately  $3.5  million.  Based on  borrowings
outstanding  (other than pursuant to the credit agreement and promissory note to
stockholder  and affiliate) as of September 30, 2000 and borrowings  outstanding
under the credit  agreement and promissory  note to stockholder and affiliate as
of October 31, 2000,  our company  expects  total cash payments for debt service
for the twelve months ending June 30, 2001 to be  approximately  $13.2  million,
consisting of $11.3 million in interest  payments on the notes,  $0.9 million in
capital  lease  obligations,  $1.0 million in interest and fees under the credit
agreement and $0.5 million in interest on the promissory note to stockholder and
affiliate.  Our company also expects to make royalty  payments of  approximately
$1.1 million during the twelve months ending June 30, 2001.

     At September 30, 2000,  Holding's cash and cash equivalents and net working
capital  were $0.8  million  and $22.7  million,  respectively,  representing  a
decrease  in cash and cash  equivalents  of $0.4  million and an increase in net
working capital of $8.9 million from June 30, 2000. Account receivables, net, at
September  30,  2000  increased  32.6% or $7.0  million  over the June 30,  2000
amount,  primarily due to increased  sales.  Inventory  increased as a result of
increased work-in-process related to production activities.

SEASONALITY

     Our  company's  sales and  operating  results have  historically  reflected
seasonal  variations.  Such seasonal  variations  are based on the timing of our
company's  customers'  advertising  campaigns,  which  have  traditionally  been
concentrated  prior to the Christmas and spring holiday seasons.  As a result, a
higher  level of sales are  reflected  in our  company's  first and third fiscal
quarters  ended  September  30 and March 31 when  sales  from  such  advertising
campaigns are principally  recognized  while our company's fourth fiscal quarter
ended June 30  typically  reflects  the lowest  sales level of the fiscal  year.
These  seasonal  fluctuations  require our company to  accurately  allocate  its
resources to manage our company's manufacturing  capacity,  which often operates
at full capacity during peak seasonal demand periods.

RECENTLY ISSUED ACCOUNTING STANDARDS

     In December  1999,  the  Securities  and Exchange  Commission  issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial  Statements" ("SAB
101"),   which  provides  the  Staff's  views  on  applying  generally  accepted
accounting  principles to revenue recognition issues. SAB 101, as amended by SAB
101A and SAB 101B,  outlines the criteria that must be met to recognize  revenue
and provide guidance for disclosures  related to revenue  recognition  policies.
The Company must  implement any  applicable  provisions of SAB 101 no later than
the fourth quarter of the fiscal year ending June 30, 2001. The Company does not
anticipate  that the  adoption  of

<PAGE>


SAB 101 will have a material impact on the consolidated financial statements and
will continue to analyze the impact of SAB 101.

     In September  2000,  the Emerging  Issues Task Force reached a consensus on
Issue 00-10,  "Accounting  for Shipping  and  Handling  Fees and Costs"  ("Issue
00-10").  Issue 00-10 requires that all amounts  billed to customers  related to
shipping  and handling  should be  classified  as revenues.  Issue 00-10 will be
effective  for the  Company no later than the fourth  quarter of the fiscal year
ended June 30, 2001. The Company is currently  assessing the effect,  if any, on
its financial statements of implementing Issue 00-10.

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: the  competitive  environment  in the
sampling industry in general and in our company's specific market areas; changes
in prevailing interest rates; inflation;  changes in cost of goods and services;
economic  conditions  in general and in our  company's  specific  market  areas;
changes in or failure to comply with postal regulations or other federal,  state
and/or local government regulations; liability and other claims asserted against
our company;  changes in operating strategy or development plans; the ability to
attract and retain  qualified  personnel;  the  significant  indebtedness of our
company; labor disturbances; changes in our company's capital expenditure plans;
and other factors.

     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 place undue
reliance  on  such  forward-looking   statements.   Our  company  disclaims  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.

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

     Our company's 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.

     Our company  periodically  enters 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 September 30, 2000,  there were no
forward exchange contracts outstanding.

<PAGE>


                            PART II OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)  Exhibits

              27.1     Financial Data Schedule
              27.2     Financial Data Schedule

         (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:  November 14, 2000              By:      /S/ KENNETH A. BUDDE
                                               ---------------------------------
                                               Kenneth A. Budde
                                               Senior Vice President &
                                                 Chief Financial Officer

                                      AKI, INC.

Date:  November 14, 2000              By:      /S/ KENNETH A. BUDDE
                                               ---------------------------------
                                               Kenneth A. Budde
                                               Senior Vice President &
                                                 Chief Financial Officer