<PAGE>

================================================================================


                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                            ----------------------


                                   FORM 10-Q

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

                      FOR THE QUARTER ENDED JUNE 30, 2001

                             --------------------

                                    0-19188
                             (Commission File No.)

                     APPLIED EXTRUSION TECHNOLOGIES, INC.
            (Exact Name of Registrant as Specified in Its Charter)



                                   DELAWARE
                           (State of Incorporation)
                                  51-0295865
                       (IRS Employer Identification No.)



                              3 CENTENNIAL DRIVE
                         PEABODY, MASSACHUSETTS 01960
                   (Address of Principal Executive Offices)


                                (978) 538-1500
             (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.   YES [X]   NO [ ].

The number of shares of the Registrant's Common Stock, $.01 par value per share,
outstanding as of August 9, 2001 was 12,781,354.
================================================================================
<PAGE>

                        PART I - FINANCIAL INFORMATION



                     APPLIED EXTRUSION TECHNOLOGIES, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                    JUNE 30,       SEPTEMBER 30,
                                                                                      2001              2000
                                                                                    --------       -------------
<S>                                                                                <C>             <C>
ASSETS
Current assets:
    Cash and cash equivalents ............................................         $  27,863          $   3,265

    Accounts receivable, net of allowance for doubtful accounts of $2,136
        at June 30, 2001 and $1,856 at September 30, 2000, respectively ..            44,336             43,131
    Inventory ............................................................            43,457             43,059
    Prepaid expenses and other assets ....................................            10,450              9,013
                                                                                   ---------          ---------
            Total current assets .........................................           126,106             98,468

Property, plant and equipment, net .......................................           285,245            280,300
Intangibles and deferred finance charges, net ............................            22,865              2,372
Other assets .............................................................            12,774              8,110
                                                                                   ---------          ---------
                                                                                   $ 446,990          $ 389,250
                                                                                   =========          =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable .....................................................            17,917          $  17,862
    Accrued expenses and other current liabilities .......................            28,663             27,216
    Note payable .........................................................             6,744               --
    Accrued interest .....................................................             1,450              9,971
                                                                                   ---------          ---------
            Total current liabilities ....................................            54,774             55,049

Long-term debt ...........................................................           277,359            209,500
Long-term liabilities and other credits ..................................            18,472             24,788
Commitments and contingencies.............................................

Stockholders' equity:
Preferred stock, $.01 par value; authorized, 1,000 shares, of which 300
        are designated Junior Preferred Stock; no stock outstanding ......              --                 --

Common  stock, $.01 par value; 30,000 shares authorized; 12,780 and 12,019
        shares issued at June 30, 2001 and September 30, 2000,
        respectively .....................................................               128                120
Additional paid-in capital ...............................................           101,468            100,266
Retained earnings ........................................................                35              4,060
Accumulated comprehensive loss ...........................................            (2,664)            (2,277)
                                                                                   ---------          ---------
                                                                                      98,967            102,169

Treasury stock, at cost, and other, 256 and 248 shares at June 30, 2001
        and September 30, 2000, respectively .............................            (2,582)            (2,256)
                                                                                   ---------          ---------
            Total stockholders' equity ...................................            96,385             99,913
                                                                                   ---------          ---------
                                                                                   $ 446,990          $ 389,250
                                                                                   =========          =========
</TABLE>
See notes to condensed consolidated financial statements.

                                       2
<PAGE>

                     APPLIED EXTRUSION TECHNOLOGIES, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                   THREE MONTHS ENDED JUNE 30, 2001 AND 2000
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                           2001          2000
                                                                                         ---------     ---------
<S>                                                                                      <C>           <C>
SALES...............................................................................     $  72,414     $  73,700
Cost of sales.......................................................................        55,108        59,398
                                                                                         ---------     ---------
GROSS PROFIT........................................................................        17,306        14,302

OPERATING EXPENSES:
    Selling, general and administrative.............................................         6,925         7,029
    Research and development........................................................         1,497         1,779
    QPF acquisition costs...........................................................         2,548             -
                                                                                         ---------     ---------
        Total operating expenses....................................................        10,970         8,808

OPERATING PROFIT....................................................................         6,336         5,494

NON-OPERATING EXPENSES:
    Interest expense, net...........................................................         6,315         5,461
                                                                                         ---------     ---------

Income before income taxes..........................................................            21            33
Income tax expense..................................................................             7            12
                                                                                         ---------     ---------
INCOME BEFORE EXTRAORDINARY ITEM....................................................     $      14     $      21
                                                                                         ---------     ---------

EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT, NET OF TAXES OF $1,112..........        (1,977)            -
                                                                                         ---------     ---------

NET INCOME (LOSS)...................................................................     $  (1,963)    $      21
                                                                                         ---------     ---------

EARNINGS PER COMMON SHARE BEFORE EXTRAORDINARY ITEM:
    Basic and diluted...............................................................     $    0.00     $    0.00
EARNINGS (LOSS) PER COMMON SHARE:
    Basic...........................................................................     $    (.16)    $    0.00
    Diluted.........................................................................          (.15)         0.00
AVERAGE COMMON SHARES OUTSTANDING:
    Basic...........................................................................        12,597        11,786
    Diluted.........................................................................        12,851        11,938
</TABLE>

                       CONDENSED CONSOLIDATED STATEMENTS
                          OF COMPREHENSIVE OPERATIONS
                   THREE MONTHS ENDED JUNE 30, 2001 AND 2000
                                (IN THOUSANDS)
<TABLE>
<S>                                                                                      <C>           <C>
Net income (loss)...................................................................     $  (1,963)    $      21
Exchange rate changes...............................................................           805          (478)
                                                                                         ---------     ---------
COMPREHENSIVE LOSS..................................................................     $  (1,158)    $    (457)
                                                                                         ---------     ---------
</TABLE>
See notes to condensed consolidated financial statements

                                       3
<PAGE>

                     APPLIED EXTRUSION TECHNOLOGIES, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                   NINE MONTHS ENDED JUNE 30, 2001 AND 2000
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                           2001          2000
                                                                                         ---------     ---------
<S>                                                                                      <C>           <C>
SALES...............................................................................     $ 208,127     $ 202,596
Cost of sales.......................................................................       164,346       156,631
                                                                                         ---------     ---------
GROSS PROFIT........................................................................        43,781        45,965

OPERATING EXPENSES:
    Selling, general and administrative.............................................        21,142        20,492
    Research and development........................................................         4,758         5,173
    Share incentive plan............................................................           861             -
    QPF acquisition costs...........................................................         2,548             -
                                                                                         ---------     ---------

        Total operating expenses....................................................        29,309        25,665

OPERATING PROFIT....................................................................        14,472        20,300

NON-OPERATING EXPENSES:
    Interest expense, net...........................................................        17,672        15,641
                                                                                         ---------     ---------

Income (loss) before income taxes...................................................        (3,200)        4,659
Income tax expense (benefit)........................................................        (1,152)        1,677
                                                                                         ---------     ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.............................................     $  (2,048)    $   2,982
                                                                                         ---------     ---------

EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT, NET OF TAXES OF $1,112..........        (1,977)            -
                                                                                         ---------     ---------

NET INCOME (LOSS)...................................................................     $  (4,025)    $   2,982
                                                                                         =========     =========

EARNINGS (LOSS) PER COMMON SHARE BEFORE EXTRAORDINARY ITEM:
    Basic...........................................................................     $    (.17)    $     .26
    Diluted.........................................................................          (.16)          .25
EARNINGS (LOSS) PER COMMON SHARE:
    Basic...........................................................................     $    (.33)    $     .26
    Diluted.........................................................................          (.32)          .25
AVERAGE COMMON SHARES OUTSTANDING:
    Basic...........................................................................        12,360        11,658
    Diluted.........................................................................        12,564        11,982
</TABLE>

                       CONDENSED CONSOLIDATED STATEMENTS
                          OF COMPREHENSIVE OPERATIONS
                   NINE MONTHS ENDED JUNE 30, 2001 AND 2000
                                (IN THOUSANDS)

<TABLE>
<S>                                                                                      <C>           <C>
Net income (loss)...................................................................     $  (4,025)    $   2,982
Exchange rate changes...............................................................          (387)         (325)
                                                                                         ---------     ---------
COMPREHENSIVE INCOME (LOSS).........................................................     $  (4,412)    $   2,657
                                                                                         =========     =========
</TABLE>
See notes to condensed consolidated financial statements.

                                       4
<PAGE>

                     APPLIED EXTRUSION TECHNOLOGIES, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                   NINE MONTHS ENDED JUNE 30, 2001 AND 2000
                                (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                           2001          2000
                                                                                         ---------     ---------
<S>                                                                                      <C>           <C>
OPERATING ACTIVITIES:
    Net income (loss)...............................................................     $  (4,025)    $   2,982
    Adjustments to reconcile net income (loss) to net cash used in operating
    activities net of acquisition of QPF:
        Provision for doubtful accounts.............................................           273           319
        Depreciation and amortization...............................................        17,010        15,728
        Deferred taxes and other credits............................................        (6,138)      (10,364)
        Stock issued for share incentive plan.......................................           861             -
        Write-off of deferred debt issuance costs included in extraordinary loss
        on early extinguishment of debt.............................................         1,651             -
        Changes in assets and liabilities which used cash:
            Prepaid expenses and other current assets...............................        (6,026)       (1,276)
            Accounts payable and accrued expenses...................................        (9,006)       (4,656)
            Accounts receivable and inventory.......................................         3,035       (18,543)
                                                                                         ---------     ---------
                Net cash used in operating activities...............................        (2,365)      (15,810)

INVESTING ACTIVITIES:
    Additions to property, plant and equipment......................................       (16,146)      (14,263)
    Acquisition of QPF assets.......................................................       (15,000)            -
                                                                                         ---------     ---------
                Net cash used in investing activities...............................       (31,146)      (14,263)

FINANCING ACTIVITIES:
    Proceeds from issuance of bonds, net of discount................................       270,859             -
    Redemption of $150,000 senior notes.............................................      (150,000)            -
    Borrowings (repayments) under line of credit agreement, net ....................       (53,000)       25,000
    Debt issuance costs.............................................................        (9,786)            -
    Proceeds from issuance of stock, net............................................            24         2,341
                                                                                         ---------     ---------
                Net cash provided by financing activities...........................        58,097        27,341

    Effect of exchange rate changes on cash.........................................            12          (325)
                                                                                         ---------     ---------
    Increase (decrease) in cash and cash equivalents, net...........................        24,598        (3,057)
    Cash and cash equivalents, beginning............................................         3,265         5,323
                                                                                         ---------     ---------
    Cash and cash equivalents, ending...............................................     $  27,863     $   2,266
                                                                                         =========     =========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
    Cash paid during the period for:
        Interest, including capitalized interest of $1,932 and $1,801, respectively.     $  28,883     $  20,191
        Income taxes................................................................           170           174
</TABLE>

See notes to condensed consolidated financial statements.

                                       5
<PAGE>

                     APPLIED EXTRUSION TECHNOLOGIES, INC.
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                   NINE MONTHS ENDED JUNE 30, 2001 AND 2000
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


1.   BASIS OF PRESENTATION

The information set forth in these statements is unaudited and may be subject to
normal year-end adjustments. The information reflects all adjustments that, in
the opinion of management, are necessary to present a fair statement of the
results of operations of Applied Extrusion Technologies, Inc. (the "Company" or
"AET") for the periods indicated. Results of operations for the quarter and nine
months ended June 30, 2001 are not necessarily indicative of the results of
operations for the full fiscal year.

Certain information in footnote disclosures normally included in financial
statements has been condensed or omitted in accordance with the rules and
regulations of the Securities and Exchange Commission. These statements should
be read in conjunction with the Company's Annual Report on Form 10-K for the
year ended September 30, 2000, filed with the Securities and Exchange
Commission.


2.   LONG-TERM DEBT

On June 19, 2001 the Company issued $275,000 of 10-3/4 percent Senior Notes due
2011 (the "Senior Notes"). The Senior Notes are unsecured senior obligations of
AET. The issue price of each Senior Note was $984.94 per $1,000 principal amount
at maturity, and each Senior Note carries a yield to maturity of 11 percent. The
bond discount is being amortized using the straight-line method. The net
proceeds to the Company from the sale of the Senior Notes after deducting
discount, fees and expenses were approximately $261.1 million. Of those
proceeds, $155.2 million was used to fund the redemption of and interest on the
11-1/2 percent senior notes due 2002 (the "2002 Notes"), $9.0 million was used
to fund a portion of the purchase price of the acquisition of the assets of QPF,
L.L.C., $74.1 million was used to repay existing indebtedness and interest due
under the Company's line of credit (the "Credit Facility"), and the remainder is
being held to be used for general corporate purposes.

In conjunction with the redemption of the 2002 Notes, the Company recorded a
loss on the early extinguishment of debt of $1,977, or $.15 per share, net of
taxes. This amount is comprised of unamortized debt issuance costs and interest
incurred during the 30-day call period.

In conjunction with the issuance of Senior Notes, the Credit Facility was
reduced from $96,000 of availability to $80,000. The Company amended the Credit
Facility on June 15, 2001 to modify interest coverage and leverage covenants to
facilitate the new Senior Notes. As of June 30, 2001, there was $12,435 in
letters of credit outstanding on the Credit Facility.


3.   INVENTORIES

Inventories are valued at the lower of cost or market, with cost determined
using an average-cost method. Inventories consisted of the following:

                                       JUNE             SEPTEMBER
                                       2001                2000
                                     ---------           --------
                Raw materials        $   7,847           $  9,336
                Finished goods          35,610             33,723
                                     ---------           --------
                Total                $  43,457           $ 43,059
                                     =========           ========

                                       6
<PAGE>

4.   SHARE INCENTIVE PLAN

In the first quarter of fiscal 2001, the Company recorded a one-time, non-cash
charge of $861 for shares issued to non-executive employees as part of an
incentive and retention program. Under this program the Company issued
approximately 600,000 shares of stock to its top 125 non-executive managers in
exchange for 1,200,000 of their vested and unvested stock options. These new
shares vest over two years and were granted in lieu of annual incentive bonuses
for these managers for fiscal 2000 and 2001.


5.   ACQUISITION OF CERTAIN ASSETS OF QPF, L.L.C.

On June 30, 2001 the Company completed its acquisition of certain assets of QPF,
L.L.C. ("QPF"), the OPP films business of Hood Companies. Assets acquired
include: machinery and equipment; intellectual property; intangibles; and
inventory of the business. The purchase price for the QPF assets was $21,744, of
which $15,000 was paid in cash using some of the proceeds from the Company's
recent bond offering, and the remainder was paid with an inventory note. In
conjunction with the QPF acquisition, the Company incurred certain costs that
were written off as an operating expense during the quarter.

The following represents the unaudited pro forma results of operations as if the
QPF acquisition had occurred as of October 1, 2000. The pro forma results do not
purport to be indicative of the results that actually would have been obtained
if the operations were combined during the periods presented or of results that
may occur in the future.

                                          NINE MONTHS ENDED
                                              JUNE 30,
                               ----------------------------------------
                                       2001                   2000
                               -------------------     ----------------
  Revenue                           $  237,567             $ 230,271
  Net income                        $    6,262             $  10,454
  Earnings per share (basic)        $     0.51             $    0.90
  Earnings per share (diluted)      $     0.50             $    0.87

The Company is presently undertaking, but has not yet completed, an allocation
of the purchase price, but anticipates that approximately $13,744 will be
allocated to intangible assets, primarily goodwill. Intangible assets are
anticipated to be amortized over their useful life in conformity with current
accounting policies. The initial allocation of assets acquired and liabilities
assumed were as follows:

     Inventory                                         $    5,000
     Property, plant and equipment                          5,000
     Intangibles                                           13,744
     Accrued expenses                                      (2,000)
                                                       ----------
                                                       $   21,744


ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS


COMPARATIVE RESULTS OF OPERATIONS FOR THE QUARTER AND NINE MONTHS ENDED
JUNE 30, 2001 WITH THE QUARTER AND NINE MONTHS ENDED JUNE 30, 2000


INTRODUCTION

AET is the largest North American manufacturer and seller of highly specialized
oriented polypropylene films, or OPP films, which are used primarily in consumer
product labeling, flexible packaging, overwrap and industrial applications. The
Company has a leading position in substantially all of the major high-end OPP
films end-use product categories in North America. AET offers one of the most
extensive product lines in the OPP films industry ranging from high-margin
specialized labels and high barrier films to basic heat sealable lower barrier
films.

                                       7
<PAGE>

For the purposes of this discussion and analysis, the three-month periods ended
June 30, 2001 and 2000 are referred to as the third quarters of 2001 and 2000,
respectively. All dollar amounts are in thousands.


RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                              THREE MONTHS        NINE MONTHS
                                             ENDED JUNE 30,      ENDED JUNE 30,
                                              2001     2000      2001     2000
                                             ------   ------    ------   ------
<S>                                          <C>      <C>       <C>      <C>
Sales...................................     100.0%   100.0%    100.0%   100.0%
Cost of sales...........................      76.1     80.6      79.0     77.3
Gross profit............................      23.9     19.4      21.0     22.7
Selling, general and administrative.....       9.6      9.5      10.2     10.1
Research and development................       2.1      2.4       2.3      2.6
Operating profit........................      12.3      7.5       8.6     10.0
Interest expense, net...................       8.7      7.4       8.5      7.7
Net income (loss).......................       2.3      0.0      (0.2)     1.5
</TABLE>

The Company reported sales for the third quarter of $72,414 compared with
$73,700 in the same quarter of 2000, a decrease of $1,286, as the Company
shifted sales away from lower-value films and began to transition production
capacity to fulfill sales to QPF customers. Sales for the first nine months of
2001 increased 2.7 percent to $208,127 in comparison to $202,596 for the first
nine months of 2000 primarily due to higher average selling prices as a result
of improved sales mix and slightly higher price levels. Sales outside the United
States were 16.4 percent and 18.8 percent of sales for the nine months ended
June 30, 2001 and 2000, respectively, and generated operating profit of 2.9
percent and 6.8 percent of total operating profit in those same periods.

Gross profit in the third quarter of fiscal 2001 was $17,306, or 23.9 percent of
sales, compared with 19.4 percent of sales in the third quarter of fiscal 2000,
due to lower raw material costs, as well as continued improvements in sales mix
and manufacturing efficiencies. This quarter continues a trend of improving
earnings.

<TABLE>
<CAPTION>
                                                         OPERATING    OPERATING
QUARTER ENDED (*)      GROSS PROFIT     GROSS MARGIN      PROFIT       MARGIN
------------------     ------------     ------------     ---------    ---------
<S>                    <C>              <C>              <C>          <C>
September 30, 2000        $ 9,554          14.5%           $1,308         2.0%
December 31, 2000         $11,378          18.1%           $2,453         4.1%
March 31, 2001            $15,097          20.7%           $6,454         8.8%
June 30, 2001             $17,306          23.9%           $8,884        12.0%
</TABLE>

(*) Excludes: $2,400 of costs associated with a temporary shutdown of certain
manufacturing plants in September 2000; $861 of non-cash charges related to the
share incentive plan for non-executive employees in December 2000; and $2,548 of
QPF transaction costs in June 2001.

For the nine months ended June 30, 2001, gross profit was $43,781, or 21.0
percent of sales, compared with $45,965, or 22.7 percent of sales, in the same
period of fiscal 2000. The decline in gross profit in fiscal 2001 was due to the
spike in raw material costs experienced late in fiscal 2000 and which carried
over into early fiscal 2001 resulting in higher-cost material purchases and
inventory values for products sold in fiscal 2001. Most of these cost increases
were not passed on to customers in the form of price increases due to the excess
capacity that existed in the OPP films industry. Capacity utilization is
expected to continue to strengthen and reach levels in the next twelve months to
support significant increases in profitability throughout the industry.

Raw material costs are now declining and are expected to decline further by the
end of the fiscal year. Margin expansion is expected to continue due to the
further declines predicted for resin costs, ongoing improvement in sales mix,
and further tightening of industry capacity utilization driven by continuing
demand growth for OPP films.

Total operating expenses of $8,422 for the third fiscal quarter of 2001, which
exclude $2,548 of QPF acquisition costs, were reduced slightly from $8,808 in
the same quarter of fiscal 2000. For the nine months ended June 30, 2001,
operating expenses increased slightly to $26,761, excluding the aforementioned
QPF acquisition costs, as

                                       8
<PAGE>

compared to $25,665 for the nine months ended June 30, 2000, due primarily to
the non-cash charge recorded in the first quarter of fiscal 2001 related to the
share incentive plan for non-executive employees.

Net interest expense for the third quarter of fiscal 2001 of $6,315 was $854
higher than interest expense in the third quarter of fiscal 2000 due primarily
to higher interest on the $275,000 of Senior Notes.

Income tax as a percent of income before income taxes was 36 percent for the
three and nine months ended June 30, 2001 and June 30, 2000.


LIQUIDITY AND CAPITAL RESOURCES

AET maintains a credit agreement with a group of lenders whereby the Company has
a $80,000 revolving credit facility (the "Credit Facility") with a final
maturity of January 29, 2003. The Credit Facility is secured by all the assets
of AET. It includes covenants which limit borrowings based on certain asset
levels, require AET to maintain a minimum tangible net worth and specified
interest coverage and leverage ratios, restrict payment of cash dividends to
stockholders and establish maximum capital expenditure levels. It also contains
other covenants customary in transactions of this type. During the third quarter
of fiscal 2001, the Company paid all amounts outstanding on its Credit Facility
in connection with the issuance of $275,000 in Senior Notes discussed below. The
Company also has $6,500 of revenue bonds outstanding, which are due November 4,
2004 and which are secured by a letter of credit issued under the Credit
Facility.

On June 19, 2001 the Company issued $275,000 of 10-3/4 percent Senior Notes due
2011 (the "Senior Notes"). The Senior Notes are unsecured senior obligations of
AET. The issue price of each Senior Note was $984.94 per $1,000 principal amount
at maturity, and each Senior Note carries a yield to maturity of 11 percent. The
net proceeds to the Company, after deducting fees and expenses, from the sale of
the Senior Notes were approximately $261.1 million. Of those proceeds, $155.2
million was used to fund the redemption of and interest on the 11-1/2 percent
senior notes due 2002, $9.0 million was used to fund a portion of the purchase
price of the acquisition of the assets of QPF, $74.1 million was used to repay
existing indebtedness and interest due under the Credit Facility, and the
remainder is being held for general corporate purposes.

In conjunction with the redemption of the 2002 Notes, the Company recorded a
loss on the early extinguishment of debt of $1,977, or $.15 per share, net of
taxes.

Operating activities for the nine months ended June 30, 2001 used $2,365, which
was the result of net income before depreciation and amortization and other
non-cash expenditures of $9,632, offset by an increase in working capital of
$11,997. The net working capital increase was primarily the result of decreases
in accounts payable and accrued expenses of $9,006, an increase in inventory of
$4,513, and decreases in prepaid expenses and other current assets and accounts
receivable of $6,026 and $1,478, respectively. During the quarter, payments
against restructuring reserves, representing payments on an operating lease,
reduced such accounts by $829 to a balance of $8,508 at June 30, 2001.


INFLATION

Management regularly reviews the prices charged for its products. When market
conditions allow, price adjustments are made to reflect changes in demand or
product costs due to fluctuations in the cost of materials, labor and inflation.
The costs of raw materials make up a significant portion of AET's costs and have
historically fluctuated. There can be no assurance, however, that future market
conditions will support any correlation between raw material cost fluctuations
and finished product films pricing.


SEASONAL NATURE OF CERTAIN OPP MARKETS

Certain of the end-use markets for the Company's OPP films are seasonal. For
example, demand in the snack food, soft drink and candy markets is generally
higher in the spring and summer. As a result, sales and net income are generally
higher in those periods, although actual results can be influenced by numerous
factors, such as raw material costs, competitive prices and other matters
discussed in this report.

                                       9
<PAGE>

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

SHORT-TERM AND LONG-TERM DEBT

The Company does not enter into financial instrument transactions for trading or
other speculative purposes or to manage interest rate exposure.

Except for the historical information contained herein, the matters discussed in
this report are forward-looking statements that involve risks and uncertainties
which could cause actual results to differ materially from those in the
forward-looking statements, including those related to the timely development
and acceptance of new products, fluctuations in raw materials and other
production costs, the loss of one or more significant customers, the impact of
competitive products and pricing, the timely completion of capital projects, the
success of the Company's efforts to expand into new markets and other risks
detailed in Exhibit 99 of the Company's Annual Report on Form 10-K for the year
ended September 30, 2000 and from time to time in the Company's other reports
filed with the Securities and Exchange Commission


                          PART II - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

The Company is subject to legal proceedings and claims that have arisen in the
ordinary course of its business and have not been fully adjudicated. These
actions, when ultimately concluded and determined, will not, in the opinion of
management, have a material adverse effect upon the financial position or
results of operations of the Company.

ITEM 4.   NOT APPLICABLE

ITEM 5.   NOT APPLICABLE

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

A.        EXHIBITS

99(a)     Cautionary Statement for Purposes of the "Safe Harbor" Provisions of
          the Private Securities Litigation Reform Act of 1995.
10.1*     Amended and Restated Credit Agreement dated as of April 15, 2001,
          between the Registrant and the Chase Manhattan Bank, as Administrative
          Agent.
10.1.1*   Waiver and Amendment No. 1 to the Credit Agreement dated as of June
          15, 2001.
10.2*     Asset Purchase Agreement among Registrant, QPF, L.L.C. and Hood
          Companies, Inc. dated as of May 3, 2001.
10.2.1*   Amendment No. 1 to Asset Purchase Agreement dated June 12, 2001.
10.3**    Indenture, dated as of June 19, 2001, by and among the Registrant,
          Applied Extrusion Technologies (Canada), Inc. and the Wells Fargo Bank
          Minnesota, National Association, as Trustee.
10.4**    Registration Rights Agreement, dated as of June 19, 2001, by and among
          the Registrant, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
          Smith Incorporated, Chase Securities, Inc., Credit Suisse First Boston
          Corporation and Deutsche Banc Alex. Brown, Inc.
--------------
(a)       Contained in Exhibits to the Registrant's Form 10-K for the fiscal
          year ended September 30, 2000.
*         Filed herewith.
**        Contained in Exhibits to the Registrant's Registration Statement on
          Form S-4 (No. 33-65294) filed with the commission on July 18, 2001.

The above referenced exhibits are, as indicated, either filed herewith or have
heretofore been filed with the Commission under the Securities Act and the
Exchange Act and are referred to and incorporated herein by reference to such
filings.

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<PAGE>

B.   REPORTS ON FORM 8-K

Report on Form 8K reporting the execution of a definitive agreement for the
acquisition of certain assets of QPF, L.L.C. filed on May 9, 2001.


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.

                                APPLIED EXTRUSION TECHNOLOGIES, INC.
                                             (Registrant)

                                By: /s/Anthony J. Allott
                                    -------------------------
                                    Anthony J. Allott
                                    Senior Vice President and
                                    Chief Financial Officer
August 13, 2001

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