FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2006

                                       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: 0-22624

                            FOAMEX INTERNATIONAL INC.
             (Exact Name of registrant as Specified in its Charter)


          Delaware                                                05-0473908
--------------------------------                          ----------------------
(State or other jurisdiction of                           (I.R.S. Employer
incorporation or organization)                            Identification Number)

1000 Columbia Avenue, Linwood, PA                                  19061
----------------------------------                              ----------
(Address of principal executive offices)                        (Zip Code)

Registrant's telephone number, including area code:  (610) 859-3000
                                                     --------------

Securities registered pursuant to Section 12(b) of the Act: None
                                                            ----

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01 per share.

     Indicate by a check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act.  YES       NO    X
                                                   ----      -----

     Indicate by a check mark if the  registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Act.  YES        NO   X
                                                 -----     ----

     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
   -----     -----

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference in Part III of this Annual Report on Form 10-K or any
amendment to this Annual Report on Form 10-K. [ ]

     Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer.
Large accelerated filer      Accelerated filer       Non-accelerated filer X
                        ---                    ---                        ---

     Indicate by a check mark  whether  the  registrant  is a shell  company (as
defined in Rule 12b-2 of the Exchange Act).
YES       NO    X
    ---       -----

     The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of July 2, 2006, was $42.1 million.

     The number of shares  outstanding  of the  registrant's  common stock as of
March 14, 2007 was 93,274,086.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None

<PAGE>

<TABLE>
<CAPTION>

                            FOAMEX INTERNATIONAL INC.

                                      INDEX

                                                                                                               Page
Part I
<S>           <C>                                                                                                 <C>
         Item 1.      Business                                                                                    3
         Item 1A.     Risk Factors                                                                                8
         Item 1B.     Unresolved Staff Comments                                                                  10
         Item 2.      Properties                                                                                 10
         Item 3.      Legal Proceedings                                                                          10
         Item 4.      Submission of Matters to a Vote of Security Holders                                        12

Part II
         Item 5.      Market for Registrant's Common Equity, Related Stockholder
                           Matters and Issuer Purchase of Equity Securities                                      12
         Item 6.      Selected Financial Data                                                                    14
         Item 7.      Management's Discussion and Analysis of
                           Financial Condition and Results of Operations                                         16
         Item 7A.     Quantitative and Qualitative Disclosures about Market Risk                                 31
         Item 8.      Financial Statements and Supplementary Data                                                31
         Item 9.      Changes in and Disagreements with Accountants
                           on Accounting and Financial Disclosure                                                31
         Item 9A.     Controls and Procedures                                                                    31
         Item 9B.     Other Information                                                                          32

Part III
         Item 10.     Directors and Executive Officers of the Registrant                                         32
         Item 11.     Executive Compensation                                                                     35
         Item 12.     Security Ownership of Certain Beneficial Owners
                           and Management and Related Stockholder Matters                                        48
         Item 13.     Certain Relationships and Related Transactions                                             50
         Item 14.     Principal Accountant Fees and Services                                                     50

Part IV
         Item 15.     Exhibits and Financial Statement Schedules                                                 52

         Signatures                                                                                              56
</TABLE>


We will furnish a copy of any exhibit to this Annual Report on Form 10-K upon
the payment of a fee equal to our reasonable expense in furnishing such exhibit.



                                       2
<PAGE>


<PAGE>


PART I
ITEM l.       BUSINESS

General

     Foamex  International  Inc. (referred to in this document as the "Company",
"we", "us" or "our") is engaged  primarily in the manufacturing and distribution
of flexible polyurethane and advanced polymer foam products.  Our operations are
conducted through our wholly-owned  subsidiary,  Foamex L.P., and through Foamex
Canada Inc. ("Foamex Canada"), Foamex Latin America, Inc. and Foamex Asia, Inc.,
which are wholly-owned  subsidiaries of Foamex L.P. We were incorporated in 1993
to act as a holding company for Foamex L.P.

     We make our Annual Reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K and proxy statements for stockholders'  meetings, as
well as any  amendments to those  reports,  available free of charge through our
web site as soon as reasonably  practicable  after we  electronically  file that
material  with, or furnish it to, the Securities  and Exchange  Commission  (the
"SEC").  You can learn more  about us by  reviewing  our SEC  filings on our web
site. Our SEC reports, available through www.sec.gov, which is maintained by the
SEC, can be accessed through the investor  relations page of our web site, which
is located at www.foamex.com/investor.php.

Emergence from Chapter 11 Bankruptcy

     The following discussion provides general background  information regarding
our  chapter 11 cases.  For more  detailed  information,  see Note 1,  "Basis of
Presentation and Bankruptcy" in the notes to consolidated financial statements.

     On September 19, 2005 (the "Petition Date"), we and certain of our domestic
subsidiaries,   including  Foamex  L.P.,  our  primary   operating   subsidiary,
(collectively  referred to as the  "Debtors"),  filed  voluntary  petitions  for
relief under chapter 11 of the United States  Bankruptcy  Code (the  "Bankruptcy
Code") in the United States  Bankruptcy  Court for the District of Delaware (the
"Bankruptcy Court").

     We emerged  from  bankruptcy  on  February  12,  2007 by  consummating  the
transactions provided for in the second amended disclosure statement and plan of
reorganization  (the  "Plan")  filed with the  Bankruptcy  Court on November 27,
2006. The Bankruptcy Court confirmed the Plan on February 1, 2007.

     On November 27, 2006, we filed a second  amended  disclosure  statement and
the Plan with the Bankruptcy Court, which amended and superseded in all respects
the first amended disclosure statement and the first amended plan, respectively.
On the same date,  the Bankruptcy  Court approved the second amended  disclosure
statement.  On December  12,  2006,  we filed a first  supplement  to the second
amended disclosure  statement with the Bankruptcy Court to supplement the second
amended  disclosure  statement by  outlining  trading  restrictions  that became
effective  under our second amended and restated  certificate  of  incorporation
that we adopted  under the Plan.  On December 20,  2006,  the  Bankruptcy  Court
entered  the  order  approving  the  first  supplement  to  the  second  amended
disclosure statement and on February 1, 2007 confirmed the Plan. We emerged from
bankruptcy on February 12, 2007 (the "Effective Date").

     The  Plan  included  payment  in full in cash  of  amounts  due,  including
interest under (i) the DIP Revolving  Credit  Facility,  (ii) the DIP Term Loan,
including a prepayment premium of approximately  $4.3 million,  (iii) the Senior
Secured  Notes,  including a prepayment  premium of $7.5  million,  and (iv) the
Senior  Subordinated  Notes.  In  addition,  payment in full in cash,  including
interest,  was made to holders of allowed general  unsecured  claims.  There are
several  claims that are subject to pending  objections in  Bankruptcy  Court or
otherwise designated as disputed under the Plan and we will continue to litigate
or resolve these matters, as appropriate.  The Plan also provided for holders of
equity  interests  to  retain  their  interest  and for each  share of  Series B
preferred stock to be converted into 100 shares of common stock.

     In order to finance the Plan,  Foamex L.P.  entered into new senior secured
credit  facilities  on February 12, 2007 which  provided for  aggregate  maximum
borrowings of up to $775.0  million,  including  $600.0  million under term loan
facilities,  comprised of $425.0  million  under a first lien term loan facility
with a  six-year  maturity  and  $175.0  million  under a second  lien term loan
facility with a seven-year  maturity,  and a revolving credit facility


                                       3
<PAGE>


providing for up to $175.0  million of revolving  loans  outstanding at any time
(including up to $45.0 million available for letters of credit) with a five-year
maturity. Foamex L.P. borrowed approximately $613.4 million under the new senior
secured credit facilities on the Effective Date to fund the Plan.

     In addition, on January 4, 2007, we offered rights to existing stockholders
to purchase 2.506 shares of our common stock for each share of common stock held
as of December 29, 2006 and holders of preferred  stock as of the same date were
offered rights to purchase 250.6 shares of common stock for each preferred share
held,  in each  case for  $2.25  per  share.  Stockholders  exercised  rights to
purchase  approximately  62.9  million  shares of common  stock  pursuant to the
rights offering with gross proceeds aggregating approximately $141.4 million. In
addition,   five  of  the  Company's  largest   stockholders  (the  "Significant
Stockholders")  purchased  approximately  3.8  million  shares of  common  stock
pursuant to a call option for  approximately  $8.6 million  increasing the gross
proceeds  from the issuance of  additional  common  stock to $150.0  million and
increasing the Significant  Stockholders common stock ownership to approximately
57%. After consideration of a $9.5 million put option premium paid to and a $2.0
million call option  premium  paid by the  Significant  Stockholders,  and other
expenses  of  the  rights   offering,   the  net  equity   proceeds   aggregated
approximately $141.0 million.

     Subsequent  to the  bankruptcy  filing date,  Statement  of Position  90-7,
"Financial  Reporting by Entities in  Reorganization  Under the Bankruptcy Code"
("SOP 90-7")  applied to our financial  statements  while we operated  under the
provision of chapter 11. SOP 90-7 does not change the  application  of generally
accepted  accounting  principles  in the  preparation  of financial  statements.
However,  SOP 90-7 does  require  that the  financial  statements,  for  periods
including and  subsequent to the filing of the chapter 11 petition,  distinguish
transactions  and events that are directly  associated  with the  reorganization
from the ongoing  operations of the business.  We will not be permitted to adopt
"Fresh Start  Reporting" as defined by paragraph 36 of SOP 90-7.  (See Note 1 to
the consolidated financial statements.)

Business Segments

     We believe we are the  largest  manufacturer  and  distributor  of flexible
polyurethane  and  advanced  polymer  foam  products in North  America.  We have
numerous manufacturing facilities dedicated to specific product lines as well as
facilities with the capability to support  multiple  product lines.  Each of our
business  segments has a customer base that is significantly  different from the
other  segments.  Our senior  executives  direct  sales  efforts for each of our
business segments. See Note 17 to the consolidated financial statements.

     Our five business segments are described below.

     Foam Products

     Our foam products are used in various markets, such as bedding,  furniture,
recreational   and  consumer.   These  foams  are   distributed   directly  from
manufacturing   facilities  or   indirectly   through   independent   fabricator
distributors.  The bedding industry uses these foams in quilting rolls, toppers,
cores and border rolls for mattresses.  In the furniture industry, the foams are
generally used for upholstered  seating products.  The recreational  market uses
our foams  primarily for  cushioning,  while the consumer  market utilizes these
foams in a broad range of  products,  such as  mattress  overlay  pads,  leisure
furniture, futons and pillows. Foam products are generally sold in large volumes
on a regional basis because of high shipping costs.

     The development and introduction of value-added  products continues to be a
priority including Sensus(R), Quiltflex(R), Pillowflex(R), viscoelastic "memory"
foams and other high performance foam products for the bedding  industry,  which
maintain their properties better than other foams and materials.

     Carpet Cushion Products

     We manufacture and distribute carpet cushion products,  which include prime
and rebond carpet padding. Prime carpet padding is made from virgin polyurethane
foam,  which is formed into buns and slit into rolls.  Rebond carpet  padding is
primarily  made  from  recycled  foam,  which is  shredded  into  small  pieces,
processed  and  then  bonded  using a  polyurethane  chemical  adhesive.  Rebond
manufacturing requires the management of a


                                       4
<PAGE>

comprehensive  recycling  business  that  includes  an  extensive  internal  and
external  collection  network  from  the  automotive  and foam  industries  on a
worldwide  basis.  Our rubber and felt carpet  cushion  businesses  were sold to
Leggett & Platt,  Incorporated  on April 29, 2005 for net cash proceeds of $38.7
million. See Note 9 to the consolidated financial statements.

     Automotive Products

     We  believe  we are  one of the  largest  suppliers  of  polyurethane  foam
products to the North American automotive  industry.  Our product lines include:
foam rolls and  flame-laminated  composites,  to  improve  comfort  and  provide
pleasing  appearance  in seat  covers;  engineered  foams  and  flame  laminated
composites for headliner and other interior soft-trim applications; barrier foam
products,  which allow our customers to more efficiently process components with
low-pressure  injection-molding  or  foam-in-place  manufacturing  methods;  and
molded seating cushions for heavy trucks.

     We have the ability to conduct most original equipment manufacturer ("OEM")
fabric composite testing in our A2LA accredited  laboratory,  located in Auburn,
Indiana.  This  testing  is  required  to  meet  Federal  Motor  Vehicle  Safety
Standards.

     We supply  our  product  lines  through a range of tiers in the  automotive
industry supply chain, varying greatly depending on the specific application and
the OEM. Most frequently, we supply to Tier 1 system integrators,  which in turn
provide  components and systems to the OEMs. In conjunction  with these efforts,
we maintain  direct  contact with OEMs for material  specification  development,
appearance approvals, and new product development initiatives.

     As  of  January  2,  2006,  the   Automotive   Products   segment   assumed
responsibility  for  manufacturing  operations in Mexico City.  These operations
were previously included in the Other segment.

     Technical Products

     We believe we are one of the industry's  prime  innovators and suppliers of
specialty  foam  material,  which  we refer to as  "Technical  Products,"  for a
diverse array of markets and industries.  Technical  Products can be tailored to
meet a wide variety of energy and fluid  management  challenges and are found in
automotive,  industrial,  electronics,  consumer,  medical,  and other  markets.
Technical  Products  are commonly  used in  applications  such as gasketing  and
sealing systems for automobiles,  inkjet printer cartridges,  rollers in digital
imaging equipment, noise and vibration damping for computer disc drives, air and
fluid filtration in cars and aircraft,  medical devices,  and numerous  consumer
items such as sponges, mops, paint brushes and cosmetic applicators.  Due to the
highly  specialized  nature of most  Technical  Products,  a technical  staff of
engineering and research and development  experts work with customers to design,
develop and  manufacture  products  to meet  specific  requirements.  We provide
technical  support  from  product   conceptualization  through  prototyping  and
production  and work  closely  with the  product  developers,  engineers,  brand
managers  and  research  and  development  staffs of both major OEMs in specific
markets and with the industry's  premier foam fabricators to deliver  innovative
solutions to their product needs and challenges.

     Other

     Other consists  primarily of corporate  expenses not allocated to the other
business segments, impairment charges,  restructuring charges and gains on sales
of assets.

Marketing and Sales

     Foam Products sells  directly to major bedding and furniture  manufacturers
and also through third party independent fabricators. The key strategic elements
supporting  growth in these areas are a focus on  marketing  and sales  efforts,
high quality,  cost-competitive  and  innovative  products and low freight costs
through   optimal  plant   location.   Plant  locations  are  critical  in  this
regionalized  business  where the  transportation  cost  typically  comprises  a
significant portion of product cost.


                                       5
<PAGE>

     Carpet Cushion  Products sells carpet padding and flooring  underlayment to
distributors,  major home centers,  floor covering retail chains and independent
retailers.

     Our  Automotive  Products  customer  base  includes all of the major Tier 1
interior system  integrators.  We compete for new business both at the beginning
of  development of new models and upon the redesign of existing  models.  Once a
foam producer has been  designated to supply parts for a new model program,  the
foam producer  usually  produces parts for the life of the program.  Competitive
factors in the market include product quality and  reliability,  cost and timely
service,  technical expertise and development capability, new product innovation
and customer service.

     We market our Technical  Products directly to major OEMs in the Automotive,
Industrial,   Electronics,   Consumer  and  Medical  sectors  where  we  provide
engineering,  research and  development  resources to assist these  customers in
developing innovative solutions to their most demanding technical  requirements.
We  also  market  our  Technical  Products  through  a  network  of  independent
fabrication and distribution companies in North America,  Europe and Asia. These
fabricators or distributors  often further process or finish Technical  Products
to meet the specific  needs of end users.  Our  specialty  and  technical  foams
service unique end user  requirements  and are generally sold at relatively high
margins compared to the other business segments.  This business is characterized
by a diversity and complexity of both customers and applications.

International Operations

     Our  international  operations  are located in Mexico,  Canada and Asia. We
operate  six   facilities  in  Mexico  serving  the  automotive  and  cushioning
industries and two manufacturing facilities in Canada that service foam products
customers. During 2006, we closed two manufacturing facilities, including a foam
pouring  facility,  in Toronto,  Canada.  Four of the  facilities  in Mexico are
located  within  the  Mexican  free  trade  zones  close to the U.S.  border and
primarily service automotive  customers.  Our Mexico City facility services both
automotive and foam fabrication customers.

     We  participate  in  a  joint  venture  with  manufacturing  facilities  in
Thailand,  Singapore  and China.  Although we own 70% of the equity of the joint
venture,  we do not control  this  entity.  The joint  venture  installed a foam
pourline  during 2003. This pourline,  which was entirely  financed by the joint
venture  entity,  reduces  foam  shipping  costs  for  sales to the  region  and
increases the range of markets served.

     We  have  maintained  a  longstanding   relationship   with  Recticel  s.a.
("Recticel"), a leading manufacturer of flexible polyurethane foam in Europe. We
have in the past exchanged technical  information and expertise relating to foam
manufacturing with Recticel.

     Major Customers

     Net sales to Johnson  Controls,  Inc., which are included in our Automotive
Products  segment,  accounted for  approximately  9.3% of our net sales in 2006,
10.9% of our net sales in 2005 and 12.9% of our net sales in 2004. We anticipate
our percentage of net sales to Johnson Controls,  Inc. will increase in 2007. No
other customer  accounted for more than 10.0% of our net sales during any of the
past three years.  Net sales to our five largest  customers,  including  Johnson
Controls, Inc., comprised approximately 30.2% of our net sales in 2006, 27.7% of
our net sales in 2005 and 30.2% of our net sales in 2004. The loss of any one of
these customers could have a material adverse effect on our business.

Manufacturing and Raw Materials

     Our  manufacturing  and  distribution  facilities for the Foam Products and
Automotive  segments  are  located  regionally  to service  our major  customers
because the high  freight  cost in  relation  to the cost of foam and  laminated
composites results in distribution being most cost-effective within a 200 to 300
mile radius. The square footage of


                                       6
<PAGE>



our foam manufacturing  facilities is significant as foam production  requires a
large area for curing or lay down space.

     Our fabrication  process involves cutting foam buns into various shapes and
sizes  to  meet  customer  specifications.  Scrap  foam is a  byproduct  of foam
production and  fabrication  and is a key material  needed in the manufacture of
rebond  carpet  padding.  We internally  generate a  substantial  portion of the
polyurethane scrap foam used in the production of rebond carpet padding from our
other  operations,  but must  purchase  the  balance  of our  requirements  in a
volatile scrap market from both domestic and foreign sources.  Historically, the
market price of rebond carpet padding has generally  fluctuated  with the market
price of scrap foam.

     Raw materials  account for approximately 75% of our cost of goods sold. The
two principal  chemicals used in the manufacture of flexible  polyurethane  foam
are toluene  diisocyanate,  or "TDI," and polyol.  There are a limited number of
major suppliers of TDI and polyol.  We generally have alternative  suppliers for
each major raw material.  We believe that we could find  alternative  sources of
supply  should we cease  doing  business  with any one of our  major  suppliers,
although there may be some delay in replacing a major supplier.  A disruption in
our ability to obtain TDI and/or polyol that continues for a significant  period
of  time  could  cause  us to  suspend  or  curtail  some  of our  manufacturing
operations,  which  could have a material  adverse  effect on our  business  and
results of  operations.  In September  and October  2005,  the supply of TDI was
disrupted as a major supplier  closed a plant  permanently  and other sources of
supply  were  curtailed  for a period of time by  Hurricanes  Rita and  Katrina.
Production of foam was reduced  throughout the industry and foam  production was
allocated to customers for a period of time.

     The prices of TDI and polyol have  historically been cyclical and volatile.
The  prices of these raw  materials  are  influenced  by  demand,  manufacturing
capacity,  oil and natural gas prices and the current  geopolitical  instability
and its  impact on oil  production  and  prices.  We  experienced  increases  of
approximately  13% in the weighted  average  price of raw  materials  from major
chemical  manufacturers  in the fourth  quarter of 2006  compared  to the fourth
quarter of 2005 and  approximately  35% for the full year 2006 compared to 2005.
We  attempt  to offset  raw  material  price  increases  through  selling  price
increases  and  manufacturing  process  efficiencies.  We were able to implement
significant  selling  price  increases  in the fourth  quarter  of 2005.  In the
future,  we may not be successful  in  implementing  selling price  increases to
fully recover raw material cost increases. Competitive pricing pressure may also
require us to adjust our selling prices or lose volume.

Employees

     As  of  December  31,  2006,  we  employed   approximately  4,000  persons.
Approximately  1,000 of these  employees are located  outside the United States,
including  approximately  400 covered by collective  bargaining  agreements with
labor  unions.   Approximately  750  United  States  employees  are  covered  by
collective bargaining agreements at seven facilities. These agreements expire on
various  dates  through  February  22,  2009.  We  consider  relations  with our
employees to be good.

Competition

     The flexible  polyurethane foam industry is highly  competitive with price,
quality,  service and product offerings being significant  competitive  factors.
Our  competitors  in the  polyurethane  foam  industry  include E. R.  Carpenter
Company,  Flexible Foam Products,  Inc., Hickory Springs Manufacturing  Company,
Future Foam, Inc., Leggett & Platt, Incorporated, and The Woodbridge Group. None
of these  competitors  individually  competes in all of the business segments in
which we do business.

Patents and Trademarks

     We own various  patents and trademarks  registered in the United States and
in numerous  foreign  countries.  The  registered  processes  and products  were
developed  through  ongoing  research  and  development  activities  to  improve
quality, reduce costs and expand markets through development of new applications
for  flexible  polyurethane  foam  products.  While we consider  our patents and
trademarks  to be a  valuable  asset,  we do not  believe  that our  competitive
position  is  dependent  upon  patent  protection  or that  our  operations  are
dependent  upon any  individual  patent,  trademark or  tradename.


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<PAGE>

Research and Development

     We believe we have a leading  research and  development  capability  in the
flexible  polyurethane  foam  industry.  Our primary  research  and  development
facility is located in Eddystone,  Pennsylvania.  Expenditures  for research and
development  amounted  to $3.2  million in 2006,  $2.3  million in 2005 and $2.8
million in 2004.

     Foamex L.P.,  Recticel,  and Beamech Group Limited,  an unaffiliated  third
party,  have an interest in Prefoam AG, a Swiss  corporation  that  develops new
manufacturing  technology for the production of polyurethane  foam including the
VPFSM manufacturing  process.  Foamex L.P., Recticel and their affiliates have a
royalty-free  license to use technology  developed by the Swiss corporation.  We
and Recticel have exchanged know-how, trade secrets, engineering and other data,
designs,  specifications,  chemical formulations,  technical information, market
information and drawings which are necessary or useful for the manufacture,  use
or sale of foam  products.  We anticipate  that we will continue to do so in the
future.

ITEM 1A. RISK FACTORS

     In addition to the other  information  in this Annual  Report on Form 10-K,
investors  should carefully  consider the following  factors about us. These may
not be the only  risks we face.  Additionally,  we may face risks that we do not
deem to be  material  at the time but which may become  material  in the future.
Certain statements in "Risk Factors" are forward-looking  statements. See item 7
-  Managements'  Discussion  and Analysis of Financial  Condition and Results of
Operations - "Forward-Looking Statements."

An increase in raw material costs may have an adverse effect on us.

     Because the cost of chemicals is the largest  single  component of our cost
of  goods  sold,  the  price  and  availability  of the  chemicals  we  purchase
significantly affects our business. In 2006, our cost of raw materials increased
35%, on average,  over 2005. The two principal chemicals used in the manufacture
of flexible  polyurethane foam are TDI and polyol.  The prices of TDI and polyol
are influenced by demand, manufacturing capacity and oil and natural gas prices.
Specifically,  since the primary chemicals used to create TDI and polyol are all
oil-based derivatives,  fluctuating oil and energy costs, like those experienced
in the last few years,  could adversely affect our  manufacturing  costs. We may
not be able to fully offset raw material price  increases  through selling price
increases and manufacturing process efficiencies. To the extent we are unable to
so offset any raw  material  price  increases,  our  business  may be  adversely
affected.

Our ability to utilize our net operating loss carryforwards may be limited.

     As of December 31, 2006, we had  approximately  $288.7  million of U.S. NOL
carryforwards with which to offset our future taxable income. Section 382 of the
Internal  Revenue Code ("IRC  Section  382"),  however,  limits a  corporation's
utilization of NOL carryforwards  following an IRC Section 382 ownership change.
We believe that we have not undergone an IRC Section 382 ownership  change since
June 2001 that limited our future NOL utilization to approximately $21.0 million
per year. We currently have approximately $57.0 million of our U.S. NOLs subject
to such  limitation.  The balance of  approximately  $231.7  million of NOLs are
currently not subject to limitation on their utilization.

     While we do not believe  that we have had an  additional  ownership  change
under IRC  Section  382 at the  Effective  Date of the Plan,  we cannot  provide
assurance that there has been no such ownership  change.  If it were  determined
that there was an IRC Section 382 ownership change at or near the Effective Date
of the Plan, we may be required to pay cash for income tax obligations  prior to
the full utilization of available NOLs. We do not believe that the amount of any
limitation  would  have a  significant  impact  on our cash  flows or  financial
position.


                                       8
<PAGE>



We depend on a limited number of suppliers of TDI and polyol.

     A disruption  in our ability to obtain TDI and polyol that  continues for a
significant  period of time could  cause us to  suspend  all or a portion of our
manufacturing  operations,  which  could have a material  adverse  effect on our
business  results  and  operations.   Two  examples  of  such  disruptions  were
Hurricanes Rita and Katrina in 2005.

Major  customers'  financial  condition and supply decisions may have a material
effect on us.

     Our financial  performance  is directly tied to the financial  condition of
our  customers  and  our  customers'  decisions  concerning  suppliers.  This is
especially  so because a small  number of  customers  account for a  significant
percentage of our net sales.  Net sales to our five largest  customers  together
accounted for approximately 30.2% of our net sales in 2006. Net sales to Johnson
Controls,  our largest  customer,  accounted for  approximately  9.3% of our net
sales in 2006.  Thus,  the loss of,  or a  substantial  decrease  in the  amount
purchased by, these major customers could have a material  adverse effect on our
financial position and results of operations.

The polyurethane foam business has excess capacity and is somewhat cyclical.

     We are subject to excess capacity in the polyurethane  foam industry and to
the cyclical nature of the automotive,  housing,  technology,  and furniture and
bedding industries.  A protracted downturn in any of these industries could have
a material  adverse  effect on our results of  operations.  In  particular,  the
problems  facing  the  North  American   automotive   industry,   which  is  our
second-largest revenue source, have negatively impacted our automotive business,
and may negatively impact our financial condition in the future.

Certain disputed  unliquidated or contingent claims against us, including claims
in certain legal proceedings, remain outstanding.

     A number of disputed  unliquidated or contingent  claims were filed against
us in our bankruptcy  proceedings.  To the extent we are required to satisfy any
of these  claims in the  future,  we intend to do so  through  insurance,  where
available.  However,  we  cannot  assure  you that we will  have  the  necessary
insurance or that any insurance we may have will be sufficient for this purpose.

     Among these disputed claims are certain  disputes to which Foamex L.P. is a
party  relating  to a fire at a  nightclub  in West  Warwick,  Rhode  Island  in
February  2003.  The fire  destroyed  the  nightclub,  killing  100  persons and
injuring over 100 others. Foamex L.P. and several of its affiliates are named as
defendants,  along with more than 50 other  defendants,  in  certain  litigation
concerning the fire. The ensuing litigation, comprising numerous cases, has been
consolidated  in a  single  case,  Gray v.  Derderian,  Case  No.  04-312L  (the
"Litigation"), before the United States District Court for the District of Rhode
Island.  Plaintiffs  have also  filed  proofs of claim in our  bankruptcy  case.
Foamex L.P. is named in these cases  solely as an alleged  successor  to General
Foam Corporation  ("GFC"),  a defendant in the Litigation.  In addition to other
foam  manufacturing  defendants  in the  Litigation,  GFC  is  alleged  to  have
manufactured  and sold  polyurethane  foam to a foam fabricator in Rhode Island.
The  foam  fabricator  is  alleged  to have  then  sold the foam at issue to the
nightclub.  The foam was among other building  materials  alleged to have caught
fire when pyrotechnics were set off inside the nightclub.

     The  Litigation is in its early stages.  We believe that there are multiple
defenses to both (i) the claims against GFC and (ii) the successor claim against
Foamex  L.P.  We intend to  continue  vigorously  defending  Foamex  L.P. in the
Litigation.  We also believe that, if GFC is held liable for monetary damages in
the  Litigation,  GFC is unable to satisfy  that  obligation  and Foamex L.P. is
found to have  liability as a successor  to GFC,  there is likely to be adequate
insurance  available to Foamex L.P. to cover such liability.  However, we cannot
assure  you that the  defenses  available  to GFC or Foamex  L.P.  as an alleged
successor will prevail.  In addition,  we cannot assure you that, if GFC is held
liable for monetary damages in the Litigation,  GFC will be able to satisfy that
obligation  through  its  insurance  or assets or that any  liability  insurance
available to Foamex L.P. will be sufficient to cover any potential  liability to
Foamex L.P., if Foamex L.P. were to be found to be a successor to GFC.



                                       9
<PAGE>


We are subject to extensive federal, state, local and foreign environmental laws
and regulations.

     Our past and present business operations and the past and present ownership
and  operation  of our real  properties  are subject to  extensive  and changing
federal, state, local and foreign environmental laws and regulations,  including
those  relating  to the  use,  handling,  storage,  discharge  and  disposal  of
hazardous   substances,   the  discharge  or  emission  of  materials  into  the
environment  and  the  remediation  of  environmental   contamination.   We  are
remediating soil and groundwater contamination at five of our current and former
locations.  We are also designated as a Potentially Responsible Party ("PRP") by
the United States  Environmental  Protection  Agency, or by state  environmental
agencies,  at one site.  If there are  additional  sites or our estimates of our
potential  environmental  liabilities  are incorrect,  there could be a material
adverse effect on our financial condition and results of operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

       None.

ITEM 2. PROPERTIES

     As of December 31, 2006, we maintained 39  manufacturing  and  distribution
facilities. Total floor space in use at our 11 owned facilities is approximately
2.7 million square feet and total floor space in use at our 28 leased facilities
is approximately  3.5 million square feet, with 31 of these  facilities  located
throughout 25 cities in the United States, two facilities located in Canada, and
six facilities  located in Mexico.  At December 31, 2006, we have  approximately
1.2  million  square  feet  of  idle  space.  We  sold  an  idle  facility  with
approximately 0.4 million square feet of space in February 2007.

     We have closed certain manufacturing  facilities,  warehouse locations, and
administrative  offices as part of our restructuring process. In 2006, we closed
two manufacturing  facilities,  including a foam pouring  facility,  in Toronto,
Canada  and our  foam  pouring  facility  in  Orlando,  Florida.  To the  extent
possible, we utilized our ability under Section 365(a) of the Bankruptcy Code to
reject unexpired real property leases and executory contracts for the closures.

     We have no leases expiring in 2007. The earliest lease termination date for
any of our foam pouring  facilities for which we do not have renewal  options is
2011.

     We  lease  an  approximately  47,000  square  feet  corporate  headquarters
facility  at 1000  Columbia  Avenue,  Linwood,  Pennsylvania  19061 and lease an
administrative office in Novi, Michigan for the Automotive Products segment.

     We do not report facility information by business segment since many of our
facilities produce products for multiple business segments.

ITEM 3. LEGAL PROCEEDINGS

     Litigation

     We and our  subsidiaries are party to various  lawsuits,  both as defendant
and  plaintiff,  arising in the normal course of business.  It is the opinion of
management that the  disposition of these lawsuits will not,  individually or in
the  aggregate,  have a material  adverse  effect on our  financial  position or
results of operations.  If management's  assessment of the liability relating to
these actions is incorrect,  these actions could have a material  adverse effect
on our consolidated financial position, results of operations and cash flows. As
of December 31, 2006, we have accrued approximately $1.9 million for litigation,
claims and other legal  matters  (the  "Litigation  Matters") in addition to the
environmental matters discussed below.

     In July 2001, Foamex L.P.  purchased certain assets, but did not assume any
liabilities,  related to the  manufacture  and sale of a variety of polyurethane
products from a group of sellers,  including GFC. PMC, Inc. ("PMC"),  the parent
of GFC, served as guarantor under the asset purchase agreement memorializing the
sale. The guarantee,


                                       10
<PAGE>


for  the  benefit  of  Foamex  L.P.,  covered  the  performance  of  all  terms,
conditions,  covenants and  indemnities  required to be performed by the sellers
(including GFC) under the agreement.

     Foamex L.P. is party to certain disputes  relating to a fire at a nightclub
in West Warwick, Rhode Island in February 2003. The fire destroyed the nightclub
killing 100 persons and injuring over 100 others. Foamex L.P. and several of its
affiliates are named as defendants, along with more than 50 other defendants, in
certain  litigation  concerning  the fire.  The  ensuing  Litigation  comprising
numerous cases has been  consolidated in a single case, Gray v. Derderian,  Case
No.  04-312L,  before the United States District Court for the District of Rhode
Island.  Plaintiffs also filed proofs of claim in our bankruptcy  cases.  Foamex
L.P. is named in these cases solely as an alleged  successor to GFC, a defendant
in the  Litigation.  In addition to other foam  manufacturing  defendants in the
Litigation,  GFC is alleged to have manufactured and sold polyurethane foam to a
foam  fabricator  in Rhode Island.  The foam  fabricator is alleged to have then
sold the  foam at issue to the  nightclub.  The foam was  among  other  building
materials  alleged to have caught fire when pyrotechnics were set off inside the
nightclub.

     The  Litigation is in its early stages.  We believe that there are multiple
defenses to (i) the claims  against GFC, and (ii) the  successor  claim  against
Foamex  L.P.  We intend to  continue  vigorously  defending  Foamex  L.P. in the
Litigation.  We also believe that if, GFC is held liable for monetary damages in
the Litigation and GFC is unable to satisfy that obligation,  and Foamex L.P. is
found to have  liability as a successor  to GFC,  there is likely to be adequate
insurance available to Foamex L.P. to cover such liability.  However,  there can
be no  assurance  that the  defenses  available  to GFC or to Foamex  L.P. as an
alleged successor will prevail. In addition,  there can be no assurance that, if
GFC is held liable for monetary  damages in the Litigation,  GFC will be able to
satisfy that  obligation  through its  insurance or assets or that the liability
insurance  available to Foamex L.P.  will be  sufficient  to cover any potential
liability to Foamex L.P., if it were to be found to be a successor to GFC.

     Foamex  L.P.  incurred  fees and costs in  defense  of the  Litigation  and
neither  GFC nor PMC  honored  our  demand for  reimbursement  of those fees and
costs,  as was  agreed to under  the asset  purchase  agreement.  Therefore,  in
November  2005, we filed an adversary  proceeding  against PMC  alleging,  among
other  claims,  that PMC  breached  its  obligations  under the  asset  purchase
agreement by failing to reimburse  Foamex L.P. for the fees and costs related to
the defense of the Litigation (the "PMC Litigation").

     On  October  4,  2006,  the  parties  to the  PMC  Litigation  agreed  to a
settlement of the PMC Litigation.  The settlement resolves the PMC Litigation in
its entirety  and will result in the  recovery of the vast  majority of the fees
and costs  expended thus far defending the  Litigation and up to an aggregate of
$2.5 million in total fees and costs, but does not settle any disputes as to any
PMC  obligations  under the indemnity  for the  underlying  liability,  which is
subject to the same $2.5 million  indemnity  cap. The settlement was approved by
the Bankruptcy Court on October 19, 2006.

     Environmental and Health and Safety

     We are subject to extensive and changing federal,  state, local and foreign
environmental  laws  and  regulations,  including  those  relating  to the  use,
handling, storage, discharge and disposal of hazardous substances, the discharge
or  emission  of  materials  into  the  environment,   and  the  remediation  of
environmental contamination,  and as a result, are from time to time involved in
administrative and judicial  proceedings and inquiries relating to environmental
matters.  As of December 31, 2006, we had accruals of approximately $1.7 million
for  environmental  matters,  including  approximately  $1.6 million  related to
remediating and monitoring soil and groundwater  contamination and approximately
$0.1 million relating to a PRP site.

     We have  reported  to state  authorities  that we have  found  soil  and/or
groundwater contamination in excess of state standards.  Following our emergence
from  bankruptcy,   five  sites  are  in  various  stages  of  investigation  or
remediation. The extent of contamination and the ultimate liability is not known
with certainty for all sites.

                                       11
<PAGE>

     We have either  upgraded  or closed all  underground  storage  tanks at our
facilities in accordance with applicable regulations.

     The Comprehensive  Environmental Response,  Compensation and Liability Act,
"CERCLA" and comparable state laws impose liability  without fault for the costs
of cleaning up contaminated sites on certain classes of persons that contributed
to the release of hazardous  substances into the environment at those sites, for
example,  by  generating  wastes  containing  hazardous  substances  which  were
disposed at such sites. We are currently designated as a PRP with respect to one
site following our emergence from  bankruptcy.  Estimates of total cleanup costs
and fractional allocations of liability are often provided by the EPA, the state
environmental  agency or the  committee  of PRPs with  respect to the  specified
site.  Based  on  these  estimates  (to  the  extent  available)  and  on  known
information,  in each case and in the  aggregate,  we do not  expect  additional
costs, if any, to be material to our results of operations,  financial  position
or cash flows.

     Although it is possible that new information or future  developments  could
require  us  to  reassess  the  potential   exposure  relating  to  all  pending
environmental  matters,  including those described  above,  management  believes
that, based upon all currently  available  information,  the resolution of these
environmental matters will not have a material adverse effect on our operations,
financial  position,   capital   expenditures  or  competitive   position.   The
possibility  exists,   however,   that  new  environmental   legislation  and/or
environmental  regulations may be adopted,  or other  environmental  conditions,
including the presence of previously unknown environmental contamination, may be
found  to  exist  or  a  reassessment  of  the  potential  exposure  to  pending
environmental  matters  may  be  necessary  due  to new  information  or  future
developments,  that may require expenditures not currently  anticipated and that
may be material.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     During the fourth quarter of 2006, we solicited the votes of holders of our
common stock and preferred  stock in  connection  with the Plan. On November 30,
2006, we filed a current report on Form 8-K which included as exhibits, the Plan
and our  second  amended  disclosure  statement  for the  Plan  filed  with  the
Bankruptcy Court on November 27, 2006.

PART II

ITEM 5. MARKET FOR REGISTRANT'S  COMMON EQUITY,  RELATED STOCKHOLDER MATTERS AND
        ISSUER PURCHASE OF EQUITY SECURITIES

     Our common stock was traded through the National  Association of Securities
Dealers,  Inc.  National  Market System (the  "NASDAQ")  under the symbol "FMXI"
until it was  delisted  by NASDAQ  effective  with the  opening of  business  on
September 28, 2005,  due to public  concerns  raised by our  bankruptcy  filing,
concerns   regarding  the  residual  equity  interest  of  the  existing  listed
securities  holders,  and concerns  regarding our ability to sustain  compliance
with all requirements for continued  listing on NASDAQ.  Subsequent to that date
and through February 12, 2007, our common stock has been traded over the counter
under the symbol  "FMXIQ".  Beginning  on February  13,  2007,  our common stock
symbol  was  changed  back  to  "FMXI"  to  coincide  with  our  emergence  from
bankruptcy.

     The  following  table sets forth the high and low bid prices for our common
stock.

     2006                                          High              Low
                                                 --------          -------
     Quarter Ended April 2                        $0.16             $0.01
     Quarter Ended July 2                         $4.89             $0.14
     Quarter Ended October 1                      $4.10             $2.91
     Quarter Ended December 31                    $6.35             $3.40

     2005
     Quarter Ended April 3                        $3.82             $1.11
     Quarter Ended July 3                         $2.10             $1.05
     Quarter Ended October 2                      $1.33             $0.03
     Quarter Ended January 1, 2006                $0.06             $0.02


                                       12
<PAGE>


     As of March 14, 2007 there were 125 holders of record of the common  stock.
On March 14, 2007, the closing price of our common stock was $4.96.

     There were no cash  dividends  paid on our common stock during the past two
fiscal  years.  We are a holding  company  whose assets  consist  primarily of a
wholly-owned subsidiary, Foamex L.P. Consequently,  our ability to pay dividends
is dependent  upon the earnings of Foamex L.P. and any future  subsidiaries  and
the  distribution  of those  earnings to us and loans or advances by Foamex L.P.
and  any  such  future  subsidiaries.   The  ability  of  Foamex  L.P.  to  make
distributions  is restricted by the terms of financing  agreements.  Due to such
restrictions,  we expect to have only limited  access to the cash flow generated
by Foamex L.P. for the foreseeable future. See Item 7 - "Managements' Discussion
and Analysis of Financial  Condition  and Results of  Operations - Liquidity and
Capital Resources - Debt Covenants".

Equity Compensation Plan Information

     The following table summarizes  information about the Foamex  International
Inc. 1993 Stock Option Plan and the Foamex  International  Inc. 2002 Stock Award
Plan for Directors, Executive Officers and Key Employees. This information is as
of December 31, 2006.

<TABLE>
<CAPTION>
                                                               Number of      Weighted      Number ofSecurities
                                                           Securities to be    Average      Available for Future
                                                             Issued Upon       Exercise     Issuance Under Equity
                                                              Exercise of      Price of     Compensation Plans
                                                             Outstanding     Outstanding     (Excluding Securities
                    Plan Category                              Options          Options        Outstanding)
------------------------------------------------------     ----------------  -----------    ----------------------
<S>                                                           <C>               <C>                <C>
Equity compensation plans approved by stockholders            1,329,714         $4.86              3,478,973
Equity compensation plans not approved by stockholders                -             -                      -
                                                              ---------         -----              ---------
Total                                                         1,329,714         $4.86              3,478,973
                                                              =========         =====              =========
</TABLE>

     The following graph compares the cumulative  total  stockholder  returns on
our common stock based on an  investment  of $100 on December 31, 2001 and after
the close of the market for each of the ensuing five years  against the Standard
& Poor's  500 Index  ("S&P  500")  and an  industry  peer  group  consisting  of
Armstrong Holdings, Inc., Leggett & Platt, Inc. and Sealed Air Corporation.

                                       13
<PAGE>

[Data below represents a line graph in the printed document]


                  COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
               AMONG FOAMEX INTERNATIONAL INC., THE S&P 500 INDEX
                                AND A PEER GROUP

<TABLE>
<CAPTION>
                                         Weighted Cumulative Total Return*
                                -----------------------------------------------------
                                12/01     12/02     12/03    12/04    12/05     12/06

<S>                             <C>        <C>       <C>      <C>      <C>       <C>
FOAMEX INTERNATIONAL INC.       100.00     39.01     61.73    46.42     0.32     66.78
S&P 500                         100.00     77.90    100.24   111.15   116.61    135.03
PEER GROUP                      100.00     94.60    112.11   130.10   120.56    134.39
</TABLE>
*    $100  invested  on  12/31/01 in stock  or  index-including  investment  of
     dividends. Fiscal year ending December 31.

ITEM 6. SELECTED FINANCIAL DATA

     The following table presents  selected  historical  consolidated  financial
data.  The financial data should be read in  conjunction  with the  consolidated
financial statements and related notes thereto included in this Annual Report on
Form 10-K.

<TABLE>
<CAPTION>
                                                                          Fiscal Year (1)
                                                 ------------------------------------------------------------------
                                                     2006         2005          2004          2003          2002
                                                 ----------     ---------   ----------    ----------    ----------
                                                          (thousands, except for earnings per share)
Statements of Operations Data
<S>                                              <C>           <C>          <C>           <C>           <C>
   Net sales                                     $1,357,183    $1,282,974   $1,225,975    $1,248,653    $1,285,145
   Gain (loss) on sale of assets                 $      639    $   29,946   $    1,185    $      (30    $        -
   Income (loss) from continuing
     operations (2)(3)                           $   12,348    $  (42,697)  $ (146,203)   $  (22,232)   $   60,727
   Basic earnings (loss) per share from
     continuing operations (4)                   $     0.34    $    (1.16)  $    (3.99)   $    (0.61)   $     1.67
   Diluted earnings (loss) per share from
     continuing operations (4)                   $     0.32    $    (1.16)  $    (3.99)   $    (0.61)   $     1.58

Balance Sheet Data
   Total assets                                  $  564,578    $  601,320   $  645,710    $  789,906    $   813,577
   Current portion of long-term debt             $  142,564    $  240,804   $  182,038    $  112,002    $        46
   Long-term debt, excluding current portion (5) $      160    $      366   $  568,461    $  633,621    $   738,540
   Liabilities subject to compromise             $  640,645    $  635,965   $        -    $        -    $         -
   Stockholders' deficiency                      $ (396,393)   $ (415,714)  $ (358,313)   $ (203,116)   $  (189,733)
</TABLE>

(1)  We have a 52 or 53-week fiscal year ending on the Sunday closest to the end
     of the calendar year. The 2006,  2005,  2003 and 2002 fiscal years included
     52 weeks while the 2004 fiscal year included 53 weeks.

                                       14
<PAGE>


(2)  Includes asset impairment,  goodwill  impairment and restructuring  charges
     (credits),  as  discussed  in  the  notes  to  the  consolidated  financial
     statements  included  in this  Annual  Report on Form  10-K and prior  Form
     10-Ks. Listed below are the aggregate pretax charges (credits).

       2006 - $ 9.5 million
       2005 - $52.2 million
       2004 - $ 4.6 million
       2003 - $(1.8) million
       2002 - $ 4.8 million

(3)  During 2004, we established a valuation allowance for our U.S. deferred tax
     assets as we  determined  that it was not  likely  that we would be able to
     generate  sufficient  amounts of future U.S.  taxable income to utilize our
     net operating loss carryforwards and realize other deferred tax assets. The
     establishment  of the valuation  allowance  reduced income from  continuing
     operations by $128.6  million in 2004.  During 2002, we determined  that it
     was more likely than not that our net deferred tax assets would be realized
     in the future.  Accordingly,  we reversed a previously  recorded  valuation
     allowance  which  increased  income  from  continuing  operations  by $77.3
     million in 2002.

(4)  Per share data has been adjusted for all periods presented  pursuant to the
     rights  offering under the Plan. See Note 5 to the  consolidated  financial
     statements.

(5)  Excludes  long-term  debt of $500.9 million that is included in Liabilities
     Subject to Compromise at December 31, 2006 and January 1, 2006.




                                       15
<PAGE>


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

FORWARD-LOOKING STATEMENTS

     The  Private  Securities  Litigation  Reform  Act of 1995  provides a "safe
harbor"  for  forward-looking   statements  so  long  as  those  statements  are
identified as  forward-looking  and are  accompanied  by  meaningful  cautionary
statements  identifying  important  factors that could cause  actual  results to
differ  materially from those projected in such  statements.  In connection with
certain forward-looking  statements contained in this Annual Report on Form 10-K
and  those  that may be made in the  future  by us or on our  behalf  which  are
identified as forward-looking, we note that there are various factors that could
cause  actual  results  to differ  materially  from  those set forth in any such
forward-looking  statements,  such as the ability to implement  customer selling
price  increases in response to higher raw material  costs,  raw material  price
increases, general economic conditions, the interest rate environment, the level
of automotive production,  carpet production,  furniture and bedding production,
and housing starts, the completion of various restructuring/consolidation plans,
the achievement of management's  business plans,  our capital and debt structure
(including various financial covenants), litigation and changes in environmental
legislation  and  environmental  conditions.   The  forward-looking   statements
contained in this Annual Report on Form 10-K were prepared by management and are
qualified  by, and  subject to,  significant  business,  economic,  competitive,
regulatory and other uncertainties and contingencies, all of which are difficult
or impossible to predict and many of which are beyond our control.

     Accordingly,  there can be no assurance that the forward-looking statements
contained  in this  Annual  Report on Form 10-K will be  realized or that actual
results  will  not  be  significantly   higher  or  lower.  The  forward-looking
statements  have not been audited by,  examined by,  compiled by or subjected to
agreed-upon  procedures  by  independent  accountants,  and no third  party  has
independently  verified  or  reviewed  such  statements.  Readers of this Annual
Report on Form 10-K should  consider these facts in evaluating  the  information
contained  herein.  In  addition,  our business  and  operations  are subject to
substantial risks which increase the uncertainty inherent in the forward-looking
statements  contained in this Annual  Report on Form 10-K.  The inclusion of the
forward-looking  statements  contained in this Annual Report on Form 10-K should
not be regarded as a  representation  by us or any other  person that any of the
forward-looking  statements contained in this Annual Report on Form 10-K will be
achieved. In light of the foregoing,  readers of this Annual Report on Form 10-K
are  cautioned  not to place undue  reliance on the  forward-looking  statements
contained herein.

EXECUTIVE SUMMARY

Overview

     We operate in the flexible  polyurethane and advanced polymer foam products
industry.  Our  operations  are  primarily  conducted  through our  wholly-owned
subsidiary,  Foamex L.P. Business segments are listed below and business segment
financial  information  is  included  in Note 17 to our  consolidated  financial
statements.  Please  see  Part  I,  Item  1,  "Business"  for  a  more  complete
description of the activities of our business segments.

     An executive vice president heads each of our principal operating segments.
Each executive vice president is responsible for developing budgets and plans as
well as  directing  the  operations  of the  segment.  The  performance  of each
operating segment is measured based upon income from operations, excluding asset
and goodwill impairment charges,  restructuring  charges and corporate overhead.
We do not allocate  impairment and restructuring  charges to operating  segments
because many of our facilities produce products for multiple segments.

     Foam  Products -  manufactures  and markets  cushioning  foams for bedding,
     furniture, recreational and consumer applications.

     Carpet Cushion  Products - manufactures  and  distributes  prime and rebond
     carpet padding.

     Automotive Products - manufactures and distributes automotive foam products
     and laminates to major Tier 1 suppliers and OEMs.


                                       16
<PAGE>


     Technical  Products  -  manufactures  and  markets  reticulated  and  other
     specialty foams used for  reservoiring,  filtration,  gasketing and sealing
     applications.

     Other - primarily consists of corporate expenses not allocated to the other
     business  segments and  impairment and  restructuring  charges and gains on
     sale of assets.

     Our sales are  primarily to markets in the United  States.  These sales are
impacted by economic conditions in several sectors of the United States economy,
including  consumer  spending,  sales of new and existing  homes and the overall
level of passenger car and light truck production.

     A small number of major customers produce a significant  portion of our net
sales.  In 2006, our largest  customer  provided  approximately  9.3% of our net
sales and our five largest  customers  provided  approximately  30.2% of our net
sales.  Two of our  five  largest  customers  are  customers  of the  Automotive
Products  segment and three are  customers  of the Foam  Products  segment.  The
following  discussion  should  be  read in  conjunction  with  the  consolidated
financial  statements  and related notes  included in this Annual Report on Form
10-K.

     Operations

     The  following  table  includes  key elements of our  financial  statements
expressed as a percentage of net sales for the years 2000 through  2006,  except
for net cash provided by (used for) operating  activities  which is expressed in
millions of dollars.

<TABLE>
<CAPTION>
                                    2006       2005       2004       2003         2002         2001        2000
                                   ------     ------     -----      ------       ------       -----       ------
<S>                                <C>        <C>        <C>        <C>          <C>          <C>         <C>
Net Sales                          100.0%     100.0%     100.0%     100.0%       100.0%       100.0%      100.0%

Cost of Goods Sold                  84.7%      90.0%      88.4%      88.8%        89.3%        86.2%       86.1%

Gross Profit Margin                 15.3%      10.0%      11.6%      11.2%        10.7%        13.8%       13.9%

Selling, General and
   Administrative Expenses           5.9%       6.2%       6.9%       6.4%         7.1%         6.6%        5.8%

Operating Income Margin              8.8%       3.2%       4.6%       5.0%         3.2%         4.1%        7.5%

Interest and Debt
   Issuance Expense                  7.0%       6.2%       6.3%       7.1%         5.4%         5.2%        6.3%

Net Cash Provided by (Used
   for) Operating Activities      $104.9     $(22.9)     $(1.0)     $17.5       $(50.4)      $106.4       $51.0
</TABLE>

     As demonstrated by the table above, our results significantly  deteriorated
in 2002 and improved only  marginally  in 2003 and 2004.  During the first three
quarters of 2005 our gross profit margin continued to erode and was 6.3% for the
third  quarter and 6.6% for the first three  quarters.  In the third  quarter of
2005, three suppliers of TDI closed production facilities that had accounted for
approximately 10% of global supply.  In addition,  the evacuation of portions of
the U. S. Gulf Coast  states as a result of  Hurricanes  Katrina and Rita caused
curtailment of TDI and polyol production at several facilities in that area. The
reduced  availability  of raw  materials  caused  temporary  shortages  of  foam
throughout the industry.  Partially as a result of these shortages, we were able
to implement significant price increases on an immediate basis during the fourth
quarter of 2005,  particularly  in our Foam  Products  operating  segment.  As a
result,  our gross  profit  margin  was 19.7% in the fourth  quarter of 2005,  a
portion of which was temporary due to market conditions and lower cost inventory
impacts on our cost of goods sold.  For the year 2006,  our gross profit  margin
was 15.3% which ranged from 13.6% to 16.7% in the  individual  quarters.  During
2006, we have  generally  been able to offset raw material cost  increases  that
averaged  approximately 35% year on year. Net sales dollars have been relatively
flat over the seven year period with 2006 representing an increase of only 13.0%
compared to 2000.

     In order to maintain satisfactory gross profit and operating income margins
to  generate  sufficient  cash flow to  reduce  debt,  we  expect to manage  our
business with the following objectives:

                                       17
<PAGE>

o    Maintain  selling  prices that allow for recovery of any major raw material
     and manufacturing cost increases.

o    Monitor market  conditions  and adjust  selling prices to maintain  product
     volumes without sacrificing profitability.

o    Increase  production  efficiency and reduce  manufacturing costs through an
     effective deployment of allowed capital expenditure levels under our credit
     facilities.

o    Selective  evaluation of  manufacturing  facilities  and closure or sale of
     those that do not sufficiently contribute to profitability.

o    Control labor and overhead costs in both manufacturing and administration.

     On  September  19,  2005,  we and  certain  of our  domestic  subsidiaries,
including  Foamex  L.P.,  our  primary  operating  subsidiary,  filed  voluntary
petitions for relief under chapter 11 of the United  States  Bankruptcy  Code in
the United States Bankruptcy Court for the District of Delaware.

     We emerged  from  bankruptcy  on  February  12,  2007 by  consummating  the
transactions  provided for in the second  amended  disclosure  statement and the
Plan filed with the Bankruptcy  Court on November 27, 2006. The Bankruptcy Court
confirmed the Plan on February 1, 2007. For more detailed  information  see Note
1, "Basis of Presentation and Bankruptcy" in the notes to consolidated financial
statements.

     On November 27, 2006, we filed a second  amended  disclosure  statement and
the Plan with the Bankruptcy Court, which amended and superseded in all respects
the first amended disclosure statement and the first amended plan, respectively.
On the same date,  the Bankruptcy  Court approved the second amended  disclosure
statement.  On December  12,  2006,  we filed a first  supplement  to the second
amended disclosure  statement with the Bankruptcy Court to supplement the second
amended disclosure  statement by outlining trading  restrictions that may become
effective  under the second amended and restated  certificate  of  incorporation
that we intend to adopt under the Plan.  On December  20, 2006,  the  Bankruptcy
Court  entered the order  approving the first  supplement to the second  amended
disclosure statement and on February 1, 2007 confirmed the Plan. We emerged from
bankruptcy on February 12, 2007.

     The  Plan  included  payment  in full in cash  of  amounts  due,  including
interest under (i) the DIP Revolving  Credit  Facility,  (ii) the DIP Term Loan,
including a prepayment premium of approximately  $4.3 million,  (iii) the Senior
Secured  Notes,  including a prepayment  premium of $7.5  million,  and (iv) the
Senior  Subordinated  Notes.  In  addition,  payment in full in cash,  including
interest,  was made to holders of allowed general  unsecured  claims.  There are
several  claims that are subject to pending  objections in  Bankruptcy  Court or
otherwise designated as disputed under the Plan and we will continue to litigate
or resolve these matters, as appropriate.  The Plan also provided for holders of
equity  interests  to  retain  their  interest  and for each  share of  Series B
preferred stock to be converted into 100 shares of common stock.

     In order to finance the Plan,  Foamex L.P.  entered into new senior secured
credit  facilities  on February 12, 2007 which  provided for  aggregate  maximum
borrowings of up to $775.0  million,  including  $600.0  million under term loan
facilities,  comprised of $425.0  million  under a first lien term loan facility
with a  six-year  maturity  and  $175.0  million  under a second  lien term loan
facility with a seven-year  maturity,  and a revolving credit facility providing
for up to $175.0 million of revolving  loans  outstanding at any time (including
up to $45.0 million available for letters of credit) with a five-year  maturity.
Foamex L.P. borrowed  approximately  $613.4 million under the new senior secured
credit facilities to fund the Plan.

     In addition, on January 4, 2007, we offered rights to existing stockholders
to purchase 2.506 shares of our common stock for each share of common stock held
as of December 29, 2006 and holders of preferred  stock as of the same date were
offered rights to purchase 250.6 shares of common stock for each preferred share
held,  in each  case for  $2.25  per  share.  Stockholders  exercised  rights to
purchase  approximately  62.9  million  shares of common  stock  pursuant to the
rights offering with gross proceeds aggregating approximately $141.4 million. In
addition,  the


                                       18
<PAGE>


Significant  Stockholders  purchased  approximately 3.8 million shares of common
stock pursuant to a call option for approximately  $8.6 million,  increasing the
gross  proceeds from the issuance of additional  common stock to $150.0  million
and increasing the Significant Stockholders common stock ownership percentage to
approximately 57%. After consideration of a $9.5 million put option premium paid
to and a $2.0 million call option premium paid by the Significant  Stockholders,
and other expenses of the rights  offering,  the net equity proceeds  aggregated
approximately $141.0 million.

CRITICAL ACCOUNTING POLICIES

     We prepared  our  consolidated  financial  statements  in  conformity  with
accounting  principles  generally  accepted in the United States of America.  As
such, we are required to make certain estimates, judgments, and assumptions that
we believe are reasonable based upon the information available. These estimates,
judgments  and  assumptions  affect  the  reported  amounts  of the  assets  and
liabilities and revenues and expenses.  Our significant  accounting policies are
discussed in Note 2 to our  consolidated  financial  statements.  The accounting
policies  which we believe are the most  critical to aid in fully  understanding
and evaluating our reported  financial  results and which require  management to
exercise judgment include the following:

     Bankruptcy and Basis of Presentation

     Subsequent to the bankruptcy filing date, SOP 90-7 applied to our financial
statements  while we operated  under the  provision of chapter 11. SOP 90-7 does
not change the application of generally  accepted  accounting  principles in the
preparation  of financial  statements.  However,  SOP 90-7 does require that the
financial statements,  for periods including and subsequent to the filing of the
chapter 11  petition,  distinguish  transactions  and events  that are  directly
associated with the reorganization  from the ongoing operations of the business.
We filed a second amended disclosure  statement and the Plan with the Bankruptcy
Court on November  27,  2006.  We will not be  permitted  to adopt  "Fresh Start
Reporting"  as  defined  by  paragraph  36 of  SOP  90-7.  (See  Note  1 to  the
consolidated financial statements.)

     Revenue Recognition

     Revenue from sales, net of discounts and estimated returns,  allowances and
customer rebates,  is recognized when product title and the risks and rewards of
ownership passes to the customer,  the sales price is fixed and determinable and
collection  is  reasonably  assured.  Products are shipped FOB  shipping  point.
Balances  for  allowances  and rebates are reviewed at least  quarterly  and are
adjusted if warranted. Shipping and handling costs are included in cost of goods
sold.

     Accounts Receivable and Allowance for Uncollectible Accounts

     We actively monitor  customer  payments in conjunction with customer credit
evaluations.  Accordingly,  a reserve for  estimated  uncollectible  accounts is
maintained  and is  based  on  historical  collection  experience  and  specific
customer  collection issues. A significant change in the financial  condition of
one or more of our larger  customers  could have a  material  adverse  impact on
future financial results.

     Long-Lived Assets

     Net property,  plant and equipment totaled  approximately $107.0 million at
December 31, 2006. Property and equipment held for use is grouped for impairment
testing at the plant level,  the lowest  level for which there are  identifiable
cash flows.  Impairment  testing of the asset group  occurs  whenever  events or
changes in circumstances indicate that the carrying amount of the assets may not
be recoverable. We assess recoverability by comparing the carrying amount of the
asset  group to the  estimated  undiscounted  future  cash flows  expected to be
generated  by  the  assets.  If an  asset  group  is  considered  impaired,  the
impairment  loss to be  recognized  would be measured as the amount by which the
asset group's  carrying  amount  exceeds its fair value.  Estimated  future cash
flows are based on  historical  results  adjusted for  estimated  future  market
conditions  and  operating  plans.  To the extent that these  estimates  change,
impairment  losses  could  result  which may have a material  adverse  impact on
future financial results.

                                       19
<PAGE>

     Goodwill

     We evaluate the  recoverability  of goodwill on an annual basis as required
by Statement of Financial  Accounting  Standards  No. 142,  "Goodwill  and Other
Intangible Assets" ("SFAS No. 142"). We perform this annual evaluation as of the
first day of the fourth fiscal quarter,  or more frequently if events or changes
in  circumstances,  such as declining sales,  earnings or cash flows or material
adverse  changes in the business  climate,  indicate that the carrying  value of
goodwill  might be impaired.  Goodwill is considered to be impaired when the net
book value of a reporting unit exceeds its estimated fair value. Fair values are
primarily   established   using  a  discounted   cash  flow   methodology.   The
determination  of discounted  cash flows is based on the  businesses'  plans and
long range planning forecasts.

     Deferred Income Taxes

     Income taxes are accounted for under the asset and liability method.  Under
this  method,  deferred  income taxes are  provided  for  temporary  differences
between  the  financial  reporting  basis and  income  tax  basis of assets  and
liabilities and for net operating loss carryforwards using the income tax rates,
under existing legislation,  expected to be in effect at the date such temporary
differences are expected to reverse. Deferred income tax assets are reduced by a
valuation allowance when it is considered more likely than not that a portion of
the  deferred  income tax assets will not be realized  in a future  period.  The
estimates  utilized in the recognition of deferred income tax assets are subject
to revision in future periods.

     Self Insurance

     We are  self-insured  up to certain limits for a number of risks  including
workers'  compensation,  medical,  automobile and general liability.  Commercial
insurance  policies  are  carried  for  amounts  in excess  of the  self-insured
amounts.  Management exercises judgment in estimating the ultimate liability for
claims.  The  services of an outside  actuary are used to assist  management  in
their  evaluation of the liabilities for workers'  compensation,  automobile and
general liability claims.

     Benefit Plans

     We  maintain  defined  benefit  pension  plans  that cover most of our U.S.
employees.  Projected benefit obligations,  pension expense and amounts included
in other  comprehensive  income are  impacted  by a number of  assumptions.  Key
assumptions  include the discount rates to determine benefit obligations and the
expected long-term rate of return on plan assets.  Discount rates are applied to
future cash flows to measure  benefit  obligations on a present value basis.  We
assumed weighted  average discount rates of 5.75%,  5.50% and 6.00% to calculate
pension  expense in 2006,  2005 and 2004,  respectively.  Based on pension  plan
obligations  at year-end  2006, a 0.50%  reduction  in the  discount  rate would
increase  pension expense by approximately  $0.8 million.  Based on pension plan
assets at  year-end  2006,  a 0.50%  reduction  in the  expected  rate of return
assumption  would increase pension expense by  approximately  $0.6 million.  The
under funded position of the pension plans was primarily the result of declining
discount rates and historical returns on pension assets being below expectations
resulting in an accumulated net actuarial loss which must be amortized in future
years. The amortization of net actuarial losses is estimated to be approximately
$2.3 million in 2007. We anticipate funding  approximately  $13.2 million to the
pension plans in 2007 as compared to $15.9 million in 2006.

     Claims and Litigation

     We receive claims for damages that are not covered by insurance. Management
evaluates  these  claims and  records  its  estimate  of  liabilities  when such
liabilities  are  considered  probable and an amount or reasonable  range can be
estimated.

     Environmental Remediation

     We have a number of  manufacturing  facilities and certain idle  facilities
that require remediation of soil and/or groundwater  contamination.  As required
by applicable State and/or Federal compliance programs,  many of these


                                       20
<PAGE>

sites  are  in  the  monitoring  stage  that  requires   periodic   sampling  of
contamination  levels in  conjunction  with ongoing  assessments  of remediation
actions.  Accordingly,  the recognition of  environmental  liabilities  requires
estimates  concerning  the duration of monitoring and  associated  costs,  often
projected  to extend for a number of years.  To the extent that these  estimates
change,  additional  environmental costs could have a material adverse impact on
future financial results.  See the section below entitled "Other - Environmental
Health and Safety" for additional information.

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                               Carpet
                                   Foam        Cushion       Automotive      Technical
                                 Products      Products       Products       Products        Other         Total
                                 --------     ---------      -----------     ----------    ---------    ----------
2006                                                        (dollars in thousands)
<S>                              <C>          <C>            <C>             <C>           <C>          <C>
Net sales                        $577,458     $206,315       $429,695        $143,448      $    267     $1,357,183
Income (loss) from operations    $114,266     $  7,820       $ 25,554        $ 38,548      $(66,088)    $  120,100
Depreciation and amortization    $  6,206     $    993       $  3,855        $  2,520      $  4,948     $   18,522
Income (loss) from operations
   as a percentage of net sales     19.8%         3.8%           5.9%            26.9%       n.m.(a)          8.8%

2005
Net sales                        $584,870     $178,268       $393,144        $127,712      $ (1,020)    $1,282,974
Income (loss) from operations    $ 67,564     $  1,820       $ 17,451        $ 32,749      $(78,046)    $   41,538
Depreciation and amortization    $  7,115     $  2,277       $  4,272        $  2,318      $   3,921    $   19,903
Income (loss) from operations
   as a percentage of net sales     11.6%         1.0%           4.4%            25.6%       n.m.(a)           3.2%

2004
Net sales                        $510,995     $209,182       $381,111        $124,146      $     541    $1,225,975
Income (loss) from operations    $ 57,148     $  8,539       $ 19,046        $ 32,916      $(61,132)    $   56,517
Depreciation and amortization    $  9,455     $  2,978       $  4,705        $  2,801      $   5,235    $   25,174
Income (loss) from operations
   as a percentage of net sales     11.2%         4.1%           5.0%            26.5%        n.m.(a)          4.6%
</TABLE>

(a) Not meaningful.

     Business  segment results include  revenues and costs that are specifically
identifiable and costs shared by business  segments have been allocated based on
utilization.  As of January 2, 2006, responsibility for manufacturing operations
in Mexico City was assumed by Automotive  Products.  Data in the table above for
the Automotive  Products and Other Segments for 2005 and 2004 have been adjusted
for comparative purposes. In addition, results for the Foam Products Segment for
2005 and 2004 have been  adjusted to reflect the  consumer  products  group as a
discontinued operation. See Note 10 to the consolidated financial statements.

2006 Compared to 2005

     Net sales for 2006 increased 6% to $1,357.2  million from $1,283.0  million
in 2005. The increase is due to higher selling prices in all operating  segments
partially offset by lower volumes in Foam Products and Carpet Cushion Products.

     Gross profit in 2006 was $207.3 million, or 15.3% of net sales, compared to
$128.7  million,  or  10.0%  of net  sales,  in 2005.  Selling  price  increases
implemented in the fourth  quarter of 2005 have allowed us to recover  increases
in  raw  material  costs  that  averaged  approximately  35%  since  2005,  plus
previously  unrecovered  raw material  cost  increases.  In addition,  operating
efficiencies and yield improvements contributed to higher margins in 2006. Gross
profit was reduced by asset impairment charges of $1.6 million in 2006 and $15.2
million in 2005.

     Income from  operations in 2006 was $120.1  million,  or 8.8% of net sales,
increasing $78.6 million from $41.5 million,  or 3.2% of net sales,  reported in
2005  primarily  due  to  the  increased  gross  profit.  Selling,  general  and
administrative  expenses were essentially  unchanged from 2005 as the accrual of
incentive compensation under a plan

                                       21
<PAGE>


approved  by the  Bankruptcy  Court on  October  30,  2006 was  offset  by lower
professional  fees and reduced bad debt expense.  The 2006 period  included $7.9
million  of  restructuring  charges  related  to the  closure  of  manufacturing
facilities, while the 2005 period included a $29.7 million gain from the sale of
our rubber and felt carpet cushion businesses and goodwill impairment charges of
$35.5 million.

     Foam Products

     Foam Products net sales for 2006 decreased 1% to $577.5 million from $584.9
million in 2005,  primarily due to average  selling price increases of more than
40%, offset by a more than 30% decrease in overall volume.  Volumes were reduced
in the fourth  quarter of 2006 due to  softness  in the  bedding  and  furniture
industries.  Volumes have  continued to be weak in early 2007 but we  anticipate
gradual  recovery  over the  balance  of the  year.  Most of the  selling  price
increases were implemented in the fourth quarter of 2005. Income from operations
increased  $46.7  million to $114.3  million in 2006 from $67.6 million in 2005.
Higher selling prices and a higher  percentage of sales of specialty  foams were
partially  offset by the  decrease  in  overall  volume  and raw  material  cost
increases that averaged 35% since 2005.  Income from operations was 19.8% of net
sales in 2006, up from 11.6% of net sales in 2005.

     Carpet Cushion Products

     Carpet Cushion  Products net sales for 2006 increased 16% to $206.3 million
from $178.3  million in 2005 due to a more than 40% increase in average  selling
prices to offset scrap and other raw material cost increases,  partially  offset
by the loss of $13.3  million  of net  sales  from the  rubber  and felt  carpet
cushion  businesses  sold on April 29, 2005 and lower  volumes in the  remaining
business.  Income from  operations  was $7.8  million in 2006,  compared to $1.8
million in 2005 as selling  price  increases  more than offset  higher  material
costs and lower volume. A charge of $4.6 million to adjust the carrying value of
scrap  inventory to net realizable  value reduced income from  operations in the
fourth  quarter of 2006.  Income from  operations was 3.8% of net sales in 2006,
compared to 1.0% of net sales in 2005.

     Automotive Products

     Automotive  Products net sales for 2006 increased 9% to $429.7 million from
$393.1 million in 2005 due primarily to increased  selling prices and additional
volume from new business. Income from operations increased $8.1 million to $25.6
million  primarily due to higher selling prices partially offset by raw material
cost increases  since the beginning of 2005, and operating  efficiencies  at our
facility in Mexico City. Income from operations represented 5.9% of net sales in
2006 and 4.4% of net sales in 2005.

     Technical Products

     Technical  Products net sales for 2006 increased 12% to $143.4 million from
$127.7 million in 2005,  primarily due to increased  selling  prices.  Increased
volumes for new products were largely offset by decreases in others. Income from
operations  increased  $5.8 million to $38.5  million in 2006  compared to $32.7
million  in 2005 as the  sales  increase  and  lower  manufacturing  costs  were
partially   offset  by  higher  raw  material  costs.   Income  from  operations
represented 26.9% of net sales in 2006 compared to 25.6% of net sales in 2005.

     Other

     The Other segment consists of the following:

                                                     2006               2005
                                                   -------            -------
                                                           (thousands)
     Unallocated corporate expense                 $57,180            $55,807
     Restructuring charges                           7,918              1,526
     Asset impairment charges                        1,629             15,193
     Goodwill impairment charges                         -             35,466
     Gain on sales of assets                          (639)           (29,946)
                                                   -------            -------

     Loss from operations                          $66,088            $78,046
                                                   =======            =======


                                       22
<PAGE>

     Interest and Debt Issuance Expense

     Interest  and debt  issuance  expense  was  $95.0  million  in 2006,  which
represented a 19% increase from 2005 expense of $79.7  million.  The increase is
primarily  due to the accrual in 2006 of interest on  subordinated  debt for the
period from  September 19, 2005 through  January 1, 2006 in accordance  with SOP
90-7 when it became  probable that such interest would be an allowed claim,  and
accrual of interest at default  rates on debt subject to  compromise,  partially
offset by lower interest rates on the DIP Revolving Credit facility and DIP Term
Loan.

     Income from Equity Interest in Joint Ventures

     The income  from an equity  interest  in an Asian  joint  venture  was $2.7
million in 2006 and $1.8  million in 2005.  The increase  was  primarily  due to
higher  selling  prices at the joint  venture and a favorable  impact of foreign
currency translation.

     Other Expense, Net

     Other  expense,  net was $0.4 million for 2006 compared to $1.7 million for
2005.

     Reorganization Items, Net

     On  September  19,  2005,  we filed  voluntary  petitions  for relief under
chapter 11 of the Bankruptcy  Code.  During 2006 we incurred  professional  fees
associated  with the bankruptcy and recorded gains from the rejection of certain
leases and other  contracts  resulting in net expense of $15.6  million.  During
2005, we adjusted the carrying  values of certain  prepetition  debt,  including
related debt issuance costs and deferred  credits,  incurred  professional  fees
associated with the bankruptcy, and recorded gains from the rejection of certain
leases and other contracts.  These  reorganization items resulted in net expense
of $6.8 million in 2005.

     Provision (Benefit) for Income Taxes

     The net tax benefit for 2006 includes reversals of foreign tax reserves and
tax  benefits  for  restructuring  charges  in  Canada  to  the  extent  of  the
availability of tax loss carrybacks. Alternative minimum taxes and certain state
and foreign taxes partially offset the tax benefits.

     We have not provided  any regular U.S.  income tax expense for 2006 because
we will be able to utilize U.S. net  operating  loss  carryforwards  ("NOLs") to
fully  offset U. S.  taxable  income for the year 2006 and  therefore  reverse a
portion of our  valuation  allowance  for U.S.  deferred  tax  assets.  Our NOLs
aggregated  approximately  $288.7  million at December 31,  2006.  We had an IRC
Section 382 ownership change in June 2001 that limits our utilization of NOLs to
approximately $21.0 million per year for approximately $57.0 million of our U.S.
NOLs.  The balance of  approximately  $231.7  million of NOLs are  currently not
subject to limitation on their  utilization.  We do not believe that we have had
any  additional  IRC  Section 382  ownership  change,  including  at or near the
Effective  Date of the Plan. If it is determined  that an additional IRC Section
382 ownership change has occurred, we do not expect the amount of any limitation
to have a significant impact on our cash flows or financial performance.

2005 Compared to 2004

     Net sales for 2005 increased 5% to $1,283.0  million from $1,226.0  million
in 2004.  Higher selling prices in Foam Products were partially  offset by lower
volume principally in the Carpet Cushion operating segment, primarily due to the
sale of the rubber and felt carpet  cushion  businesses  on April 29, 2005.  Net
sales from the rubber and felt  carpet  cushion  businesses  were $28.0  million
greater in 2004 than in 2005.

     Gross profit was $128.7 million, or 10.0% of net sales, in 2005 compared to
$141.7 million,  or 11.6% of net sales, in 2004. In 2005, we were only partially
successful in the timely execution of customer selling price increases to offset
chemical raw material cost increases  which averaged  approximately  32% in 2005
due to time lags and because of pricing pressure from  competitors  particularly
in Foam Products.  Our gross profit margin was 6.6% for the first three quarters
of 2005 but improved to 19.7% in the fourth quarter as a result of selling price
increases to customers.


                                       23
<PAGE>


     Income from  operations for 2005 was $41.5  million,  or 3.2% of net sales,
compared to income from  operations of $56.5 million,  or 4.6% of net sales,  in
2004.  The $13.0 million  decline in gross profit was partially  offset by lower
selling, general and administrative expenses which decreased by $4.5 million, or
5%,  principally  due to  lower  professional  fees.  The 2005  period  includes
goodwill and asset  impairment  charges of $50.7  million.  Results  include net
restructuring charges of $1.5 million in 2005 and $1.8 million in 2004.

     Foam Products

     Foam  Products  net sales for 2005  increased  14% to $584.9  million  from
$511.0 million in 2004 primarily due to average  selling price  increases of 25%
partially  offset by a 9% decrease in overall volume.  The largest selling price
increases were implemented in the fourth quarter of 2005. Income from operations
increased 18% to $67.6 million in 2005 from $57.1 million in 2004 principally as
a result of the higher  selling prices  partially  offset by higher raw material
costs and $3.0  million  for a  customer  product  quality  claim.  Income  from
operations in the fourth  quarter of 2005 was $40.4  million,  compared to $27.2
million in the first three quarters, primarily due to selling price increases to
customers.  Income from operations was 11.6% of net sales in 2005, up from 11.2%
of net sales in 2004.

     Carpet Cushion Products

     Carpet Cushion  Products net sales for 2005 decreased 15% to $178.3 million
from $209.2 million in 2004  principally  due to the sale of the rubber and felt
businesses on April 29, 2005.  Net sales from the rubber and felt carpet cushion
businesses  were  $28.0  million  greater  in 2004  than in  2005.  Income  from
operations  was $1.8 million in 2005 compared to income from  operations of $8.5
million in 2004 due  primarily to higher raw material and  manufacturing  costs,
lower volume and reduced  operating  income from the rubber and felt businesses.
Income  from  operations  was 1.0% of net  sales in 2005,  down from 4.1% of net
sales in 2004.

     Automotive Products

     Automotive  Products net sales for 2005 increased 3% to $393.1 million from
$381.1  million in 2004  primarily as a result of selling  price  increases  and
volume increases from new customers  offset by soft industry demand,  especially
during the first half of 2005.  Income from operations of $17.5 million was down
$1.6 million,  or 8%,  compared to 2004  primarily due to higher  selling prices
partially  offset by higher chemical  costs.  Income from operations was 4.4% of
net sales in 2005, down from 5.0% of net sales in 2004.

     Technical Products

     Technical  Products net sales for 2005  increased 3% to $127.7 million from
$124.1 million in 2004 as selling price increases were partially offset by lower
volume. Income from operations decreased 1% to $32.7 million in 2005 compared to
$32.9 million in 2004  primarily  due to lower volume of higher margin  products
and higher raw  material  costs,  partially  offset by  customer  selling  price
increases.  Income  from  operations  was 25.6% of net sales in 2005,  down from
26.5% of net sales in 2004.

     Other

     The Other segment consists of the following:

                                               2005             2004
                                             -------          --------
                                                    (thousands)
     Unallocated corporate expenses          $55,807          $57,691
     Restructuring charges                     1,526            1,817
     Asset impairment charges                 15,193            2,809
     Goodwill impairment charges              35,466                -
     Gain on sales of assets                 (29,946)          (1,185)
                                             -------          -------

     Loss from operations                    $78,046          $61,132
                                             =======          =======


                                       24
<PAGE>

     Gain on Sale of Businesses

     On April 29, 2005,  we sold our rubber and felt carpet  cushion  businesses
consisting  principally  of  property,  plant  and  equipment  located  at  Cape
Girardeau,  MO and Newton,  NC,  inventories,  and related goodwill to Leggett &
Platt,  Incorporated for net cash proceeds of $38.7 million. The property, plant
and  equipment,  inventories  and related  goodwill had carrying  values of $3.2
million,  $2.8  million and $2.5  million,  respectively.  The net gain of $29.7
million,  on  which  there  was  no  tax  impact,  has  been  reflected  in  the
consolidated  statements  of  operations  for 2005.  The rubber and felt  carpet
cushion businesses provided  approximately $41.3 million and $4.5 million of net
sales and gross profit, respectively, in 2004.

     Interest and Debt Issuance Expense

     Interest  and debt  issuance  expense  was  $79.7  million  in 2005,  which
represented a 4% increase from 2004 expense of $76.7 million,  reflecting a $4.8
million increase in amortization and write off of debt issuance costs as well as
higher average revolver borrowing levels and interest rates, partially offset by
lower interest  accruals on  subordinated  debt which has been  reclassified  to
liabilities subject to compromise as a result of our bankruptcy filings.

     Income from Equity Interest in Joint Ventures

     The income  from an equity  interest  in an Asian  joint  venture  was $1.8
million in 2005 and $0.5 million in 2004,  when the joint  venture had increased
costs related to the start-up of a manufacturing facility. Income from an equity
interest in a joint venture in Eastern Europe,  which was sold in 2005, was $0.2
million in 2004.

     Reorganization Items, Net

     On  September  19,  2005,  we filed  voluntary  petitions  for relief under
chapter 11 of the Bankruptcy Code.  During 2005, we adjusted the carrying values
of certain prepetition debt,  including related debt issuance costs and deferred
credits,  incurred  professional  fees associated with the bankruptcy cases, and
recorded gains from the rejection of certain leases and other  contracts.  These
reorganization items resulted in net expense of $6.8 million.

     Other Expense, Net

     Other  expense,  net was $1.7 million for 2005 compared to $1.4 million for
2004.

     Benefit for Income Taxes

     The  benefit  for  income  taxes  for  2005  relates  solely  to a  foreign
subsidiary as tax benefits associated with losses from U.S. operations are fully
reserved  through  a tax  valuation  allowance.  The  benefit  recorded  in 2005
includes an adjustment of $2.1 million for certain foreign tax reserves that are
deemed to be no longer required.

     During 2004, we established a valuation allowance of $128.6 million for our
U.S.  deferred tax assets. As a result of our evaluation of the realizability of
our deferred  tax assets  conducted in  accordance  with  Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"), we
determined  that it was not likely that we would be able to generate  sufficient
amounts  of  future  U.S.  taxable  income to  utilize  our net  operating  loss
carryforwards and realize other deferred tax assets.

LIQUIDITY AND CAPITAL RESOURCES

     Our operations are conducted through a wholly-owned subsidiary, Foamex L.P.
Our liquidity  requirements consist primarily of the operating cash requirements
of Foamex L.P.

     Foamex  L.P.'s  liquidity  requirements  consist  principally  of  accounts
receivable,  inventory and accounts payable, scheduled payments of principal and
interest on outstanding indebtedness, capital expenditures, and employee benefit
plan  obligations.  Subsequent to our  bankruptcy  filing on September 19, 2005,
cash flow from


                                       25
<PAGE>

Foamex L.P.'s operating  activities,  cash on hand and periodic borrowings under
Foamex  L.P.'s  credit  agreements  had  been  adequate  to meet  Foamex  L.P.'s
operating liquidity requirements.

     Cash and cash  equivalents  were $6.0 million at December 31, 2006 compared
to $7.4  million at January 1, 2006.  Working  capital at December  31, 2006 was
$24.0 million and the current  ratio was 1.08 to 1 compared to negative  working
capital at January 1, 2006 of $19.4 million and a current ratio of 0.95 to 1.

     Total debt,  including $500.9 million subject to compromise,  and revolving
credit  borrowings  at December  31, 2006 was $643.7  million,  a $98.4  million
decrease  from January 1, 2006.  As of December 31, 2006,  there were  revolving
credit  borrowings of $56.3 million under the DIP Revolving Credit Facility with
$129.7  million  available for borrowings and $21.6 million of letters of credit
outstanding.  Revolving  credit  borrowings at December 31, 2006 reflect working
capital requirements.

     DIP Revolving Credit Facility

     On September  22, 2005,  Foamex L.P.  entered into a DIP  Revolving  Credit
Facility with a group of lenders to provide a revolving  credit  facility with a
maximum  availability  of $240.0  million.  The initial  borrowing under the DIP
Revolving Credit Facility was used to repay  outstanding  obligations  under the
prepetition   Senior  Secured  Credit   Facility  and  interest  due  under  the
prepetition  Secured Term Loan.  The DIP Revolving  Credit  Facility  includes a
$40.0  million  sublimit  for letters of credit and  availability  is limited to
eligible amounts, as defined, of accounts receivable,  inventory, equipment, and
real  estate.  At December  31, 2006 and January 1, 2006,  Foamex L.P. had total
available  borrowings of $129.7  million and $53.6  million,  respectively,  and
letters of credit  outstanding  of $21.6  million at December 31, 2006 under the
facility.  Substantially  all of the  assets of  Foamex  L.P.  and its  domestic
subsidiaries  and  Foamex  Canada  are  pledged as  collateral  for the  related
borrowings.  Borrowings under the DIP Revolving Credit Facility bear interest at
floating  rates based upon and  including  a margin over either  LIBOR or a Base
Rate, as defined. At December 31, 2006 and January 1, 2006, the weighted average
interest rates on borrowings were 7.38% and 7.42%, respectively.  All borrowings
under the DIP Revolving  Credit Facility will mature on the earlier of March 22,
2007 or the date  that we emerge  from  chapter  11.  The DIP  Revolving  Credit
Facility  includes  both  a  subjective  acceleration  clause  and  a  lock  box
arrangement  that  requires  all lock box  receipts  be used to repay  revolving
credit  borrowings.  Borrowings  under the DIP  Revolving  Credit  Facility  are
classified  as  current  in the  accompanying  consolidated  balance  sheets  at
December 31, 2006 and January 1, 2006.  All amounts due under the DIP  Revolving
Credit  Facility  were paid upon our emergence  from  bankruptcy on February 12,
2007.

     DIP Term Loan

     On  September  22,  2005,  Foamex L.P.  entered into a DIP Term Loan with a
group of lenders to provide an $80.0  million term loan.  Proceeds  from the DIP
Term Loan were used to repay  outstanding  principal  under a prior  term  loan.
Borrowings  under the DIP Term Loan bear  interest  at a rate that is either (i)
3.375%  plus the greater of the Base rate,  as defined,  or 6.50% or (ii) 5.375%
plus the greater of the LIBOR rate or 3.00%. At December 31, 2006 and January 1,
2006, the weighted average  interest rates were 10.73% and 14.29%.  Margins were
reduced  under  an  amendment  to the DIP  Term  Loan  effective  May 12,  2006.
Borrowings under the DIP Term Loan are  collateralized by the same collateral as
the DIP  Revolving  Credit  Facility.  An  intercreditor  agreement  governs the
distribution  of collateral  among the lenders  under the DIP  Revolving  Credit
Facility  and the DIP Term  Loan.  All  borrowings  under the DIP Term Loan will
mature on the earlier of March 22, 2007 or the date that we emerge from  chapter
11. The DIP Term Loan may be repaid  prior to  maturity  by paying a  prepayment
premium  initially set at 8% and declining  ratably over a 48-month period.  The
DIP Term Loan is classified as current in the accompanying  consolidated balance
sheets at December  31, 2006 and January 1, 2006.  All amounts due under the DIP
Term Loan,  including a prepayment premium of approximately  $4.3 million,  were
paid upon our emergence from bankruptcy on February 12, 2007.

     Debt Covenants

     The DIP Revolving Credit Facility and the DIP Term Loan (together, the "DIP
Facilities")  contained certain restrictive covenants that limited,  among other
things,  the  ability of our  subsidiaries  (i) to pay  distributions  or redeem
equity  interests,  (ii) to make certain  restrictive  payments or  investments,
(iii) to incur additional  indebtedness or issue

                                       26
<PAGE>

Preferred Equity Interests,  as defined, (iv) to merge,  consolidate or sell all
or  substantially  all assets,  or (v) to enter into certain  transactions  with
affiliates  or  related  persons.  In  addition,  the DIP  Facilities  contained
provisions  that, in the event of a defined  change of control or the occurrence
of an undefined material adverse change in the ability of the obligor to perform
its  obligations,  the  indebtedness  must be repaid,  in certain cases,  at the
option  of  the  holders.   Under  the  most  restrictive  of  the  distribution
restrictions,  we could be paid by our  subsidiaries,  as of December  31, 2006,
funds  only to the  extent  to enable  us to meet our tax  payment  liabilities,
subject to Bankruptcy  Court approval,  during the bankruptcy  process,  and our
normal  operating  expenses  of up to $2.3  million  during  the term of the DIP
Facilities, so long as no default or event of default occurred.

     Under the DIP Facilities,  Foamex L.P. was subject to financial  covenants,
including a minimum EBITDA,  as defined,  covenant that began with the one month
period ended October 30, 2005, a cumulative net cash flow, as defined,  covenant
that began with the two month period ended December 4, 2005, a maximum  leverage
ratio covenant,  and a capital expenditure  restriction for twelve month rolling
periods that began October 3, 2005.  The minimum  EBITDA and cumulative net cash
flow covenants included an increasing number of months until they reached twelve
months ended on October 1, 2006 and were the trailing twelve months  thereafter.
Foamex L.P. was in compliance with the minimum EBITDA, cumulative net cash flow,
maximum  leverage  ratio and  capital  expenditure  covenants  as of and for the
twelve  months  ended  December  31,  2006.  The  DIP  facilities  also  limited
expenditures for certain prepetition and post petition liabilities,  as defined,
subject to Bankruptcy Court approval.

     New Senior Secured Credit Facilities

     On February 12, 2007,  Foamex L.P.  entered into new senior  secured credit
facilities consisting of a $175.0 million revolving credit facility, including a
sub-limit  of $45.0  million  for  letters of credit,  and term loan  facilities
aggregating  $600.0  million,  including  $425.0 million under a first lien term
loan  facility  and  $175.0  million  under a second  lien term  loan  facility.
Borrowings  under the revolving  credit facility are subject to a borrowing base
formula  based on eligible  accounts  receivable  and bear  interest at floating
rates based upon and including a margin over either LIBOR, as defined, or a Base
Rate,  as defined.  The  revolving  credit  facility will mature on February 12,
2012.  Borrowings  under the term loan facilities also bear interest at floating
rates based upon and including a margin over either Eurodollar, as defined, or a
Base Rate as defined.  The first lien term loan facility is subject to quarterly
principal  repayments of approximately  $1.1 million and annual excess cash flow
repayments,  as defined,  with the balance  maturing on February 12,  2013.  The
second lien term loan facility  matures on February 12, 2014 and is subject to a
prepayment  premium of 2.0%  during  the first  year and 1.0%  during the second
year.

     Foamex L.P. borrowed approximately $13.4 million under the revolving credit
facility  and the full  amounts of the first lien term loan  facility and second
lien term loan  facility on February 12, 2007 to pay amounts due under the Plan.
The  initial  weighted  average  interest  rates were  8.25%,  7.57% and 10.07%,
respectively.  Foamex L.P. is subject to a leverage ratio covenant,  as defined,
under both term loan  facilities  and an interest  coverage ratio  covenant,  as
defined,  under the first lien term loan  facility as well as an annual  capital
expenditure  maximum  under all three  facilities.  In addition,  Foamex L.P. is
restricted  in  its  ability  to  make   distributions  to  us  similar  to  the
restrictions in place under the DIP Facilities.

     On February 27, 2007,  Foamex L.P.  entered into interest rate swap and "no
cost" collar  contracts to take effect on March 12, 2007. The interest rate swap
contracts  have a life of five  years  plus 35 days  with a  notional  amount of
$300.0 million at inception  reducing annually beginning on April 15 in 2008, to
$250 million,  $200 million,  $100 million,  and $75 million,  respectively,  in
which Foamex L.P. will receive  interest at a variable rate equal to three-month
LIBOR and pay  interest at a fixed rate of 4.93%.  The collar  contracts  have a
life of five  years  plus 35 days  with a  notional  amount of $175  million  at
inception reducing to $125 million on April 15, 2011. The collar contracts limit
the  variability  of the  interest  rate risk with a cap of 5.50% and a floor of
4.35%. Foamex L.P. has determined these derivatives to be effective hedges under
the guidance of Statement of Financial  Accounting Standard No. 133, "Accounting
for  Derivatives  and Hedging  Activities."  As a result of these  transactions,
Foamex  L.P.  has fixed the rate on 50% of the  amount  borrowed  under the term
loans at February  12, 2007 with 29% subject to the collar.  The  remaining  21%
will continue to have variable rates.


                                       27
<PAGE>


     Cash Flow from Operating Activities

     Cash provided by operating  activities  was $104.9 million in 2006 compared
to cash used by operating  activities  of $22.9  million in 2005, an increase of
$127.8 million.  Operating income excluding noncash charges and gain on sales of
assets increased by $40.7 million in 2006 compared to 2005. In addition, accrued
and unpaid interest  increased $33.0 million more in 2006 than in 2005 and $52.1
million of cash was generated through receivable collections.

     Cash Flow from Investing Activities

     Investing  activities used $12.1 million of cash in 2006. Cash requirements
included  capital   expenditures  of  $10.6  million  and  capitalized  software
development  costs  of  $2.6  million.  In  2005,  cash  provided  by  investing
activities was $32.0 million,  which  consisted of capital  expenditures of $5.2
million,  capitalized  software  development  costs of $2.6  million  and  $39.8
million in proceeds from the sale of assets.  Estimated capital expenditures for
2007 are expected to be approximately $20.0 to $22.0 million.

     Cash Flow from Financing Activities

     Cash used by financing  activities  was $94.2 million in 2006 and consisted
principally of repayments of revolving loans. Cash used by financing  activities
in 2005 was $7.0 million and consisted principally of debt issuance costs.

     Contractual Obligations

     Our contractual obligations are shown in the following table:

<TABLE>
<CAPTION>
                                                               Payment due by Period
                                      ------------------------------------------------------------------------
Contractual Obligations                 Total          2007        2008-09          2010-11    2012 and beyond
-----------------------               --------       -------       -------          -------    ---------------
                                                              (dollars in millions)
<S>                                  <C>             <C>           <C>             <C>            <C>
Long-Term Debt, including
   Capital Leases (1)                 $1,257.0        $639.6        $  9.7          $  8.5         $599.2
Interest (2)                             429.7         155.3         101.4           100.2           72.8
Operating Leases                          58.0          14.5          20.9            12.9            9.7
Purchase Commitments (3)                 205.3         111.2          64.1            30.0              -
Employee Benefits (4)
                                      --------        ------        ------          ------         ------
Total Contractual Obligations (5)     $1,950.0        $920.6        $196.1          $151.6         $681.7
                                      ========        ======        ======          ======         ======
</TABLE>

(1)  Payments in 2007 include $500.1  million of debt  classified as liabilities
     subject to compromise,  $56.3 million  outstanding  under the DIP Revolving
     Credit  Facility and $80.0 million  outstanding  under the DIP Term Loan at
     December  31,  2006,  all of which were paid in full on  February  12, 2007
     utilizing  proceeds from the new Senior Secured  Credit  Facilities and the
     sale of common stock pursuant to a rights  offering and the exercise of the
     call option by the Significant Stockholders. Payments due in 2008 and later
     years are  primarily  principal  payments  required  under  the new  Senior
     Secured Credit Facilities.

(2)  Interest  payments in 2007 include  $110.7  million  (including  prepayment
     premiums of $11.8  million) of accrued  interest on debt that was repaid on
     February 12, 2007.  Interest  payments for periods after  February 12, 2007
     are estimated  based on interest rates in effect at this date (adjusted for
     an  interest  rate swap  contract  effective  on March  12,  2007) and debt
     outstanding reduced only by required principal payments.

(3)  Includes  outstanding  take  or  pay  purchase  commitments  with  chemical
     suppliers  and  others to  purchase  minimum  quantities  of  materials  or
     services.

(4)  We also have obligations to provide employee benefits including those under
     our  defined  benefit  and defined  contribution  retirement  plans and our
     medical  benefit plan. In addition,  we are  partially  self-insured  for a
     number of risks  including  workers'  compensation,  automobile and general
     liability. Due to the many


                                       28
<PAGE>

     variables  involved,  accurate estimates of these future obligations cannot
     be made. In 2006, payments for these obligations  aggregated  approximately
     $41.4 million.

(5)  Comprised of the following:

<TABLE>
<CAPTION>
<S>                                                                                                     <C>
     Liabilities recorded on the balance sheet at December 31, 2006                                   $  745.5
     Borrowings under new Senior Secured Credit Facilities on February 12, 2007                          613.4
     Commitments, including interest,  not recorded on the balance sheet at December 31, 2006            591.1
                                                                                                      --------
                                                                                                      $1,950.0
</TABLE>

OTHER

Environmental Health and Safety

     We are subject to extensive and changing federal,  state, local and foreign
environmental  laws  and  regulations,  including  those  relating  to the  use,
handling, storage, discharge and disposal of hazardous substances, the discharge
or  emission  of  materials  into  the  environment,   and  the  remediation  of
environmental contamination,  and as a result, are from time to time involved in
administrative and judicial  proceedings and inquiries relating to environmental
matters.  As of December 31, 2006, we had accruals of approximately $1.7 million
for  environmental  matters  including  approximately  $1.6  million  related to
remediating and monitoring soil and groundwater  contamination and approximately
$0.1 million  relating to a PRP Site.  Additional  losses,  if any, in excess of
amounts currently accrued, cannot be reasonably estimated at this time. If there
are additional matters or if any current estimates are incorrect, there could be
a material adverse effect on our financial  position,  results of operations and
cash flows.

     We have  reported  to state  authorities  that we have  found  soil  and/or
groundwater contamination in excess of state standards.  Following our emergence
from  bankruptcy,   five  sites  are  in  various  stages  of  investigation  or
remediation. The extent of contamination and the ultimate liability is not known
with certainty for all sites.

     We have either  upgraded  or closed all  underground  storage  tanks at our
facilities in accordance with applicable regulations.

     The CERCLA and comparable state laws impose liability without fault for the
costs of  cleaning  up  contaminated  sites on certain  classes of persons  that
contributed to the release of hazardous substances into the environment at those
sites, for example, by generating wastes containing  hazardous  substances which
were disposed at such sites.  We are currently  designated as a PRP with respect
to one site  following  emergence  from  bankruptcy.  Estimates of total cleanup
costs and fractional allocations of liability are often provided by the EPA, the
state  environmental  agency  or the  committee  of  PRPs  with  respect  to the
specified site. Based on these estimates (to the extent  available) and on known
information,  we do not expect  additional  costs, if any, to be material to our
results of operations, cash flows or financial position.

     Although it is possible that new information or future  developments  could
require  us  to  reassess  the  potential   exposure  relating  to  all  pending
environmental  matters,  including those described  above,  management  believes
that, based upon all currently  available  information,  the resolution of these
environmental matters will not have a material adverse effect on our operations,
financial  position,   capital   expenditures  or  competitive   position.   The
possibility  exists,   however,   that  new  environmental   legislation  and/or
environmental  regulations may be adopted,  or other  environmental  conditions,
including the presence of previously unknown environmental contamination, may be
found  to  exist  or  a  reassessment  of  the  potential  exposure  to  pending
environmental  matters  may  be  necessary  due  to new  information  or  future
developments,  that may require expenditures not currently  anticipated and that
may be material.

Claims and Litigation

     We and our  subsidiaries are party to various  lawsuits,  both as defendant
and  plaintiff,  arising in the normal course of business.  It is the opinion of
management that the  disposition of these lawsuits will not,  individually or in
the aggregate, have a material adverse effect on our financial position, results
of  operations or cash flows.  If


                                       29
<PAGE>

management's assessment is incorrect, such actions could have a material adverse
effect on our consolidated  financial  position,  results of operations and cash
flows.  As of December  31,  2006,  we had accrued  approximately  $1.9  million
relating to the  Litigation  Matters in addition  to the  environmental  matters
discussed above.

     In July 2001, Foamex L.P.  purchased certain assets, but did not assume any
liabilities,  related to the  manufacture  and sale of a variety of polyurethane
products from a group of sellers,  including GFC. PMC, the parent of GFC, served
as guarantor  under the asset  purchase  agreement  memorializing  the sale. The
guarantee  covered  the  performance  of all terms,  conditions,  covenants  and
indemnities  required to be performed by the sellers  (including  GFC) under the
agreement.

     Foamex L.P. is party to certain disputes  relating to a fire at a nightclub
in West Warwick, Rhode Island in February 2003. The fire destroyed the nightclub
killing 100 persons and injuring over 100 others. Foamex L.P. and several of its
affiliates are named as defendants, along with more than 50 other defendants, in
certain  litigation  concerning  the fire.  The  ensuing  Litigation  comprising
numerous cases has been  consolidated in a single case, Gray v. Derderian,  Case
No.  04-312L,  before the United States District Court for the District of Rhode
Island.  Plaintiffs also filed proofs of claim in our bankruptcy  cases.  Foamex
L.P. is named in these cases solely as an alleged  successor to GFC, a defendant
in the  Litigation.  In addition to other foam  manufacturing  defendants in the
Litigation,  GFC is alleged to have manufactured and sold polyurethane foam to a
foam  fabricator  in Rhode Island.  The foam  fabricator is alleged to have then
sold the  foam at issue to the  nightclub.  The foam was  among  other  building
materials  alleged to have caught fire when pyrotechnics were set off inside the
nightclub.

     The  Litigation is in its early stages.  We believe that there are multiple
defenses to (i) the claims  against GFC, and (ii) the  successor  claim  against
Foamex  L.P.  We intend to  continue  vigorously  defending  Foamex  L.P. in the
Litigation.  We also believe that if, GFC is held liable for monetary damages in
the Litigation  and GFC is unable to satisfy that  obligation and Foamex L.P. is
found to have  liability as a successor  to GFC,  there is likely to be adequate
insurance available to Foamex L.P. to cover such liability.  However,  there can
be no  assurance  that the  defenses  available  to GFC or to Foamex  L.P. as an
alleged successor will prevail. In addition,  there can be no assurance that, if
GFC is held liable for monetary  damages in the Litigation,  GFC will be able to
satisfy that  obligation  through its  insurance or assets or that the liability
insurance  available to Foamex L.P.  will be  sufficient  to cover any potential
liability to Foamex L.P., if it were to be found to be a successor to GFC.

     Foamex  L.P.  incurred  fees and costs in  defense  of the  Litigation  and
neither  GFC nor PMC  honored  our  demand for  reimbursement  of those fees and
costs,  as was  agreed to under  the asset  purchase  agreement.  Therefore,  in
November  2005, we filed an adversary  proceeding  against PMC  alleging,  among
other  claims,  that PMC  breached  its  obligations  under the  asset  purchase
agreement by failing to reimburse  Foamex L.P. for the fees and costs related to
the defense of the Litigation.

     On  October  4,  2006,  the  parties  to the  PMC  Litigation  agreed  to a
settlement of the PMC Litigation.  The settlement resolves the PMC Litigation in
its entirety  and will result in the  recovery of the vast  majority of the fees
and costs  expended thus far defending the  Litigation and up to an aggregate of
$2.5 million in total fees and costs, but does not settle any disputes as to any
PMC  obligations  under the indemnity  for the  underlying  liability,  which is
subject to the same $2.5 million  indemnity  cap. The settlement was approved by
the Bankruptcy Court on October 19, 2006.

Inflation, Raw Material Costs and Other Matters

     The  prices  of the two  principal  chemicals  we use in  manufacturing  of
flexible  polyurethane  foam,  TDI and  polyol,  are  influenced  by demand  and
manufacturing   capacity.  In  addition,  the  prices  of  TDI  and  polyol  are
significantly  influenced  by  crude  oil  production  and  prices  and by world
political  instability,  particularly in the Middle East. Results for 2005, 2004
and 2003 were  negatively  impacted by increasing  costs for raw  materials.  We
experienced  significant  increases  in the prices of raw  materials  from major
chemical  manufacturers during this period. We have sought to recover these cost
increases  through selling price  increases,  but historically we have only been
partially  successful.  We may not be successful in implementing further selling
price  increases to fully recover  historical  raw material  cost  increases and
competitive  pricing  pressure may require us to adjust  selling  prices or lose
volume.  Results of  operations  have been and could be  adversely  affected  by
delays in  implementing,  or inability to

                                       30
<PAGE>


implement,  selling  price  increases  to offset raw  material  cost  increases.
Additionally, we must continue to further reduce and control our other operating
and corporate expenses including selling, general and administrative expenses to
offset raw material cost increases.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our debt securities with variable interest rates are subject to market risk
for changes in interest rates. On December 31, 2006,  indebtedness with variable
interest rates totaled $142.3 million.  On an annualized  basis, if the interest
rates on these debt instruments increased by 1.0%, annual interest expense would
increase by approximately  $1.4 million.  After our emergence from bankruptcy on
February  12,  2007 and after the  execution  of  interest  rate swap and collar
contracts  effective on March 12, 2007, we effectively  have  indebtedness  with
variable interest rates of approximately $145.0 million.

     The principal chemicals used in the manufacturing of flexible  polyurethane
foam are TDI and polyol.  The prices of TDI and polyol are influenced by demand,
manufacturing capacity and oil and natural gas prices. Historically,  the prices
of raw materials have been cyclical and volatile and our principal  suppliers of
raw  materials  used in the  manufacturing  of flexible  polyurethane  foam have
significantly  increased the price of raw materials  several times over the past
several years. We attempt to offset raw material price increases through selling
price  increases  and  manufacturing  process  efficiencies,  but have been only
partially successful in doing so. We were able to substantially increase selling
prices to customers beginning in the fourth quarter of 2005.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     An index to the financial  statements and financial  statement schedules is
included in Item 15.

ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

     None.

ITEM 9A. CONTROLS AND PROCEDURES

     Evaluation of Disclosure Controls and Procedures

     Our management,  with the  participation of our Chief Executive Officer and
Interim Chief Financial  Officer,  evaluated the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this report.  The
Chief Executive  Officer and Interim Chief Financial  Officer concluded that our
disclosure  controls and  procedures as of the end of the period covered by this
report are  functioning  effectively  to provide  reasonable  assurance that the
information  required to be disclosed by us in reports filed or submitted  under
the Securities Exchange Act of 1934 is (i) recorded,  processed,  summarized and
reported within the time periods specified in the SEC's rules and forms and (ii)
accumulated and  communicated  to our management,  including the Chief Executive
Officer and Interim Chief  Financial  Officer,  as  appropriate  to allow timely
decisions regarding disclosure.

     Changes in Internal Control over Financial Reporting

     No change in our internal control over financial  reporting occurred during
the fourth quarter of 2006 that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.


                                       31
<PAGE>

ITEM 9B. OTHER INFORMATION

     None.

PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     As described in Part I, Item 1 of the Form 10-K, on September 19, 2005, the
Company  filed a voluntary  petition for relief  under  chapter 11 of the United
States  Bankruptcy  Code.  Members  of the  Board  of  Directors  following  the
Company's  emergence  from  chapter 11 were set forth in the Plan (as defined in
Part I, Item I) and are listed  below along with their ages as of March 23, 2007
and biographical  information.  The Company does not expect to hold a meeting of
stockholders  in 2007 to elect  directors.  The next  election of  directors  is
expected to take place at a meeting of stockholders in 2008.

Directors as of March 23, 2007

Name                                    Age and Biographical Information

RAYMOND E. MABUS, JR.                   Raymond  E.  Mabus,  Jr.,  58,  has been
                                        Chairman  of the  Board  of the  Company
                                        since  February  2004 and a director  of
                                        the Company since  September  2000.  Mr.
                                        Mabus has been Chief  Executive  Officer
                                        since  November  2006  and  was  Interim
                                        President  and Chief  Executive  Officer
                                        from June  2006 to  November  2006.  Mr.
                                        Mabus served as U.S.  Ambassador  to the
                                        Kingdom  of Saudi  Arabia  from  1994 to
                                        1996.  Mr.  Mabus  served as Governor of
                                        Mississippi  from  1988 to  1992.  After
                                        leaving  public  service  in  1996,  Mr.
                                        Mabus  joined the board of  directors of
                                        an employee  training service now called
                                        Strategic  Partnerships.  Mr.  Mabus was
                                        the   President   of  Global   Resources
                                        Division  from  October 1998 to February
                                        2002.  Mr. Mabus serves on the Boards of
                                        Directors  of  Citizens   International,
                                        Fusion, Inc., and Thomas Engine.

ROBERT B. BURKE                         Robert B. Burke, 45, has been a director
                                        of the Company since  February 2007. Mr.
                                        Burke is the Founder and Chief Executive
                                        Officer    of    Par-Four     Investment
                                        Management, LLC (formerly Par IV Capital
                                        Management,  LLC),  an asset  management
                                        company   that   manages   hedge  funds,
                                        collateralized  debt  obligations,   and
                                        separate managed  accounts  specializing
                                        in credit and distressed  assets.  Prior
                                        to    founding    Par-Four    Investment
                                        Management,  LLC, in 2003, Mr. Burke was
                                        a Managing  Director at Lehman  Brothers
                                        where he held  the  position  of  Global
                                        Head  of  High  Yield,  Distressed,  and
                                        Leveraged Loan Sales.  Mr. Burke holds a
                                        BS   in   accounting    from   Villanova
                                        University.

SETH CHARNOW                            Seth Charnow, 30, has been a director of
                                        the Company since February  2007.  Since
                                        July 2005, Mr. Charnow has been employed
                                        by D.  E.  Shaw  &  Co.,  L.P.  ("D.  E.
                                        Shaw"),  a private  investment  advisory
                                        firm,  where he  currently  serves  as a
                                        vice  president.  From 2000 to 2003, Mr.
                                        Charnow worked as an associate at Fenway
                                        Partners,  Inc.,  a private  equity firm
                                        focused   on  control   investments   in
                                        branded   consumer   and   manufacturing
                                        businesses.   From  1998  to  2000,  Mr.
                                        Charnow was a  financial  analyst in the
                                        mergers and acquisitions  group at Bear,
                                        Stearns & Co.,  Inc. Mr.  Charnow  holds
                                        both a BS in  economics  and an MBA from
                                        the Wharton  School of the University of
                                        Pennsylvania.



                                       32
<PAGE>




GREGORY J. CHRISTIAN                    Gregory  J.  Christian,  41,  has been a
                                        director of the Company since June 2006.
                                        Mr.  Christian has been President of the
                                        Company  since  February  2007  and  was
                                        Chief Restructuring  Officer from August
                                        of 2005  until the  Company's  emergence
                                        from  chapter 11 in February  2007.  Mr.
                                        Christian was Executive  Vice  President
                                        and General  Counsel and responsible for
                                        the  Human  Resources  Department  since
                                        October  2002.  Mr.  Christian  was also
                                        Chief  Administrative  Officer from June
                                        2006 to February 2007. Mr. Christian was
                                        previously  Vice  President  and  Deputy
                                        General  Counsel  of  the  Company  from
                                        February 2002 to October 2002.

EUGENE I. DAVIS                         Eugene I. Davis, 52, has been a director
                                        of the Company since  February 2007. Mr.
                                        Davis  has  been   Chairman   and  Chief
                                        Executive Officer of PIRINATE Consulting
                                        Group, LLC, a privately-held  consulting
                                        firm    specializing    in   turn-around
                                        management,   merger   and   acquisition
                                        consulting,    hostile   and    friendly
                                        takeovers,  proxy contests and strategic
                                        planning  advisory services for domestic
                                        and  international  public  and  private
                                        business entities,  since 1997. Prior to
                                        forming  PIRINATE  in  1997,  Mr.  Davis
                                        served as President,  Vice-Chairman  and
                                        Director  of  Emerson  Radio  Corp,  and
                                        Chief     Executive      Officer     and
                                        Vice-Chairman  of  Sport  Supply  Group,
                                        Inc.  Mr.  Davis  began his career as an
                                        attorney  and  international  negotiator
                                        with Exxon  Corporation and Standard Oil
                                        Company  (Indiana)  and as a partner  in
                                        two   Texas-based  law  firms  where  he
                                        specialized in corporate/securities law,
                                        international      transactions      and
                                        restructuring  advisory.  Mr. Davis is a
                                        director of Knology,  Inc.,  PRG-Schultz
                                        Internatinal,  Inc.,  Silicon  Graphics,
                                        Inc. and American  Commercial Lines Inc.
                                        Mr. Davis is also  Chairman of the Board
                                        of  Directors  of  Atlas  Air  Worldwide
                                        Holdings, Inc. Mr. Davis holds a BA from
                                        Columbia    College,    a   Masters   of
                                        International     Affairs    (MIA)    in
                                        International  Law and Organization from
                                        the School of  International  Affairs of
                                        Columbia  University  and a JD from  the
                                        Columbia Law School.

THOMAS M. HUDGINS                       Thomas  M.  Hudgins,   67,  has  been  a
                                        director of the Company  since  November
                                        2004. Mr.  Hudgins  retired as a partner
                                        from  Ernst & Young  LLP in 2002.  While
                                        with the firm,  he held  various  senior
                                        management positions, including Managing
                                        Partner of the New York  office and lead
                                        partner   of  the  New   York   office's
                                        financial services practice. Mr. Hudgins
                                        also served on the firm's  international
                                        executive   committee   for  its  global
                                        financial  services  practice  and was a
                                        member   of   the   predecessor   firm's
                                        Accounting   and   Auditing    Standards
                                        Committee  and  Board of  Partners.  Mr.
                                        Hudgins    joined    Ernst   &   Young's
                                        predecessor  firm in 1963.  Mr.  Hudgins
                                        currently  serves  as a  member  of  the
                                        Board of Directors of The Bridge Inc., a
                                        non-profit  entity.  Mr. Hudgins holds a
                                        BS from Davidson  College and a MBA from
                                        Harvard Business School.

GREGORY E. POLING                       Gregory  E.  Poling,   51,  has  been  a
                                        director of the Company  since  February
                                        2007.  Mr. Poling is a Vice President of
                                        W.  R.   Grace  &  Co.   ("Grace")   and
                                        President of the Grace Davison operating
                                        segment.  Mr. Poling was promoted to his
                                        current position in March 2005, after 28
                                        years  with   Grace.   Mr.   Poling  has
                                        responsibility   for   Grace   Davison's
                                        Refining     Technologies,     Specialty
                                        Catalysts,   Engineered   Materials  and
                                        Discovery Sciences product groups and is
                                        a  board  member  of  Advanced  Refining
                                        Technologies,  a joint  venture  between
                                        Grace and Chevron.  In August 1999,  Mr.
                                        Poling was appointed  Vice President and
                                        General   Manager  of  silica   products
                                        worldwide.  Mr.  Poling  graduated  from
                                        Denison  University with a BS in history
                                        and has  completed  the MIT Sloan School
                                        of Management  executive program and the
                                        Babson      College      entrepreneurial
                                        management program.


                                       33
<PAGE>


Executives Officers as of March 23, 2007

Name                     Age  Position(s) Held
----                     ---  ----------------
Raymond E. Mabus, Jr.    58   Chairman and Chief Executive Officer
Gregory J. Christian     41   President
Paul A. Haslanger        60   Executive Vice President, Manufacturing Technology
Stephen E. Markert, Jr.  55   Interim Chief Financial Officer
Darrell Nance            54   Executive Vice President, Foam Products
                              (Western Region)
Donald W. Phillips       41   Executive Vice President, Automotive Products
Stephen E. Stockwell     61   Executive Vice President, Carpet Cushion Products
Andrew M. Thompson       42   Executive Vice President, Foam and Technical
                              Products

     Executive  officers are elected by the Board of  Directors  and hold office
until  their  successors  have been duly  elected and  qualified  or until their
earlier  resignation or removal from office. A brief biography of each executive
officer of the Company is provided below (other than Messrs. Mabus and Christian
whose biographies are included above under "Directors").

     Paul A. Haslanger has been Executive Vice  President,  Manufacturing  since
October 2002. From February 1993 to October 2002, Mr.  Haslanger was Senior Vice
President of  Manufacturing.  From October 1984 to February 1993, Mr.  Haslanger
was Vice  President of  Manufacturing  for the Company and a predecessor  to the
Company.

     Stephen E.  Markert,  Jr, has been Interim  Chief  Executive  Officer since
December  2006.  Since  2005,  Mr.  Markert  has been a Partner at Tatum LLC, an
executive  services  firm.  Mr.  Markert  previously  served  as Vice  President
Finance,  Chief  Financial  Officer of C&D  Technologies,  Inc., a manufacturing
company, from 1995 to 2005 and Corporate Controller from 1989 to 1995.

     Darrell Nance has been Executive  Vice  President,  Foam Products  (Western
Region) since March 1998.  From 1995 to 1997, Mr. Nance served as Vice President
and  General  Manager of West Coast  Operations  of Crain  Industries,  Inc.,  a
polyurethane  foam  manufacturer  that was  acquired  by the Company in December
1997.

     Donald W. Phillips has been Executive Vice President,  Automotive  Products
since June 2004.  From May 2003 to June 2004,  Mr.  Phillips  was a principal of
Advanced  Materials Group, LLC, a company engaged as a sales  representative for
manufacturers in the automotive  supply chain.  From March 1997 to May 2003, Mr.
Phillips  was a Senior  Account  Manager in the  Company's  Automotive  Products
business unit.

     Stephen E.  Stockwell has been  Executive  Vice  President,  Carpet Cushion
Products since December 2003. Prior to joining the Company, Mr. Stockwell held a
number  of  executive  positions  over a 30-year  career  with  Armstrong  World
Industries, Inc., most recently as Senior Vice President, Strategic Accounts.

     Andrew M. Thompson has been  Executive Vice  President,  Foam and Technical
Products  since May  2005.  From  January  2003 to May 2005,  Mr.  Thompson  was
Executive Vice President, Technical Products. From January 2000 to January 2003,
Mr. Thompson was Senior Vice President, Research & Development. Prior to joining
the Company, Mr. Thompson spent 10 years at Lyondell/ARCO Chemical where he held
various  positions in  polyurethane-related  areas,  most recently as Technology
Manager, Polyurethane Research & Development since 1995. Mr. Thompson received a
Ph.D. in Polymer Chemistry from the University of Massachusetts.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section  16(a)  of  the  Exchange  Act  requires   executive  officers  and
directors,  and  persons  who  beneficially  own more than 10% of the  Company's
stock,  to file initial reports of ownership and reports of changes of ownership
with the SEC.  Executive  officers,  directors  and greater than 10%  beneficial
owners are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.


                                       34
<PAGE>


     Based solely on the Company's  review of the copies of such forms furnished
to the Company during the last fiscal year and written  representations from the
executive  officers,  directors  and greater  than 10%  beneficial  owners,  the
Company  believes that all Section 16(a) filing  requirements  applicable to its
executive  officers,  directors and greater than 10% owners were complied  with,
except for a Form 4 filed by S. Dennis N. Belcher, a former director, and a Form
4 filed by Gregory J. Christian,  both of which were  inadvertently  filed after
the applicable deadlines.

Code of Ethics

     The  Company  has  adopted a Code of Ethics  which  applies  to  directors,
officers,  senior  management,  and  certain  other  employees  of the  Company,
including  its  principal   executive  officer,   principal  financial  officer,
principal  accounting  officer  or  controller  or  persons  performing  similar
functions.  The Code of  Ethics is  available  under  the  "Investor  Relations"
section on the Company's web site located at www.foamex.com/codeethics.php.  The
Company  granted no waivers to its Code of Ethics in 2006. The Company will post
all  amendments  and waivers to its Code of Ethics  applicable  to its principal
executive officer,  principal financial officer, principal accounting officer or
controller or persons performing similar functions on its web site and will make
all applicable filings with the SEC related thereto.

Audit Committee Composition and Financial Expert

     The Audit Committee is currently comprised of Thomas M. Hudgins, who serves
as its Chair, and Eugene I. Davis,  both of whom are non-employee  directors and
both of whom  are  independent  as  defined  by Rule  4200 of the  NASD  listing
standards.

     The  Board of  Directors  has  determined  that both  members  of the Audit
Committee are financially literate and have financial management  expertise,  as
the Board of  Directors  has  interpreted  such  qualifications  in its business
judgment. In addition,  the Board of Directors has designated each member of the
Audit Committee as an audit committee financial expert as defined in Item 401 of
Regulation S-K under the Securities Exchange Act of 1934, as amended.

Lead Director

     The Board of Directors has appointed  Eugene I. Davis as Lead Director.  As
Lead Director, Mr. Davis, in consultation with the non-employee directors:

o    advises the  Chairman of the Board (the  "Chairman")  as to an  appropriate
     schedule of board meetings;

o    reviews and provides the Chairman with input  regarding the agendas for the
     board meetings;

o    presides  at all  meetings at which the  Chairman is not present  including
     executive sessions of the non-employee  directors and apprises the Chairman
     of the issues considered;

o    calls   meetings  of  the   non-employee   directors   when  necessary  and
     appropriate; and

o    performs  such other duties as the Board may from time to time  delegate to
     the Lead Director.

ITEM 11. EXECUTIVE COMPENSATION

Compensation of Directors

     Currently,  there are two  employee  directors  who  receive no  additional
compensation  for service as a director.  Compensation in 2006 for  non-employee
directors included the components listed below.

     Annual Retainer - $50,000.

     Meeting  Fees - $1,500  for each board or  committee  meeting  attended  in
person and $750 per telephonic conference call meeting.  Non-employee  directors
who chair meetings receive two times the applicable meeting fee.


                                       35
<PAGE>

     Committee Chair Fee - $10,000 per year.

     Lead Director Fee - -$10,000 per year.

     Travel Expenses - reimbursement  for reasonable  out-of-pocket  expenses in
connection  with travel to and attendance at board and committee  meetings,  and
other corporate business.

     Non-Executive  Chairman of the Board - in addition to the foregoing,  prior
to being named  Interim Chief  Executive  Officer of the Company on June 8, 2006
Mr. Mabus received a payment of $25,000 on a quarterly basis for his services as
Non-Executive  Chairman  of the  Board.  Mr.  Mabus also  received a  transition
payment of $25,000 per quarter through and including the second quarter of 2006.
No  additional  payments  have been or will be made  since Mr.  Mabus  became an
executive officer in June 2006.

     The following  table sets forth amounts paid by the Company to directors in
connection with their services to the Company in 2006.

<TABLE>
<CAPTION>
----------------------------------------------- ------------------------- ---------------------- --------------------
                     Name                        Fees Earned or Paid in         All Other             Total ($)
                                                        Cash ($)            Compensation ($)
----------------------------------------------- ------------------------- ---------------------- --------------------
<S>                                                       <C>                                          <C>
S. Dennis N. Belcher *                                    105,750                     -                105,750
----------------------------------------------- ------------------------- ---------------------- --------------------
Robert B. Burke **                                              -                     -                      -
----------------------------------------------- ------------------------- ---------------------- --------------------
Seth Charnow (D. E. Shaw & Co., L.P.) ** (c)                    -                     -                      -
----------------------------------------------- ------------------------- ---------------------- --------------------
John C. Culver *                                           63,500                     -                 63,500
----------------------------------------------- ------------------------- ---------------------- --------------------
Eugene I. Davis **                                              -                     -                      -
----------------------------------------------- ------------------------- ---------------------- --------------------
Robert J. Hay *                                            64,250                79,992 (a)            144,242
----------------------------------------------- ------------------------- ---------------------- --------------------
Thomas M Hudgins                                          114,740                     -                114,740
----------------------------------------------- ------------------------- ---------------------- --------------------
David A. Lieberman *                                       77,000                     -                 77,000
----------------------------------------------- ------------------------- ---------------------- --------------------
Raymond E. Mabus, Jr.                                     138,833 (b)                 -                138,833
----------------------------------------------- ------------------------- ---------------------- --------------------
Gregory E. Poling **                                            -                     -                      -
----------------------------------------------- ------------------------- ---------------------- --------------------
Raul J. Valdes-Fauli *                                     97,750                     -                 97,750
----------------------------------------------- ------------------------- ---------------------- --------------------
</TABLE>

*      Resigned from the Board on February 12, 2007
**     Joined the Board on February 12, 2007

(a)  Consists of payments to Mr. Hay pursuant to his consulting agreement.

(b)  Includes payments to Mr. Mabus in his capacity as Non-Executive Chairman of
     the Board.

(c)  Compensation  that Mr. Charnow is entitled to receive for his services as a
     director is paid to D. E. Shaw & Co., L.P.

Compensation Discussion and Analysis

       Overview

     The Board of  Directors  has  designated  eight of the  Company's  officers
(including the executive  officers named in the Summary  Compensation  Table) as
"executive officers." The executive officers include the Chief Executive Officer
("CEO"),  President,  Interim Chief Financial Officer, executive vice presidents
in charge of the  Company's  operating  segments  and  other  officers  who have
policy-making authority for the Company. The Board of Directors has delegated to
the  Compensation  Committee the authority for  administering  the  compensation
program for executive  officers and other members of senior  management.  All of
the members of the Compensation Committee appointed by the Board are independent
directors.  Because Messrs. Burke and Charnow joined the Compensation  Committee
in February  2007,  they did not  participate  in  deliberations  regarding 2006
compensation.  In this Compensation Discussion and Analysis,  unless the context
otherwise  requires,  the terms  "we,"  "our" and "the  Committee"  refer to the
Compensation  Committee  prior to February 12, 2007,  which consisted of Messrs.
Hudgins,   Lieberman  and  Valdes-Fauli.   Mr.  Hudgins  was  a  member  of  the
Compensation  Committee in 2006 and continues to


                                       36
<PAGE>


be a member of the  Compensation  Committee in 2007. The  employment  agreements
described  herein were negotiated in the bankruptcy  process and approved by the
Bankruptcy Court.

     The  Compensation  Committee  reviews and approves all executive  officers'
compensation, including:

o    base salary; o annual incentive compensation;

o    long-term incentive compensation;

o    employment agreements;

o    severance arrangements;

o    change-in-control agreements; and

o    any special or supplemental benefits.

     The  Compensation  Committee  reviews  and  approves  corporate  goals  and
objectives used in determining the compensation of the CEO,  evaluates the CEO's
performance in light of those goals and objectives and makes  recommendations to
the Board regarding the CEO's  compensation  based on this evaluation subject to
the  terms of the CEO's  employment  agreement.  In  determining  the  long-term
incentive component of the CEO's compensation, the Committee considers the value
of similar incentive awards to CEOs at comparable companies and the awards given
to the CEO in past years. The  Compensation  Committee also reviews and approves
changes,  amendments or  modifications to base salary,  incentive  compensation,
equity  awards  or other  long-term  compensation  of  executive  officers.  The
Compensation   Committee  also  approves  the  annual  and  long-term  incentive
programs.   With  respect  to  the  compensation  of  Mr.  Mabus  in  2006,  the
Compensation  Committee  recommended certain  compensation and the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy  Court") approved
such compensation.

     The   Compensation   Committee  has  authority  to  engage  a  compensation
consultant  to both  assist  it in  carrying  out its  responsibilities  in this
respect and to conduct  periodic reviews of the total  compensation  program for
executive officers. During 2006, the Compensation Committee used the services of
Mercer Human Resource Consulting ("Mercer"),  a human resources consulting firm,
for competitive data and advice regarding executive compensation.

     Executive Compensation Philosophy and Objectives

     Our primary objective with respect to executive  compensation is to provide
competitive  compensation and benefits to attract,  retain,  motivate and reward
the highest quality executive officers.  A further objective of our compensation
program is to provide variable pay opportunities through cash bonuses and equity
awards that reward our officers  based on  achievement  of both  individual  and
Company performance goals. In addition,  we aim to establish  compensation plans
that  align  the  performance  of our  executive  officers  with  the  Company's
objectives.  We believe an appropriate mix of an executive  officer's pay should
be variable and  performance-based  in order to focus the  executive  officer on
both our short-term and long-term strategic objectives. It is a key objective to
ensure that  compensation  provided to executive  officers  remains  competitive
relative  to  the  compensation  paid  to  similarly   situated   executives  at
manufacturing  companies  of  comparable  size to the  Company.  The  program is
designed  to  reward  executives  for the  achievement  of  corporate  goals and
objectives, taking into account both individual performance and contributions to
the success of the overall management team.

     Once we have completed an evaluation of an executive's overall performance,
we review the executive's  existing  compensation and  compensation  potentially
payable to the executive. An executive's outstanding equity-based awards are not
considered in setting future compensation. We then consult with our compensation
consultant for an assessment of the  competitiveness of the Company's  executive
officer  compensation  relative  to  certain  benchmark  companies,   which  are
similarly-sized  durable manufacturing and general industry companies (the "Peer
Group Companies").

     We intend that the annual  compensation  paid to the  Company's  executives
(consisting  of  salary  plus  annual  incentive   compensation)  and  long-term
incentive compensation  approximate the 50th to 75th percentile of the practices
of the Peer Group Companies and broad industry data when performance  objectives
are  achieved.  In applying  these  targets,  we did not base our  decision on a
mathematical  analysis of the available data. Rather, we used our judgment after
considering all available  information.  If performance objectives are exceeded,
we believe


                                       37
<PAGE>

that incentive  compensation  should be above these levels, and when performance
objectives  are not  achieved,  incentive  compensation  should  be below  these
levels. The bias toward incentive compensation reflected in these percentages is
in keeping with our intention to align executive and stockholder interests.

     As a result of the Company's chapter 11 case that commenced in September of
2005,  no  equity-based  compensation  was granted  since the  inception  of the
chapter 11 case.  Accordingly,  for 2006, incentive  compensation  programs were
100% cash-based,  although equity incentives  awarded prior to September of 2005
remain  outstanding.  Since the  Company has  emerged  from  chapter 11, we will
include equity incentives in the future executive compensation program.

     Base Salary

     We provide  executive  officers with a base salary to  compensate  them for
services  rendered  during the fiscal year.  This also enables us to attract and
retain an appropriate caliber of talent for the position,  and to provide a base
level of monthly income that is not subject to our performance  risk. We conduct
a review of base  salaries  annually,  and  during  such a review  we  generally
consider the individual past performance of each executive  officer named in the
Summary  Compensation Table (the "Named Executive  Officers"),  the scope of the
role and responsibilities of the executive officer within our organization,  and
the  performance of the  organization as a whole. We also review the executive's
compensation  relative  to that of our other  executives  and to the  market for
executives of similar expertise and experience.

     During 2006, the Compensation  Committee approved proposed salary increases
for  certain  members  of senior  management.  Such  increases  were  awarded in
recognition  of the high  value of the  contributions  made by these  executives
during the past year and the  overall  performance  of the  Company  during that
time.  These  increases  also  ensure that the base  salaries we provide  remain
competitive  in the market for executives of similar  expertise and  experience.
The Compensation  Committee  approved increases in the annual base salary of the
following  executive  officers:  Mr.  Christian  from $375,000 to $400,000;  Mr.
Thompson from $265,000 to $315,000;  and Mr. Phillips from $200,000 to $250,000.
See Current  Employees - Employment  Agreements  for further  information on the
compensation of these executive officers.

     Annual Cash Bonus

     The 2006 Incentive  Plan for Salaried  Employees  (the  "Incentive  Plan"),
which was approved by both the Compensation  Committee and the Bankruptcy Court,
is a  cash-based  pay-for-performance  incentive  program.  Its  purpose  was to
motivate and reward executive officers and all salaried employees of the Company
for their  contributions  to the Company's  performance  by making a significant
portion of their annual  compensation  variable and dependent upon the Company's
annual  financial  performance.  The  amount of an  individual  incentive  award
payment under the Incentive Plan is based upon:

o    the individual's annual incentive target amount;

o    the operating performance of the Company for 2006; and

o    the individual's personal performance.

     The Incentive Plan targets for the Named Executive Officers (other than Mr.
Mabus) for 2006 ranged from 45% to 50% of base salary. A similar  incentive plan
is being considered by the Compensation Committee for 2007.

     Pension Plan/Supplemental Executive Retirement Plan

     As described below under "Pension  Benefits,"  payments under the Company's
tax-qualified pension plan are calculated, using annual compensation,  including
base  salary  and  incentive  payments,  and years of  credited  service  to the
Company.  We believe that retirement  compensation  that increases with years of
service and annual  compensation  is an effective  recruiting and retention tool
for our employees,  including our executive  officers.  For 2006, federal income
tax law limits to $220,000 the annual  compensation  on which benefits under the
tax-qualified  pension  plan  may be  based.  Because  of  that  limit,  we have
implemented a Supplemental Executive Retirement Plan, generally referred to as a
SERP,  that  currently  applies to nine  senior  managers,  including  the Named
Executive


                                       38
<PAGE>

Officers,  whose annual compensation  exceeds that amount, under which each such
employee will receive the full pension to which that employee  would be entitled
in the absence of the limitations  described above and other limitations imposed
under federal  income tax law. The SERP is unfunded and is not qualified for tax
purposes.

     Executive Personal Benefits

     We believe that executives generally should not be treated differently than
other  employees  when it comes to  personal  benefits  and  therefore,  we have
limited executive  personal  benefits.  During 2006, these personal benefits for
the Named  Executive  Officers (as defined below) were generally  limited to (i)
executive long-term disability insurance coverage,  (ii) matching  contributions
by the Company with respect to the Company-sponsored  401(k) Savings Plan, (iii)
automobile allowances,  and (iv) financial planning services paid by the Company
on behalf of certain executive officers.

     Employment Agreements

     The  Company  has  entered  into an  employment  agreement  with Mr.  Mabus
pursuant  to  which  he  serves  as CEO of the  Company.  Certain  terms of this
employment  agreement are described below under the Summary  Compensation Table.
This  agreement  was  approved  by the  Bankruptcy  Court  and was  designed  to
encourage Mr. Mabus to accept his  appointment  as CEO,  remain with the Company
and work diligently in pursuit of corporate  objectives.  In connection with the
Company's  emergence  from chapter 11, Mr. Mabus  entered into a new  employment
agreement,  which is described in detail below and includes a minimum salary and
target bonus that were  negotiated  with Mr. Mabus and are based on his business
experience,  his  past  performance  as  CEO of the  Company  and a  competitive
analysis  of the base  salary and  annual  bonus  paid to  individuals  who hold
comparable positions at other companies of similar size to the Company.

     The  Company has also  entered  into  employment  agreements  with  Messrs.
Christian,  Thompson, and Phillips. Certain terms of these employment agreements
are described herein.  These agreements include currently  effective  provisions
regarding  severance  payments.  In  addition,  there are three other  executive
officers  who are  parties to  change-in-control  protection  agreements.  These
agreements  provide for specified  severance amounts in the event of termination
of employment at or shortly after a change in control of the Company.

     Due to the fact that the Company had not yet emerged  from chapter 11 as of
December 31, 2006, in the event of a termination  of any of the Named  Executive
Officers on such date,  Messrs.  Christian,  Thompson,  and Haslanger would have
been entitled to receive their  respective  salaries for a period of one year as
well as medical and other  benefits on the same basis as if they were  employees
during the one year severance  period.  These severance  amounts would have been
payable  under the  Severance  Plan  approved by the  Bankruptcy  Court and as a
condition to receiving severance amounts under the Severance Plan, each of these
Named  Executive  Officers  would have been required to execute a release and be
bound by a non-competition covenant during the severance period.

     In  addition,  each of these  Named  Executive  Officers  would  have  been
eligible to receive the KERP payment made on or about the effective  date of the
Company's  plan of  reorganization.  The  severance  amounts would have been (i)
$400,000 in severance  payments,  approximately  $11,800 for the continuation of
insurance benefits, and $93,750 under the KERP for Mr. Christian,  (ii) $315,000
in severance,  approximately $11,800 for the continuation of insurance benefits,
and $63,750 under the KERP for Mr.  Thompson,  and (iii)  $265,000 in severance,
approximately  $11,800 for the continuation of insurance  benefits,  and $33,125
under the KERP for Mr. Haslanger. If terminated as of December 31, 2006, Messrs.
Mabus and Markert would not have been entitled to receive any severance payments
or any payments under the KERP. None of the Named Executive  Officers would have
been  entitled to receive any payments in the event of a change in control as of
December 31, 2006.

     The following Summary  Compensation Table contains  information  concerning
annual  and  long-term  compensation  provided  to each  person  who  served  as
Company's  Chief  Executive  Officer  during  2006,  each  person  who served as
principal  financial  officer during 2006 and each of the three next most highly
compensated  executive  officers  of  the  Company  (collectively,   the  "Named
Executive Officers").


                                       39
<PAGE>



<TABLE>
<CAPTION>
                           SUMMARY COMPENSATION TABLE

---------------------- ------ -------- -------- -------- -------------- ------------- -------------- --------
      Name and         Year   Salary    Bonus   Option    Non-Equity     Change in      All Other     Total
      Principal                 ($)      ($)    Awards     Incentive      Pension     Compensation     ($)
      Position                                    ($)        Plan        Value and         ($)
                                                         Compensation   Non-Qualified
                                                              ($)         Deferred
                                                                        Compensation
                                                                          Earnings
                                                                            ($)
                                         (7)      (8)         (9)           (10)          (11)
---------------------- ------ -------- -------- -------- -------------- ------------- -------------- --------
<S>                     <C>   <C>                <C>                          <C>           <C>      <C>
Raymond E., Mabus,      2006  526,154        -   41,393              -        61,457        141,033  770,037
Jr., Chief Executive
Officer (1)
---------------------- ------ -------- -------- -------- -------------- ------------- -------------- --------
Thomas E. Chorman,      2006  304,239  218,750  267,395              -        26,268         22,701  839,353
President and Chief
Executive Officer (2)
---------------------- ------ -------- -------- -------- -------------- ------------- -------------- --------
K. Douglas Ralph,       2006  141,346  218,750   41,619              -         6,652        236,291  644,658
Executive Vice
President and Chief
Financial Officer (3)
---------------------- ------ -------- -------- -------- -------------- ------------- -------------- --------
Robert S. Graham,       2006  173,999   19,575   14,451         56,028        24,843          1,740  290,636
Jr.,
Senior Vice
President,
Corporate Finance (4)
---------------------- ------ -------- -------- -------- -------------- ------------- -------------- --------
Stephen K. Markert,     2006   23,262        -        -              -             -              -   23,262
Jr., Interim Chief
Financial Officer (5)
---------------------- ------ -------- -------- -------- -------------- ------------- -------------- --------
Gregory J.              2006  389,616  187,500  107,269        179,223        15,781          4,163  883,552
Christian, President
(6)
---------------------- ------ -------- -------- -------- -------------- ------------- -------------- --------
Andrew Thompson,        2006  294,231  127,500   57,336        134,390        12,782          4,246  630,485
Executive Vice
President, Foam and
Technical Products
---------------------- ------ -------- -------- -------- -------------- ------------- -------------- --------
Paul A. Haslanger,      2006  264,998   49,688   72,482        109,709        52,362         18,771  568,010
Executive Vice
President,
Manufacturing
Technology
---------------------- ------ -------- -------- -------- -------------- ------------- -------------- --------
</TABLE>

(1)  Mr. Mabus was named Chief Executive  Officer on June 7, 2006. Prior to that
     date he was the Non-Executive Chairman of the Board of Directors.

(2)  Mr. Chorman  resigned as President and Chief  Executive  Officer  effective
     June 7, 2006.

(3)  Mr. Ralph resigned as Chief Financial Officer effective May 12, 2006.

(4)  Mr. Graham served as Principal  Financial  Officer after the resignation of
     Mr. Ralph until Mr. Markert was appointed  Interim Chief Financial  Officer
     on December 6, 2006.

(5)  Mr. Markert was appointed  Interim Chief  Financial  Officer on December 6,
     2006. Mr. Markert is compensated at an annual rate of $336,000.

(6)  Mr.  Christian was named President of the Company  effective as of February
     12, 2007.  Prior to that time, Mr.  Christian was Executive Vice President,
     Chief  Administrative  Officer,  Chief Restructuring  Officer,  and General
     Counsel.

(7)  Bonus includes amounts earned pursuant to a key employee  retention program
     (the "KERP") and paid in 2006 and February 2007.


                                       40
<PAGE>


(8)  There were no stock  awards or option  awards made  pursuant to any plan in
     2006.  Amounts shown under option awards are the dollar amounts  recognized
     for financial  statement  purposes for 2006 in accordance with Statement of
     Financial Accounting Standards No. 123 (Revised)  "Share-Based Payment" and
     are computed  using the  valuation  assumptions  included in Note 14 to the
     consolidated financial statements.

(9)  Amounts included as Non-Equity Incentive Plan Compensation are amounts paid
     in March 2007 under the 2006  Incentive  Plan.  The Incentive Plan paid out
     92% of targeted bonuses based on operating  performance compared to targets
     previously established by the Company's Compensation Committee.

(10) Amounts  included as change in pension value is the aggregate change in the
     actuarial present value of each executive's  accumulated  benefit under the
     Company's pension plan and under its Supplemental Executive Retirement Plan
     (the "SERP") from the pension plan  measurement  date for 2005  (January 1,
     2005) to the pension plan  measurement date for 2006 (January 1, 2006). Mr.
     Chorman  and  Mr.  Ralph  each  resigned  from  the  Company  before  their
     respective  benefits  were  vested  and,  therefore  are not  entitled to a
     benefit.

(11) All other  compensation  includes the executive personal benefits described
     above. All other  compensation for Mr. Mabus includes  $138,833 paid to him
     as fees for his service as the Non-Executive  Chairman of the Board for the
     period January 1, 2006 through June 6, 2006. All other compensation for Mr.
     Ralph  includes  severance  payments  aggregating   $222,115.   See  Former
     Employees - Employment Agreements below.

     The following  table  provides  information  about each of the  outstanding
awards to purchase our common stock held by each Named  Executive  Officer as of
December  31,  2006.  The Company has not granted any  performance-based  equity
awards. The stock-based information contained in the following table and in this
Item 11 generally  does not give effect to the Company's  announced one for four
reverse stock split in respect of its common stock (the "Reverse Split"),  which
the Company expects to consummate in the second quarter of 2007.

                  OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                Name                    Number of Securities     Number of Securities     Option        Option
                                       Underlying Unexercised   Underlying Unexercised   Exercise     Expiration
                                               Options                  Options            Price         Date
                                                 (#)                      (#)             ($) (1)        (2)
                                           Exercisable (1)         Unexercisable (1)
-------------------------------------------------------------------------------------------------------------------
<S>                                           <C>                            <C>            <C>      <C>   <C>
Raymond E. Mabus, Jr.,                        10,000                         0              5.75     12/18/2010
Chief Executive Officer                       20,000                         0              7.51     10/12/2011
                                               8,000                     2,000              8.36     01/02/2012
                                                   0                     4,000              3.07     01/02/2013
                                               4,000                     6,000              5.10     01/02/2014
                                                   0                     6,000              4.14     05/25/2014
                                                   0                     8,000              3.70     01/03/2015
-------------------------------------------------------------------------------------------------------------------
Thomas E. Chorman,
President and Chief Executive Officer
-------------------------------------------------------------------------------------------------------------------
K. Douglas Ralph, Chief Financial Officer
-------------------------------------------------------------------------------------------------------------------
Robert S. Graham, Jr.,                         2,000                         0             13.25     02/12/2008
Senior Vice President,                         3,000                         0              6.22     05/27/2009
Corporate Finance                              5,000                         0              6.56     08/04/2010
                                               5,000                         0              7.50     08/03/2011
                                               4,000                     1,000              8.76     04/08/2012
                                                   0                     5,000              6.44     08/21/2012
-------------------------------------------------------------------------------------------------------------------
Stephen K. Markert, Jr.,
Interim Chief Financial Officer
-------------------------------------------------------------------------------------------------------------------


                                       41
<PAGE>


-------------------------------------------------------------------------------------------------------------------
                Name                    Number of Securities     Number of Securities     Option        Option
                                       Underlying Unexercised   Underlying Unexercised   Exercise     Expiration
                                              Options                   Options            Price         Date
                                                (#)                       (#)             ($) (1)        (2)
                                          Exercisable (1)          Unexercisable (1)
-------------------------------------------------------------------------------------------------------------------
Gregory J. Christian, President               1,000                          0             13.25     02/12/2008
                                                800                          0              6.22     05/27/2009
                                              1,200                          0              5.06     04/26/2010
                                              2,400                          0              6.56     08/04/2010
                                              2,400                          0              5.25     04/16/2011
                                              3,000                          0              7.50     08/03/2011
                                              4,000                      1,000              8.76     04/08/2012
                                                  0                      2,500              6.44     08/21/2012
                                                  0                     25,000              2.10     12/18/2008
                                                  0                     22,500              4.10     02/16/2010
                                                  0                     66,666              1.50     04/15/2011
-------------------------------------------------------------------------------------------------------------------
Andrew Thompson                               1,000                          0              5.06     04/26/2010
Executive Vice President                      1,000                          0              6.56     08/04/2010
Foam and Technical Products                   1,000                          0              5.25     04/16/2011
                                              7,500                          0              7.50     08/03/2011
                                              8,000                      2,000              8.76     04/08/2012
                                                  0                      2,500              6.44     08/21/2012
                                                  0                     12,500              2.10     12/18/2008
                                                  0                      5,000              2.23     01/31/2009
                                                  0                      9,000              4.10     02/16/2010
                                                  0                     26,666              1.50     04/15/2011
-------------------------------------------------------------------------------------------------------------------
Paul A. Haslanger,                            2,000                          0             13.25     02/12/2008
Executive Vice President,                     1,000                          0              6.22     05/27/2009
Manufacturing Technology                      1,000                          0              5.06     04/26/2010
                                              1,000                          0              6.56     08/04/2010
                                              2,500                          0              5.25     04/16/2011
                                              2,500                          0              7.50     08/03/2011
                                              2,400                        600              8.76     04/08/2012
                                                  0                      2,500              6.44     08/21/2012
                                                  0                     35,000              2.10     12/18/2008
                                                  0                     18,000              4.10     02/16/2010
                                                  0                     20,000              1.50     04/15/2011
-------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  In connection  with the Reverse  Split the number of securities  underlying
     unexercised  options  will be reduced to 25% of the  amounts  shown and the
     option exercise prices will be increased by a factor of 4.

(2)  All  outstanding  awards were  pursuant to option grants with 10 year terms
     and pro rata vesting over five years except as follows:  (i) options with a
     expiration  date of December  18, 2008 will fully vest on December 18, 2007
     with no prior  vesting and (ii) options with  expiration  dates of February
     16, 2010 and April 15, 2011 have a six year term and pro rata  vesting over
     three years.

     The following table sets forth as to each of the Named  Executive  Officers
information on exercises of options to purchase our common stock during 2006.


                                       42
<PAGE>



                                OPTION EXERCISES

<TABLE>
<CAPTION>
------------------------------------- ---------------------------------------- ------------------------------------
                Name                   Number of Shares Acquired on Exercise       Value Realized on Exercise
                                                        (#)                                    ($)
------------------------------------- ---------------------------------------- ------------------------------------
<S>                                                    <C>                                     <C>
Raymond E. Mabus, Jr.,                                 12,000                                  7,420
Chief Executive Officer
------------------------------------- ---------------------------------------- ------------------------------------
Thomas E. Chorman,                                    133,334                                286,668
President and Chief Executive
Officer
------------------------------------- ---------------------------------------- ------------------------------------
K. Douglas Ralph,                                      54,334                                 82,688
Chief Financial Officer
------------------------------------- ---------------------------------------- ------------------------------------
Robert S. Graham, Jr.,                                 12,500                                 10,438
Senior Vice President,
Corporate Finance
------------------------------------- ---------------------------------------- ------------------------------------
Stephen K. Markert, Jr.,                                    -                                      -
Interim Chief Financial Officer
------------------------------------- ---------------------------------------- ------------------------------------
Gregory J. Christian,                                  78,334                                146,202
President
------------------------------------- ---------------------------------------- ------------------------------------
Andrew Thompson,                                       31,334                                 45,635
Executive Vice President,
Foam and Technical Products
------------------------------------- ---------------------------------------- ------------------------------------
Paul A. Haslanger,                                     46,000                                 90,400
Executive Vice President,
Manufacturing Technology
------------------------------------- ---------------------------------------- ------------------------------------
</TABLE>

     The following table sets forth as to each of the Named  Executive  Officers
the present value of the accumulated pension benefits and the number of years of
credited service.

                                PENSION BENEFITS

<TABLE>
<CAPTION>
---------------------------------- ------------------------ ----------------- --------------------- ---------------
              Name                        Plan Name         Number of Years     Present Value of       Payments
                                                            Credited Service  Accumulated Benefit    During Last
                                                                  (#)                 ($)            Fiscal Year
                                                                                                         ($)
                                             (1)                  (2)                 (3)
---------------------------------- ------------------------ ----------------- --------------------- ---------------
<S>                                                                                    <C>
Raymond E. Mabus, Jr.,             Foamex L.P. Pension Plan            -              23,769             -
Chief Executive Officer            Foamex SERP                         -              37,688
---------------------------------- ------------------------ ----------------- --------------------- ---------------
Thomas E. Chorman, (4)             Foamex L.P. Pension Plan          3.8              94,623             -
Chief Executive Officer            Foamex SERP                       3.8             211,181
---------------------------------- ------------------------ ----------------- --------------------- ---------------
K. Douglas Ralph, (4)              Foamex L.P. Pension Plan          3.3              41,336             -
Chief Financial Officer            Foamex SERP                       3.3              25,170
---------------------------------- ------------------------ ----------------- --------------------- ---------------
Robert S. Graham, Jr.,             Foamex L.P. Pension Plan         29.6             331,924             -
Senior Vice President,
Corporate Finance
---------------------------------- ------------------------ ----------------- --------------------- ---------------
Stephen K. Markert, Jr.,           Not Applicable                                                        -
Interim Chief Financial Officer
---------------------------------- ------------------------ ----------------- --------------------- ---------------
Gregory J. Christian,              Foamex L.P. Pension Plan         10.3              63,633             -
President                          Foamex SERP                      10.3              16,350
---------------------------------- ------------------------ ----------------- --------------------- ---------------
Andrew Thompson,                   Foamex L.P. Pension Plan          7.0              54,902             -
Executive Vice President, Foam     Foamex SERP                       7.0               7,795
and Technical Products
---------------------------------- ------------------------ ----------------- --------------------- ---------------
Paul A. Haslanger                  Foamex L.P. Pension Plan         37.6             764,797             -
Executive Vice President,          Foamex SERP                      37.6             166,431
Manufacturing Technology
---------------------------------- ------------------------ ----------------- --------------------- ---------------
</TABLE>


                                       43
<PAGE>


(1)  The Foamex L.P.  Pension Plan applies to all full and part-time  employees.
     The Foamex  Supplemental  Executive  Retirement  Plan (the  `Foamex  SERP")
     applies only to those who are Executive  Vice  Presidents or higher or were
     Executive Vice Presidents when the Foamex SERP was adopted.

(2)  Years of credited service is measured as of December 31, 2006.

(3)  Present  value of  accumulated  benefit is  determined  using  pension plan
     assumptions in Note 13 to the consolidated financial statements.

(4)  Mr.  Chorman and Mr. Ralph each left the Company before their benefits were
     vested under either the Foamex L.P.  Pension Plan (5 years  service) or the
     Foamex  SERP  (age 65 or age 55 with 10  years  of  service)  and  will not
     receive the accumulated benefit.

Key Employee Retention Program

     On November 17, 2005, the Bankruptcy Court approved a motion  authorizing a
key employee  retention  program (the "KERP").  The Compensation  Committee,  in
consultation  with its outside  compensation  consultant,  Mercer Human Resource
Consulting, and its legal advisors, proposed that the Company implement the KERP
and associated  Severance Plan. The original KERP was modified based on feedback
from the Ad Hoc Committee of the Company's Senior Secured Noteholders as further
described in the motion  authorizing the KERP. The KERP pertains to 77 employees
who were eligible to receive cash distributions  aggregating up to $3.2 million.
In addition,  certain participants,  at the discretion of the Board of Directors
of  the  Company,  may  receive  additional  distributions   aggregating  up  to
approximately  $650,000 in cash or in common stock of the Company at a price per
share that reflects the value of the equity on the  effective  date of the Plan.
Distributions  under the KERP are generally to be made (i) on or around  certain
milestone  dates during the chapter 11 cases,  and (ii) on and subsequent to the
effective date of the plan of reorganization. Cash distributions pursuant to the
KERP,  aggregating  approximately  $400,000,  were  paid in  December  2005  and
additional amounts aggregating approximately $1.1 million were paid in the first
quarter of 2006. In connection  with the effective date of the Plan,  additional
amounts  aggregating  approximately  $1.1  million  were paid  during  the first
quarter of 2007. The common stock distributions, if any, will be made at the six
month and one year  anniversaries  of the effective  date of the Plan.  The KERP
also included an additional $500,000 discretionary cash pool to address specific
employment  matters and  unanticipated  needs that could have arisen  during the
chapter  11  cases.  Approximately  $50,000  was paid by the  Company  from this
discretionary pool, none of which was paid to any executive officer.

Current Employees - Employment Agreements

     Raymond E. Mabus

     Mr.  Raymond E. Mabus,  Jr., the  Company's  Chairman  and Chief  Executive
Officer,  has entered into an employment  agreement  with the Company and Foamex
L.P. dated February 12, 2007 (the "Mabus Employment Agreement"). The term of the
Mabus Employment  Agreement commenced on February 12, 2007 and continues through
the  close of  business  on  December  31,  2007.  Under  the  Mabus  Employment
Agreement,  Mr.  Mabus is  entitled to receive an annual base salary of $650,000
during his term of employment. For 2007, Mr. Mabus is eligible to earn an annual
cash bonus award with a target bonus of 60% of his annual base salary as long as
Mr. Mabus is employed  with the Company and Foamex L.P. as of December 31, 2007.
Mr. Mabus is also  entitled to  participate  in the Company's  401(k),  pension,
supplemental  executive  retirement  plan, life insurance,  medical,  dental and
disability  insurance  plans. The Company also pays Mr. Mabus a car allowance of
$1,200 per month.

     In the event of Mr. Mabus'  termination of employment  for any reason,  Mr.
Mabus is entitled to receive  (i) any base salary or other  compensation  earned
but  not  paid  prior  to the  effective  date  of such  termination,  (ii)  any
unreimbursed business expenses and (iii) any payments, benefits, or entitlements
which are vested  pursuant to his  employment  agreement  or any  Company  plan,
policy,  program or other arrangement.  In addition, if Mr. Mabus' employment is
terminated  by the  Company for  reasons  other than  "Cause" (as defined in the
Mabus  Employment  Agreement),  death or  "Disability"  (as defined in the Mabus
Employment  Agreement)  or if Mr.  Mabus  terminates  his  employment  for "Good
Reason" (as defined in the Mabus Employment Agreement),  in either case prior to
December


                                       44
<PAGE>

31, 2007, he shall,  subject to his  execution of a general  release and waiver,
receive the above  payments in addition to (1) a cash amount equal to the sum of
his base  salary  which  would have been paid had he  remained  employed  by the
Company  through  December  31,  2007 and his  target  bonus  and (2)  continued
participation  under the Company's medical and dental plans through December 31,
2007.

     In the event Mr.  Mabus'  employment  is  terminated on account of death or
"Disability," in addition to receiving (i) any base salary or other compensation
earned but not paid prior to the effective  date of such  termination,  (ii) any
unreimbursed business expenses and (iii) any payments, benefits, or entitlements
which are vested  pursuant to his  employment  agreement  or any  Company  plan,
policy,  program or other arrangement,  Mr. Mabus is entitled to (1) a pro-rated
bonus,  provided that any personal  performance  targets shall be deemed to have
been  achieved at the maximum level and (2)  continued  participation  under the
Company's medical and dental plans through December 31, 2007.

     Upon the  occurrence  of a "Change  in  Control"  (as  defined in the Mabus
Employment  Agreement),  all outstanding  equity and long-term  incentive awards
shall  immediately  vest in a manner to enable Mr. Mabus to  participate  in the
"Change in Control" transaction.  In addition,  Mr. Mabus is entitled to receive
an excise tax gross-up.

     The Mabus Employment Agreement also contains certain restrictive covenants.
If Mr.  Mabus'  employment  is  terminated  on or prior to December  31, 2007 or
during the six-month period following December 31, 2007, Mr. Mabus shall not for
a period of one year from the date of such termination, compete with the Company
or solicit  any Company  employees  or  customers.  Additionally,  Mr.  Mabus is
prevented from divulging any confidential  information of the Company during his
employment or thereafter.

     Gregory J. Christian

     Mr.  Gregory J.  Christian,  the Company's  President,  has entered into an
employment  agreement with the Company and Foamex L.P.,  dated February 12, 2007
(the  "Christian  Employment  Agreement").  The  initial  term of the  Christian
Employment  Agreement  commenced on February 12, 2007 and continues  through the
close of business on December  31, 2009.  Mr.  Christian's  employment  shall be
automatically  extended for successive  one-year periods  commencing on December
31, 2009,  unless  either party gives prior  written  notice at least 45 days in
advance of the  decision not to extend the  employment  term.  Mr.  Christian is
entitled  to  receive  an annual  base  salary of  $500,000  during  his term of
employment, which salary shall be reviewed annually by the Board of Directors or
a committee thereof. During Mr. Christian's  employment,  he is entitled to earn
bonus awards in accordance  with the  incentive  programs in effect at that time
with a target bonus opportunity of 60% of his annual base salary.  Mr. Christian
is also entitled to receive a bonus for the fiscal year 2006 in accordance  with
the 2006 Foamex Salaried  Incentive  Plan,  which has been paid pursuant to such
plan.  Additionally,  Mr.  Christian is entitled to any payments due pursuant to
the KERP,  payable in accordance  with such plan and any bankruptcy  court order
regarding  the same.  From  time to time,  Mr.  Christian  will be  entitled  to
participate in the Company's  equity plans and programs and the Company will use
its best efforts to cause the Board of Directors or the  Company's  compensation
committee to grant Mr.  Christian  options to purchase  Common Stock pursuant to
the MIP (as defined below), which was approved by the Bankruptcy Court, no later
than 45 days  following  the Effective  Date.  This 2007 grant will vest no less
frequently than in equal annual  installments  over four years commencing on the
first  anniversary  of the  effective  date.  Mr.  Christian is also entitled to
participate in the Company's 401(k), pension,  supplemental executive retirement
plan,  life  insurance,  medical,  dental and disability  insurance  plans.  The
Company also pays Mr. Christian a car allowance of $1,200 per month.

     In the event of Mr.  Christian's  termination of employment for any reason,
Mr.  Christian is entitled to receive (i) any base salary or other  compensation
earned but not paid prior to the effective  date of such  termination,  (ii) any
unreimbursed business expenses and (iii) any payments, benefits, or entitlements
which are vested  pursuant to his  employment  agreement  or any  Company  plan,
policy, program or other arrangement. In addition, if Mr. Christian's employment
is  terminated  by the Company for reasons other than "Cause" (as defined in the
Christian  Employment  Agreement),  death or  "Disability"  (as  defined  in the
Christian  Employment  Agreement) and such termination is not made pursuant to a
notice of non-renewal given by the Company to Mr. Christian (which must be given
at least 45 days prior to December 31, 2009) or if Mr. Christian  terminates his
employment for "Good Reason" (as defined in


                                       45
<PAGE>


the Christian  Employment  Agreement),  he shall,  subject to his execution of a
general release and waiver, receive the above payments in addition to (1) a cash
amount in 24 equal monthly  installments  equal to two times the sum of his base
salary plus his target bonus,  (2) payment of a pro-rated  bonus in cash for the
year of termination, (3) accelerated vesting of the portion of his equity awards
that  would  have  vested  during  the one  year  period  following  the date of
termination,  which awards shall  remain  exercisable  for the lesser of the six
month  anniversary of the last day of the fiscal quarter in which his employment
terminates  and the  remainder  of  their  original  terms,  and  (4)  continued
participation under the Company's medical and dental plans for 24 months.

     In  the  event  the  Company  provides  Mr.  Christian  with  a  notice  of
non-renewal so that Mr.  Christian's  employment shall be terminated on December
31, 2009,  in addition to (i) any base salary or other  compensation  earned but
not paid prior to the effective date of such termination,  (ii) any unreimbursed
business expenses and (iii) any payments,  benefits,  or entitlements  which are
vested pursuant to his employment agreement or any Company plan, policy, program
or arrangement or other arrangement,  Mr. Christian is entitled to receive (1) a
cash amount in 12 equal monthly installments equal to the sum of his base salary
plus his target  bonus,  (2) a  pro-rata  bonus in a lump sum,  (3)  accelerated
vesting of the portion of his 2007 equity  awards that would have vested  during
the one year period following the date of termination, which awards shall remain
exercisable  for the lesser of the six month  anniversary of the last day of the
fiscal  quarter in which his  employment  terminates  and the remainder of their
original terms, and (4) continued  participation under the Company's medical and
dental plans for 12 months.

     In the event Mr.  Christian's  employment is terminated on account of death
or  "Disability,"  in  addition  to  receiving  (i) any  base  salary  or  other
compensation   earned  but  not  paid  prior  to  the  effective  date  of  such
termination,  (ii) any  unreimbursed  business  expenses and (iii) any payments,
benefits,  or entitlements which are vested pursuant to his employment agreement
or any Company plan,  policy,  program or other  arrangement,  Mr.  Christian is
entitled  to (1) a pro-rated  bonus and (2)  continued  participation  under the
Company's medical and dental plans for 12 months and (3) accelerated  vesting of
the portion of his 2007 equity awards that would have vested during the one year
period following the date of termination,  which awards shall remain exercisable
for the  lesser  of the six  month  anniversary  of the last  day of the  fiscal
quarter in which his  employment  terminates and the remainder of their original
terms.

     Upon the  occurrence  of a "Change in Control" (as defined in the Christian
Employment  Agreement),  all outstanding  equity and long-term  incentive awards
shall immediately vest in a manner to enable Mr. Christian to participate in the
"Change in Control"  transaction.  In  addition,  Mr.  Christian  is entitled to
receive an excise tax gross-up.

     The  Christian  Employment  Agreement  also  contains  certain  restrictive
covenants. If Mr. Christian's employment is terminated for any reason other than
"Cause," Mr. Christian shall not for a period of two years from the date of such
termination,  which  period  will  be  reduced  to one  year  in the  event  the
termination occurs in connection with a notice of non-renewal,  compete with the
Company or  solicit  any  Company  employees  or  customers.  Additionally,  Mr.
Christian  is prevented  from  divulging  any  confidential  information  of the
Company during his employment or thereafter.

     Andrew M. Thompson

     Mr. Andrew M. Thompson has entered into an  employment  agreement  with the
Company and Foamex  L.P.,  dated  February  12, 2007 (the  "Thompson  Employment
Agreement"),  to be employed as Executive  Vice  President,  Foam and  Technical
Products.  The terms of the  Thompson  Employment  Agreement  are  substantially
similar to the  Christian  Employment  Agreement.  Mr.  Thompson  is entitled to
receive an annual base salary of $350,000  during his term of employment,  which
salary  shall be  reviewed  annually  by the Board of  Directors  or a committee
thereof.  During Mr. Thompson's employment,  he is entitled to earn bonus awards
in accordance  with the incentive  programs in effect at that time with a target
bonus opportunity of 50% of his annual base salary.

     Donald Phillips

     Mr.  Donald  Phillips has entered  into an  employment  agreement  with the
Company and Foamex  L.P.,  dated  February  12, 2007 (the  "Phillips  Employment
Agreement"),  to be employed as Executive Vice President,


                                       46
<PAGE>

Automotive  Products.  The  terms  of  the  Phillips  Employment  Agreement  are
substantially  similar to the Christian  Employment  Agreement.  Mr. Phillips is
entitled  to  receive  an annual  base  salary of  $250,000  during  his term of
employment, which salary shall be reviewed annually by the Board of Directors or
a committee  thereof.  During Mr. Phillips'  employment,  he is entitled to earn
bonus awards in accordance  with the  incentive  programs in effect at that time
with a target bonus  opportunity of 45% of his annual base salary.  Mr. Phillips
is not a Named Executive Officer.

     Former Employees - Employment Agreements

     K. Douglas Ralph

     In connection  with the  resignation of K. Douglas Ralph, as Executive Vice
President and Chief  Financial  Officer of the Company,  effective as of May 12,
2006,  the Company  entered  into a  separation  agreement  with Mr. Ralph which
provides for the payment of one year of salary or $350,000 over a fifty two week
period. In addition, Mr. Ralph is being provided with medical and other benefits
on the same basis as if he were an employee  during the fifty-two week severance
period.  Mr.  Ralph has agreed not to compete  with or solicit  employees of the
Company during the severance period.  The separation  agreement was entered into
and severance  payments  authorized  pursuant to the terms of the Severance Plan
approved by the  Bankruptcy  Court on November  17, 2005.  Under the  separation
agreement,  Mr. Ralph  received a payment under the KERP of $109,375 on or about
the effective date of the Company's plan of reorganization;  however,  Mr. Ralph
is not entitled to any further distributions thereunder pursuant to the terms of
the KERP.

     Thomas E. Chorman

     In connection  with the  resignation  of Thomas E.  Chorman,  as President,
Chief Executive Officer, and a director of the Company,  effective as of June 7,
2006, the Company is currently defending  litigation in its chapter 11 case with
respect to this separation,  in which damages of approximately  $2.5 million and
other  unspecified  amounts are being sought according to a proof of claim filed
with  the  Bankruptcy  Court.  For a  description  of Mr.  Chorman's  employment
agreement,  see the  Company's  Amendment to its Annual  Report on Form 10-K for
fiscal year 2005 which was filed with the Securities and Exchange  Commission on
May 1, 2006. With approval by the Bankruptcy Court, the employment agreement was
rejected by the Company as of December  20, 2006  pursuant to Section  365(a) of
the Bankruptcy Code.

Foamex International Inc. Salaried Incentive Bonus Plan

     The Foamex  International  Inc.  Salaried  Incentive Bonus Plan (the "Bonus
Plan")  is  administered  by  the   Compensation   Committee  and  provides  for
performance  based  bonuses for  executives  who are "covered  employees"  under
Section 162(m) of the Internal  Revenue Code and for other key employees who are
selected by the Compensation  Committee for  participation in the Bonus Plan. In
addition, the Compensation Committee may award discretionary bonuses outside the
Bonus Plan to  executive  officers  who are "covered  employees"  under  Section
162(m) and to other key employees of the Company.

     On October 30, 2006,  the Bankruptcy  Court entered an order  approving the
Company's  motion for a  incentive  plan for  salaried  employees  for 2006 (the
"Incentive  Plan").  The Incentive  Plan sets forth  performance  goals that are
applicable  to  each  covered  employee  and key  employee  who is  eligible  to
participate in the Incentive Plan. For 2006, the performance goals were based on
the Company's  earnings before  interest,  taxes,  depreciation and amortization
("EBITDA"),  as well as  operating  profit for each of the  Company's  Strategic
Business Units ("SBUs").

Stock Option Plans

     The 2002 Stock Award Plan  provides  for the issuance of  nonqualified  and
incentive  stock  options for Common  Stock.  Eligibility  extends to employees,
directors  and  consultants  of the  Company,  including  its  subsidiaries  and
affiliates.  At the Annual Meeting of Stockholders on May 25, 2004, stockholders
approved an increase in the number of shares  reserved  for  issuance  under the
2002 Stock Award Plan by 2,500,000. As of December 31, 2006,


                                       47
<PAGE>


4,600,000 shares of Common Stock were reserved for issuance under the 2002 Stock
Award Plan,  which will be adjusted to 1,150,000 shares on the effective date of
the Company's previously announced Reverse Split.

     The 2002 Stock  Award Plan also  provides  for stock  appreciation  rights,
restricted  stock,  phantom  stock units,  performance  share units and/or stock
bonuses, although none of these awards have been issued. Of the 4,600,000 shares
of Common  Stock  reserved  under the 2002 Stock  Award  Plan,  500,000 of these
shares are  available  for awards of  restricted  stock,  phantom  stock  units,
performance share units and/or stock bonuses.

     The 1993 Stock Option Plan  provided for the issuance of  nonqualified  and
incentive  stock  options  for Common  Stock.  Officers  and  executives  of the
Company, including its subsidiaries and affiliates were eligible to participate.
During the fourth quarter of 2003, the 1993 Stock Option Plan expired  according
to the provisions of the plan.  Consequently,  no further options can be granted
under the plan.  The 1993 Stock  Option Plan  provided for the issuance of up to
4,750,000  shares of Common Stock.  Options  outstanding on the expiration  date
continue to be  available  for the  issuance of Common Stock under the terms and
conditions at their issuance.

     In  connection  with the Plan,  the  Company  adopted  the 2007  Management
Incentive  Plan (the "MIP").  Eligibility  extends to  employees,  directors and
consultants  of the  Company  and the MIP  provides  for the  issuance  of stock
options,  stock  appreciation  rights,  restricted  stock,  phantom stock units,
performance  share units and/or stock bonuses and certain cash incentive awards.
The MIP became effective on February 12, 2007 and no awards have been made as of
the date of filing  this  Report.  The MIP has  9,300,000  shares  reserved  for
issuance,  which will be adjusted to 2,325,000  shares on the effective  date of
the Company's previously announced Reverse Split.

Compensation Committee Interlocks and Insider Participation

     The Compensation Committee is comprised entirely of non-employee directors.
The  Company is not aware of any  executive  officers  of the  Company  who have
served on the board of directors or compensation committee of another company at
any time during which an executive  officer of such other company  served on the
Company's Board of Directors and/or Compensation Committee.

ITEM 12  SECURITY OWNERSHIP  OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT  AND
         RELATED STOCKHOLDER MATTERS

Ownership  of Common  Stock of  Certain  Beneficial  Owners and  Management  and
Related Stockholder Matters

     The following table sets forth certain  information,  as of March 14, 2007,
regarding the beneficial  ownership of Common Stock by (i) each  stockholder who
is known by the Company to own more than 5% of the outstanding  shares of Common
Stock, (ii) each director,  (iii) each Named Executive Officer that was employed
by the Company on March 14, 2007, and (iv) all directors and executive  officers
as a group. Except as otherwise indicated,  each stockholder has (i) sole voting
and investment power with respect to such stockholder's  shares of stock, except
to the extent that authority is shared by spouses under  applicable law and (ii)
record and  beneficial  ownership with respect to such  stockholder's  shares of
stock.  The  stock-based  information  contained  in this  Item 12 does not give
effect to the Reverse Split.


                                       48
<PAGE>


<TABLE>
<CAPTION>

Name and Address of Beneficial Owners                                     Beneficial Ownership (1)
-------------------------------------                         ------------------------------------------------
                                                              Number of Shares         % of Class Outstanding
                                                              ----------------         ----------------------
<S>                                                               <C>                         <C>
D. E. Shaw Laminar Portfolios, L.L.C.
120 West Forty-Fifth Street, 39th Floor, Tower 45
New York, NY 10036                                                18,714,815                  20.1%

Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004                                                18,415,185                  19.7%

Sigma Capital Management, Inc.
777 Long Ridge Road
Stamford, CT 06902                                                 8,695,719                   9.3%

Par-Four Investment Management, LLC
(formerly Par IV Capital Management, LLC)
50 Tice Blvd., 3rd Floor
Woodcliff Lake, NJ 07677                                           7,027,338                   7.5%

Raymond E. Mabus, Jr. (2) (3)                                        231,105                       *

Robert B. Burke (2) (4)                                                    -                       *

Seth Charnow (2) (5)                                                       -                       *

Gregory J. Christian (2) (3)                                         104,940                       *

Eugene I. Davis (2)                                                        -                       *

Thomas M. Hudgins (2)                                                 37,051                       *

Gregory E. Poling (2)                                                      -                       *

Paul A. Haslanger (2) (3)                                             41,000                       *

Stephen E. Markert, Jr. (2) (3)                                            -                       *

Andrew M. Thompson (2) (3)                                            47,833                       *

Robert S. Graham, Jr. (2) (3)                                         20,000                       *

All executive officers and directors as a group
(as of March 14, 2007) (13 persons) (2)(3)                           633,095                       *
</TABLE>

*  Less than 1%.

(1)  Each named person is deemed to be the beneficial  owner of securities which
     may be acquired  within 60 days of March 14, 2007  through the  exercise of
     options,  convertible  securities  and such  securities  are  deemed  to be
     outstanding  for the  purpose  of  computing  the  percentage  of the class
     beneficially owned by such person.  However, any such shares are not deemed
     to be outstanding  for the purpose of computing the percentage of the class
     beneficially owned by any other person, except as noted.

(2)  Address is c/o Foamex International Inc., 1000 Columbia Avenue, Linwood, PA
     19061.

(3)  Includes  shares of Common Stock issuable upon exercise of options  granted
     under the  Company's  1993 stock option plan ("1993 Stock Option Plan") and
     2002 Stock  Award Plan,  which have vested or will vest within 60 days.  In
     the above  table,  (i) 50,000 of such  shares  have been  included  for Mr.
     Mabus,  (ii) 71,633 of such shares have been  included  for Mr.  Christian,
     (iii)  41,000 of such shares have been  included  for Mr.  Haslanger,  (iv)
     42,833 of such shares have been  included for Mr.  Thompson,  (v) 20,000 of
     such shares have been  included  for Mr.  Graham,  and (vi) 376,632 of such
     shares have been  included for all  executive  officers and  directors as a
     group.

                                       49
<PAGE>

(4)  Mr.  Burke is employed  by Par-Four  Investment  Management,  LLC,  but has
     disclaimed  beneficial  ownership of any shares held by Par-Four Investment
     Management, LLC, except to the extent of his pecuniary interest therein.

(5)  Mr.  Charnow is a vice  president  at D. E. Shaw & Co.,  L.P.,  which is an
     affiliate of and the investment  adviser to D. E. Shaw Laminar  Portfolios,
     L.L.C.  Mr.  Charnow  disclaims  any  beneficial   ownership  that  may  be
     attributable to him as a result of his affiliation  with D. E. Shaw Laminar
     Portfolios, L.L.C.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The following is a summary of material transactions between the Company and
our  affiliates  entered into or continuing  since January 2, 2006.  Payments to
affiliates by Foamex L.P., the Company's principal operating subsidiary, and its
subsidiaries in connection with any of these  transactions  were governed by the
provisions of the credit agreements and indentures for Foamex L.P.'s public debt
securities,  which  generally  provide  that  these  transactions  be  on  terms
comparable to those generally  available in equivalent  transactions  with third
parties.

Consulting Services--Mr. Hay

     Under a consulting agreement,  dated April 24, 2001, as amended on February
27,  2005,  between  the  Company  and Robert J. Hay, a former  director  of the
Company,  Mr. Hay  performs  consulting  services  and advises on  business  and
manufacturing  initiatives for the Company.  The consulting agreement was for an
initial  two-year term and is renewable  automatically  for successive  one-year
terms.  Under the consulting  agreement,  as amended,  Mr. Hay receives a fee of
$6,666.66  per month in  addition  to  reimbursement  for  expenses  incurred in
connection with providing the consulting  services.  A total of $79,992 was paid
to Mr. Hay under the consulting  agreement in 2006.  This fee was in addition to
the fees Mr. Hay received for serving as a director of the Company.

Technology Sharing Arrangements

     In December 1992, Foamex L.P., Recticel s.a., a former indirect stockholder
of the Company,  and Beamech Group Limited  ("Beamech"),  an unaffiliated  third
party,  formed a Swiss  corporation,  Prefoam AG, to develop  new  manufacturing
technology  for the  production  of  polyurethane  foam.  Each of  Foamex  L.P.,
Recticel  s.a.  and  Beamech  contributed  or caused to be  contributed  to such
corporation a combination  of cash and technology  valued at $1.5 million,  $3.0
million  and  $1.5  million,  respectively,  for a 25%,  50% and  25%  interest,
respectively,  in  the  corporation.   Foamex  L.P.,  Recticel  s.a.  and  their
affiliates have been granted a royalty-free  license to use certain  technology,
and it is expected that the corporation  will license the use of such technology
to other foam  producers  in exchange  for  royalty  payments.  Foamex L.P.  and
Recticel s.a. have  exchanged  know-how,  trade secrets,  engineering  and other
data, designs, specifications,  chemical formulations, technical information and
drawings  which are  necessary or useful for the  manufacturing,  use or sale of
foam products.  The Company  anticipates that Foamex L.P. will continue to do so
in the future.

ITEM 14.      PRINCIPAL ACCOUNTANT FEES AND SERVICES

     The Company paid the following fees to KPMG LLP, the Company's  independent
accountants in 2006 and 2005:

                                           2006                    2005
                                       ----------               ----------

       Audit Fees (a)                  $2,550,000               $3,482,800

       Audit-Related Fees (b)             167,500                   55,000

       Tax Fees (c)*                            -                    3,500

       All Other Fees *                         -                        -
                                       ----------               ----------

       Total Fees                      $2,717,500               $3,541,300
                                       ==========               ==========

                                       50
<PAGE>

(a)  Audit fees include the examination of the Company's financial statements as
     of and for the years  ended  December  31, 2006 and January 1, 2006 and the
     performance of quarterly reviews for 2006 and 2005.

(b)  Audit related fees for 2006 consisted  principally of consultation services
     on the  Company's  Form S-1 for its  rights  offering  and the  audit of an
     employee benefit plan.  Audit-related fees for 2005 consist  principally of
     the audits of two employee benefit plans.

(c)  Tax fees in 2005 consist  principally  of  preparation  of  expatriate  tax
     returns.

*    The Audit Committee has considered  whether the provision of these services
     is compatible with maintaining the principal accountant's independence.

     Pre-approval  Policy.  Pursuant  to its  Charter,  the Audit  Committee  is
required to pre-approve the audit and non-audit  services to be performed by the
independent  accountants  in order to assure that the provision of such services
does not impair  the  auditor's  independence.  All of the above  services  were
approved by the Audit Committee in accordance with its Pre-approval Policy.

     Annually,  the independent  accountants will present to the Audit Committee
services  expected to be performed by the independent  accountants over the next
12  months.  The Audit  Committee  will  review  and,  as it deems  appropriate,
pre-approve those services.  The services and estimated fees are to be presented
to the Audit Committee for  consideration  in the following  categories:  Audit,
Audit-Related,  Tax and All Other  (each as  defined in  Schedule  14A under the
Exchange Act). For each service listed in those categories,  the Audit Committee
is to receive  detailed  documentation  indicating  the specific  services to be
provided.  The  term  of  any  pre-approval  is  12  months  from  the  date  of
pre-approval,  unless the Audit Committee  specifically provides for a different
period.  The  Audit  Committee  will  review on at least a  quarterly  basis the
services  provided to date by the independent  accountants and the fees incurred
for those services. The Audit Committee may also revise the list of pre-approved
services and related fees from time to time, based on subsequent determinations.

     The Audit  Committee  has  delegated  pre-approval  authority to any of its
members. Such member is to report pre-approval  decisions to the Audit Committee
at the Audit Committee's next scheduled meeting.



                                       51
<PAGE>


PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(1) Financial statements.
<TABLE>
<CAPTION>

       Foamex International Inc. and Subsidiaries:
<S>                                                                                                               <C>
         Report of Independent Registered Public Accounting Firm                                                F-2
         Consolidated Balance Sheets as of December 31, 2006 and January 1, 2006                                F-3
         Consolidated Statements of Operations for the years ended December 31, 2006,
           January 1, 2006 and January 2, 2005                                                                  F-5
         Consolidated Statements of Cash Flows for the years ended December 31, 2006,
           January 1, 2006 and January 2, 2005                                                                  F-6
         Consolidated Statements of Stockholders' Deficiency for the years ended December 31, 2006,
           January 1, 2006 and January 2, 2005                                                                  F-7
         Notes to Consolidated Financial Statements                                                             F-8

       Foamex Asia Company Limited

         Consolidated Financial Statements of Foamex Asia Company Limited and Subsidiaries
           for the year ended 31 December 2006 including Audit Report of Certified
           Public Accountant                                                                                   F-43

         Consolidated Financial Statements of Foamex Asia Company Limited and Subsidiaries
           for the years ended 31 December 2005 and 2004 (unaudited)                                           F-70

(2) Foamex International Inc. and Subsidiaries Financial Statement Schedules:
         Schedule I - Condensed Financial Information of Registrant                                             S-2
         Schedule II - Valuation and Qualifying Accounts                                                        S-5
</TABLE>

(3)                 Exhibits.

2.1(l)       - Transfer  Agreement,  dated  as  of  February  27,  1998,  by and
               between Foam Funding LLC and Foamex L.P.

2.2(l)       - Asset  Purchase  Agreement, dated as of February 27, 1998, by and
               among Foamex  Carpet  Cushion,  Inc.  ("Foamex  Carpet"),  Foamex
               International  Inc.  ("Foamex  International"  or the "Company"),
               Foam  Funding LLC and General  Felt  Industries,  Inc.  ("General
               Felt").

2.3(w)       - First  Amended  Joint  Plan  of  Reorganization  filed   with the
               United States  Bankruptcy Court for the District of Delaware (the
               "Bankruptcy Court") on October 23, 2006.

2.4(x)       - Second  Amended  Joint  Plan  of  Reorganization  filed  with the
               Bankruptcy Court on November 27, 2006.

3.1(a)       - Certificate of Limited Partnership of Foamex L.P.

3.2.1(a)     - Fourth Amended  and Restated Agreement of   imited Partnership of
               Foamex L.P.,  dated as of December  14, 1993,  by and among FMXI,
               LLC ("FMXI") and Trace Foam  Company,  Inc.  ("Trace  Foam"),  as
               general partners,  and Foamex  International as a limited partner
               (the "Partnership Agreement").

3.2.2(b)     - First  Amendment  to  the Partnership  Agreement,  dated June 28,
               1994.

3.2.3(c)     - Second Amendment  to  the Partnership  Agreement,  dated June 12,
               1997.

3.2.4(i)     - Third  Amendment  to  the Partnership  Agreement,  dated December
               23, 1997.

3.2.5(l)     - Fourth Amendment  to  the Partnership  Agreement,  dated February
               27, 1998.

3.2.6(r)     - Fifth Amendment  to  the Partnership  Agreement,  dated March 26,
               2002.

3.2.7*       - Sixth  Amendment to   the Partnership  Agreement,  dated December
               29, 2006.

3.3*         - Operating Agreement of FMXI.

3.4*         - Amendment to Operation Agreement of FMXI.

3.7.1(a)     - Certificate of Incorporation of Foamex International.

3.7.1(g)     - Amendment    to    Certificate    of    Incorporation  of  Foamex
               International.

3.7.3(y)     - Second  Amended  and  Restated  Certificate of  Incorporation  of
               Foamex International.

                                       52
<PAGE>

3.8(y)       - Amended and Restated By-laws of Foamex International.

3.9*         - Amended  and  Restated  Certificate  of  Incorporation  of Foamex
               Asia, Inc.

3.11*        - Amended  and  Restated  Certificate  of  Incorporation  of Foamex
               Latin America, Inc.

3.13*        - Amended  and  Restated  Certificate  of  Incorporation  of Foamex
               Mexico, Inc.

4.9.1(m)     - Promissory  Note,  dated   June  12,  1997,   in   the  aggregate
               principal amount of $5,000,000,  executed by Trace  International
               Holdings, Inc. ("Trace Holdings") to Foamex L.P.

4.9.2(m)     - Promissory  Note,  dated   June  12,  1997,  in   the   aggregate
               principal  amount of  $4,794,828,  executed by Trace  Holdings to
               Foamex L.P.

4.18(v)      - Equity Commitment  Agreement,  dated  as  of October 13, 2006, by
               and  among  Foamex  International  Inc.  and D. E.  Shaw  Laminar
               Portfolios,  L.L.C.,  Goldman,  Sachs & Co.,  Par IV Master Fund,
               Ltd.,  Sunrise  Partners Limited  Partnership,  and Sigma Capital
               Associates, LLC.

4.19(y)      - Registration  Rights Agreement,  dated  as  of February 12, 2007,
               between  Foamex   International  Inc.  and  D.  E.  Shaw  Laminar
               Portfolios,   L.L.C.,   Goldman,   Sachs  &  Co.,  Sigma  Capital
               Associates,  LLC, Par IV Master Fund,  Ltd. and Sunrise  Partners
               Limited Partnership.

10.2(d)      - Shareholder Agreement, dated  December 31, 1992,  among Recticel,
               s.a.  ("Recticel"),  Recticel  Holding  Noord B.V.,  Foamex L.P.,
               Beamech Group Limited, LME-Beamech,  Inc., James Brian Blackwell,
               and Prefoam AG relating to a foam technology-sharing arrangement.

10.3(e)      - Asset Transfer Agreement,  dated  as  of October 2, 1990, between
               Trace  Holdings  and  Foamex  L.P.  (the  "Trace  Holdings  Asset
               Transfer Agreement").

10.4(e)      - First  Amendment,  dated as  of  December 19, 1991,  to the Trace
               Holdings Asset Transfer Agreement.

10.5(e)      - Amended and Restated  Guaranty,  dated as  of  December 19, 1991,
               made by Trace Foam in favor of Foamex L.P.

10.6(e)      - Asset Transfer Agreement,  dated  as o f October 2, 1990, between
               Recticel Foam Corporation ("RFC") and Foamex L.P. (the "RFC Asset
               Transfer Agreement").

10.7(e)      - First  Amendment,  dated as  of  December  19,  1991,  to the RFC
               Asset  Transfer  Agreement.  10.10.5(h) - The Foamex L.P.  Hourly
               Pension Plan (formerly "The Foamex  Products Inc. Hourly Employee
               Retirement Plan"), as amended December 31, 1995.

10.10.6(h)+  - Foamex L.P. 401(k) Savings Plan effective October 1, 1997.

10.10.12(q)+ - Foamex  Supplemental  Executive  Retirement Plan, effective as of
               May 15, 2001.

10.11.12(s)  - Form of  Foamex  International  Inc. Code of Ethics for Director,
               Officers, Senior Management and Certain Other Employees.

10.17(e)+    - Salaried Incentive Plan of Foamex L.P. and Subsidiaries.

10.17.2(k)   - Loan Agreement between  Hua Kee  Company Limited and Foamex Asia,
               Inc., dated as of July 8, 1997.

10.18.1(p)   - Joint  Venture  Agreement  between  Hua Kee  Company  Limited and
               Foamex Asia, Inc., amended and restated as of December 3, 2001.

10.19(f)+    - The Foamex L.P.  Salaried  Pension  Plan (formerly,  "The General
               Felt Industries,  Inc. Retirement Plan for Salaried  Employees"),
               effective as of January 1, 1995.

10.22(n)+    - Foamex  International  Amended  and  Restated  1993  Stock Option
               Plan.

10.23(a)+    - Foamex International Non-Employee Director Compensation Plan.

10.24(o)+    - Foamex  International  Equity  Incentive  Plan  for  Non-Employee
               Directors.

10.25(o)+    - Foamex International Key Employee Incentive Bonus Plan.

10.27(u)+    - Amended and Restated  Consulting  Agreement, dated as of February
               27, 2005, by and between Foamex L.P. and Robert J. Hay.

10.30(t)+    - Foamex  International  2002 Stock  Award  Plan,  as  Amended  and
               Restated.

10.45+*      - Revolving  Credit  Agreement,  dated  as  of February  12,  2007,
               among Foamex L.P.,  as borrower,  the  subsidiary  guarantors  of
               borrower party thereto, the financial institutions party thereto,
               and the Bank of America, N.A., as Administrative Agent.

10.46+*      - Revolving Credit Security  Agreement,  dated  as  of February 12,
               2007, among Foamex L.P., as borrower,  Foamex International,  and
               the subsidiary guarantors of borrower party thereto, and the Bank
               of America, N.A., as Administrative Agent.

10.47+*      - First Lien Term Credit Agreement, dated  as of February 12, 2007,
               among Foamex L.P., as borrower,  Foamex International,  as parent
               guarantor,  the lending  institutions party thereto, and the Bank
               of America, N.A., as Administrative Agent.

                                       53
<PAGE>


10.48*       - First  Lien  Term Security  Agreement,  dated as of February  12,
               2007, among Foamex L.P., as borrower,  Foamex International,  and
               the subsidiary guarantors of borrower party thereto, and the Bank
               of America, N.A., as Administrative Agent.

10.49+*      - Second  Lien Term Credit  Agreement,  dated  as of  February  12,
               2007, among Foamex L.P., as borrower,  Foamex  International,  as
               parent guarantor, the lending institutions party thereto, and the
               Bank of America, N.A., as Administrative Agent.

10.50*       - Second Lien  Term Security  Agreement,  dated as  of February 12,
               2007, among Foamex L.P., as borrower,  Foamex International,  and
               the subsidiary guarantors of borrower party thereto, and the Bank
               of America, N.A., as Administrative Agent.

10.51+*      - Employment  Agreement,  dated as  of  February 12, 2007,  between
               Foamex International, Foamex L.P., and Raymond E. Mabus, Jr.

10.52+*      - Employment  Agreement,  dated as  of  February 12, 2007,  between
               Foamex International, Foamex L.P., and Gregory J. Christian.

10.53+*      - Employment  Agreement,  dated as  of  February 12, 2007,  between
               Foamex International, Foamex L.P., and Andrew M. Thompson.

10.54+*      - Employment  Agreement,  dated as  of  February 12, 2007,  between
               Foamex International, Foamex L.P., and Donald Phillips.

10.55+*      - Foamex International Inc. 2007 Management Incentive Plan.

21*          - Subsidiaries of Foamex International.

23*          - Consent of Independent  Registered  Public  Accounting Firm, KPMG
               LLP.

23.1*        - Consent of Independent  Public  Accounting  Firm,  KPMG Phoomchai
               Audit Ltd.

31.1*        - Certification  of Chief Executive  Officer  pursuant  to  Section
               302 of the Sarbanes-Oxley Act of 2002.

31.2*        - Certification  of Interim  Chief  Financial  Officer  pursuant to
               Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*        - Certification  of  Chief Executive  Officer  pursuant to  Section
               906 of the Sarbanes-Oxley Act of 2002.

32.2*        - Certification  of  Interim  Chief Financial  Officer  pursuant to
               Section 906 of the Sarbanes-Oxley Act of 2002.

---------------------------
*      Filed herewith.
+      Management contract or compensatory plan or arrangement.

(a)  Incorporated   herein  by  reference  to  the  Exhibit  to  Foamex   L.P.'s
     Registration Statement on Form S-1, Registration No. 33-69606.

(b)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K of Foamex  International  for the fiscal  year  ended  January 1,
     1995.

(c)  Incorporated  herein by reference  to the Exhibit to the Current  Report on
     Form 8-K of Foamex  International  reporting an event that occurred on June
     12, 1997.

(d)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K of Foamex L.P. and FCC for fiscal year ended January 3, 1993.

(e)  Incorporated  herein  by  reference  to the  Exhibit  to  the  Registration
     Statement of Foamex L.P. and FCC on Form S-1,  Registration  Nos.  33-49976
     and 33-49976-01.

(f)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K of Foamex L.P. for fiscal year ended January 2, 1994.

(g)  Incorporated  herein  by  reference  to the  Exhibit  in  the  Registration
     Statement of Foamex International on Form S-4, Registration No. 333-30291.

(h)  Incorporated  by  reference  to the Exhibit to the Form 10-Q of Foamex L.P.
     for the quarterly period ended September 28, 1997.

                                       54
<PAGE>

(i)  Incorporated  herein by reference  to the Exhibit to the Current  Report on
     Form 8-K of Foamex L.P.,  FCC and Foamex  International  reporting an event
     that occurred on December 23, 1997.

(j)  Incorporated  herein  by  reference  to the  Exhibit  in  the  Registration
     Statement of Foamex L.P. and FCC on Form S-4,  Registration No.  333-45733,
     filed February 6, 1998.

(k)  Incorporated  herein  by  reference  to the  Current  Report on Form 8-K of
     Foamex International reporting an event that occurred on February 27, 1998.

(l)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K of Foamex  International  for the fiscal year ended  December 31,
     1998.

(m)  Incorporated  herein by reference to the Exhibit to Foamex  International's
     definitive proxy statement dated May 31, 2000.

(n)  Incorporated herein by reference to the Appendix to Foamex  International's
     definitive amended and restated proxy statement dated July 12, 2001.

(o)  Incorporated  herein by reference to the Exhibit to the Form 10-Q of Foamex
     International for the quarterly period ended June 30, 2001.

(p)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K of Foamex  International  for the fiscal year ended  December 31,
     2001.

(q)  Incorporated  herein by reference to the Exhibit to the Form 10-Q of Foamex
     L.P. and FCC for the quarterly period ended March 31, 2002.

(r)  Incorporated  herein by reference to the Exhibit to Amendment  No. 1 to the
     Registration Statement of Foamex L.P. and FCC on Form S-4, Registration No.
     333-90632, filed October 22, 2002.

(s)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K of Foamex  L.P.  and FCC for the fiscal year ended  December  28,
     2003.

(t)  Incorporated herein by reference to Foamex International's definitive proxy
     statement dated April 26, 2004.

(u)  Incorporated  herein by reference to the Exhibit to the Form 10-Q of Foamex
     L.P. and FCC for the quarterly period ended April 3, 2005.

(v)  Incorporated  herein by  reference to the Exhibit to the Form 8-K of Foamex
     International reporting an event that occurred on October 13, 2006.

(w)  Incorporated  herein by  reference to the Exhibit to the Form 8-K of Foamex
     International reporting an event that occurred on October 24, 2006.

(x)  Incorporated  herein by  reference to the Exhibit to the Form 8-K of Foamex
     International reporting an event that occurred on November 27, 2006.

(y)  Incorporated  herein by  reference to the Exhibit to the Form 8-K of Foamex
     International reporting an event that occurred on February 9, 2007.

Certain  instruments  defining the rights of security holders have been excluded
herefrom  in  accordance  with  Item   601(b)(4)(iii)  of  Regulation  S-K.  The
registrant  hereby  agrees  to  furnish  a copy of any  such  instrument  to the
Securities and Exchange Commission upon request.


                                       55
<PAGE>



                                   SIGNATURES

     Pursuant to the  requirements of Section 13 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 as of the 30th day of March 2007.

                                 FOAMEX INTERNATIONAL INC.


                                 By:      /s/ Raymond E. Mabus, Jr.
                                          -------------------------
                                 Name:    Raymond E. Mabus, Jr.
                                 Title:   Chief Executive Officer

                                 By:      /s/ Stephen E. Markert, Jr.
                                          ---------------------------
                                 Name:    Stephen E. Markert, Jr.
                                 Title:   Interim Chief Financial Officer


                                       56
<PAGE>


       Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on its behalf by the
registrant and in the capacities and on the dates indicated:

Signature                      Title                           Date


/s/ Raymond E. Mabus, Jr.      Chairman of the Board           March 30, 2007
-------------------------
Raymond E. Mabus, Jr.          and Chief Executive Officer


/s/ Robert B. Burke            Director                        March 30, 2007
-------------------
Robert B. Burke


/s/ Seth Charnow               Director                        March 30, 2007
----------------
Seth Charnow


/s/ Gregory J. Christian       President and Director          March 30, 2007
------------------------
Gregory J. Christian


/s/ Eugene I. Davis            Director                        March 30, 2007
-------------------
Eugene I. Davis


/s/ Thomas M. Hudgins          Director                        March 30, 2007
---------------------
Thomas M. Hudgins


/s/ Gregory E. Poling          Director                        March 30, 2007
---------------------
Gregory E. Poling



                                       57
<PAGE>


                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Foamex International Inc.

<S>                                                                                                               <C>
           Index to Consolidated Financial Statements                                                           F-1

           Report of Independent Registered Public Accounting Firm                                              F-2

           Consolidated Balance Sheets as of December 31, 2006 and January 1, 2006                              F-3

           Consolidated Statements of Operations for the years ended December 31, 2006,
                January 1, 2006, and January 2, 2005                                                            F-5

           Consolidated Statements of Cash Flows for the years ended December 31, 2006,
                January 1, 2006, and January 2, 2005                                                            F-6

           Consolidated Statements of Stockholders' Deficiency for the years
                ended December 31, 2006, January 1, 2006, and January 2, 2005                                   F-7

           Notes to Consolidated Financial Statements                                                           F-8

Information Required by Rule 3-09

Foamex Asia Company Limited

           Consolidated Financial Statements of Foamex Asia Company Limited and Subsidiaries
                for the year ended 31 December 2006 including Audit Report of Certified
                Public Accountant                                                                              F-43

           Consolidated Financial Statements of Foamex Asia Company Limited and Subsidiaries
                for the years ended 31 December 2005 and 2004 (unaudited)                                      F-70

</TABLE>



                                      F-1
<PAGE>




                        REPORT OF INDEPENDENT REGISTERED
                             PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of
Foamex International Inc.:

We have audited the consolidated  financial  statements of Foamex  International
Inc. and subsidiaries  (the "Company") as listed in the  accompanying  index. In
connection with our audits of the  consolidated  financial  statements,  we also
have audited the  financial  statement  schedules as listed in the index on page
S-1. These consolidated  financial  statements and financial statement schedules
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these  consolidated  financial  statements  and  financial
statement schedules based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Foamex International
Inc.  and  subsidiaries  as of December  31,  2006 and January 1, 2006,  and the
results  of their  operations  and their cash flows for each of the years in the
three-year  period ended  December 31, 2006 in  conformity  with U.S.  generally
accepted  accounting  principles.  Also, in our opinion,  the related  financial
statement  schedules,  when  considered  in relation  to the basic  consolidated
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.

As discussed in Notes 2, 6 and 14 to the consolidated financial statements,  the
Company  adopted the provisions of Statement of Financial  Accounting  Standards
No. 123 (revised), "Share-Based Payment" effective January 2, 2006, Statement of
Financial  Accounting  Standards  No. 158,  "Employers'  Accounting  for Defined
Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements
No. 87, 88, 106,  and  132(R)",  effective  December  31,  2006,  and  Financial
Accounting  Standards Board  Interpretation  No. 47, "Accounting for Conditional
Asset  Retirement  Obligations - an  interpretation  of FASB Statement No. 143",
effective January 1, 2006.

/s/  KPMG LLP

Philadelphia, Pennsylvania
March 29, 2007


                                      F-2
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                             December 31,         January 1,
                                                                                2006                 2006
                                                                             ------------         -----------
ASSETS                                                                                 (thousands)
CURRENT ASSETS
<S>                                                                          <C>                  <C>
    Cash and cash equivalents                                                $   5,974            $   7,418
    Accounts receivable, net of allowance for doubtful
      accounts and discounts of $13,083 in 2006 and $13,802 in 2005            173,488              197,896
    Inventories                                                                117,625              112,142
    Other current assets                                                        23,537               24,427
                                                                              --------             --------

            Total current assets                                               320,624              341,883
                                                                              --------             --------

PROPERTY, PLANT AND EQUIPMENT
    Land and land improvements                                                   6,293                6,146
    Buildings and leasehold improvements                                       106,557              105,281
    Machinery, equipment and furnishings                                       228,961              257,579
    Construction in progress                                                     3,597                1,206
                                                                              --------             --------

            Total                                                              345,408              370,212

    Less accumulated depreciation and amortization                            (238,414)            (256,979)
                                                                              --------             --------

       Property, plant and equipment, net                                      106,994              113,233

GOODWILL                                                                        88,795               88,803

DEBT ISSUANCE COSTS, net of accumulated
amortization of $13,399 in 2006 and $7,205 in 2005                                 593                6,667

SOFTWARE COSTS, net of accumulated amortization of $11,732
in 2006 and $8,388 in 2005                                                       7,859                8,691

INVESTMENTS IN AND ADVANCES TO AFFILIATES                                       21,657               17,191

OTHER ASSETS                                                                    18,056               24,852
                                                                              --------             --------

TOTAL ASSETS                                                                  $564,578             $601,320
                                                                              ========             ========
</TABLE>


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


                                      F-3
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                             December 31,         January 1,
                                                                                2006                 2006
                                                                             ------------         -----------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY                                      (thousands, except share data)
CURRENT LIABILITIES
<S>                                                                            <C>                <C>
    Revolving credit borrowings                                                $   56,331         $  154,566
    Current portion of long-term debt                                              86,233             86,238
    Accounts payable                                                               90,987             65,433
    Accrued employee compensation and benefits                                     20,928             14,937
    Accrued interest                                                                3,686              2,049
    Accrued restructuring                                                           1,305                598
    Accrued customer rebates                                                        9,647             11,239
    Cash overdrafts                                                                10,892              8,577
    Other accrued liabilities                                                      16,628             17,652
                                                                               ----------         ----------

      Total current liabilities                                                   296,637            361,289

LONG-TERM DEBT                                                                        160                366

ACCRUED EMPLOYEE BENEFITS                                                          15,048             13,724

ACCRUED RESTRUCTURING                                                                 164                431

OTHER LIABILITIES                                                                   8,317              5,259

LIABILITIES SUBJECT TO COMPROMISE                                                 640,645            635,965
                                                                               ----------         ----------

    Total liabilities                                                             960,971          1,017,034
                                                                               ----------         ----------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIENCY
    Preferred Stock, par value $1.00 per share:
      Authorized 5,000,000 shares
      Issued 15,000 shares - Series B (liquidation
      preference $1.5 million) in 2006 and 2005                                        15                 15
    Common Stock, par value $.01 per share:
      Authorized 50,000,000 shares
      Issued 28,648,215 in 2006 and 27,998,728 shares in 2005
      Outstanding 25,107,419 shares in 2006 and 24,509,728 shares in 2005             286                280
    Additional paid-in capital                                                    105,427            102,555
    Accumulated deficit                                                          (432,561)          (444,909)
    Accumulated other comprehensive loss                                          (32,370)           (36,654)
    Other:
      Common Stock held in treasury, at cost:
        3,540,796 shares in 2006 and 3,489,000 in 2005                            (27,969)           (27,780)
      Shareholder note receivable                                                  (9,221)            (9,221)
                                                                               ----------         ----------

      Total stockholders' deficiency                                             (396,393)          (415,714)
                                                                               ----------         ----------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY                                 $  564,578         $  601,320
                                                                               ==========         ==========
</TABLE>

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


                                      F-4
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                               FOR THE YEARS ENDED

<TABLE>
<CAPTION>
                                                                December 31,      January 1,      January 2,
                                                                    2006            2006             2005
                                                                ------------      ----------      -----------
                                                                       (thousands, except per share amounts)
<S>                                                               <C>              <C>              <C>
NET SALES                                                         $1,357,183       $1,282,974       $1,225,975

COST OF GOODS SOLD (including asset impairment charges
    of $1,629 in 2006, $15,193 in 2005, and $2,809 in 2004)        1,149,847        1,154,281        1,084,265
                                                                  ----------       ----------       ----------

GROSS PROFIT                                                         207,336          128,693          141,710

SELLING, GENERAL AND ADMINISTRATIVE
    EXPENSES                                                          79,957           80,109           84,561

GAIN ON SALES OF ASSETS                                                  639           29,946            1,185

RESTRUCTURING CHARGES                                                  7,918            1,526            1,817

GOODWILL IMPAIRMENT CHARGES                                                -           35,466                -
                                                                  ----------       ----------       ----------

INCOME FROM OPERATIONS                                               120,100           41,538           56,517

INTEREST AND DEBT ISSUANCE EXPENSE (contractual
    interest of $88,563 in 2006 and $86,230 in 2005)                 (95,044)         (79,749)         (76,667)

INCOME FROM EQUITY INTEREST IN JOINT VENTURES                          2,730            1,764              687

OTHER EXPENSE, NET                                                      (398)          (1,717)          (1,405)

REORGANIZATION ITEMS, NET                                            (15,593)          (6,805)               -
                                                                  ----------       ----------       ----------

INCOME (LOSS) FROM CONTINUING OPERATIONS
    BEFORE INCOME TAXES                                               11,795          (44,969)         (20,868)

PROVISION (BENEFIT) FOR INCOME TAXES                                    (553)          (2,272)         125,335
                                                                  ----------       ----------       ----------

INCOME (LOSS) FROM CONTINUING OPERATIONS                              12,348          (42,697)        (146,203)

LOSS FROM DISCONTINUED OPERATIONS                                          -          (10,048)          (4,730)
                                                                  ----------       ----------       ----------

INCOME (LOSS) BEFORE CUMULATIVE EFFECT
    OF ACCOUNTING CHANGE                                              12,348          (52,745)        (150,933)

CUMULATIVE EFFECT OF ACCOUNTING CHANGE                                     -           (3,499)               -
                                                                  ----------       ----------       ----------

NET INCOME (LOSS)                                                 $   12,348       $  (56,244)      $ (150,933)
                                                                  ==========       ==========       ==========

INCOME (LOSS) PER SHARE - BASIC
   INCOME (LOSS) FROM CONTINUING OPERATIONS                       $     0.34       $    (1.16)      $    (3.99)
   LOSS FROM DISCONTINUED OPERATIONS                                       -            (0.27)           (0.13)
                                                                  ----------       ----------       ----------
   INCOME (LOSS) BEFORE CUMULATIVE EFFECT
     OF ACCOUNTING CHANGE                                               0.34            (1.43)           (4.12)
   CUMULATIVE EFFECT OF ACCOUNTING CHANGE                                  -            (0.10)               -
                                                                  ----------       ----------       ----------
   NET INCOME (LOSS)                                              $     0.34       $    (1.53)      $    (4.12)
                                                                  ==========       ==========       ==========

INCOME (LOSS) PER SHARE - DILUTED
   INCOME (LOSS) FROM CONTINUING OPERATIONS                       $     0.32       $    (1.16)      $    (3.99)
   LOSS FROM DISCONTINUED OPERATIONS                                       -            (0.27)           (0.13)
                                                                  ----------       ----------       ----------
   INCOME (LOSS) BEFORE CUMULATIVE EFFECT
     OF ACCOUNTING CHANGE                                               0.32            (1.43)           (4.12)
   CUMULATIVE EFFECT OF ACCOUNTING CHANGE                                  -            (0.10)               -
                                                                  ----------       ----------       ----------
   NET INCOME (LOSS)                                              $     0.32       $    (1.53)      $    (4.12)
                                                                  ==========       ==========       ==========
</TABLE>



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


                                      F-5
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                               FOR THE YEARS ENDED

<TABLE>
<CAPTION>
                                                                December 31,      January 1,      January 2,
                                                                    2006            2006             2005
                                                                ------------      ----------      -----------
OPERATING ACTIVITIES                                                               (thousands)
<S>                                                               <C>             <C>               <C>
   Net income (loss)                                              $  12,348       $(56,244)         $(150,933)
   Adjustments to reconcile net income (loss) to net
     cash provided by (used for) operating activities:
     Cumulative effect of accounting change                               -          3,499                  -
     Loss from discontinued operations                                    -         10,048              4,730
     Depreciation and amortization                                   18,522         19,903             25,174
     Amortization of debt issuance costs, premiums
        and discounts                                                 6,194          6,733              2,762
     Write off of deferred credits on swap transactions                   -         (9,684)                 -
     Write off of debt issuance costs                                     -         10,465                  -
     Impairment charges                                               1,629         50,659              2,809
     Loss (gain) on sales of assets                                    (639)       (29,946)            (1,185)
     Provision for uncollectible accounts                               524          6,204              3,291
     Retirement benefits funding less (greater) than expense         (7,973)         1,093             (2,175)
     Deferred income taxes                                              167         (1,595)           124,739
     Other, net                                                      13,382          4,916               (707)
   Changes in operating assets and liabilities:
     Accounts receivable                                             23,883        (28,238)            (5,605)
     Inventories                                                     (5,484)       (20,271)            (4,932)
     Accounts payable                                                25,554          1,304              5,071
     Accrued restructuring                                              440           (762)            (2,111)
     Other assets and liabilities                                    34,875         12,819               (553)
                                                                  ---------      ---------          ---------

       Net cash provided by (used for) operating activities before
          discontinued operations and reorganization items          123,422        (19,097)               375
       Cash provided by (used for) discontinued operations                -          1,104             (1,395)
       Cash used for reorganization items                           (18,518)        (4,929)                 -
                                                                  ---------      ---------          ---------
       Net cash provided by (used for) operating activities         104,904        (22,922)            (1,020)
                                                                  ---------      ---------          ---------

INVESTING ACTIVITIES
   Capital expenditures                                             (10,573)        (5,195)            (5,510)
   Proceeds from sales of assets                                      1,013         39,815              2,701
   Other investing activities                                        (2,550)        (2,616)            (2,400)
                                                                  ---------      ---------          ---------

       Net cash provided by (used for) investing activities         (12,110)        32,004             (5,209)
                                                                  ---------      ---------          ---------

FINANCING ACTIVITIES
   Proceeds from DIP revolving loans                                      -        174,328                  -
   Repayment of DIP revolving loans, net                            (98,235)       (19,762)                 -
   Proceeds from (repayments of) revolving loans, net                     -       (114,907)            18,841
   Proceeds from DIP Term Loan                                            -         80,000                  -
   Repayments of long-term debt                                        (261)      (118,479)           (10,853)
   Increase (decrease) in cash overdrafts                             2,315         (1,860)            (2,255)
   Debt issuance costs                                                 (120)        (6,337)              (785)
   Other financing activities                                         2,063              2                 19
                                                                  ---------      ---------          ---------

       Net cash provided by (used for) financing activities         (94,238)        (7,015)             4,967
                                                                  ---------      ---------          ---------

Net increase (decrease) in cash and cash equivalents                 (1,444)         2,067             (1,262)

Cash and cash equivalents at beginning of year                        7,418          5,351              6,613
                                                                  ---------      ---------          ---------

Cash and cash equivalents at end of year                          $   5,974      $   7,418          $   5,351
                                                                  =========      =========          =========
</TABLE>



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

                                      F-6
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY

<TABLE>
<CAPTION>
                                                                                                Accumulated
                                                      Additional                                  Other
                                          Preferred    Common      Paid-in     Accumulated   Comprehensive
                                            Stock       Stock      Capital        Deficit          Loss        Other     Total
                                                                          (thousands)
<S>                  <C> <C>                  <C>        <C>       <C>         <C>           <C>             <C>       <C>
Balances at December 29, 2003                 $15        $279      $102,155    $(237,732)    $(30,832)       $(37,001) $(203,116)

Net loss                                                                        (150,933)                               (150,933)
Minimum pension liability adjustment                                                           (6,501)                    (6,501)
Foreign currency translation adjustment                                                         2,038                      2,038
                                                                                                                       ---------
  Comprehensive loss                                                                                                    (155,396)
Stock compensation                                                     183                                                   183
Stock options exercised                                                 16                                                    16
                                             ----        ----     --------    ---------      --------       --------   ---------

Balances at January 2, 2005                    15         279       102,354     (388,665)     (35,295)        (37,001)  (358,313)

Net loss                                                                         (56,244)                                (56,244)
Minimum pension liability adjustment                                                           (1,236)                    (1,236)
Foreign currency translation adjustment                                                          (123)                      (123)
                                                                                                                        --------
  Comprehensive loss                                                                                                     (57,603)
Stock compensation                                          1           201                                                  202
                                             ----        ----     --------    ---------      --------       --------   ---------

Balances at January 1, 2006                    15         280       102,555     (444,909)     (36,654)        (37,001)  (415,714)

Net income                                                                        12,348                                  12,348
Minimum pension liability adjustment                                                            9,738                      9,738
Foreign currency translation adjustment                                                         1,915                      1,915
                                                                                                                        --------
  Comprehensive income                                                                                                    24,001
Adjustment to adopt SFAS No. 158                                                               (7,369)                    (7,369)
Stock options exercised                                     6        2,000                                      (189)      1,817
Stock compensation (SFAS No. 123R)                                     872                                                   872
                                             ----        ----     --------    ---------      --------       --------   ---------

Balances at December 31, 2006                 $15        $286     $105,427    $(432,561)     $(32,370)      $(37,190)  $(396,393)
                                              ===        ====     ========    =========      ========       ========   =========
</TABLE>



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


                                      F-7
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   BASIS OF PRESENTATION AND BANKRUPTCY

Basis of Presentation

     The accompanying  consolidated financial statements of Foamex International
Inc. (the  "Company")  and  subsidiaries  as of December 31, 2006 and January 1,
2006 and for the  years  then  ended  have  been  prepared  in  accordance  with
Statement of Position 90-7,  "Financial  Reporting by Entities in Reorganization
Under the Bankruptcy Code ("SOP 90-7"). Accordingly, all prepetition liabilities
have been segregated in the consolidated  balance sheet at December 31, 2006 and
January 1, 2006 and classified as Liabilities Subject to Compromise. Liabilities
not subject to compromise  are  separately  classified.  Additional  prepetition
claims  may arise due to the  rejection  of  executory  contracts  or  unexpired
leases,  or as a result of the  allowance  of  contingent  or  disputed  claims.
Expenses, realized gains and losses and provisions for losses resulting from the
reorganization  are reported  separately as  reorganization  items,  net, in the
consolidated statements of operations for 2006 and 2005.

     The consolidated financial statements as of and for the year ended December
31,  2006 do not include  adjustments  to reflect the effects of the Plan on the
recoverability  and  classification  of  recorded  assets  or  the  amounts  and
classification of liabilities that may result from the consummation of the Plan.
The Plan did not result in the  Company  adopting  "Fresh  Start  Reporting"  as
defined in paragraph 36 of SOP 90-7.

Bankruptcy

     On September 19, 2005 (the "Petition Date"), the Company and certain of its
domestic subsidiaries,  including Foamex L.P., its primary operating subsidiary,
(collectively  referred to as the  "Debtors"),  filed  voluntary  petitions  for
relief under chapter 11 of the United States  Bankruptcy  Code (the  "Bankruptcy
Code") in the United States  Bankruptcy  Court for the District of Delaware (the
"Bankruptcy Court").

     Each of the  Debtors  continued  to  operate  its  business  and manage its
property as a debtor in  possession  pursuant  to Sections  1107 and 1108 of the
Bankruptcy  Code.  On September  29,  2005,  the United  States  Trustee for the
District of Delaware appointed an official  committee of unsecured  creditors in
these chapter 11 cases.  At a hearing held on September 20, 2005, the Bankruptcy
Court  granted the Company's  various  first day motions for relief  designed to
stabilize its operations and business  relationships  with  customers,  vendors,
employees and others,  and entered  orders  granting  permission to, among other
things,  pay  employee  salaries,  wages  and  benefits;  pay  amounts  owing in
connection with workers' compensation and other insurance policies;  utilize its
existing cash management  systems;  continue its customer programs;  pay vendors
for certain  critical  goods and services  provided  prior to September 19, 2005
and;  access,  on an  interim  basis,  up to  $221  million  of a  $240  million
debtor-in-possession  (DIP)  revolving  credit facility and $80 million of a DIP
term loan. A portion of the proceeds of the DIP  revolving  credit  facility and
all of the  proceeds  of the DIP term loan  facility  were used to repay  Foamex
L.P.'s  prepetition  revolving credit and term loan  facilities.  On October 17,
2005,  the  Bankruptcy  Court  granted  final  approval of the $240  million DIP
revolving credit facility and the $80 million DIP term loan.

     On November 17, 2005, the Bankruptcy Court approved a motion  authorizing a
key  executive  retention  program (the "KERP"),  pertaining to 77  individuals.
Distributions  under the KERP were generally made on or around certain milestone
dates during the chapter 11 cases and on and subsequent to the effective date of
the plan of reorganization. Cash distributions pursuant to the KERP, aggregating
$0.4 million, were paid in December 2005 and additional amounts aggregating $1.1
million were paid in February and March 2006.

     The Company  notified  all known or  potential  creditors of the chapter 11
filings for the purposes of identifying and quantifying all prepetition  claims.
The chapter 11 filings triggered  defaults on substantially all of the Company's
debt and lease  obligations.  Subject to certain exceptions under the Bankruptcy
Code,  the  chapter 11 filings  automatically  stayed  the  continuation  of any
judicial or  administrative  proceedings or other actions against the Debtors or
their  property  to  recover  on,  collect  or secure a claim  arising  prior to
September 19, 2005.


                                      F-8
<PAGE>


                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   BASIS OF PRESENTATION AND BANKRUPTCY (continued)

     On December 23, 2005, the Company filed a disclosure statement and proposed
plan of  reorganization  (the "Original  Plan") with the Bankruptcy  Court.  The
Original Plan contemplated a financial restructuring that would have resulted in
a  reduction  of  approximately  $500  million  of total  debt from  prepetition
amounts, largely through the conversion of Senior Secured Notes into 100% of the
new common stock of a reorganized Foamex,  subject to dilution, and the issuance
of warrants to holders of Senior Subordinated Notes. As a result of its improved
financial  performance in 2006, the Company did not pursue  confirmation  of the
Original Plan.

     On October 23, 2006, the Company filed a first amended disclosure statement
and a first amended plan with the Bankruptcy Court, which amended and superseded
in all  respects  the  original  disclosure  statement  and the  Original  Plan,
respectively.  On  November  27,  2006,  the  Company  filed  a  second  amended
disclosure  statement and a second amended plan (the "Plan") with the Bankruptcy
Court, which amended and superseded in all respects the first amended disclosure
statement  and the first  amended  plan,  respectively.  On the same  date,  the
Bankruptcy Court approved the second amended disclosure  statement.  On December
12, 2006, the Company filed a first supplement to the second amended  disclosure
statement with the Bankruptcy Court to supplement the second amended  disclosure
statement by outlining  trading  restrictions  that became  effective  under the
second  amended  and  restated  certificate  of  incorporation  that the Company
adopted under the Plan. On December 20, 2006, the  Bankruptcy  Court entered the
order approving the first supplement to the second amended disclosure  statement
and on February 1, 2007 confirmed the Plan. The Company  emerged from bankruptcy
on February 12, 2007 (the "Effective Date").

     The  Plan  included  payment  in full in cash  of  amounts  due,  including
interest under (i) the DIP Revolving  Credit  Facility,  (ii) the DIP Term Loan,
including a prepayment premium of approximately  $4.3 million,  (iii) the Senior
Secured  Notes,  including a prepayment  premium of $7.5  million,  and (iv) the
Senior  Subordinated  Notes.  In  addition,  payment in full in cash,  including
interest,  was made to holders of allowed general  unsecured  claims.  There are
several  claims that are subject to pending  objections in  Bankruptcy  Court or
otherwise designated as disputed under the Plan and the Company will continue to
litigate or resolve these matters,  as  appropriate.  The Plan also provided for
holders  of equity  interests  to retain  their  interest  and for each share of
Series B preferred stock to be converted into 100 shares of common stock.

     In order to finance the Plan,  Foamex L.P.  entered into new senior secured
credit  facilities  on February 12, 2007 which  provided for  aggregate  maximum
borrowings of up to $775.0  million,  including  $600.0  million under term loan
facilities,  comprised of $425.0  million  under a first lien term loan facility
with a  six-year  maturity  and  $175.0  million  under a second  lien term loan
facility with a seven-year  maturity,  and a revolving credit facility providing
for up to $175.0 million of revolving  loans  outstanding at any time (including
up to $45.0 million available for letters of credit) with a five-year  maturity.
Foamex L.P. borrowed approximately $613.4 million at February 12, 2007 under the
new senior secured credit facilities to fund the Plan.

     In addition,  on January 4, 2007,  the Company  offered  rights to existing
stockholders  to purchase  2.506 shares of the  Company's  common stock for each
share of common  stock held as of December  29,  2006 and  holders of  preferred
stock as of the same date were offered rights to purchase 250.6 shares of common
stock for each  preferred  share  held,  in each case for $2.25 per  share.  The
stockholders  exercised rights to purchase  approximately 62.9 million shares of
common stock  pursuant to the rights  offering with gross  proceeds  aggregating
approximately  $141.4  million.  In  addition,  five  of the  Company's  largest
stockholders  (the  "Significant   Stockholders")  purchased  approximately  3.8
million shares of common stock pursuant to a call option for approximately  $8.6
million  increasing  the gross  proceeds from the issuance of additional  common
stock to $150.0  million and  increasing the  Significant  Stockholders'  common
stock ownership to approximately 57%. After  consideration of a $9.5 million put
option  premium  paid to and a $2.0  million  call  option  premium  paid by the
Significant  Stockholders,  and other expenses of the rights  offering,  the net
equity proceeds aggregated approximately $141.0 million.


                                      F-9
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

     The Company operates in the flexible polyurethane and advanced polymer foam
products industry.  The Company's operations are primarily conducted through its
wholly-owned  subsidiary,  Foamex L.P. Foamex L.P.  conducts foreign  operations
through Foamex Canada Inc.  ("Foamex  Canada"),  Foamex Latin America,  Inc. and
Foamex Asia, Inc. Financial information  concerning the business segments of the
Company is included in Note 17.

     The Company's  reporting  period is a 52/53-week  fiscal year ending on the
Sunday  closest to January 1. Fiscal  years 2006 and 2005  included the 52 weeks
ended  December  31,  2006 and January 1, 2006,  respectively.  Fiscal year 2004
included 53 weeks ended January 2, 2005.

Consolidation

     The consolidated  financial  statements include the accounts of the Company
and all  majority-owned  subsidiaries where control exists. The equity method of
accounting  is used  for  investments  in  which  the  Company  has  significant
influence. Generally this represents ownership of at least 20% and not more than
50%. The Company has a joint venture in Asia (Foamex Asia Co., Ltd.) in which it
has an equity  ownership of 70%.  The Company does not exercise  control of this
joint venture due to the minority shareholders' substantive participation rights
and therefore the Company uses the equity method of accounting.  All significant
intercompany accounts and transactions have been eliminated in consolidation.

     Summarized financial  information for Foamex Asia Co., Ltd. on a 100% basis
is as follows:

     Results of Operations                     2006       2005         2004
                                              -------    -------      --------
                                                      (thousands)
       Net sales                              $55,140    $47,617      $39,926
       Gross profit                           $15,784    $14,115      $12,173
       Income before income taxes             $ 4,357    $ 2,840      $   997
       Net income                             $ 3,899    $ 2,214      $   707

     Financial position at December 31,        2006           2005
                                             --------       ---------
                                                    (thousands)
       Current assets                         $29,004        $25,775
       Noncurrent assets                       13,051         12,115
                                              -------       --------
         Total assets                         $42,055        $37,890
                                              =======        =======

     Current liabilities                      $13,975        $13,653
     Long-term liabilities                     10,182         11,289
                                              -------       --------
         Total liabilities                    $24,157        $24,942
                                              =======        =======

     Investment in and advances to
        Foamex Asia Co., Ltd.                 $21,657        $17,191
                                              =======        =======

Accounting Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted accounting  principles in the United States requires management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities and disclosures of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.

Concentration of Credit Risk

     Financial  instruments which potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents and
trade accounts receivable. The Company maintains cash and cash

                                      F-10
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

equivalents and certain other financial instruments with various large financial
institutions.  The Company's periodic evaluation of these financial institutions
are considered in the Company's investment strategy.

     The Company sells products to the furniture and bedding, automotive, carpet
and other  industries.  The Company performs  ongoing credit  evaluations of its
customers  and  generally  does not require  collateral.  The Company  maintains
allowance  accounts for potential credit losses and such losses have been within
management's expectations.

Revenue Recognition, Discounts and Rebates

     Revenue from sales, net of discounts and estimated returns,  allowances and
customer rebates,  is recognized when product title and the risks and rewards of
ownership passes to the customer,  the sales price is fixed and determinable and
collection  is  reasonably  assured.  Products are shipped FOB  shipping  point.
Balances  for  allowances  and rebates are reviewed at least  quarterly  and are
adjusted if warranted. Shipping and handling costs are included in cost of goods
sold.

Cash and Cash Equivalents

     Highly liquid investments with an original maturity of three months or less
when purchased are recognized as cash equivalents.

Accounts Receivable and Allowance for Uncollectible Accounts

     An  estimate  of  uncollectible  accounts  is  maintained  and is  based on
historical  collection  experience and specific  customer  collection  issues. A
significant  change in the  financial  condition of one or more of the Company's
larger  customers  could  have a  material  adverse  impact on future  financial
results.

Fair Value of Financial Instruments

     Carrying amounts  reported in the consolidated  balance sheets for cash and
cash equivalents, accounts receivable, accounts payable, accrued liabilities and
short-term  borrowings  approximate  fair value due to the short-term  nature of
these instruments.

     The  carrying  amount  and fair value of  long-term  debt,  including  debt
subject to compromise, and revolving credit borrowings at December 31, 2006 were
$643.7  million and $720.3  million,  respectively,  and at January 1, 2006 were
$742.1  million  and  $496.6  million,  respectively.  The fair value of debt is
estimated using quoted market prices, where available, or discounted cash flows.
Fair value  estimates  are made at a specific  point in time,  based on relevant
market  information  about  the  financial  instruments.   These  estimates  are
subjective  in nature and  involve  uncertainties  and  matters  of  significant
judgment  and  therefore,  cannot  be  determined  with  precision.  Changes  in
assumptions could significantly affect the estimates.

Inventories

     Inventories  are stated at the lower of cost or market.  Cost is determined
on a first-in, first-out basis.

Property, Plant and Equipment

     Property,  plant and equipment are stated at cost and are depreciated using
the  straight-line  method over the  estimated  useful lives of the assets.  The
range of useful lives  estimated for buildings is generally 20 to 35 years,  and
the range for machinery,  equipment and furnishings is 5 to 12 years.  Leasehold
improvements  are  amortized  over the  shorter  of the terms of the  respective
leases or the estimated useful lives of the leasehold improvements. Depreciation
expense  for 2006,  2005 and 2004 was $15.1  million,  $17.1  million  and $22.9
million, respectively.


                                      F-11
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     Maintenance  and repairs are charged to expense as  incurred.  Renewals and
major  improvements  are capitalized if they extend the life of the asset.  When
assets are retired or otherwise  disposed of, the asset and related  accumulated
depreciation are removed from the accounts and any gain or loss is recognized in
the results of operations.

Goodwill

     In accordance  with SFAS No. 142,  goodwill was tested for impairment  upon
adoption  of the  standard  and is  tested  annually  thereafter.  SFAS No.  142
requires that goodwill be tested for impairment  using a two-step  process.  The
first step is to identify a potential  impairment  and the second step  measures
the amount of the impairment loss, if any.  Goodwill is deemed to be impaired if
the carrying amount of a reporting  unit's  goodwill  exceeds its estimated fair
value.  At December 31, 2006,  goodwill was $74.9  million for the foam products
segment and $13.9  million  for the  technical  products  segment for a total of
$88.8 million.

Debt Issuance Costs

     Debt  issuance  costs  consist of amounts  incurred in obtaining  long-term
financing  and  are  disclosed  in  the  financing  activities  section  of  the
consolidated  statements of cash flows. These costs are being amortized over the
term of the related debt using the effective interest method.

Software Costs

     The Company  expenses  costs incurred in the  preliminary  project stage of
developing or obtaining internal use software,  such as research and feasibility
studies, as well as costs incurred in the post-implementation/operational stage,
such as maintenance and training.  Capitalization of software  development costs
occurs only after  management  authorizes the project,  the preliminary  project
stage is complete  and it is  probable  the project  will be  completed  and the
software  will be used for the function  intended.  Capitalized  software  costs
aggregated  $2.5 million,  $1.4 million and $2.4 million in 2006, 2005 and 2004,
respectively.  The capitalized costs are amortized  beginning in the period when
the  related  software  is placed in service on a  straight-line  basis over the
estimated useful life of the software, which is generally five years or less.

Long-Lived Assets

     Property and equipment held for use are grouped for  impairment  testing at
the plant level, the lowest level for which there are  identifiable  cash flows.
Impairment  testing  of the asset  group  occurs  whenever  events or changes in
circumstances  indicate  that  the  carrying  amount  of the  assets  may not be
recoverable.  The Company  assesses  recoverability  by  comparing  the carrying
amount  of the asset  group to the  estimated  undiscounted  future  cash  flows
expected  to be  generated  by the  assets.  If an  asset  group  is  considered
impaired,  the impairment loss to be recognized  would be measured as the amount
by which the asset group's  carrying  amount  exceeds its fair value.  Estimated
future cash flows are based on historical  results adjusted for estimated future
market  conditions  and  operating  plans.  To the extent  that these  estimates
change,  additional  impairment  losses  could be  recorded  which  could have a
material adverse impact on future financial results.

Environmental Remediation

     Environmental  expenditures that relate to current operations are expensed.
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue  generation,  are expensed.
Liabilities are recorded when environmental  assessments and/or remedial efforts
are  probable  and the costs can be  reasonably  estimated.  Amounts  charged to
operations  were $0.8 million,  $0.9 million and $0.6 million in 2006,  2005 and
2004, respectively.


                                      F-12
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Comprehensive Income (Loss)

     Other comprehensive income or loss items are revenues,  expenses, gains and
losses that under U.S.  generally  accepted  accounting  principles are excluded
from net  income and  reflected  as a  component  of  stockholders'  deficiency,
including   foreign   currency   translation  and  minimum   pension   liability
adjustments.

Foreign Currency Translation

     The financial  statements of foreign subsidiaries have been translated into
U.S. dollars by using  period-end  exchange rates for the assets and liabilities
and the  average  exchange  rates for the  statements  of  operations.  Currency
translation  adjustments are included in accumulated other  comprehensive  loss.
Transaction  gains  and  losses  are  reflected  in  other  expense,  net in the
consolidated  statements  of  operations  and included $0.3 million of losses in
2006, $0.5 million of gains in 2005, and $0.6 million of losses in 2004.

Research and Development

     Research and development costs are expensed as incurred. Amounts charged to
operations  were $3.2 million,  $2.3 million and $2.8 million in 2006,  2005 and
2004, respectively.

Self Insurance

     The  Company  is  partially  self-insured  for a number of risks  including
workers'  compensation,  medical,  automobile and general liability.  Commercial
insurance  policies  are  carried  for  amounts  in excess  of the  self-insured
amounts.  Amounts charged to operations for insurance  premiums and self-insured
losses were $24.2  million,  $28.7 million and $26.5  million in 2006,  2005 and
2004, respectively.

Claims and Litigation

     The Company  evaluates  claims for  damages  and  records  its  estimate of
liabilities  when such  liabilities  are  considered  probable  and an amount or
reasonable range can be estimated.

Income Taxes

     Income taxes are accounted for under the asset and liability method.  Under
this  method,  deferred  income taxes are  provided  for  temporary  differences
between  the  financial  reporting  basis and  income  tax  basis of assets  and
liabilities and for net operating loss carryforwards using the income tax rates,
under existing legislation,  expected to be in effect at the date such temporary
differences are expected to reverse. Deferred income tax assets are reduced by a
valuation allowance when it is considered more likely than not that a portion or
all of the deferred  income tax assets will not be realized in a future  period.
The  estimates  utilized in the  recognition  of deferred  income tax assets are
subject to revision in future periods.

Adoption of New Accounting Pronouncements

     In  December  2004,  the FASB  issued  Statement  of  Financial  Accounting
Standards No. 123R,  "Share-Based Payment" (SFAS No. 123R"). The Company adopted
SFAS No. 123R effective January 2, 2006. See Note 14.

     The Company adopted  Statement of Financial  Accounting  Standards No. 151,
"Inventory  Costs an  amendment  of ARB No.  43,  Chapter  4" in the 2006  first
quarter with no effect on its consolidated financial statements.

     In  September  2006,  the FASB issued  Statement  of  Financial  Accounting
Standards No. 158, "Employers'  Accounting for Defined Benefit Pension and Other
Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106 and 132R"
("SFAS No. 158").  SFAS No. 158 requires  employers to recognize the  overfunded
and

                                      F-13
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

underfunded  status of a  defined  benefit  postretirement  plan  (other  than a
multiemployer  plan) as an asset or  liability  in its  statement  of  financial
position and to recognize changes in that funded status in the year in which the
changes  occur  through  comprehensive  income.  SFAS No. 158 also  requires the
employer to measure the funded  status of a plan as of the date of its  year-end
statement of financial position.  The requirement to recognize the funded status
in the financial  statements  is effective  for years ending after  December 15,
2006 and the  requirement  to measure  the  funded  status as of the date of the
year-end  statement  of financial  position is effective  for years ending after
December 15, 2008. The Company  adopted SFAS No. 158 in 2006 by recognizing  the
funded  status,  resulting in increases of $7.4 million to the accrued  employee
benefits   liability  and  to  accumulated  other   comprehensive  loss  in  the
accompanying consolidated balance sheet at December 31, 2006.

     In September  2006, the Securities and Exchange  Commission  ("SEC") issued
Staff  Accounting  Bulletin  No.  108,  "Considering  the  Effects of Prior Year
Misstatements   when   Quantifying   Misstatements  in  Current  Year  Financial
Statements"  ("SAB No.  108"),  which  expresses  SEC staff views  regarding the
process  by which  misstatements  in  financial  statements  are  evaluated  for
purposes of determining  whether financial  statement  restatement is necessary.
SAB No. 108 is  effective  for the  Company  for its  December  31,  2006 annual
financial statements. The Company's adoption of SAB No. 108 had no effect on its
consolidated financial statements.

New Accounting Standards

     In July  2006,  the FASB  issued  Interpretation  No. 48,  "Accounting  for
Uncertainty in Income Taxes" ("FIN 48"). FIN 48 prescribes detailed guidance for
the financial statement recognition, measurement and disclosure of uncertain tax
positions recognized in an enterprise's  financial statements in accordance with
FASB  Statement No. 109,  "Accounting  for Income  Taxes" ("SFAS No. 109").  Tax
positions  must  meet  a  more-likely-than-not   recognition  threshold  at  the
effective  date to be  recognized  upon the adoption of FIN 48 and in subsequent
periods.  FIN 48 will be effective for fiscal years beginning after December 15,
2006 and the provisions of FIN 48 will be applied to all tax positions accounted
for under SFAS No. 109 upon initial adoption.  The cumulative effect of applying
the  provisions  of FIN 48 will be  reported  as an  adjustment  to the  opening
balance of retained  earnings  for that fiscal  year.  The Company is  currently
evaluating  the  potential  impact  of  FIN  48 on  its  consolidated  financial
statements.

Reclassifications

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

3.   LIABILITIES SUBJECT TO COMPROMISE AND REORGANIZATION ITEMS

     On August 15, 2005,  Foamex L.P. notified the trustee of its 13 1/2% Senior
Subordinated  Notes that it would not remit a principal payment of $51.6 million
and an interest  payment of $3.5 million that were due on that date.  Failure to
remit the principal  payment put Foamex L.P. in default under its 13 1/2% Senior
Subordinated  Notes Indenture and caused Foamex L.P. to also be in default under
its Senior  Secured Credit  Facility,  Secured Term Loan, 10 3/4% Senior Secured
Notes and 9 7/8% Senior Subordinated Notes. The holders of these other loans and
notes  would  be  entitled  to  demand  immediate  payment  absent a cure of the
default.  On August 14,  2005,  the Company  executed  amendments  to its Senior
Secured  Credit  Facility  and Secured  Term Loan that waived the default  until
September  30, 2005 caused by Foamex  L.P.'s  failure to remit the principal and
interest payments to the 13 1/2% Senior  Subordinated  Note holders.  All of the
debt was repaid, with applicable interest on February 12, 2007.

     In  addition  to  the  Company's  prepetition  debt  which  is in  default,
liabilities  subject to  compromise  reflects  the  Debtors'  other  liabilities
incurred prior to the commencement of the bankruptcy proceedings.  These amounts
represent the Company's estimate of known or potential  prepetition claims to be
resolved in connection  with the bankruptcy  proceedings.  Certain claims remain
subject to future  adjustments,  based on such things as (i) negotiations;  (ii)
actions taken by the Bankruptcy Court;  (iii) further  developments with respect
to disputed claims;  and (iv) other events.  Payment terms for these claims have
been   established   in  connection   with  the  Company's   confirmed  plan  of
reorganization.


                                      F-14
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.   LIABILITIES SUBJECT TO COMPROMISE AND REORGANIZATION ITEMS (continued)

     Liabilities  subject to compromise at December 31, 2006 and January 1, 2006
consist of the following:

<TABLE>
<CAPTION>
                                                         December 31,          January 1,
                                                            2006                 2006
                                                         ------------          ----------
       Debt:                                                       (thousands)
<S>                                                       <C>                  <C>
           10 3/4% Senior Secured Notes                    $300,000             $300,000
           9 7/8% Senior Subordinated Notes                 148,500              148,500
           13 1/2% Senior Subordinated Notes                 51,585               51,585
           Other debt                                           850                  850
                                                           --------             --------
       Total debt                                           500,935              500,935
       Employee benefit plans                                36,190               56,060
       Accounts payable                                       9,971               37,395
       Accrued interest on debt subject to compromise        86,791               33,201
       Accrued liabilities and other                          6,758                8,374
                                                           --------             --------
                                                           $640,645             $635,965
                                                           ========             ========
</TABLE>

     The Debtors have  incurred  certain  professional  fees and other  expenses
directly  associated  with the  bankruptcy  cases.  Such costs are classified as
reorganization  items,  net  in  the  accompanying  consolidated  statements  of
operations for the years 2006 and 2005 and consist of the following:

<TABLE>
<CAPTION>
                                                                             2006                 2005
                                                                            --------             --------
                                                                                     (thousands)
<S>                                                                         <C>                  <C>
       Debt issuance costs on debt subject to compromise                    $      -             $(10,465)
       Deferred credits on interest rate swap transactions                         -                9,684
       Professional fees associated with bankruptcy                          (18,714)              (8,841)
       Net gain on rejected leases and other contracts                         3,102                2,854
       Other, net                                                                 19                  (37)
                                                                            --------             ---------
                                                                            $(15,593)            $ (6,805)
                                                                            ========             ========
</TABLE>


4.   DEBTORS' FINANCIAL STATEMENTS

     The  Company's  bankruptcy  filing  included the Company and certain of its
domestic  subsidiaries,  including  Foamex L.P.,  and excluded  subsidiaries  in
Mexico  and  Canada.  Presented  below  are  the  condensed  combined  financial
statements of the Debtors.  These  statements  reflect the  financial  position,
results of operations and cash flows of the combined Debtors,  including certain
transactions  and  resulting  assets and  liabilities  between  the  Debtors and
non-Debtor  subsidiaries  of the Company,  which are eliminated in the Company's
consolidated financial statements.

                   Debtors' Condensed Combined Balance Sheets
                             (thousands - unaudited)

<TABLE>
<CAPTION>
                                                                         December 31,          January 1,
                                                                            2006                  2006
                                                                         ------------          ----------
       ASSETS
       Current Assets:
<S>                                                                         <C>                 <C>
         Cash and cash equivalents                                          $  2,444            $   4,839
         Accounts receivable, net                                            168,134              184,608
         Inventories                                                         114,058              105,903
         Other current assets                                                 23,836               27,103
                                                                            --------            ---------
             Total current assets                                            308,472              322,453

       Property, plant and equipment, net                                     95,487               99,830
       Other assets, net                                                     150,716              166,750
                                                                            --------            ---------
       Total assets                                                         $554,675            $ 589,033
                                                                            ========            =========


                                      F-15
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.     DEBTORS' FINANCIAL STATEMENTS (continued)

       LIABILITIES AND STOCKHOLDERS' DEFICIENCY
       Current Liabilities Not Subject
       to Compromise:
         Current maturities of long-term debt and
             revolving credit borrowings                                    $142,564            $ 240,780
         Accounts payable                                                     87,133               58,802
         Accrued liabilities                                                  57,320               49,526
                                                                            --------            ---------
             Total current liabilities                                       287,017              349,108

       Liabilities subject to compromise                                     640,645              635,965

       Non-Current Liabilities Not Subject to Compromise:
         Long-term debt, net of current maturities                               160                  340
         Other noncurrent liabilities                                         23,246               19,334
                                                                            --------            ---------
             Total liabilities                                               951,068            1,004,747

       Total stockholders' deficiency                                       (396,393)            (415,714)
                                                                            --------            ---------
       Total liabilities and stockholders' deficiency                       $554,675            $ 589,033
                                                                            ========            =========
</TABLE>


              Debtors' Condensed Combined Statements of Operations
                             (thousands - unaudited)

<TABLE>
<CAPTION>
                                                                               2006               2005
                                                                           ----------           ----------

<S>                                                                        <C>                  <C>
       Net sales                                                           $1,308,309           $1,207,468

       Cost of goods sold                                                   1,105,048            1,077,896
                                                                           ----------           ----------

           Gross profit                                                       203,261              129,572

       Selling, general and administrative expenses                            75,949               71,546

       Impairment, restructuring and other charges, net                           490                3,378
                                                                           ----------           ----------

           Income from operations                                             126,822               54,648

       Interest and debt issuance expense                                     (95,041)             (79,745)

       Other                                                                      166               (1,874)

       Reorganization items, net                                              (15,344)              (6,685)
                                                                           ----------           ----------

           Income (loss) from continuing operations before income
           taxes and equity in loss of non-debtor subsidiaries                 16,603              (33,656)

       Benefit for income taxes                                                  (777)              (1,291)
                                                                           ----------           ----------

           Income (loss) from continuing operations before equity
           in loss of non-debtor subsidiaries                                  17,380              (32,365)

       Equity in loss of non-debtor subsidiaries                               (5,032)             (10,332)
                                                                           ----------           ----------

           Income (loss) from continuing operations                            12,348              (42,697)

       Loss from discontinued operations                                            -              (10,048)
                                                                           ----------           ----------

       Income (loss) before cumulative effect of accounting change             12,348              (52,745)

       Cumulative effect of accounting change                                       -               (3,499)
                                                                           ----------           ----------

       Net income (loss)                                                   $   12,348           $  (56,244)
                                                                           ==========           ===========
</TABLE>


                                      F-16
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4.   DEBTORS' FINANCIAL STATEMENTS (continued)

              Debtors' Condensed Combined Statements of Cash Flows
                             (thousands - unaudited)

<TABLE>
<CAPTION>
                                                                               2006               2005
                                                                           ----------           ----------
       OPERATING ACTIVITIES:
<S>                                                                         <C>                   <C>
       Net income (loss)                                                    $ 12,348              $(56,244)
       Adjustments required to reconcile net income (loss) to net
          cash provided by (used for) operating activities:
          Impairment charges                                                   1,629                43,419
          Loss from discontinued operations                                        -                10,048
          Depreciation and amortization                                       16,143                17,322
          Change in working capital and other operating items                 91,838               (33,689)
                                                                            --------              --------
              Net cash provided by (used for) operating activities
                before discontinued operations and
                reorganization items                                         121,958               (19,144)
              Cash provided by discontinued operations                             -                 1,104
              Cash used for reorganization items                             (18,271)               (4,806)
                                                                            --------              --------
          Net cash provided by (used for) operating activities               103,687               (22,846)
                                                                            --------              --------

       INVESTING ACTIVITIES:
       Capital expenditures                                                   (9,994)               (5,650)
       Proceeds from sales of assets                                           1,013                39,815
       Other                                                                  (2,805)               (2,616)
                                                                            --------              --------
              Net cash provided by (used for) investing activities           (11,786)               31,549
                                                                            --------              --------

       FINANCING ACTIVITIES:
       Repayments of prepetition borrowings                                        -              (233,386)
       Repayments of DIP borrowings                                          (98,235)                    -
       Proceeds from DIP borrowings                                                -               234,566
       Other                                                                   3,939                (8,195)
                                                                            --------              --------
              Net cash used for financing activities                         (94,296)               (7,015)
                                                                            --------              --------

       NET INCREASE (DECREASE) IN CASH AND
       CASH EQUIVALENTS                                                       (2,395)                1,688

       CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                          4,839                 3,151
                                                                            --------              --------

       CASH AND CASH EQUIVALENTS, END OF PERIOD                             $  2,444              $  4,839
                                                                            ========              ========
</TABLE>


                                      F-17
<PAGE>


                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


5.   EARNING (LOSS) PER SHARE

     The  following  table shows the amounts  used in computing  basic  earnings
(loss) per share.

<TABLE>
<CAPTION>
                                                                  2006(a)        2005 (a)(b)   2004 (a)(b)
                                                              -------------     ------------   -----------
                                                                   (thousands, except per share amounts)
<S>                                                              <C>            <C>              <C>
       Income (loss) from continuing operations                  $12,348        $(42,697)        $(146,203)
       Loss from discontinued operations                               -         (10,048)           (4,730)
                                                                 -------        --------         ---------
       Income (loss) before cumulative effect of
           accounting change                                      12,348         (52,745)         (150,933)
       Cumulative effect of accounting change                         -           (3,499)                -
                                                                 -------        --------         ---------
       Net income (loss)                                         $12,348        $(56,244)        $(150,933)
                                                                 =======        ========         =========

       Weighted average common shares outstanding                 36,845          36,722            36,624
                                                                 =======        ========         =========

       Income (loss) from continuing operations per share        $  0.34        $  (1.16)        $   (3.99)
       Loss per share from discontinued operations                     -           (0.27)            (0.13)
                                                                 -------        --------         ---------
       Income (loss) per share before cumulative effect of
           accounting change                                        0.34           (1.43)            (4.12)
       Cumulative effect of accounting change per share               -            (0.10)                -
                                                                 -------        --------         ---------
       Net income (loss) per share                               $  0.34        $  (1.53)        $   (4.12)
                                                                 =======        ========         =========
</TABLE>

       The following table shows the amounts used in computing diluted earnings
(loss) per share.


<TABLE>
<CAPTION>
                                                                  2006(a)        2005 (a)(b)   2004 (a)(b)
                                                              -------------     ------------   -----------
                                                                   (thousands, except per share amounts)
<S>     <C>    <C>    <C>    <C>    <C>    <C>
       Income (loss) from continuing operations                  $12,348        $(42,697)        $(146,203)
       Loss from discontinued operations                               -         (10,048)           (4,730)
                                                                 -------        --------         ---------
       Income (loss) before cumulative effect of
           accounting change                                      12,348         (52,745)         (150,933)
       Cumulative effect of accounting change                          -          (3,499)                -
                                                                 -------        --------         ---------
       Net income (loss)                                         $12,348        $(56,244)        $(150,933)
                                                                 =======        ========         =========

       Weighted average common shares outstanding                 36,845          36,722            36,624
                                                                 =======        ========         =========

       Incremental shares resulting from
         Options to purchase common stock                            223               -                 -
         Preferred stock convertible into common stock (d)         1,500               -                 -
                                                                 -------        --------         ---------
                                                                  38,568          36,722            36,624
                                                                 =======        ========         =========

       Income (loss) from continuing operations per share        $  0.32        $  (1.16)        $   (3.99)
       Loss per share from discontinued operations                    -            (0.27)            (0.13)
                                                                 -------        --------         ---------
       Income (loss) per share before cumulative effect of
           accounting change                                        0.32           (1.43)            (4.12)
       Cumulative effect of accounting change per share               -            (0.10)                -
                                                                 -------        --------         ---------
       Net income (loss) per share                               $  0.32        $  (1.53)        $   (4.12)
                                                                 =======        ========         =========

       Potential incremental shares:
           Options to purchase common stock (c)                    1,888           3,621             3,060
           Preferred stock convertible into common stock (d)           -           1,500             1,500
</TABLE>

(a)  Per share data has been adjusted for all periods presented  pursuant to the
     rights offering under the Plan. See Note 1.


                                      F-18
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.   EARNING (LOSS) PER SHARE (continued)

(b)  The potential  incremental shares in 2005 and 2004 were not included in the
     calculation  of  earnings  per share  because  the  Company had losses from
     continuing operations and these shares would be antidilutive.

(c)  For 2006,  options to purchase  1,887,992  shares of common  stock were not
     included in earnings per share calculations  because the exercise prices of
     the options  were  greater  than the average  market  prices and the impact
     would be antidilutive.

(d)  Series B Preferred Stock is convertible into 1,500,000 common shares.

     6.   CUMULATIVE EFFECT OF ACCOUNTING CHANGE

     On  January  1,  2006,   the  Company   adopted  the   provisions  of  FASB
Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations,
an  interpretation  of FASB  Statement  No.  143",  ("FIN No.  47").  FIN No. 47
requires the recognition of a liability for the fair value of conditional  asset
retirement  obligations  if the fair value of the  liability  can be  reasonably
estimated.

     The Company evaluated its conditional asset retirement  obligations for its
manufacturing facilities, primarily for chemical storage and delivery facilities
and as a result  recorded a $3.6 million  noncurrent  liability for  conditional
asset  retirement  obligations and a $0.1 million increase in the carrying value
of the related  assets,  net of $1.0 million of  accumulated  depreciation.  The
noncurrent  liability for conditional  asset retirement  obligations  would have
been $3.3 million at January 2, 2005. The cumulative effect that was recorded in
the fourth  quarter of 2005 upon the adoption of FIN No. 47 resulted in a charge
of $3.5 million.

     The following table presents  proforma net loss and loss per share for 2005
and 2004 as if the provisions of FIN No. 47 had been applied at the beginning of
2004:

                                                       2005             2004
                                                     --------         ---------
                                                  (thousands, except per share
amounts)
       Net loss as reported                          $(56,244)        $(150,933)

       Add:  Cumulative effect of change in
                Accounting principle                    3,499                 -

       Deduct:   Accretion and depreciation              (520)             (392)
                                                     --------         ---------

       Proforma net loss                             $(53,265)        $(151,325)
                                                     ========         =========

       Basic and diluted loss per share:
           As reported                               $  (1.53)        $   (4.12)
           Proforma                                  $  (1.45)        $   (4.13)

     7.   RESTRUCTURING CHARGES

2006

     Restructuring   charges  relating  to  the  closure  of  two  manufacturing
facilities,  including  a foam  pouring  facility,  located in  Toronto,  Canada
aggregated  $6.4  million.  The  provision  includes  severance  required  for a
workforce of  approximately  177 employees.  Restructuring  charges also include
$0.8  million of plant  closing  costs and  severance  for 78  employees  at the
Company's foam pouring facility in Orlando, Florida where foam production ceased
in the second  quarter.  The  remaining  restructuring  charges of $0.7  million
relate to several facilities including those that produced consumer products.


                                      F-19
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     7.   RESTRUCTURING CHARGES (continued)

2005

     During 2005, the Company  recorded  restructuring  charges of $1.5 million,
which were primarily  related to the closing of three  facilities  that produced
consumer products,  including the elimination of 132 positions,  and elimination
of 14 sales,  administrative  and  operating  positions  in the  carpet  cushion
business.

2004

     During 2004, the Company  recorded  restructuring  charges of $1.8 million,
primarily  related to lease costs in connection with the closing of its New York
City  office  and  expenses   related  to  the  realignment  of  its  automotive
operations.

     The   following   table  sets  forth  the   components   of  the  Company's
restructuring charges (credits) for the three years ended December 31, 2006:

                                                     Plant Closure    Personnel
                                           Total      and Leases     Reductions
                                           -----     -------------   -----------
     2004                                            (millions)
     Balance at December 29, 2003           $9.7         $8.0           $1.7
     Restructuring charges                   1.8          1.0            0.8
     Cash spending                          (4.1)        (2.3)          (1.8)
                                            ----         ----           ----
     Balance at January 2, 2005              7.4          6.7            0.7

     2005
     Restructuring charges                   1.5          0.7            0.8
     Cash spending                          (2.0)        (1.3)          (0.7)
     Rejected leases and agreements         (5.9)        (5.5)          (0.4)
                                            ----         ----           ----
     Balance at January 1, 2006              1.0          0.6            0.4

     2006
     Restructuring charges                   7.9          3.4            4.5
     Cash spending                          (7.4)        (3.2)          (4.2)
                                            ----         -----          ----
     Balance at December 31, 2006           $1.5         $0.8           $0.7
                                            ====         ====           ====

     8.   IMPAIRMENTS

     The Company  performs an annual  impairment  test  required by Statement of
Financial  Accounting  Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS No. 142") on the first day of the fiscal  fourth  quarter.  The test is a
two step process,  with the first test involving an estimate of enterprise  fair
value and the second step  involving a more  detailed  appraisal  of  individual
assets. The fair value estimate uses a discounted cash flow method. SFAS No. 142
also requires that  impairment  tests of goodwill be updated  during the year if
circumstances  change  that would more likely  than not  indicate  that the fair
value of a reporting  unit no longer  exceeds its value for financial  statement
purposes.

     During  2005,  the Company  updated its  long-term  forecast to address the
impact of deteriorating  business conditions,  including adverse developments in
the domestic auto industry. As part of this exercise, the Company also conducted
a step one goodwill  impairment test of its reporting  units.  The Foam Products
and Technical  Products  reporting  units passed the step one  impairment  test.
However,  the  Automotive  Products  reporting  unit  failed  the step one test,
reflecting  industry  conditions.  The Company  completed the second step of the
goodwill  impairment test resulting in Automotive  Products goodwill  impairment
charges of $35.5 million.


                                      F-20
<PAGE>


                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. IMPAIRMENTS (continued)

     Also during  2005,  the Company  determined  that $15.2  million of pre-tax
impairment charges were required for equipment at certain production facilities.
The  impairment  evaluation  was also  triggered by the facts and  circumstances
discussed  above  concerning the goodwill  impairment.  The impairment  loss was
determined  using fair value  estimates and appraisals for similar assets and is
included in cost of goods sold in the consolidated statement of operations.  The
Company  recorded  asset  impairments  of $1.6  million in 2006 and $2.8 million
2004.

9.     GAIN ON SALE OF BUSINESSES

     On April 29,  2005,  the Company  sold its rubber and felt  carpet  cushion
businesses  consisting  principally of property,  plant and equipment located at
Gape Girardeau, MO and Newton, NC, inventories,  and related goodwill to Leggett
& Platt,  Incorporated  for net cash  proceeds of $38.7  million.  The property,
plant and equipment,  inventories  and related  goodwill had carrying  values of
$3.2 million, $2.8 million and $2.5 million, respectively. The net gain of $29.7
million,  on  which  there  was  no  tax  impact,  has  been  reflected  on  the
accompanying  consolidated statement of operations for the year ended January 1,
2006. The rubber and felt carpet cushion businesses provided approximately $41.3
million and $4.5  million of net sales and gross  profit,  respectively,  in the
year ended January 2, 2005.

10.    DISCONTINUED OPERATIONS

     In late 2005,  the  Company  closed the three  plants  that  comprised  its
consumer  products  group which was a  component  of an entity as  described  in
Statement  of  Financial  Accounting  Standards  No.  144,  "Accounting  for the
Impairment or Disposal of Long-Lived  Assets" ("SFAS No. 144").  The Company did
not report the  operations  of the  consumer  products  group as a  discontinued
operation in 2005 because it expected to have significant  continuing cash flows
from sales of consumer products,  as defined in paragraph 42 of SFAS No. 144 and
interpreted  by EITF 03-13,  "Applying  the  Conditions  of Paragraph 42 of FASB
Statement No. 144 in Determining Whether to Report Discontinued Operations."

     During the  quarter  ended July 2, 2006,  the  Company had lower sales than
anticipated  from  consumer  products due to the loss of certain  customers.  In
addition,  the Company is no longer pursuing certain new customers.  The Company
has  reclassified  its statements of operations for 2005 and 2004 to reflect the
consumer  products  group as  discontinued  operations.  The  activities  of the
consumer products group are not material in 2006 as sales for the year were less
than $1.0 million and results of operations were not significant.

     Results for the consumer products group for 2005 and 2004 were:

                                          2005                        2004
                                      ------------                -----------
                                (thousands of dollars, except per share amounts)
     Net sales                          $ 28,637                     $40,419
     Gross profit                       $ (8,049)                    $(1,296)
     Net loss                           $(10,048)                    $(4,730)
     Net loss per share                 $  (0.27)                    $  (0.13)

     11.  INVENTORIES

     The components of inventory are listed below.

                                            December 31,          January 1,
                                               2006                  2006
                                            ------------          -----------
                                                       (thousands)
     Raw materials and supplies              $ 81,191               $ 74,886
     Work-in-process                           22,890                 22,657
     Finished goods                            13,544                 14,599
                                             --------               --------
     Total                                   $117,625               $112,142
                                             ========               ========

                                      F-21
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.  REVOLVING CREDIT BORROWINGS AND LONG-TERM DEBT

     The components of revolving credit borrowings and long-term debt are listed
below.

                                                  December 31,      January 1,
                                                      2006            2006
                                                  ------------      ----------
                                                         (thousands)
     DIP Revolving credit borrowings (1)            $56,331          $154,566
                                                    =======          ========

     DIP Term Loan (1)                              $80,000          $ 80,000
     Industrial revenue bond (2)                      6,000             6,000
     Other                                              393               604
                                                    -------          --------
                                                     86,393            86,604

     Less current portion                            86,233            86,238
                                                    -------          --------

     Long-term debt                                 $   160          $    366
                                                    =======          ========

(1)  Subsidiary  debt of Foamex L.P.,  guaranteed by the Company,  FMXI, LLC and
     Foamex Canada.

(2)  Subsidiary debt of Foamex L.P.

DIP Revolving Credit Facility

     On September  22,  2005,  Foamex L.P.  entered into a  Debtor-in-Possession
Credit Agreement (the "DIP Revolving  Credit  Facility") with a group of lenders
to provide a revolving  credit  facility with a maximum  availability  of $240.0
million.  The initial borrowing under the DIP Revolving Credit Facility was used
to repay outstanding  obligations under a prior credit facility and interest due
under a term loan. The DIP Revolving  Credit  Facility  includes a $40.0 million
sublimit for letters of credit and availability is limited to eligible  amounts,
as defined, of accounts receivable,  inventory,  equipment,  and real estate. At
December  31,  2006 and  January  1,  2006,  Foamex  L.P.  had  total  available
borrowings of $129.7  million and $53.6  million,  respectively,  and letters of
credit  outstanding  of $21.6  million at December 31, 2006 under the  facility.
Substantially all of the assets of Foamex L.P. and its domestic subsidiaries and
Foamex Canada are pledged as collateral for the related  borrowings.  Borrowings
under the DIP Revolving Credit Facility,  as amended,  bear interest at floating
rates based upon and  including a margin  over either  LIBOR or a Base Rate,  as
defined. At December 31, 2006 and January 1, 2006, the weighted average interest
rates on borrowings were 7.38% and 7.42%, respectively.  Margins were reduced in
the second  quarter  of 2006  under an  amendment  to the DIP  Revolving  Credit
Facility.  All borrowings under the DIP Revolving Credit Facility will mature on
the earlier of March 22, 2007 or the date that the Company  emerges from chapter
11. The DIP Revolving  Credit Facility  included both a subjective  acceleration
clause and a lock box arrangement that required all lock box receipts be used to
repay revolving  credit  borrowings.  Borrowings  under the DIP Revolving Credit
Facility are  classified  as current in the  accompanying  consolidated  balance
sheets at December  31, 2006 and January 1, 2006.  All amounts due under the DIP
Revolving Credit Facility were paid upon the Company's emergence from bankruptcy
on February 12, 2007.

DIP Term Loan

     On September  22,  2005,  Foamex L.P.  entered into a  Debtor-in-Possession
Credit  Agreement  (the "DIP Term  Loan")  with a group of lenders to provide an
$80.0  million  term  loan.  Proceeds  from the DIP Term Loan were used to repay
outstanding  principal  under a prior term loan.  Borrowings  under the DIP Term
Loan,  as  amended,  bore  interest at a rate that is either (i) 3.375% plus the
greater of the Base Rate,  as defined,  or 6.50% or (ii) 5.375% plus the greater
of the LIBOR rate or 3.00%.  At  December  31,  2006 and  January  1, 2006,  the
weighted  average interest rates were 10.73% and 14.29%,  respectively.  Margins
were reduced  under an amendment  to the DIP Term Loan  effective  May 12, 2006.
Borrowings under the DIP Term Loan are  collateralized by the same collateral as
the DIP  Revolving  Credit  Facility.  An  intercreditor  agreement  governs the
distribution  of collateral  among the lenders  under the DIP  Revolving  Credit
Facility  and the DIP Term  Loan.  All  borrowings  under the DIP Term Loan will
mature on the  earlier of March 22,  2007 or the date that the  Company  emerges
from chapter 11. The DIP Term Loan may be


                                      F-22
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.  REVOLVING CREDIT BORROWINGS AND LONG-TERM DEBT (continued)

repaid  at any  time by  paying a  prepayment  premium  initially  set at 8% and
declining  ratably over a 48- month  period.  The DIP Term Loan is classified as
current in the accompanying consolidated balance sheets at December 31, 2006 and
January 1, 2006. All amounts due under the DIP Term Loan, including a prepayment
premium of approximately  $4.3 million,  were paid upon the Company's  emergence
from bankruptcy on February 12, 2007.

Industrial Revenue Bond ("IRB")

     IRB debt  includes a $6.0 million  bond that  matures in 2013.  Interest is
based on a variable rate, as defined,  with options  available to Foamex L.P. to
convert to a fixed rate. At December 31, 2006 and January 1, 2006,  the interest
rates were 3.96% and 3.63%, respectively, on the bond. The maximum interest rate
for the IRB is 15.0% per annum.  If Foamex L.P.  exercises its option to convert
the bond to a fixed interest rate structure, the IRB is redeemable at the option
of the  bondholders.  In addition,  at any time prior to  conversion  to a fixed
interest  rate  structure,  bondholders  upon notice to the bond trustee and the
remarketing  agent may place the bonds for sale. If the remarketing agent is not
successful in reselling  the bonds before  settlement is due on bonds placed for
sale,  the bond  trustee  may draw on a letter  of credit  issued  under the DIP
Revolving Credit Facility to repay the bondholders for the bonds placed for sale
until  the  bonds  can be resold  by the  remarketing  agent.  Pursuant  to this
arrangement,  the  IRB  has  been  classified  as  current  in the  accompanying
consolidated  balance  sheets at  December  31,  2006 and  January 1, 2006.  The
obligation is  collateralized  by certain assets,  which have an approximate net
carrying value of $4.5 million at December 31, 2006 and by a letter of credit in
the amount of $6.3 million.

Debt Covenants

     The DIP Revolving Credit Facility and the DIP Term Loan (together, the "DIP
Facilities")  contained certain covenants that limited,  among other things, the
ability of the Company's  subsidiaries (i) to pay distributions or redeem equity
interests,  (ii) to make certain restrictive  payments or investments,  (iii) to
incur additional  indebtedness or issue Preferred Equity Interests,  as defined,
(iv) to merge,  consolidate or sell all or substantially  all assets,  or (v) to
enter into certain transactions with affiliates or related persons. In addition,
the DIP Facilities  contained  provisions that, in the event of a defined change
of control or the  occurrence  of an undefined  material  adverse  change in the
ability of the  obligor to perform its  obligations,  the  indebtedness  must be
repaid,  in  certain  cases,  at the  option  of the  holders.  Under  the  most
restrictive of the distribution  restrictions,  the Company could be paid by its
subsidiaries,  as of December 31,  2006,  funds only to the extent to enable the
Company  to meet  its tax  payment  liabilities,  subject  to  Bankruptcy  Court
approval,  during the  bankruptcy  process and the  Company's  normal  operating
expenses of up to $2.3 million during the term of the DIP Facilities, so long as
no default or event of default has occurred.

     Under the DIP Facilities,  Foamex L.P. was subject to financial  covenants,
including a minimum EBITDA,  as defined,  covenant that began with the one-month
period ended October 30, 2005, a cumulative net cash flow, as defined,  covenant
that began with the two-month  period ended December 4, 2005, a maximum leverage
ratio covenant,  and a capital expenditure  restriction for twelve-month rolling
periods that began October 3, 2005.  The minimum  EBITDA and cumulative net cash
flow covenants included an increasing number of months until they reached twelve
months ended on October 1, 2006 and were the trailing twelve months  thereafter.
Foamex L.P. was in compliance with the minimum EBITDA, cumulative net cash flow,
maximum  leverage  ratio and  capital  expenditure  covenants  as of and for the
twelve  months  ended  December  31,  2006.  The  DIP  facilities  also  limited
expenditures for certain prepetition and post petition liabilities,  as defined,
subject to Bankruptcy Court approval.


                                      F-23
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.  REVOLVING CREDIT BORROWINGS AND LONG-TERM DEBT (continued)

Maturities

     Scheduled  maturities of revolving credit  borrowings and long-term debt as
of December 31, 2006 are shown below (thousands):

     2007                                           $136,564
     2008                                                157
     2009                                                  3
     2010                                                  -
     2011                                                  -
     Thereafter                                        6,000
                                                    --------
     Total                                          $142,724
                                                    ========

     The  following  debt  issues  were  classified  as  liabilities  subject to
compromise in the condensed  consolidated balance sheets as of December 31, 2006
and January 1, 2006:

10 3/4% Senior Secured Notes

     The 10 3/4% Senior  Secured  Notes were  issued by Foamex  L.P.  and Foamex
Capital  Corporation  (the "Issuers") on March 25, 2002 and were due on April 1,
2009.  The notes  were  guaranteed  on a senior  basis by all of  Foamex  L.P.'s
domestic  subsidiaries  that guaranteed the DIP Revolving Credit  Facility.  The
notes were secured on a  second-priority  basis (subject to permitted  liens) by
substantially  the same collateral  that secured the  obligations  under the DIP
Revolving  Credit  Facility and the DIP Term Loan. The notes ranked  effectively
junior to all senior  indebtedness  that was secured by first priority liens and
senior  in right of  payment  to all  subordinated  indebtedness.  Interest  was
payable  April 1 and October 1. The Issuers did not remit the interest  payments
due October 3, 2005,  April 3, 2006 and October 2, 2006, but continued to accrue
interest at the default rate of 11.75%  pursuant to the  Bankruptcy  Court order
approving the borrowing under the DIP Revolving Credit Facility and the DIP Term
Loan. The Bankruptcy  Court approved,  and the Company made monthly  payments of
interest at the 10.75% rate  effective  with interest  earned  beginning June 1,
2006. The notes could have been redeemed at the option of the Issuers,  in whole
or in part, at any time on or after April 1, 2006. The initial redemption was at
105.375% of their principal  amount,  plus accrued and unpaid interest,  if any,
thereon to the date of redemption  and declining  annually to 100.0% on or after
April 1, 2008. All amounts due under the 10 3/4% Senior Secured Notes, including
accrued  interest and a prepayment  premium of $7.5 million,  were paid upon the
company's emergence from bankruptcy on February 12, 2007.

9 7/8% Senior Subordinated Notes

     The 9 7/8% Senior  Subordinated  Notes (the  "Notes") were issued by Foamex
L.P. and Foamex  Capital  Corporation  (the  "Issuers") and were due on June 15,
2007. In the year ended December 31, 2006, the Issuers accrued interest of $22.1
million on the Notes for the period  from the  bankruptcy  filing  date  through
December 31, 2006 at the contractually  required default rate in accordance with
SOP 90-7.  The notes  represented  uncollateralized  general  obligations of the
Issuers and were  subordinated  to all Senior Debt,  as defined in the Indenture
and were pari passu in right of payment to the 13 1/2% Senior Subordinated Notes
(described  below).  All amounts due under the Notes including  accrued interest
were paid upon the Company's emergence from bankruptcy on February 12, 2007.

13 1/2% Senior Subordinated Notes

     The 13 1/2% Senior Subordinated Notes were issued by Foamex L.P. and Foamex
Capital  Corporation  (the  "Issuers")  and  matured  on August  15,  2005.  The
principal due of $51.6 million plus accrued and unpaid  interest of $3.5 million
were not paid resulting in the Issuers being in default under the 13 1/2% Senior
Subordinated  Notes.  In the year ended December 31, 2006,  the Issuers  accrued
interest  on the 13 1/2%  Senior  Subordinated  Notes of $11.0  million  for the
period from the bankruptcy filing through December 31, 2006 at the contractually
required  default  rate in  accordance  with  SOP  90-7.  The  notes  represents
uncollateralized  general  obligations  of the  Issuers  and were


                                      F-24
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.  REVOLVING CREDIT BORROWINGS AND LONG-TERM DEBT (continued)

subordinated to all Senior Debt, as defined in the Indenture and were pari passu
in right of payment to the 9 7/8% Senior  Subordinated  Notes (described above).
All principal and accrued interest under the 13 1/2% Senior  Subordinated  Notes
were paid upon the Company's emergence from bankruptcy on February 12, 2007.

New Senior Secured Credit Facility

     On February 12, 2007,  Foamex L.P.  entered into new senior  secured credit
facilities consisting of a $175.0 million revolving credit facility, including a
sub-limit  of $45.0  million  for  letters  of credit  and term loan  facilities
aggregating $600.0 million including $425.0 million under a first lien term loan
facility and $175.0 million under a second lien term loan  facility.  Borrowings
under the  revolving  credit  facility  are subject to a borrowing  base formula
based on eligible accounts  receivable and bear interest at floating rates based
upon and  including a margin over either LIBOR or a Base Rate,  as defined.  The
revolving credit facility will mature on February 12, 2012. Borrowings under the
term loan  facilities  also bear  interest  at  floating  rates  based  upon and
including a margin  over  either  Eurodollar,  as  defined,  or a Base Rate,  as
defined.  The first lien term loan  facility is subject to  quarterly  principal
repayments of approximately $1.1 million and annual excess cash flow repayments,
as defined, with the balance maturing on February 12, 2013. The second lien term
loan  facility  matures on  February  12,  2014 and is  subject to a  prepayment
premium of 2.0% during the first year and 1.0% during the second year.

     Foamex L.P. borrowed  approximately  $13.4 million under the $175.0 million
revolving  credit  facility  and the full  amounts  of the first  lien term loan
facility and second lien term loan  facility on February 12, 2007 to pay amounts
due under the Plan.  The initial  weighted  average  interest  rates were 8.25%,
7.57% and  10.07%,  respectively.  Foamex  L.P.  is subject to a leverage  ratio
covenant,  as defined,  under both term loan facilities and an interest coverage
ratio covenant,  as defined,  under the first lien term loan facility as well as
an annual capital expenditure maximum under all three facilities.

     On February 27, 2007,  Foamex L.P.  entered into interest rate swap and "no
cost" collar  contracts to take effect on March 12, 2007. The interest rate swap
contracts  have a life of five  years  plus 35 days  with a  notional  amount of
$300.0 million at inception  reducing annually on April 15 beginning in 2008, to
$250 million,  $200 million,  $100 million,  and $75 million,  respectively,  in
which Foamex L.P. will receive  interest at a variable rate equal to three-month
LIBOR and pay  interest at a fixed rate of 4.93%.  The collar  contracts  have a
life of five  years  plus 35 days  with a  notional  amount of $175  million  at
inception reducing to $125 million on April 15, 2011. The collar contracts limit
the  variability  of the  interest  rate risk with a cap of 5.50% and a floor of
4.35%. Foamex L.P. has determined these derivatives to be effective hedges under
the guidance of Statement of Financial  Accounting Standard No. 133, "Accounting
for  Derivatives  and Hedging  Activities."  As a result of these  transactions,
Foamex  L.P.  has fixed the rate on 50% of the  amount  borrowed  under the term
loans at February  12, 2007 with 29% subject to the collar.  The  remaining  21%
will continued to have variable rates.

13.  RETIREE BENEFIT PLANS

Defined Benefit Pension Plans

     The   Company   provides   pension   and   survivor   benefits   through  a
non-contributory  defined  benefit  plan to almost all U.S.  salaried and hourly
employees.  For U.S. salaried employees the benefit formula is based on credited
years of service and average  compensation  over the  service  period.  For U.S.
hourly  employees the benefit formula is based on a stated amount  multiplied by
credited  years of service.  Employees  who reach the credited  years of service
requirement  receive an annuity upon  retirement  and  employees who have vested
benefits  but  terminated  employment  before  retirement  receive an annuity in
accordance with the plan provisions.

     The  Company  adopted  the  recognition  and  disclosure   requirements  of
Statement of Financial Accounting Standards No. 158, "Employers'  Accounting for
Defined Benefit Pension and Other  Postretirement  Plans" ("SFAS No. 158") as of
fiscal year-end 2006. Transition  recognition  provisions include the adjustment
of amounts

                                      F-25
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.  RETIREE BENEFIT PLANS (continued)

recognized in the consolidated balance sheets, as of December 31, 2006, prior to
the application of SFAS No. 158, so that gains or losses, prior service costs or
credits,  and the  transition  assets  or  obligations  that  have  not yet been
included in net  periodic  benefit  cost are  recognized  as a component  of the
ending balance of accumulated other comprehensive income, net of tax.

     During the first half of 2006, a manufacturing  plant in Toronto,  Ontario,
Canada was closed.  Workers at the plant  participated  in  salaried  and hourly
defined benefit  pension plans.  In connection  with this plant closing,  Foamex
Canada is obligated to fully fund the pension plans under the regulations of the
Financial  Services  Commission  of  Ontario  (the  "FSCO").   Funding  will  be
accomplished  through a  combination  of lump sum  payments  and the purchase of
annuities as prescribed under FSCO  regulations,  and must be completed within a
period of up to five  years.  Foamex  Canada  is in the  process  of  evaluating
funding options.

     The Company also provides a supplemental executive retirement plan ("SERP")
to a limited number of executives.  The SERP reflects a pension  benefit for the
difference  between the executives'  compensation  and the IRS imposed limit for
qualified  defined benefit plans.  The SERP is a  non-qualified  plan and is not
funded.

     The  measurement  date to determine  pension assets and  obligations is the
calendar year end.

     Change in  projected  benefit  obligations,  plan assets and funded  status
follows:

                                                           Pension Benefits
                                                          2006          2005
                                                        --------      --------
     Change in Benefit Obligations                          (thousands)
       Benefit obligations at beginning of year         $152,454      $143,904
       Service cost                                        5,208         5,478
       Interest cost                                       8,204         7,810
       Amendments                                              -           147
       Benefits paid                                      (6,944)       (6,349)
       Actuarial loss (gain)                              (3,786)        1,174
       Foreign currency exchange rate changes                (42)          290
                                                        --------      --------
       Benefit obligation at end of year                $155,094      $152,454
                                                        --------      --------

     Change in Plan Assets
       Fair value of plan assets at beginning of year   $ 96,918      $ 91,868
       Actual return on plan assets                       15,225         4,928
       Employer contribution                              15,941         7,295
       Benefits paid                                      (6,944)       (6,349)
       Plan administrative expenses                       (1,207)       (1,081)
       Foreign currency exchange rate changes                (59)          257
                                                        --------      --------
       Fair value of plan assets at end of year         $119,874      $ 96,918
                                                        --------      --------

     Funded Status at Year End                          $(35,220)     $(55,536)
                                                        ========      ========


                                      F-26
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


13.    RETIREE BENEFIT PLANS (continued)

     Amounts Recognized in the
     Consolidated Balance Sheets                            2006        2005
                                                         ---------    ---------
       Noncurrent assets                                 $      -     $  9,129
       Noncurrent liabilities                             (35,220)     (54,426)
                                                         --------     --------
       Net amounts recognized                            $(35,220)    $(45,297)
                                                         ========     ========

     Amounts Recognized in Accumulated
     Other Comprehensive Income                             2006         2005
                                                         ----------   ---------
       Net transition asset                              $   (140)     $  (215)
       Prior service cost                                     370          279
       Net loss                                            49,619       52,048
                                                         --------      -------
       Net amounts recognized                            $ 49,849      $52,112
                                                         ========      =======

     The accumulated benefit obligation for all defined benefit plans was $148.2
million at year-end 2006 and $143.1  million at year-end 2005.  Information  for
defined benefit plans with an accumulated  benefit  obligation in excess of plan
assets is  listed  below.  At  December  31,  2006,  all  defined  benefit  plan
accumulated benefit obligations were in excess of plan assets.

                                           December 31, 2006   December 31, 2005
                                           -----------------   -----------------
                                                        (thousands)
     Projected benefit obligation               $155,094           $146,628
     Accumulated benefit obligation             $148,223           $138,897
     Fair value of plan assets                  $119,874           $ 92,564

     Components of Net Periodic  Benefit Plan Cost and Other Amounts  Recognized
in Other Comprehensive Income.

                                                       Pension Benefits
                                                ---------------------------
                                                 2006       2005      2004
                                                ------     ------    ------
                                                         (thousands)
     Service cost                               $5,208     $5,478    $4,804
     Interest cost                               8,204      7,810     7,463
     Expected return on plan assets             (8,552)    (7,836)   (6,891)
     Amortization of transition assets             (75)       (75)      (75)
     Amortization of prior service benefit        (102)      (101)     (111)
     Amortization of net loss                    3,285      3,137     2,776
                                                ------     ------    ------
     Net periodic benefit plan cost             $7,968     $8,413    $7,966
                                                ======     ======    ======

     The net loss at year end 2006 that will be amortized from accumulated other
comprehensive  loss into net periodic  benefit cost in 2007 is estimated at $2.3
million.  The  estimated  amortization  of the net  transition  asset  and prior
service cost components included in accumulated other comprehensive loss are not
estimated to be significant in 2007.

     Weighted-Average Assumptions Used                 Pension Benefits
     to Determine Benefit Obligations                 2006         2005
     ----------------------------------------     ----------   ----------
     Discount rate -U.S. Plans (a)                   5.75%          5.5%
     Discount rate - Canadian Plans (b)           4.5%-4.75%        5.25%
     Rate of compensation increase                3.5%-5.0%    3.5%-5.0%



                                      F-27
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



13.  RETIREE BENEFIT PLANS (continued)

     Weighted-Average Assumptions Used                 Pension Benefits
     to Determine Annual Net Benefit Cost             2006         2005
     ------------------------------------         ---------    ----------
     Discount rate - U.S. Plans (a)                  5.5%           5.5%
     Discount rate - Canadian Plans (a)              5.25%          5.75%
     Expected long-term return on plan assets (c)    8.5%           8.5%
     Rate of compensation increase                3.5%-5.0%    3.5%-5.0%

(a)  Discount  rates for each retiree  benefit plan are  established by matching
     the projected benefit payouts of the specific plan to the yield curve of an
     index of high quality corporate bonds.

(b)  In 2005,  the  discount  rate for each  retiree  benefit plan in Canada was
     established by matching the projected  benefit payouts of the specific plan
     to the yield curve of an index of high quality bonds. In 2006, the discount
     rates selected  represented the weighted  average of annuity purchase rates
     and lump sum purchase rates  applicable  under FSCO  regulations  discussed
     above.

(c)  The determination of the expected long-term rate of return is a combination
     of historical  returns and future return assumptions based on the Company's
     pension plan asset strategy as discussed below.

The  following table includes the incremental effect of applying SFAS No. 158 on
     individual line items in the Consolidated Balance Sheet, as of December 31,
     2006.

<TABLE>
<CAPTION>
                                                                  Before                            After
                                                              Application          FAS 158       Application
                                                              of FAS 158        Adjustments        of FAS 158
                                                                                 (thousands)
Liabilities
<S>                                                             <C>             <C>               <C>
Accrued employee compensation & benefits                        $  20,799       $      129        $  20,928
Total current liabilities                                       $ 296,508       $      129        $ 296,637
Long-term accrued employee benefits                             $  15,021       $       27        $  15,048
Other long-term liabilities                                     $   8,641       $        -        $   8,641
Liabilities subject to compromise                               $ 633,432       $    7,213        $ 640,645
Total liabilities                                               $ 953,602       $    7,369        $ 960,971

Stockholders' Deficiency
Accumulated other comprehensive loss                            $ (25,001)      $   (7,369)       $ (32,370)
Total stockholders' deficiency                                  $(389,024)      $   (7,369)       $(396,393)

Total Liabilities and Stockholders' Deficiency                  $ 564,578       $        -        $ 564,578
</TABLE>

Investment Strategy, Asset Allocation, Risk Management and Funding

       U.S. pension plan assets are primarily comprised of equity and debt
securities, including both U.S. and foreign securities. Our U.S. pension plan
asset allocation at year-end 2006 and 2005, and target allocation for 2007 are
listed below.

                                                Percentage of U.S. Plan Assets
                                           -------------------------------------
                          2007 Target
     Asset Category         Allocation     December 31, 2006   December 31, 2005
     --------------       --------------   -----------------   -----------------

     Equity securities        50-68%                59%              59%
     Debt securities          34-38%                36               36
     Other                     3-7%                  5                5
                                                  ----               ---
       Total                                      100%               100%
                                                  ===                ===

                                      F-28
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.  RETIREE BENEFIT PLANS (continued)

     The  Benefits  Committee  of the  Company  has a formal  Investment  Policy
Statement that was  established to guide the third party  investment  manager in
asset allocations, control procedures, performance monitoring and review for the
U.S.   defined   benefit  plan.  The  investment   strategy  is  to  maintain  a
well-diversified  portfolio  designed to achieve a  long-term  rate of return of
8.5%. As with any investment  portfolio of this nature,  there are no assurances
that the portfolio's  performance will match the goal.  Asset allocation  target
ranges for equity, debt and other investments are evaluated yearly utilizing the
expertise of the third party investment manager.

     The  majority of the U.S.  Plan assets are  invested in equity  securities.
Given that  equity  securities  have  historically  provided  higher  comparable
returns to debt and other asset classes,  equity  securities carry a higher risk
premium.  The risk of loss in the  U.S.  Plan's  equity  portfolio  is  somewhat
mitigated by investing  in a broad range of equity  types,  including a blend of
large and small capitalization companies and international companies.

Canadian Plan Assets

     Pension  plan assets in Canada  totaled  $9.5  million,  or 7.9% of pension
assets,  at  year-end  2006 and $8.2  million,  or 8.5% of  pension  assets,  at
year-end 2005.  Canadian pension plan assets are primarily  invested in Canadian
equity securities with the balance in foreign equities.

Cash Flows

Contributions

     The  Company  expects  to  contribute  approximately  $13.2  million to its
pension plans in 2007.

Estimated Future Benefit Payments

     The following benefit payments, which reflect expected future service, as
appropriate, are expected to be paid:

                                                   Pension Benefits
                                                      (thousands)
     2007                                              $ 7,175
     2008                                              $ 7,575
     2009                                              $ 7,819
     2010                                              $ 8,139
     2011                                              $ 8,528
     Years 2012-2016                                   $48,998

Retiree Medical and Life Insurance Benefits

     The Company  provides  postretirement  health care and life  insurance  for
eligible  employees,  limited  primarily  to one  manufacturing  facility in the
United States.  These plans are unfunded and benefits are paid as the claims are
submitted. The benefits are only provided until the participant becomes eligible
for Medicare.  Consequently,  the Medicare  Prescription  Drug,  Improvement and
Modernization  Act of 2003 did not  impact  the  obligations  or  expense of the
Company.  The Company  retains the right,  subject to  existing  agreements,  to
modify or eliminate these benefits. The benefit obligation for these benefits at
December 31, 2006 was  approximately  $1.1 million and periodic  benefit cost is
approximately $0.1 million.

Defined Contribution Plan

     The Company maintains a defined contribution plan, which is qualified under
Section 401(k) of the Internal Revenue Code ("401(k) Plan") and is available for
eligible employees who elect to participate. Under the terms of the 401(k) Plan,
the Company partially matches certain employee contributions.  Expense for these
contributions was $0.6 million,  $0.8 million and $0.9 million in 2006, 2005 and
2004, respectively.


                                      F-29
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14.  ACCOUNTING FOR STOCK BASED COMPENSATION

Compensation and Proforma Information

     In  December  2004,  the FASB  issued  Statement  of  Financial  Accounting
Standards  No. 123R,  "Share-Based  Payment"  ("SFAS No.  123R").  Effective for
fiscal  2006,  the  Company  adopted  SFAS  No.  123R  which  required  that all
share-based awards granted after the adoption date be recognized as compensation
expense using fair value  measurements  prescribed  in SFAS No. 123R.  Regarding
share-based  awards granted prior to the adoption date, the Company  elected the
modified prospective  transition application which requires compensation expense
associated  with unvested and outstanding  share-based  grants (see Stock Option
Plans below) to be recognized over their remaining service period.

     Prior  to the  adoption  of  SFAS  No.  123R,  the  Company  accounted  for
share-based  employee  compensation  plans using the intrinsic  value method and
provided  proforma  information  based on the fair value method of stock options
granted using the  Black-Scholes  option  pricing  model.  The  following  table
includes  the 2005 and 2004  proforma  information.  The  reported  and proforma
amounts for 2006 in the following  table are the same given the adoption of SFAS
No. 123R and are included for comparative purposes.

<TABLE>
<CAPTION>
                                                             2006               2005             2004
                                                           --------           --------       ----------
                                                                 (thousands, except per share data)
<S>                                                        <C>                <C>             <C>
     Net income (loss) as reported                         $ 12,348           $(56,244)       $(150,933)
     Add:  Stock-based employee compensation
       expense included in reported net income (loss)           872                 23               (2)
     Deduct:  Stock-based employee compensation
       expense determined under fair value based method        (872)            (1,749)          (1,427)
                                                           --------           --------        ---------
     Proforma net income (loss)                            $ 12,348           $(57,970)       $(152,362)
                                                           ========           ========        =========

     Basic income (loss) per share
        As reported                                        $   0.34           $  (1.53)       $   (4.12)
        Proforma                                           $   0.34           $  (1.58)       $   (4.16)

     Diluted income (loss) per share
        As reported                                        $   0.32           $  (1.53)       $   (4.12)
        Proforma                                           $   0.32           $  (1.58)       $   (4.16)
</TABLE>

     There  were  no  tax  benefits  due  to the  establishment  of a  valuation
allowance on U.S. deferred tax assets as discussed in Note 15.

     The fair  value of each  option was  estimated  on the grant date using the
Black-Scholes  option-pricing  model. Based on the assumptions listed below, the
weighted  average  fair value of options  granted  with an option price equal to
fair market value was $1.21 per option in 2005 and $2.66 per option in 2004. The
weighted average fair value of options granted in 2005 with an option price less
than fair market value was $0.99 per option.

                                            2005                 2004
                                          -------              --------
     Expected life in years                 3.0                 3.0
     Risk-free interest rate                3.68%               1.89%
     Volatility                           106.02%               102.29%
     Dividend yield                         0.00%               0.00%

     Expected  life of the options was based on the  Company's  experience.  The
risk-free  interest rate was based on the weighted  average U.S.  Treasury strip
rates over the contractual term of the stock options.  Volatility was based on a
historical/daily measurement matching the expected life of the option.


                                      F-30
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


14.  ACCOUNTING FOR STOCK BASED COMPENSATION (continued)

Stock Option Plans

     The Foamex  International Inc. 2002 Stock Award Plan, as amended (the "2002
Stock Award Plan") provides for the issuance of nonqualified and incentive stock
options  for common  stock of the  Company.  Eligibility  extends to  employees,
directors  and  consultants  of the  Company,  including  its  subsidiaries  and
affiliates.  At the Annual Meeting of Stockholders on May 25, 2004, stockholders
approved an increase in the number of shares  reserved  for  issuance  under the
2002 Stock Award Plan by 2,500,000. As of December 31, 2006, 4,600,000 shares of
the Company's  common stock are reserved for issuance under the 2002 Stock Award
Plan.  Following  the  establishment  of  the  Foamex  International  Inc.  2007
Management  Incentive Plan on February 12, 2007 (discussed  below),  the Company
does not intend to grant any additional options from the 2002 Stock Award Plan.

     The 2002 Stock  Award Plan also  provides  for stock  appreciation  rights,
restricted  stock,  phantom  stock units,  performance  share units and/or stock
bonuses, although none of these awards have been issued. Of the 4,600,000 shares
of the Company's common stock reserved under the 2002 Stock Award Plan,  500,000
of these shares are  available  for awards of  restricted  stock,  phantom stock
units, performance share units and/or stock bonuses.

     The 1993 stock option  plan,  as amended,  (the "1993 Stock  Option  Plan")
provided for the issuance of nonqualified and incentive stock options for common
stock of the Company.  Officers and  executives  of the Company,  including  its
subsidiaries  and  affiliates  were eligible to  participate.  During the fourth
quarter of 2003, the 1993 Stock Option Plan expired  according to the provisions
of the plan. Consequently, no further options can be granted under the plan. The
1993 Stock Option Plan  provided  for the issuance of up to 4,750,000  shares of
the Company's common stock.

     The  Foamex  International  Inc.  2007  Management  Incentive  Plan  became
effective on February 12, 2007 (the "2007 Plan"). The 2007 Plan provides for the
issuance of stock incentive  awards,  including  options and stock  appreciation
rights,  for up to 9,300,000  shares of common stock. No awards have been issued
as of March 23, 2007.

     The price and terms of options under the plans  discussed  above are at the
discretion of the Company,  except that the term of the option cannot exceed ten
years.

     Option Grants

     There were no option grants in 2006.

     Options granted in 2005 included the following terms:

     o    770,000 options with a three-year vesting period and a six-year term.
     o    70,000 options with a five-year vesting period and a ten-year term.

     Options granted in 2004 included the following terms:

     o    805,500 options with a three-year vesting period and a six-year term.
     o    83,334 options with a five-year vesting period and a ten-year term.

     Option Modifications

     As provided in a severance  agreement during 2005, the Company extended the
exercise  period for 15,834  options up to 180 days beyond the  exercise  period
provided  for  at  issuance.  The  Company  recognized  a  deminimis  amount  of
compensation  expense in connection  with this  modification  for options with a
fair market value greater than the exercise price on the modification date.


                                      F-31
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


14.  ACCOUNTING FOR STOCK BASED COMPENSATION (continued)

     As provided in a severance  agreement during 2004, the Company extended the
exercise period for 81,000 options for up to one year beyond the exercise period
provided at issuance.  The Company did not recognize any compensation expense in
connection  with this  modification  because the fair market value was less than
the exercise price on the modification date.

     The following table includes the activity for 2006.


<TABLE>
<CAPTION>
                                                                                          Weighted
                                                                            Weighted      Average       Aggregate
                                                                            Average       Remaining     Intrinsic
                                                                            Exercise      Contractual      Value
                                                                   Shares     Price          Term      (thousands)
                                                                ----------- ---------     -----------  ------------
<S>                                                              <C>           <C>
Outstanding at beginning of period                               3,620,767     $4.30
Granted at option prices equal to fair market value                      -         -
Exercised                                                         (649,487)    $3.09
Forfeited/expired                                               (1,641,566)    $4.32
                                                                ----------     -----
Outstanding at end of period                                     1,329,714     $4.86        3.9 years    $1,479

Exercisable at end of period                                       620,517     $6.90        3.9 years       $33

Options vested and expected to vest                              1,280,553     $4.94        3.9 years    $1,374
</TABLE>

     For 2006,  the  aggregate  intrinsic  value from option  exercises was $1.0
million.  Cash proceeds from options  exercised was $1.8 million and proceeds in
the form of shares of the Company's  common stock  aggregated $0.2 million.  The
tax benefit related to option exercises was $0.4 million. Comparable amounts for
2005 and 2004  exercises  were not  significant.  Common  stock issued for stock
options exercised were from authorized and unissued shares.

     Total  unrecognized  compensation  cost  related to unvested  stock  option
awards was $0.3  million at December  31, 2006 and is expected to be  recognized
over a weighted-average period of 1.5 years.

     15.  INCOME TAXES

     The sources of income (loss) from continuing operations before income taxes
and the cumulative effect of an accounting change are shown below.

<TABLE>
<CAPTION>
                                                       2006           2005            2004
                                                      -------       --------       --------
                                                                   (thousands)
<S>                                                   <C>           <C>            <C>
     United States                                    $16,562       $(33,657)      $(20,612)
     Foreign                                           (4,767)       (11,312)          (256)
                                                      -------       --------       --------
     Income (loss) from continuing operations
       before income taxes                            $11,795       $(44,969)      $(20,868)
                                                      =======       ========       ========
</TABLE>

     A reconciliation of the statutory federal income tax provision (benefit) to
income tax provision (benefit) is shown below.

<TABLE>
<CAPTION>
                                                       2006           2005            2004
                                                      -------       --------       --------
                                                                   (thousands)
<S>                                                   <C>           <C>            <C>
    Statutory income tax provision (benefit)          $ 4,128       $(15,739)      $ (7,304)
    State income taxes, net of federal benefit          1,159            (45)          (918)
    Increase (decrease) in valuation allowance         (7,954)          (426)       132,884
    Nondeductible goodwill impairment                       -         12,500              -
    Nondeductible bankruptcy costs                      3,373          3,094              -
    Foreign tax reserves no longer required            (1,135)        (2,083)             -
    Foreign tax rate differential                         (31)           285             12
    Other, net                                            (93)           142            661
                                                      -------       --------       --------
    Provision (benefit) for income taxes              $  (553)      $ (2,272)      $125,335
                                                      =======       ========       ========
</TABLE>

                                      F-32
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     15.  INCOME TAXES (continued)

       The provision (benefit) for income taxes is summarized as follows:

<TABLE>
<CAPTION>
                                                       2006           2005            2004
                                                      -------       --------       --------
     Current                                                       (thousands)
<S>                                                   <C>           <C>            <C>
       Federal                                        $  363        $      -       $      -
       State                                              38               -             19
       Foreign                                        (1,784)         (1,698)           577
                                                      ------        --------       --------
         Total current                                (1,383)         (1,698)           596
                                                      ------        --------       --------

     Deferred
       Federal                                         8,884            (536)        (8,825)
       State                                           1,159            (186)        (1,135)
       Foreign                                        (1,259)         (2,968)           (38)
                                                      ------        --------       --------
         Total deferred                                8,784          (3,690)        (9,998)
                                                      ------        --------       -------

     Change in valuation allowance                    (7,954)          3,116        134,737
                                                      ------        --------       --------

     Provision (benefit) for income taxes             $ (553)       $ (2,272)      $125,335
                                                      ======        ========       ========
</TABLE>

     The tax  effect of the  temporary  differences  that give rise to  deferred
income tax assets and liabilities are listed below.

<TABLE>
<CAPTION>
                                                                     December 31,         January 1,
                                                                         2006                 2006
                                                                     ------------         ----------
     Deferred tax assets                                                        (thousands)
<S>                                                                   <C>                  <C>
       Inventory basis differences                                    $  3,586             $  3,210
       Employee benefit accruals                                        19,946               25,171
       Allowances and other liabilities                                 15,605               15,673
       Restructuring and plant closing accruals                            372                1,129
       AMT credit carryforward                                           1,131                  732
       Net operating loss carryforwards                                109,434              110,335
       Capital loss carryforwards                                          189                  196
       Other                                                             2,157                4,251
       Valuation allowance for deferred income tax assets             (134,737)            (144,743)
                                                                      --------             --------
       Deferred income tax assets                                       17,683               15,954
                                                                      --------             --------

     Deferred tax liabilities
       Basis difference in property, plant and equipment                (4,281)              (5,522)
       Intangibles                                                     (10,740)              (7,826)
       Other                                                            (3,419)              (3,696)
                                                                      --------             --------
       Deferred tax liabilities                                        (18,440)             (17,044)
                                                                      --------             --------
     Net deferred tax liabilities                                     $   (757)            $ (1,090)
                                                                      ========             ========
</TABLE>

     During the third  quarter of 2004,  the  Company  established  a  valuation
allowance of $128.6 million for its U.S. deferred tax assets. As a result of its
evaluation  of the  realizability  of  its  deferred  tax  assets  conducted  in
accordance with SFAS No. 109, the Company determined that it was not likely that
it would be able to generate sufficient amounts of future U.S. taxable income to
utilize its net operating  loss  carryforwards  and realize  other  deferred tax
assets.  The  uncertainty  of then current  economic  conditions,  including the
escalating  cost of chemical  feedstocks,  in part due to increases in crude oil
prices and their  volatility,  combined  with the  Company's  limited  near term
ability to timely recover material cost increases from its customers,  adversely
impacted the Company's forecast of future U.S. taxable income. Net U.S. deferred
tax assets generated since the establishment of the valuation  allowance in 2004
have been subject to a full valuation allowance.


                                      F-33
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


15. INCOME TAXES (continued)

     The  American  Jobs  Creation  Act of 2004  introduced  a special  one-time
dividends  received  deduction on the repatriation of certain foreign  earnings.
Following a review by the Company,  no earnings from foreign  subsidiaries  were
repatriated to utilize the special deduction.

     The  Company  has  U.S.  net  operating  loss  carryforwards   ("NOLs")  of
approximately  $288.7  million at December 31, 2006  expiring from 2011 to 2025.
Approximately  $95.0  million of the NOLs expire in the years 2011 and 2012 with
the remainder  principally  expiring in the 2018-2025  period. In June 2001, the
Company had an ownership change as defined in IRC Section 382 and,  accordingly,
the Company is limited (on an annual  basis) to  approximately  $21.0 million of
NOL utilization for approximately $57.0 million of its U.S. NOLs. The balance of
approximately  $231.7 million of NOLs are currently not subject to limitation on
their  utilization.  The Company does not believe that it has had any additional
ownership change,  including at or near the Effective Date of the Plan. If it is
determined  that an  additional  ownership  change  under  IRC  Section  382 has
occurred,  the Company  does not expect the amount of any  limitation  to have a
significant impact on its cash flows or financial position.

     At December 31, 2006,  the Company had $5.0 million of net  operating  loss
carryforwards in a Mexican  subsidiary that expire in 2007 through 2016 and $3.9
million of net operating loss carryforwards in a Canadian subsidiary that expire
in 2016.  A full  valuation  allowance  has  been  recorded  due to  uncertainty
regarding utilization of these net operating loss carryforwards.

     At December  31,  2006,  deferred  income  taxes have not been  provided on
undistributed earnings of foreign subsidiaries since such earnings are deemed to
be permanently reinvested. To the extent such earnings would be repatriated, the
Company expects any incremental tax to be substantially offset by available U.S.
NOLs.

     16.  STOCKHOLDERS' DEFICIENCY

Preferred Stock

     At December  31,  2006,  the Company  had 5.0 million  shares of  preferred
stock, par value of $1.00 per share,  authorized for issuance.  In 2000,  15,000
shares of Series B Preferred Stock were issued in exchange for 1,500,000  shares
of common stock.  Series B Preferred  Stock is  non-voting,  non-redeemable  and
convertible  into 100  shares of the  Company's  common  stock.  The  conversion
feature  is only  available  if the  conversion  would not  trigger a "change of
control"  event.  The Series B  Preferred  Stock is  noncumulative  and would be
entitled to  dividends  only if a dividend is declared on the  Company's  common
stock.  It ranks senior to any future  preferred stock issued by the Company and
is entitled to a liquidation  preference of $100 per share.  No other  preferred
shares have been  issued.  The 15,000  shares of Series B  preferred  stock were
converted  into  1,500,000  shares of common stock at the effective  date of the
Plan. On February 9, 2007,  the Company  adopted its second amended and restated
certificate of incorporation  increasing the authorized  preferred shares to 7.0
million.

Common Stock

     At December 31, 2006,  the Company had 50.0 million shares of common stock,
par value $.01 per share,  authorized  and there were 25.1 million shares issued
and  outstanding  and 4.8 million  shares of common stock reserved for potential
issuance  in  connection  with  stock  option  plans,  discussed  in Note 14. On
February  9,  2007,  the  Company   adopted  its  second  amended  and  restated
certificate of  incorporation  increasing the authorized  common shares to 193.0
million.  The  Company  issued  68.2  million  shares on  February  12,  2007 in
connection  with its rights  offering and the  conversion  of Series B Preferred
Stock.  As of February  12,  2007,  the Company has  approximately  93.3 million
common shares  outstanding.  There were no cash dividends paid by the Company on
its common stock during the past three fiscal  years.  The payment of any future
dividends  will be  determined  by the Board of Directors in light of conditions
then  existing,  including  the  Company's  earnings,  financial  condition  and
requirements,  restrictions  in financing  agreements,  business  conditions and
other factors. The Company is a holding company


                                      F-34
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.  STOCKHOLDERS' DEFICIENCY (continued)

whose assets  consist  primarily  of its  wholly-owned  subsidiary,  Foamex L.P.
Consequently,  the  Company's  ability to pay  dividends is  dependent  upon the
earnings  of Foamex  L.P.  and any future  subsidiaries  of the  Company and the
distribution  of those  earnings  to the Company and loans or advances by Foamex
L.P. and any such future subsidiaries to the Company. The ability of Foamex L.P.
to make distributions is restricted by the terms of its financing agreements and
by the bankruptcy  cases. Due to such  restrictions,  the Company is expected to
have only  limited  access to the cash flow  generated  by Foamex  L.P.  for the
foreseeable future.

Treasury Stock

     The Board of  Directors  has  authorized  the  purchase of up to  3,000,000
shares of the Company's  common stock;  however,  the Company's debt  agreements
limit its  ability to  purchase  its common  stock.  As of  December  31,  2006,
1,989,000  shares  had been  purchased  under this  program.  All  purchases  of
treasury  stock were prior to 1998.  During 2006,  the Company  received  51,796
shares of common stock in payment for an employee stock option exercise.

Accumulated Other Comprehensive Loss

     The components of accumulated other comprehensive loss are listed below.

<TABLE>
<CAPTION>
                                                         December 31,     January 1,      January 2,
                                                             2006            2006            2005
                                                         ------------     ---------      ----------
                                                                        (thousands)
<S>                                                       <C>              <C>           <C>
     Foreign currency translation adjustment              $    573         $ (1,342)     $  (1,219)
     Minimum pension liability (a) (b)                     (32,943)         (35,312)       (34,076)
                                                          --------         ---------      ---------
                                                          $(32,370)        $(36,654)      $(35,295)
                                                          ========         ========       ========
</TABLE>

(a)  Net of income tax benefit of $16.9 million, $16.8 million and $17.0 million
     at December 31, 2006, January 1, 2006 and January 2, 2005, respectively.

(b)  The  December 31, 2006 balance  includes an increase in  accumulated  other
     comprehensive loss of $7.4 million to adopt SFAS No. 158.

Series A Preferred Stock

     On August 5,  2004,  the  Board of  Directors  of the  Company  declared  a
dividend of one right to purchase Series A preferred  stock, par value $1.00 per
share for each  outstanding  share of common  stock,  par value $0.01 per share,
payable on August 23, 2004 to the stockholders of record on August 16, 2004. The
Board of  Directors  declared  these  rights  under a  stockholder  rights plan,
commonly  referred to as a "poison pill," to protect  stockholders from coercive
or otherwise  unfair takeover  tactics.  The rights would not interfere with any
merger or other  business  combination  approved by the Board of Directors.  The
rights  would have  become  exercisable  only if a person or group  beneficially
acquired  20% or more of the  stockholder  voting  power of the  Company or if a
person or group announced a tender offer, which, if consummated, would result in
such person or group  beneficially  owning 20% or more of such voting power,  in
either case  without  the  approval of the Board of  Directors.  Unless  earlier
redeemed,  exercised  or  exchanged,  the Rights would have expired on August 4,
2014.  Under the Plan, the stockholder  rights plan was cancelled as of February
12, 2007 and no shares of the authorized  Series A Preferred  Stock have been or
will be issued.  The  Company's  Second  Amended  and  Restated  Certificate  of
Incorporation does not include any authorization of Series A Preferred Stock.

17.  BUSINESS SEGMENTS

     The  reportable   business   segments  reflect  the  Company's   management
organization that is structured based on distinct product lines and customers.

                                      F-35
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


17.  BUSINESS SEGMENTS (continued)

     An executive vice president  heads each operating  segment.  Each executive
vice  president  is  responsible  for  developing  budgets  and plans as well as
directing  the  operations of the segment.  The  performance  of each  operating
segment is measured  based upon income from  operations,  excluding  impairment,
restructuring  and other  charges.  The Company  does not  allocate  impairment,
restructuring  and other  charges  to  operating  segments  because  many of the
Company's facilities produce products for multiple segments.

     Foam  Products  manufactures  and  markets  cushioning  foams for  bedding,
furniture,  recreational  and consumer  applications.  Carpet  Cushion  Products
manufactures  and  distributes  rebond  and  prime  carpet  padding.  Automotive
Products  supplies  foam  products and laminates to major tier one suppliers and
original equipment  manufacturers.  Technical Products  manufactures and markets
reticulated  and  other  specialty  foams  used  for  reservoiring,  filtration,
gasketing and sealing applications.

     The "other"  column in the table below  represents  corporate  expenses not
allocated to other business segments, restructuring charges, impairment charges,
and  gains on  sales of  assets.  As of  January  2,  2006,  responsibility  for
manufacturing operations in Mexico City was assumed by Automotive Products. Data
in the table below for the  Automotive  Products and Other Segments for 2005 and
2004 have been adjusted for  comparative  purposes.  In addition,  2005 and 2004
have been adjusted to remove the  discontinued  operations  (see Note 10). Asset
and capital expenditure  information by business segment is not reported because
many  of  the  Company's  facilities  produce  products  for  multiple  business
segments.

     The accounting  policies of the business segments are the same as described
in Note 2.  Business  segment  results  include  revenues  and  costs  that  are
specifically  identifiable  and costs  shared  by  business  segments  have been
allocated based on utilization.

     Sales to one customer, which are included in Automotive Products, accounted
for  approximately  9.3%,  10.9% and 12.9% of net sales in 2006,  2005 and 2004,
respectively.  No other  customer  accounted  for more  than  10.0% of net sales
during the periods presented.

     Business segment results are presented below.

<TABLE>
<CAPTION>
                                              Carpet
                                   Foam       Cushion       Automotive      Technical
                                 Products     Products       Products        Products        Other         Total
                                 --------     --------     -----------     -----------   ----------  ------------
2006                                                        (thousands)
<S>                              <C>          <C>            <C>            <C>          <C>         <C>
Net sales                        $577,458     $206,315       $429,695       $143,448     $    267    $1,357,183
Income (loss) from operations    $114,266     $  7,820       $ 25,554       $ 38,548     $(66,088)   $  120,100
Depreciation and amortization    $  6,206     $    993       $  3,855       $  2,520     $  4,948    $   18,522

2005
Net sales                        $584,870     $178,268       $393,144       $127,712     $ (1,020)   $1,282,974
Income (loss) from operations    $ 67,564     $  1,820       $ 17,451       $ 32,749     $(78,046)   $   41,538
Depreciation and amortization    $  7,115     $  2,277       $  4,272       $  2,318     $  3,921    $   19,903

2004
Net sales                        $510,995     $209,182       $381,111       $124,146     $    541    $1,225,975
Income (loss) from operations    $ 57,148     $  8,539       $ 19,046       $ 32,916     $(61,132)   $   56,517
Depreciation and amortization    $  9,455     $  2,978       $  4,705       $  2,801     $  5,235    $   25,174
</TABLE>


                                      F-36
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.  BUSINESS SEGMENTS (continued)

     Geographical information is presented below.

<TABLE>
<CAPTION>
                                              United
                                              States           Canada      Mexico*        China      Consolidated
                                            ----------        -------     -------         ------     ------------

2006                                                                           (thousands)
<S>                                         <C>               <C>         <C>              <C>       <C>
Net sales                                   $1,103,776        $34,405     $219,002         $  -      $1,357,183
Property, plant and equipment, net          $   92,177        $   683     $ 14,033         $101      $  106,994

2005
Net sales                                   $1,015,131        $62,976     $204,867         $  -      $1,282,974
Property, plant and equipment, net          $   97,815        $ 1,594     $ 13,824         $  -      $  113,233

2004
Net sales                                   $  968,683        $59,435     $197,857         $  -      $1,225,975
Property, plant and equipment, net          $  120,578        $ 5,100     $ 15,865         $  -      $  141,543
</TABLE>

*    Includes four plants along the U.S. border whose operations are included in
     Automotive Products in the business segment results.

18.    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

                                                 2006        2005         2004
                                               -------     -------      -------

                                                        (thousands)
Cash paid for interest                         $33,623     $50,829      $73,218
                                               =======     =======      =======

Cash paid for income taxes, net                $ 1,139     $   505      $   120
                                               =======     =======      =======

Non cash - capital leases                      $    52     $   665      $    49
                                               =======     =======      =======

19.  RELATED PARTY TRANSACTIONS AND BALANCES

Trace Promissory Notes

     On July 1, 1997, Trace International  Holdings,  Inc. ("Trace"),  which was
formerly a major stockholder of the Company, borrowed $5.0 million pursuant to a
promissory  note with an aggregate  principal  amount of $5.0 million  issued to
Foamex L.P. on June 12, 1997. The promissory  note was due and payable on demand
or, if no demand was made,  on July 7, 2001,  and bears  interest at 2 3/8% plus
three-month LIBOR, as defined, per annum payable quarterly in arrears commencing
October 1, 1997. On June 12, 1997, another promissory note issued to Foamex L.P.
by Trace in July 1996 was amended.  The amended  promissory note is an extension
of a promissory note of Trace that was due in July 1997. The aggregate principal
amount of the  amended  promissory  note was  increased  to  approximately  $4.8
million and the maturity of the promissory note was extended.  The principal was
reduced by approximately $0.6 million relating to a portion of the proceeds from
the sale of a  corporate  aircraft  in  1999.  The  promissory  note was due and
payable on demand or, if no demand was made, on July 7, 2001, and bears interest
at 2 3/8% plus  three-month  LIBOR, as defined,  per annum payable  quarterly in
arrears.

     The  Trace  notes are  included  in the other  component  of  stockholders'
deficiency.  Based on Trace's bankruptcy filing and financial  condition,  it is
not  probable  that  Trace  will be able to pay  the  aggregate  amount  of $9.2
million. Upon conclusion of the Trace bankruptcy  proceedings,  the Company will
charge the uncollected  portion of the Trace notes to accumulated  deficit.  The
Company  has not  recorded  any  interest  income on these notes since the Trace
bankruptcy.

Trace Accounts Receivable

     At December  31, 2006 and January 1, 2006,  operating  accounts  receivable
from Trace were approximately $3.2 million. These accounts receivable were fully
reserved prior to 2002.


                                      F-37
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


19.  RELATED PARTY TRANSACTIONS AND BALANCES (continued)

Other

     Effective June 7, 2006, the Company's  President,  Chief Executive Officer,
and member of the Board of Directors, resigned his positions by mutual agreement
with the Company's Board of Directors. As part of the Severance Plan approved by
the  Bankruptcy  Court,  the Company  offered the executive  approximately  $0.9
million  in  severance-related  payments.  The  Company is  currently  defending
litigation  in its  chapter 11 case with  respect to this  separation,  in which
damages of  approximately  $2.5 million are being sought according to a proof of
claim filed with the Bankruptcy Court.

     Effective  February 10, 2004, the Company's  Chairman resigned his position
by mutual  agreement with the Company's  Board of Directors.  In connection with
this  resignation,  the Company  entered  into a separation  agreement  with the
former Chairman and recorded a one-time charge of approximately  $1.4 million in
the first  quarter of 2004 for amounts  payable  under this  agreement,  none of
which related to past service rendered by the former Chairman. Additionally, the
Company  recorded the reversal of  approximately  $1.4 million  reflected on the
balance sheet as of December 28, 2003 related to various  retirement  provisions
contained in an employment agreement with the Company that are no longer payable
to the  former  Chairman  under  the  terms  of the  separation  agreement.  The
separation  agreement was rejected by the Company  effective as of September 30,
2005  pursuant  to  Section  365 of the  Bankruptcy  Code and as a result of the
rejection,  the Company has no further  obligations to the former Chairman under
the separation agreement.

     The Company,  Recticel  s.a.  ("Recticel"),  a European  polyurethane  foam
manufacturer,  and Beamech Group Limited,  an unaffiliated  third party, have an
interest in a Swiss corporation that develops new  manufacturing  technology for
the production of polyurethane foam including the VPF(SM) manufacturing process.
The Company  purchases  scrap foam from  Recticel for use in its carpet  cushion
manufacturing business. Purchases aggregated $5.2 million, $1.1 million and $0.1
million  in 2006,  2005 and  2004,  respectively.  Recticel  and  affiliates  of
Recticel are former shareholders of the Company.

     During 2001,  the Company  entered into an agreement  that  guarantees  two
non-recourse  promissory  notes,  totaling  $0.7  million,  payable to a foreign
affiliate that the Company accounts for under the equity method.  The promissory
notes were issued to a former  director of the Company and a former  employee of
Foamex L.P. The Company established an accrual of $0.3 million in 2004 since the
promissory  notes are  non-recourse.  In 2005, the Company accrued the remaining
amount of the guarantee,  including  accrued  interest,  upon termination of the
former employee's contract.

20.  COMMITMENTS AND CONTINGENCIES

Operating Leases

     The Company is  obligated  under  various  lease  agreements  for rental of
facilities,  vehicles and other  equipment.  Many of the leases contain  renewal
options with varying  terms and  escalation  clauses that provide for  increased
rentals based upon increases in the Consumer Price Index,  real estate taxes and
lessors' operating  expenses.  Total minimum rental  commitments  required under
operating leases at December 31, 2006 are (thousands):

       2007                                  $14,549
       2008                                   11,845
       2009                                    9,101
       2010                                    7,324
       2011                                    5,559
       Balance                                 9,648
                                             -------
       Total                                 $58,026
                                             =======


                                      F-38
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

20.  COMMITMENTS AND CONTINGENCIES (continued)

     Rental expense charged to operations  under operating  leases  approximated
$14.8  million,  $18.3  million  and  $19.3  million  in 2006,  2005  and  2004,
respectively.  Substantially  all such rental  expense  represented  the minimum
rental payments under operating leases.

Contractual Commitments

     The Company has entered into contracts for information  technology services
and certain raw materials that have minimum  purchase  commitments  estimated at
$111.2  million in 2007,  $34.1  million  in 2008 and $30.0  million in 2009 and
2010.  In addition,  the Company paid fees  aggregating  $5.9 million to certain
financial  advisors  upon  emergence  from  bankruptcy  on  February  12,  2007.
Additional  claims for financial  advisory fees aggregating  approximately  $2.9
million are being negotiated.

Litigation

     The Company is party to various lawsuits,  both as defendant and plaintiff,
arising in the normal course of business.  It is the opinion of management  that
the  disposition of these lawsuits will not,  individually  or in the aggregate,
have a material adverse effect on the Company's financial position or results of
operations.  If management's  assessment of the Company's  liability relating to
these actions is incorrect,  these actions could have a material  adverse effect
on the Company's consolidated financial position, results of operations and cash
flows.

     In July 2001, Foamex L.P.  purchased certain assets, but did not assume any
liabilities,  related to the  manufacture  and sale of a variety of polyurethane
products from a group of sellers,  including  General Foam Corporation  ("GFC").
PMC,  Inc.  ("PMC"),  the  parent of GFC,  served as  guarantor  under the asset
purchase  agreement  memorializing  the sale. The guarantee,  for the benefit of
Foamex L.P.,  covered the  performance of all terms,  conditions,  covenants and
indemnities  required to be performed by the sellers  (including  GFC) under the
agreement.


     Foamex L.P. is party to certain disputes  relating to a fire at a nightclub
in West Warwick, Rhode Island in February 2003. The fire destroyed the nightclub
killing 100 persons and injuring over 100 others. Foamex L.P. and several of its
affiliates are named as defendants, along with more than 50 other defendants, in
certain  litigation  concerning  the fire.  The  ensuing  litigation  comprising
numerous cases has been  consolidated in a single case, Gray v. Derderian,  Case
No. 04-312L (the "Litigation"),  before the United States District Court for the
District  of Rhode  Island.  Plaintiffs  have also filed  proofs of claim in the
Company's  bankruptcy  cases.  Foamex L.P. is named in these cases  solely as an
alleged  successor to GFC, a defendant in the  Litigation.  In addition to other
foam  manufacturing  defendants  in the  Litigation,  GFC  is  alleged  to  have
manufactured  and sold  polyurethane  foam to a foam fabricator in Rhode Island.
The  foam  fabricator  is  alleged  to have  then  sold the foam at issue to the
nightclub.  The foam was among other building  materials  alleged to have caught
fire when pyrotechnics were set off inside the nightclub.

     The Litigation is in its early stages.  The Company believes that there are
multiple  defenses to (i) the claims  against GFC, and (ii) the successor  claim
against Foamex L.P. The Company intends to continue vigorously  defending Foamex
L.P. in the  Litigation.  The Company also believes  that, if GFC is held liable
for monetary damages in the Litigation, GFC is unable to satisfy that obligation
and Foamex  L.P. is found to have  liability  as a  successor  to GFC,  there is
likely  to be  adequate  insurance  available  to  Foamex  L.P.  to  cover  such
liability. However, there can be no assurance that the defenses available to GFC
or to Foamex L.P. as an alleged successor will prevail.  In addition,  there can
be no  assurance  that,  if GFC is  held  liable  for  monetary  damages  in the
Litigation, GFC will be able to satisfy that obligation through its insurance or
assets  or that  the  liability  insurance  available  to  Foamex  L.P.  will be
sufficient  to cover any  potential  liability to Foamex L.P.,  if it were to be
found to be a successor to GFC.

     Foamex  L.P.  incurred  fees and costs in  defense  of the  Litigation  and
neither GFC nor PMC honored the Company's demand for reimbursement of those fees
and costs, as was agreed to under the asset purchase  agreement.  Therefore,  in
November 2005, the Company filed an adversary  proceeding  against PMC alleging,
among other

                                      F-39
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


20.  COMMITMENTS AND CONTINGENCIES (continued)

claims,  that PMC breached its obligations under the asset purchase agreement by
failing to reimburse  Foamex L.P. for the fees and costs  related to the defense
of the Litigation (the "PMC Litigation").

     On  October  4,  2006,  the  parties  to the  PMC  Litigation  agreed  to a
settlement of the PMC Litigation.  The settlement resolves the PMC Litigation in
its entirety  and will result in the  recovery of the vast  majority of the fees
and costs  expended thus far defending the  Litigation and up to an aggregate of
$2.5 million in total fees and costs, but does not settle any disputes as to any
PMC  obligations  under the indemnity  for the  underlying  liability,  which is
subject to the same $2.5 million  indemnity  cap. The settlement was approved by
the Bankruptcy Court on October 19, 2006.

     As of December 31, 2006, the Company had accrued approximately $1.9 million
for litigation and other legal matters in addition to the environmental  matters
discussed below.

Environmental and Health and Safety

     The Company is subject to extensive and changing federal,  state, local and
foreign environmental laws and regulations, including those relating to the use,
handling, storage, discharge and disposal of hazardous substances, the discharge
or  emission  of  materials  into  the  environment,   and  the  remediation  of
environmental  contamination,  and as a result, is from time to time involved in
administrative and judicial  proceedings and inquiries relating to environmental
matters. As of December 31, 2006, the Company had accruals of approximately $1.7
million for environmental matters,  including approximately $1.6 million related
to  remediating   and  monitoring  soil  and   groundwater   contamination   and
approximately  $0.1 million  related to a site where it has been designated as a
PRP.  Additional losses, if any, in excess of amounts currently accrued,  cannot
be reasonably  estimated at this time. If there are additional matters or if our
current estimates are incorrect, there could be a material adverse effect on the
Company's financial position, results of operations and cash flows.

     The Company has reported to the appropriate  state  authorities that it had
found soil and/or  groundwater  contamination  in excess of state  standards  at
certain  locations.  Following the  emergence  from  bankruptcy,  five sites are
currently in various stages of  investigation or remediation.  Accordingly,  the
extent of contamination  and the ultimate  liability is not known with certainty
for all sites.

     The Company has either upgraded or closed all underground  storage tanks at
its facilities in accordance with applicable regulations.

     The Comprehensive  Environmental  Response,  Compensation and Liability Act
("CERCLA")  and  comparable  state laws impose  liability  without fault for the
costs of  cleaning  up  contaminated  sites on certain  classes of persons  that
contributed to the release of hazardous substances into the environment at those
sites, for example, by generating wastes containing  hazardous  substances which
were disposed at such sites.  The Company is currently  designated as a PRP with
respect to one site following the emergence from bankruptcy.  Estimates of total
cleanup costs and fractional  allocations of liability are often provided by the
EPA, the state environmental agency or the committee of PRPs with respect to the
specified site. Based on these estimates (to the extent  available) and on known
information,  in each case and in the  aggregate,  the  Company  does not expect
additional costs, if any, to be material to liquidity,  results of operations or
financial position.

     The  possibility   exists  that  new   environmental   legislation   and/or
environmental  regulations may be adopted,  or other  environmental  conditions,
including the presence of previously unknown environmental contamination, may be
found  to  exist  or  a  reassessment  of  the  potential  exposure  to  pending
environmental  matters  may  be  necessary  due  to new  information  or  future
developments,  that may require expenditures not currently  anticipated and that
may be material.


                                      F-40
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


21.  QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                First           Second         Third           Fourth
                                               Quarter          Quarter        Quarter          Quarter
                                               --------         --------       --------        ----------
                                                           (thousands, except per share amounts)
     2006
<S>                                            <C>              <C>            <C>            <C>
       Net sales                               $365,947         $344,899       $335,661       $310,676
       Gross profit                            $ 61,116         $ 47,354       $ 56,623       $ 42,243
       Net income (loss)                       $ 17,050         $(13,246) (a)  $  7,395       $  1,149 (b)

       Income (loss) per share (c)
         Basic                                 $   0.46         $  (0.36)      $   0.20       $   0.03
         Diluted                               $   0.45         $  (0.36)      $   0.19       $   0.03

     2005
       Net sales                               $325,850         $307,218       $314,788       $335,118
       Gross profit                            $ 28,382         $ 14,456       $ 19,885       $ 65,970
       Net income (loss)                       $(10,854)        $(14,666) (d)  $(49,592) (e)  $ 18,868 (f)

       Income (loss) per share (c)
         Basic                                 $  (0.30)        $  (0.40)      $  (1.35)      $   0.51
         Diluted                               $  (0.30)        $  (0.40)      $  (1.35)      $   0.49
</TABLE>

(a)  Includes  an accrual of $12.8  million of  interest  on  subordinated  debt
     applicable  to the period from  September 19, 2005 through April 2, 2006 as
     the Company  concluded  during the quarter that such  interest  would be an
     allowed claim in its bankruptcy case.

(b)  Includes a charge of $4.6  million to adjust  the  carrying  value of scrap
     inventory to net realizable value.

(c)  Per share data has been adjusted for all periods presented  pursuant to the
     rights offering under the Plan.

(d)  Includes a gain of $29.7  million on the sale of the  Company's  rubber and
     felt carpet cushion businesses and goodwill and asset impairment charges of
     $24.0 million.

(e)  Includes goodwill and asset impairment charges of $25.3 million.

(f)  Includes a charge of $3.5 million for the cumulative  effect of a change in
     accounting principle.


22.  SUBSEQUENT EVENT

     On March 8, 2007,  the Company  announced  that its Board of Directors  had
authorized,  and holders of a majority of its common  shares had consented to, a
reverse  stock  split at a ratio of one for four.  The  reverse  stock  split is
expected to become effective during the second quarter of 2007.

     The  total  number  of  authorized  common  shares  and par  value  will be
unchanged by this action. The reverse stock split, when effective,  will require
retroactive restatement of all historical share and per share data.

     All  references  to the  number of  shares  and per  share  amounts  in the
accompanying  consolidated  financial  statements  are presented  without giving
effect to the reverse stock split.

     The Company's  historical  earnings  (loss) per share on a pro forma basis,
assuming  the reverse  stock split had  occurred on the first day of fiscal 2004
would be as follows:

                                              2006        2005       2004
                                            --------   ----------  --------

    Basic:
      Continuing operations                  $1.34      $(4.65)     $(15.97)
      Discontinued operations                    -       (1.10)       (0.51)
      Cumulative effect of accounting change     -       (0.38)           -
                                             -----      ------      -------
                                             $1.34      $(6.13)     $(16.48)
                                             =====      ======      =======

                                      F-41
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

22.  SUBSEQUENT EVENT (continued)

    Diluted:
      Continuing operations                       $1.28      $(4.65)   $(15.97)
      Discontinued operations                         -       (1.10)     (0.51)
      Cumulative effect of accounting change          -       (0.38)         -
                                                  -----      ------    -------
                                                  $1.28      $(6.13)   $(16.48)
                                                  =====      ======    =======



                                      F-42
<PAGE>

<




                           Foamex Asia Company Limited
                              and its Subsidiaries


                        Consolidated financial statements
                                       and
                   Audit Report of Certified Public Accountant


                       For the year ended 31 December 2006



                                      F-43
<PAGE>


                   Audit Report of Certified Public Accountant


To the Board of Directors of Foamex Asia Company Limited


     I have audited the accompanying  consolidated  balance sheet of Foamex Asia
Company  Limited and its  subsidiaries  as at 31 December  2006, and the related
consolidated statement of income, changes in shareholders' equity and cash flows
for the  year  then  ended.  These  consolidated  financial  statements  are the
responsibility of the Company's  management.  My responsibility is to express an
opinion on these financial statements based on my audit.

     I  conducted  my audit in  accordance  with  auditing  standards  generally
accepted in the United States of America.  Those  standards  require that I plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes consideration of
internal  control  over  financial  reporting  as a basis  for  designing  audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the  effectiveness  of the Company's  internal  control
over financial reporting.  Accordingly, I express no such opinion. An audit also
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by  management,  as well as evaluating the
overall  financial  statement  presentation.  I believe that my audit provides a
reasonable basis for my opinion.

     In my opinion  the  consolidated  financial  statements  referred  to above
present fairly, in all material respects,  the financial position of Foamex Asia
Company  Limited and its  subsidiaries as at 31 December 2006, and the result of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles in Thailand.

     Accounting  principles  generally  accepted  in  Thailand  vary in  certain
significant respects from accounting principles generally accepted in the United
States  of  America.  Information  relating  to the  nature  and  effect of such
differences  is  presented  in  Notes  27 and 28 to the  consolidated  financial
statements.




(Vairoj Jindamaneepitak)
Certified Public Accountant
Registration No. 3565


KPMG Phoomchai Audit Ltd.
Bangkok
29 March 2007


                                      F-44
<PAGE>


Foamex Asia Company Limited and its Subsidiaries
Consolidated balance sheet
As at 31 December 2006

Assets                                                  Note        (in Baht)

Current assets
Cash and deposits at financial institutions             5         216,025,550
Investment in fixed deposits                                       13,266,203
Trade and other accounts receivable, net                4, 6      430,923,920
Inventories, net                                        7         341,426,785
Advances to related parties                             4             347,488
Other current assets                                    8          41,860,088
                                                                -------------
Total current assets                                            1,043,850,034
                                                                =============

Non-current assets
Loans to directors                                      4, 9       30,318,863
Property and equipment                                  10        380,987,995
Intangible assets                                       11         19,646,728
Other non-current assets                                12         16,260,941
                                                                -------------
Total non-current assets                                          447,214,527
                                                                =============

Total assets                                                    1,491,064,561
                                                                =============




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


                                      F-45
<PAGE>


Foamex Asia Company Limited and its Subsidiaries
Consolidated balance sheet, continued
As at 31 December 2006

<TABLE>
<CAPTION>
Liabilities and shareholders' equity                                      Note         (in Baht)

Current liabilities
<S>                                                                       <C>        <C>
Bank overdrafts and short-term loans from financial institutions          13         215,108,441
Trade and other accounts payable                                          4, 14      175,256,937
Payable for equipment                                                                    605,497
Short-term loan from director                                             4           15,000,000
Advances from related parties                                             4           13,526,705
Current portion of long-term loan from financial institutions             13          37,500,000
Current portion of liabilities under finance
   lease and hire-purchase agreements                                                    818,369
Income tax payable                                                                    17,143,577
Other current liabilities                                                 15         106,675,630
                                                                                   -------------
Total current liabilities                                                            581,635,156

Non-current liabilities
Long-term loans from related parties                                      4          281,823,090
Liabilities under finance lease and hire-purchase agreements                             600,337
                                                                                   -------------
Total non-current liabilities                                                        282,423,427
                                                                                   -------------

Total liabilities                                                                    864,058,583

Shareholders' equity
Share capital                                                             16
   Authorized share capital                                                          105,000,000
                                                                                   -------------
   Issued and paid-up share capital                                                  105,000,000
Reserve                                                                   17
   Share premium                                                                      18,990,504
   Currency translation changes                                                      (25,970,496)
Retained earnings
   Appropriated
      Legal reserve                                                       17          10,500,000
   Unappropriated                                                                    518,485,970
                                                                                   -------------
Total shareholders' equity                                                           627,005,978

 Total liabilities and shareholders' equity                                        1,491,064,561
                                                                                   =============
</TABLE>




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



                                      F-46
<PAGE>



Foamex Asia Company Limited and its Subsidiaries
Consolidated statement of income
For the year ended 31 December 2006

                                                 Note             (in Baht)

Revenues
Sale of goods                                    23           2,083,283,581
Gain on foreign currency exchange                                15,513,170
Other income                                     18              17,674,181
                                                              -------------
Total revenues                                                2,116,470,932
                                                              -------------

Expenses
Cost of sales                                                 1,482,808,592
Selling and administrative expenses              4, 19          431,749,793
                                                              -------------
Total expenses                                                1,914,558,385
                                                              -------------

Profit before interest and income tax expenses                  201,912,547
Interest expense                                 4, 21           39,020,162
Income tax expense                                               23,905,849
                                                              -------------
Net profit                                                      138,986,536
                                                              =============

Basic earnings per share                         22                   13.24






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



                                      F-47
<PAGE>


Foamex Asia Company Limited and its Subsidiaries
Consolidated statement of changes in shareholders' equity
For the year ended 31 December 2006

<TABLE>
<CAPTION>
                                                                     Reserves                 Retained earnings
                                                           --------------------------   -----------------------------
                                            Issued and                     Currency                                        Total
                                              paid-up                     translation                                 shareholders'
                                     Note   share capital  Share premium    changes     Legal reserve  Unappropriated    equity
                                                                          (in Baht)
<S>                                       <C>               <C>           <C>            <C>          <C>            <C>
Balance as at 1 January 2006               105,000,000       18,990,504    18,023,198     10,500,000   379,499,434    532,013,136
Currency translation loss relating
    to foreign operations             17             -                -   (43,993,694)             -                  (43,993,694)
Net profit                                           -                -            -               -   138,986,536    138,986,536
                                           -----------       ----------   -----------     ----------   -----------    -----------
Balance as at 31 December 2006             105,000,000       18,990,504   (25,970,496)    10,500,000   518,485,970    627,005,978
                                           ===========       ==========   ===========     ==========   ===========    ===========
</TABLE>




                                      F-48
<PAGE>


Foamex Asia Company Limited and its Subsidiaries
Consolidated statement of cash flows
For the year ended 31 December 2006

                                                                    (in Baht)
Cash flows from operating activities
Net profit                                                         138,986,535
Adjustments to reconcile net income to net cash provided
   by operating activities
Interest income                                                     (8,844,915)
Interest expense                                                    39,020,162
Depreciation and amortization                                       66,777,979
Allowance for doubtful accounts                                      2,014,385
Unrealized gain on foreign exchange                                (67,974,249)
Allowance on impairment of property and equipment                    1,648,249
Allowance for decline in value and obsolescence of inventories       4,658,819
Gain on disposals of equipment                                      (1,368,280)
Income tax expense                                                  23,905,849
                                                                   -----------
                                                                   198,824,534

Changes in operating assets and liabilities
Trade and other accounts receivable                                (24,929,499)
Inventories                                                         (3,491,177)
Advances to related parties                                            (82,299)
Other current assets                                                 7,890,004
Other non-current assets                                              (690,557)
Trade and other accounts payable                                   (55,389,636)
Advances from related parties                                        7,437,607
Other current liabilities                                           (1,045,263)
Income tax paid                                                    (34,328,469)
                                                                   -----------
Net cash provided by operating activities                           94,195,245
                                                                   -----------

Cash flows from investing activities
Interest received                                                    8,393,445
Decrease in loans to employees                                       3,489,115
Purchases of property and equipment                                (60,767,063)
Increase in pledged deposits at financial institutions                (303,776)
Proceeds from disposal of property and equipment                     6,145,516
                                                                   -----------
Net cash used in investing activities                              (43,042,763)
                                                                   -----------




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


                                      F-49
<PAGE>


Foamex Asia Company Limited and its Subsidiaries
Consolidated statement of cash flows, continued
For the year ended 31 December 2006

                                                                    (in Baht)
Cash flows from financing activities
Interest paid                                                      (20,358,208)
Decrease in bank overdrafts and
   short-term loans from financial institutions                    (16,924,559)
Decrease in long-term loan from director                            (4,000,000)
Repayment of long-term loans from financial institutions           (37,500,000)
Decrease in liabilities under financial lease and
   hire-purchase agreements                                           (965,860)
                                                                   -----------
Net cash used in financing activities                              (79,748,627)
                                                                   -----------

Net decrease in cash and deposits at financial institutions        (28,596,145)
Cash and deposits at financial institutions at beginning of year   257,887,898
                                                                   -----------
Cash and deposits at financial insititutions at end of year        229,291,753

Supplementary disclosures of cash flows information
Cash and cash equivalents consisted of:
Cash and deposits with financial institutions                      216,025,550
Current investments due within three months                         13,266,203
                                                                   -----------
Total                                                              229,291,753



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


                                      F-50
<PAGE>


Foamex Asia Company Limited and its Subsidiaries
Notes to the consolidated financial statements
For the year ended 31 December 2006

Note            Contents

1        General information
2        Basis of preparation of the financial statements
3        Significant accounting policies
4        Related party transactions and balances
5        Cash and deposits at financial institutions
6        Trade and other accounts receivable
7        Inventories
8        Other current assets
9        Loans to directors
10       Property and equipment
11       Intangible assets
12       Other non-current assets
13       Interest - bearing liabilities
14       Trade and other accounts payable
15       Other current liabilities
16       Share capital
17       Reserves
18       Other income
19       Selling and administrative expenses
20       Personnel expense
21       Interest expense
22       Earnings per share
23       Promotional privileges
24       Commitments
25       Contingent liabilities
26       New and revised accounting standards not yet adopted
27       Significant differences between Thai GAAP and US GAAP
28       Additional disclosures to the consolidated financial statements
                required under US GAAP


                                      F-51
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the consolidated financial statements
For the year ended 31 December 2006

       These notes form an integral part of the financial statements.

       The financial statements were authorized for issue by the directors on 12
March 2007.

1      General information

       Foamex Asia Company Limited ("the Company") was incorporated in Thailand
       on 5 June 1997. The Company's Thailand operations are located at:

<TABLE>
<CAPTION>
<S>                      <C>                     <C>                                     <C>
       Head Office   :   175 Sathorn City Tower, 20th Floor, South Sathorn Road, Bangkok 10120

       Factory 1     :   665 Moo 2, Bangpoo, Muang Samutprakarn, Samutprakarn 10280

       Factory 2     :   133 Moo 1, Banpo, Bangpa-in, Ayuthaya 13160

       Factory 3     :   259 Moo 3, Tambol Tongsukla, Amphura Sriracha, Chonburi 20230
</TABLE>

       The Company also has a branch registered in the United States of America.

       The ultimate parent company during the financial year is Foamex Asia,
       Inc., incorporated in the United States of America (holding 70% of total
       share capital).

       The principal activities of the Company and the subsidiaries are the
       manufacture of technical foam products, films and adhesives. Details of
       the Company's subsidiaries are as follows:

<TABLE>
<CAPTION>
                                                                         Country of
                                          Type of business               incorporation       Ownership interest
                                                                                                   (%)
<S>                                                                                               <C>
       Direct subsidiaries
       Foamtec  (Singapore) Pte Ltd       Fabrication of foam products     Singapore              99.99
       Foamex Asia Phils., Inc.           In process of liquidation        Philippines            99.99

       Indirect subsidiaries
       Foamex Asia (Malaysia)
          Sdn., Bhd.                      Fabrication of foam products     Malaysia               99.99
       Foamex Asia (Wuxi) Co., Ltd.       Fabrication of foam products     China                  99.99
       Foamex Asia Manufacturing          Fabrication of foam, film and    China                  99.99
          (Wuxi) Co., Ltd die-cut adhesive products
</TABLE>

2      Basis of preparation of the financial statements

       The financial statements are prepared in accordance with Thai Accounting
       Standards ("TAS") including related interpretations and guidelines
       promulgated by the Federation of Accounting Professions ("FAP") and with
       generally accepted accounting principles in Thailand.

       The Company has taken advantage of exemptions available under an
       announcement made by the Institute of Certified Public Accountants and
       Auditors of Thailand on 21 December 2001 and has not applied the
       following TAS:

       TAS 24     Reporting Financial Information by Segment

       TAS 48     Financial Instruments: Disclosure and Presentation


                                      F-52
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the consolidated financial statements
For the year ended 31 December 2006


       The financial statements are presented in Thai Baht, rounded in the notes
       to financial statements to the nearest thousand unless otherwise stated.
       They are prepared on the historical cost basis.

       The preparation of financial statements in conformity with TAS requires
       management to make judgements, estimates and assumptions that affect the
       application of policies and reported amounts of assets, liabilities,
       income and expenses. The estimates and associated assumptions are based
       on historical experience and various other factors that are believed to
       be reasonable under the circumstances, the results of which form the
       basis of making the judgements about carrying amounts of assets and
       liabilities that are not readily apparent from other sources.

       The estimates and underlying assumptions are reviewed on an ongoing
       basis. Revisions to accounting estimates are recognized in the period in
       which the estimate is revised, if the revision affects only that period,
       or in the period of the revision and future periods, if the revision
       affects both current and future periods.

       Judgements made by management in the application of TAS that have a
       significant effect on the financial statements and in arriving at
       estimates with a significant risk or material adjustment in the following
       year are discussed in these notes.

3      Significant accounting policies

(a)    Basis of consolidation


       The consolidated financial statements relate to the Company and its
       subsidiaries (together referred to as the "Group").

       Significant intra-group transactions between the Company and its
       subsidiaries are eliminated on consolidation.

       Subsidiaries

       Subsidiaries are those companies controlled by the Company. Control
       exists when the Company has the power, directly or indirectly, to govern
       the financial and operating policies of a company so as to obtain
       benefits from its activities. The financial statements of subsidiaries
       are included in the consolidated financial statements from the date that
       control commences until the date that control ceases.

(b)    Foreign currencies

       Foreign currency transactions

       Transactions in foreign currencies are translated at the foreign exchange
       rates ruling at the dates of the transactions.

       Monetary assets and liabilities denominated in foreign currencies at the
       balance sheet date are translated to Thai Baht at the foreign exchange
       rates ruling at that date. Foreign exchange differences arising on
       translation are recognized in the statement of income.

       Non-monetary assets and liabilities measured at cost in foreign
       currencies are translated to Thai Baht using the foreign exchange rates
       ruling at the dates of the transactions. Non-monetary assets and
       liabilities measured at fair value in foreign currencies are translated
       to Thai Baht at the foreign exchange rates ruling at the dates that fair
       value was determined.


                                      F-53
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the consolidated financial statements
For the year ended 31 December 2006

       Foreign entities

       The assets and liabilities of foreign entities are translated to Thai
       Baht at the foreign exchange rates ruling at the balance sheet date. The
       revenues and expenses of foreign entities are translated to Thai Baht at
       rates approximating the foreign exchange rates ruling at the dates of the
       transactions. Foreign exchange difference arising on the translation of
       foreign entities are recognized as a separate component of equity until
       disposal of the investments.

(c)    Cash and deposits at financial institutions

       Cash and deposits at financial institutions comprise cash balances, call
       deposits and highly liquid short-term investments. Bank overdrafts that
       are repayable on demand are a component of financing activities for the
       purpose of the statement of cash flows.

       Pledged deposits at financial institutions as security for loans or
       guarantees are presented under other non-current assets in the balance
       sheet.

(d)    Trade and other accounts receivable

       Trade and other accounts receivable are stated at their invoice value
       less allowance for doubtful accounts.

       The allowance for doubtful accounts is assessed primarily on analysis of
       payment histories and future expectations of customer payments. Bad debts
       are written off when incurred.

(e)    Inventories

       Inventories are stated at the lower of cost and net realizable value.

       The cost of finished goods and work in process is calculated using the
       standard cost which approximates actual cost. The cost of raw materials
       is calculated using the average cost formula. Cost comprises all costs of
       purchase, costs of conversion and other costs incurred in bringing the
       inventories to their present location and condition. In case of
       manufactured inventories and work-in-progress, cost includes an
       appropriate share of overheads based on normal operating capacity.

       Net realizable value is the estimated selling price in the ordinary
       course of business less the estimated costs necessary to make the sale.

(f)    Property and equipment

       Owned assets

       Property and equipment are stated at cost value less accumulated
       depreciation and impairment losses.

       Leased assets

       Leases in terms of which the Group substantially assumes all the risk and
       rewards of ownership are classified as finance leases. Property and
       equipment acquired by way of finance leases is capitalized at the lower
       of its fair value and the present value of the minimum lease payments at
       the inception of the lease, less accumulated depreciation and impairment
       losses. Lease payments are apportioned between the finance charges and
       reduction of the lease liability so as to achieve a constant rate of
       interest on the remaining balance of the liability. Finance charges are
       charged directly to the statement of income.


                                      F-54
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the consolidated financial statements
For the year ended 31 December 2006

       Depreciation

       Depreciation is charged to the statement of income on a straight-line
       basis over the shorter of the lease-term and the estimated useful life of
       each part of an item of property and equipment. The estimated useful
       lives are as follows:

       Leasehold land improvements                             15   years
       Leasehold building improvements                   15 to 20   years
       Machinery and equipment                            5 to 20   years
       Furniture, fixtures and office equipment                 5   years
       Vehicles                                                 5   years

       No depreciation is provided on freehold land or assets under
       construction.

(g)    Intangible assets

       Goodwill

       Goodwill arising on acquisition represents the excess of the cost of
       acquisition over the fair value of the entity of the identifiable net
       assets acquired. Goodwill is stated at cost less accumulated
       amortization.

       Amortization

       Amortization is charged to the statement of income on a straight-line
       basis over the estimated useful lives of intangible assets. Goodwill is
       amortized from the date they are available for use. The estimated useful
       lives are as follows:

       Goodwill                                                10   years

(h)    Impairment of assets

       The carrying amounts of the Group's assets are reviewed at each balance
       sheet date to determine whether there is any indication of impairment. If
       any such indication exists, the asset's recoverable amount is estimated.

       Intangible assets with indefinite useful lives and intangible assets not
       yet available for use are tested for impairment annually and as and when
       indicators of impairment are identified.

       An impairment loss is recognized whenever the carrying amount of an asset
       or its cash-generating unit exceeds its recoverable amount. The
       Impairment losses are recognized in the statement of income unless it
       reserve a previous revaluation credited to equity, in which case it is
       charged to equity.

       Calculation of recoverable amount

       The recoverable amount of assets is the greater of the asset's net
       selling price and value in use. In assessing value in use, the estimated
       future cash flows are discounted to their present value using a pre-tax
       discount rate that reflects current market assessments of the time value
       of money and the risks specific to the asset. For an asset that does not
       generate cash inflows largely independent of those from other assets, the
       recoverable amount is determined for the cash-generating unit to which
       the asset belongs.


                                      F-55
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the consolidated financial statements
For the year ended 31 December 2006


       Reversals of impairment

       An impairment loss is reversed if there has been a change in the
       estimates used to determine the recoverable amount.

       An impairment loss is reversed only to the extent that the asset's
       carrying amount does not exceed the carrying amount that would have been
       determined, net of depreciation or amortization, if no impairment loss
       had been recognized. All reversals of impairment losses are recognized in
       the statement of income.

(i)    Interest-bearing liabilities

       Interest-bearing borrowings are recognized at fair value less
       attributable transaction charges. Subsequent to initial recognition,
       interest-bearing borrowings are stated at amortized cost using the
       effective interest method. The difference between proceeds and redemption
       value is recognized in the statement of income over the period of the
       borrowings.

(j)    Trade and other accounts payable

       Trade and other accounts payable are stated at cost.

(k)    Provisions

       A provision is recognized in the balance sheet when the Group has a
       present legal or constructive obligation as a result of a past event, and
       it is probable that an outflow of economic benefits will be required to
       settle the obligation and a reliable estimate can be made of the amount
       of the obligation. If the effect is material, provisions are determined
       by discounting the expected future cash flows at a pre-tax rate that
       reflects current market assessments of the time value of money and, where
       appropriate, the risks specific to the liability.

(l)    Employee benefits

       Defined contribution plans

       Obligations for contributions to defined contribution pension plans are
       recognized as an expense in the statement of income as incurred.

(m)    Revenue

       Revenue excludes value added taxes or other sales taxes and is arrived at
       after deduction of trade discounts.

       Sale of goods

       Revenue is recognized in the statement of income when the significant
       risks and rewards of ownership have been transferred to the buyer. No
       revenue is recognized if there are significant uncertainties regarding
       the recovery of the consideration due, associated costs or the probable
       return of goods.

       Interest income

       Interest income is recognized in the statement of income as it earned.


                                      F-56
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the consolidated financial statements
For the year ended 31 December 2006

(n)    Expenses

       Operating leases

       Payments made under operating leases are recognized in the statement of
       income on a straight-line basis over the term of the lease. Lease
       incentives received are recognized in the statement of income as an
       integral part of the total lease payments made. Contingent rentals are
       charged to the statement of income in the accounting period in which they
       are incurred.

       Finance costs

       Interest expenses and similar costs are charged to the statement of
       income in the period in which they are incurred. The interest component
       of finance lease payments is recognized in the statement of income using
       the effective interest rate method.

(o)      Income tax

       Income tax on the profit or loss for the year represents current tax
       which is recognized in the statement of income except to the extent that
       it related to items recognized directly in equity.

       Current tax

       Current tax is the expected tax payable on the taxable income for the
       year, using tax rates enacted or substantially enacted at the balance
       sheet date, and any adjustment to tax payable in respect of previous
       years.

4      Related party transactions and balances

       Related parties are those parties linked to the Group and the Company by
       common shareholders or directors. Except for the loans discussed in Note
       9, transactions with related parties are conducted at prices based on
       market prices or, where no market obvious price exists, at contractually
       agreed prices.

       The pricing policies for particular types of transactions are explained
further below:

<TABLE>
<CAPTION>
                      Type of Transaction                                  Pricing Policy

        <S>                                                 <C>
       Net sales                                          Market price
       Purchases of raw materials and finish goods        Market price
       Interest income                                    Interest rate as specified in the agreement
       Other income                                       At agreed rate or at rate specified in the
       agreement
       Selling and administrative expense                 At agreed rate or at rate specified in the
       agreement
       Interest expense                                   Interest rate as specified in the agreement
</TABLE>

       Significant agreements entered into by the Company and related parties
are as follows:

       The long-term loans from related parties represents notes payable to two
       shareholders of USD 6 million. These loans are unsecured and bear
       interest at the rate of LIBOR plus 3.25% per annum. They are repayable on
       3 December 2008. Interest accruing for the first three years is due and
       payable on the maturity date (3 December 2008). Interest accruing during
       the fourth year onward is due and payable each quarter after 3 December
       2005.



                                      F-57
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the consolidated financial statements
For the year ended 31 December 2006


       On 3 December 2001, the Company entered into a technology license
       agreement with a related party - Foamex LP whereby Foamex LP has granted
       a license to the Company to manufacture foam products. In consideration
       thereof, the Company is committed to pay service fees based on the
       amounts and terms stipulated in the agreement. The agreement shall remain
       in effect until the occurrence of any of the incidents stipulated give
       rise to its termination. The Company incurred service fees for the year
       ended 31 December 2006 of approximately Baht 7.8 million.

       Transactions for the year ended 31 December 2006 with related parties are
summarized as follows:

                                                           (in thousand Baht)
       Selling and administrative expenses
       Technology license fee
       -  Foamex LP                                                7,843
                                                                   =====

       Interest expense
       -  Foamex Asia, Inc.                                       13,203
       -  Hua Kee Co., Ltd.                                        5,658
                                                                  ------
       Total                                                      18,861
                                                                  ======

       Balances as at 31 December 2006 with related parties are as follow:

           (in thousand Baht)
       Advances to related parties
       -  Foamex Asia, Inc.                                          347
                                                                 =======

       Loans to directors (note 9)                                30,319
                                                                  ======

       Trade and other accounts payable
       -   Foamex LP                                              49,464
                                                                  ======

       Short-term loan from director
       -   Mr. Pichai Nithivasin - interest at MLR plus 2% p.a.   15,000
                                                                  ======

       Advances from related parties
       -   Foamex LP                                              13,527
                                                                  ======

       Long-term loans from related parties
       Principal
       -   Foamex Asia, Inc. (USD 4.2 million)                   152,169
       -   Hua Kee Co., Ltd. (USD 1.8 million)                    65,215
       Accrued interest payable
       -   Foamex Asia, Inc.                                      45,107
       -   Hua Kee Co., Ltd.                                      19,332
                                                                 -------
       Total                                                     281,823
                                                                 =======


                                      F-58
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the consolidated financial statements
For the year ended 31 December 2006

5      Cash and deposits at financial institutions

                                                           (in  thousand Baht)

       Cash on hand                                                  272
       Cash at banks
       -   Current accounts                                      165,460
       -   Savings accounts                                       50,294
                                                                 -------
       Total                                                     216,026

6      Trade and other accounts receivable

                                                           (in  thousand Baht)
       Trade and other accounts receivable                       448,298
       Less allowance for doubtful accounts                      (17,374)
                                                                 -------
       Trade and other accounts receivable, net                  430,924
                                                                 =======

7      Inventories

                                                            (in  thousand Baht)
       Raw materials                                             171,353
       Work in process                                            23,042
       Finished goods                                            131,830
       Goods in transit                                           44,259
                                                                 -------
       Total                                                     370,484
       Less allowance for decline in value and
          obsolescence of inventories                            (29,057)
                                                                 -------
       Inventories, net                                          341,427
                                                                 =======

8      Other current assets

                                                           (in  thousand Baht)
       Deposits                                                  15,714
       Prepaid expenses                                          11,958
       Prepaid taxes                                             10,626
       Others                                                     3,562
                                                                 ------
       Total                                                     41,860

9      Loans to directors

       As at 31 December 2006, loans to directors represent secured notes
       payable totaling USD 700,000 which bear interest at the rate of 4% per
       annum. These loans are due for repayment in December 2021. These loans
       are secured by a pledge of the director's investment in a company which
       is a major shareholder of the Company.


                                      F-59
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the consolidated financial statements
For the year ended 31 December 2006


10     Property and equipment


<TABLE>
<CAPTION>
                                                                             Consolidated
                                                                                  Furniture,
                                  Leasehold      Leasehold     Machinery      fixtures and
                                     land         building        and            office                   Construction
                                  improvements  improvements   equipment        equipment      Vehicles    in progress     Total
                                                                       (in thousand Baht)
At Cost
<S>                                 <C>           <C>          <C>                <C>          <C>             <C>       <C>
At 1 January 2006                    33,442        82,673       390,002            53,886       39,549          3,699     603,251
Additions                             5,568             -        31,561             8,090        3,804         11,882      60,905
Transfers                                17             -        (2,040)             (273)           -         (4,283)     (6,579)
Disposals                                 -             -          (224)               (7)      (8,205)             -      (8,436)
Translation differences on
  consolidation                      (1,517)            -       (15,122)           (3,177)        (373)             -     (20,189)
                                     ------        ------       -------            ------       ------         ------     -------
At 31 December 2006                  37,510        82,673       404,177            58,519       34,775         11,298     628,952
                                     ------        ------       -------            ------       ------         ------     -------

Accumulated depreciation
At 1 January 2006                    16,065        12,865       116,774            29,880       23,151              -     198,735
Depreciation charge for the year      7,934         5,512        35,623             8,564        5,391              -      63,024
Transfers                                (3)            -        (3,177)             (199)           -              -      (3,379)
Disposals                                 -             -          (121)               (6)      (5,786)             -      (5,913)
Translation differences on
  consolidation                        (787)           -        (7,066)           (1,979)        (253)             -      10,085)
                                     ------        ------       -------            ------       ------         ------     -------
At 31 December 2006                  23,209        18,377       142,033            36,260       22,503              -     242,382
                                     ------        ------       -------            ------       ------         ------     -------

Allowance for impairment
At 1 January 2006                         -             -             -                 -            -              -           -
Additions                                 -             -         1,648                 -            -              -       1,648
Transfers                                 -             -         3,934                 -            -              -       3,934
                                     ------        ------       -------            ------       ------         ------     -------
At 31 December 2006                       -             -         5,582                 -            -              -       5,582
                                     ------        ------       -------            ------       ------         ------     -------

Net book value
At 31 December 2006                  14,301        64,296       256,562            22,259       12,272         11,298     380,988
                                     ======        ======       =======            ======       ======         ======     =======
</TABLE>



                                      F-60
<PAGE>


Foamex Asia Company Limited and its Subsidiaries
Notes to the financial statements
For the year ended 31 December 2006

                                                           (in  thousand Baht)
       Depreciation charged to expense for the year              63,024
                                                                 ======

11     Intangible assets


       Goodwill
                                                           (in  thousand Baht)
       At Cost
       At 1 January 2006                                          35,893
       Translation differences on consolidation                   (4,360)
                                                                  ------
       At 31 December 2006                                        31,533
                                                                  ------

       Accumulated amortization
       At 1 January 2006                                           9,463
       Amortization charge for the year                            3,572
       Translation differences on consolidation                   (1,149)
                                                                  ------
       At 31 December 2006                                        11,886
                                                                  ------

       Net book value
       At 31 December 2006                                        19,647
                                                                  ======

       On 26 April 2000, the Company purchased Wilshire Technologies, Inc.'s
       contamination control division. The goodwill amortization expense for the
       year ended 31 December 2006 amounted to approximately Baht 3.8 million.

12     Other non-current assets

                                                           (in  thousand Baht)
       Pledged fixed deposits at financial institutions            8,593
       Other non-current assets                                    7,668
                                                                  ------
       Total                                                      16,261
                                                                  ======

       As at 31 December 2006, the Company's fixed deposits with local banks
       were pledged as security for letters of guarantee issued by the local
       bank to various state enterprises, government agencies and companies.

13       Interest-bearing liabilities

                                                           (in  thousand Baht)
       Current
       Bank overdrafts
       -   secured                                                18,169
       -   unsecured                                               1,939
                                                                  ------
                                                                  20,108

       Short-term loans from financial institutions
         (interest at 4.43% to 7.21%
          p.a.)
       -   secured                                                105,000
       -   unsecured                                               90,000
                                                                  -------
                                                                  195,000
       Total                                                      215,108

       Current portion of long-term loans from financial
         institution - secured                                    37,500
                                                                  ======



                                      F-61
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the consolidated financial statements
For the year ended 31 December 2006


       The Company has obtained credit facilities from a local bank totaling
       Baht 350 million, including notes payable of Baht 120 million as follows:

<TABLE>
<CAPTION>
                           (in million Baht)                Interest rate                      Repayment

<S>               <C>   <C>  <C>                             <C>
       Facilities 1 and 2    150            Interest rate at 6.375% p.a. for the first      Eight equal semi-annual
                                            two years. The higher of the local              installments starting
                                            bank's MLR minus 1.25% per annum                from February 2004
                                            and another local bank's MLR minus              to August 2007
                                            0.5% per annum thereafter Trust
                                            receipt - at the rate of 6.375% per annum

       Facility 3            200            Various floating interest rates based on      Less than one year
                             ---
                                            type of facility as specified in the agreement
       Total                 350
                             ===
</TABLE>

       Secured interest-bearing liabilities are secured on the following assets
(net book value).

                                                           (in  thousand Baht)

       Leasehold land improvements                                 64,296
       Machinery                                                   89,569
                                                                  -------
       Total                                                      153,865
                                                                  =======

       As at 31 December 2006, the Company had unutilized credit facilities
totaling Baht 9.9 million.

14     Trade and other accounts payable

                                                     Note  (in thousand Baht)

       Trade and other accounts payable to
         related parties                              4            49,464
       Trade and other accounts payable to
         other parties                                            125,793
                                                                  -------
       Total                                                      175,257
                                                                  =======

15     Other current liabilities

                                                           (in  thousand Baht)

       Accrued salaries and bonuses                                63,431
       Other payables                                              37,825
       Accrued commissions                                          3,474
       Others                                                       1,946
                                                                  -------
       Total                                                      106,676
                                                                  =======

                                      F-62
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the consolidated financial statements
For the year ended 31 December 2006


16       Share capital

                                       Par
                                       value           Number          Baht
                                       (in Baht)      (thousand shares/Baht)
       Authorized
       At 1 January 2006
       -   ordinary shares               10             10,500        105,000
       At 31 December 2006
       -   ordinary shares               10             10,500        105,000

       Issued and fully paid
       At 1 January 2006
       -   ordinary shares               10             10,500        105,000
       At 31 December 2006
       -   ordinary shares               10             10,500        105,000

17     Reserves

       Share premium

       The share premium account is set up under the provisions of Civil and
       Commerce Code, which requires companies to set aside share subscription
       monies received in excess of the par value of the shares issued to a
       reserve account ("share premium"). Share premium is not available for
       dividend distribution.

       Currency translation changes

       The currency translation changes recognized in shareholders' equity
       relate to:

       (a)    foreign exchange differences arising from translation of the
              financial statements of foreign operations to Thai Baht; and

       (b)    foreign exchange differences arising on translation of monetary
              items which form part of the Group's net investment in foreign
              operations, provided certain conditions are met.

       Legal reserve

       The legal reserve is set up under the provisions of Civil and Commercial
       code, which requires that a company shall allocate not less than 5% of
       its net profit to a reserve account ("legal reserve") at each dividend
       declaration until this account reaches an amount not less than 10% of the
       registered authorised capital. The legal reserve is not available for
       dividend distribution.

18     Other income

                                                           (in  thousand Baht)

       Interest income                                              8,845
       Gain from disposal of equipment                              1,364
       Freight income                                               1,316
       Others                                                       6,149
                                                                   ------
       Total                                                       17,674
                                                                   ======

                                      F-63
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the consolidated financial statements
For the year ended 31 December 2006

19     Selling and administrative expenses

                                                           (in  thousand Baht)

       Salaries, wages and bonuses                                174,539
       Commission expense                                          27,380
       Freight expenses                                            27,315
       Traveling expense                                           25,355
       Rental expense                                              19,455
       Depreciation                                                19,262
       Allowance for decline in value and obsolescence
        of inventories                                              4,659
       Allowance for doubtful accounts                              2,014
       Others                                                     131,771
                                                                  -------
       Total                                                      431,750
                                                                  =======

20     Personnel expenses

                                                           (in  thousand Baht)

       Salaries, wages and bonuses                                292,086
       Contribution to provident fund                              16,172
       Others                                                      44,537
                                                                  -------
       Total                                                      352,795
                                                                  =======

                                                          (number of employees)
       Number of employees as at 31 December 2006                     927
                                                                      ===

       The  Group  has established a  contributory  provident fund  covering
       substantially  all  employees. Membership  is compulsory upon attaining
       permanent employment status. The Company and employees contribute monthly
       to the fund at an amount  computed  based on a certain  percentage  of
       each employee's basic salary depending on the length of employment.
       The fund is managed  by a fund  manager  in  accordance  with the
       terms and  conditions prescribed in the Ministerial Regulation No. 2
       (B.E. 2532) issued under the Provident Fund Act. B.E. 2530.

21     Interest expense

                                                 Note      (in thousand Baht)
       Interest paid and payable to:
       -  related parties                         4               18,861
       -  financial institutions                                  20,159
                                                                  ------
       Total                                                      39,020
                                                                  ======

22     Earnings per share

       Basic earnings per share

       The calculation of basic earnings per share at 31 December 2006 is based
       on the profit attributable to ordinary shareholders of Baht 139.0 million
       and the weighted average number of shares outstanding during the year
       ended 31 December 2006 of 10,500,000 shares.


                                      F-64
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the consolidated financial statements
For the year ended 31 December 2006


23     Promotional privileges

       By virtue of the provisions of the Industrial Investment Promotion Act
       B.E. 2520, the Company has been granted certain promotional privileges
       relating to its manufacturing of technical foam products, films and
       adhesives. The promotional privileges include, among other thing:

       (a)     Exemption from the payment of import duties on machinery as
               approved by the Board of Investment.

       (b)     Exemption from the payment of custom duties for raw material.

       (c)     Exemption from the payment of corporate income tax on promoted
               business activities for seven and eight years from the date that
               income is first derived from the promoted activity.

24     Commitments

                                                           (in  thousand Baht)
       Other long-term service agreements
       Within one year                                             20.2
       After one year but within five years                        33.8
       After five years                                            37.3
                                                                   ----
       Total                                                       91.3
                                                                   ====

       As at 31 December 2006, the Group has long-term operating leases covering
       office premises, facilities, land and vehicles with various companies for
       periods of between 2 and 18 years expiring in 2007 to 2018.

25     Contingent liabilities

       As at 31 December 2006:

       (a)    The Company was contingently liable for letters of guarantee
              issued by a local bank in favor of various government agencies,
              state enterprises and companies totaling Baht 17.6 million.

       (b)    The Company had unused letters of credit amounting to
              approximately Baht 11.9 million.

26     New and revised accounting standards not yet adopted

       On 11 October 2006, the Federation of Accounting Profession (FAP)
       announced that the Thai Accounting Standard No. 44 (TAS No. 44)
       "Consolidated Financial Statements and Accounting for Investments in
       Subsidiaries" is to be revised. FAP announcement No. 26/2549 requires a
       parent company which has investments in a subsidiary company, an entity
       under joint control, or an associate company, which is not classified as
       a "held for sale" investment, to record such investment in accordance
       with either the cost method or with the recognition and measurement basis
       for financial instruments (when an announcement is made), instead of the
       equity method currently used. This revision to TAS No. 44 is applicable
       to the Company's separate financial statements (as required by TAS for
       statutory reporting) covering periods beginning on or after 1 January
       2007, with early adoption encouraged.

       The Company will adopt the change in accounting treatment for its
       investments in subsidiary in the Company's separate financial statements
       in the fiscal year after 1 January 2007. The change in accounting
       treatment will be applied retrospectively and the Company's separate 2006
       financial statements, which will be included in the Company's separate
       2007 financial statements for comparative purposes, will be restated
       accordingly. The consolidated financial statements of the Company will
       not be affected by the change.



                                      F-65
<PAGE>


Foamex Asia Company Limited and its Subsidiaries
Notes to the consolidated financial statements
For the year ended 31 December 2006


27     Significant differences between Thai GAAP and US GAAP

       The accompanying consolidated financial statements for the year ended 31
       December 2006 have been prepared in accordance with generally accepted
       accounting principles in Thailand ("Thai GAAP"), which differ in certain
       significant respects from generally accepted accounting principles in the
       United States of America ("US GAAP"). Significant differences between
       Thai GAAP and US GAAP, as applicable to the Company, are as follows:

(a)      Goodwill

              In accordance with SFAS No. 142, goodwill is tested for impairment
              annually. SFAS No. 142 requires that goodwill be tested for
              impairment using a two-step process. The first step is to identify
              a potential impairment and the second step measures the amount of
              the impairment loss, if any. Goodwill is deemed to be impaired if
              the carrying amount of a reporting unit's goodwill exceeds its
              estimated fair value.

              Under Thai GAAP, goodwill arising on acquisition is amortized over
              the duration of its useful life presumed to be a period not
              exceeding twenty years.

              No goodwill impairment was recognized as of 31 December 2006 under
              both US GAAP and Thai GAAP.

(b)      Income taxes

              In accordance with SFAS No. 109, income taxes are accounted for
              under the asset and liability method. Under this method, deferred
              income taxes are provided for temporary differences between the
              carrying amounts of assets and liabilities for financial reporting
              purposes and the amounts used for taxation purposes. Temporary
              differences are not recognized for goodwill not deductible for tax
              purposes; the initial recognition of assets or liabilities that
              affect neither accounting nor taxable profit; and differences
              relating to investments in subsidiaries to the extent that they
              will probably not reverse in the foreseeable future. The amount of
              deferred tax provided is based on the expected manner of
              realization or settlement of the carrying amount of assets and
              liabilities, using tax rates enacted at the balance sheet date.

              Thai GAAP does not currently require the reporting or disclosure
of deferred income taxes.


(c)      Comprehensive income (loss)

              In accordance with SFAS No. 130, other comprehensive income or
              loss items are revenues, expenses, gains and losses that under
              U.S. generally accounting principles are excluded from net profit
              and reflected a component of shareholders' equity, including
              foreign currency translation adjustments.

              Under Thai GAAP, a company is given the option to present a
              statement showing (i) all changes in equity; or (ii) changes in
              equity other than those arising from capital transactions with
              owners and distributions owners (i.e. statement of comprehensive
              income). The Company has chosen to present all changes in equity.

              The significant differences between Thai GAAP and US GAAP for the
              year ended 31 December 2006 are summarized as follows:



                                      F-66
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the consolidated financial statements
For the year ended 31 December 2006

                                                              (in thousand Baht)

              Consolidated profit under Thai GAAP                   138,986
              US GAAP adjustments
              -   Amortization of goodwill                            3,572
              -   Income taxes                                       (2,309)
                                                                    -------
              Consolidated net profit under US GAAP                 140,249
                                                                    =======

                                                                (in Baht)

              Basic earnings per share under Thai GAAP                  13.24
              US GAAP adjustments                                        0.12
                                                                        -----
              Basic earnings per share under US GAAP                    13.36
                                                                        =====

<TABLE>
<CAPTION>
                                                                           (in thousand Baht)

<S>                                                                              <C>
              Consolidated total shareholders' equity under Thai GAAP            627,006
              US GAAP adjustments
              -   Goodwill                                                        11,886
              -   Deferred income tax assets                                       3,784
                                                                                 -------
              Consolidated total shareholders' equity under US GAAP              642,676
                                                                                 =======
</TABLE>

              The comprehensive income for the year ended 31 December 2006 is as
follows:

                                                             (in  thousand Baht)

              Consolidated net profit under US GAAP                140,249
              -   Foreign currency translation adjustments         (43,994)
                                                                   -------
              Consolidated comprehensive income under US GAAP       96,255
                                                                   =======

(d)      Presentation of the consolidated  statement of cash flows

              In accordance with SFAS No. 95, cash payments and cash receipts
              from interest are classified as cash flows from operating
              activities.

              Under Thai GAAP, cash receipts from interest are classified as
              cash flows from investing activities while cash payments for
              interest are classified as cash flows from financing activities.

              See reconciliation of the presentation of the consolidated
              statement of cash flows under Thai GAAP to US GAAP as follows:

<TABLE>
<CAPTION>
                                                                                          (in thousand Baht)

<S>                                                                                              <C>
              Net cash provided by operating activities under Thai GAAP                          94,195
              US GAAP adjustments
              -   Interest received                                                               8,393
              -   Interest payment                                                              (20,358)
                                                                                                -------
              Net cash provided by operating activities under US GAAP                            82,230
                                                                                                =======

                                                                                          (in thousand Baht)

              Net cash used in investing activities under Thai GAAP                             (43,043)
              US GAAP adjustment
              -   Interest received                                                              (8,393)
                                                                                               --------
              Net cash used in investing activities under US GAAP                               (51,436)
                                                                                                =======



                                      F-67
<PAGE>


Foamex Asia Company Limited and its Subsidiaries
Notes to the consolidated financial statements
For the year ended 31 December 2006
                                                                                          (in thousand Baht)

              Net cash used in financing activities under Thai GAAP                               (79,749)
              US GAAP adjustment
              -   Interest paid                                                                    20,358
                                                                                                  -------
              Net cash used in financing activities under US GAAP                                 (59,391)
                                                                                                  =======

                                                                                            (in thousand Baht)

              Net decrease in cash and deposits at financial institutions under Thai GAAP         (28,597)
                                                                                                  -------

              Net decrease in cash and deposits at financial institutions under US GAAP           (28,597)
                                                                                                  =======
</TABLE>

(e)      Allowance for decline in value and obsolescence of inventories

              Under US GAAP, provision for decline in the value and obsolescence
              of inventories is classified as part of costs of sales.

              Under Thai GAAP, provision for decline in the value and
              obsolescence of inventories is classified as part of selling and
              administrative expenses (see Note 19).

28     Additional US GAAP disclosures

       (a)        Income taxes

              The provision for income taxes is summarized as follows:

                                                              (in thousand Baht)
              Income tax expense
              Current year - under Thai GAAP                         23,906
              Deferred income tax expense
              US GAAP adjustments - deferred income tax expense       2,309
                                                                    -------
              Total income tax expense under US GAAP                 26,215
                                                                     ======

              The tax effect of temporary differences that give rise to deferred
              income tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
                                                                                  31 December 2006
                                                                                  (in thousand Baht)
              Deferred income tax assets
<S>                                                                                      <C>
              -  Allowance for doubtful accounts                                         4,542
              -  Allowance for decline in value and obsolescence of inventories          8,015
              -  Allowance for impairment of property and equipment                      1,674
                                                                                        ------
                                                                                        14,231
              Deferred income tax liabilities
              -  Property and equipment                                                  6,881
              -  Goodwill                                                                3,566
                                                                                        ------
                                                                                        10,447
                                                                                        ------
              Net deferred income tax assets                                             3,784
                                                                                        ======
</TABLE>

       (b)        Fair value of financial instruments

              Carrying amounts reported in the consolidated financial statements
              for cash and deposits at financial institutions, current
              investments, trade and other accounts receivables, bank overdrafts
              and short-term


                                      F-68
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the consolidated financial statements
For the year ended 31 December 2006


              loans from financial institutions, trade and other
              accounts payable, payable for equipment, short-term loan from
              director, advance from related parties, liabilities under finance
              lease and hire-purchase agreements approximate fair values due to
              the short-term nature of these instruments.

              The carrying amounts of long-term loans from financial
              institutions approximate fair value as this instrument bears
              interest at the market rate.

              As at 31 December 2006, the fair values of financial assets and
              financial liabilities which were different from the carrying
              amounts were as follows:

                                                   Carrying amount   Fair  value
                                                         (in thousand Baht)

              Loans to directors                          30,319        22,517
                                                         =======       =======
              Long-term loans from related parties       281,823       284,682
                                                         =======       =======



                                      F-69
<PAGE>







                           Foamex Asia Company Limited
                              and its Subsidiaries


                        Consolidated financial statements

                               For the years ended
                            31 December 2005 and 2004




                                      F-70
<PAGE>


Foamex Asia Company Limited and its Subsidiaries
Balance sheets (unaudited)
As at 31 December 2005 and 2004

<TABLE>
<CAPTION>
                                                                 Consolidated
Assets                                        Note          2005             2004
                                                                 (in Baht)
Current assets
<S>                                           <C>         <C>              <C>
Cash and deposits at financial institutions   5           243,429,084      117,072,318
Current investment in fixed deposits                       14,458,814       14,091,296
Trade and other receivables, net              4, 6        410,277,813      340,553,733
Inventories, net                              7           342,594,426      353,403,409
Advances to related parties                   4               261,564           22,073
Other current assets, net                     8            48,733,959       39,744,068
                                                        -------------   --------------
Total current assets                                    1,059,755,660      864,886,897
                                                        -------------    -------------

Non-current assets
Loans to employees and directors              4, 9         33,982,590       31,688,031
Property and equipment, net                   10          404,515,526      430,704,764
Intangible assets, net                        11           26,429,620       29,032,430
Other non-current assets                      12           15,266,608       15,588,955
                                                        -------------  ---------------
Total non-current assets                                  480,194,344      507,014,180
                                                        -------------   --------------

Total assets                                            1,539,950,004    1,371,901,077
                                                        =============    =============
</TABLE>




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



                                      F-71
<PAGE>



Foamex Asia Company Limited and its Subsidiaries
Balance sheets (unaudited)
As at 31 December 2005 and 2004

<TABLE>
<CAPTION>
                                                                         Consolidated
Liabilities and shareholders' equity                 Note             2005               2004
                                                                           (in Baht)
Current liabilities
<S>                                                  <C>            <C>                <C>
Bank overdrafts and short-term loans from
     financial institutions                          13             232,033,001        219,000,649
Trade and other payables                             4, 14          232,680,582        223,400,518
Payable for fixed assets                                                466,949          2,597,101
Short-term loan from director                        4               15,000,000                  -
Advances from related parties                        4                7,209,097          3,317,123
Current portion of long-term loan from
     financial institutions                          13              37,500,000         37,500,000
Current portion of liabilities under finance lease
     and hire-purchase agreements                                       960,306          2,727,669
Current tax payable                                                  27,566,196         11,205,498
Other current liabilities                            15             111,854,432         97,824,805
                                                                  -------------       ------------
Total current liabilities                                           665,270,563        597,573,363
                                                                  -------------       ------------

Non-current liabilities
Long-term loan from director                         4                4,000,000          4,000,000
Long-term loans from related parties                 4              299,742,045        269,950,580
Long-term loans from financial institutions          13              37,500,000         75,000,000
Liabilities under finance lease and
     hire-purchase agreements, net                                    1,424,260            280,969
                                                                 --------------       ------------
Total non-current liabilities                                       342,666,305        349,231,549
                                                                  -------------      -------------
Total liabilities                                                 1,007,936,868        946,804,912
                                                                  -------------      -------------

Shareholders' equity
Share capital
     Authorized share capital                        16             105,000,000        105,000,000
                                                                  -------------      -------------
     Issued and paid-up share capital                16             105,000,000        105,000,000
Share premium                                        17              18,990,504         18,990,504
Cumulative translation adjustments                   17              18,023,198          2,005,746
Retained earnings
     Appropriated legal reserve                      17              10,500,000         10,500,000
     Unappropriated                                                 379,499,434        288,599,915
                                                                  -------------
Total shareholders' equity                                          532,013,136        425,096,165
                                                                  -------------      -------------

Total liabilities and shareholders' equity                        1,539,950,004      1,371,901,077
                                                                  =============      =============

</TABLE>




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


                                      F-72
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Statements of income (unaudited)
For the years ended 31 December 2005 and 2004

<TABLE>
<CAPTION>
                                                                           Consolidated
                                                     Note              2005               2004
                                                                             (in Baht)
Revenues
<S>                                                  <C>           <C>                  <C>
Sale of goods                                        4, 24         1,915,033,627        1,604,971,391
Other income                                         4, 18             8,500,428            4,615,735
                                                                   -------------        -------------
Total revenues                                                     1,923,534,055        1,609,587,126
                                                                   -------------        -------------

Expenses
Cost of sales                                        4, 19         1,341,796,532        1,115,350,108
Selling and administrative expenses                  4, 20           429,131,475          425,449,881
Loss on foreign exchange, net                                          2,214,688            9,083,639
                                                                   -------------        -------------
Total expenses                                                     1,773,142,695        1,549,883,628
                                                                   -------------        -------------

Profit before interest
     and income tax expenses                                         150,391,360           59,703,498

Interest expense                                     4, 22            31,334,704           25,182,938
Income tax expense                                                    28,157,137           11,093,154
                                                                   -------------        -------------

Net profit                                                            90,899,519           23,427,406
                                                                   =============        =============

Basic earnings per share                             23                    8.66                  2.23
                                                                   =============        =============
</TABLE>




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


                                      F-73
<PAGE>


Foamex Asia Company Limited and its Subsidiaries
Statements of changes in shareholders' equity (unaudited)
For the years ended 31 December 2005 and 2004

<TABLE>
<CAPTION>
                                                                          Consolidated
                                         Issued and                     Cumulative                                      Total
                                         paid-up                        translation         Retained earnings        Shareholders'
                                   Note  share capital  Share premium   adjustments   Legal reserve  Unappropriated    equity
                                                                        (in Baht)

<S>                                        <C>              <C>            <C>           <C>            <C>             <C>
Balance as at 1 January 2004             105,000,000      18,990,504     (2,018,051)   10,500,000     265,172,509    397,644,962
Difference from translation
  adjustments                       17             -               -      4,023,797             -               -      4,023,797
Net profit                                         -               -              -             -      23,427,406     23,427,406
                                         -----------      ----------     ----------    ----------     -----------    -----------
Balance as at 31 December 2004           105,000,000      18,990,504      2,005,746    10,500,000     288,599,915    425,096,165
Difference from translation
  adjustments                       17             -               -     16,017,452             -               -     16,017,452
Net profit                                         -               -              -             -      90,899,519     90,899,519
                                         -----------      ----------     ----------    ----------     -----------    -----------
Balance as at 31 December 2005           105,000,000      18,990,504     18,023,198    10,500,000     379,499,434    532,013,136
                                         ===========      ==========     ==========    ==========     ===========    ===========
</TABLE>


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


                                      F-74
<PAGE>


Foamex Asia Company Limited and its Subsidiaries
Statements of cash flows (unaudited)
For the years ended 31 December 2005 and 2004

<TABLE>
<CAPTION>
                                                                            Consolidated
                                                                     2005                     2004
                                                                              (in Baht)
Cash flows from operating activities
<S>                                                              <C>                       <C>
Net profit                                                       90,899,519                23,427,406

Adjustments for
Depreciation and amortization                                    63,010,258                57,995,762
Interest income                                                  (4,033,281)               (1,655,118)
Interest expense                                                 31,334,704                25,182,938
Allowance for doubtful accounts                                   4,235,261                 8,607,456
Unrealized loss (gain) on foreign exchange, net                   9,214,939                (4,490,676)
Gain on disposals of fixed assets                                (1,485,429)                 (280,350)
Reversal of allowance for
     decline in value of inventories                             14,936,831                 1,289,913
Share of profits from investments accounted
   for using the equity method, net                                       -                         -
Income tax expense                                               28,157,130                11,093,154
                                                                -----------               -----------
Profit from operating activities before
     changes in operational assets and liabilities              236,269,932               121,170,485

Changes in operating assets and liabilities
Trade and other receivables                                     (73,283,214)                7,254,608
Inventories                                                      (4,127,848)              (28,116,549)
Advances to related parties                                        (239,655)                  (22,237)
Other current assets                                             (9,179,920)               12,857,886
Other non-current assets                                            379,964                  (304,812)
Trade and other payables                                         11,581,901               (84,028,846)
Advances from related parties                                     3,925,962                 3,351,110
Other current liabilities                                        15,676,116                (2,750,460)
Income tax paid                                                 (11,796,433)              (21,786,623)
Translation difference                                           13,706,723                         -
                                                                -----------               -----------
Net cash provided by operating activities                       182,913,528                 7,624,562
                                                                -----------               -----------

Cash flows from investing activities
Interest received                                                 2,901,035                   529,386
Increase in current investments in fixed deposits                  (367,517)                 (570,922)
Decrease in long-term loan to related parties                             -                         -
Decrease (increase) in loans to
     employees and directors                                       (948,396)                  980,393
Purchases of fixed assets                                       (31,669,822)              (74,537,635)
Acquisitions of business (Note 11)                                        -               (10,954,768)
Decrease (increase) in pledged deposits
     at financial institutions                                      (51,535)                7,996,518
Proceeds from disposals of fixed assets                           4,194,387                 6,621,628
                                                                -----------               -----------
Net cash used in investing activities                           (25,941,848)              (69,935,400)
                                                                ===========               ===========
</TABLE>


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


                                      F-75
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Statements of cash flows (unaudited)
For the years ended 31 December 2005 and 2004

<TABLE>
<CAPTION>
                                                                             Consolidated
                                                                       2005                  2004
                                                                                 (in Baht)
Cash flows from financing activities
<S>                                                                  <C>                  <C>
Interest paid                                                        (17,006,172)         (14,554,664)
Increase in bank overdrafts and
     short-term loans from financial institutions                     13,032,352           79,751,883
Increase in short-term loan from director                             15,000,000                    -
Increase in long-term loan from director                                       -            4,000,000
Proceeds from long-term loans
     from financial institutions                                               -            7,100,000
Repayment of long-term loans from
     financial institutions                                          (37,500,000)         (37,500,000)
Decrease in liabilities under financial lease and
     hire-purchase contracts                                          (2,880,071)          (2,632,825)
                                                                     -----------          -----------
Net cash provided by (used in) financing activities                  (29,353,891)          36,164,394
                                                                     -----------          -----------

Net effect of currency translation adjustments
     in cash and deposit at financial institutions                    (1,261,023)           3,516,112
                                                                     -----------          -----------

Net increase (decrease) in cash and deposits
     at financial institutions                                       126,356,766          (22,630,332)

Cash and deposits at financial institutions
     at beginning of year                                            117,072,318          139,702,650
                                                                     -----------          -----------

CASH AND DEPOSITS AT FINANCIAL
     INSITITUIONS AT END OF YEAR                                     243,429,084          117,072,318
                                                                     ===========          ===========

</TABLE>




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


                                      F-76
<PAGE>



Foamex Asia Company Limited and its Subsidiaries
Notes to the financial statements (unaudited)
For the years ended 31 December 2005 and 2004

Note              Contents

1        General information
2        Basis of preparation of financial statements
3        Significant accounting policies
4        Related party transactions and balances
5        Cash and deposits at financial institutions
6        Trade and other receivables, net
7        Inventories, net
8        Other current assets, net
9        Loans to employee and directors, net
10       Property and equipment, net
11       Intangible assets, net
12       Other non-current assets
13       Interest - bearing liabilities
14       Trade and other payables
15       Other current liabilities
16       Share capital
17       Reserves
18       Other income
19       Cost of sales
20       Selling and administrative expenses
21       Employees' provident fund
22       Interest expense
23       Earnings per share
24       Promotional privileges
25       Commitments
26       Contingent liabilities
27       Reclassification of accounts
28       Significant differences between Thai GAAP and US GAAP
29       Additional disclosures to the consolidated financial
         statements required under US GAAP




                                      F-77
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the financial statements (unaudited)
For the years ended 31 December 2005 and 2004

       These notes form an integral part of the financial statements.

       The financial statements were authorized for issue by the directors on 10
April 2006.

1      General information

       Foamex Asia Company Limited ("the Company") was incorporated in Thailand
       on 5 June 1997 and is a 70% owned subsidiary of Foamex Asia, Inc.
       incorporated in the United States of America. The Company's Thailand
       operations are located at:

<TABLE>
<CAPTION>
<S>                               <C>                     <C>                                     <C>
       Head Office            :   175 Sathorn City Tower, 20th Floor, South Sathorn Road, Bangkok 10120

       Factory 1              :   665 Moo 2, Bangpoo, Muang Samutprakarn, Samutprakarn 10280

       Factory 2              :   133 Moo 1, Banpo, Bangpa-in, Ayuthaya 13160

       Factory 3              :   259 Moo 3, Tambol Tongsukla, Amphura Sriracha, Chonburi 20230
</TABLE>

       The Company also has a branch registered in the United States of America.

       The principal activities of the Company and subsidiaries are to
       manufacture technical foam products, films and adhesives.

       The number of employees at 31 December 2005 and 2004 and the staffs costs
       for the years then ended, were as follows:

                                      2005            2004
                                            (Persons)
       Number of employees
       Company                         490             455
       Subsidiaries                    228             235
                                       ---             ---
       Total                           718             690
                                       ===             ===

                                      2005            2004
                                        (in million Baht)
       Employee expenses
       Company                        170.1           154.5
       Subsidiaries                   161.8           156.6
                                      -----           -----
       Total                          331.9           311.1
                                      =====           =====

2      Basis of preparation of financial statements

       The financial statements are prepared in accordance with Thai Accounting
       Standards ("TAS") including related interpretations and guidelines
       promulgated by the Federation of Accounting Professions and with
       generally accepted accounting principles in Thailand.


                                      F-78
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the financial statements (unaudited)
For the years ended 31 December 2005 and 2004

       In 2005, the Company adopted the following new TAS which are relevant to
its operations:

       TAS 52     Events after the Balance Sheet Date
       TAS 53     Provisions, Contingent Liabilities and Contingent Assets

       The adoption of these new TAS has no material effect on the financial
statements.

       The Company has taken advantage of exemptions available under an
       announcement made by the Institute of Certified Public Accountants and
       Auditors of Thailand on 21 December 2001 and has not applied the
       following TAS:

       TAS 24     Reporting Financial Information by Segment
       TAS 48     Financial Instruments: Disclosure and Presentation

       The financial statements are presented in Thai Baht. They are prepared on
       the historical cost basis.

       The preparation of financial statements in conformity with TAS requires
       management to make judgements, estimates and assumptions that affect the
       application of policies and reported amounts of assets, liabilities,
       income and expenses. The estimates and associated assumptions are based
       on historical experience and various other factors that are believed to
       be reasonable under the circumstances, the results of which form the
       basis of making the judgements about carrying amounts of assets and
       liabilities that are not readily apparent from the estimates.

       The estimates and underlying assumptions are reviewed on an ongoing
       basis. Revisions to accounting estimates are recognized in the period in
       which the estimate is revised, if the revision affects only that period,
       or in the period of the revision and future periods, if the revision
       affects both current and future periods.

       Judgements made by management in the application of TAS that have a
       significant effect on the financial statements and in arriving at
       estimates with a significant risk or material adjustment in the following
       year are discussed in these notes.

       The consolidated financial statements relate to the Company and its
       subsidiaries (together referred to as the "Group"). Details of the
       Company's subsidiaries are as follows:

<TABLE>
<CAPTION>
                                                                         Country of              Ownership interest
                                        Type of business                incorporation           2005          2004
                                                                                                        (%)
       Direct subsidiaries
<S>                                                                                            <C>            <C>
       Foamtec  (Singapore) Pte Ltd     Fabrication of foam products     Singapore             99.99          99.99
       Foamex Asia Phils., Inc.         In process of liquidation        Philippines           99.99          99.99

       Indirect subsidiaries
       Foamex Asia (Malaysia)
          Sdn., Bhd.                    Fabrication of foam products     Malaysia              99.99          99.99
       Foamex Asia (Wuxi) Co., Ltd.     Fabrication of foam products     China                 99.99          99.99
       Foamex Asia Manufacturing        Fabrication of foam, film and    China                 99.99           99.99
          (Wuxi) Co., Ltd               die-cut adhesive products
</TABLE>

       Significant intra-group transactions between the Company and its
       subsidiaries are eliminated on consolidation.

                                      F-79
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the financial statements (unaudited)
For the years ended 31 December 2005 and 2004


3      Significant accounting policies

3.1    Basis of consolidation

       Subsidiaries

       Subsidiaries are those companies controlled by the Company. Control
       exists when the Company has the power, directly or indirectly, to govern
       the financial and operating policies of a company so as to obtain
       benefits from its activities. The financial statements of subsidiaries
       are included in the consolidated financial statements from the date that
       control commences until the date that control ceases.

3.2    Foreign currencies

       Foreign currency transactions

       Transactions in foreign currencies are translated at the foreign exchange
       rates ruling at the dates of the transactions. Monetary assets and
       liabilities denominated in foreign currencies at the balance sheet date
       are translated to Thai Baht at the foreign exchange rates ruling at that
       date. Foreign exchange differences arising on translation are recognized
       in the statement of income.

       Non-monetary assets and liabilities measured at cost in foreign
       currencies are translated to Thai Baht using the foreign exchange rates
       ruling at the dates of the transactions. Non-monetary assets and
       liabilities measured at fair value in foreign currencies are translated
       to Thai Baht at the foreign exchange rates ruling at the dates that fair
       value was determined.

       Foreign entities

       The assets and liabilities of foreign entities are translated to Thai
       Baht at the foreign exchange rates ruling at the balance sheet date. The
       revenues and expenses of foreign entities are translated to Thai Baht at
       rates approximating the foreign exchange rates ruling at the dates of the
       transactions. Foreign exchange difference arising on the translation of
       foreign entities are recognized as a separate component of equity until
       disposal of the investments.

3.3    Cash and deposits at financial institutions

       Cash and deposits at financial institutions comprise cash balances, call
       deposits and highly liquid short-term investments. Bank overdrafts that
       are repayable on demand are a component of financing activities for the
       purpose of the statement of cash flows.

       Pledged deposits at financial institutions as security for loans or
       guarantees are presented under other non-current assets in the balance
       sheet.

3.4    Trade and other accounts receivable

       Trade and other accounts receivable are stated at their invoice value
       less allowance for doubtful accounts.

       The allowance for doubtful accounts is assessed primarily on analysis of
       payment histories and future expectations of customer payments. Bad debts
       are written off when incurred.

3.5    Inventories

       Inventories are stated at the lower of cost and net realizable value.

                                      F-80
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the financial statements (unaudited)
For the years ended 31 December 2005 and 2004

       The cost of finished goods and work in process is calculated using the
       standard cost which approximates actual cost. The cost of raw materials
       is calculated using the average cost formula. Cost comprises all costs of
       purchase, costs of conversion and other costs incurred in bringing the
       inventories to their present location and condition. In case of
       manufactured inventories and work-in-progress, cost includes an
       appropriate share of overheads based on normal operating capacity.

       Net realizable value is the estimated selling price in the ordinary
       course of business less the estimated costs necessary to make the sale.

3.6    Property and equipment

       Owned assets

       Property and equipment are stated at cost value less accumulated
       depreciation and impairment losses.

       Leased assets

       Leases in terms of which the Group substantially assumes all the risk and
       rewards of ownership are classified as finance leases. Property and
       equipment acquired by way of finance leases is capitalized at the lower
       of its fair value and the present value of the minimum lease payments at
       the inception of the lease, less accumulated depreciation and impairment
       losses. Lease payments are apportioned between the finance charges and
       reduction of the lease liability so as to achieve a constant rate of
       interest on the remaining balance of the liability. Finance charges are
       charged directly to the statement of income.

       Depreciation

       Depreciation is charged to the statement of income on a straight-line
       basis over the shorter of the lease term and the estimated useful lives
       of each part of an item of property and equipment. The estimated useful
       lives are as follows:

       Leasehold land improvements                                  15  years
       Leasehold building improvements                        up to 20  years
       Machinery and equipment                                 5 to 20  years
       Furniture, fixtures and office equipment                 3 to 5  years
       Vehicles                                                 3 to 5  years

       No depreciation is provided on freehold land or assets under
       construction.

3.7    Intangible assets

       Goodwill

       Goodwill arising on acquisition represents the excess of the cost of
       acquisition over the fair value of the entity of the identifiable net
       assets acquired. Goodwill is stated at cost less accumulated
       amortization.

       Amortization

       Amortization is charged to the statement of income on a straight-line
       basis over the estimated useful lives of intangible assets. Goodwill is
       amortized from the date they are available for use. The estimated useful
       lives are as follows:

       Goodwill                                                   10  years


                                      F-81
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the financial statements (unaudited)
For the years ended 31 December 2005 and 2004


3.8    Impairment of assets

       The carrying amounts of the Group's assets are reviewed at each balance
       sheet date to determine whether there is any indication of impairment. If
       any such indication exists, the asset's recoverable amount is estimated.

       Intangible assets with indefinite useful lives and intangible assets not
       yet available for use are tested for impairment annually and as and when
       indicators of impairment are identified.

       An impairment loss is recognized whenever the carrying amount of an asset
       or its cash-generating unit exceeds its recoverable amount. The
       Impairment losses are recognized in the statement of income unless it
       reserve a previous revaluation credited to equity, in which case it is
       charged to equity.

       Calculation of recoverable amount

       The recoverable amount of assets is the greater of the asset's net
       selling price and value in use. In assessing value in use, the estimated
       future cash flows are discounted to their present value using a pre-tax
       discount rate that reflects current market assessments of the time value
       of money and the risks specific to the asset. For an asset that does not
       generate cash inflows largely independent of those from other assets, the
       recoverable amount is determined for the cash-generating unit to which
       the asset belongs.

       Reversals of impairment

       An impairment loss is reversed if there has been a change in the
       estimates used to determine the recoverable amount.

       An impairment loss is reversed only to the extent that the asset's
       carrying amount does not exceed the carrying amount that would have been
       determined, net of depreciation or amortization, if no impairment loss
       had been recognized. All reversals of impairment losses are recognized in
       the statement of income.

3.9    Interest-bearing liabilities

       Interest-bearing borrowings are recognized at fair value less
       attributable transaction charges. Subsequent to initial recognition,
       interest-bearing borrowings are stated at amortized cost using the
       effective interest method. The difference between proceeds and redemption
       value is recognized in the statement of income over the period of the
       borrowings.

3.10   Trade and other accounts payable

       Trade and other accounts payable are stated at cost.

3.11   Provisions

       A provision is recognized in the balance sheet when the Group has a
       present legal or constructive obligation as a result of a past event, and
       it is probable that an outflow of economic benefits will be required to
       settle the obligation and a reliable estimate can be made of the amount
       of the obligation. If the effect is material, provisions are determined
       by discounting the expected future cash flows at a pre-tax rate that
       reflects current market assessments of the time value of money and, where
       appropriate, the risks specific to the liability.

3.12   Employee benefits

       Defined contribution plans

       Contributions to defined contribution plans of a subsidiary are
       recognized as an expense in the statement of income as incurred.


                                      F-82
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the financial statements (unaudited)
For the years ended 31 December 2005 and 2004


3.13   Revenue

       Revenue excludes value added taxes or other sales taxes and is arrived at
       after deduction of trade discounts.

       Sale of goods

       Revenue is recognized in the statement of income when the significant
       risks and rewards of ownership have been transferred to the buyer. No
       revenue is recognized if there are significant uncertainties regarding
       the recovery of the consideration due, associated costs or the probable
       return of goods.

       Interest income

       Interest income is recognized in the statement of income as it is earned.
       The interest component of finance lease payments is recognized in the
       statement of income using the effective interest rate method.

3.14   Expenses

       Operating leases

       Payments made under operating leases are recognized in the statement of
       income on a straight line basis over the term of the lease. Lease
       incentives received are recognized in the statement of income as an
       integral part of the total lease payments made. Contingent rentals are
       charged to the statement of income in the accounting period in which they
       are incurred.

       Other expenses

       Interest expenses and other similar expenses are charged to the statement
       of income in the period in which they are incurred.

3.15     Income tax

       Income tax on the profit or loss for the year comprises current tax which
       is recognized in the statement of income except to the extent that it is
       related to items in equity. Current tax is the expected tax payable on
       the taxable income for the year, using tax rates enacted or substantially
       enacted at the balance sheet date, and any adjustment to tax payable in
       respect of previous years.

4      Related party transactions and balances

       Related parties are those parties linked to the Company by common
       shareholders or directors. Except for the loans discussed in Note 9,
       transactions with related parties are conducted at prices based on market
       prices or, where no market obvious price exists, at contractually agreed
       prices.

       The pricing policies for particular types of transactions are explained
further below:

<TABLE>
<CAPTION>

                    Type of Transaction                                     Pricing Policy
<S>                                                              <C>
       Net sales                                              Market price
       Purchases of raw materials and finish goods            Market price
       Interest income                                        Interest rate as specified in the agreement
       Other income                                           At agreed rate or at rate specified in the
       agreement
       Selling and administrative expense                     At agreed rate or at rate specified in the
       agreement
       Interest expense                                       Interest rate as specified in the agreement
</TABLE>

       Significant agreements entered into by the Company and related parties
       are as follows:

                                      F-83
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the financial statements (unaudited)
For the years ended 31 December 2005 and 2004


       The long-term loan to a related party represents a promissory note issued
       by a subsidiary of USD 3.5 million. This loan is unsecured and bears
       interest at the rate of LIBOR plus 3.25 % per annum. It is due for
       repayment on 3 December 2008. Interest accruing for the first three years
       is due and payable on the maturity date (3 December 2008). Interest
       accruing during the fourth year onward is due and payable each quarter
       after 3 December 2005.

       The long-term loans from related parties represents notes payable to two
       shareholders of USD 6 million. These loans are unsecured and bear
       interest at the rate of LIBOR plus 3.25% per annum. They are repayable on
       3 December 2008. Interest accruing for the first three years is due and
       payable on the maturity date (3 December 2008). Interest accruing during
       the fourth year onward is due and payable each quarter after 3 December
       2005.

       On 3 December 2001, the Company entered into a technology license
       agreement with a related party - Foamex LP whereby Foamex LP has granted
       a license to the Company to manufacture foam products. In consideration
       thereof, the Company is committed to pay service fees based on the
       amounts and terms stipulated in the agreement. The agreement shall remain
       in effect until the occurrence of any of the incidents stipulated give
       rise to its termination. The Company incurred service fees for the year
       ended 31 December 2005 of approximately Baht 5.6 million (2004: Baht 2.2
       million).

       Transactions for the years ended 31 December 2005 and 2004 with related
       parties are summarized as follows:

                                                     Consolidated
                                               2005                  2004
                                                   (in thousands Baht)
       Selling and administrative expenses
       Technology license fee
       -   Foamex LP                            5,574               2,209
                                               ======              ======

       Interest expense
       -   Foamex Asia, Inc.                   11,183               7,953
       -   Hua Kee Co., Ltd.                    4,792               3,420
                                               ------              ------
       Total                                   15,975              11,373
                                               ======              ======

       Balances as at 31 December 2005 and 2004 with related parties are as
       follow:

                                                            Consolidated
                                                    2005                2004
                                                        (in thousands Baht)
       Trade and other receivables
       -   Foamex Asia, Inc.                             -                 82
                                                    ======            =======

       Advances to related parties
       -   Foamex Asia, Inc.                           262                 22
                                                    ======            =======

       Loans to employees and directors
          (Note 9)                                  33,983             31,688
                                                    ======            =======

       Trade and other payables
       -   Foamex LP                                91,085            103,461
                                                    ======            =======

       Short-term loan from director
       -   Mr. Pichai Nithivasin - interest at
              MLR plus 2% p.a.                      15,000                  -
                                                    ======            ========

       Advances from related parties
       -   Foamex LP                                 7,209              3,317
                                                    ======            =======


                                      F-84
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the financial statements (unaudited)
For the years ended 31 December 2005 and 2004


                                                                Consolidated
                                                         2005          2004
                                                          (in thousands Baht)

       Long-term loan from director
       -   Dr. Pichit Nithivasin - non - interest
           bearing                                       4,000         4,000
                                                       =======       =======

       Long-term loans from related parties
       Principal
       -   Foamex Asia, Inc. (USD 4.2 million)         172,933       164,651
       -   Hua Kee Co., Ltd.  (USD 1.8 million)         74,114        70,564
       Accrued interest payable
       -   Foamex Asia, Inc.                            36,891        24,307
       -   Hua Kee Co., Ltd.                            15,804        10,429
                                                       -------       -------
       Total                                           299,742       269,951
                                                       =======       =======

5        Cash and deposits at financial institutions

                                                               Consolidated
                                                         2005          2004
                                                           (in thousands Baht)

       Cash                                                 234           163
       Current deposits                                 205,854        96,617
       Savings deposits                                  37,341        20,292
                                                        -------       -------
       Total                                            243,429       117,072
                                                        =======       =======

6        Trade and other receivables, net

                                                           Consolidated
                                            Note      2005               2004
                                                         (in thousands Baht)
       Trade and other receivables
           from related parties           4                 -             82
       Trade and other receivables
           from other parties                         425,248        351,731
       Less allowance for doubtful
           accounts                                   (14,970)       (11,259)
                                                      -------        -------
       Net                                            410,278        340,554
                                                      =======        =======

7        Inventories, net

                                                       Consolidated
                                                  2005                2004
                                                     (in thousands Baht)
       Raw materials                              157,801            153,440
       Work in process                             24,132             20,552
       Finished goods                             123,318            116,524
       Goods in transit                            61,741             72,348
                                                  -------           --------
       Total                                      366,992            362,864
       Less allowance for decline in value        (24,398)            (9,461)
                                                  -------           --------
       Net                                        342,594            353,403
                                                  =======            =======

                                      F-85
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the financial statements (unaudited)
For the years ended 31 December 2005 and 2004


8      Other current assets, net

                                                        Consolidated
                                                   2005                2004
                                                      (in thousands Baht)
       Deposits                                    13,607             9,660
       Prepaid expenses                            16,670             6,020
       Prepaid taxes                               13,685            21,947
       Others, net                                  4,772             2,117
                                                   ------            ------
       Total                                       48,734            39,744
                                                   ======            ======

9      Loans to employees and directors

                                                          Consolidated
                                                   2005               2004

       Loans to employees                            620              1,020
       Loans to directors (USD 0.7 million)       33,363             30,668
                                                  ------             ------
       Total                                      33,983             31,688
                                                  ======             ======

       As at 31 December 2005 and 2004, a non-interest bearing loan to an
       employee, which is guaranteed by a third party, is repayable in monthly
       installments between January 2002 to December 2006.

       As at 31 December 2005 and 2004, loans to directors represent secured
       notes payable totaling USD 700,000 which bear interest at the rate of 4%
       per annum. These loans are due for repayment in December 2021. These
       loans are secured by a pledge of the director's investment in a company
       which is a major shareholder of the Company.




                                      F-86
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the financial statements (unaudited)
For the years ended 31 December 2005 and 2004


10     Property and equipment, net

<TABLE>
<CAPTION>
                                                                             Consolidated
                                                                               Furniture,
                                  Leasehold      Leasehold     Machinery      fixtures and
                                     land         building        and            office                   Construction
                                  improvements  improvements   equipment        equipment      Vehicles    in progress    Total
                                                                       (in thousand Baht)       At Cost
<S>          <C>                    <C>           <C>           <C>             <C>             <C>            <C>       <C>
At 1 January 2004                   28,144        82,673        323,656         40,520          32,046         1,576     508,615
Additions                            1,873             -         54,146          8,058           8,944           355      73,376
Transfers, net                       1,612             -            (40)             -               -        (1,572)          -
Disposals                                -             -         (5,556)        (1,188)         (3,038)            -      (9,782)
Exchange differences on
   translation           17              -          1,080         127            (16)                -         1,208
                                    ------        ------        --------        -------         -------        ------    -------
At 31 December 2004                 31,646        82,673        373,286         47,517          37,936            359    573,417
Additions                            1,417             -         11,689          7,220           8,129          3,340     31,795
Transfers, net                        (205)            -            480           (275)              -              -          -
Disposals                             (401)            -           (958)        (1,441)         (6,638)             -     (9,438)
Exchange differences on
   translation                         985             -          5,505            865             122              -      7,477
                                    ------        ------        -------         ------          ------         ------    -------
At 31 December 2005                 33,442        82,673        390,002         53,886          39,549          3,699    603,251
                                    ------        ------        -------         ------          ------          -----    =======

Accumulated depreciation
At 1 January 2004                    5,574         1,842         47,936         15,412          20,213              -     90,977
Depreciation charge for the year     5,064         5,512         31,769          7,552           4,520              -     54,417
Transfers, net                           5             -             (5)             -               -              -          -
Disposals                                -             -           (680)         ( 927)         (1,833)             -     (3,440)
Exchange differences on
   translation                          25             -            583            129              21              -        758
                                    ------        ------        -------         ------          ------         ------    -------
At 31 December 2004                 10,668         7,354         79,603         22,166          22,921              -    142,712
Depreciation charge for the year     5,281         5,511         34,474          8,549           5,208              -     59,023
Transfers, net                         (41)            -             96            (55)            -                           -
Disposals                             (249)            -           (289)        (1,198)         (4,993)             -     (6,729)
Exchange differences on
  translation                          406             -          2,890            418              15              -      3,729
                                    ------        ------        -------         ------          ------         ------    -------
At 31 December 2005                 16,065        12,865        116,774         29,880          23,151              -    198,735
                                    ------        ------        -------         ------          ------         ------    -------

Net book value
At 31 December 2004                 20,978        75,319        293,683         25,351          15,015            359    430,705
At 31 December 2005                 17,377        69,808        273,228         24,006          16,398          3,699    404,516
                                    ======        ======        =======         ======          ======          =====    =======
</TABLE>




                                      F-87
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the financial statements (unaudited)
For the years ended 31 December 2005 and 2004

11     Intangible assets, net
<TABLE>
<CAPTION>

                               At 1 January    Movements during the year   Exchange differences    At 31  December
                                    2005       Increase        Decrease       on translation             2005
                                                                   (in thousand Baht)
<S>                                <C>                                                                <C>
  Goodwill - cost                  34,299            -               -                -               34,299
  Less accumulated amortization    (5,267)           -           3,986            1,384               (7,869)
                                  -------        -----           -----            -----               ------
  Net                              29,032            -           3,986            1,384               26,430
                                   ======        =====           =====            =====               ======
</TABLE>

       On 26 April 2000, the Company purchased Wilshire Technologies, Inc.'s
       contamination control division. The goodwill amortization expense for the
       year ended 31 December 2005 amounted to approximately Baht 4.0 million
       (2004: Baht 3.6 million).

12     Other non-current assets

                                                            Consolidated
                                                       2005               2004
                                                           (in thousands Baht)
       Pledged deposits at financial institutions       8,289             8,231
       Other non-current assets                         6,978             7,358
                                                       ------           -------
       Total                                           15,267            15,589
                                                       ======            ======

       As at 31 December 2005, the Company's fixed deposits with local banks
       were pledged as security for letters of guarantee issued by the local
       bank to various state enterprises, government agencies and companies.

13       Interest-bearing liabilities

                                                            Consolidated
                                                      2005              2004
                                                         (in thousands Baht)
 Current
 Bank overdrafts
 - secured                                          15,251              5,740
 - unsecured                                         6,782              9,231
                                                   -------            -------
                                                    22,033             14,971
                                                    ------             ------
 Short-term loans from financial
     institutions (interest at 4.425% to
     5.70% p.a. in 2005 and 3.4% to
     3.5% p.a. in 2004)
 -   secured                                       120,000            120,000
 -   unsecured                                      90,000             70,000
                                                   -------            -------
                                                   210,000            190,000
                                                   -------            -------
 Bill of exchange (net of prepaid
     interest of Baht 1.0 million;
     interest at 7.75% p.a. in 2004)
 -   secured                                             -             14,030
                                                  --------           --------
 Total                                             232,033            219,001
                                                   =======            =======

 Non-current
 Long-term loans from financial
      institutions - secured                        75,000            112,500
 Less portion due within one year                  (37,500)           (37,500)
                                                   -------            -------
 Net                                                37,500             75,000
                                                   =======           ========

                                      F-88
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the financial statements (unaudited)
For the years ended 31 December 2005 and 2004

       The Company has obtained credit facilities from a local bank totaling
       Baht 350 million, including notes payable of Baht 120 million as follows:

<TABLE>
<CAPTION>
                      In million Baht                Interest rate                            Repayment

<S>         <C>   <C>    <C>                             <C>
 Facilities 1 and 2      150            Interest rate at 6.375% p.a. for the first           Eight equal  semi-annual
                                        two years.  The higher of the local                  installments  starting
                                        bank's MLR minus 1.25% per annum                     from February  2004
                                        and another local bank's MLR minus                   to August 2007
                                        0.5% per annum thereafter
                                        Trust receipt - at the rate of6.375% per annum

 Facility 3              200            Various floating interest rates based on             Less than one year
                         ---            type of facility as specified in the agreement
 Total                   350
                         ====
</TABLE>

       The period to maturity of interest-bearing liabilities, excluding finance
       lease liabilities, is as follows:

                                                                Consolidated
                                                   2005             2004
                                                      (in thousands Baht)
       Within one year                            37,500            37,500
       After one year but within five years       37,500            75,000
                                                  ------          --------
       Total                                      75,000           112,500
                                                  ======           =======

       Secured interest-bearing liabilities are secured on the following assets
(net book value).

                                                       Consolidated
                                                  2005             2004
                                                     (in thousands Baht)
       Leasehold land improvements                 69.8             75.3
       Machinery                                   94.8            100.0
                                                  -----            -----
       Total                                      164.6            175.3
                                                  =====            =====

       As at 31 December 2005 the Company had unutilized credit facilities
       totaling Baht 11.4 million (2004: Baht 24.6 million)

14     Trade and other payables

                                                            Consolidated
                                                       2005             2004
                                          Note            (in thousands Baht)
       Trade and other payables
           to related parties             4           91,085           103,461
       Trade and other payables
           to other parties                          141,596           119,940
                                                     -------           -------
       Total                                         232,681           223,401
                                                     =======           =======

                                      F-89
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the financial statements (unaudited)
For the years ended 31 December 2005 and 2004


15     Other current liabilities

                                                            Consolidated
                                                       2005             2004
                                                          (in thousands Baht)
       Accrued salaries and bonuses                   60,145            48,623
       Other payables                                 14,962            28,493
       Accrued commissions                            27,654            10,864
       Others                                          9,093             9,845
                                                     -------           -------
       Total                                         111,854            97,825
                                                     =======            ======

16       Share capital

<TABLE>
<CAPTION>
                                   Par                      2005                         2004
                                   value             Number      Baht             Number       Baht
                                   (in Baht)                        (in thousand)
<S>                                <C>              <C>       <C>                  <C>        <C>
       Authorized
       At 1 January
       -   ordinary shares         10               10,500    105,000              10,500     105,000
                                                    ------    -------              ------     -------
       At 31 December
       -   ordinary shares         10               10,500    105,000              10,500     105,000
                                                    ======    =======              ======     =======

       Issued and fully paid
       At 1 January
       -   ordinary shares         10               10,500    105,000              10,500     105,000
                                                    ------    -------              ------     -------
       At 31 December
       -   ordinary shares         10               10,500    105,000              10,500     105,000
                                                    ======    =======              ======     =======
</TABLE>

17     Reserve

       Share premium

       The share premium account is set up under the provisions of Civil and
       Commerce Code, which requires companies to set aside share subscription
       monies received in excess of the par value of the shares issued to a
       reserve account ("share premium"). The account is not available for
       dividend distribution.

       Cumulative translation adjustments

       The cumulative transaction adjustments recognized in shareholders' equity
relate to:

       (a)    foreign exchange differences arising from translation of the
              financial statements of foreign operations to Thai Baht; and

       (b)    foreign exchange differences arising on translation of monetary
              items which form part of the Group's net investment in foreign
              operations, provided certain conditions are met.

       Legal reserve

       The legal reserve is set up under the provisions of Civil and Commercial
       code, which requires that a company shall allocate not less than 5% of
       its net profit to a reserve account ("legal reserve") at each dividend
       declaration until this account reaches an amount not less than 10% of the
       registered authorised capital. The legal reserve is not available for
       dividend distribution.


                                      F-90
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the financial statements (unaudited)
For the years ended 31 December 2005 and 2004


18     Other income

                                                        Consolidated
                                                   2005               2004
                                                        (in thousands Baht)
       Interest income                            4,033                 526
       Gain from disposal of fixed assets         1,490                 808
       Freight income                             1,097               1,016
       Others                                     1,880               2,266
                                                  -----               -----
       Total                                      8,500               4,616
                                                  =====               =====

19     Cost of sale of goods

                                                        Consolidated
                                                   2005               2004
                                                       (in thousands Baht)
       Raw materials                             988,425             842,676
       Labour                                     76,143              63,353
       Overheads                                 153,266             105,827
       Employee expenses                          66,785              47,653
       Depreciation                               40,672              38,326
       Freight expenses                           16,505              17,517
                                               ---------         -----------
       Total                                   1,341,796           1,115,352
                                               =========           =========

20     Selling and administrative expenses


                                                        Consolidated
                                                   2005               2004
                                                       (in thousands Baht)

       Employee expenses                         130,445             123,756
       Bonuses                                    34,989              27,744
       Freight expenses                           27,338              22,473
       Traveling expense                          23,860              28,871
       Commission expense                         23,307              20,089
       Allowance for obsolete inventories         19,145               5,812
       Depreciation                               18,217              15,798
       Rental expense                             17,211              15,149
       Allowance for doubtful accounts             7,466               9,401
       Trial run costs                                 -              25,093
       Others                                    127,153             131,264
                                                 -------
       Total                                     429,131             425,450
                                                 =======             =======

21     Provident fund

       The  Company  has  established a contributory   provident  fund  covering
       substantially  all  employees. Membership is  compulsory  upon  attaining
       permanent employment status. The Company and employees contribute monthly
       to the fund at an amount  computed  based on a certain percentage of each
       employee's basic salary depending on the length of employment . The  fund
       is  managed  by  a  fund   manager  in  accordance  with  the  terms  and
       conditions prescribed  in  the  Ministerial  Regulation No. 2 (B.E. 2532)
       issued under the Provident Fund Act. B.E. 2530.

                                      F-91
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the financial statements (unaudited)
For the years ended 31 December 2005 and 2004

       The Company's contributions charged to the statements of income for the
       year ended December 31, 2005 amounted to Baht 3.3 million (2004: Baht 3.0
       million).

       A subsidiary's defined contribution plan costs charged to the statements
       of income for the year ended December 31, 2005 amounted to Baht 11.1
       million (2004: Baht 8.9 million).

22     Interest expense

                                                        Consolidated
                                                   2005               2004
                                          Note        (in thousand Baht)
       Interest paid and payable to:
       -   related parties                 4       15,975             11,373
       -   financial institutions                  15,360             13,810
                                                   ------             ------
       Total                                       31,335             25,183
                                                   ======             ======

23     Earnings per share

       Basic earnings per share

       The calculation of basic earnings per share at 31 December 2005 is based
       on the profit attributable to ordinary shareholders of Baht 90.9 million
       (2004: Baht 23.4 million) and the weighted average number of shares
       outstanding during the year ended 31 December 2005 of 10,500,000 shares
       (2004: 10,500,000 shares).

24     Promotional privileges

       By virtue of the provisions of the Industrial Investment Promotion Act
       B.E. 2520, the Company has been granted certain promotional privileges
       relating to its manufacturing of technical foam products, films and
       adhesives. The promotional privileges include, among other thing:

       a)      Exemption from the payment of import duties on machinery as
               approved by the Board of Investment.

       b)      Exemption from the payment of custom duties for raw material.

       c)      Exemption from the payment of corporate income tax on promoted
               business activities for seven or eight years from the date that
               income is first derived from the promoted activity.

25     Commitments

                                                          Consolidated
                                                    2005                2004
                                                          (in million Baht)
       Capital commitment
       Contracted but not provided for                 -                0.4
                                                    ====               ====

       Other long-term service agreements
       Within one year                              21.3               14.3
       After one year but within five years         35.1               20.7
       After five years                             38.8               43.6
                                                    ----               ----
       Total                                        95.2               78.6
                                                    ====               ====

       As at 31 December 2005, the Group has long-term operating leases covering
       office premises, facilities, land and vehicles with various companies for
       periods of between 2 and 18 years expiring in 2006 to 2018.

                                      F-92
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the financial statements (unaudited)
For the years ended 31 December 2005 and 2004

26     Contingent liabilities

       As at 31 December 2005:

       a)      The Company was contingently liable for letters of guarantee
               issued by a local bank in favor of various government agencies,
               state enterprises and companies totaling Baht 12.8 million.

       b)      The Company had unused letters of credit amounting to
               approximately Baht 1.7 million.

27     Reclassification of accounts

       Certain balances in the 2004 financial statements have been reclassified
       to conform with the presentation in the 2005 financial statements.

28     Significant differences between Thai GAAP and US GAAP

       The accompanying consolidated financial statements for the years ended 31
       December 2005 and 2004 have been prepared in accordance with generally
       accepted accounting principles in Thailand ("Thai GAAP"), which differ in
       certain significant respects from generally accepted accounting
       principles in the United States of America ("US GAAP"). Significant
       differences between Thai GAAP and US GAAP, as applicable to the Company
       are as follows:

(a)    Goodwill

       In accordance with SFAS No. 142, goodwill is tested for impairment
       annually. SFAS No. 142 requires that goodwill be tested for
       impairment using a two-step process. The first step is to identify
       a potential impairment and the second step measures the amount of
       the impairment loss, if any. Goodwill is deemed to be impaired if
       the carrying amount of a reporting unit's goodwill exceeds its
       estimated fair value.

       Under Thai GAAP, goodwill arising on acquisition is amortized over
       the duration of its useful life presumed to be a period not
       exceeding twenty years.

(b)    Income taxes

       In accordance with SFAS No. 109, income taxes are accounted for
       under the asset and liability method. Under this method, deferred
       income taxes are provided for temporary differences between the
       carrying amounts of assets and liabilities for financial reporting
       purposes and the amounts used for taxation purposes. Temporary
       differences are not recognized for goodwill not deductible for tax
       purposes; the initial recognition of assets or liabilities that
       affect neither accounting nor taxable profit; and differences
       relating to investments in subsidiaries to the extent that they
       will probably not reverse in the foreseeable future. The amount of
       deferred tax provided is based on the expected manner of
       realization or settlement of the carrying amount of assets and
       liabilities, using tax rates enacted at the balance sheet date.

       Thai GAAP does not currently require the reporting or disclosure
       of deferred income taxes.

(c)    Comprehensive income (loss)

       In accordance with SFAS No. 130, other comprehensive income or
       loss items are revenues, expenses, gains and losses that under
       generally accounting principles are excluded from net profit and
       reflected as a component of shareholders' equity, including
       reserves for currency translation changes.


                                      F-93
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the financial statements (unaudited)
For the years ended 31 December 2005 and 2004

       Under Thai GAAP, a company is given the option to present a
       statement showing (i) all changes in equity; or (ii) changes in
       equity other than those arising from capital transactions with
       owners and distributions to owners (i.e. statement of
       comprehensive income). The Company has chosen to present all
       changes in equity.

       The significant differences between Thai GAAP and US GAAP for the
       years ended 31 December 2005 and 2004 are summarized as follows:

                                                             2005        2004
                                                            (in thousands Baht)
       Consolidated net profit under Thai GAAP            90,900         23,427
       US GAAP Adjustments
           Amortization of Goodwill                        4,066          3,476
           Income taxes                                   (5,848)         1,319
                                                          ------         ------
       Consolidated net profit under US GAAP              89,118         28,222
                                                          ======         ======

                                                           2005            2004
                                                                  (in Baht)
       Basic earnings per share under Thai GAAP            8.66            2.23
       US GAAP adjustments                                (0.17)           0.46
                                                           ----            ----
       Basic earnings per share under US GAAP              8.49            2.69
                                                           ====            ====

<TABLE>
<CAPTION>
                                                                           31 December 2005      31 December 2004
                                                                                     (in thousands Baht)
<S>                                                                            <C>                   <C>
       Consolidated total shareholders' equity under Thai GAAP                 532,013              425,096
       US GAAP adjustments
       -   Goodwill                                                              9,464                4,171
       -   Income taxes                                                          6,094               11,942
                                                                               -------              --------
       Consolidated total shareholders' equity under US GAAP                   547,571              441,209
                                                                               =======              =======
</TABLE>

       The comprehensive income for the years ended 31 December 2005 and 2004
are as follows:

<TABLE>
<CAPTION>
                                                                                   2005              2004
                                                                                  (in thousands Baht)
<S>                                                                            <C>                 <C>
       Consolidated net profit under US GAAP                                    89,118                28,222
       -   Reserves for currency translation changes                            16,017                 2,057
                                                                               -------                ------
       Consolidated comprehensive income under US GAAP                         105,135                30,279
                                                                               =======                ======
</TABLE>

(d)      Presentation of the consolidated statement of cash flows)

              In accordance with SFAS No. 95, cash payments and cash receipts
              from interest are classified as cash flows from operating
              activities.

              Under Thai GAAP, cash receipts from interest are classified as
              cash flows from investing activities while cash payments for
              interest are classified as cash flows from financing activities.

              The reconciliation of the presentation of the consolidated
              statement of cash flows under Thai GAAP to US GAAP as follows:



                                      F-94
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the financial statements (unaudited)
For the years ended 31 December 2005 and 2004


<TABLE>
<CAPTION>
                                                                                   2005              2004
                                                                                  (in thousands Baht)
<S>                                                                            <C>                     <C>
              Net cash provided by operating activities under Thai GAAP        182,914                 7,625
              US GAAP Adjustments
              -   Interest received                                              2,901                   529
              -   Interest payment                                             (17,006)              (14,555)
                                                                               -------               -------
              Net cash provided by (used by) operating
              activities under US GAAP                                         168,809                (6,401)
                                                                               =======               =======

                                                                                   2005              2004
                                                                                  (in thousands Baht)
              Net cash used in investing activities under Thai GAAP            (25,942)              (69,935)
              US GAAP Adjustments
              -   Interest received                                             (2,901)                 (529)
                                                                               -------               -------
              Net cash used in investing activities under US GAAP              (28,843)              (70,464)
                                                                               =======               =======

                                                                                   2005              2004
                                                                                  (in thousands Baht)
              Net cash (used in) provided by financing activities
                under Thai GAAP                                                (29,354)               36,164
              US GAAP Adjustments
              -   Interest paid                                                 17,006                14,555
                                                                               -------                ------
              Net cash (used in) provided by financing
                activities under US GAAP                                       (12,348)               50,719
                                                                               =======                ======

                                                                                   2005              2004
                                                                                   (in thousands Baht)
              Net effect of currency translation adjustments in cash
              and deposit at financial institutions                             (1,261)                3,516
                                                                               =======               =======

              Net increase (decrease) in cash and deposits at financial
              institutions under Thai GAAP                                     126,357               (22,630)
                                                                               -------               -------

              Net increase (decrease) in cash and deposits at financial
              institutions under US GAAP                                       126,357               (22,630)
                                                                               =======               =======
</TABLE>

(e)      Allowance for decline in value and obsolescence of inventories

              Under US GAAP, provision for decline in the value and obsolescence
              of inventories is classified as part of costs of sales.

              Under Thai GAAP, provision for decline in the value and
              obsolescence of inventories is classified as part of selling and
              administrative expenses (see Note 20).


                                      F-95
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the financial statements (unaudited)
For the years ended 31 December 2005 and 2004

28     Additional US GAAP disclosures

       (a)        Income taxes

              The provision for income taxes is summarized as follows:

<TABLE>
<CAPTION>
                                                                                   2005              2004
                                                                                  (in thousands Baht)
              Income tax expense
<S>                                                                               <C>                 <C>
              Current year - under Thai GAAP                                      28,157              11,093
              Deferred income tax expense (benefit)
              US GAAP adjustments - deferred income tax expense (benefit)          5,848              (1,319)
                                                                                  ------              ------
              Total income tax expense under US GAAP                              34,005               9,774
                                                                                  ======              ======
</TABLE>

              The tax effect of temporary differences that give rise to deferred
              income tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
                                                                                   2005              2004
                                                                                  (in thousands Baht)

              Deferred income tax assets
<S>                                                                                <C>                   <C>
              -  Allowance for doubtful accounts                                   1,777                 929
              -  Allowance for decline in value and obsolescence of inventories    6,674                 845
              -  Net operating loss carryforwards                                  7,579              17,514
              -  Other, net                                                          117               1,784
                                                                                  ------              ------
                                                                                  16,147              21,072
              Deferred income tax liabilities
              -  Property and equipment                                           (7,559)             (7,879)
              -  Goodwill                                                         (2,839)             (1,251)
                                                                                --------              ------
                                                                                 (10,053)             (9,130)
                                                                                --------              ------
              Net deferred income tax assets                                       6,094              11,942
                                                                                 =======              ======
</TABLE>


                                      F-96
<PAGE>

Foamex Asia Company Limited and its Subsidiaries
Notes to the financial statements (unaudited)
For the years ended 31 December 2005 and 2004


       (b)    Fair value of financial instruments

              Carrying amounts reported in the consolidated financial statements
              for cash and deposits at financial institutions, current
              investments, trade and other accounts receivables, bank overdrafts
              and short-term loans from financial institutions, trade and other
              accounts payable, payable for equipment, short-term loan from
              director, advance from related parties, liabilities under finance
              lease and hire-purchase agreements approximate fair values due to
              the short-term nature of these instruments.

              The carrying amounts of long-term loans from financial
              institutions approximate fair value as this instrument bears
              interest at the market rate.

              The fair values of financial assets and financial liabilities
              which were different from the carrying amounts were as follows:

<TABLE>
<CAPTION>
                                                          31 December 2005               31 December 2004
                                                   --------------------------     ---------------------------
                                                   Carrying amount   Fair value   Carrying amount   Fair value
                                                                         (in thousand Baht)

<S>                                                      <C>          <C>                <C>          <C>
              Loans to employees and directors           33,983       25,231             31,688       23,534
              Long-term loans from related parties      299,742      302,783            269,951      272,690
</TABLE>



                                      F-97
<PAGE>



                            FOAMEX INTERNATIONAL INC.
                     INDEX TO FINANCIAL STATEMENT SCHEDULES


       Index to Financial Statement Schedules

       Schedule I - Condensed Financial Information of Registrant

       Schedule II - Valuation and Qualifying Accounts

       All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements and notes thereto.


                                      S-1
<PAGE>

                                                                      Schedule I
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                            December 31,         January 1,
                                                                                2006                2006
ASSETS                                                                       (thousands, except share data)
<S>                                                                             <C>                 <C>
    Other assets                                                                $ 3,908             $      -
                                                                                -------             --------

TOTAL ASSETS                                                                    $ 3,908             $      -
                                                                                =======             ========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
    Accounts payable                                                            $     2             $      2
    Other accrued liabilities                                                     3,078                1,153

    Deficit in consolidated subsidiaries                                        397,221              414,559
                                                                                -------             -------
    Total liabilities                                                           400,301              415,714
                                                                                -------             -------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIENCY
    Preferred Stock, par value $1.00 per share:
      Authorized 5,000,000 shares
      Issued 15,000 shares - Series B in 2006 and 2005                               15                   15
    Common Stock, par value $.01 per share:
      Authorized 50,000,000 shares
      Issued 28,648,215 shares in 2006 and 27,998,728 shares in 2005;
      Outstanding 25,107,419 shares in 2006 and 24,509,728 shares in 2005           286                  280
    Additional paid-in capital                                                  105,427              102,555
    Accumulated deficit                                                        (432,561)            (444,909)
    Accumulated other comprehensive loss                                        (32,370)             (36,654)
    Other:
      Common Stock held in treasury, at cost:
        3,540,796 shares in 2006 and 3,489,000 shares in 2005                   (27,969)             (27,780)
      Shareholder note receivable                                                (9,221)              (9,221)
                                                                               --------             --------

    Total stockholders' deficiency                                             (396,393)            (415,714)
                                                                               --------             --------

      TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY                           $  3,908             $      -
                                                                               ========             ========
</TABLE>

     See notes to consolidated financial statements, beginning on Page F-8.
                                   (continued)



                                      S-2
<PAGE>

                                                                      Schedule I

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                  2006              2005             2004
                                                              -----------       ------------     ----------

                                                              (amounts  in  thousands   except  per  share amounts)
<S>                                                            <C>             <C>               <C>
SELLING, GENERAL AND
    ADMINISTRATIVE EXPENSES                                    $ 1,039         $    944          $   1,198
                                                               -------         --------          ---------

LOSS FROM OPERATIONS                                            (1,039)            (944)            (1,198)

EQUITY IN INCOME (LOSS) OF CONSOLIDATED
    SUBSIDIARIES                                                12,673          (43,568)           (20,303)
                                                               -------         --------          ---------

INCOME (LOSS) FROM CONTINUING OPERATIONS
    BEFORE INCOME TAXES                                         11,634          (44,512)           (21,501)

PROVISION (BENEFIT) FOR INCOME TAXES (a)                          (714)          (1,815)           124,702
                                                               -------         --------          ---------

INCOME (LOSS) FROM CONTINUING OPERATIONS                        12,348          (42,697)          (146,203)

LOSS FROM DISCONTINUED OPERATIONS                                    -          (10,048)            (4,730)

INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
    ACCOUNTING CHANGE                                           12,348          (52,745)          (150,933)

CUMULATIVE EFFECT OF ACCOUNTING
    CHANGE                                                           -           (3,499)                 -
                                                               -------         --------          ---------

NET INCOME (LOSS)                                              $12,348         $(56,244)         $(150,933)
                                                               =======         ========          =========

INCOME (LOSS) PER SHARE - BASIC (b)
   INCOME (LOSS) FROM CONTINUING OPERATIONS                    $  0.34         $  (1.16)         $   (3.99)
   LOSS FROM DISCONTINUED OPERATIONS                                 -            (0.27)             (0.13)
                                                               -------         --------          ---------
   INCOME (LOSS) BEFORE CUMULATIVE EFFECT
    OF ACCOUNTING CHANGE                                          0.34            (1.43)             (4.12)
   CUMULATIVE EFFECT OF ACCOUNTING CHANGE                            -            (0.10)                 -
                                                               -------         --------          ---------
   NET INCOME (LOSS)                                           $  0.34         $  (1.53)         $   (4.12)
                                                               =======         ========          =========

INCOME (LOSS) PER SHARE - DILUTED (b)
   INCOME (LOSS) FROM CONTINUING OPERATIONS                    $  0.32         $  (1.16)         $   (3.99)
   LOSS FROM DISCONTINUED OPERATIONS                                 -            (0.27)             (0.13)
                                                               -------         --------          ---------
   INCOME (LOSS) BEFORE CUMULATIVE EFFECT
     OF ACCOUNTING CHANGE                                         0.32            (1.43)             (4.12)
   CUMULATIVE EFFECT OF ACCOUNTING CHANGE                            -            (0.10)                 -
                                                               -------         --------          ---------
   NET INCOME (LOSS)                                           $  0.32         $  (1.53)         $   (4.12)
                                                               =======         ========          =========
</TABLE>

(a)  Provision  for income  taxes  includes  the  establishment  of a  valuation
     allowance for deferred income tax assets of $128.6 million in 2004.

(b)  Per share data has been adjusted for all periods presented  pursuant to the
     rights offering under the Plan.





     See notes to consolidated financial statements, beginning on Page F-8.
                                   (continued)




                                      S-3
<PAGE>

                                                                     Schedule I
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                  2006               2005              2004
                                                              ------------       ------------      -----------

OPERATING ACTIVITIES                                                             (thousands)
<S>                                                            <C>                <C>               <C>
    Net income (loss)                                          $12,348            $(56,244)         $(150,933)
    Adjustments to reconcile net income (loss) to
      net cash provided by (used for) operating activities:
      Deferred income taxes                                                              -            124,702
      Equity in (earnings) losses of consolidated subsidiaries (12,673)             43,568             20,303
      Discontinued operations                                        -              10,048              4,730
      Cumulative effect of accounting change                                         3,499                  -
      Other                                                                            176                183
    Changes in operating assets and liabilities:
      Intercompany receivables                                   2,613                 (21)              (157)
      Accounts payable                                               -                   1                 (8)
      Other assets and liabilities                              (4,583)             (1,911)               (37)
                                                               -------            --------           --------
         Net cash used for operating activities                 (2,295)               (884)            (1,217)
                                                               -------            --------           --------

INVESTING ACTIVITIES
    Distribution from subsidiaries                                 498                 863              1,200
                                                               -------            --------           --------
      Net cash provided by investing activities                    498                 863              1,200
                                                               -------            --------           --------

FINANCING ACTIVITIES
    Proceeds from exercise of stock options                      1,818                   2                 18
    Increase (decrease) in cash overdraft                          (21)                 19                 (1)
                                                               -------            --------           --------
         Net cash provided by (used for) financing activities    1,797                  21                 17
                                                               -------            --------           --------

NET DECREASE IN CASH AND CASH EQUIVALENTS                            -                   -                  -

CASH AND CASH EQUIVALENTS AT
    BEGINNING OF PERIOD                                              -                   -                  -
                                                               -------            --------           --------

CASH AND CASH EQUIVALENTS AT
    END OF PERIOD                                              $     -            $      -           $      -
                                                               =======            ========           ========
</TABLE>



     See notes to consolidated financial statements, beginning on Page F-8.




                                      S-4
<PAGE>

                                                                    Schedule II
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
                                   (thousands)

<TABLE>
<CAPTION>
                                             Balance at      Charged to    Charged to                      Balance at
                                            Beginning of     Costs and          Other                        End of
                                                 Period       Expenses       Accounts       Deductions         Period

YEAR ENDED DECEMBER 31, 2006
<S>                                          <C>              <C>            <C>             <C>             <C>
Allowance for Uncollectible Accounts         $11,417          $   524        $     -         $   699         $11,242
                                             =======          =======        =======         =======         =======

Reserve for Discounts                        $ 2,385          $     -        $15,751 (1)     $16,295         $ 1,841
                                             =======          =======        =======         =======         =======


YEAR ENDED JANUARY 1, 2006
Allowance for Uncollectible Accounts         $ 7,054           $6,204        $     -         $ 1,841         $11,417
                                             =======          =======        =======         =======         =======

Reserve for Discounts                        $ 1,947          $     -        $15,173 (1)     $14,735         $ 2,385
                                             =======          =======        =======         =======         =======


YEAR ENDED JANUARY 2, 2005
Allowance for Uncollectible Accounts         $ 8,254          $ 3,291        $     -         $ 4,491         $ 7,054
                                             =======          =======        =======         =======         =======

Reserve for Discounts                        $ 2,251          $     -        $14,751 (1)     $15,055         $ 1,947
                                             =======          =======        =======         =======         =======

</TABLE>




(1) Adjustments reflect a reduction in net sales.


                                      S-5
<PAGE>