##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---

FORM 10-K



---

(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended April 30, 2007

OR



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

For the transition period from              to

Commission File Number: 333-118844



---

THE NEWARK GROUP, INC.

(Exact name of registrant as specified in its charter)



---



|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|New Jersey                                                     |  | 22-2884844                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)



|                                        |  |           
|--------------------------------------- |  | ----------
|20 Jackson Drive Cranford, New Jersey   |  | 07016     
|(Address of principal executive office) |  | (Zip Code)

Registrants telephone number, including area code: (908) 276-4000



---

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

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



---

Indicate by 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 check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Exchange 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 the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  x

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of the last day of the registrants most recently completed second fiscal quarter. Not Applicable

The number of common shares outstanding at July 15, 2007 was 3,600,652.



---



---

##### Table of Contents

INDEX



|         |  |                                                                                                                          |  |     
|-------- |  | ------------------------------------------------------------------------------------------------------------------------ |  | ----
|         |  |                                                                                                                          |  | Page
|         |  | PART I                                                                                                                   |  |     
|         |  |                                                                                                                         
|Item 1.  |  | Business                                                                                                                 |  | 1   
|Item 1A. |  | Risk Factors                                                                                                             |  | 6   
|Item 1B. |  | Unresolved Staff Comments                                                                                                |  | 12  
|Item 2.  |  | Properties                                                                                                               |  | 13  
|Item 3.  |  | Legal Proceedings                                                                                                        |  | 13  
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                                      |  | 14  
|         |  |                                                                                                                         
|         |  | PART II                                                                                                                  |  |     
|         |  |                                                                                                                         
|Item 5.  |  | Market for The Newark Group, Inc.s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 14  
|Item 6.  |  | Selected Financial Data                                                                                                  |  | 14  
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                    |  | 15  
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                                               |  | 28  
|Item 8.  |  | Financial Statements and Supplementary Data                                                                              |  | 29  
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                                     |  | 29  
|Item 9A. |  | Controls and Procedures                                                                                                  |  | 29  
|Item 9B. |  | Other Information                                                                                                        |  | 30  
|         |  |                                                                                                                         
|         |  | PART III                                                                                                                 |  |     
|         |  |                                                                                                                         
|Item 10. |  | Directors, Executive Officers and Corporate Governance                                                                   |  | 30  
|Item 11. |  | Executive Compensation                                                                                                   |  | 33  
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                           |  | 41  
|Item 13. |  | Certain Relationships and Related Matters                                                                                |  | 42  
|Item 14. |  | Principal Accounting Fees and Services                                                                                   |  | 43  
|         |  |                                                                                                                         
|         |  | PART IV                                                                                                                  |  |     
|         |  |                                                                                                                         
|Item 15. |  | Exhibits and Financial Statement Schedules                                                                               |  | 43  
|         |  |                                                                                                                         
|         |  | Signatures                                                                                                               |  | 47  



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES

FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements may be identified by the use of forward-looking terminology such as anticipate,
believe, continue, could, estimate, expect, intend, may, might, plan, potential, predict or should, or
the negative thereof, or other variations thereon or comparable terminology. In particular, statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance contained in this Annual Report on Form 10-K under
the headings Annual Report on Form 10-K, Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations and Business are forward-looking statements.

We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these
expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors,
including those discussed in this Annual Report on Form 10-K under the captions Annual Report on Form 10-K, Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations
and Business, may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Some of the key factors that
could cause actual results to differ from our expectations include: decreases in sales of our products; increases in financing, labor, health care and other costs, including costs of raw materials and energy; price fluctuations in our competitive
industry; competitive trends and the cyclical nature of our industry; any deterioration in general economic or business conditions, be it nationally, regionally or in the individual markets in which we conduct business; changes in governmental
regulations or enforcement practices, including with respect to environmental, health and safety matters and restrictions as to foreign investment or operations; a significant deterioration in our labor relations; fluctuations in foreign currency
exchange rates, particularly in the USD/Euro exchange rate; downgrades in our credit ratings; and other risks and uncertainties, including those listed under the caption Risk Factors below.

Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements
included in this Annual Report on Form 10-K are made only as of the date hereof. We do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any of such statements
to reflect future events or developments.

Unless otherwise indicated, The Newark Group, we, us, and
our refer to The Newark Group, Inc., together with its subsidiaries.All references to years made in connection with our financial information or operating results are to our fiscal year ended April 30, unless otherwise
indicated.

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, all amendments to those filings
and other filings with the Securities and Exchange Commission (the SEC) are available free of charge on our website (www.newarkgroup.com) via hyperlink to the SECs website (www.sec.gov). The documents are available for
access as soon as reasonably practicable after such material is electronically filed with the SEC.

PART I



|ITEM 1. | BUSINESS
|------- | --------

The Company

Founded in 1912, The Newark Group, Inc. is an integrated producer of 100% recycled paperboard and paperboard products. Primarily, we manufacture core
board, folding carton (predominantly uncoated) and industrial converting grades of paperboard, and are among the largest producers of these grades in North America. We are a major North American producer of tubes, cores and allied products, and are
a leading producer of laminated products and graphicboard in both North America and Europe. We also collect, trade and process recovered paper in North America and believe that we are among the five largest competitors in this industry. We supply
our products to the paper, packaging, stationery, book printing, construction, plastic film, furniture and game industries.

We have nearly
7,000 active customers and no single customer accounted for more than 3.2% and 2.9% of our sales in 2007 and 2006, respectively.

We
operate in three reportable segmentsPaperboard, Converted Products, and Internationaland our products are categorized into five product lines: (i) recovered paper; (ii) 100% recycled paperboard; (iii) laminated



-1-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



products and graphicboard; (iv) tubes, cores and allied products; and (v) solidboard packaging. In our Paperboard segment, we handle recovered
paper and manufacture grades of recycled paperboard which are used in the production of folding cartons, rigid boxes, tubes, cores and other products. In our Converted Products segment, we convert paperboard into tubes, cores and allied products,
solidboard packaging and laminated products used for book covers, game boards, jigsaw puzzles and loose-leaf binders. In our International segment, which consists of a vertically integrated network of facilities in Europe, we produce 100% recycled
paperboard, laminated products, graphicboard and solidboard packaging, primarily for the European market. In 2007 and 2006, we generated consolidated sales of approximately $923.0 million and $852.4 million, respectively.

For additional disclosures of our business segments and our major customers, as well as financial information about geographic areas, see Item 8
 Financial Statements and Supplementary Data.

Raw Materials

The principal raw material used in the production of our 100% recycled paperboard is recovered fiber. The supply of recovered fiber is dependent upon
collection activity from both the public and private sectors, and the volume of such collection, together with demand, affects the market price. We also purchase certain chemicals that are used in the manufacturing of paperboard.

In our Converted Products segment, approximately 9% of our total paperboard needs are purchased from third parties; we also purchase large amounts of
adhesives used in laminating and in the manufacture of tubes and cores. Historically, the volatility of the prices of these other raw materials has not materially affected our results of operations, and we do not expect any volatility of these
prices to have a material effect on our results of operations in the future.

Our Process and Our Products

As discussed above, we manufacture and convert 100% recycled paperboard, and operate in three reportable segments: Paperboard, Converted Products and
International.

Paperboard Segment

Within this segment we operate 20 facilities in North America, equally split between paperboard mills and recovered paper plants. In 2007, our paperboard mills consumed approximately 43% of the paper acquired by our recovered paper plants
which they used to produce various grades of paperboard required for the fabrication of folding cartons, rigid boxes, tubes and cores, as well as allied and other industrial products.

Recovered PaperThrough purchase and collection, we acquire, sort and bale recovered paper for use in our paperboard mills and for
sale to third party mills. During 2007, of the 2.5 million total tons of recovered paper we acquired, 1.1 million tons were used internally while the remaining 1.4 million tons were sold to third parties. While there are more than 75
grades of recovered paper, we deal primarily in old corrugated containers (OCC), old newspaper (ONP) and mixed paper (MP), which represented approximately 61%, 13%, and 8% of our total volume, respectively, for 2007. Our recovered paper business is
conducted through five regional offices located in Salem, Massachusetts; Newark, New Jersey; Moraine, Ohio; Mobile, Alabama; and Stockton, California.

We acquire recovered paper from various sources, the largest being retail stores that must dispose of large amounts of packaging material from their purchases. In 2007, we acquired approximately 42% of our recovered
paper from such retail stores, 35% from industrial and commercial companies, 13% from small recycling companies, 8% from municipalities and regional recycling centers and 2% from large waste companies.

Approximately 73% of our recovered paper is purchased baled via brokerage transactions while the remainder is received in loose form. Loose recovered
paper comes primarily from municipalities or regional recycling centers and, because of cost advantages, we attempt to maximize the amount of loose recovered paper received directly by our mills. Our recovered paper processing plants separate, sort
and bale recovered paper by grade for use in our paperboard mills or for sale to third party customers. During 2007, we sorted and baled approximately 431,000 tons of recovered paper at our processing plants.

Recycled Paperboard ManufacturingWe operate 10 paperboard mills with total annual production capacity of 1.1 million tons of
100% recycled paperboard. Due to shrinkage arising from the removal of contaminants, it takes approximately 1.1 tons of recovered paper to produce 1.0 ton of 100% recycled paperboard. Although our mills consume various grades of recovered paper, our
usage mix is predominately OCC (44%), ONP (25%) and MP (13%).



-2-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



In the paperboard manufacturing process, recovered paper is mixed with water to create a solution
that is known as stock. This stock is passed through equipment to clear away contaminants such as tape, wires, staples and plastic material, then fed into the paperboard machine where it is formed into a continuous moving layer of recycled
paperboard. The water in the layer of paperboard is removed during several stages of draining, pressing and drying. At the majority of our mills, the dried layer of paperboard is wound into rolls or sheeted and palletized. At our Fitchburg,
Massachusetts paperboard mill, we produce a three-ply laminated sheet of graphicboard utilizing two paper machines. One paperboard machine manufactures the top and bottom layers of the laminated sheet. The second machine manufactures the middle ply,
which is laminated with the paperboard from the first machine in a continuous in-line process. The resulting laminated paperboard is cut into sheets and automatically stacked onto pallets. Laminating, sheeting and palletizing are completed in an
automated, continuous in-line process. Rolls and palletized sheets from all mills are shipped to third-party customers or to facilities in our Converted Products segment for further processing.

We manufacture many different grades of 100% recycled paperboard, including plain chip/industrial grades (41%), core board grades (18%), folding boxboard
grades (13%) and laminating and laminated grades (10%), with the balance consisting of specialty grades. Plain chip grades are used primarily in the production of simple protective packaging products and rigid boxes. These products include
partitions, corner boards and layer pads for separating layers of cans and bottles. The core board grades are used to manufacture spiral wound and convolute wound tubes and cores of all kinds and sizes. Laminating grades (grades to be laminated by
the customer) and laminated grades (grades already laminated at our paperboard mills) are used to produce heavyweight boards used in the production of book covers, loose-leaf binders, solidboard packaging, game boards, jigsaw puzzles and other
products. Folding boxboard grades are used for manufacturing folding cartons and other products requiring creasing and bending of the paperboard in the manufacturing process.

Converted Products Segment

We operate 25 converting plants in North America. In 2007, these plants
consumed, as their primary raw material, approximately 31% of the recycled paperboard produced in our paperboard mills. Our Converted Products segment contains three product lines: (i) laminated products and graphicboard; (ii) tubes, cores
and allied products; and (iii) solidboard packaging.

Laminated Products/Graphicboard ManufacturingOur
laminated products and graphicboard are manufactured in 5 converting plants. Primarily, these facilities receive sheets of laminated board from our Fitchburg mill and cut them to meet customer specifications, yet they also have the ability to
laminate rolls of recycled paperboard by gluing together two to five layers to form a heavyweight board that is then further processed. Our converting plants can also customize laminated board to produce specialized products, such as by laminating
foam to board for use in the manufacture of padded boards for specialty albums and books. Additionally, we produce pieces with hinge materials attached for use by our customers in making folding game boards and sample books. We have broad
capabilities across a wide range of sheet calipers and dimensions.

Tube and Core ManufacturingWe manufacture tubes,
cores and allied products at 17 converting plants in the United States and 2 in Canada. Tubes and cores are manufactured by applying adhesive to multiple rolls of core board and winding the core board plies around a mandrel. We manufacture tubes and
cores in various diameters, thicknesses and widths. Our customers wind their products, such as paper, tape, textiles, yarn and plastic film, on our cores. Tubes are used for various applications, primarily forming concrete columns during
construction. We also manufacture paper roll end covers, roll wraps and pallets for our tube and core customers and also provide converting services.

Solidboard Packaging ManufacturingFor approximately two years, we have been attempting to create a North American market for solidboard packaging products, which we manufacture in a converting
plant in Madera, California. Solidboard packaging has been and continues to be a principal product line in our International segment. During the solidboard packaging manufacturing process, we laminate layers of paperboard which are then cut into
heavyweight sheets. These sheets are then used to form boxes and trays for packaging fruits, vegetables, fish, meat and poultry for shipment to warehouses and retail stores. The laminating process enables us to include different materials in the
heavyweight sheet, such as a moisture barrier or preprinted film, for a high quality graphic presentation. Most of our solidboard packaging products are used as a substitute for other materials when superior moisture barrier properties are required.
The recyclable nature of our products minimizes difficulties our customers



-3-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



would otherwise have with the recycling of packaging materials such as wax-saturated corrugated containers, wood and plastic. We expect North American
acceptance of solidboard products, if it indeed materializes, to continue to be slow-coming.

International Segment

We operate 7 plants in Europe that manufacture similar products through similar processes to those described in our Paperboard and Converted Products
segments. Although we do not operate recovered paper plants in Europe, we have investments in 3 recovered paper companies that operate in Spain and France; two other paper manufacturers own the balance of these 3 companies. We purchase most of our
recovered paper needs from these businesses.

We operate 2 paperboard mills in Spain that produced approximately 211,000 tons of 100%
recycled paperboard in 2007. Of this production, approximately 38% was graphicboard sheets, 34% was core board grades, 26% was laminating grades and the remainder was specialty grades. Our mill in Alcover, Spain, produces graphicboard sheets in the
same manner as our Fitchburg, Massachusetts mill in our Paperboard segment.

We operate 5 converting plants in Europe: two in Spain and one
in each of The Netherlands, France and Germany. We also convert graphicboard at out paperboard mill in Alcover, Spain. Our converting plants consume approximately 47% of our paperboard production, of which approximately half is converted into
solidboard packaging with the other half being graphicboard that is converted from sheets to smaller sizes specified by our customers.

Solidboard packaging is a major product line of our International segment. We produce boxes, trays and sheets, mainly for the packaging of fruits, vegetables, fish, meat and poultry for shipment to warehouses and retail stores. With annual
production of approximately 126,000 tons in 2007, we believe we are the second-largest producer of solidboard packaging in Western and Central Europe.

Sales and Customers

During 2007 and 2006, we had consolidated sales of approximately $923.0 million and $852.4 million,
respectively. We have nearly 7,000 active customers and have no significant customer concentration, though many of our customers purchase products from more than one of our product lines. For 2007, our largest customer accounted for approximately
3.2% of total sales. We sell our products in over 60 countries around the world, mainly to the US and Canada. Outside of North America, Spain accounts for the most sales at approximately 8%, followed by Germany with approximately 3%, and The
Netherlands, the United Kingdom, France and China with approximately 2% each.

Paperboard Segment

In the Paperboard segment we sell recovered paper and 100% recycled paperboard. During 2007, we had consolidated sales to third parties of approximately
$469.9 million.

The majority of our sales of recovered paper are made to other paper manufacturers in North America. During 2007,
approximately 57% of the recovered paper we sold, or 1.4 million tons, was sold to such third parties. We directly export recovered paper to Canada and to several countries in South America, and export to numerous other countries around the
globe through a brokerage agreement with an international organization.

Our 100% recycled paperboard is supplied to our Converted Products
segment and sold to third party converters. During 2007, we sold approximately 692,000 tons of 100% recycled paperboard to third parties. Our sales are highly diversified as to end market, with the core board market representing the largest market,
accounting for 29% of our total sales.

Converted Products Segment

During 2007, we had consolidated sales of approximately $282.2 million in the Converted Products segment. This segment consists of three product lines: (i) laminated products and graphicboard, (ii) tubes,
cores and allied products, and (iii) solidboard packaging.



-4-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



In our laminated products and graphicboard product line, we sell the solid component for the covers
of hardbound books and loose-leaf binders. We also sell laminated paperboard to the board game and jigsaw puzzle markets. We sold approximately 140,000 tons of laminated products and graphicboard in 2007.

In our tubes, cores and allied products product line, our customers are manufacturers of paper, paperboard, plastic films, metal foils, fabrics, tapes,
and labels. We provide our paperboard mill customers converting and finishing services, as well as supplies such as paper roll wraps and roll end covers. We also sell tubes that are used as forms for pouring concrete columns. We sold approximately
194,000 tons of tube, core and allied products in 2007.

As noted earlier, the North American solidboard packaging market continues to be
in the developmental stage. Solidboard packaging products are primarily sold to growers and wholesalers of fruits and vegetables and to producers of meat and poultry. Solidboard packaging is one of our principal product lines in Europe and we
believe that acceptance of these products in North America, if it occurs, will continue to take time.

International Segment

During 2007, we had consolidated sales of approximately $170.9 million in the International segment. This segment consists of our European
operations sales of 100% recycled paperboard, graphicboard and solidboard packaging.

Our 100% recycled paperboard and graphicboard
is supplied to our converting operations as well as sold to third parties from our two paperboard mills in Spain. Sales of 100% recycled paperboard are primarily from our mill near Pamplona, Spain. Standard core board is sold to tube and core
manufacturers and lightweight core board is sold to tissue and towel manufacturers. We sold approximately 65,000 tons of core board in 2007 primarily to companies located in Spain and Portugal, including one Portuguese company in which we have a
minority investment.

We sell sheets of graphicboard to the book and loose-leaf binder markets directly from our paperboard mill in
Alcover, Spain. In 2007, we sold approximately 22,000 tons of these sheets. Most of these graphicboard sheets are converted into smaller sizes at our converting operations, and in 2007, we sold approximately 46,000 tons of converted graphicboard. We
sell graphicboard in approximately 35 countries around the world, with approximately 56% of total sales made in Spain and Portugal, 39% in other European countries and the balance around the world.

In 2007 we sold approximately 110,000 tons of solidboard packaging products, of which 94% was to European countries, mainly Spain, Germany, The
Netherlands, Belgium, France, and the United Kingdom. Smaller quantities are exported to the United States and countries in Africa and Latin America.

Competition

Our competitors are manufacturers and converters within the various product markets of the 100% recycled
paperboard industry, as well as manufacturers of similar products using other materials. We compete primarily within geographic areas in our markets on the basis of price, quality and service. Our competitors include large, vertically integrated
paperboard companies that may have greater financial resources than we do, as well as numerous smaller niche players. Our competitors include Rock-Tenn Company, Caraustar Industries, Inc. and Sonoco Products Company in North America, and Smurfit
Kappa Group and Eska Graphic Board B.V. in Europe.

Employees

At April 30, 2007, we had a total of 3,169 employees. In North America, which consists of our Paperboard and Converted Products segments as well as our domestic corporate office, we had a total of 2,545
employees, of whom 678 were salaried and 1,867 were hourly. Our International segment had a total of 624 employees, all of whom were salaried, with 184 working in plant offices or as plant management and 440 working in manufacturing shifts at our
plants. A significant amount of our employees worldwide are covered by labor agreements which, if not negotiated successfully, could adversely affect our results of operations and cash flows. See Risks Related To Our Business.



-5-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



Environmental Matters

Our operations are subject to many complex federal, state, local and foreign environmental, health and safety laws and regulations that govern, among other things, air emissions, wastewater and storm water discharges
and the use, management and disposal of hazardous and non-hazardous material and waste. These requirements affect our daily operations and there can be no assurance that we have been, or will be at all times, in complete compliance with these
requirements. To maintain compliance, we have been required to modify operations and/or make capital investments. Capital expenditures for environmental control activities were not material in 2007 and are not expected to be material in 2008.
Noncompliance could result in penalties, the curtailment or cessation of operations or other sanctions, which could be material.

We also
are subject to environmental laws and regulations that impose liability and remediation responsibility for releases of hazardous material into the environment and natural resource damages. Under certain of these laws and regulations, a current owner
or operator of property, or a person who at the time of disposal of hazardous material owned or operated property at which the hazardous material was disposed of, may be liable for the costs of remediation of the contaminated soil or groundwater at
or from the property, without regard to whether the owner or operator knew of, or caused, the contamination, and may incur liability to third parties impacted by such contamination. In addition, a party that arranged for disposal of hazardous
material at a site owned by a third party may have strict and, under certain circumstances, joint and several liability for remediation costs later required in connection with such site. The Company has identified environmental contamination at
three of our closed facilities that may require remediation upon retirement of these assets. Factors affecting whether remediation may be required include, but are not limited to, the structure of any potential sale agreement and any governmental
assessment of the sites. A liability has not been recognized in our financial statements as the Company currently does not have sufficient information available to assess if remediation will be required or to reasonably estimate any potential
obligation. Any potential obligation cannot be reasonably estimated as the settlement date or potential settlement dates, the settlement method or potential settlement methods, and other relevant facts to determine a reasonable estimate for the
obligation are unknown at this time. See Note 11 to the attached consolidated financial statements for additional information.

We believe,
based on current information, that we will not materially be adversely affected by any costs or other liabilities we may incur relating to environmental matters. We cannot be certain, however, that identification of presently unidentified
environmental conditions, more vigorous enforcement by regulatory agencies, enactment of more stringent laws and regulations, or other unanticipated events will not arise in the future and give rise to additional environmental liabilities which
could materially adversely affect our financial condition or results of operations.

Backlog Orders

Our business is principally a make-to-order business with orders normally filled within two to four weeks. The Company considers backlog to be an
industry indicator of the overall strength in our markets with a longer backlog indicating stronger market demand. Senior management of the Company reviews backlog on a weekly basis.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

Risk Factors

These risk factors should be carefully considered in addition to information in our financial statements. In addition to the following risks, there may
also be risks that we do not yet know of or that we currently think are immaterial that may also impair our business operations. If any of the following risks occur, our business, financial condition or operating results could be adversely affected.

Risks Related to Our Indebtedness

We have
substantial debt outstanding and may incur additional indebtedness that could negatively effect our business and prevent us from fulfilling our debt obligations.

As of April 30, 2007, our total consolidated debt was approximately $290.1 million. Our indebtedness could:



| |  |  | make it more difficult for us to satisfy our obligations under our 93/4% Senior Subordinated Notes (the Notes) and our other debt;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



-6-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



| |  |  | require us to dedicate a substantial portion of our cash flows to pay debt service costs, thereby reducing the availability of cash to fund working capital and
capital expenditures and for other general corporate purposes;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limit our ability to obtain financing for working capital, capital expenditures, general corporate purposes or acquisitions;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | make us more vulnerable to economic downturns and fluctuations in interest rates, less able to withstand competitive pressures and less flexible in reacting to
changes in our industry and general economic conditions; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | place us at a competitive disadvantage as compared to less leveraged companies.
| | - |  | -------------------------------------------------------------------------------

In addition, we may be able to incur substantial additional indebtedness in the future, which may increase the risks described above. Although the terms
governing our senior secured revolving credit facilities and the indenture governing the Notes contain restrictions on the incurrence of additional indebtedness, debt incurred in compliance with these restrictions could be substantial. For example,
we may borrow additional amounts to fund our capital expenditures and working capital needs or we may also incur additional debt to finance future acquisitions. The incurrence of additional indebtedness could make it more likely that we will
experience some or all of the risks associated with substantial indebtedness.

If our cash flows and capital resources are insufficient to allow us
to make scheduled payments on our debt, we may have to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our debt.

Our ability to make payments on and to refinance our indebtedness, as well as to fund our operations, depends on our ability to generate cash in the
future. Our future operating performance is subject to certain market conditions and business factors that are beyond our control. Consequently, we cannot give assurance that we will generate sufficient cash flow to pay the principal, premium, if
any, and interest on our debt. If our cash flows and capital resources are insufficient to allow us to make scheduled payments on our debt, we may have to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or
refinance our debt. We cannot provide assurance that the terms of our debt will allow for these alternative measures or that such measures would satisfy our scheduled debt service obligations. In addition, in the event that we are required to
dispose of material assets or restructure or refinance our debt to meet our debt obligations, we cannot provide assurance as to the terms of any such transaction or how quickly such transaction could be completed. Our ability to refinance our
indebtedness or obtain additional financing will depend on, among other things:



| |  |  | our financial condition at the time;
| | - |  | ------------------------------------



| |  |  | restrictions in our asset-based and credit-linked credit facilities, the indenture governing the Notes and the agreements governing our other indebtedness; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | other factors, including the condition of the financial markets and our industry.
| | - |  | ---------------------------------------------------------------------------------

If we cannot make scheduled payments on our debt, we will be in default and, as a result:



| |  |  | our debt-holders could declare all outstanding principal and interest to be due and payable;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | our senior secured lenders could terminate their commitments and commence foreclosure proceedings against our assets; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | we could be forced into bankruptcy or liquidation.
| | - |  | --------------------------------------------------



-7-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



Our failure to comply with debt covenants could result in an event of default that, if not cured or waived,
could result in our being required to repay these borrowings before their due date.

Our ability to incur additional debt, and in
certain cases refinance outstanding debt, is significantly limited or restricted under the agreements relating to our existing debt. Our credit agreements governing our senior secured revolving credit facility and the indenture governing the Notes
contain covenants that, among other things, limit our ability to:



| |  |  | incur liens or make negative pledges on our assets;
| | - |  | ---------------------------------------------------



| |  |  | merge, consolidate or sell substantially all of our assets;
| | - |  | -----------------------------------------------------------



| |  |  | incur additional indebtedness;
| | - |  | ------------------------------



| |  |  | pay dividends or repurchase or redeem capital stock and prepay other debt;
| | - |  | --------------------------------------------------------------------------



| |  |  | make investments and acquisitions;
| | - |  | ----------------------------------



| |  |  | enter into certain transactions with affiliates;
| | - |  | ------------------------------------------------



| |  |  | make capital expenditures;
| | - |  | --------------------------



| |  |  | materially change our business;
| | - |  | -------------------------------



| |  |  | sell assets;
| | - |  | ------------



| |  |  | amend our debt and other material agreements;
| | - |  | ---------------------------------------------



| |  |  | make investments in unrestricted subsidiaries; or
| | - |  | -------------------------------------------------



| |  |  | make distributions from our subsidiaries.
| | - |  | -----------------------------------------

In addition, the credit agreements governing our senior secured revolving credit facilities require us to meet specific financial tests. Our failure to comply with these covenants could result in an event of default that, if not cured or
waived, could result in our being required to repay these borrowings before their due date. If we were unable to meet such an accelerated repayment schedule or otherwise refinance these borrowings, our lenders could foreclose on our assets, which
would prohibit us from making any payments on our other indebtedness. Under these circumstances, we cannot give assurance that a refinancing would be possible or that any additional financing could be obtained on acceptable terms.

Risks Related to Our Business

Market fluctuations in the
availability and costs of raw materials are beyond our control and may adversely affect our business by increasing our costs.

Our
primary raw material is recovered paper. The cost of recovered paper has fluctuated greatly because of factors beyond our control, such as market and economic conditions and seasonality. Our North American recovered paper cost per ton of paperboard
produced, defined as the sum of purchased recovered paper and related shipping, handling and administrative expenses divided by tons of paperboard produced, averaged $123 in 2007, 14% higher than in 2006 and 24% higher than 2004 levels, though we
experienced a 7% drop in average cost in 2005. Increases in the cost of recovered paper can significantly reduce our profitability. Although we have historically attempted to raise the selling prices of our products in response to raw material price
increases, when raw material prices increase rapidly or to significantly higher than normal levels, we are not always able to pass the



-8-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



price increases through to our customers on a timely basis, if at all, which adversely affects our operating margins and profitability. We experience a
reduction in margin during all periods of cost increases due to customary time lags in implementing our price increases. We cannot assure you that we will be able to recover any future increases in the cost of recovered paper. However, we rely on
our contractual and other relationships with certain of our suppliers, such as municipalities, to ensure availability at stable costs. If we are unable to maintain these relationships, the cost of our raw materials could increase, which could
adversely affect our operating margins and profitability. See BusinessRaw Materials.

Our operating margins and profitability may
be adversely affected by rising freight costs.

Fluctuations in the price of crude oil have direct impacts on our freight costs for
both the products we ship and those we receive. Although we experienced a 3% decrease in freight costs for products we shipped in 2007 to $97.0 million, these costs were still 19% higher than 2002 levels. Freight costs for products we shipped in
2006 and 2005 were $99.7 million and $96.6 million, respectively. We cannot assure you that we will be able to recover any future increases in the cost of freight, and even if we are able to do so, our operating margins and results of operations may
still be materially and adversely affected by time delays in the implementation of price increases.

Our operating margins and profitability may be
adversely affected by rising energy costs.

Excluding recovered paper, freight and labor, energy is our most significant
manufacturing cost. Energy costs consist of purchases of electricity and fuel which are used to generate steam for use in operating our paperboard machines and other equipment. The average energy cost in our North American mill system has increased
steadily for several years, averaging approximately $73 per ton in 2005, $88 per ton in 2006 and $90 per ton in 2007. This increase has been due to increases in North American natural gas, fuel oil and electricity prices. Over the last two years,
energy costs have also risen in our International segment as a result of escalating natural gas prices in Western Europe. During 2005, energy costs averaged 30 per ton of paperboard produced, then rose 33% in 2006 to an average of
40 per ton and rose another 43% in 2007 to an average of 58 per ton of paperboard produced.

In instances where
energy prices have increased rapidly or to significantly higher than normal levels, we are not always able to pass the price increases through to our customers on a timely basis, if at all, which adversely affects our operating margins and
profitability. We experience a reduction in margins during all periods of cost increases due to customary time lags in implementing our price increases. We expect that energy prices may continue to rise in response to conditions in the Middle East,
natural gas shortages in the United States and other economic conditions and uncertainties regarding the outcome and implications of such events. Although we continue to focus on controlling our energy costs, and consider ways to factor energy costs
into our pricing, we cannot give assurance that we will be able to pass increased energy costs through to our customers. In an effort to help manage our energy costs, during the last quarter of 2006 we installed a turbine engine in our paperboard
mill in Los Angeles to generate a portion of the energy required to run that mill, and installed another turbine engine in our Fitchburg, Massachusetts mill in the third quarter of 2007 with the same purpose. In addition, we attempt to limit our
energy price risk by buying forward contracts for some of our future energy requirements, but there cannot be any assurance that these activities will adequately protect us. As a result, our operating margins and results of operations could be
adversely affected.

The cyclicality of our industry could negatively impact our sales volume and revenues and our ability to respond to competition
or take advantage of business opportunities.

Our operating results tend to reflect the general cyclicality of the business in
which we operate. This general cyclicality along with the capital-intensive nature of our industry has contributed to past price competition and volatility within the industry. Prices for our products may decline due to weak customer demand or
increased production by our competitors. Over the last six years, we have taken downtime and have closed six paperboard mills based on prevailing market demand for our products, and we may continue to take downtime at our existing facilities or
close additional mills, which could adversely affect our operating results and cash flows. Future decreases in prices for our products would adversely affect our operating results. These factors, coupled with our leveraged financial position, may
adversely affect our ability to respond to competitive pressures and to other market conditions or to otherwise take advantage of business opportunities.



-9-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



Our industry is highly competitive and price fluctuations and volatility could diminish our sales volume and
revenues.

The industry in which we operate is highly competitive. Our competitors include large, vertically integrated paperboard
and packaging companies, including Rock-Tenn Company, Caraustar Industries, Inc. and Sonoco Products Company in North America, and Smurfit Kappa Group and Eska Graphic Board B.V. in Europe, along with numerous smaller paperboard and packaging
companies. We also compete indirectly with manufacturers of similar products using other materials. The industry in which we compete is particularly sensitive to price pressure as well as other factors including innovation, design, quality and
service, with varying emphasis on these factors depending on the product line. To the extent that one or more of our competitors becomes more successful with respect to any key competitive factor, our ability to attract and retain customers could be
materially adversely affected. Some of our competitors are less leveraged than we are and have greater access to resources. These companies may be better able to adapt quickly to new or emerging technologies, respond to changes in customer
requirements and withstand industry-wide pricing pressures. If our facilities are not as cost efficient as those of our competitors or if our competitors lower prices, we may need to temporarily or permanently close such facilities, which would
negatively affect our results of operations and our financial condition. See BusinessCompetition.

We rely on the operating
capacity of our Fitchburg paperboard mill to manufacture graphicboard for our North American customers and, as a result, our revenues and operating results would be adversely affected if operations at this facility are limited.

We rely on our Fitchburg paperboard mill to produce graphicboard that we sell to third parties in North America. Our reliance on the Fitchburg
paperboard mill will increase to the extent sales of graphicboard increase. If production at this facility was significantly reduced or became unavailable as a result of a natural or man-made disaster, labor dispute or any other reason, we may not
be able to supply our graphicboard to our North American customers on a timely basis or at all. As a result, our operating results and our relationships with our customers would be materially adversely affected.

Our business and financial performance may be adversely affected by changes in demand in consumer non-durable consumption or reductions in demand for packaging
materials.

Demand for our products is primarily driven by consumer non-durable consumption. Any decrease in this consumption will
result in decreased demand for our products. To a lesser extent, downturns in industrial demand or increases in imports may also decrease demand for our products. Our business has been adversely affected in recent periods by a general slowdown in
the economy, which has resulted in decreased demand for consumer non-durable and industrial products. These conditions are beyond our ability to control, but have had, and will continue to have, a significant effect on our sales and results of
operations.

In addition, as the trend to reduce the amount of packaging materials continues, demand for our products may be adversely
affected, reducing our revenues and adversely affecting our results of operations and financial condition.

We may pursue acquisitions that prove
unsuccessful or strain or divert our resources.

Historically, we have grown our business, revenues and production capacity
principally through acquisitions. We expect to continue evaluating and pursuing, subject to available funding, acquisition, joint venture and strategic investment opportunities that would increase our vertical integration and that would be
complementary to our existing operations.Acquisitions, joint ventures and strategic investments present risks that could adversely affect our earnings, including:



| |  |  | the assumption of unanticipated liabilities and contingencies;
| | - |  | --------------------------------------------------------------



| |  |  | the diversion of managements attention;
| | - |  | ----------------------------------------



| |  |  | the integration of the operations and personnel of the acquired business; and
| | - |  | -----------------------------------------------------------------------------



| |  |  | the possible reduction of our reported earnings because of:
| | - |  | -----------------------------------------------------------



| |  |  | increased interest costs from acquisition debt;
| | - |  | -----------------------------------------------



| |  |  | operational issues at the acquired business; and
| | - |  | ------------------------------------------------



| |  |  | difficulties in integrating acquired businesses.
| | - |  | ------------------------------------------------



-10-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



Our inability to effectively address these risks could force us to incur unanticipated expenses or
otherwise adversely affect our results of operations.

Our revenues and earnings could be adversely affected by foreign regulations and changes in
economic conditions in the foreign countries in which we operate our business.

We have manufacturing operations in Europe where we
generated approximately 18% of our net sales in both 2007 and 2006. Conducting an international business inherently involves a number of difficulties and risks that could adversely affect our ability to generate revenues and could subject us to
increased costs. Significant factors that may adversely affect our revenues and increase our costs include:



| |  |  | currency fluctuations, which could cause an increase in the price of the raw materials used in our products and a decrease in the selling price of our products,
both of which would decrease our profits;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | more stringent restrictions on our ability to invest or adjust our work force levels; and
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | economic downturns which could adversely affect our ability to deliver our products to our customers for a profit.
| | - |  | ------------------------------------------------------------------------------------------------------------------

We have experienced, and may in the future experience, many of these risks and cannot predict the effect of any particular risk on our operations.
However, any of these factors may materially adversely affect our revenues or increase our operating expenses. In addition, many of our customers operate in foreign countries and are subject to these and other risks, all of which may adversely
affect their production and their need for our products. In the event our customers reduce the amount of our products that they purchase, our revenues and operating results would be adversely affected.

Some of our business is seasonal and weather conditions could have an adverse effect on our revenues and operating results.

Certain of our products are used by customers in the packaging of food products, primarily fruits and vegetables. Due principally to the seasonal nature
of certain of these products, sales of our products to these customers have varied from quarter to quarter. In addition, poor weather conditions that reduce crop yields of packaged food products and reduced customer demand for food containers can
adversely affect our revenues and our operating results. Our overall level of sales and operating profit have historically been lower in our third quarter, ended January 31, due in part to the cyclicality of the demand for our products as well
as closures by us and our customers for the Thanksgiving, Christmas and New Years holidays.

If negotiations for renewals of our various labor
agreements are not successful, our operations could be subject to interruptions, which would adversely affect our results of operations and cash flows.

A significant number of our employees in North America are governed by 17 collective bargaining agreements covering 17 facilities that expire between June 1, 2007 and December 1, 2009, with five of these
agreements expiring within the next fiscal year. Substantially all of our employees at our facilities outside of North America are governed by agreements that have either already expired or will do so before September 1, 2009. Those that have
already expired are for locations covered by either local or national labor agreements and are currently being renegotiated. If we are unable to successfully renegotiate the terms of any of our agreements or an industry association is unable to
successfully negotiate a national agreement when they expire, or if we experience any extended interruption of operations at any of our facilities as a result of strikes or other work stoppages, our results of operations and cash flows could be
adversely affected.

We are controlled by a few principal stockholders who have the ability to determine the election of our directors and the
outcome of all other issues submitted to our stockholders.

Edward K. Mullen, our vice chairman, and his son Robert H. Mullen, our
chief executive officer, president and chairman of the board, and their respective affiliates beneficially own approximately 83% of our outstanding common stock. As a result, the Mullen family is able to control the actions and policies of our
company, including:



| |  |  | electing a majority of our directors; and
| | - |  | -----------------------------------------



| |  |  | approving mergers, sales of assets or other significant corporate transactions or matters submitted for stockholder approval.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



-11-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



The interests of these owners may differ from those of other stakeholders in the Company in
significant respects. For example, they may wish to pursue acquisitions, divestitures or other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve risks to the holders of our debt.
See Item 12Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

We are subject to
many environmental laws and regulations that require significant expenditures for compliance and remediation efforts, and changes in the laws could increase those expenses and adversely affect our operations.

Our operations are subject to a broad range of federal, state, local and foreign environmental, health and safety laws and regulations governing, among
other things, air emissions, wastewater and storm water discharges and the use, management and disposal of hazardous and non-hazardous material and waste. These requirements are complex, affect our day-to-day operations, including limiting the
amount of daily production at certain of our facilities, and tend to become more stringent over time. There can be no assurance that we have been, or will be at all times, in complete compliance with all such requirements that apply to our
operations, or that such compliance will not increase our operating costs. To maintain compliance with these requirements, we may be required to modify operations, purchase new equipment or make other capital improvements. Noncompliance could result
in penalties, the curtailment or cessation of operations or other sanctions, which could be material.

We also are subject to environmental
laws and regulations that impose liability and remediation responsibility for releases of hazardous material into the environment and natural resource damages. Under certain of these laws and regulations, a current owner or operator of property, or
a person who at the time of disposal of hazardous material owned or operated property at which the hazardous material was disposed of, may be liable for the costs of remediation of contaminated soil or groundwater at or from the property, without
regard to whether the owner or operator knew of, or caused, the contamination, and may incur liability to third parties impacted by such contamination. In addition, a party that arranged for disposal of hazardous material at a site owned by a third
party may have strict and, under certain circumstances, joint and several liability for remediation costs later required in connection with such site. The Company has identified environmental contamination at three of our closed facilities that may
require remediation upon retirement of these assets. Factors affecting whether remediation may be required include, but are not limited to, the structure of any potential sale agreement and any governmental assessment of the sites. A liability has
not been recognized in our financial statements as the Company currently does not have sufficient information available to assess if remediation will be required or to reasonably estimate any potential obligation. Any potential obligation cannot be
reasonably estimated as the settlement date or potential settlement dates, the settlement method or potential settlement methods, and other relevant facts to determine a reasonable estimate for the obligation are unknown at this time.

We believe, based on current information, that any costs or other liabilities we may incur relating to environmental matters will not materially
adversely affect us. We cannot be certain, however, that identification of presently unidentified environmental conditions, more vigorous enforcement by regulatory agencies, enactment of more stringent laws and regulations, or other unanticipated
events will not arise in the future and give rise to additional environmental liabilities which could materially adversely affect our financial condition or results of operations.



|ITEM 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

None



-12-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



|ITEM 2. | PROPERTIES
|------- | ----------

We believe our facilities are
appropriately insured, properly maintained and equipped with machinery suitable for their use. A table summarizing our manufacturing plants and corporate offices is provided below.



|                                      |  |                     |  |                                                                                                                                                                                                                                                                                                                                                                       
|------------------------------------- |  | ------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Type of Facility                      |  | Number ofFacilities |  | Locations                                                                                                                                                                                                                                                                                                                                                             
|CORPORATE OFFICE                      |  |                     |  |                                                                                                                                                                                                                                                                                                                                                                       
|The Newark Group, Inc. Headquarters   |  | 1                   |  | Cranford, NJ (leased).                                                                                                                                                                                                                                                                                                                                                
|                                      |  |                    
|PAPERBOARD                            |  |                     |  |                                                                                                                                                                                                                                                                                                                                                                       
|                                      |  |                    
|Paperboard Mills                      |  | 10                  |  | Milwaukee, WI; Bradford, MA; North Hoosick, NY; Los Angeles, CA; Franklin, OH; Santa Clara, CA; Baltimore, OH; Mobile, AL; York, PA; Fitchburg, MA.                                                                                                                                                                                                                   
|                                      |  |                    
|Recovered Paper Plants & Offices      |  | 10                  |  | Newark, NJ; Salem, MA; Webster, MA; Moraine, OH; Green Bay, WI; Mobile, AL (leased); Shreveport, LA; Tallahassee, FL; Stockton, CA; San Jose, CA.                                                                                                                                                                                                                     
|                                      |  |                    
|CONVERTED PRODUCTS                    |  |                     |  |                                                                                                                                                                                                                                                                                                                                                                       
|                                      |  |                    
|Graphicboard Plants                   |  | 5                   |  | Newark, NJ (leased); Franklin, OH; Chicago, IL; Los Angeles, CA; Fitchburg, MA.                                                                                                                                                                                                                                                                                       
|                                      |  |                    
|Solidboard Plants                     |  | 1                   |  | Madera, CA (leased).                                                                                                                                                                                                                                                                                                                                                  
|                                      |  |                    
|Tube, Core, and Allied Product Plants |  | 19                  |  | York, PA; Chicopee, MA; Greenville, PA; Lawrence, MA; Monmouth, ME (leased); Mississauga (Toronto) Ontario, Canada; Cedartown, GA; Atlanta, TX; Bay Minette, AL; Jacksonville, FL; Rural Hall, NC;
Oshkosh, WI (leased); Neenah, WI (leased); New London, WI; Longview, WA; Aurora, CO (leased); Ontario, CA (leased); Newark, NJ; Richmond, British Columbia, Canada.
|                                      |  |                    
|INTERNATIONAL                         |  |                     |  |                                                                                                                                                                                                                                                                                                                                                                       
|                                      |  |                    
|Paperboard Mills                      |  | 2                   |  | Alcover, Spain; Villava, Spain.                                                                                                                                                                                                                                                                                                                                       
|                                      |  |                    
|Graphicboard Converting Plants        |  | 1                   |  | Berlin, Germany (leased); (also have graphicboard operations at our Alcover, Spain, mill property.)                                                                                                                                                                                                                                                                   
|                                      |  |                    
|Solidboard Converting Plants          |  | 4                   |  | Plélo, France; Zutphen, Netherlands; Ibiricu de Egües, Spain; Esparraguera, Spain.                                                                                                                                                                                                                                                                                    
|                                      |  |                    
|International Corporate Office        |  | 1                   |  | Barcelona, Spain (leased).                                                                                                                                                                                                                                                                                                                                            
|                                      |  |                    
|TOTAL                                 |  | 54                  |  | 11 Locations leased.                                                                                                                                                                                                                                                                                                                                                  
|                                      |  |                     |  |                                                                                                                                                                                                                                                                                                                                                                       



|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------

We are involved in legal
proceedings in the ordinary course of business. We believe that these matters will not have a material adverse effect on our financial position or results of operations.



-13-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



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

The Annual Meeting of The Newark Groups shareholders was held on July 20, 2007, at which time the Board unanimously re-elected the full, current slate of directors.

PART II



|ITEM 5. | MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|------- | -------------------------------------------------------------------------

There is no established public trading market for our common stock.



|ITEM 6. | SELECTED CONSOLIDATED FINANCIAL DATA
|------- | ------------------------------------

The following
table sets forth certain selected consolidated financial data of the Company for each of the years in the five-year period ended April 30, 2007, derived from the audited financial statements. This information should be read in conjunction with
Managements Discussion and Analysis of Financial Condition and Results of Operations and the audited consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.



|                                                                                                          |  |                              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|--------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                                                          |  | Fiscal Years Ended April 30, |        
|                                                                                                          |  | 2007                         |         |   | 2006 |   |         | 2005 |  |   | 2004    |   |  | 2003 |        
|                                                                                                          |  | (dollars in thousands)       |        
|Income Statement Data:                                                                                    |  |                              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net sales                                                                                                 |  | $                            | 923,035 |   |      | $ | 852,371 |      |  | $ | 882,084 |   |  | $    | 787,607 |   |  | $ | 798,230 |  
|Cost of sales                                                                                             |  |                              | 815,917 |   |      |   | 756,031 |      |  |   | 778,393 |   |  |      | 694,395 |   |  |   | 699,603 |  
|Gross profit                                                                                              |  |                              | 107,118 |   |      |   | 96,340  |      |  |   | 103,691 |   |  |      | 93,212  |   |  |   | 98,627  |  
|Selling, general and administrative expenses                                                              |  |                              | 82,548  |   |      |   | 78,617  |      |  |   | 85,144  |   |  |      | 87,086  |   |  |   | 80,036  |  
|Restructuring and impairment costs(1)                                                                     |  |                              | 708     |   |      |   | 2,562   |      |  |   | 1,710   |   |  |      | 11,978  |   |  |   | 11,578  |  
|Operating income (loss)                                                                                   |  |                              | 23,862  |   |      |   | 15,161  |      |  |   | 16,837  |   |  |      | (5,852  | ) |  |   | 7,013   |  
|Interest expense                                                                                          |  |                              | 27,448  |   |      |   | 26,385  |      |  |   | 25,075  |   |  |      | 16,856  |   |  |   | 9,394   |  
|Loss on extinguishment of debt(2)                                                                         |  |                              |        |   |      |   |        |      |  |   |        |   |  |      | 10,824  |   |  |   |        |  
|(Loss) earnings from continuing operations before income taxes and cumulative effect of accounting change |  |                              | (464    | ) |      |   | (10,204 | )    |  |   | (2,112  | ) |  |      | (32,594 | ) |  |   | 1,346   |  
|Income tax expense (benefit)                                                                              |  |                              | 3,711   |   |      |   | 6,096   |      |  |   | (999    | ) |  |      | (16,275 | ) |  |   | 575     |  
|(Loss) earnings from discontinued operations (net of tax)(3)                                              |  |                              |        |   |      |   |        |      |  |   | (59     | ) |  |      |        |   |  |   | (1,802  | )
|Cumulative effect of accounting change (net of tax)(4)                                                    |  |                              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   | 14,604  |  
|Net (loss) earnings                                                                                       |  |                              | (4,175  | ) |      |   | (16,300 | )    |  |   | (1,172  | ) |  |      | (16,319 | ) |  |   | 13,569  |  
|                                                                                                          |  |                              |         |   |     
|Balance Sheet Data:                                                                                       |  |                              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Cash and cash equivalents                                                                                 |  | $                            | 11,806  |   |      | $ | 6,688   |      |  | $ | 5,692   |   |  | $    | 2,903   |   |  | $ | 9,845   |  
|Working capital                                                                                           |  |                              | 91,060  |   |      |   | 53,074  |      |  |   | 69,574  |   |  |      | 68,308  |   |  |   | 70,475  |  
|Total assets                                                                                              |  |                              | 616,102 |   |      |   | 583,207 |      |  |   | 602,785 |   |  |      | 607,775 |   |  |   | 608,883 |  
|Total debt                                                                                                |  |                              | 290,134 |   |      |   | 281,001 |      |  |   | 257,317 |   |  |      | 255,789 |   |  |   | 233,881 |  
|Temporary and permanent equity(5)                                                                         |  |                              | 145,847 |   |      |   | 146,097 |      |  |   | 164,577 |   |  |      | 170,675 |   |  |   | 188,217 |  
|                                                                                                          |  |                              |         |   |     
|Other Financial Data                                                                                      |  |                              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Capital expenditures                                                                                      |  |                              | 19,959  |   |      |   | 20,196  |      |  |   | 18,732  |   |  |      | 23,976  |   |  |   | 53,630  |  
|Depreciation and amortization                                                                             |  |                              | 34,478  |   |      |   | 34,100  |      |  |   | 32,862  |   |  |      | 31,524  |   |  |   | 28,176  |  

---

|(1) | Represents costs associated with permanent closure of locations. See Note 10 to audited consolidated financial statements.
|--- | --------------------------------------------------------------------------------------------------------------------------



-14-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



|(2) | Part of the March 12, 2004 cost to refinance the Company includes extinguishment of debt, which is comprised of $9.9 million for a make-whole payment to prior lenders and $0.9
million of deferred financing costs related to the prior debt.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes earnings from operations of Bertako, S.L. prior to the sale of that subsidiary on August 31, 2002. Also includes loss on the sale of Bertako, S.L. in fiscal 2003 and a
loss on the sale of the assets of the cogeneration plant in fiscal 2005.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Reflects the change in method of depreciating property, plant and equipment from an accelerated method of depreciation to the straight-line method.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | See Notes 12 and 18 to the consolidated financial statements for a discussion of certain of our repurchase obligations with respect to our common stock and the resulting
classification of the redemption value thereof as temporary equity.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Overview

Founded in 1912, The Newark Group, Inc. is an integrated producer of 100% recycled
paperboard and paperboard products. Primarily, we manufacture core board, folding carton (predominantly uncoated) and industrial converting grades of paperboard, and are among the largest producers of these grades in North America. We are a major
North American producer of tubes, cores and allied products, and are a leading producer of laminated products and graphicboard in both North America and Europe. We also collect, trade and process recovered paper in North America and believe that we
are among the five largest competitors in this industry. We supply our products to the paper, packaging, stationery, book printing, construction, plastic film, furniture and game industries. We have nearly 7,000 active customers and no single
customer accounted for more than 3.2% and 2.9% of our sales in 2007 and 2006, respectively.

We operate in three reportable
segmentsPaperboard, Converted Products, and Internationaland our products are categorized into five product lines: (i) recovered paper; (ii) 100% recycled paperboard; (iii) laminated products and graphicboard;
(iv) tubes, cores and allied products; and (v) solidboard packaging. In our Paperboard segment, we handle recovered paper and manufacture grades of recycled paperboard which are used in the production of folding cartons, rigid boxes,
tubes, cores and other products. In our Converted Products segment, we convert paperboard into tubes, cores and allied products, solidboard packaging and products used for book covers, game boards, jigsaw puzzles and loose-leaf binders. In our
International segment, which consists of a vertically integrated network of facilities in Europe, we produce 100% recycled paperboard, laminated products, graphicboard and solidboard packaging, primarily for the European market. For the fiscal year
ended April 30, 2007, sales within the Paperboard, Converted Products and International segments represented 51%, 31% and 18% of total sales, respectively.

Our fiscal year ends April 30. All references to years, quarters or other periods in this section refer to fiscal years, quarters or periods whether or not specifically indicated. Percentages and dollar amounts
have been rounded to aid presentation. Our operating results are primarily influenced by sales price and volume, mill capacity utilization, recovered paper costs, energy costs and freight costs. Our sales volumes are generally driven by overall
economic conditions and more specifically by consumer non-durable goods consumption.

Sales volumes are impacted by the very competitive
environment in which we operate. Overcapacity has plagued the paperboard industry over the last seven years, and although much has been taken off-line by industry-wide mill shutdowns over that same period, we believe there may still be some
overcapacity remaining. In September 2005, we announced the closure of our Natick, Massachusetts mill, which represented the sixth mill we have closed over the past six years. As a result of these closures, and a shift of business to other mills,
our paperboard mills capacity utilization rate has risen from a low of 89% in 2002 to 95% for 2007. Our capacity utilization rate in 2006 was 94%, with the lower rate partially attributable to our loss of twenty machine days of production in
our southeastern US mill due to Hurricanes Dennis and Katrina.

Recovered paper is our most significant raw material. Historically, the
cost of recovered paper has fluctuated significantly due to market and industry conditions. For example, our average North American recovered paper cost per ton of paperboard produced was $75 per ton in fiscal 2002 but has risen to $123 per ton in
fiscal 2007, a 64% increase. Our North American recovered paper cost per ton of paperboard produced in 2006 was $108.

Freight charges,
incurred on both the products we deliver and the products we receive, are a material cost for us. Freight charges for products we sold in 2007 were $97.0 million, a 3% decrease from the $99.7 million total for 2006, but 19% higher than 2002 levels.
Higher diesel costs from just a few years ago and more stringent delivery regulations have been the driving forces behind the escalating freight costs.



-15-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



Energy, which consists of electricity and fuel used to generate steam for use in the paper making
process, is also a significant manufacturing cost for us. The average energy cost in our North American mill system has increased substantially in recent years, averaging approximately $90, $88 and $73 per ton of paperboard produced in fiscal years
2007, 2006 and 2005, respectively, as compared to $43 per ton in 2000. This increase is primarily due to overall increases in natural gas, fuel oil and electricity prices. We expect that prices may remain at an elevated level in response to
conditions in the Middle East, natural gas shortages in the United States and other economic conditions and the related uncertainties regarding the outcome and implications of such events. Our operating margins are adversely affected when energy
costs increase, notwithstanding that we attempt to manage fluctuations in our energy costs by utilizing financial hedges and purchasing forward contracts for a portion of our energy needs. Although energy prices in North America have stabilized and
even decreased from this time last year, our average energy cost per ton of paperboard produced in our North American mills was 1% higher in 2007 than in 2006 due to the Companys active natural gas hedging program. This program put hedging
contracts into place well before the start of the 2006 hurricane season, which was predicted to be very active and damaging. As the hurricane season turned out to be extremely mild, the hedges that settled during 2007 finished out of the money,
whereas the hedges that settled during the same period last year settled well in the money. Energy costs in Western Europe, particularly relating to natural gas, began to rise significantly in our fourth quarter of fiscal 2006 and continued to rise
through the early parts of our current fiscal year. As in North America, prices have stabilized some in the latter half of fiscal 2007, but remain at elevated levels. These elevated energy costs continue to have a negative impact on the operating
results in our International segment. Comparing the fiscal years 2007 and 2006, per ton energy prices have increased 43% on a Euro basis, to an average of 58 per ton of paperboard produced in the current period versus
40 per ton in the prior year. Factoring in the weakening of the US dollar in relation to the Euro when comparing the years ended April 30, 2007 and 2006 (where average exchange rates were 1.29 and 1.21 EUR/USD, respectively), energy
prices have increased 48% per ton of paperboard produced on a US dollar basis.

We attempt to raise our selling prices in response to
increases in raw material and energy costs. However, we are not always able to pass the full amount of these costs through to our customers on a timely basis, if at all, and as a result, cannot always maintain our operating margins in the face of
cost increases. We experience a reduction in margin during periods of recovered paper price increases due to customary time lags in implementing our price increases to our customers. Even if we are able to recover future cost increases, our
operating margins and results of operations may be materially and adversely affected by time delays in the implementation of price increases. During our second quarter ended October 31, 2005, in an effort to offset increased fuel costs, we
announced a fuel surcharge on our finished products across our North American segments. This surcharge was replaced with a permanent price increase of approximately the same amount in February 2006. Additionally, a price increase on all grades of
coated and uncoated recycled paperboard became effective at the end of June 2006 for all North American customers and a price increase on all grades of uncoated recycled paperboard became effective for North American customers at the beginning of
March 2007. When comparing the fiscal year 2007 to 2006, average sales price for our converted products and recycled paperboard increased 3% and 2%, or $23 per ton and $10 per ton, respectively.

Our Results of Operations

The following table sets
out our segmented financial and operating information for the periods indicated.



|                   |  |                      |         |      |   |         |  |   |        
|------------------ |  | -------------------- | ------- | ---- | - | ------- |  | - | -------
|                   |  | Year Ended April 30,
|(in thousands)     |  | 2007                 |         | 2006 |   | 2005   
|Net Sales          |  |                      |         |      |   |         |  |   |        
|Paperboard         |  | $                    | 469,949 |      | $ | 433,531 |  | $ | 464,057
|Converted Products |  |                      | 282,205 |      |   | 267,270 |  |   | 262,903
|International      |  |                      | 170,881 |      |   | 151,570 |  |   | 155,124
|                   |  |                      |         |      |   |         |  |   |        
|Total              |  | $                    | 923,035 |      | $ | 852,371 |  | $ | 882,084
|                   |  |                      |         |      |   |         |  |   |        



-16-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



|                            |  |                      |         |   |      |   |         |      |  |   |         |  
|--------------------------- |  | -------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                            |  | Year Ended April 30, |        
|(in thousands)              |  | 2007                 |         |   | 2006 |   |         | 2005 | 
|Cost of Sales               |  |                      |         |   |      |   |         |      |  |   |         |  
|Paperboard                  |  | $                    | 406,607 |   |      | $ | 378,405 |      |  | $ | 403,070 |  
|Converted Products          |  |                      | 266,020 |   |      |   | 253,808 |      |  |   | 252,211 |  
|International               |  |                      | 143,290 |   |      |   | 123,818 |      |  |   | 123,884 |  
|Corporate                   |  |                      |        |   |      |   |        |      |  |   | (772    | )
|                            |  |                      |         |   |      |   |         |      |  |   |         |  
|Total                       |  | $                    | 815,917 |   |      | $ | 756,031 |      |  | $ | 778,393 |  
|                            |  |                      |         |   |      |   |         |      |  |   |         |  
|                            |  |                      |        
|SG&A                        |  |                      |         |   |      |   |         |      |  |   |         |  
|Paperboard                  |  | $                    | 32,417  |   |      | $ | 32,219  |      |  | $ | 33,925  |  
|Converted Products          |  |                      | 20,200  |   |      |   | 20,153  |      |  |   | 21,444  |  
|International               |  |                      | 14,197  |   |      |   | 12,898  |      |  |   | 14,302  |  
|Corporate                   |  |                      | 15,734  |   |      |   | 13,347  |      |  |   | 15,473  |  
|                            |  |                      |         |   |      |   |         |      |  |   |         |  
|Total                       |  | $                    | 82,548  |   |      | $ | 78,617  |      |  | $ | 85,144  |  
|                            |  |                      |         |   |      |   |         |      |  |   |         |  
|                            |  |                      |        
|Restructuring & Impairments |  |                      |         |   |      |   |         |      |  |   |         |  
|Paperboard                  |  | $                    | 429     |   |      | $ | 1,768   |      |  | $ | 1,309   |  
|Converted Products          |  |                      | 279     |   |      |   | 628     |      |  |   | 401     |  
|Corporate                   |  |                      |        |   |      |   | 166     |      |  |   |        |  
|                            |  |                      |         |   |      |   |         |      |  |   |         |  
|Total                       |  | $                    | 708     |   |      | $ | 2,562   |      |  | $ | 1,710   |  
|                            |  |                      |         |   |      |   |         |      |  |   |         |  
|                            |  |                      |        
|Operating Income (Loss)     |  |                      |         |   |      |   |         |      |  |   |         |  
|Paperboard                  |  | $                    | 30,496  |   |      | $ | 21,140  |      |  | $ | 25,753  |  
|Converted Products          |  |                      | (4,294  | ) |      |   | (7,319  | )    |  |   | (11,153 | )
|International               |  |                      | 13,394  |   |      |   | 14,853  |      |  |   | 16,938  |  
|Corporate                   |  |                      | (15,734 | ) |      |   | (13,513 | )    |  |   | (14,701 | )
|                            |  |                      |         |   |      |   |         |      |  |   |         |  
|Total                       |  | $                    | 23,862  |   |      | $ | 15,161  |      |  | $ | 16,837  |  
|                            |  |                      |         |   |      |   |         |      |  |   |         |  

The following table sets forth certain items related to our audited consolidated statements of
operations as a percentage of net sales for the periods indicated. A detailed discussion of the material changes in our operating results is set forth below.



|                                             |  |                      |   |  |       |   |  |       |  
|-------------------------------------------- |  | -------------------- | - |  | ----- | - |  | ----- | -
|                                             |  | Year Ended April 30, |  
|                                             |  | 2007                 |   |  | 2006  |   |  | 2005  |  
|Net sales                                    |  | 100.0                | % |  | 100.0 | % |  | 100.0 | %
|Cost of sales                                |  | 88.4                 |   |  | 88.7  |   |  | 88.2  |  
|Selling, general and administration expenses |  | 8.9                  |   |  | 9.2   |   |  | 9.7   |  
|Restructuring and impairments                |  | 0.1                  |   |  | 0.3   |   |  | 0.2   |  
|Operating income                             |  | 2.6                  |   |  | 1.8   |   |  | 1.9   |  
|Interest expense                             |  | 3.0                  |   |  | 3.1   |   |  | 2.8   |  
|Income tax expense (benefit)                 |  | 0.4                  |   |  | 0.7   |   |  | (0.1  | )
|Net loss                                     |  | (0.5                 | ) |  | (1.9  | ) |  | (0.1  | )



-17-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



Results of Operations

Year Ended April 30, 2007 Compared to Year Ended April 30, 2006

Overview

Net Sales. Net sales in 2007 increased $70.6 million to $923.0 million, up from $852.4 million in 2006. This 8% improvement was driven by higher
sales prices across all segments, along with increased volumes in our domestic mills and converting operations. The increase was also positively affected by the weakening of the US dollar versus the Euro. Slightly offsetting these gains were drops
in volumes in our international mills and converting operations.

Cost of Sales. Cost of sales was $815.9 million in 2007, 8% higher
than in 2006 when the total was $756.0 million. Significant jumps of 30% and 14% in our cost of recovered paper per ton of paperboard produced in our foreign and domestic mills, respectively, led the rise along with a 48% increase in energy costs
per ton of paperboard produced in our foreign mills. Also contributing to the elevated cost of sales were higher volumes in our domestic mill and converting operations, increased freight costs in our domestic converting operations and in our
International segment and the change in foreign currency exchange rates noted above. Partially offsetting these increases were gains from the sales of air emission credits and water rights, as well as lower freight costs, in our Paperboard segment.

SG&A.SG&A increased to $82.5 million in 2007, a 5% increase over the $78.6 million in 2006. Higher professional fees and
compensation, along with the weakening of the US dollar in relation to the Euro, account for this increase.

Restructuring and
Impairments. We incurred $0.7 million of restructuring charges in 2007, a 72% decrease from $2.6 million in 2006. Current year charges reflect costs to maintain facilities shut down in prior periods, while approximately half of the 2006 charges
related to the closing of our Natick, Massachusetts mill which was announced in September 2005. The remainder of the 2006 charges was attributable to costs to exit previously shut down facilities. Of the $2.6 million total in 2006, approximately
$0.9 million was non-cash impairment charges on fixed assets; there were minimal such charges in 2007.

Operating Income. Operating
income increased 57% in 2007 to $23.9 million from $15.2 million in 2006. Higher sales prices across all segments, gains from the sales of air emission credits and water rights and higher volumes in our domestic mill and converting operations more
than offset higher recovered paper costs, both domestically and overseas, increased energy costs and lower volumes in our International segment.

Paperboard

Net sales for 2007 in the Paperboard segment were $469.9 million, a $36.4 million, or 8%, increase from
$433.5 million in 2006. Accounting for this increase were a 13% increase in the price of waste paper sold to third parties, as well as 3% and 2% increases in the volume and sales prices, respectively, of our recycled paperboard.

Cost of sales was $406.6 million in 2007, 8%, or $28.2 million, higher than $378.4 million in 2006. Driving the increase was a 14%, or $15 per ton, jump
in our cost of recovered paper per ton of paperboard produced, along with a 2% increase in total energy costs and the noted increase in paperboard volumes. Offsetting the increase were $3.5 million in gains from the sales of certain air emission
credits at one of our California locations and a gain of $0.8 million from the sale of water rights at a different California location. Also, despite the paperboard volume increases, total 2007 freight costs decreased $4.3 million, or 6%, from 2006
levels.

Restructuring costs decreased 76% in 2007 to $0.4 million from $1.8 million in 2006. Current year charges mainly relate to the
maintenance and dismantling of facilities closed in prior years while the majority of 2006 charges related to the closing of our Natick, Massachusetts mill which was announced in September 2005. Included in the $1.8 million charge for 2006 was $0.6
million of non-cash impairment charges related to the Natick mill; there were no such impairment charges in 2007.

Our mill utilization
rates were 95% in 2007, a slight increase from 94% in 2006. The lower rate in 2006 was partially affected by our loss of 20 machine days at one of our mills due to Hurricanes Katrina and Dennis, as well as some lost business due to our vigilance in
implementing certain pricing initiatives.



-18-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



SG&A in 2007 was $32.4 million, less than 1% higher than the $32.2 million in 2006.

Operating income for the Paperboard segment increased 44%, or $9.4 million, to $30.5 million in 2007 from $21.1 million in 2006. The higher sales
prices and volumes, gains from the sales of air emission credits and water rights, and lower freight and restructuring charges more than offset higher costs of recovered paper and energy.

Converted Products

Net sales in the Converted
Products segment increased $14.9 million, or 6%, in 2007 to $282.2 million from $267.3 million in 2006, pushed higher by 3% increases in both volume and sales price.

Cost of sales was $266.0 million in 2007, 5%, or $12.2 million, higher than $253.8 million in 2006. A 4% increase in freight costs, a 3% increase in per ton raw material paperboard costs and the 3% volume increase are
what spurred the rise in cost of sales.

Restructuring costs decreased 56% to $0.3 million in 2007 from $0.6 million in 2006. Current year
charges are made up of net lease termination costs on a facility in Stockton, CA as well as the costs to maintain previously shut-down facilities, whereas the majority of prior year charges reflect dismantling and impairment charges for a facility
which ceased operations in a prior year. Non-cash asset impairment charges in 2007 were minimal but were $0.3 million in 2006.

SG&A
remained flat from 2006 to 2007 at $20.2 million.

Operating income improved 41%, or $3.0 million, from a loss of $7.3 million in 2006 to a
loss of $4.3 million in 2007. Increases in sales price and volume, along with lower restructuring costs, more than offset the increased raw material paperboard and freight costs.

International

Net sales in the International segment were $170.9 million in 2007, $19.3
million, or 13% higher than the $151.6 million of sales in 2006. The 8% weakening of the US dollar versus the Euro accounts for a large part of the increase, with spot rates changing from 1.24 USD/Euro to 1.37 USD/Euro as of April 30, 2006 and
2007, respectively. Adding to the rise in net sales were sales price increases of 16% and 9% in our mill and converting operations, respectively, though mill volume decreased 2% while converting operations volume dropped 1%. Excluding the effects of
changes in foreign currency exchange rates, sales prices increased 9% in our mills and 2% in our converting operations.

Cost of sales was
$143.3 million 2007, 16%, or $19.5 million, higher than the $123.8 million in 2006, largely due to a 48% jump in energy costs per ton of paperboard produced. Also contributing to the increase were the swing in exchange rates between the US dollar
and the Euro, a 30% rise in the recovered paper cost per ton of paperboard produced and a 7% increase in overall freight costs. Excluding the effects of changes in foreign currency exchange rates, our energy costs per ton of paperboard produced rose
43% and our recovered paper cost per ton of paperboard produced increased 22%.

SG&A expenses in 2007 were $14.2 million, 10% higher
than $12.9 million in 2006, primarily due to the weakening of the US dollar. Also contributing to the increase were higher allocated corporate expenses and the recording of a deductible on an insurance claim.

Operating income in 2007 for the International segment was $13.4 million, a $1.5 million decrease from 2006. The increases in both energy and recovered
paper costs, along with higher allocated corporate expenses more than offset realized price increases in both our mills and converting operations.

Corporate

Unallocated corporate expense increased to $15.7 million in 2007, a $2.2 million, or 16%, increase from
$13.5 million in 2006. The majority of the increase is due to higher compensations costs, with the remainder attributable to higher professional fees and legal settlements.



-19-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



Other (Expense) Income

Interest expense increased to $27.4 million in 2007 from $26.4 million in 2006, primarily due to a 6% increase in our average outstanding borrowings. Average outstanding borrowings increased from $269.2 million in
2006 to $285.6 million in 2007.

Excluding interest expense, Other income - net increased to $3.1 million in 2007 from $1.0 million in 2006
as a result of increased earnings in affiliates and favorable swings in foreign currency exchange rates.

Income Tax (Benefit) Expense

Income tax expense for the year ended April 30, 2007 was $3.7 million as compared to tax expense of $6.1 million in 2006.
Effective tax rates were 800% and 60% in 2007 and 2006, respectively. The 740% change in the effective tax rate from 2006 to 2007 is primarily the result of the increased valuation allowance on the Companys domestic tax assets as well as the
recognition of foreign currency gains related to transactions with the Companys European branch.

During the year ended
April 30, 2007, Spanish authorities enacted a two-tiered rate change for corporate taxpayers. The corporate income tax rate was changed from 35% to 32.5% and 30% for tax years beginning after December 31, 2006 and 2007, respectively. This
change represents a tax benefit of approximately $691.

Net Income (Loss)

In summary, our net loss for 2007 was $4.2 million as compared to a loss of $16.3 million in 2006. One factor in this change was a $2.3 million reduction
in income tax expense in 2007 when compared to 2006. Additionally contributing to this decrease in loss were higher sales prices across all segments, gains from the sales of air emission credits and water rights and higher volumes in our domestic
mills and converting operations. Partially offsetting these items were elevated costs of recovered paper and increased energy costs.

Results of
Operations

Year Ended April 30, 2006 Compared to Year Ended April 30, 2005

Overview

Net Sales. Net sales in 2006
decreased 3% to $852.4 million from $882.1 million in 2005. This decrease was the result of a reduction in the sales price of recovered paper sold to third parties, the strengthening of the US dollar versus the Euro, and lower volumes in our mills
and our domestic converting operations. Partially offsetting these items were a 7% increase in the sales price of our North American converted products and a 9% increase in our International converting volumes.

Cost of Sales. Cost of sales decreased 3% to $756.0 million in 2006 from $778.4 million in 2005 due to a 14% reduction in our cost of recovered
paper as well as lower volumes, partially offset by increases in energy and freight costs of 18% and 3%, respectively.

SG&A.SG&A decreased $6.5 million, or 8%, from $85.1 million in 2005 to $78.6 million in 2006. This decrease was primarily due to lower costs as a result of past restructuring efforts, including overhead, salaries and benefits, as well as lower
current-year bad debt expense.

Restructuring and Impairments. We recorded restructuring charges of $2.6 million in 2006, an
increase of $0.9 million from 2005. Approximately half of these charges related to the closing of our Natick, MA mill which was announced in September 2005, with the remainder attributable to the on-going costs to exit previously shut down
facilities. Of the $2.6 million total, approximately $0.9 million was non-cash impairment charges on fixed assets. Prior year restructuring charges were net of $1.3 million we received from both the sale of certain water/sewer discharge rights and a
net gain from the sales of two locations sold in the fourth quarter of 2005.

Operating Income. Operating income decreased $1.6
million to $15.2 million in 2006 versus $16.8 million in 2005. Contributing to this decrease were increased energy and freight costs and lower volumes in our mills and our domestic converting operations. Serving to offset these factors were a higher
sales price on our North American converted products and higher volumes in our International converting operations.



-20-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



Paperboard

Net sales in the Paperboard segment decreased 7%, or $30.6 million, to $433.5 million in 2006 from $464.1 million in 2005. A 13% decrease in the price of waste paper sold to third parties accounted for approximately
$20.0 million of this change, while a 4% reduction in volumes accounted for approximately $10.0 million.

Cost of sales decreased 6%, or
$24.7 million, from $403.1 million in 2005 to $378.4 million in 2006. Our total cost of recovered paper decreased $35.0 million, the result of lower per ton costs and lower volumes. This decrease was offset by a $13.0 million increase in energy
costs, despite our realization of $5.2 million in favorable settlements from our hedging efforts, and a $1.5 million increase in freight costs.

Restructuring costs in 2006 were $1.8 million as compared to $1.3 million in 2005, an increase of $0.5 million. The majority of current year charges related to the closing of our Natick, MA mill announced in September 2005, with the
remainder attributable to the continuing costs to exit locations shut down in prior years. Included in the $1.8 million charge is $0.6 million of non-cash impairment charges related to the Natick mill.

Our mill utilization rates decreased slightly to 94% in 2006 from 95% in 2005. This decrease was partially due to the loss of 20 machine days at one of
our mills due to Hurricanes Katrina and Dennis, as well as some lost business as we remained vigilant in the implementation of certain pricing initiatives, specifically our fuel surcharge that was announced in October 2005.

SG&A decreased 5% from $33.9 million in 2005 to $32.2 million in 2006. This $1.7 million decrease is attributable to lower costs as a result of our
restructuring efforts, lower bad debt expense and lower professional fees.

Operating income for the Paperboard segment decreased $4.7
million, or 18%, from $25.8 million in 2005 to $21.1 million in 2006. Decreased volumes, as well as increases in energy, freight and restructuring costs more than offset a decrease in SG&A expenses.

Converted Products

Net sales in the Converted
Products segment were $267.3 million in 2006, $4.4 million, or 2%, higher than 2005. A 7% increase in sales prices had a $16.1 million positive impact on net sales, but a 5% decrease in volume accounted for a $12.0 million decrease.

Cost of sales increased $1.6 million, or 1%, in 2006, to $253.8 million, as an 11% and 4% increase in per ton freight and raw material paperboard costs,
respectively, more than offset the decrease in costs due to lower volumes.

Restructuring costs increased $0.2 million in 2006 to $0.6
million from $0.4 million in 2005. The majority of the 2006 charges reflect dismantling and impairment charges for a facility which ceased operations in a prior year. Included in total restructuring costs in both 2006 and 2005 are non-cash
impairment charges of $0.3 million.

SG&A decreased 6% from $21.4 million in 2005 to $20.2 million in 2006 due to the consolidation of
accounting functions and lower overhead costs due to past restructuring efforts.

Operating income improved 34% from a loss of $11.2
million in 2005 to a loss of $7.3 million in 2006. Higher sales price and a reduction in SG&A expenses more than offset lower volumes, slightly higher restructuring costs and increases in per ton raw material paperboard and freight costs.

International

Net sales in the
International segment decreased 2% from $155.1 million in 2005 to $151.6 million in 2006. This decrease was primarily due to the strengthening of the US dollar in 2006 as the USD/Euro rate averaged $1.21 in 2006 versus $1.27 in 2005. Although sales
prices remained flat on a Euro basis, because of such strengthening, prices on a US dollar basis in our mills and converting operations decreased by 5% and 3%, respectively. Volumes at our converting operations increased 9% while our mills
experienced a 2% decrease.

Cost of sales essentially remained flat when comparing the years 2006 and 2005. Energy costs increased 26%, or
$1.9 million, mainly in our mills due to the escalation of natural gas prices in Western Europe, while freight



-21-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



costs increased 1%. These increases were tempered by a 2% decrease in our recovered paper cost per ton of paperboard produced, as well as the effects of the
change in exchange rates noted above. Excluding the effects of changes in foreign currency exchange rates, cost of sales increased 5% due to higher energy costs and the volume increase in our converting operations. Additionally, our waste paper cost
per ton of paperboard produced increased 3% excluding the effects of changes in foreign currency exchange rates.

SG&A expenses
decreased 10% to $12.9 million in 2006 from $14.3 million in 2005, primarily due to lower bad debts in 2006 versus the prior year, as well as our continued efforts on cost containment. Excluding the effects of changes in foreign currency exchange
rates, SG&A expenses decreased 6%.

Operating income for the International segment decreased $2.0 million, or 12%, to $14.9 million,
primarily due to the strengthening of the US dollar during 2006. Increased energy and freight costs were offset by higher volumes for the second straight year in our converting operations and lower SG&A expenses.

Corporate

Unallocated corporate expense
decreased 8% from $14.7 million in 2005 to $13.5 million in 2006. This reduction was the result of a $1.7 million decrease in salaries and benefits, offset by increases of $0.8 million and $0.2 million in professional fees and office expenses,
respectively.

Other (Expense) Income

Interest expense increased from $25.1 million in 2005 to $26.4 million in 2006, primarily due to higher interest rates on our variable rate debt and a 5% increase in our average outstanding borrowings. Average outstanding borrowings
increased from $256.6 million in 2005 to $269.2 million in 2006, partially due to the issuance of a $7.9 million note for the purchase of treasury stock from our former Chairman (see Note 17 to the accompanying consolidated financial statements).

Excluding interest expense, Other income (expense)net was income of $1.0 million in 2006 as compared to income of $6.1 million in
2005. The decrease was primarily attributable to $3.4 million of a non-recurring gain in 2005 from the settlement of litigation. The remainder of the decrease was due to unfavorable movement in foreign currency exchange rates and lower affiliate
earnings.

Income Tax (Benefit) Expense

Income tax expense for the year ended April 30, 2006 was $6.1 million as compared to a tax benefit of $1.0 million in 2005. Effective tax rates were 60% and (47%) in 2006 and 2005, respectively. The 226% change in the effective
tax rate from 2005 to 2006 was primarily the result of the increased valuation allowance on the Companys domestic tax assets as well as the recognition of foreign currency gains related to transactions with the Companys European branch.

In 2006, the Company provided for US income taxes for additional repatriation of foreign earnings. The Company repatriated $12.0 million
of foreign earnings during the 2006 fiscal year.

Net Income (Loss)

In summary, our net loss increased from $1.2 million in 2005 to $16.3 million in 2006. A major factor in this change was a tax expense in 2006 of $6.1
million as compared to a tax benefit in 2005 of $1.0 million. Additionally contributing to this earnings decrease were lower volumes in all of our mills and our domestic converting operations, a reduction in the sales price of recovered paper sold
to third parties and higher worldwide energy and freight costs. Items that positively affected earnings were higher volumes in our International converting operations, higher sales prices on our North American converted products and lower SG&A
costs. Additionally, in 2005, we recorded non-recurring income of $3.4 million from the settlement of litigation.

Liquidity Requirements

Operations. Our current cash requirements for operations consist primarily of expenditures to maintain our mills and
plants, purchase inventory, meet operating lease obligations, meet obligations to our lenders and finance working capital requirements and other operating activities. We fund our current cash requirements with cash provided by operations and
borrowings under our asset-based and credit-linked facilities. We believe that these sources will be sufficient to meet the current and anticipated cash requirements of our operations for the next twelve months.



-22-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



Capital Expenditures. Our total capital expenditures were $20.0 million, $20.2 million
and $18.7 million in fiscal 2007, 2006 and 2005, respectively. We expect fiscal 2008 capital expenditures to be under $25.0 million.

Borrowings

At April 30, 2007, total debt (consisting of current maturities of debt, our asset-based and credit-linked facilities, and
other long-term debt, as reported on our consolidated balance sheets) was as follows (in millions):



|                                          |  |                |      
|----------------------------------------- |  | -------------- | -----
|                                          |  | April 30, 2007
|9 3/4% Senior Subordinated Notes due 2014 |  | $              | 175.0
|Asset-based credit facility               |  |                | 18.0 
|Term loan                                 |  |                | 15.0 
|Industrial Revenue Bonds (IRBs)         |  |                | 67.2 
|Other(1)                                  |  |                | 14.9 
|                                          |  |                |      
|Total debt                                |  | $              | 290.1
|                                          |  |                |      

---

|(1) | See Note 7 to the accompanying consolidated financial statements for the components of this total.
|--- | --------------------------------------------------------------------------------------------------

In March 2004, we entered into a three-year, senior secured revolving credit facility with Wachovia Bank, National Association, as Agent, which matured
in March 2007. The facility was in the aggregate principal amount of $150.0 million, with up to $95.0 million available for the issuance of letters of credit. Letters of credit were needed, in part, as security for our industrial revenue bonds.

On March 9, 2007, (i) we entered into a new asset-based senior secured revolving credit facility whereby the lenders agreed to
provide to us a revolving line of credit in the aggregate principal amount of up to $85.0 million (depending on our borrowing base), up to $25.0 million of which may be used for loans directly to our International subsidiary and up to $15.0 million
of which may be used for letters of credit, and other financial accommodations, and (ii) we and our domestic subsidiaries entered into a credit-linked facility whereby the credit-linked lenders provided to us a $15.0 million term loan and a
$75.0 million credit-linked letter of credit facility, and other financial accommodations. Under the agreement referred to in (i) above, we (a) granted the lenders a first priority lien on all of our accounts receivable and inventory (the
ABL Priority Collateral) and a second priority lien on substantially all of our other assets, including certain real property, and (b) guaranteed the obligations, under this facility, of our international subsidiary. Under the
agreement referred to in (ii) above, we granted the lenders a first priority lien on substantially all of our assets, including certain real property (excluding accounts receivable and inventory), and a second priority lien to the lenders on
all ABL Priority Collateral. Borrowings under the asset-based facility bear interest at a rate of prime or the Eurodollar rate plus a credit spread determined based on availability under the facility. The term loan under the credit-linked facility
bears interest at a rate of prime plus 1% or the Eurodollar rate plus a credit spread of 2.25%. Letters of Credit are issued under the credit-linked facility primarily to enhance the Companys multiple IRB issues with the credit spread being
the same as the term loan. The term of the asset-based credit agreement is 5 years, and the term of the credit-linked credit agreement is 6 years. Subject to meeting certain conditions, we have a one-time option prior to March 9, 2010 to
increase the revolving credit facility by an amount of up to $15.0 million. Likewise, subject to meeting certain conditions, we have a one-time option prior to March 9, 2010 to increase the credit-linked facility by an amount of up to
$10.0 million.

The facilities include financial covenants as follows: (a) if, during any quarter, Excess Availability, as defined
under the revolving credit facility, falls below $10.0 million, we must achieve a Fixed Charge Coverage Ratio, as defined in that agreement, of not less than 1.0 to 1.0. and (b) the Senior Leverage Ratio, as defined, for each twelve-month
period ending as of each fiscal quarter end shall be less than or equal to 3.0 to 1.0. At April 30, 2007, the Company was in compliance with all financial ratios. The new facilities also contain a Material Adverse Change clause. It
is the Companys opinion that the clause will not be invoked and as such, all debt under these facilities is classified as long-term.

In March 2004, we completed an offering of $175.0 million of 9.75% senior subordinated notes (the Notes) with a maturity date of March 12, 2014. We pay interest semi-annually on March 15 and September 15 of each
year. We cannot redeem the Notes before March 15, 2009, except as described below; on or after that date, we



-23-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



may redeem them at specified prices. However, on or before March 15, 2007, we may redeem up to 35% of the original principal amount of the Notes at
109.75% of their face amount, plus accrued interest, with money we raise from certain public equity offerings. The Notes rank junior in right of payment to all of our existing and future senior debt and equal in right of payment with all of our
existing and future senior subordinated debt. The Notes are not guaranteed by any of our subsidiaries, and therefore are effectively subordinated to all liabilities of our subsidiaries. If we experience certain changes of control, we must offer to
purchase the Notes at 101% of their face amount, plus accrued interest.

Aggregate annual principal payments applicable to debt for the
next five years and thereafter will be as follows (in millions):



|                      |  |       |      
|--------------------- |  | ----- | -----
|Year Ending April 30, |  | Total
|2008                  |  | $     | 10.9 
|2009                  |  |       | 2.9  
|2010                  |  |       | 3.0  
|2011                  |  |       | 3.2  
|2012(1)               |  |       | 21.3 
|Thereafter(2)         |  |       | 248.8

---

|(1) | Includes $18.0 million due under the asset-based credit facility.
|--- | -----------------------------------------------------------------

|(2) | Includes $15.0 million due under the term loan.
|--- | -----------------------------------------------

We are also parties to a series of cross currency rate swap transactions with a member of our bank group (the 2001 Swaps). The 2001 Swaps
have been designated as hedges against the existing inter-company loan to our European subsidiary. At April 30, 2007 and 2006, the fair value of the 2001 Swaps represented a liability of $14.8 million and $16.3 million, respectively.

Additionally, in our effort to manage costs, we, at varying times, utilize energy and raw material price hedges. At April 30, 2007
the fair value of these hedges was a liability of less than $0.1 million.

Cash Flow

Net cash provided by operating activities

In the fiscal years ended April 30, 2007 and 2006, we generated cash from operating activities of $11.6 million and $9.5 million, respectively. The $2.1 million increase was mainly the result of the following: (i) a $1.3 million
increase in dividends received from equity investments in affiliates, (ii) $1.2 million derived primarily from the current year receipt of funds from hurricane-related insurance claims and an additional $1.2 million in receipts from other
property-related insurance claims, (iii) the current year receipt of $0.4 million released from an escrow account, (iv) a decrease of $0.2 million in prepaid property insurance and (v) the current year payment of $2.2 million on the
settlement of natural gas hedging contracts.

Net cash used in investing activities

In the fiscal years ended April 30, 2007 and 2006, we used $19.8 million and $19.0 million in cash, respectively, in investing activities. The
increase is mainly comprised of $2.2 million in acquisition costs that were not incurred in 2006 partially offset by $1.0 million more of proceeds from the sale of assets and $0.2 million in fewer capital expenditures.

Net cash provided by financing activities

In 2007 and 2006, financing activities provided $14.3 million and $13.9 million of cash, respectively. An $11.6 million swing in changes in cash overdrafts was partially offset by a $7.8 million decrease in net borrowings under our credit
facilities, $2.8 million paid in deferred financing costs and $0.5 million more paid in the acquisition of treasury stock.



-24-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



Contractual Obligations

The following table (in millions) summarizes our significant contractual obligations as of April 30, 2007. Certain of these contractual obligations are reflected in our balance sheet, while others are disclosed
as future obligations under GAAP.



|                                |  |       |       |                  |   |           |  |           |      |                      |   |      |  |   |      
|------------------------------- |  | ----- | ----- | ---------------- | - | --------- |  | --------- | ---- | -------------------- | - | ---- |  | - | -----
|Contractual Obligations (1)     |  | Total |       | Less than 1 year |   | 2-3 years |  | 4-5 years |      | Greater than 5 years
|Long-term obligations(2)        |  | $     | 290.1 |                  | $ | 10.9      |  | $         | 5.9  |                      | $ | 24.5 |  | $ | 248.8
|Interest payment obligations(3) |  |       | 177.0 |                  |   | 24.6      |  |           | 48.6 |                      |   | 47.8 |  |   | 56.0 
|Employee stock ownership plan   |  |       | 26.6  |                  |   | 1.4       |  |           | 1.6  |                      |   | 0.4  |  |   | 23.2 
|Operating leases(4)             |  |       | 25.4  |                  |   | 6.0       |  |           | 10.1 |                      |   | 6.3  |  |   | 3.0  
|Purchase Commitments            |  |       | 4.9   |                  |   | 4.3       |  |           | 0.6  |                      |   |     |  |   |     

---

|(1) | Does not include any obligation to repurchase shares held by our employee stock ownership plan which appears in the Temporary Equity component of our Consolidated Balance Sheet (See
Note 12 to our audited consolidated financial statements) or future pension liabilities.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | See Note 7 to our consolidated financial statements.
|--- | ----------------------------------------------------

|(3) | Represents estimates based upon current interest rates.
|--- | -------------------------------------------------------

|(4) | See Note 11 to our consolidated financial statements.
|--- | -----------------------------------------------------

Off-balance
Sheet Arrangements

At April 30, 2007, we were not a party to any agreements with, or commitments to, any special-purpose
entities that would constitute material off-balance sheet arrangements other than the letters of credit described in Note 7 of the attached financial statements.

Seasonality

Certain of our products are used by customers in the packaging of food products, primarily fruits and
vegetables. Due principally to the seasonal nature of certain of these products, sales of our products to these customers have varied from quarter to quarter. In addition, poor weather conditions that reduce crop yields of packaged food products and
reduced customer demand for food containers can adversely affect our revenues and our operating results. The sales volumes of certain of our converted products can also vary from quarter to quarter, partly due to the increased production of
textbooks and binders before the beginning of the school year, as well as the production of board games and other products before the start of the Christmas season. Our overall level of sales and operating profit have historically been lower in our
third quarter, ended January 31, due in part to the cyclicality of the demand for our products as well as closures by us and our customers for the Thanksgiving, Christmas and New Years holidays.

Inflation

Increases in raw material and
energy prices have had, and continue to have, a material negative effect on our operations. We do not believe that general economic inflation is a significant determinant of our raw material price increases or that it has a material effect on our
operations.

Critical Accounting Policies

Our accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which require management to make estimates that affect the amounts of revenues,
expenses, assets and liabilities reported. The following are critical accounting matters which are important to the portrayal of our financial condition and results and which require some of managements most difficult, subjective and complex
judgments. The accounting for these matters involves the making of estimates based on current facts, circumstances and assumptions which, in managements judgment, could change in a manner that would materially affect managements future
estimates with respect to such matters and, accordingly, could cause future reported financial condition and results to differ materially from financial condition and results reported based on managements current estimates. Changes in these
estimates are recorded when better information is known. There have been no material changes in our critical accounting policies during the year ended April 30, 2007.



-25-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



Revenue Recognition

In accordance with generally accepted accounting principles in the Unites States, we recognize revenue when persuasive evidence of an arrangement exists, ownership has transferred to the customer, the selling price is
fixed and determinable and collectibility is reasonably assured. Title and the risks and rewards of ownership transfer to the customer at varying points, which is determined based on shipping terms. Net sales includes provisions for discounts,
returns, allowances, customer rebates and other adjustments that are based upon managements best estimates and historical experience and are provided for in the same period as the related revenues are recorded. We account for shipping and
handling costs as a component of Cost of goods sold; amounts for shipping and handling costs invoiced to customers are included in determining net sales.

Pension

Our defined benefit pension plans are accounted for in accordance with SFAS No. 87,
Employers Accounting for Pensions, as amended. The determination of pension obligations and expense is dependent upon our selection of certain assumptions, the most significant of which are the discount rates used to discount plan
liabilities, the expected long-term rate of return on plan assets and the level of compensation increases. The discount rate is based upon the demographics of the plan participants as well as benchmarking a certain index, e.g. Citigroup Pension
Liability Index. At April 30, 2007, the discount rate was lowered to 6.00% from 6.30%. A 1.0% change in this discount rate would create an impact to the statement of operations of approximately $1.2 million. To determine our expected long-term
rate of return on plan assets, we evaluated criteria such as asset allocation, historical returns by asset class, historical returns of our current pension portfolio managers and managements expectation of the economic environment. Based upon
this methodology, the expected long-term rate of return on assets was adjusted downward from 9.2% in 2006 to 8.8% in 2007. Management believes this decrease was warranted as over the past year, we have increased the portion of our portfolio invested
in cash and other investments to provide for less exposure to market volatility. We regularly review our asset allocation and periodically rebalance such allocation, as well as replace certain fund managers, when we deem appropriate. As of
April 30, 2007, assets were allocated as follows: 66% in equity securities, 11% in debt securities and 23% in all other. A 1% change in the expected long-term rate of return on plan assets would create an impact to the statement of operations
of approximately $0.9 million. The level of compensation increase is established by management, and has the smallest direct impact, of the three assumptions, on the statement of operations. A 0.5% change in this compensation rate would create an
impact to the statement of operations of approximately $0.3 million. Pension expense was $3.0 million in 2007, $4.7 million in 2006 and $5.3 million in 2005 (see Note 14 to the consolidated financial statements).

Goodwill

FAS No. 142, Goodwill and
Other Intangible Assets requires us to perform a goodwill impairment test at least annually. See Note 1 to the consolidated financial statements for additional information regarding our accounting for goodwill. Our judgments regarding the
existence of impairment indicators are based on a number of factors including market conditions and operational performance of our businesses. Future events could cause us to conclude that impairment indicators exist and that goodwill associated
with our reporting units is impaired. Evaluating the impairment of goodwill also requires us to estimate future operating results and cash flows, which also require judgment by management. Any resulting impairment loss could have a material adverse
effect on our financial condition and results of operations.

Accounts Receivable

Our policy with respect to trade and notes receivables is to maintain an adequate allowance or reserve for doubtful accounts for estimated losses from the
inability of our customer to make required payments. For specific accounts on which we have information that the customer may be unable to meet its financial obligation (e.g., bankruptcy), a provision is recorded at time of occurrence. For all other
accounts, percentages are applied to all receivables based upon the age of the specific invoices. The older invoices (e.g., all amounts greater than 90 days) receive a larger percentage of allowance, based upon managements best estimate.
Another percentage, based upon managements best estimate, is applied to the remaining receivable balance. A total reserve is calculated in this manner and is compared to historical experience. If collections were to slow by seven days, there
would be an increase in this reserve of approximately $0.3 million. If the financial condition of our customers were to deteriorate and result in an inability for them to make their payments, additional allowances may be required.



-26-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



Income Taxes

Pursuant to FAS 109 Accounting for Income Taxes (FAS 109), the Company provides for income taxes using the asset and liability method. Under this method, deferred income tax assets and
liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the
differences are expected to reverse.

The Company assesses the need to record a valuation allowance, which is determined through the
process of projecting our net deferred tax assets while factoring in tax planning strategies, based upon a computation of normalized earnings and the resultant expected utilization of those net deferred tax assets. Under FAS 109, a valuation
allowance is required when it is more likely than not that some portion of the net deferred tax assets will not be realized. Realization is dependent upon, among other things, the generation of future taxable income and tax management strategies.

Impairment of Long-Lived Assets

Pursuant to FAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we periodically evaluate long-lived assets, including property, plant and equipment and definite lived intangible assets, whenever
events or changes in conditions may indicate that the carrying value may not be recoverable. Factors that management considers important that could initiate an impairment review include the following:



| |  |  | Significant operating losses;
| | - |  | -----------------------------



| |  |  | Significant declines in demand for a product where an asset is only able to produce that product;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | Assets that are idled; and
| | - |  | --------------------------



| |  |  | Assets that are likely to be divested.
| | - |  | --------------------------------------

The impairment review requires management to estimate future undiscounted cash flows associated with an asset or asset group expected to result from the use and eventual disposition of the asset or asset group. Estimating future cash flows
requires management to make judgments regarding future economic conditions, product demand and pricing. Although we believe our estimates are appropriate, significant differences in the actual performance of the asset or asset group may materially
affect our asset values and results of operations. An impairment loss shall be recognized if the carrying amount of the long-lived asset or asset group exceeds fair value as determined by the sum of the undiscounted cash flows. For additional
information, see Note 10 to the consolidated financial statements.

Accounting for Employee Stock Ownership Plan

Effective May 1, 1985, we established an Employee Stock Ownership Plan (ESOP) which purchased 1,800,000 shares of our common stock. The
ESOP covers all salaried employees hired prior to May 1, 1994. As of April 30, 1995, all stock of the ESOP had been allocated to the accounts of the participants and there are no additional required contributions to the ESOP. Distribution
of shares to settle participant account balances cannot occur until after employee termination. Initially under the plan, upon distribution, the Company had the obligation, upon participant request, to purchase the shares, in one lump sum, at the
greater of (1) the then current fair market value or (2) an amount equal to the price per share paid on December 30, 1985 increased by the cumulative increase in the book value of such shares after December 30, 1985 to the
April 30 immediately preceding the date on which the participant request is delivered to the Company (the put value). Effective May 1, 2005, the plan was amended to require redemptions in excess of a set amount be paid over a
five-year period. Several valuation techniques, including a return on investment and weighted return on capital analyses, are performed to establish fair value. In addition, present value calculations of projected future income streams, discounted
cash flow analyses and market comparables are employed to develop estimated total enterprise and total equity values for us. Any changes to these assumptions and estimates could affect our obligation. See Note 12 to the consolidated financial
statements.



-27-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



Prospective Accounting Standards

In February 2007, the FASB issued Financial Accounting Standard (FAS) No. 159, The Fair Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB
Statement No. 115 (FAS 159). FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. This provides entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without being required to apply complex hedge accounting provisions. FAS 159 is effective for fiscal years beginning after November 15, 2007, and management is currently
evaluating the impact that FAS 159 will have on our financial position and results of operations once adopted.

In September 2006, the FASB
issued FAS No. 157, Fair Value Measurements (FAS 157). FAS 157 defines fair value, establishes a framework for measuring fair value, expands disclosures about fair value measurements and is effective for fiscal years
beginning after November 15, 2007. Management is currently evaluating the effect that FAS 157 may have on the Companys consolidated financial statements.

In September 2006, the FASB issued FAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plansan amendment of FASB Statements No. 87, 88, 106, and
132(R) (FAS 158). FAS 158 requires an employer to recognize the overfunded or 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 of a business entity. FAS 158 also requires an employer to measure the funded status of a plan as of the date of its year-end
statement of financial position, with limited exceptions. FAS 158 has expanded the disclosure requirements for pension plans and other post-retirement plans. This statement provides different effective dates for the recognition and related
disclosure provisions and for the required changes to a fiscal year-end measurement date. The requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective for the Company as of the year ended
April 30, 2008. The requirement to measure plan assets and benefit obligations as of the date of the Companys fiscal year-end is effective for the Company for the fiscal year ended April 30, 2009. Management is currently evaluating
the impact this statement will have on our consolidated financial statements.

On July 13, 2006, the FASB issued FASB Interpretation
48 Accounting for Uncertainty in Income Taxes: an interpretation of FASB Statement No.109 (FIN48). FIN48 was issued to clarify the accounting for uncertain tax positions recognized in the consolidated financial statements by
prescribing a recognition threshold and measurement attribute for tax positions taken or expected to be taken in a tax return. We are required to adopt FIN 48 as of May 1, 2007, and are in the process of evaluating the impact that FIN 48 will
have on our financial statements. Any necessary transition adjustment will not affect net income in the period of adoption and will be reported as a change in accounting principle in the consolidated financial statements. Management is currently
evaluating the potential impact of this interpretation and cannot yet estimate such impact.



|Item 7A. | Quantitative and Qualitative Disclosure About Market Risk
|-------- | ---------------------------------------------------------

We are exposed to market risk from changes in foreign exchange rates, interest rates and the costs of raw materials used in our production processes. To reduce such risks, we selectively use financial instruments.

The following risk management discussion and the estimated amounts generated from the sensitivity analyses are forward-looking statements of market
risks, assuming that certain adverse market conditions occur. Actual results in the future may differ materially from those projected results due to actual developments in the global financial markets. The analysis used to assess and mitigate risks
discussed below should not be considered projections of future events or losses.

Commodity Prices. The markets for our
recovered paper products, particularly OCC, are highly cyclical and affected by such factors as global economic conditions, demand for paper, municipal recycling programs, changes in industry production capacity and inventory levels. These factors
all have a significant impact on selling prices and our profitability. We estimate that a 10% increase in the price of recovered paper, with no corresponding increase in the prices of finished products, would have had approximately a $16.2 million
negative effect on our operating income in 2007, although this would have been somewhat mitigated by our sale of recovered paper to third party customers. We attempt to partially hedge our raw material price risk by utilizing financial hedges or
buying forward contracts for some of our future raw material requirements.

Energy prices are also highly cyclical. We estimate that a 10%
increase in our energy costs with no corresponding increase in the prices of finished products would have had an approximate $10.7 million negative effect on our operating income in 2007. We attempt to partially hedge our energy price risk by
utilizing financial hedges and buying forward contracts for some of our future energy requirements.



-28-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



Interest Rates/Cross Currency Interest Rate Swaps. We have cross-currency interest rate
swap agreements with Wachovia Bank. The 2001 Swaps have been designated as hedges against the existing inter-company loan to our European subsidiary. At April 30, 2007 and 2006, the fair value of the 2001 Swaps represented a liability of $14.8
million and $16.3 million, respectively. We recognized a charge of $0.5 million and income of $0.1 million in 2007 and 2006, respectively, as a result of hedge ineffectiveness related to these swap agreements. We do not expect a material amount to
be reclassified from other comprehensive income to earnings to offset recognition of gains and losses on the inter-company loan in the next twelve months.

We could be exposed to future changes in interest rates. Our asset-based and credit-linked credit facilities bear interest at variable rates as do our Industrial Revenue Bonds. Interest rate changes impact the amount
of our interest payments and, therefore, our future earnings and cash flows, assuming other factors are held constant. We estimate that if interest rates were to increase by 10%, or approximately 50 basis points, it would have had approximately a
$0.6 million negative effect on our income from operations in 2007.

We do not otherwise have any involvement with derivative financial
instruments and do not use them for trading purposes.



|Item 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------

The
financial statements and supplementary financial information required to be filed under this Item are presented commencing on page F-1 of the Annual Report on Form 10-K.



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

None



|ITEM 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------

(a) Disclosure controls and procedures.

As previously disclosed in our Annual Report on Form 10-K for the year ended April 30, 2006 and the Quarterly Reports on Form 10-Q for the first
and second fiscal quarters of 2007, management identified a material weakness in our internal control over financial reporting solely due to the weakness described below.

Subsequent to the issuance of our 2005 consolidated financial statements, management determined that it had inappropriately offset positive and negative cash balances that were maintained at separate financial
institutions with which there was no contractual right to offset. As a result, amounts previously presented for Cash and cash equivalents and Accounts payable on the balance sheet were understated and the amount shown for Changes in cash overdrafts
was incorrectly reported within the Cash Flows from Financing Activities section of the Consolidated Statements of Cash Flows. Additionally, management determined that it had inappropriately included amounts accrued for the purchase of property,
plant and equipment in Changes in accounts payable in the Cash Flows from Operating Activities and in Capital expenditures in the Cash Flows from Investing Activities on its Consolidated Statements of Cash Flows rather than as non-cash investing
activities. There was no impact to the Consolidated Statements of Operations or Consolidated Statement of Permanent Stockholders Equity. The Company determined that it did not have an effectively designed control process in place to ensure
proper classification of positive and negative cash balances.

In connection with the filing of our Quarterly Report on Form 10-Q for the quarter ended
January 31, 2007, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, re-evaluated the effectiveness of our disclosure controls and procedures. In conducting their re-evaluation, our Chief
Executive Officer and Chief Financial Officer considered the nature and timing of our successful remediation of material weaknesses in internal control over financial reporting as discussed below in Changes in Internal Control Over Financial
Reporting. In doing so, our Chief Executive Officer and Chief Financial Officer concluded that the remediation efforts completed, described below, effectively remediated the material weakness in internal control that gave rise to the errors
described above. Based upon their re-evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by that Quarterly Report on Form 10-Q, the Companys disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective.



-29-



---

##### Table of Contents

+THE NEWARK GROUP, INC. AND SUBSIDIARIES



(b) Changes in internal controls over financial reporting.

During the fiscal year ended April 30, 2007, no significant changes occurred with respect to our internal control over financial reporting that materially affected,
or are reasonably likely to materially affect, internal control over financial reporting, except as noted below:



| |  | In response to the identified material weakness, our management, with oversight from our Audit Committee, dedicated resources to support our efforts to improve internal control over
financial reporting in this area. Our remediation efforts included (i) enhancing our finance and accounting organization by hiring an employee who, in addition to our Corporate Controller and Accounting Manager  External Reporting,
possesses the technical accounting expertise necessary to ensure the appropriate selection and application of accounting policies and accompanying disclosures to non-routine or complex transactions in accordance with accounting principles generally
accepted in the United States, (ii) conducting a thorough review of our financial statements to ensure compliance with US GAAP and related disclosure requirements, and (iii) implementing new policies and procedures, and related
controls in the affected area.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 9B. | OTHER INFORMATION
|-------- | -----------------

During July 2007, the Company
became obligated to purchase a recycled paperboard mill in Viersen, Germany. Total acquisition price for the land, buildings and equipment will be approximately $3.1 million and costs for legal, accounting and consulting services will be
approximately $2.0 million. The purchase is scheduled to close on August 1, 2007.

PART III



|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
|-------- | --------------------------------------------------

Directors
and Executive Officers

The following table sets forth certain information with respect to our directors and executive officers, as
of April 30, 2007:



|                             |  |     |  |                                                             
|---------------------------- |  | --- |  | ------------------------------------------------------------
|Name                         |  | Age |  | Position                                                    
|Robert H. Mullen(1) (2)      |  | 54  |  | Chief Executive Officer, President and Chairman of the Board
|                             |  |    
|Edward K. Mullen(1)          |  | 84  |  | Vice Chairman of the Board                                  
|                             |  |    
|William D. Harper            |  | 64  |  | Senior Vice President, European Operations                  
|                             |  |    
|Joseph E. Byrne              |  | 47  |  | Vice President and Chief Financial Officer                  
|                             |  |    
|David M. Ascher              |  | 54  |  | Vice President, General Counsel and Secretary               
|                             |  |    
|Richard M. Poppe             |  | 52  |  | Senior Vice President, Paperboard Mills                     
|                             |  |    
|Philip B. Jones              |  | 58  |  | Senior Vice President, Converted Products                   
|                             |  |    
|Martin A. Chooljian(3)(4)(5) |  | 77  |  | Director                                                    
|                             |  |    
|Joseph S. DiMartino(3)(4)(5) |  | 63  |  | Director                                                    
|                             |  |    
|Benedict M. Kohl(1)(4)       |  | 75  |  | Director                                                    
|                             |  |    
|Fred H. Rohn(3)(5)           |  | 81  |  | Director                                                    

---

|(1) | Member of Executive Committee.
|--- | ------------------------------

|(2) | Elected Chairman of the Board on July 19, 2005.
|--- | -----------------------------------------------

|(3) | Member of Audit Committee.
|--- | --------------------------

|(4) | Member of Compensation Committee.
|--- | ---------------------------------

|(5) | Member of Nominating Committee.
|--- | -------------------------------



-30-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



Robert H. MullenChief Executive Officer, President and Chairman of the
BoardMr. Mullen joined The Newark Group in 1984 as Assistant Superintendent of a paper machine at our Haverhill Paperboard Mill. From 1984 to 1989, Mr. Mullen held various positions of increasing responsibility within our sales
and operational areas. In 1989, Mr. Mullen was appointed President of BCI and, in 1993, assumed responsibility for our Newark Paperboard Products Division. He served as Chief Operating Officer from March 1996 to August 2004 and became President
in December 2002. In August 2004, Mr. Mullen was named Chief Executive Officer and in July 2005, Chairman of the Board. Mr. Mullen graduated from Upsala College in 1977 with a B.A. in Philosophy and Physics. In 1984 he received an M.B.A.
in Finance and Accounting from Columbia University Business School. Mr. Mullen is a member of the Board of Directors of the American Forest & Paper Association (AF&PA). Mr. Mullen is the son of Edward K. Mullen,
our Vice Chairman and principal stockholder.

Edward K. MullenVice Chairman of the BoardMr. Mullen joined The
Newark Group in 1958 after leaving Continental Can Co., where he was National Paperboard Sales Manager. In 1962, Mr. Mullen co-founded BCI, which merged with us in 1976. Mr. Mullen has served on the Board of Directors of the former
National Paperboard Association and the American Paper Institute for 20 years. He is a named co-inventor of 12 patents dealing with paperboard structures used in books, loose-leaf covers and game boards, among others. Mr. Mullen is a graduate
of the New York State College of Forestry at Syracuse University, where he earned a B.S. in Pulp and Paper Engineering. Prior to graduating college, he had served three years in the Army Air Force as an officer and pilot. Mr. Mullen is the
father of Robert H. Mullen, our Chief Executive Officer and one of our Directors.

William D. HarperSenior Vice President,
European OperationsMr. Harper joined The Newark Group in 1985 as Vice President and Chief Financial Officer and in September 1998, became Senior Vice President of European Operations. In January 2002, Mr. Harper was named Senior
Vice President for Business Development and Asset Management, returning to the position of Senior Vice President, European Operations in August 2004. Prior to joining us, Mr. Harper worked for Anker Energy Corporation as Vice President and
Chief Financial Officer and for Mellon Bank as a Vice President. Mr. Harper graduated from Indiana University in 1966 with a B.S. in Business Administration with a major in Finance.

Joseph E. ByrneVice President and Chief Financial OfficerMr. Byrne joined The Newark Group in 1982 as Plant Accountant and
Assistant Controller. In 1984, he joined Ernst & Young as a Senior Consultant concentrating on conceptual design of cost management and manufacturing systems. In 1988 he rejoined us in the role of Division Controller for our Paperboard Mill
Division. He served as Manager, Corporate Finance from 1995 through 1997 and Corporate Controller from 1997 until he was appointed as Vice President, Planning and Finance and Treasurer in July 2000. In August 2004, Mr. Byrne was named Chief
Financial Officer. He is a 1982 graduate of Georgetown College and holds a B.S. in Accounting. In 1999, he received an M.B.A. from the New York University Stern School of Business. He is a member of the American Finance Association and the Tax
Committee of the AF&PA and holds certifications as a Certified Management Accountant and a Certified Public Accountant.

David M.
AscherVice President, General Counsel and SecretaryMr. Ascher joined The Newark Group in January 1999 as Vice President and General Counsel and shortly thereafter was appointed Secretary. Mr. Ascher previously held corporate
counsel positions of increasing responsibility with White Motor Corporation, Sea-Land Corporation, C.R. Bard, Inc. and Vickers America Holdings Inc. Prior to working as Corporate Counsel, he was in private practice in Cleveland, OH with the
corporate law firm of Squire, Sanders & Dempsey. In 1973, he received a B.A. in Economics and Urban Systems Studies from the State University of New York at Buffalo. In 1975, he received a Masters of Community Planning from the University
of Cincinnati, and, in 1978, he received a J.D. from the State University of New York at Buffalo School of Law. He holds a New Jersey limited license for in-house counsel and is a member of the Ohio State Bar, the Association of Corporate Counsel
and the General Counsel Committee of the AF&PA.

Richard M. PoppeSenior Vice President, Paperboard MillsMr.
Poppe joined The Newark Group in 1977 as a production trainee at our California paperboard mill and was promoted to his current position in 2001. Mr. Poppe is responsible for our 10 domestic paperboard mills. Previously he served in several
capacities at different paperboard locations across the United States. He was transferred from California to Middletown Paperboard, then to Wisconsin Paperboard and then to Mobile Paperboard, where he served as General Manager until his 1995
promotion to West Coast Regional General Manager-Newark Mills. He is a 1977 graduate of the University of Nebraska in Lincoln with a B.S. in History. Mr. Poppe has been a member of the Recycled Paperboard Technical Association for over 15 years
and is currently President of the RPTA Board of Trustees.

Philip B. JonesSenior Vice President, Converted
ProductsMr. Jones joined the Newark Group as Vice President and General Manager of the Newark Paperboard Products Division Northeast Region in 1997 when



-31-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



we acquired the assets of his former employer. In 1998, he was promoted to his current position. He started his career in 1967 with a sales position for
Penland Container, a division of The Clark Corporation, and left that company in 1974 as a Plant Manager. He then joined Yorktowne Papermills in York, Pennsylvania as Vice President of Operations for the Mercer Paper Tube Division until we acquired
it in 1997. Mr. Jones attended York College in York, Pennsylvania. He has been a member of the Board of Directors for the Composite Can and Tube Institute since 1993, served on the Executive Committee from 1996-2002 and was President of the
Institute during the 1999/2000 fiscal year.

Martin A. ChooljianDirectorMr. Chooljian was elected to The Newark
Groups Board of Directors in 2000. Mr. Chooljian served for two years as a Procurement Officer in the United States Air Force, HQ Air Material Command with the rank of First Lieutenant from 1955-1957. His initial business experience was
with Litton Industries from 1958-1964 where he rose to the position of Treasurer and Director of Administration. He then founded the Penn Corporation and was President of that organization from 1964-1986. From 1986 to the present he has been
President of CH Capital Investments in Princeton, NJ. Mr. Chooljian graduated from Harvard College in 1952 with a B.A. degree. In 1954, he received an M.B.A. from the Harvard Business School. Mr. Chooljian is active as a trustee, since
1997, with the Institute for Advanced Study in Princeton, NJ. He was an active trustee of the McCarter Theater Foundation for ten years, and is still active as an honorary trustee.

Joseph S. DiMartinoDirectorMr. DiMartino was elected to The Newark Groups Board of Directors in 2000. Since 1995,
Mr. DiMartino has been the Chairman of the Board and a Director of The Dreyfus Family of Mutual Funds in New York City. He started his career as a bank officer in 1966 and in 1971 joined the Dreyfus Corporation as a portfolio manager. He became
President, Chief Operating Officer and Director of The Dreyfus Corporation in October 1982. After Dreyfus merged with Mellon Bank in August 1994, Mr. DiMartino was elected to the board of directors of Mellon Bank and served in that capacity
until his resignation from Dreyfus in December 1994. Between January 1995 and November 1997 he held the position of Chairman of the Board and Director for the Noel Group, Inc. Mr. DiMartino is a 1965 graduate of Manhattan College and attended
New York Universitys Graduate School of Business. Mr. DiMartino is also a director of CBIZ, Inc., SunAir Services Corporation, and Levcor International, Inc.

Benedict M. KohlDirectorMr. Kohl was elected to The Newark Groups Board of Directors in 1992. He has practiced law as a partner at the firm of Lowenstein Sandler PC since 1962. He
served in the United States Army from 1955 to 1957, after which he worked at the United States Treasury Department until 1962, first in the Chief Counsels Office at Internal Revenue Service and then in the Office of Tax Legislative Counsel to
the Secretary of the Treasury. Mr. Kohl received a B.A. from Brown University in 1952 and an LL.B. from Harvard Law School in 1955. He serves and has served on several boards of both business enterprises and charitable organizations.

Fred H. RohnDirectorMr. Rohn was elected to The Newark Groups Board of Directors in 2000. He is a Managing
General Partner at North American Venture Capital Fund. Until his retirement in 1990, he was a Senior Partner and Management Committee Member at the accounting firm of Touche Ross & Co., a predecessor of Deloitte & Touche. He
received a B.A. from Colgate University and an M.B.A. from New York University. Mr. Rohn is a director of Moretrench American Corp., Pratt-Read, Inc., Cornerstone Management Solutions, Inc. and American Venture Management Co., Inc. Previously
he was a President of the New Jersey State Board of Certified Public Accountants.

Committees of the Board of Directors

Executive Committee.The Executive Committee is comprised of: Messrs. R. Mullen, E. Mullen and Kohl. The Executive Committee is empowered by the
Board of Directors to, subject to certain limitations set forth in our Bylaws, to exercise all of the authority of the Board of Directors.

Audit Committee. The Audit Committee is comprised of Messrs. Chooljian, DiMartino and Rohn, Chairman. The Audit Committee is empowered by the Board of Directors to, among other things: serve as an independent and objective party to
monitor our financial reporting process, internal control system and disclosure control system; review and appraise the audit efforts of our independent accountants; assume direct responsibility for the appointment, compensation, retention and
oversight of the work of outside auditors and for the resolution of disputes between the outside auditors and the our management regarding financial reporting issues; and provide an open avenue of communication among the independent accountants,
financial and senior management, and our Board of Directors.



-32-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



Audit Committee Financial Expert.The Board of Directors has determined that Fred H. Rohn is
an audit committee financial expert, as such term is defined by the SEC.

Independence of Audit Committee Members.
Within the meaning of Nasdaq rules, all members of the Audit Committee of the Board of Directors have been determined to be independent directors pursuant to the definition contained in the SECs Rule 10A-3.

Compensation Committee. The Compensation Committee is comprised of Messrs. Chooljian, DiMartino and Kohl, Chairman. The Compensation Committee
periodically reviews and determines the amount and form of compensation and benefits payable to our principal executive officer and certain other management personnel.

Nominating Committee. The Nominating Committee is comprised of Messrs. Chooljian, DiMartino and Rohn. The Nominating Committee is empowered by the Board of Directors to, among other things, recommend to the
Board of Directors qualified individuals to serve on our Board of Directors and to identify the manner in which the Nominating Committee evaluates nominees recommended for the Board.

Code of Ethics

We have adopted a Code of Ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer and controller. A copy of our Code of Ethics is available upon request to our General Counsel and Secretary.



|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

Compensation Discussion and Analysis

(a) Compensation Philosophy and Goals

We attempt to apply a consistent philosophy to compensation for all employees, including senior executives. This philosophy is based on the premises that our success results from treating each employee fairly and
promoting a cooperative working environment.

Our compensation programs for our named executive officers and other members of management
are designed to achieve a variety of goals. We want to:



| |  |  | attract and retain talented and experienced executives;
| | - |  | -------------------------------------------------------



| |  |  | motivate and reward executives whose knowledge, skills and performance are critical to our success;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | provide a salary competitive with other employers in our region and industry;
| | - |  | -----------------------------------------------------------------------------



| |  |  | provide short-term incentives to align behavior with our corporate objectives;
| | - |  | ------------------------------------------------------------------------------



| |  |  | provide a competitive compensation package which rewards achievement of Company performance goals; and
| | - |  | ------------------------------------------------------------------------------------------------------

| |  |  | provide ownership and long-term goal alignment.
| | - |  | -----------------------------------------------

(b) Elements of Executive Officer Compensation

(i) Overview

Total compensation paid to our executive officers is influenced significantly by the need to attract and retain management employees with a high level of
expertise and to motivate and retain key executives for our long-term success. Some of the components of compensation, such as salary, are generally fixed and do not vary based on our financial and other performance, and some components, such as
bonus, are dependent upon the achievement of certain short-term corporate goals jointly agreed upon by our management and the Compensation Committee. Furthermore, the value of certain of these components, such as stock appreciation rights and
options, is dependent upon the value of our stock in the future.

We view the three components of our executive officer compensation as
related but distinct. We do not believe that compensation derived from one component of compensation necessarily should negate or reduce compensation from other components. We determine the appropriate level for each compensation component based in
part, but not exclusively, on our historical practices with the individual and our view of individual performance and other information we deem relevant, such as publicly available compensation data. Our Compensation



-33-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



Committee has not adopted any formal or informal policies or guidelines for allocating compensation between long-term and currently paid out compensation,
between cash and non-cash compensation, or among different forms of compensation, except that we have generally emphasized current salary as the principal means of compensating our executives and other employees. We do not review wealth and
retirement accumulation as a result of employment with us and we have only focused on fair compensation for the year in question.

(ii) The
Compensation Committee Process

Our compensation program for our top executives (generally the chief executive officer and his eight direct
reports, including the chief financial officer) is monitored and approved by the Compensation Committee of the board of directors under a committee charter approved by our board. Our Compensation Committee has not engaged any outside consultants to
assist in the salary process. It does review publicly available data with respect to executive officer compensation at peer group companies. Total compensation is targeted at the middle of peer group companies. The peers are selected from
manufacturers of 1 billion revenues or less. Emphasis is placed on paper and pulp manufacturers in that range.

Our Compensation Committee
deliberates without any members of management present in discussing the compensation of our chief executive officer. For all compensation decisions relating to executive officers (other than our Chief Executive Officer), the Compensation Committee
considers the recommendations of our Chief Executive Officer and includes him in its discussions. Our Compensation Committee has also involved outside counsel in its deliberations if needed.

(iii) Base Salary

Base salaries for our
executives are established based on the scope of their responsibilities and their prior relevant background, training and experience, taking in account competitive market compensation paid by the companies represented in the compensation data we
review for similar positions and the overall market demand for such executives. As with total executive compensation, we believe that executive base salaries should generally be competitive with the salaries for executives in similar positions and
with similar responsibilities in companies of similar size to us in our region and in similar industries, particularly paper and pulp manufacturers. Consistent with our policy of setting compensation levels that reflect, among other things, an
executives level of responsibility, our Chief Executive Officers salary and total compensation reflect the scope of his responsibilities and the benchmark compensation data that we evaluate. Base salary for executives other than the
Chief Executive Officer are also based on the performance evaluations provided by the Chief Executive Officer. We believe that providing competitive salaries allows us to attract and retain talented executives. An executives base salary is
also evaluated together with other components of the executives other compensation to ensure that the executives total compensation is in line with our overall compensation philosophy.

Base salaries are reviewed annually and adjusted from time to time to realign with market levels after taking into consideration individual
responsibilities, performance and experience.

(iv) Cash Incentive Bonuses

To promote Company goals and add a level of pay for performance, our executives are eligible to receive cash incentive bonuses. Our incentive bonus plan
is based on the Companys financial performance measured by EBITDA as defined in that plan on a rolling four quarter basis and paid quarterly. The named executives and other key managers (approximately 100 employees overall participate in the
plan) receive a cash bonus percentage of salary based on two EBITDA targets. The higher target is generally 16.6% above the base EBITDA target. Since the plan was put in place in fiscal 2004, the Company has achieved the base target on three
quarterly measurement dates, but has never met the higher target. On an annual basis, the Chief Executive Officer can receive 40% of his base salary if the base target is achieved for each of the four quarterly measuring periods, and 80% of base
salary if the higher target is achieved. For the other named executive officers, the bonuses are 25% of base salary for the base target and 50% of base salary for the higher target. For other managers, the percentages of base salary that may be
earned are less. We believe having all manager level employees participating in the same bonus plan promotes teamwork and cooperation among our employees.

The Company does not have a formal policy on the effect on bonuses of a subsequent restatement or other adjustment to the financial statements, other than the penalties provided by law.



-34-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



(v) Equity Compensation

We believe that equity awards can help in aligning officer and employee interests with the long term good of the Company, although, because the Companys equity is privately held, we believe that equity grants
are less of an incentive for our Company than in the public company setting. The named executives can receive equity grants under two distinct plans, although there were no grants under either of these plans in fiscal 2007 to any of the named
executive officers. The Companys Stock Appreciation Rights plan includes the named executives and the same other key managers who are eligible to participate in the bonus program. Rights to the appreciation in value of a number of the Company
shares can be granted, which vest over 3 years, and expire at 5 years. Pricing is based on the annual valuation performed for our ESOP Plan. When Stock Appreciation Rights are granted, the employee can elect to be paid over time after the 5-year
period, or defer payment until retirement, with interest at market.

The named executives have also received stock option grants from time
to time. These options vest over 9 years and expire at 10. These options are for actual shares of company stock. Options are granted at the then current share value as determined annually by the Companys appraisal process as detailed in the
Employee Stock Ownership Plan. These options also include a tandem Stock Appreciation Right feature to allow payout of over time. At expiration a participant elects to receive cash or stock, but generally, cash is selected.

The Companys ESOP involved all salaried employees prior to 1995. Some of the named executive offices are still participants in that inactive plan.

(vi) Pensions

Our named
executive officers are eligible to participate in a defined benefit pension plan (closed to new participants since May 1, 2006) all on the same terms as are available to all salaried employees.

(vii) Benefits

Our named executive officers
participate in all of our employee benefit plans, such as medical, group life, supplemental life and disability insurance and our 401(k) plan, in each case on the same basis as our other employees. Our 401(k) plan provides for matching payments by
the Company, to a maximum of $600 per year.

(viii) Perquisites

Our executive officers do not receive automobiles nor an automobile allowance. Our use of perquisites as an element of compensation is very limited. We do
not view perquisites as a significant element of our comprehensive compensation structure.

COMPENSATION COMMITTEE REPORT

The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of
Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.



The Compensation CommitteeMartin A. ChooljianJoseph S. DiMartinoBenedict M. Kohl




-35-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



Summary of Compensation

The following table, which should be read in conjunction with the explanation above, provides certain compensation information concerning our Chief Executive Officer, Chief Financial Officer and our three most
highly-compensated executive officers (the Named Executive Officers), other than the Chief Executive Officer and Chief Financial Officer, for the fiscal year ended April 30, 2007.

SUMMARY COMPENSATION TABLE



|                                           |  |      |  |        |         |                  |   |                                          |   |                                                                       |  |                          |        |       |   |     |  |   |        
|------------------------------------------ |  | ---- |  | ------ | ------- | ---------------- | - | ---------------------------------------- | - | --------------------------------------------------------------------- |  | ------------------------ | ------ | ----- | - | --- |  | - | -------
|Name and Principal Position                |  | Year |  | Salary |         | Optionawards (1) |   | Non-Equityincentive plancompensation (2) |   | Change inPension ValueandNonqualifiedDeferredCompensationEarnings (3) |  | All OtherCompensation(4) |        | Total
|Robert H. Mullen                           |  | 2007 |  | $      | 466,172 |                  |  |                                          | $ | 139,996                                                               |  | $                        | 56,004 |       | $ | 600 |  | $ | 662,772
|President and Chief Executive Officer      |  |      |  |        |         |                  |   |                                          |   |                                                                       |  |                          |        |       |   |     |  |   |        
|Joseph E, Byrne                            |  | 2007 |  | $      | 288,733 |                  |  |                                          | $ | 54,249                                                                |  | $                        | 36,148 |       | $ | 600 |  | $ | 379,730
|Vice President and Chief Financial Officer |  |      |  |        |         |                  |   |                                          |   |                                                                       |  |                          |        |       |   |     |  |   |        
|Edward K. Mullen                           |  | 2007 |  | $      | 400,008 |                  |  |                                          | $ | 75,003                                                                |  |                          |       |       | $ | 600 |  | $ | 475,611
|Vice Chairman of the Board                 |  |      |  |        |         |                  |   |                                          |   |                                                                       |  |                          |        |       |   |     |  |   |        
|William D. Harper                          |  | 2007 |  | $      | 351,683 |                  |  |                                          | $ | 66,595                                                                |  | $                        | 78,783 |       | $ | 600 |  | $ | 497,661
|Senior Vice President                      |  |      |  |        |         |                  |   |                                          |   |                                                                       |  |                          |        |       |   |     |  |   |        
|Richard M. Poppe                           |  | 2007 |  | $      | 325,130 |                  |  |                                          | $ | 60,963                                                                |  | $                        | 59,253 |       | $ | 600 |  | $ | 445,946
|Senior Vice President, Paperboard Mills    |  |      |  |        |         |                  |   |                                          |   |                                                                       |  |                          |        |       |   |     |  |   |        

---

|(1) | No stock options or stock appreciation rights were awarded to the above executive officers during the year ended April 30, 2007. SARs vested for Messrs. Robert Mullen, Byrne,
Harper and Poppe as to 666 share units each, however, there was no income statement effect of such vesting as these awards are underwater. Mr. Harper received a payment of $44,071 as an installment payment for stock appreciation rights redeemed
in April 2005 which are being paid out over five years.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Represents amounts earned under our incentive bonus plan, as described above, for meeting base targets of EBITDA.
|--- | -----------------------------------------------------------------------------------------------------------------

|(3) | Represents increase in present value of accumulated benefits under The Newark Groups defined benefit pension plan for salaried employees.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Represents contributions made by us pursuant to our 401(k) plan.
|--- | ----------------------------------------------------------------

Plan-based Awards

The following table, which should be read in conjunction with the explanation above, provides certain
information with respect to interests in our incentive bonus plan granted to our Named Executive Officers during the fiscal year ended April 30, 2007.



-36-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



2007 GRANTS OF PLAN-BASED AWARDS



|                                           |  |                                                                     |  |        |         |         |   |        
|------------------------------------------ |  | ------------------------------------------------------------------- |  | ------ | ------- | ------- | - | -------
|                                           |  | Estimated future payouts under Non-equity incentive plan awards
(1)
|Name and Principal Position                |  | Threshold                                                           |  | Target |         | Maximum
|Robert H. Mullen                           |  |                                                                    |  | $      | 186,469 |         | $ | 372,938
|President and Chief Executive Officer      |  |                                                                     |  |        |         |         |   |        
|Joseph E. Byrne                            |  |                                                                    |  | $      | 72,183  |         | $ | 144,367
|Vice President and Chief Financial Officer |  |                                                                     |  |        |         |         |   |        
|Edward K. Mullen                           |  |                                                                    |  | $      | 100,002 |         | $ | 200,004
|Vice Chairman of the Board                 |  |                                                                     |  |        |         |         |   |        
|William D. Harper                          |  |                                                                    |  | $      | 87,921  |         | $ | 175,842
|Senior Vice President                      |  |                                                                     |  |        |         |         |   |        
|Richard M. Poppe                           |  |                                                                    |  | $      | 81,283  |         | $ | 162,565
|Senior Vice President, Paperboard Mills    |  |                                                                     |  |        |         |         |   |        

---

|(1) | Under our non-equity incentive plan, the Named Executive Officers above, except for the Chief Executive Officer, are eligible to earn between 25% and 50% of their base salary upon
the meeting of certain EBITDA limits. The Chief Executive Office is eligible to earn between 40% and 80% of base salary under the plan. The actual amount earned by each of the Named Executive Officers is reflected on the Summary Compensation Table
as the Company met its target goal, but not the maximum, in three of the four quarters during fiscal 2007.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END



|                                           |  |                                                                |  |                                                                  |  |                                                                                      |  |                      |       |                       |          
|------------------------------------------ |  | -------------------------------------------------------------- |  | ---------------------------------------------------------------- |  | ------------------------------------------------------------------------------------ |  | -------------------- | ----- | --------------------- | ---------
|                                           |  |                                                                |  |                                                                  |  | Option Awards                                                                        |  |                      |       |                      
|Name and Principal Position                |  | Number ofsecuritiesunderlyingunexercisedoptions (#)exercisable |  | Number ofsecuritiesunderlyingunexercisedoptions (#)unexercisable |  | Equity incentiveplan awards:number
ofsecuritiesunderlyingunexercisedunearned options |  | Optionexercise Price |       | Optionexpiration date
|Robert H. Mullen                           |  | 666                                                            |  | 1,334                                                            |  |                                                                                      |  | $                    | 45.97 |                       | 4/30/2010
|President and Chief Executive Officer      |  |                                                                |  |                                                                  |  |                                                                                      |  |                      |       |                       |          
|Joseph E. Byrne                            |  | 666                                                            |  | 1,334                                                            |  |                                                                                      |  | $                    | 45.97 |                       | 4/30/2010
|Vice President and Chief Financial Officer |  |                                                                |  |                                                                  |  |                                                                                      |  |                      |       |                       |          
|Edward K. Mullen                           |  |                                                               |  |                                                                 |  |                                                                                      |  |                      |      |                       |         
|Vice Chairman of the Board                 |  |                                                                |  |                                                                  |  |                                                                                      |  |                      |       |                       |          
|William D. Harper                          |  | 666                                                            |  | 1,334                                                            |  |                                                                                      |  | $                    | 45.97 |                       | 4/30/2010
|Senior Vice President                      |  |                                                                |  |                                                                  |  |                                                                                      |  |                      |       |                       |          
|Richard M. Poppe                           |  | 666                                                            |  | 1,334                                                            |  |                                                                                      |  | $                    | 45.97 |                       | 4/30/2010
|Senior Vice President, Paperboard Mills    |  |                                                                |  |                                                                  |  |                                                                                      |  |                      |       |                       |          

Stock Option Exercises and Vesting of Restricted Stock Awards

The following table provides certain information with respect to option exercises and stock vesting for each of our Named Executive Officers during the
fiscal year ended April 30, 2007.



-37-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



OPTIONS EXERCISED



|                                           |  |                                       |  |                            |  
|------------------------------------------ |  | ------------------------------------- |  | -------------------------- | -
|                                           |  | Option Awards                         | 
|Name and Principal Position                |  | Number of shares acquired on exercise |  | Value realized on exercise |  
|Robert H. Mullen                           |  |                                      |  |                           |  
|President and Chief Executive Officer      |  |                                       |  |                            |  
|Joseph E, Byrne                            |  |                                      |  |                           |  
|Vice President and Chief Financial Officer |  |                                       |  |                            |  
|Edward K. Mullen                           |  |                                      |  |                           |  
|Vice Chairman of the Board                 |  |                                       |  |                            |  
|William D. Harper                          |  |                                      |  | (1                         | )
|Senior Vice President                      |  |                                       |  |                            |  
|Richard M. Poppe                           |  |                                      |  |                           |  
|Senior Vice President, Paperboard Mills    |  |                                       |  |                            |  

---

|(1) | Mr. Harper received $44,071 in 2007, representing an installment payment on his April 2005 redemption of stock appreciation rights, issued in tandem with options, which are
being paid out over five years.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Pension

The following table, which should be read in conjunction with the explanation above, shows the present value of accumulated pension benefits payable, as well as years of credited service, for each of our Named
Executive Officers as at April 30, 2007.

PENSION BENEFITS



|                                           |  |                         |  |                                   |  |                                   |         |                                |  
|------------------------------------------ |  | ----------------------- |  | --------------------------------- |  | --------------------------------- | ------- | ------------------------------ | -
|Name and Principal Position                |  | Plan name               |  | Number of years ofcreditedservice |  | Presentvalue ofaccumulatedbenefit |         | Paymentsduring lastfiscal year
|Robert H. Mullen                           |  | Newark Salaried         |  | 25                                |  | $                                 | 379,709 |                                | 
|President and Chief Executive Officer      |  | Employees Pension Plan |  |                                   |  |                                   |         |                                |  
|Joseph E, Byrne                            |  | Newark Salaried         |  | 19                                |  | $                                 | 161,868 |                                | 
|Vice President and Chief Financial Officer |  | Employees Pension Plan |  |                                   |  |                                   |         |                                |  
|Edward K. Mullen                           |  | Newark Salaried         |  | 49                                |  |                                   |        |                                | 
|Vice Chairman of the Board                 |  | Employees Pension Plan |  |                                   |  |                                   |         |                                |  
|William D. Harper                          |  | Newark Salaried         |  | 22                                |  | $                                 | 588,222 |                                | 
|Senior Vice President                      |  | Employees Pension Plan |  |                                   |  |                                   |         |                                |  
|Richard M. Poppe                           |  | Newark Salaried         |  | 30                                |  | $                                 | 404,204 |                                | 
|Senior Vice President, Paperboard Mills    |  | Employees Pension Plan |  |                                   |  |                                   |         |                                |  

Compensation of Directors

The following table, which should be read in conjunction with the explanation above, shows the amounts paid to non-employee directors of the Company during the fiscal year ended April 30, 2007.



-38-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



DIRECTOR COMPENSATION (1)



|                            |  |                             |        |       |   |       
|--------------------------- |  | --------------------------- | ------ | ----- | - | ------
|Name and Principal Position |  | Fees earned or paid in cash |        | Total
|Martin Chooljian            |  | $                           | 28,500 |       | $ | 28,500
|Joseph S. DiMartino         |  | $                           | 28,500 |       | $ | 28,500
|Benedict M. Kohl            |  | $                           | 25,500 |       | $ | 25,500
|Fred H. Rohn                |  | $                           | 33,000 |       | $ | 33,000

---

|(1) | Non-employee directors are paid $20,000 per year plus $1,000 for each meeting of the Board of Directors attended and $500 for each committee meeting. The chairman of our audit
committee, Mr. Rohn, receives an additional $5,000 per year. Employee directors receive no compensation for serving on the board.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Defined Benefit Pension Plans

Our executive officers participate in our Salaried Employees Pension Plan in which
benefits are based on the employees average salary in the last ten years of employment and years of service, as defined in the table below.

PENSION PLAN TABLE

ANNUAL STRAIGHT LIFE ANNUITY BENEFIT

PAYABLE AT NORMAL RETIREMENT AGE (65)



|                                   |  |                  |        |    |   |        |  |    |        |    |   |        |  |   |       
|---------------------------------- |  | ---------------- | ------ | -- | - | ------ |  | -- | ------ | -- | - | ------ |  | - | ------
|                                   |  | Years of Service
|Final 10 Year Average Compensation |  | 15               |        | 20 |   | 25     |  | 30 |        | 35
|$125,000                           |  | $                | 22,392 |    | $ | 30,501 |  | $  | 38,882 |    | $ | 47,614 |  | $ | 56,639
|$150,000                           |  | $                | 28,017 |    | $ | 38,001 |  | $  | 48,257 |    | $ | 58,864 |  | $ | 69,764
|$175,000                           |  | $                | 33,642 |    | $ | 45,501 |  | $  | 57,632 |    | $ | 70,114 |  | $ | 82,889
|$200,000                           |  | $                | 39,267 |    | $ | 53,001 |  | $  | 67,007 |    | $ | 81,364 |  | $ | 96,014
|$225,000                           |  | $                | 40,055 |    | $ | 54,051 |  | $  | 68,319 |    | $ | 82,939 |  | $ | 97,852
|$250,000                           |  | $                | 40,055 |    | $ | 54,051 |  | $  | 68,319 |    | $ | 82,939 |  | $ | 97,852
|$300,000                           |  | $                | 40,055 |    | $ | 54,051 |  | $  | 68,319 |    | $ | 82,939 |  | $ | 97,852
|$400,000                           |  | $                | 40,055 |    | $ | 54,051 |  | $  | 68,319 |    | $ | 82,939 |  | $ | 97,852
|$450,000                           |  | $                | 40,055 |    | $ | 54,051 |  | $  | 68,319 |    | $ | 82,939 |  | $ | 97,852
|$500,000                           |  | $                | 40,055 |    | $ | 54,051 |  | $  | 68,319 |    | $ | 82,939 |  | $ | 97,852

NOTE: The above amounts are not subject to any further offsets.



-39-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



Years of Credited Service and Current Compensation Covered for the Named Executive Officers

As of April 30, 2007



|                  |  |                           |  |                                               
|----------------- |  | ------------------------- |  | ----------------------------------------------
|                  |  | Years of Credited Service |  | Current Compensation Covered for Plan Purposes
|Robert H. Mullen  |  | 25                        |  | $203,500                                      
|Edward K. Mullen  |  | 49                        |  | $203,500                                      
|William D. Harper |  | 22                        |  | $201,508                                      
|Richard M. Poppe  |  | 30                        |  | $203,500                                      
|Joseph E. Byrne   |  | 19                        |  | $176,359                                      

Employee Stock Ownership Plan

Effective May 1, 1985, we established an Employee Stock Ownership Plan (ESOP) which purchased 1,800,000 shares of our common stock. The ESOP covers all salaried employees hired prior to May 1,
1994. As of April 30, 1995, all stock of the ESOP had been allocated to the accounts of the participants and there are no additional required contributions to the ESOP. Initially under the plan, upon distribution, the Company had the
obligation, upon participant request, to purchase the shares, in one lump sum, at the greater of (1) the then current fair market value or (2) an amount equal to the price per share paid on December 30, 1985 increased by the
cumulative increase in the book value of such shares after December 30, 1985 to the April 30 immediately preceding the date on which the participant request is delivered to the Company (the put value). Effective May 1,
2005, the plan was amended to require redemptions in excess of a set amount be paid over a five-year period. During the last five years, the put value has exceeded the current fair market value. The put value as of April 30, 2007 was $43.29 per
share. At April 30, 2007, there were 614,851 allocated shares with an estimated redemption value of approximately $26.6 million. ESOP payments during the fiscal year ending April 30, 2007 were approximately $1.4 million. The estimated ESOP
payments during the fiscal years ending April 30, 2008 and 2009 are estimated to be between $1.7 million and $2.0 million per year.

Stock
Appreciation Rights

We have a non-qualifying Stock Option Plan under which we are authorized to grant 300,000 stock options in tandem
with stock appreciation rights (SARs) to certain employees. The options and SARs vest over a nine-year period from the date of grant. Upon exercise of an option, the holder is entitled to purchase exercisable option shares at the grant
price. Alternatively, upon exercise of a tandem SAR, the holder is entitled to receive cash equal to the amount by which the redemption value of our common stock on the exercise date exceeds the grant price of the related stock options. As SARs are
exercised, the corresponding options are cancelled and as options are exercised the corresponding SARs are cancelled. It is expected that holders will elect to exercise the SARs once vested. As of April 30, 2007, there were 25,000 options with
tandem SARs outstanding with a weighted average exercise price of approximately $41.93, of which 19,000 options with tandem SARs, with a weighted average exercise price of $39.89, were exercisable. During the year ended April 30, 2007, no
options with tandem SARs were issued, exercised or forfeited, and none expired. The outstanding options with tandem SARs have exercise prices ranging from $33.93 to $49.53 per option or SAR, and have a weighted average remaining contractual life of
2.4 years.

We have a second employee stock compensation plan under which we grant SARs without options to certain employees. These SARs
vest over a three-year period from the date of grant. As of April 30, 2007, there were 108,500 SARs outstanding with a weighted average exercise price of $46.89, of which 85,519, with a weighted average exercise price of $47.23, were
exercisable. During the year ended April 30, 2007, 4,000 SARs with a weighted average price of $43.06 were issued, no SARs were exercised, 4,666 were forfeited, and 13,334 expired. The outstanding SARs have exercise prices ranging from $43.06
to $50.42 per SAR, and have a weighted average remaining contractual life of 2.2 years.

Compensation of Directors

During fiscal 2007, non-employee directors were paid $20,000 per year, plus $1,000 for each meeting of the Board of Directors attended and $500 for each
committee meeting attended. Mr. Rohn, the Chairman of our audit committee, receives an additional $5,000 per year. Directors are reimbursed their expenses for attendance at such directors meetings, and any director who is also an employee
receives no directors fees.



-40-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



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

The following table sets forth information as of April 30, 2007, with respect to the beneficial ownership of our common stock by (i) each person
known to us to beneficially hold five percent or more of our outstanding shares of common stock, (ii) each of our directors and each of our executive officers and (iii) all of our directors and executive officers as a group.

The amounts and percentages of shares beneficially owned are reported on the basis of SEC regulations governing the determination of beneficial ownership
of securities. Under SEC rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power or investment power, which includes the power to dispose of or to direct the disposition of such
security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Securities that can be so acquired are deemed to be outstanding for purposes of computing
any other persons percentage. Under these rules, more than one person may be deemed to be a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which such person has no economic
interest.

Unless otherwise indicated, the address of each such person is c/o The Newark Group, Inc., 20 Jackson Drive, Cranford, New
Jersey 07016.



|                                                                |  |                                                |  |            |  
|--------------------------------------------------------------- |  | ---------------------------------------------- |  | ---------- | -
|                                                                |  | Amount and Nature ofBeneficial Ownership(1)(2) | 
|Beneficial Owner                                                |  | Shares                                         |  | Percentage |  
|Edward K. Mullen(3)                                             |  | 2,819,948                                      |  | 78.3       | %
|The Newark Group, Inc. Employees Stock Ownership Plan          |  | 614,851                                        |  | 17.1       |  
|Robert H. Mullen                                                |  | 163,352                                        |  | 4.5        |  
|Richard M. Poppe                                                |  | 2,500                                          |  | *          |  
|Joseph E. Byrne                                                 |  |                                               |  |           |  
|Philip B. Jones                                                 |  |                                               |  |           |  
|William D. Harper                                               |  |                                               |  |           |  
|David M. Ascher                                                 |  |                                               |  |           |  
|Martin A. Chooljian                                             |  |                                               |  |           |  
|Joseph S. DiMartino                                             |  |                                               |  |           |  
|Benedict M. Kohl                                                |  |                                               |  |           |  
|Fred H. Rohn                                                    |  |                                               |  |           |  
|All executive officers and directors as a group (11 persons)(2) |  | 2,985,800                                      |  | 82.9       | %

---

|* | Less than 1% of the issued and outstanding shares of our common stock.
|- | ----------------------------------------------------------------------

|(1) | Each beneficial owners percentage ownership of common stock is determined by assuming that options, warrants and other convertible securities that are held by such person (but
not those held by any other person) and that are exercisable or convertible within 60 days of April 30, 2007 have been exercised or converted. Options, warrants and other convertible securities that are not exercisable within 60 days of
April 30, 2007 have been excluded. Unless otherwise noted, we believe that all persons named in the above table have sole voting and investment power with respect to all shares of common stock beneficially owned by them.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | For each individual beneficial owner, does not include shares of common stock owned by The Newark Group, Inc. Employees Stock Ownership Plan for the benefit of such
individual.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | These shares of common stock are beneficially owned by Mr. Mullen or trusts for the benefit of members of his family and include 2.4 million shares held by Grats to which
Edward K. Mullen is trustee and maintains sole voting and investment power. Robert H. Mullen has a future pecuniary interest in certain of such shares.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



-41-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



Equity Compensation Plan Information

The following table gives information about our common stock that may be issued upon the exercise of options, warrants and rights under our Stock Option
Plan and Stock Appreciation Rights Plan as of April 30, 2007. These plans were our only equity compensation plans in existence as of April 30, 2007.



|                                                       |  |                                                                                              |     |  |                                                                              |       |                                                                                                                                          |        
|------------------------------------------------------ |  | -------------------------------------------------------------------------------------------- | --- |  | ---------------------------------------------------------------------------- | ----- | ---------------------------------------------------------------------------------------------------------------------------------------- | -------
|Plan Category                                          |  | (a) Number Of Securities ToBe Issued Upon ExerciseOf Outstanding Options,Warrants and Rights |     |  | (b) Weighted-AverageExercise Price OfOutstanding Options,Warrants and Rights |       | (c) Number Of SecuritiesRemaining Available ForFuture Issuance UnderEquity CompensationPlans (ExcludingSecurities Reflected InColumn
(a)
|Equity Compensation Plans Approved by Shareholders     |  |                                                                                             |     |  |                                                                              |      |                                                                                                                                          |       
|                                                       |  |                                                                                              |    
|Equity Compensation Plans Not Approved by Shareholders |  | 639,851                                                                                      | (1) |  | $                                                                            | 43.73 |                                                                                                                                          | 175,000
|                                                       |  |                                                                                              |     |  |                                                                              |       |                                                                                                                                          |        
|TOTAL                                                  |  | 639,851                                                                                      |     |  | $                                                                            | 43.73 |                                                                                                                                          | 175,000
|                                                       |  |                                                                                              |     |  |                                                                              |       |                                                                                                                                          |        

---

|(1) | See Note 12 Employee Stock Ownership Plan and Note 13 Employee Incentive Plans included in the consolidated financial statements for the year ended
April 30, 2007 commencing on page F-1 in this Annual Report on Form 10-K.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|-------- | ----------------------------------------------

(amounts in
Item 13 shown in thousands)

As of April 30, 2007, we had a loan outstanding to the following employee, who is a family
member of one of our directors and executive officers:



|               |  |             |    |              |         |                 |      |               |         |    
|-------------- |  | ----------- | -- | ------------ | ------- | --------------- | ---- | ------------- | ------- | ---
|Name           |  | Loan Amount |    | Date of Loan |         | % Interest Rate |      | Maturity Date |        
|Matthew Mullen |  | $           | 70 |              | 4/12/02 |                 | 0.00 |               | 4/30/07 | (1)

| | 
| | 

| | (1) | Repaid in full subsequent to April 30, 2007.
| | --- | --------------------------------------------

We lease our corporate headquarters located at 20 Jackson Drive, Cranford, New Jersey from Jackson Drive Corp., a corporation owned by Fred G. von Zuben
and Robert H. Mullen. For each of the fiscal years ended April 30, 2007 and 2006, the amounts paid to that company under the lease were $348. The lease expires in December 2013, and we have an option to purchase the property. We believe that
the rent that we are paying represents fair market value.

On August 10, 2005, the Company completed the purchase of 198,000 shares of
the Companys common stock from its former Chairman and Director. On July 5, 2005, this director exercised his right to put the subject stock to the Company pursuant to a May 1, 1980 agreement, as amended. The aggregate
purchase price for the



-42-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



stock was $7,875 which is being paid pursuant to a Subordinated Installment Promissory Note (the Note), with $788 plus accrued interest paid on
August 18, 2005. The balance due is being paid in 40 equal and consecutive quarterly installments, with interest, which began on October 1, 2005 and will continue thereafter on the first day of the months of January, April, July and
October. Interest accrues on the outstanding principal balance of the Note at the prime rate of interest as in effect from time to time. The obligation under the Note is classified as Subordinated Debt on the consolidated balance sheets. (see Note
18 to the consolidated financial statements contained within this Annual Report on Form 10-K).

On November 29, 1999, the Company and its current Vice-Chairman entered into an agreement which obligates the Company, upon the Vice-Chairmans death while employed by the Company, to pay certain death
benefits to the Vice-Chairmans surviving spouse, if any. These monthly payments, to be made for sixty (60) months or until such spouses death, will be in an amount equal to (i) 1/12thof the annualized base salary that the Vice-Chairman was receiving as of the date of his death, plus (ii) 1/60thof the total amounts paid to the Vice-Chairman as bonuses with respect to the last five fiscal years of the Company last preceding the date of the
Vice-Chairmans death. The Company has not recognized a liability because of the contingent nature of the liability. As of April 30, 2007, the potential payments under the agreement range from $0 to $2,185 (see Note 18 to the consolidated
financial statements contained within this Annual Report on Form 10-K).

In the future, transactions with our officers, directors and
affiliates are anticipated to be minimal and will be approved by a majority of our Board of Directors, including a majority of the outside members of our Board of Directors, and will be made on terms no less favorable to us than could be obtained
from unaffiliated third parties.



|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------

In
accordance with the requirements of the Sarbanes-Oxley Act of 2002 and the Audit Committees charter, all audit and audit-related work and all non-audit work performed by our independent accountants, Deloitte & Touche LLP
(D&T), is approved in advance by the Audit Committee, including the proposed fees for such work. The Audit Committee is informed of each service actually rendered.

Audit Fees. Audit fees billed or expected to be billed to us by D&T for the audit of the financial statements included in our Annual Report on
Form 10-K for the fiscal years ended April 30, 2007 and 2006 are approximately $1,251,000 and $1,178,000, respectively.

Audit-Related Fees.We were billed $154,000 and $140,000 by D&T for the fiscal years ended April 30, 2007 and 2006, respectively, for assurance and related services that are reasonably related to the performance of the audit
or review of our financial statements and are not reported under the caption Audit Fees above and relate to D&Ts work in connection with their annual audit of our pension plans.

Tax Fees. We were billed an aggregate of $160,000 and $168,757 by D&T for the fiscal years ended April 30, 2007 and 2006, respectively,
for tax services, principally advice regarding the preparation of income tax returns and tax planning.

Other Matters. The Audit
Committee has considered whether the provision of the Audit-Related Fees and Tax Fees are compatible with maintaining the independence of our principal accountant.

Applicable law and regulations provide an exemption that permits certain services to be provided by our outside auditors even if they are not pre-approved. We have not relied on this exemption at any time since the
Sarbanes-Oxley Act was enacted.

PART IV



|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8K
|-------- | ----------------------------------------------------------------



|(a) | Documents included in this report:
|--- | ----------------------------------



|   |  |                                                           |  |     
|-- |  | --------------------------------------------------------- |  | ----
|   |  |                                                           |  | Page
|1. |  | Financial Statements                                      |  |     
|   |  |                                                          
|   |  | Report of Independent Registered Public Accounting Firm   |  | F-1 
|   |  |                                                          
|   |  | Consolidated Balance Sheets as of April 30, 2007 and 2006 |  | F-2 



-43-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



| |  |                                                                                                |  |     
| |  | ---------------------------------------------------------------------------------------------- |  | ----
| |  | Consolidated Statements of Operations for the years ended April 30, 2007, 2006 and 2005        |  | F-3 
| |  |                                                                                               
| |  | Consolidated Statements of Cash Flows for the years ended April 30, 2007, 2006 and 2005        |  | F-4 
| |  |                                                                                               
| |  | Statements of Permanent Stockholders Equity for the years ended April 30, 2007, 2006 and 2005 |  | F-5 
| |  |                                                                                               
| |  | Notes to Consolidated Financial Statements                                                     |  | F-6 
| |  |                                                                                               
| |  | 2. Financial Statement Schedules                                                               |  |     
| |  |                                                                                               
| |  | Schedule II  Valuation and Qualifying Accounts and Reserves                                   |  | F-28



|(b) | Exhibits:
|--- | ---------

Exhibits designated by the symbol
* are filed with this Annual Report on Form 10-K. All exhibits not so designated are incorporated by reference to a prior filing as indicated.

Exhibits are available from us upon written request to our General Counsel and Secretary at our executive offices located at 20 Jackson Drive, Cranford, New Jersey 07016 upon payment to us of the reasonable costs
incurred by us in furnishing any such exhibit.



|3.1 | Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Companys Registration Statement on Form S-4 (No. 333-118844), filed with the
Securities and Exchange Commission (the Commission) on September 7, 2004)
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3.2 | Amended and Restated By-laws (incorporated by reference to Exhibit 3.2 to the Companys Annual Report on Form 10-K for 2005 (No. 333-118844), filed with the Commission on
July 28, 2005)
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4.1 | Indenture dated March 12, 2004 between The Newark Group, Inc. and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to the Companys Registration
Statement on Form S-4 (No. 333-118844), filed with the Commission on September 7, 2004)
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4.2 | Rule 144A Global Note relating to the 9 3/4% Senior Subordinated Notes due 2014 of The Newark Group, Inc. (incorporated by reference to Exhibit 4.2 to the Companys Registration Statement on Form S-4 (No.
333-118844), filed with the Commission on September 7, 2004)
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4.3 | Regulation S Global Note relating to the 9 3/4% Senior Subordinated Notes due 2014 of The Newark Group, Inc. (incorporated by reference to Exhibit 4.3 to the Companys Registration Statement on Form S-4 (No.
333-118844), filed with the Commission on September 7, 2004)
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10.1 | The Newark Group, Inc. Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Companys Registration Statement on Form S-4 (No. 333-118844), filed with the
Commission on September 7, 2004)
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10.2 | The Newark Group, Inc. Stock Appreciation Rights Plan (incorporated by reference to Exhibit 10.2 to the Companys Registration Statement on Form S-4 (No. 333-118844), filed
with the Commission on September 7, 2004)
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10.3 | The Newark Group, Inc. Employees Stock Ownership Plan (incorporated by reference to Exhibit 10.3 to the Companys Registration Statement on Form S-4 (No. 333-118844),
filed with the Commission on September 7, 2004)
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10.4 | Purchase Agreement dated as of March 5, 2004 among The Newark Group, Inc. and Wachovia Capital Markets, LLC. on behalf of itself and the several initial purchasers named
therein (incorporated by reference to Exhibit 10.4 to the Companys Registration Statement on Form S-4 (No. 333-118844), filed with the Commission on September 7, 2004)
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



-44-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



|10.5 | Registration Rights Agreement dated as of March 12, 2004 among The Newark Group, Inc. and Wachovia Capital Markets, LLC. on behalf of itself and the several initial purchasers
named therein (incorporated by reference to Exhibit 10.5 to the Companys Registration Statement on Form S-4 (No. 333-118844), filed with the Commission on September 7, 2004)
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10.6 | Credit Agreement, dated as of March 12, 2004, among The Newark Group, Inc., Wachovia Bank, National Association, and the several other parties thereto (incorporated by
reference to Exhibit 10.6 to the Companys Registration Statement on Form S-4 (No. 333-118844), filed with the Commission on September 7, 2004)
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10.7 | First Amendment to Credit Agreement, dated July 21, 2005, among The Newark Group, Inc., Wachovia Bank, National Association, and the several other parties thereto (incorporated
by reference to Exhibit 10.7 to the Companys Annual Report on Form 10-K for 2005 (No. 333-118844), filed with the Commission on July 28, 2005)
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10.8 | Stock Restriction/Purchase Agreement, dated May 1, 1980, among The Newark Group, Inc. and Fred G. von Zuben (incorporated by reference to Exhibit 10.8 to the Companys
Annual Report on Form 10-K for 2005 (No. 333-118844), filed with the Commission on July 28, 2005)
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10.9 | Amendment to Stock Restriction/Repurchase Agreement, dated March 1, 1995, between The Newark Group, Inc. and Fred G. von Zuben (incorporated by reference to Exhibit 10.9 to the
Companys Annual Report on Form 10-K for 2005 (No. 333-118844), filed with the Commission on July 28, 2005)
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10.10 | Amendment No. 2 to Stock Restriction/Repurchase Agreement, dated August 1, 2004, between The Newark Group, Inc. and Fred G. von Zuben (incorporated by reference to Exhibit
10.10 to the Companys Annual Report on Form 10-K for 2005 (No. 333-118844), filed with the Commission on July 28, 2005)
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10.11 | Death Benefit Agreement, dated November 29, 1999, among The Newark Group, Inc. and Edward K. Mullen (incorporated by reference to Exhibit 10.11 to the Companys Annual
Report on Form 10-K for 2005 (No. 333-118844), filed with the Commission on July 28, 2005)
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10.12 | Asset-based Loan and Security Agreement, dated March 9, 2007, by and among The Newark Group, Inc., Wachovia Bank, National Association, and the several other parties thereto
(incorporated by reference to Exhibit 10.12 to the Companys Current Report on Form 8-K (No. 333-118844), filed with the Commission on March 15, 2007)
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10.13 | Credit-linked Loan and Security Agreement, dated March 9, 2007, by and among The Newark Group, Inc., Wachovia Bank, National Association, and the several other parties thereto
(incorporated by reference to Exhibit 10.12 to the Companys Current Report on Form 8-K (No. 333-118844), filed with the Commission on March 15, 2007)
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|14.1 | The Newark Group, Inc. Code of Ethics (incorporated by reference to Exhibit 14.1 to the Companys Registration Statement on Form S-4 (No. 333-118844), filed with the Commission
on September 7, 2004)
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|21.1 | Subsidiaries of The Newark Group, Inc. (incorporated by reference to Exhibit 21.1 to the Companys Amendment No. 1 to the Registration Statement on Form S-4 (No.
333-118844), filed with the Commission on October 22, 2004)
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|31.1 * | Certification of the Registrants Chief Executive Officer, Robert H. Mullen, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|------ | --------------------------------------------------------------------------------------------------------------------------------------



|31.2 * | Certification of the Registrants Chief Financial Officer, Joseph E. Byrne, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|------ | -------------------------------------------------------------------------------------------------------------------------------------



|32.1 * | Certification of the Registrants Chief Executive Officer, Robert H. Mullen, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|------ | --------------------------------------------------------------------------------------------------------------------------------------



-45-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



|32.2 * | Certification of the Registrants Chief Financial Officer, Joseph E. Byrne, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|------ | -------------------------------------------------------------------------------------------------------------------------------------



|99.1 * | Financial statements for Integrated Paper Recyclers, LLC
|------ | --------------------------------------------------------



|99.2 * | Financial statements for Desperdicios De Papel Del Norte, S.L.
|------ | --------------------------------------------------------------



|99.3 * | Financial statements for Papeles Allende, S.L.
|------ | ----------------------------------------------



|99.4 * | Financial statements for Corenso Tolosana, S.A.
|------ | -----------------------------------------------



|99.5 * | Financial statements for Etablissments Emile Llau SAS
|------ | -----------------------------------------------------



|(c) | Separate Financial Statements of Fifty Percent or Less Owned Persons:
|--- | ---------------------------------------------------------------------

Audited financials statements for the following equity method investments are filed with this Annual Report on Form 10-K as Exhibits 99.1 through 99.5:



|                                |  |        
|------------------------------- |  | -------
|Equity Affiliate                |  | Exhibit
|Integrated Paper Recyclers, LLC |  | 99.1   
|                                | 
|Subgroup Despanor, S.L.         |  | 99.2   
|                                | 
|Subgroup Papeles Allende, S.L.  |  | 99.3   
|                                | 
|Corenso Tolosana, S.A.          |  | 99.4   
|                                | 
|Etablissments Emite Llau        |  | 99.5   



-46-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



THE NEWARK GROUP, INC.(Registrant)By:

/s/ Robert H. MullenRobert H. MullenChief Executive Officer,President and Chairman of the BoardBy:

/s/ Joseph E. ByrneJoseph E. ByrneVice President and Chief Financial Officer


Dated: July 26, 2007.



-47-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



IN ACCORDANCE WITH THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON
BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED:



|                        |  |  |  |                                              |  |  |  |              
|----------------------- |  |  |  | -------------------------------------------- |  |  |  | -------------
|Signature               |  |  |  | Title                                        |  |  |  | Date         
|                        |  |  |  |                                             
|/s/ Robert H. Mullen    |  |  |  | Chief Executive Officer, President and       |  |  |  | July 26, 2007
|Robert H. Mullen        |  |  |  | Chairman of the Board                        |  |  |  |              
|                        |  |  |  | (Principal Executive Officer)                |  |  |  |              
|                        |  |  |  |                                             
|/s/ Joseph E. Byrne     |  |  |  | Vice President and Chief Financial Officer   |  |  |  | July 26, 2007
|Joseph E. Byrne         |  |  |  | (Principal Financial and Accounting Officer) |  |  |  |              
|                        |  |  |  |                                             
|/s/ Edward K. Mullen    |  |  |  | Vice Chairman of the Board                   |  |  |  | July 26, 2007
|Edward K. Mullen        |  |  |  |                                              |  |  |  |              
|                        |  |  |  |                                             
|/s/ Martin A. Chooljian |  |  |  | Director                                     |  |  |  | July 26, 2007
|Martin A. Chooljian     |  |  |  |                                              |  |  |  |              
|                        |  |  |  |                                             
|/s/ Joseph S. DiMartino |  |  |  | Director                                     |  |  |  | July 26, 2007
|Joseph DiMartino        |  |  |  |                                              |  |  |  |              
|                        |  |  |  |                                             
|/s/ Benedict M. Kohl    |  |  |  | Director                                     |  |  |  | July 26, 2007
|Benedict M. Kohl        |  |  |  |                                              |  |  |  |              
|                        |  |  |  |                                             
|/s/ Fred H. Rohn        |  |  |  | Director                                     |  |  |  | July 26, 2007
|Fred H. Rohn            |  |  |  |                                              |  |  |  |              



-48-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of

The Newark Group, Inc.

Cranford, New Jersey

We have audited the accompanying consolidated balance
sheets of The Newark Group, Inc. and subsidiaries (the Company) as of April 30, 2007 and 2006, and the related consolidated statements of operations, permanent stockholders equity, and cash flows for each of the three years in
the period ended April 30, 2007. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Companys management.
Our responsibility is to express an opinion on the financial statements and financial statement schedule 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included 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, we 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. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial position of The Newark Group, Inc. and subsidiaries as of April 30, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended
April 30, 2007, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly in all material respects the information set forth therein.



|                         
|-------------------------
|/s/ Deloitte & Touche LLP
|                         
|Parsippany, New Jersey   
|July 26, 2007            



-F1-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS

AS OF APRIL 30, 2007 AND 2006

(Dollars in Thousands, Except Share Data)

---



|                                                                                                                               |  |      |         |   |      |   |         |  
|------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                                                               |  | 2007 |         |   | 2006 |  
|ASSETS                                                                                                                         |  |      |         |   |      |   |         |  
|CURRENT ASSETS:                                                                                                                |  |      |         |   |      |   |         |  
|Cash and cash equivalents                                                                                                      |  | $    | 11,806  |   |      | $ | 6,688   |  
|Accounts receivable (less allowance for doubtful accounts and sales returns and allowances of $5,241 and $5,784, respectively) |  |      | 128,125 |   |      |   | 112,856 |  
|Inventories                                                                                                                    |  |      | 75,266  |   |      |   | 69,073  |  
|Other current assets                                                                                                           |  |      | 18,685  |   |      |   | 6,522   |  
|Assets held for sale                                                                                                           |  |      | 755     |   |      |   |        |  
|                                                                                                                               |  |      |         |   |      |   |         |  
|Total current assets                                                                                                           |  |      | 234,637 |   |      |   | 195,139 |  
|                                                                                                                               |  |     
|RESTRICTED CASH                                                                                                                |  |      | 12      |   |      |   | 134     |  
|PROPERTY, PLANT AND EQUIPMENT  NET                                                                                            |  |      | 295,534 |   |      |   | 307,207 |  
|GOODWILL                                                                                                                       |  |      | 48,945  |   |      |   | 46,761  |  
|LONG-TERM INVESTMENTS                                                                                                          |  |      | 18,481  |   |      |   | 17,233  |  
|OTHER ASSETS                                                                                                                   |  |      | 18,493  |   |      |   | 16,733  |  
|                                                                                                                               |  |      |         |   |      |   |         |  
|TOTAL ASSETS                                                                                                                   |  | $    | 616,102 |   |      | $ | 583,207 |  
|                                                                                                                               |  |      |         |   |      |   |         |  
|LIABILITIES, TEMPORARY EQUITY AND PERMANENT STOCKHOLDERS EQUITY                                                               |  |      |         |   |      |   |         |  
|CURRENT LIABILITIES:                                                                                                           |  |      |         |   |      |   |         |  
|Accounts payable                                                                                                               |  | $    | 104,788 |   |      | $ | 81,564  |  
|Current maturities of debt                                                                                                     |  |      | 10,878  |   |      |   | 31,844  |  
|Income taxes and other taxes payable                                                                                           |  |      | 2,983   |   |      |   | 3,067   |  
|Accrued salaries and wages                                                                                                     |  |      | 14,319  |   |      |   | 14,124  |  
|Other accrued expenses                                                                                                         |  |      | 10,609  |   |      |   | 11,466  |  
|                                                                                                                               |  |      |         |   |      |   |         |  
|Total current liabilities                                                                                                      |  |      | 143,577 |   |      |   | 142,065 |  
|                                                                                                                               |  |     
|SENIOR DEBT                                                                                                                    |  |      | 99,118  |   |      |   | 68,190  |  
|SUBORDINATED DEBT                                                                                                              |  |      | 180,138 |   |      |   | 180,967 |  
|DEFERRED INCOME TAXES                                                                                                          |  |      | 8,040   |   |      |   | 5,775   |  
|PENSION OBLIGATION                                                                                                             |  |      | 18,766  |   |      |   | 17,690  |  
|SWAP OBLIGATION                                                                                                                |  |      | 14,775  |   |      |   | 16,269  |  
|OTHER LIABILITIES                                                                                                              |  |      | 5,841   |   |      |   | 6,063   |  
|MINORITY INTEREST                                                                                                              |  |      |        |   |      |   | 91      |  
|                                                                                                                               |  |      |         |   |      |   |         |  
|Total liabilities                                                                                                              |  |      | 470,255 |   |      |   | 437,110 |  
|                                                                                                                               |  |      |         |   |      |   |         |  
|COMMITMENTS AND CONTINGENCIES (Note 11)                                                                                        |  |      |         |   |      |   |         |  
|                                                                                                                               |  |     
|TEMPORARY EQUITYCOMMON STOCK, SUBJECT TO PUT RIGHTS, (614,851 and 648,279 shares, respectively)                               |  |      | 26,617  |   |      |   | 27,911  |  
|                                                                                                                               |  |      |         |   |      |   |         |  
|PERMANENT STOCKHOLDERS EQUITY:                                                                                                |  |      |         |   |      |   |         |  
|Common stock, $.01 per share stated value; authorized 10,000,000 shares, issued and outstanding 6,005,000 shares               |  |      | 60      |   |      |   | 60      |  
|Additional paid-in capital                                                                                                     |  |      | 374     |   |      |   | 374     |  
|Retained earnings                                                                                                              |  |      | 181,822 |   |      |   | 184,702 |  
|Accumulated other comprehensive loss                                                                                           |  |      | (534    | ) |      |   | (5,897  | )
|Treasury stock, 2,404,348 shares and 2,370,920 shares, respectively, at cost                                                   |  |      | (62,492 | ) |      |   | (61,053 | )
|                                                                                                                               |  |      |         |   |      |   |         |  
|Total permanent stockholders equity                                                                                           |  |      | 119,230 |   |      |   | 118,186 |  
|                                                                                                                               |  |      |         |   |      |   |         |  
|TOTAL LIABILITIES, TEMPORARY EQUITY AND PERMANENT STOCKHOLDERS EQUITY                                                         |  | $    | 616,102 |   |      | $ | 583,207 |  
|                                                                                                                               |  |      |         |   |      |   |         |  

See notes to consolidated financial statements



-F2-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED APRIL 30, 2007, 2006 AND 2005

(Dollars in Thousands)

---



|                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|---------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                     |  | 2007 |         |   | 2006 |   |         | 2005 | 
|NET SALES                                            |  | $    | 923,035 |   |      | $ | 852,371 |      |  | $ | 882,084 |  
|COST OF SALES                                        |  |      | 815,917 |   |      |   | 756,031 |      |  |   | 778,393 |  
|                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|Gross profit                                         |  |      | 107,118 |   |      |   | 96,340  |      |  |   | 103,691 |  
|                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|OPERATING EXPENSES:                                  |  |      |         |   |      |   |         |      |  |   |         |  
|Selling, general and administrative                  |  |      | 82,548  |   |      |   | 78,617  |      |  |   | 85,144  |  
|Restructuring and impairments                        |  |      | 708     |   |      |   | 2,562   |      |  |   | 1,710   |  
|                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|Total operating expenses                             |  |      | 83,256  |   |      |   | 81,179  |      |  |   | 86,854  |  
|                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|OPERATING INCOME                                     |  |      | 23,862  |   |      |   | 15,161  |      |  |   | 16,837  |  
|                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|OTHER (EXPENSE) INCOME:                              |  |      |         |   |      |   |         |      |  |   |         |  
|Interest expense                                     |  |      | (27,448 | ) |      |   | (26,385 | )    |  |   | (25,075 | )
|Interest income                                      |  |      | 233     |   |      |   | 291     |      |  |   | 109     |  
|Equity in income of affiliates                       |  |      | 2,190   |   |      |   | 1,652   |      |  |   | 2,054   |  
|Other income (expense)  net                         |  |      | 699     |   |      |   | (923    | )    |  |   | 3,963   |  
|                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|Total other expense                                  |  |      | (24,326 | ) |      |   | (25,365 | )    |  |   | (18,949 | )
|                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|LOSS FROM CONTINUING OPERATIONS, BEFORE INCOME TAXES |  |      | (464    | ) |      |   | (10,204 | )    |  |   | (2,112  | )
|INCOME TAX EXPENSE (BENEFIT)                         |  |      | 3,711   |   |      |   | 6,096   |      |  |   | (999    | )
|                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|LOSS FROM CONTINUING OPERATIONS                      |  |      | (4,175  | ) |      |   | (16,300 | )    |  |   | (1,113  | )
|                                                     |  |      |        
|LOSS FROM DISCONTINUED OPERATIONS (NET OF TAX)       |  |      |        |   |      |   |        |      |  |   | (59     | )
|                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|NET LOSS                                             |  | $    | (4,175  | ) |      | $ | (16,300 | )    |  | $ | (1,172  | )
|                                                     |  |      |         |   |      |   |         |      |  |   |         |  

See notes to consolidated financial statements



-F3-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED APRIL 30, 2007, 2006 AND 2005

(Dollars in Thousands)

---



|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                |  | 2007 |         |   | 2006 |   |         | 2005 | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                           |  |      |         |   |      |   |         |      |  |   |         |  
|Net loss                                                                        |  | $    | (4,175  | ) |      | $ | (16,300 | )    |  | $ | (1,172  | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |      |         |   |      |   |         |      |  |   |         |  
|Depreciation and amortization                                                   |  |      | 34,478  |   |      |   | 34,100  |      |  |   | 32,862  |  
|Impairment of assets                                                            |  |      | 40      |   |      |   | 901     |      |  |   | 1,073   |  
|Gain on sale of marketable securities                                           |  |      |        |   |      |   |        |      |  |   | (6      | )
|(Gain) loss on sale of property, plant and equipment                            |  |      | (832    | ) |      |   | 508     |      |  |   | (536    | )
|Loss on sale of discontinued operations                                         |  |      |        |   |      |   |        |      |  |   | 99      |  
|Equity in income of affiliates                                                  |  |      | (2,190  | ) |      |   | (1,652  | )    |  |   | (2,054  | )
|Loss (gain) due to hedge ineffectiveness                                        |  |      | 536     |   |      |   | (107    | )    |  |   | 348     |  
|Proceeds from dividends paid by equity investments in affiliates                |  |      | 2,205   |   |      |   | 924     |      |  |   | 1,122   |  
|Deferred income tax expense (benefit)                                           |  |      | 999     |   |      |   | (1,742  | )    |  |   | (4,541  | )
|                                                                                |  |      |        
|Changes in assets and liabilities excluding the effects of acquisitions:        |  |      |         |   |      |   |         |      |  |   |         |  
|(Increase) decrease in accounts receivable                                      |  |      | (12,041 | ) |      |   | 6,391   |      |  |   | (1,795  | )
|Increase in inventories                                                         |  |      | (4,465  | ) |      |   | (7,577  | )    |  |   | (2,285  | )
|(Increase) decrease in other current assets                                     |  |      | (127    | ) |      |   | (4,303  | )    |  |   | 3,304   |  
|Decrease in other assets                                                        |  |      | 226     |   |      |   | 8,066   |      |  |   | 259     |  
|Increase (decrease) in accounts payable and accrued expenses                    |  |      | 1,282   |   |      |   | (9,909  | )    |  |   | 1,359   |  
|(Decrease) increase in other liabilities                                        |  |      | (4,324  | ) |      |   | 13      |      |  |   | (4,148  | )
|Other                                                                           |  |      |        |   |      |   | 165     |      |  |   |        |  
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|Net cash provided by operating activities                                       |  |      | 11,612  |   |      |   | 9,478   |      |  |   | 23,889  |  
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                           |  |      |         |   |      |   |         |      |  |   |         |  
|Proceeds from sale of marketable securities                                     |  |      |        |   |      |   |        |      |  |   | 44      |  
|Proceeds from insurance claims                                                  |  |      | 108     |   |      |   |        |      |  |   |        |  
|Acquisition costs                                                               |  |      | (2,247  | ) |      |   |        |      |  |   |        |  
|Capital expenditures                                                            |  |      | (19,959 | ) |      |   | (20,196 | )    |  |   | (18,732 | )
|Proceeds from sale of discontinued operations                                   |  |      |        |   |      |   |        |      |  |   | 1,175   |  
|Proceeds from sale of property, plant and equipment                             |  |      | 2,139   |   |      |   | 1,175   |      |  |   | 2,309   |  
|Decrease (increase) in restricted cash                                          |  |      | 121     |   |      |   | (3      | )    |  |   |        |  
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|Net cash used in investing activities                                           |  |      | (19,838 | ) |      |   | (19,024 | )    |  |   | (15,204 | )
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                           |  |      |         |   |      |   |         |      |  |   |         |  
|Repayments of long-term debt                                                    |  |      | (28,952 | ) |      |   | (3,538  | )    |  |   | (6,809  | )
|Proceeds from long-term debt                                                    |  |      | 36,894  |   |      |   | 19,281  |      |  |   | 7,795   |  
|Deferred financing costs                                                        |  |      | (2,802  | ) |      |   |        |      |  |   |        |  
|Changes in cash overdraft                                                       |  |      | 10,589  |   |      |   | (964    | )    |  |   | (4,160  | )
|Proceeds from issuance of common stock                                          |  |      |        |   |      |   |        |      |  |   | 125     |  
|Purchase of treasury stock                                                      |  |      | (1,439  | ) |      |   | (927    | )    |  |   | (1,555  | )
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|Net cash provided by (used in) financing activities                             |  |      | 14,290  |   |      |   | 13,852  |      |  |   | (4,604  | )
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH                                         |  |      | (946    | ) |      |   | (3,310  | )    |  |   | (1,292  | )
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                       |  |      | 5,118   |   |      |   | 996     |      |  |   | 2,789   |  
|                                                                                |  |      |        
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                    |  |      | 6,688   |   |      |   | 5,692   |      |  |   | 2,903   |  
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|CASH AND CASH EQUIVALENTS, END OF YEAR                                          |  | $    | 11,806  |   |      | $ | 6,688   |      |  | $ | 5,692   |  
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                              |  |      |         |   |      |   |         |      |  |   |         |  
|Cash paid during the year for:                                                  |  |      |         |   |      |   |         |      |  |   |         |  
|Interest                                                                        |  | $    | 26,784  |   |      | $ | 26,584  |      |  | $ | 26,726  |  
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|Income taxes:                                                                   |  |      |         |   |      |   |         |      |  |   |         |  
|Paid                                                                            |  | $    | 3,405   |   |      | $ | 3,407   |      |  | $ | 1,547   |  
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|(Refunded)                                                                      |  | $    | (6      | ) |      | $ |        |      |  | $ |        |  
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|Net change in accrued purchases of property, plant and equipment                |  | $    | 819     |   |      | $ | 297     |      |  | $ | (574    | )
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|Note issued in connection with stock repurchase                                 |  | $    |        |   |      | $ | 7,875   |      |  | $ |        |  
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|Non-cash change in temporary equity value                                       |  | $    | (145    | ) |      | $ | 1,705   |      |  | $ | 1,862   |  
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  

See notes to consolidated financial statements



-F4-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF PERMANENT STOCKHOLDERS EQUITY

FOR THE YEARS ENDED APRIL 30, 2005, 2006 AND 2007

(Dollars in
Thousands)

---



|                                                                                               |  |       |         |   |                                            |   |         |               |  |   |                  |   |  |                          |         |             |  |                          |     |  |   |    |  |   |         |  
|---------------------------------------------------------------------------------------------- |  | ----- | ------- | - | ------------------------------------------ | - | ------- | ------------- |  | - | ---------------- | - |  | ------------------------ | ------- | ----------- |  | ------------------------ | --- |  | - | -- |  | - | ------- | -
|                                                                                               |  | Total |         |   | AccumulatedOtherComprehensiveIncome (Loss) |   |         | TreasuryStock |  |   | RetainedEarnings |   |  | AdditionalPaid InCapital |         | CommonStock |  | TotalComprehensiveIncome |    
|BALANCE MAY 1, 2004                                                                            |  | $     | 128,840 |   |                                            | $ | (8,858  | )             |  | $ | (50,696          | ) |  | $                        | 188,085 |             |  | $                        | 249 |  | $ | 60 |  |   |         |  
|Net loss                                                                                       |  |       | (1,172  | ) |                                            |   |        |               |  |   |                 |   |  |                          | (1,172  | )           |  |                          |    |  |   |   |  | $ | (1,172  | )
|Change in temporary equity subject to put rights                                               |  |       | 3,417   |   |                                            |   |        |               |  |   |                 |   |  |                          | 3,417   |             |  |                          |    |  |   |   |  |   |        |  
|Other comprehensive income (loss), net of tax:                                                 |  |       |         |   |                                            |   |         |               |  |   |                  |   |  |                          |         |             |  |                          |     |  |   |    |  |   |         |  
|Realization of previously unrealized losses on marketable securities sold (net of taxes of $3) |  |       | (4      | ) |                                            |   | (4      | )             |  |   |                 |   |  |                          |        |             |  |                          |    |  |   |   |  |   | (4      | )
|Foreign currency translation adjustments (net of taxes of $686)                                |  |       | 1,009   |   |                                            |   | 1,009   |               |  |   |                 |   |  |                          |        |             |  |                          |    |  |   |   |  |   | 1,009   |  
|Minimum pension liability adjustments (net of taxes of $2,359)                                 |  |       | (3,539  | ) |                                            |   | (3,539  | )             |  |   |                 |   |  |                          |        |             |  |                          |    |  |   |   |  |   | (3,539  | )
|Change in fair value of cash flow hedges (net of taxes of $641)                                |  |       | (962    | ) |                                            |   | (962    | )             |  |   |                 |   |  |                          |        |             |  |                          |    |  |   |   |  |   | (962    | )
|Issuance of common stock                                                                       |  |       | 125     |   |                                            |   |        |               |  |   |                 |   |  |                          |        |             |  |                          | 125 |  |   |   |  |   |        |  
|Purchase of treasury stock, at cost                                                            |  |       | (1,555  | ) |                                            |   |        |               |  |   | (1,555           | ) |  |                          |        |             |  |                          |    |  |   |   |  |   |        |  
|                                                                                               |  |       |         |   |                                            |   |         |               |  |   |                  |   |  |                          |         |             |  |                          |     |  |   |    |  |   |         |  
|BALANCE APRIL 30, 2005                                                                         |  |       | 126,159 |   |                                            |   | (12,354 | )             |  |   | (52,251          | ) |  |                          | 190,330 |             |  |                          | 374 |  |   | 60 |  | $ | (4,668  | )
|                                                                                               |  |       |         |   |                                            |   |         |               |  |   |                  |   |  |                          |         |             |  |                          |     |  |   |    |  |   |         |  
|Net loss                                                                                       |  |       | (16,300 | ) |                                            |   |        |               |  |   |                 |   |  |                          | (16,300 | )           |  |                          |    |  |   |   |  | $ | (16,300 | )
|Change in temporary equity subject to put rights                                               |  |       | 2,797   |   |                                            |   |        |               |  |   |                 |   |  |                          | 2,797   |             |  |                          |    |  |   |   |  |   |        |  
|Other comprehensive income (loss), net of tax:                                                 |  |       |         |   |                                            |   |         |               |  |   |                  |   |  |                          |         |             |  |                          |     |  |   |    |  |   |         |  
|Foreign currency translation adjustments (net of taxes of $205)                                |  |       | 307     |   |                                            |   | 307     |               |  |   |                 |   |  |                          |        |             |  |                          |    |  |   |   |  |   | 307     |  
|Minimum pension liability adjustments (net of taxes of $3,969)                                 |  |       | 5,954   |   |                                            |   | 5,954   |               |  |   |                 |   |  |                          |        |             |  |                          |    |  |   |   |  |   | 5,954   |  
|Change in fair value of cash flow hedges (net of taxes of $131)                                |  |       | 196     |   |                                            |   | 196     |               |  |   |                 |   |  |                          |        |             |  |                          |    |  |   |   |  |   | 196     |  
|Purchase of treasury stock, at cost                                                            |  |       | (927    | ) |                                            |   |        |               |  |   | (8,802           | ) |  |                          | 7,875   |             |  |                          |    |  |   |   |  |   |        |  
|                                                                                               |  |       |         |   |                                            |   |         |               |  |   |                  |   |  |                          |         |             |  |                          |     |  |   |    |  |   |         |  
|BALANCE APRIL 30, 2006                                                                         |  |       | 118,186 |   |                                            |   | (5,897  | )             |  |   | (61,053          | ) |  |                          | 184,702 |             |  |                          | 374 |  |   | 60 |  | $ | (9,843  | )
|                                                                                               |  |       |         |   |                                            |   |         |               |  |   |                  |   |  |                          |         |             |  |                          |     |  |   |    |  |   |         |  
|Net loss                                                                                       |  |       | (4,175  | ) |                                            |   |        |               |  |   |                 |   |  |                          | (4,175  | )           |  |                          |    |  |   |   |  | $ | (4,175  | )
|Change in temporary equity subject to put rights                                               |  |       | 1,295   |   |                                            |   |        |               |  |   |                 |   |  |                          | 1,295   |             |  |                          |    |  |   |   |  |   |        |  
|Other comprehensive income (loss):                                                             |  |       |         |   |                                            |   |         |               |  |   |                  |   |  |                          |         |             |  |                          |     |  |   |    |  |   |         |  
|Unrealized gains on marketable securities available for sale (net of taxes of $9)              |  |       | 14      |   |                                            |   | 14      |               |  |   |                 |   |  |                          |        |             |  |                          |    |  |   |   |  |   | 14      |  
|Minimum pension liability adjustments (net of taxes of $1,489)                                 |  |       | (2,234  | ) |                                            |   | (2,234  | )             |  |   |                 |   |  |                          |        |             |  |                          |    |  |   |   |  |   | (2,234  | )
|Foreign currency translation adjustments                                                       |  |       | 6,336   |   |                                            |   | 6,336   |               |  |   |                 |   |  |                          |        |             |  |                          |    |  |   |   |  |   | 6,336   |  
|Change in fair value of cash flow hedges (net of taxes of $831)                                |  |       | 1,247   |   |                                            |   | 1,247   |               |  |   |                 |   |  |                          |        |             |  |                          |    |  |   |   |  |   | 1,247   |  
|Purchase of treasury stock, at cost                                                            |  |       | (1,439  | ) |                                            |   |        |               |  |   | (1,439           | ) |  |                          |        |             |  |                          |    |  |   |   |  |   |        |  
|                                                                                               |  |       |         |   |                                            |   |         |               |  |   |                  |   |  |                          |         |             |  |                          |     |  |   |    |  |   |         |  
|BALANCE APRIL 30, 2007                                                                         |  | $     | 119,230 |   |                                            | $ | (534    | )             |  | $ | (62,492          | ) |  | $                        | 181,822 |             |  | $                        | 374 |  | $ | 60 |  | $ | 1,188   |  
|                                                                                               |  |       |         |   |                                            |   |         |               |  |   |                  |   |  |                          |         |             |  |                          |     |  |   |    |  |   |         |  

See notes to consolidated financial statements



-F5-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Share and Per Share Amounts)



|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------

Business and Principles of Consolidation The Newark Group, Inc. and its wholly owned subsidiaries (the Company) is an integrated global producer of recycled paperboard and converted paperboard products, with
significant manufacturing and converting operations in North America and Europe. The Companys customers are global manufacturers and converters of paperboard.

The accompanying consolidated financial statements are prepared in conformity with accounting principles generally accepted within the United States of America (GAAP) and include the accounts of the
Company and all of its wholly owned subsidiaries. The preparation of these financial statements requires management to make estimates and assumptions that affect: a) the reported amounts of assets and liabilities, b) the disclosure of contingent
assets and liabilities at the date of the financial statements; and, c) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The equity method is used to account for the Companys investment in the common stock of other companies where the Company maintains ownership
between 20 and 50 percent, and has the ability to exercise significant influence over the investees operating and financial policies. These investments are included in long-term investments. In the event that management identifies an other
than temporary decline in the estimated fair value of an equity method investment to an amount below its carrying value, such investment is written down to its estimated fair value. All significant inter-company profits, transactions and balances
have been eliminated. The following table details the Companys investments in the common stock of unconsolidated entities:



|                                |  |                    |  |           
|------------------------------- |  | ------------------ |  | ----------
|Name                            |  | Domicile           |  | % Holdings
|Integrated Paper Recyclers, LLC |  | Massachusetts, USA |  | 50.00     
|Subgroup Despanor, S.L.         |  | Amorebieta, Spain  |  | 34.00     
|Corenso Tolosana, S.A.          |  | Elduayen, Spain    |  | 22.68     
|Subgroup Papeles Allende, S.L.  |  | Zaragoza, Spain    |  | 15.00     
|Tubembal, Lda.                  |  | Trofa, Portugal    |  | 20.00     
|Etablissments Emite Llau (*)    |  | St. Girons, France |  | 24.00     

| | 
| | 

| | (*) | 13% owned through the subgroup Despanorsa, S.L. and 11% owned through Newark San Andrés, S.L.
| | --- | ---------------------------------------------------------------------------------------------

Revenue Recognition In accordance with GAAP, the Company recognizes revenue when persuasive evidence of an arrangement exists, ownership has
transferred to the customer, the selling price is fixed and determinable and collectibility is reasonably assured. Title and the risks and rewards of ownership transfer to the customer at varying points, which is determined based on shipping terms.
Net sales includes provisions for discounts, returns, allowances, customer rebates and other adjustments that are based upon managements best estimates and historical experience and are provided for in the same period as the related revenues
are recorded. The Company accounts for shipping and handling costs as a component of cost of goods sold; amounts for shipping and handling costs invoiced to customers are included in determining net sales.

Stock-based Compensation  The Company accounts for employee stock options and stock appreciation rights in accordance with Statement of
Financial Accounting Standards (FAS) No. 123(R), Share Based Payment, which allows the Company to measure its liability awards at their intrinsic value through the date of settlement. See Note 2 below for further
details.

Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and
amortization. Expenditures for betterments are capitalized whereas normal repairs and maintenance are expensed as incurred. Interest costs related to the development of certain long-term assets are capitalized and amortized over the
related assets estimated useful lives. There was no interest capitalized in 2007, 2006 or 2005.

Substantially all assets are
depreciated by the straight-line method over the estimated useful lives, which range from three to twenty years for machinery and equipment and range from fifteen to thirty-nine years for buildings and leasehold improvements. Depreciation and
amortization on leasehold improvements are calculated based on the assets useful lives or the lease term, whichever is shorter.



-F6-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



Inventories Substantially all inventories are valued using the first-in, first-out
(FIFO) costing method, or a method that approximates FIFO, and are carried at the lower of cost or market. With respect to inventories, market is deemed as replacement cost or net realizable value. The remaining inventories are valued
using either specific identification or the average cost method (see Note 3).

Income Taxes Pursuant to FAS 109
Accounting for Income Taxes (FAS 109), the Company provides for income taxes using the asset and liability method. Under this method, deferred income tax assets and liabilities are computed for differences between the
financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to reverse. In establishing
reserves against deferred tax assets, the Company assesses recoverability based upon operating forecasts and the resultant expected utilization of those assets.

Goodwill and Other Intangible Assets Pursuant to FAS No. 142, Goodwill and Other Intangible Assets, goodwill is reviewed for impairment annually or if an event or circumstances change
that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The impairment test is based on the estimated fair value of the underlying business as of November 1 of each year. There was no impairment of
goodwill in 2007, 2006 or 2005.

Changes in the carrying amount of goodwill for the years ended April 30, 2007 and 2006 are as follows:



|                                   |  |                    |        |                       |   |        |       |  |   |        |  
|---------------------------------- |  | ------------------ | ------ | --------------------- | - | ------ | ----- |  | - | ------ | -
|                                   |  | Paperboard Segment |        | International Segment |   |        | TOTAL | 
|Goodwill Balance at April 30, 2005 |  | $                  | 19,652 |                       | $ | 27,604 |       |  | $ | 47,256 |  
|                                   |  |                    |       
|Foreign exchange                   |  |                    |       |                       |   | (495   | )     |  |   | (495   | )
|                                   |  |                    |        |                       |   |        |       |  |   |        |  
|Goodwill Balance at April 30, 2006 |  |                    | 19,652 |                       |   | 27,109 |       |  |   | 46,761 |  
|                                   |  |                    |       
|Foreign exchange                   |  |                    |       |                       |   | 2,184  |       |  |   | 2,184  |  
|                                   |  |                    |        |                       |   |        |       |  |   |        |  
|Goodwill Balance at April 30, 2007 |  | $                  | 19,652 |                       | $ | 29,293 |       |  | $ | 48,945 |  
|                                   |  |                    |        |                       |   |        |       |  |   |        |  

Foreign Currency Translation The functional currency of the Companys European
subsidiary is the Euro; the functional currency of its Canadian subsidiary is the Canadian Dollar. Assets and liabilities of foreign subsidiaries are translated at the year-end exchange rate while revenues and expenses are translated daily or
monthly at the average exchange rate for each month. The resulting translation adjustments are made directly to accumulated other comprehensive income (loss). Gains and losses resulting from transactions of the Company and its subsidiaries, which
are made in currencies different from their own, are included in earnings as they occur. The Company recognized a currency gain of $586 in 2007, a loss of $884 in 2006 and a currency gain of $380 in 2005 in the consolidated statements of operations.
The Euro exchange rate at April 30, 2007 was $1.3658 U.S. Dollar/Euro. The Canadian Dollar exchange rate at April 30, 2007 was $0.8961 U.S. Dollar/Canadian Dollar.

Cash and Cash Equivalents Cash and cash equivalents include cash on hand, cash in banks, and short-term investments with maturity of three
months or less from date of purchase. Cash overdrafts are included in accounts payable and are $16,916 and $6,326 as of April 30, 2007 and 2006, respectively.

Environmental The Company is subject to extensive federal, state and local environmental laws and regulations, including those that relate to air emissions, wastewater discharges, solid and hazardous
waste management and disposal and site remediation. Concerning environmental claims, the Company records any liabilities and discloses the required information in accordance with FAS 5, Accounting for Contingencies and Statement of
Position 96-1 Environmental Remediation Liabilities. Additionally, from time to time, the Company may be identified, along with other entities, as being among parties potentially responsible for contribution to costs associated with the
investigation, correction and remediation of environmental conditions at disposal sites subject to federal and/or analogous state laws. Costs associated with environmental obligations are accrued when such costs are probable and reasonably
estimable. Such accruals are adjusted as further information develops or circumstances change. Estimates of costs for future environmental compliance and remediation are necessarily imprecise due to such factors as the continuing evolution of
environmental laws and regulatory requirements, the availability and application of technology, the identification of currently unknown remediation sites and the allocation of costs among the potentially responsible parties under applicable
statutes. Costs of future expenditures for environmental remediation obligations are discounted to their present value when the amount and timing of expected cash payments are reliably determinable (see Note 11).

Certain locations within the Companys Paperboard segment are awarded credits for air emissions. These locations monitor their emissions and
routinely invest funds to maintain compliance levels or to improve performance and from time to time, the Company sells excess Nitrogen Oxide emission credits. Costs for environmental maintenance and



-F7-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



improvement projects are recorded in Cost of sales and the gains from the sales of these credits are likewise recorded in Cost of sales. During 2007, the
Company sold excess emission credits through an open market created specifically to trade such emission credits, and recorded gains from these sales in the amount of $3,499. The Company also sold certain water rights from a location in its
Paperboard segment location for a gain of $834 which was recorded in Cost of sales.

Impairment of Long-Lived Assets The
Company evaluates the recovery of long-lived assets to be held and used by measuring the carrying value of these assets against their fair value, which is determined by the estimated undiscounted future cash flows associated with them.
Long-lived assets classified as held for sale are measured at the lower of their carrying amount or fair value less cost to sell. For the years ended April 30, 2007, 2006 and 2005, the Company incurred impairment charges of $27,
$883 and $1,025, respectively (Refer to Note 10).

Derivative Instruments From time to time, the Company enters into
derivative instruments with third-party institutions to hedge its exposure to interest rate, foreign currency exchange and certain energy and other raw material price risks. All derivatives, whether designated in hedging relationships or not, are
recorded on the consolidated balance sheet at fair value. If the derivative is designated as a cash flow hedge, the effective portion of changes in the fair value of the derivative is recorded in other comprehensive income (loss) and is recognized
in the income statement when the hedged item affects earnings. Changes in the fair value of derivatives that are not designated as cash flow hedges are recorded currently in earnings together with changes in the fair value of the hedged item
attributable to the ineffective portion of the hedge; ineffectiveness, if any, is recorded currently in earnings. At April 30, 2007, the Company was a party to two cross-currency interest rate swaps which are designated as cash flow hedges of
the Companys inter-company receivable from a foreign subsidiary. Unrealized gains or losses on these swaps are reclassified to earnings when the hedged item impacts earnings. The Company is also party to several energy price hedges.

Common Stock Subject to Put Rights  The Company reflects its maximum possible cash obligation related to securities as
temporary equity to the extent conditions could exist whereby holders of these securities could demand cash. Such conditions are triggered only upon employee termination and the payments due will be made ratably over five year period, as discussed
in Note 12.



|2. | RECENT ACCOUNTING PRONOUNCEMENTS
|-- | --------------------------------

In February 2007,
the FASB issued FAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB Statement No. 115 (FAS 159). FAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. This provides entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without being required to apply
complex hedge accounting provisions. FAS 159 is effective for fiscal years beginning after November 15, 2007, and the Company is currently evaluating the impact that FAS 159 will have on its financial position and results of operations once
adopted.

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin 108, Considering the Effects
of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements (SAB 108). SAB 108 provides interpretive guidance on the consideration of the effects of prior year misstatements in quantifying
current year misstatements for the purpose of a materiality assessment and is effective for fiscal years ending after November 15, 2006. The adoption of SAB 108 had no impact on the Companys financial statements in fiscal 2007.

In September 2006, the FASB issued FAS No. 157, Fair Value Measurements (FAS 157). FAS 157 defines fair value,
establishes a framework for measuring fair value, expands disclosures about fair value measurements and is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact this statement will have on
our consolidated financial statements.

In September 2006, the FASB issued FAS No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plansan amendment of FASB Statements No. 87, 88, 106, and 132(R) (FAS 158). FAS 158 requires an employer to recognize the overfunded or 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 of a business
entity. FAS 158 also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. FAS 158 has expanded the disclosure requirements for pension plans and other
post-retirement plans. This statement provides different effective dates for the recognition and related disclosure provisions and for the required changes to a fiscal year-end measurement date. The requirement to recognize the funded status of a
benefit plan and the disclosure requirements are effective for the Company as of the



-F8-



---

##### Table of Contents

\THE NEWARK GROUP, INC. AND SUBSIDIARIES



year ended April 30, 2008. The requirement to measure plan assets and benefit obligations as of the date of the Companys fiscal year-end is
effective for the Company for the fiscal year ended April 30, 2009. The Company is currently evaluating the impact this statement will have on its financial statements.

On July 13, 2006, the FASB issued FASB Interpretation 48 Accounting for Uncertainty in Income Taxes: an interpretation of FASB Statement
No.109 (FIN48). FIN48 was issued to clarify the accounting for uncertain tax positions recognized in the financial statements by prescribing a recognition threshold and measurement attribute for tax positions taken or expected to
be taken in a tax return. The Company is required to adopt FIN 48 as of May 1, 2007, and is in the process of evaluating the impact that FIN 48 will have on its financial statements. Any necessary transition adjustment will not affect net
income in the period of adoption and will be reported as a change in accounting principle in the consolidated financial statements. The Company is currently evaluating the potential impact of this interpretation and cannot yet estimate such impact.

In December 2004, the FASB issued Statement No. 123 (Revised 2004), Share-Based Payment (FAS 123(R)), which
the Company adopted on May 1, 2006. FAS 123(R) requires the measurement of all employee share-based payments to employees, including grants of employee stock options, using a fair-value-based method and the recording of such expense in the
Companys consolidated statements of operations. According to FAS 123(R), the Company is considered a non-public entity as the Company only has debt securities, as opposed to equity securities, trading in the public market. This pronouncement
had to be adopted by non-public companies on an interim basis for fiscal years beginning after December 15, 2005. FAS 123(R) allows non-public companies the ability to elect to measure its liability awards at their intrinsic value through the
date of settlement, and the Company elected to continue to measure its liability awards at intrinsic value instead of fair value. Prior to the adoption of FAS 123(R), the Company had accounted for employee stock options and stock appreciation rights
in accordance with the guidance provided in FAS 123. The Company adopted the provisions of FAS 123(R) using the prospective method; as such, there was no accounting effect on any outstanding awards and the adoption of FAS 123(R) did not have a
material effect on the Companys consolidated financial statements. At this time, the Company has two share-based payment plans covered by FAS 123(R), as described below.

The Company has a non-qualifying Stock Option Plan under which it is authorized to grant 300,000 stock options in tandem with stock appreciation rights
(SARs) to certain employees. The options and SARs vest over a nine-year period from the date of grant. Upon exercise of an option, the holder is entitled to purchase exercisable option shares at the grant price. Alternatively, upon
exercise of a tandem SAR, the holder is entitled to receive cash equal to the amount by which the put value of the Companys common stock on the exercise date exceeds the grant price of the related stock options. As SARs are exercised, the
corresponding options are cancelled and as options are exercised the corresponding SARs are cancelled (See Notes 12 and 13).

The Company
has a second employee stock compensation plan under which it grants SARs without options to certain employees.



|3. | INVENTORIES
|-- | -----------

Inventories consist of the following:



|                             |  |           |        |      |   |       
|---------------------------- |  | --------- | ------ | ---- | - | ------
|                             |  | April 30,
|                             |  | 2007      |        | 2006
|Raw Materials                |  | $         | 29,063 |      | $ | 24,612
|Finished Goods               |  |           | 42,937 |      |   | 41,135
|Other Manufacturing Supplies |  |           | 3,266  |      |   | 3,326 
|                             |  |           |        |      |   |       
|                             |  | $         | 75,266 |      | $ | 69,073
|                             |  |           |        |      |   |       



-F9-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



|4. | ACCOUNTS RECEIVABLE
|-- | -------------------



|                                |  |           |         |   |      |   |         |  
|------------------------------- |  | --------- | ------- | - | ---- | - | ------- | -
|                                |  | April 30, |        
|                                |  | 2007      |         |   | 2006 |  
|Accounts Receivable             |  | $         | 133,366 |   |      | $ | 118,640 |  
|Allowance for Doubtful Accounts |  |           | (5,241  | ) |      |   | (5,784  | )
|                                |  |           |         |   |      |   |         |  
|                                |  | $         | 128,125 |   |      | $ | 112,856 |  
|                                |  |           |         |   |      |   |         |  

During the years ended April 30, 2007, 2006 and 2005, the Company recorded bad debt expense
of $503, $317 and $1,887, respectively. These amounts are included within Selling, general and administrative in the consolidated statements of operations.



|5. | ASSETS HELD FOR SALE
|-- | --------------------

The Company entered into a
Purchase and Sale Agreement (the Agreement) dated August 2, 2006, for the sale of land in Natick, Massachusetts where the paperboard mill the Company closed in November 2005 is located. This facility was closed based on the need for
rationalization of capacity and the near-term requirement of significant capital investment at the facility which offered little or no return. The closing of the property sale is expected to be completed within one year from the execution of the
Agreement. The net book value of these assets is $755 and is reflected as Assets held for sale on the consolidated balance sheets.



|6. | PROPERTY, PLANT AND EQUIPMENT
|-- | -----------------------------



|                                     |  |           |          |   |      |   |          |  
|------------------------------------ |  | --------- | -------- | - | ---- | - | -------- | -
|                                     |  | April 30, |         
|                                     |  | 2007      |          |   | 2006 |  
|Land                                 |  | $         | 24,879   |   |      | $ | 22,704   |  
|Buildings and Leasehold Improvements |  |           | 111,902  |   |      |   | 110,442  |  
|Machinery and Equipment              |  |           | 522,226  |   |      |   | 519,201  |  
|                                     |  |           |          |   |      |   |          |  
|Gross Property, Plant and Equipment  |  |           | 659,007  |   |      |   | 652,347  |  
|Less Accumulated Depreciation        |  |           | (363,473 | ) |      |   | (345,140 | )
|                                     |  |           |          |   |      |   |          |  
|Net Property, Plant and Equipment    |  | $         | 295,534  |   |      | $ | 307,207  |  
|                                     |  |           |          |   |      |   |          |  

Depreciation expense for the years 2007, 2006 and 2005 was $32,665, $32,136 and $31,050,
respectively.



|7. | LONG-TERM DEBT
|-- | --------------



|                                    |  |           |         |   |      |   |         |  
|----------------------------------- |  | --------- | ------- | - | ---- | - | ------- | -
|                                    |  | April 30, |        
|                                    |  | 2007      |         |   | 2006 |  
|Senior Subordinated Notes 9.75% (1) |  | $         | 175,000 |   |      | $ | 175,000 |  
|Three-Year Bank Credit Facility (2) |  |           |        |   |      |   | 25,415  |  
|Asset-based Credit Facility (2)     |  |           | 18,000  |   |      |   |        |  
|Term Loan (2)                       |  |           | 15,000  |   |      |   |        |  
|Industrial Revenue Bonds (3)        |  |           | 67,215  |   |      |   | 69,040  |  
|Subordinated Notes (4)              |  |           | 5,967   |   |      |   | 7,155   |  
|All other (5)                       |  |           | 8,952   |   |      |   | 4,391   |  
|                                    |  |           |         |   |      |   |         |  
|Total Debt                          |  |           | 290,134 |   |      |   | 281,001 |  
|                                    |  |          
|Less Current Maturities of Debt     |  |           | (10,878 | ) |      |   | (31,844 | )
|                                    |  |           |         |   |      |   |         |  
|Long-Term Debt                      |  | $         | 279,256 |   |      | $ | 249,157 |  
|                                    |  |           |         |   |      |   |         |  

| | 
| | 

| | (1) | The Company has $175,000 of 9.75% unsecured senior subordinated notes outstanding. Interest is payable semi-annually (March 15 and September 15) and principal is due, in total,
on March 15, 2014. This debt is classified in Subordinated debt in the consolidated balance sheets.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | The Company had a $150,000 senior secured credit facility with ten banks which was replaced by both an asset-based credit facility and a credit-linked facility on
March 9, 2007. Under the $150,000 facility, borrowing availability was subject to borrowing base requirements established by leverage ratios, and the Company had the ability to issue up to $95,000 for letters of credit. The new asset-based
facility provides the Company a revolving line of credit in the aggregate principal amount of up to $85,000 (depending on the Companys
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



-F10-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



| | borrowing base), up to $25,000 of which may be used for loans directly to the Companys International subsidiary and up to $15,000 of which may be used
for letters of credit, and other financial accommodations. The new credit-linked facility provides the Company a $15,000 term loan and a $75,000 credit-linked letter of credit facility, and other financial accommodations. Borrowings under the
asset-based facility bear interest at a rate of prime or the Eurodollar rate plus a credit spread determined based on availability under the facility. The term loan under the credit-linked facility bears interest at a rate of prime plus 1% or the
Eurodollar rate plus a credit spread of 2.25%. Letters of Credit are issued under the credit-linked facility primarily to enhance the Companys multiple IRB issues with the credit spread being the same as the term loan. The term of the
asset-based credit agreement is 5 years, and the term of the credit-linked credit agreement is 6 years. Subject to meeting certain conditions, the Company has a one-time option prior to March 9, 2010 to increase the asset-based credit facility
by an amount of up to $15,000. Likewise, subject to meeting certain conditions, the Company has a one-time option prior to March 9, 2010 to increase the credit-linked facility by an amount of up to $10,000. As of April 30, 2007, the
Company had a total of $82,015 in letters of credit obligations outstanding ($68,302 of which had been used to enhance the industrial revenue bonds) and $7,015 under the asset-based facility. Separately, under the asset-based facility the Company
had $18,000 in borrowings outstanding at a rate of 6.82% and had $15,000 outstanding on the term loan at a rate of 7.57%. The Company had $42,690 of borrowing availability under the asset-based facility at April 30, 2007. The undrawn portions
of the facilities are subject to a facility fee at an annual rate of 0.25% to 0.30%. This debt is classified in Senior Debt in the consolidated balance sheets.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | The industrial revenue bonds are comprised of: Mercer IRB of $1,250, Mobile IRB of $4,560, Ohio IRB of $15,500, and Massachusetts IRBs of $45,905 as of April 30, 2007. During
the twelve months ended April 30, 2007, the remaining balance on the Natick IRB was paid. These bonds are variable rate demand bonds with maturity dates ranging from November 2011 through July 2031 where the interest rates range from 6.35% to
7.73% (including letter of credit fees) and are reset every seven days. This debt is classified in Senior Debt in the consolidated balance sheets with a portion in Current maturities of debt.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Pursuant to the July 5, 2005 put of Company common stock to the Company by its former Chairman and Director (see Note 18), the Company issued a subordinated note on
August 10, 2005 for $7,875 to the former Chairman in exchange for the 198,000 shares of Company common stock owned by him. The note bears interest at the prime rate in effect from time to time, requires quarterly principal and interest payments
and is due in July 2015. As of April 30, 2007, the remaining balance on the note is $5,847. The Company had previously issued a separate subordinated note to a stockholder in exchange for the stockholders shares of common stock. That note
bears interest at the rate of 5% per year, payable quarterly. As of April 30, 2007, the amount outstanding on that note is $120 and is due June 2007. The debt associated with these notes is classified in Subordinated Debt in the
consolidated balance sheets with a portion in Current maturities of debt.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (5) | All other includes $5,724 and $2,292 of borrowings on a line of credit and discounted bills pending collection, respectively, from the Companys International operations. It
also includes a loan with Toronto Dominion Bank for $936. The loan bears interest at the Canadian prime rate plus 0.75% (the Canadian prime rate is 6.00% as of April 30, 2007), payable monthly through May 2015. The loan is secured by a mortgage
on the Companys Richmond, B.C., Canada facility. This loan is classified in Senior Debt in the consolidated balance sheets with a portion in Current Portion of Long Term Debt.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Aggregate annual principal payments applicable to debt for the next five years and thereafter are as follows:



|                      |  |       |        
|--------------------- |  | ----- | -------
|Year Ending April 30, |  | Total
|2008                  |  | $     | 10,878 
|2009                  |  |       | 2,872  
|2010                  |  |       | 3,012  
|2011                  |  |       | 3,152  
|2012(1)               |  |       | 21,307 
|Thereafter(2)         |  |       | 248,913
|                      |  |       |        
|                      |  | $     | 290,134
|                      |  |       |        

| | 
| | 

| | (1) | Includes $18,000 due under the asset-based facility.
| | --- | ----------------------------------------------------

| | (2) | Includes $15,000 due under the term loan facility.
| | --- | --------------------------------------------------

The asset-based and credit-linked facilities include financial covenants as follows: (a) if, during any quarter, Excess Availability, as defined
under the revolving credit facility, falls below $10,000, the Company must achieve a Fixed Charge Coverage Ratio, as defined, of not less than 1.0 to 1.0. and (b) the Senior Leverage Ratio, as defined, for each



-F11-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



twelve-month period ending as of each fiscal quarter end shall be less than or equal to 3.0 to 1.0. At April 30, 2007, the Company was in compliance
with all financial ratios. These facilities also contain a Material Adverse Change clause. It is the Companys opinion that the clause will not be invoked and as such, all debt under these facilities is classified as long-term.

Under the asset-based agreement, the Company (a) granted the lenders a first priority lien on all of its accounts receivable and
inventory (the ABL Priority Collateral) and a second priority lien on substantially all of its other assets, including certain real property, and (b) guaranteed the obligations, under this facility, of its International subsidiary.
Under the credit-linked agreement, the Company granted the lenders a first priority lien on substantially all of its assets, including certain real property (excluding accounts receivable and inventory), and a second priority lien on all ABL
Priority Collateral.

The Company has two cross-currency interest rate swap agreements. These agreements have been designated as cash flow
hedges against the existing inter-company loan to the Companys European subsidiary. At April 30, 2007 and 2006, the fair value of the swaps represented a liability of $14,775 and $16,269, respectively, the decrease resulting from a
principal payment made in September 2006 and the effects of the change in foreign currency exchange rates. The Company has recognized a charge of $536, income of $107 and a charge of $348 within Other (expense) income  net on the consolidated
statements of operations, related to hedge ineffectiveness, during the years ended April 30, 2007, 2006 and 2005, respectively.

The
Company is involved in the use of derivative financial instruments, in the form of cross-currency interest rate swaps and various hedging transactions, to manage interest rate risk, foreign currency exchange risk, certain energy price risks and
other raw material price risks. The Company is exposed to credit losses in the event of non-performance by the counterparties to its derivative financial instruments. The Company anticipates, however, that the counterparties will be able to fully
satisfy their obligations under the contracts.



|8. | ACCUMULATED OTHER COMPREHENSIVE INCOME
|-- | --------------------------------------

Accumulated
other comprehensive income (loss) is comprised of the following, net of tax:



|                                              |  |           |         |   |      |   |        |  
|--------------------------------------------- |  | --------- | ------- | - | ---- | - | ------ | -
|                                              |  | April 30, |        
|                                              |  | 2007      |         |   | 2006 |  
|Foreign currency translation                  |  | $         | 10,250  |   |      | $ | 3,914  |  
|Net unrealized gain on marketable securities  |  |           | 14      |   |      |   |       |  
|Net unrealized loss on derivative instruments |  |           | (239    | ) |      |   | (1,486 | )
|Minimum pension liability                     |  |           | (10,559 | ) |      |   | (8,325 | )
|                                              |  |           |         |   |      |   |        |  
|Net accumulated other comprehensive loss      |  | $         | (534    | ) |      | $ | (5,897 | )
|                                              |  |           |         |   |      |   |        |  



|9. | INCOME TAXES
|-- | ------------

The Company has recorded a deferred
tax asset relating to operating loss carry-forwards for federal, foreign, and state purposes of $76,590 and $71,477 as of April 30, 2007 and 2006, respectively.

Federal net operating losses of $158,171 as of April 30, 2007 can be carried forward for twenty years and have expiration dates of April 30, 2023 through April 30, 2027. State net operating losses of
approximately $161,000 have expiration dates ranging from April 30, 2008 through April 30, 2027. Foreign net operating losses and credits of $34,778 have expiration dates ranging from April 30, 2008 to April 30, 2020.

Realization of the net asset is dependent upon generating taxable income in future periods. Due to the uncertainty of the realization of certain of
these federal, state and foreign tax carry forwards, the Company has a valuation allowance of $27,431 as of April 30, 2007, which represents a full reserve on its domestic net asset and a reserve on certain foreign assets. At April 30,
2006, the valuation allowance was $22,231. The increase in the 2007 valuation allowance was recorded through income from continuing operations.



-F12-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



The components of income tax expense (benefit) are as follows:



|                             |  |                      |       |   |      |   |       |      |  |   |        |   
|---------------------------- |  | -------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ------ | --
|                             |  | Year Ended April 30, |      
|                             |  | 2007                 |       |   | 2006 |   |       | 2005 | 
|Current:                     |  |                      |       |   |      |   |       |      |  |   |        |   
|Federal                      |  | $                    |      |   |      | $ | 581   |      |  | $ |       |   
|State                        |  |                      | 409   |   |      |   | 92    |      |  |   | 40     |   
|Foreign                      |  |                      | 2,303 |   |      |   | 2,245 |      |  |   | 3,502  |   
|                             |  |                      |       |   |      |   |       |      |  |   |        |   
|                             |  |                      | 2,712 |   |      |   | 2,918 |      |  |   | 3,542  |   
|                             |  |                      |       |   |      |   |       |      |  |   |        |   
|Deferred:                    |  |                      |       |   |      |   |       |      |  |   |        |   
|Federal                      |  |                      |      |   |      |   | (474  | )    |  |   | (4,136 | ) 
|State                        |  |                      |      |   |      |   | 2,337 |      |  |   | (802   | ) 
|Foreign                      |  |                      | 999   |   |      |   | 1,315 |      |  |   | 397    |   
|                             |  |                      |       |   |      |   |       |      |  |   |        |   
|                             |  |                      | 999   |   |      |   | 3,178 |      |  |   | (4,541 | ) 
|                             |  |                      |       |   |      |   |       |      |  |   |        |   
|Income Tax Expense (Benefit) |  | $                    | 3,711 |   |      | $ | 6,096 |      |  | $ | (999   | ) 
|                             |  |                      |       |   |      |   |       |      |  |   |        |   
|Effective Tax Rate           |  |                      | 800.0 | % |      |   | 59.7  | %    |  |   | (47.3  | )%
|                             |  |                      |       |   |      |   |       |      |  |   |        |   

The reconciliation between the statutory federal tax rate and the Companys effective income
tax rate are as follows:



|                                                    |  |                      |    |  |       |    |  |       |   
|--------------------------------------------------- |  | -------------------- | -- |  | ----- | -- |  | ----- | --
|                                                    |  | Year Ended April 30, |   
|                                                    |  | 2007                 |    |  | 2006  |    |  | 2005  |   
|Statutory federal tax rate                          |  | (35.0                | )% |  | (35.0 | )% |  | (35.0 | )%
|State taxes, net of federal benefit                 |  | 25.1                 |    |  | (41.3 | )  |  | (23.5 | ) 
|Foreign tax rate differential/earnings repatriation |  | (378.2               | )  |  | (5.5  | )  |  | (4.3  | ) 
|Valuation allowance                                 |  | 927.9                |    |  | 129.2 |    |  |      |   
|Branch foreign currency gains/losses                |  | 159.4                |    |  | 11.7  |    |  |      |   
|Meals & Entertainment                               |  | 51.8                 |    |  | 2.3   |    |  | 11.1  |   
|Lobby                                               |  | 13.7                 |    |  | 0.5   |    |  |      |   
|Fines and penalties                                 |  | 29.2                 |    |  | 0.7   |    |  |      |   
|Officers Life                                      |  | 7.2                  |    |  |      |    |  | 11.3  |   
|Other, net                                          |  | (1.1                 | )  |  | (2.9  | )  |  | (6.9  | ) 
|                                                    |  |                      |    |  |       |    |  |       |   
|Effective tax rate                                  |  | 800.0                | %  |  | 59.7  | %  |  | (47.3 | )%
|                                                    |  |                      |    |  |       |    |  |       |   



-F13-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



The components of net deferred tax asset and liability are as follows:



|                                                      |  |           |         |   |      |   |         |  
|----------------------------------------------------- |  | --------- | ------- | - | ---- | - | ------- | -
|                                                      |  | April 30, |        
|                                                      |  | 2007      |         |   | 2006 |  
|Current:                                              |  |           |         |   |      |   |         |  
|Loss Carry Forwards / Credits                         |  | $         | 76      |   |      | $ | 1,110   |  
|Allowance for Doubtful Accounts                       |  |           | 542     |   |      |   | 531     |  
|Inventory Reserve                                     |  |           | 423     |   |      |   | 362     |  
|Vacation Pay Reserve                                  |  |           | 1,814   |   |      |   | 2,111   |  
|Other                                                 |  |           | 288     |   |      |   | 259     |  
|                                                      |  |           |         |   |      |   |         |  
|Current Deferred Tax Asset                            |  |           | 3,143   |   |      |   | 4,373   |  
|                                                      |  |           |         |   |      |   |         |  
|Non-Current:                                          |  |           |         |   |      |   |         |  
|Loss Carry-forward                                    |  |           | 76,509  |   |      |   | 70,367  |  
|Pension Costs                                         |  |           | 7,294   |   |      |   | 6,030   |  
|Cash Flow Hedge                                       |  |           |        |   |      |   | 85      |  
|Property, Plant & Equipment                           |  |           | 439     |   |      |   |        |  
|Stock Appreciation Rights (SARs)                      |  |           | 681     |   |      |   | 829     |  
|Gas Hedge                                             |  |           | 14      |   |      |   | 884     |  
|Other                                                 |  |           | 510     |   |      |   | 253     |  
|                                                      |  |           |         |   |      |   |         |  
|Non-Current Deferred Tax Asset                        |  |           | 85,447  |   |      |   | 78,448  |  
|                                                      |  |           |         |   |      |   |         |  
|Total Deferred Tax Assets                             |  |           | 88,590  |   |      |   | 82,821  |  
|Valuation Allowance                                   |  |           | (27,431 | ) |      |   | (22,231 | )
|                                                      |  |           |         |   |      |   |         |  
|Total Deferred Tax Assets, Net of Valuation Allowance |  |           | 61,159  |   |      |   | 60,590  |  
|                                                      |  |           |         |   |      |   |         |  
|Current Liability                                     |  |           |         |   |      |   |         |  
|LIFO Adjustment                                       |  |           |        |   |      |   | (825    | )
|Dividend Repatriation                                 |  |           |        |   |      |   | (1,047  | )
|Property Tax                                          |  |           | (172    | ) |      |   | (238    | )
|                                                      |  |           |         |   |      |   |         |  
|                                                      |  |           | (172    | ) |      |   | (2,110  | )
|                                                      |  |           |         |   |      |   |         |  
|Non-Current Liability:                                |  |           |         |   |      |   |         |  
|Property, Plant and Equipment                         |  |           | (53,072 | ) |      |   | (54,772 | )
|Cash Flow Hedge                                       |  |           | (115    | ) |      |   |        |  
|Pension                                               |  |           | (4,030  | ) |      |   |        |  
|Gains/Losses                                          |  |           | (397    | ) |      |   |        |  
|Goodwill                                              |  |           | (7,516  | ) |      |   | (6,351  | )
|Other                                                 |  |           | (84     | ) |      |   | (2,612  | )
|                                                      |  |           |         |   |      |   |         |  
|                                                      |  |           | (65,214 | ) |      |   | (63,735 | )
|                                                      |  |           |         |   |      |   |         |  
|Total Deferred Tax Liability                          |  |           | (65,386 | ) |      |   | (65,845 | )
|                                                      |  |           |         |   |      |   |         |  
|Net Deferred Tax Asset (Liability)                    |  | $         | (4,227  | ) |      | $ | (5,255  | )
|                                                      |  |           |         |   |      |   |         |  

Net current deferred tax assets of $2,207 and $215 are included in Other current assets as of
April 30, 2007 and 2006, respectively. Additionally, net long term deferred tax assets of $1.606 and $305 are included in Other assets as of April 30, 2007 and 2006, respectively.

The Company had provided for United States deferred income taxes on $3,822 of earnings of its foreign subsidiaries which were fully repatriated in the
current fiscal year; all of the amounts repatriated were considered earnings and therefore taxable. All other foreign earnings are intended to be reinvested indefinitely. As of April 30, 2007 such earnings are $31,293.

During the year ended April 30, 2007, Spanish authorities enacted a two-tiered rate change for corporate taxpayers. The corporate income tax rate was
changed from 35% to 32.5% and 30% for tax years beginning after December 31, 2006 and 2007, respectively. This change represents a tax benefit of approximately $691.



-F14-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



|10. | RESTRUCTURING AND IMPAIRMENTS
|--- | -----------------------------

2007
Restructuring

The Paperboard segment incurred $429 of expenses related to the maintenance and dismantling of facilities closed in prior
years. Of this amount, nearly 75% of the total related to our closed facility in Stockton, CA.

The Converted Products segment incurred $252
of dismantling costs on previously shut down facilities, the total of which includes $145 related to the net buyout of the remaining lease term on one facility and the release of $18 of accrued expenses on our Kountze, TX facility resulting from its
January 2007 sale. The Converted Products segment also incurred $27 of non-cash impairment charges on equipment.

2006 Restructuring

The Paperboard segment incurred $1,768 of restructuring charges, $1,407 of which related to the closure of the Natick, MA mill. Of
Naticks total, $605 was related to the non-cash impairment of fixed assets, $414 was for severance and the remainder for mothballing and other charges. Upon closure, there were 58 severed employees, primarily representing the hourly workforce.
The decision to close the mill was made based on the need for rationalization of capacity and the near-term requirement of significant capital investment at the facility which offered little or no return. The remaining charges in Paperboard were
comprised of the on-going costs to exit previously shut-down facilities.

Within the Converted Products segment, the majority of both
dismantling and impairment charges related to a certain leased facility which ceased production operations in April 2004 but continued to be used for warehousing purposes. The $166 within Corporate represented the loss on the sale of a previously
restructured facility in Greenville, SC. Gross proceeds on the sale were $1,078.

2005 Restructuring

The Paperboard segment incurred charges of $1,309. The total charges included amounts related to the closing of the facility located in Sunrise, FL, and
were net of $410 the Company received in its second fiscal quarter from the sale of certain water/sewer discharge rights. The Sunrise facility was suffering from continued operating losses which resulted from the weakened recovered paper market in
Europe. The Companys senior management decided to close the facility in belief that the European markets would not be experiencing a turnaround in the near future. The other remaining restructured locations in this segment had appraisals
performed by experienced engineers of the Company to determine the fair value of the facilities. The markets for used equipment could not support the net book value and an impairment charge was taken. The remaining charges related to continuing
costs to exit these facilities that were incurred in 2005. The Company sold its paperboard mill in Gardiner, ME in a transaction that closed on March 17, 2005. The gross proceeds on the sale were $130, resulting in a loss of $18. This mill was
closed in October 2001 after operating on a limited basis for several months due to an overall slowdown in the Paperboard segment.

The
Converted Products segment incurred net charges of $401, which included charges to shut down facilities located in Kountze, TX and Stockton, CA, as well as a gain from the sale of its Vancouver, WA plant. On November 16, 2004, the Company
entered into a Purchase and Sale Agreement for the sale of the Vancouver plant and the closing occurred on April 14, 2005. The gross proceeds on the sale were $2,250, resulting in a gain of $896. This facility was closed in September 2003 as a
result of consolidation of operations. Excluding the Vancouver sale, total restructuring charges in this segment were $1,297, of which $314 related to asset impairment. Dismantling charges of $729 and severance charges of $254 occurred primarily at
the facility located in Kountze, TX. This facility was closed upon senior managements determination that it was not feasible to withstand this plants continued operating losses. The Stockton plant shut-down was the result of
consolidation of operations in the California area and the shifting of business to other facilities.



-F15-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



The components of the Companys plant restructuring and other charges incurred in 2007, 2006,
and 2005 are as follows:



|                                 |  |            |       |                    |   |      |           |  |       |     |  |   |      
|-------------------------------- |  | ---------- | ----- | ------------------ | - | ---- | --------- |  | ----- | --- |  | - | -----
|                                 |  | Paperboard |       | Converted Products |   |      | Corporate |  | Total
|2007 Charges                     |  |            |       |                    |   |      |           |  |       |     |  |   |      
|Dismantling, Mothballing & Other |  | $          | 429   |                    | $ | 252  |           |  | $     |    |  | $ | 681  
|Asset Impairment                 |  |            |      |                    |   | 27   |           |  |       |    |  |   | 27   
|                                 |  |            |       |                    |   |      |           |  |       |     |  |   |      
|Total Charges                    |  | $          | 429   |                    | $ | 279  |           |  | $     |    |  | $ | 708  
|                                 |  |            |       |                    |   |      |           |  |       |     |  |   |      
|2006 Charges                     |  |            |       |                    |   |      |           |  |       |     |  |   |      
|Severance                        |  | $          | 414   |                    | $ |     |           |  | $     |    |  | $ | 414  
|Dismantling, Mothballing & Other |  |            | 749   |                    |   | 350  |           |  |       | 166 |  |   | 1,265
|Asset Impairment                 |  |            | 605   |                    |   | 278  |           |  |       |    |  |   | 883  
|                                 |  |            |       |                    |   |      |           |  |       |     |  |   |      
|Total Charges                    |  | $          | 1,768 |                    | $ | 628  |           |  | $     | 166 |  | $ | 2,562
|                                 |  |            |       |                    |   |      |           |  |       |     |  |   |      
|2005 Charges                     |  |            |       |                    |   |      |           |  |       |     |  |   |      
|Severance                        |  | $          | 205   |                    | $ | 254  |           |  | $     |    |  | $ | 459  
|Dismantling, Mothballing & Other |  |            | 481   |                    |   | (167 | )         |  |       |    |  |   | 314  
|Asset Impairment                 |  |            | 623   |                    |   | 314  |           |  |       |    |  |   | 937  
|                                 |  |            |       |                    |   |      |           |  |       |     |  |   |      
|Total Charges                    |  | $          | 1,309 |                    | $ | 401  |           |  | $     |    |  | $ | 1,710
|                                 |  |            |       |                    |   |      |           |  |       |     |  |   |      

The following table summarizes the Companys accruals for plant restructuring costs:



|                                  |  |                                        |        |   |                                     |   |      |                 |  |   |        |  
|--------------------------------- |  | -------------------------------------- | ------ | - | ----------------------------------- | - | ---- | --------------- |  | - | ------ | -
|                                  |  | Dismantling, Mothballing & Other Costs |        |   | Severance and Payroll Related Costs |   |      | Total Provision | 
|April 30, 2005 Balance            |  | $                                      | 46     |   |                                     | $ |     |                 |  | $ | 46     |  
|2006 Restructuring Charges        |  |                                        | 1,265  |   |                                     |   | 414  |                 |  |   | 1,679  |  
|Amounts Paid Against 2005 Charges |  |                                        | (46    | ) |                                     |   |     |                 |  |   | (46    | )
|Amounts Paid Against 2006 Charges |  |                                        | (1,085 | ) |                                     |   | (414 | )               |  |   | (1,499 | )
|                                  |  |                                        |        |   |                                     |   |      |                 |  |   |        |  
|April 30, 2006 Balance            |  |                                        | 180    |   |                                     |   |     |                 |  |   | 180    |  
|2007 Restructuring Charges        |  |                                        | 681    |   |                                     |   |     |                 |  |   | 681    |  
|Amounts Paid Against 2006 Charges |  |                                        | (162   | ) |                                     |   |     |                 |  |   | (162   | )
|Adjustment of prior accruals      |  |                                        | (18    | ) |                                     |   |     |                 |  |   | (18    | )
|Amounts Paid Against 2007 Charges |  |                                        | (568   | ) |                                     |   |     |                 |  |   | (568   | )
|                                  |  |                                        |        |   |                                     |   |      |                 |  |   |        |  
|April 30, 2007 Balance            |  | $                                      | 113    |   |                                     | $ |     |                 |  | $ | 113    |  
|                                  |  |                                        |        |   |                                     |   |      |                 |  |   |        |  

During the years ended April 30, 2007, 2006 and 2005, the Company recorded charges of $13,
$18 and $136, respectively, to reduce inventories and idle assets to their net realizable value. The inventory was written down to its net realizable value based upon the Companys decision to close certain facilities. This charge is included
in Cost of sales.

Within Corporate, 2006 dismantling charges represent the loss on the sale of a previously restructured facility.

The following table summarizes restructuring and impairment costs by segment for those plans initiated since January 1, 2003 and
accounted for under FAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities:



|                                                                                                                                                                                                                                                                                                                                                     |  |                                           |        |                                                     |   |                                                              |  |                                                           |       |  |   |       
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------- | ------ | --------------------------------------------------- | - | ------------------------------------------------------------ |  | --------------------------------------------------------- | ----- |  | - | ------
|                                                                                                                                                                                                                                                                                                                                                     |  | Cumulative Costs as of April 30, 2006 (1) |        | Costs for the Twelve Months EndedApril 30, 2007 (2) |   | Estimated Costs to Complete Initiatives as
of April 30, 2007 |  | Total Estimated Costs of Initiatives as
of April 30, 2007
|Paperboard                                                                                                                                                                                                                                                                                                                                           |  | $                                         | 15,645 |                                                     | $ | 388                                                          |  | $                                                         | 1,750 |  | $ | 17,783
|Converted Products                                                                                                                                                                                                                                                                                                                                   |  |                                           | 2,158  |                                                     |   | 279                                                          |  |                                                           |      |  |   | 2,437 
|                                                                                                                                                                                                                                                                                                                                                     |  |                                           |        |                                                     |   |                                                              |  |                                                           |       |  |   |       
|                                                                                                                                                                                                                                                                                                                                                     |  | $                                         | 17,803 |                                                     | $ | 667                                                          |  | $                                                         | 1,750 |  | $ | 20,220
|                                                                                                                                                                                                                                                                                                                                                     |  |                                           |        |                                                     |   |                                                              |  |                                                           |       |  |   |       
|(1)    Of the
$17,803 in cumulative restructuring costs, $7,972 million were non-cash charges. (2)    The
total costs incurred in the twelve months ended April 30, 2007, $667, does not agree with the twelve month total charges of $708 from a prior table above since some of the costs are related to plans initiated prior to January 1,
2003.



-F16-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



|11. | COMMITMENTS AND CONTINGENCIES
|--- | -----------------------------

Lease and
Purchase Commitments

Rental expense charged to operations under operating leases was $7,065, $6,359 and $5,567 in 2007, 2006 and 2005,
respectively. Aggregate minimum rental commitments, primarily for manufacturing facilities, equipment and the corporate office, are as follows:



|                      |  |       |       
|--------------------- |  | ----- | ------
|Year Ending April 30, |  | Total
|2008                  |  | $     | 6,042 
|2009                  |  |       | 5,492 
|2010                  |  |       | 4,583 
|2011                  |  |       | 3,670 
|2012                  |  |       | 2,655 
|Thereafter            |  |       | 2,989 
|                      |  |       |       
|                      |  | $     | 25,431
|                      |  |       |       

The Company enters into purchase commitments that are necessary to efficiently manage its
businesses. As of April 30, 2007, these commitments require the Company to make payments of approximately $4,902 through April 2011. The majority of these commitments relate to the supply of natural gas and electricity, with the remainder
relating to service providers for communications, office equipment and trash removal.

Litigation

In April 2004, a US District Court in Columbus, Ohio entered judgment, to the Companys benefit, upon a jury verdict in a lawsuit involving the
misappropriation of certain of the Companys trade secrets. In April 2005, the Company settled this lawsuit for $3,359. The proceeds from this settlement were recorded in Other (expense) income  net in the consolidated statement of
operations for the year ended April 30, 2005.

The Company and its subsidiaries are party to various claims, legal actions, complaints,
and administrative proceedings, including workers compensation and environmental claims, arising in the ordinary course of business. In managements opinion, the ultimate disposition of these matters will not have a material adverse
effect on its financial condition, results of operations, or cash flows.

Current Environmental Matters

The Company has identified environmental contamination at three of our closed facilities that may require remediation upon retirement of these assets.
However, no such liability has been recognized for these facilities, as the Company currently does not have sufficient information available to assess if remediation will be required or to reasonably estimate any potential obligation. For these
three locations, any potential obligation cannot be reasonably estimated as the settlement date or potential settlement dates, the settlement method or potential settlement methods, and other relevant facts to determine a reasonable estimate for the
obligation are unknown at this time.

The Massachusetts Attorney Generals Office has asserted that the Company, at one or more of its
Massachusetts mills, exceeded permitted air emissions, failed to accurately report certain emissions, and failed to submit certain required monitoring and compliance reports. The Company has agreed, in principle, subject to a definitive written
agreement, to settle these allegations by paying $600 and agreeing to certain injunctive relief. As of April 30, 2007, the Company had accrued the $600 with such amounts being recorded in the Selling, general and administrative line on the
Consolidated Statements of Operations.



-F17-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



By letters dated February 14, 2006 and June 2, 2006, the United States Environment
Protection Agency (EPA) notified the Company of its potential liability relating to the Lower Passaic River Study Area (LPRSA), which is part of the Diamond Alkali Superfund Site, under Section 107(a) of the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980. The Company is one of at least 70 potentially responsible parties (PRPs) identified thus far. The EPA alleges that hazardous substances were released from the
Companys now-closed Newark, NJ paperboard mill into the Lower Passaic River. The EPA informed the Company that it may be potentially liable for response costs that the government may incur relating to the study of the LPRSA and for unspecified
natural resource damages. The EPA demanded that the Company pay $2,830 in unreimbursed past response costs on a joint and several liability basis. Alternatively, the EPA gave the Company the opportunity to obtain a release from these past response
costs by joining the Cooperating Parties Group (the Group) and agreeing to fund an environmental study by the EPA. In 2006, the EPA notified the Group that the cost of the study would exceed its initial estimates and offered the
Group the opportunity to conduct the study by itself rather than reimburse the government for the additional costs incurred. The Group engaged in discussions with the EPA and the Group agreed to assume responsibility for the study pursuant to
an Administrative Order on Consent. As of April 30, 2007, the Company has expensed $688, of which $566 remains accrued based upon the most recent estimates for the study. Due to uncertainties inherent in this matter, management is
unable to estimate the Companys potential exposure, including possible remediation or other environmental responsibilities that may result from this matter at this time; such information is not expected to be known for a number of
years. These uncertainties primarily include the completion and outcome of the environmental study and the percentage of contamination, if any, ultimately determined to be attributable to the Company and other parties. It is possible that
our ultimate liability resulting from this issue could materially differ from the April 30, 2007 accrual balance. In the event of one or more adverse determinations related to this issue, the impact on our results of operations could be
material to any specific period.



|12. | EMPLOYEE STOCK OWNERSHIP PLAN
|--- | -----------------------------

Effective
May 1, 1985, the Company established an Employee Stock Ownership Plan (ESOP), which purchased 1,800,000 shares of Company stock. The ESOP covers all salaried employees hired prior to May 1, 1994. The ESOP is funded by the
Company through contributions to the ESOP in amounts as may be determined by the Board of Directors. At a minimum there must be cash contributions for each plan year at such times and in sufficient amounts to cover all obligations of the ESOP as
they come due. As of April 30, 1995, all stock of the Employee Stock Ownership Trust (the Trust) was allocated to the accounts of the participants and there are no additional required contributions to the Trust. Distribution of
shares to settle participant account balances cannot occur until after employee termination. Initially under the plan, upon distribution, the Company had the obligation, upon participant request, to purchase the shares, in one lump sum, at the
greater of (1) the then current fair market value or (2) an amount equal to the price per share paid on December 30, 1985 increased by the cumulative increase in the book value of such shares after December 30, 1985 to the
April 30 immediately preceding the date on which the participant request is delivered to the Company (the put value). Effective May 1, 2005, the plan was amended to require redemptions in excess of a set amount be paid over a
five-year period. The put value as of April 30, 2007, 2006 and 2005 was $43.29 per share, $43.05 per share and $45.94 per share, respectively. At April 30, 2006 and 2005 the put value exceeded the current fair market value. The
determination of the 2007 fair market value is in the process of being calculated by a third party, but management believes that the fair value will not exceed put value. During the last five years, the average annual redemptions have been $2,316.
The amount paid by the ESOP in 2007 was $1,439. At April 30, 2007 and 2006, there were 614,851 and 648,279 allocated shares with a redemption value of $26,617 and $27,911, respectively. The Company classifies the redemption value, which
represents its maximum obligation, as Temporary Equity on the consolidated balance sheets with an offsetting amount to retained earnings.



|13. | EMPLOYEE INCENTIVE PLANS
|--- | ------------------------

The Company has a
non-qualifying Stock Option Plan under which it is authorized to grant 300,000 stock options in tandem with stock appreciation rights (SARs) to certain employees. The options and SARs vest over a nine-year period from the date of grant.
Upon exercise of an option, the holder is entitled to purchase exercisable option shares at the grant price. Alternatively, upon exercise of a tandem SAR, the holder is entitled to receive cash equal to the amount by which the put value of the
Companys common stock on the exercise date exceeds the grant price of the related stock options. As SARs are exercised, the corresponding options are cancelled and as options are exercised the corresponding SARs are cancelled.



-F18-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



|                                                               |      |           |      |                                 |       |        |        |                                 |   |        |  |         |                                 |  |   |      
|-------------------------------------------------------------- | ---- | --------- | ---- | ------------------------------- | ----- | ------ | ------ | ------------------------------- | - | ------ |  | ------- | ------------------------------- |  | - | -----
|Stock Option Plan                                              |      | April 30,
|                                                               | 2007 |           | 2006 |                                 | 2005 
|                                                               |      | Shares    |      | Weighted- Average ExercisePrice |       | Shares |        | Weighted- Average ExercisePrice |   | Shares |  |         | Weighted- Average ExercisePrice
|Outstanding at beginning of year                               |      | 25,000    |      | $                               | 41.93 |        | 25,000 |                                 | $ | 41.93  |  | 125,000 |                                 |  | $ | 29.80
|Granted                                                        |      |          |      |                                 |      |        |       |                                 |   |       |  |        |                                 |  |   |     
|Exercised                                                      |      |          |      |                                 |      |        |       |                                 |   |       |  | (95,000 | )                               |  |   | 25.93
|Forfeited                                                      |      |          |      |                                 |      |        |       |                                 |   |       |  | (5,000  | )                               |  |   | 42.72
|                                                               |      |           |      |                                 |       |        |        |                                 |   |        |  |         |                                 |  |   |      
|Outstanding at end of year                                     |      | 25,000    |      |                                 | 41.93 |        | 25,000 |                                 |   | 41.93  |  | 25,000  |                                 |  |   | 41.93
|                                                               |      |           |      |                                 |       |        |        |                                 |   |        |  |         |                                 |  |   |      
|Options exercisable at year-end                                |      | 19,000    |      | $                               | 39.89 |        | 17,500 |                                 | $ | 39.25  |  | 14,000  |                                 |  | $ | 39.16
|                                                               |      |           |      |                                 |       |        |        |                                 |   |        |  |         |                                 |  |   |      
|Weighted-average fair value of options granted during the year |      |           |      | $                               |      |        |        |                                 | $ |       |  |         |                                 |  | $ |     

The following table summarizes information about stock options outstanding and exercisable at
April 30, 2007.



|                   |  |                                                        |  |                                 |  |                    |  |                                
|------------------ |  | ------------------------------------------------------ |  | ------------------------------- |  | ------------------ |  | -------------------------------
|Outstanding        |  | Exercisable                                           
|Outstanding Shares |  | Weighted Average Remaining Contractual Life (in years) |  | Weighted Average Exercise Price |  | Exercisable Shares |  | Weighted Average Exercise Price
|10,000             |  | <1                                                     |  | 33.93                           |  | 10,000             |  | 33.93                          
|5,000              |  | 2                                                      |  | 42.72                           |  | 4,000              |  | 42.72                          
|10,000             |  | 5                                                      |  | 49.53                           |  | 5,000              |  | 49.53                          
|                   |  |                                                        |  |                                 |  |                    |  |                                
|25,000             |  | 2.4                                                    |  | 41.93                           |  | 19,000             |  | 39.89                          
|                   |  |                                                        |  |                                 |  |                    |  |                                

The Company has a second employee stock compensation plan under which it grants SARs without
options to certain employees. These SARs have a remaining weighted average contractual life of 2.2 years.

Stock Appreciation Rights
Plan



|                                                               |        |           |      |                                |      |        |  |         |                                |  |        |       |  |                                |   |  |   |      
|-------------------------------------------------------------- | ------ | --------- | ---- | ------------------------------ | ---- | ------ |  | ------- | ------------------------------ |  | ------ | ----- |  | ------------------------------ | - |  | - | -----
|                                                               |        | April 30,
|                                                               | 2007   |           | 2006 |                                | 2005
|                                                               | Shares |           |      | Weighted- AverageExercisePrice |      | Shares |  |         | Weighted- AverageExercisePrice |  | Shares |       |  | Weighted- AverageExercisePrice
|Outstanding at beginning of year                               |        | 122,500   |      |                                | $    | 47.04  |  | 115,000 |                                |  | $      | 47.24 |  | 114,000                        |   |  | $ | 47.00
|Granted                                                        |        | 4,000     |      |                                |      | 43.06  |  | 70,000  |                                |  |        | 45.97 |  | 23,000                         |   |  |   | 46.49
|Exercised                                                      |        |          |      |                                |      |       |  | (59,334 | )                              |  |        | 46.14 |  | (20,333                        | ) |  |   | 44.81
|Forfeited                                                      |        | (18,000   | )    |                                |      | 47.08  |  | (3,166  | )                              |  |        | 47.36 |  | (1,667                         | ) |  |   | 49.89
|                                                               |        |           |      |                                |      |        |  |         |                                |  |        |       |  |                                |   |  |   |      
|Outstanding at end of year                                     |        | 108,500   |      |                                |      | 46.89  |  | 122,500 |                                |  |        | 47.04 |  | 115,000                        |   |  |   | 47.24
|                                                               |        |           |      |                                |      |        |  |         |                                |  |        |       |  |                                |   |  |   |      
|SARs exercisable at year end                                   |        | 85,519    |      |                                |      | 47.23  |  | 69,484  |                                |  |        | 47.81 |  | 95,663                         |   |  |   | 47.23
|                                                               |        |           |      |                                |      |        |  |         |                                |  |        |       |  |                                |   |  |   |      
|Weighted-average fair value of options granted during the year |        |           |      |                                | $    | 43.06  |  |         |                                |  | $      | 45.97 |  |                                |   |  | $ | 46.49

In 2007, the Company recorded a reduction to compensation expense arising from all employee
incentive plans of $93. The effects on compensation expense from these incentive plans were a decrease of $189 and an increase of $288 for the years 2006 and 2005, respectively.



-F19-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



|14. | RETIREMENT PLANS
|--- | ----------------

The Company sponsors seven
defined benefit plans covering substantially all of its employees, and made changes to two of these plans as of May 1, 2006: The Newark Group, Inc. Salaried Employees Pension Plan and The Newark Group, Inc. Non-Union Hourly
Employees Pension Plan. Salaried personnel hired on or after May 1, 2006 will no longer be eligible to join the Companys Salaried Employees Pension Plan, but will be eligible to participate in a defined contribution plan.
Benefits for those salaried employees remaining in the Salaried Employees Pension Plan are based on average salary the last ten years of employment and years of service. Non-union hourly employees hired on or after May 1, 2006 will no
longer be eligible to join the Companys Non-Union Hourly Employees Pension Plan but will be eligible to participate in a defined contribution plan. The defined benefit plan for non-union hourly employees hired before May 1, 2006 was
frozen as of April 30, 2006 and replaced with a defined contribution plan featuring two levels of Company contributions: one matching a specified percentage of employee contributions and the second making a specified, percentage-of-wages
contribution, whether or not the employee makes any contributions. Additionally in fiscal 2007, four unionized locations switched from a defined benefit plan to a defined contribution plan upon the renewing of their labor agreements, with each
defined contribution plan featuring the aforementioned two levels of Company contributions. Upon the unionized locations switch to defined contribution plans, the benefits under their defined benefit plans were frozen and the Company
recognized $107 of curtailment expense in 2007 for unrecognized prior service cost. The Company recognized $520 of curtailment expense in 2006 but had no similar costs in 2005.

U.S. Defined Benefit Plans

Pension
expense includes the following components:



|                                              |  |           |        |   |      |   |        |      |  |   |        |  
|--------------------------------------------- |  | --------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                              |  | April 30, |       
|                                              |  | 2007      |        |   | 2006 |   |        | 2005 | 
|Service cost                                  |  | $         | 3,153  |   |      | $ | 3,924  |      |  | $ | 3,826  |  
|Interest cost on projected benefit obligation |  |           | 7,224  |   |      |   | 6,421  |      |  |   | 6,214  |  
|Expected gain on assets                       |  |           | (8,283 | ) |      |   | (7,259 | )    |  |   | (6,076 | )
|Net amortization                              |  |           | 883    |   |      |   | 1,664  |      |  |   | 1,367  |  
|                                              |  |           |        |   |      |   |        |      |  |   |        |  
|Net pension expense                           |  | $         | 2,977  |   |      | $ | 4,750  |      |  | $ | 5,331  |  
|                                              |  |           |        |   |      |   |        |      |  |   |        |  

Assumptions used in determining the domestic plans net periodic pension expense are:



|                                        |  |           |   |  |      |   |  |      |  
|--------------------------------------- |  | --------- | - |  | ---- | - |  | ---- | -
|                                        |  | April 30, |  
|                                        |  | 2007      |   |  | 2006 |   |  | 2005 |  
|Discount rate                           |  | 6.30      | % |  | 5.70 | % |  | 6.25 | %
|Rate of increase in compensation levels |  | 2.50      | % |  | 2.50 | % |  | 3.00 | %
|Expected rate of return on assets       |  | 8.80      | % |  | 9.20 | % |  | 8.75 | %



-F20-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



The following table sets forth the domestic Plans funded status and the amount recognized in
the Companys consolidated balance sheets as follows:



|                                                  |                                    |           |         |                                    |      |   |         |  
|------------------------------------------------- | ---------------------------------- | --------- | ------- | ---------------------------------- | ---- | - | ------- | -
|                                                  |                                    | April 30, |        
|                                                  |                                    | 2007      |         |                                    | 2006 |  
|                                                  | Accumulated Benefits Exceed Assets |           |         | Accumulated Benefits Exceed Assets |     
|Change in benefit obligation:                     |                                    |           |         |                                    |      |   |         |  
|                                                  |                                    |          
|Projected benefit obligation at end of prior year |                                    | $         | 118,075 |                                    |      | $ | 115,927 |  
|Service cost                                      |                                    |           | 3,153   |                                    |      |   | 3,924   |  
|Interest cost                                     |                                    |           | 7,224   |                                    |      |   | 6,421   |  
|Actuarial (gain) loss                             |                                    |           | 4,586   |                                    |      |   | (4,282  | )
|Plan amendments                                   |                                    |           |        |                                    |      |   | 324     |  
|Benefits paid                                     |                                    |           | (4,500  | )                                  |      |   | (4,239  | )
|                                                  |                                    |           |         |                                    |      |   |         |  
|Projected benefit obligation at end of year       |                                    |           | 128,538 |                                    |      |   | 118,075 |  
|                                                  |                                    |           |         |                                    |      |   |         |  
|Change in plan assets:                            |                                    |           |         |                                    |      |   |         |  
|Plan assets at fair value at end of prior year    |                                    |           | 94,270  |                                    |      |   | 78,412  |  
|Actual gain on plan assets                        |                                    |           | 10,438  |                                    |      |   | 13,058  |  
|Employer contributions                            |                                    |           | 12,048  |                                    |      |   | 7,039   |  
|Benefits paid                                     |                                    |           | (4,500  | )                                  |      |   | (4,239  | )
|                                                  |                                    |           |         |                                    |      |   |         |  
|Plan assets at fair value at end of year          |                                    |           | 112,256 |                                    |      |   | 94,270  |  
|                                                  |                                    |           |         |                                    |      |   |         |  
|Funded status                                     |                                    |           | (16,282 | )                                  |      |   | (23,805 | )
|                                                  |                                    |          
|Unrecognized net actuarial loss                   |                                    |           | 24,016  |                                    |      |   | 22,189  |  
|Unrecognized prior service cost                   |                                    |           | 2,394   |                                    |      |   | 2,758   |  
|Unrecognized net transition obligation            |                                    |           | 45      |                                    |      |   | 67      |  
|                                                  |                                    |           |         |                                    |      |   |         |  
|Prepaid (accrued) benefit costs                   |                                    | $         | 10,173  |                                    |      | $ | 1,209   |  
|                                                  |                                    |           |         |                                    |      |   |         |  
|Accumulated benefit obligation                    |                                    | $         | 119,851 |                                    |      | $ | 109,763 |  
|                                                  |                                    |           |         |                                    |      |   |         |  

Assumptions used in determining the domestic plans funded status are:



|                                        |  |           |   |  |      |  
|--------------------------------------- |  | --------- | - |  | ---- | -
|                                        |  | April 30, |  
|                                        |  | 2007      |   |  | 2006 |  
|Discount rate                           |  | 6.00      | % |  | 6.30 | %
|Rate of increase in compensation levels |  | 2.50      | % |  | 2.50 | %
|Expected rate of return on assets       |  | 8.80      | % |  | 9.20 | %

The following table summarizes the effects on other comprehensive income (loss), net of tax:



|                                       |  |           |        |   |      |   |        |      |  |   |        |  
|-------------------------------------- |  | --------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                       |  | April 30, |       
|                                       |  | 2007      |        |   | 2006 |   |        | 2005 | 
|Change in intangible pension asset     |  | $         | (2,656 | ) |      | $ | (528   | )    |  | $ | 208    |  
|Change in deferred tax liability       |  |           | 1,489  |   |      |   | (3,969 | )    |  |   | 2,359  |  
|Change in additional pension liability |  |           | (1,067 | ) |      |   | 10,451 |      |  |   | (6,106 | )
|                                       |  |           |        |   |      |   |        |      |  |   |        |  
|Other comprehensive income (loss)      |  | $         | (2,234 | ) |      | $ | 5,954  |      |  | $ | (3,539 | )
|                                       |  |           |        |   |      |   |        |      |  |   |        |  

The table below reflects a summary of the expected pension benefits to be paid over the next ten
years:



|          |  |                            |       
|--------- |  | -------------------------- | ------
|Year      |  | Expected Benefits Payments
|2008      |  | $                          | 4,992 
|2009      |  |                            | 5,346 
|2010      |  |                            | 5,737 
|2011      |  |                            | 6,120 
|2012      |  |                            | 6,405 
|2013-2017 |  |                            | 37,774



-F21-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



Amounts recognized in the consolidated balance sheets consist of:



|                                     |  |           |        |   |      |   |         |  
|------------------------------------ |  | --------- | ------ | - | ---- | - | ------- | -
|                                     |  | April 30, |       
|                                     |  | 2007      |        |   | 2006 |  
|Accrued benefit cost                 |  | $         | (7,596 | ) |      | $ | (15,493 | )
|Intangible assets                    |  |           | 169    |   |      |   | 2,825   |  
|Accumulated other comprehensive loss |  |           | 17,600 |   |      |   | 13,877  |  
|                                     |  |           |        |   |      |   |         |  
|Net amount recognized                |  | $         | 10,173 |   |      | $ | 1,209   |  
|                                     |  |           |        |   |      |   |         |  

The Companys pension plan weighted-average asset allocations at April 30, 2007 and
2006, by asset category are as follows:



|                  |  |           |   |  |      |  
|----------------- |  | --------- | - |  | ---- | -
|                  |  | April 30, |  
|                  |  | 2007      |   |  | 2006 |  
|Equity Securities |  | 66        | % |  | 76   | %
|Debt Securities   |  | 11        | % |  | 12   | %
|Other             |  | 23        | % |  | 12   | %
|                  |  |           |   |  |      |  
|                  |  | 100       | % |  | 100  | %
|                  |  |           |   |  |      |  

The Companys investment policy is designed to provide flexibility in the asset allocation
decision based on managements assessment of economic conditions with the overall objective being maximum rates of return appropriately balanced to minimize market risks. The Companys contributions for the years ended April 30, 2007,
2006 and 2005 were $12,048, $7,039 and $6,324, respectively. Preliminary estimates place the Companys required contributions for its fiscal year ending April 30, 2008 at approximately $9,000. Benefits paid out of the Plan for the years
ended April 30, 2007, 2006 and 2005 were $4,500, $4,239 and $3,889, respectively.

To determine the Companys expected long-term
rate of return on plan assets, the Company evaluated criteria such as asset allocation, historical returns by asset class, historical returns of current pension portfolio managers and managements expectation of the economic environment. The
Company regularly reviews its asset allocation and periodically rebalances such allocation, as well as replaces certain fund managers, when deemed appropriate.

Foreign Defined Benefit Plans

One of the Companys foreign subsidiaries has defined benefit
plans that cover substantially all of its employees. Benefits are based on the employees years of service and compensation. The Companys foreign plans are generally funded currently.

Pension expense includes the following components:



|                                              |  |           |      |   |      |   |      |      |  |   |      |  
|--------------------------------------------- |  | --------- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                              |  | April 30, |     
|                                              |  | 2007      |      |   | 2006 |   |      | 2005 | 
|Service cost                                  |  | $         | 22   |   |      | $ | 173  |      |  | $ | 201  |  
|Interest cost on projected benefit obligation |  |           | 158  |   |      |   | 239  |      |  |   | 176  |  
|Actual/Expected return on plan assets         |  |           | (141 | ) |      |   | (168 | )    |  |   | (151 | )
|Actuarial gain                                |  |           |     |   |      |   |     |      |  |   | (596 | )
|Net amortization and deferral                 |  |           | (32  | ) |      |   |     |      |  |   |     |  
|                                              |  |           |      |   |      |   |      |      |  |   |      |  
|Net pension expense (income)                  |  | $         | 7    |   |      | $ | 244  |      |  | $ | (370 | )
|                                              |  |           |      |   |      |   |      |      |  |   |      |  



-F22-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



The following table sets forth the foreign Plans funded status and the amount recognized in the
Companys consolidated balance sheets as follows:



|                                                  |      |                                    |        |      |                                    |   |        |  
|------------------------------------------------- | ---- | ---------------------------------- | ------ | ---- | ---------------------------------- | - | ------ | -
|                                                  |      | April 30,                          |       
|                                                  | 2007 |                                    |        | 2006 |                                   
|                                                  |      | Accumulated Benefits Exceed Assets |        |      | Accumulated Benefits Exceed Assets |  
|Projected benefit obligation at end of prior year |      | $                                  | 3,861  |      |                                    | $ | 5,937  |  
|Foreign currency                                  |      |                                    | 321    |      |                                    |   | (107   | )
|Service cost                                      |      |                                    | 22     |      |                                    |   | 173    |  
|Interest cost                                     |      |                                    | 158    |      |                                    |   | 239    |  
|Actuarial loss/(gain)                             |      |                                    | 466    |      |                                    |   | (2,300 | )
|Participants contributions                       |      |                                    | 30     |      |                                    |   | 23     |  
|Benefits paid                                     |      |                                    | (112   | )    |                                    |   | (104   | )
|                                                  |      |                                    |        |      |                                    |   |        |  
|Projected benefit obligation at end of year       |      |                                    | 4,746  |      |                                    |   | 3,861  |  
|                                                  |      |                                    |        |      |                                    |   |        |  
|Plan assets at fair value at end of prior year    |      |                                    | 3,621  |      |                                    |   | 4,514  |  
|Foreign currency                                  |      |                                    | 292    |      |                                    |   | (81    | )
|Actual gain on plan assets                        |      |                                    | 157    |      |                                    |   | (799   | )
|Employer contributions                            |      |                                    | 78     |      |                                    |   | 67     |  
|Employee contributions                            |      |                                    | 30     |      |                                    |   | 24     |  
|Benefits paid                                     |      |                                    | (112   | )    |                                    |   | (104   | )
|                                                  |      |                                    |        |      |                                    |   |        |  
|Plan assets at fair value at end of year          |      |                                    | 4,066  |      |                                    |   | 3,621  |  
|                                                  |      |                                    |        |      |                                    |   |        |  
|Funded status                                     |      |                                    | (680   | )    |                                    |   | (240   | )
|Unrecognized net (gain) loss                      |      |                                    | (317   | )    |                                    |   | (748   | )
|                                                  |      |                                    |        |      |                                    |   |        |  
|Accrued benefit costs                             |      | $                                  | (997   | )    |                                    | $ | (988   | )
|                                                  |      |                                    |        |      |                                    |   |        |  
|Accumulated benefit obligation                    |      | $                                  | (4,138 | )    |                                    | $ | (3,651 | )
|                                                  |      |                                    |        |      |                                    |   |        |  

The accrued benefit cost is reflected in the long-term pension obligation in the consolidated
balance sheets for 2007 and 2006. The table below reflects a summary of the expected pension benefits to be paid over the next ten years:



|          |  |                            |    
|--------- |  | -------------------------- | ---
|Year      |  | Expected Benefits Payments
|2008      |  | $                          | 132
|2009      |  |                            | 146
|2010      |  |                            | 167
|2011      |  |                            | 167
|2012      |  |                            | 166
|2013-2017 |  |                            | 810

Assumptions used in determining the foreign Plans funded status are:



|                                        |  |           |   |  |      |  
|--------------------------------------- |  | --------- | - |  | ---- | -
|                                        |  | April 30, |  
|                                        |  | 2007      |   |  | 2006 |  
|Discount Rate                           |  | 4.75      | % |  | 3.97 | %
|Rate of Increase in Compensation Levels |  | 3.95      | % |  | 2.00 | %
|Expected Rate of Return on Assets       |  | 4.75      | % |  | 3.97 | %

Foreign defined pension plan assets are considered 100% invested in Other securities
as they are invested in deposit contracts with an insurance company. Actual return on plan assets and the expected future rate-of-return on plan assets are based upon the related contractual agreement with the insurance company administering the
plan. The insurance company also guarantees a certain rebate, the size of which is dependent upon the actual interest market rate.

Defined Contribution Plan

The Company has defined contribution plans for substantially all US employees. Through
April 30, 2006, the Companys matching 401K contributions were determined based upon a percentage of employee contributions. Beginning May 1, 2006, for employees affected by the above noted change in defined benefit plans, Company
contributions will occur on two levels as described in the first paragraph of this note. For employees not affected by the change in defined benefit plans, Company contributions will continue to be computed as they have been prior to May 1,
2006. Company expenses for the years ended April 30, 2007, 2006 and 2005 were $1,340, $486 and $499, respectively.



-F23-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



|15. | TREASURY STOCK
|--- | --------------

Treasury stock is acquired via
related-party transactions through purchases from the ESOP plan and individual stockholders. Such transactions during the years ended April 30, 2007 and 2006 are as follows:



|                              |  |           |  |                |       
|----------------------------- |  | --------- |  | -------------- | ------
|                              |  | Shares    |  | Treasury Stock
|Balance, April 30, 2005       |  | 2,152,758 |  | $              | 52,251
|Purchase of Additional Shares |  | 218,162   |  |                | 8,802 
|                              |  |           |  |                |       
|Balance, April 30, 2006       |  | 2,370,920 |  |                | 61,053
|Purchase of Additional Shares |  | 33,428    |  |                | 1,439 
|                              |  |           |  |                |       
|Balance, April 30, 2007       |  | 2,404,348 |  | $              | 62,492
|                              |  |           |  |                |       



|16. | FAIR VALUE OF FINANCIAL INSTRUMENTS
|--- | -----------------------------------

The following
methods and assumptions were used by the Company in estimating the fair value of its financial instruments:

Cash and Cash
Equivalents  The carrying amount reported in the consolidated balance sheets for cash and cash equivalents is its fair value.

Accounts Receivable, Accounts Payable and Accrued Expenses The carrying amount reported in the consolidated balance sheets for accounts receivable, accounts payable and accrued expenses approximates its fair value because of
the short-term nature of the accounts.

Cross-Currency Interest Rate Swaps  The carrying amount reported in the consolidated
balance sheets for cross-currency interest rate swaps is its fair value based on the cost to terminate the agreements at April 30, 2007 and 2006, as obtained from the counterparties.

Long-Term Debt  The fair value of the 93/4% Senior Subordinated Notes and Subordinated Notes are estimated based on the discounted value of future cash flows utilizing current market rates for debt
of the same risk and maturity. Other variable rate debt approximates fair value because the interest rates reset periodically.

The
following table compares the carrying amount to the estimated fair value for these debt instruments:



|                               |  |                 |         |                |   |                 |  |            |         |  |   |        
|------------------------------ |  | --------------- | ------- | -------------- | - | --------------- |  | ---------- | ------- |  | - | -------
|                               |  | April 30, 2007  |         | April 30, 2006
|                               |  | Carrying Amount |         | Fair Value     |   | Carrying Amount |  | Fair Value
|93/4%Senior Subordinated Notes |  | $               | 175,000 |                | $ | 182,000         |  | $          | 175,000 |  | $ | 165,375
|Subordinated Notes             |  | $               | 120     |                | $ | 119             |  | $          | 599     |  | $ | 584    



|17. | SEGMENT INFORMATION
|--- | -------------------

The Company identifies its
reportable segments in accordance with FAS 131, Disclosures about Segments of an Enterprise and Related Information by reviewing the nature of products sold, nature of the production processes, type and class of customer, methods to
distribute product and nature of regulatory environment. Profits from intercompany sales are not transferred between segments, they remain within the segment in which the sales originated. The Company operates in principally three reportable
segments which include five product lines.

The Paperboard segment consists of facilities that manufacture recycled paperboard and
facilities that collect, sort and process recovered paper for internal consumption and sales to other paper manufacturers. Inter-segment sales are recorded at prices which approximate market prices.

The Converted Products segment is principally made up of facilities that laminate, cut and form paperboard into fiber components for tubes and cores,
protective packaging, books, games and office products. Inter-segment sales are recorded at prices which approximate market prices.

The
International segment consists of facilities throughout Europe that are managed separately from North American operations. The vertical integration of this segment offers both paperboard manufacturing and converting. Through fiscal 2007, there are
minimal business transactions between the North American segments (Paperboard and Converted Products) and the International segment.



-F24-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



The Company evaluates performance and allocates resources based on operating profits and losses of
each business segment. Operating results include all costs and expenses directly related to the segment involved. Corporate includes corporate, general, administrative and unallocated expenses.

Identifiable assets are accumulated by facility within each business segment.

The following table presents certain business segment information for the periods indicated.



|                                                    |  |               |           |   |               |   |           |      |  |   |           |  
|--------------------------------------------------- |  | ------------- | --------- | - | ------------- | - | --------- | ---- |  | - | --------- | -
|                                                    |  | April 30,     |          
|                                                    |  | 2007          |           |   | 2006          |   |           | 2005 | 
|Sales (aggregate):                                  |  |               |           |   |               |   |           |      |  |   |           |  
|Paperboard                                          |  | $             | 617,480   |   |               | $ | 578,465   |      |  | $ | 606,848   |  
|Converted Products                                  |  |               | 289,737   |   |               |   | 274,626   |      |  |   | 270,452   |  
|International                                       |  |               | 170,881   |   |               |   | 151,542   |      |  |   | 155,133   |  
|                                                    |  |               |           |   |               |   |           |      |  |   |           |  
|Total:                                              |  | $             | 1,078,098 |   |               | $ | 1,004,633 |      |  | $ | 1,032,433 |  
|                                                    |  |               |           |   |               |   |           |      |  |   |           |  
|Less sales (inter-segment):                         |  |               |           |   |               |   |           |      |  |   |           |  
|Paperboard                                          |  | $             | (147,531  | ) |               | $ | (144,934  | )    |  | $ | (142,791  | )
|Converted Products                                  |  |               | (7,532    | ) |               |   | (7,356    | )    |  |   | (7,549    | )
|International                                       |  |               |          |   |               |   | 28        |      |  |   | (9        | )
|                                                    |  |               |           |   |               |   |           |      |  |   |           |  
|Total:                                              |  | $             | (155,063  | ) |               | $ | (152,262  | )    |  | $ | (150,349  | )
|                                                    |  |               |           |   |               |   |           |      |  |   |           |  
|Net sales (external customers):                     |  |               |           |   |               |   |           |      |  |   |           |  
|Paperboard                                          |  | $             | 469,949   |   |               | $ | 433,531   |      |  | $ | 464,057   |  
|Converted Products                                  |  |               | 282,205   |   |               |   | 267,270   |      |  |   | 262,903   |  
|International                                       |  |               | 170,881   |   |               |   | 151,570   |      |  |   | 155,124   |  
|                                                    |  |               |           |   |               |   |           |      |  |   |           |  
|Total:                                              |  | $             | 923,035   |   |               | $ | 852,371   |      |  | $ | 882,084   |  
|                                                    |  |               |           |   |               |   |           |      |  |   |           |  
|Operating Income (Loss):                            |  |               |           |   |               |   |           |      |  |   |           |  
|Paperboard                                          |  | $             | 30,496    |   |               | $ | 21,140    |      |  | $ | 25,753    |  
|Converted Products                                  |  |               | (4,294    | ) |               |   | (7,319    | )    |  |   | (11,153   | )
|International                                       |  |               | 13,394    |   |               |   | 14,853    |      |  |   | 16,938    |  
|                                                    |  |               |           |   |               |   |           |      |  |   |           |  
|Total Segment Operating Income:                     |  |               | 39,596    |   |               |   | 28,674    |      |  |   | 31,538    |  
|                                                    |  |               |          
|Corporate Expense                                   |  |               | 15,734    |   |               |   | 13,513    |      |  |   | 14,701    |  
|                                                    |  |               |           |   |               |   |           |      |  |   |           |  
|Total Operating Income (Loss):                      |  |               | 23,862    |   |               |   | 15,161    |      |  |   | 16,837    |  
|                                                    |  |               |          
|Interest expense                                    |  |               | (27,448   | ) |               |   | (26,385   | )    |  |   | (25,075   | )
|Interest income                                     |  |               | 233       |   |               |   | 291       |      |  |   | 109       |  
|Equity in income of affiliates                      |  |               | 2,190     |   |               |   | 1,652     |      |  |   | 2,054     |  
|Loss on extinguishment of debt                      |  |               |          |   |               |   |          |      |  |   |          |  
|Other (expense) income, net                         |  |               | 699       |   |               |   | (923      | )    |  |   | 3,963     |  
|                                                    |  |               |           |   |               |   |           |      |  |   |           |  
|Loss from Continuing Operations Before Income Taxes |  |               | (464      | ) |               |   | (10,204   | )    |  |   | (2,112    | )
|Income tax expense (benefit)                        |  |               | 3,711     |   |               |   | 6,096     |      |  |   | (999      | )
|                                                    |  |               |           |   |               |   |           |      |  |   |           |  
|Loss from Continuing Operations                     |  | $             | (4,175    | ) |               | $ | (16,300   | )    |  | $ | (1,113    | )
|                                                    |  |               |           |   |               |   |           |      |  |   |           |  
|Depreciation and Amortization:                      |  |               |           |   |               |   |           |      |  |   |           |  
|Paperboard                                          |  | $             | 23,762    |   |               | $ | 22,949    |      |  | $ | 21,756    |  
|Converted Products                                  |  |               | 5,003     |   |               |   | 5,282     |      |  |   | 4,731     |  
|International                                       |  |               | 3,550     |   |               |   | 3,698     |      |  |   | 4,301     |  
|Corporate                                           |  |               | 2,163     |   |               |   | 2,171     |      |  |   | 2,074     |  
|                                                    |  |               |           |   |               |   |           |      |  |   |           |  
|Total:                                              |  | $             | 34,478    |   |               | $ | 34,100    |      |  | $ | 32,862    |  
|                                                    |  |               |           |   |               |   |           |      |  |   |           |  
|Purchases of Property, Plant and Equipment:         |  |               |           |   |               |   |           |      |  |   |           |  
|Paperboard                                          |  | $             | 14,525    |   |               | $ | 13,749    |      |  | $ | 12,989    |  
|Converted Products                                  |  |               | 1,871     |   |               |   | 1,918     |      |  |   | 4,591     |  
|International                                       |  |               | 3,300     |   |               |   | 3,959     |      |  |   | 1,045     |  
|Corporate                                           |  |               | 263       |   |               |   | 570       |      |  |   | 107       |  
|                                                    |  |               |           |   |               |   |           |      |  |   |           |  
|Total:                                              |  | $             | 19,959    |   |               | $ | 20,196    |      |  | $ | 18,732    |  
|                                                    |  |               |           |   |               |   |           |      |  |   |           |  
|                                                    |  |               |          
|                                                    |  | April 30,2007 |           |   | April 30,2006 |   |           |      | 
|                                                    |  |               |           |   |               |   |           |      |  |   |           |  
|Identifiable Assets:                                |  |               |           |   |               |   |           |      |  |   |           |  
|Paperboard                                          |  | $             | 348,997   |   |               | $ | 332,664   |      |  |   |           |  
|Converted Products                                  |  |               | 93,744    |   |               |   | 94,812    |      |  |   |           |  
|International                                       |  |               | 161,301   |   |               |   | 138,766   |      |  |   |           |  
|Corporate                                           |  |               | 12,060    |   |               |   | 16,965    |      |  |   |           |  
|                                                    |  |               |           |   |               |   |           |      |  |   |           |  
|Total:                                              |  | $             | 616,102   |   |               | $ | 583,207   |      |  |   |           |  
|                                                    |  |               |           |   |               |   |           |      |  |   |           |  



-F25-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



Geographic Regions

Sales to external customers (based on country of origin) and long-lived assets by geographic region are as follows:



|                                                            |  |           |         |      |   |        
|----------------------------------------------------------- |  | --------- | ------- | ---- | - | -------
|                                                            |  | April 30,
|                                                            |  | 2007      |         | 2006
|Sales to External Customers                                 |  |           |         |      |   |        
|United States                                               |  | $         | 742,554 |      | $ | 691,071
|Europe                                                      |  |           | 170,881 |      |   | 151,570
|Canada                                                      |  |           | 9,600   |      |   | 9,730  
|                                                            |  |           |         |      |   |        
|Total                                                       |  | $         | 923,035 |      | $ | 852,371
|                                                            |  |           |         |      |   |        
|Net Property, Plant and Equipment, Goodwill and Intangibles |  |           |         |      |   |        
|                                                            |  |          
|United States                                               |  | $         | 274,724 |      | $ | 288,273
|Europe                                                      |  |           | 62,791  |      |   | 58,298 
|Canada                                                      |  |           | 6,989   |      |   | 7,416  
|                                                            |  |           |         |      |   |        
|Total                                                       |  | $         | 344,504 |      | $ | 353,987
|                                                            |  |           |         |      |   |        



|18. | RELATED PARTY TRANSACTIONS
|--- | --------------------------

The Company leases its
corporate headquarters located at 20 Jackson Drive, Cranford, New Jersey from Jackson Drive Corp., a corporation owned by one director and a former Chairman of the Company. For the years ended April 30, 2007, 2006 and 2005, the amount paid to
that company under the lease was $348 in each year.

At April 30, 2007 and 2006, the Company had $903 and $882, respectively, of
outstanding loans to employees, of which $91 at each year-end was outstanding since prior to July 2002 to some of its executive officers and directors.

On August 10, 2005, the Company completed the purchase of 198,000 shares of the Companys common stock from its former Chairman and director. On July 5, 2005, this director had exercised his right to
put the subject stock to the Company pursuant to a May 1, 1980 agreement, as amended. The aggregate purchase price for the stock was $7,875, which amount is to be paid pursuant to a Subordinated Installment Promissory Note (the
Note), with $788 plus accrued interest paid on August 18, 2005 and the balance being due in 40 equal and consecutive quarterly installments, with interest, commencing on October 1, 2005, and continuing thereafter on the first
day of the months of January, April, July and October. Interest will accrue on the outstanding principal balance of the Note at the prime rate of interest as in effect from time to time. The obligation under the Note is classified as Subordinated
Debt on the consolidated balance sheets.

On November 29, 1999, the Company and
its current Vice-Chairman entered into an agreement which obligates the Company, upon the Vice-Chairmans death while employed by the Company, to pay certain death benefits to the Vice-Chairmans surviving spouse, if any. These monthly
payments, to be made for sixty (60) months or until such spouses death, will be in an amount equal to (i) 1/12thof the annualized base salary that the Vice-Chairman was receiving as of the date of his death,
plus (ii) 1/60thof the total amounts paid to the Vice-Chairman as bonuses with respect to the last five fiscal years of the Company last preceding the date of the Vice-Chairmans death. The Company has not
recognized a liability because of the contingent nature of the liability. As of April 30, 2007, the potential payments under the agreement range from $0 to $2,185.

The paperboard mills in our International segment purchased approximately $12,324, $10,309 and $9,715 of raw material from affiliated entities accounted
for as equity method investments during the years ended April 30, 2007, 2006 and 2005, respectively.

The International segment also
recorded sales of approximately $2,997, $2,193 and $1,865 to two affiliated entities accounted for as equity method investments during the years ended April 30, 2007, 2006 and 2005, respectively.

The Company paid approximately $5,284, $5,198 and $4,887 to Integrated Paper Recyclers, LLC, an affiliated entity accounted for as equity method
investment, primarily for hauling services of recyclable material during the years ended April 30, 2007, 2006 and 2005, respectively.

The Company utilizes the legal services of Lowenstein Sandler, PC, of which Benedict Kohl, who serves on the Companys Board of Directors, is a partner. During the years ended April 30, 2007, 2006 and 2005, the Company incurred
costs from Lowenstein Sandler of $621, $462 and $703, respectively.



-F26-



---

##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



|19. | ACQUISITION COSTS
|--- | -----------------

During 2007, the Company
incurred $2,247 of direct costs related to its planned acquisition of a paperboard mill in Germany which have been deferred in accordance with FAS 141, Business Combinations. At any point that this proposed acquisition should prove
unsuccessful, these costs would be expensed in our Statements of Operations.



|20. | SUMMARY FINANCIAL INFORMATION OF EQUITY INVESTMENTS
|--- | ---------------------------------------------------

Following is summary financial information of certain of the Companys equity investments. Earnings of our equity method investments are recorded based on the twelve months ended April 30. The summary information of our European
affiliates has been presented as of December 31, which coincides with their fiscal year end, as certain financial data is not practicable to obtain as of April 30.



|                            |  |                                  |         |      |   |         |  |   |        
|--------------------------- |  | -------------------------------- | ------- | ---- | - | ------- |  | - | -------
|                            |  | Domestic Affiliate April 30,     |         |     
|                            |  | 2007                             |         | 2006 |   |        
|Current Assets              |  | $                                | 1,015   |      | $ | 1,390   |  |   |        
|Property and equipment, net |  | $                                | 2,554   |      | $ | 2,214   |  |   |        
|Other Assets                |  | $                                | 868     |      | $ | 276     |  |   |        
|                            |  |                                  |        
|Current Liabilities         |  | $                                | 1,240   |      | $ | 1,015   |  |   |        
|Other Liabilities           |  | $                                | 191     |      | $ | 328     |  |   |        
|                            |  |                                 
|                            |  | Year Ended April 30,             |         |     
|                            |  | 2007                             |         | 2006 |   | 2005   
|Revenues                    |  | $                                | 6,798   |      | $ | 6,639   |  | $ | 6,063  
|Gross Profit                |  | $                                | 1,331   |      | $ | 1,708   |  | $ | 1,985  
|Net income                  |  | $                                | 967     |      | $ | 1,354   |  | $ | 1,667  
|                            |  |                                 
|                            |  | European Affiliates December 31, |         |     
|                            |  | 2006                             |         | 2005 |   |        
|Current Assets              |  | $                                | 52,876  |      | $ | 49,203  |  |   |        
|Property and equipment, net |  | $                                | 25,268  |      | $ | 21,279  |  |   |        
|Other Assets                |  | $                                | 6,535   |      | $ | 5,953   |  |   |        
|                            |  |                                  |        
|Current Liabilities         |  | $                                | 34,456  |      | $ | 25,943  |  |   |        
|Other Liabilities           |  | $                                | 189     |      | $ | 270     |  |   |        
|                            |  |                                 
|                            |  | Year Ended December 31,          |         |     
|                            |  | 2006                             |         | 2005 |   | 2004   
|Revenues                    |  | $                                | 172,658 |      | $ | 142,884 |  | $ | 128,310
|Gross Profit                |  | $                                | 43,865  |      | $ | 36,380  |  | $ | 32,706 
|Net income                  |  | $                                | 5,593   |      | $ | 4,608   |  | $ | 3,974  



|21. | SUBSEQUENT EVENTS
|--- | -----------------

During July 2007, the Company
became obligated to purchase a recycled paperboard mill in Viersen, Germany. Total acquisition price for the land, buildings and equipment will be approximately $3,100 and costs for legal, accounting and consulting services will be approximately
$2,000. The purchase is scheduled to close on August 1, 2007.



-F27-



---

##### Table of Contents

SCHEDULE II

THE NEWARK GROUP, INC.

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

For the Years Ended April 30, 2007, 2006 and 2005

(In Thousands)



|                                                                                                    |  |                              |        |                              |   |                                  |  |   |                       |   |  |   |       
|--------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------ | ---------------------------- | - | -------------------------------- |  | - | --------------------- | - |  | - | ------
|                                                                                                    |  |                              |        | Additions                    |   | Deductions                       |  |   |                      
|                                                                                                    |  | Balances atBeginning of Year |        | Charged to Costs andExpenses |   | Write-offs and DeductionsAllowed |  |   | Balance atEnd of Year
|April 30, 2007                                                                                      |  |                              |        |                              |   |                                  |  |   |                       |   |  |   |       
|                                                                                                    |  |                              |        |                             
|Allowances for doubtful accounts and sales returns and allowances deducted from accounts receivable |  | $                            | 5,784  |                              | $ | 1,546                            |  | $ | (2,089                | ) |  | $ | 5,241 
|                                                                                                    |  |                              |        |                             
|Income tax valuation allowance                                                                      |  | $                            | 22,231 |                              | $ | 5,200                            |  |   |                      |   |  | $ | 27,431
|                                                                                                    |  |                              |        |                             
|April 30, 2006                                                                                      |  |                              |        |                              |   |                                  |  |   |                       |   |  |   |       
|                                                                                                    |  |                              |        |                             
|Allowances for doubtful accounts and sales returns and allowances deducted from accounts receivable |  | $                            | 6,356  |                              | $ | 577                              |  | $ | (1,149                | ) |  | $ | 5,784 
|                                                                                                    |  |                              |        |                             
|Income tax valuation allowance                                                                      |  | $                            | 6,596  |                              | $ | 16,363                           |  | $ | (728                  | ) |  | $ | 22,231
|                                                                                                    |  |                              |        |                             
|April 30, 2005                                                                                      |  |                              |        |                              |   |                                  |  |   |                       |   |  |   |       
|                                                                                                    |  |                              |        |                             
|Allowances for doubtful accounts and sales returns and allowances deducted from accounts receivable |  | $                            | 6,325  |                              | $ | 1,374                            |  | $ | (1,343                | ) |  | $ | 6,356 
|                                                                                                    |  |                              |        |                             
|Income tax valuation allowance                                                                      |  | $                            | 6,408  |                              | $ | 1,834                            |  | $ | (1,646                | ) |  | $ | 6,596 



-F28-