SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K
              Transition Report Pursuant to Section 13 or 15(d) of
                     the Securities and Exchange Act of 1934

        For the transition period from March 1, 1997 to December 31, 1997
                         Commission file number 0-19561

                        BPI PACKAGING TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)


              Delaware                            04-2997486
   (State or other jurisdiction of              (I.R.S. Employer
     incorporation or organization)             Identification No.)


             455 Somerset Avenue, North Dighton, Massachusetts   02764
               (Address of principal executive offices)       (Zip Code)

                                 (508) 824-8636
              (Registrant's telephone number, including area code)

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

           Securities registered pursuant to Section 12(g) of the Act:

                                 Title of Class
                          Common Stock, $.01 par value
              Series A Convertible Preferred Stock, $.01 par value

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  Exhange 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 60 days. Yes X No___.

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  amendment to this Form
10-K. X

         The aggregate  market value of the voting stock held by  non-affiliates
of the  Registrant,  based  upon the  average  of the bid and ask  prices of the
Common Stock and Series A Convertible  Preferred Stock as reported by NASDAQ/NMS
on April  30,  1998 was  approximately  $24,949,845  for the  Common  Stock  and
$213,583 for the Series A  Convertible  Preferred  Stock.  As of April 30, 1998,
21,025,396  shares of Common Stock,  $.01 par value per share,  were outstanding
and 213,583 shares of Series A Convertible  Preferred Stock,  $.01 par value per
share, were outstanding.
<PAGE>

                    FORWARD-LOOKING STATEMENTS OR INFORMATION

         This Form 10-K  includes  certain  statements  that may be deemed to be
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation  Reform  Act of 1995.  Statements  in this  Form 10-K  which  address
activities, events and developments that the Company expects or anticipates will
or may occur in the future, including such things as future capital expenditures
(including  the amount  and nature  thereof),  expansion  and other  development
trends of industry segments in which the Company is active,  business  strategy,
expansion and growth of the  Company's  business and  operations  and other such
matters  are  forward-looking  statements.  Although  the Company  believes  the
expectations   expressed  in  such  forward-looking   statements  are  based  on
reasonable  assumptions  within the bounds of its knowledge of its  business,  a
number of factors  could cause actual  results to differ  materially  from those
expressed in any forward-looking statements, whether oral or written, made by or
on behalf of the Company.  Many of these factors have previously been identified
in filings of statements made by or on behalf of the Company.

         All  phases of the  Company's  operations  are  subject  to  influences
outside  its  control.  Any  one,  or a  combination,  of  these  factors  could
materially  affect  the  results  of the  Company's  operations.  These  factors
include: sales,  competition,  inflation, raw material price increases,  rate of
market penetration for products,  new product development and market acceptance,
litigation,  interest  rate  fluctuations,  availability  of  equity  financing,
availability of capital and operating lease  financing,  availability of bank or
other financial institution lines of credit and other capital market conditions.
Forward-looking  statements  made by or on behalf of the  Company are based on a
knowledge of its business and the environment in which it operates,  but because
of the  factors  listed  above,  actual  results  may  differ  from those in the
forward-looking statements.  Consequently, all of the forward-looking statements
made are qualified by these cautionary  statements and there can be no assurance
that the actual  results or  developments  anticipated  by the  Company  will be
realized or, even if  substantially  realized,  that they will have the expected
consequences to or effects on the Company or its business or operations.


                                       -2-

<PAGE>
                                     PART I

Item 1.    Business

General

         BPI   Packaging   Technologies,   Inc.,   (the   "Company")   develops,
manufactures,  markets and sells: (i) proprietary  high performance  thin, clear
plastic film used for tissue overwrap (paper towel and bathroom  tissue),  which
provide cost savings, to consumer packaged goods companies and other proprietary
plastic film used in insulation products to industrial  companies;  (ii) plastic
carryout bags of "T-shirt  sack" design  Handi-Sac  (TM) and Fresh-Sac (R) made
from  various  plastic  film  products  manufactured  by the Company in patented
dispensing  systems for use in supermarket,  convenience,  retail and drug store
chains and (iii) in-store  advertising and promotion  products to increase sales
in-store at the point of  purchase.  These  products are  Fresh-Sac  (R) Produce
Profit Builder (TM), a marketing  program for produce,  for use in  supermarkets
and Floor Focus Ad-Tile (TM), an in-floor  advertising  system  referred to as a
billboard  on  the  floor,  for  use in  supermarket,  convenience,  retail  and
drugstore chains and as a vehicle for anti-smoking advertising directed at youth
in public schools.

         The Company's  plastic film and T-shirt  carryout bags are manufactured
in a new,  state-of-the  art  plant  located  in North  Dighton,  Massachusetts,
utilizing  some of the  world's  most  advanced  and highest  quality  printing,
extrusion and bag making  equipment  which was installed  during the period June
1991 to February 1997. The manufacturing  facility has the estimated capacity to
support  sales of up to $80 million  annually.  During this period,  the Company
also  developed  patented  and  proprietary  bag and plastic  film  products and
developed and acquired in-store advertising and promotion products.  The Company
has now  completed  significant  investments  in  developing  and  marketing the
Company's products and beginning January 1, 1998 the Company has begun the sales
and  marketing  stage.   Management's   sales  goal  is  to  have  its  existing
manufacturing capacity fully utilized by the end of 1999.

         Management  believes that Calendar Year 1998 will be a transition  year
leading to future  profitability.  The  Company's  strategy to achieve its sales
goal is to focus its  resources  to: (i) use the  platform of  proprietary  high
performance  plastic  films  together  with the March 31, 1998  contract with an
international  company to capture a large share of the  estimated  $0.8  billion
annual  worldwide  printed  tissue  overwrap  (paper towel and bathroom  tissue)
market,  (ii) use the platform of  proprietary  bag Handi-Sac (TM) and Fresh-Sac
(R) and related in-store marketing programs Fresh-Sac (R) Produce Profit Builder
(TM) to capture a large share of the supermarket  and convenience  store markets
estimated  at $0.6 billion  annually  and (iii) use Floor Focus  Ad-Tile (TM) to
sell  in-store   advertising  and  promotion   products  to   supermarkets   and
hypermarkets in France with a coordinated  program with Coca-Cola(R)  France and
to sell anti-smoking  advertising  directed at youth in public schools and other
institutions.

                                      -3-
<PAGE>

         On March 31,  1998,  the  Company  entered  into a  Five-year  Purchase
Agreement to sell  exclusively to an  international  company thin, clear plastic
film for tissue  overwrap  in North  America and in certain  foreign  countries.
Under the terms of the Purchase  Agreement,  the Company has agreed to supply up
to $25 million of thin,  clear film in each of the five years during the term of
the agreement and to increase the Company's capacity to produce thin, clear film
for tissue overwrap beyond $25 million  annually upon prior  reasonable  notice.
The  international  company must  purchase at least $5 million in the first year
and $10 million in each of the next four years of the  agreement to maintain its
exclusive  rights.  The  international  company has also  agreed to  immediately
terminate  its  research  and  development  program  for thin  film  for  tissue
overwrap. The first shipment of thin, clear film under the agreement was made on
April 9, 1998.

         The new  proprietary  high  performance  thin,  clear  plastic  film to
overwrap paper towels and bathroom tissue referred to in the preceding paragraph
has passed  pre-production  qualification tests at one of the top three consumer
packaged  goods  companies  and  engineering  tests  performed by CasMatic,  the
leading  worldwide  manufacturer  of  tissue  overwrap  equipment.  In the third
quarter of the 10 month period ended December 31, 1997, the thin,  clear plastic
film to overwrap  tissue  products was released to the North American market and
initial marketing began in the European market.  Management estimates the annual
market size for the thin, clear printed plastic film for tissue overwrap is $200
million in the U.S.,  $200 million in Europe and $400 million in the rest of the
world.

         The Company has entered the in-store  advertising and promotion  market
with two new  products:  (i) Fresh-Sac (R) Produce  Profit  Builder (TM),  which
incorporates  the Company's  established  Fresh-Sac (R) T-shirt  produce bag and
patented dispenser used by approximately 1,000 supermarkets, into a new in-store
advertising  and promotion  vehicle for  supermarkets  by adding to the patented
dispenser,  the patented Cartridge Talker (TM) (a device that is integrated into
the patented bag dispenser and is an attractive cover for the dispenser on which
various  advertising  messages can be displayed) and (ii) the new patented Floor
Focus Ad-Tile (TM) system,  which is a semi-permanent  floor tile which contains
full color  advertising  messages  manufactured  into it and is installed in the
floor  in  strategic  locations  throughout  the  store.  The  objective  of the
Fresh-Sac (R) Produce  Profit  Builder (TM) program and Floor Focus Ad-Tile (TM)
is to increase sales in-store at the point of purchase.  In-store tests for both
of these  programs  were  successfully  completed as of December  31, 1997.  The
in-store test results reported material increases in sales of program products.

         In February  1998,  one of the five largest  supermarket  chains in the
United  States  decided to use the  Fresh-Sac  (R) Produce  Profit  Builder (TM)
marketing  program after successful  in-store testing and annual sales potential
for this chain is estimated at $7.5 million.  The  Fresh-Sac (R) Produce  Profit
Builder (TM) sales and marketing  campaign began in December 1996, and presently
there are 17 other  supermarket  chains,  with  potential  sales of $21  million
annually in various stages of in-store testing, and it is anticipated that sales
from  this  program  will  begin  to  increase  in  Calendar  Year  1998.  It is
anticipated that  Coca-Cola(R)  France will proceed in Calendar Year 1998 with a
planned  eight  week 8 in-store  test for Floor  Focus  Ad-Tile  (TM) in

                                      -4-
<PAGE>
several  hypermarkets  (referred to as Superstores in the U.S.).  It is believed
that the test will be  successful,  based on previous  test results in the U.S.,
and that sales of Floor Focus Ad-Tile (TM)  advertising to  Coca-Cola(R)  France
and others will begin in France in Calendar Year 1998.  Floor Focus Ad-Tile (TM)
Anti-Smoking "billboard on floor" advertising and promotion will be installed in
one of the largest  public school  systems in the U.S.  (150 public  schools) in
Calendar Year 1998. It is anticipated that this installation will be the subject
of national media attention and be the critical mass to launch the  Anti-Smoking
program nationally.

History

         The Company's predecessor, Beresford Packaging, Inc. ("Beresford-U.S.")
was  organized as a wholly owned  subsidiary  of  Beresford  Packaging,  Inc., a
Canadian  corporation  (that was  subsequently  amalgamated  into  Beresford Box
Company  Limited  ("Beresford-Canada"))  in February  1988 to acquire  certain
assets  and  assume  certain   liabilities  of  Surrey   Industries,   Inc.,  an
unaffiliated entity, which manufactured  traditional high molecular weight, high
density  polyethylene  ("HMWHDPE")  plastic bags. The Company was organized as a
Delaware  corporation in May 1990 and in August 1990 Beresford-U.S.  merged into
the Company.  In February  1993, the  stockholders  and directors of the Company
approved  the name change of the  Company  from BPI  Environmental,  Inc. to BPI
Packaging Technologies, Inc. The Company operates two wholly-owned subsidiaries:
RC America,  Inc.,  which  purchases  surplus  inventory from  manufacturers  of
consumer  products  and  markets  and sells  the  products  to mass  merchandise
retailers  and other retail  chains,  and Market  Media,  Inc.,  which sells and
markets in-store advertising and promotion programs. Unless otherwise indicated,
the term "Company"  includes BPI Packaging  Technologies,  Inc., its predecessor
Beresford-U.S., and its two subsidiaries.

                                       -5-
<PAGE>
Products and Markets

         Direct  competition  refers to competition from identical  products and
indirect competition refers to products which are not identical, but which could
be substituted for the Company's  product.  Market size estimates are management
estimates:
<TABLE>
<CAPTION>
                                                    1997                                               
                                               ANNUAL MARKET                  PATENT               
                                                $ MILLIONS                    STATUS                     COMPETITION
                                                ----------                    ------                   ----------------
<S>                                              <C>                           <C>                     <C>

HIGH PERFORMANCE PRINTED TISSUE                   $200 - U.S.                   Process Technology      No Direct
OVERWRAP FILM                                     $200 - Europe                                         Indirect:  Exxon Films
                                                  $400 - Other                                                                 

HANDI-SAC TM                                      $120                          U.S. Patent             No Direct
Convenience & Auto Stores                                                       Issued 1993             Indirect: Paper and
                                                                                                        Sonoco T-Sack Roll Bag

FRESH-SAC (R)                                     $264                          U.S. Patent             No Direct
T-Shirt Produce Bag                                                             Issued 1993             Indirect:  Produce Bag
                                                                                                        on a roll
SUB TOTAL                                         $1,184

CAUSE MARKETING                                   $150 Anti-Smoking schools     U.S. Patent             No Direct
(Floor Billboard Advertising                                                    issued 1993 
For Schools & Others)                                                           (Exclusive License)
                                                                                               
IN STORE ADVERTISING AND PROMOTION PRODUCTS:
   FLOOR FOCUS AD-TILE (TM)

(Floor Billboard Advertising)                     $100 Hypermarkets France

FRESH SAC(R) CARTRIDGE TALKER(TM)                 $235                          U.S. Patent              No Direct
ADVERTISING (Sold with Fresh-Sac (R)                                            Issued 1996              Indirect:  Catalina 
                                                                                                         Marketing; Act Media
SUB TOTAL                                         $485

GRAND TOTAL                                       $1,669
</TABLE>

         High  Performance  Tissue Overwrap Film is anticipated by management to
contribute  significantly to the Company's  proprietary  plastic film sales over
the next several years.

         On March 31,  1998,  the  Company  entered  into a  Five-year  Purchase
Agreement to sell  exclusively to an  international  company thin, clear plastic
film for tissue overwrap (paper towels and bathroom tissue) in North America and
in certain foreign  countries.  Under the terms of the Purchase  Agreement,  the
Company  has agreed to supply up to $25  million of thin,  clear film in each of
the five years during the term of the  agreement  and to increase the  Company's
capacity  to produce  thin,  clear film for tissue  overwrap  beyond $25 million
annually upon prior reasonable notice.  The international  company must purchase
at least $5 million  in the first year and $10  million in each of the next four
years of the  agreement  to maintain its  exclusive  rights.  The  international
company has also agreed to  immediately  terminate its research and  development
program for thin film for tissue  overwrap.  The first  shipment of thin,  clear
film under the agreement was made on April 9, 1998.

         The new  proprietary  high  performance  thin,  clear  plastic  film to
overwrap paper towels and bathroom tissue referred to in the preceding paragraph
has passed  pre-production  qualification tests at one of the top three consumer
packaged goods companies and
                                       -6-
<PAGE>
engineering tests performed by CasMatic,  the leading worldwide  manufacturer of
tissue  overwrap  equipment.  In the third  quarter of the 10 month period ended
December 31, 1997, the thin,  clear plastic film to overwrap tissue products was
released  to the  North  American  market  and  initial  marketing  began in the
European  market.  The  primary  benefit of the tissue  overwrap  film is a cost
savings  of  approximately  20% . The major  consumer  package  goods  companies
typically  have annual  purchases  of $45 to $90 million  annually  for existing
tissue  overwrap.  Consequently,  cost  savings are  estimated  to range from $9
million to $18 million  annually.  (Cost  savings are greater in countries  that
have high  environmental  taxes based on the plastic's  weight as in Germany and
Austria.) Additional advantages are increased production efficiency,  less floor
space required for inventory,  less working  capital because of the cost savings
and direct savings on freight.  Management  estimates the annual market size for
the thin,  clear printed plastic film for tissue overwrap is $200 million in the
U.S., $200 million in Europe and $400 million in the rest of the world.

         Fresh-Sac (R) T-shirt  produce bag is a thin,  high clarity produce bag
manufactured  from a proprietary  plastic film developed by the Company and sold
in  a  patented  dispensing   mechanism.   The  product  is  presently  sold  to
approximately 1,000 supermarkets  directly and through  distributors.  Fresh-Sac
(R) is being sold along with the patented  Fresh-Sac (R)  Cartridge  Talker (TM)
potential for Fresh-Sac (R) Cartridge Talker (TM),  exclusive of any third party
Fresh-Sac (R) Cartridge Talker (TM)advertising, is $264 million. The Company has
no direct  competition in this market for the produce  marketing program but has
indirect  competition  for the bag only from the  traditional  produce  bag on a
roll.

         HANDI-SAC  (TM)  is  a  T-shirt  bag  sold  in  a  patented  dispensing
mechanism.  The system  allows the  retailer to  effectively  store and dispense
T-shirt bags in a limited space, which is important to convenience, drug, retail
and hardware stores. Handi-Sac (TM) cost approximately two to three times more.

         In-store  advertising  and  promotion  products are the  Fresh-Sac  (R)
Produce  Profit  Builder (TM),  which  consists of (i) the Fresh-Sac (R) T-shirt
sack produce bag in a patented dispensing system and (ii) the patented Fresh-Sac
(R) Cartridge  Talker (TM), an  attachment  to the patented  dispensing  system,
which is utilized as an  advertising  and promotion  vehicle and the Floor Focus
Ad-Tile  (TM), an in-floor  advertising  system  (billboard  on the floor).  The
patented  Floor Focus Ad-Tile (TM) system has  full-color  advertising  messages
manufactured  into a tile  which is then  installed  in the  floor in  strategic
locations  throughout the store with the objective of increasing  brand sales at
the point of purchase. Floor Focus Ad-Tile (TM) is a semi-permanent installation
that withstands heavy traffic, yet is easily replaced when the message changes.

         Fresh-Sac  (R) Produce  Profit  consists of the  Fresh-Sac  (R) t-shirt
produce bag and the patented  Fresh-Sac (R) Cartridge Talker (TM) (a device that
is integrated into the patented bag dispenser and is an attractive cover for the
dispenser  on  which  various  advertising  messages  can  be  displayed).   The
supermarket  industry  does not  have  any  national  in-store  advertising  and
promotion  products  for  the  produce  section,  which  is the  highest  margin
department in the  supermarket.  The Fresh-Sac (R) Produce  Profit  Builder (TM)
Program  has the  potential  of  becoming  the  national  marketing  program for
produce.  In February  1998, one of the five largest  supermarket  chains in the
United  States  decided to use the  Fresh-Sac  (R) Produce  Profit  Builder (TM)
marketing  program  after  successful-in-store  testing  and  the  annual  sales
potential for this chain is estimated at $7.5 million.  Presently,  there are 17
other supermarket chains, with estimated sales potential of $21 million annually
in various stages of in-store  testing.  The Fresh-Sac (R) Cartridge Talker (TM)
used as a platform to sell third party in-store  advertising has an annual sales
potential estimated at $235 million.

                                      -7-
<PAGE>
         Market Media,  Inc. ("Market  Media"),  a wholly owned subsidiary,  was
organized in Fiscal 1996 to develop in-store advertising and promotion products,
which were to be marketed with the Fresh-Sac (R) produce bag.  Subsequently,  an
exclusive worldwide license on Floor Focus Ad-Tile(TM)was purchased.

         The sale of national  in-store  advertising  to U.S.  consumer  package
goods  companies  requires a critical mass of 5,000 to 8,000  supermarkets  that
reach 40% of the U.S.  population  each week.  The sale of third party  in-store
advertising  to the  consumer  package  goods  companies  would  require a large
investment in sales and  marketing  resources and the Company does not intend to
pursue this market  without a joint  venture  partner  that already has national
in-store advertising and promotion capacity.

         Foreign  markets are in the early  stages of in-store  advertising  and
promotion  and do not have  established  goals  regarding  population  reach for
national  in-store  advertising  and  promotion  programs.  Foreign  advertising
agencies generally take a much more proactive posture regarding  introducing new
marketing  programs to their clients,  and as a result,  there is an established
infrastructure at these advertising agencies for the sale and marketing of Floor
Focus  Ad-Tile (TM)  advertising.  These  factors and more  attractive  margins,
combined  with the interest of  Coca-Cola(R)France  in using Floor Focus Ad-Tile
(TM)  advertising  in the 1,056  hypermarkets  in France,  have  resulted in the
decision to focus sales marketing resources for this product in France.

         Coca-Cola(R)  France plans an eight week  in-store test for Floor Focus
Ad-Tile  (TM) in  hypermarkets  (referred  to as  Superstores  in the  U.S.)  in
Calendar  1998.  Coca-Cola(R)  France  plans to have Floor Focus  Ad-Tiles  (TM)
advertising  Coca-Cola(R)  products  installed  in each  test  hypermarket.  The
Company has not yet entered into the retailer  agreements with the  hypermarkets
which are necessary for the in-store test. Upon the successful completion of the
eight week in-store test,  Coca-Cola(R)  France intends to expand the program to
all 1,056 hypermarkets in France as Market Media enters into retailer agreements
with the supermarket  chains and floor space becomes  available.  The Company is
confident  that the Floor Focus Ad-Tile (TM) in-store test will be as successful
for  Coca-Cola(R)  as it has been for other  products  in the U.S.  where  sales
increased 21.5% to 29.5%.  Management  estimates that the 1,056  hypermarkets in
France represent an annual market for Floor Focus Ad-Tile (TM), based on current
pricing, of $100 million.

         Market  Media  plans  to use  Educational  Ad-Tile  (TM) to  support  a
national  anti-smoking  advertising  and promotion  program for the youth of the
nation in public schools.  The anti-smoking  program was officially  launched by
United States Senator, John Kerry, on June 6, 1997.

RC America, Inc.

         The  Company,  through  its RC  America,  Inc.,  subsidiary,  purchases
surplus finished goods  inventories from  manufacturers of consumer products and
markets and sells the products to mass  merchandise  retailers  and other retail
chains and distributors.  RC America,  Inc.,  purchases and sells these products
both in the United  States and  overseas.  The Company is  exploring  selling RC
America,  Inc. to its  management  or reducing its  ownership to make  available
other adequate resources to fund its expansion opportunities.

Competition

         The plastic film and bag and in-store advertising and promotion markets
are highly competitive. The Company does not have any direct competition for its
thin,  clear film for tissue  overwrap but does have indirect  competition  from
Exxon Films, which has a similar thin film for tissue overwrap.  However,  it is
believed  that Exxon Films has an exclusive  five year supply  agreement  with a
consumer  package goods company that prohibits it from supplying other companies
and therefore,  it is not presently  considered to be a 

                                      -8-
<PAGE>
competitor.  The  Company  competes  with the major  manufacturers  of  flexible
packaging and other  companies that  manufacture  thick plastic films for tissue
overwrap.  The  Company  believes  that its  tissue  overwrap  film is more cost
effective than any competitive product.

         The Company's  Fresh-Sac (R) t-shirt sack produce bag does not have any
direct competition but has indirect  competition from the produce bag on a roll,
which is  manufactured  by  companies  that are both larger and smaller than the
Company. There are high barriers of entry into the plastic bag market due to the
significant capital requirements.  The Company's capacity is estimated at 3.3 to
4.8 billion bags  annually  depending on product mix and the minimum  investment
required  for this  capacity  is  presently  estimated  at  approximately  $49.5
million.  In the traditional  plastic grocery t-shirt market,  which the Company
exited in the 10 month period ended December 31, 1997, the Company's competitors
included divisions of large  multinational  companies i.e.,  Tenneco,  Inc., and
Sonoco Products Company.

Proprietary Processes, Patents and Other Rights

Patent Strategy

         The Company's  strategy is to first,  be a low cost producer in each of
its markets, and second, to develop patentable, proprietary products in order to
differentiate its products in the marketplace.

         The Company owns a patent  issued in 1989 for its T-shirt  carryout bag
and patents for its HANDI-SAC (TM)  dispensing  system used in conjunction  with
its  Fresh-Sac  (R) and  HANDI-SAC  (TM)  products.  The Company  filed a patent
application in the United States for its tissue  overwrap film but  subsequently
withdrew the application and is relying on trade secrets. The Company was issued
a United States patent for its Fresh  Sac(R)Cartridge  Talker (TM) in 1996.  The
Company has a registered trademark in the United States for Fresh Sac(R).

         The Company has developed a number of proprietary manufacturing methods
and processes utilized in the manufacture of its products. The Company relies on
and employs various methods to protect the concepts,  ideas,  and  documentation
for these manufacturing  methods such as patents and confidentiality  agreements
with its employees.  However,  such methods may not afford sufficient protection
and no assurance  can be given that others will not  independently  develop such
know-how  or  obtain  access  to the  Company's  know-how,  concepts,  ideas and
documentation.

         No  assurance  can be given  that the  patents  currently  owned by the
Company and any patents that may be granted in the future will be enforceable or
provide the Company  with  meaningful  protection  from  competitors.  Even if a
competitor's products were to infringe patents owned by the Company, it could be
costly for the Company to enforce its rights in an infringement action and would
divert  funds  and  resources  otherwise  used  in  the  Company's   operations.
Furthermore,  no assurance  can be given that the Company would be successful in
enforcing such rights.  Similarly,  no assurance can be given that the Company's
products will not infringe patents or rights of others.

Manufacturing

         All of the Company's plastics products are manufactured in its Dighton,
Massachusetts,  facility.  The plastic resin is delivered to the Company by rail
car,  where it is brought  into the  facility to be heated and blown into a thin
film on blown film extrusion  lines. The film is cooled and wound on large rolls
and printed with 

                                      -9-
<PAGE>
the customer's information using non-toxic inks and shipped to customers. If the
film is to be used to  manufacture  bags, it is then cut into bags,  reviewed by
quality control inspectors, boxed, and shipped to customers. The Company retains
customer  design  ink plates  for  future  use and has an art  department  which
assists in graphic  design for the bags. The Company's  manufacturing  equipment
consists  of  blown  film  extrusion  lines,  printing  presses  and bag  making
machines.

Raw Materials

         HMWHDPE  resin  comprises  the  principal raw material in the Company's
products,  the principal component of which is ethylene, a derivative of natural
gas. HMWHDPE resin is currently  available from several  sources.  During the 10
month period ended  December  31, 1997 , as in some prior  fiscal  years,  resin
prices fluctuated significantly, a trend the Company expects will continue.
Backlog

         The Company's backlog of firm orders at April 30, 1998, was $413,767 as
compared to $791,602 at April 30, 1997. The Company  generally sells products on
an  individual  purchase  order to regular  customers  rather than under  annual
contracts on a scheduled  delivery  basis.  Accordingly,  backlog may  fluctuate
significantly and may not be an accurate indicator of general business trends.

Seasonality

         Management of the Company does not believe that the Company's  business
is seasonal.

Major Customers

         For the 10 month  period ended  December 31, 1997,  there was no single
customer that accounted for more than 10% of the Company 's sales.

Employees

         As of April 30, 1998, the Company had 77 full-time employees, including
its  four   executive   officers,   of  whom  7  are  employed  in  general  and
administrative  activities,  19 are involved in sales and marketing,  and 51 are
involved in  production.  None of the Company's  employees are  represented by a
union.

Item 2. Facilities

         The Company maintains its principal executive offices and manufacturing
operations  in a 124,000  square foot  facility in Dighton,  Massachusetts.  The
premises are leased from an unaffiliated landlord under a lease which expires on
December 31, 2007 at a monthly  rent of $30,636  effective  August 1, 1997,  and
thereafter to be adjusted based on certain  indices.  The Company is responsible
for payment of real estate taxes, which are approximately  $45,000 per year, and
maintenance costs which approximate  $30,000 per year. The Company has an option
to extend the lease for a seven year period at the expiration of the lease.

Item 3. Legal Proceedings

         On December 4, 1995, Mobil Oil Corporation ("Mobil") filed suit against
the  Company in the U.S.  District  Court for the  District of  Delaware,  Civil
Action No. 95-737. Mobil also named Inteplast Corporation and Integrated Bagging
Systems  Corporation  as defendants  in this matter.  Mobil has alleged that the
Company has  infringed on Mobil's  rights under U.S.  Patent No. Re. 34,019 (the
"Patent"), regarding the 

                                      -10-
<PAGE>
manufacture of plastic carry-out bags known as "T-shirt bags." Subsequently, the
Company filed a counter claim against Mobil for patent infringement. In December
1996, Mobil and the Company settled this patent litigation by mutual agreement.

         The Company is involved in various pending commercial legal proceedings
with equipment lessors and trade suppliers because of lease defaults and overdue
trade accounts.  Management  believes these legal proceedings will be settled by
negotiation;  however,  the failure to settle these  proceedings  by negotiation
could have material adverse effects on the Company 's business.

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

         No matters  were  submitted  to a vote of security  holders  during the
fourth  quarter of the 10 month  period ended  December  31,  1997,  through the
solicitation of proxies or otherwise.

                                      -11-
<PAGE>

                                     PART II

Item 5. Market for Registrant's Common Stock and Related Stockholder Matters

         The Company's Common Stock has been traded on the National  Association
of Securities Dealers Automated Quotation National Market System  ("NASDAQ/NMS")
since October 12, 1992.  Prior to October 12, 1992,  the Company's  Common Stock
was traded on the  over-the-counter  market through the National  Association of
Securities Dealers Automated Quotation System ("NASDAQ").

         On April 29,  1998,  the Company was informed by NASDAQ that its Common
Stock will be delisted  from the NASDAQ  National  Market  System on May 6, 1998
based on certain  deficiencies  asserted  by the NASDAQ  staff.  The Company has
requested  and been granted a hearing for a review of the staff's  findings and,
although no assurance  can be given,  believes  that all of such  "deficiencies"
have been corrected as of the filing of this Form 10-K.

         As of April 30, 1998, the Company had  21,025,396  Shares (243 holders)
of record for its Common Stock and 213,583 Shares (33 holders) of record for its
Series A  Convertible  Preferred  Stock.  Management  believes  that  there  are
approximately 4,500 to 5,000 beneficial owners of the Company's Common Stock and
Series A Convertible Preferred Stock.

         For the fiscal quarters  reported below, the following table sets forth
the range of high and low sale  quotations for the Common Stock for the relevant
periods as  reported  by  NASDAQ/NNM.  Such  quotations  represent  inter-dealer
quotations without  adjustment for retail markups,  markdowns or commissions and
may not represent actual transactions.

                                                            High Sale  Low Sale
                                                            ---------  --------
COMMON STOCK

Fiscal Year 1996
         First Quarter                                       $ 4.875    $ 3.50
         Second Quarter                                      $ 4.00     $ 2.875
         Third Quarter                                       $ 3.00     $ 1.875
         Fourth Quarter                                      $ 2.50     $ 1.25
                                                                        
Fiscal Year 1997                                                        
         First Quarter                                       $ 4.25     $ 1.375
         Second Quarter                                      $ 3.625    $ 1.625
         Third Quarter                                       $ 3.6875   $ 1.8125
         Fourth Quarter                                      $ 2.3125   $ 1.625
                                                                        
10 Month Period Ended December 31, 1997                                 
         First Quarter                                       $ 1.96875  $ 1.5625
         Second Quarter                                      $ 1.875    $ 1.031
         Third Quarter                                       $ 2.313    $ 1.031
         Fourth Quarter (1 month December 31, 1997)(1)       $ 1.938    $ 1.063
                                                                        
Calendar Year 1998                                                      
         First Quarter                                       $ 1.375    $ 0.688
         Second Quarter (through April 30, 1998)             $ 1.565    $ 1.031
                                                                   

(1) Year end changed from February 28th to December 31, 1997

                                      -12-
<PAGE>
Dividends

         The Company has not paid any cash  dividends  on its Common Stock since
inception and does not  anticipate  the payment of cash  dividends on its Common
Stock in the foreseeable  future.  It is expected that any earnings which may be
generated from operations,  after payment of dividends on the Company's Series A
and B  Preferred  Stock,  will be used to  finance  the  growth of the  Company.
Dividends on each of these classes of Preferred Stock are non-cumulative.

         The  Company's  current  revolving  line  of  credit  loan  arrangement
prohibits  the payment of dividends (in cash or other  property,  except for the
Company's  stock) on the  Company's  securities.  However,  the Company may make
dividend  payments to its preferred  stock,  provided that the Company is not in
default of any covenants of its loan agreement at the time of such payments.

Item 6.  Selected Financial Data

         The following  tables set forth summary  financial  information for the
periods  indicated.  This  information  should be read in  conjunction  with the
Company's  consolidated  financial  statements  (including  the  notes  thereto)
included herein.
<TABLE>
<CAPTION>
                                                 STATEMENT OF OPERATIONS DATA

                                   Ten Month Period Ended                               Fiscal Years Ended
                                   ----------------------      ------------------------------------------------------------
                                        December 31,            February 28,   February 23,   February 24,     February 25,
                                           1997                    1997             1996          1995             1994
                                       -------------           ------------    ------------   ------------     ------------
<S>                                   <C>                     <C>             <C>             <C>             <C>           
Net sales                              $ 13,951,725            $ 30,810,037    $ 28,839,954    $ 25,254,645    $ 16,754,056  
Cost of goods sold                       18,113,514              29,254,754      26,161,723      19,879,041      12,831,497
                                       ------------            ------------    ------------    ------------    ------------
Gross profit                             (4,161,789)              1,555,283       2,678,231       5,375,604       3,922,559
Selling, general and                                           
  administrative expense                  5,655,244               7,318,352       6,370,956       5,029,832       3,746,227
Write-down of impaired assets                                  
   and related expenses                        --                 5,897,648            --              --              --
Income (loss) from                                             
  operations                             (9,817,033)            (11,660,717)     (3,692,725)        345,772         176,332
Allowance for officer loan                 (586,978)                   --              --              --              --
Interest and other                                             
  expense                                  (984,064)             (1,112,647)       (865,206)       (280,445)       (166,843)
Other income                                 49,206                   9,133          47,786          77,104            --
Non-recurring charges                          --                      --              --          (989,917)           --
Income (loss) before                                           
  minority interest                     (11,338,869)            (12,764,231)     (4,510,145)       (847,486)          9,489
Minority interest in                                           
  net loss of                                         
  consol. subsidiaries                         --                      --              --              --           (10,092)
Net loss                                (11,338,869)            (12,764,231)     (4,510,145)       (847,486)           (603)
Basic and diluted net loss per share           (.73)                   (.96)           (.38)           (.08)           0.00
Shares used in computing basic and                             
diluted net loss per share               15,579,747              13,261,815      11,756,532      10,670,040       8,523,580
                                                         
</TABLE>
                                                      -13-

<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
                                     At                 At                  At                  At                 At
                               December 31,        February 28,        February 23,        February 24,       February 25,
                                   1997                1997                1996                1995               1994
                               ------------        ------------        ------------        ------------       ------------
<S>                           <C>                 <C>                 <C>                 <C>                <C>         
Total assets                   $ 20,970,740        $ 29,247,231        $ 35,277,975        $ 35,341,925       $ 25,222,929
Long term obligations          $    --             $  3,809,241        $  5,441,057        $  4,495,692       $  2,183,939
Redeemable preferred                                                                                         
  stock                             --             $     --            $    183,369        $    183,369       $    183,369
Working capital (deficit)      $(13,897,932)       $ (5,819,144)       $ (2,767,867)       $  3,909,634       $  2,048,842
Stockholders' equity           $  5,115,535        $ 11,544,675        $ 19,768,971        $ 24,048,204       $ 17,618,729
                                                                                                         
</TABLE>

Item 7.   Management's Discussion and Analysis of Financial Condition and 
          Results of Operations

For the 10 Month Period Ended December 31, 1997 Compared to Fiscal Year 1997

         During the 10 month period ended  December 31, 1997, the Company exited
the  traditional  plastic  carry-out  bag  market  before its  proprietary  high
performance  tissue overwrap film and Fresh-Sac (R) Produce Profit Builder (TM),
two major growth products for Calendar Year 1998 and beyond,  were ready to make
the  transition  from  marketing  to sales.  Sales for the 10 month period ended
December 31, 1997 were $13,951,725  compared to $30,810,037 in Fiscal Year 1997,
a decrease of 55%.

         Sales of the Company's  proprietary bag products  Fresh-Sac (R) T-shirt
sack produce bag,  HANDI-SAC(TM)  and film products  were  $6,395,800 in the 10
month period ended  December 31, 1997 compared to sales of $12,035,704 in Fiscal
Year 1997,  an decrease of 46.9%.  (Fiscal Year 1997 sales  included  $1,645,000
sales for Maxi-Sac and this product line was discontinued in the 10 month period
ended December 31, 1997). Sales of traditional  products decreased to $6,586,998
as planned in the 10 month period ended  December 31, 1997 from  $16,571,656  in
Fiscal  Year  1997,  a  decrease  of 60.3%.  RC  America,  Inc.'s net sales were
$968,927 in the 10 month period ended  December 31, 1997  compared to $2,067,746
in Fiscal Year 1997, a decrease of 53%. RC America,  Inc.'s. sales may fluctuate
significantly from year to year due to the nature of its business and the timing
of transactions.  However,  for the 10 month period ended December 31, 1997, the
Company did not have adequate  working  capital to fund its operations and sales
were materially negatively impacted. Market Media, Inc. recorded no sales in the
10 month  period  ended  December  31, 1997  compared to $134,932 in Fiscal Year
1997.

         In the 10 month period ended December 31, 1997,  cost of goods sold was
$18,113,514 or 129.8% of sales, as compared to cost of goods sold in Fiscal Year
1997 of $29,254,754  or 95.0% of sales.  The increase in cost of goods sold as a
percentage of sales is due primarily to the Company's  inability to absorb fixed
costs during periods of lower sales volume. Additionally, expenses of $1,643,377
related to  defaults  on capital and  operating  leases were  charged to cost of
goods sold during the fourth  quarter of the 10 month period ended  December 31,
1997.

         Selling,  general and  administrative  expense for the 10 month  period
ended December 31, 1997 was $5,655,244 or 40.5% of sales as compared to selling,
general and  administrative  expense of $7,318,352 in Fiscal Year 1997, or 23.7%
of sales.  Fixed  expenses  remained  stable  and were  offset  by a decline  in
variable expenses  primarily  attributable to freight and commission expense due
to the reduction in sales volume.

         For the 10 month  period  ended  December  31,  1997  interest  expense
decreased to $984,064 or 7.1% of net sales as compared to  $1,112,647  in Fiscal
Year 1997 or 3.6% of net sales. An allowance for officer loan totaling  $586,978
was charged to other expense for the 10 month period ended December 31, 1997.

                                      -14-
<PAGE>

         The net loss of ($11,338,869) in the 10 month period ended December 31,
1997  compared  to a loss of  ($12,764,231)  in Fiscal Year 1997.  The  non-cash
expense of depreciation  and amortization was $2,715,319 for the 10 month period
ended December 31, 1997 compared to $3,417,849 for the previous year.

         The Company incurred a loss of ($ .73) per share in the 10 month period
ended December 31, 1997 as compared to a loss of ($.96) per share in Fiscal Year
1997.
<TABLE>
<CAPTION>
Operating profits (loss) for the various business units are as follows:

                                                For the 10 Month Period ended      Fiscal Year
                                                      December 31, 1997              1997
                                                -----------------------------    -------------
<S>                                                    <C>                       <C>           
Proprietary, traditional and film products             ($ 8,801,100)             ($ 9,079,854) 
RC America, Inc.                                            (34,584)                   53,591
BPI Packaging, Inc.                                            (119)                   (2,205)
Market Media, Inc.                                         (391,853)                 (809,199)
                                                                                
Unallocated corporate overhead                           (1,511,867)               (1,823,050)
                                                       ------------              ------------
Operating profit (loss)                                 ($9,817,033)             ($11,660,717)
Allowance for officer loan                                 (586,978)                    --
Interest expense, net                                      (934,858)               (1,103,514)
                                                       ------------              ------------
Net loss                                               ($11,338,869)             ($12,764,231)
                                                       ============              ============ 
</TABLE>
Fiscal Year 1997 Compared to Fiscal Year 1996

         For the year ended February 28, 1997 ("Fiscal Year 1997"),  the Company
had sales of $30,810,037 as compared to sales of $28,839,954  for the year ended
February 23, 1996 ("Fiscal Year 1996"), an increase of 6.8%.

         The  Company's  core  bag and  film  business  (manufacture,  sale  and
marketing of traditional  plastic grocery carryout bags and proprietary  plastic
carryout bags of "T-shirt  sack" design and plastic film  products) had sales of
$28,607,359  in Fiscal Year 1997 compared to $26,439,203 in Fiscal Year 1996, an
increase of 8.2%.

         Sales of the Company's  proprietary bag products  Fresh-Sac (R) T-shirt
sack  produce  bag,  HANDI-SAC  (TM) and MAXI-SAC  (TM) and film  products  were
$12,035,704  in Fiscal Year 1997  compared to sales of $9,412,415 in Fiscal Year
1996,  an  increase  of  27.9%.  Sales  of  traditional  products  decreased  to
$16,571,656 in Fiscal Year 1997 from $17,026,788 in Fiscal Year 1996, a decrease
of 2.7%. BPI Packaging,  Inc. did not have any sales of products  purchased from
Integrated Bagging Systems  Corporation in Fiscal Year 1997 compared to sales of
$416,255 in Fiscal Year 1996.  RC America,  Inc.'s net sales were  $2,067,746 in
Fiscal Year 1997  compared  to  $1,984,496  in Fiscal Year 1996,  an increase of
4.2%. RC America,  Inc.'s.  sales may fluctuate  significantly from year to year
due to the nature of its business and the timing of transactions.  Market Media,
Inc. recorded sales of $134,932 during Fiscal Year 1997.

         In Fiscal  Year 1997,  cost of goods sold was  $29,254,754  or 95.0% of
sales,  as compared to cost of goods sold in Fiscal Year 1996 of  $26,161,723 or
90.7% of sales.  The increase in cost of goods sold as a percentage of sales was
due primarily to an increase in material costs relative to the selling prices of
the Company's products.  Cost of goods were increased  approximately  $1,250,000
for the  establishment  of reserves for exiting the traditional  grocery T-shirt
carryout bag business and a loss of $1,125,734 on the sale of reprocessed  resin
accumulated during plant start-up.

                                      -15-
<PAGE>
         Selling,  general and  administrative  expense for Fiscal Year 1997 was
$7,318,352 or 23.7% of sales as compared to selling,  general and administrative
expense of $6,370,956  in Fiscal Year 1996,  or 22.1% of sales.  The increase is
primarily  related to  increased  shipments  (freight  and related  expenses are
included in SG&A),  sales and marketing  activity for  proprietary  bag and film
products and in-store  advertising and promotion  products,  as well as start-up
costs for Market Media, Inc.

         Fiscal Year 1997  interest  expense  increased to $1,112,647 or 3.6% of
net sales as compared to $865,206 in Fiscal Year 1996, or 3.0% of net sales. The
increase in interest expense was due to increased  borrowing activity related to
purchases of equipment and higher rates of interest on the credit line.

         The net loss of  $12,764,231  in Fiscal Year 1997 as compared to a loss
of  $4,510,145  in Fiscal  Year 1996 was caused  primarily  by the write down of
capital equipment and other assets as a cost of exiting the traditional  grocery
carryout bag business of $5,897,648,  the  establishment  of inventory and other
reserves of  $1,507,000  and  increased  cost of goods sold because of a loss of
$1,125,734 on the sale of reprocessed resin  accumulated  during plant start-up.
These non-recurring expenses total $8,530,382.  Also, increased selling, general
and  administrative  expense and an increase in interest expense  contributed to
the loss. (The non-cash  expense of depreciation and amortization was $3,417,849
for Fiscal Year 1997 compared to $2,643,138 for Fiscal Year 1996.)

         The Company  incurred a loss of ($.96) per share in Fiscal Year 1997 as
compared to a loss of ($.38) per share in Fiscal Year 1996.

Operating profits (loss) for the various business units are as follows:

                                            Fiscal Year 1997   Fiscal Year 1996
                                            ----------------   ----------------

Proprietary, traditional and film products   ($ 9,079,854)       ($ 1,695,855)
RC America, Inc.                                   53,591              51,328
BPI Packaging, Inc.                                (2,205)             54,505
Market Media, Inc.                               (809,199)           (585,687)
                                                                
Unallocated corporate overhead                 (1,823,050)         (1,517,016)
                                             ------------        ------------ 
Operating profit (loss)                      ($11,660,717)       ($ 3,692,725)
Interest expense, net                          (1,103,514)           (817,420)
                                             ------------        ------------  
Net loss                                     ($12,764,231)       ($ 4,510,145)
                                             ============        ============
                                                  
                                      -16-
<PAGE>
         Liquidity and Capital Resources

         Since its  initial  public  offering in October  1990,  the Company has
generated funds to finance its activities  through both public sales and private
placements of its securities,  as well as bank loans,  equipment lease financing
and cash from operations.

         Note Payable

         As of December 31, 1997,  the Company had an $8,000,000  revolving line
of credit secured by accounts  receivable and  inventory.  Borrowings  under the
line of credit are subject to 80% of qualifying  accounts  receivable and 35% of
qualifying inventories,  less the aggregate amount utilized under all commercial
and standby  letters of credit and bank  acceptances.  The line of credit  bears
interest at 5.0% above the  variable  interest  rate  quoted by Norwest  Bank of
Minnesota with a minimum rate of 8.0% (13.5% at December 31, 1997), and provides
for a 1/2 of 1% unused  line fee.  The credit line is for 5 years and is subject
to renewal  annually in November.  At December 31, 1997,  the balance  under the
line of credit was  $1,162,349.  The line of credit includes  certain  financial
covenants that the Company must maintain to avoid a default,  including  current
ratio, debt to equity ratio, maintaining a net worth of $14 million,  limitation
on capital spending, and profitability.  At December 31, 1997 the Company was in
default under the  financial  covenants.  The lender waived these  conditions of
default at December  31,  1997.  Subsequent  to December  31,  1997,  the lender
informed the Company that it wanted  repayment of the  revolving  line of credit
and the Company has agreed to repayment by June 30, 1998.  As of April 28, 1998,
the balance under the line of credit was $438,640.  The Company is negotiating a
new revolving line of credit with another lending institution.

         Sales of Securities

         In the second,  third and fourth  quarters of the 10 month period ended
December 31,  1997,  the Company  received net proceeds  from the sale of Common
Stock of $1,879,011,  $1,665,800 and $859,180  respectively,  bringing the total
net proceeds  from the sale of Common Stock from June through  December 31, 1997
to $4,800,071.  The Company  received net proceeds from the Sale of Common stock
from  January 1, 1998 to April 30,  1998 of  $1,066,200.  The  Company  may sell
additional equity or debt securities in Calendar Year 1998. However, the Company
has no  commitments  for such  financing,  and no  assurance  can be given  that
additional financing will be successfully  completed or that such financing will
be available on terms favorable to the Company, if at all.

         During Fiscal Year 1997, the Company received additional equity funding
through  the  sale of  Common  Stock  from a  Regulation  S and a  Regulation  D
offering,  the exercise of underwriters warrants and the exercise of its Class B
Common Stock Purchase Warrants.  The Company received net proceeds of $4,384,835
from the sale of an aggregate  of  2,121,861  shares of Common Stock and 100,000
shares  of  Series  A  Preferred  Stock.  The  proceeds  were  used to  purchase
equipment, for general corporate purposes and the reduction of bank debt.

Equipment Purchases and Lease Financings

         From March 1994  through  August  1997,  the Company  acquired  through
purchase  or lease  approximately  $19.7  million  in  additional  equipment  to
increase  manufacturing  capacity  and  efficiency  and to expand the  Company's
product  lines.  The equipment was financed from the sale of equity  securities,
equipment lease financing and bank loans.

         The  Company  currently  has  outstanding  commitments  to  purchase an
additional $275,000 in machinery and equipment.

         Capital  leases  contain  provisions  that give the lessor the right to
accelerate  lease  payments in the event of default  and all lessors  have filed
suit because of defaults.  All capital leases,  operating leases and real-estate
leases were in default as of and for the 10 month period ended December 31, 1997
and are still in default as of April 30,  1998.  Restructuring  agreements  have
been reached with three  lessors.  Restructuring  agreements  are expected to be
negotiated with other lessors to cure any defaults. Management believes that all
leases  will be  restructured  without  any  further  litigation  but  any  such
litigation could have a materially adverse effect on the Company.

Cash Flow

         During the 10 month period ended December 31, 1997, the Company had non
cash  charges of  $2,186,621  relating  to  depreciation  and  amortization  and
$4,800,071  from the sale of Common Stock.  The Company raised  $209,020 from an
increase in accounts

                                      -17-
<PAGE>
payable and $1,197,521 from a reduction in accounts receivable. The Company used
$212,144 to purchase equipment and for plant improvements and $1,492,754 to make
principal  payments  on  capital  lease  obligations.   At  December  31,  1997,
stockholders'  equity was  $5,115,535 as compared to $11,544,675 at February 28,
1997.  The  Company's  current ratio was 0.12:1 at December 31, 1997 compared to
0.50:1 at February 28, 1997.  The net book value of property and  equipment  was
$17,828,860 at December 31, 1997 compared to $19,803,337 at February 28, 1997.

         To date, the Company has generated cash flows from operations including
depreciation,  financing activities, including sales of equity securities, lines
of credit, term loan facilities,  equipment leasing  arrangements and loans from
raw material suppliers.  Management believes that completing  negotiations for a
new revolving line of credit and term loan to buyout the capital leases together
with the  anticipated  proceeds  of $2.0 to $3.0  million  from the  exercise of
warrants and options in Calendar Year 1998 and anticipated  cash from operations
will be  sufficient  to fund the  Company's  current  operations.  However,  the
Company  may require  additional  debt or equity  financing.  The Company has no
commitments  for such  financing,  and no assurance can be given that additional
financings  will be  successfully  completed  or  that  such  financing  will be
available or, if available, will be on terms favorable to the Company.

Impairment of Long-Lived Assets

         The Company exited the traditional plastic grocery carry-out bag market
in  the 10  month  period  ended  December  31,  1997.  This  market  is  highly
competitive  and margins  remained  low for  several  years,  covering  variable
manufacturing  costs, but making little contribution to manufacturing  overhead,
SG&A,  interest  or  profit.  As  discussed  in  Notes 1 and 6 to the  Company's
consolidated  financial  statements,  the Company adopted Statement of Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived  Assets to be Disposed of," for the year ended February 28, 1997.
In  conjunction  with this exit  strategy,  certain  write-downs  of assets  and
expenses  related to the  traditional  T-shirt product line were recorded in the
fourth  quarter of Fiscal Year 1997  amounting to $5,897,648 in order to reflect
these items,  now considered  impaired,  at fair value. In addition,  due to the
deterioration  of the product  lines'  gross  margin from  intense  competition,
approximately  $1,165,000 of inventory  reserves were  established in the fourth
quarter  of Fiscal  Year 1997 to  properly  state the  traditional  T-shirt  bag
product line inventory at net realizable value.

Going Concern and Management's Plan

         The  Company  has  suffered  recurring  net losses and has net  working
capital and operating cash flow  deficiencies.  Additionally,  significant trade
credit balances are past due and operating and capital lease  obligations are in
default at the  balance  sheet date.  Further,  as  discussed  in Note 11 to the
Company's  consolidated  financial  statements,  the Company's  revolving credit
facility is renewable  annually.  Subsequent  to December  31, 1997,  the lender
informed the Company that it wanted  repayment of the  revolving  line of credit
and the company has agreed to repayment by June 30, 1998.

         The  Company's  ability to continue as a going  concern is dependent on
its ability to successfully implement its business and financing plans described
below.  However,  there  can be no  assurances  the  Company  will  be  able  to
successfully  complete these plans. The financial  statements do not include any
adjustments  related to the  recoverability  and the  classification of recorded
assets and liabilities  that might be necessary  should the Company be unable to
continue as a going concern.

                                      -18-
<PAGE>

         The  Company  exited the  production  of its  traditional  T-shirt  bag
product  lines  during the 10 month period  ended  December 31, 1997.  Increased
competition  from large  domestic  and  overseas  competitors  with  significant
production  economies of scale caused the Company to incur substantial losses on
these  products  during the past  several  years.  The  Company  has shifted its
resources to the  production of  proprietary  bag and plastic film product lines
which have the potential to have higher profit margins. In February 1998, one of
the five  largest  supermarket  chains in the United  States  decided to use the
Fresh-Sac (R) Produce  Profit Builder (TM)  marketing  program after  successful
in-store testing and presently there are 17 other supermarket  chains in various
stages of  in-store  testing.  On March 31,  1998,  the Company  entered  into a
Five-year  Purchase  Agreement to sell exclusively to an  international  company
thin,  clear  plastic film for tissue  overwrap in North  America and in certain
foreign countries. Additionally, the Company is negotiating a new revolving line
of credit and term loan with another lending institution. The Company also plans
to continue raising  additional equity and anticipates  proceeds of $2.0 to $3.0
million from the exercise of warrants and options in Calendar Year 1998.

RC America, Inc.

         Effective  February 26, 1994,  Ronald  Caulfield  exchanged  his 49,500
shares of Common Stock of RC America,  Inc. for 200,000  shares of the Company's
Common Stock, pursuant to the terms of a Stock Exchange Agreement by and between
the Company and Ronald Caulfield (the "RC Agreement").  As a result, RC America,
Inc. is now a wholly  owned  subsidiary  of the Company.  The RC Agreement  also
provides for the issuance to Ronald  Caulfield  of up to an  additional  100,000
shares of the  Company's  Common  Stock over a five (5) year period  based on RC
America,  Inc.  attaining certain levels of pre-tax  earnings.  For the 10 month
period ended December 31, 1997, no shares of Common Stock were issued.  Based on
the operating results of RC America, Inc. for Fiscal Year 1997, a total of 2,640
shares of Common Stock were earned and issued to Mr.  Ronald  Caulfield in April
1997.  For Fiscal  Year 1996 and  Fiscal  Year  1995,  2,550 and 17,400  shares,
respectively  of the 100,000  shares of Common  Stock were issued to Mr.  Ronald
Caulfield.

Impact of Inflation

         Inflation  during the 10 month period ended  December 31, 1997, and the
last  two  fiscal  years  has  not had a  significant  effect  on the  Company's
activities.

Year 2000

         The Company  recognizes the need to ensure its  operations  will not be
adversely  impacted by Year 2000  software  failures.  Software  failures due to
processing  errors  potentially  arising from calculations are a known risk. The
Company has not  addressed  this risk as to the  availability  and  integrity of
financial  systems  and the  reliability  of  operational  systems.  The cost of
achieving Year 2000  conversion  has not been  determined as of the date of this
filing.

Item 8. Financial Statements and Supplementary Data

         See Item 14 below and the Index  therein for a listing of the financial
statements and supplementary date filed as part of this report.

Item 9.  Changes in and Disagreements with Accountants on
         Accounting and Financial Disclosure

         There has been no change in the Company's  independent  accountants nor
did any disagreements occur on any matter of accounting  principles or practices
for financial  statement  disclosure  that would be required to be reported on a
Form 8-K.

                                      -19-

<PAGE>

                                    PART III


Item 10. Directors and Executive Officers of Registrant

Directors and Executive Officers

         The directors and executive  officers of the Company,  their  positions
held in the Company, and their ages are as follows:

Name                      Age        Position
----                      ---        --------

Dennis N. Caulfield        58        Chairman of the Board of
                                     Directors, Chief
                                     Executive Officer and Chief
                                     Financial Officer

C. Jill Beresford          43        President, Treasurer and Director

Stephen J. St. Louis       44        Vice President and
                                     Chief Accounting Officer

Ronald V. Caulfield        55        Chief Executive Officer and President of 
                                     RC America, Inc.

David N. Laux              69        Director

         Dennis N. Caulfield,  the Company's Chief Executive  Officer and Ronald
V.  Caulfield,  President of RC America,  Inc.,  are  brothers.  Except for such
relationship,  no director or executive officer is related by blood, marriage or
adoption to any such director or executive officer.

         The Company's Certificate of Incorporation and Bylaws, each as amended,
provide  that the  members  of the Board of  Directors  (the  "Board")  shall be
classified  as nearly as possible  into three  classes,  each with, as nearly as
possible,  one-third of the members of the Board. A classified board is designed
to assure  continuity  and  stability in the Board's  leadership  and  policies.
Dennis N.  Caulfield is classified as Class I director and serves until the 1998
Annual  Meeting;  David N. Laux and C. Jill Beresford are Class II directors and
serve until the 2000 Annual Meeting.  The two Class III directors positions have
not yet been filled. The successors to the class of directors whose terms expire
at an  annual  meeting  would be  elected  for a term of office to expire at the
third succeeding  annual meeting after their election and until their successors
have been duly elected by the  stockholders.  Directors chosen to fill vacancies
on a classified board shall hold office until the next election of the class for
which  directors  shall have been chosen,  and until their  successors  are duly
elected by the stockholders. Officers are elected by and serve at the discretion
of the Board of Directors, subject to their employment contracts.


                                      -20-
<PAGE>

         Dennis N.  Caulfield.  Mr.  Caulfield has been Chairman of the Board of
Directors  and  Chief  Executive  Officer  of the  Company  since May 1990 and a
Director of the Company since March 1989. Mr.  Caulfield  assumed the additional
position of Chief  Financial  Officer on December 31,  1997.  From March 1989 to
March 1990, Mr. Caulfield provided consulting services to the Company. From 1984
to 1988 he was Chairman of the Board of Directors and Chief Executive Officer of
Northeast  Precision  Feed Screw,  Inc., a manufacturer  of plastics  processing
equipment.  Mr. Caulfield was Chairman and Chief Executive  Officer of Synthetic
Materials  Corporation,  a processor of  thermoplastics,  from 1979 to 1984. Mr.
Caulfield  received a Bachelor of Arts degree in Political  Science and a Master
of Arts degree in Economics from the University of Connecticut. Mr. Caulfield is
the brother of Ronald V. Caulfield, the Chief Executive Officer and President of
RC America, Inc. and a Director of the Company

         C. Jill Beresford. Ms. Beresford has been the Company's President since
July 1996.  She has been  Treasurer of the Company since May 1990 and a Director
of the Company  since March 1989.  From May 1990 to July 1996,  she was the Vice
President of Marketing.  From 1987 to 1989,  Ms.  Beresford was President of CJB
Communications,   a  communications   consulting  firm  involved  in  marketing,
advertising and public  relations.  From 1982 to 1987, Ms.  Beresford was a Vice
President  of  Grey  Canada,   a  marketing  and   communications   firm,   with
responsibility  for marketing,  advertising,  and public relations  programs for
Grey  Canada's  clients.  Since  1984,  Ms.  Beresford  has been a  director  of
Beresford-Canada.  Ms.  Beresford  attended the  University of Guelph,  Ontario,
Canada and  received a Masters  degree in  Business  Administration  from Boston
University. Ms. Beresford is a 100% shareholder of Beresford-Canada.

         Stephen  J. St.  Louis.  Mr.  St.  Louis  has been the  Company's  Vice
President  and Chief  Accounting  Officer  since April 1998.  Mr. St.  Louis was
controller for Quadrax  Corporation from 1995 to 1998. From 1991 through 1994 he
was the cost accounting manager for Pacific Scientific,  Fisher Pierce Division.
Mr. St. Louis has served in various  accounting  positions  since 1979 and is an
accounting   professional  with  over  20  years  of  manufacturing   accounting
experience. Mr. St. Louis received a B.A. degree from Thiel College in 1975 with
a major in Accounting and Business Administration.

         Ronald V. Caulfield. Mr. Caulfield has been the Chief Executive Officer
and  President  of RC America,  Inc.  since  November  1992.  From March 1989 to
October  1992,  Mr.  Caulfield  was the Vice  President  of  Purchasing  for F&F
Merchandising  Company,  a  privately  owned  wholesale  company,  where  he was
principally  responsible for  negotiating the purchase of nationally  advertised
brand name close outs direct from the manufacturer.  From February 1988 to March
1989, he was the Executive Vice President of Mars Stores,  Inc., a publicly held
retail discount store company.  In this capacity,  Mr. Caulfield was responsible
for  establishing  and achieving  business  plans for all buying,  marketing and
store  operations  activities.  From 1971 to 1988, Mr. Caulfield was employed in
various  capacities at Caldor,  Inc. a publicly  owned  discount  store company,
serving lastly as the Vice President,  Divisional  Merchandise  Manager and as a
member of the Operating  Committee.  Mr.  Caulfield  attended the  University of
Connecticut. Mr. Caulfield is the brother of Dennis N. Caulfield, the Company 's
Chief Executive Officer and Chairman of the Board of Directors.

         David N. Laux.  Mr. Laux has served as a Director of the Company  since
January 1993.  Since 1990, Mr. Laux has been  President of the USA-ROC  Economic
Council,  a private  non-profit  association which promotes  business  relations
between the United States and Taiwan.  From 1986 to 1990,  Mr. Laux was Chairman
and  Managing  Director  of the  American  Institute  of  Taiwan,  a  non-profit
corporation  under  contract to the United States  Department of State to manage
commercial,  cultural and other relations  between the United States and Taiwan.
From 1982 to 1986,  Mr.  Laux was  Director of Asian  Affairs  for the  National
Security  Council in the White House and prior to that held  appointments at the
Department  of Commerce,  the  Department  of Treasury  and other United  States
Government  agencies,  primarily in Asian affairs.  Mr. Laux is a Trustee of the
ROC Taiwan Fund. Mr. Laux received his Bachelor of Arts from Amherst College and
his  Master  of  Business   Administration   from  The  American  University  in
Washington,  D.C. and he has done 

                                      -21-
<PAGE>
graduate  work  at  the  University  of  California  (Berkeley)  and  Georgetown
University.  Mr. Laux is also a graduate of the Advanced  Management  Program at
Harvard Business School.

Officers

         Name                       Age         Position
         ----                       ---         --------

         Michael Deery              52     Vice President Manufacturing

         Tracy L. McGrath           32     Vice President, Marketing

         Richard H. Nurse, Ph.D.    52     Vice President of Technical
                                             Development

         Alex F. Vaicunas           70     Vice President, Film Sales

         Michael  Deery.  Mr.  Deery has been the  Company's  Vice  President of
Manufacturing  since  March 1998.  From 1992 to 1998,  Mr.  Deery was  Director,
International  Manufacturing  Operations for Tambrands,  Inc. He was responsible
for all  international  manufacturing  functions  and  facilities  in the United
Kingdom,  Ireland,  France,  Ukraine,  Russia and China.  From 1988 to 1992, Mr.
Deery was Vice President  International  Manufacturing  for Augat, Inc. and from
1983 to 1988 was Director,  Camera Manufacturing for Polaroid  Corporation.  Mr.
Deery  graduated  from the  University of Surrey in Scotland and received a B.S.
Degree in Physics with honors.

         Tracy L. McGrath.  Ms. McGrath has been the Company's Vice President of
Marketing  since  December  1997 and prior to that was the  Company's  Marketing
Manager since November 1993. From 1988 to 1993, Ms. McGrath was employed at WFSB
TV/3 in Hartford,  Connecticut,  first as Promotion  Coordinator,  then as Sales
Service  Coordinator,  and  then as a  Research  Assistant.  Ms.  McGrath  has a
Bachelor of Science  degree in  Communications  from Eastern  Connecticut  State
University.

         Richard H. Nurse, Ph.D. Dr. Nurse has been the Company's Vice President
of Technical  Development  since January 1995. Since 1989, Dr. Nurse has been an
independent  consultant to the plastics  industry.  From 1987 to 1988, Dr. Nurse
was the Director of Research and Development for Cookson Performance Plastics, a
plastics  additive  manufacturer.  From 1985 to 1987,  Dr. Nurse was a Technical
Manager for Nortech  Company,  a plastics  additive  manufacturer.  From 1979 to
1985,  Dr.  Nurse  was  the  Manager  of  Technical   Service  and  Applications
Development for American Hoechst Corp., a plastics resin manufacturer. Dr. Nurse
received a Ph.D. degree in Polymer  Technology from the University of Manchester
Institute of Science and  Technology in England and a Bachelor of Science degree
in  Chemical  and  Plastics  Technology  from the  Polytechnic  of South Bank in
England.

         Alex F. Vaicunas.  Mr Vaicunas has been the Company's  Vice  President,
Film Sales since 1996.  From 1988 to 1996 he was the Company's Vice President of
Sales.  From 1985 to 1987,  he was Vice  President of Sales and a consultant  to
Surrey  Industries,  Inc., the  manufacturer  whose business was acquired by the
Company  in 1988.  From 1973 to 1985,  Mr.  Vaicunas  was Sales  Manager  in the
flexible film  packaging  markets for the Plastic  Products  Group of Union Camp
Corporation.  Mr. Vaicunas previously held senior sales management  positions at
Northern Petro Chemical and Philips Petroleum  Corporation and has over 30 years
experience in the marketing and sales of flexible film packaging.


                                      -22-

<PAGE>

Item 11. Executive Compensation

         The following tables set forth the  compensation  paid to the Company's
executive  officers with respect to services  rendered to the Company during the
periods ended December 31, 1997, February 28, 1997, and February 23, 1996.
<TABLE>
<CAPTION>
                                            SUMMARY COMPENSATION TABLE

                                                                                 Long Term
                                                                                Compensation
                                   Annual Compensation                             Awards
                       (a)          (b)      (c)          (d)        (g)           (i)
                                                                   Securities
                                                                   Underlying   All Other
   Name and Principal Position    Period  Salary(1)     Bonus(2)   Options(#)  Compensation
   ---------------------------    ------  ---------     --------   ----------  ------------
                                                         
<S>                                <C>    <C>           <C>          <C>      <C>        
Dennis N. Caulfield                 1997   $266,666      $ 0          $ 0      $ 36,923(3)
 Chairman of the Board              1997   $320,000      $ 0          $ 0      $122,220(3)
 Chief Executive Officer            1996   $320,000      $ 0          $ 0      $ 36,174(3)
 Chief Financial Officer
                                                                            
                                                     
C. Jill Beresford                   1997   $150,000      $ 0          $ 0      $  2,769(4)
 President and Treasurer            1997   $180,000      $ 0          $ 0      $ 22,978(4)
                                    1996   $180,000      $ 0          $ 0      $ 13,989(4)
<FN>
(1)  Amounts shown indicate cash compensation earned and received by executive officers;  no amounts
     were earned but deferred at the election of those officers.  Executive officers  participate in
     Company  group life and health  insurance.  In the 10 month period ended  December 31, 1997 and
     Fiscal Years 1996-1997, the Company made no awards of restricted stock.

(2)  Effective  July  1,  1993,  Mr.  Caulfield  and  Ms.  Beresford  participate  in  an  executive
     compensation  program which  provides them with an aggregate  bonus equal to six percent of the
     Company's  pre-tax profit for the first  $1,000,000 in pre-tax  profits in any fiscal year, and
     12% of pre-tax profits in excess of $1,000,000 in any fiscal year except that in the discretion
     of the Board of  Directors  the bonus will not exceed  $750,000 in the  aggregate in any fiscal
     year beginning with Fiscal 1995. No bonuses have been paid under the bonus program.

(3)  Effective December 15, 1993, the Company pays for two (2) personal term life insurance policies
     for Mr.  Caulfield and for a disability  policy  effective  February 7, 1994.  The Company also
     makes automobile and insurance payments for an automobile for Mr. Caulfield. These payments and
     paid unused vacation  represented other compensation for the 10 month period ended December 31,
     1997 and Fiscal Years 1997 and 1996.

(4)  Effective December 15, 1993, the Company pays for a personal term life insurance policy for Ms.
     Beresford  and for a  disability  policy that  became  effective  February  7, 1994.  Effective
     November 1, 1995, the Company also makes  automobile  and insurance  payments for an automobile
     for Ms. Beresford.  These payments represented other compensation for the 10 month period ended
     December 31, 1997 and Fiscal Years 1997 and 1996.
</FN>
</TABLE>
                                      -23-
<PAGE>
<TABLE>
<CAPTION>
                                       AGGREGATED OPTION EXERCISES
                    AND OPTION VALUES FOR THE 10 MONTH PERIOD ENDED DECEMBER 31, 1997

             (a)                        (b)              (c)               (d)                  (e)
             ---                        ---              ---               ---                  ---
                                                                     Number of
                                                                     Securities
                                                                     Underlying           Unexercised
                                                                    Unexercised            Value of
                                                                     Options               In-the-Money
                                                     Value          at FY-End               Options
                                Shares Acquired    Realized        Exercisable/           Unexercisable
         Name                    on Exercise          ($)          Unexercisable             ($)(1)
         ----                   --------------- -------------    ----------------         ------------
<S>                                  <C>              <C>       <C>      <C>                <C> <C>
Dennis N. Caulfield                   0                0         238,707/ 26,523             0 / 0
C. Jill Beresford                     0                0         146,902 / 16,322            0 / 0

<FN>

(1)  In-the-Money  options are those  options for which the fair market value of the  underlying  Common
     Stock is greater than the exercise price of the option. On December 31, 1997, the fair market value
     of the Company's  Common Stock  underlying the options (as determined by the last sale price quoted
     on NASDAQ/NNM) was $1.125.  Since the exercise price of all of the options  reflected in this table
     is greater  than  $1.125,  the  options  held by these  individuals  are not  In-the-Money  and are
     therefore not included in this calculation.
</FN>
</TABLE>

Audit Committee

         The Board of Directors  established an Audit  Committee on December 31,
1992.  The one member of the Audit  Committee is David N. Laux, the sole outside
director of the  Company.  The purpose of the Audit  Committee is to: (i) review
the  Company's  financial  results and  recommend the selection of the Company's
independent auditors;  (ii) review the effectiveness of the Company's accounting
policies and practices,  financial  reporting and internal  controls;  and (iii)
review  the  scope of  independent  audit  coverages,  the fees  charged  by the
independent  auditors,  and any  transactions  which  may  involve  a  potential
conflict of interest, and internal control systems.

Compensation of Directors

         All outside  Directors of the Company are paid $1,875 each per calendar
quarter.  No other directors  receive any  compensation.  In June 1992 and March
1996,  David N. Laux,  currently the Company's sole outside  director,  received
options to purchase a total of 7,500 shares of Common Stock at a purchase  price
of $2.50  and  $2.38  per  share  through  June 9,  2002  and  March  24,  2006,
respectively.  In April 1997,  accrued and unpaid director fees of Mr. Laux were
converted into 1,035 shares of the Company's Common Stock,  based on the closing
bid price of the Company's  Common Stock on April 25, 1997 of $1.875 as reported
by NASDAQ/NMS. In January 1998, Mr. Laux received options to purchase a total of
25,000  shares of common  stock at a purchase  price of $1.25 per share  through
December 31, 2003.

Employment   Contracts,   Termination   of  Employment  and  Change  In  Control
Arrangements

         The  Company  has  entered  into   employment,   non-competition,   and
confidentiality  agreements with each of Mr.  Caulfield,  Ms.  Beresford and Mr.
Vaicunas.  Base salaries for Mr.  Caulfield,  Ms. Beresford and Mr. Vaicunas are
$320,000,  $180,000 and $125,000  per annum,  respectively,  subject to periodic
review by the Board of Directors.  Each of these agreements  expires on June 30,
1998. These agreements  provide for severance payments of 24 months' base salary
in the event employment is terminated  without cause and 

                                      -24-
<PAGE>
prohibit  the  individual  from  competing  with the  Company for a period of 24
months following  termination of employment with the Company.  In the event of a
change of control in the Company,  the individuals  have the option to terminate
their employment and to receive additional severance compensation subject to the
provisions  of their  employment  agreement.  The Company has also  entered into
non-competition and confidentiality agreements with certain other employees.

Compensation Committee Interlocks and Insider Participation

         The Board of Directors established a Compensation Committee on December
31, 1992.  The one member of the  Compensation  Committee is David N. Laux,  the
sole outside  Director of the  Company.  None of the  executive  officers of the
Company  have served on the Board of  Directors of any other entity that has had
any of such entity's  officers serve either on the Company's  Board of Directors
or Compensation Committee.

Item 12. Security Ownership of Certain Beneficial Owners and Management

Principal Stockholders

         The  following  table sets forth,  as of  December  31,  1997,  certain
information  concerning stock ownership of the Company by (i) each person who is
known by the  Company to own  beneficially  5% or more of the  Company's  Common
Stock or  Series A  Convertible  Preferred  Stock,  (ii)  each of the  Company's
directors,  and (iii) all directors and officers as a group. Except as otherwise
indicated,  the stockholders listed in the table have sole voting and investment
powers with respect to the shares indicated. As of December 31, 1997, there were
19,513,496 shares of Common Stock outstanding.
<TABLE>
<CAPTION>

 Name and Address                            Number of Shares          Percentage
of Beneficial Owner                         Beneficially Owned         of Class(1)(2)
-------------------                         ------------------         --------------
<S>                                            <C>                        <C>  
C. Jill Beresford(3)(4)(5)(6)                   1,627,249                  8.43%

Dennis N. Caulfield(3)(7)(8)                      854,506                  4.43%

Ronald V. Caulfield(9)                             95,230                  0.49% *
  741 Boston Post Road, Suite 101
  Guilford, Connecticut  06437

David N. Laux(10)                                  11,572                  0.06% *
  1726 M Street, N.W., Suite 601
  Washington, DC 20036

All Officers and Directors
 as a Group (5 persons)(3)(4)(5)(6)
 (7)(8)(9)(10)                                  2,588,557                 13.42%

<FN>
* Less than one percent.

(1)  Pursuant to the rules of the Securities and Exchange  Commission,  shares of Common Stock which
     an  individual  or group has a right to acquire  within 60 days  pursuant  to the  exercise  of
     options or warrants are deemed to be  outstanding  for the purpose of computing the  percentage
     ownership of such individual or group,  but are not deemed to be outstanding for the purpose of
     computing the percentage  ownership of any other person shown in the table. This table reflects
     the ownership of all shares of Common Stock and the Series A Convertible Preferred Stock voting
     as a single class, since each is entitled to one vote per share.


                                      -25-
<PAGE>
(2)  Except as otherwise noted, does not give effect to the issuance of: (i) up to 472,178 shares of
     Common Stock  issuable upon  conversion of Series A and Series B Convertible  Preferred  Stock;
     (ii) up to 109,822 shares  issuable upon exercise of warrants  issued to the placement agent in
     the Company's December private placement of Common Stock; (iii) up to 1,933,750 shares issuable
     upon exercise of options granted or available for grant under the Company's 1990, 1993 and 1996
     Stock Option Plans (906,159 options have been granted) and (iv) up to 77,410  additional shares
     issuable in connection  with the  acquisition  of the interest of a minority  shareholder of RC
     America, Inc. (the "RC America Stock").

(3)  These individuals may be reached at the Company's  headquarters located at 455 Somerset Avenue,
     North Dighton, Massachusetts 02764.

(4)  Includes 1,314,130 shares of Common Stock and 146,695 shares of Series B Convertible  Preferred
     Stock. C. Jill Beresford owns 100% of the  outstanding  voting stock of  Beresford-Canada.  Ms.
     Beresford may be deemed to be a "parent" and  "promoter"  of the Company  within the meaning of
     the rules and regulations of the Securities and Exchange Commission.

(5)  Includes 3,200 shares of Common Stock held by Ms. Beresford.

(6)  Includes  163,224  shares of Common Stock issuable upon the exercise of an option at a price of
     $2.50 per share at any time  prior to the  expiration  date which is June 30,  2003.  Effective
     April 28, 1997, the exercise price of this option was repriced from $4.00 to $2.50.

(7)  Consists  of all shares of the Company  held by Kingsley  Associates,  Ltd.  ("Kingsley").  Mr.
     Caulfield owns 50% of the shares of Kingsley and the remaining 50% interest in Kingsley is held
     by trusts for the benefit of Mr.  Caulfield's  children,  in which Mr. Caulfield  disclaims any
     beneficial interest. Mr. Caulfield may be deemed to be a "parent" and "promoter" of the Company
     within the meaning of the rules and regulations of the Securities and Exchange Commission.

(8)  Includes  265,230  shares of Common Stock issuable upon the exercise of an option at a price of
     $2.50 per share at any time  prior to the  expiration  date which is June 30,  2003.  Effective
     April 28, 1997, the exercise price of this option was repriced from $4.00 to $2.50.

(9)  Excludes up to 77,410 shares of Common Stock that may be issued to Ronald V. Caulfield pursuant
     to the terms of a Stock Exchange Agreement between him and the Company.

(10) Includes  7,500 shares of Common Stock  issuable upon exercise of an option at a purchase price
     of $2.50 per share through June 9, 2002.  Effective  April 28, 1997, the exercise price of this
     option was  repriced  from  $4.00 to $2.50 and  25,000  shares of Common  Stock  issuable  upon
     exercise of an option at a purchase price of $1.25 per share through December 31, 2007.
</FN>
</TABLE>

                                      -26-
<PAGE>
Item 13. Certain Relationships and Related Transactions

         In November 1990, the Company  established an officer's loan receivable
to Dennis N. Caulfield,  its Chairman for $132,197.  The balance of the loan, as
of December 31, 1997 was $586,978 which included interest at 9.5% of $48,832 for
the period and net additional  advances of $61,657  received by Mr. Caulfield in
the 10 month period ended  December 31, 1997. The note was amended in April 1998
and the  interest  rate changed to 6% effective  from  November  1990 and is now
payable  on or before  January  1,  2001.  The  reduced  interest  results  in a
reduction to the  officer's  loan of  approximately  $107,000 from the period of
inception through December 31, 1997. Mr. Caulfield has agreed to apply any bonus
payments received under the Company's executive bonus plan to reduce the amounts
outstanding under the loan. As the Company has suffered recurring net losses and
operating cash flow deficiencies, a reserve of $586,978 has been established for
this loan as of December 31, 1997.  In addition the Company  paid,  on behalf of
the  Chairman,  approximately  $36,000 of a  $200,000  levy and  established  an
interest bearing note due on or before June 30, 1998.

         Effective  February 26, 1994,  Ronald  Caulfield  exchanged  his 49,500
shares of Common Stock of RC America for 200,000 shares of the Company's  Common
Stock,  pursuant to the terms of a Stock  Exchange  Agreement by and between the
Company and Ronald Caulfield (the "Exchange Agreement").  The Exchange Agreement
also  provides  for the  issuance  to Ronald  Caulfield  of up to an  additional
100,000  shares of the Company's  Common Stock over a five (5) year period based
on RC America  attaining  certain levels of pre-tax  earnings.  For the 10 month
period  ended  December 31,  1997,  no shares of Common Stock were issued.  As a
result of RC  America's  earnings  for Fiscal  Year 1997 and Fiscal  Year 1996 ,
2,640 and 2,550 shares, respectively, of the 100,000 shares of Common Stock were
issued to Mr. Ronald Caulfield.


                                      -27-

<PAGE>
                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

         (a)(1) Financial  Statements.  The financial  statements required to be
filed by Item 8 herewith are as follows:


                                                                      Page

Report of Independent Accountants - Price Waterhouse LLP              F-1

Consolidated Balance Sheets as of December 31, 1997 and 
     February 28, 1997                                                F-2

Consolidated  Statements of Operations  for the ten month 
     period ended  December 31, 1997, and for the Fiscal
     Years ended February  28,1997 and February 23, 1996              F-4

Consolidated  Statements of Changes in Stockholders'  Equity 
     for the ten month period ended December 31, 1997,  
     and for the Fiscal Years ended February 28, 1997 
     and February 23, 1996                                            F-5

Consolidated  Statements  of Cash Flows for the ten month 
     period ended  December 31, 1997, and for the Fiscal 
     Years ended February 28, 1997 and February 23, 1996              F-6

Notes to Consolidated Financial Statements                            F-7



         (a)(3)   Exhibits:

         (a) The following exhibits, required by Item 601 of Regulation S-K, are
filed herewith:


                                      -28-
<PAGE>
Exhibit
No.                           Title

27       Financial Data Schedule

         (b)  The  following  exhibits  were  filed  as  part  of the  Company's
Quarterly  Report on Form 10-Q for the quarter ended November 22, 1996 and filed
with the Commission of January 7, 1997 and are incorporated herein by reference:

Exhibit
No.                              Title

10a      Loan and Security Agreement by and among the Company, RC America,  Inc.
         and Foothill Capital Corporation ("Foothill").

10b      Secured Promissory Note from the Company and RC America to Foothill.

10c      Pledge and Security Agreement by and between the Company and Foothill.

10d      Continuing Guaranty of Market Media, Inc.

10e      Continuing Guarantee of BPI Packaging (UK) Limited.

10f      Security Agreement by and between Market Media, Inc. and Foothill.

10g      Security  Agreement  by and  between  BPI  Packaging  (UK)  Limited and
         Foothill.

10i*     Settlement   Agreement  by  and  between  the  Company  and  Mobil  Oil
         Corporation, dated December 10, 1996.

27       Financial Data Schedule

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

*        Certain  information  withheld and filed separately with the Commission
         pursuant to a request for confidential treatment.

         (c) The following exhibit was filed as part of the Company's  Quarterly
Report on Form 10-Q for the  quarter  ended  August 23,  1996 and filed with the
Commission on October 15, 1996 and is incorporated herein by reference.

                                      -29-

<PAGE>

Exhibit
No.                                  Title

10**     1996 Stock Option Plan

         (d) The following  exhibits  were filed as part of the  Company's  Form
10-K for the fiscal year ended  February 23, 1996 and filed with the  commission
on June 7, 1996 and are incorporated herein by reference:

Exhibit
No.                                  Title

10c      Amendment to Promissory Note of Dennis N. Caulfield.

10d      Lease  for  Premises  at  455-473   Somerset   Ave.,   North   Dighton,
         Massachusetts.

         (e)  The  following  exhibits  were  filed  as  part  of the  Company's
Quarterly  Report on Form 10-Q for the quarter ended November 24, 1995 and filed
with the Commission on January 8, 1996 and are incorporated herein by reference:


Exhibit
No.                            Title

3a       Certificate of Incorporate of the Company, as amended.

3b       Bylaws of the Company, as amended.

         (f)  The  following  exhibits  were  filed  as  part  of the  Company's
Quarterly  Report on Form 10-Q for the quarter  ended  August 25, 1995 and filed
with the Commission on October 6, 1995 and are incorporated herein by reference:

Exhibit
No.                                 Title

10a      Agreement for Purchase and Sale of Assets,  dated June 23, 1995, by and
         among Market Media, Inc., Floor Focus Media, Inc. and Carmen N. Fasula.

         (g) The following  exhibits were filed as part of the Company's  Annual
Report on Form 10-K and amendment thereto initially filed with the Commission on
June 10, 1994 and are incorporated herein by reference:

                                      -30-
<PAGE>

Exhibit
No.                                      Title

10a      Stock  Exchange  Agreement  by and  between  the  Company and Ronald V.
         Caulfield.

10b**    Employment Agreement of Ronald V. Caulfield.

21       Subsidiaries of the Company.

         (h) The following exhibits were filed as part of the Company's Form S-1
Registration  Statement (No.  33-39463)  declared effective by the Commission on
June 13, 1991 and are incorporated herein by reference:

Exhibit
No.                                   Title

10a**    Form of Employment Agreement of Dennis N. Caulfield.

10b**    Form of Employment Agreement of C. Jill Beresford

10c**    Form of Employment Agreement of Alex F. Vaicunas

10d**    1993 Stock Option Plan.

         (i) The following exhibits were filed as part of the Company's Form S-1
Registration  Statement (No.  33-39463)  declared effective by the Commission on
June 13, 1991 and are incorporated herein by reference:

Exhibit
No.                                  Title

3b       Form of Certificate of Designation of Series A.  Convertible  Preferred
         Stock, as amended.

3c       Form of Amended  Certificate  of  Designation  for Series B Convertible
         Preferred Stock.

4a       Specimen Series A Convertible Preferred Stock Certificate.

         (j) The following  exhibit was filed as part of the Company's Form S-18
Registration  Statement (No. 33-36142-B) declared effective by the Commission on
October 3, 1990 and is incorporated herein by reference:

Exhibit
No.                                                           Title

10i**             1990 Stock Option Plan.
----------------------
** These exhibits relate to executive compensation plans and arrangements.

                                      -31-
<PAGE>

         (k) The following  Financial  Statement Schedules were filed as part of
the Company's Form 10-K for the fiscal years ended  February 23, 1996,  February
24,  1995 and  February  25,  1994 as filed  with the  Securities  and  Exchange
Commission on June 7, 1996, May 26, 1995 and June 10, 1994, respectively and are
incorporated herein by reference.

         (l) Reports on Form 8-K.

         Issuance of Common Stock

         On February 28, 1997,  the Company filed a current  report on Form 8-K,
dated February 14, 1997,  relating to the mandatory  redemption of 18,337 shares
of Series C Redeemable  Preferred  Stock owned by Beresford Box Company  Limited
("Beresford  Box") and the issuance of 92,308 shares of Common Stock,  which was
completed under  Regulation S to Beresford Box. C. Jill Beresford,  President of
the Company, owns 100% of the outstanding stock of Beresford Box.

         Change in Fiscal Year

         On December 2, 1997,  the Board of Directors  of the Company  adopted a
change of fiscal  year,  effective  immediately,  from a 52-53 week  fiscal year
ending on the  Friday  closest  to  February  28 to a  calendar  year  ending on
December  31. The  Company's  last fiscal year ended  February  28, 1997 and the
Company's current  accounting period ended December 31, 1997. As a result of the
change,  the Company will file a transition report on Form 10-K for the 10 month
period ended December 31, 1997.

         Sale of Equity Securities pursuant to Regulation S

         From  December 2, 1997 through  December 17, 1997,  the Company sold an
aggregate of 872,000  shares of its common stock,  $.01 par value per share (the
"Common Stock") to four non-US  accredited  investors (the Reg 5 Purchasers") in
reliance upon the  transaction  exemption  afforded by Regulation S ("Regulation
S") as promulgated by the Securities and Exchange Commission ("SEC"),  under the
Securities Act of 1933, as amended,  (the Act"). In conjunction with the sale of
Common Stock,  each Reg S purchaser signed a subscription  agreement  confirming
its compliance  with Rule 902 and 903 of Regulation S. In addition,  the Company
sold 222,223 shares of Common Stock to one accredited  U.S.  investor (the Reg D
Purchaser") in reliance upon the transaction  exemption afforded by Regulation D
("Regulation  D") as  promulgated  by the SEC under the Act. The Reg D Purchaser
signed an agreement confirming its status as an accredited investor. The Company
received gross proceeds totaling $1,004,800 from the sale of the Common Stock to
the Purchasers.

         Newport Capital  Partners (the "Placement  Agent"),  of Newport,  Rhode
Island,  was the placement agent in connection with the offering and received an
aggregate of $126,620 in commissions and expense allowances. The Placement Agent
also  received  109,422  warrants  to purchase  Common  Stock at the rate of one
warrant  for  every  10  shares  sold  in the  offering.  The  warrants  will be
exercisable for five years at $1.10, a price equal to 120% of the price at which
the Common Stock was sold.

                                      -32-
<PAGE>
         Five-Year Purchase Agreement

         On March 31,  1998,  the  Company  entered  into a  Five-year  Purchase
Agreement to sell  exclusively to an  international  company thin, clear plastic
film for tissue overwrap (paper towels and bathroom tissue) in North America and
in certain foreign  countries.  Under the terms of the Purchase  Agreement,  the
Company  has agreed to supply up to $25  million of thin,  clear film in each of
the five years during the term of the  agreement  and to increase the  Company's
capacity  to produce  thin,  clear film for tissue  overwrap  beyond $25 million
annually upon prior reasonable notice.  The international  company must purchase
at least $5 million  in the first year and $10  million in each of the next four
years of the  agreement  to maintain its  exclusive  rights.  The  international
company has also agreed to  immediately  terminate its research and  development
program for thin film for tissue  overwrap.  The first  shipment of thin,  clear
film under the agreement was made on April 9, 1998.

                                      -33-
<PAGE>
                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                           BPI PACKAGING TECHNOLOGIES, INC.

Date:  May 22, 1998

                                           By: /s/ Dennis N. Caulfield
                                                  Dennis N. Caulfield, Chairman

         Pursuant to the  requirements  of 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 date indicated.

Name                            Capacity                             Date
----                            --------                             ----


/s/ Dennis N. Caulfield    Chairman of the Board of Directors,    May 22, 1998
                           Chief Executive Officer
                           and Chief Financial Officer


/s/ C. Jill Beresford      President, Treasurer and Director      May 22, 1998


/s/ David N. Laux          Director                               May 22, 1998



                                      -34-



<PAGE>

            REPORT OF INDEPENDENT ACCOUNTANTS - PRICE WATERHOUSE LLP

May 22, 1998

To the Board of Directors and
Stockholders of BPI Packaging Technologies, Inc.

In our opinion,  the financial  statements  listed in the index  appearing under
Item 14(a)(1) on page 28 present fairly, in all material respects, the financial
position of BPI Packaging  Technologies,  Inc. and its  subsidiaries at December
31, 1997 and  February  28,  1997,  and the results of their  operations,  their
changes in  stockholders'  equity  and their cash flows for the 10 month  period
ended  December  31, 1997 and for each of the years ended  February 28, 1997 and
February 23, 1996, in conformity with generally accepted accounting  principles.
These financial  statements are the responsibility of the Company's  management;
our responsibility is to express an opinion on these financial  statements based
on our audits.  We conducted our audits of these  statements in accordance  with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable  assurance about whether the financial statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and  disclosures  in the financial  statements,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audits  provide a reasonable  basis for the opinion  expressed
above.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial statements,  the Company has suffered recurring losses from operations
and has net working capital and operating cash flow  deficiencies.  In addition,
the Company is in default on its capital lease obligations and its note payable.
All of these factors  raise  substantial  doubt about the  Company's  ability to
continue as a going concern.  Management's  plans in regard to these matters are
also  described  in  Note  2.  The  financial  statements  do  not  include  any
adjustments that might result from the outcome of this uncertainty.

As discussed in Notes 1 and 6 to the financial  statements,  the Company adopted
Statement  of  Financial  Accounting  Standard  No.  121,  "Accounting  for  the
Impairment of Long-Lived  Assets and Long-Lived  Assets to the Disposed of," for
the year ended February 28, 1997.

/s/ Price Waterhouse LLP

Price Waterhouse LLP
Boston, Massachusetts



                                      F-1
<PAGE>


                        BPI Packaging Technologies, Inc.

                           Consolidated Balance Sheet

                                     Assets


                                                     December 31,   February 28,
                                                         1997            1997
                                                     ------------    -----------

Current assets
    Cash                                                $125,220         $58,134
    Accounts receivable, net                             721,239       2,093,760
    Inventories, net                                   1,057,866       4,534,453
    Prepaid expenses                                      52,948         270,486
                                                     -----------     -----------
          Total current assets                         1,957,273       6,956,833
                                                     -----------     -----------

Property and equipment, net                           17,828,860      19,803,337
                                                     -----------     -----------

Deposits - leases and equipment purchases                141,284         128,461
Loans to officers, net                                     5,416         479,797
Other assets, net                                      1,037,907       1,878,803
                                                     -----------     -----------
                                                       1,184,607       2,487,061
                                                     -----------     -----------

                                                     $20,970,740     $29,247,231
                                                     ===========     ===========





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

                                       F-2
<PAGE>
<TABLE>
<CAPTION>
                                               BPI Packaging Technologies, Inc.

                                                  Consolidated Balance Sheet

                                             Liabilities and Stockholders' Equity



                                                                                                December 31,    February 28,
                                                                                                   1997            1997
                                                                                                -----------     -----------

Current liabilities
<S>                                                                                             <C>             <C>       
    Note payable                                                                                 $1,162,349      $3,733,477
    Trade notes payable                                                                             584,433              --
    Capital lease obligations due within one year                                                 4,426,205       2,109,718
    Accounts payable                                                                              6,714,870       7,090,283
    Accrued expenses                                                                              2,967,348         959,837
                                                                                                -----------     -----------
          Total current liabilities                                                              15,855,205      13,893,315
                                                                                                ------------    -----------

Capital lease obligations-long-term portion                                                              --       3,809,241
                                                                                                -----------     -----------

Stockholders' Equity
    Series B convertible preferred stock, $.01 par value                                          1,466,954       1,466,954
    Series A convertible preferred stock, $.01 par value                                          1,126,932       1,213,584
    Common stock, $.01 par value; shares authorized - 60,000,000 
      at December 31, 1997 and 30,000,000 at February 28, 1997;  
      shares issued and outstanding - 19,513,496 at
      December 31, 1997 and 14,074,428 at February 27, 1997                                         195,135         140,745
    Capital in excess of par value                                                               43,076,603      38,134,612
    Accumulated deficit                                                                         (40,750,089)    (29,411,220)
                                                                                                -----------     -----------
                                                                                                  5,115,535      11,544,675
                                                                                                -----------     -----------

Commitments and contingencies

                                                                                                $20,970,740     $29,247,231
                                                                                                ===========     ===========
</TABLE>




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

                                       F-3
<PAGE>
<TABLE>
<CAPTION>
                                  BPI Packaging Technologies, Inc.

                                Consolidated Statement of Operations


                                                        Ten Month
                                                       period ended    -----Fiscal Year Ended------
                                                       December 31,    February 28,    February 23,
                                                           1997            1997            1996
                                                       ------------    ------------    ------------

<S>                                                    <C>             <C>             <C>         
Net sales                                              $ 13,951,725    $ 30,810,037    $ 28,839,954
Cost of goods sold                                       18,113,514      29,254,754      26,161,723
                                                       ------------    ------------    ------------
  Gross profit (loss)                                    (4,161,789)      1,555,283       2,678,231

Operating expenses:
  Selling, general and administrative                     5,655,244       7,318,352       6,370,956
  Write-down of impaired assets and related expenses           --         5,897,648            --
                                                       ------------    ------------    ------------


   Loss from operations                                  (9,817,033)    (11,660,717)     (3,692,725)

Other (expense) income:
  Allowance for officer loan                               (586,978)           --              --
  Interest expense                                         (984,064)     (1,112,647)       (865,206)
  Interest income                                            49,206           9,133          47,786
                                                       ------------    ------------    ------------


Net loss                                               ($11,338,869)   ($12,764,231)   ($ 4,510,145)
                                                       ============    ============    ============


Basic and diluted net loss per share                         ($0.73)         ($0.96)         ($0.38)
Shares used in computing basic and diluted
     net loss per share                                  15,579,747      13,261,815      11,756,532
</TABLE>





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

                                       F-4

<PAGE>
<TABLE>
<CAPTION>
                                                  BPI Packaging Technologies, Inc.

                                      Consolidated Statement of Changes in Stockholders' Equity
                                                   For the Ten Month Period Ended
                      December 31, 1997 and for the Fiscal Years Ended February 28, 1997 and February 23, 1996

                                                    Series A Convertible  Series B Convertible 
                                 Common Stock          Preferred Stock      Preferred Stock     Capital in
                            ------------------------------------------------------------------  Excess of    Accumulated
                              Shares       Amount      Shares    Amount     Shares    Amount    Par Value     Deficit       Total
                            ----------   ----------   --------  ---------  --------  ---------  ----------   ----------   ----------
<S>                         <C>             <C>       <C>      <C>         <C>      <C>        <C>         <C>          <C>      
Balance at February 24,
 1995 ....................  11,658,359      116,584    380,371  1,521,484   146,695  1,466,954  33,080,026  (12,136,844) 24,048,204
Issuance of  shares based
 on RC America's FY95 
 results .................      17,400          174                                                 71,688                   71,862
Conversion of Series A
 convertible preferred 
 stock to common stock ...      76,425          764    (76,425)  (305,700)                         304,936                       --
Sale of common stock pursuant
 to partial exercise of
 Class A warrants, net of
 issuance costs ..........      48,725          487                                                158,563                  159,050
Net loss for the year ended
 February 23, 1996 .......                                                                                   (4,510,145) (4,510,145)
                            ----------   ----------   --------  ---------  --------  ---------  ----------   ----------  ----------
Balance at February 23,
 1996 ....................  11,800,909      118,009    303,946  1,215,784   146,695  1,466,954  33,615,213  (16,646,989) 19,768,971
Sale of common stock
 pursuant to Regulation S 
 and Regulation D private
 placement offerings, net
 of issuance costs .......   1,207,500       12,075                                              2,194,793                2,206,868
Sale of common and preferred 
 stock pursuant to partial
 exercise of underwriter's
 warrants from prior public
 offerings, net of
 issuance costs ..........     402,600        4,026    100,000    225,000                          851,024                1,080,050
Conversion of Series A 
 convertible preferred
 stock to common stock ...      56,800          568    (56,800)  (227,200)                         226,632                       --
Sale of common stock
 pursuant to exercise of
 class B warrants from the
 Company's third public
 offering, net of issuance
 costs ...................     511,761        5,118                                              1,092,799                1,097,917
Issuance of common stock
 based on RC America's
 FY96 results ............       2,550           26                                                  5,074                    5,100
Issuance of 92,308
 Regulation S common shares
 in exchange for Series C
 redeemable preferred
 stock ...................      92,308          923                                                149,077                  150,000
Net loss for the year
 ended February 28, 1997..                                                                                  (12,764,231)(12,764,231)
                            ----------   ----------   --------  ---------  --------  ---------  ----------  ----------- ----------
Balance at February 28,
 1997 ....................  14,074,428      140,745    347,146  1,213,584   146,695  1,466,954  38,134,612  (29,411,220) 11,544,675
Conversion of Series A
 convertible preferred
 stock to common stock ...      21,663          217    (21,663)   (86,652)                          86,435                       --
Issuance of common stock
 based on RC America FY 97
 results .................       5,280           52                                                  8,527                    8,579
Sale of common stock
 pursuant to Regulation S
 and Regulation D private
 placement offerings, net
 of issuance costs .......   4,991,125       49,911                                              4,354,080                4,403,991
Issuance of common stock
 in exchange for commission
 on private placement
 offerings ...............     387,500        3,875                                                383,626                  387,501
Issuance of common stock
 in exchange for consulting
 services ................      33,500          335                                                 33,165                   33,500
Warrants granted to 
 consultants..............                                                                          76,158                   76,158
Net loss for the 10 month 
 period ended December 31, 
 1997.....................                                                                                  (11,338,869)(11,338,869)
                            ----------   ----------   --------  ---------  --------  --------- ----------- ------------ -----------
Balance at December 31,
 1997 ....................  19,513,496      195,135    325,483  1,126,932   146,695  1,466,954 $43,076,603 ($40,750,089) $5,155,535
                            ==========   ==========   ========  =========  ========  ========= =========== ============  ==========
</TABLE>

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

                                       F-5
<PAGE>
<TABLE>
<CAPTION>
                                             BPI Packaging Technologies, Inc.

                                           Consolidated Statement of Cash Flows

                                                                               Ten Month
                                                                             Period Ended   ---- Fiscal Year Ended -----
                                                                             December 31,    February 28,    February 23,
                                                                                 1997            1997            1996
                                                                             ------------    ------------    ------------
<S>                                                                          <C>             <C>              <C>         
Cash flows from operating activities:
  Net Loss                                                                   ($11,338,869)   ($12,764,231)    ($4,510,145)
                                                                             ------------    ------------    ------------

  Adjustments to reconcile netloss to net cash provided (used) by operating
   activities:
      Depreciation and amortization ......................................      2,186,621       3,417,849       2,643,138
      Write-down of impaired assets and related expenses .................           --         5,897,648            --
      Inventory reserve ..................................................       (925,000)      1,215,000            --
      Allowance for lease losses..........................................      1,643,377            --              --
      Allowance for officer loan .........................................        586,978            --              --
      Warrants and common stock granted to consultants....................        109,658            --              --
      Allowance for uncollectible trade receivables ......................        175,000            --              --
      Changes in assets and liabilities:
          Decrease in accounts receivable - trade ........................      1,197,521          84,372         339,333
          (Increase) decrease in inventories .............................      4,401,587      (1,821,856)      1,396,496
          (Increase) decrease in prepaid expenses ........................        217,538        (302,566)       (404,603)
          Increase in accounts payable ...................................        209,020       3,218,584         513,979
          Increase in other accrued expenses .............................        364,134         132,409         108,899
          Increase (decrease) in other assets, net .......................        840,896        (198,418)       (105,001)
                                                                             ------------    ------------    ------------
              Total adjustments ..........................................     11,007,330      11,643,022       4,492,241
                                                                             ------------    ------------    ------------
              Net cash used by operating activities ......................       (331,539)     (1,121,209)        (17,904)
                                                                             ------------    ------------    ------------
Cash flows from investing activities:
    Additions to property and equipment ..................................       (212,144)     (1,549,878)     (3,018,810)
    Cost of patents ......................................................           --          (144,928)        (61,410)
    Decrease (increase) in deposits, net .................................        (12,823)        388,922         362,654
    Advances to officers .................................................       (112,597)        (44,560)       (174,240)
    Decrease  in note receivable, net ....................................           --              --           811,980
                                                                             ------------    ------------    ------------
              Net cash used by investing activities ......................       (337,564)     (1,350,444)     (2,079,826)
                                                                             ------------    ------------    ------------
Cash flows from financing activities:
    Net (payments) borrowings under note payable .........................     (2,571,128)        (19,127)      1,960,518
    Principal payments on long-term debt
      and capital lease obligations ......................................     (1,492,754)     (1,945,014)     (1,565,613)
    Proceeds from equipment financings ...................................           --              --           302,418
    Net proceeds from sales and issuances of stock .......................      4,800,071       4,384,835         159,050
                                                                             ------------    ------------    ------------
              Net cash provided by financing activities ..................        736,189       2,420,694         856,373
                                                                             ------------    ------------    ------------
Net (decrease) increase in cash ..........................................         67,086         (50,959)     (1,241,357)
Cash at beginning of period ..............................................         58,134         109,093       1,350,450
                                                                             ------------    ------------    ------------
Cash at end of period ....................................................   $    125,220    $     58,134    $    109,093
                                                                             ============    ============    ============
Cash paid for interest ...................................................   $    900,855    $  1,093,648    $    965,251
                                                                             ============    ============    ============
<FN>
Non-cash investing and financing activities:

Capital lease obligations of $590,069 and $3,238,840 were incurred in Fiscal 1997 and Fiscal 1996, respectively,  when the
Company entered into capital lease agreements to purchase machinery and equipment.

During the ten month period ended December 31, 1997, two trade  payables,  totaling  $584,433,  were converted into trade
notes payable (Note 10).
</FN>
</TABLE>
                   The accompanying notes are an integral part
                   of these consolidated financial statements.

                                       F-6
<PAGE>

                        BPI PACKAGING TECHNOLOGIES, INC.

                   Notes to Consolidated Financial Statements

Note 1: Organization and Significant Accounting Policies

Organization

         BPI   Packaging   Technologies,    Inc.   (the   "Company")   develops,
manufactures,  markets and sells  proprietary  high  performance  unprinted  and
printed plastic films to consumer packaged goods and industrial  companies.  The
Company  also  develops,  manufactures,  markets and sells  proprietary  plastic
carryout  bags of "T-shirt  sack" design  (from  various  plastic film  products
manufactured by the Company) in proprietary,  value-added dispensing systems for
use in  supermarket,  convenience,  retail and drug store  chains.  The  Company
operates  two  wholly-owned  subsidiaries:  RC America,  Inc.,  which  purchases
surplus inventory from  manufacturers of consumer products and markets and sells
the products to mass merchandise  retailers and other retail chains;  and Market
Media, Inc., which sells and markets in-store advertising and promotion programs
and Anti-Smoking advertising programs in public schools.

Significant Accounting Policies

Fiscal Year

         The Company  changed its fiscal year to coincide with the calendar year
ending December 31, 1997, resulting in a 10 month period. In previous years, the
Company's   fiscal  years  ended  February  28,  1997  and  February  23,  1996,
respectively.

Inventories

         The Company  values its  inventories at the  lower-of-cost,  determined
using the first-in,  first-out (FIFO) method, or market.  Cost includes material
and conversion costs.

Property and Equipment

         Property and  equipment  are recorded at cost which  includes  costs of
assets  constructed or purchased,  related delivery and  installation  costs and
interest incurred on significant  capital projects during their construction and
installation periods.  Property under capital leases is recorded at the lower of
the present  value of future  minimum  rental  payments or the fair value of the
property at the beginning of the lease term. Maintenance and repairs that do not
extend the useful life of the asset or improve  capacity  are charged to expense
when incurred.  Machinery and equipment are depreciated  using the straight-line
method over a period of eleven years.  Leasehold  improvements  consist of costs
relating to buildings  and  equipment  under lease and are  amortized  using the
straight-line  method over the shorter of the life of the asset or the remaining
life of the lease.


                                      F-7
<PAGE>
Patents

         Costs associated with obtaining patents are capitalized as incurred and
amortized  on a  straight-line  basis  over the  shorter of the legal term of 17
years or the estimated economic life of the patent.

Income Taxes

         The Company  utilizes the asset and liability  method of accounting for
income taxes.  This method  requires the  recognition of deferred tax assets and
liabilities for the future tax consequences  attributable to differences between
the financial  statement carrying amounts of existing assets and liabilities and
their  respective tax bases. In addition,  it requires the recognition of future
tax  benefits,  such as net  operating  loss  carryforwards,  to the extent that
realization of such benefits is more likely than not to occur.

Advertising Costs

         Advertising  and trade  show  costs are  expensed  as  incurred.  Total
advertising expenses were $113,478, $309,316 and $85,454 for the 10 month period
ended December 31, 1997, and for Fiscal Years 1997 and 1996, respectively.

Revenue Recognition and Concentration of Credit Risk

         The Company  recognizes  revenues on an accrual basis when the products
are shipped. Concentration of credit risk with respect to accounts receivable is
limited due to the number and  diversity of customers  comprising  the Company's
customer base. The Company maintains reserves for potential credit losses.

Basis of Consolidation

         The  consolidated  financial  statements  include  the  results  of the
Company's  wholly-owned  subsidiaries,  RC America, Inc., and Market Media, Inc.
All intercompany activity has been eliminated in consolidation.

Basic and Diluted Net Loss Per Share

         In February 1997, the Financial Accounting Standards Boards issued SFAS
No. 128,  "Earnings per Share",  which  supersedes  Accounting  Principles Board
Opinion  No. 15 and  specifies  the  computation,  presentation  and  disclosure
requirements  of earnings per share.  SFAS No. 128 requires the  presentation of
"basic" and "diluted"  earnings per share.  Basic earnings per 

                                      F-8
<PAGE>
share is computed by dividing the income available to common stockholders by the
weighted  average number of common shares  outstanding  for the period.  For the
purposes of calculating  diluted  earnings per share,  the denominator  includes
both the weighted  average  number of common  shares  outstanding  and potential
dilutive  common shares  outstanding  for the period.  As required,  the Company
adopted SFAS No. 128 in the fourth quarter of the 10 month period ended December
31, 1997.  All prior  periods  earnings per share  amounts have been restated to
comply with SFAS No. 128.

         For each of the years  presented  the Company has  recorded a net loss.
Therefore,  basic  and  diluted  earnings  per  share  are the  same  due to the
antidilutive  effect  of  potential  common  shares  outstanding.   Antidilutive
potential  common shares  excluded  from the 10 month period ended  December 31,
1997 and Fiscal Years 1997 and 1996  computation  include  783,117,  773,830 and
795,630  common  shares,  respectively,  issuable  upon  the  exercise  of stock
options.  Antidilutive potential common shares excluded from the 10 month period
ended December 31, 1997 and Fiscal Years 1997 and 1996 computation also included
472,178,  493,841 and 450,641  common  shares  issuable  upon the  conversion of
redeemable  convertible  preferred stock.  Antidilutive  potential common shares
excluded from the 10 month period ended December 31, 1997  computation  included
109,422 issuable upon the exercise of warrants.

Use of Estimates

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

Fair Value of Financial Instruments

         The Company's  financial  instruments  are comprised of cash,  accounts
receivable,  deposits,  accounts  payable  and  bank  borrowings,  all of  which
approximate fair value.

Accounting for Stock-Based Compensation

         The  Financial  Accounting  Standards  Board has  issued  Statement  of
Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
("SFAS  123").  SFAS  123  allows  an  entity  to  account  for  employee  stock
compensation  under a fair value based  method or SFAS 123 also allows an entity
to continue to measure costs for employee stock based  compensation  plans using
the  intrinsic  value-based  method  of  accounting  under  APB  Opinion  No. 25
"Accounting  for Stock  Issued to  Employees"  ("APB 25"),  supplemented  by the
appropriate  note  disclosure.  The Company  continues  to account for  employee
stock-based  compensation  under APB 25 and has made the pro  forma  disclosures
required under SFAS 123 (Note 21).


                                      F-9
<PAGE>
Impairment of Long-Lived Assets

         In Fiscal Year 1997, the Company adopted SFAS No. 121,  "Accounting for
the Impairment of Long-Lived  Assets and  Long-Lived  Assets to be Disposed of."
The statement  requires the  recognition of an impairment loss for an asset held
for use when the  estimate  of  undiscounted  future  cash flows  expected to be
generated  by the asset is less than its  carrying  amount.  Measurement  of the
impairment loss is based on fair value of the asset. Generally,  fair value will
be determined  using valuation  techniques such as the present value of expected
future  cash  flows.  

Reclassifications

         Certain  balances  in the prior  year  financial  statements  have been
reclassified to conform to the current period presentation.

Note 2: Going Concern and Management's Plan

         As shown in the accompanying  consolidated  financial  statements,  the
Company  has  suffered  recurring  net losses and has net  working  capital  and
operating  cash  flow  deficiencies.   Additionally,  significant  trade  credit
balances are past due and operating and capital lease obligations are in default
at the balance  sheet date.  Further,  as  discussed  in Note 11, the  Company's
revolving  credit  facility is renewable  annually.  Subsequent  to December 31,
1997, the lender informed the Company that it wanted  repayment of the revolving
line of credit and the company has agreed to repayment by June 30, 1998.

         The  Company's  ability to continue as a going  concern is dependent on
its ability to successfully implement its business and financing plans described
below.  However,  there  can be no  assurances  the  Company  will  be  able  to
successfully  complete these plans. The financial  statements do not include any
adjustments  related to the  recoverability  and the  classification of recorded
assets and liabilities  that might be necessary  should the Company be unable to
continue as a going concern.

         The  Company  exited the  production  of its  traditional  T-shirt  bag
product  lines  during the 10 month period  ended  December 31, 1997.  Increased
competition  from large  domestic  and  overseas  competitors  with  significant
production  economies of scale caused the Company to incur substantial losses on
these  products  during the past  several  years.  The  Company  has shifted its
resources to the  production of  proprietary  bag and plastic film product lines
which have the potential to have higher profit margins. In February 1998, one of
the five  largest  supermarket  chains in the United  States  decided to use the
Fresh-Sac (R) Produce  Profit Builder (TM)  marketing  program after  successful
in-store testing and presently there are 17 other supermarket  chains in various
stages of  in-store  testing.  On March 31,  1998,  the Company  entered  into a
Five-year  Purchase  Agreement to sell exclusively to an  international  company
thin,  clear  plastic film for tissue  overwrap in North  America and in certain
foreign countries. Additionally, the Company is negotiating a new revolving line
of credit and term loan to buyout  capital  leases.  The  Company  also plans to
continue raising additional equity in Calendar Year 1998.


                                      F-10
<PAGE>
Note 3: Accounts Receivable-Trade

         Accounts receivable-trade consist of the following:

                                                  December 31,      February 28,
                                                     1997               1997
                                                 ------------       ------------
Accounts receivable-trade                        $ 1,071,239        $ 2,268,760
Allowance for doubtful accounts                     (275,000)          (100,000)
Allowance for credits                                (75,000)           (75,000)
                                                 -----------        -----------
                                                 $   721,239        $ 2,093,760
                                                 ===========        ===========
Note 4: Inventories

         Inventories, net of valuation reserves, consist of the following:

                                              December 31,          February 28,
                                                 1997                   1997
                                             ------------           ------------
Raw material                                 $   285,058            $ 1,120,902
Finished goods                                 1,062,808              4,628,551
Reserves                                        (290,000)            (1,215,000)
                                             -----------            -----------
                                             $ 1,057,866            $ 4,534,453
                                             ===========            ===========

         Raw  material  includes  virgin high  density,  high  molecular  weight
polyethylene  ("HMWPE")  resin,  re-processed  HMWPE  material,  color  inks and
additives, and post-industrial scrap generated during the manufacturing process.

Note 5:   Property and Equipment, Net

         Property and equipment consist of the following:

                                                December 31,       February 28,
                                                    1997              1997
                                                ------------      ------------
Machinery and equipment                         $24,817,161       $24,605,067
Leasehold improvements                            3,611,082         3,611,032
Office furniture and fixtures                       303,731           303,731
Motor vehicles                                       19,900            19,900
                                                -----------       -----------
                                                 28,751,874        28,539,730
Less accumulated depreciation
 and amortization                                10,923,014         8,736,393
                                                -----------       -----------
                                                $17,828,860       $19,803,337
                                                ===========       ===========

  
                                      F-11
<PAGE>

          Assets recorded under capital leases were as follows:

                                                   December 31,     February 28,
                                                       1997             1997
                                                   ------------     ------------

Machinery and equipment                            $13,041,270       $13,041,270
Less accumulated amortization                        4,055,971         2,870,403
                                                   -----------       -----------
                                                   $ 8,985,299       $10,170,867
                                                   ===========       ===========

         Depreciation  and  amortization  expense  relating to fixed  assets was
$2,186,621, $3,216,189 and $2,452,131 for the 10 month period ended December 31,
1997  and for  the  years  ended  February  28,  1997  and  February  23,  1996,
respectively,  of  which  $1,185,568,  $1,158,749  and  $893,908,  respectively,
related to amortization of equipment held under capital leases.

         During Fiscal Year 1997,  in accordance  with SFAS No. 121, the Company
wrote-down machinery and equipment to their estimated fair value, which resulted
in a non-recurring  charge of $3,335,070,  which is included in the $5.9 million
write-down of impaired assets and related expenses (Note 6).

Note 6: Write-Down of Impaired Assets

         During the fourth  quarter of Fiscal Year 1997,  the  Company  made the
decision to exit the traditional  T-shirt bag product lines.  The application of
SFAS No. 121 caused the Company to  recognize a non-cash  charge of $5.9 million
to write down to fair value certain long-lived assets consisting  principally of
machinery  and  equipment,  patents and  goodwill,  together  with other related
expenses.  The method used to determine  fair value was a  discounted  cash flow
approach.  The  assets  consist  of  those  related  to the  manufacture  of the
traditional T-shirt bag product lines.

         Included in the $5.9 million charge is $512,000 representing settlement
and  defense  costs  incurred  in  connection  with the  resolution  of a patent
infringement suit.

Note 7: Patents

         The Company owns patents and has applied for several other U.S. patents
and certain foreign patents.  No costs associated with patent  applications were
capitalized  during the 10 month period ended  December 31, 1997 and Fiscal Year

                                      F-12
<PAGE>
1997. A total of  approximately  $61,000 of costs were  capitalized  relating to
patent   applications   during  Fiscal  Year  1996.   Amortization   expense  of
approximately  $87,000 and $85,000 were  recorded in Fiscal Years 1997 and 1996,
respectively.

         In  conjunction  with the  write-down  of  impaired  assets and related
expenses,   the  write-off  of  all  patent  costs  and  associated  accumulated
amortization  resulted in a charge of  $1,045,000 to the Statement of Operations
in the Fiscal Year 1997. The total accumulated  amortization balance at February
23, 1996 was  approximately  $313,000.  As more fully  described in Note 6, this
charge is the result of the Company's  decision to exit the traditional  T-shirt
bag product lines.

Note 8:  Other Assets

         Other assets are comprised of the following:

                                                December 31,     February 28,
                                                   1997              1997
                                                ------------     ------------

Spare parts and supplies, net                   $  669,405       $1,117,338
Other assets                                       368,502          761,465
                                                ----------       ----------
                                                $1,037,907       $1,878,803
                                                ==========       ==========

Note 9: Accrued Expenses

Accrued expenses consist of the following:

                                               December 31,        February 28,
                                                  1997                 1997
                                              -------------        ------------
Employee compensation and benefits            $  207,283           $  126,693
Accrued lease expense                          1,643,377                 --
State taxes and penalties                        550,000              216,682
Professional fees                                140,000               80,000
Other                                            426,688              536,462
                                              ----------           ----------
                                              $2,967,348           $  959,837
                                              ==========           ==========

Note 10: Trade Notes Payable

         The Company  converted two trade  payables into  unsecured  trade notes
payable  which  mature on March  15,  1998 and  April  17,  1998 and bear  fixed
interest  rates  of  10%  and  8.5%.  As of  December  31,  1997,  $584,433  was
outstanding under these notes.

         As of March 15,  1998 and April 17,  1998 the Company was in default on
both of the above trade notes payable.

Note 11: Note Payable

         The  Company  has an  $8,000,000  revolving  line of credit  secured by
accounts  receivable  and  inventory.  Borrowings  under the line of credit  are
subject  to  80%  of  qualifying  accounts  receivable  and  35%  of  qualifying
inventories, less the aggregate amount utilized under all commercial and standby
letters of credit and bank  acceptances.  The line of credit  bears  interest at
5.0% above the variable interest rate quoted by Norwest Bank of Minnesota with a
minimum  rate of 8.0% (13.5% at December  31, 1997) and provides for a 1/2 of 1%
unused  line fee.  The  credit  line is for 5 years and is  subject  to  renewal
annually.  At  December  31,  1997,  the  balance  under  the line of  credit is
$1,162,349,  which was the maximum  available  based on the qualifying  accounts
receivable and inventory balances. The line of credit includes certain financial
covenants that the Company must maintain to avoid a default,  including  current
ratio, debt to equity ratio, maintaining a net worth of $14 million,  limitation
on capital  spending,  and  profitability.  As of and during the 10 month period
ended  December  31, 1997 the Company  failed to meet  several of the  financial
covenants.  The  lender  waived  the  condition  of  default  for the  financial
covenants  that were not met.  Subsequent  to  December  31,  1997,  the  lender
informed the Company that it wanted  repayment of the  revolving  line of credit
and the Company has agreed to repayment by June 30, 1998 (Note 24).

                                      F-13
<PAGE>
Note 12: Capital Lease Obligations

         The  Company's  capital  lease  obligations  at  December  31, 1997 and
February 28, 1997 consisted of the following:

                                               December  31,   February 28,
                                                  1997             1997
                                               ------------    -----------

Total Minimum lease payments                    $5,006,262     $6,846,411
Less amount representing interest                  580,057        927,452
                                                ----------     ----------
Obligations under capital leases                 4,426,205      5,918,959
Less amounts due within one year                 4,426,205      2,109,718
                                                ----------     ----------
        Long-term portion                       $     --       $3,809,241
                                                ==========     ==========

         As all  capital  leases were in default as of December  31,  1997,  all
future payments have been classified as current (Note 23).

Note 13: Mandatorily Redeemable Preferred Stock

         The Company is  authorized  to issue up to an  aggregate  of  2,000,000
shares of $.01 par value  preferred  stock.  In October 1990, the Company issued
36,674  shares  of  Series C  Mandatorily  Redeemable  Preferred  stock.  The 6%
non-cumulative, non-voting stock was redeemable in two equal amounts of $183,369
on March 1, 1991 and March 1,  1992.  The first  payment  of  $183,369,  for the
redemption of 18,337  shares,  was made in October 1992.  The second  payment of
$183,369 for redemption of 18,337 shares,  was made on February 14, 1997, by the
issuance of 92,308 Regulation S shares of the Company's Common Stock. The Series
C Mandatorily  Redeemable Preferred Stock had a liquidation  preference over the
Series A  Preferred  Stock at a rate of $10.00 per share plus any  declared  but
unpaid  dividends (Note 14). 

Note 14: Stockholders' Equity

         As of December  31, 1997 the  Company had  19,513,496  shares of common
stock  outstanding.  During Fiscal Year 1996,  covering the period  February 26,
1995 through February 23, 1996, there were no private placements.  During Fiscal
Year 1997,  covering  the period from  February 24, 1996 to February 28, 1997, a
total of 1,207,500  shares were issued in a private  placement with net proceeds
of  $2,206,868.  From March 1, 1997 to December  31,  1997, a total of 4,991,125
shares were issued in a private placement with net proceeds of $4,800,071.  From
January 1, 1998 to April 30, 1998,  a total of 1,400,000  shares were issued for
net proceeds of $1,066,200. An additional 387,500 shares were issued relating to
the private placements from March 1, 1997 to December 31, 1997.

         The Board of Directors has  designated  two classes of preferred  stock
included within stockholders' equity as follows:

         Series A, 8.5% Non-Cumulative,  Redeemable, Convertible Preferred Stock
         ("Series A Preferred  Stock"),  convertible at the holder's option into
         one  share  of  common  stock  of the  Company  at any  time  prior  to
         redemption.  At the Company's option,  the stock is redeemable at $4.00
         per share after not less than 30, nor more than 60 days written  notice
         provided the closing bid price of the Company's  common stock  averages
         in excess of $9.00 per share for 30  consecutive  trading  days  ending

                                      F-14
<PAGE>
         within  five days of the notice of  redemption.  The Series A Preferred
         Stock votes with the common  stock as a single  class.  At December 31,
         1997 and  February  28,  1997,  there were  325,483 and 347,146  shares
         issued and outstanding,  respectively.  As of April 30, 1998 there were
         213,583 shares issued and outstanding.

         Series B, 6%  Non-Cumulative,  Non-Voting  Convertible  Preferred Stock
         ("Series B Preferred Stock"), redeemable and convertible at any time at
         $10 per share.  Such stock  retains a liquidation  preference  over the
         Series A Preferred  Stock at a rate of $10 per share plus any  declared
         but unpaid dividends. At December 31, 1997 and February 28, 1997, there
         were 146,695 shares of Series B Preferred Stock issued and outstanding.

         The Company has reserved  3,472,536 shares of common stock for issuance
upon exercise of  outstanding  warrants and employee  stock  options  granted or
available  for grant (Note 21), upon the  conversion  of preferred  stock and in
connection  with the  agreement  with RC America,  Inc.  For the 10 month period
ended  December  31, 1997,  no shares of common stock were issued.  Based on the
operating results of RC America, Inc. for Fiscal Year 1997 and Fiscal Year 1996,
an  additional  2,640 and  2,550  shares  were  issued in May 1997 and May 1996,
respectively.

         Holders of the Series A Preferred  Stock are  entitled  to receive,  in
each  fiscal  year in which the  Company  attains  net  earnings  after tax,  as
defined,  non-cumulative  dividends at the annual rate of $0.34 per share.  Such
dividends  will be payable in cash if net earnings  after tax exceed 150% of the
amount  necessary  to pay  the  dividends  and in  cash,  common  stock,  or any
combination thereof if such net earnings are less than such amount. Dividends on
the  Series B  Preferred  Stock are  payable  before any  dividends  are paid or
declared for the Series A Preferred  Stock and the common stock.  The holders of
the Series B Preferred Stock are entitled to receive non-cumulative dividends at
an annual rate of $.60 per share payable in cash.

Note 15: Warrants to Purchase Securities of the Company

         An  aggregate of 153,000  shares of Common  Stock and 50,000  shares of
Series A Preferred Stock were issued to the  underwriter's  of the second public
offering,  at an exercise price of $2.25 in May, 1996 upon the exercise of Class
A Warrants which would have expired on June 13, 1996.

         In conjunction with the third public  offering,  an aggregate of 48,725
Class A Warrants were exercised at $5.00 before the expiration  date of June 15,
1995 and an aggregate of 456,931 Class B Warrants were exercised at $2.80 before
the expiration  date of October 6, 1996.  Additionally,  an aggregate of 299,600
shares of Common  Stock were  issued to the  underwriter's  of the third  public
offering at an exercise price of $2.25 in May, 1996 upon the exercise of Class B
Warrants which would have expired on October 7, 1997.

         As of December 31, 1997 all Class A and Class B Warrants  issued to the
public shareholders and the underwriters were exercised or expired.

         In May 1996,  the Company issued  warrants to financial  consultants to
purchase an aggregate of 200,000  shares of Common Stock at an exercise price of
$4.25  per  share.  The  warrants  expired  on  December  31,  1997 and were not
exercised.

                                      F-15
<PAGE>

         In December 1997, the Company issued 109,422 Warrants with a three year
life to purchase one share of Common Stock at $1.10 per share in connection with
a private placement of its common stock, net of costs in the amount of $109,658.
In April 1998,  the Company  issued  150,000  Warrants with a three year life to
purchase  one share of Common  Stock at $1.08  per  share in  connection  with a
private placement of its securities.

         During the period  March 1, 1998 to April 30, 1998 the  Company  issued
400,000 Warrants with a three year life to purchase one share of Common Stock at
$1.25 per share to two lessors in connection with the  restructuring  of certain
Capital  and  Operating  Leases that were in default as of  December  31,  1997.
Settlement  expense  in the amount of  $240,400  was  recorded  for the 10 month
period ended December 31, 1997 (Note 12).

Note 16: Income Taxes

         Due to the taxable loss incurred and the  availability of net operating
losses,  there was no tax provision or benefit  recorded for the 10 month period
ended December 31, 1997. Accordingly,  the effective tax rate is zero percent as
compared  to the  Federal  statutory  rate of 34% because the Company has placed
a full valuation allowance on its net deferred tax assets.

Cumulative temporary differences under SFAS 109 are as follows:

                                                     December 31,   February 27,
                                                         1997           1997
                                                     -----------    -----------
Deferred tax assets:                                               
         Allowance for uncollectible accounts       $    377,322    $    70,473
         Net operating loss carryforward              12,825,784      9,831,374
         Inventory                                       151,993        532,583
         Write-down of fixed assets                    1,226,450      1,343,033
         Write-down of patents                           400,031          --
         Allowance for lease losses                      685,606          --
         Investment tax credit                           528,200        598,446
         Other items                                     489,712         20,193
                                                     -----------    -----------
            Total deferred tax assets                $16,685,094    $12,396,102
                                                     ===========    ===========
Deferred tax liabilities:                                         
         Excess depreciation                         $    76,197    $     3,813
         Prepaid rent                                    143,281        179,895
                                                     -----------    -----------
            Total deferred tax liabilities           $   219,478    $   183,078
                                                     ===========    ===========
                                                                 
Net deferred tax assets                              $16,465,616    $12,213,024
Deferred tax asset valuation allowance               (16,465,616)   (12,213,024)
                                                     -----------    -----------
                                                          --             --
                                                     ===========    ===========

          A valuation  allowance is required to be established  for deferred tax
assets if, based on the weight of available evidence, it is more likely than not
that some portion or all of the  deferred  tax asset will not be  realized.  The
Company  has  determined  that a  valuation  allowance  is required as it is not
certain that the results of future operations will generate  sufficient  taxable
income to realize the deferred tax asset.

                                      F-16
<PAGE>
         At December  31,1997 the  Company had  available  for federal and state
income  tax  purposes   unused  net  operating  loss  (NOL)   carryforwards   of
approximately   $32,770,734   and   $26,853,823,   respectively.   The   federal
carryforwards  expire in various  amounts  beginning  in the year 2003,  and the
state  carryforwards  expire in various  amounts  from 1998  through  2003.  The
Company has available state investment tax credit carryforwards of approximately
$528,000  expiring  in  various  amounts  from 1998 to 2003,  and  approximately
$113,000 in carryforwards with unlimited expirations.

         A substantial change in the Company's ownership,  as defined in section
382 of the Internal Revenue Code, may significantly limit the future utilization
of the federal NOL  carryforwards  incurred  prior to an  ownership  change.  In
Fiscal  Years  1994 and 1991  substantial  changes  in  ownership  occurred.  In
addition the Company has had a number of transactions  subsequent to Fiscal Year
1994 which may have further limited the Company's ability to use its federal NOL
carryforwards. 

Note 17: Major Customers

         During  the 10  month  period  ended  December  31,  1997  no  customer
represented  more  than 10% of total  sales.  In Fiscal  Year 1997  sales to one
customer  represented  16% of total  sales.  In Fiscal  Year  1996  sales to two
customers represented approximately 15% and 10% of total sales.

Note 18: Related Party Transactions

         Loans made to an officer  totaled  $586,979 at December 31,  1997,  and
$476,486 at February 28, 1997,  and bear  interest at a rate of 9.5%.  The loans
are due and payable  January 1, 2001.  The officer has agreed to apply any bonus
payments received under the Company's executive bonus plan to reduce the amounts
outstanding under the loan. As the Company has suffered recurring net losses and
operating cash flow deficiencies, a reserve of $586,978 has been established for
this loan as of December 31, 1997.

         Loans made to another  officer totaled $5,415 at December 31, 1997, and
$3,308 at February 28, 1997, and bear interest at a rate of 9.5%.

         In March,  1998 the Company  received a notice  from the  Massachusetts
Department of Revenue requiring the Company to garnish the wages of the Chairman
of the Company. The amount subject to the levy totaled  approximately  $200,000.
For the period through May 16, 1998 the Company did not comply with the terms of
the  levy.   Subsequently   the  Company   paid,  on  behalf  of  the  Chairman,
approximately  $36,000 of the levy and established an interest  bearing note due
on or before June 30,  1998.  The  Chairman and the Company have agreed that all
wages,  salaries,  bonuses  and  other  compensation  that may be  earned by the
Chairman  shall be  forwarded  to the  Massachusetts  Department  of  Revenue in
accordance  with the terms of the levy,  until  such  time that the  Company  is
advised that compliance with the levy is no longer required.

         The Company  acquired in Fiscal 1993 a 50.5% interest,  in exchange for
$125,000,  in a company  (RC  America,  Inc.)  founded  and managed by the 49.5%
minority shareholder,  Ronald Caulfield, a brother of the Company's Chairman. On
February 26, 1994,  the Company  entered into a stock  exchange  agreement  (the
"Agreement")  to exchange  200,000 shares of its common stock at their estimated
fair market value for Ronald  Caulfield's 49.5% minority interest in RC America,
Inc.  Effective  February  26, 1994  Ronald  Caulfield  exchanged  his shares in
accordance with the "Agreement." As a result,  RC America,  Inc. is now a wholly
owned  subsidiary  of the  Company.  The  Agreement  also  contains  demand  and
piggy-back registration rights and provides for the issuance to Ronald Caulfield
of up to an additional  100,000 shares of the Company's common stock over a five
year  period  based on RC  America,  Inc.  attaining  certain  levels of pre-tax
earnings.  For the 10 month period ended  December 31, 1997, no shares of Common
Stock were issued. Based on the operating results of RC America, Inc. for Fiscal
Year 1997 and Fiscal Year 1996, a total of 2,640 and 2,550 shares,  respectively
were  earned  and  were  issued  to Mr.  Caulfield  in May  1997  and May  1996,
respectively.  In addition, Ronald Caulfield entered into a five year employment
agreement with RC America, Inc. which provides for certain bonus,  severance and
non-compete arrangements.

                                      F-17
<PAGE>
         The value of the stock issued  pursuant to the  Agreement  exceeded the
book value of the assets  acquired  and the  Company  has  recorded  goodwill of
$800,000,  amortizing  the  goodwill  pro-rata  over ten years.  Issuance of the
additional  2,640 and 2,550 shares of common stock resulted in an  insignificant
amount of  additional  goodwill.  At February  28, 1997,  the Company  wrote off
approximately  $620,000  of  goodwill as part of the  impairment  of  long-lived
assets  (Note 6). The total  unamortized  goodwill  included in Other Assets and
related to these transactions at February 23, 1996 was $789,402.

         Ivan J. Hughes,  a director of the Company until his  resignation  from
the Board on February 17, 1998,  is President of the Plastics  Division Duro Bag
Manufacturing Company ("Duro").  For Fiscal Year 1997 and Fiscal Year 1996, Duro
accounted for approximately 16% and 10%, respectively, of the Company's sales.

Note 19: Employment Agreements

         In October 1993, the Company  entered into  employment  agreements with
certain officers.  Among other things, these agreements provide for minimum base
compensation of $750,000 in the aggregate plus incentive  compensation  based on
pre-tax profits and for severance  payments which  approximate two years of base
compensation. Each of these agreements will expire on June 30, 1998.

Note 20: Operating Leases and Commitments

         The Company's lease agreement for its Dighton facility was renegotiated
effective January 1, 1996 and runs for a period of twelve years. The Company has
entered  into  various  operating  leases for  certain  manufacturing  equipment
expiring on various dates through 2007.


         The future minimum rental  commitments  under  noncancelable  operating
leases as of December 31, 1997 are as follows:
                                                        Operating
                 Fiscal Year                             Leases
                 -----------                             ------

                  1998............................    $1,257,000
                  1999............................     1,180,000
                  2000............................       893,000
                  2001............................       480,000
                  2002............................       383,000
                  Thereafter .....................     2,626,000
                                                      ----------
                                                      $6,819,000
                                                      ==========

                                      F-18
<PAGE>

         Expense  under  operating   leases  was   $1,410,000,   $1,646,000  and
$1,583,000 for the 10 month period ended  December 31, 1997,  February 28, 1997,
and February 23, 1996, respectively. All operating leases and real-estate leases
were in default as of December 31, 1997.

         The Company is involved in litigation with equipment  lessors and trade
vendors  which  is  expected  to be  settled.  However,  if  not  settled,  such
litigation could have a material impact on the financial statements.

          At  December  31,  1997,  the  Company  had  commitments  to  purchase
approximately $275,000 of machinery and equipment.

Note 21: Stock Option Plans

         In May 1990, the Company adopted a stock option plan and on October 25,
1993, the Board of Directors  approved a stock option plan that provides certain
individuals  the right to  purchase  up to 200,000  shares and  750,000  shares,
respectively,  of common stock.  In September  1996, the Company adopted a stock
option  plan that  entitles  certain  individuals  the right to  purchase  up to
1,000,000  shares  of common  stock.  The Board of  Directors  determines  those
individuals who shall receive options,  the time period during which the options
may be exercised, and the number of shares of common stock that may be purchased
and the exercise  price (which can not be less than the fair market value of the
common stock on the date of grant).  Options  generally vest ratably over two to
five years.  The Company may not grant employee  incentive  stock options with a
fair  value in excess  of  $100,000  that is first  exercisable  during  any one
calendar year.  Options granted under the stock option plan generally expire ten
years from the date of grant.

         There was no  activity  under the 1996 Stock  Option Plan during the 10
month  period  ended  December  31, 1997 and the year ended  February  28, 1997.
Transactions  under the 1990 and 1993  Stock  Option  Plans  during the 10 month
period  ended  December  31,  1997  and the year  ended  February  28,  1997 are
summarized as follows:
<TABLE>
<CAPTION>
                                               Ten Month Period Ended              Year Ended
                                                 December 31, 1997             February 28, 1997
                                            --------------------------  ----------------------------
                                                      Weighted average             Weighted average
         Options                            Shares    exercise price    Shares      exercise price
         -------                            ------    --------------    ------      --------------
<S>                                         <C>        <C>            <C>            <C>     
Outstanding at beginning of year             773,830    $  3.98        795,630        $   4.04
Options granted whose exercise price                                                  
  equal the market price of the stock                                                 
  on grant date                              156,000    $  1.75         12,500            2.40
Options granted whose exercise price                                                  
  is greater than the market price of the                                             
  stock on grant date                                                    9,200            2.40                       
Canceled                                    (146,713)      3.98        (43,500)           3.49
                                            --------                   -------        
Outstanding at year end                      783,117       3.54        773,830            3.98
                                            ========                   =======   
                                                                      
Options exercisable at period end            629,317                   589,377
                                            ========                   =======
                                                                      
Weighted average fair value of options                                
 granted during the period                              $  1.75                       $  1.65
                                                        =======                       =======
</TABLE>
                                      F-19
<PAGE>

                                                       Year Ended
                                                  February 23, 1996
                                             -------------------------------
                                                           Weighted average
         Options                             Shares        exercise price
         -------                             ------        --------------

Outstanding at beginning of year             778,955           $   4.07
Options granted whose exercise price                       
  equal the market price of the stock                      
  on grant date                               26,000               4.00
Options granted whose exercise price                       
  is greater than the market price of the                  
  stock on grant date                         21,000               5.40
Canceled                                     (30,325)              5.64
                                             -------
Outstanding at year end                      795,630               4.04
                                             =======
                                                    
Options exercisable at period end            466,025
                                             =======
Weighted average fair value of options
 granted during the period                   $  2.95
                                             =======

         In March of 1996,  the Company  granted 18,500 options with an exercise
price of $2.38.  In January of 1997,  the Company  granted 3,200 options with an
exercise  price of $2.50.  In March of 1996,  the Company  changed the  exercise
price for selected  options,  which were  granted in fiscal 1993,  from $6.25 to
$4.00,  and selected  options,  which were granted in fiscal 1994, from $6.63 to
$4.00.

The following table summarizes information about employee options outstanding at
December 31, 1997:

                                           Options outstanding
                                           -------------------
                                                 Weighted
                                 Number          average           Weighted
                             outstanding at     remaining           average   
  Range of exercise prices  December 31,1997   contractual life  exercise price
   -----------------------  ----------------   ----------------  --------------

         $1.75-3.00           191,700              8.85        $   1.93
          3.88-4.75           568,917              5.50            4.00
          5.50-6.25            22,500              7.10            5.65
                              -------
                              783,117              6.37            3.54
                              =======
                                                       
                                    Options exercisable
                                    -------------------
                                  Number                  Weighted
                                 exercisable at           average
 Range of exercise prices      December 31, 1997        exercise price
 ------------------------      -----------------        --------------
$ 1.75-3.00                          43,100               $   2.50
  3.88-4.75                         565,417                   4.00
  5.50-6.25                          21,000                   5.64
                                    -------
                                    629,517                   3.96
                                    =======
                             F-20            
<PAGE>
Fair Value Disclosures

         At December 31, 1997,  the Company has three  option  plans,  which are
described above. The Company applies APB Opinion 25 and related  interpretations
in  accounting  for its  plans.  Accordingly,  no  compensation  cost  has  been
recognized for its stock option plans. Had  compensation  cost for the Company's
three stock  option plans been  determined  based on the fair value at the grant
dates for awards under those plans  consistent with the method of FASB Statement
123, the Company's net loss and loss per share would have been  increased to the
pro forma amounts indicated below:


                                     Ten Month Period Ended      Year ended
                                       December 31, 1997      February 28, 1997
                                       -----------------      -----------------

 Net Loss             As reported      ($11,338,869)           ($12,764,231)
                      Pro forma        ($11,468,958)           ($13,181,343)
                                                             
 Basic and diluted    As reported            ($0.73)                 ($0.96)
 net loss per share   Pro forma              ($0.74)                 ($0.99)
                                                             
         The fair value of each option  grant is  estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions  used for grants during the  applicable  periods:  dividend yield of
0.0% for both  periods;  risk free  interest  rate of 5.81% for options  granted
during the 10 month period ended December 31, 1997 and 5.86% to 6.2% for options
granted  and  re-priced  during the year ended  February  28,  1997;  a weighted
average expected option term of 10 years for options granted during the 10 month
period ended  December 31,  1997,  and 5.33 to 10 years for options  granted and
re-priced  for the year ended  February 28, 1997;  and  expected  volatility  of
67.57% for options  granted  during the 10 month period ended  December 31, 1997
and 56.59% and 62.23% for options  granted and  re-priced  during the year ended
February 28, 1997.

Note 22: Retirement Savings Plan

         The Company provides an employee  retirement savings plan under Section
401(k) of the Internal Revenue Code (the "Plan") which covers  substantially all
employees. Under the terms of the Plan, employees may contribute a percentage of
their salary,  up to a maximum of 15%,  which is then invested in one or more of
several mutual funds selected by the employee.  The Company  matches 100% of the
employee  contribution up to a maximum of 2% of their salary.  Contributions  to
the plan  were  $47,604,  $80,503  and  $52,120  for the 10 month  period  ended
December 31, 1997, and Fiscal Years 1997 and 1996, respectively.


                                      F-21
<PAGE>
Note 23: Significant Fourth Quarter Adjustments

         All  capital,  operating  and real estate  leases were in default as of
December 31, 1997.  All future  capital lease  payments have been  classified as
current.  As a result of these defaults and based on negotiations which began in
1997,  total  expenses of  $1,643,400  were  accrued as of December 31, 1997 for
interest, penalties and extension fees related to the default of the capital and
operating leases (Note 12 and 15).

         Loans made to an officer totaled $586,979 at December 31, 1997 and bear
interest at a rate of 9.5%.  The loans are due and payable  January 1, 2001. The
officer  has agreed to apply any bonus  payments  received  under the  Company's
executive  bonus plan to reduce the amounts  outstanding  under the loan. As the
Company has suffered  recurring net losses and operating cash flow deficiencies,
a reserve of $586,978 has been established for this loan as of December 31, 1997
(Note 18).

         Management  determined  during the fourth  quarter of Fiscal Year 1997,
due to continued  intense  competition  in the  traditional  T-shirt bag product
lines which resulted in a significant deterioration of the gross margin, to exit
these  product  lines  during  the 10 month  period  ended  December  31,  1997.
Accordingly,  an analysis of the fair value of assets  related to these  product
lines was performed during the fourth quarter of Fiscal Year 1997 which resulted
in a write-down of impaired assets and recognition of related expenses  totaling
$5,897,648 (Note 6).

Note 24: Subsequent Events

         Subsequent to December 31, 1997,  the lender  informed the Company that
it wanted  repayment of the revolving  line of credit and the Company has agreed
to repayment by June 30, 1998 (Note 11).

                                      F-22