<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K/A



                          AMENDMENT NO. 3 TO FORM 10-K



/ X /      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998, OR

/   /      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM

      ________________ TO ___________________.


                         COMMISSION FILE NUMBER: 1-10648



                        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 Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 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 proxy or information
statements incorporated by reference in Part III of this Form 10-K/A or any
amendment to this Form 10-K/A. X


         The aggregate market value of the Registrant's voting stock issued and
outstanding as of June 3, 1999 was $5,590,135 for the Common Stock and $188,458
for the Series A Convertible Preferred Stock.


         As of June 3, 1999, 21,500,521 shares of Common Stock, $.01 par value
per share, were outstanding and 212,258 shares of Series A Convertible Preferred
Stock, $.01 par value per share, were outstanding.


<PAGE>

                    FORWARD-LOOKING STATEMENTS OR INFORMATION

         This Form 10-K/A 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/A 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") converts commercially
available high molecular weight, high density polyethylene ("HMWHDPE") resins
into thin film, which is either sold directly into industrial or packaging
applications or converted in-house into carryout bags of "T-shirt sack" design
for supermarkets, convenience stores and other retail markets. The Company
utilizes advanced, high quality extrusion, printing and bag making equipment,
which was installed between 1990 and 1999.

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 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 operated two wholly-owned subsidiaries: RC America, Inc.,
which purchased surplus inventory from manufacturers of consumer products and
marketed and sold the products to mass merchandise retailers and other retail
chains, and Market Media, Inc., which sold and marketed in-store advertising and
promotion programs. On June 27, 1998, the Company suspended funding operations
of its two wholly-owned subsidiaries; the Company also terminated the employment
of Ronald V. Caulfield, the Chief Executive Officer and President of RC America,
Inc. Unless otherwise indicated, the term "Company" hereafter, refers to BPI
Packaging Technologies, Inc.

RECENT FINANCING

         On January 27, 1999, the Company entered into a Securities Purchase
Agreement (the "Agreement") with an investor, DGJ, L.L.C., a Delaware limited
liability company ("DGJ")(the "January 1999 Financing"), whereby the Company
agreed to issue and sell to DGJ, and DGJ agreed to purchase from the Company the
following:

         1.       a Promissory Note in the aggregate principal amount of
                  $3,200,000 (the "Note");

         2.       a Common Stock Purchase Warrant for the purchase of up to
                  80,000,000 shares of the Company's common stock, $.01 par
                  value per share (the "Common Stock"), at an exercise price of
                  $0.04 per share, exercisable until January 27, 2009; and

         3.       1,629,930 shares of Series C  Preferred Stock of the Company
                  for $100.

         The Note matures on February 1, 2004 or earlier in the event of a
default, the sale of 50% or more of the Company's assets, the merger or
consolidation of the Company, the purchase of 50% or more of the shares of the
Common Stock by a person who was not a stockholder of the Company at the time of
the execution of the Agreement, or a primary public offering of the Company's
securities in excess of


                                       3
<PAGE>

$10,000,000. The Note has an interest rate of 6% per annum payable monthly in
arrears, principal is due at its maturity and it is secured by all assets of the
Company. The Note is subordinated to the equipment lease and the factoring
agreement, described below.


         In connection with the January 1999 Financing, DGJ required certain
members of the Company's management, C. Jill Beresford, James F. Koehlinger,
Hanspeter Schulz, Richard H. Nurse and Ivan J. Hughes, to invest, in the
aggregate, $300,000 in the Company's warrants. The Common Stock represented by
the warrants cannot be issued until approval for an increase in the Company's
authorized shares of Common Stock is obtained at the next annual meeting of
stockholders. See "Employment Contracts, Termination of Employment and Change In
Control" below for a description of these warrants and a listing of each member
of management owning these warrants and how many shares of Common Stock each is
exercisable into.

         The shares of the Series C Preferred Stock were purchased by DGJ for an
aggregate purchase price of $100. Some of the rights and restrictions of Series
C Preferred Stock include the following: (i) the holders of Series C Preferred
Stock have no voting rights; provided, however, upon an Event of Default, as
defined in the Securities Purchase Agreement, holders of the Series C Preferred
Stock will be entitled to vote with the holders of the Common Stock as a single
class on each matter submitted to a vote to the Company's stockholders, with
each share of the Series C Preferred Stock having 30 votes per one vote of each
share of Common Stock; (ii) if the Note has been retired in its entirety, the
Company, at its option, may elect to redeem all or a portion of the outstanding
Series C Preferred Stock, at an aggregated redemption price of $100 plus accrued
interest at a rate of 6% per annum commencing on January 27, 1999; and (iii) the
shares of the Series C Preferred Stock are not convertible into shares of Common
Stock.

         In conjunction with the January 1999 Financing, the Company entered
into agreements with most of its unsecured creditors that provided a discounted
payment in February 1999 or a non-interest bearing agreement to pay the entire
balance over a three-year period. The unsecured creditor agreements, together
with the financing referred to above, allowed the Company to restructure trade
notes payable of $584,000 and accounts payable of $6,597,000, or a total of
$7,181,000, compared to $1,874,000 of current accounts payable and $1,426,000 of
long-term debt, or a total of $3,300,000 after refinancing.

         A factoring agreement with a company related to DGJ now provides the
Company with $2,000,000 of financing secured by the Company's accounts
receivable and $1,000,000 secured by its inventory. The term for both the
accounts receivable and inventory financing is six months, subject to automatic
renewal unless the Company gives at least 90 days written notice of termination.
Written notice of termination regarding this factoring agreement was given by
the Company on March 30, 1999. The financing bears interest at the prime rate
plus 5% on the outstanding balance on the inventory loan and the prime rate plus
2% on all accounts receivable submitted for financing. The Company may borrow up
to 85% of its qualified accounts receivable and 33% of its qualified inventory.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Note Payable."

         The Company's equipment, capital and operating leases are now funded by
a new equipment lease with DGJ. Current obligations of $3,800,000 and accrued
lease obligations of $1,643,000 were retired and $1,679,000 of equipment
previously treated as operating leases was added to the property and equipment
accounts. The new lease carries no debt reduction obligation and is treated as
long-term debt. The Company's combined monthly payments under the retired leases
were reduced from approximately $305,000 per month to $102,000 per month under
the new lease agreement with DGJ. The term of the lease is ten years and its
monthly payments of $102,000 represent interest only. The total principal amount
of the lease is $6,800,000 and is due at the end of the lease term. The lease
has been recorded as a capital lease during the quarter ended March 31, 1999 and
will be treated as such in future periods. The

                                       4

<PAGE>

lease requires the Company to meet certain financial covenants, including, but
not limited to, earnings targets and debt-to-equity ratios. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Equipment Purchases and Lease Financings."

         The January 1999 Financing will be deemed a related party transaction
as described in Item 13.

         The plan to restructure the Company's operations and management, which
began in the third quarter of 1998, to satisfy past due trade creditors and past
due operating and capital lease balances, is progressing.

         PRODUCTS AND MARKETS

         Direct competition refers to competition for 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>

                                                     1999

                                                ANNUAL MARKET              PATENT
                                                  (MILLIONS)               STATUS        COMPETITION
------------------------------------------------------------------------------------------------------------
<S>                                             <C>                      <C>             <C>
 HANDI-SAC-TM-                                       $37                 U.S. PATENT     DIRECT: SONOCO
 CONVENIENCE,                                                            ISSUED 1993     T-SACK ROLL
 HARDWARE/AUTOMOTIVE AND                                                                 BAG
 DRUG
                                                                                         INDIRECT: PAPER AND
                                                                                         FLAT T-SACKS
------------------------------------------------------------------------------------------------------------
 FRESH-SAC-Registered                                $63                  U.S. PATENT    DIRECT:  CROWN
 Trademark-                                                               ISSUED 1993    POLY, SEALED
 T-SHIRT PRODUCE BAG                                                                     AIR AND BETTER
                                                                                         BAG

                                                                                         INDIRECT:
                                                                                         PRODUCE BAG
                                                                                         ON A ROLL
------------------------------------------------------------------------------------------------------------
 INSULATION OVERWRAP                                 $15                   PROCESS       DIRECT:
                                                                          TECHNOLOGY     VANGUARD PLASTICS

                                                                                         NO INDIRECT
------------------------------------------------------------------------------------------------------------
 HIGH PERFORMANCE PRINTED                           UNDER                   PROCESS      DIRECT:  EXXON
 TISSUE OVERWRAP FILM                            EVALUATION               TECHNOLOGY     FILMS

                                                                                         NO INDIRECT
------------------------------------------------------------------------------------------------------------
 T-SHIRT CARRYOUT BAG                                $850                U.S. PATENT     DIRECT: VANGUARD,
                                                                            ISSUED       SONOCO AND
                                                                             1989        INTEGRATED BAGGING
                                                                                         SYSTEMS

                                                                                         INDIRECT: KRAFT
                                                                                         PAPER BAGS
------------------------------------------------------------------------------------------------------------
</TABLE>

         HANDI-SAC-TM- is a T-shirt bag sold in a patented dispensing mechanism.
The patented system allows the retailer to effectively store and dispense T-
shirt bags in a limited space under the check-out counter, which is important to
convenience, drug, retail and hardware stores. HANDI-SAC-TM- is installed


                                       5
<PAGE>

in approximately 11,000 convenience, drug, retail and hardware stores. The
annual market potential for HANDI-SAC-TM- is estimated at approximately $37
million. The market is split approximately 70% plastic and 30% paper.

         FRESH-SAC-Registered Trademark- is a thin T-shirt produce bag sold in a
patented dispensing mechanism. This program is presently being sold to
approximately 600 supermarkets directly and through distributors. Management
estimates the annual market potential for the FRESH-SAC-Registered Trademark-
Produce Profit Builder Program to be $63 million.

         A thin, clear mono-layer HMWHDPE film specifically designed for printed
tissue overwrap (i.e., paper towels and bathroom tissue) is being tested as a
replacement for traditional film more than twice its gauge. The market size for
this product is under evaluation. The Company's five year purchase agreement
with Printpack, Inc. ("Printpack") was terminated on October 7, 1998. The
Company received no revenue under the Printpack purchase agreement but has trial
orders from Printpack in-house.

         Two films have been specifically developed for the encapsulation of
glass fibre insulation mats for the private housing and the industrial buildings
industry, respectively. The latter one is flame retardant and passed the
required tests of United Laboratories. It is expected that this new film
application is going to grow in North America. The market size is estimated to
be at $15 million annually.

         Since the above applications will not fill the Company's current
conversion capacity of 40 million pounds of HMWHDPE resin in the near future,
the Company re-entered the standard grocery T-shirt bag business, which resulted
in significant marginal contributions to fixed costs starting in the third
quarter of 1998.

         On June 27, 1998, the Company discontinued funding operations of its
two wholly-owned subsidiaries, RC America, Inc. and Market Media, Inc., as they
were not generating revenues and thus, creating a cash drain on the Company.
Other significant reductions of plant overhead and selling and administrative
expenses were made throughout 1998. Marginal contributions from the standard
T-shirt bag business, together with expense reductions, significantly improved
the performance of the Company during the second half of 1998.

COMPETITION

         The plastic film and bag markets are highly competitive. There are high
barriers of entry into the plastic bag and film markets due to significant
capital requirements. The Company's capacity is estimated at approximately 40
million pounds annually, depending on product mix.

         In the patented products, HANDI-SAC-TM- has direct competition from
Sonoco Products Company's T-sack roll bag product and flat T-sacks provided by
Sonoco Products Company, Vanguard Plastics and others; as well as paper bags.
FRESH- SAC-Registered Trademark- has direct competition from: Crown Poly and
Sealed Air, which manufacture plastic roll bags in a patented dispensing system;
Better Bag, which manufactures flat produce bags; and indirect competition from
a variety of traditional plastic low-cost bag-on-a-roll manufacturers.

         The Company has direct competition for its thin, clear film used for
tissue overwrap from Exxon Films, which has a similar thin film. However,
management believes that Exxon Films has an exclusive five year supply agreement
with a consumer packaged goods company that prohibits it from supplying other
companies and, therefore, Exxon Films is not presently considered to be a
competitor. The Company competes with the major manufacturers of flexible
packaging and other companies that


                                       6
<PAGE>

manufacture thick plastic films for tissue overwrap. The Company believes that
its tissue overwrap film is more cost effective than any competitive product.

         In the traditional plastic grocery T-shirt bag market, which the
Company exited during the 10 month period ended December 31, 1997 and re-entered
in the third quarter of 1998, the Company's competitors include large companies:
i.e., Sonoco Products Company, Interplast Corporation and Vanguard Plastics.

PROPRIETARY PROCESSES, PATENTS AND OTHER RIGHTS

         The Company has developed patents related to T-shirt bags. The Company
owns a patent issued in 1989 for its T-shirt carryout bag. In 1993, the Company
was issued a U.S. patent for the dispensing system used in conjunction with its
FRESH-SAC-Registered Trademark- and HANDI-SAC-TM- products. The Company has a
registered trademark in the United States for FRESH-SAC-Registered Trademark-.
In 1996, the Company was issued a U.S. patent for its FRESH- SAC-Registered
Trademark- advertising vehicle called the Fresh Focus CartridgeTalker-TM-.

         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. No assurance can be given that the Company's products
will not infringe patents or rights of others.

         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.

MANUFACTURING

         All of the Company's plastic products are manufactured in its North
Dighton, Massachusetts facility. The plastic resin is delivered to the Company,
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 customer information using aqueous-based inks and shipped to
customers. If the film is to be used to manufacture bags, it is then slit-
sealed into bags, reviewed by quality control inspectors, boxed, and shipped to
customers. The Company retains customer design printing plates for future use.

         The Company's manufacturing equipment consists of blown film extrusion
lines, printing presses, bag making machines and film slitting operations.
Additional slitting capacity was acquired in the first quarter of 1999.

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 year
ended December 31, 1998, as in some prior fiscal years, resin prices fluctuated
significantly, a trend the Company expects will continue.


                                       7
<PAGE>

BACKLOG


         The Company's backlog of firm orders at June 14, 1999 was $1,062,583,
as compared to $510,472 at March 26, 1998. The Company generally sells products
on an individual purchase order basis 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 reports that the first quarter of any year is traditionally
the slowest quarter for bag products marketed to the retail trade. There is no
apparent seasonality in the industrial film business.

MAJOR CUSTOMERS

         For the year ended December 31, 1998, there were two customers that
each accounted for more than 10% of the Company's sales: Owens Corning at 10%
and Bunzl, a distributor of the Company's patented bag products to grocery and
convenience store retailers, at 20%. The Company's primary relationships are
with the decision makers at the retail level who chose Bunzl to redistribute the
Company's products. Therefore, management does not believe that the loss of
Bunzl's business would have a material adverse effect on the Company's business
as the Company's products would be shipped either direct to the retailer or
through a different distributor.

EMPLOYEES

         As of June 14, 1999, the Company had 133 full-time employees. 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 North Dighton, Massachusetts.
The premises are leased from an unaffiliated landlord under a lease which
expires on December 31, 2007, at a monthly rent of $31,738 effective August 1,
1997, and thereafter to be adjusted based on certain indices. The monthly rental
payment was reduced to $26,255 effective March 1, 1999 due to a reduction in
space. The Company is responsible for payment of real estate taxes, which are
approximately $52,000 per year, and maintenance costs which are approximately
$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

         At December 31, 1998, the Company was involved in various pending
commercial legal proceedings with equipment lessors and trade suppliers because
of lease defaults and overdue trade accounts. The debt of the equipment lessors
was paid in conjunction with the January 27, 1999 financing on terms negotiated
between the Company and the lessors. See "Business - Recent Financing." The
Company now has no pending significant commercial legal proceedings with
equipment lessors or trade suppliers.

         A notice of potential claim has been sent by a group of investors to
both the Company and its insurance carrier alleging that the Company's former
management made misrepresentations concerning registration rights attendant
to the securities purchased by them pursuant to Regulation D of the
Securities Act of 1933, as amended. The Company believes that any settlement
in connection with this potential


                                       8
<PAGE>

claim will not have a material effect on its operations. No further action
has been taken by this group of investors as of May 28, 1999.

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 1998, through the solicitation of proxies or otherwise.


                                       9
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

         The Company's Common Stock was traded on the National Association of
Securities Dealers Automated Quotation National Market System ("NASDAQ/NMS")
from October 12, 1992 through August 13, 1998. Since August 14, 1998, the
Company's Common Stock has been traded on the National Association of Securities
Dealers Automated Quotation Over-the-Counter Bulletin Board ("NASDAQ OTC"),
under the symbol "BPIE."


         As of June 3, 1999, the Company had 21,500,521 shares (273 holders) of
record for its Common Stock and 188,458 shares (37 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/NMS or the range of the high and low bid prices on
the NASDAQ OTC. Such quotations represent inter-dealer quotations without
adjustment for retail markups, markdowns or commissions and may not represent
actual transactions.


<TABLE>
<CAPTION>

COMMON STOCK                                               High Sale/Bid             Low Sale/Bid
                                                           -------------             ------------
<S>                                                        <C>                       <C>
Fiscal 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 (through December 31, 1997)(1)     $1.938                    $1.063

1998
         First Quarter                                     $1.375                    $0.688
         Second Quarter                                    $1.400                    $0.844
         Third Quarter                                     $ 0.94                    $ 0.125
         Fourth Quarter                                    $ 0.40                    $ 0.12

1999
         First Quarter                                     $ 0.30                    $ 0.14
         Second Quarter (through June 11, 1999)            $ 0.30                    $ 0.14

</TABLE>

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

(1) In December 1997, the Company changed its fiscal year end from February 28
to December 31.


                                       10
<PAGE>

RECENT SALES OF UNREGISTERED SECURITIES

         From January 1998 to June 1998, the Company conducted a Rule 144A
offering of private placement units that resulted in total proceeds of
$1,485,000. Each unit consisted of 100,000 shares of Common Stock and a
three-year warrant to purchase 100,000 shares of Common Stock at $1.25 per
share. The offering price was $90,000 per unit and the total offering was valued
at $1,530,000. This offering was not underwritten. However, the Company retained
an investment advisor which received fees in cash of $197,200 and warrants to
purchase Common Stock as compensation for introducing prospective investors to
the Company for this offering. Under exemptions from registration under the
Securities Act of 1933 (the "Act") pursuant to Section 4(2) of the Act and
Regulations D and S promulgated under the Act, the securities were initially
sold within the United States to accredited investors and qualified
institutional buyers and outside the United Stated to non-U.S. investors. The
proceeds of the offering as well as the proceeds from the exercises of any of
the warrants are being used and will be used as working capital. The securities
sold in the offering have not been registered under the Act, but are expected to
be registered in the third quarter of 1999.

DIVIDENDS

         The Company has not paid any cash dividends on its Common Stock since
inception. Section 7.12 of the Agreement and the Company's current revolving
line of credit loan arrangement prohibit the payment of dividends (in cash or
other property) on or in respect of any shares of any class of capital stock of
the Company's securities 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.

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.

                                                    STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>


                                Year Ended         Ten Month Period Ended                 Fiscal Years Ended
                                December 31,            December 31,     February 28,         February 23,        February 24,
                                   1998                    1997              1997                 1996               1995
                                   ----                    ----              ----                 ----               ----

<S>                             <C>                <C>                   <C>              <C>                     <C>
Net sales                       $10,382,819            $13,951,725       $30,810,037          $28,839,954         $25,254,645
Cost of goods sold                8,826,905             17,311,037        27,784,329           26,161,723         19,879,041
                                  ---------             ----------      ------------          -----------         ----------
Gross profit (loss)               1,555,914             (3,359,312)        3,025,708            2,678,231          5,375,604

Selling, general and
   administrative expense         4,301,842              6,137,985         8,695,612            6,370,956          5,029,832
Bad debt expense                      --                   319,736            93,165                --                 --
Write-down of impaired assets
   and related expenses               --                     --            5,385,000                --                 --
Patent infringement settlement        --                     --              512,648                --                 --
Income (loss) from
operations                       (2,745,928)            (9,817,033)      (11,660,717)          (3,692,725)           345,772
Allowance for officer loan          (68,039)              (586,978)            --                   --                 --
Interest and other
   expense                         (471,166)              (984,064)       (1,112,647)            (865,206)          (280,445)
Interest income                      45,920                 49,206             9,133               47,786             77,104
Non-recurring charges                 --                     --                --                   --              (989,917)
                                 ----------              ----------        ----------           ----------         ----------
Net loss                         (3,239,213)           (11,338,869)      (12,764,231)          (4,510,145)          (847,486)
Basic and diluted net loss
   per share                           (.16)                  (.73)             (.96)                (.38)              (.08)
Shares used in computing
basic and diluted net loss per
   share                         20,849,356             15,579,747        13,261,815           11,756,532          10,670,040

</TABLE>


                                       11
<PAGE>

<TABLE>
<CAPTION>

                                                    BALANCE SHEET DATA



                                  At                At                 At                At               At
                             December 31,       December 31,      February 28,      February 23,     February 24,
                                 1998              1997               1997              1996             1995
                                 ----              ----               ----              ----             ----

<S>                          <C>              <C>                 <C>               <C>              <C>
Total assets                 $17,751,965      $  20,970,740       $29,247,231       $35,277,975      $35,341,925
Long term obligations        $   --           $    --             $ 3,809,241       $ 5,441,057      $ 4,495,692
Redeemable preferred
   stock                     $   --           $    --             $    --           $   183,369      $   183,369
Working capital (deficit)   ($12,748,154)      ($13,897,932)      ($5,819,144)      ($2,767,867)     $ 3,909,634
Stockholders' equity         $ 3,279,473      $   5,115,535       $11,544,675       $19,768,971      $24,048,204
</TABLE>



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

YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE 10 MONTH PERIOD ENDED DECEMBER 31,
1997

         The Company was unable to accurately recast operating results to
provide for a 12 month period ending December 31, 1997 because monthly
accounting closings were not undertaken during the months in question. The
months of January and February are the lowest sales periods of the year under
normal seasonality trends. The results for a 12 month period ending December 31,
1997 probably would not have produced a lesser loss for the reporting period
than the loss as represented for the 10 month period ending December 31, 1997.

         During the 10 month period ended December 31, 1997, the Company exited
the traditional plastic carryout bag market. Sales for the year ended December
31, 1998 were $10,382,819, compared to $13,951,725 in the 10 month period ended
December 31, 1997.

         Sales of the Company's proprietary bag products, FRESH-SAC-Registered
Trademark- T-shirt sack produce bag and HANDI-SAC-TM-, were $7,799,714 in the
year ended December 31, 1998, compared to sales of $6,185,039 in the 10 month
period ended December 31, 1997. Sales of traditional products decreased to
$1,595,010 in the year ended December 31, 1998 from $6,739,028 in the 10 month
period ended December 31, 1997. The Company exited the traditional bag market
during the 10 month period ending December 31, 1997 and had sales of $536,543 in
the first nine months of such period compared to sales of $1,058,467 in the last
quarter of 1998, when the Company elected to return to the traditional bag
market. The sales of the Company's insulation overwrap films were $988,095 in
1998 compared to $58,731 in the 10 month period ended December 31, 1997, an
increase of $929,364. RC America, Inc. had no sales in 1998, compared to
$968,927 in the 10 month period ended December 31, 1997.

         In 1998, cost of goods sold was $8,826,905, or 85.0% of sales, as
compared to cost of goods sold in the 10 month period ended December 31, 1997 of
$17,311,037, or 124.1% of sales. Plans to reduce overhead in 1998 resulted in
significant savings beginning in the second quarter of 1998. Cost of goods sold
would have been approximately $303,000 greater in 1998 and approximately
$253,000 greater during the 10 month period ended December 31, 1997 had the
Company not recorded a write-down of plant and equipment during the year ended
February 28, 1997 ("Fiscal 1997").

         Selling, general and administrative expense for 1998 was $4,301,842, or
41.4% of sales, as compared to selling, general and administrative expense of
$6,137,985 in the 10 month period ended December 31, 1997, or 44.0% of sales.
Overhead reductions, including the closing of operations of its two
subsidiaries, were mainly responsible for the decrease.


                                       12
<PAGE>

         In 1998, interest expense decreased to $471,166, or 4.5% of net sales,
as compared to $984,064 in the 10 month period ended December 31, 1997, or 7.1%
of net sales. Interest decreased due to lower debt balances outstanding under
the Company's credit lines.

         The Company had a net loss of $3,239,213 in 1998 compared to a net loss
of $11,338,869 in the 10 month period ended December 31, 1997. The non-cash
expenses of depreciation and amortization were $2,538,880 for 1998, compared to
$2,186,621 for the 10 month period ended December 31, 1997. The major reasons
for the decrease in the net loss can be attributed to the planned reductions in
plant and sales, general and administrative costs, and discontinued operations
of the two subsidiaries in the second quarter of 1998. The losses for 1998 and
the 10 month period ended December 31,1997 would have been greater by
approximately $303,000 and $253,000 respectively, if the Company had not
recorded a write-down of plant and equipment in Fiscal 1997.

         The Company incurred a loss of $0.16 per share in 1998 as compared to a
loss of $0.73 per share in the 10 month period ended December 31, 1997.

         Operating profits (loss) for the various business units are as follows:
<TABLE>
<CAPTION>
                                                         Year Ended           10 Month Period ended
                                                     December 31, 1998          December 31, 1997
                                                     -----------------        ---------------------
<S>                                                  <C>                      <C>
Proprietary, traditional and film products              ($1,004,120)              ($ 7,878,610)
RC America, Inc.                                           (130,345)                   (34,584)
BPI Packaging Technologies, Inc.                             (7,353)                      (119)
Market Media, Inc.                                         (122,136)                  (391,853)
Unallocated corporate overhead                           (1,481,974)                (1,511,867)
                                                       ------------               ------------

Operating profit (loss)                                 ($2,745,928)              ($ 9,817,033)
Allowance for officer loan                                  (68,039)                  (586,978)
Interest expense, net                                      (425,246)                  (934,858)
                                                       ------------               ------------
Net loss                                                ($3,239,213)              ($11,338,869)
                                                       ------------               ------------
                                                       ------------               ------------
</TABLE>

10 MONTH PERIOD ENDED DECEMBER 31, 1997 COMPARED TO FISCAL 1997

         The Company was unable to accurately recast operating results to
provide for a 12 month period ending December 31, 1997 because monthly closing
of the records were not undertaken during the months in question. The months of
January and February are the lowest sales periods of the year under normal
seasonality trends. The results for a 12 month period ending December 31, 1997
probably would not have produced a lesser loss for the reporting period than the
loss as represented for the 10 month period ending December 31, 1997.

         For the 10 month period ended December 31, 1997, the Company had sales
of $13,951,725, as compared to sales of $30,810,037 for Fiscal 1997.

         Sales of the Company's proprietary bag products, FRESH-SAC-Registered
Trademark- T-shirt sack produce bag, HANDI-SAC -TM- and MAXI-SAC-TM-, and film
products were $6,185,039 in the 10 month period ended December 31, 1997,
compared to sales of $12,035,704 in Fiscal 1997. Sales of traditional
products decreased to $6,739,028 in the 10 month period ended December 31,
1997 from $16,571,656 in Fiscal 1997. The Company also had sales of
insulation overwrap of $58,731 during the 10 month period ended December 31,
1997. RC America, Inc.'s net sales were $968,927 in the 10 month period ended
December


                                       13
<PAGE>

31, 1997 compared to $2,067,746 in Fiscal 1997. Market Media, Inc. recorded
no sales in the 10 month period ended December 31, 1997, compared to sales of
$134,932 during Fiscal 1997.

         In the 10 month period ended December 31, 1997, cost of goods sold was
$17,311,037 or 124.1% of sales, as compared to cost of goods sold in Fiscal 1997
of $27,784,329, or 90.2% of sales. Selling, general and administrative expense
for the 10 month period ended December 31, 1997 was $6,137,985, or 44.0% of
sales, as compared to selling, general and administrative expense of $8,695,612
in Fiscal 1997, or 28.2% of sales. Additional depreciation of approximately
$253,000 would have been recorded in the 10 month period ended December 31,
1997, if the Company had not recorded the write-down of plant and equipment
during Fiscal 1997.

         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
1997, or 3.6% of net sales.

         The net loss of $11,338,869 in the 10 month period ended December 31,
1997, as compared to a net loss of $12,764,231 in Fiscal 1997. The non-cash
expenses of depreciation and amortization were $2,186,621 for the 10 month
period ended December 31, 1997, compared to $3,417,849 for Fiscal 1997. The loss
reported for the 10 month period ending December 31, 1997 would have been
$253,000 greater if the Company had not recorded the write-down of plant and
equipment during Fiscal 1997.

         The Company incurred a loss of $0.73 per share in the 10 month period
ended December 31, 1997 as compared to a loss of $0.96 per share in Fiscal 1997.

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

<TABLE>
<CAPTION>

                                                  10 Month Period Ended
                                                      December 31, 1997           Fiscal 1997
                                                  ---------------------           -----------
<S>                                               <C>                             <C>
Proprietary, traditional and film products              ($7,878,610)              ($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>

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 financings
and cash from operations.

NOTE PAYABLE

         At August 10, 1998, the Company entered into a new revolving line of
credit arrangement with a lender providing for the borrowing of up to $2,000,000
against eligible accounts receivable. Part of the proceeds were used to repay a
line of credit with Foothill Capital Corporation and the balance was used as


                                       14
<PAGE>

general working capital. On October 16, 1998, the Company negotiated an increase
in the advance on its receivable from 70% to 75% of eligible receivables. The
Company paid a fee of 2% of its monthly invoices and interest at prime plus 6%.
The agreement was secured by purchased receivables, general intangibles,
contract rights and all inventory. As of December 31, 1998, the Company was in
default under the terms of the agreement by being late on rent payments to the
Company's landlord.

         On January 27, 1999, the Company entered into a factoring agreement
(the "Factoring Agreement") with Franklin Capital Corporation ("Franklin"), an
entity affiliated with Gary Edidin, one of the Company's directors, whereby the
Company, with full recourse, assigned and sold to Franklin its entire interest
in all of its present and future accounts, instruments, contractual rights,
chattel paper, documents and general intangibles arising from sales of goods
and/or rendition of services, and proceeds thereof and all security and
guarantees therefor, now existing or hereinafter created (the "Receivables").
The Company pays Franklin a factoring fee in an amount equal to 2% of the gross
amount of such Receivables; provided, however, that the minimum commission for
any Receivable shall be $5.00.

         Under the Factoring Agreement, Franklin may advance to the Company up
to 85% of the purchase price of the Receivables as they are created, subject to
a maximum advance at any time outstanding of $2,000,000. Interest is charged for
the number of days that advances of the purchase price of the Receivables are
made to the Company prior to the date they are paid and for the number of days
that the advances from Franklin's account remain outstanding at the prime rate
plus 2% per annum, except that the interest shall in no event be less than 8%
per annum. The Factoring Agreement matures in July 1999 and is renewed
automatically unless notice not to renew is given. The Company has sent a letter
of cancellation to Franklin regarding the Franklin Agreement and is currently
pursuing alternative financing sources.

         Pursuant to the terms of the Factoring Agreement, the Company has
granted Franklin a security interest in all of the Company's present and future
accounts, instruments, contract rights, chattel paper, documents, equipment
inventory, deposit accounts, investment property and general intangibles
(whether arising before or after termination of the Factoring Agreement) and all
returned, repossessed and reclaimed goods and records relating thereto; and all
proceeds of the foregoing collateral, to secure all of the obligations of the
Company arising pursuant to the Factoring Agreement.

         On January 27, 1999, the Company issued a demand revolving note to
Franklin in the principal sum of $1,000,000 (the "Revolving Note") at an
interest rate of 5% above the prime rate; provided, however, that the interest
rate charged will not be less than a minimum annual fixed rate of 12-3/4%. After
demand is made for payment of the principal and interest due on the Revolving
Note, interest shall accrue on the entire unpaid principal balance calculated at
a variable rate per annum equal to 10% above the prime rate. The Company also
agreed to pay Franklin a late charge on all payments made pursuant to the
Revolving Note equal to 5% of the late payment.

         The Revolving Note is secured by a Security Agreement entered into by
the Company and Franklin on January 27, 1999 (the "Franklin Security
Agreement"), granting Franklin a continuing security interest in the Company's
right, title and interest in the Company's present and future accounts,
inventory, equipment and other property. Further, pursuant to the terms of the
Franklin Security Agreement, the amount eligible to be advanced under the
Revolving Note is limited to the lesser of: (i) $1,000,000; and (ii) the sum of
(x) 50% of eligible inventory consisting of finished goods covered by firm
purchase orders or contracts, and (y) 50% of eligible inventory consisting of
raw materials comprised of resins.


                                       15
<PAGE>

SALES OF SECURITIES

         The Company received net proceeds from the privately placed sale of
Common Stock from January 1, 1998 to June 30, 1998, described in Item 5, of
$1,282,951. The proceeds were used for general corporate purposes.

EQUIPMENT PURCHASES AND LEASE FINANCINGS

         From March 1994 through August 1997, the Company acquired, through
purchase or lease, approximately $19,700,000 of 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.

         Certain of the Company's capital leases contained provisions that gave
the lessors the right to accelerate lease payments in the event of default and
each of the Company's capital lessors had filed suit because of defaults. All of
the Company's capital leases, operating leases and real-estate leases were in
default as of December 31, 1998.

         Pursuant to the Agreement, the Company entered into a ten year
equipment lease with DGJ (the "Equipment Lease"), whereby the Company agreed to
lease certain equipment for $1,224,000 per year, payable in equal monthly
installments. The Equipment Lease replaced the existing equipment leases,
described above, which have been terminated, in which the Company was in default
or which were subject to judgments due to past due payments owed by the Company.

         In February 1999, the Company borrowed approximately $219,000 from DGJ
to purchase additional pieces of equipment. This loan bears interest at a rate
of 18% per annum and matures in September 1999.

LIQUIDITY

         The Company's cash flow was enhanced by $2,538,880 from depreciation
and amortization non-cash charges in 1998. Inventory was reduced by $630,453
during 1998. The current asset ratio was 0.12:1 at December 31, 1998 and 0.66:1
after a financial restructuring that occurred on January 27, 1999. See "Business
Recent Financing." The debt-to-equity ratio was 4.4:1 at December 31, 1998 and
2.8:1 after the January 27, 1999 financial restructuring.

IMPAIRMENT OF LONG-LIVED ASSETS AND PATENT INFRINGEMENT SETTLEMENT

         During the fourth quarter of Fiscal 1997, the Company made the decision
to exit the traditional T-shirt bag business. The application of Statement of
Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-
Lived Assets and Long-Lived Assets to be Disposed Of," caused the Company to
recognize a non-cash charge of $5,385,000 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 business.


                                       16
<PAGE>

         Description of impaired assets, patents, goodwill and plant assets
relating to bag making facilities:

<TABLE>
            <S>                                           <C>
            Patents                                       $1,044,577
            Goodwill                                         620,353
            Plant equipment                                3,335,070
            Reserve for agreement with bag-making
                    equipment vendor                         285,000
            Write-off of rubber plates used
                    In bag-making equipment                  100,000
                                                          ----------
            Total                                         $5,385,000
                                                          ----------
                                                          ----------
</TABLE>

         Fair value of all assets, except plant equipment, was determined to be
zero based upon the Company's decision to exit the traditional T-shirt bag
business. Fair value of the plant equipment was determined based upon projected
future cash flows for the remaining useful life, present book value and residual
value of assets at the end of its useful life, with cash flows both discounted
at 14% per year (average cost of secured debt financing).

         A patent infringement suit settlement of $512,648, including legal
defense costs, was recorded during Fiscal 1997.

IMPACT OF INFLATION

         Inflation during the year ended December 31, 1998 did not have any
impact on operating results nor did it have any impact on the last three fiscal
periods.

YEAR 2000

         The Company implemented a Year 2000 compliance project in June 1998,
which addresses the internal risk, requirements and budgets for becoming Year
2000 compliant. The Company has completed an inventory of all of its internal
operations and currently is addressing Year 2000 compliance from its suppliers
and other constituents. In 1998, the Company did not have any costs associated
with Year 2000 compliance. In the first quarter of 1999, the Company expended
$25,000 on Year 2000 compliance.

         As a result of the Year 2000 compliance project, the Company is
upgrading its financial and accounting system at an investment of approximately
$25,000, and is funding the upgrade out of working capital. The finance and
accounting system upgrade is currently in process and is expected to be
installed and tested by July 31, 1999. The Company has tested all of its
manufacturing equipment, including its manufacturing information systems, and
all were determined to be Year 2000 compliant. The Company has not utilized any
independent verification or validation processes since the tests performed on
the Company's manufacturing systems determined the systems to be Year 2000
complaint. The Company does not contract out its systems maintenance and design
and, therefore, has no third party risk in this regard.

         As of May 28, 1999, the Company has contacted five significant
customers, which accounted for 50.3% of total sales for the first quarter of
1999 regarding their Year 2000 compliance status. All of these customers have
indicated that they are either already Year 2000 complaint or are on schedule to
be Year 2000 compliant by December 31, 1999. None of these customers currently
order from the Company through electronic systems.


                                       17
<PAGE>

         The Company sent questionnaires to all 409 vendors as of May 14, 1999
regarding their Year 2000 compliance status. As of May 24, 1999 the Company
received 94 responses. All major vendors responded that they are currently Year
2000 compliant and the other vendors are either Year 2000 compliant or are on
schedule to be Year 2000 compliant by December 31, 1999.

         In the most likely-worse case scenario, Year 2000 compliance issues may
cause the railroad systems in the United States to become dysfunctional, which
would cause the Company to obtain its resin and other supplies by other means of
transportation. The Company would be unable to manufacture products and revenues
would be impacted 60 days after the rail system ceases to function. The
Company's contingency plan is to implement a manual system for its accounting
and finance functions. The Company's manufacturing contingency plan is to
accumulate a 30-day inventory excess of raw materials by December 31, 1999 to
address vendor problems caused by Year 2000 issues.

         The Company has not deferred any of its information technologies
projects due to its Year 2000 efforts. Furthermore, there has been no impact
from any deferred projects on the Company's financial condition or results of
operations.

         The Company is scheduled to be Year 2000 compliant as of July 31, 1999.
The only remaining component, as of May 28, 1999, is the Company's financial and
accounting systems, described above. The additional costs of achieving full Year
2000 compliance are expected to be $25,000.

ITEM 7A.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Not required of the Company at this time.

ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

         On July 6, 1998, the Company reported on Form 8-K the resignation of
PricewaterhouseCoopers LLP as the Company's independent accountants. In
connection with the audits of the Company's financial statements for the 10
month period ended December 31, 1997, Fiscal 1997 and the year ended February
23, 1996 ("Fiscal 1996"), and during the subsequent interim period through July
6, 1998, there were no disagreements between the Company and
PricewaterhouseCoopers LLP relative to accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which, if not
resolved to the satisfaction of PricewaterhouseCoopers LLP, would have caused
PricewaterhouseCoopers LLP to make reference to the matter in its reports on the
financial statements for such periods.

         On July 29, 1998, the Company reported on Form 8-K the engagement of
Livingston & Haynes, P.C. as the Company's independent accountants.  The
decision to engage Livingston & Haynes, P.C. was approved by the Company's Audit
Committee.


                                       18
<PAGE>

                                    PART III

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

GENERAL INFORMATION

         The Company's Certificate of Incorporation and By-laws, each as
amended, provide that the members of the Board will 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. Ivan J. Hughes and Allen S.
Gerrard serve as the Class I directors until the Annual Meeting of Stockholders
to be held in 1999. David N. Laux and Hanspeter Schulz serve as the Class II
directors until the Annual Meeting of Stockholders to be held in the year 2001.
Gary R. Edidin, Bruce M. Fleisher and Theodore L. Koenig serve as the Class III
directors until the Annual Meeting of Stockholders to be held in the year 2000.
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
will hold office until the next election of the class for which directors will
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,
subject to their employment contracts.

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
----                             ---      --------
Hanspeter Schulz                  60      President and Director
Richard H. Nurse                  54      Vice President of Manufacturing
Peter W. Blackett                 50      Senior Vice President of Sales
James F. Koehlinger               62      Chief Financial Officer and Treasurer
C. Jill Beresford                 44      Vice President of Marketing
Ivan J. Hughes                    70      Chairman of the Board
David N. Laux                     71      Director
Gary R. Edidin                    54      Director
Bruce M. Fleisher                 68      Director
Allen S. Gerrard                  63      Director
Theodore L. Koenig                40      Director

         No director or executive officer is related by blood, marriage or
adoption to any other director or executive officer.


         HANSPETER SCHULZ, PH.D. Dr. Schulz has been the Company's President
and Director since January 1999. From August 1998 to January 1999, Dr. Schulz
served as a consultant to the Company. From 1996 to August 1998, Dr. Schulz
was a Director of Business Integration for Celanese Ltd. (a member of the
Hoechst Group), and was one of three managers responsible for the global
installation of Systems Anwendugen Prozesse technologies. From June 1995 to
1996, Dr. Schulz was Business Director for Methanol/Formaldehyde/Polyols, a
global commodity business of Celanese (a member of the Hoechst Group) with
production sites in the United States, Canada and Germany. From



                                       19
<PAGE>


1982 to June 1995, Dr. Schulz was Vice President and General Manager of the
High Density and Ultra High Molecular Weight Polyethylene business at
American Hoechst (a member of the Hoechst Group). From 1959 to 1969, Dr.
Schulz studied chemistry and related subjects at the Universities of
Stuttgart, Germany, Kansas, USA (on a scholarship basis) and Hamburg, Germany
resulting in a Ph.D. of Natural Sciences in 1969.


         RICHARD H. NURSE, PH.D. Dr. Nurse has been the Company's Vice President
of Manufacturing since January 1999. Prior thereto, he was the Company's Vice
President of Technical Development since January 1995. From 1989 to 1995, Dr.
Nurse was 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, he was a
Technical Manager for Nortech Company, another plastics additive manufacturer.
From 1973 to 1985, Dr. Nurse was with the Hoechst AG, a plastics resin
manufacturer, serving in technical application and development management in
South Africa and Germany and since 1979, in the United States. 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, London,
England.

         PETER W. BLACKETT.  Mr. Blackett has been the Company's Senior Vice
President of Sales since March 1999.  From 1997 to 1999, he was employed with
Fina Oil and Chemical Company as Regional Sales Manager and from 1992 to 1997,
as a Technical Service Manager for Fina's High Density Polyethylene business
group.  Mr. Blackett holds a Higher National Certificate in Mechanical
Engineering from Peterborough Technical College and a Graduateship of the
Plastics Institute from Borough Polytechnic in South London.

         JAMES F. KOEHLINGER. Mr. Koehlinger has been the Company's Chief
Financial Officer and Treasurer since January 1999. He previously served as a
consultant to the Company, on a part-time basis, from August 1998 to January
1999. From October 1996 to January 1999, Mr. Koehlinger was a senior consultant
with Benchmark, a financial consulting firm. He previously served as the
Company's Chief Financial Officer from February 1988 to October 1996. Mr.
Koehlinger received a Bachelor of Science degree from Indiana University and a
Master of Business Administration degree from Clark University. He is also a
certified public accountant.


         C. JILL BERESFORD. Ms. Beresford has been the Company's Vice
President of Marketing since January 1999. From June 1998 until January 1999,
she was the Company's Chairman, Chief Executive Officer and Chief Financial
Officer. She also served as the Chief Operating Officer of the Company from
1995 to 1998. She served as the Company's President from July 1996 to June
1998. She was Treasurer of the Company from May 1990 to January 1999 and a
Director of the Company from March 1989 until January 1999. From May 1990 to
July 1995, Ms. Beresford was the Company's Vice President of Marketing. Ms.
Beresford attended the University of Guelph, Ontario, Canada and received a
Masters degree in Business Administration from Boston University.


         IVAN J. HUGHES. Mr. Hughes was re-elected as a Director of the Company
on July 13, 1998 and became Chairman of the Board on January 27, 1999. Mr.
Hughes previously served as a Director of the Company from March 1996 to
February 1998. Since 1991, Mr. Hughes has been the President of the Plastic
Division of Duro Bag Manufacturing Company ("Duro Bag"), a privately held
company which manufactures grocery bags, shopping and specialty bags for the
food and retail industry. Mr. Hughes has been employed by Duro Bag in various
positions for the past 35 years and presently serves on the Executive and
Compensation Committees. Mr. Hughes received a Bachelor of Science degree in
Mechanical Engineering at Lafayette College and completed his graduate studies
at Columbia University.


                                       20
<PAGE>

         DAVID N. LAUX.  Mr. Laux has served as a Director of the Company since
January 1993. Since 1991, Mr. Laux has served as a Director of ROC Taiwan Fund,
a closed end fund listed on the New York Stock Exchange.  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. Mr. Laux received his Bachelor of Arts degree from Amherst College and
his Master of Business Administration degree from the American University in
Washington, D.C.  He has done graduate work at the University of California at
Berkeley and Georgetown University. Mr. Laux is also a graduate of the Advanced
Management Program at Harvard Business School.

         GARY R. EDIDIN. Mr. Edidin has served as a Director of the Company
since January 1999. In January 1999, Mr. Edidin became a Member of the Board of
Managers, Chairman, President and Chief Executive Officer of DGJ. In 1975, Mr.
Edidin co-founded Edidin Associates, an investment banking firm. He has been
Managing Partner of Edidin Associates since 1980. In 1992, Mr. Edidin co-
founded Franklin Capital Corp., a regional asset based lender, and is presently
the Co-Chairman and member of its Board of Directors. In 1980, Mr. Edidin served
as the Chief Executive Officer and Chairman of Optique Du Monde, Ltd. ("ODM"),
an eyewear company. In 1988, ODM was sold to the Safilo Group, an Italian
publicly traded eyewear company. Since 1988, he has been a management consultant
to the Safilo Group and Safilo USA, its U.S. subsidiary. In 1997, Mr. Edidin
represented Safilo Group in its acquisition of Smith Sports Optics, Inc. and
began serving that company as a member of the Board of Directors and Executive
Committee. He has also served as the Chairman and Chief Executive Officer of
Clarin Corp., a manufacturer of institutional seating, since 1993. Since 1998,
Mr. Edidin has served as a member of the Board of Directors of Colors For
Plastic, a plastic coloration company. In 1977, a group of investors, including
Edidin Associates, purchased the Lawndale Trust and Savings Bank, a community
bank in Chicago. The same subsequently purchased the Garfield Ridge Trust and
Savings Bank and the Bank of Chicago, two Chicago community banks. In 1995,
these three banks were merged into one under the name Bank of Chicago. In 1997,
Bank of Chicago was sold to TCF, a publicly traded savings bank headquartered in
Minnesota. Mr. Edidin has served these banks in various capacities over the
years, including Chairman and Chief Executive Officer. Mr. Edidin received his
Bachelor of Science degree from the University of Pennsylvania, Wharton School,
and his Juris Doctor degree from the University of Chicago Law School. Mr.
Edidin also attended the University of Chicago Business School.

         BRUCE M. FLEISHER. Mr. Fleisher has served as a Director of the Company
since April 1999. Since 1998, Mr. Fleisher has been involved in private
investing. From 1996 to 1998, he served as the Vice President and Division
Manager, Chicago for the Supply Systems Division of Unisource Worldwide, Inc., a
wholesale distributor of paper and packaging supplies. From 1983 to 1996, he was
the President and owner of Darter, Inc. In 1996, Darter, Inc. was purchased by
Unisorce Worldwide, Inc. From 1996 to 1997, he was also a member of the Board of
Directors and Chairman of the Industrial Committee for the National Paper Trade
Association. Mr. Fleisher received his Bachelor of Science degree in Economics
from the University of Pennsylvania, Wharton School, and his Masters degree in
Business Administration from George Washington University.

         ALLEN S. GERRARD. Mr. Gerrard has served as a Director of the Company
since January 1999. Since 1996, Mr. Gerrard has served as a Director of Deere
Park Capital Management, an investment and merchant banking firm, and since
April 1998, he has also served as Vice-Chairman of such company. Beginning in
January 1999, Mr. Gerrard has been a Member of the Board of Managers and
Treasurer of DGJ. From November 1998 to March 1999, Mr. Gerrard served as
Director of McConnell Dowell Corporation, Limited, a publicly traded company
involved in construction. Since 1997, Mr. Gerrard has served as a Director of
Dominion Bridge Company, a publicly-traded construction and shipbuilding
company. Mr. Gerrard received his Bachelor of Arts degree in Political Science
from the University of Illinois in Champaign-Urbana and his Juris Doctor degree
from the University of Michigan Law School.


                                       21
<PAGE>

         THEODORE L. KOENIG. Mr. Koenig has served as a Director of the Company
since April 1999. In 1996, Mr. Koenig founded and since has served as President
of Monroe Investments, Inc., a Chicago-based investment and merchant banking
firm specializing in strategic growth investment opportunities. Mr. Koenig's
principal occupation is that of an attorney. He has been a partner with Holleb &
Coff, a Chicago-based law firm since 1989. Mr. Koenig received his Bachelor of
Arts degree in Accounting from Indiana University Kelley School of Business and
his Juris Doctor degree from the Illinois Institute of Technology, Chicago Kent
School of Law. Mr. Koenig is also a Certified Public Accountant.

SIGNIFICANT EMPLOYEE

         The following employee is not an executive officer of the Company but
is expected to make significant contributions to the business of the Company:

NAME                                          AGE        POSITION
----                                          ---        --------
Tracy L. McGrath                              34         Vice President of Sales


         TRACY L. MCGRATH. Ms. McGrath has served as the Company's Vice
President of Sales since January 1999. Prior thereto, she was the Company's Vice
President of Marketing since December 1997 and, prior thereto, was the Company's
Marketing Manager since November 1993. Ms. McGrath has a Bachelor of Science
degree in Communications from Eastern Connecticut State University.

             SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Exchange Act requires the Company's directors and
officers, and persons who own more than 10% of a registered class of the
Company's equity securities, to file with the Commission reports of ownership
and changes in ownership of Common Stock and other equity securities of the
Company. Officer, directors and greater-than-10% stockholders are required by
the Commission regulation to furnish the Company with copies of all Section
16(a) forms they file.

         Based solely on review of the copies of such reports furnished to the
Company or written representations that no other reports were required, the
Company believes that, during 1998, its officers, directors and greater-than-10%
beneficial owners were in compliance with all filing requirements.

ITEM 11.      EXECUTIVE COMPENSATION

         The following table sets forth certain information with respect to the
annual and long term compensation for services in all capacities to the Company
during 1998, the 10 months ended December 31, 1997, Fiscal 1997 and Fiscal 1996,
of those persons who were, at December 31, 1998: (i) the Company's Chief
Executive Officer (including persons who held this position at any time during
1998); and (ii) other executive officers of the Company receiving total cash and
bonus compensation in excess of $100,000. The Company did not grant any
restricted stock awards or stock appreciation rights or make any long term
incentive plan payouts to the individuals named in the tables below during the
periods indicated.


                                       22
<PAGE>

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                                  Long Term
                                                                                             Compensation Awards
                                                                                             -------------------
                                            Annual Compensation
                                            -------------------
                                                                                        Securities
                                                                                        Underlying         All Other
    Name and Principal Position         Fiscal Year        Salary(1)      Bonus(2)      Options(#)       Compensation
    ---------------------------         -----------        ---------      --------      ----------       ------------
<S>                                     <C>                <C>            <C>           <C>              <C>
Dennis N. Caulfield (3)                   1998              $169,846         $0              0              $9,923(3)
    Former Chief Executive Officer        1997(A)           $266,666         $0              0             $43,323(3)
                                          1997              $320,000         $0              0            $130,220(3)
                                          1996              $320,000         $0              0             $36,174(3)

C. Jill Beresford (4)                     1998              $182,506         $0              0             $12,848(4)
    Chief Executive Officer,              1997(A)           $150,000         $0              0              $6,424(4)
    Chairman of the Board of              1997              $180,000         $0              0             $26,716(4)
    Directors                             1996              $180,000         $0              0             $14,612(4)

                                          1998              $124,856         $0              0              $1,746(5)
Alex F. Vaicunas (5)                      1997(A)           $104,167         $0              0              $3,150(5)
    Former Vice President of Film         1997              $125,000         $0              0              $3,232(5)
    Sales                                 1996              $125,000         $0              0              $1,213(5)


                                          1998              $119,115         $0              0              $8,935(6)
Richard Nurse, Ph.D. (6)                  1997(A)            $64,399         $0              0              $3,410(6)
    Vice   President   of  Technical      1997               $77,279         $0              0              $4,401(6)
    Development                           1996               $71,936         $0              0              $3,656(6)


                                          1998               $32,332         $0              0                $668(7)
Paul  J. DeCristofaro (7)                 1997(A)            $83,410         $0              0                    $0
    Former Chief Financial Officer        1997              $100,092         $0              0                    $0

</TABLE>


(A)  Reflects information for the 10 months ended December 31, 1997.

(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.

(2)      From July 1, 1993 through December 31, 1998, Mr. Caulfield, Ms.
         Beresford and Mr. Vaicunas were eligible to participate in an executive
         compensation program which provided them with an aggregate bonus equal
         to 6% 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 would not exceed $750,000 in the
         aggregate in any fiscal year beginning with fiscal year 1995. No
         bonuses were paid to Mr. Caulfield, Ms. Beresford or Mr. Vaicunas
         during 1998, the 10 month period ended December 31, 1997, in Fiscal
         1997 or in Fiscal 1996 under this program. This program is no longer in
         effect.



                                       23
<PAGE>

(3)      In the periods presented, the Company paid approximately $335 and $990
         per month for two personal term life insurance policies for Mr.
         Caulfield and $700 per month for a disability policy. The Company also
         made automobile and insurance payments of approximately $980 per month
         during 1998, the 10 months ended December 31, 1997, in Fiscal 1997 and
         in Fiscal 1996, for an automobile for Mr. Caulfield. The Fiscal 1997
         amount includes $73,846 paid for unused vacation from prior fiscal
         years and $12,308 for unused vacation from Fiscal 1997. This amount
         also includes $0, $6,400, $8,000 and $0 the Company contributed to Mr.
         Caulfield's 401(k) account during 1998, the 10 months ended December
         31, 1997, in Fiscal 1997 and in Fiscal 1996, respectively. Mr.
         Caulfield's employment with the Company terminated on July 2, 1998.


(4)      In the periods presented, the Company paid approximately $80 per month
         for a personal term life insurance policy for Ms. Beresford and
         approximately $190 per month for a disability policy. In the periods
         presented, the Company also made automobile and insurance payments of
         approximately $435 and $790, respectively, per month for an automobile
         for Ms. Beresford for 1998 and all other periods presented,
         respectively. The amount also includes $10,385 and $7,616 of unused
         vacation pay that was paid in Fiscal 1997 and Fiscal 1996,
         respectively. This amount also includes $3,655, $3,655, $3,738 and $623
         the Company contributed to Ms. Beresford's 401(k) account during 1998,
         the 10 months ended December 31, 1997, in Fiscal 1997 and in Fiscal
         1996, respectively. Ms. Beresford began serving as the Chairman of the
         Board of Directors and Chief Executive Officer on July 2, 1998, when
         Mr. Caulfield's employment with the Company ceased.

(5)      In the periods presented, the Company paid approximately $65 per month
         for a disability policy for Mr. Vaicunas. This amount excludes
         automobile and insurance payments from the Company on behalf of Mr.
         Vaicunas of approximately $760 per month for an automobile. Mr.
         Vaicunas reimburses the Company for any personal use of the automobile.
         This amount also includes $0, $2,500, $2,452 and $433 the Company
         contributed to Mr. Vaincunas' 401(k) account during 1998, the 10 months
         ended December 31, 1997, in Fiscal 1997 and in Fiscal 1996,
         respectively. Mr. Vaicunas served as the Vice President of Film Sales
         until December 26, 1998.

(6)      In the periods presented, the Company reimbursed Dr. Nurse for mileage
         on his car and travel expenses associated with Company business. Dr.
         Nurse served as the Vice President of Technical Development throughout
         1998.

(7)      This amount includes $668 the Company contributed to Mr. DeCristofaro's
         401(k) account during 1998. Mr. DeCristofaro served as the Company's
         Chief Financial Officer until March 1998.

STOCK OPTION PLANS

         In May 1990, the Company adopted a stock option plan and on October 25,
1993, the Company 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 receive
options, the time period during which the options may be exercised, the number
of shares of Common Stock that may be purchased and the exercise price (which
cannot be less than the fair market value of the Common Stock at 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 exercisable during any one calendar year. Options granted under
the stock option plans generally expire 10 years from the date of grant.


                                       24
<PAGE>

               AGGREGATED OPTION EXERCISED IN THE LAST FISCAL YEAR
                            AND FY-END OPTION VALUES
<TABLE>
<CAPTION>

                                                                                  Number of             Value of
                                                                                  Securities          Unexercised
                                                                                  Underlying          In-the-Money
                                                                             Unexercised Options        Options
                                                                                  at FY-End           Exercisable/
                                      Shares Acquired          Value             Exercisable/        Unexercisable
               Name                     on Exercise          Realized($)        Unexercisable            ($)(1)
               ----                     -----------          -----------        -------------            ------
<S>                                   <C>                    <C>             <C>                      <C>
C. Jill Beresford............                0                    0               163,224/0               0 / 0
</TABLE>

(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, 1998, the fair market value of the
         company's common stock underlying the options (as determined by the
         last sale price quoted on NASDAQ OTC Bulletin Board) was $0.19. Since
         the exercise price of all of the options reflected in this table is
         greater than $0.19, The options held by this individual were not
         in-the-money and are, therefore, not included in this calculation.

401(K) RETIREMENT SAVINGS PLAN

         The Company provides an employee retirement savings plan under Section
401(k) of the Internal Revenue Code which covers substantially all employees
(the "Plan"). 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.

EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS

         The Company 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 were
$320,000, $180,000 and $125,000 per annum, respectively, subject to periodic
review by the Board of Directors. Each of these agreements expired on June 30,
1998. Ms. Beresford's employment agreement was renewed for an additional one
year term. Her agreement provides for severance payments of 60 months base
salary in the event her employment is terminated without cause and prohibits her
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, she has the option to terminate her employment and to receive
additional severance compensation subject to the provisions of their employment
agreements. The Company has also entered into non-competition and
confidentiality agreements with certain other employees.


         In conjunction with the January 1999 Financing (as defined in Item 1
above), on January 27, 1999, the company entered into an employment agreement
with each of Ms. Beresford, Mr. Koehlinger, Dr. Nurse and Dr. Schulz and a
consulting agreement with Mr. Hughes with terms as listed below.  In addition,
on March 22, 1999, the Company entered into an employment agreement with Peter
W. Blackett with terms as listed below.


                                       25
<PAGE>

                  EMPLOYMENT AND CONSULTING AGREEMENT TERMS
<TABLE>
<CAPTION>

EMPLOYEE/CONSULTANT                   BASE SALARY/FEE                   TERM                    WARRANT SHARES
-------------------                   ---------------                   ----                    --------------
<S>                                   <C>                         <C>                           <C>
C. Jill Beresford                        $125,000                 7/1/99 - 6/30/00                   937,000

James F. Koehlinger                      $125,000                 1/27/99 - 1/27/02                1,719,000

Richard H. Nurse                         $125,000                 1/27/99 - 1/27/02                1,719,000

Hanspeter Schulz                         $150,000                 1/27/99 - 1/27/02                2,188,000

Ivan J. Hughes                          $  52,000                 1/27/99 - 1/27/02                  937,000

Peter W. Blackett                        $125,000                 3/22/99 - 3/21/02                        0
</TABLE>

         At the end of the terms of employment of Mr. Koehlinger, Dr. Nurse, Dr.
Schulz and Mr. Blackett, each individual's employment will revert to the status
of employment at will and will thereafter be subject to termination by either
party at any time and regardless of cause. Upon expiration of Ms. Beresford's
term, at the Company's Option, the Company may extend her employment term for an
additional 18 months provided that Ms. Beresford is given proper notice.

         Under the terms of each agreement described above, each of these
individuals will receive options to purchase Common Stock during the term of
each's respective agreement if the Company equals or exceeds certain financial
performance goals. See "Compensation Committee - Board Compensation Committee
Report on Executive Compensation - Bonus Plan" below for a description of the
performance goals. Also, in consideration of Ms. Beresford, Mr. Koehlinger, Dr.
Nurse, Dr. Schulz and Mr. Hughes entering into his or her agreement, the Company
granted each of these individuals a warrant to purchase a certain number of
shares of Common Stock at $0.04 Per share. Such warrants are not exercisable
until the Company's stockholders approve an amendment to the Company's
Certificate of Incorporation increasing the number of shares of authorized
Common Stock. Such warrants expire on January 27, 2009. Please refer to the
chart above, under the title "Warrant Shares," for the number of shares each
individual's warrant is exercisable into. Each of these individuals has paid to
the Company their respective amount due under these warrants. Dr. Schulz, Mr.
Koehlinger, Dr. Nurse and Ms. Beresford borrowed funds in the aggregate amount
of $262,520 from DGJ necessary to exercise these warrants. In consideration for
the loan from DGJ to these individuals, these individuals pledged the shares
which will be issued upon exercise of the warrants. Dr. Schulz is also given, as
consideration for his employment, costs related to an apartment and an
automobile for the duration of his employment under his employment agreement.
Mr. Blackett will be given, as consideration for his employment, reimbursement
for reasonable and necessary expenses incurred in connection with the relocation
of his personal residence closer to the Company's office.

         Each of the agreements between the Company and the employees and
consultant listed above contains a covenant not to compete provision and a
confidentiality provision.

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, David N. Laux, an outside Director, received options to purchase a
total of 7,500 shares of Common Stock at a purchase price of $2.50 per share
through June 9, 2002. In March 1996, Ivan J. Hughes, then considered an
outside Director, received options to

                                       26
<PAGE>

purchase a total of 7,500 shares of Common Stock at a purchase price of $2.38
Per share through June 9, 2003. 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.

BOARD OF DIRECTORS, BOARD COMMITTEES AND MEETINGS

         The Board of Directors has established an Audit Committee, a
Compensation Committee and an Executive Committee. The Board of Directors held
three meetings during 1998. Each director attended at least 75% of all meetings
of the Board of Directors and applicable Committees held during 1998.

EXECUTIVE COMMITTEE

         The Executive Committee is empowered to act with all authority granted
to the Board of Directors between Board of Directors meetings, except with
respect to those matters required by Delaware law or by the Company's By-laws to
be subject to the power and authority of the Board of Directors as a whole.
Messrs. Ivan J. Hughes, Hanspeter Schulz and Gary R. Edidin are the current
members of the Executive Committee. The former Executive Committee did not meet
during 1998.

AUDIT COMMITTEE

         The Board of Directors has established an Audit Committee, whose
current members are David N. Laux, Bruce M. Fleisher, Gary R. Edidin and Allen
S. Gerrard. 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 coverage, the fees charged by the independent auditors, any
transactions which may involve a potential conflict of interest, and internal
control systems.

         The functions of the Audit Committee are to: (i) recommend annually to
the Board of Directors the appointment of the independent public accountants of
the Company; (ii) discuss and review the scope and the fees of the prospective
annual audit and to review the results thereof with the Company's independent
public accountants; (iii) review and approve non-audit services of the
independent public accountants; (iv) review compliance with existing major
accounting and financial policies of the Company; (v) review the adequacy of the
financial organization of the Company; and (vi) review management's procedures
and policies relative to the adequacy of the Company's internal accounting
controls.

         During 1998, the former Audit Committee met one time and the new Audit
Committee has met once in 1999 for the purposes of: (i) reviewing the
arrangements and scope of the Company's annual audit; (ii) discussing the
matters of concern to the Committee with regard to the Company's financial
statements or other results of the audit; and (iii) reviewing the Company's
internal accounting procedures and controls and the activities and
recommendations of the Company's independent public accountants.

COMPENSATION COMMITTEE

         David N. Laux, Bruce M. Fleisher, Gary R. Edidin and Allen S. Gerrard
serve on the Compensation Committee. The former Compensation Committee did not
meet during 1998.


                                       27
<PAGE>

BOARD OF DIRECTORS COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

         The Compensation Committee believes that the primary objectives of the
Company's compensation policies are to attract and retain a management team that
can effectively implement and execute the Company's strategic business plan.
These compensation policies include: (i) an overall management compensation
program that is competitive with management compensation programs at companies
of similar size to attract, retain and motivate superior talent in the Company's
industry; (ii) short-term bonus incentives for management to meet the Company's
overall business strategy and profitability goals, including net income
performance goals; (iii) promoting the Company's pay-for-performance philosophy;
and (iv) long-term incentive compensation which will encourage management to
continue to focus on stockholder return.

         It is the intention of the Compensation Committee to utilize a pay-for-
performance compensation strategy that will facilitate the attainment of the
Company's sales growth and profitability goals. Also, the Compensation
Committee's goal is to use compensation policies to closely align the interests
of the Company with the interests of stockholders so that the Company's
management has incentives to achieve short-term performance goals while building
long-term value for the Company's stockholders. The Compensation Committee will
review its compensation policies from time to time to determine the
reasonableness of the Company's compensation programs and to take into account
factors which are unique to the Company.

         BONUS PLAN. To incentivize senior management of the Company, Ms.
Beresford, Mr. Koehlinger, Dr. Nurse, Dr. Schulz, Mr. Blackett and Mr. Hughes
will receive options to purchase Common Stock, at $0.04 per share, during the
term of their respective employment or consulting agreements if the Company
equals or exceeds certain financial performance goals in 1999, 2000 and 2001. If
the Company's net earnings for the particular fiscal years plus amounts deducted
in the computation thereof for: (a) interest expense; (b) Federal, state and
local income taxes; (c) depreciation; (d) amortization of intangibles, as
computed by the Company's accountants in accordance with generally accepted
accounting principals, consistently applied; and (e) any expenses or other
charges associated with the investment, loans, and equipment leases made by DGJ
to the Company and all other charges ("EBITDA"), equals or exceeds one of the
EBITDA performance goals as stated in the employment or consulting agreements,
the Company will grant such individuals options to purchase a certain number of
shares of Common Stock. The maximum number of shares of Common Stock, in the
aggregate, these individuals and one other employee, Ms. McGrath, can purchase
under these options is 14,750,000 shares. These options are not exercisable
until the Company's stockholders approve an amendment to the Company's
Certificate of Incorporation increasing the number of authorized shares of
Common Stock. See "Employment Contracts, Termination of Employment and Change in
Control Arrangements" section above for a description of these agreements.

         COMPENSATION FOR PRIOR CHIEF EXECUTIVE OFFICERS. Mr. Caulfield's and
Ms. Beresford's compensation as Chief Executive Officer was based upon analysis
by the predecessor Compensation Committee of other comparable public companies'
chief executive officers' compensation and each's efforts and success in the
following areas: establishing strategic goals and objectives for the long-term
growth of the Company; raising equity and debt capital needed to allow the
Company to erase its working capital deficit and adequately capitalizing the
Company to move forward; improving the Company's operating results; and
establishing critical strategic partnerships with vendors and distribution
channels.

         BASE SALARIES. Ms. Beresford's base salary will continue to be
$180,000 per annum until June 30, 1999 and for her employment term from July
1, 1999 to June 30, 2000, her base salary will be $125,000 per annum. The
current Compensation Committee believes that executive officer salaries
reflect base salaries paid to senior officers of other companies of similar
size.


                                       28
<PAGE>

         Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally disallows tax deductions to public companies for compensation
over $1 million paid to a corporation's chief executive officer and the four
other most highly compensated executive officers. Qualifying "performance-based"
compensation will not be subject to the deduction limit if certain requirements
are met. The Compensation Committee has discussed and considered and will
continue to evaluate the potential impact Section 162(m) has on the Company in
making compensation determinations, but has not established a set policy with
respect to future compensation determinations.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         The Compensation Committee consists of David N. Laux, Bruce M.
Fleisher, Gary R. Edidin and Allen S. Gerrard. 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. However, Ivan J. Hughes, the Chairman of
the Board, serves on the Compensation Committee of Duro Bag, a customer of the
Company. See "Certain Relationships and Related Transactions" in Item 13 below.

CONCLUSION

         The current Compensation Committee believes that the newly-instituted
executive compensation plan implemented as part of the January 1999 Financing is
consistent with the overall corporate strategy for continued growth in sales,
manufacturing and earnings and stockholder value.

                             COMPENSATION COMMITTEE

                                 Gary R. Edidin
                                Bruce M. Fleisher
                                Allen S. Gerrard
                                  David N. Laux

                                PERFORMANCE GRAPH

         The following graph compares the cumulative total stockholder return
(assuming reinvestment of dividends) from investing $100 on December 31, 1993,
and plotted at December 31, 1994, 1995, 1996, 1997 and 1998 in each of: (i) the
Company's Common Stock; (ii) The National Association of Securities Dealers
Automated Quotation System ("NASDAQ") National Market System Index of Companies;
and (iii) Media General Industry Group representing Packaging and Container
Companies, which consists of other companies in the packaging and containers
manufacturing industry.


                                       29
<PAGE>

                COMPARISON FOR FIVE YEAR CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
                                             1993          1994          1995         1996          1997         1998
                                             ----          ----          ----         ----          ----         ----
<S>                                          <C>        <C>           <C>          <C>           <C>          <C>
BPI Packaging Technologies, Inc.             $100        $62.26        $32.08       $28.77        $16.98       $10.85

NASDAQ Market Index                          $100       $104.99       $136.18      $169.23       $207.00      $291.96

Peer Companies Group                         $100       $101.48       $100.15      $108.45       $100.92       $87.00
</TABLE>

                                GRAPHIC OMITTED.

ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT





DIRECTORS AND EXECUTIVE OFFICERS AND FIVE-PERCENT BENEFICIAL OWNERS

         The following table sets forth the beneficial ownership of Common
Stock or Series A Convertible Preferred Stock as of June 3, 1999 by: (i)
directors of the Company; (ii) executive officers of the Company; (iii)
directors and executive officers of the Company as a group; and (iv) persons
who beneficially owned more than 5% of the Common Stock and Series A
Preferred Stock or by persons who did not beneficially own more than 5% of
the Common Stock and Series A Preferred Stock, in the aggregate, but who
constituted members of a "group" within the meaning of Section 13(d)(3) of
the Exchange Act, beneficially owning more than 5% of the Common Stock and
Series A Preferred Stock. Some of the persons listed below are a member of
such a group by virtue of being a party to the Lockup Agreement (the "Lockup
Agreement"), by and among Ms. Beresford, Mr. Hughes and DGJ, dated January
27, 1999, pursuant to which the parties agreed to vote their shares of stock
as directed by DGJ on any matters presented to the Company's stockholders
with respect to the Securities Purchase Agreement. Each of the persons listed
below disclaims beneficial ownership in any shares beneficially owned by the
others. The number of shares beneficially owned of Common Stock and Series A
Convertible Preferred Stock listed below is based on information contained in
a Schedule 13D filed with the Commission on behalf of the named persons and
on information provided to the Company by the named persons. The percentage
of shares of the class each person is listed as beneficially owning is based
upon 21,500,521 and 188,458 shares of Common Stock and Series A Convertible
Preferred Stock outstanding, respectively, as of June 3, 1999. Except as
otherwise indicated, the stockholders listed in the table have sole voting
and investment powers with respect to the shares indicated.


<TABLE>
<CAPTION>
                                                                                                 PERCENTAGE OF
                                                             NUMBER OF SHARES                  COMMON STOCK AND
NAME AND ADDRESS                                             OF COMMON STOCK                       SERIES A
OF BENEFICIAL OWNER                                        BENEFICIALLY OWNED (1)           PREFERRED STOCK (2)(3)
-------------------                                        ---------------------            ----------------------
<S>                                                        <C>                              <C>
Hanspeter Schulz, Ph.D. (4)(5)                                2,188,000                            9.16%
Richard H. Nurse, Ph.D. (4)(5)                                1,725,000                            7.37%
C. Jill Beresford (4)(5)(6)(7)                                2,561,249                           11.32%
James F. Koehlinger (4)(5)                                    1,719,000                            7.34%
Peter W. Blackett (4)                                                 0                               0%
Ivan J. Hughes (5)(7)(8)                                      1,027,000                            4.54%
  Davis and Oak Streets
  Ludlow, Kentucky  41016-0250
David N. Laux (9)                                                52,500                                *
  1700 N. Moore St, Suite 1703
  Arlington, Virginia  22209
Gary R. Edidin (10)                                          80,000,000                           78.67%
  Edidin & Associates
  600 Central Avenue
  Suite 262
  Highland Park, IL 60035
Allen S. Gerrard (11)                                        80,000,000                           78.67%
  Deere Park Capital Management
  40 Skokie Boulevard
  Suite 110

                                       30
<PAGE>

<CAPTION>
                                                                                                 PERCENTAGE OF
                                                             NUMBER OF SHARES                  COMMON STOCK AND
NAME AND ADDRESS                                             OF COMMON STOCK                       SERIES A
OF BENEFICIAL OWNER                                        BENEFICIALLY OWNED (1)           PREFERRED STOCK (2)(3)
-------------------                                        ---------------------            ----------------------
<S>                                                        <C>                              <C>
  Northbrook, IL 60062



Theodore L. Koenig (12)                                               0                                0%
  55 East Monroe Street, Suite 4100
  Chicago, Illinois 60603
Bruce M. Fleisher                                                     0                                0%
  2350 N. Lincoln Park West
  Chicago, Illinois 60614
DGJ (13)                                                     80,000,000                            78.67%
  600 Central Avenue, Suite 262
  Highland Park, Illinois 60036
All Officers and Directors                                   89,220,249                            81.71%
  as a Group (11 persons)(6)(7)(8)(9)
</TABLE>

*        Less than one percent.

(1)      None of these persons own any shares of Series A Preferred Stock. No
         other stockholder owns at least 5% of the Common Stock and Series A
         Preferred Stock, combined.

(2)      Pursuant to the rules of the 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.

(3)      Except as otherwise noted, does not give effect to the issuance of: (i)
         up to 335,153 shares of Common Stock issuable upon conversion of
         Series A and Series B Convertible Preferred Stock; (ii) up to 180,372
         shares issuable upon exercise of warrants issued to an individual and
         principals of the placement agent in the Company's private placements
         to overseas DGJs; (iii) up to 1,950,000 shares issuable upon exercise
         of options granted or available for grant under the Company's 1990,
         1993 and 1996 Stock Option Plans; (iv) up to 200,000 shares of Common
         Stock issuable upon the exercise of warrants issued to financial
         consultants of the Company, subject to adjustment; and (v) up to
         5,000,000 and 900,000 shares of Common Stock issuable upon the
         exercise of warrants expiring January 27, 2009 and January 27, 2003,
         respectively, issued to consultants of the Company, subject to
         adjustments.

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


                                       31
<PAGE>


(5)      These individuals acquired warrants to purchase a certain number of
         shares Common Stock at $0.04 per share. These warrants expire on
         January 27, 2009 and are described above in "Board of Directors and
         Executive Officers - Employment Contracts, Termination of Employment
         and Change in Control Arrangements." These warrants are not exercisable
         until the Company's stockholders approve an amendment to the Company's
         Certificate of Incorporation increasing the number of authorized shares
         of Common Stock. The following table lists the name of the individual
         and the corresponding number shares of Common Stock his or her warrant
         is convertible into (the "Warrant Shares"):

<TABLE>
<CAPTION>
                    Name                       Warrant Shares
                    ----                       --------------
               <S>                             <C>
               Hanspeter Schulz, Ph.D.            2,188,000
               Richard H. Nurse, Ph.D.            1,719,000
               C. Jill Beresford                    937,000
               James F. Koehlinger                1,719,000
               Ivan J. Hughes                       937,000
                                                  ---------
                                                  7,500,000
</TABLE>


(6)      Includes: (i) 1,314,130 shares of Common Stock; (ii) 146,695 shares of
         Series B Convertible Preferred Stock; (iii) 163,224 shares of Common
         Stock issuable upon the exercise of an option at a price of $2.50 per
         share through June 30, 2003; and (iv) 937,000 shares of Common Stock
         issuable upon the exercise of a warrant (see footnote 5).

(7)      Under the terms of the Lockup Agreement, agreed to vote as directed by
         DGJ with respect to any matters presented to the Company's stockholders
         with respect to the Agreement and agreed not to sell shares of Common
         Stock without the prior written consent of DGJ.

(8)      Includes: (i) 82,500 shares of Common Stock; (ii) 7,500 shares of
         Common Stock issuable upon exercise of an option at a purchase price of
         $2.38 per share through March 24, 2006; and (iii) 937,000 shares of
         Common Stock issuable upon the exercise of a warrant (see footnote 5).

(9)      Includes: (i) 20,000 shares of Common Stock; (ii) 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; and (iii) 25,000 shares of Common
         Stock issuable upon exercise of an option at a purchase price of $1.25
         per share through December 31, 2003.

(10)     A member of DGJ and also a member of the Board of Managers, Chairman,
         President and Chief Executive Officer of DGJ. Mr. Edidin holds no
         shares of the Company directly, but may deemed to beneficially own
         80,000,000 shares of Common Stock beneficially owned by DGJ by virtue
         of his positions with DGJ. See footnote (13) for a description of DGJ's
         beneficial ownership of 80,000,000 shares of Common Stock. This amount
         does not include 1,629,930 shares of Series C Preferred Stock of the
         Company owned by DGJ. Mr. Edidin disclaims beneficial ownership of all
         such shares.


(11)     A Director of Deere Park Capital Management, which is a member of DGJ.
         He is also a Member of the Board of Managers and Treasurer of DGJ. Mr.
         Gerrard holds no shares of the Company directly, but may deemed to
         beneficially own 80,000,000 shares of Common Stock beneficially owned
         by DGJ by virtue of his positions with DGJ. See footnote (13) for a
         description of DGJ's beneficial ownership of 80,000,000 shares of
         Common Stock. This amount does not include 1,629,930 shares of
         Series C Preferred Stock of the Company owned by DGJ. Mr. Gerrard
         disclaims beneficial ownership of such shares.


                                       32
<PAGE>

(12)     A member of Monroe Investments, Inc., which is a member of Hilco BPI,
         L.L.C., which is a member of DGJ. He disclaims beneficial ownership of
         stock of the Company except to the extent of his membership interest in
         DGJ through such entities.



(13)     Includes 30,937,500 shares of Common Stock currently issuable upon the
         exercise of a warrant at a price of $0.04 per share through January 27,
         2009 and 49,062,500 shares of Common Stock issuable upon the exercise
         of a warrant at a price of $0.04 per share through January 27, 2009 if
         the stockholders approve at the Annual Meeting of Stockholders or a
         special meeting of stockholders the increase in the authorized number
         of shares of Common Stock. However, DGJ has indicated that it has no
         current intention of exercising this warrant to purchase Common Stock.
         This amount does not include 1,629,930 shares of Series C Preferred
         Stock of the Company owned by DGJ.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Ivan J. Hughes, a director of the Company, is the President of the
Plastic's Division, and a director and a member of the Executive and
Compensation Committees of Duro Bag. In January, February, March, April and May
Duro Bag issued purchase orders for $192,000, $190,335, $209,513, $255,729 and
$0 to the Company to purchase bags for Duro Bag customers. The Company expects
similar orders from Duro Bag to those received in the first four months of 1999
during the remainder of the year. The Company manufactures these products on
behalf of Duro Bag for its customers. The Company sells these products on terms
as contracted by Duro Bag and its customers, which terms are equal, if not
better, than the Company could obtain from its other customers for these
products.


         In November 1990, the Company established an officer's loan receivable
from Dennis N. Caulfield, its then Chairman for $132,197. 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. Interest on the loan, along
with advances for travel not offset by expense reports, caused the loan balance
to equal $586,978 at December 31, 1997. Mr. Caulfield did not make any payments
against the loan from the period beginning 1990 through December 31, 1997.
Accordingly, the Company reserved the full amount of this loan on that date.
Also, no payments were made in 1998. In addition, the Company paid, on behalf of
Mr. Caulfield, approximately $36,000 of a $200,000 personal income tax levy
imposed by the Massachusetts Department of Revenues on Mr. Caulfield in exchange
for an interest bearing note due on or before June 30, 1998, which has not yet
been repaid. This note was reserved for as of March 31, 1999.


         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 year period based on RC
America attaining certain levels of pre-tax earnings. No shares of Common Stock
were issued in 1998 or for the 10 month period ended December 31, 1997. As a
result of RC America's earnings for Fiscal 1997 and Fiscal 1996, 2,649 and 2,550
shares, respectively, of the 100,000 shares of Common Stock were issued to Mr.
Ronald Caulfield. The Exchange Agreement contains demand and piggy-back
registration rights for the shares.

         In February 1999, the Company borrowed approximately $219,000 from DGJ
to purchase additional pieces of equipment. This loan bears interest at a rate
of 18% per annum and matures in September 1999.

         Four of the Company's directors, Gary R. Edidin, Allen S. Gerrard,
Theodore L. Koenig and Bruce M. Fleisher, are either affiliated with DGJ or have
been appointed by DGJ. The January 1999 Financing and all other transactions
between the Company and DGJ will be deemed to be related party transactions due
to the relationship of these directors to DGJ. Also, Mr. Koenig is a partner
with the Chicago-based law firm of Holleb & Coff, which provides legal services
to the Company.


                                       33
<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                                 F-1
          -- Livingston & Haynes, P.C.

         Report of Former Independent Accountants -
         PricewaterhouseCoopers LLP                                        F-2

         Consolidated Balance Sheets as of December 31, 1998 and 1997      F-3

         Consolidated Statements of Operations for the year ended
         December 31, 1998, the 10 month period ended
         December 31, 1997, and for the fiscal year ended
         February 28, 1997                                                 F-5

         Consolidated Statements of Changes in Stockholders'
         Equity for the year ended December 31, 1998, the 10
         month period ended December 31, 1997
         and the fiscal year ended February 28, 1997                       F-6

         Consolidated Statements of Cash Flows for the year
         ended December 31, 1998, the 10 month period ended
         December 31, 1997 and the fiscal year ended February 28, 1997     F-8

         Notes to Consolidated Financial Statements                        F-10

(a)(2)   FINANCIAL STATEMENT SCHEDULES.  The financial statement schedules
         required to be filed by Item 8 herewith is as follows:

         Schedule II     Valuation and Qualifying Accounts                  S-1

(a)(3)   Exhibits:

EXHIBIT NO.:  DESCRIPTION TITLE:

3             Certificate of Incorporation of the Company, as amended (6)

3.1           By-laws of the Company, as amended (6).

4             Form of Certificate of Designation of Series A Convertible
              Preferred Stock, as amended (2).

4.1           Form of Amended Certificate of Designation for Series B
              Convertible Preferred Stock (2).

4.2           Specimen Series A Convertible Preferred Stock Certificate (2).

4.3           Form of Common Stock Purchase Warrant (13).


                                       34
<PAGE>


4.4           Certificate of Designation of Series C Preferred Stock (13).

4.5           Pledge Agreement, dated as of January 27, 1999, between DGJ and
              C. Jill Beresford (13).

4.6           Common Stock Purchase Warrant issued by the Company to Global
              Financial Services, Inc. (14).

4.7           Common Stock Purchase Warrant issued by the Company to DGJ,
              L.L.C. (14).

4.8           Common Stock Purchase Warrant issued by the Company to Brantrock
              (14).

10**          1990 Stock Option Plan (1).

10.1**        Form of Employment Agreement of Dennis N. Caufield (3).

10.2**        Form of Employment Agreement of C. Jill Beresford (3).

10.3**        Form of Employment Agreement of Alex F. Vaicunas (3).

10.4**        1993 Stock Option Plan (3).

10.5          Stock Exchange Agreement by and between the Company and Ronald V.
              Caufield (4).

10.6**        Employment Agreement of Ronald V. Caufield (4).

10.7          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 (5).

10.8          Amendment to Promissory Note of Dennis N. Caufield (7).

10.9          Lease for Premises at 455-473 Somerset Ave., North Dighton,
              Massachusetts (7).

10.10**       1996 Stock Option Plan (8).

10.11         Loan and Security Agreement by and among the Company, RC America,
              Inc. and Foothill Capital Corporation (9).

10.12         Secured Promissory Note from the Company and RC America to
              Foothill (9).

10.13         Pledge and Security Agreement by and between the Company and
              Foothill (9).

10.14         Continuing Guaranty of Market Media, Inc (9).

10.15         Continuing Guarantee of BPI Packaging (UK) Limited (9).

10.16         Security Agreement by and between Market Media, Inc. and Foothill
              (9).

10.17         Security Agreement by and between BPI  Packaging (UK) Limited and
              Foothill (9).

10.18*        Settlement Agreement by and between the Company and Mobil Oil
              Corporation, dated December 10, 1996 (9).

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

10.20         Secured Promissory Note from the Company and RC America, Inc. to
              Foothill (10).


                                       35
<PAGE>

10.21         Pledge and Security Agreement by and between the Company and
              Foothill (10).

10.22         Continuing Guarantee of Market Media, Inc (10).

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

10.24         Security Agreement by and between Market Media, Inc. and Foothill
              (10).

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

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

10.27         Invoice Purchase and Sale Agreement, dated August 19, 1998 (12).

10.28         Joint Filing Agreement (13).

10.29         Securities Purchase Agreement, dated as of January 27, 1999,
              between the Company and DGJ (13).

10.30         Agreement, dated January 27, 1999, among DGJ,  Ivan J. Hughes
              and C. Jill Beresford (13).

10.31         Closing Agreement, dated as of January 27, 1999, by and among the
              Company, DGJ, and C. Jill Beresford (13).

10.32         Securities Purchase Agreement between the Company and DGJ (14).

10.33         Factoring Agreement between the Company and Franklin Capital
              Corporation (14).

10.34         Revolving Note issued by the Company to Franklin (14).

10.35         Security Agreement between the Company and Franklin (14).

10.36         Employment Agreement between the Company and C. Jill Beresford
              (14).

10.37         Employment Agreement between the Company and James Koehlinger
              (14).

10.38         Employment Agreement between the Company and Richard H. Nurse,
              Ph.D (14).

10.39         Employment Agreement between the Company and Hanspeter Schulz,
              Ph.D (14).

10.40         Consulting Agreement between the Company and Ivan J. Hughes (14).

10.41         Employment Agreement between the Company and Peter W. Blackett
              (15)

16            Letter from Pricewaterhouse Coopers LLP to the Securities and
              Exchange Commission (11).

21            Subsidiaries of the Company (4).

27            Financial Data Schedule.

99            Press Release, dated July 7, 1998 (11).

99.1          Press Release, dated January 28, 1999 (14).


                                       36
<PAGE>

(1)           Incorporated by reference from our Form S-18 Registration
              Statement (No. 33-36142-B) declared effective by the SEC on
              October 3, 1990.

(2)           Incorporated by reference from our Form S-1 Registration
              Statement (No. 33-39463) declared effective by the SEC on
              June 13, 1991.

(3)           Incorporated by reference from our Form S-1 Registration
              Statement (No. 33-39463) declared effective by the SEC on
              June 13, 1991.

(4)           Incorporated by reference from our Annual Report on Form 10-K and
              amendment thereto initially filed with the SEC on June 10, 1994.

(5)           Incorporated by reference from our Quarterly Report on Form 10-Q
              for the quarter ended August 25, 1995 and filed with the SEC on
              October 6, 1995.

(6)           Incorporated by reference from our Quarterly Report on Form 10-Q
              for the quarter ended November 24, 1995 and filed with the SEC on
              January 8, 1996.

(7)           Incorporated by reference from our Annual Report on Form 10-K for
              the fiscal year ended February 23, 1996 and filed with the
              Commission on June 7, 1996.

(8)           Incorporated by reference from our Quarterly Report on Form 10-Q
              for the quarter ended August 23, 1996 and filed with the SEC on
              October 15, 1996.

(9)           Incorporated by reference from our Quarterly Report on Form 10-Q
              for the quarter ended November 22, 1996 and filed with the SEC on
              January 7, 1997.

(10)          Incorporated by reference from of our Annual Report on Form 10-K
              for the 10 month period ended December 31, 1997 and filed with the
              SEC on May 27, 1998.

(11)          Incorporated by reference from our Current Report on Form 8-K with
              the SEC on July 14, 1998.

(12)          Incorporated by reference from our Quarterly Report on Form 10-Q
              for the quarter ended September 30, 1998 and filed with the SEC
              on November 16, 1998.

(13)          Incorporated by reference from our Schedule 13D filed with the
              SEC on February 2, 1999.

(14)          Incorporated by reference from our Current Report on Form 8-K,
              dated January 27, 1999, and filed with the SEC on
              February 11, 1999.

(15)          Incorporated by reference from our Current Report on Form 8-K,
              dated March 31, 1999, and filed with the SEC on March 31, 1999.


* Certain formation withheld and filed separately with the SEC pursuant to a
request for confidential treatment.
**   These exhibits relate to executive compensation plans and arrangements.

 (b)     REPORTS ON FORM 8-K:  No reports on Form 8-K were filed during the
         fourth quarter of 1998 by the Company.


                                       37
<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:  June 16, 1999

                                             By:    /s/ Hanspeter Schulz
                                                    ---------------------------
                                                    Hanspeter Schulz, President

     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.


<TABLE>
<CAPTION>

Signature                                  Title                                                    Date
---------                                  -----                                                    ----
<S>                                        <C>                                                 <C>
/s/ Hanspeter Schulz                       President and Director                              June 16, 1999
--------------------


/s/ Ivan J. Hughes                         Chairman of the Board                               June 16, 1999
------------------


/s/ Richard H. Nurse                       Vice President of Manufacturing                     June 16, 1999
--------------------


/s/ C. Jill Beresford                      Vice President of Marketing                         June 16, 1999
---------------------


/s/ James F. Koehlinger                    Chief Financial Officer,                            June 16, 1999
-----------------------                    Principal Accounting Officer and
                                           Treasurer


/s/ David N. Laux                          Director                                            June 16, 1999
-----------------


/s/ Gary R. Edidin                         Director                                            June 16, 1999
------------------


/s/ Bruce M. Fleisher                      Director                                            June 16, 1999
---------------------


/s/ Allen S. Gerrard                       Director                                            June 16, 1999
--------------------


/s/ Theodore L. Koenig                     Director                                            June 16, 1999
----------------------
</TABLE>



                                       38
<PAGE>

                        BPI PACKAGING TECHNOLOGIES, INC.

                                    INDEX TO
                        CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                              Page
<S>                                                                                           <C>
Report of Independent Accountants -- Livingston & Haynes, P.C.                                F-1

Report of Former Independent Accountants - PricewaterhouseCoopers LLP                         F-2

Consolidated Balance Sheets as of December 31, 1998 and 1997                                  F-3

Consolidated Statements of Operations for the year ended December 31, 1998, the 10-
month period ended December 31, 1997 and the fiscal year ended February 28, 1997              F-5

Consolidated Statements of Stockholders' Equity for the year ended December 31,
1998, the 10-month period ended December 31, 1997 and the fiscal year ended
February 28, 1997                                                                             F-6

Consolidated Statements of Cash Flows for the year ended December 31, 1998, the
10-month period ended December 31,1997 and the fiscal year ended February 28, 1997            F-8

Notes to Consolidated Financial Statements                                                   F-10
</TABLE>

<PAGE>

          REPORT OF INDEPENDENT ACCOUNTANTS - LIVINGSTON & HAYNES, P.C.


                                 March 22, 1999



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

     We have audited the accompanying consolidated balance sheet of BPI
Packaging Technologies, Inc., (the "Company") and subsidiaries as of
December 31, 1998 and the related consolidated statements of operations,
stockholders' equity, cash flows and Schedule 2, Valuation and Qualifying
Accounts for the year then ended. 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 audit. The 1997 financial
statements were audited by other auditors whose report dated May 22, 1998, on
those statements, included an explanatory paragraph describing conditions that
raised substantial doubt about the Company's ability to continue as a going
concern.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
and subsidiaries as of December 31, 1998 and the results of their operations,
their changes in stockholders' equity and cash flows for the year then ended are
in conformity with generally accepted accounting principles.


/s/ Livingston & Haynes, P.C.

Livingston & Haynes, P.C.
Wellesley, Massachusetts


                                      F-1
<PAGE>

      REPORT OF FORMER INDEPENDENT ACCOUNTANTS - PRICEWATERHOUSECOOPERS 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 27 present fairly, in all material respects, the
financial position of BPI Packaging Technologies, Inc. and its subsidiaries at
December 31, 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 the year ended February 28, 1997, 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 Standards 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/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Boston, Massachusetts


                                      F-2
<PAGE>



                        BPI PACKAGING TECHNOLOGIES, INC.

                           Consolidated Balance Sheet

                                     Assets

<TABLE>
<CAPTION>
                                                   December 31, 1998           December 31, 1997
                                                   -----------------           -----------------
<S>                                                <C>                         <C>
Current assets:
         Cash                                        $      73,116                $     125,220
         Accounts receivable, net                          882,389                      721,239
         Inventories, net                                  717,413                    1,057,866
         Prepaid expenses                                   51,420                       52,948
                                                     -------------                -------------

         Total current assets                            1,724,338                    1,957,273
                                                     -------------                -------------

Property and equipment, net                             15,290,305                   17,828,860
                                                     -------------                -------------

Deposits - leases and equipment purchases                  149,851                      141,284
Loans to officers, net                                       6,072                        5,416
Other assets, net                                          581,399                    1,037,907
                                                     -------------                -------------
                                                           737,322                    1,184,607
                                                     -------------                -------------
                                                     $  17,751,965                $  20,970,740
                                                     -------------                -------------
                                                     -------------                -------------
</TABLE>


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


                                      F-3
<PAGE>

                        BPI PACKAGING TECHNOLOGIES, INC.

                           Consolidated Balance Sheet

                      Liabilities and Stockholders' Equity

<TABLE>
<CAPTION>
                                                             December 31, 1998            December 31, 1997
                                                             -----------------            -----------------
<S>                                                          <C>                          <C>
Current liabilities
Note payable                                                 $        814,311             $    1,162,349
Trade notes payable                                                   584,433                    584,433
Capital lease obligations due within one year                       3,800,286                  4,426,205
Accounts payable                                                    6,597,223                  6,714,870
Accrued expenses                                                    2,676,239                  2,967,348
                                                                    ---------                  ---------
         Total current liabilities                                 14,472,492                 15,855,205
                                                                   ----------                 ----------

Commitments and contingencies

Stockholders' Equity

Series B convertible preferred stock, $.01 par value                1,466,954                  1,466,954

Series A convertible preferred stock, $.01 par value                  674,032                  1,126,932

Common stock, $.01 par value; shares authorized --
60,000,000 at December 31, 1998 and 1997 Shares
issued and outstanding - 21,495,621 and 19,513,496 at
December 31, 1998 and 1997, respectively

                                                                      214,956                    195,135

Capital in excess of par value                                     44,912,833                 43,076,603
Accumulated deficit                                               (43,989,302)               (40,750,089)
                                                                   ----------                 ----------
                                                                    3,279,473                  5,115,535
                                                                    ---------                  ---------

                                                             $     17,751,965             $   20,970,740
                                                              ---------------              -------------
                                                              ---------------              -------------
</TABLE>


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

                                       F-4
<PAGE>

                        BPI PACKAGING TECHNOLOGIES, INC.

                      Consolidated Statement of Operations
<TABLE>
<CAPTION>
                                                                   10 Month period
                                           Fiscal Year Ended             Ended             Fiscal Year Ended
                                           December 31, 1998       December 31, 1997       February 28, 1997
                                           -----------------       -----------------       -----------------
<S>                                       <C>                      <C>                    <C>
Net sales                                 $      10,382,819        $      13,951,725      $     30,810,037
Cost of goods sold                                8,826,905               17,311,037            27,784,329
                                                  ---------               ----------            ----------

Gross profit (loss)                               1,555,914               (3,359,312)            3,025,708

Operating expenses:
Selling, general and administrative               4,301,842                6,137,985             8,695,612
Bad debt expense                                     ---                     319,736                93,165
Write-down of impaired assets and
  related expenses                                   ---                      ---                5,385,000
Patent infringement settlement                       ---                      ---                  512,648
                                          -----------------          ---------------               -------

Loss from operations                             (2,745,928)              (9,817,033)          (11,660,717)

Other (expense) income:
Allowance for officer loan                          (68,039)                (586,978)                ---
Interest expense                                   (471,166)                (984,064)           (1,112,647)
Interest income                                      45,920                   49,206                 9,133
                                                     ------                   ------                 -----

Net loss                                        ($3,239,213)            ($11,338,869)         ($12,764,231)
                                                -----------             ------------          -------------
                                                -----------             ------------          -------------

Basic and diluted net loss per share                ($0.16)                  ($0.73)               ($0.96)
Shares used in computing basic and
  diluted net loss per share                     20,849,356               15,579,747            13,261,815
</TABLE>


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

                                      F-5
<PAGE>



                        BPI PACKAGING TECHNOLOGIES, INC.

            Consolidated Statement of Changes in Stockholders' Equity

         For the Year Ended December 31, 1998, the 10 Month Period Ended
       December 31, 1997 and for the Fiscal Year Ended February 28, 1997
<TABLE>
<CAPTION>
                                                                                Series A Convertible
                                                         Common Stock             Preferred Stock
                                                         ------------             ---------------


                                                     Shares        Amount       Shares         Amount
                                                     ------        ------       ------         ------
<S>                                                <C>            <C>           <C>           <C>
Balance at February 23, 1996                       11,800,909     118,009       303,946       1,215,784

     Sale of common stock pursuant to
     Regulation S and Regulation D private
     placement offerings, net of issuance costs    1,207,500      12,075

     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

     Conversion of Series A convertible
     preferred stock to common stock               56,800         568           (56,800)      (227,200)

     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

     Issuance of common stock based on RC
     America's FY96 results                        2,550          26

     Issuance of 92,308 Regulation S common
     shares in exchange for Series C redeemable
     preferred stock                               92,308         923

     Net loss for the year ended February 28,
     1997


Balance at February 28, 1997                       14,074,428     140,745       347,146       1,213,584

     Conversion of Series A convertible
     preferred stock to common stock               21,663         217           (21,663)      (86,652)

     Issuance of common stock based on RC
     America FY 97 results                         5,280          52

     Sale of common stock pursuant to
     Regulation S and Regulation D private
     placement offerings, net of issuance costs    4,991,125      49,911



<CAPTION>
                                                   Series B Convertible
                                                      Preferred Stock
                                                      ---------------
                                                                               Capital in          Accumu-
                                                                               Excess of            lated
                                                  Shares         Amount        Par Value           Deficit               Total
                                                  ------         ------        ---------           -------               -----
<S>                                               <C>           <C>             <C>               <C>                   <C>
Balance at February 23, 1996                      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                                 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                                           851,024                                 1,080,050

     Conversion of Series A convertible
     preferred stock to common stock                                            226,632                                 --

     Sale of common stock pursuant to exercise
     of class B warrants from the Company's
     third public offering, net of issuance
     costs                                                                      1,092,799                               1,097,917

     Issuance of common stock based on RC
     America's FY96 results                                                     5,074                                   5,100

     Issuance of 92,308 Regulation S common
     shares in exchange for Series C redeemable
     preferred stock                                                            149,077                                 150,000

     Net loss for the year ended February 28,
     1997


Balance at February 28, 1997                      146,695       1,466,954       38,134,612        (29,411,220)          11,544,675

     Conversion of Series A convertible
     preferred stock to common stock                                            86,435                                       --

     Issuance of common stock based on RC
     America FY 97 results                                                      8,527                                   8,579

     Sale of common stock pursuant to
     Regulation S and Regulation D private
     placement offerings, net of issuance costs                                 4,354,080                               4,403,991
</TABLE>


                                      F-6
<PAGE>


<TABLE>
<CAPTION>
                                                Series A Convertible     Series B Convertible
                             Common Stock          Preferred Stock          Preferred Stock
                             ------------          ---------------          ---------------
                                                                                                Capital in    Accumu-
                                                                                                Excess of      lated
                          Shares      Amount     Shares      Amount      Shares     Amount      Par Value     Deficit        Total
                          ------      ------     ------      ------      ------     ------      ---------     -------        -----
<S>                     <C>         <C>        <C>         <C>         <C>        <C>         <C>          <C>            <C>
   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)  5,115,535

   Sale of Stock
   pursuant to
   Regulation D private
   offerings, net of
   issuance costs         1,868,900   18,689                                                   1,264,262                  1,282,951

   Warrants granted for
   lease extension                                                                               120,200                    120,200

   Conversion of Series
   A Convertible
   Preferred              113,225     1,132      (113,225)   (452,900)                           451,768                        --

   Net loss for the
   year ended December
   31, 1998                                                                                                  (3,239,213) (3,239,213)

Balance at December 31,
1998                   21,495,621  $214,956   212,258     $674,032    146,695    $1,466,954   $44,912,833  ($43,989,302) $3,279,473
                       ----------  --------   -------     --------    -------    ----------   -----------   -----------  ----------
                       ----------  --------   -------     --------    -------    ----------   -----------   -----------  ----------
</TABLE>

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


                                      F-7
<PAGE>



                                         BPI PACKAGING TECHNOLOGIES, INC.


                                       Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
                                                                               10 Month period
                                                        Fiscal Year Ended           ended           Fiscal Year Ended
                                                        December 31, 1998     December 31, 1997     February 28, 1997
                                                        -----------------     -----------------     -----------------
<S>                                                     <C>                   <C>                   <C>
Cash flows from operating activities:
     Net Loss                                                 ($3,239,213)         ($11,338,869)         ($12,764,231)
                                                               ----------           -----------           -----------

Adjustments to reconcile net loss to net cash
provided (used) by operating
     activities:
     Depreciation and amortization                              2,538,880             2,186,621             3,417,849
     Write-down of impaired assets and related
         expenses                                                --                    --                   5,897,648
     Inventory reserve                                           (290,000)             (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:
     (Increase)  Decrease  in accounts  receivable  -            (161,150)            1,197,521                84,372
          trade
     (Increase) Decrease in inventories                           630,453             4,401,587            (1,821,856)
     (Increase) Decrease in prepaid expenses                        1,528               217,538              (302,566)
     Increase (Decrease) in other assets, net                     456,508               840,896              (198,418)
     (Decrease) Increase in accounts payable                     (117,647)              209,020             3,218,584
     (Decrease) Increase in other accrued expenses               (291,109)              364,134               132,409
                                                                 ---------              -------               -------

         Total Adjustments                                      2,767,463            11,007,330            11,643,022
                                                                ---------            ----------            ----------

         Net cash used by operating activities                   (471,750)             (331,539)           (1,121,209)
                                                                  -------               -------             ---------

Cash flows from investing activities:
     Additions to property and equipment                             (325)             (212,144)           (1,549,878)
     Cost of patents                                             --                    --                    (144,928)

     Decrease (increase) in deposits, net                          (8,567)              (12,823)              388,922
     Advances to officers                                            (656)             (112,597)              (44,560)
                                                                     -----             ---------              --------

         Net cash used by investing activities                     (9,548)             (337,564)           (1,350,444)
                                                                   -------              -------             ---------

Cash flows from financing activities:
Net (payments) borrowings under note payable                     (348,038)           (2,571,128)              (19,127)
Principal payments on long-term debt and capital
   lease obligations                                             (625,919)           (1,492,754)           (1,945,014)


Net proceeds from sales and issuances of stock                  1,403,151             4,800,071             4,384,835
                                                                ---------             ---------             ---------

         Net cash provided by financing activities                429,194               736,189             2,420,694
                                                                  -------               -------             ---------
</TABLE>


                                      F-8
<PAGE>


<TABLE>
<CAPTION>
                                                                               10 Month period
                                                        Fiscal Year Ended           ended           Fiscal Year Ended
                                                        December 31, 1998     December 31, 1997     February 28, 1997
                                                        -----------------     -----------------     -----------------
<S>                                                     <C>                   <C>                   <C>
Net (decrease) increase in cash                                   (52,104)               67,086               (50,959)

Cash at beginning of period                                       125,220                58,134               109,093
                                                                  -------                ------               -------

Cash at end of period                                             $73,116              $125,220               $58,134
                                                                  -------              --------               -------
                                                                  -------              --------               -------

Cash paid for interest                                           $471,166              $900,855            $1,093,648
                                                                 --------              --------            ----------
                                                                 --------              --------            ----------
</TABLE>

Non-cash investing and financing activities:

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

         During the 10 month period ended December 31, 1997, two trade payables,
totaling $584,433, were converted into trade notes payable (Note 10).





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


                                      F-9
<PAGE>

                        BPI PACKAGING TECHNOLOGIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1:  ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

         BPI Packaging Technologies, Inc. (the "Company") converts commercially
available high molecular weight, high density polyethylene resins into thin
film, which is either sold directly into industrial or packaging applications or
converted in-house into carryout bags of "T-shirt sack" design for supermarkets,
convenience stores and other retail markets. The Company utilizes advanced, high
quality extrusion, printing and bag making equipment, which was installed
between 1990 and 1997. The Company operated two wholly-owned subsidiaries: RC
America, Inc., which purchased 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. Operations of these two subsidiaries ceased during the year
ended December 31, 1998.

SIGNIFICANT ACCOUNTING POLICIES

FISCAL YEAR

         The Company changed its fiscal year during the period ended December
31, 1997 to coincide with the calendar year, resulting in a 10 month period. In
the previous year, the Company's fiscal year ended February 28, 1997. The
Company was unable to accurately recast operating results to provide for a 12
month period ending December 31, 1997 because monthly closing of the records
were not undertaken during the months in questions. The months of January and
February are the lowest sales periods of the year under normal seasonality
trends.

REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISK

         The Company recognizes revenues on an accrual basis upon shipment of
products and passage of title to the Company's customers. 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.

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


                                      F-10
<PAGE>

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.

         The carrying value of property and equipment is periodically reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying values may not be recoverable.

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 carry-forwards, 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 $42,127, $113,478 and $309,316 for the year ended
December 31, 1998, the 10 month period ended December 31, 1997 and for the
fiscal year ended February 28, 1997.

BASIS OF CONSOLIDATION

     The consolidated financial statements include the results of the Company's
wholly-owned subsidiaries, RC America, Inc., and Market Media, Inc. Operations
of these two subsidiaries ceased during the year ended December 31, 1998. All
inter-company activity has been eliminated in consolidation. The Company
operates in one reportable segment under SFAS No. 131. The activities of RC
America, Inc. and Market Media, Inc. were not significant to the overall
operations of the Company. Therefore, RC America, Inc. and Market Media, Inc.
are not presented as discontinued operations.

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 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 year ended December 31, 1998, the 10
month period ended December 31, 1997 and the fiscal year ended February 28, 1997
computation


                                      F-11
<PAGE>

include 649,557, 783,117 and 773,830 common shares, respectively, issuable upon
the exercise of stock options. Antidilutive potential common shares excluded
from the year ended December 31, 1998, the 10 month period ended December 31,
1997 and the fiscal year ended February 28, 1997 computation also included
358,953, 472,178 and 493,841 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
109,323 issuable upon the exercise of warrants. Antidilutive potential common
shares excluded from the year ended December 31, 1998 computation included
120,200 common shares 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 20).

IMPAIRMENT OF LONG-LIVED ASSETS

         In Fiscal Year ended February 28, 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

         A going-concern footnote was included with the February 28, 1997 and
December 31, 1997 financial statements because the Company had very unfavorable
working capital, debt to equity ratio and


                                      F-12
<PAGE>

operating cash flow deficiencies, which raised substantial doubt about the
Company's ability to continue as a going concern. The restructuring with DGJ (as
described below) significantly improved both the working capital and debt to
equity ratios subsequent to December 31, 1998. New management of the Company put
into place in the middle of 1998 an operating plan that reduced fixed costs and
increased revenues in the second half of 1998. These changes brought about by
the new management have resulted in an improvement in the results of operation
and produced a positive cash flow from operations for the last six months in
1998 and during the first three months of 1999.

         On January 27, 1999, the Company entered into a Securities Purchase
Agreement (the "Purchase Agreement") with an investor, DGJ, L.L.C., a Delaware
limited liability company ("DGJ"), whereby the Company agreed to issue and sell
to DGJ, and DGJ agreed to purchase from the Company the following:

         1.       a Promissory Note in the aggregate principal amount of
                  $3,200,000 (the "Note");

         2.       a Common Stock Purchase Warrant for the purchase of up to
                  80,000,000 shares of the Company's common stock, $.01 par
                  value per share (the "Common Stock"), at an exercise price of
                  $0.04 per share, exercisable until January 27, 2009; and

         3.       1,629,930 shares of Series C Preferred Stock of the Company
                  for $100.

         The Note matures on February 1, 2004 or earlier in the event of a
default, the sale of 50% or more of the Company's assets, the merger or
consolidation of the Company, the purchase of 50% or more of the shares of the
Common Stock by a person who was not a stockholder of the Company at the time of
the execution of the Purchase Agreement, or a primary public offering of the
Company's securities in excess of $10,000,000. The Note has an interest rate of
6% per annum payable monthly in arrears, principal is due at its maturity and it
is secured by all assets of the Company. The Note is subordinated to the
equipment lease and the factoring agreement, described below.

         In conjunction with the financing, DGJ required certain members of the
Company's management to invest, in the aggregate, $300,000 in warrant exercises
that appear as subscribed stock on the Pro Forma Balance Sheet. The Common Stock
represented by the warrants cannot be issued until approval for an increase in
the authorized shares outstanding is obtained at the next annual meeting of
stockholders.

         In conjunction with the financing, the Company entered into agreements
with most of its unsecured creditors that provided for a discounted payment in
February 1999 or a non-interest bearing agreement to pay the entire balance over
a three-year period. The unsecured creditor agreements, together with the
financing referred to above, allowed the Company to restructure trade notes
payable of $584,000 and accounts payable of $6,597,000, or a total of
$7,181,000, compared to $1,874,000 of current accounts payable and $1,426,000 of
long-term debt, or a total of $3,300,000 after refinancing.

         A factoring agreement with a company related to DGJ now provides the
Company with $2,000,000 of financing secured by the Company's accounts
receivable and $1,000,000 secured by its inventory. The term for both accounts
receivable and inventory financing is six months, subject to automatic renewal
unless the Company gives at least 90 days written notice of termination. Written
notice of termination regarding this factoring agreement was given by the
Company on March 30, 1999. The financing bears interest at prime rate plus 5% on
the outstanding balance on the inventory loan and the prime rate plus 2% on all
accounts receivable submitted for financing. The Company may borrow up to 85% of
its qualified accounts receivable and 33% of its qualified inventory.


                                      F-13
<PAGE>

         The gain on the restructuring of trade notes payable and accounts
payable will be accounted for as an extraordinary item in the Company's
Consolidated Statement of Operations in future periods. The creditors who
selected the long-term debt agreement are being paid their balances due over a
36-month period in 36 equal installments with no interest. The Company was
involved in a patent infringement suit and reached a settlement on January 27,
1999 to pay the balance due of $200,000 as part of the restructuring of the
Company's debt described above.

         The Company's equipment, capital and operating leases were funded by
the new equipment lease with DGJ. Current obligations of $3,800,000 and accrued
lease obligations of $1,643,000 were retired and $1,679,000 of equipment
previously treated as operating leases were added to the property and equipment
accounts. The new lease carries no debt reduction obligation and is treated as
long-term debt. The Company's combined monthly payments under the retired leases
were reduced from approximately $305,000 per month to $102,000 per month under
the new lease agreement with DGJ. The term of the lease is ten years and its
monthly payments of $102,000 represent interest only. The total principal amount
of the lease is $6,800,000 and is due at the end of the lease term. The lease
has been recorded as a capital lease during the quarter ended March 31, 1999 and
will be treated as such in future periods. The lease requires the Company to
meet certain financial covenants, including, but not limited to, earnings
targets and debt to equity ratios.


         The Note, warrants and Series C Preferred Stock purchased by DGJ for
$3,200,200 were valued using a discounted cash flow analysis, at an assumed
rate of 14%. Net cash proceeds after fees were assigned to the various
components of this transaction based upon the discounted value of the note at
14%. Of the $3,200,000, $480,000 has been recorded as additional capital in
excess of par value related to the warrants. The Series C Preferred Stock is
determined to have no value separate from the warrants because it is not
convertible to Common Stock and its redemption price is the same as its
purchase price, $100 plus accrued interest at 6% per annum beginning on
January 27, 1999. Also, the Series C Preferred Stock has no preference in
liquidation, although, it has a voting preference. The fair market value of
the Common Stock on January 27, 1999 was $0.28 per share. The warrants have
an exercise price of $0.04 per share.


         The plan to restructure the Company's operations and management, which
began in the third quarter of 1998, to satisfy past due trade creditors and past
due operating and capital lease balances, is progressing.


                                      F-14
<PAGE>

                        BPI PACKAGING TECHNOLOGIES, INC.

                             Pro Forma Balance Sheet
                                December 31, 1998
<TABLE>
<CAPTION>
                                                                                                           Pro Forma
                           As audited                                                                    December 31,
                    December 31, 1998                          Adjustments                                    1998
                    -----------------                          -----------                                    ----
<S>                 <C>                 <C>        <C>         <C>            <C>            <C>         <C>
Current assets

Cash                $          73,116   3,500,000  (1,960,900)    250,000       (885,000)                $      977,216
Accounts                      882,389                                                                           882,389
receivable, net
Inventories, net              717,413                                                                           717,413
Prepaid expenses               51,420                                                                            51,420

Total current               1,724,338                                                                         2,628,438
assets

Property and               15,290,305                                                         1,678,973
equipment, net                                                                                               16,969,278

Deposits -                    149,851                                                           (75,940)         73,911
leases and
equipment
purchases
Loans to                        6,072                                                                             6,072
officers, net
Other assets, net             581,399                                            885,000       (246,696)      1,219,703
                    ------------------ ----------- ----------- ----------- -------------- -------------- ---------------
                              737,322                                                                         1,299,686
                    ------------------ ----------- ----------- ----------- -------------- -------------- ---------------
Total assets             $ 17,751,965   3,500,000  (1,960,900)    250,000              0      1,356,337  $   20,897,402
                    ------------------ ----------- ----------- ----------- -------------- -------------- ---------------
                    ------------------ ----------- ----------- ----------- -------------- -------------- ---------------

Current
liabilities

Note payable        $         814,311                             250,000                                $    1,064,311
Trade notes                   584,433   (584,433)                                                                    --
payable
Capital lease               3,800,286                                                        (3,800,286)             --
obligations due
within one year
Accounts payable            6,597,223     584,433  (1,960,900) (1,425,540)    (1,846,100)       (75,116)      1,874,000
Accrued expenses            2,676,239                                                        (1,643,377)      1,032,862
                    -----------------                                                                    --------------

Total current              14,472,492                                                                         3,971,173
liabilities         -----------------                                                                    --------------


Capital lease             --                                                                  6,800,000       6,800,000
obligations                                                                                              --------------
long-term portion

Long-term debt            --                                   (1,425,540)                                    1,425,540
Accounts Payable                                                                                         --------------


Notes payable             --            3,200,000    (480,000)                                                2,720,000
                                                                                                         --------------

Stockholders'
equity

Subscribed stock          --              300,000                                                               300,000
Series B                    1,466,954                                                                         1,466,954
convertible
preferred stock,
$.01 par value

Series A                      674,032                                                                           674,032
convertible
preferred stock,
$.01 par value
Series C                  --                                                                        100             100


                                      F-15
<PAGE>


redeemable
preferred stock,
$.01 par value
Common stock,
$.01 par value;               214,956                                                                           214,956
shares
authorized  --
60,000,000

Capital in excess          44,912,833                 480,000                                      (100)      45,392,733
of par value
Accumulated
deficit                  (43,989,302)                                          1,846,100         75,116     (42,068,086)
                    ------------------ ----------- ----------- ----------- -------------- -------------- ---------------
                            3,279,473                                                                         5,980,689
                    ------------------ ----------- ----------- ----------- -------------- -------------- ---------------
Total liabilities
and stockholders'
equity              $      17,751,965   3,500,000  (1,960,900)    250,000              0      1,356,337  $   20,897,402

                    ------------------ ----------- ----------- ----------- -------------- -------------- ---------------
                    ------------------ ----------- ----------- ----------- -------------- -------------- ---------------
</TABLE>

NOTE 3:  ACCOUNTS RECEIVABLE-TRADE
<TABLE>
<CAPTION>
         Accounts receivable-trade consist of the following:
<S>                                                              <C>                          <C>
                                                                 December 31, 1998             December 31, 1997
                                                                 -----------------             -----------------

         Accounts receivable-trade                                 $    1,066,841               $    1,071,239
         Allowance for doubtful accounts                                 (109,452)                    (275,000)
         Allowance for credits                                            (75,000)                     (75,000)
                                                                   --------------               --------------
                                                                   $      882,389               $      721,239
                                                                    -------------                -------------
                                                                    -------------                -------------
</TABLE>

NOTE 4:  INVENTORIES
<TABLE>
<CAPTION>
         Inventories, net of valuation reserves, consist of the following:
<S>                                                              <C>                          <C>
                                                                 December 31, 1998             December 31, 1997
                                                                 -----------------             -----------------

         Raw material                                              $      296,427               $      285,058
         Finished goods                                                   420,986                    1,062,808
         Reserves                                                              --                     (290,000)
                                                                   --------------               --------------
                                                                   $      717,413               $    1,057,866
                                                                    -------------                -------------
                                                                    -------------                -------------
</TABLE>

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


                                      F-16
<PAGE>

NOTE 5:  PROPERTY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
         Property and equipment consist of the following:
<S>                                                              <C>                           <C>
                                                                 December 31, 1998             December 31, 1997
                                                                 -----------------             -----------------

         Machinery and equipment                                   $   24,817,161               $   24,817,161
         Leasehold improvements                                         3,611,407                    3,611,082
         Office furniture and fixtures                                    303,731                      303,731
         Motor vehicles                                                    19,900                       19,900
                                                                   --------------               --------------
                                                                       28,752,199                   28,751,874
         Less accumulated depreciation and
              Amortization                                           (13,461,894)                 (10,923,014)
                                                                   --------------               --------------
                                                                   $   15,290,305               $   17,828,860
                                                                    -------------                -------------
                                                                    -------------                -------------
</TABLE>

<TABLE>
<CAPTION>
         Assets recorded under capital leases and included in property and
equipment were as follows:
<S>                                                              <C>                           <C>
                                                                 December 31, 1998             December 31, 1997
                                                                 -----------------             -----------------

         Machinery and equipment                                   $   13,041,270               $   13,041,270
         Less accumulated amortization                                 (5,478,653)                  (4,055,971)
                                                                        ---------                    ---------
                                                                   $    7,562,617               $    8,985,299
                                                                    -------------                -------------
                                                                    -------------                -------------
</TABLE>

         Depreciation and amortization expense relating to fixed assets was
$2,538,880, $2,186,621 and $3,216,189 for the year ended December 31, 1998, the
10 month period ended December 31, 1997 and for the year ended February 28,
1997, respectively, of which $1,422,682, $1,185,568 and $1,158,749, related to
amortization of equipment held under capital leases, respectively.

         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 AND PATENT INFRINGEMENT SETTLEMENT

         During the fourth quarter of the fiscal year ended February 28, 1997,
the Company made the decision to exit the traditional T-shirt bag business. The
application of Statement of Financial Standard No. 121, "Accounting for the
Impairment of Ling-Lived Assets and Long-Lived Assets to be Disposed Of," caused
the Company to recognize a non-cash charge of $5,385,000 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 business.


                                      F-17
<PAGE>

         Description of impaired assets; patents, goodwill and plant assets
relating to bag making facilities:
<TABLE>
<S>                                                         <C>
                 Patents                                    $1,044,577
                 Goodwill                                      620,353
                 Plant equipment                             3,335,070
                 Reserve for agreement with
                          bag-making equipment vendor          285,000
                 Write-off of rubber plates used
                          in bag-making equipment              100,000
                                                            -----------
                 Total                                      $5,385,000
                                                            -----------
                                                            -----------
</TABLE>

         Fair value of all assets, except plant equipment, was determined to be
zero based upon the Company's decision to exit the traditional T-shirt bag
business. Fair value of the plant equipment was determined based upon projected
future cash flows for the remaining useful life, present book value and residual
value of assets at the end of its useful life, with cash flows both discounted
at 14% per year (average cost of secured debt financing).

         A patent infringement suit settlement of $512,648, including legal
defense costs, was recorded during Fiscal Year 1997.

         Due to the increase in the Company's conversion capacity, the Company
re-entered the standard grocery T-shirt bag business in the third quarter of
1998 to realize marginal contributions to fixed costs.

NOTE 7:  PATENTS

         The Company owns several patents. No costs associated with patent
applications were capitalized during the year ended December 31, 1998, the 10
month period ended December 31, 1997 and fiscal year ended February 28, 1997.
Amortization expense of approximately $87,000 was recorded in the Fiscal Year
ended February 28, 1997.

         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 ended February 28, 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:
<TABLE>
<CAPTION>

                                                    December 31, 1998      December 31, 1997
                                                    -----------------      -----------------
<S>                                                 <C>                    <C>
         Spare parts and supplies, net                $      334,703        $      669,405
         Other assets                                        246,696               368,502
                                                      --------------        --------------
                                                      $      581,399        $    1,037,907
                                                      --------------        --------------
                                                      --------------        --------------
</TABLE>


                                      F-18
<PAGE>

NOTE 9:  ACCRUED EXPENSES

         Accrued expenses consist of the following:
<TABLE>
<CAPTION>
                                                      December 31, 1998      December 31, 1997
                                                      -----------------      -----------------
<S>                                                   <C>                    <C>
         Employee compensation and benefits             $       50,750        $      207,283
         Accrued lease expense                               1,643,377             1,643,377
         State taxes and penalties                             299,096               550,000
         Professional fees                                      47,000               140,000
         Other                                                 636,016               426,688
                                                        --------------        --------------
                                                        $    2,676,239        $    2,967,348
                                                        --------------        --------------
                                                        --------------        --------------
</TABLE>

NOTE 10:  TRADE NOTES PAYABLE

         The Company converted two trade payables into unsecured trade notes
payable which matured on March 15, 1998 and April 17, 1998 and bear fixed
interest rates of 10% and 8.5%. As of December 31, 1998, the Company was in
default on both of the above trade notes payable. These notes payable were
satisfied in connection with the financial restructuring, which occurred
subsequent to December 31, 1998 (Note 2).

NOTE 11:  NOTE PAYABLE

         At December 31, 1998, the Company had a $2,000,000 revolving line of
credit secured by accounts receivable. Borrowings under the line of credit were
subject to 70% of qualifying accounts receivable, less the aggregate amount
utilized under all commercial and standby letters of credit and bank
acceptances. The line of credit bore interest at prime plus 6% ( % at December
31, 1998). In addition, the Company paid 2% interest on all new invoices
submitted for financing. The credit line was for one year and subject to renewal
annually. At December 31, 1998, the balance under the line of credit was
$814,311, which was the maximum available based on the qualifying accounts
receivable. Subsequent to December 31, 1998, the Company repaid this note
payable in full in connection with its financial restructuring (Note 2).

         At 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 bore
interest at 5% above the variable interest rate quoted by Norwest Bank of
Minnesota with a minimum rate of 8% (13.5% at December 31, 1997) and provides
for a 1/2 of 1% unused line fee. The credit line was for 5 years and is subject
to renewal annually. At December 31, 1997, the balance under the line of credit
was $1,162,349, which was the maximum available based on the qualifying accounts
receivable and inventory balances. The line of credit included 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.


                                      F-19
<PAGE>

NOTE 12:  CAPITAL LEASE OBLIGATIONS

         The Company's capital lease obligations consist of the following:
<TABLE>
<CAPTION>
                                                   December 31, 1998        December 31, 1997
                                                   -----------------        -----------------
<S>                                                <C>                      <C>
         Total minimum lease payments                $    4,307,824          $    5,006,262
         Less amount representing interest                  507,538                 580,057
                                                     --------------          --------------

         Obligations under capital leases                 3,800,286               4,426,205
         Less amounts due within one year                 3,800,286               4,426,205

         Long-term portion                           $    --                 $     --
                                                      -------------           ---------------
                                                      -------------           ---------------
</TABLE>

         As all capital leases were in default as of December 31, 1998 and 1997,
all future payments have been classified as current. Subsequent to December 31,
1998, these capital lease obligations were satisfied in connection with the
financial restructuring (Note 2).

NOTE 13:  STOCKHOLDERS' EQUITY

         As of December 31, 1998 the Company had 21,495,621 shares of common
stock outstanding. 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 $4,403,991. An additional 387,500 shares were
issued relating to the private placements from March 1, 1997 to December 31,
1997. During the year ended December 31, 1998, a total of 1,868,900 shares were
issued in a private placement with net proceeds of $1,282,951.

         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
         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,
         1998 and 1997, there were 212,258 and 325,483 shares issued and
         outstanding, respectively.

         Series B, 6% Non-Cumulative, Non-Voting Convertible Preferred Stock
         ("Series B Preferred Stock"), redeemable at $10 per share at the
         Company's option and convertible by the stockholder 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, 1998 and 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 20), upon the conversion of preferred stock and in
connection with the agreement with RC America, Inc. For the year


                                      F-20
<PAGE>

ended December 31, 1998 and 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 14:  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 underwriters 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 underwriters 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 stockholders 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.

         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 year ended December 31, 1998, the Company issued 200,000
warrants with a three year life to purchase one share of common stock at $1.05
per share to 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).

         All warrants issued in 1998 have been issued at the current market
price at date of issuance.

NOTE 15:  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 year ended
December 31, 1998. Accordingly, the effective tax rate is


                                   F-21
<PAGE>

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 No. 109 are as follows:
<TABLE>
<CAPTION>
                                                     December 31, 1998       December 31, 1997
                                                     -----------------       -----------------
<S>                                                  <C>                     <C>
Deferred tax assets:
         Allowance for uncollectible accounts          $      310,655          $      377,322
         Net operating loss carryforward                   13,270,876              12,825,784
         Inventory                                             53,522                 151,993
         Write-down of fixed assets                         1,114,955               1,226,450
         Write-down of patents                                367,862                 400,031
         Allowance for lease losses                           685,606                 685,606
         Investment tax credit                                528,200                 528,200
         Other items                                          482,291                 489,712
                                                       --------------          --------------

                  Total deferred tax assets            $   16,813,967          $   16,685,098
                                                       --------------          --------------
                                                       --------------          --------------

Deferred tax liabilities:
         Excess depreciation                           $      162,376          $       76,197
         Prepaid rent                                          99,345                 143,281
                                                       --------------          --------------

Net deferred tax assets                                $   16,552,246          $   16,465,620
Deferred tax asset valuation allowance                 $  (16,552,246)         $  (16,465,620)
</TABLE>

         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.

         At December 31, 1998 the Company had available for federal and state
income tax purposes unused net operating loss (NOL) carryforwards of
approximately $34,956,000 and $29,039,000, respectively. The federal
carryforwards expire in various amounts beginning in the year 2003, and the
state carryforwards expire in various amounts from 1999 through 2004. The
Company has available state investment tax credit carryforwards of approximately
$528,000 expiring in various amounts from 1999 to 2004, 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. The Company's ability to use its federal NOL carryforwards may be
further impacted by transactions subsequent to December 31, 1998 (Note 2).

NOTE 16:  MAJOR CUSTOMERS

         During the year ended December 31, 1998, sales to two customers
represented 20% and 10% of total sales. During the 10 month period ended
December 31, 1997, no customer represented more than 10% of total sales. In
Fiscal Year ended February 28, 1997, sales to one customer represented 16% of
total sales.


                                      F-22
<PAGE>

NOTE 17:  RELATED PARTY TRANSACTIONS

         In November 1990, the Company established an officer's loan receivable
from Dennis N. Caulfield, its then Chairman for $132,197. The note was amended
in April 1998 and the interest rate change to 6% effective from November 1990
and is now payable on or before January 1, 2001. Interest on the loan, along
with advances for travel not offset by expense reports, cause the loan balance
to equal $586,978 at December 31, 1997. Mr. Caulfield did not make any payments
against the loan from the period beginning 1990 through December 31, 1997.
Accordingly, the Company reserved the full amount of this loan on that date.
Also, no payments were made in 1998. In addition, the Company paid, on behalf of
Mr. Caulfield, approximately $36,000 of a $200,000 personal income tax levy
imposed by the Massachusetts Department of Revenues on Mr. Caulfield in exchange
for an interest bearing note due on or before June 30, 1998, which has not been
repaid. This note was reserved for as of March 31, 1999.

         Loans made to another officer totaled $6,072 and $5,416 at December
31, 1998 and 1997, respectively, and bear interest at a rate of 9.5%.

         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. became 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. RC America, Inc. ceased operations during the year ended December 31,
1998.

         For the year ended December 31, 1998 and 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 were
earned and were issued to Mr. Caulfield in May. In addition, Ronald Caulfield
entered into a five year employment agreement with RC America, Inc. which
provided for certain bonus, severance and non-compete arrangements. This
employment agreement has since terminated.

         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).

         Ivan J. Hughes, a director of the Company is President of the Plastics
Division Duro Bag Manufacturing Company ("Duro"). For the year ended December
31, 1998 and the 10 month period ended December 31, 1997, there were no sales to
Duro. For fiscal year ended February 28, 1997, accounted for approximately 16%
of the Company's sales.

NOTE 18:  EMPLOYMENT AGREEMENTS

         During the year ended December 31, 1998, the Company renewed an
employment agreement with an officer for an additional one year term expiring on
June 30, 1999. This agreement provides for minimum base compensation of
$180,000.


                                      F-23
<PAGE>

         On January 27, 1999 and March 22, 1999, the Company entered into
employment agreements with certain officers. Among other provisions, these
agreements provide for a minimum base compensation of $650,000 in the aggregate
plus incentive compensation based on pre-tax profits and for severance payments.
These agreements expire on various dates from June 30, 2000 through March 2002.

NOTE 19:  OPERATING LEASES AND COMMITMENTS

         The Company's lease agreement for its North Dighton facility was
renegotiated effective January 1, 1996 and runs for a period of 12 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 non-cancelable operating
leases as of December 31, 1998 are as follows:

<TABLE>
<CAPTION>
                                                                Operating
             Fiscal Year                                         Leases
             -----------                                         ------
<S>                                                            <C>
               1999                                            1,180,000
               2000                                              893,000
               2001                                              480,000
               2002                                              383,000
               2003                                              383,000
               Thereafter                                      2,243,000
                                                               ---------
                                                              $5,562,000
                                                              ----------
                                                              ----------
</TABLE>

         Expense under operating leases was $937,340, $1,410,000 and $1,646,000
for the year ended December 31, 1998, the 10 month period ended December 31,
1997 and the Fiscal Year ended February 28, 1997, respectively. All operating
leases and real-estate leases were in default as of December 31, 1997.
Subsequent to December 31, 1998, the Company reached agreement with all lessors
as part of its financial restructuring. (Note 2).

         At December 31, 1998, the Company had commitments to purchase
approximately $275,000 of machinery and equipment.

NOTE 20:  STOCK OPTION PLANS

         In May 1990, the Company adopted a stock option plan and on October 25,
1993, the Company 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


                                      F-24
<PAGE>

Option Plans during the 10 month period ended December 31, 1997 and the year
ended February 28, 1997 are summarized as follows:
<TABLE>
<CAPTION>
                                                     Fiscal Year Ended                  Ten Month Period Ended
                                                     December 31, 1998                     December 31, 1997
                                                     -----------------                     -----------------

                                                      Weighted Average                      Weighted Average
                 Options                          Shares        Exercise Price        Shares         Exercise Price
                 -------                          ------        --------------        ------         --------------
<S>                                              <C>            <C>                   <C>            <C>
Outstanding at beginning of year                 783,117             $3.54             773,830             $3.98

Options granted whose exercise price
equal the market price of the stock on
grant date                                        25,000             $1.25             156,000             $1.75

Options granted whose exercise price is
greater than the market price of the
stock on grant date
Canceled                                        (424,430)            $2.23            (146,713)            $3.98
                                                 -------                               -------


Outstanding at year end                          383,687             $2.70             783,117             $3.54
                                                 -------                               -------
                                                 -------                               -------

Options exercisable at period end                358,687                               629,317
                                                 -------                               -------
                                                 -------                               -------

Weighted  average  fair  value of options
granted during the period                                            $1.25                                 $1.75
</TABLE>

         In April of 1997, the Company changed the exercise price for selected
options granted in prior periods from $6.25, $4.00, $3.88 and $3.00 to $2.50 per
share.
<TABLE>
<CAPTION>
                                                                                      Year Ended
                                                                                   February 28, 1997
                                                                                   -----------------

                                                                                   Weighted Average
                            Options                                        Shares                 Exercise Price
                            -------                                        ------                 --------------
<S>                                                                        <C>                    <C>
Outstanding at beginning of year                                           795,630                    $4.04

Options  granted whose  exercise price equal the market price of
the stock on grant date                                                     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                                                                   (43,500)                    3.49
                                                                            ------

Outstanding at year end                                                    773,830                     3.98
                                                                           -------
                                                                           -------
Options exercisable at period end                                          589,377
                                                                           -------
                                                                           -------
Weighted average fair value of options granted during the period                                      $2.40
</TABLE>


                                      F-25
<PAGE>

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

         The following table summarizes information about employee options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
                                                 Options Outstanding
                                                 -------------------
                                                                  Weighted Average
      Range of Exercise            Number Outstanding at              Remaining                Weighted Average
            Prices                   December 31, 1998            Contractual Life              Exercise Price
            ------                   -----------------            ----------------              --------------
<S>                                <C>                            <C>                          <C>
        $1.25 - 3.00                         336,937                     4.79                         $2.42
         3.88 - 4.75                          24,250                     4.78                          4.13
         5.50 - 5.75                          22,500                     6.10                          5.58
                                             -------
                                             383,687                     4.86                          2.71
                                             -------
                                             -------
</TABLE>

<TABLE>
<CAPTION>
                                                 Options Exercisable
                                                 -------------------
      Range of Exercise            Number Exercisable at          Weighted Average
            Prices                   December 31, 1998             Exercise Price
            ------                   -----------------             --------------
<S>                                <C>                            <C>
        $1.25 - 3.00                         313,737                    $2.51
         3.88 - 4.75                          22,450                     4.14
         5.50 - 5.75                          22,500                     5.58
                                             -------
                                             358,687                     2.81
                                             -------
                                             -------
</TABLE>

FAIR VALUE DISCLOSURES

         At December 31, 1998, the Company had three option plans, which are
described above. The Company applies APB 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:

<TABLE>
<CAPTION>
                                                                                      Ten Month Period
                                                         Fiscal Year Ended                  Ended
                                                         December 31, 1998            December 31, 1997
                                                         -----------------            -----------------
<S>                             <C>                      <C>                          <C>
Net Loss                        As reported                  ($3,239,213)               ($11,338,869)
                                Pro forma                    ($3,245,145)               ($11,468,958)

Basic and diluted               As reported                       ($0.16)                     ($0.73)
Net loss per share              Pro forma                         ($0.16)                     ($0.74)
</TABLE>

         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 5.16% for options granted
during the year ended December 31, 1998 and 5.81% for options granted and
re-priced during the


                                      F-26
<PAGE>

10 month period ended December 31, 1997; a weighted average expected option term
of 10 years for options granted during the year ended December 31, 1998, and 10
years for options granted during the 10 month period ended December 31, 1997;
and expected volatility of 153.87% for options granted during the year ended
December 31, 1998 and 67.57% for options granted during the 10 month period
ended December 31, 1997.

NOTE 21:  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 $33,165, $47,604 and $80,503 for the year ended December 31, 1998,
10 month period ended December 31, 1997, and fiscal year ended February 28,
1997, respectively.

NOTE 22:  SEGMENT REPORTING

         Effective January 1, 1998, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SAFS No.
131 superseded SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise." SFAS No. 131 establishes standards for reporting information about
operating segments, products and services, geographic areas and major customers.
The adoption of SFAS No. 131 did not affect the Company's results of operations
or financial position. The Company operates in one reportable segment under SFAS
No. 131.

NOTE 23:  SIGNIFICANT FOURTH QUARTER ADJUSTMENTS TO THE TEN MONTH PERIOD ENDED
DECEMBER 31, 1997

         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 19).

         Loans made to a former 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 had 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.

         Management decided to exit the traditional T-shirt bag business 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 1997 which resulted in a write-down of impaired assets and
recognition of related expenses totaling $5,897,648.

NOTE 24:  LEGAL PROCEEDINGS

         The Company has been notified by its insurance carrier of a potential
claim brought by a group of investors related to the registration of certain
securities. The Company believes that any settlement in connection with this
potential claim will not have a material effect on its operations.


                                      F-27
<PAGE>

                        BPI PACKAGING TECHNOLOGIES, INC.

                                   Schedule II

Rule 12-09      Valuation and Qualifying Accounts and Reserves
                     For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
      COLUMN A            COLUMN B            COLUMN C           COLUMN D            COLUMN E

                                             Additional         Deductions
                         Balance at          Charged to          Accounts        Balance at end of   Description of
    Description            1/1/98             Expenses          Written-Off           Period             Changes
    -----------            ------             --------          -----------           ------             -------
<S>                      <C>                  <C>               <C>              <C>                <C>
Reserve for                75,000                0                   0                75,000
Accounts Receivable
Credits

Allowance for              275,000               0               (165,548)           109,452         Allowance was
Doubtful Accounts                                                                                    reduced based on
                                                                                                     evaluation of
                                                                                                     Accounts
                                                                                                     Receivable at
                                                                                                     12/31/98

Inventory Reserve          290,000               0               (290,000)              0            Inventory
                                                                                                     reserved at
                                                                                                     12/31/97 was
                                                                                                     sold during the
                                                                                                     year ended
                                                                                                     12/31/98
</TABLE>


                                      S-1
<PAGE>


                 Valuation and Qualifying Accounts and Reserves
                 For the 10 Month Period Ended December 31, 1997

<TABLE>
<CAPTION>
      COLUMN A            COLUMN B            COLUMN C           COLUMN D            COLUMN E

                                             Additional         Deductions
                         Balance at          Charged to          Accounts        Balance at end of   Description of
    Description            3/1/97             Expenses          Written-Off           Period             Changes
    -----------            ------             --------          -----------           ------             -------
<S>                      <C>                  <C>               <C>              <C>                 <C>
Reserve for                75,000                0                   0                75,000
Accounts Receivable
Credits

Allowance for              50,000             225,000                0               275,000         Allowance was
Doubtful Accounts                                                                                    Increased based
                                                                                                     on evaluation of
                                                                                                     Accounts
                                                                                                     Receivable at
                                                                                                     12/31/97

Inventory Reserve          850,000               0               (560,000)           290,000         Reserve was
                                                                                                     reduced based on
                                                                                                     evaluation of
                                                                                                     Inventory at
                                                                                                     12/31/97
</TABLE>


                                      S-2