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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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                                    FORM 10-K
                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1997
                         COMMISSION FILE NUMBER 0-19561

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

            DELAWARE                                       04-2997486
            --------                                       ----------
  (State or other jurisdiction                          (I.R.S. employer
of 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 or any
amendment to this Form 10-K.    X
                               ---

         The aggregate  market value of the voting stock held by  non-affiliates
of the  Registrant,  based  upon the  average  of the bid and ask  prices of the
Common Stock and Series A Convertible  Preferred Stock as reported by NASDAQ/NMS
on June 10, 1997 was approximately $22,887,098 for the Common Stock and $594,731
for the Series A Convertible  Preferred  Stock. As of June 10, 1997,  14,084,368
shares of Common Stock, $.01 par value per share,







were  outstanding  and 339,846 shares of Series A Convertible  Preferred  Stock,
$.01 par value per share, were outstanding.





                    FORWARD-LOOKING STATEMENTS OR INFORMATION

         This Form 10-K  includes  certain  statements  that may be deemed to be
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation  Reform  Act of 1995.  Statements  in this  Form 10-K  which  address
activities,  events or 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 or 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-






                                     PART I

ITEM 1.  BUSINESS

GENERAL

         BPI  Packaging  Technologies,  Inc.,  (the  "Company")  is a  specialty
packaging and in-store  advertising and promotion company. The Company develops,
manufactures,  markets and sells  plastic  bags and  advertising  and  promotion
products  to grocery,  convenience,  retail and drug store  chains.  The Company
manufactures traditional plastic grocery carry out bags of "T-shirt sack" design
commonly  used at the  checkout  counter and plastic  T-shirt  carry out bags in
proprietary,  value-added  dispensing  systems for use in the produce section of
the supermarket and the checkout counters of convenience,  retail and drug store
chains.  The Company's  T-shirt carry out bags and plastic film are manufactured
in a new,  state-of  -the-art  plant which  utilizes  some of the  world's  most
advanced and highest quality printing,  extrusion and bag making equipment.  The
Company's investment in state-of- the-art  manufacturing  equipment and computer
controlled  process  technology  allows the Company to manufacture  its products
with flexibility because 100% of manufacturing  capacity can be allocated to any
one  product and allows it to be a lower cost and high  quality  producer in its
markets.   The  Company's  Floor  Focus  Ad-Tile(TM)  in-store  advertising  and
promotion product is manufactured by a licensor.

         The Company's strategy is to (i) integrate its proprietary bag products
and  proprietary   in-store  advertising  and  promotion  products  in  grocery,
convenience,  retail and drug store chains,  and (ii) replace the  manufacturing
capacity allocated to the lower margin traditional plastic grocery carry out bag
with higher  margin  proprietary  bag and plastic film  products and to grow the
proprietary  packaging and in-store advertising and promotion business segments.
Sales for the year ended February 28, 1997,  ("Fiscal 1997") were $30.8 million,
of which $12.0 million or 39.0% was attributed to sales of  proprietary  bag and
plastic film products.  Sales of in-store advertising and promotion products are
at the initial stage of market penetration and were nominal.

         Sales of  packaging  products  based on the present  business  plan are
forecast as follows:  Fiscal 1998; $38.6 million, Fiscal 1999; $77.6 million and
Fiscal 2000;  $91.0 million.  The forecast  anticipates that the Company will be
profitable  from  packaging  operations  in each fiscal year.  Sales of in-store
advertising  and  promotion  products  are not  included  in the above  forecast
because,  notwithstanding the anticipated  success of these programs,  it is too
early to forecast trends.  However,  sales of in-store advertising and promotion
products are expected to be in the $60.0 million range in Fiscal 2000,  based on
present programs.

         The Company can be categorized  as having  completed in Fiscal 1997 the
developmental  stage of the  Company's  business  and  entering  the  sales  and
marketing stage beginning in Fiscal 1998.  Management's sales and marketing goal
is to have its existing and planned manufacturing capacity fully utilized by the
end of  Fiscal  1999  with  higher  margin  proprietary  bag and film  products.
Traditional  grocery carry out bags are forecast to decline to nominal levels in
the fourth quarter of Fiscal 1998.

          During the period June 1991 to February 1997,  which is categorized as
the  development  stage of the  Company's  business,  the Company  acquired  and
brought on-line $38.1 million of new, state-of-the-art  extrusion,  printing and
bag making equipment in its Dighton, Massachusetts facility,

                                       -3-





and  developed  patented  and  proprietary  bag and plastic  film  products  and
developed  and  acquired  in-store  advertising  and  promotion  products.   The
Company's  proprietary bag and in-store  advertising and promotion  products are
uniquely positioned in their markets and have limited direct competition.

          The Company's  present  manufacturing  capacity will support estimated
sales of $40 to $50 million  annually.  In Fiscal 1998, the Company plans a $0.5
million  investment  in  manufacturing   capacity  and  subject  to  appropriate
agreements,  capacity  additions  in Fiscal 1999 and 2000 are planned to be $6.1
million and $2.7 million,  respectively,  which capacity  additions will provide
the  total  manufacturing  capacity  to  support  estimated  sales of $70 to $90
million annually at its Dighton,  Massachusetts  facility. The Company currently
has  outstanding  commitments  of $0.3  million of the planned  Fiscal 1998 $0.5
million investment. However, upon the completion of a minimum of $2.0 million of
a maximum  $5.0  million  private  placement of senior long term debt and equity
presently  being  negotiated,  the  Company  intends to  accelerate  Fiscal 1999
capital  investment  by increasing  commitments  for Fiscal 1998 by $3.5 to $3.9
million.  All capacity  estimates are based upon certain  assumptions  regarding
pricing, manufacturing efficiencies and product mix.

         Sales of  packaging  products  require a prior  capital  investment  of
approximately  $1 for  each  $2.0 to  $2.5  of  sales.  The  Company's  in-store
advertising and promotion products,  Floor Focus Ad- Tile(TM) and Produce Profit
Builder(TM)  Cartridge  Talker(TM)  are  produced by a licensor and the Company,
respectively.  Sales are  directly  related  to market  penetration  and are not
constrained  by  the  Company's  prior  investment  in  manufacturing  capacity.
Developing  the capability to penetrate the in-store  advertising  and promotion
market  requires  an  investment  in sales  and  marketing  infrastructure,  but
management  expects that this capital investment will be significantly less than
the  investment  required to support  equivalent  sales of bag and plastic  film
products. Management's goal of integrating proprietary bag and film products and
proprietary in-store advertising and promotion products is expected to create in
the  future,  new  market  opportunities  and reduce  the  capital  requirements
necessary to support growth.

         The Company  competes in the $731 million  annual market for 1996 based
on management's estimate for traditional plastic grocery carry out T-shirt bags.
This market is highly  competitive  and margins  have  remained  low for several
years  covering   variable   manufacturing   costs  but  making  no,  or  little
contribution to manufacturing overhead,  SG&A, interest or profit.  Management's
goal is to reduce  sales of this  product  in the first  quarter  and to nominal
levels in the second and third  quarters and to withdraw from this market by the
end of this  fiscal  year.  In  conjunction  with  this exit  strategy,  certain
write-downs of assets and expenses  related to the  traditional  T-shirt product
line were recorded in the fourth  quarter of Fiscal 1997 amounting to $5,897,648
in order to reflect these items,  now  considered  impaired,  at fair value.  In
addition,  due to the  deterioration  of the product  lines' gross margin due to
intense  competition,   approximately  $1,165,000  of  inventory  reserves  were
established  in the  fourth  quarter  in  Fiscal  1997  to  properly  state  the
traditional  T-shirt bag product line inventory at net realizable  value. In May
1997, the withdrawal from this market resulted in the Company  reducing its work
force 26% to 143 employees and reducing salary,  wages, fringe benefit costs and
other variable costs by an estimated $6.0 million annually.

         The Company has entered the in-store  advertising and promotion  market
with two new products:  (i) Produce Profit  Builder(TM),  which incorporates the
Company's  established  proprietary  FRESH-SAC(R)  T-shirt produce bag, which is
used by approximately  1,000 supermarkets,  into a new in-store  advertising and
promotion  vehicle  for  supermarkets,  and (ii) the new  patented  Floor  Focus
Ad-Tile(TM)  system,  which is a  semi-permanent  floor tile which contains full
color advertising messages

                                       -4-





manufactured  into it and is  installed  in the  floor  in  strategic  locations
throughout the store.  The objective of the Produce  Profit Builder  program and
Floor Focus Ad-Tile(TM) is to increase sales in-store at the point of purchase.

          In-store tests for both of these programs were successfully  completed
in Fiscal 1997.  The results of the in-store test for the Produce Profit Builder
program,   utilizing  the   Fresh-Sac(R)   T-shirt  produce  bag  and  Cartridge
Talker(TM), showed increased produce revenues for six advertised items of $18.71
per one thousand customers which translates into an estimated increase in pretax
profits  for a  185  store  supermarket  chain  of  approximately  $1.2  million
annually. Floor Focus Ad-Tile(TM) was successfully tested in-store at Winn-Dixie
Supermarkets.  Information Resources, Inc., an independent market research firm,
conducted research based on scan data for a 12-week period ending November 1996.
The research reported sales gains of 21.5% to 29.5% for Nestle's,  Campbell Soup
and H.J. Heinz products. The Produce Profit Builder sales and marketing campaign
began  in  December  1996,  and  presently  there  are  18  supermarket   chains
representing  sales  estimated by management of $30 million  annually in various
stages of in-store test, and it is anticipated that sales from this program will
begin  to  increase  in  the  second  quarter.  Coca-Cola  France  and  a  major
international  supermarket  chain have agreed to an eight week in-store test for
Floor Focus Ad-Tile(TM) in several hypermarkets  (referred to as Super Stores in
the  U.S.)  beginning  in July  1997.  It is  anticipated  that the test will be
successful  and that sales of Floor Focus  Ad-Tile(TM)  advertising to Coca-Cola
France and others will begin in France in the third  quarter of Fiscal 1998.  In
June 1997, Coca-Cola USA budgeted Floor Focus Ad-Tile(TM) for a national program
for convenience stores, to begin in 1998, subject to an in-store test.

         Management  believes  that  Fiscal  1998 will be a  transition  year to
profitability.  The  Company  is  being  propelled  forward  by  two  structural
dynamics:  proprietary  plastic  film  and  proprietary  bag  products.  A third
structural  dynamic in-store  advertising and promotion  products is expected to
develop sales momentum in this fiscal year.

         A new proprietary film for the  encapsulation of fiberglass  insulation
is being purchased by a major  manufacturer of fiberglass  insulation that plans
to convert all of its production lines to the encapsulated film over a four year
period.  If other  manufacturers  make the  decision to  encapsulate  fiberglass
insulation,  the  total  market  for film for the  encapsulation  of  fiberglass
insulation is estimated by management at $243 million annually.

         The proprietary Fresh-Sac(R) and Handi-Sac(TM) bag products have six to
18 months  of sAles  and  marketing  effort  in the  pipeline  and both of these
products are expected to have accelerating  sales in Fiscal 1998.  Handi-Sac(TM)
is already being sold to approximately 8,686 convenience  stores.  Fresh- Sac(R)
is being sold to  approximately  1,000  supermarkets  and 18 supermarket  chains
representing  potential  annual  revenues  of  approximately  $30 million are in
various  stages  of  in-store  test.  The total  market  for  Handi-Sac(TM)  and
Fresh-Sac(R),  including Fresh Focus Cartridge Talker advertising,  is estimated
by management at $619 million annually.

         A  third  structural  dynamic,   in-store   advertising  and  promotion
products,  is expected to develop sales momentum in Fiscal 1998. The Floor Focus
Ad-Tile(TM) advertising market in the U.S. for grocery and convenience stores is
estimated at $606  million  annually.  The  hypermarkets  in France  represent a
market  potential  estimated by  management  at $100 million  annually for Floor
Focus Ad- Tile(TM)  advertising.  Cause Marketing  anti-smoking  advertising and
promotion messages directed to

                                       -5-





the youth of the  nation by the  installation  of  Educational  Tile(TM)  in the
nations  public  schools is estimated by management to be a $150 million  annual
market.

HISTORY

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



                                       -6-





PRODUCTS AND MARKETS

         Direct competition refers to competition from identical  products,  and
indirect competition refers to products which are not identical, but which could
be substituted for the Company's product.
Market size estimates are management estimates:

<TABLE>
<CAPTION>
                                                   1996                PATENT
                                          ANNUAL MARKET (MILLIONS)     STATUS                COMPETITION
                                          ------------------------     ------                -----------
<S>                                         <C>                        <C>                   <C>
TRADITIONAL GROCERY T-SHIRT BAG             $731                       U.S. Patent           Sonoco,Vanguard,
(Including Non-Food Retail)                                            Issued 1989           and Others

HANDI-SAC(TM)                               $120                       U.S. Patent           No Direct
Convenience & Auto Stores                                              Issued 1993           IndirectPaperand
                                                                                             Sonoco T-Sack Roll Bag

PROPRIETARY FILM-Construction Industry      $243                       Trade Secrets         No Direct
(Final stage of research and development -  $100                       Trade Secrets         No Direct
Tissue Overwrap)                            $223                       Process Technology    Limited Direct
                                             ---

                           Sub Total:       $566

FRESH-SAC(R)                                $264                       U.S. Patent           No Direct;
T-Shirt Produce Bag                                                    Issued 1993           Produce Bag
                                                                                             On a Roll - Indirect

 FRESH FOCUS CARTRIDGE TALKER(TM)                    $235              U.S. Patent           No Direct
 (Sold with FRESH-SAC(R))                                              Issued 1996
                                                                       Advertising/Promotion

IN-STORE ADVERTISING AND PROMOTION PRODUCTS:
         FLOOR FOCUS AD-TILE
         (Floor Billboard Advertising)      $380 Grocery,              U.S. Patent           No Direct; Indirect 3M
                                            $  88  Produce             Issued 1993           Indirect Heritage Media
                                            $138 Convenience Store     (Exclusive License)   Indirect Catalina Mktg.
                                            N/A  Non Food Retail
                                            $100 Hypermarkets France
                                            $706 Total

CAUSE MARKETING                             $150 Anti-Smoking schools  U.S. Patent           No Direct
         EDUCATIONAL TILE(TM)                                          Issued 1993
         (Floor Billboard Advertising                                  (Exclusive License)
          For Schools & Others)

GRAND TOTAL                                 $2,772 (after withdrawal from the traditional grocery T-shirt bag market of $731 million
                                                     annually, the adjusted total is $2,041)
</TABLE>

         HANDI-SAC(TM) is a T-shirt bag sold in a patented dispensing mechanism.
The system allows the retailer to effectively store and dispense T-shirt bags in
a limited space,  which is important to convenience,  drug,  retail and hardware
stores.  The marketing  program for this product began in Fiscal 1995 and in the
first quarter of Fiscal 1998, the product is being sold to  approximately  8,686
convenience,  drug,  retail and hardware stores  excluding  approximately  3,700
Mobil Marts which are  expected to be added in Fiscal  1998.  The annual  market
potential for  HANDI-SAC(TM)  in the 97,000  convenience  stores and 40,000 auto
store markets is estimated by management at $120 million  annually.  The Company
has no direct  competition  in this market,  but has indirect  competition  from
paper bags and the T-shirt bag on a roll manufactured by Sonoco Products Company
("Sonoco").  The principal  competition in this market is paper bags, which have
the largest  share of the market and cost  approximately  two to three times the
price of HANDI-SAC(TM). Sales of Handi-Sac(TM) were $3.6 million in Fiscal 1997.

          FRESH-SAC(R)  T-shirt  produce  bag  is a  thin,  high  clarity,  high
molecular  weight,  high density  produce bag  manufactured  from a  proprietary
plastic developed by the Company and sold in

                                       -7-





a patented dispensing mechanism.  The product is presently sold to approximately
1,000 supermarkets directly and through distributors.  In 1997, there are 34,000
supermarkets in the United States,  which  represents an annual market potential
for this product of $264 million.  The Company has no direct competition in this
market, but has indirect competition from the traditional produce bag on a roll.
 Sales of Fresh-Sac(R) were $3.2 million in Fiscal 1997.

         TRADITIONAL  GROCERY  T-SHIRT BAG is  classified  as a  non-proprietary
product although the Company owns an issued patent on this product. The bags are
manufactured  using HMWPE  plastic  resin and are sold to grocery,  convenience,
drug and retail chains.  Management's goal is to reduce sales of this product in
the first quarter and to nominal  levels in the second and third quarters and to
withdraw  from this market by the end of this fiscal year. In  conjunction  with
this exit strategy,  certain  write-downs of assets and expenses  related to the
traditional  T-shirt product lines were recorded in the fourth quarter of Fiscal
1997  amounting to $5,897,648 in order to reflect  these items,  now  considered
impaired,  at fair value. In addition,  due to the  deterioration of the product
lines'  gross margin due to intense  competition,  approximately  $1,165,000  of
inventory  reserves  were  established  in the fourth  quarter in Fiscal 1997 to
properly  state the  traditional  T-shirt  bag  product  line  inventory  at net
realizable  value.  In May 1997, the withdrawal from this market resulted in the
Company reducing its work force 26% to 143 employees and reducing salary, wages,
fringe  benefit  costs and other  variable  costs by an  estimated  $6.0 million
annually.  Sales of the  traditional  grocery  t-shirt bag were $16.6 million in
Fiscal 1997.

         The  estimated by  management  $731 million  annual  market in 1996 for
T-shirt bags has developed over the past ten years primarily because the T-shirt
bag has been approximately one-half to one-quarter the price of kraft paper bags
over the period and the T-shirt  bag has been a less  expensive  alternative  to
paper and plastic  merchandise bags.  Plastic T-shirt bags have an estimated 75%
market share of the supermarket industry. This market is highly competitive. The
Company's  competitors  include divisions of large  multinational  companies and
other  specialty  bag  manufacturers.  There are high barriers to entry into the
market due to the  significant  capital  requirements.  In Sonoco's  1996 Annual
Report it was  estimated  that it  presently  requires a capital  investment  of
approximately  $15 million for each one billion bags of manufacturing  capacity.
The  Company's  capacity  is  estimated  at  3.3 to 4.8  billion  bags  annually
depending  on product mix and the  minimum  value of its  installed  capacity is
estimated at approximately $49.5 million.

         FILM PRODUCTS are anticipated by management to contribute significantly
to the  Company's  proprietary  sales over the next several  years.  In the past
fiscal year, the Company has focused on the  development of proprietary  plastic
film  products for the building  products and consumer  products  industries.  A
proprietary film for the encapsulation of fiberglass insulation was developed in
Fiscal 1997 for a major  manufacturer  of  fiberglass  insulation  that plans to
convert all of its production  lines to the  encapsulated  film over a four year
period. If all of the manufacturers'  production lines are converted as planned,
forecasts supplied by the customer anticipate that requirements for film for the
encapsulation  of  fiberglass  insulation  will be $7.3  million in Fiscal  1998
increasing to $46 million in Fiscal 2001.

         The  encapsulation  of  fiberglass  insulation is believed to be driven
primarily by concerns that certain  length  fiberglass  fibers could be a health
hazard. The Company has received inquiries for its film for the encapsulation of
fiberglass  insulation from a number of other  companies in the industry.  It is
management's opinion that the encapsulation of fiberglass insulation will become
an  industry-wide  standard  in the  next  several  years.  The  market  for the
Company's proprietary film for the

                                       -8-





encapsulation  of  fiberglass  insulation  is  estimated by  management  at $243
million  annually should the  encapsulation of fiberglass  insulation  become an
industry standard.

         The Company is in the final stages of  developing  another  proprietary
film for the replacement of fiberglass  insulation  backing which is expected to
be tested at Underwriter's Laboratories in July - September 1997. The Company is
working with an equipment  supplier and a major  consumer  packaging  company to
develop a thin film for tissue overwrap (paper towels for use in the kitchen and
toilet tissue).  This  development is being driven by a major consumer  products
company,  which has made the shift from the standard industry thick,  clear, low
density film for tissue overwrap to a thin,  less clear,  high density film. The
consumer  products company is reported to have entered into a five year contract
with a competitor,  which locks up all of the available (and necessary  capacity
to support the shift) high density,  thin film capacity in the market. This move
effectively blocks competitors from making the shift and realizing the estimated
savings of $1 million for each 1% of market share.  The savings  realized by the
consumer  products  company are reported to have placed  competitors at a severe
competitive  disadvantage  in the paper  towel and  toilet  tissue  market.  The
Company  has the only  available  capacity in the market to support the shift by
the consumer  products company  competitors to a high density,  thin film tissue
overwrap.  The total market for this product,  including  the consumer  products
company, is estimated by management at $223 million annually. The Company passed
an important  qualifying test for its tissue overwrap film in April 1997, and if
all  qualifying  tests are  successful,  production of this thin film for tissue
overwrap is expected to begin in July 1997.  The Company  also  manufacturers  a
proprietary film for the overwrap of McDonalds' hamburger buns. Sales of plastic
film were $3.6 million in Fiscal 1997.

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

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

         In Fiscal 1996,  Market Media entered into a contract  with  Winn-Dixie
Stores,  Inc.,  of Florida to install  its Floor Focus  Ad-Tile(TM)  advertising
product in all of the 1,178  Winn-Dixie  supermarkets.  In the first  quarter of
Fiscal 1997, the roll out began for the first Winn-Dixie Division (109 stores of
which ten stores were control  stores) with  national  brand  advertisers  which
included  Nestle,  Campbell  Soup,  Hebrew  National,  and H.J.  Heinz.  Initial
advertising contracts totaled  approximately  $100,000 with individual contracts
from one to three  advertising  cycles (4 to 12 weeks).  Information  Resources,
Inc., an independent market research firm, conducted research based on scan data
for a 12-week period ending November 1996. The research  reported sales gains of
21.5% to 29.5% for Floor Focus Ad-Tile(TM)  advertised products.  Market Media's
Floor Focus Ad-Tile(TM) for

                                       -9-





supermarkets,  convenience  stores and non-food retail stores, has the potential
of creating new in-store advertising and promotion markets. Management estimates
that the  market  potential  for the Floor  Focus  Ad-Tile(TM)  program  is $606
million annually.

         Under the contract,  Market Media is responsible  for the sale of Floor
Focus Ad-Tile(TM)  advertising to national consumer package goods advertisers in
the 1,178  Winn-Dixie  supermarkets.  The sale of  in-store  advertising  to the
consumer  package goods companies is difficult if the advertising  base does not
have a  national  reach  which  is  generally  considered  to be  5,000 to 8,000
supermarkets  that reach 40% of the U.S.  population  each week. In Fiscal 1997,
the  Company  did not have  available  to  allocate  the  resources  for a rapid
expansion  of the  Winn-Dixie  store base to the  critical  mass  required for a
national in-store advertising and promotion program. In addition to the expanded
store base, the sale of supermarket  advertising to the package goods  companies
requires  a  greater  investment  in sales  and  marketing  resources  than were
allocated  in Fiscal  1997.  For  these  reasons,  the  Winn-Dixie  Floor  Focus
Ad-Tile(TM) program is behind schedule. The Company's objective is to attempt to
include a  renegotiated  Winn-Dixie  contract  in a possible  new joint  venture
agreement,  which is  being  discussed  with a major  in-store  advertising  and
promotion company. In this context,  Winn-Dixie would become a pilot program for
the possible new joint venture. The Winn-Dixie contract expired on May 31, 1997.
Negotiations  with all parties are still in progress  regarding a joint  venture
agreement.

          In Fiscal  1997,  the Company  identified  markets for the Floor Focus
Ad-Tile(TM)  program in foreign markets and in the U.S., which it considers more
attractive and easier to reach than the U.S.  grocery market.  For example,  the
1,056 hypermarkets in France are estimated by managment to have an annual market
potential  for Floor Focus  Ad-Tile(TM)  of $100  million  which  compares to an
annual  market  potential  estimated by  management  at $14.0  million for 1,178
Winn-Dixie  supermarkets.  The  U.S.  grocery  market  is a  mature  and  highly
competitive market for in-store advertising and promotion programs.  The Company
believes that the best approach to  efficiently  penetrate the grocery market is
to enter into a joint venture with a major  in-store  advertising  and promotion
company. Discussions regarding incorporating the Floor Focus Ad-Tile(TM) program
in a joint  venture  for the U.S.  grocery  market  are being  held with a major
in-store  advertising  and  promotion  company  that  has the  sales  force  and
necessary critical mass of supermarkets to consititute a national program.

         Foreign  markets are in the early  stages of in-store  advertising  and
promotion  and do not have  established  goals  regarding  population  reach for
national  in-store  advertising  and  promotion  programs.  Foreign  advertising
agencies generally take a much more proactive posture regarding  introducing new
marketing  programs to their clients,  and as a result,  there is an established
infrastructure at these advertising agencies for the sale and marketing of Floor
Focus  Ad-Tile(TM)  advertising.  These  factors  and more  attractive  margins,
combined with the interest of Coca-Cola France in using Floor Focus  Ad-Tile(TM)
advertising in the 1,056  hypermarkets in France,  have resulted in the decision
to focus  sales and  marketing  resources  on France,  South  America  and other
foreign  markets.  The  convenience  store market is also regarded as attractive
because it is not highly  competitive  for in-store  advertising  and  promotion
programs, and the Company has an existing base of 8,686 convenience stores which
are currently  purchasing  Handi-Sac(TM) and can be used as a marketing platform
for Floor Focus Ad-Tile(TM) advertising.

         Coca-Cola  France  and a major  international  supermarket  chain  have
agreed  to  an  eight  week  in-store  test  for  Floor  Focus   Ad-Tile(TM)  in
hypermarkets  (referred to as Super Stores in the U.S.)  beginning in July 1997.
Coca-Cola France plans to have seven Floor Focus Ad-Tiles(TM) advertising

                                      -10-





various  Coca-Cola  products  installed  in  each  test  hypermarket.  Upon  the
successful  completion of the eight week in-store test, Coca-Cola France intends
to expand the program to all 1,056 hypermarkets in France as Market Media enters
into retailer  agreements  with the  supermarket  chains and floor space becomes
available.  The Company is confident that the Floor Focus  Ad-Tile(TM)  in-store
test will be as successful  for  Coca-Cola as it has been for other  products in
the U.S. where sales  increased  21.5% to 29.5%.  Management  estimates that the
1,056  hypermarkets  in France  represent  an  annual  market  for  Floor  Focus
Ad-Tile(TM),  based  on  current  pricing,  of  $100  million  annually.  It  is
anticipated  that a successful  in-store test with Coca-Cola France will open up
the French,  European  and South  American  markets for Floor Focus  Ad-Tile(TM)
advertising  with Coca-Cola,  other  multi-national  package goods companies and
supermarkets.  Floor Focus Ad-Tile(TM)  advertising sales from the French market
are anticipated to begin in the third quarter of this fiscal year. In June 1997,
Coca- Cola USA  budgeted  Floor  Focus  Ad-Tile(TM)  for a national  program for
convenience stores to begin in 1998, subject to an in-store test.

         The Company's  Produce Profit Builder has three elements:  FRESH-SAC(R)
T-shirt  produce  bag,  Fresh  Focus   Cartridge   Talker(TM)  and  Floor  Focus
Ad-Tile(TM).  All three  products  create a  marketing  program  for the produce
department of the supermarket,  which is the highest margin department, and have
the objective of increasing produce sales.

         The Produce Profit Builder program  provides a platform for the Company
to  potentially  reach its goal of capturing a 60% market share of the estimated
by  management  $264  million  annual 1996 market for the  FRESH-SAC(R)  T-shirt
produce bag. This estimate is based on the approximately 22 billion produce bags
on a roll sold  annually and the  replacement  of the produce bag on a roll with
FRESH-SAC(R)  T-shirt  produce bag.  FRESH-SAC(R)  is now sold to  approximately
1,000  supermarkets.  In the  context of the  Produce  Profit  Builder  program,
FRESH-SAC(R)  becomes an  important  component  of a marketing  program that can
increase  store profits.  In Fiscal 1997,  the Produce  Profit Builder  program,
utilizing the  Fresh-Sac(R)  T-shirt produce bag and Cartridge  Talker(TM),  was
tested  in-store and  increased  produce  revenues for six  advertised  items by
$18.71 per one thousand  customers,  which translates into an estimated increase
in pretax profit for a 185 store supermarket chain of approximately $1.2 million
annually.  The Produce  Profit  Builder  sales and marketing  campaign  began in
December 1996, and presently there are 18 supermarket chains  representing sales
estimated by  management at $30 million  annually in various  stages of in-store
test. It is anticipated that sales from the in-store test will begin to close in
the second quarter of Fiscal 1998.  Sales of  Fresh-Sac(R)  were $3.2 million in
Fiscal 1997.

          The Produce  Profit  Builder  program is also the platform to launch a
second proprietary  product,  Fresh Focus Cartridge  Talker(TM) along with Floor
Focus  Ad-Tile(TM),  into this market.  The Cartridge  Talker(TM) can be used to
market produce for the supermarket  chain or as an advertising  device for third
party paid advertising.

         3M has entered the floor tile advertising market with a "decal" that is
attached  to the  existing  floor tile  surface  and is  regarded as an indirect
competitor  of  Floor  Focus  Ad-Tile(TM).  3M  is  classified  as  an  indirect
competitor  because its decal advertising  message is attached to the surface of
the floor tile rather than having the advertising message  manufactured into the
floor  tile  like  the  Floor  Focus  Ad-Tile(TM).  The  Company's  Floor  Focus
Ad-Tile(TM) has wear characteristics similiar to standard vinyl floor tiles. The
3M decal is reported  to show wear  within four to six weeks in the  supermarket
environment.


                                      -11-





         Market  Media  has  established  a  Cause  Marketing  division  to  use
Educational  Ad-Tile(TM)  to support a  national  anti-smoking  advertising  and
promotion program for the youth of the nation in the nations public schools. The
anti-smoking  program was  officially  launched by United States  Senator,  John
Kerry,  on  June  6,  1997.   Management   believes  that  Cause  Marketing  and
anti-smoking is a large and immediate market.

RC AMERICA, INC.

         The  Company,  through  its RC  America,  Inc.,  subsidiary,  purchases
surplus finished goods  inventories from  manufacturers of consumer products and
markets and sells the products to mass  merchandise  retailers  and other retail
chains and distributors.  RC America,  Inc.,  purchases and sells these products
both in the United States and overseas.

COMPETITION

         The plastic bag and the in-store  advertising and promotion markets are
highly competitive.  In the traditional plastic grocery T-shirt bag market, from
which the Company  plans to withdraw in Fiscal 1998,  and to a lesser  extent in
other plastic bag markets, the Company's  competitors include divisions of large
multinational  companies e.g.  Tenneco,  Inc.,  ("Tenneco") and Sonoco and other
specialty bag  manufacturers.  The Company believes that Sonoco and Tenneco are,
respectively,  the  leading  manufacturers  of  HMWPE  and  linear  low  density
polyethylene  ("LLDPE") T-shirt grocery bags. (Mobil recently exited the grocery
T-shirt sack market and sold this business to Tenneco.)  There are high barriers
to  entry  into  the  plastic  bag  market  due  to  the   significant   capital
requirements.  In Sonoco's 1996 Annual Report it was estimated that it presently
requires a capital  investment of approximately $15 million for each one billion
bags of manufacturing  capacity.  The Company's  capacity is estimated at 3.3 to
4.8 billion bags annually  depending on product mix and the minimum value of its
installed capacity is estimated at approximately $49.5 million.

         The Company's  in-store  advertising and promotion  products compete in
the same markets that are dominated by Heritage Media  Corporation  and Catalina
Marketing  Corporation,  both of which offer in-store  advertising and promotion
products  which  are  not  related  to  the  Floor  Focus  Ad-  Tile(TM)  or the
FRESH-SAC(R)   produce  bag  dispensing   system.   Consequently,   the  Company
anticipates  much of its  competition  will come from  larger,  well-capitalized
businesses which have  significantly  greater financial and other resources than
the Company.  Accordingly,  no  assurance  can be given that the Company will be
able to compete  successfully  with any of these  companies or achieve a greater
market share than it currently  possesses.  The Company  competes in the plastic
bag and in-store  advertising  and promotion  industries by (i)  developing  and
marketing what it believes are innovative plastic bags and in-store  advertising
and promotion  products,  (ii) filing for patent protection in the United States
and  numerous  foreign  countries  for its  proprietary  products,  (iii)  using
state-of-the-art  manufacturing  equipment in an effort to increase productivity
and  lower  costs,  and  (iv)  integrating  its  proprietary  bag  and  in-store
advertising  and  promotion  products  to create  barriers  to market  entry for
manufacturers  of  plastic  bags,  which do not have  in-store  advertising  and
promotion  products,  and to  create  barriers  to  market  entry  for  in-store
advertising and promotion companies that do not manufacture plastic bags.






                                      -12-





PROPRIETARY PROCESSES, PATENTS AND OTHER RIGHTS

         PATENT STRATEGY

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

         The  Company  has  developed  a patent  position in the T-shirt bag and
in-store  advertising  markets. The Company owns a patent issued in 1989 for its
T-shirt carryout bag and patents for its HANDI-SAC(TM) and FRESH-SAC(R)  T-shirt
bag  dispensing  systems  and  owns a  patent  for  its  Fresh  Focus  Cartridge
Talker(TM) in-store  advertising and promotion product. The Company also owns an
exclusive  worldwide  license for the patented Floor Focus  Ad-Tile(TM)  system.
Recently, the Company received a copyright for the phrase "Must Be Tobacco Free"

         In  1993,  the  Company  was  issued  a United  States  patent  for the
dispensing  system used in conjunction with its  FRESH-SAC(R)  product and other
T-shirt  sack  products  and has filed patent  applications  for the  dispensing
system in 20 foreign  countries.  The Company has filed a patent  application in
the United States for the  FRESH-SAC(R)  HMWPE  material and was notified that a
corresponding  patent has been issued in a foreign country. The Company has also
filed patent applications in the United States for its RAPID-SAC(TM) product and
for its RACK 'N SACK(TM) product,  a new dispensing system for T-shirt sacks for
non-food retail  markets.  The Company was issued a United States patent for its
Fresh Focus  Cartridge  Talker(TM) in 1996.  For Fiscal 1997,  the Company spent
approximately $145,000 for patent activities, including applications, legal fees
and related  costs.  No assurance can be given that any of these patents will be
granted or 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 any of the  Company's  patent  applications  will be
allowed,  or if allowed,  will  provide the Company with any  advantage  against
competitors selling similar products.  Similarly, no assurance can be given that
the  Company's  products  will not  infringe  patents or rights of  others.  The
Company has a registered trademark in the United States for FRESH-SAC(R).

         The Company has developed a number of proprietary manufacturing methods
and processes utilized in the manufacture of its products,  including  processes
that utilize greater  percentages of recycled plastic materials in plastic bags,
and produce strong,  thin,  high clarity and  traditional  HMWPE bags using less
plastic.  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.

         The Company  owns patents in the United  States and Canada  relating to
the  methods  for making a pack of  plastic  T-shirt  sacks  which  permits  the
individual sacks to be mounted on a handle- supported dispensing rack system and
to be easily  separated  and dispensed  from the pack  utilizing a central "pull
tab." Sonoco also owns a patent relating to the methods for holding plastic bags
in a metal rack. In 1990,  Sonoco  indicated its intent to seek licenses under a
broadened reissue patent

                                      -13-





from all  manufacturers  of plastic bags which  utilize a particular  method for
holding plastic bags in a metal rack.  Sonoco has commenced  litigation  against
several  plastic bag  manufacturers  other than the Company.  The United  States
District Court for the Central  District of California  entered summary judgment
in  February  1994 for the  defendants  in a suit  relating  to  alleged  patent
infringement by the defendants. The court declared Sonoco's three reissue claims
to be invalid. It is expected that Sonoco will appeal this judgment.  Subsequent
to this decision, the Company filed suit against Sonoco alleging infringement of
the Company's patent by Sonoco.  In the first quarter of Fiscal 1997, the patent
infringement  suit against Sonoco and Sonoco  counterclaims  against the Company
were dismissed by mutual agreement of the parties.

         If Sonoco was to appeal  the  February  1994  judgment  which  declared
Sonoco's three reissue claims invalid,  and have that judgment reversed,  Sonoco
could institute a patent infringement suit against the Company. If Sonoco was to
institute  and succeed in any  infringement  claim  against the Company,  Sonoco
might be able to prevent the future use, sale and  manufacture of certain of the
Company's  products  using certain  racking  systems,  or  alternatively,  might
require the Company to pay Sonoco a license fee for the use of this  technology.
Either outcome could have a material  adverse effect on the Company's  business.
Infringement  of any patent may also render the Company liable to purchasers and
end-users  of the  infringing  product.  The Company has been  advised by patent
counsel that the Sonoco patent applies to the  traditional  grocery T-shirt sack
and does not apply to the Company's  proprietary  HANDI-SAC(TM) and FRESH-SAC(R)
bag products.

         Mobil  owns  a  reissue   patent  that   relates  to  avoiding   stress
concentration  and preventing  the tearing of plastic bags.  This reissue patent
originally  was to  expire  in 1996.  Due to a change in U.S.  patent  law,  the
reissue patent is now extended until 1998. On December 4, 1995, Mobil instituted
an  infringement  claim against the Company.  Subsequently,  the Company filed a
counter claim against Mobil for patent infringement. In December 1996, Mobil and
the Company  settled  this patent  litigation  by mutual  agreement.  See "LEGAL
PROCEEDINGS."

         No assurance can be given that the Company's products will not infringe
patents  or rights of others.  The  Company  could  incur  substantial  costs in
defending itself in any patent litigation.

MANUFACTURING

         All of the Company's plastics products are manufactured in its Dighton,
Massachusetts facility. The HMWPE resin is delivered to the Company by rail car,
where it is brought into the facility to be heated and blown into a thin film on
blown film  extrusion  lines.  The film is cooled  and wound on large  rolls and
printed with the customer's  information  using non-toxic inks. The film is then
cut into bags,  reviewed by quality control  inspectors,  boxed,  and shipped to
customers. The Company retains customer design ink plates for future use and has
an art department which assists in graphic design for the bags.

         The Company's  manufacturing equipment consists of blown film extrusion
lines, printing presses and bag making machines. The Company anticipates further
increases in manufacturing  capacity in the Dighton facility during Fiscal 1998.
Its present manufacturing  capacity is approximately 3.3 to 4.8 billion bags and
additional film, printing and slitting capacity is planned. All

                                      -14-





capacity  estimates  are  based  upon  certain  assumptions  regarding  pricing,
manufacturing efficiencies and product mix.

RAW MATERIALS

         HMWPE resin  comprises  the  principal  raw  material in the  Company's
products,  the principal component of which is ethylene, a derivative of natural
gas.  HMWPE resin is  currently  available  from several  sources,  but is being
produced at over 90% of industry  capacity  utilization.  During the past fiscal
year,  as in some prior fiscal  years,  resin prices  fluctuated  significantly,
which trend the Company  expects will continue.  Although the Company  currently
purchases the additives used in the production of its FRESH-SAC(R) products from
a single source, it believes that alternate  sources would be available,  if the
current  manufacturer  were to cease  production.  In such event,  however,  the
Company may experience delays in obtaining the additives,  which could result in
temporary  delays in  FRESH-SAC(R)  production.  To date,  the  Company  has not
experienced any shortages of raw materials.

BACKLOG

         The Company's  backlog of firm orders at May 30, 1997,  was $520,065 as
compared to $912,265 at May 31, 1996. The Company generally sells products on an
individual  purchase  order  to  regular  customers  rather  than  under  annual
contracts on a scheduled  delivery  basis.  Accordingly,  backlog may  fluctuate
significantly and may not be an accurate indicator of general business trends.

SEASONALITY

         Management of the Company does not believe that the Company's  business
is seasonal.  However,  general demand for the  traditional  T-shirt grocery bag
decreases in the first calendar quarter of each year because demand for non-food
retail bags is significantly less in this period.

MAJOR CUSTOMERS

         For the fiscal year ended  February  28, 1997,  Duro Bag  Manufacturing
Company ("Duro Bag")  accounted for  approximately  16% of the Company's  sales.
Because Duro Bag sales are primarily of the traditional grocery T-shirt bag, and
the Company is  withdrawing  from this business  segment,  sales to Duro Bag are
expected to decline  substantially in Fiscal 1998 to nominal levels. The decline
of Duro Bag  sales is not  expected  to have a  material  adverse  effect on the
Company's business.

EMPLOYEES

         As of May 30, 1997, the Company had 143 full-time employees,  including
its  four   executive   officers,   of  whom  8  are  employed  in  general  and
administrative  activities,  24 are involved in sales and marketing, and 103 are
involved in  production.  None of the Company's  employees are  represented by a
union.



                                      -15-





ITEM 2.           FACILITIES

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

ITEM 3.           LEGAL PROCEEDINGS

         On December 4, 1995, Mobil Oil Corporation ("Mobil") filed suit against
the  Company in the U.S.  District  Court for the  District of  Delaware,  Civil
Action No. 95-737. Mobil also named Inteplast Corporation and Integrated Bagging
Systems  Corporation  as defendants  in this matter.  Mobil has alleged that the
Company has  infringed on Mobil's  rights under U.S.  Patent No. Re. 34,019 (the
"Patent"),  regarding the manufacture of plastic carrying bags known as "T-shirt
bags." Subsequently,  the Company filed a counter claim against Mobil for patent
infringement.  In  December  1996,  Mobil and the  Company  settled  this patent
litigation by mutual agreement.

         The Company is involved in pending  commercial  legal  proceedings that
the Company does not consider to be material.

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

         No matters  were  submitted  to a vote of security  holders  during the
fourth  quarter  of the  fiscal  year  ended  February  28,  1997,  through  the
solicitation of proxies or otherwise.



                                      -16-







                                     PART II

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

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

         As of June 10,  1997,  the  Company  had 224  holders  of record of its
Common  Stock  and 38  stockholders  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.  Such  quotations  represent  inter-dealer
quotations without  adjustment for retail markups,  markdowns or commissions and
may not represent actual transactions.

<TABLE>
<CAPTION>
                                                                       High Sale                 Low Sale
                                                                       ---------                 --------
<S>                                                                    <C>                       <C>
COMMON STOCK

 Fiscal Year 1996
     First Quarter............................................         $ 4.875                   $ 3.50
     Second Quarter ..........................................         $ 4.00                    $ 2.875
     Third Quarter ...........................................         $ 3.00                    $ 1.875
     Fourth Quarter ..........................................         $ 2.50                    $ 1.25

  Fiscal Year 1997
    First Quarter ............................................         $ 4.25                    $ 1.375
    Second Quarter............................................         $ 3.625                   $ 1.625
    Third Quarter.............................................         $ 3.6875                  $ 1.8125
    Fourth Quarter............................................         $ 2.3125                  $ 1.625

Fiscal Year 1998
    First Quarter.............................................         $1.96875                  $1.5625
    Second Quarter (through June 10, 1997)....................         $1.875                    $1.53125

</TABLE>


                                      -17-





DIVIDENDS

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

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

ITEM 6.           SELECTED FINANCIAL DATA

         The data should be read in conjunction with the consolidated  financial
statements, related notes and other financial information included herein.

<TABLE>
<CAPTION>
                               Year
                              Ended                                     Years Ended
                           ------------     -----------------------------------------------------------------
                           February 28,     February 23,      February 24,      February 25,     February 26,
                               1997             1996               1995              1994           1993
                               ----             ----               ----              ----           ----
 STATEMENT OF
OPERATIONS DATA:
<S>                         <C>              <C>               <C>               <C>              <C>        
Net sales ................. $30,810,037      $28,839,954       $25,254,645       $16,754,056      $16,734,796
Cost of goods sold ........  29,254,754       26,161,723        19,879,041        12,831,497       14,271,717
                           ------------     ------------      ------------       -----------      -----------
Gross profit ..............   1,555,283        2,678,231         5,375,604         3,922,559        2,463,079
Selling, general and
  administrative expense ..   7,318,352        6,370,956         5,029,832         3,746,227        3,837,148
Write-down of impaired assets
   and related expenses       5,897,648               --                --                --               --
Restructuring charge.......         --                --                --                --        5,059,618
Income (loss) from
  operations .............. (11,660,717)      (3,692,725)          345,772           176,332       (6,433,687)
Interest and other
  expense .................   1,112,647          817,420           280,445           166,843          260,085
Other income ..............       9,133               --            77,104                --               --
Non-recurring charges .....          --               --          (989,917)               --               --
Income (loss) before
  minority interest and
  extraordinary items ..... (12,764,231)      (4,510,145)         (847,486)            9,489       (6,693,772)
Minority interest in
  net (income) loss of
  consol. subsidiaries.....          --               --                --           (10,092)          12,100
Net loss .................. (12,764,231)      (4,510,145)         (847,486)             (603)      (6,681,672)
Loss per share.............        (.96)            (.38)             (.08)             0.00            (1.04)
Weighted average shares
  outstanding..............  13,261,815       11,756,532        10,670,040         8,523,580        6,414,020

</TABLE>




                                      -18-





<TABLE>
<CAPTION>
                                At             At                 At               At               At
                           February 28,     February 23,      February 24,      February 25,     February 26,
                               1997           1996               1995             1994             1993
                               ----           ----               ----             ----             ----



BALANCE SHEETS DATA:

<S>                        <C>             <C>               <C>               <C>              <C>        
Total assets ..............$29,247,231     $ 35,277,975      $ 35,341,925      $ 25,222,929      $19,782,729
Long term obligations .....$ 3,809,241     $  5,441,057      $  4,495,692      $  2,183,939      $   961,719
Redeemable preferred
  stock ...................$       ---     $    183,369      $    183,369      $    183,369      $   183,369
Working capital (deficit)..$(5,819,144)    $ (2,767,867)     $  3,909,634      $  2,048,842      $(3,091,420)
Stockholders' equity.......$11,544,675     $ 19,768,971      $ 24,048,204      $ 17,618,729      $11,168,156
</TABLE>


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

FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996

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

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

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

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

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


                                      -19-





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

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

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

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

<TABLE>
<CAPTION>
                                                              Fiscal 1997               Fiscal 1996
                                                              -----------               -----------

<S>                                                           <C>                          <C>         
Proprietary, traditional and film products                    ($  9,079,854)               ($1,695,855)

RC America, Inc.                                                     53,591                     51,328

BPI Packaging, Inc.                                                  (2,205)                    54,505

Market Media, Inc.                                                 (809,199)                  (585,687)

Unallocated corporate overhead                                   (1,823,050)                (1,517,016)
                                                                 ----------                 ---------- 


Operating profit (loss)                                        ($11,660,717)               ($3,692,725)

Interest expense, net                                            (1,103,514)                  (817,420)
                                                                 ----------                 ---------- 

Net loss                                                       ($12,764,231)               ($4,510,145)
                                                               ============                =========== 
</TABLE>


FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995

         For the year ended February 23, 1996 ("Fiscal  1996"),  the Company had
sales of  $28,839,954  as  compared to sales of  $25,254,645  for the year ended
February 24, 1995 ("Fiscal 1995"), an increase of 14.2%.

         The  Company's  core  bag and  film  business  (manufacture,  sale  and
marketing of traditional  plastic grocery carryout bags and proprietary  plastic
carryout  bags of "T-shirt  sack"  design and plastic film  products)  increased
significantly  during Fiscal 1996.  Sales of the Company's core products of bags
and film were $26,439,203 in Fiscal 1996 compared to $18,894,246 in Fiscal 1995,
an increase

                                      -20-





of 40%.

         Sales of the Company's  proprietary bag products  (FRESH-SAC(R) T-shirt
sack  produce  bag,  HANDI-SAC(TM)and   MAXI-SAC(TM))  and  film  products  were
$9,412,415  in Fiscal 1996  compared to sales of  $7,408,297  in Fiscal 1995, an
increase of 27.1%.  Sales of  traditional  products  increased to $17,026,788 in
Fiscal  1996 from  $11,485,949  in  Fiscal  1995,  an  increase  of  48.2%.  BPI
Packaging,  Inc.'s sales of products  purchased from Integrated  Bagging Systems
Corporation  were  $416,255 in Fiscal 1996  compared to sales of  $2,148,539  in
Fiscal 1995, a decrease of 80.6%. Due to the pricing  structure and poor margins
on these products, the Company did not allocate sales and marketing resources to
BPI  Packaging,  Inc. RC America,  Inc.'s sales were  $1,984,496  in Fiscal 1996
compared to $4,211,860 in Fiscal 1995, a decrease of 52.9%. RC America,  Inc.'s.
sales may  fluctuate  significantly  from year to year due to the  nature of its
business and the timing of transactions.

         In Fiscal 1996,  cost of goods sold was  $26,161,723 or 90.7% of sales,
as  compared to cost of goods sold in Fiscal  1995 of  $19,879,041,  or 78.8% of
sales.  The  increase  in cost of goods  sold as a  percentage  of sales was due
primarily to an increase in material costs relative to the selling prices of the
Company's products. Several factors contributed to this result: (i) in the third
quarter of Fiscal  1996,  a  proprietary  bag  program to which the  Company had
allocated more than 25% of its  manufacturing  capacity was cancelled by a major
retail chain. The manufacturing  capacity  released by the program  cancellation
was partially replaced with lower margin traditional grocery T-shirt sacks which
have higher  material costs compared to proprietary  products as a percentage of
the selling  price;  (ii) the material cost  component of inventory was revalued
downward because of declining raw material prices.  Inventories increased during
a time of rising raw material  prices and were at relatively  high levels at the
end of the fiscal year resulting in a significant  revaluation  caused primarily
by a  decline  in raw  material  prices;  and  (iii) in  Fiscal  1996,  sales of
traditional  products  increased  by 48.2%  compared  to an increase in sales of
proprietary  products of 28.5% resulting in an unfavorable product mix which had
higher material costs relative to selling prices.

         Selling,  general  and  administrative  expense  for  Fiscal  1996  was
$6,370,956 or 22.1% of sales as compared to selling,  general and administrative
expense of $5,029,832 in Fiscal 1995, or 19.9% of sales. The increase in expense
and increase as a percentage of sales  relates to sales and marketing  personnel
hired in late Fiscal 1995 and in Fiscal 1996 to expand the  Company's  sales and
marketing  activities  into bag and film markets not previously  serviced by the
Company. Sales and marketing costs related to the start up of Market Media, Inc.
of $585,687  and an  additional  loss on the  disposition  of the Taunton  plant
assets of $140,504 both contributed to the increase in expense.

         The  operating  loss of  $3,692,725  in 1996 as compared to a profit of
$345,772 in 1995 was caused primarily by the increase of cost of goods sold as a
percentage of sales due primarily to an increase in material  costs  relative to
the selling prices of the Company's products and an increase in selling, general
and administrative expense.

         Fiscal 1996 interest expense increased to $865,206 or 3.0% of net sales
as compared to $316,813 in Fiscal  1995,  or 1.3% of net sales.  The increase in
interest expense was due to increased borrowing activity related to purchases of
equipment and increased credit line activity.


                                      -21-





         In Fiscal  1996,  the Company  realized  interest  income of $47,786 as
compared to  interest  income of $36,368 in Fiscal  1995.  In Fiscal  1995,  the
Company also  recognized  other income of $77,104 in connection with a favorable
settlement of a vendor liability.

         The net loss of $4,510,145 in 1996 as compared to a loss of $847,486 in
1995 was caused  primarily by an increase in cost of goods sold,  an increase in
selling, general and administrative expense and an increase in interest expense.
The loss in 1995  included a  non-recurring  charge of $989,917 from the sale of
assets associated with its former Taunton manufacturing plant.

         The  Company  incurred  a loss of $.38  per  share  in  Fiscal  1996 as
compared to a loss of $.08 per share in Fiscal 1995.

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

<TABLE>
<CAPTION>
                                                              Fiscal 1996               Fiscal 1995
                                                              -----------               -----------

<S>                                                           <C>                       <C>       
Proprietary, traditional and film products                    ($1,695,855)              $1,436,178

RC America, Inc.                                                   51,328                  342,725

BPI Packaging, Inc.                                                54,505                      725

Market Media, Inc.                                               (585,687)                    ----

Unallocated corporate overhead                                 (1,517,016)              (1,433,856)
                                                               -----------              -----------

Operating profit (loss)                                       ($3,692,725)              $  345,772

Interest expense, net                                            (817,420)                (280,445)

Other income                                                         ----                   77,104

Non-recurring charge                                                 ----                 (989,917)
                                                               -----------              -----------

Net loss                                                      ($4,510,145)              ($ 847,486)
                                                              ===========               ========== 

</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 financing
and cash from operations.






                                      -22-





         NOTE PAYABLE

         On November 25, 1996,  the Company  refinanced  its bank line of credit
with a new lending  institution.  The new revolving line of credit is $8,000,000
secured by accounts  receivable  and  inventory  and all other assets except for
equipment.  Availability of borrowings under the line of credit is determined by
calculations  of the  borrowing  base, as  specifically  defined in the loan and
security  agreement,  but generally means 85% of qualifying  accounts receivable
and 40% of eligible  inventories  less the aggregate  amount of all  outstanding
commercial and standby  letters of credit.  The line of credit bears interest at
1.5% above the variable interest rate quoted by Norwest Bank of Minnesota with a
minimum  rate of 8.0 (9.75% at February  28,  1997) and provides for a 1/2 of 1%
unused  line fee.  The  credit  line is for five years and is subject to renewal
annually.  The line of credit  includes  certain  financial  covenants  that the
Company  must  maintain  to avoid a default  including  current  ratio,  debt to
equity,  maintaining a net worth of $14 million and  profitability.  At February
28,  1997,  the balance  under the line of credit was  $3,733,477  which was the
maximum available . Management believes that its current line of credit together
with  anticipated  cash from operations will be sufficient to fund the Company's
current operations. (See Cash Flow)

         SALES OF SECURITIES

         During Fiscal 1997,  the Company  received  additional  equity  funding
through  the  sale of  Common  Stock  from a  Regulation  S and a  Regulation  D
offering,  the exercise of underwriters warrants and the exercise of its Class B
Common Stock Purchase Warrants.  The Company received net proceeds of $4,384,835
from the sale of an aggregate  of  2,121,861  shares of Common Stock and 100,000
shares  of  Series  A  Preferred  Stock.  The  proceeds  were  used to  purchase
equipment,  for general  corporate  purposes and the reduction of bank debt. The
Company is presently negotiating additional financing through the sale of equity
or debt securities to pay for all or part of the planned increase in capacity at
the  Dighton  facility  during the Fiscal  1998 as well as to  increase  general
working  capital.  The Company has no  commitments  for such  financing,  and no
assurance can be given that additional financings will be successfully completed
or that such financing will be available on terms  favorable to the Company,  if
at all.

         EQUIPMENT AND LEASE FINANCING

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

         The  Company   currently  has  commitments  to  purchase   $275,000  of
additional  equipment.  Management  intends to finance  the  purchase of the new
equipment primarily through equipment lease financing. No assurance can be given
that the Company will be able to obtain new equipment financing through banks or
equipment lessors.

 DISPOSITION OF TAUNTON ASSETS

         At February 24, 1995, Plasco East Partnership,  a Massachusetts general
partnership  of  corporations   ("Plasco")  owed  the  Company   $1,824,917  for
manufacturing equipment it sold or

                                      -23-





subleased  to Plasco.  A reserve of  $989,917  was  established  in Fiscal  1995
resulting  in a  non-recurring  charge for  $989,917  and a net note  receivable
balance  of  $835,000.  In April  1995,  the  Company,  through  an  independent
auctioneer,  conducted an auction of the equipment originally sold to Plasco and
received  proceeds of $650,000.  An additional  $65,000 was received in December
1995 from a third party guarantor.  The remaining loan balance,  plus additional
costs incurred during Fiscal 1996, were offset against the reserve  resulting in
an  additional  loss of $140,504 for Fiscal 1996,  which is included in selling,
general and administrative expenses.

CASH FLOW

         During Fiscal 1997, the Company generated  $3,417,849 from depreciation
and amortization, $103,922 from the return of lease deposits net, and $4,384,835
from the sale of Common  Stock.  The  Company  also  raised  $3,218,584  from an
increase  in  accounts   payable  and  $84,372  from  a  reduction  in  accounts
receivable.  The Company used  $1,549,878  to purchase  equipment  and for plant
improvements and $1,945,014 was used to make principal payments on capital lease
obligations.  At February  28, 1997,  stockholders'  equity was  $11,544,675  as
compared to  $19,768,971  at February  23, 1996.  The  Company's  current  ratio
deteriorated  from 0.73:1 at February  23, 1996 to 0.58:1 at February  28, 1997.
The net book value of property  and  equipment  decreased  from  $24,314,649  at
February 23, 1996 to $19,803,337 at February 28, 1997.

         To date,  the Company has generated  cash flows from income,  including
depreciation,  financing activities, including sales of equity securities, lines
of credit, term loan facilities,  equipment leasing  arrangements and loans from
raw  material  suppliers.  The Company is presently  negotiating  a $2.0 to $5.0
million debt and/or equity  financing to increase  general  working  capital and
provide  funds for  deposits on  equipment.  Management  believes  that upon the
completion of the $2.0 to $5.0 million financing, fixed asset or lease financing
will be  available  at  competitive  rates from banks and leasing  companies  to
finance a substantial  part of the planned $0.5 million to $3.5 million increase
in capacity at the Dighton  facility  during  Fiscal 1998,  and that its current
revolving line of credit together with  anticipated cash from operations will be
sufficient to fund the Company's current operations. If the $2.0 to $5.0 million
financing is not completed,  management  believes that the working capital ratio
of 0.58:1 at February  28,  1997 is too low for  efficient  operations.  The low
working  capital  ratio has resulted in cash flow  discontinuities  in the first
quarter of Fiscal  1998 and the result has been that  defaults  have  ocurred on
some  leases,  and  certain  trade  accounts  payable  are past due.  Management
believes  that any lease  defaults can be corrected  upon the  completion of the
present  financing.  The Company has no commitments for such  financing,  and no
assurance can be given that additional financings will be successfully completed
or that such  financing  will be available  or, if  available,  will be on terms
favorable to the Company.  Exiting the traditional  grocery T-shirt sack product
lines will result in cost reductions  estimated to be $6.0 million annually.  In
the event that the present  financing is not completed,  the annual $6.0 million
savings  combined with the Company's  anticipated  growth of its proprietary bag
and film  products in Fiscal 1998 will,  in  management's  opinion,  provide the
necessary  cash flows for the Company to continue its  operations  but such cash
flows will not be sufficient to support the Company's  Fiscal 1998 business plan
and meet its sales and profit objectives.





                                      -24-





RC AMERICA, INC.

         Effective  February 26, 1994,  Ronald  Caulfield  exchanged  his 49,500
shares of Common Stock of RC America,  Inc. for 200,000  shares of the Company's
Common Stock, pursuant to the terms of a Stock Exchange Agreement by and between
the Company and Ronald Caulfield (the "RC Agreement").  As a result, RC America,
Inc. is now a wholly  owned  subsidiary  of the Company.  The RC Agreement  also
provides for the issuance to Ronald  Caulfield  of up to an  additional  100,000
shares of the  Company's  Common  Stock over a five (5) year period  based on RC
America,  Inc.  attaining  certain  levels  of  pre-tax  earnings.  Based on the
operating  results of RC America,  Inc.  for Fiscal Year 1997,  a total of 2,640
shares of Common Stock were earned and issued to Mr.  Ronald  Caulfield in April
1997.  For Fiscal 1996 and 1995,  2,550 and 17,400 shares,  respectively  of the
100,000  shares of Common  Stock were  issued to Mr.  Ronald  Caulfield.  The RC
Agreement  contains  certain demand and piggy-back  registration  rights for the
shares.

         The value of the stock issued pursuant to the RC Agreement exceeded the
book value of the assets  acquired  and the Company has  recognized  goodwill of
$800,000 which is being amortized over a ten year period. Issuance of the 17,400
shares of Common Stock resulted in an additional  $71,862 of goodwill.  Issuance
of the 2,550 and 2,640 shares of Common Stock resulted in additional goodwill of
$5,100 and $4,290, respectively.

IMPACT OF INFLATION

         Inflation  during the last three fiscal years has not had a significant
effect on the Company's activities.

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

         No change in the Company's independent  accountants occurred during the
Company's two most recent fiscal years, nor did any  disagreements  occur on any
matter of accounting  principles or practices or financial statement  disclosure
that would be required to be reported on a Form 8-K.






                                      -25-



                                    PART III

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

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

<TABLE>
<CAPTION>
         Name                                        Age               Position
         ----                                        ---               --------
         <S>                                         <C>               <C>
         Dennis N. Caulfield                         58                Chairman of the Board of
                                                                       Directors and Chief
                                                                       Executive Officer

         C. Jill Beresford                           43                President, Treasurer and Director

         Paul J. Decristofaro                        49                Chief Financial Officer

         Alex F. Vaicunas                            69                Vice President, Film Sales

         Gregory M. Davall                           41                Vice President, Office of the
                                                                       Chairman

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

         David N. Laux                               69                Director

         Ivan J. Hughes                              68                Director

</TABLE>

         C. Jill Beresford,  the Company's  President and Gregory M. Davall, the
Company's  Vice  President,  Office  of the  Chairman,  are  spouses.  Dennis N.
Caulfield,  the Company's  Chief  Executive  Officer,  and Ronald V.  Caulfield,
President of RC America, Inc., are brothers.  Except for such relationships,  no
director or executive  officer is related by blood,  marriage or adoption to any
other director or executive officer.

         The Company's Certificate of Incorporation and Bylaws, each as amended,
provide  that the  members  of the Board of  Directors  (the  "Board")  shall be
classified  as nearly as possible  into three  classes,  each with, as nearly as
possible,  one-third of the members of the Board. A classified board is designed
to assure  continuity  and  stability in the Board's  leadership  and  policies.
Dennis N.  Caulfield and Ivan J. Hughes are  classified as Class I directors and
serve until the 1998 Annual  Meeting;  David N. Laux and C. Jill  Beresford  are
classified  as Class II directors and serve until the 1997 Annual  Meeting;  and
Ronald V.  Caulfield  is  classified  as Class III director and serves until the
1999 Annual Meeting. 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

                                      -26-





their  election  and  until  their  successors  have been  duly  elected  by the
stockholders.  Directors  chosen to fill  vacancies on a classified  board shall
hold office until the next election of the class for which  directors shall have
been chosen,  and until their  successors are duly elected by the  stockholders.
Officers are elected by and serve at the  discretion  of the Board of Directors,
subject to their employment contracts.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section  16(a) of the  Securities  Exchange  Act of 1934,  as  amended,
requires executive officers and Directors, and persons who beneficially own more
than ten percent (10%) of the Company's  stock,  to file initial reports on Form
3, reports of changes in ownership on Form 4 and annual statements of changes in
beneficial  ownership  on Form 5 with the  Securities  and  Exchange  Commission
("SEC") and any national securities  exchange on which the Company's  securities
are registered. Executive officers, Directors and greater than ten percent (10%)
beneficial  owners are required by SEC  regulations  to furnish the Company with
copies of all Section 16(a) forms they file.

         Based  solely on a review of the copies of such forms  furnished to the
Company and written  representations  from the executive officers and Directors,
the Company  believes that all Section 16(a) filing  requirements  applicable to
its executive officers,  Directors and greater than ten percent (10%) beneficial
owners were complied with for Fiscal 1997.

         The  following is a brief  account of the business  experience  of each
officer and director of the Company:

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

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


                                      -27-





         PAUL J. DECRISTOFARO. Mr. Decristofaro is a certified public accountant
and has been the Company's Chief Financial Officer since January 1997. From 1991
to 1996, Mr.  DeCristofaro  served as Chief Financial  Officer to Carol Gavazzi,
Inc., a privately  held company that designs and  manufactures  custom  computer
enclosures,  peripherals  and  electronic  components.  From  1980 to 1991,  Mr.
DeCristofaro served as Vice President of Finance and Chief Financial Officer for
Hersey Products,  Inc., a privately held manufacturer of liquid  measurement and
control  devices.  Mr.  DeCristofaro  received a Bachelor  of Science  degree in
Accounting from Stonehill  College, a Masters of Science degree in Taxation from
Bentley   College  and  a  Masters  degree  in  Business   Administration   from
Northeastern University.

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

         GREGORY M. DAVALL.  Mr. Davall has been the Company's  Vice  President,
Office of the  Chairman,  since March 1997,  and  previously  served as the Vice
President  of  Manufacturing  from May  1992 to March  1997.  Mr.  Davall  was a
director of the Company  from  February  1994 to March 1997.  Mr.  Davall has 18
years experience in  manufacturing  and process  engineering.  From 1986 through
April 1992, Mr. Davall was employed in various capacities at Pacific Scientific,
Inc., a manufacturer of factory and office automation equipment,  including Vice
President of  Manufacturing  and Director of Operations.  From 1978 to 1986, Mr.
Davall  served in  various  engineering  capacities  at Martin  Marietta  Energy
Systems.  Mr.  Davall  received  a  Bachelor  of  Science  degree in  Mechanical
Engineering  from  Bucknell  University,  where he also engaged in  postgraduate
studies  in   mechanical   engineering   and  received  a  Masters  in  Business
Administration  from  Boston  University.  Mr.  Davall is the husband of C. Jill
Beresford, the Company's President, Treasurer and a Director of the Company.

         RONALD V.  CAULFIELD.  Mr.  Caulfield  has served as a Director  of the
Company since June 1994. Mr. Caulfield has been the Chief Executive  Officer and
President of RC America,  Inc. since  November 1992.  From March 1989 to October
1992, Mr.  Caulfield was the Vice President of Purchasing for F&F  Merchandising
Company,  a  privately  owned  wholesale  company,   where  he  was  principally
responsible  for negotiating  the purchase of nationally  advertised  brand name
close outs direct from the  manufacturer.  From  February 1988 to March 1989, he
was the Executive  Vice  President of Mars Stores,  Inc., a publicly held retail
discount store company.  In this capacity,  Mr.  Caulfield was  responsible  for
establishing  and achieving  business plans for all buying,  marketing and store
operations activities.  From 1971 to 1988, Mr. Caulfield was employed in various
capacities at Caldor,  Inc., a publicly owned  discount  store company,  serving
lastly as the Vice President,  Divisional Merchandise Manager and as a member of
the Operating  Committee.  Mr. Caulfield attended the University of Connecticut.
Mr.  Caulfield  is the  brother  of Dennis N.  Caulfield,  the  Company's  Chief
Executive Officer and Chairman of the Board of Directors.


                                      -28-





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

         IVAN J.  HUGHES.  Mr.  Hughes has served as a Director  of the  Company
since March 1996.  Since 1991,  Mr. Hughes has been the President of the Plastic
Division of Duro Bag  Manufacturing  Company,  a privately  held  company  which
manufactures  grocery bags,  shopping and specialty bags as well as plastic bags
for the food and retail  industry.  Mr.  Hughes has been employed by Duro Bag in
various  positions  for the past 32 years.  Mr.  Hughes  received a Bachelor  of
Science in  Mechanical  Engineering  at  Lafayette  College  and  completed  his
graduate studies at Columbia University.



                                      -29-





SIGNIFICANT EMPLOYEES

         The Company also employs the following significant employees:

<TABLE>
<CAPTION>
         Name                                        Age               Position
         ----                                        ---               --------
         <S>                                         <C>               <C>
         Peter J. Bertolami                          54                National Accounts Manager,
                                                                       Traditional T-shirt bag products

         Steven J. Fabrizio                          49                Sales Manager,
                                                                       Traditional T-shirt bag products

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

         Tracy L. McGrath                            32                Marketing Manager, Convenience Stores

         Vadim Radunsky                              31                Engineering Manager

         Edward Rossi                                47                Controller

         Paul A. Wallace, III                        55                National Sales Manager,
                                                                       Convenience Stores

         Richard M. Wile                             54                Field Service Manager

</TABLE>

         PETER J.  BERTOLAMI.  Mr.  Bertolami  has been the  Company's  National
Accounts  Manager since June 1990.  From 1985 to 1990, Mr.  Bertolami was a Vice
President of McPherson Corporation,  a commercial real estate brokerage company.
From 1984 to 1985, Mr. Bertolami was a principal for Surge,  Inc., a distributor
of the Biomed total knee and total hip replacement products. Mr. Bertolami has a
Bachelor of Science degree in Marketing from Boston College.

         STEVEN J. FABRIZIO.  Mr. Fabrizio has been the Company's  General Sales
Manager  since   November  1995.   From  1994  to  1995,  Mr.   Fabrizio  was  a
broker/consultant in the flexible film industry. From 1990 to 1994, Mr. Fabrizio
was the General Sales Manager,  Eastern Region, for Gaylord Bag, a publicly held
company that  manufactures  kraft paper and paper packaging.  From 1986 to 1990,
Mr.  Fabrizio  was Regional  Sales  Manager for the  southwest  region for Stone
Container Corporation,  a vertically integrated manufacturer of paper packaging.
From  1972 to 1986,  Mr.  Fabrizio  was base  Training  Instructor  for  Eastern
Airlines,  Inc. Mr. Fabrizio graduated from Hawthorne College,  where he majored
in psychology.

         RICHARD H. NURSE, PH.D. Dr. Nurse has been the Company's Vice President
of Technical  Development  since January 1995. Since 1989, Dr. Nurse has been an
independent  consultant to the plastics  industry.  From 1987 to 1988, Dr. Nurse
was the Director of Research and Development for Cookson Performance Plastics, a
plastics  additive  manufacturer.  From 1985 to 1987,  Dr. Nurse was a Technical
Manager for Nortech  Company,  a plastics  additive  manufacturer.  From 1979 to
1985,  Dr.  Nurse  was  the  Manager  of  Technical   Service  and  Applications
Development for American

                                      -30-





Hoechst Corp., a plastics resin manufacturer.  Dr. Nurse received a Ph.D. degree
in Polymer Technology from the University of Manchester Institute of Science and
Technology in England and a Bachelor of Science  degree in Chemical and Plastics
Technology from the Polytechnic of South Bank in England.

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

         VADIM RADUNSKY. Mr. Radunsky has been the Company's Engineering Manager
since August,  1992.  From 1990 to 1992, Mr.  Radunsky was employed as a Process
Engineer at Unitrode Corp,  Watertown,  Massachusetts and from 1989 to 1990, Mr.
Radunsky  was  employed as a  Mechanical  Engineer at the  Institute of Organice
Dyes, Moscow,  USSR and from 1987 to 1989, Mr. Radunsky was employed as a piping
designer at Moscow Chemical  Plant,  Moscow,  USSR. Mr. Radunsky  received has a
Bachelor of Science  degree in  Mechanical  Engineering  from the  Institute  of
Chemical Engineering, Moscow, USSR .

         EDWARD ROSSI. Mr. Rossi is a certified  public  accountant and has been
the  Controller of the Company since January 1995.  From 1988 to 1994, Mr. Rossi
was the Corporate  Controller for Sentinel Products Corp., a private corporation
that manufactures cross linked polyethylene foam and rubber products.  From 1981
to 1988,  Mr. Rossi was Controller  for Seltel,  Inc., a television  advertising
representative  firm. Mr. Rossi worked for Gulf & Western Industries,  Inc. (now
Paramount  Communications)  from  1977  to  1981,  first  as an  Internal  Audit
Supervisor and then as Division  Controller for an export sales  division.  From
1972 to 1976,  Mr. Rossi worked for Coopers & Lybrand as a supervisor and senior
accountant.  Mr.  Rossi  received  a  Bachelor  of  Science  degree  from  Rider
University.

         PAUL A. WALLACE, III. Mr. Wallace has been the Company's National Sales
Representative  since June 1995.  From 1990 to 1995,  Mr.  Wallace  was a Senior
Account Representative,  High Density Film Products Division,  Convenience Store
Group for Sonoco Products  Company and from 1985 to 1990, Mr. Wallace held other
sales positions in the Sonoco Products  Company  Convenience  Store Group.  From
1984 to 1985,  Mr.  Wallace  worked as a Detail  Sales  Representative  for E.R.
Squibb & Sons, where he was responsible for selling  pharmaceutical  products to
doctors and hospitals.  From 1982 to 1983, Mr. Wallace was employed by Geer Drug
Company  as a  Sales  Representative,  where  he  was  responsible  for  selling
pharmaceutical and over-the-counter  products to pharmacy chains and independent
drugstores.  Mr. Wallace  received a Bachelor of Arts degree from the University
of South Carolina.

         RICHARD M. WILE. Mr. Wile has been the Company's  field service manager
since June 1991.  From 1989 to 1991,  Mr. Wile was the  Company's  logistics and
special products manager.  From 1984 to 1989, Mr. Wile was a Distribution Center
Manager for Honeywell Bull's national distribution operation.  Mr. Wile received
a Bachelor of Science degree in Transportation from Syracuse University.




                                      -31-





ITEM 11.          EXECUTIVE COMPENSATION

         The following tables set forth the  compensation  paid to the Company's
executive  officers with respect to services  rendered to the Company during the
Fiscal Years ended February 28, 1997, February 23, 1996 and February 24, 1995.



                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                          Long Term
                                                                                        Compensation
                                                Annual Compensation                        Awards
                                                -------------------                        ------
                (a)                  (b)      (c)              (d)                  (g)              (i)
                                                                                 Securities
                                    Fiscal                                       Underlying       All Other
   Name and Principal Position       Year   Salary(1)         Bonus(2)           Options(#)      Compensation
   ---------------------------       ----   ---------         --------           ----------      ------------
<S>                                <C>      <C>               <C>                 <C>             <C>        
Dennis N. Caulfield ................1997    $320,000          $     0             265,320         $122,220(3)
 Chairman of the Board              1996    $320,000          $     0             265,320         $ 36,174(3)
 Chief Executive Officer            1995    $320,000          $     0             265,320         $ 35,472(3)

C. Jill Beresford ..................1997    $180,000          $     0             163,224         $ 22,978(4)
 President and Treasurer            1996    $180,000          $     0             163,224         $ 13,989(4)
                                    1995    $180,000          $     0             163,224         $  3,108(4)

Alex F. Vaicunas ...................1997    $125,000          $     0              86,713         $    780(5)
 Vice President of Sales            1996    $125,000          $     0              86,713         $    780(5)
                                    1995    $125,000          $     0              86,713         $    780(5)

James F. Koehlinger ................1997    $ 89,700          $     0                   0         $ 20,200(6)
 Former Chief Financial Officer     1996    $135,300          $     0              12,500         $      0
                                    1995    $136,530          $     0              12,500         $      0

Gregory M. Davall ..................1997    $125,000          $     0              86,713         $ 17,826(7)
 Vice President of Manufacturing    1996    $125,000          $     0              86,713         $  9,582(7)
                                    1995    $125,000          $     0              86,713         $  1,140(7)

</TABLE>


(1)      Amounts  shown  indicate  cash  compensation  earned  and  received  by
         executive officers; no amounts were earned but deferred at the election
         of those officers. Executive officers participate in Company group life
         and health  insurance.  In Fiscal Years 1995-1997,  the Company made no
         awards of restricted stock.

2)       Effective July 1, 1993, Mr. Caulfield,  Ms. Beresford, Mr. Vaicunas and
         Mr.  Davall  participate  in an executive  compensation  program  which
         provides  them with an  aggregate  bonus  equal to six  percent  of the
         Company's pre-tax profit for the first $1,000,000 in pre-tax profits in
         any fiscal year, and 12% of pre-tax  profits in excess of $1,000,000 in
         any fiscal year except that in the discretion of the Board of Directors
         the bonus will not exceed  $750,000 in the aggregate in any fiscal year
         beginning  with Fiscal 1995.  Except for a bonus of $25,000 paid to Mr.
         Davall under his old compensation program,  described below, no bonuses
         were paid for  Fiscal  1995,  1996 or 1997 under the new  program.  See
         "MANAGEMENT  - Employment  Contracts,  Termination  of  Employment  and
         Change In Control Arrangements."

(3)      Effective  December 15, 1993, the Company pays  approximately  $335 and
         $990 per month,  respectively  for two (2) personal term life insurance
         policies for Mr.  Caulfield and $700 per month for a disability  policy
         effective February 7, 1994. The Company also makes monthly

                                      -32-





         automobile and insurance payments of approximately  $980, $980 and $930
         for Fiscal 1997, Fiscal 1996 and 1995, respectively,  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.

(4)      Effective  December 15, 1993,  the Company pays  approximately  $80 per
         month for a personal term life insurance  policy for Ms.  Beresford and
         approximately $190, $190 and $180 per month in Fiscal 1997, Fiscal 1996
         and Fiscal  1995,  respectively,  for a  disability  policy that became
         effective  February 7, 1994.  Effective  November 1, 1995,  the Company
         also makes monthly  automobile and insurance  payments of approximately
         $790 for an automobile for Ms.  Beresford.  The amount includes $10,385
         and  $7,616 of  unused  vacation  pay that was paid in Fiscal  1997 and
         1996, respectively.

(5)      Effective  February 7, 1994,  the Company  pays  approximately  $65 per
         month  for  a  disability  policy.   Excludes  monthly  automobile  and
         insurance  payments  from the  Company  on  behalf of Mr.  Vaicunas  of
         approximately  $760 for an  automobile.  Mr.  Vaicunas  reimburses  the
         Company for any personal use of the automobile.

(6)      After his termination in October 1996 as Chief Financial  Officer,  Mr.
         Koehlinger  provided  contractual  services to the Company for specific
         projects.

(7)      Effective  December 15, 1993,  the Company pays  approximately  $50 per
         month for a personal term life insurance  policy for Mr. Davall and $45
         per month for a disability policy for Mr. Davall effective  February 7,
         1994.  Effective  November  1, 1995,  the  Company  also makes  monthly
         automobile  and  insurance   payments  of  approximately  $790  for  an
         automobile for Mr.  Davall.  The amount  includes  $7,212 and $5,288 of
         unused vacation pay that was paid in Fiscal 1997 and 1996.


                                      -33-





                 AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997
                            AND FY-END OPTION VALUES

<TABLE>
<CAPTION>
             (a)                        (b)             (c)           (d)              (e)
             ---                        ---             ---           ---              ---
                                                                   Number of
                                                                   Securities       Value of
                                                                   Underlying       Unexercised
                                                                   Unexercised      In-the-Money
                                                                   Options          Options
                                                      Value        at FY-End        Exercisable/
                                    Shares Acquired   Realized     Exercisable/     Unexercisable
         Name                         on Exercise       ($)        Unexercisable      ($)(1)
         ----                       ---------------   --------     -------------    ------------

<S>                                       <C>            <C>     <C>                    <C>
Dennis N. Caulfield ................      0              0       198,922 / 66,308       0 / 0
C. Jill Beresford ..................      0              0       122,418 / 40,806       0 / 0
Alex F. Vaicunas ...................      0              0        73,356 / 43,357       0 / 0
James F. Koehlinger (2).............      0              0             0 / 0            0 / 0
Gregory M. Davall ..................      0              0        55,356 / 43,357       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 February 28, 1997, the last day of Fiscal 1997, the fair
         market value of the Company's  Common Stock  underlying the options (as
         determined  by the last sale price  quoted on  NASDAQ/NMS)  was $1.625.
         Since the exercise price of all of the options  reflected in this table
         is greater than $1.625,  the options held by these  individuals are not
         In-the-Money and are therefore not included in this calculation.

(2)      Mr.  Koehlinger's  options  terminated  upon  his  resignation  as  the
         Company's Chief Financial Officer in October 1996.

AUDIT COMMITTEE

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

COMPENSATION OF DIRECTORS

         Messrs.  Laux and Hughes are paid $1,875 each per calendar quarter.  No
other directors receive any compensation.  In June 1992 and March 1996, David N.
Laux and Ivan J.  Hughes  each  received  options  to  purchase a total of 7,500
shares of Common Stock at a purchase  price of $2.50 and $2.38 per share through
June 9, 2002 and March 24, 2006, respectively. In April 1997, accrued and unpaid
director  fees of Messrs.  Laux and Hughes were  converted  into 1,035 and 4,138
shares of the  Company's  Common Stock,  respectively,  based on the closing bid
price of the  Company's  Common Stock on April 25, 1997 of $1.875 as reported by
NASDAQ/NMS.




                                      -34-





EMPLOYMENT   CONTRACTS,   TERMINATION   OF  EMPLOYMENT  AND  CHANGE  IN  CONTROL
ARRANGEMENTS

         The  Company  has  entered  into   employment,   non-competition,   and
confidentiality  agreements  with  each of Mr.  Caulfield,  Ms.  Beresford,  Mr.
Vaicunas and Mr. Davall.  Base salaries for Mr. Caulfield,  Ms.  Beresford,  Mr.
Vaicunas and Mr. Davall are $320,000, $180,000, $125,000 and $125,000 per annum,
respectively,  subject to  periodic  review by the Board of  Directors.  Each of
these  agreements  expires  on June  30,  1998.  These  agreements  provide  for
severance  payments  of 24  months'  base  salary  in the  event  employment  is
terminated  without cause and prohibit the  individual  from  competing with the
Company for a period of 24 months  following  termination of employment with the
Company.  In the event of a change of control in the  Company,  the  individuals
have  the  option  to  terminate  their  employment  and to  receive  additional
severance  compensation subject to the provisions of their employment agreement.
The Company is the owner and the beneficiary of key-person life insurance on Mr.
Caulfield and Ms. Beresford in the amount of at least $1,000,000 per individual.
Prior to leaving  the  Company in October  1996,  Mr.  Koehlinger  was paid on a
per-diem  basis at a rate of $600 and he  participated  in health  benefits that
were  generally  available  to the  Company's  employees.  The  Company has also
entered into non-competition and confidentiality  agreements with Mr. Koehlinger
and certain other employees.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         The Board of Directors established a Compensation Committee on December
31, 1992.  Members of the  Compensation  Committee are David N. Laux and Ivan J.
Hughes, the two outside Directors of the Company. None of the executive officers
of the Company  have served on the Board of  Directors  of any other entity that
has had any of such entity's  officers  serve either on the  Company's  Board of
Directors or Compensation Committee.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENFICIAL OWNERS AND MANAGEMENT

BENEFICIAL OWNERSHIP OF VOTING SECURITIES

         The  following  table  sets  forth,  as  of  April  29,  1997,  certain
information  concerning stock ownership of the Company by (i) each person who is
known by the  Company to own  beneficially  5% or more of the  Company's  Common
Stock or  Series A  Convertible  Preferred  Stock,  (ii)  each of the  Company's
directors,  and (iii) all directors and officers as a group. Except as otherwise
indicated,  the stockholders listed in the table have sole voting and investment
powers with respect to the shares indicated.

<TABLE>
<CAPTION>
 NAME AND ADDRESS                                     NUMBER OF SHARES                  PERCENTAGE
OF BENEFICIAL OWNER                                  BENEFICIALLY OWNED                 OF CLASS(1)(2)
-------------------                                  ------------------                 --------------
<S>                                                      <C>                                 <C>
C. Jill Beresford(3)(4)(5)(6).......................     1,627,249                           11.0%

Dennis N. Caulfield(3)(7)(8)........................     1,304,506                            8.9%

Ronald V. Caulfield(9)..............................       142,590                            1.0%
  741 Boston Post Road, Suite 101
  Guilford, Connecticut  06437

Ivan J. Hughes(10)..................................        74,256                             *
  Davies and Oak Streets
  Ludlow, Kentucky  41016-0250

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


                                      -35-






All Officers and Directors
 as a Group (8 persons)(2)(4)(5)(6)
 (7)(8)(9)(10)(11)(12)(13)..........................     3,395,629                           22.3%
</TABLE>



* Less than one percent.

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

(2)      Except as otherwise  noted,  does not give effect to the issuance of an
         aggregate  of  2,378,855  shares  of  Common  Stock  issuable  upon the
         exercise,  conversion or issuance of (i) Series B Convertible Preferred
         Stock for an aggregate of 146,695 shares of Common Stock; (ii) exercise
         of warrants  issued to an  individual  and  principals of the placement
         agent in the  Company's  Regulation  S offerings  for an  aggregate  of
         21,000  shares of Common  Stock;  (iii)  1,933,750  options  granted or
         available  for grant  under the  Company's  1990,  1993 and 1996  Stock
         Option  Plans;   (iv)  up  to  77,410  additional  shares  issuable  in
         connection   with  the  acquisition  of  the  interest  of  a  minority
         shareholder  of RC  America,  Inc.  (the "RC America  Stock");  and (v)
         200,000  shares of Common Stock  issuable upon the exercise of warrants
         issued to financial consultants of the Company, subject to adjustments.

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

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

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

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

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

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

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


                                      -36-





(10)     Includes  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.

(11)     Includes  7,500 shares of Common  Stock  issuable  upon  exercise of an
         option at a  purchase  price of $2.50 per share  through  June 9, 2002.
         Effective  April  28,  1997,  the  exercise  price of this  option  was
         repriced from $4.00 to $2.50.

(12)     Includes the following  holdings of Mr. Vaicunas:  (i) 20,000 shares of
         Common Stock;  (ii) 8,000 shares of Common Stock issuable upon exercise
         of an  option  at a price  of $3.00  per  share  any time  prior to the
         expiration  date which is August 2, 2000;  (iii) 12,000 shares issuable
         upon the  exercise  of an  option  at a price of $3.88 per share at any
         time prior to the  expiration  date which is July 8, 2001;  (iv) 10,000
         shares  issuable upon the exercise of an option at a price of $2.50 per
         share at any time prior to the expiration  date which is June 15, 2002;
         and (v) 86,713  shares  issuable  upon the  exercise  of an option at a
         price of $2.50 per share at any time prior to the expiration date which
         is June 30, 2003.  Effective April 28, 1997, the exercise prices of the
         options  listed  in (iv) and (v) were  repriced  from  $4.00  and $4.00
         respectively, to $2.50.

(13)     Includes  the  following  holdings of Mr.  Davall:  (i) 3,200 shares of
         Common  Stock held  jointly  with Ms.  Beresford;  (ii)  12,000  shares
         issuable  upon the  exercise of an option at a price of $2.50 per share
         at any time prior to the  expiration  date which is June 15, 2002;  and
         (iii) 86,713  shares of Common Stock  issuable  upon the exercise of an
         option  at a  price  of  $2.50  per  share  at any  time  prior  to the
         expiration  date which is June 30, 2003.  Effective April 28, 1997, the
         exercise price of these options were repriced from $4.00 to $2.50.

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          In November 1990, the Company loaned  $132,197 to Dennis N. Caulfield,
its Chairman.  The note was amended in June 1996 and is now payable on or before
the fiscal year ending  February  28, 1997 and  effective  at the  beginning  of
Fiscal 1996,  accrues interest at the rate equal to the interest rate charged on
the Company's  revolving line of credit with Citizens  Savings Bank. The balance
of the loan as of February 28, 1997 was approximately  $476,489,  which included
interest  on the loan and net  additional  advances  of $72,598  received by Mr.
Caulfield in the past year. Mr. Caulfield has agreed to apply any bonus payments
received under the Company's  executive  bonus plan (the "Bonus Plan") to reduce
the amounts outstanding under the loan.

         Ivan J.  Hughes,  a director of the  Company,  is the  President of the
Plastics Division Duro Bag Manufacturing  Company ("Duro").  For Fiscal 1996 and
1997,  Duro  accounted  for  approximately  10% and  16%,  respectively,  of the
Company's sales.

         Effective  February 26, 1994,  Ronald  Caulfield  exchanged  his 49,500
shares of Common Stock of RC America for 200,000 shares of the Company's  Common
Stock,  pursuant to the terms of a Stock  Exchange  Agreement by and between the
Company and Ronald Caulfield (the "Exchange Agreement").  The Exchange Agreement
also  provides  for the  issuance  to Ronald  Caulfield  of up to an  additional
100,000  shares of the Company's  Common Stock over a five (5) year period based
on RC America attaining  certain levels of pre-tax  earnings.  As a result of RC
America's earnings for Fiscal 1995, Fiscal 1996 and Fiscal 1997,  17,400,  2,550
and 2,640  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.



                                      -37-





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:

<TABLE>
<CAPTION>
                                                                                                         Page
                                                                                                         ----
<S>                                                                                                       <C>
Report of Independent Accountants - Price Waterhouse LLP                                                  F-1

Consolidated Balance Sheets as of February 28, 1997 and February 23, 1996                                 F-2

Consolidated Statements of Operations for the years ended February 28,
1997, February 23,1996 and February 24, 1995                                                              F-4

Consolidated Statements of Stockholders' Equity for the years ended February
28, 1997, February 23, 1996 and February 24, 1995                                                         F-5

Consolidated Statements of Cash Flows for the years ended February 28,
1997, February 23, 1996 and February 24, 1995                                                             F-6

Notes to Consolidated Financial Statements                                                                F-7
</TABLE>


         (a)(2) Financial Statement Schedules. The following financial statement
schedules are filed herewith:

<TABLE>
<CAPTION>
                                                                                                         Page
                                                                                                         ----
<S>                                                                                                       <C>
Schedule II                Valuation and Qualifying Accounts                                              S-1
</TABLE>

         All other  schedules  for  which  provision  is made in the  applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related  instructions  or are  inapplicable,  and therefore  have been
omitted.

(a)(3)   Exhibits.

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




                                      -38-







Exhibit
   No.                                Title
   ---                                -----

  27              Financial Data Schedule.

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

Exhibit
   No.                                Title
   ---                                -----

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

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

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

  10d             Continuing Guaranty of Market Media, Inc.

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

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

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

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

  27              Financial Data Schedule.



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

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





                                      -39-





Exhibit
   No.                                Title
   ---                                -----

  10**            1996 Stock Option Plan.

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

Exhibit
   No.                                Title
   ---                                -----

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

 10d              Lease for premises  at 455-473 Somerset Avenue, North Dighton,
                  Massachusetts.

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

Exhibit
   No.                                Title
   ---                                -----

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

  3b              Bylaws of the Company, as amended.

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

Exhibit
   No.                                Title
   ---                                -----

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

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




                                      -40-







 Exhibit
    No.                               Title
    ---                               -----

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

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

 21               Subsidiaries of the Company.

         (h) The following exhibits were filed as part of the Company's Form S-1
Registration  Statement (33-73780) declared effective by the Commission on April
7, 1994 and are incorporated herein by reference.

  Exhibit
    No.                               Title
    ---                               -----

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

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

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

 10d**            Form of Employment Agreement of  Gregory M. Davall.

 10e**            1993 Stock Option Plan.

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

 Exhibit
   No.                                Title
   ---                                -----

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

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

   4a             Specimen Series A Convertible Preferred Stock Certificate.


                                      -41-





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

 Exhibit
   No.                                Title
   ---                                -----

 10i**            1990 Stock Option Plan.



**These exhibits relate to executive compensation plans and arrangements.

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

         Schedule II:  Valuation of Qualifying Accounts (formerly Schedule VIII)

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

                                      -42-





                                   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 12, 1997

                                                By:/s/ Dennis N. Caulfield
                                                   -----------------------------
                                                Dennis N. Caulfield, 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>
Name                                                 Capacity                                        Date
----                                                 --------                                        ----
<S>                                         <C>                                                  <C>
/s/ Dennis N. Caulfield                     Chief Executive Officer and                          June 12, 1997
-------------------------                   Chairman of the Board of Directors
Dennis N. Caulfield                         (Principal Executive  Officer
                                            and Principal Accounting Officer)

/s/ C. Jill Beresford                       President, Treasurer and Director                    June 12, 1997
-------------------------
C. Jill Beresford

/s/ Ronald V. Caulfield                     Director                                             June 12, 1997
-------------------------
Ronald V. Caulfield

/s/ Ivan J. Hughes                          Director                                             June 12, 1997
-------------------------
Ivan J. Hughes

/s/ David N. Laux                           Director                                             June 12, 1997
-------------------------
David N. Laux
</TABLE>



                                      -43-





                        BPI PACKAGING TECHNOLOGIES, INC.

                                  EXHIBIT INDEX



EXHIBIT
   NO.                                  TITLE


  27              Financial Data Schedule.


                                      -44-





                        BPI PACKAGING TECHNOLOGIES, INC.

                                    INDEX TO
                        CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                                         Page
                                                                                                         ----
<S>                                                                                                       <C>
Report of Independent Accountants - Price Waterhouse LLP                                                  F-1

Consolidated Balance Sheets as of February 28, 1997 and February 23, 1996                                 F-2

Consolidated Statements of Operations for the years ended February 28,
1997, February 23, 1996 and February 24, 1995                                                             F-4

Consolidated Statements of Stockholders' Equity for the years ended
February 28, 1997, February 23, 1996 and February 24, 1995                                                F-5

Consolidated Statements of Cash Flows for the years ended February 28, 1997,
February 23, 1996 and February 24, 1995                                                                   F-6

Notes to Consolidated Financial Statements                                                                F-7
</TABLE>



                                      -45-






PART I.   FINANCIAL INFORMATION

ITEM I.   FINANCIAL STATEMENTS









                        Report of Independent Accountants



June 12, 1997

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) and (2) on page 37 present fairly, in all material  respects,  the
financial position of BPI Packaging  Technologies,  Inc. and its subsidiaries at
February 28, 1997 and February  23, 1996,  and the results of their  operations,
their  changes  in  stockholders'  equity,  and their cash flows for each of the
three years in the period 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.  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 5 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 be Disposed of," for
the year ended February 28, 1997.


Price Waterhouse LLP
Boston, Massachusetts.

                                       F-1


                        BPI PACKAGING TECHNOLOGIES, INC.

                           CONSOLIDATED BALANCE SHEET

                                     ASSETS

<TABLE>
<CAPTION>

                                                             FEBRUARY 28,            FEBRUARY 23,  
                                                                  1997                    1996
                                                         -------------------    -------------------
<S>                                                               <C>                     <C>                                      
Current assets                                          
    Cash                                                   $         58,134          $     109,093
    Accounts receivable, net                                      2,093,760              2,178,132
    Inventories                                                   4,534,453              3,927,597
    Prepaid expenses and other assets                             1,387,824              1,085,258
                                                         -------------------    -------------------
          Total current assets                                    8,074,171              7,300,080
                                                         -------------------    -------------------
                                                        
Property and equipment, net                                      19,803,337             24,314,649
                                                         -------------------    -------------------
                                                        
Patents, net                                                            ---              1,099,553
Deposits - leases and equipment purchases                           128,461                802,383
Loans to officers                                                   479,797                468,606
Other assets                                                        761,465              1,292,704
                                                         -------------------    -------------------
                                                                  1,369,723              3,663,246
                                                         -------------------    -------------------
                                                        
                                                             $   29,247,231           $ 35,277,975
                                                         ===================    ===================
</TABLE>
                                             
                   The accompanying notes are an integral part
                   of these consolidated financial statements.

                                       F-2










                        BPI PACKAGING TECHNOLOGIES, INC.
                           CONSOLIDATED BALANCE SHEET
                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>


                                                                                        FEBRUARY 28,            FEBRUARY 23,
                                                                                            1997                    1996
                                                                                    ---------------------    -------------------
<S>                                                                                         <C>                      <C>
Current liabilities
    Note payable                                                                         $     3,733,477          $   3,752,604
    Capital lease obligations due within one year                                              2,109,718              1,832,847
    Accounts payable                                                                           7,090,283              3,871,699
    Other accrued expenses                                                                       959,837                427,428
    Series C mandatorily redeemable preferred stock,
      $.01 par value, at stated value                                                                ---                183,369
                                                                                    ---------------------    -------------------
          Total current liabilities                                                           13,893,315             10,067,947
                                                                                    ---------------------    -------------------

Capital lease obligations-long-term portion                                                    3,809,241              5,441,057
                                                                                    ---------------------    -------------------
Stockholders' Equity
    Series B convertible preferred stock, $.01 par value                                       1,466,954              1,466,954
    Series A convertible preferred stock, $.01 par value                                       1,213,584              1,215,784
    Common stock, $.01 par value; shares authorized - 30,000,000;  shares issued
      and outstanding - 14,074,428 at
      February 28, 1997 and 11,800,909 at February 23, 1996                                      140,745                118,009
    Capital in excess of par value                                                            38,134,612             33,615,213
    Accumulated deficit                                                                      (29,411,220)           (16,646,989)
                                                                                    ---------------------    -------------------
                                                                                              11,544,675             19,768,971
                                                                                    ---------------------    -------------------

Commitments and contingencies

                                                                                          $   29,247,231           $ 35,277,975
                                                                                    =====================    ===================
</TABLE>




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

                                       F-3







                        BPI PACKAGING TECHNOLOGIES, INC.

                      CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>




                                                                    ------------------FISCAL YEAR ------------------
                                                              FEBRUARY 28,            FEBRUARY 23,            FEBRUARY 24,
                                                                  1997                    1996                    1995
                                                          ---------------------   ---------------------   ---------------------
<S>                                                               <C>                      <C>                     <C>  
Net sales                                                      $    30,810,037         $    28,839,954           $  25,254,645
Cost of goods sold                                                  29,254,754              26,161,723              19,879,041
                                                          ---------------------   ---------------------   ---------------------
  Gross profit                                                       1,555,283               2,678,231               5,375,604

Operating expenses:
  Selling, general and administrative                                7,318,352               6,370,956               5,029,832
  Write-down of impaired assets and related expenses                 5,897,648                 ---                     ---
                                                          ---------------------   ---------------------   ---------------------

  (Loss) income from operations                                    (11,660,717)             (3,692,725)                345,772

Other (expense) income: 
  Interest expense                                                  (1,112,647)               (865,206)               (316,813)
  Interest income                                                        9,133                  47,786                  36,368
  Other income                                                          ---                    ---                      77,104
  Non-recurring charge                                                  ---                    ---                    (989,917)
                                                          ---------------------   ---------------------   ---------------------


Net loss                                                        $  (12,764,231)        $     1,860,811         $     4,182,346
                                                          =====================   =====================   =====================


Loss per share                                                  $        (0.96)        $         (0.38)        $         (0.08)
Weighted average common shares outstanding                          13,261,815              11,756,532              10,670,040

</TABLE>





                   The accompanying notes are an integral part
                    of these consolidated financialstatements.

                                      F-4







                        BPI PACKAGING TECHNOLOGIES, INC.

            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                  FOR THE THREE YEARS ENDED FEBRUARY 28, 1997,
                     FEBRUARY 23, 1996 AND FEBRUARY 24, 1995


<TABLE>
<CAPTION>

                                                                   SERIES A CONVERTIBLE    SERIES B CONVERTIBLE
                                             COMMON STOCK             PREFERRED STOCK        PREFERRED STOCK       
                                        -------------------------------------------------------------------------- 
                                           Shares      Amount      Shares       Amount     Shares       Amount     
<S>                                         <C>          <C>         <C>          <C>       <C>           <C>
                                        ------------- ---------- ----------------------------------- ------------- 
Balance at  February 25, 1994 ......       9,505,582    $95,056      582,243   $2,328,972   146,695    $1,466,954  
Sale of common stock pursuant to
 Regulation S and Regulation D
 private placement offerings, net of
 issuance costs ....................         626,470      6,265                                                    
Issuance of common stock for
 minority interest in RC America....         200,000      2,000                                                    
Conversion of Series A convertible
 preferred stock to common stock....         201,872      2,019     (201,872)    (807,488)                         
Conversion of Class A Warrants......       1,124,435     11,244                                                    
Net loss for the year ended
 February 24, 1995..................                                                                               
                                        ------------- ---------- ----------------------------------- ------------- 
Balance at February 24, 1995              11,658,359    116,584      380,371    1,521,484   146,695     1,466,954  
Issuance of  shares based on
 RC America's FY95 results                    17,400        174                                                    
Conversion of Series A convertible
 preferred stock to common stock.....         76,425        764      (76,425)    (305,700)                         
Sale of common stock pursuant to
 partial exercise of Class A warrants,
 net of issuance costs                        48,725        487                                                    
Net loss for the year ended
February 23, 1996 ...................                                                                              
                                        ------------- ---------- ------------- ----------- ---------  ------------ 
Balance at February 23, 1996              11,800,909    118,009      303,946    1,215,784   146,695     1,466,954  
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   146,695    $1,466,954  
                                        ============= ========== ============ ============ =========  ============ 
</TABLE>

<TABLE>
<CAPTION>

                                         Capital in                                                                     
                                         Excess of    Accumulated                                                       
                                         Par Value      Deficit       Total     
<S>                                       <C>            <C>            <C>                                                        
                                        ------------ ------------- -------------
Balance at  February 25, 1994 ......    $25,017,105  ($11,289,358)  $17,618,729 
Sale of common stock pursuant to                                                
 Regulation S and Regulation D                                                  
 private placement offerings, net of                                            
 issuance costs ....................      2,128,490                   2,134,755 
Issuance of common stock for                                                    
 minority interest in RC America....        918,517                     920,517 
Conversion of Series A convertible                                              
 preferred stock to common stock....        805,469                    ---      
Conversion of Class A Warrants......      4,210,445                   4,221,689 
Net loss for the year ended                                                     
 February 24, 1995..................                     (847,486)     (847,486)
                                        ------------ ------------- -------------
Balance at February 24, 1995             33,080,026   (12,136,844)   24,048,204 
Issuance of  shares based on                                                    
 RC America's FY95 results                   71,688                      71,862 
Conversion of Series A convertible                                              
 preferred stock to common stock.....       304,936                    ---      
Sale of common stock pursuant to                                                
 partial exercise of Class A warrants,                                          
 net of issuance costs                      158,563                     159,050 
Net loss for the year ended                                                     
February 23, 1996 ...................                  (4,510,145)   (4,510,145)
                                        ------------ ------------- -------------
Balance at February 23, 1996             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 redeema                                                                                           
 preferred stock ......................     149,077                     150,000                                                    
Net loss for the year ended                                                                                                        
 February 28, 1997 ....................               (12,764,231)  (12,764,231)                                                   
                                        ============ ============= =============                                                   
Balance at February 28, 1997            $38,134,612  ($29,411,220)  $11,544,675                                                    
                                        ============ ============= =============                                                   
</TABLE>


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


                                       F-5
                                        








<TABLE>
<CAPTION>


                        BPI PACKAGING TECHNOLOGIES, INC.

                      CONSOLIDATED STATEMENT OF CASH FLOWS


                                                                            --------------------- FISCAL YEAR ENDED ----------------
                                                                                  FEBRUARY 28,       FEBRUARY 23,       FEBRUARY 24,
                                                                                      1997              1996               1995
                                                                            ------------------ --------------------- ---------------
<S>                                                                                   <C>               <C>                <C>
Cash flows from operating activities:
  Net Loss                                                                   $    (12,764,231)  $     (4,510,145)  $       (847,486)
                                                                            ------------------ ------------------ ------------------

  Adjustments  to reconcile  net loss to net cash  provided  (used) by operating
   activities:
      Depreciation and amortization                                                 3,417,849          2,643,138          1,871,357
      Write-down of impaired assets and related expenses                            5,897,648                ---                ---
      Non-recurring charge                                                                ---                ---            989,917
      Decrease (increase) in accounts receivable - trade                               84,372            339,333           (979,073)
      (Increase) decrease in inventories                                             (606,856)         1,396,496         (1,724,123)
      (Increase) decrease in prepaid expenses and other current assets               (302,566)          (404,603)           709,144
      Increase in accounts payable                                                  3,218,584            513,979            579,766
      Increase in other accrued expenses                                              132,409            108,899             66,457
                                                                            ------------------ ------------------ ------------------
          Total adjustments                                                        11,841,440          4,597,242          1,513,445
                                                                            ------------------ ------------------ ------------------
              Net cash (used) provided by operating activities                       (922,791)            87,097            665,959
                                                                            ------------------ ------------------ ------------------

Cash flows from investing activities:
    Additions to property and equipment                                            (1,549,878)        (3,018,810)        (4,535,268)
    Cost of patents                                                                  (144,928)           (61,410)           (71,069)
    Decrease (increase) in deposits, net                                              388,922            362,654           (101,744)
    Advances to officers                                                              (44,560)          (174,240)           (63,201)
    Decrease (increase) in note receivable, net                                            ---           811,980         (1,136,345)
    Increase in other assets, net                                                    (198,418)          (105,001)           (35,038)
                                                                            ------------------ ------------------ ------------------
              Net cash used by investing activities                                (1,548,862)        (2,184,827)        (5,942,665)
                                                                            ------------------ ------------------ ------------------

Cash flows from financing activities:
    Net (payments) borrowings under note payable                                      (19,127)         1,960,518            444,781
    Principal payments on long-term debt
      and capital lease obligations                                                (1,945,014)        (1,565,613)        (2,262,051)
    Proceeds from equipment financings                                                    ---            302,418                ---
    Proceeds from long-term borrowings                                                    ---                ---          1,341,004
    Net proceeds from sales of stock                                                4,384,835            159,050          6,356,444
                                                                            ------------------ ------------------ ------------------
              Net cash provided by financing activities                             2,420,694            856,373          5,880,178
                                                                            ------------------ ------------------ ------------------

Net (decrease) increase in cash                                                       (50,959)        (1,241,357)           603,472
Cash at beginning of period                                                           109,093          1,350,450            746,978
                                                                            ------------------ ------------------ ------------------
Cash at end of period                                                         $        58,134   $        109,093  $       1,350,450
                                                                            ================== ================== ==================

Cash paid for interest                                                       $      1,093,648   $         965,25  $         563,991
                                                                            ================== ================== ==================
</TABLE>




Non-cash investing and financing activities:

Capital lease  obligations of $590,069,  $3,238,840 and $3,640,085 were incurred
in Fiscal  1997,  Fiscal 1996 and Fiscal  1995,  respectively,  when the Company
entered into capital lease agreements to purchase machinery and equipment.



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

                                       F-6



                        BPI PACKAGING TECHNOLOGIES, INC.

                          NOTES TO FINANCIAL STATEMENTS


NOTE 1:  ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

         BPI   Packaging   Technologies,    Inc.   (the   "Company")   develops,
manufactures,  markets  and sells  plastic  bags  known as  "T-shirt  sacks," to
grocery,  convenience,  retail and drug store  chains and  plastic  film to food
service,   commercial  and  industrial   users.   The  Company   operates  three
wholly-owned  subsidiaries:  RC America, Inc., which purchases surplus inventory
from  manufacturers  of consumer  products and markets and sells the products to
mass merchandise  retailers and other retail chains; BPI Packaging (UK) Limited,
which  markets and sells the  Company's  products in Europe;  and Market  Media,
Inc.,  which sells and markets  in-store  advertising  promotion  programs.  BPI
Packaging,  Inc., which was established to purchase, sell and market plastic bag
products  manufactured by another bag manufacturer,  is a non-operating,  wholly
owned subsidiary of the Company.

SIGNIFICANT ACCOUNTING POLICIES

  Fiscal Year

         The  Company  utilizes  a 52-53 week Fiscal year. The fiscal year ended
February  28, 1997,  consisted  of 53 weeks and fiscal years ended  February 23,
1996, and February 24, 1995, consisted of 52 weeks.

  Cash

         The  Company's  cash  accounts are  maintained  substantially  with one
financial institution.  The concentration of credit risk with respect to cash is
all  amounts on hand at the  financial  institution  in excess of the  federally
insured limits.

  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

                                      F-7


recorded at the lower of the present value of future minimum rental  payments or
the fair value of the property at the  beginning of the lease term.  Maintenance
and repairs that do not extend the useful life of the asset or improve  capacity
are charged to expense when  incurred.  Machinery and equipment are  depreciated
using  the  straight-line  method  over a  period  of  eleven  years.  Leasehold
improvements  consist of costs  relating to buildings and equipment  under lease
and are amortized using the straight-line  method over the remaining life of the
lease.

         Property  and  equipment  recorded at cost  includes  interest on funds
borrowed to finance the  acquisition,  construction  and  installation  of major
capital  additions.  Such  interest  amounted to $ 0,  $100,045  and $247,178 in
Fiscal 1997, 1996 and 1995, respectively.

  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.

  Other Assets

         Other assets consist  primarily of goodwill and long-term prepaid rent.
Goodwill  representing  the  excess  of cost over the fair  value of net  assets
acquired,  is  amortized  on a  straight  line  basis over a period of 10 years.
Long-term  prepaid rent,  representing  the excess of cash paid over the expense
accrued for certain operating leases, is amortized on a straight line basis over
the life of the respective lease.

  Income Taxes

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

  Revenue Recognition and Concentration of Credit Risk

         The Company  recognizes  revenues on an accrual basis when the products
are shipped. Concentration of credit risk with respect to accounts receivable is
limited due to the number and  diversity of customers  comprising  the Company's
customer base. The Company  maintains  reserves for potential  credit losses and
such losses, in the aggregate, have not exceeded management's expectations.




                                      F-8





  Basis of Consolidation

         The  consolidated  financial  statements  include  the  results  of the
Company's wholly-owned subsidiaries,  BPI Packaging, Inc., RC America, Inc., BPI
Packaging (UK) Limited and Market Media, Inc.

  Loss Per Share

         Loss per share is  calculated  based upon the weighted  average  common
shares  outstanding during the period including dilutive employee stock options,
underwriter  warrants,  Class A and B  warrants,  and  Series A and B  Preferred
Stock.  Common stock equivalents are not reflected in the calculation in periods
in which they would have an anti-dilutive effect.

  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  shown at fair  value.  The
carrying  amounts  of cash,  accounts  receivable,  note  receivable,  deposits,
accounts payable and bank borrowings approximate fair value because of the short
maturity of those instruments.


  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  requires  an  entity to  account  for  employee  stock
compensation under a fair value based method.  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"). 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).


Adoption of SFAS No. 121

     In Fiscal  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  

                                      F-9







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.  As more
fully  described  in Note 6 to  these  financial  statements,  adoption  of this
statement  resulted  in  recognition  of  an  additional  loss  from  continuing
operations.

NOTE 2: GOING CONCERN AND MANAGEMENT'S PLAN

     As shown in the accompanying consolidated financial statements, the Company
has suffered recurring net losses and has net working capital and operating cash
flow  deficiencies.  Further,  as discussed in Note 8, the  Company's  revolving
credit  facility is renewable  annually.  While  covenant  violations  have been
waived as of February 28, 1997, no assurances  can be given that the lender will
renew the line on November  25,  1997.  Furthermore,  significant  trade  credit
balances are past due at the balance sheet date.

     The  Company's  ability to continue as a going  concern is dependent on its
ability to  successfully  implement its business and financing  plans  described
below.  However,  there  can be no  assurances  the  Company  will  be  able  to
successfully  complete these plans. Other than those described in Notes 1 and 6,
the  financial  statements  do  not  include  any  adjustments  related  to  the
recoverability  and the  classification  of recorded assets and liabilities that
might be necessary should the Company be unable to continue as a going concern.

     The Company expects to exit the production of its  traditional  T-shirt bag
product lines during Fiscal 1998. Increased  competition from large domestic and
overseas  competitors with significant  production economies of scale has caused
the Company to incur substantial  losses on these products.  During Fiscal 1998,
the  Company  plans to shift  production  to  principally  proprietary  bag and
plastic film product lines which have higher profit  margins.  In addition,  the
Company is negotiating to sell a private placement of $5 million of common stock
or senior subordinated notes with warrants.


NOTE 3:  ACCOUNTS RECEIVABLE-TRADE

         Accounts receivable-trade consist of the following:

                                               February 28,       February 23,
                                                  1997               1996
                                                  ----               ----
 Accounts receivable-trade                     $2,268,760         $2,273,132
 Allowance for doubtful accounts                 (100,000)           (35,000)
 Allowance for credits                            (75,000)           (60,000)
                                               ----------         ----------
                                               $2,093,760         $2,178,132
                                               ==========         ==========

                                      F-10

NOTE 4:  INVENTORIES

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

                                               February 28,    February 23,
                                                   1997            1996
                                                   ----            ----
 Raw material                                   $1,020,902      $1,480,667
 Finished goods                                  3,513,551       2,446,930
                                               -----------     -----------
                                                $4,534,453      $3,927,597
                                                ==========     ===========

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

NOTE 5:   PROPERTY AND EQUIPMENT, NET

         Property and equipment consist of the following:

                                              February 28,     February 23,
                                                  1997            1996
                                                  ----            ----
Machinery and equipment                       $24,605,067      $26,671,579
Leasehold improvements                          3,611,032        3,236,803
Office furniture and fixtures                     303,731          253,805
Motor vehicles                                     19,900           19,900
                                             ------------     ------------
                                               28,539,730       30,182,087
Less accumulated depreciation
 and amortization                               8,736,393        5,867,438
                                             ------------     ------------
                                              $19,803,337      $24,314,649
                                             ============     ============

         The Company leases certain property and equipment under capital leases.
Most equipment leases contain bargain purchase options exercisable at the end of
the original lease.  The 


                                      F-11


following  is a schedule of the future  minimum  payments  under  these  leases,
together with the present  value of the net minimum  payments as of February 28,
1997:

           Fiscal Year
           -----------

                  1998........................                 $2,585,304
                  1999........................                  2,316,489
                  2000........................                  1,599,836
                  2001........................                    333,391
                  2002........................                     11,391
                                                             ------------
          Total minimum lease payments                          6,846,411
          Less amount representing interest                       927,452
                                                             ------------
          Total future principal payments of lease
                  obligations                                  $5,918,959
                                                             ============

         Assets recorded under capital leases,  exclusive of installation  costs
and leasehold improvements, were as follows:

                                                  February 28,      February 23,
                                                      1997              1996
                                                  -----------       -----------

Machinery and equipment                           $13,041,270       $12,451,201
Less accumulated amortization                       2,870,403         1,711,654
                                                  -----------       -----------

                                                  $10,170,867       $10,739,547
                                                  ===========       ===========

         Depreciation  and  amortization  expense  relating to fixed  assets was
$3,216,189,  $2,452,131  and  $1,703,608  for the years ended February 28, 1997,
February  23, 1996 and February 24,  1995,  respectively,  of which  $1,158,749,
$893,908 and $443,051,  respectively,  related to amortization of equipment held
under capital leases.

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

NOTE 6:  WRITE-DOWN OF IMPAIRED ASSETS

         During the fourth quarter of Fiscal 1997, the Company  adopted SFAS No.
121,  "Accounting for the Impairment of Long-Lived  Assets and Long-Lived Assets
to be Disposed of." The initial  application  of SFAS No. 121 caused the Company
to  recognize  a  non-cash  charge of $5.9  million  to write down to fair value
certain  long-lived  assets  consisting  principally of machinery and equipment,
patents and goodwill,  together with other related expenses.  The method used to
determine fair value was a discounted cash flow approach.  The assets consist of
those related to the  manufacture of the traditional bag product lines which the
Company has decided to exit in Fiscal 1998 (Note 2).

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


NOTE 7:  NOTE RECEIVABLE AND NON-RECURRING CHARGE


         At February 24, 1995, Plasco East Partnership,  a Massachusetts general
partnership  of  Corporations   ("Plasco")  owed  the  Company   $1,824,917  for
manufacturing  equipment it sold or leased to Plasco.  A reserve of $989,917 was
established in Fiscal Year 1995 resulting in a non-recurring charge for $989,917
and a net note  receivable  balance of  $835,000.  In April 1995,  the  Company,
through  an  independent  auctioneer,  conducted  an  auction  of the  equipment
originally  sold to Plasco and  received  proceeds of  $650,000.  An  additional
$65,000 was  received  in  December  1995,  from a third  party  guarantor.  The
remaining loan balance,  plus additional


                                      F-12


costs  incurred  during  Fiscal  Year 1996,  were  offset  against  the  reserve
resulting in an additional  loss of $140,504 for Fiscal 1996,  which is included
in selling, general and administrative expenses.


NOTE 8:  PREPAID EXPENSES AND OTHER CURRENT ASSETS

         Prepaid  expenses  and  other  current  assets  are  comprised  of  the
following:

                                         February 28,               February 23,
                                             1997                      1996
                                             ----                      ----
Spare parts and supplies                 $ 1,117,338                $   879,854
Prepaid insurance and
 other expenses                              270,486                    205,404
                                         -----------                -----------
                                          $1,387,824                 $1,085,258
                                         ===========                ===========




NOTE 9:  PATENTS

         The Company  owns two  patents  and has applied for several  other U.S.
patents and certain foreign patents. A total of $0 and approximately $61,000 and
$71,000 of costs have been  capitalized  relating to these  patent  applications
during  Fiscal  1997,  1996,  and 1995,  respectively.  Amortization  expense of
approximately  $87,000,  $85,000 and $76,000 had been  recorded in Fiscal  1997,
1996 and 1995, respectively, with a total accumulated amortization balance of $0
at February 28, 1997 and $313,000 at February 23, 1996.

         The $0 accumulated  amortization at February 28, 1997, results from the
write-off  of all patent costs and  associated  accumulated  amortization  which
amounted to a charge of $1,045,000 which is included in the caption  "Write-down
of impaired  assets and  related  expenses"  in the  accompanying  Statement  of
Operations.  As more fully described in Note 6, this charge is the result of the
Company's decision to exit the traditional T-shirt product lines.


NOTE 10: NOTE PAYABLE 

         On November 25, 1996 the Company  refinanced  its line of credit with a
new lending institution.  The new revolving line of credit is $8,000,000 secured
by accounts  receivable and inventory and all other assets except for equipment.
Availability of borrowings under the line of credit is determined by calculation
of the  borrowing  base,  as  specifically  defined  in the  loan  and  security
agreement,  but generally means 85% of qualifying accounts receivable and 40% of
eligible  inventories,  less the aggregate amount of all outstanding  commercial
and standby  letters of credit.  The line of credit bears interest at 1.5% above
the variable  interest  rate quoted by Norwest Bank of Minnesota  with a minimum
rate of 8.0% (9.75% at February  28,  1997) and  provides for a 1/2 of 1% unused
line fee. The credit line is for 5 years and is subject to renewal annually.  At
February 28, 1997,  the balance under the line of credit is $3,733,477  which is
the maximum available.  The line of credit includes certain financial  covenants
that the Company must maintain to avoid a default  including current ratio, debt
to  equity,  maintaining  a net  worth of $14  million,  limitation  of  capital
spending,  and  profitability.  At February 28, 1997 the Company  failed to meet
several of the financial


                                      F-13


covenants.  The  lender  waived  the  condition  of  default  for the  financial
covenants that were not met.

         Previously,  the Company had a $4,000,000 revolving line of credit with
a  commercial  bank that was  secured  by  accounts  receivable  and  inventory.
Borrowings  under the line of credit were subject to 80% of qualifying  accounts
receivable  and  from  35% to 50% of  qualifying  inventories  (up to a  maximum
inventory  loan of  $2,500,000),  less the aggregate  amount  utilized under all
commercial  and  standby  letters  of credit and bank  acceptances.  The line of
credit  bore  interest at the bank's  prime rate plus 1% (9.25% at February  23,
1996), and provided for a 1/8th of 1% unused line fee and was subject to renewal
annually.  At  February  23,  1996,  the  balance  under the line of credit  was
$3,752,604 which was the maximum availability under the line of credit. The line
of credit included certain financial covenants that the Company had to maintain,
including debt service coverage, capital base and debt equity covenants.


NOTE 11: CAPITAL LEASE OBLIGATIONS

         The  Company's  capital  lease  obligations  at  February  28, 1997 and
February 23, 1996 consisted of the following:
                                                 February 28,       February 23,
                                                     1997               1996
                                                 -----------        -----------
Obligations under capital leases (Note 4)         $5,918,959         $7,273,904

Less amounts due within one year                   2,109,718          1,832,847
                                                 -----------        -----------

Long-term portion                                 $3,809,241        $ 5,441,057
                                                 ===========        ===========

         The following is a schedule by years of the combined  aggregate  amount
of maturities for all capital lease obligations:

                                                              February 28,
         Fiscal year                                              1997
         -----------                                              ----

                  1998...............................         $  2,109,718
                  1999...............................            2,046,081
                  2000...............................            1,458,347
                  2001...............................              293,513
                  2002...............................               11,300
                                                              ------------

                                                              $  5,918,959
                                                              ============


                                      F-14


NOTE 12: MANDATORILY REDEEMABLE PREFERRED STOCK

         The Company is  authorized  to issue up to an  aggregate  of  2,000,000
shares of $.01 par value  preferred  stock.  In October 1990, the Company issued
36,674 shares of Series C Mandatorily  Redeemable  Preferred stock. The stock is
6% non-cumulative, non-voting and redeemable in two equal amounts of $183,369 on
March 1,  1991 and  March 1,  1992.  The  first  payment  of  $183,369,  for the
redemption of 18,337  shares,  was made in October 1992.  The second  payment of
$183,369 for redemption of 18,337 shares,  was made on February 14, 1997, by the
issuance of 92,308 Regulation S shares of the Company's Common Stock. The Series
C Mandatorily  Redeemable Preferred Stock had a liquidation  preference over the
Series A  Preferred  Stock at a rate of $10.00 per share plus any  declared  but
unpaid  dividends (Note 13). At February 28, 1997, and February 23, 1996,  there
were 0 and 18,337  shares of Series C  Mandatorily  Redeemable  Preferred  Stock
issued and outstanding, respectively.



NOTE 13: STOCKHOLDERS' EQUITY

         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
         at any time  beginning  June 13, 1992 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 February 28, 1997, and February 23, 1996, there were
         347,146 and 303,946 shares issued and outstanding, respectively.

         Series B, 6%  Non-Cumulative,  Non-Voting  Convertible  Preferred Stock
         ("Series B Preferred Stock"), redeemable and convertible at any time at
         $10 per share.  Such stock  retains a liquidation  preference  over the
         Series A Preferred  Stock at a rate of $10 per share plus any  declared
         but unpaid  dividends.  At February  28,  1997,  and February 23, 1996,
         there  were  146,695  shares of Series B  Preferred  Stock  issued  and
         outstanding.

         The Company issued to the underwriter of its second public offering,  a
warrant to purchase up to 50,000 units with each unit  consisting  of two shares
of  Series  A  Preferred  Stock,  one  share of  Common  Stock  and one  Class A
Redeemable Common Stock Purchase warrant ("Class A Warrant").  The units subject
to the  underwriter's  warrant  were  identical to the units sold to the public,
except  that the  Series A  Preferred  Stock and the  Class A  Warrant  were not
subject to  redemption  by the  Company and the  exercise  price of the unit was
$13.75 per unit and the exercise price for the Class A Warrant  underlying  this
underwriter's warrant was $6.50. The underwriter's warrants were exercisable for
1.06 shares of Common Stock from June 13, 1992


                                      F-15

through June 13, 1996.  In May 1996,  the  exercise  price of the  underwriter's
warrant and the underlying Class A Warrant were reduced to $2.25. These warrants
were  exercised in May 1996 and an  aggregate of 153,000  shares of Common Stock
and 50,000 shares of Series A Preferred Stock were issued.

         On October 7, 1992,  the Company  completed a third public  offering of
1,400,000 units (plus an additional  126,000 units  subsequently  purchased as a
partial exercise of the underwriter's  over-allotment option) at $5.00 per unit.
Each unit consisted of one share of Common Stock, one Class A Redeemable Warrant
and one Class B Redeemable  Warrant.  Each Class A Redeemable  Warrant initially
entitled the registered  holder thereof to purchase one share of Common Stock at
$5.00 per share at any time  through  October 6, 1994.  In September  1994,  the
terms of the Class A Redeemable Warrants were modified. As modified,  each Class
A Warrant entitled the registered holder thereof to purchase one share of Common
Stock at a reduced price of $4.00 per share through October 28, 1994. The period
of time to exercise the Class A Warrants  was  extended  from October 6, 1994 to
5:00 p.m.  (EST) on October 28, 1994.  For each Class A Warrant  exercised on or
before  October  28,  1994  at  the  reduced   exercise  price  of  $4.00,   the
warrantholder was entitled to extend the period of exercise for a second class A
Warrant held by the  warrantholder  for a period  through March 31, 1995, at the
original  exercise  price of $5.00 (the "50% Option").  The  expiration  date of
March 31, 1995,  was  subsequently  extended to June 15,  1995.  An aggregate of
40,950  Class A Redeemable  Warrants  were  exercised  at the original  price of
$5.00. An aggregate of 1,124,435  Class A Redeemable  Warrants were exercised at
the reduced price of $4.00, of which 272,100 were exercised  pursuant to the 50%
Option. Of the 272,100 Class A Redeemable Warrants exercised pursuant to the 50%
Option,  an aggregate of 48,725  warrants were exercised at the reduced price of
$3.75 on or before June 15, 1995.

         Each Class B  Redeemable  Warrant  ("Class B  Warrant")  from the third
public offering  initially  entitled the holder thereof to purchase one share of
common  stock at  $9.00  per  share at any time  through  October  7,  1996.  In
connection with certain private  placements by the Company to overseas investors
and accredited  investors,  the exercise price and shares  purchasable  upon the
exercise of the Class B warrants were adjusted  three times.  As a result of the
first  adjustment,  each Class B Warrant  entitled  the holder to purchase  1.04
shares of Common Stock at $8.65 per share at any time  through  October 6, 1996.
As a result of the second  adjustment,  each Class B Warrant intitled the holder
to purchase  1.12 shares of Common  Stock at $8.04 per share at anytime  through
October 6, 1996. In October 1996, the exercise price of each Class B Warrant was
lowered to $2.80 per share  exercisable at any time through  October 6, 1996. An
aggregate of 456,931  Class B Warrants  were  exercised at the reduced  price of
$2.80 per warrant.  The balance of Class B Warrants  expired on October 6, 1996.
The warrants were subject to redemption at $.05 per warrant,  on 30 days written
notice,  provided  the last sale price of the common  stock as  reported  on the
NASDAQ National  Market System for 10 consecutive  trading days ending within 25
days of the  notice  of  redemption,  averaged  at least  $14.00  per  share for
redemption of the Class B Redeemable Warrants.

          In addition, the Company issued to the underwriter in the third public
offering,  a warrant to purchase up to 140,000  units.  The units subject to the
underwriter's warrant are identical to the units sold to the public, except that
the exercise price of the units will be $5.78 per unit,  each


                                      F-16


unit consisting of one share of Common Stock,  one Class A Warrant and one Class
B Warrant. The Class A Warrants underlying the underwriter's  Warrant II expired
in October  1994.  The  exercise  price of the  underlying  Class B Warrants was
$11.25 per share.  The  underwriter's  warrants were exercisable from October 7,
1993  through  October  7,  1997.  In  May  1996,  the  exercise  price  of  the
underwriter's  warrants and the underlying Class B Warrants were each reduced to
$2.25. As a result of certain  anti-dilutive  adjustments,  the number of shares
issuable  upon  exercise of the  underwriter's  warrant was adjusted from 1.0 to
1.05 shares,  and the shares  issuable upon exercise of the  underlying  Class B
Warrants were adjusted from 1.0 to 1.09 shares. These warrants were exercised in
May 1996 and an aggregate of 299,600 shares of Common Stock were issued.

         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.  These  warrants  expire on  December  31,  1997 and  contain
anti-dilution   protection  for  events  such  as  stock  splits,   mergers  and
reorganizations.  The shares of Common  Stock  underlying  these  warrants  were
registered on a Form S-3 registration statement, which was declared effective by
the Securities and Exchange Commission on July 19, 1996.

         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.  On May 23,  1995,  an
additional  17,400  shares of common  stock were issued  based on the  operating
results of RC America, Inc. for Fiscal Year 1995. Based on the operating results
of RC America,  Inc. for Fiscal 1996 and Fiscal 1997,  an  additional  2,550 and
2,640 shares were issued in May 1996 and May 1997, 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.

         From February 26, 1994,  through  February 24, 1995, a total of 626,470
shares  were issued in a private  placement  with net  proceeds  of  $2,134,755.
During  Fiscal  1996 and Fiscal  1997,  covering  the period  February  25, 1995
through February 28, 1997, there were no private placements.


                                      F-17



NOTE 14: INCOME TAXES

         Due to the taxable loss incurred and the  availability of net operating
losses,  there  was no  tax  provision  or  benefit  recorded  in  Fiscal  1997.
Accordingly,  the  effective tax rate is zero percent as compared to the Federal
statutory rate of 34%.

Cumulative temporary differences under SFAS 109 are as follows:

                                              February 28,          February 23,
                                                 1997                   1996
                                            ------------             -----------
Deferred tax assets:
         Reserves                           $     90,666           $      44,264
         Inventory accounts                      532,583                  61,969
         Investment tax credit                   598,446                 398,276
         Fixed assets                          1,339,220                     ---
         Net operating loss                    9,831,374               7,021,155
                                            ------------             -----------
            Total deferred tax assets        $12,392,289             $ 7,525,664
                                            ============             ===========

Deferred tax liabilities:
         Fixed assets                                ---                 182,911
         Accrued rent                            179,895                  71,903
         Patent costs                                ---                 442,790
                                           -------------             -----------
            Total deferred tax liabilities   $   179,895             $   697,604
                                           =============             ===========

Net deferred tax asset before valuation
  allowance                                   12,212,394               6,828,060
Less: valuation allowance                     12,212,394               6,828,060
                                           -------------             -----------
Net deferred tax asset                     $         ---             $       ---
                                           =============             ===========

         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 since it is not
certain that the results of future operations will generate  sufficient  taxable
income to realize the  deferred  tax asset.  The  deferred tax asset and related
valuation reserves will be reviewed as management's actions, such as exiting the
traditional T-shirt bag product lines and shifting production to proprietary bag
and plastic film product lines, take effect and produce favorable results.

         At February 28, 1997,  the Company had  available for federal and state
income tax purposes unused net operating loss (NOL) carryforwards  approximating
$24,884,000 and $21,865,000,  respectively.  The federal carryforwards expire in
various amounts beginning in the year 2003, and the state  carryforwards  expire
in various  amounts  from 1998 through  2003.  The Company has  available  state
investment  tax credit  carryforwards  of  approximately  $445,000  expiring  in
various amounts from 1998 to 2003, and  approximately  $113,000 in carryforwards
with unlimited expirations.


                                      F-18


         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  1994 and 1991 a  substantial  change in  ownership  did occur;  however,
management believes that such limitations will not significantly restrict future
annual utilization of the Company's federal NOL carryforwards. Significant stock
transactions  occurred  in  Fiscal  1997,  1996 and 1995  that may  result  in a
substantial  change in ownership  and  therefore may further limit future annual
utilization of the Company's federal NOL carryforwards.


NOTE 15: OPERATING LEASES AND COMMITMENTS

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

         The future minimum rental  commitments  under  noncancelable  operating
leases as of February 28, 1997 are as follows:

                                                                      Operating
         Fiscal Year                                                   Leases
         -----------                                                   ------

                  1998............................                    $1,265,000
                  1999............................                     1,248,000
                  2000............................                     1,130,000
                  2001............................                       823,000
                  2002............................                       448,000
                  Thereafter ..................                        2,237,000
                                                                      ----------
                                                                      $7,151,000
                                                                      ==========

         Rent expense under  operating  leases was  $1,646,000,  $1,583,000  and
$1,404,000  for the years ended  February  28,  1997,  February  23,  1996,  and
February 24, 1995, respectively.

NOTE 16: MAJOR CUSTOMERS

         For Fiscal 1997, sales to one customer represented approximately 16% of
total sales. For Fiscal 1996 and Fiscal 1995 sales to two customers  represented
approximately 15% and 10% and 12% and 13% of total sales, respectively.

NOTE 17: RELATED PARTY TRANSACTIONS

         Loans made to an officer  totaled  $476,489 at February 28,  1997,  and
$362,649  at February  23,  1996,  and bear  interest at the rate the Company is
charged by its bank. The loans were due and payable  February 28, 1997.  Payment
terms have not been  extended.  However,



                                      F-19




the officer has agreed to apply any bonus payments  received under the Company's
executive bonus plan (the "Bonus Plan") to reduce the amounts  outstanding under
the loan.

         Loans made to another  officer totaled $3,308 at February 28, 1997, and
$105,957  at February  23,  1996,  and bear  interest at the rate the Company is
charged by its bank.

         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 president.
The  accounts of RC America,  Inc. are  included in the  Company's  consolidated
financial  statements (Note 1). On February 26, 1994, the Company entered into a
stock exchange  agreement (the  "Agreement")  to exchange  200,000 shares of its
common stock at their estimated fair market value for Ronald  Caulfield's  49.5%
minority  interest  in RC  America,  Inc.  Effective  February  26,  1994 Ronald
Caulfield  exchanged his shares in accordance with the "Agreement." As a result,
RC America,  Inc. is now a wholly owned subsidiary of the Company. The Agreement
also contains  demand and  piggy-back  registration  rights and provides for the
issuance  to  Ronald  Caulfield  of up to an  additional  100,000  shares of the
Company's  common  stock  over a five  year  period  based on RC  America,  Inc.
attaining certain levels of pre-tax earnings.  Based on the operating results of
RC America,  Inc.  for Fiscal 1997 and Fiscal  1996,  a total of 2,640 and 2,550
shares,  respectively were earned and were issued to Mr. Caulfield in April 1997
and May 1996,  respectively.  In Fiscal 1995, a total of 17,400 shares of common
stock were earned and were issued in May 1995.  In  addition,  Ronald  Caulfield
entered  into a five year  employment  agreement  with RC  America,  Inc.  which
provides for certain bonus, severance and non-compete arrangements.

         The value of the stock issued  pursuant to the  Agreement  exceeded the
book value of the assets  acquired  and the Company has  recognized  goodwill of
$800,000 and is amortizing the goodwill pro-rata over ten years. Issuance of the
additional  2,550 and  17,400  shares of common  stock  resulted  in $5,100  and
$71,862 of  additional  goodwill.  At February 28, 1997,  the Company  wrote off
approximately  $620,000 of Goodwill as part of its plan to exit the  traditional
T-Shirt  bag  product  lines  (Note  6).  At  February  23,  1996,  $789,402  of
unamortized goodwill related to these trasactions is included in Other Assets.

         Ivan J. Hughes, a director of the Company, is President of the Plastics
Division Duro Bag  Manufacturing  Company  ("Duro").  For Fiscal 1997 and Fiscal
1996,  Duro  accounted  for  approximately  16% and  10%,  respectively,  of the
Company's sales.

NOTE 18: EMPLOYMENT AGREEMENTS

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



                                      F-20



NOTE 19: COMMITMENTS AND CONTINGENCIES

         From time to time,  the Company is involved in litigation  arising from
the normal course of business. The outcome of such litigation is not expected to
have a material impact on the financial statements.

         The Company  entered into an  operating  lease in December  1994,  that
required  a letter of credit in the  amount of  $317,000.  The  letter of credit
expired in October 1996.

         At  February  28,  1997,  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 Board of Directors  approved a stock option plan that provides certain
individuals  the right to  purchase  up to 200,000  shares and  750,000  shares,
respectively,  of common stock.  In September  1996, the Company adopted a stock
option  plan that  entitles  certain  individuals  the right to  purchase  up to
1,000,000  shares  of common  stock.  The Board of  Directors  determines  those
individuals who shall receive options,  the time period during which the options
may be exercised, and the number of shares of common stock that may be purchased
and the exercise  price (which can not be less than the fair market value of the
common stock on the date of grant).  Options  generally vest ratably over two to
three 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 years
ended February 23, 1996 and February 28, 1997.  Transactions  under the 1990 and
1993 Stock Option  Plans  during the years ended  February 28, 1997 and February
23, 1996 are summarized as follows:

<TABLE>
<CAPTION>

                                                         Year Ended                             Year Ended          
                                                     February 28, 1997                      February 23, 1996       
                                                     -----------------                      -----------------       
                                                               Weighted average                     Weighted average
         Options                                  Shares        exercise price        Shares        exercise price  
         -------                                  ------        --------------        ------        --------------  
                                                                                                                    
<S>                                               <C>            <C>                  <C>           <C>             
Outstanding at beginning of year                  795,630        $    4.04            778,955       $    4.07       
Options granted whose exercise price                                                                                
  equal the market price of the stock                                                                               
  on grant date                                    12,500             2.40             26,000            4.00       
Options granted whose exercise price                                                                                
  is greater than the market price of the                                                                           
  stock on grant date                               9,200             2.40             21,000            5.40       
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                      F-21



Canceled                                          (43,500)            3.49            (30,325)           5.64       
                                                  -------                            --------                       
Outstanding at year end                           773,830             3.98            795,630            4.04
                                                  =======                            ========                       
                                                                                                                    
Options exercisable at period end                 589,377                             466,025                       
                                                  =======                            ========                       

Weighted average fair value of options                                                                              
 granted during the period                        $  1.65                             $  2.95                       
                                                  =======                             =======                       
                                                                                     


                                                            Year Ended            
                                                        February 24, 1995
                                                       -----------------         
                                                               Weighted average
          Options                                 Shares        exercise price 
          -------                                -------        -------------- 
Outstanding at beginning of year                 758,630           $  4.05
Options granted whose exercise price     
  equal the market price of the stock    
  on grant date                                      ---               ---
Options granted whose exercise price     
  is greater than the market price of the
  stock on grant date                             32,000              4.44
Canceled                                         (11,675)             5.82 
                                                --------                  
Outstanding at year end                          778,955              4.07
                                                ========                                         
                                         
Options exercisable at period end                267,704
                                                ========                                                                 
Weighted average fair value of options   
 granted during the period                       $   ---
                                                ========
</TABLE>



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

The following table summarizes information about employee options outstanding at
February 28, 1997:

<TABLE>
<CAPTION>

                                                          Options outstanding
                                                          -------------------
                                                              Weighted
                                       Number                  average              Weighted
                                    outstanding at            remaining             average
Range of exercise prices           February 28,1997        contractual life       xercise price
------------------------           ----------------        ----------------       -------------

<S>                                  <C>                       <C>               <C>      
      $2.38-3.00                       50,700                    5.75              $    2.73
       3.88-4.75                      697,630                    6.35                   4.02
       5.25-6.25                       25,500                    7.17                   5.51
                                     --------
                                      773,830                    6.34                   3.98
                                     ========

                                      F-22

                                                Options exercisable
                                                -------------------

                                       Number                     Weighted
                                   exercisable at                 average
Range of exercise prices         February 28, 1997             exercise price
------------------------        ---------------------          --------------

     $2.38-3.00                      38,500                     $    2.85
      3.88-4.75                     532,877                          4.01
      5.25-6.25                      18,000                          5.63
                                  ---------
                                    589,377                          3.98
                                  =========
</TABLE>

Fair Value Disclosures

         At February 28, 1997,  the Company has three  option  plans,  which are
described above. The Company applies APB Opinion 25 and related  interpretations
in  accounting  for its  plans.  Accordingly,  no  compensation  cost  has  been
recognized for its stock option plans. Had  compensation  cost for the Company's
three stock  option plans been  determined  based on the fair value at the grant
dates for awards under those plans  consistent with the method of FASB Statement
123, the Company's net loss and loss per share would have been  increased to the
pro forma amounts indicated below:

                                               Year ended          Year ended
                                           February 28, 1997   February 23, 1996
                                           ----------------    ----------------

Net Loss                   As reported         ($12,764,231)        ($4,510,145)
                           Pro forma           ($13,181,343)        ($4,624,559)

Loss per share             As reported               ($0.96)             ($0.38)
                           Pro forma                 ($0.99)             ($0.39)



         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  rates of 5.86% to 6.2% for options
granted  and  re-priced  during the year ended  February  28,  1997 and 6.2% for
options  granted  during the year ended  February 23,  1996; a weighted  average
expected  option  term of 5.33 to 10 years for  options  granted  and  re-priced
during the year ended February 28, 1997 and 10 years for options  granted during
the year ended February 23, 1996;  and expected  volatility of 56,59% and 62.23%
for options granted and/or repriced during the years ended February 28, 1997 and
February 23, 1996, respectively.



NOTE 21.  SIGNIFICANT FOURTH QUARTER ADJUSTMENTS

         During the fourth quarter of Fiscal 1997,  management  determined that,
due to continued  intense  competition  in the  traditional  T-shirt bag product
lines which has resulted in a significant  deterioration  in gross  margin,  the
Company is exiting  these  product  lines during  Fiscal 1998.  Accordingly,  an
analysis  of the fair  value  of  assets  related  to these  product  lines  was
performed  during  the  fourth  quarter  of  Fiscal  1997  which  resulted  in a
write-down  of impaired  assets and  recognition  of related  expenses  totaling
$5,897,648 (Note 6). The results for the fourth quarter ended February 28, 1997,
do not include any material  amounts of year end adjustments  that have not been
disclosed  or any  material  amounts  that should have been  included in earlier
interim periods.


                                      F-23




Schedule II

<TABLE>
<CAPTION>



Rule 12-09                                 Valuation and Qualifing Accounts and Reserves

 Column A                           Column B             Column C            Column D            Column E

Description                        Balance at           Additions           Deductions        Balance at end
                                  beginning of       Charged to costs        Accounts           of period
                                     period            and expenses        written off


<S>                           <C>         <C>            <C>                  <C>              <C>        <C>  
Doubtful                      2/26/94     20,000         36,075               26,075           30,000     2/24/95
Accounts                      2/25/95     30,000         93,606               28,606           95,000     2/23/96
& Credits                     02/24/96    95,000        158,165               78,165          175,000    02/28/97


</TABLE>







                                      S-1