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

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                    For the fiscal year ended January 1, 2006

                                       OR

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
             For the transition period from .......... to ..........

                    Commission file number: 1-11432: 1-11436

                                   FOAMEX L.P.
                           FOAMEX CAPITAL CORPORATION
             ------------------------------------------------------
             (Exact Name of registrant as Specified in its Charter)
                             (Debtor-in-Possession)

                 Delaware                                     05-0475617
                 Delaware                                     22-3182164
----------------------------------------               -----------------------
(State or other jurisdiction of                        (I.R.S. Employer
incorporation or organization)                         Identification Number)

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

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

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

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

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

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

     Indicate  by check  mark  whether  Foamex  L.P.  (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  periods that Foamex
L.P. was required to file such  reports) and (2) has been subject to such filing
requirements for the past 90 days. YES  X  NO
                                      ----    ---

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

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

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

     None of the voting securities of Foamex L.P. or Foamex Capital  Corporation
are held by non-affiliates.

     As  of  March  17,  2006,   there  were  1,000  shares  of  Foamex  Capital
Corporation's common stock outstanding.

     Foamex L.P. and Foamex Capital Corporation meet the conditions set forth in
General Instruction (I)(1)(a) and (b) of this Annual Report on Form 10-K and are
therefore filing this form with reduced disclosure format.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None



<PAGE>




                                   FOAMEX L.P.
                           FOAMEX CAPITAL CORPORATION

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                               Page
Part I
<S>           <C>                                                                                                 <C>
         Item 1.      Business                                                                                    3
         Item 1A.     Risk Factors                                                                                8
         Item 1B.     Unresolved Staff Comments                                                                  11
         Item 2.      Properties                                                                                 11
         Item 3.      Legal Proceedings                                                                          12
         Item 4.      Submission of Matters to a Vote of Security Holders                                        13

Part II
         Item 5.      Market for Registrant's Common Equity, Related Stockholder
                           Matters and Issuer Purchase of Equity Securities                                      13
         Item 6.      Selected Financial Data                                                                    13
         Item 7.      Management's Discussion and Analysis of
                           Financial Condition and Results of Operations                                         15
         Item 7A.     Quantitative and Qualitative Disclosures about Market Risk                                 30
         Item 8.      Financial Statements and Supplementary Data                                                30
         Item 9.      Changes in and Disagreements with Accountants
                           on Accounting and Financial Disclosure                                                31
         Item 9A.     Controls and Procedures                                                                    31
         Item 9B.     Other Information                                                                          32

Part III
         Item 10.     Directors and Executive Officers of the Registrant                                         33
         Item 11.     Executive Compensation                                                                     33
         Item 12.     Security Ownership of Certain Beneficial Owners
                           and Management                                                                        33
         Item 13.     Certain Relationships and Related Transactions                                             33
         Item 14.     Principal Accounting Fees and Services                                                     33

Part IV
         Item 15      Exhibits, Financial Statement Schedules                                                    33

         Signatures                                                                                              40
</TABLE>

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


                                       2
<PAGE>


PART I
ITEM l.  BUSINESS

General

     Foamex L.P.  (referred to in this document as "Foamex  L.P.,  we, us and/or
our"),  a  wholly-owned   subsidiary  of  Foamex   International  Inc.  ("Foamex
International"),  is engaged  primarily in the manufacturing and distribution of
flexible  polyurethane and advanced polymer foam products.  As of January 1 2006
our operations are conducted directly and through our wholly-owned subsidiaries,
Foamex  Canada Inc.  ("Foamex  Canada"),  Foamex Latin  America,  Inc.  ("Foamex
Mexico") and Foamex Asia, Inc.  ("Foamex Asia").  As of January 1, 2006,  Foamex
L.P.'s  partners  were  FMXI,  Inc.   ("FMXI")  with  a  1.7%  managing  general
partnership  interest and Foamex  International with a 98.3% limited partnership
interest.  Foamex Capital  Corporation  ("FCC") is a wholly-owned  subsidiary of
Foamex L.P.


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

Bankruptcy

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

     We  continue  to  operate  our   business   and  manage  our   property  as
debtors-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code.
On September 29, 2005,  the United  States  Trustee for the District of Delaware
appointed an official committee of unsecured creditors in these Chapter 11 cases
(the "Creditors' Committee"). The Creditors' Committee is currently comprised of
The Bank of New  York,  the  Pension  Benefit  Guaranty  Corporation,  Newcastle
Partners,  LP,  Lyondell  Chemical  Corporation,  Shell  Chemicals  L.P.,  Steel
Partners II, L.P. and Donovan Williams. At a hearing held on September 20, 2005,
the Bankruptcy  Court granted  various first day motions for relief  designed to
stabilize our operations and business  relationships  with  customers,  vendors,
employees and others,  and entered  orders  granting  permission to, among other
things,  pay  employee  salaries,  wages  and  benefits,  pay  amounts  owing in
connection with workers' compensation and other insurance policies;  utilize our
existing cash management  systems;  continue our customer programs;  pay vendors
for certain  critical  goods and services  provided  prior to September 19, 2005
and,  access,  on an  interim  basis,  up to  $221  million  of a  $240  million
debtor-in-possession  (DIP)  revolving  credit facility and $80 million of a DIP
term  loan.  A portion of the  proceeds  of the  debtor-in-possession  revolving
credit  facility and all of the proceeds of the DIP term loan facility were used
to repay Foamex L.P.'s prepetition revolving credit and term loan facilities. On
October 17,  2005,  the  Bankruptcy  Court  granted  final  approval of the $240
million DIP revolving credit facility and the $80 million DIP term loan.

     On November 17, 2005, the Bankruptcy Court approved a motion  authorizing a
key executive retention program (the "KERP").  The KERP pertains to 77 employees
who may receive cash distributions  aggregating up to $3.2 million. In addition,
certain  participants,  at the  discretion  of the  Board  of  Directors  of the
reorganized  Foamex   International,   may  receive   additional   distributions
aggregating  up to $1.1  million in cash or in common  stock of the  reorganized
Foamex  International at a price per share that reflects the value of the equity
on the effective  date of the plan of  reorganization.  Distributions  under the
KERP are generally to be made on or around  certain  milestone  dates during the
Chapter  11 cases and on and  subsequent  to the  effective  date of the plan of
reorganization.  Cash  distributions  pursuant  to the  KERP,  aggregating  $0.4
million,  were paid in December 2005 and  additional  amounts  aggregating  $1.1
million  have  been  paid  in  February   and  March  2006.   The  common  stock
distributions,  if any, will be made at the six month and one year anniversaries
of the effective date of the plan of  reorganization.  The KERP also includes an
additional $0.5 million  discretionary cash pool to address specific  employment
matters and  unanticipated  needs that may arise during the Chapter 11 cases.


                                       3
<PAGE>


     We have notified all known or potential creditors of the Chapter 11 filings
for the purposes of identifying  and quantifying  all  prepetition  claims.  The
Chapter  11  filings  triggered  defaults  on  substantially  all debt and lease
obligations.  Subject to  certain  exceptions  under the  Bankruptcy  Code,  the
Chapter 11 filings  automatically  stayed the  continuation  of any  judicial or
administrative  proceedings  or  other  actions  against  the  Debtors  or their
property to recover on, collect or secure a claim arising prior to September 19,
2005. On October 18, 2005, the Bankruptcy  Court entered an order (the "Bar Date
Order")  requiring  any person or entity  holding  or  asserting  a  prepetition
claim(s)  against  the  Debtors  to a file a  written  proof of  claim  with the
Debtors' claims processing agent on or before December 8, 2005 (the "Bar Date"),
and,  for  Governmental  Units (as  defined in the  Bankruptcy  Code)  holding a
prepetition  claim(s)  against the Debtors' on or before  March 20,  2006.  With
certain  enumerated  exceptions,  the Bar Date Order  further  provides that any
person or entity  which fails to timely file a proof of claim will,  among other
things,  be forever  barred,  estopped and enjoined from asserting a prepetition
claim against the Debtors.


     The Debtors are currently  assessing all of the proofs of claim filed as of
the Bar Date. As of March 20, 2006, 1,173 proofs of claim are outstanding in the
Chapter 11 cases in the aggregate amount of approximately  $3,576.2 million. The
Debtors  believe  that  this  amount  is  vastly  overstated  and  have  devoted
substantial time and effort to the claims  reconciliation  process.  The Debtors
have already  objected to and expect to object to a number of additional  claims
throughout the Chapter 11 cases in an effort to reduce  substantially the number
and amount of claims that will be allowed as part of the bankruptcy cases.

     The  uncertainty  regarding  our future  prospects  may hinder our  ongoing
business  activities  and our ability to operate,  fund and execute our business
plan by impairing  relations with existing and potential  customers;  negatively
impacting our ability to attract and retain key employees;  limiting our ability
to obtain trade credit;  impairing present and future relationships with vendors
and service  providers;  and  impairing  our ability to continue to operate as a
going concern.

     As  a  result  of  the  Chapter  11  filings,  realization  of  assets  and
liquidation  of  liabilities  are  subject  to  significant  uncertainty.  While
operating  as a  debtor-in-possession  under the  protection  of Chapter 11, and
subject to Bankruptcy  Court  approval or otherwise as permitted in the ordinary
course of business,  we may sell or otherwise dispose of assets and liquidate or
settle  liabilities  for amounts  other than those  reflected  in our  financial
statements.  Further,  a plan of  reorganization  could  materially  change  the
amounts and  classifications  reported in our historical  financial  statements,
which do not give effect to any  adjustment  to the carrying  value of assets or
amounts of liabilities  that might be necessary as a consequence of confirmation
of a plan of reorganization.

     To exit Chapter 11, we must obtain  confirmation by the Bankruptcy Court of
a Chapter 11 plan.  On December 23, 2005,  we filed a Disclosure  Statement  and
Proposed Plan of Reorganization (the "Plan") with the Bankruptcy Court. The Plan
is  designed  to  complete a  financial  restructuring  which  will  result in a
reduction of approximately $500 million of total debt from prepetition  amounts.
The Plan was supported by an ad hoc committee of our Senior Secured  Noteholders
comprising more than 50% of the outstanding  principal  amount of Senior Secured
Notes. The terms of the Plan include the following:

     o    Holders of Allowed  Administrative  Claims,  Priority Tax Claims,  DIP
          Financing Claims, Other Priority Claims, and Other Secured Claims will
          receive full payment in cash;

     o    Holders of Allowed  Senior Secured Note Claims will receive a pro rata
          share  of  100%  of  new  common  stock  of  the  reorganized   Foamex
          International,  subject to dilution,  provided  that the class of such
          Claims votes to accept the Plan;

     o    Holders of Allowed Senior  Subordinated Note Claims will receive a pro
          rata share of warrants to purchase up to 5% of new common stock of the
          reorganized Foamex International,  subject to dilution,  provided that
          the class of such Claims votes to accept the Plan;

     o    Holders of Allowed  General  Unsecured  Claims will receive a pro rata
          share of $1.5 million,  provided that the distribution does not exceed
          5% of the  allowed  amount of each such  claim and  provided  that the
          class of such  Claims  votes to accept  the Plan;


                                       4
<PAGE>


     o    Holders of Foamex International's  existing Preferred Stock and Common
          Stock  will not  receive  any  distribution  under  the Plan and their
          shares will be cancelled on the effective date of the Plan.

     Since we filed our Plan,  Foamex L.P.  and its advisors  have  continued to
work with its significant creditor  constituencies and their respective advisors
to negotiate a fully consensual plan of  reorganization.  We expect that we will
continue to do so in the hope of agreeing with these  constituents  on the terms
of a fully  consensual  plan. There can be no guarantee that we will file and/or
confirm such a plan. However, even in the absence of a fully consensual plan, it
is likely  that we will need to modify the plan that is  currently  on file with
the Bankruptcy Court.

Segments

     We believe we are the  largest  manufacturer  and  distributor  of flexible
polyurethane  and  advanced  polymer  foam  products in North  America.  We have
numerous manufacturing facilities dedicated to specific product lines as well as
facilities with the capability to support  multiple  product lines.  Each of our
business  segments has a customer base that is significantly  different from the
other  segments.  Our senior  executives  direct  sales  efforts for each of our
business segments.  See Note 13 to the consolidated financial statements on page
F-29.

       Our five business segments are described below.

       Foam Products

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

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

       Carpet Cushion Products

     We manufacture and distribute carpet cushion products,  which include prime
and rebond carpet padding. Prime carpet padding is made from virgin polyurethane
foam, which is formed into buns and sliced into sheets. Rebond carpet padding is
primarily  made  from  recycled  foam,  which is  shredded  into  small  pieces,
processed  and  then  bonded  using a  polyurethane  chemical  adhesive.  Rebond
manufacturing requires the management of a comprehensive recycling business that
includes  an  extensive  internal  and  external  collection  network  from  the
automotive and foam industries on a worldwide  basis. Our rubber and felt carpet
cushion businesses were sold to Leggett & Platt,  Incorporated on April 29, 2005
for net cash proceeds of $38.7 million. See Note 7 to the consolidated financial
statements on page F-19.

       Automotive Products

     We  believe  we are  one of the  largest  suppliers  of  polyurethane  foam
products to the North American automotive  industry.  Our product lines include:
foam rolls and  flame-laminated  composites,  to  improve  comfort  and  provide
pleasing  appearance  in seat  covers;  engineered  foams  and  flame  laminated
composites  for  headliner and other  interior  soft-trim  applications;  ridged
thermoformable  foams,  to  provide  structure  and shape in  various  substrate
applications; acoustical foams, to reduce noise and improve sound quality in the
vehicle;  barrier foam products,  which allow our customers to more  efficiently
process   components  with  low-pressure   injection-molding   or  foam-in-place
manufacturing methods; molded energy-absorbing foams, to enhance occupant safety
in vehicle crash situations; and molded seating cushions.


                                       5
<PAGE>


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

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

       Technical Products

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

       Other

     Other  consists   primarily  of  certain   manufacturing   and  fabrication
operations  in  Mexico  City,  corporate  expenses  not  allocated  to the other
business segments and impairment, restructuring and other charges (credits).

Marketing and Sales

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

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

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

     We market our Technical  Products directly to major OEMs in the Automotive,
Industrial,   Electronics,   Consumer  and  Medical  sectors  where  we  provide
engineering,  research and  development  resources to assist these  customers in
developing innovative solutions to their most demanding technical  requirements.
We  also  market  our  Technical  Products  through  a  network  of  independent
fabrication and distribution  companies in North America, the United Kingdom and
Asia.  These  fabricators  or  distributors  often  further  process  or  finish
Technical  Products to meet the specific  needs of end users.  Our specialty and
technical foams service unique end


                                       6
<PAGE>


user  requirements  and are  generally  sold at relatively  high  margins.  This
business is  characterized  by a diversity and  complexity of both customers and
applications.

International Operations

     Our  international  operations  are located in Canada,  Mexico and Asia. We
have  operated  four  manufacturing  facilities  in Canada to  service  our foam
products and automotive customers and have five facilities in Mexico serving the
automotive and cushioning industries. On March 7, 2006, we announced the closure
of two manufacturing facilities,  including a foam pouring facility, in Toronto,
Canada.  Four of the  facilities  in Mexico are located  within the Mexican free
trade zones close to the U.S. border and primarily service automotive customers.
Our  Mexico  City  facility   services  both  automotive  and  foam  fabrication
customers.

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

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

Major Customers

     Sales to Johnson  Controls,  which are  included  in  Automotive  Products,
accounted  for  approximately  10.7% of our net sales in 2005,  12.5% of our net
sales in 2004 and 16.3% of our net sales in 2003.  No other  customer  accounted
for more than 10.0% of our net sales  during any of the past  three  years.  Net
sales to our five largest  customers  comprised  approximately  27.1% of our net
sales in  2005,  29.6% of our net  sales in 2004 and  34.7% of our net  sales in
2003.  The loss of any one of these  customers  could  have a  material  adverse
effect on our business.

Manufacturing and Raw Materials

     Our manufacturing and distribution  facilities are strategically located to
service our major  customers  because the high  freight  cost in relation to the
cost  of  foam   products   generally   results  in   distribution   being  most
cost-effective  within a 200 to 300 mile radius.  The square footage of our foam
manufacturing facilities is significant as foam production requires a large area
for curing or lay down space.

     Our fabrication  process involves cutting foam buns into various shapes and
sizes  to  meet  customer  specifications.  Scrap  foam,  a  byproduct  of  foam
production and fabrication, is used to produce rebond carpet padding.

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

     The prices of TDI and polyol have  historically been cyclical and volatile.
The  prices of these raw  materials  are  influenced  by  demand,  manufacturing
capacity,  oil and natural gas prices and the current  geopolitical  instability
and its impact on oil  production and prices.  We experienced  increases of more
than 40% in the weighted  average  price of raw  materials  from major  chemical
manufacturers  from the fourth quarter of 2004 to the fourth quarter of


                                       7
<PAGE>


2005 and  prices  were at an  all-time  high at the end of 2005.  We  attempt to
offset  raw  material  price  increases  through  selling  price  increases  and
manufacturing process efficiencies, but we were only partially able to do so for
the full year  ended  January  1, 2006.  We were able to  implement  significant
selling price increases in the fourth quarter of 2005. In the future, we may not
be  successful  in  implementing  selling  price  increases to fully recover raw
material cost  increases.  Competitive  pricing  pressure may also require us to
adjust our selling prices or lose volume.

     A key material  needed in the manufacture of rebond carpet padding is scrap
foam. We internally generate a substantial portion of the scrap foam used in the
production of rebond carpet padding from our other operations. Historically, the
market price of rebond carpet  padding has  fluctuated  with the market price of
scrap foam.

Employees

     As  of  January  1,  2006,  we  employed   approximately   5,000   persons.
Approximately  1,400 of these  employees  are located  outside the United States
including  approximately  800 covered by collective  bargaining  agreements with
labor  unions.   Approximately  900  United  States  employees  are  covered  by
collective bargaining agreements at seven facilities. These agreements expire on
various  dates  through  September  8,  2008.  We  consider  relations  with our
employees to be good.

Competition

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

Patents and Trademarks

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

Research and Development

     We believe we have a leading  research and  development  capability  in the
flexible  polyurethane  foam  industry.  Our primary  research  and  development
facility is located in Eddystone,  Pennsylvania.  Expenditures  for research and
development  amounted  to $2.3  million in 2005,  $2.8  million in 2004 and $3.6
million for 2003.

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

ITEM 1A.  RISK FACTORS

     In addition to the other  information  in this Annual  Report on Form 10-K,
investors  should  carefully  consider the following  factors about us.  Certain
statements  in  "Risk  Factors"  are  forward-looking  statements.  See item 7 -
Managements'  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations  -  "Forward-Looking  Statements."


                                       8
<PAGE>


Operating in bankruptcy imposes  significant risks on our operations.  We cannot
predict when we will confirm a plan of  reorganization  and successfully  emerge
from bankruptcy.

     We are not certain about when we will emerge from bankruptcy. The timing of
our  emergence  from  bankruptcy  and the terms of our  emergence may affect our
relationships with our creditors,  customers, suppliers and employees and have a
significant  impact  on  our  business,   financial  condition  and  results  of
operations.  Our ability to continue  operating in bankruptcy as a going concern
and to emerge from  bankruptcy  will depend upon the  following  factors,  among
others:

     o    our ability to reach agreement with our creditors  regarding a plan of
          reorganization  or otherwise  to  "cramdown" a plan in order to emerge
          from bankruptcy;

     o    our  ability  to  comply  with  and  operate  under  the  terms of the
          debtor-in-possession  financing we obtained upon filing for bankruptcy
          and any cash  management  orders entered by the Bankruptcy  Court from
          time to time,  which  subject  the debtor  entities  to  restrictions,
          including  restrictions on paying dividends and transferring  cash and
          other assets;

     o    our ability to maintain adequate debtor-in-possession financing and to
          generate cash from operations;

     o    the  ability of our  non-debtor  subsidiaries  to  generate  cash from
          operations or obtain financing, if necessary;

     o    our ability to access exit financing  sufficient to fund emergence and
          to fund our operations  after  emergence from bankruptcy on reasonable
          terms;

     o    our ability to retain key employees; and

     o    our ability to maintain  good customer and supplier  relationships  in
          light of  developments  in our  bankruptcy  cases and the terms of our
          emergence.

As a result of our Chapter 11 cases, our historical  financial  information will
not be indicative of our future financial performance.

     Our capital  structure will likely be significantly  changed under any plan
of reorganization.  Under fresh start accounting rules that may apply to us upon
the effective  date of any plan of  reorganization,  our assets and  liabilities
would be adjusted to fair values and partners'  deficiency  would be restated to
zero.  Accordingly,  if  fresh  start  accounting  rules  apply,  our  financial
condition  and results of operations  following  our  emergence  from Chapter 11
would not be  comparable  to the  financial  condition or results of  operations
reflected in our historical financial statements.

     The  accompanying  consolidated  financial  statements  have been  prepared
assuming that we will continue as a going concern. As discussed in Part II, Item
8, Financial Statements and Supplementary Data - Notes to Consolidated Financial
Statements,  Note 1, Bankruptcy and Basis of Presentation,  there is significant
uncertainty  as to  changes  in  Foamex  International's  ownership.  Our  plans
concerning  this  matter  also  are  described  in  Note 1 to  the  consolidated
financial  statements.  The financial  statements do not include any adjustments
that might result from the outcome of this uncertainty.

     Our  historical  financial  information  will  not  be  indicative  of  our
financial  performance following our emergence from the bankruptcy case upon the
implementation  of a plan of  reorganization  approved by the Bankruptcy  Court.
Under American Institute of Certified Public  Accountants  Statement of Position
90-7,  "Financial  Reporting by Entities in Reorganization  under the Bankruptcy
Code," certain of our outstanding  debt is classified as liabilities  subject to
compromise,  and interest expense on the unsecured  portion of this debt has not
been accrued since September 19, 2005 (the "Petition  Date").  From the Petition
Date  through  January 1, 2006,  contractual  interest  expense  not  accrued or
recorded on  pre-petition  debt  aggregated  approximately  $6.5  million.  This
calculation


                                       9
<PAGE>


excludes  the  impact  of any  compounding  of  interest  on unpaid
interest that may be payable under the relevant contractual obligations, as well
as any interest that may be payable under a plan of  reorganization  to trade or
other creditors.

     In connection  with the Chapter 11 cases and the development of any plan of
reorganization,  it is also possible that additional  restructuring  and similar
charges may be identified and recorded in future periods.  Such charges could be
material to our consolidated financial position and results of operations in any
given period.

The  prices  of  raw  materials  account  for  a  significant   portion  of  our
manufacturing costs. We have experienced  significant  increases in raw material
costs  since the middle of 2002.  Our ability to pass on cost  increases  may be
hindered by competition or selling price  increases may encourage  substitutions
for foam in the bedding and furniture industries.

     The  two  principal   chemicals   used  in  the   manufacture  of  flexible
polyurethane  foam  are  TDI  and  polyol.  Prices  are  influenced  by  demand,
manufacturing capacity and oil and natural gas prices. Historically,  the prices
of raw materials have been cyclical and volatile and our principal  suppliers of
raw  materials  used in the  manufacture  of  flexible  polyurethane  foam  have
significantly  increased the price of raw materials  several times over the past
several years.

     We have been more successful in implementing selling price increases in the
fourth quarter of 2005 than  historically.  However,  these price increases have
reduced  volumes and have created the  potential for the  substitution  of other
materials by our customers.

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

     There are a limited  number of major  suppliers of TDI and polyol and their
manufacturing  capacity is  concentrated on the U.S. Gulf Coast. A disruption in
our ability to obtain TDI and polyol that continues for a significant  period of
time could cause us to suspend all or a portion of our manufacturing operations,
which  could have a  material  adverse  effect on our  business  and  results of
operations.  Two recent  examples of such  disruptions  were Hurricanes Rita and
Katrina.

We must effectively manage our other operating expenses.

     In  addition  to our  ability to  effectively  increase  selling  prices in
response to raw material  cost  increases,  we must manage and control our other
operating  expenses.  If we are unable to achieve  reductions in other operating
expenses and in our selling, general and administrative expenses, there could be
a material  adverse effect on our business,  financial  condition and results of
operations.

We rely on a few large customers for a significant portion of our net sales.

     A few of our customers are material to our business and  operations.  Sales
to our five largest customers together accounted for approximately  27.1% of our
net sales in 2005, 29.6% of our net sales in 2004, and 34.7% of our net sales in
2003.  Sales  to  Johnson  Controls,   our  largest   customer,   accounted  for
approximately 10.7% of our net sales in 2005, 12.5% of our net sales in 2004 and
16.3% of our net  sales in 2003.  The loss,  or a  substantial  decrease  in the
amount,  of purchases by any of our major customers  could adversely  affect our
financial position and results of operations.

Our  customers'  financial  condition may have a material  adverse effect on our
business, financial condition and results of operations.

     In  the  ordinary  course  of  business,  we  extend  trade  credit  to our
customers.  In the event our customers,  in the aggregate or certain significant
customers,  are not able to pay us for our products on a timely basis or at all,
there could be a material  adverse effect on our business,  financial  condition
and results of operations.  Recent  increases in selling prices to our customers
may increase the risk that some  customers may not be able to pay us on a timely
basis or at all.


                                       10
<PAGE>

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

     Our past and present business operations and the past and present ownership
and  operation  of our real  property  are  subject to  extensive  and  changing
federal, state, local and foreign environmental laws and regulations,  including
those  relating  to the  use,  handling,  storage,  discharge  and  disposal  of
hazardous   substances,   the  discharge  or  emission  of  materials  into  the
environment and the remediation of environmental contamination. We are currently
remediating  soil and groundwater  contamination in excess of state standards at
several  of  our  current  and  former   facilities.   We  cannot  predict  what
environmental  legislation  or  regulations  will be enacted in the future,  how
existing or future laws or regulations  will be  administered  or interpreted or
what  environmental  conditions  may  be  found  to  exist  on  our  properties.
Compliance  with more  stringent laws or  regulations,  as well as more vigorous
enforcement  policies of the regulatory  agencies or stricter  interpretation of
existing laws, and discovery of new conditions may require us to make additional
expenditures, which may be material.

Our business has excess capacity and is cyclical.

     The polyurethane foam business has limited financial  barriers to entry and
presently has excess capacity.  The business is also cyclical to the extent that
our  customers  are in cyclical  industries.  We are  especially  subject to the
cyclical nature of the automotive, housing, technology and furniture and bedding
industries.  A protracted  downturn in the businesses of our customers in any of
these industries,  either simultaneously or sequentially,  could have a material
adverse effect on our results of operations. In particular,  problems facing the
North  American  automotive  industry have  negatively  impacted our  automotive
business and may continue to do so. In 2005, we recorded  impairment  charges of
$35.4  million for the entire amount of goodwill  applicable  to the  Automotive
Products operating segment.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

       None.

ITEM 2.  PROPERTIES

     As of January 1, 2006,  we  maintained 44  manufacturing  and  distribution
facilities. Total floor space in use at our 12 owned facilities is approximately
2.9 million square feet and total floor space in use at our 32 leased facilities
is  approximately  3.9 million  square feet. 35 of these  facilities are located
throughout  28 cities in the  United  States,  four  facilities  are  located in
Canada,  and five facilities are located in Mexico.  We have  approximately  1.5
million square feet of idle space.

     We have closed certain manufacturing  facilities,  warehouse locations, and
administrative  offices as part of our restructuring  process and it is possible
that additional closures will be implemented prior to our emergence from Chapter
11. On March 7, 2006, we announced the closure of two manufacturing  facilities,
including a foam pouring facility, in Toronto,  Canada and on March 20, 2006, we
announced the closure of our foam pouring facility in Orlando,  Florida.  To the
extent  possible,  we have  utilized  our ability  under  Section  365(a) of the
Bankruptcy Code to reject unexpired real property leases and executory contracts
for the closures  made to date and expect to continue to utilize this  authority
in any future closures.

     We do not  anticipate  any problem in renewing or replacing  any of the ten
leases expiring in 2006. The earliest lease termination date for any of our foam
production facilities is 2009.

     We  maintain  a  leased   corporate   administrative   office  in  Linwood,
Pennsylvania  and a  leased  administrative  office  in Novi,  Michigan  for the
Automotive Products segment.

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


                                       11
<PAGE>


ITEM 3.  LEGAL PROCEEDINGS

     Litigation

     We and our  subsidiaries are party to various  lawsuits,  both as defendant
and  plaintiff,  arising in the normal course of business.  It is the opinion of
management that the  disposition of these lawsuits will not,  individually or in
the  aggregate,  have a material  adverse  effect on our  financial  position or
results of operations.  If management's  assessment of the liability relating to
these actions is incorrect,  these actions could have a material  adverse effect
on our consolidated financial position, results of operations and cash flows. As
of January 1, 2006, we have accrued  approximately  $0.8 million for litigation,
claims and other legal  matters  (the  "Litigation  Matters") in addition to the
environmental  matters  discussed  below.  The claims relating to the Litigation
Matters are liabilities  subject to compromise that are capable of being treated
under the Plan as general unsecured claims.

     As a consequence  of our  Bankruptcy,  all litigation  pending  against the
Debtors on the  Petition  Date was stayed  automatically  by Section  362 of the
Bankruptcy  Code and,  absent  further order of the  Bankruptcy  Court  granting
relief from the automatic  stay, no party may take any action in respect of such
litigation  or to  recover  on  pre-petition  claims  against  the  Debtors.  In
addition,  pursuant  to Section 365 of the  Bankruptcy  Code,  the Debtors  have
rejected and may reject  pre-petition  executory contracts and unexpired leases,
and the  non-debtor  parties to  contracts  or leases  that have been or will be
rejected have  asserted or may in the future  assert  damages for breach of such
contracts or leases as permitted by the Bankruptcy Code.

     Environmental and Health and Safety

     We are subject to extensive and changing federal,  state, local and foreign
environmental  laws  and  regulations,  including  those  relating  to the  use,
handling, storage, discharge and disposal of hazardous substances, the discharge
or  emission  of  materials  into  the  environment,   and  the  remediation  of
environmental contamination,  and as a result, are from time to time involved in
administrative and judicial  proceedings and inquiries relating to environmental
matters.  As of January 1, 2006, we had accruals of  approximately  $2.1 million
for  environmental  matters,  including  approximately  $1.9 million  related to
remediating and monitoring soil and groundwater  contamination and approximately
$0.2 million  relating to PRP sites and other matters (the "PRP Site  Matters").
The claims  relating to PRP Site Matters are  liabilities  subject to compromise
and are capable of being treated under the Plan as general unsecured claims.

     On  August  31,  2002,   Environment  Canada,  the  Canadian  environmental
regulatory  agency,  finalized a rule which would require flexible  polyurethane
foam manufacturing operations to reduce methylene chloride (dichloromethane) air
emissions.  The  rule  establishes  a  50.0%  reduction  in  methylene  chloride
emissions by December 1, 2004, which we have  implemented,  and 100.0% reduction
by January 1, 2007.  This  standard  has not required and will not require us to
make material expenditures for our Canadian plants.

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

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

     The Comprehensive  Environmental Response,  Compensation and Liability Act,
or "CERCLA," and comparable  state laws impose  liability  without fault for the
costs of  cleaning  up  contaminated  sites on certain  classes of persons  that
contributed to the release of hazardous substances into the environment at those
sites, for example, by generating wastes containing  hazardous  substances which
were disposed at such sites. We are currently  designated as a PRP by the EPA or
by state  environmental  agencies or other PRPs, pursuant to CERCLA or analogous
state statutes,  with respect to 11 sites.  Estimates of total cleanup costs and
fractional  allocations  of liability  are often  provided by the EPA, the state
environmental  agency or the  committee  of PRPs with  respect to the  specified
site.  Based  on  these  estimates  (to  the  extent  available)  and  on  known
information,  in each case and in the  aggregate,  we do not  expect  additional
costs, if any, to be material to our results of operations,  financial  position
or  cash  flows.


                                       12
<PAGE>

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

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

     None.

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

(a)  Foamex  L.P.  is  a  privately  held  limited  partnership.   There  is  no
     established public trading market for its securities.

(b)  As of January  1, 2006,  there  were two  holders of Foamex  L.P.'s  equity
     securities.

(c)  Listed  below are the net cash  receipts  in  accordance  with tax  sharing
     agreements.  At January 1, 2006 and January 2, 2005, we have liabilities of
     approximately $0.5 million and $0.3 million,  respectively, to our partners
     in accordance with the tax sharing agreement.

                                               Tax Sharing Distributions
                                               -------------------------
                                                2005               2004
                                               ------             ------
                                                       (thousands)
     FMXI                                      $   -               $   -
     Foamex International                          -                   -
                                               -----               -----
                                               $   -               $   -
                                               =====               =====

Limitations on Distributions

     Our financing  agreements restrict our ability to make distributions to our
partners.

ITEM 6.  SELECTED FINANCIAL DATA

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

<TABLE>
<CAPTION>
                                                                              Fiscal Year (1)
                                                 -----------------------------------------------------------------
                                                    2005           2004         2003        2002         2001 (2)
                                                 ----------     ----------   ----------   ----------    ----------
                                                                             (thousands)
Statements of Operations Data
<S>                                              <C>            <C>          <C>          <C>           <C>
   Net sales                                     $1,311,611     $1,266,394   $1,304,560   $1,328,094    $1,252,904
   Gain on sale of businesses                    $   29,719     $        -   $        -   $        -    $        -
   Loss from continuing operations (3)           $  (53,609)    $  (25,031)  $  (27,413)  $  (27,204)   $   (2,261)


                                       13
<PAGE>



                                                                              Fiscal Year (1)
                                                 -----------------------------------------------------------------
                                                    2005           2004         2003        2002         2001 (2)
                                                 ----------     ----------   ----------   ----------    ----------
                                                                             (thousands)Balance Sheet Data
   Total assets                                  $  601,317     $  645,706   $  665,155   $  695,283    $  767,650
   Current portion of long-term debt             $  240,804     $  114,907   $   96,065   $        -    $        -
   Long-term debt, excluding current portion (4) $      366     $  568,461   $  633,621   $  738,540    $  648,232
   Liabilities subject to compromise             $  635,965     $        -   $        -   $        -    $        -
   Partners' deficiency                          $ (414,982)    $ (355,591)  $ (325,131)  $ (305,786)   $ (178,128)

</TABLE>

(1)  We changed to a fiscal year from a calendar  year during 2002. We have a 52
     or  53-week  fiscal  year  ending on the  Sunday  closest to the end of the
     calendar  year.  The 2005  fiscal year  included 52 weeks ended  January 1,
     2006. The 2004 fiscal year included the 53 weeks ended January 2, 2005. The
     2002  fiscal  year  included  the 52 weeks  ended  December  29, 2002 after
     adjustment for December 31, 2001 which was included in the prior year.

(2)  Includes the results of  operations of General Foam  Corporation  from July
     25, 2001, the date it was acquired.

(3)  Includes net  impairment,  restructuring  and other charges  (credits),  as
     discussed in Note 6 to the consolidated  financial  statements  included in
     this  Annual  Report on Form  10-K.  Listed  below are the  pretax  charges
     (credits).

     2005 - $52.2  million
     2004 - $ 3.2  million
     2003 - $(1.8) million
     2002 - $ 4.8  million
     2001 - $36.1  million

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


                                       14
<PAGE>


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

FORWARD-LOOKING STATEMENTS

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

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

EXECUTIVE SUMMARY

Overview

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

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

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

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

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


                                       15
<PAGE>

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

     Other  -  primarily  consists  of  certain  manufacturing  and  fabrication
     operations  in Mexico City,  corporate  expenses not allocated to the other
     business   segments  and  impairment,   restructuring   and  other  charges
     (credits).

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

     A small number of major customers produce a significant  portion of our net
sales. In 2005, our largest  customer  provided  approximately  10.7% of our net
sales and our five largest  customers  provided  approximately  27.1% of our net
sales.  Two of the  five  largest  customers  are  customers  of the  Automotive
Products  segment and three are  customers  of the Foam  Products  segment.  The
following  discussion  should  be  read in  conjunction  with  the  consolidated
financial  statements  and related notes  included in this Annual Report on Form
10-K.

     Operations

     The  following  table  includes  key elements of our  financial  statements
expressed as a percentage of net sales for the years 1999 through  2005,  except
for net cash provided by (used for) operating  activities  which is expressed in
millions of dollars.

<TABLE>
<CAPTION>
                                      2005       2004       2003       2002         2001       2000        1999
                                     ------     ------     ------     ------       ------     ------      ------
<S>                                  <C>        <C>        <C>        <C>          <C>        <C>         <C>
Net Sales                            100.0%     100.0%     100.0%     100.0%       100.0%     100.0%      100.0%

Cost of Goods Sold                    89.6%      88.8%      89.0%      89.2%        85.8%      86.3%       86.1%

Gross Profit Margin                   10.4%      11.2%      11.0%      10.8%        14.2%      13.7%       13.9%

Selling, General and
   Administrative Expenses             6.2%       6.9%       6.2%       7.1%         6.3%       5.4%        5.8%

Operating Income Margin                0.2%       4.1%       4.9%       3.4%         5.0%       7.7%        7.3%

Interest and Debt
   Issuance Expense                    6.1%       6.1%       6.8%       5.2%         5.0%       6.0%        5.6%

Net Cash Provided by (Used
   for) Operating Activities        $(22.0)      $0.2      $18.1     $(49.6)      $108.7      $52.9       $68.6
</TABLE>

     As demonstrated by the table above, our results significantly  deteriorated
in 2002 and improved only marginally in 2003 and 2004 before  declining again in
2005 as a whole.  Our gross  profit  margin has been  reduced by more than three
percentage  points  compared to 2001 while selling,  general and  administrative
expenses and interest and debt issuance  expense have both increased.  Net sales
dollars  have  been  relatively  flat  over the  seven  year  period  with  2005
representing an increase of 1.3% compared to 1999.

     During the first three  quarters of 2005 our gross profit margin  continued
to erode  and was 6.3%  for the  third  quarter  and  7.1% for the  first  three
quarters. In the third quarter of 2005, three suppliers of TDI closed production
facilities  that had  accounted  for  approximately  10% of  global  supply.  In
addition,  the evacuation of portions of the U. S. Gulf Coast states as a result
of Hurricanes  Katrina and Rita caused  curtailment of TDI and polyol production
at several  facilities in that area. The reduced  availability  of raw materials
caused temporary shortages of foam production throughout the industry. Partially
as a result of these  shortages,  we were able to  implement  significant  price
increases on an immediate basis during the fourth quarter of 2005,  particularly
in our Foam Products Operating segment. As a result, our gross profit margin was
19.8% in the  fourth  quarter,  a portion of which was  temporary  due to market
conditions  and inventory  impacts on our cost of goods sold. We expect that our
gross profit margin in


                                       16
<PAGE>


future periods will be more consistent  with historical  levels prior to 2005 as
reflected   in  the  above  table,   depending  on  future   supply  and  demand
considerations,  but there can be no  assurance  that our  expectations  will be
realized.

     Our management is focusing on restoring and  maintaining  profitability  by
concentrating on the following key areas:

     o    Maintaining  selling  price  increases  to recover  raw  material  and
          manufacturing cost increases.

     o    Managing raw material costs.

     o    Developing  new  value-added  products  that  leverage  our  technical
          capability and entering new markets with increased profit potential.

     o    Closing or selling unprofitable or non-core plants and business.

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

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

     We  continue  to  operate  our   business   and  manage  our   property  as
debtors-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code.
On September 29, 2005,  the United  States  Trustee for the District of Delaware
appointed an official committee of unsecured creditors in these Chapter 11 cases
(the "Creditors' Committee"). The Creditors' Committee is currently comprised of
The Bank of New  York,  the  Pension  Benefit  Guaranty  Corporation,  Newcastle
Partners,  LP,  Lyondell  Chemical  Corporation,  Shell  Chemicals  L.P.,  Steel
Partners II, L.P. and Donovan Williams. At a hearing held on September 20, 2005,
the Bankruptcy  Court granted  various first day motions for relief  designed to
stabilize our operations and business  relationships  with  customers,  vendors,
employees and others,  and entered  orders  granting  permission to, among other
things,  pay  employee  salaries,  wages  and  benefits,  pay  amounts  owing in
connection with workers' compensation and other insurance policies;  utilize our
existing cash management  systems;  continue our customer programs;  pay vendors
for certain  critical  goods and services  provided  prior to September 19, 2005
and,  access,  on an  interim  basis,  up to  $221  million  of a  $240  million
debtor-in-possession  (DIP)  revolving  credit facility and $80 million of a DIP
term  loan.  A portion of the  proceeds  of the  debtor-in-possession  revolving
credit  facility and all of the proceeds of the DIP term loan facility were used
to repay Foamex L.P.'s prepetition revolving credit and term loan facilities. On
October 17,  2005,  the  Bankruptcy  Court  granted  final  approval of the $240
million DIP revolving credit facility and the $80 million DIP term loan.

     On November 17, 2005, the Bankruptcy Court approved a motion  authorizing a
key executive retention program (the "KERP").  The KERP pertains to 77 employees
who may receive cash distributions  aggregating up to $3.2 million. In addition,
certain  participants,  at the  discretion  of the  Board  of  Directors  of the
reorganized  Foamex   International,   may  receive   additional   distributions
aggregating  up to $1.1  million in cash or in common  stock of the  reorganized
Foamex  International at a price per share that reflects the value of the equity
on the effective  date of the plan of  reorganization.  Distributions  under the
KERP are generally to be made on or around  certain  milestone  dates during the
Chapter  11 cases and on and  subsequent  to the  effective  date of the plan of
reorganization.  Cash  distributions  pursuant  to the  KERP,  aggregating  $0.4
million,  were paid in December 2005 and  additional  amounts  aggregating  $1.1
million  have  been  paid  in  February   and  March  2006.   The  common  stock
distributions,  if any, will be made at the six month and one year anniversaries
of the effective date of the plan of  reorganization.  The KERP also includes an
additional $0.5 million  discretionary cash pool to address specific  employment
matters and unanticipated needs that may arise during the Chapter 11 cases.

     We have notified all known or potential creditors of the Chapter 11 filings
for the purposes of identifying  and quantifying  all  prepetition  claims.  The
Chapter  11  filings  triggered  defaults  on  substantially  all debt and lease
obligations.  Subject to  certain  exceptions  under the  Bankruptcy  Code,  the
Chapter 11 filings  automatically  stayed the  continuation  of any  judicial or
administrative  proceedings  or  other  actions  against  the  Debtors  or their
property to


                                       17
<PAGE>



recover on,  collect or secure a claim  arising  prior to September 19, 2005. On
October 18, 2005, the  Bankruptcy  Court entered an order (the "Bar Date Order")
requiring  any person or entity  holding or  asserting  a  prepetition  claim(s)
against the Debtors to a file a written proof of claim with the Debtors'  claims
processing  agent on or before  December  8, 2005 (the  "Bar  Date"),  and,  for
Governmental  Units (as defined in the  Bankruptcy  Code)  holding a prepetition
claim(s)  against  the  Debtors'  on or before  March  20,  2006.  With  certain
enumerated  exceptions,  the Bar Date Order further  provides that any person or
entity which fails to timely file a proof of claim will, among other things,  be
forever barred, estopped and enjoined from asserting a prepetition claim against
the Debtors.

     The Debtors are currently  assessing all of the proofs of claim filed as of
the Bar Date. As of March 20, 2006 1,173 proofs of claim are  outstanding in the
Chapter 11 cases in the aggregate amount of approximately  $3,576.2 million. The
Debtors  believe  that  this  amount  is  vastly  overstated  and  have  devoted
substantial time and effort to the claims  reconciliation  process.  The Debtors
have already  objected to and expect to object to a number of additional  claims
throughout the Chapter 11 cases in an effort to reduce  substantially the number
and amount of claims that will be allowed as part of the bankruptcy cases.

     The  uncertainty  regarding  our future  prospects  may hinder our  ongoing
business  activities  and our ability to operate,  fund and execute our business
plan by impairing  relations with existing and potential  customers;  negatively
impacting our ability to attract and retain key employees;  limiting our ability
to obtain trade credit;  impairing present and future relationships with vendors
and service  providers;  and  impairing  our ability to continue to operate as a
going concern.

     As  a  result  of  the  Chapter  11  filings,  realization  of  assets  and
liquidation  of  liabilities  are  subject  to  significant  uncertainty.  While
operating  as a  debtor-in-possession  under the  protection  of Chapter 11, and
subject to Bankruptcy  Court  approval or otherwise as permitted in the ordinary
course of business,  we may sell or otherwise dispose of assets and liquidate or
settle  liabilities  for amounts  other than those  reflected  in our  financial
statements.  Further,  a plan of  reorganization  could  materially  change  the
amounts and  classifications  reported in our historical  financial  statements,
which do not give effect to any  adjustment  to the carrying  value of assets or
amounts of liabilities  that might be necessary as a consequence of confirmation
of a plan of reorganization.

     To exit Chapter 11, we must obtain  confirmation by the Bankruptcy Court of
a Chapter 11 plan.  On December 23, 2005,  we filed a Disclosure  Statement  and
Proposed Plan of Reorganization (the "Plan") with the Bankruptcy Court. The Plan
is  designed  to  complete a  financial  restructuring  which  will  result in a
reduction of approximately $500 million of total debt from prepetition  amounts.
The Plan was supported by an ad hoc committee of our Senior Secured  Noteholders
comprising more than 50% of the outstanding  principal  amount of Senior Secured
Notes. The terms of the Plan include the following:

     o    Holders of Allowed  Administrative  Claims,  Priority Tax Claims,  DIP
          Financing Claims, Other Priority Claims, and Other Secured Claims will
          receive full payment in cash;

     o    Holders of Allowed  Senior Secured Note Claims will receive a pro rata
          share  of  100%  of  new  common  stock  of  the  reorganized   Foamex
          International,  subject to dilution,  provided  that the class of such
          Claims votes to accept the Plan;

     o    Holders of Allowed Senior  Subordinated Note Claims will receive a pro
          rata share of warrants to purchase up to 5% of new common stock of the
          reorganized Foamex International,  subject to dilution,  provided that
          the class of such Claims votes to accept the Plan;

     o    Holders of Allowed  General  Unsecured  Claims will receive a pro rata
          share of $1.5 million,  provided that the distribution does not exceed
          5% of the  allowed  amount of each such  claim and  provided  that the
          class of such Claims votes to accept the Plan;

     o    Holders of Foamex International's  existing Preferred Stock and Common
          Stock  will not  receive  any  distribution  under  the Plan and their
          shares will be cancelled on the effective date of the Plan.


                                       18
<PAGE>

     Since we filed our Plan,  we and our advisors  have  continued to work with
its  significant  creditor  constituencies  and  their  respective  advisors  to
negotiate  a fully  consensual  plan of  reorganization.  We expect that we will
continue to do so in the hope of agreeing with these  constituents  on the terms
of a fully  consensual  plan. There can be no guarantee that we will file and/or
confirm such a plan. However, even in the absence of a fully consensual plan, it
is likely  that we will need to modify the plan that is  currently  on file with
the Bankruptcy Court.

     Financing

     DIP Revolving Credit Facility

     On September  22,  2005,  Foamex L.P.  entered into a  Debtor-in-Possession
Credit Agreement (the "DIP Revolving  Credit  Facility") with a group of lenders
to provide a revolving  credit  facility with a maximum  availability  of $240.0
million.  The initial borrowing under the DIP Revolving Credit Facility was used
to repay  outstanding  obligations  under the prepetition  Senior Secured Credit
Facility  and  interest due under the  prepetition  Secured  Term Loan.  The DIP
Revolving  Credit  Facility  includes a $40.0  million  sublimit  for letters of
credit and availability is limited to eligible amounts,  as defined, of accounts
receivable,  inventory,  equipment,  and real estate. At January 1, 2006, Foamex
L.P.  had total  available  borrowings  of $53.6  million  and letters of credit
outstanding  of $18.2 million under the facility.  As of March 24, 2006,  Foamex
L.P.'s total available borrowings had increased to $106.1 million. Substantially
all of the  assets of  Foamex L. P. and its  domestic  subsidiaries  and  Foamex
Canada are pledged as collateral for the related  borrowings.  Borrowings  under
the DIP Revolving Credit Facility bear interest at floating rates based upon and
including a margin over either LIBOR or a Base Rate,  as defined.  At January 1,
2006, the weighted average interest rate on borrowings was 7.42%. All borrowings
under the DIP Revolving  Credit Facility will mature on the earlier of March 22,
2007 or the date that we emerge  from  Chapter  11.  The  lenders  under the DIP
Revolving Credit Facility have agreed to provide emergence financing, subject to
a number of conditions,  of up to $275.0 million upon our emergence from Chapter
11. Fees and expenses  that will be incurred to put the  emergence  financing in
place are expected to be  approximately  $4.3 million.  The DIP Revolving Credit
Facility  includes  both  a  subjective  acceleration  clause  and  a  lock  box
arrangement  that  requires  all lock box  receipts  be used to repay  revolving
credit  borrowings.  Borrowings  under the DIP  Revolving  Credit  Facility  are
classified as current in the accompanying  consolidated balance sheet at January
1, 2006.

     DIP Term Loan

     On September  22,  2005,  Foamex L.P.  entered into a  Debtor-in-Possession
Credit  Agreement  (the "DIP Term  Loan")  with a group of lenders to provide an
$80.0  million  term  loan.  Proceeds  from the DIP Term Loan were used to repay
outstanding  principal under the prepetition Secured Term Loan. Borrowings under
the DIP Term Loan bear  interest  at a rate  that is either  (i) 8.00%  plus the
greater  of the Base  rate,  as  defined,  or 6.50% or (ii) at  10.00%  plus the
greater of the LIBOR rate or 3.00%.  At January 1, 2006,  the  weighted  average
interest rate was 14.29%.  Borrowings under the DIP Term Loan are collateralized
by the same collateral as the DIP Revolving  Credit  Facility.  An intercreditor
agreement governs the distribution of collateral among the lenders under the DIP
Revolving  Credit  Facility and the DIP Term Loan. All borrowings  under the DIP
Term  Loan  will  mature on the  earlier  of March 22,  2007 or the date that we
emerge  from  Chapter  11. The  lenders  under the DIP Term Loan have  agreed to
provide emergence financing, subject to a number of conditions, of $80.0 million
upon  emergence  from  Chapter  11.  The DIP Term  Loan may be  repaid  prior to
maturity  by  paying a  prepayment  premium  initially  set at 8% and  declining
ratably over a 48-month  period.  The DIP Term Loan is  classified as current in
the accompanying consolidated balance sheet at January 1, 2006.

CRITICAL ACCOUNTING POLICIES

     We prepared  the  consolidated  financial  statements  in  conformity  with
accounting  principles  generally  accepted in the United States of America.  As
such, we are required to make certain estimates, judgments, and assumptions that
we believe are reasonable based upon the information available. These estimates,
judgments  and  assumptions  affect  the  reported  amounts  of the  assets  and
liabilities and revenues and expenses.  Our significant  accounting policies are
discussed in Note 2 to our consolidated  financial  statements beginning on page
F-11. The  accounting  policies which we believe are the most critical to aid in
fully  understanding  and  evaluating our reported  financial  results and which
require management to exercise judgment include the following:


                                       19
<PAGE>


     Bankruptcy and Basis of Presentation

     As  a  result  of  the  Chapter  11  filings,  realization  of  assets  and
liquidation  of  liabilities  are  subject  to  significant  uncertainty.  While
operating  as a  debtor-in-possession  under the  protection  of Chapter 11, and
subject to the  Bankruptcy  Court  approval or  otherwise  as  permitted  in the
ordinary  course of  business,  we may sell or  otherwise  dispose of assets and
liquidate or settle  liabilities  for amounts other than those  reflected in our
financial statements.  Further, a plan of reorganization could materially change
the amounts and classifications reported in our historical financial statements,
which do not give effect to any  adjustment  to the carrying  value of assets or
amounts of liabilities  that might be necessary as a consequence of confirmation
of a plan of reorganization.

     Subsequent  to the  bankruptcy  filing date,  Statement  of Position  90-7,
"Financial  Reporting by Entities in  Reorganization  Under the Bankruptcy Code"
("SOP 90-7")  applies to the  Debtors'  financial  statements  while the Debtors
operate  under  the  provision  of  Chapter  11.  SOP 90-7 does not  change  the
application of generally  accepted  accounting  principles in the preparation of
financial  statements.  However,  SOP  90-7  does  require  that  the  financial
statements, for periods including and subsequent to the filing of the Chapter 11
petition,  distinguish transactions and events that are directly associated with
the reorganization from the ongoing operations of the business. A confirmed plan
of  reorganization  could result in material  changes in the amounts reported in
our  consolidated  financial  statements,  which  do  not  give  effect  to  any
adjustments  of the  carrying  value of  assets  and  liabilities  that  will be
necessary as a consequence of reorganization under Chapter 11.

     Revenue Recognition

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

     Accounts Receivable and Allowance for Uncollectible Accounts

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

     Long-Lived Assets

     Net property,  plant and  equipment  totaled  $113.2  million at January 1,
2006.  Property and equipment held for use is grouped for impairment  testing at
the plant level, the lowest level for which there are  identifiable  cash flows.
Impairment  testing  of the asset  group  occurs  whenever  events or changes in
circumstances  indicate  that  the  carrying  amount  of the  assets  may not be
recoverable.  We assess  recoverability  by comparing the carrying amount of the
asset  group to the  estimated  undiscounted  future  cash flows  expected to be
generated  by  the  assets.  If an  asset  group  is  considered  impaired,  the
impairment  loss to be  recognized  would be measured as the amount by which the
asset group's  carrying  amount  exceeds its fair value.  Estimated  future cash
flows are based on  historical  results  adjusted for  estimated  future  market
conditions  and  operating  plans.  To the extent that these  estimates  change,
impairment  losses  could  result  which may have a material  adverse  impact on
future financial results.

     Goodwill

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


                                       20
<PAGE>


methodology.  The determination of discounted cash flows is based on businesses'
strategic plans and long range planning forecasts.

     Self Insurance

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

     Benefit Plans

     We  maintain  defined  benefit  pension  plans  that cover most of our U.S.
employees.  Projected benefit obligations,  pension expense and amounts included
in other  comprehensive  income are  impacted  by a number of  assumptions.  Key
assumptions  include the discount rates to determine benefit obligations and the
expected long-term rate of return on plan assets.  Discount rates are applied to
future cash flows to measure  benefit  obligations on a present value basis.  We
assumed weighted  average discount rates of 6.50%,  6.00% and 5.50% to calculate
pension  expense in 2003,  2004 and 2005,  respectively.  Based on pension  plan
obligations  at year-end  2005, a 0.50%  reduction  in the  discount  rate would
increase  pension expense by approximately  $0.8 million.  Based on pension plan
assets at  year-end  2005,  a 0.50%  reduction  in the  expected  rate of return
assumption  would increase pension expense by  approximately  $0.5 million.  The
under funded position of the pension plans was primarily the result of declining
discount rates and accumulated  returns on pension assets below expected returns
for the last several years  resulting in an accumulated net actuarial loss which
must be amortized in future years.  The  amortization of net actuarial losses is
estimated  to be  approximately  $3.1  million in 2006.  We  anticipate  funding
approximately  $16.0  million to the  pension  plans in 2006 as compared to $7.3
million in 2005.

     Claims and Litigation

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

     Environmental Remediation

     We have a number of  manufacturing  facilities and certain idle  facilities
that require remediation of soil and/or groundwater  contamination.  As required
by applicable State and/or Federal compliance programs,  many of these sites are
in the monitoring stage that requires periodic sampling of contamination  levels
in conjunction with ongoing assessments of remediation actions. Accordingly, the
recognition  of  environmental  liabilities  requires  estimates  concerning the
duration of monitoring and  associated  costs,  often  projected to extend for a
number  of  years.  To  the  extent  that  these  estimates  change,  additional
environmental  costs could have a material  adverse  impact on future  financial
results.  See the  section  below  entitled  "Other -  Environmental  Health and
Safety" for additional information.

LIQUIDITY AND CAPITAL RESOURCES

     Our liquidity  requirements  consist  principally  of accounts  receivable,
inventory and accounts payable,  scheduled payments of interest and principal on
outstanding  indebtedness,  capital  expenditures,  and employee  benefit plans.
Historically, cash flow from our operating activities, cash on hand and periodic
borrowings  under our credit  agreements  have been  adequate to meet  operating
liquidity requirements.

     Cash and cash  equivalents were $7.4 million at January 1, 2006 compared to
$5.3  million  at  January  2,  2005.  Working  capital at January 1, 2006 was a
negative  $18.3 million and the current ratio was 0.95 to 1 compared to negative
working  capital at January 2, 2005 of $54.0 million and a current ratio of 0.85
to 1.


                                       21
<PAGE>


     Total debt,  including $500.9 million subject to compromise,  and revolving
credit  borrowings  at  January  1, 2006 was  $742.1  million,  an $8.4  million
decrease  from  January 2, 2005.  The  January  2, 2005  carrying  value of debt
included  $10.3 million of deferred  credits and debt premium.  As of January 1,
2006,  there were  revolving  credit  borrowings of $154.6 million under the DIP
Revolving Credit Facility with $53.6 million  available for borrowings and $18.2
million of letters of credit outstanding. Revolving credit borrowings at January
1, 2006 reflect working capital  requirements.  While we believe that cash flows
from our operating activities,  cash on hand and additional borrowings under the
DIP Revolving  Credit Facility will provide an adequate level of liquidity until
we emerge from the Chapter 11 process,  there is no assurance  that we will have
enough cash to meet all ongoing obligations during the Chapter 11 process.

     DIP Revolving Credit Facility

     As stated previously, on September 22, 2005, Foamex L.P. entered into a DIP
Revolving  Credit Facility with a group of lenders to provide a revolving credit
facility with a maximum  availability of $240.0 million.  The initial  borrowing
under  the  DIP  Revolving  Credit  Facility  was  used  to  repay   outstanding
obligations  under the  prepetition  Senior Secured Credit Facility and interest
due under the prepetition  Secured Term Loan. The DIP Revolving  Credit Facility
includes a $40.0  million  sublimit  for letters of credit and  availability  is
limited to eligible  amounts,  as defined,  of accounts  receivable,  inventory,
equipment,  and real estate. At January 1, 2006, Foamex L.P. had total available
borrowings of $53.6 million and letters of credit  outstanding  of $18.2 million
under that facility.  As of March 24, 2006,  Foamex L.P.'s available  borrowings
had increased to $106.1 million. Substantially all of the assets of Foamex L. P.
and its domestic  subsidiaries  and Foamex Canada are pledged as collateral  for
the related borrowings.  Borrowings under the DIP Revolving Credit Facility bear
interest at floating  rates based upon and  including a margin over either LIBOR
or a Base Rate, as defined.  At January 1, 2006, the weighted  average  interest
rate on borrowings  was 7.42%.  All  borrowings  under the DIP Revolving  Credit
Facility will mature on the earlier of March 22, 2007 or the date that we emerge
from Chapter 11. The lenders under the DIP Revolving Credit Facility have agreed
to provide  emergence  financing,  subject to a number of  conditions,  of up to
$275.0  million upon our emergence  from Chapter 11. Fees and expenses that will
be  incurred  to put  the  emergence  financing  in  place  are  expected  to be
approximately  $4.3 million.  The DIP Revolving Credit Facility  includes both a
subjective acceleration clause and a lock box arrangement that requires all lock
box  receipts  be  used  to  repay  revolving  credit  borrowings.  Accordingly,
borrowings  under the DIP Revolving Credit Facility are classified as current in
the accompanying consolidated balance sheet at January 1, 2006.

     DIP Term Loan

     As stated previously, on September 22, 2005, Foamex L.P. entered into a DIP
Term Loan  with a group of  lenders  to  provide  an $80.0  million  term  loan.
Proceeds from the DIP Term Loan were used to repay  outstanding  principal under
the  prepetition  Secured  Term  Loan.  Borrowings  under the DIP Term Loan bear
interest  at a rate that is either (i) 8.00% plus the  greater of the Base rate,
as  defined,  or 6.50% or (ii) at 10.00%  plus the  greater of the LIBOR rate or
3.00%.  At January 1, 2006,  the  weighted  average  interest  rate was  14.29%.
Borrowings under the DIP Term Loan are  collateralized by the same collateral as
the DIP  Revolving  Credit  Facility.  An  intercreditor  agreement  governs the
distribution  of collateral  among the lenders  under the DIP  Revolving  Credit
Facility  and the DIP Term  Loan.  All  borrowings  under the DIP Term Loan will
mature on the earlier of March 22,  2007 or the date that  Foamex  L.P.  emerges
from  Chapter  11. The  lenders  under the DIP Term Loan have  agreed to provide
emergence  financing,  subject to a number of conditions,  of $80.0 million upon
our emergence from Chapter 11. The DIP Term Loan may be repaid prior to maturity
by paying a prepayment  premium initially set at 8% and declining ratably over a
48-month period.  The DIP Term Loan is classified as current in the accompanying
consolidated balance sheet at January 1, 2006.

Debt Covenants

     The DIP Revolving Credit Facility and the DIP Term Loan (together, the "DIP
Facilities")  contain  certain  covenants  that limit,  among other things,  our
ability  (i) to pay  distributions  or  redeem  equity  interests,  (ii) to make
certain  restrictive   payments  or  investments,   (iii)  to  incur  additional
indebtedness or issue Preferred  Equity  Interests,  as defined,  (iv) to merge,
consolidate  or sell all or  substantially  all  assets,  or (v) to  enter  into
certain  transactions with affiliates or related persons.  In addition,  the DIP
Facilities  contain provisions that, in the event of a defined change of control
or the occurrence of an undefined  material adverse change in the ability of the
obligor to perform its


                                       22
<PAGE>


obligations, the indebtedness must be repaid, in certain cases, at the option of
the holders.  Under the most restrictive of the distribution  restrictions as of
January 1, 2006,  we were able to  distribute  funds to our partners only to the
extent to enable our partners to meet their tax payment liabilities,  subject to
Bankruptcy Court approval if such payments constitute  prepetition  liabilities,
and Foamex  International's  normal  operating  expenses  of up to $2.3  million
during the term of the DIP Facilities, so long as no default or event of default
has occurred.

     Under the DIP Facilities, we are subject to covenants, including an EBITDA,
as defined, covenant beginning with the one month period ended October 30, 2005,
a cumulative  net cash flow, as defined,  covenant  beginning with the two month
period ending  December 4, 2005, and a capital  expenditure  restriction  for 12
month rolling periods  beginning  October 3, 2005. The cumulative EBITDA and net
cash flow covenants will include an increasing number of months until they reach
12 months  ending on  October  1, 2006 and then will be the  trailing  12 months
thereafter  through  February  2007.  We  are in  compliance  with  the  EBITDA,
cumulative  cash flow and capital  expenditure  covenants  for the three  months
ended January 1, 2006. The DIP facilities  also limit  expenditures  for certain
prepetition  and post petition  liabilities,  as defined,  subject to Bankruptcy
Court approval.

     Cash Flow from Operating Activities

     Cash used for operating  activities  in 2005 was $22.0 million  compared to
$0.2  million  provided  by  operating  activities  in 2004.  In 2005,  cash was
primarily  used  to fund  increases  in  accounts  receivable  and  inventories,
primarily as a result of increases in selling prices to customers and higher raw
material  costs. In 2004,  cash used for operations  consisted of  approximately
$5.6 million of cash  generated from results of operations  after  adjusting for
non cash charges  included in net loss offset by  approximately  $5.4 million of
cash requirements used to fund working capital needs.

     Cash Flow from Investing Activities

     Cash  provided  by  investing  activities  totaled  $32.0  million for 2005
compared to cash used by investing activities of $5.2 million for 2004. Proceeds
from the sale of the  rubber  and  felt  businesses  were  $38.7  million.  Cash
requirements  in  2005  included  capital   expenditures  of  $5.2  million  and
capitalized software development costs of $2.6 million.  Cash used for investing
activities in 2004 included capital expenditures of $5.5 million and capitalized
software development costs of $2.4 million.  These uses were partially offset by
proceeds from asset disposals of $2.7 million.  Estimated  capital  expenditures
for 2006 are approximately $12 to $18 million.  In addition,  we expect to spend
approximately $9 million in connection with replacing our primary  financial and
operating  information and transaction  processing systems in 2006, a portion of
which may be capitalized.

     Cash Flow from Financing Activities

     Cash used for  financing  activities  was $7.9 million in 2005  compared to
cash  provided by  financing  activities  of $3.7 million in 2004.  In 2005,  we
incurred $6.3 million of debt  issuance  costs.  During 2004, we utilized  $18.8
million of increased  revolving  credit  borrowings to reduce  long-term debt by
$10.9 million and to satisfy working capital requirements.

     Contractual Obligations

     Our  contractual  obligations  as of  January  1,  2006  are  shown  in the
following table:

<TABLE>
<CAPTION>
                                                       Payment due by Period
                                      ---------------------------------------------------------------------

Contractual Obligations                 Total        2006        2007-08         2009-10    2011 and beyond
-----------------------               --------      ------       -------         -------    ---------------
                                                              (dollars in millions)
Long-Term Debt, including
<S>               <C>                 <C>           <C>           <C>    <C>     <C>              <C>
   Capital Leases (2)                 $  241.2      $  0.2        $235.0 (1)     $    -           $ 6.0
Interest (2) (3)                      $   30.0      $ 23.4        $  5.6         $  0.4           $ 0.6
Operating Leases                      $   71.4      $ 15.4        $ 24.8         $ 16.5           $14.7
Purchase Commitments (4)              $  851.2      $268.3        $352.9         $230.0           $   -
Employee Benefits and Other (5)
                                      --------      ------        ------         ------           -----
Total Contractual Obligations (6)     $1,193.8      $307.3        $618.3         $246.9           $21.3
                                      ========      ======        ======         ======           =====
</TABLE>


                                       23
<PAGE>


(1)  Includes $154.6 million of revolving credit borrowings and an $80.0 million
     term loan due in 2007 but classified as current in the consolidated balance
     sheet. See Note 9 to our consolidated financial statements.

(2)  Excludes  amounts  classified as subject to compromise in the  consolidated
     balance sheet at January 1, 2006.

(3)  Includes interest  applicable to borrowings  outstanding at January 1, 2006
     computed  using  interest rates in effect as of January 1, 2006 through the
     due  dates  of  the  borrowings  as  defined  by the  applicable  financing
     agreements and excludes interest on liabilities subject to compromise.

(4)  Includes  outstanding  take  or  pay  purchase  commitments  with  chemical
     suppliers  and  others to  purchase  minimum  quantities  of  materials  or
     services.  As previously  noted, we have the ability to reject  prepetition
     executory  contracts  and  therefore  it  is  possible  that  the  purchase
     commitments  reflected  may be  reduced  to the  extent  that  any of  such
     prepetition executory contracts are rejected.

(5)  We also have obligations to provide employee benefits including those under
     our  defined  benefit  and defined  contribution  retirement  plans and our
     medical  benefit plan. In addition,  we are  partially  self-insured  for a
     number of risks  including  workers'  compensation,  automobile and general
     liability. Due to the many variables involved,  accurate estimates of these
     future obligations cannot be made. In 2005,  payments for these obligations
     aggregated approximately $35.5 million.

(6)  Comprised of the following:

         Liabilities recorded on the balance sheet              $  243.2
         Commitments not recorded on the balance sheet             950.6
                                                                --------
                                                                $1,193.8
                                                                ========

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                               Carpet
                                   Foam        Cushion      Automotive      Technical
                                 Products      Products      Products        Products      Other         Total
                                 --------     ---------     ----------      ---------    ----------   ----------
2005                                                        (dollars in thousands)
<S>                              <C>          <C>            <C>             <C>         <C>          <C>
Net sales                        $613,507     $178,268       $366,296        $127,712    $  25,828    $1,311,611
Income (loss) from operations    $ 57,516     $  1,820       $ 22,487        $ 32,749    $(112,084)   $    2,488
Depreciation and amortization    $  7,257     $  2,277       $  2,590        $  2,318    $   5,603    $   20,045
Income (loss) from operations
   as a percentage of net sales      9.4%         1.0%          6.1%            25.6%      n.m.(a)          0.2%

2004
Net sales                        $551,414     $209,182       $350,985        $124,146     $ 30,667    $1,266,394
Income (loss) from operations    $ 52,418     $  8,539       $ 19,245        $ 32,916     $(61,318)   $   51,800
Depreciation and amortization    $ 10,213     $  2,978       $  3,116        $  2,801     $  6,825    $   25,933
Income (loss) from operations
   as a percentage of net sales      9.5%         4.1%           5.5%           26.5%      n.m.(a)          4.1%

2003
Net sales                        $507,586     $208,855       $447,068        $117,450     $ 23,601    $1,304,560
Income (loss) from operations    $ 43,983     $  5,395       $ 33,399        $ 32,115     $(50,456)   $   64,436
Depreciation and amortization    $ 11,002     $  3,275       $  2,815        $  2,931     $ 6,022     $   26,045
Income (loss) from operations
   as a percentage of net sales      8.7%         2.6%           7.5%           27.3%      n.m.(a)          4.9%
</TABLE>

(a) Not meaningful.

     Business  segment results include  revenues and costs that are specifically
identifiable and costs shared by business  segments have been allocated based on
utilization.


                                       24
<PAGE>

2005 Compared to 2004

     Net sales for 2005 increased 4% to $1,311.6  million from $1,266.4  million
in 2004.  Higher selling prices in Foam Products were partially  offset by lower
volume principally in the Carpet Cushion operating segment, primarily due to the
sale of the rubber and felt carpet  cushion  businesses  on April 29, 2005.  Net
sales from the rubber and felt  carpet  cushion  businesses  were $28.0  million
greater in 2004 than in 2005.

     Gross profit was $135.8 million, or 10.4% of net sales, in 2005 compared to
$141.8  million,  or 11.2% of net sales,  in 2004.  We have been only  partially
successful in the timely execution of customer selling price increases to offset
chemical raw material cost increases  which averaged  approximately  32% in 2005
due to time lags and because of pricing pressure from  competitors  particularly
in Foam Products.  Our gross profit margin was 7.1% for the first three quarters
of 2005 but improved to 19.8% in the fourth quarter as a result of selling price
increases to customers.  We expect the gross profit margin in future  periods to
be more  consistent  with  historical  levels prior to 2005  depending on market
conditions and other factors.  Gross profit in 2005 was also reduced by a charge
of $5.8 million for obsolete consumer products inventory.

     Income from  operations  for 2005 was $2.5  million,  or 0.2% of net sales,
compared to income from  operations of $51.8 million,  or 4.1% of net sales,  in
2004.  The $6.0  million  decline in gross  profit was offset by lower  selling,
general and  administrative  expenses  which  decreased by $5.6 million,  or 6%,
principally due to lower  professional  fees. The 2005 period includes  goodwill
and asset impairment charges of $50.7 million. Results include net restructuring
charges of $1.5  million in 2005 and $3.3 million in 2004.  Restructuring  items
are discussed under "Other" below.

     Foam Products

     Foam  Products  net sales for 2005  increased  11% to $613.5  million  from
$551.4 million in 2004 primarily due to average  selling price  increases of 25%
partially  offset by a 9% decrease in overall volume.  The largest selling price
increases were implemented in the fourth quarter of 2005. Income from operations
increased 10% to $57.5 million in 2005 from $52.4 million in 2004 principally as
a result of the higher  selling prices  partially  offset by higher raw material
costs and charges of $5.8 million for obsolete consumer  products  inventory and
$3.0 million for a customer product quality claim. Income from operations in the
fourth quarter of 2005 was $39.8 million, compared to $17.7 million in the first
three quarters,  primarily due to selling price  increases to customers.  Income
from  operations  was 9.4% of net sales in 2005,  down from 9.5% of net sales in
2004.

     Carpet Cushion Products

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

     Automotive Products

     Automotive  Products net sales for 2005 increased 4% to $366.3 million from
$351.0  million in 2004  primarily as a result of selling  price  increases  and
volume increases from new customers  offset by soft industry demand,  especially
during the first half of 2005.  Income from  operations  of $22.5 million was up
$3.2 million,  or 17%,  compared to 2004  primarily due to higher selling prices
partially  offset by higher chemical  costs.  Income from operations was 6.1% of
net sales in 2005, up from 5.5% of net sales in 2004.

     Technical Products

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


                                       25
<PAGE>


material costs,  partially offset by customer  selling price  increases.  Income
from  operations was 25.6% of net sales in 2005, down from 26.5% of net sales in
2004.

     Other

     Other  primarily   consists  of  certain   manufacturing   and  fabrication
operations in Mexico City, corporate expenses not allocated to business segments
and  impairment  and  restructuring  charges.  The  decrease in net sales of 16%
associated with this segment resulted from our Mexico City operations.  The loss
from  operations  was  $112.1  million  in 2005 and $61.3  million  in 2004.  We
recorded $50.7 million of goodwill and asset impairment charges in 2005.

     During 2005, we recorded  restructuring  charges of $1.5 million  primarily
related to the closing of three  facilities  that  produced  consumer  products,
including the  elimination  of 132 positions,  and the  elimination of 14 sales,
administrative  and operating  positions in the carpet cushion business.  During
2004, we recorded  restructuring charges of $3.2 million primarily consisting of
a $1.7 million charge to lease costs and asset write offs in connection with the
closing of our New York office, a $0.7 million charge related to the realignment
of our  automotive  operations  and an impairment  charge of $0.6 million for an
idle facility.

     Gain on Sale of Businesses

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

     Interest and Debt Issuance Expense

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

     Income from Equity Interest in Joint Ventures

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

     Reorganization Items, Net

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

     Other Income (Expense), Net

     Other expense, net was $1.5 million for 2005 compared to other expense, net
of $0.2  million for 2004.  The 2005  period  included  $1.7  million of fees in
connection with amendments to our credit agreements.


                                       26
<PAGE>


     Provision for Income Taxes

     Foamex L.P.,  as a limited  partnership,  is not subject to Federal  income
taxes;  therefore no current or deferred  provision  has been  provided for such
taxes. However, we have provided for the income taxes of certain states in which
we are  subject  to taxes and for  certain  subsidiaries,  which are  subject to
Federal  and  state  income  taxes  and  for  subsidiaries  located  in  foreign
jurisdictions  that file  separate  tax returns.  The partners  will provide for
their  respective  shares of income or loss in their Federal or applicable state
income tax  returns.  We have a tax  sharing  agreement  that  provides  for the
payment of  distributions  to our partners for amounts that would be required to
be paid if we were a  corporation  filing  separate tax returns.  Our ability to
make such  distributions  is limited by the terms of our credit  agreements  and
bankruptcy proceedings.

2004 Compared to 2003

     Net sales for 2004 decreased 3% to $1,266.4  million from $1,304.6  million
in 2003. The decrease was primarily  attributable  to a $96.1 million decline in
net sales in the  Automotive  Products  segment due to lower  volume,  including
sourcing actions by major customers, partially offset by higher net sales in the
Foam Products and Technical Products segments.

     Gross profit was $141.8 million, or 11.2% of net sales, in 2004 compared to
$143.7 million, or 11.0% of net sales, in 2003. Gross profit margin has improved
primarily due to profit  improvement  as a result of better  product mix in Foam
Products and lower costs in Carpet Cushion  Products,  partially offset by lower
volume in the Automotive Products segment. However, gross profit margin declined
in the last six months of 2004 and in the fourth  quarter was 8.7%. We were only
partially able to recover raw material cost increases during 2004.

     Income from  operations for 2004 was $51.8  million,  or 4.1% of net sales,
which  represented a 20% decrease from the $64.4 million,  or 4.9% of net sales,
reported for 2003. A decline of $14.2 million in the Automotive Products segment
more than offset increases in the other operating segments. Selling, general and
administrative expenses increased $5.8 million, or 7%, principally due to a $3.0
million  net  charge  to bad  debt  expense  following  a  customer  bankruptcy,
litigation related costs and higher  professional fees primarily for information
technology  and the cost of our efforts under Section 404 of the  Sarbanes-Oxley
Act,  partially offset by lower corporate expense and employee costs as a result
of the closing of our New York City office.  Results  include net  restructuring
charges of $3.2 million in 2004 and net restructuring credits of $1.8 million in
2003. Restructuring items are discussed under "Other" below.

     Foam Products

     Foam Products net sales for 2004 increased 9% to $551.4 million from $507.6
million in 2003  primarily  due to higher  volumes of  value-added  products and
higher selling prices.  Income from operation  increased 19% to $52.4 million in
2004 from $44.0 million in 2003  principally as a result of improved  volume mix
and higher selling prices partially offset by higher raw material costs.  Income
from operations was 9.5% of net sales in 2004 and 8.7% of net sales in 2003.

     Carpet Cushion Products

     Carpet  Cushion  Products  net  sales  for  2004  of  $209.2  million  were
essentially  flat compared to 2003.  Income from  operations was $8.5 million in
2004  compared to $5.4 million in 2003 with the increase due  primarily to lower
material and operating  costs.  Income from  operations was 4.1% of net sales in
2004 and 2.6% of net sales in 2003.

     Automotive Products

     Automotive Products net sales for 2004 decreased 21% to $351.0 million from
$447.1  million in 2003  principally  as a result of lower volumes from sourcing
actions by major customers including a decrease in sales of $54.4 million to our
largest customer. Income from operations decreased 42% to $19.2 million compared
to $33.4 million in 2003 primarily due to lower sales volume and higher per unit
labor and overhead  costs.  Income from operations was 5.5% of net sales in 2004
and 7.5% of net sales in 2003.  We expect that sales will  increase  during 2005
but may be substantially less than in 2003.


                                       27
<PAGE>


     Technical Products

     Net sales for  Technical  Products in 2004  increased 6% to $124.1  million
from $117.5  million in 2003 primarily due to higher unit volume and new product
introductions.  Income from  operations  increased  2% to $32.9  million in 2004
compared to $32.1 million in 2003 primarily due to new product introductions and
slightly higher overall pricing partially offset by higher selling,  general and
administrative  expenses.  Income from operations was 26.5% of net sales in 2004
and 27.3% of net sales in 2003.

     Other

     Other  primarily   consists  of  certain   manufacturing   and  fabrication
operations in Mexico City, corporate expenses not allocated to business segments
and restructuring  charges (credits).  The increase in net sales associated with
this segment resulted from our Mexico City operations.  The loss from operations
was $61.3  million  in 2004 and $50.5  million  in 2003 and  reflects  generally
higher corporate  expenses in 2004 and includes  impairment,  restructuring  and
other  charges of $3.2  million,  discussed  below.  During  2003,  we  recorded
restructuring credits of $1.8 million.

     Impairment, Restructuring and Other Charges

     In 2004, we recorded  impairment,  restructuring  and other charges of $3.2
million,  primarily  consisting of a $1.7 million  charge related to lease costs
and asset write offs in  connection  with the closing of our New York office,  a
$0.7 million charge related to the realignment of our automotive  operations and
an impairment charge of $0.6 million for an idle facility.

     In 2003, we recorded  restructuring credits of $1.8 million consisting of a
$3.2 million reduction in the liability  primarily for severance and termination
benefits no longer required as the actions  contemplated under the related plans
have been substantially  completed,  and a charge of $1.1 million for additional
lease  termination  costs for a closed  facility  as a result of changes in real
estate market conditions. Additionally, we recorded a $0.3 million restructuring
charge reported in the Other segment as a result of an employee termination plan
for approximately 300 employees at our Mexico City operations. The actions under
this plan were substantially completed in 2003.

     Interest and Debt Issuance Expense

     Interest  and debt  issuance  expense  was  $76.7  million  in 2004,  which
represented a 13% decrease from 2003 expense of $88.4  million.  The decrease is
primarily due to lower  amortization  of debt issuance  costs,  which included a
write off of $12.9 million in 2003 associated with the refinancing of our credit
facilities

     Income from Equity Interest in Joint Ventures

     The income  from an equity  interest  in an Asian  joint  venture  was $0.5
million in 2004 and $1.2  million in 2003.  Income from an equity  interest in a
joint  venture in Eastern  Europe was $0.2  million in 2004 and $0.3  million in
2003.

     Other Income (Expenses), Net

     Other  expense,  net was $0.2  million in 2004  compared to $3.4 million in
2003. The 2004 period includes  foreign currency  transaction  losses related to
operations  in Mexico and Canada of $0.6  million  compared  to $2.7  million in
2003. Also included in 2004 were gains of $1.0 million on asset disposals.

     Provision for Income Taxes

     Foamex L.P.,  as a limited  partnership,  is not subject to Federal  income
taxes;  therefore no current or deferred  provision  has been  provided for such
taxes. However, we have provided for the income taxes of certain states in which
we are  subject  to taxes and for  certain  subsidiaries,  which are  subject to
Federal  and  state  income  taxes  and  for  subsidiaries  located  in  foreign
jurisdictions  that file  separate  tax returns.  The partners  will provide for
their  respective  shares of income or loss in their Federal or applicable state
income tax  returns.  We have a tax  sharing


                                       28
<PAGE>


agreement  that  provides for the payment of  distributions  to our partners for
amounts  that  would  be  required  to be paid if we were a  corporation  filing
separate tax returns.  Our ability to make such distributions was limited by the
terms of our credit agreements and indentures.

OTHER

Environmental Health and Safety

     We are subject to extensive and changing federal,  state, local and foreign
environmental  laws  and  regulations,  including  those  relating  to the  use,
handling, storage, discharge and disposal of hazardous substances, the discharge
or  emission  of  materials  into  the  environment,   and  the  remediation  of
environmental contamination,  and as a result, are from time to time involved in
administrative and judicial  proceedings and inquiries relating to environmental
matters.  As of January 1, 2006, we had accruals of  approximately  $2.1 million
for  environmental  matters  including  approximately  $1.9  million  related to
remediating and monitoring soil and groundwater  contamination and approximately
$0.2 million relating to PRP Site Matters and other matters. The claims relating
to PRP Site Matters are  liabilities  subject to compromise  and will be treated
under the Plan as general unsecured claims. Additional losses, if any, in excess
of amounts currently  accrued,  cannot be reasonably  estimated at this time. If
there are additional  matters or if any current  estimates are incorrect,  there
could be a  material  adverse  effect  on our  financial  position,  results  of
operations and cash flows.

     On  August  31,  2002,   Environment  Canada,  the  Canadian  environmental
regulatory  agency,  finalized a rule which requires flexible  polyurethane foam
manufacturing  operations to reduce  methylene  chloride  (dichloromethane)  air
emissions.  The  rule  establishes  a  50.0%  reduction  in  methylene  chloride
emissions by December 1, 2004 and 100.0%  reductions  by January 1, 2007.  We do
not believe this standing will require us to make material  expenditures for our
Canadian plants.

     We have  reported  to state  authorities  that we have  found  soil  and/or
groundwater  contamination  in excess  of state  standards.  Seven  sites are in
various stages of investigation  or remediation.  To the extent of contamination
and the ultimate liability is not known with certainty for all sites.

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

     The CERCLA and comparable state laws impose liability without fault for the
costs of  cleaning  up  contaminated  sites on certain  classes of persons  that
contributed to the release of hazardous substances into the environment at those
sites, for example, by generating wastes containing  hazardous  substances which
were disposed at such sites. We are currently  designated as a PRP by the EPA or
by state  environmental  agencies or other PRPs, pursuant to CERCLA or analogous
state statutes,  with respect to 11 sites.  Estimates of total cleanup costs and
fractional  allocations  of liability  are often  provided by the EPA, the state
environmental  agency or the  committee  of PRPs with  respect to the  specified
site.  Based  on  these  estimates  (to  the  extent  available)  and  on  known
information,  in each case and in the  aggregate,  we do not  expect  additional
costs,  if any,  to be  material  to our  results of  operations,  cash flows or
financial position.

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


                                       29
<PAGE>

Claims and Litigation

     We and our  subsidiaries are party to various  lawsuits,  both as defendant
and  plaintiff,  arising in the normal course of business.  It is the opinion of
management that the  disposition of these lawsuits will not,  individually or in
the aggregate, have a material adverse effect on our financial position, results
of  operations or cash flows.  If  management's  assessment  is incorrect,  such
actions  could  have a material  adverse  effect on our  consolidated  financial
position,  results of operations  and cash flows.  As of January 1, 2006, we had
accrued  approximately  $0.8  million  relating  to the  Litigation  Matters  in
addition to the environmental matters discussed above. The litigation claims are
subject  to  compromise  that are  capable  of being  treated  under the Plan as
general unsecured claims.

     As a consequence  of our  Bankruptcy,  all litigation  pending  against the
Debtors on the  Petition  Date was stayed  automatically  by Section  362 of the
Bankruptcy  Code and,  absent  further order of the  Bankruptcy  Court  granting
relief from the automatic  stay, no party may take any action in respect of such
litigation  or to  recover  on  pre-petition  claims  against  the  Debtors.  In
addition,  pursuant  to Section 365 of the  Bankruptcy  Code,  the Debtors  have
rejected and may reject  pre-petition  executory contracts and unexpired leases,
and the  non-debtor  parties to  contracts  or leases  that have been or will be
rejected have  asserted or may in the future  assert  damages for breach of such
contracts and leases as permitted by the Bankruptcy Code.

Inflation, Raw Material Costs and Other Matters

     The prices of the  principal  chemicals  we use in  manufacturing,  TDI and
polyol, are influenced by demand and manufacturing  capacity.  In addition,  the
prices of TDI and polyol are  significantly  influenced by crude oil  production
and prices and by world political instability,  particularly in the Middle East.
Results for 2005, 2004 and 2003 were negatively impacted by higher average costs
for raw  materials.  We experienced  significant  increases in the prices of raw
material from major chemical manufacturers during this period. We have sought to
recover these cost increases  through selling price increases,  but historically
we have only been partially successful. We may not be successful in implementing
further selling price increases to fully recover raw material cost increases and
competitive  pricing  pressure may require us to adjust  selling  prices or lose
volume.  Results of  operations  have been and could be  adversely  affected  by
delays in  implementing,  or inability to  implement,  additional  selling price
increases to offset raw material cost increases.  Additionally, we must continue
to reduce  and  control  further  our other  operating  and  corporate  expenses
including selling,  general and  administrative  expenses to offset raw material
cost increases.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our debt securities with variable interest rates are subject to market risk
for changes in interest  rates. On January 1, 2006,  indebtedness  with variable
interest rates totaled $240.6 million.  On an annualized  basis, if the interest
rates on these  debt  instruments  increased  by 1.0%,  interest  expense  would
increase by approximately $2.4 million.

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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


                                       30
<PAGE>


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

     We changed accountants during 2004. Detailed  information  required by this
item was  included in Current  Reports on Form 8-K and Form 8-K/A filed with the
SEC on April 2, 2004 and April 12, 2004.

ITEM 9A. CONTROLS AND PROCEDURES

     Evaluation of Disclosure Controls and Procedures

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

     Changes in Internal Control over Financial Reporting

     For  the  year  ended  January  2,  2005,   our  parent   company,   Foamex
International, was required, under Section 404 of the Sarbanes-Oxley Act of 2002
and related regulations,  to provide a report on internal control over financial
reporting,  including  assessment of the  effectiveness of internal control over
financial  reporting as of January 2, 2005.  That report,  which was included in
Amendment  No. 1 to the Annual Report on Form 10-K of Foamex  International  for
the year ended  January 2, 2005,  identified  two  material  weaknesses  that we
believe  subsequently  were  remediated.  Foamex  International  is no longer an
"accelerated  filer" as defined in Rule 12b-2 under the  Securities Act of 1934,
nor is it a "large accelerated  filer," as defined in the same rule.  Therefore,
management  of  Foamex  International  is not  required  to  provide  and is not
providing a report on internal control over financial reporting as of January 1,
2006.  Under current SEC rules,  unless Foamex  International  becomes either an
accelerated  filer  or a  large  accelerated  filer  as of  December  31,  2006,
management's  next required report on internal control over financial  reporting
will  contain an  assessment  of the  effectiveness  of  internal  control  over
financial reporting as of December 30, 2007.

     In addition, on July 11, 2005, Foamex International  consented to the entry
of an order by the SEC  requiring  it to cease and  desist  from  committing  or
causing any violations of the books and records,  internal control and reporting
provisions of the Securities Exchange Act of 1934, including quarterly reporting
regulations  under that act. The order also  requires  Foamex  International  to
undertake a process,  with the assistance of a special consultant,  to remediate
any  material  weakness  or  significant  deficiency  in internal  control  over
financial reporting identified by Foamex  International or by its auditors,  and
described in a  communication  by its auditors to its Audit  Committee.  The SEC
order required the Special Consultant to review Foamex International's  progress
in  correcting  the  unremediated  significant  deficiencies  described  in  the
auditors'  communication  to the Audit Committee and to provide a written report
to the Audit  Committee  and the SEC's  staff on the  status of our  remediation
efforts each calendar quarter  thereafter until the reported  deficiencies  have
been remediated,  provided that such  remediation  efforts be completed by April
2007.

     On February 16, 2006, the Special  Consultant  provided a report to the SEC
stating that all such significant  deficiencies  that had not been remediated as
of January 2, 2005 have been remediated.

     During the course of its audit of our financial  statements  for the fiscal
year  ended  January  1,  2006,  our  auditors  identified  a  number  of  audit
adjustments,  none of which we  believe  were  individually  significant,  which
constituted  corrections  of the  financial  statements  that may not have  been
detected except through their auditing procedures. We have been addressing,  and
intend to continue to  address,  this by  upgrading  our  accounting  department
through the hiring of additional qualified and experienced personnel.


                                       31
<PAGE>


     Except as set forth in the  previous  paragraph,  no change in our internal
control over  financial  reporting  occurred  during the fourth quarter that has
materially affected,  or is reasonably likely to materially affect, our internal
control over financial reporting.

ITEM 9B. OTHER INFORMATION

       None.


                                       32
<PAGE>



PART III

     The information  required by this Part III (Items 10, 11, 12, 13 and 14) is
not  applicable  since  Foamex  L.P.  is a  wholly-owned  subsidiary  of  Foamex
International.

PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Financial statements.

<TABLE>
<CAPTION>
       Foamex L.P.  and Subsidiaries
<S>                                                                                                        <C>
         Reports of Independent Registered Public Accounting Firms                                       F-2
         Consolidated Balance Sheets as of January 1, 2006 and January 2, 2005                           F-4
         Consolidated Statements of Operations for the years ended January 1, 2006,
           January 2, 2005 and December 28, 2003                                                         F-6
         Consolidated Statements of Cash Flows for the years ended January 1, 2006,
           January 2, 2005 and December 28, 2003                                                         F-7
         Consolidated Statements of Partners' Deficiency for the years ended January 1, 2006,
           January 2, 2005 and December 28, 2003                                                         F-8
         Notes to Consolidated Financial Statements                                                      F-9

       Foamex Capital Corporation
         Report of Independent Registered Public Accounting Firm                                        F-37
         Balance Sheets as of January 1, 2006 and January 2, 2005                                       F-39
         Notes to Balance Sheets                                                                        F-40

       Foamex L.P. and Subsidiaries Financial Statement Schedule
         Schedule II - Valuation and Qualifying Accounts                                                 S-2
</TABLE>

(b) Reports on Form 8-K.

          None

(c) Exhibits.

2.1(k)          - Transfer  Agreement,  dated  as  of February 27, 1998,  by and
                  between Foam Funding LLC and Foamex L.P.
2.2(k)          - Asset Purchase Agreement,  dated  as  of February 27, 1998, by
                  and among  Foamex  Carpet  Cushion,  Inc.  ("Foamex  Carpet"),
                  Foamex  International  Inc.  ("Foamex  International"  or  the
                  "Company"), Foam Funding LLC and General Felt Industries, Inc.
                  ("General Felt").
3.1(a)          - Certificate of Limited Partnership of Foamex L.P.
3.2.1(a)        - Fourth Amended  and Restated  Agreement of Limited Partnership
                  of Foamex L.P.,  dated as of December  14, 1993,  by and among
                  FMXI, Inc. and Trace Foam Company,  Inc., as general partners,
                  and  Foamex  International,  Inc.  as a limited  partner  (the
                  "Partnership Agreement").
3.2.2(b)        - First Amendment to  the Partnership  Agreement, dated June 28,
                  1994.
3.2.3(c)        - Second  Amendment to  the  Partnership  Agreement,  dated June
                  12,1997.
3.2.4(h)        - Third  Amendment to  the Partnership Agreement, dated December
                  23, 1997.
3.2.5(k)        - Fourth Amendment to the Partnership Agreement, dated  February
                  27, 1998.
3.2.6(q)        - Fifth Amendment to the Partnership Agreement, dated  March 26,
                  2002.
3.3(i)          - Certificate of Incorporation of FMXI.
3.4(i)          - By-laws of FMXI.
3.5(e)          - Certificate of Incorporation of Foamex Capital Corporation.
3.6(e)          - By-laws of Foamex Capital Corporation.
3.9(s)          - Certificate of Incorporation of Foamex Asia, Inc.
3.10(r)         - By-laws of Foamex Asia, Inc.


                                       33
<PAGE>


3.11(r)         - Certificate of Incorporation of Foamex Latin America, Inc.
3.12(r)         - By-laws of Foamex Latin America, Inc.
3.13(r)         - Certificate of Incorporation of Foamex Mexico, Inc.
3.14(r)         - By-laws of Foamex Mexico, Inc.
3.15(r)         - Certificate of Incorporation of Foamex Mexico II, Inc.
3.16(r)         - By-laws of Foamex Mexico II, Inc.
4.1(c)          - Indenture,  dated  as  of June 12,  1997,  by and among Foamex
                  L.P., FCC, the subsidiary guarantors and The Bank of New York,
                  as trustee,  relating to  $150,000,000  principal  amount of 9
                  7/8% Senior Subordinated Notes due 2007, including the form of
                  Senior Subordinated Note and Subsidiary Guarantee.
4.1.3(h)        - First  Amendment to Indenture, dated  as of December 23, 1997,
                  between  Foamex  LLC and The  Bank of New  York,  as  trustee,
                  relating to the 9 7/8% Senior Subordinated Notes due 2007.
4.1.3(k)        - Second  Supplemental  Indenture,  dated  as  of  February  27,
                  1998,  among Foamex L.P. and Foamex  Capital  Corporation,  as
                  joint and several  obligors,  General Felt  Industries,  Inc.,
                  Foamex   Fibers,   Inc.,   and  Foamex  LLC,  as   withdrawing
                  guarantors,  and The Bank of New York, as trustee, relating to
                  the 9 7/8% Senior Subordinated Notes due 2007.
4.1.4(q)        - Third  Supplemental  Indenture,  dated  as of  March 25, 2002,
                  between Foamex Carpet Cushion LLC and The Bank of New York, as
                  trustee, relating to the 9 7/8% Senior Subordinated  Notes due
                  2007.
4.2.3(q)        - Second Supplemental  Indenture,  dated  as of  March 25, 2002,
                  between Foamex Carpet Cushion LLC and The Bank of New York, as
                  trustee, relating to the 13 1/2% Senior Subordinated Notes due
                  2005.
4.3.1(h)        - Indenture,  dated  as  of  December  23,  1997,  by  and among
                  Foamex  L.P.,  Foamex  Capital  Corporation,   the  subsidiary
                  guarantors,  Crain Holdings Corp., as intermediate  obligator,
                  and The Bank of New York, as trustee,  relating to $98,000,000
                  principal  amount  of 13 1/2%  Senior  Subordinated  Notes due
                  2005,  including  the  form of  Senior  Subordinated  Note and
                  Subsidiary Guarantee.
4.3.1(k)        - First Supplemental  Indenture, dated as  of February 27, 1998,
                  among Foamex L.P. and Foamex Capital Corporation, as joint and
                  several  obligors,  General  Felt  Industries,   Inc.,  Foamex
                  Fibers, Inc. and Foamex LLC, as withdrawing guarantors,  Crain
                  Industries, Inc., as withdrawing intermediate obligor, and The
                  Bank of New York,  as trustee,  relating to the 13 1/2% Senior
                  Subordinated Notes due 2005.
4.3.1(q)        - Indenture,  dated as of  March 25,  2002,  among  Foamex L.P.,
                  Foamex Capital  Corporation,  the Guarantors party thereto and
                  U.S.  Bank  National  Association,  as trustee,  including  as
                  exhibits thereto,  the form of note,  relating to $300,000,000
                  principal  amount of 10 3/4%  Senior  Secured  Notes due 2009,
                  including form of Senior Secured Note and Subsidiary Guaranty.
4.3.2(q)        - Pledge  and Security  Agreement,  dated  as of March 25, 2002,
                  made by Foamex L.P. and U.S.  Bank  National  Association,  as
                  collateral agent.
4.3.3(q)        - Patent  Security  Agreement,  dated  as of  March 25, 2002, by
                  Foamex L.P. in favor of U.S.  Bank  National  Association,  as
                  collateral agent.
4.3.4(q)        - Trademark Security  Agreement, dated as  of March 25, 2002, by
                  Foamex L.P. in favor of U.S.  Bank  National  Association,  as
                  collateral agent.
4.3.5(q)        - Copyright  Security Agreement, dated  as of March 25, 2002, by
                  Foamex L.P. in favor of U.S.  Bank  National  Association,  as
                  collateral agent.
4.3.6(q)        - Registration  Rights Agreement,  dated  as  of March 25, 2002,
                  among Foamex L.P., Foamex Capital Corporation,  the Guarantors
                  party  thereto and Credit  Suisse  First  Boston  Corporation,
                  Salomon Smith Barney Inc.,  Scotia  Capital (USA) Inc.,  Bear,
                  Stearns & Co. Inc., and Jefferies & Company,  Inc., as initial
                  purchasers.
4.9.1(l)        - Promissory   Note,  dated  June 12,  1997,  in  the  aggregate
                  principal amount of $5,000,000,  executed by Trace Holdings to
                  Foamex L.P.
4.9.2(l)        - Promissory   Note,  dated  June 12,  1997,  in  the  aggregate
                  principal amount of $4,794,828,  executed by Trace Holdings to
                  Foamex L.P.


                                       34
<PAGE>


4.15.1(t)       - Credit Agreement,  dated  as  of August 18, 2003, among Foamex
                  L.P. as a Borrower and Guarantor,  Foamex  International Inc.,
                  FMXI, Inc.,  Foamex Canada Inc.,  Foamex Capital  Corporation,
                  Foamex Latin America, Inc., Foamex Mexico, Inc., Foamex Mexico
                  II, Inc.,  Foamex Asia,  Inc. and Foamex Carpet Cushion LLC as
                  Guarantors, the financial institutions party thereto from time
                  to  time  as  lenders  and  Bank  of  America,   N.A.  as  the
                  Administrative Agent.
4.15.2(t)       - Pledge and  Security Agreement,  dated  as of August 18, 2003,
                  among Foamex L.P. and Bank of America,  N.A. as Administrative
                  Agent.
4.15.3(u)       - Amendment No. 1  to Credit Agreement, dated  as of December 1,
                  2003,  among  Foamex  L.P.,  as Borrower,  the  affiliates  of
                  Borrower party hereto,  the lenders party hereto,  and Bank of
                  America, N.A. as Administrative Agent.
4.15.4(x)       - Amendment and  Waiver No. 2 to Credit Agreement,  dated  as of
                  June 15, 2004, among Foamex L.P., as Borrower,  the affiliates
                  of Borrower party hereto,  the lenders party hereto,  and Bank
                  of America, N.A. as Administrative Agent.
4.15.5(y)       - Amendment No. 3  to Credit Agreement, dated  as of November 3,
                  2004,  among  Foamex  L.P.,  as Borrower,  the  affiliates  of
                  Borrower party hereto,  the lenders party hereto,  and Bank of
                  America, N.A. as Administrative Agent.
4.15.6(z)       - Waiver  to  Credit  Agreement,  dated  as of March  15,  2005,
                  among Foamex L.P.,  as Borrower,  the  affiliates  of Borrower
                  party hereto,  the lenders party hereto,  and Bank of America,
                  N.A. as Administrative Agent.
4.15.7(aa)      - Amendment No. 4  to Credit  Agreement,  dated  as of March 31,
                  2005,  among  Foamex  L.P.,  as Borrower,  the  affiliates  of
                  Borrower party hereto,  the lenders party hereto,  and Bank of
                  America, N.A. as Administrative Agent.
4.15.8(dd)      - Amendment  No. 5  to Credit  Agreement,  dated  as of June 13,
                  2005,  among  Foamex  L.P.,  as Borrower,  the  affiliates  of
                  Borrower party hereto, the lenders party thereto,  and Bank of
                  America, N.A. as Administrative Agent.
4.15.9(ff)      - Waiver and  Agreement  to Credit Agreement, dated as of August
                  14, 2005,  among Foamex L.P., as Borrower,  the  affiliates of
                  Borrower party hereto, the lenders party thereto,  and Bank of
                  America, N.A. as Administrative Agent.
4.15.10(ff)     - Debtor-in-Possession  Credit Agreement, dated  as of September
                  22, 2005,  among Foamex L.P., as Borrower,  the  affiliates of
                  Borrower party hereto, the lenders party thereto,  and Bank of
                  America, N.A. as Administrative Agent.
4.15.11(ee)     - Debtor-in-Possession  Pledge  and Security Agreement, dated as
                  of September  22, 2005,  among Foamex L.P.,  as Borrower,  the
                  affiliates  of  Borrower  party  thereto,  the  lenders  party
                  hereto, and Bank of America, N.A. as Administrative Agent.
4.16.1(t)       - Credit Agreement,  dated  as of  August 18, 2003, among Foamex
                  L.P. as a Borrower and Guarantor,  Foamex  International Inc.,
                  FMXI, Inc.,  Foamex Canada Inc.,  Foamex Capital  Corporation,
                  Foamex Latin America, Inc., Foamex Mexico, Inc., Foamex Mexico
                  II, Inc.,  Foamex Asia,  Inc. and Foamex Carpet Cushion LLC as
                  Guarantors, the financial institutions party thereto from time
                  to  time as  lenders  and  Silver  Point  Finance,  LLC as the
                  Administrative Agent.
4.16.2(t)       - Pledge and  Security Agreement,  dated  as of August 18, 2003,
                  among   Foamex  L.P.  and  Silver   Point   Finance,   LLC  as
                  Administrative Agent.
4.16.3(u)       - Amendment No. 1 to  Credit Agreement, dated  as of December 1,
                  2003,  among  Foamex  L.P.,  as Borrower,  the  affiliates  of
                  Borrower  party hereto,  the lenders party hereto,  and Silver
                  Point Finance, LLC as Administrative Agent.

4.16.4(x)       - Amendment  No. 2  to Credit  Agreement,  dated  as of June 15,
                  2004,  among  Foamex  L.P.,  as Borrower,  the  affiliates  of
                  Borrower  party hereto,  the lenders party hereto,  and Silver
                  Point Finance, LLC as Administrative Agent.

4.16.5(y)       - Amendment No. 3  to Credit Agreement, dated as  of November 3,
                  2004,  among  Foamex  L.P.,  as Borrower,  the  affiliates  of
                  Borrower  party hereto,  the lenders party hereto,  and Silver
                  Point Finance, LLC as Administrative Agent.

4.16.6(z)       - Waiver to  Credit  Agreement,  dated  as of  March  15,  2005,
                  among Foamex L.P.,  as Borrower,  the  affiliates  of Borrower
                  party  hereto,  the lenders  party  hereto,  and Silver  Point
                  Finance, LLC as Administrative Agent.



                                       35
<PAGE>



4.16.7(aa)      - Amendment No. 4  to Credit  Agreement,  dated  as of March 31,
                  2005,  among  Foamex  L.P.,  as Borrower,  the  affiliates  of
                  Borrower  party hereto,  the lenders party hereto,  and Silver
                  Point Finance, LLC as Administrative Agent.
4.16.8(dd)      - Amendment  No. 5  to Credit  Agreement,  dated  as of June 13,
                  2005,  among  Foamex  L.P.,  as Borrower,  the  affiliates  of
                  Borrower party thereto,  the lenders party hereto,  and Silver
                  Point Finance, LLC as Administrative Agent.
4.16.9(ee)      - Waiver and  Amendment No. 6 to Credit Agreement,  dated  as of
                  August  14,  2005,   among  Foamex  L.P.,  as  Borrower,   the
                  affiliates  of  Borrower  party  thereto,  the  lenders  party
                  hereto, and Silver Point Finance, LLC as Administrative Agent.
4.16.10(ff)     - Debtor-in-Possession  Credit Agreement, dated  as of September
                  22, 2005,  among Foamex L.P., as Borrower,  the  affiliates of
                  Borrower party thereto,  the lenders party hereto,  and Silver
                  Point Finance, LLC as Administrative Agent.
4.16.11(ff)     - Debtor-in-Possession  Pledge and Security Agreement, dated  as
                  of September  22, 2005,  among Foamex L.P.,  as Borrower,  the
                  affiliates  of  Borrower  party  thereto,  the  lenders  party
                  hereto, and Silver Point Finance, LLC as Administrative Agent.
4.17.1(t)       - Intercreditor  Agreement,  dated as of  August 18, 2003, among
                  Bank of  America,  N.A.,  as  Senior  Bank  Agent  and  Senior
                  Collateral  Agent,  Silver Point Finance,  LLC, as Senior Term
                  Loan B Agent and as future  Senior  Collateral  Agent  after a
                  Discharge of Senior Bank Lender Claims has occurred, U.S. Bank
                  National  Association,  as trustee and collateral  agent under
                  the Indenture  referred to below,  and Foamex L.P., a Delaware
                  limited partnership.
10.1(d)         - Reimbursement  Agreement, dated as  of March 23, 1993, between
                  Trace Holdings and General Felt Industries, Inc.
10.2(d)         - Shareholder   Agreement,  dated   December   31,  1992,  among
                  Recticel,  s.a.  ("Recticel"),  Recticel  Holding  Noord B.V.,
                  Foamex L.P., Beamech Group Limited,  LME-Beamech,  Inc., James
                  Brian   Blackwell,   and   Prefoam  AG   relating  to  a  foam
                  technology-sharing arrangement.
10.3(e)         - Asset  Transfer  Agreement,  dated  as  of  October  2,  1990,
                  between Trace International  Holdings, Inc. ("Trace Holdings")
                  and  Foamex  L.P.   (the  "Trace   Holdings   Asset   Transfer
                  Agreement").
10.4(e)         - First  Amendment, dated  as of December 19, 1991, to the Trace
                  Holdings  Asset  Transfer  Agreement.  10.5(e) -  Amended  and
                  Restated  Guaranty,  dated as of December  19,  1991,  made by
                  Trace Foam  Company,  Inc.  ("Trace  Foam") in favor of Foamex
                  L.P.
10.6(e)         - Asset  Transfer  Agreement,  dated  as  of  October  2,  1990,
                  between Recticel Foam Corporation ("RFC") and Foamex L.P. (the
                  "RFC Asset Transfer Agreement").
10.7(e)         - First  Amendment,  dated as of  December 19, 1991, to  the RFC
                  Asset Transfer Agreement.
10.10.5(g)      - The Foamex L.P.  Hourly  Pension  Plan  (formerly  "The Foamex
                  Products Inc. Hourly Employee  Retirement  Plan"),  as amended
                  December 31, 1995.
10.10.6(g)+     - Foamex L.P. 401(k) Savings Plan effective October 1, 1997.
10.10.12(p)+    - Foamex  Supplemental  Executive  Retirement Plan, effective as
                  of May 15, 2001.
10.11.11(s)+    - Severance  Agreement  and  Release,  dates  as  of January 31,
                  2003,  by  and  between  Foamex  International  and  Pratt  W.
                  Wallace, Jr.
10.11.12(v)     - Form  of   Foamex  International  Inc.  Code  of   Ethics  for
                  Director,   Officers,  Senior  Management  and  Certain  Other
                  Employees.
10.11.13(u)+    - Amended  and  Restated Employment Agreement, dated January 27,
                  2004,  by and  between  Foamex  International  and  Thomas  E.
                  Chorman.
10.11.14(u)+    - Amended and  Restated  Employment Agreement, dated January 26,
                  2004,  by and  between  Foamex  International  and K.  Douglas
                  Ralph.
10.11.15(x)+    - Separation  Agreement and Release, dated as  of June 19, 2004,
                  between Foamex International Inc. and John V. Tunney.
10.11.16(bb)+   - Amendment  to  Amended  and  Restated   Employment  Agreement,
                  dated  April 25,  2005,  between  Foamex  International  Inc.,
                  Foamex L.P. and Thomas E. Chorman.
10.11.17(bb)+   - Amendment  to  Amended  and  Restated  Employment   Agreement,
                  dated  April 25,  2005,  between  Foamex  International  Inc.,
                  Foamex L.P. and K. Douglas Ralph.
10.11.18(ee)+   - Employment  Agreement, dated January  26, 2004, between Foamex
                  International Inc., Foamex L.P. and Gregory J. Christian.


                                       36
<PAGE>


10.11.19(ee)+   - Amendment  No. 1 to  Employment  Agreement,  dated  April  25,
                  2005,  between  Foamex  International  Inc.,  Foamex L.P.  and
                  Gregory J. Christian.
10.11.20(ee)+   - Amendment  No. 2 to  Employment  Agreement,  dated  August 15,
                  2005,  between  Foamex  International  Inc.,  Foamex L.P.  and
                  Gregory J. Christian.
10.11.21(ee)+   - Change  in Control  Protection  Agreement,  dated  January 26,
                  2004,  between  Foamex   International  Inc.  and  Gregory  J.
                  Christian.
10.16.1(k)      - Supply  Agreement,  dated  as  of February  27,  1998,  by and
                  between  Foamex L.P.  and General  Felt (as assigned to Foamex
                  Carpet).
10.16.2(k)      - Administrative  Services Agreement,  dated  as of February 27,
                  1998, by and between Foamex L.P. and General Felt (as assigned
                  to Foamex Carpet).
10.17(e)+       - Salaried Incentive Plan of Foamex L.P. and Subsidiaries.
10.18(e)+       - Equity Growth Participation Program.
10.19(f)+       - The  Foamex  L.P.  Salaried   Pension   Plan  (formerly,  "The
                  General Felt  Industries,  Inc.  Retirement  Plan for Salaried
                  Employees"), effective as of January 1, 1995.
10.22(m)+       - Foamex International  Amended and  Restated  1993 Stock Option
                  Plan.
10.23(a)+       - Foamex International Non-Employee Director Compensation Plan.
10.24(n)+       - Foamex  International Equity  Incentive  Plan for Non-Employee
                  Directors.
10.25(n)+       - Foamex International Key Employee Incentive Bonus Plan.
10.26(o)+       - Agreement  with  Consultant,  dated  April  24,  2001  by  and
                  between Robert J. Hay and Foamex L.P.
10.27(cc)+      - Amended  and  Restated  Consulting   Agreement,  dated  as  of
                  February  27, 2005,  by and between  Foamex L.P. and Robert J.
                  Hay.
10.30(w)+       - Foamex  International  2002 Stock  Award Plan, as  Amended and
                  Restated.
10.17.2(j)      - Loan  Agreement  between  Hua Kee  Company  Limited and Foamex
                  Asia, Inc., dated as of July 8, 1997.
10.18.1(o)      - Joint Venture  Agreement between  Hua Kee Company  Limited and
                  Foamex Asia, Inc. amended and restated as of December 3, 2001.
10.44(r)+       - Agreement  with  Consultant,  dated  August 8,  2002,  by  and
                  between Raymond E. Mabus, Jr. and Foamex International.
21*             - Subsidiaries of Foamex L.P.
31.1*           - Certification  of Chief  Executive Officer pursuant to Section
                  302 of the Sarbanes-Oxley Act of 2002.

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

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

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

--------------------------------------------------------
*      Filed herewith.

+      Management contract or compensatory plan or arrangement.

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

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

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

(d)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K of Foamex L.P. and FCC for fiscal 1992.


                                       37
<PAGE>


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

(f)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K of Foamex L.P. for fiscal 1993.

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

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

(i)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K of Foamex  International  for the fiscal year ended  December 28,
     1997.

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

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

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

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

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

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

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

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

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

(s)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K of Foamex  International  for the fiscal year ended  December 29,
     2002.

(t)  Incorporated  herein by reference  to the Exhibit to the Current  Report on
     Form 8-K of Foamex International reporting an event that occurred on August
     18, 2003.

(u)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K of Foamex  International  for the fiscal year ended  December 28,
     2003.

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


                                       38
<PAGE>



(w)  Incorporated herein by reference to Foamex International's definitive proxy
     statement dated April 26, 2004.

(x)  Incorporated  herein by reference to the Exhibit to the Form 10-Q of Foamex
     International Inc. for the quarterly period ended June 27, 2004.

(y)  Incorporated  herein by reference to the Exhibit to the Form 10-Q of Foamex
     International Inc. for the quarterly period ended September 26, 2004.

(z)  Incorporated  herein by reference  to the Exhibit to the Current  Report on
     Form 8-K of Foamex L.P. reporting an event that occurred on March 15, 2005.

(aa) Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K of Foamex  International  for the fiscal  year  ended  January 2,
     2005.

(bb) Incorporated  herein by reference  to the Exhibit to the Current  Report on
     Form 8-K of Foamex International  reporting an event that occurred on April
     25, 2005.

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

(dd) Incorporated  herein by reference  to the Exhibit to the Current  Report on
     Form 8-K of Foamex  International  reporting an event that occurred on June
     14, 2005.

(ee) Incorporated  herein by reference  to the Exhibit to the Current  Report on
     Form 8-K of Foamex International reporting an event that occurred on August
     14, 2005.

(ff) Incorporated  herein by reference  to the Exhibit to the Current  Report on
     Form 8-K of  Foamex  International  reporting  an event  that  occurred  on
     September 22, 2005.

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


                                       39
<PAGE>



                                   SIGNATURES

     Pursuant to the  requirements of Section 13 of the Securities  Exchange Act
of 1934,  the  registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized as of the 3rd day of April 2006.

                                    FOAMEX L.P.
                                     By:  FMXI, Inc.
                                            its Managing General Partner


                                     By:    /s/  K. Douglas Ralph
                                            -----------------------------
                                     Name:  K. Douglas Ralph
                                     Title: Executive Vice President and
                                            Chief Financial Officer

                                     FOAMEX CAPITAL CORPORATION

                                     By:    /s/  K. Douglas Ralph
                                            -----------------------------
                                     Name:  K. Douglas Ralph
                                     Title: Executive Vice President and
                                            Chief Financial Officer


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

Signature                          Title                          Date

/s/ Thomas E. Chorman              Director of FMXI and FCC       April 3, 2006
-------------------------
Thomas E. Chorman


/s/  George L. Karpinski           Director of FMXI and FCC       April 3, 2006
-------------------------
George L. Karpinski



                                       40
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
       Financial Statements of Registrants

       Index to Consolidated Financial Statements                                                               F-1

         Foamex L.P.
<S>                                                                                                               <C>
           Reports of Independent Registered Public Accounting Firms                                            F-2
           Consolidated Balance Sheets as of January 1, 2006 and January 2, 2005                                F-4
           Consolidated Statements of Operations for the years ended January 1, 2006,
              January 2, 2005 and December 28, 2003                                                             F-6
           Consolidated Statements of Cash Flows for the years ended January 1, 2006,
              January 2, 2005 and December 28, 2003                                                             F-7
           Consolidated Statements of Partners' Deficiency for the years ended January 1, 2006,
              January 2, 2005 and December 28, 2003                                                             F-8
           Notes to Consolidated Financial Statements                                                           F-9

         Foamex Capital Corporation
           Report of Independent Registered Public Accounting Firm                                             F-37
           Balance Sheets as of January 1, 2006 and January 2, 2005                                            F-39
           Notes to Balance Sheets                                                                             F-40
</TABLE>




                                      F-1
<PAGE>


                        REPORT OF INDEPENDENT REGISTERED
                             PUBLIC ACCOUNTING FIRM


The Partners of
Foamex L.P.:

We have audited the accompanying  consolidated balance sheets of Foamex L.P. and
subsidiaries  (the  "Company"),  an indirect  wholly-owned  subsidiary of Foamex
International  Inc.,  as of January 1, 2006 and  January 2, 2005 and the related
consolidated statements of operations,  cash flows, and partners' deficiency for
the fiscal years then ended. In connection  with our audits of the  consolidated
financial  statements,  we also have audited the  financial  statement  schedule
listed in the Index at Item 15 as of January 1, 2006 and January 2, 2005 and for
the  fiscal  years then  ended.  These  consolidated  financial  statements  and
financial statement schedule are the responsibility of the Company's management.
Our  responsibility  is to express an  opinion on these  consolidated  financial
statements and financial statement schedule based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of Foamex L.P. and
subsidiaries as of January 1, 2006 and January 2, 2005, and the results of their
operations  and their cash flows for the fiscal years then ended,  in conformity
with U.S. generally accepted accounting  principles.  Also, in our opinion,  the
related financial statement  schedule,  when considered in relation to the basic
consolidated  financial  statements taken as a whole,  presents  fairly,  in all
material respects, the information set forth therein.

     The accompanying  consolidated financial statements and financial statement
schedule have been  prepared  assuming that Foamex L.P. will continue as a going
concern.  As discussed in Note 1 to the consolidated  financial  statements,  on
September  19,  2005  Foamex  International  Inc.  and  certain of its  domestic
subsidiaries,   including  Foamex  L.P.,  its  primary   operating   subsidiary,
(collectively  referred to as the  "Debtors"),  filed  voluntary  petitions  for
relief  under  Chapter 11 of the  United  States  Bankruptcy  Code in the United
States  Bankruptcy Court for the District of Delaware (the  "Bankruptcy  Court")
the effects of which raise  substantial doubt about its ability to continue as a
going   concern.    Although   the   Debtors   are   currently    operating   as
debtors-in-possession  under  the  jurisdiction  of the  Bankruptcy  Court,  the
continuation of Foamex L.P. as a going concern is contingent  upon,  among other
things,  the  ability  to  formulate  a plan of  reorganization  which will gain
approval  of the  creditors  and  confirmation  of  the  Bankruptcy  Court.  The
accompanying  consolidated financial statements and financial statement schedule
do not  include  any  adjustments  that might  result  from the outcome of these
uncertainties.

As  discussed  in Note 5 to the  consolidated  financial  statements,  effective
January 1, 2006,  the  Company  adopted  Financial  Accounting  Standards  Board
Interpretation   No.  47,   "Accounting   for   Conditional   Asset   Retirement
Obligations".


/s/  KPMG LLP

Philadelphia, Pennsylvania
March 31, 2006



                                      F-2
<PAGE>



                        REPORT OF INDEPENDENT REGISTERED
                             PUBLIC ACCOUNTING FIRM


To the Partners of Foamex L.P.
Linwood, Pennsylvania

We have audited the  accompanying  consolidated  statements of operations,  cash
flows and partners'  deficiency of Foamex L.P. and subsidiaries  (the "Company")
for the year ended December 28, 2003.  Our audit also included the  consolidated
financial  statement schedule for the year ended December 28, 2003 listed in the
Index at Item 15.  These  consolidated  financial  statements  and  consolidated
financial statement schedule are the responsibility of Foamex L.P.'s management.
Our  responsibility  is to express an  opinion on these  consolidated  financial
statements and consolidated financial statement schedule based on our audit.

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

In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,  the  results  of  operations  and cash flows the year ended
December 28, 2003 in conformity with accounting principles generally accepted in
the United States of America.  Also, in our opinion, such consolidated financial
statement  schedule,  when  considered  in  relation  to the basic  consolidated
financial statements taken as a whole,  presents fairly in all material respects
the information set forth therein.


/s/ DELOITTE & TOUCHE LLP

March 9, 2004
Parsippany, New Jersey



                                      F-3
<PAGE>



                          FOAMEX L.P. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                             January 1,            January 2,
                                                                               2006                  2005
                                                                             ----------            ----------
ASSETS                                                                                 (thousands)
CURRENT ASSETS
<S>                                                                           <C>                   <C>
    Cash and cash equivalents                                                $   7,415             $   5,347
    Accounts receivable, net of allowance for doubtful
      accounts and discounts of $13,802 in 2005 and $9,001 in 2004             197,896               182,740
    Inventories                                                                112,142               100,029
    Other current assets                                                        24,427                22,403
                                                                             ---------             ---------

            Total current assets                                               341,880               310,519
                                                                             ---------             ---------

PROPERTY, PLANT AND EQUIPMENT
    Land and land improvements                                                   6,146                 6,300
    Buildings and leasehold improvements                                       105,281               113,592
    Machinery, equipment and furnishings                                       257,579               281,071
    Construction in progress                                                     1,206                 1,783
                                                                             ---------             ---------

            Total                                                              370,212               402,746

    Less accumulated depreciation and amortization                            (256,979)             (261,203)
                                                                             ---------             ---------

       Property, plant and equipment, net                                      113,233               141,543

GOODWILL                                                                        88,803               126,814

DEBT ISSUANCE COSTS, net of accumulated
amortization of $7,205 in 2005 and $17,477 in 2004                               6,667                21,152

SOFTWARE COSTS, net of accumulated amortization of
$8,388 in 2005 and $6,401 in 2004                                                8,691                 9,325

INVESTMENTS IN AND ADVANCES TO AFFILIATES                                       17,191                16,521

OTHER ASSETS                                                                    24,852                19,832
                                                                             ---------             ---------

TOTAL ASSETS                                                                 $ 601,317             $ 645,706
                                                                             =========             =========
</TABLE>


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


                                      F-4
<PAGE>



                          FOAMEX L.P. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                             January 1,            January 2,
                                                                               2006                  2005
                                                                             ----------            ----------
LIABILITIES AND PARTNERS' DEFICIENCY                                                  (thousands)
CURRENT LIABILITIES
<S>                                                                          <C>                   <C>
    Revolving credit borrowings                                              $ 154,566             $ 114,907
    Current portion of long-term debt                                           86,238                67,131
    Accounts payable                                                            65,430               104,314
    Accrued employee compensation and benefits                                  14,937                22,354
    Accrued interest                                                             2,049                13,063
    Accrued restructuring                                                          598                 1,759
    Accrued customer rebates                                                    11,239                16,979
    Cash overdrafts                                                              8,554                10,434
    Other accrued liabilities                                                   16,524                13,623
                                                                             ---------             ---------

      Total current liabilities                                                360,135               364,564

LONG-TERM DEBT                                                                     366               568,461

ACCRUED EMPLOYEE BENEFITS                                                       13,724                55,388

ACCRUED RESTRUCTURING                                                              431                 5,682

OTHER LIABILITIES                                                                5,678                 7,202

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

    Total liabilities                                                        1,016,299             1,001,297
                                                                             ---------             ---------

COMMITMENTS AND CONTINGENCIES

PARTNERS' DEFICIENCY
    General partner                                                           (352,374)             (294,342)
    Limited partner                                                                  -                     -
    Accumulated other comprehensive loss                                       (53,387)              (52,028)
    Notes receivable from related party                                         (9,221)               (9,221)
                                                                             ---------             ---------
      Total partners' deficiency                                              (414,982)             (355,591)
                                                                             ---------             ---------

TOTAL LIABILITIES AND PARTNERS' DEFICIENCY                                   $ 601,317             $ 645,706
                                                                             =========             =========
</TABLE>


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



                                      F-5
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                               FOR THE YEARS ENDED

<TABLE>
<CAPTION>
                                                                   January 1,       January 2,      December 28,
                                                                      2006             2005             2003
                                                                   ----------       ----------      ------------
                                                                                   (thousands)
<S>                                                                <C>              <C>             <C>
NET SALES                                                          $1,311,611       $1,266,394      $1,304,560

COST OF GOODS SOLD                                                  1,175,776        1,124,547       1,160,870
                                                                   ----------       ----------      ----------

GROSS PROFIT                                                          135,835          141,847         143,690

SELLING, GENERAL AND ADMINISTRATIVE
    EXPENSES                                                           81,163           86,797          81,013

IMPAIRMENT, RESTRUCTURING AND OTHER
    CHARGES (CREDITS)                                                  52,184            3,250          (1,759)
                                                                   ----------       ----------      ----------

INCOME FROM OPERATIONS                                                  2,488           51,800          64,436

GAIN ON SALE OF BUSINESSES                                             29,719                -               -

INTEREST AND DEBT ISSUANCE EXPENSE                                    (79,749)         (76,667)        (88,374)

INCOME FROM EQUITY INTEREST IN JOINT VENTURES                           1,764              687           1,466

REORGANIZATION ITEMS, NET                                              (6,805)               -               -

OTHER EXPENSE, NET                                                     (1,489)            (220)         (3,447)
                                                                   -----------      ----------      ----------

LOSS BEFORE INCOME TAXES
    AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE                        (54,072)         (24,400)        (25,919)

PROVISION (BENEFIT) FOR INCOME TAXES                                     (463)             631           1,494
                                                                   ----------       ----------      ----------

LOSS BEFORE CUMULATIVE EFFECT OF
    ACCOUNTING CHANGE                                                 (53,609)         (25,031)        (27,413)

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

NET LOSS                                                           $  (57,108)      $  (25,031)     $  (27,413)
                                                                   ==========       ==========      ==========
</TABLE>

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



                                      F-6
<PAGE>

<
                          FOAMEX L.P. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                               FOR THE YEARS ENDED

<TABLE>
<CAPTION>
                                                                   January 1,        January 2,     December 28,
                                                                      2006              2005            2003
                                                                   ----------        ---------      ------------
OPERATING ACTIVITIES                                                                (thousands)
<S>                                                                <C>               <C>             <C>
   Net loss                                                        $(57,108)         $(25,031)       $(27,413)
   Adjustments to reconcile net loss to net cash provided by
     (used for) operating activities:
     Cumulative effect of accounting change                           3,499                 -               -
     Depreciation and amortization                                   20,045            25,933          26,045
     Amortization of debt issuance costs, debt premium
        and debt discount                                             6,733             2,762           4,458
     Write off of deferred credits on swap transactions              (9,684)                -               -
     Write off of debt issuance costs                                10,465                 -          12,928
     Impairment charges                                              50,659             2,809               -
     Loss (gain) on disposition of assets                           (29,998)           (1,185)             30
     Provision for uncollectible accounts                             6,204             3,291           2,115
     Retirement benefit funding less (greater) than expense           1,093            (2,175)           (892)
     Deferred income taxes                                           (1,595)               35              21
     Other, net                                                       4,791              (889)              4
   Changes in operating assets and liabilities:
     Accounts receivable                                            (21,360)           (4,742)          8,143
     Inventories                                                    (14,851)           (4,147)          2,128
     Accounts payable                                                   (24)            6,004          10,916
     Accrued restructuring                                             (762)           (2,111)        (13,023)
     Other assets and liabilities                                    14,785              (357)         (7,358)
                                                                   --------          --------        --------

        Net cash provided by (used for) operating activities
         before reorganization items                                (17,108)              197          18,102
        Cash used for reorganization items                           (4,929)                -               -
                                                                   --------          --------        --------
        Net cash provided by (used for) operating activities        (22,037)              197          18,102
                                                                   --------          --------        --------

INVESTING ACTIVITIES
   Capital expenditures                                              (5,195)           (5,510)         (6,543)
   Proceeds from sale of assets                                      39,815             2,701           1,237
   Other investing activities                                        (2,616)           (2,400)         (3,329)
                                                                   --------          --------        --------

        Net cash provided by (used for) investing activities         32,004            (5,209)         (8,635)
                                                                   --------          --------        --------

FINANCING ACTIVITIES
   Proceeds from DIP revolving loans                                174,328                 -               -
   Repayment of DIP revolving loans, net                            (19,762)                -               -
   Net proceeds from (repayments of) revolving loans               (114,907)           18,841          44,242
   Proceeds from DIP Term Loan                                       80,000                 -               -
   Proceeds from long-term debt                                           -                 -         130,000
   Repayments of long-term debt                                    (118,479)          (10,853)       (164,020)
   Decrease in cash overdrafts                                       (1,879)           (2,254)         (5,049)
   Debt issuance costs                                               (6,337)             (785)        (11,880)
   Distribution paid to partners                                       (863)           (1,200)           (513)
   Other financing activities                                             -                 -               -
                                                                   --------          --------        --------

        Net cash provided by (used for) financing activities         (7,899)            3,749          (7,220)
                                                                   --------          --------        --------

Net increase (decrease) in cash and cash equivalents                  2,068            (1,263)          2,247

Cash and cash equivalents at beginning of period                      5,347             6,610           4,363
                                                                   --------          --------        --------

Cash and cash equivalents at end of period                         $  7,415          $  5,347        $  6,610
                                                                   ========          ========        ========
</TABLE>

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


                                      F-7
<PAGE>



                          FOAMEX L.P. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIENCY


<TABLE>
<CAPTION>
                                                                            Accumulated      Notes
                                                                              Other       Receivable
                                                       General   Limited   Comprehensive    Related
                                                       Partner   Partner       Loss          Party         Total
                                                       -------   -------   -------------  ----------     ----------
                                                                            (thousands)
2003
<S>                                                    <C>         <C>          <C>           <C>         <C>
Balances at December 30, 2002                         $(240,107)  $     -      $(56,458)     $(9,221)    $(305,786)
Net loss                                                   (469)  (26,944)                                 (27,413)
Minimum pension liability adjustment                                              2,033                      2,033
Foreign currency translation adjustment                                           6,612                      6,612
                                                                                                         ---------
   Comprehensive loss                                                                                      (18,768)
Distributions and other                                      (2)     (575)                                    (577)
Offset balance against Limited Partner deficit
   assumed by General Partner                           (27,519)    27,519            -            -             -
                                                      ---------    -------     --------      -------     ---------
Balances at December 28, 2003                          (268,097)         -      (47,813)      (9,221)    (325,131)

2004
Net loss                                                   (426)   (24,605)                                (25,031)
Minimum pension liability adjustment                                             (6,253)                    (6,253)
Foreign currency translation adjustment                                           2,038                      2,038
                                                                                                         ---------
   Comprehensive loss                                                                                      (29,246)
Distributions and other                                      (3)    (1,211)                                 (1,214)
Offset balance against Limited Partner deficit
   assumed by General Partner                           (25,816)    25,816            -            -             -
                                                      ---------    -------     --------      -------     ---------
Balances at January 2, 2005                            (294,342)         -      (52,028)      (9,221)     (355,591)

2005
Net loss                                                   (981)   (56,127)                                (57,108)
Minimum pension liability adjustment                                             (1,236)                    (1,236)
Foreign currency translation adjustment                                            (123)                      (123)
                                                                                                         ---------
   Comprehensive loss                                                                                      (58,467)
Distributions and other                                      (1)      (923)                                   (924)
Offset balance against Limited Partner deficit
   assumed by General Partner                           (57,050)    57,050            -            -             -
                                                      ---------    -------     --------      -------     ---------
Balances at January 1, 2006                           $(352,374)   $     -     $(53,387)     $(9,221)    $(414,982)
                                                      =========    =======     ========      =======     =========
</TABLE>


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


                                      F-8
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   BANKRUPTCY AND BASIS OF PRESENTATION

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

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

     On November 17, 2005, the Bankruptcy Court approved a motion  authorizing a
key executive retention program (the "KERP").  The KERP pertains to 77 employees
who may receive cash distributions  aggregating up to $3.2 million. In addition,
certain  participants,  at the  discretion  of the  Board  of  Directors  of the
reorganized  Foamex   International,   may  receive   additional   distributions
aggregating  up to $1.1  million in cash or in common  stock of the  reorganized
Foamex  International at a price per share that reflects the value of the equity
on the effective  date of the plan of  reorganization.  Distributions  under the
KERP are generally to be made on or around  certain  milestone  dates during the
Chapter  11 cases and on and  subsequent  to the  effective  date of the plan of
reorganization.  Cash  distributions  pursuant  to the  KERP,  aggregating  $0.4
million,  were paid in December 2005 and  additional  amounts  aggregating  $1.1
million  have  been  paid  in  February   and  March  2006.   The  common  stock
distributions,  if any, will be made at the six month and one year anniversaries
of the effective date of the plan of  reorganization.  The KERP also includes an
additional $0.5 million  discretionary cash pool to address specific  employment
matters and unanticipated needs that may arise during the Chapter 11 cases.

     Foamex L.P. has notified all known or potential creditors of the Chapter 11
filings for the purposes of identifying and quantifying all prepetition  claims.
The Chapter 11 filings  triggered  defaults on substantially  all debt and lease
obligations.  Subject to  certain  exceptions  under the  Bankruptcy  Code,  the
Chapter 11 filings  automatically  stayed the  continuation  of any  judicial or
administrative  proceedings  or  other  actions  against  the  Debtors  or their
property to recover on, collect or secure a claim arising prior to September 19,
2005. On October 18, 2005, the Bankruptcy  Court entered an order (the "Bar Date
Order")  requiring  any person or entity  holding  or  asserting  a  prepetition
claim(s)  against  the  Debtors  to a file a  written  proof of  claim  with the
Debtors' claims processing agent on or before December 8, 2005 (the "Bar Date"),
and,  for  Governmental  Units (as  defined in the  Bankruptcy  Code)  holding a
prepetition  claim(s)  against the Debtors' on or before  March 20,  2006.  With
certain  enumerated  exceptions,  the Bar Date Order  further  provides that any
person or entity  which fails to timely file a proof of claim will,  among other
things,  be forever  barred,  estopped and enjoined from asserting a prepetition
claim against the Debtors.

     The  uncertainty  regarding  Foamex L.P.'s future  prospects may hinder its
ongoing  business  activities  and its ability to operate,  fund and execute its
business plan by impairing  relations  with  existing and  potential  customers;
negatively  impacting its ability to attract and retain key employees;  limiting
its ability to obtain trade credit;  impairing present and future  relationships
with vendors and service  providers;  and  impairing  its ability to continue to
operate as a going concern.


                                      F-9
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     BANKRUPTCY AND BASIS OF PRESENTATION (continued)

     As  a  result  of  the  Chapter  11  filings,  realization  of  assets  and
liquidation  of  liabilities  are  subject  to  significant  uncertainty.  While
operating  as a  debtor-in-possession  under the  protection  of Chapter 11, and
subject to Bankruptcy  Court  approval or otherwise as permitted in the ordinary
course of  business,  Foamex L.P.  may sell or  otherwise  dispose of assets and
liquidate or settle liabilities for amounts other than those reflected in Foamex
L.P.'s financial statements.  Further, a plan of reorganization could materially
change the amounts and  classifications  reported  in Foamex  L.P.'s  historical
financial statements, which do not give effect to any adjustment to the carrying
value  of  assets  or  amounts  of  liabilities  that  might be  necessary  as a
consequence of confirmation of a plan of reorganization.

     To exit Chapter 11, Foamex L.P. must obtain  confirmation by the Bankruptcy
Court of a Chapter 11 plan. On December 23, 2005, Foamex L.P. filed a Disclosure
Statement and Proposed Plan of  Reorganization  (the "Plan") with the Bankruptcy
Court.  The Plan is designed to  complete a financial  restructuring  which will
result  in a  reduction  of  approximately  $500  million  of  total  debt  from
prepetition  amounts.  The Plan was  supported by an ad hoc  committee of Foamex
L.P.'s Senior Secured  Noteholders  comprising  more than 50% of the outstanding
principal  amount of Senior  Secured  Notes.  The terms of the Plan  include the
following:

     o    Holders of Allowed  Administrative  Claims,  Priority Tax Claims,  DIP
          Financing Claims, Other Priority Claims, and Other Secured Claims will
          receive full payment in cash;

     o    Holders of Allowed  Senior Secured Note Claims will receive a pro rata
          share  of  100%  of  new  common  stock  of  the  reorganized   Foamex
          International,  subject to dilution,  provided  that the class of such
          Claims votes to accept the Plan;

     o    Holders of Allowed Senior  Subordinated Note Claims will receive a pro
          rata share of warrants to purchase up to 5% of new common stock of the
          reorganized Foamex International,  subject to dilution,  provided that
          the class of such Claims votes to accept the Plan;

     o    Holders of Allowed  General  Unsecured  Claims will receive a pro rata
          share of $1.5 million,  provided that the distribution does not exceed
          5% of the  allowed  amount of each such  claim and  provided  that the
          class of such Claims votes to accept the Plan;

     o    Holders of Foamex International's  existing Preferred Stock and Common
          Stock  will not  receive  any  distribution  under  the Plan and their
          shares will be cancelled on the effective date of the Plan.

     Since  Foamex  L.P.  filed its Plan,  Foamex  L.P.  and its  advisors  have
continued  to work  with  its  significant  creditor  constituencies  and  their
respective  advisors to  negotiate a fully  consensual  plan of  reorganization.
Foamex L.P.  expects that it will continue to do so in the hope of agreeing with
these  constituents  on the terms of a fully  consensual  plan.  There can be no
guarantee that Foamex L.P. will file and/or confirm such a plan.  However,  even
in the absence of a fully  consensual  plan,  it is likely that Foamex L.P. will
need to modify the plan that is currently on file with the Bankruptcy Court.

     Subsequent  to the  bankruptcy  filing date,  Statement  of Position  90-7,
"Financial  Reporting by Entities in  Reorganization  Under the Bankruptcy Code"
("SOP 90-7")  applies to the  Debtors'  financial  statements  while the Debtors
operate  under  the  provision  of  Chapter  11.  SOP 90-7 does not  change  the
application of generally  accepted  accounting  principles in the preparation of
financial  statements.  However,  SOP  90-7  does  require  that  the  financial
statements, for periods including and subsequent to the filing of the Chapter 11
petition,  distinguish transactions and events that are directly associated with
the reorganization from the ongoing operations of the business. A confirmed plan
of  reorganization  could result in material  changes in the amounts reported in
Foamex L.P.'s consolidated financial statements, which do not give effect to any
adjustments  of the  carrying  value of  assets  and  liabilities  that  will be
necessary as a consequence of reorganization under Chapter 11.


                                      F-10
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

     Foamex L.P., an indirect  wholly-owned  subsidiary of Foamex International,
operates  in the  flexible  polyurethane  and  advanced  polymer  foam  products
industry.  Foamex  L.P.'s  operations  are  conducted  directly  and through its
wholly-owned  subsidiaries,  Foamex Canada Inc. ("Foamex Canada"),  Foamex Latin
America, Inc. ("Foamex Mexico") and Foamex Asia, Inc. ("Foamex Asia"). Financial
information  concerning the business segments of Foamex L.P. is included in Note
13.

     Foamex  L.P.'s  reporting  period is a 52/53 week fiscal year ending on the
Sunday  closest to January  1.  Fiscal  year 2005  included  the 52 weeks  ended
January 1, 2006.  Fiscal year 2004 included 53 weeks ended January 2, 2005 while
fiscal year 2003 include the 52 weeks ended December 28, 2003.

Consolidation

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

Accounting Estimates

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

Concentration of Credit Risk

     Financial  instruments which potentially subject Foamex L.P. to significant
concentrations of credit risk consist primarily of cash and cash equivalents and
trade accounts  receivable.  Foamex L.P. maintains cash and cash equivalents and
certain other financial  instruments with various large financial  institutions.
Foamex L.P.'s periodic evaluation of these financial institutions are considered
in Foamex L.P.'s investment strategy.

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

Revenue Recognition, Discounts and Rebates

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


                                      F-11
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Cash and Cash Equivalents

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

Accounts Receivable and Allowance for Uncollectible Accounts

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

Fair Value of Financial Instruments

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

     The  carrying  amount  and fair value of  long-term  debt,  including  debt
subject to compromise,  and revolving credit  borrowings at January 1, 2006 were
$742.1  million and $496.6  million,  respectively,  and at January 2, 2005 were
$750.5  million and $714.7  million,  respectively.  The fair value of long-term
debt is estimated  using quoted market prices,  where  available,  or discounted
cash flows.  Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instruments. These estimates are
subjective  in nature and  involve  uncertainties  and  matters  of  significant
judgment  and  therefore,  cannot  be  determined  with  precision.  Changes  in
assumptions could significantly affect the estimates.

Inventories

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

Property, Plant and Equipment

     Property,  plant and equipment are stated at cost and are depreciated using
the  straight-line  method over the  estimated  useful lives of the assets.  The
range of useful lives  estimated for buildings is generally 20 to 35 years,  and
the range for machinery,  equipment and furnishings is 5 to 12 years.  Leasehold
improvements  are  amortized  over the  shorter  of the terms of the  respective
leases or the estimated useful lives of the leasehold improvements. Depreciation
expense  for 2005,  2004 and 2003 was $17.1  million,  $22.9  million  and $24.1
million, respectively.

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

Goodwill

     In accordance  with SFAS No. 142,  goodwill was tested for impairment  upon
adoption  of the  standard  and is  tested  annually  thereafter.  SFAS No.  142
requires that goodwill be tested for impairment  using a two-step  process.  The
first step is to identify a potential  impairment  and the second step  measures
the amount of the impairment loss, if any.  Goodwill is deemed to be impaired if
the carrying amount of a reporting  unit's  goodwill  exceeds its estimated fair
value.


                                      F-12
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Debt Issuance Costs

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

Software Costs

     Foamex L.P.  expenses  costs incurred in the  preliminary  project stage of
developing or obtaining internal use software,  such as research and feasibility
studies, as well as costs incurred in the post-implementation/operational stage,
such as maintenance and training.  Capitalization of software  development costs
occurs only after  management  authorizes the project,  the preliminary  project
stage is complete  and it is  probable  the project  will be  completed  and the
software will be used for the function  intended.  Foamex L.P. is in the process
of replacing its primary  financial and operating  information  and  transaction
processing systems and anticipates this project will be substantially  completed
by the end of 2007.  Capitalized  software costs  aggregated $1.4 million,  $2.4
million and $3.4 million in 2005, 2004 and 2003,  respectively.  The capitalized
costs  are  amortized  beginning  in the  period  when  placed in  service  on a
straight-line  basis over the estimated  useful life of the  software,  which is
generally five years or less.

Long-Lived Assets

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

Environmental Remediation

     Environmental  expenditures that relate to current operations are expensed.
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue  generation,  are expensed.
Liabilities are recorded when environmental  assessments and/or remedial efforts
are  probable  and the costs can be  reasonably  estimated.  Amounts  charged to
operations  were $0.9 million,  $0.6 million and $0.5 million in 2005,  2004 and
2003, respectively.

Comprehensive Income (Loss)

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

Foreign Currency Translation

     The financial  statements of foreign subsidiaries have been translated into
U.S. dollars by using  period-end  exchange rates for the assets and liabilities
and the  average  exchange  rates for the  statements  of  operations.  Currency
translation  adjustments are included in accumulated other  comprehensive  loss.
Transaction  gains  and  losses  are  reflected  in  other  expense,  net in the
consolidated statements of operations and included $0.5 million of gains in 2005
and $0.6 million and $2.7 million of losses in 2004 and 2003, respectively.


                                      F-13
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Research and Development

     Research and development costs are expensed as incurred. Amounts charged to
operations  were $2.3 million,  $2.8 million and $3.6 million in 2005,  2004 and
2003, respectively.

Self Insurance

     Foamex  L.P.  is  partially  self-insured  for a number of risks  including
workers'  compensation,  medical,  automobile and general liability.  Commercial
insurance  policies  are  carried  for  amounts  in excess  of the  self-insured
amounts.  Amounts charged to operations for insurance  premiums and self-insured
losses were $28.7  million,  $26.5 million and $24.9  million in 2005,  2004 and
2003, respectively.

Claims and Litigation

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

Income Taxes

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

     Foamex L.P.,  as a limited  partnership,  is not subject to Federal  income
taxes;  therefore no current or deferred  provision  has been  provided for such
taxes. However,  Foamex L.P. has provided for the income taxes of certain states
in which it is subject to taxes and for certain subsidiaries,  which are subject
to  Federal  and state  income  taxes and for  subsidiaries  located  in foreign
jurisdictions  that file  separate  tax returns.  The partners  will provide for
their  respective  shares of income or loss in their Federal or applicable state
income tax returns.  Foamex L.P. has a tax sharing  agreement  that provides for
the payment of  distributions to the partners for amounts that would be required
to be paid if Foamex L.P. were a corporation  filing  separate tax returns.  The
ability of Foamex L.P. to make such distributions is limited by the terms of its
credit agreements and the bankruptcy process. See Note 9.

Prospective Accounting Pronouncement

     In  November  2004,  the FASB  issued  Statement  of  Financial  Accounting
Standards  No. 151,  "Inventory  Costs an  amendment  of ARB No. 43,  Chapter 4"
("SFAS No. 151").  The provisions of SFAS No. 151 require that abnormal  amounts
of idle  facility  expense,  freight,  handling  costs and  wasted  material  be
recognized as current  period  charges,  regardless of the  circumstances  under
which such charges arose.  SFAS No. 151 is effective for fiscal years  beginning
after June 15, 2005 and is not expected to have a  significant  impact on Foamex
L.P.'s financial statements.

Reclassifications

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


                                      F-14
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.   LIABILITIES SUBJECT TO COMPROMISE AND REORGANIZATION ITEMS

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

     In  addition  to  Foamex  L.P.'s  prepetition  debt  which  is in  default,
liabilities  subject to  compromise  reflects  the  Debtors'  other  liabilities
incurred prior to the commencement of the bankruptcy proceedings.  These amounts
represent Foamex L.P.'s estimate of known or potential  prepetition claims to be
resolved in  connection  with the  bankruptcy  proceedings.  Such claims  remain
subject to future  adjustments,  based on such things as (i) negotiations;  (ii)
actions taken by the Bankruptcy Court;  (iii) further  developments with respect
to disputed claims; (iv) additional rejection of executory contracts and leases;
(v) the  determination  of the value of  collateral  securing  claims;  (vi) the
filing of proofs of  claims;  or (vii)  other  events.  Payment  terms for these
claims will be  established in connection  with Foamex L.P.'s  confirmed plan of
reorganization.

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

     Debt:                                                       (thousands)
         10 3/4% Senior Secured Notes                             $300,000
         9 7/8% Senior Subordinated Notes                          148,500
         13 1/2% Senior Subordinated Notes                          51,585
         Other debt                                                    850
                                                                  --------
     Total debt                                                    500,935
     Employee benefit plans                                         56,060
     Accounts payable                                               37,395
     Accrued interest on debt subject to compromise                 33,201
     Accrued liabilities and other                                   8,374
                                                                  --------
                                                                  $635,965
                                                                  ========

     The Debtors have  incurred  certain  professional  fees and other  expenses
directly associated with the bankruptcy  proceedings.  In addition,  the Debtors
have made  certain  adjustments  to the  carrying  value of certain  prepetition
liabilities.  Such costs and adjustments are classified as reorganization items,
net in the accompanying  consolidated statement of operations for the year ended
January 1, 2006 and consist of the following:

                                                                 (thousands)
     Debt issuance costs on debt subject to compromise            $(10,465)
     Deferred credits on interest rate swap transactions             9,684
     Professional fees associated with bankruptcy                   (8,841)
     Net gain on rejected leases and other contracts                 2,854
     Other, net                                                        (37)
                                                                  --------
                                                                  $ (6,805)
                                                                  ========

                                      F-15
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

     Pursuant to the Bankruptcy  Code, the Debtors have filed schedules with the
Bankruptcy  Court setting forth the assets and  liabilities of the Debtors as of
September 19, 2005. On October 24, 2005, the Debtors mailed proof of claim forms
to, among others,  current and prior  employees,  known  creditors,  vendors and
other parties with whom the Debtors have previously  conducted business.  To the
extent the recipients disagree with the claim amounts or priorities set forth on
the Debtors'  schedules,  the recipient may file a proof of claim in a different
amount or priority  with the Debtors'  claim agent,  Bankruptcy  Services,  LLC.
Differences  between the amounts and/or priorities  scheduled by the Debtors and
claims  filed by  creditors  will be  investigated  and  resolved as part of the
bankruptcy  proceedings.  If necessary,  the Bankruptcy  Court  ultimately  will
determine  liability  amounts  and  priorities  that will be  allowed  for these
claims.  The resolution of such claims could result in a material  adjustment to
Foamex L.P.'s financial statements.

4.   DEBTORS' FINANCIAL STATEMENTS

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

                    Debtors' Condensed Combined Balance Sheet
                                 January 1, 2006
                             (thousands - unaudited)

<TABLE>
<CAPTION>
     ASSETS
     Current Assets:
<S>                                                                                   <C>
       Cash and cash equivalents                                                      $   4,836
       Accounts receivable, net                                                         184,608
       Inventories                                                                      105,903
       Other current assets                                                              27,103
                                                                                      ---------
           Total current assets                                                         322,450

     Property, plant and equipment, net                                                  99,830
     Other assets, net                                                                  166,750
                                                                                      ---------
     Total assets                                                                     $ 589,030
                                                                                      =========

     LIABILITIES AND STOCKHOLDERS' DEFICIENCY
     Current Liabilities Not Subject to Compromise:
       Current maturities of long-term debt and revolving credit borrowings           $ 240,780
       Accounts payable                                                                  58,800
       Accrued liabilities                                                               48,374
                                                                                      ---------
           Total current liabilities                                                    347,954

     Liabilities subject to compromise                                                  635,965

     Non-Current Liabilities Not Subject to Compromise:
       Long-term debt, net of current maturities                                            340
       Other noncurrent liabilities                                                      19,753
                                                                                      ---------
           Total liabilities                                                          1,004,012

     Total partners' deficiency                                                        (414,982)
                                                                                      ---------
     Total liabilities and partners' deficiency                                       $ 589,030
                                                                                      =========
</TABLE>


                                      F-16
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.   DEBTORS' FINANCIAL STATEMENTS (continued)

               Debtors' Condensed Combined Statement of Operations
                           Year Ended January 1, 2006
                             (thousands - unaudited)

       Net sales                                                   $1,236,105
       Cost of goods sold                                           1,102,961
                                                                   ----------
           Gross profit                                               133,144
       Selling, general and administrative expenses                    72,601
       Impairment, restructuring and other charges                     44,945
                                                                   ----------
           Income from operations                                      15,598
       Interest and debt issuance expense                             (79,745)
       Reorganization items, net                                       (6,685)
       Other                                                           28,072
                                                                   ----------
           Loss before provision for income taxes and
           equity in loss of non-debtor subsidiaries                  (42,760)
       Provision for income taxes                                         519
                                                                   ----------
           Loss before equity in loss of non-debtor subsidiaries      (43,279)
       Equity in loss of non-debtor subsidiaries                      (10,330)
                                                                   ----------
           Loss before cumulative effect of accounting change         (53,609)
       Cumulative effect of accounting change                          (3,499)
                                                                   ----------
       Net loss                                                    $  (57,108)
                                                                   ==========

               Debtors' Condensed Combined Statement of Cash Flows
                           Year Ended January 1, 2006
                             (thousands - unaudited)

       OPERATING ACTIVITIES:
       Net loss                                                      $(57,108)
       Adjustments required to reconcile net loss to net cash
          used for operating activities:
          Impairment charges                                           43,419
          Depreciation and amortization                                17,463
          Reorganization items                                          6,685
          Change in working capital and other operating items         (32,439)
                                                                     --------
              Net cash used for operating activities                  (21,980)
                                                                     --------

       INVESTING ACTIVITIES:
       Capital expenditures                                            (5,650)
       Proceeds from sales of assets                                   39,815
       Other                                                           (2,616)
                                                                     --------
              Net cash provided by investing activities                31,549
                                                                     --------

       FINANCING ACTIVITIES:
       Repayments of prepetition borrowings                          (233,386)
       Proceeds from DIP borrowings                                   234,566
       Other                                                           (9,060)
                                                                     --------
              Net cash used for financing activities                   (7,880)
                                                                     --------

       NET CHANGE IN CASH AND CASH EQUIVALENTS                          1,689

       CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                   3,147
                                                                     --------

       CASH AND CASH EQUIVALENTS, END OF PERIOD                      $  4,836
                                                                     ========

                                      F-17
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.   CUMULATIVE EFFECT OF ACCOUNTING CHANGE

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

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

     The following  table presents pro forma net loss for 2005, 2004 and 2003 as
if the provisions of FIN No. 47 had been applied at the beginning of 2003:


<TABLE>
<CAPTION>
                                                              2005             2004              2003
                                                            --------         --------         ---------
                                                                 (thousands, except per share amounts)
<S>                                                         <C>              <C>               <C>
     Net loss as reported                                   $(57,108)        $(25,031)         $(27,413)

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

     Deduct:   Accretion and depreciation                       (520)            (392)             (367)
                                                            --------         --------          --------

     Proforma net loss                                      $(54,129)        $(25,423)         $(27,780)
                                                            ========         ========          ========
</TABLE>

6.   IMPAIRMENT, RESTRUCTURING AND OTHER CHARGES

2005

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

     During  2005,  Foamex L.P.  updated its  long-term  forecast to address the
impact  of   deteriorating   business   conditions,   including  recent  adverse
developments  in the domestic auto industry.  As part of this  exercise,  Foamex
L.P. also conducted  goodwill  impairment tests of its various  reporting units.
The Foam Products and  Technical  Products  reporting  units passed the step one
impairment test. However, the Automotive Products reporting unit failed the step
one test, reflecting industry conditions.  Foamex L.P. completed the second step
of the goodwill  impairment  test  resulting  in  Automotive  Products  goodwill
impairment charges of $35.4 million.

     The balances of goodwill at January 1, 2006 were $74.9 million for the Foam
Products  segment and $13.9  million for the  Technical  Products  segment for a
total of $88.8 million.

     Also during  2005,  Foamex L.P.  determined  that $15.3  million of pre-tax
impairment  charges were required for  property,  plant and equipment at certain
production facilities. The impairment evaluation was also triggered by the facts
and  circumstances  discussed  above  concerning  the goodwill  impairment.  The
impairment  loss was  determined  using fair value  estimates and appraisals for
similar assets.



                                      F-18
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.   IMPAIRMENT, RESTRUCTURING AND OTHER CHARGES (continued)

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

2004

     During  2004,  Foamex L.P.  recorded  impairment,  restructuring  and other
charges of $3.2 million, primarily consisting of a $1.7 million charge primarily
related to lease  costs and asset write offs in  connection  with the closing of
its New York City office,  a $0.7 million charge  related to the  realignment of
its automotive  operations and an impairment  charge of $0.6 million for an idle
facility.

2003

     During  2003,  Foamex L.P.  recorded  impairment,  restructuring  and other
credits of $1.8 million  consisting of a $3.2 million reduction in the liability
primarily  for  severance  and  termination  benefits no longer  required as the
actions contemplated under the related plans have been substantially  completed,
and a charge of $1.1 million for additional lease termination costs for a closed
facility as a result of changes in real estate market conditions.  Additionally,
Foamex L.P. recorded a $0.3 million  restructuring  charge reported in the Other
segment  as a result  of an  employee  termination  plan for  approximately  300
employees  at its  Mexico  City  operations.  The  actions  under this plan were
substantially completed in 2003.

     The   following   table  sets  forth  the   components   of  Foamex  L.P.'s
restructuring and other charges (credits):

<TABLE>
<CAPTION>
                                                      Plant Closure   Personnel
                                           Total       and Leases     Reductions     Impairment      Other
                                           -----      -------------   ----------     ----------      -----
     2003                                                         (millions)
<S>                                        <C>            <C>             <C>           <C>           <C>
     Balance at December 29, 2002          $22.8          $12.6           $8.2          $  -          $2.0
     Adjustments                            (1.8)           0.2           (1.8)            -          (0.2)
     Cash spending                         (11.3)          (4.8)          (5.5)            -          (1.0)
                                           -----           ----           ----          ----          ----
     Balance at December 28, 2003            9.7            8.0            0.9             -           0.8

     2004
     Restructuring and impairment charges    3.2            2.4            0.8             -             -
     Cash spending                          (4.1)          (2.3)          (1.0)            -          (0.8)
     Asset impairment                       (1.4)          (1.4)             -             -             -
                                           -----          -----           ----         -----          ----
     Balance at January 2, 2005              7.4            6.7            0.7             -             -

     2005
     Restructuring and impairment charges   52.2            0.7            0.8           50.7            -
     Cash spending                          (1.9)          (1.2)          (0.7)             -            -
     Rejected leases and agreements         (6.0)          (5.6)          (0.4)             -            -
     Goodwill and asset impairment         (50.7)            -               -          (50.7)           -
                                           -----          -----           ----          -----         ----
     Balance at January 1, 2006            $ 1.0          $ 0.6           $0.4          $   -         $  -
</TABLE>

7.   GAIN ON SALE OF BUSINESSES

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


                                      F-19
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.   INVENTORIES

     The components of inventory are listed below.

                                             January 1,       January 2,
                                                2006             2005
                                             ---------        ----------
                                                     (thousands)
     Raw materials and supplies              $ 74,886           $ 63,336
     Work-in-process                           22,657             18,667
     Finished goods                            14,599             18,026
                                             --------           --------
     Total                                   $112,142           $100,029
                                             ========           ========

9.   REVOLVING CREDIT BORROWINGS AND LONG-TERM DEBT

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

<TABLE>
<CAPTION>
                                                                       January 1,            January 2,
                                                                          2006                  2005
                                                                       ----------            ---------
                                                                                (thousands)
<S>                                                                   <C>                   <C>
     Revolving credit borrowings (1)                                   $154,566              $114,907
                                                                       ========              ========

     Foamex L.P. Senior Secured Credit Facility Term Loan (1)          $      -              $ 37,371
     DIP Term Loan (1)                                                   80,000                     -
     Foamex L.P. Secured Term Loan (1)                                        -                80,000
     10 3/4% Senior Secured Notes due 2009 (2) (4) (5)                        -               309,703
     9 7/8% Senior Subordinated Notes due 2007 (2) (5)                        -               148,500
     13 1/2% Senior Subordinated Notes due August 2005 (includes
       $581 of unamortized debt premium) (2) (5)                              -                52,166
     Industrial revenue bonds (3)                                         6,000                 7,000
     Other                                                                  604                   852
                                                                       --------              --------
                                                                         86,604               635,592

     Less current portion                                                86,238                67,131
                                                                       --------              --------

     Long-term debt                                                    $    366              $568,461
                                                                       ========              ========
</TABLE>

(1)  Debt of Foamex L.P.,  guaranteed by Foamex  International,  FMXI,  Inc. and
     Foamex Canada.
(2)  Debt of Foamex L.P. and Foamex Capital Corporation.
(3)  Debt of Foamex L.P.
(4)  Includes   $9.7  million  of  deferred   credits  on  interest   rate  swap
     transactions at January 2, 2005.
(5)  Reclassified to liabilities subject to compromise at January 1, 2006.

DIP Revolving Credit Facility

     On September  22,  2005,  Foamex L.P.  entered into a  Debtor-in-Possession
Credit Agreement (the "DIP Revolving  Credit  Facility") with a group of lenders
to provide a revolving  credit  facility with a maximum  availability  of $240.0
million.  The initial borrowing under the DIP Revolving Credit Facility was used
to repay  outstanding  obligations  under the prepetition  Senior Secured Credit
Facility  and  interest due under the  prepetition  Secured  Term Loan.  The DIP
Revolving  Credit  Facility  includes a $40.0  million  sublimit  for letters of
credit and availability is limited to eligible amounts,  as defined, of accounts
receivable,  inventory,  equipment,  and real estate. At January 1, 2006, Foamex
L.P.  had total  available  borrowings  of $53.6  million  and letters of credit
outstanding of $18.2 million under the facility. Substantially all of the assets
of Foamex L. P. and its domestic  subsidiaries  and Foamex Canada are pledged as
collateral for the related borrowings. Borrowings under the DIP Revolving Credit
Facility bear interest at floating  rates based upon and including a margin over
either  LIBOR or a Base Rate,  as  defined.  At January  1, 2006,  the  weighted
average interest rate on borrowings was 7.42%. All borrowings under the DIP


                                      F-20
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Revolving  Credit  Facility  will mature on the earlier of March 22, 2007 or the
date that  Foamex  L.P.  emerges  from  Chapter  11. The  lenders  under the DIP
Revolving Credit Facility have agreed to provide emergence financing, subject to
a number of  conditions,  of up to $275.0  million upon Foamex L.P.'s  emergence
from Chapter 11. The DIP Revolving  Credit  Facility  includes both a subjective
acceleration  clause  and a lock  box  arrangement  that  requires  all lock box
receipts be used to repay revolving credit borrowings.  Borrowings under the DIP
Revolving  Credit  Facility  are  classified  as  current  in  the  accompanying
consolidated balance sheet at January 1, 2006.

DIP Term Loan

     On September  22,  2005,  Foamex L.P.  entered into a  Debtor-in-Possession
Credit  Agreement  (the "DIP Term  Loan")  with a group of lenders to provide an
$80.0  million  term  loan.  Proceeds  from the DIP Term Loan were used to repay
outstanding  principal under the prepetition Secured Term Loan. Borrowings under
the DIP Term Loan bear  interest  at a rate  that is either  (i) 8.00%  plus the
greater  of the Base  rate,  as  defined,  or 6.50% or (ii) at  10.00%  plus the
greater of the LIBOR rate or 3.00%.  At January 1, 2006,  the  weighted  average
interest rate was 14.29%.  Borrowings under the DIP Term Loan are collateralized
by the same collateral as the DIP Revolving  Credit  Facility.  An intercreditor
agreement governs the distribution of collateral among the lenders under the DIP
Revolving  Credit  Facility and the DIP Term Loan. All borrowings  under the DIP
Term Loan will  mature on the  earlier of March 22, 2007 or the date that Foamex
L.P. emerges from Chapter 11. The lenders under the DIP Term Loan have agreed to
provide emergence financing, subject to a number of conditions, of $80.0 million
upon Foamex  L.P.'s  emergence  from Chapter 11. The DIP Term Loan may be repaid
prior  to  maturity  by  paying a  prepayment  premium  initially  set at 8% and
declining  ratably over a 48-month  period.  The DIP Term Loan is  classified as
current in the accompanying consolidated balance sheet at January 1, 2006.

Industrial Revenue Bond ("IRB")

     IRB debt  includes a $6.0 million  bond that  matures in 2013.  Interest is
based on a variable rate, as defined,  with options  available to Foamex L.P. to
convert to a fixed rate. At January 1, 2006,  the interest rate was 3.63% on the
bond. The maximum  interest rate for the IRB is 15.0% per annum.  If Foamex L.P.
exercises its option to convert the bond to a fixed interest rate structure, the
IRB is redeemable  at the option of the  bondholders.  In addition,  at any time
prior to conversion to a fixed interest rate structure,  bondholders upon notice
to the bond trustee and the  remarketing  agent may place the bonds for sale. If
the remarketing agent is not successful in reselling the bonds before settlement
is due on bonds placed for sale, the bond trustee may draw on a letter of credit
issued under the DIP Revolving  Credit Facility to repay the bondholders for the
bonds  placed for sale until the bonds can be resold by the  remarketing  agent.
Pursuant  to this  arrangement,  the IRB has been  classified  as current in the
accompanying consolidated balance sheets at January 1, 2006 and January 2, 2005.
The obligation is  collateralized  by certain assets,  which have an approximate
net carrying  value of $4.7 million at January 1, 2006 and by a letter of credit
in the amount of $6.3 million.

Senior Secured Credit Facility

     On August 18,  2003,  Foamex  L.P.  entered  into a Senior  Secured  Credit
Facility  with a new group of lenders and an $80.0  million  term loan  facility
with another lender.  Proceeds  borrowed under these new facilities were used to
repay  all  outstanding  balances  under a  former  credit  facility  which  was
terminated as of August 18, 2003. In addition,  Foamex Canada's revolving credit
facility that did not have any  outstanding  borrowings and had  availability of
approximately $5.9 million was terminated as of August 18, 2003. The termination
of the former credit facility  resulted in a write off of debt issuance costs of
$12.9 million recorded in 2003.

     The $240.0  million Senior  Secured  Credit  Facility (the "Senior  Secured
Credit  Facility")  consisted  of a  revolving  credit  facility  with a maximum
availability  of $190.0 million and an initial term loan of $50.0  million.  The
term loan required quarterly installment payments of approximately $1.8 million,
which commenced on September 30, 2003. All obligations  under the Senior Secured
Credit  Facility  were  repaid  with  proceeds  from  the DIP  Revolving  Credit
Facility.  The  Senior  Secured  Credit  Facility  included  both  a  subjective
acceleration clause and a


                                      F-21
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

lockbox  arrangement  that  required  all  lockbox  receipts  be used  to  repay
revolving credit borrowings.  Accordingly, borrowings under the revolving credit
facility were classified as current in the accompanying  condensed  consolidated
balance sheet at January 2, 2005.

Secured Term Loan

     The $80.0  million term loan  facility (the "Secured Term Loan") was repaid
with  proceeds  from the DIP Term Loan.  Borrowings  under the Secured Term Loan
were  collateralized  by the  same  collateral  as  the  Senior  Secured  Credit
Facility.  An  intercreditor  agreement  governed the distribution of collateral
among the lenders under the Senior Secured Credit  Facility and the Secured Term
Loan.

Debt Covenants

     The DIP  Revolving  Credit  Facility  and  the  DIP  Term  Loan  (the  "DIP
Facilities")  contain  certain  covenants  that limit,  among other things,  the
ability of Foamex L.P.'s  subsidiaries (i) to pay distributions or redeem equity
interests,  (ii) to make certain restrictive  payments or investments,  (iii) to
incur additional  indebtedness or issue Preferred Equity Interests,  as defined,
(iv) to merge,  consolidate or sell all or substantially  all assets,  or (v) to
enter into certain transactions with affiliates or related persons. In addition,
the DIP Facilities  contain provisions that, in the event of a defined change of
control or the occurrence of an undefined material adverse change in the ability
of the obligor to perform its obligations,  the indebtedness  must be repaid, in
certain cases, at the option of the holders.  Under the most  restrictive of the
distribution  restrictions  as of  January  1,  2006,  Foamex  L.P.  was able to
distribute  funds to its  partners  only to the extent to enable its partners to
meet tax  payment  liabilities,  subject to  Bankruptcy  Court  approval if such
payments constitute prepetition  liabilities,  and Foamex International's normal
operating  expenses of up to $2.3 million during the term of the DIP Facilities,
so long as no default or event of default has occurred.

     Under the DIP Facilities, Foamex L.P. is subject to covenants, including an
EBITDA, as defined,  covenant  beginning with the one month period ended October
30, 2005, a cumulative  net cash flow, as defined,  covenant  beginning with the
two month period ending December 4, 2005, and a capital expenditure  restriction
for 12 month rolling periods  beginning  October 3, 2005. The cumulative  EBITDA
and net cash flow  covenants  will include an increasing  number of months until
they reach 12 months  ending on October 1, 2006 and then will be the trailing 12
months  thereafter  through February 2007. Foamex L.P. is in compliance with the
EBITDA, cumulative net cash flow and capital expenditure covenants for the three
months ended January 1, 2006. The DIP  facilities  also limit  expenditures  for
certain  prepetition  and post  petition  liabilities,  as  defined,  subject to
Bankruptcy Court approval.

     On  November  15,  2002,  Foamex  L.P.  and its bank  lenders  executed  an
amendment  to a prior  credit  facility.  Under the  amendment,  Foamex L.P. was
subject to minimum net worth,  minimum EBDAIT,  as defined,  and maximum capital
expenditure  covenants  through  periods  ending  December 28, 2003. The minimum
EBDAIT  covenant was tested  monthly,  on a  cumulative  basis,  beginning  with
December  2002.  Foamex L.P.  was in  compliance  with the revised  covenants at
December 29, 2002 and throughout  2003 until that credit facility was terminated
on August 18, 2003.  Under the Senior  Secured  Credit  Facility and the Secured
Term Loan,  Foamex L.P. was subject to a minimum fixed charge coverage ratio, as
defined,  of 1.00 measured  quarterly.  Amendments to the Senior  Secured Credit
Facility and Secured Term Loan executed on November 3, 2004 allowed  Foamex L.P.
to  exclude  certain  charges   aggregating   approximately   $3.7  million  and
approximately   $1.0  million  in  the  first  and  second   quarters  of  2004,
respectively,  from the computation of the fixed charge coverage ratio.  For the
four quarters ended January 2, 2005,  Foamex L.P.'s fixed charge  coverage ratio
was 0.98 and the  lenders  agreed  to waive  compliance  with the  fixed  charge
coverage  ratio for that  period.  On March 31, 2005,  Foamex L.P.  entered into
amendments  with the existing  lenders under the Senior Secured Credit  Facility
and the Secured Term Loan that set lower  minimum fixed charge  coverage  ratios
through  April 2, 2006 and  permitted  borrowing  of up to $25.0  million  of an
additional $39.0 million commitment under the Secured Term Loan, the proceeds of
which would be used to repay  revolving  loans.  Foamex L.P.  incurred  fees and
expenses for the waivers and amendments aggregating  approximately $1.0 million.
For the two  quarters  ended  December  28,  2003,  Foamex  L.P.'s  fixed charge
coverage


                                      F-22
<PAGE>



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

ratio was 1.09.  Foamex  L.P.  was also  subject  to a  maximum  annual  capital
expenditure  amount which was $36.0  million for the year ended  January 2, 2005
and $46.8 million for the year ended January 1, 2006.

Maturities of Long-Term Debt

     Scheduled  maturities of revolving credit  borrowings and long-term debt as
of January 1, 2006 are shown below (thousands):

       2006                                              $    238
       2007                                               234,791
       2008                                                   141
       2009                                                     -
       2010                                                     -
       Thereafter                                           6,000
                                                         --------
       Total                                             $241,170
                                                         ========

     The  following  debt issues were  reclassified  as  liabilities  subject to
compromise in the consolidated balance sheet as of January 1, 2006:

10 3/4% Senior Secured Notes

     The 10 3/4% Senior  Secured  Notes were  issued by Foamex  L.P.  and Foamex
Capital  Corporation  (the  "Issuers") on March 25, 2002 and are due on April 1,
2009.  The  notes  are  guaranteed  on a senior  basis by all of  Foamex  L.P.'s
domestic  subsidiaries  that guarantee the DIP Revolving  Credit  Facility.  The
notes are secured on a  second-priority  basis  (subject to permitted  liens) on
substantially  the same collateral  that secures the  obligations  under the DIP
Revolving  Credit  Facility  and the DIP Term Loan.  The notes rank  effectively
junior to all senior  indebtedness  that is secured by first  priority liens and
senior in right of payment to all subordinated indebtedness. Interest is payable
April 1 and  October  1. The  Issuers  did not remit the  interest  payment  due
October 1, 2005,  but have  continued to accrue  interest at the default rate of
11.75% pursuant to the Bankruptcy  Court order approving the borrowing under the
DIP Revolving  Credit  Facility and DIP Term Loan.  The notes may be redeemed at
the option of the Issuers, in whole or in part, at any time on or after April 1,
2006.  The initial  redemption is at 105.375% of their  principal  amount,  plus
accrued  and unpaid  interest,  if any,  thereon to the date of  redemption  and
declining annually to 100.0% on or after April 1, 2008.

9 7/8% Senior Subordinated Notes

     The 9 7/8% Senior  Subordinated  Notes (the  "Notes") were issued by Foamex
L.P. and Foamex  Capital  Corporation  (the  "Issuers")  and are due on June 15,
2007. The Notes represent  uncollateralized  general  obligations of the Issuers
and are  subordinated  to all Senior  Debt,  as defined  in the  Indenture.  The
Issuers  do  not  intend  to  make  any  future  payments  on the  Notes  and in
conjunction  with the payment default on the 13 1/2% Senior  Subordinated  Notes
discussed  below,  the Issuers are in default under the Notes.  The Issuers have
not  accrued  interest on the Notes of $4.2  million  from as of the date of the
bankruptcy filing through January 1, 2006.

13 1/2% Senior Subordinated Notes

     The 13 1/2% Senior Subordinated Notes were issued by Foamex L.P. and Foamex
Capital  Corporation  (the  "Issuers")  and  matured  on August  15,  2005.  The
principal due of $51.6 million plus accrued and unpaid  interest of $3.5 million
were not paid resulting in the Issuers being in default under the 13 1/2% Senior
Subordinated  Notes. The Issuers have not accrued interest on the 13 1/2% Senior
Subordinated  Notes  of $2.3  million  from the  date of the  bankruptcy  filing
through   January  1,  2006.  The  notes  represent   uncollateralized   general
obligations of the Issuers and are  subordinated  to all Senior Debt, as defined
in the  Indenture  and are pari passu in right of  payment to the 9 7/8%  Senior
Subordinated Notes (described above).


                                      F-23
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.  RETIREE BENEFIT PLANS

Defined Benefit Pension Plans

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

     The Toronto  plans are much smaller in  relationship  to the U.S.  plan and
represent less than 10% of total plan assets and projected  benefit  obligations
presented  below.  Employees  in the  Montreal,  Canada  plant  and  the  Mexico
operations participate only in defined contribution programs.

     The U.S.  plan has  historically  been  funded  to  satisfy  minimum  ERISA
requirements.  Given  its  financial  condition,  Foamex  L.P.  was not  able to
contribute  additional  amounts.  Because of decreasing interest rates in recent
years,  lower  returns on plan  assets than  expected,  and funding at the ERISA
minimum the U.S. plan was  approximately  $50.5 million  underfunded at year-end
2005.

     The U.S. plan liability is a contingent  general  unsecured claim and could
be compromised  with the Pension Benefit  Guaranty  Corporation  ("PBGC") in the
Chapter 11 process.  However, it is Foamex L.P.'s intent in its proposed Plan of
Reorganization to honor its current accrued benefit obligation and not to revert
any of the  obligation  back to the PBGC.  The PBGC is a member of the Creditors
Committee in the Bankruptcy proceedings.

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

Retiree Medical and Life Insurance Benefits

     Foamex L.P.  provides  postretirement  health care and life  insurance  for
eligible  employees,  limited  primarily  to one  manufacturing  facility in the
United States.  These plans are unfunded and benefits are paid as the claims are
submitted. The benefits are only provided until the participant becomes eligible
for Medicare.  Consequently,  the Medicare  Prescription  Drug,  Improvement and
Modernization  Act of 2003 did not impact the  obligations  or expense of Foamex
L.P. Foamex L.P. retains the right, subject to existing agreements, to modify or
eliminate these benefits.

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

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

<TABLE>
<CAPTION>
                                                               Pension Benefits             Other Benefits
                                                           ----------------------       -------------------
                                                             2005          2004          2005         2004
                                                           --------      --------       ------       ------
     Change in Benefit Obligations                                            (thousands)
<S>                                                        <C>           <C>            <C>          <C>
       Benefit obligations at beginning of year            $143,904      $125,052       $ 1,226      $ 1,234
       Service cost                                           5,478         4,804            35           30
       Interest cost                                          7,810         7,463            63           69
       Amendments                                               147             -             -            -
       Benefits paid                                         (6,349)       (6,038)         (142)         (78)
       Plan participants' contributions                           -             -            15           16
       Actuarial loss (gain)                                  1,174        12,008             7          (45)
       Foreign currency exchange rate changes                   290           615             -            -
                                                           --------      --------       -------      -------
       Benefit obligation at end of year                   $152,454      $143,904       $ 1,204      $ 1,226
                                                           ========      ========       =======      =======
</TABLE>


                                      F-24
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.  RETIREE BENEFIT PLANS (continued)
<TABLE>
<CAPTION>
       Change in Plan Assets
<S>                                                        <C>           <C>            <C>          <C>
         Fair value of plan assets at
            beginning of year                              $ 91,868      $ 79,886       $     -      $     -
         Actual return on plan assets                         4,928         7,746             -            -
         Employer contribution                                7,295        10,186           127           62
         Plan participants' contributions                         -             -            15           16
         Benefits paid                                       (6,349)       (6,038)         (142)         (78)
         Plan administrative expenses                        (1,081)         (500)            -            -
         Foreign currency exchange rate changes                 257           588             -            -
                                                           --------      --------       -------      -------
         Fair value of plan assets at end of year          $ 96,918      $ 91,868       $     -      $     -
                                                           ========      ========       =======      =======

       Funded Status and Net Amounts Recognized
       in Consolidated Balance Sheets
         Funded status                                     $(55,536)     $(52,036)      $(1,204)     $(1,226)
         Unrecognized transition asset                         (215)         (290)            -            -
         Unrecognized prior service cost (benefit)              279           192           (34)         (41)
         Unrecognized net actuarial loss                     62,287        60,021           324          328
                                                           --------      --------       -------      -------
         Net amount recognized in consolidated
            balance sheets                                 $  6,815      $  7,887       $  (914)     $  (939)
                                                           ========      ========       =======      =======

       Amounts Recognized in the Consolidated
       Balance Sheets
         Prepaid benefit costs                             $  8,612      $  9,263       $     -      $     -
         Accrued benefit liability                          (54,426)      (53,109)         (914)        (939)
         Intangible assets                                      517           596             -            -
         Accumulated other comprehensive loss*               52,112        51,137             -            -
                                                           --------      --------       -------      -------

         Net amount recognized                             $  6,815      $  7,887       $  (914)     $  (939)
                                                           ========      ========       =======      =======
</TABLE>

*    Before related income tax benefit.

     The accumulated benefit obligation for all defined benefit plans was $143.1
million at year-end 2005 and $135.9  million at year-end 2004.  Information  for
defined benefit plans with an accumulated  benefit  obligation in excess of plan
assets is listed below.

<TABLE>
<CAPTION>
                                                          December 31, 2005          December 31, 2004
                                                          -----------------          -----------------
                                                                           (thousands)
<S>                                                            <C>                       <C>
     Projected benefit obligation                              $146,628                  $139,242
     Accumulated benefit obligation                            $138,897                  $132,444
     Fair value of plan assets                                 $ 92,564                  $ 88,128
</TABLE>

     Components of Net Periodic Benefit Plan Cost

<TABLE>
<CAPTION>
                                                            Pension Benefits                  Other Benefits
                                                    ----------------------------     -------------------------
                                                     2005       2004      2003        2005      2004      2003
                                                    ------     ------    ------      ------    ------    ------
                                                                             (thousands)
<S>                                                  <C>        <C>       <C>          <C>       <C>     <C>
     Service cost                                    $5,478     $4,804    $4,300       $ 35      $ 30    $ 29
     Interest cost                                    7,810      7,463     7,086         63        69      76
     Expected return on plan assets                  (7,836)    (6,891)   (5,611)         -         -       -
     Amortization of transition assets                  (75)       (75)      (75)         -         -       -
     Amortization of prior service benefit             (101)      (111)     (109)        (6)       (6)     (6)
     Amortization of net loss (gain)                  3,137      2,776     3,090         10        14      16
                                                     ------     ------    ------       ----      ----    ----
     Net periodic benefit plan cost                  $8,413     $7,966    $8,681       $102      $107    $115
                                                     ======     ======    ======       ====      ====    ====
</TABLE>



                                      F-25
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.  RETIREE BENEFIT PLANS (continued)

       Additional Information

<TABLE>
<CAPTION>
                                                         Pension Benefits                 Other Benefits
                                                       -------------------           ---------------------
                                                        2005         2004             2005           2004
                                                       ------       ------           ------         ------
                                                                        (thousands)
<S>                                                     <C>         <C>
       Increase (decrease) in minimum liability
         included in other comprehensive loss*          $975        $6,581            N/A            N/A
</TABLE>

       * Before related income tax benefit.

<TABLE>
<CAPTION>
                                                        Pension Benefits                Other Benefits
       Weighted-Average Assumptions Used             ---------------------          ---------------------
       to Determine Benefit Obligations                 2005       2004              2005           2004
       ----------------------------------------      ---------   ---------          ------         ------
<S>                                                       <C>         <C>             <C>            <C>
       Discount rate - U.S. Plans (a)                     5.5%        5.5%            5.5%           5.5%
       Discount rate - Canadian Plans (a)                 5.25%       5.75%           N/A            N/A
       Rate of compensation increase                 3.5%-5.0%   3.5%-5.0%            N/A            N/A

       Weighted-Average Assumptions Used                Pension Benefits                Other Benefits
                                                     ---------------------          ---------------------
       to Determine Annual Net Benefit Cost             2005       2004              2005           2004
       ------------------------------------          ---------   ---------          ------         ------
       Discount rate - U.S. Plans (a)                     5.5%        6.0%            5.5%           6.0%
       Discount rate - Canadian Plans (a)                 5.75%       6.0%            N/A             N/A
       Expected long-term return on plan assets (b)       8.5%        8.5%            N/A             N/A
       Rate of compensation increase                 3.5%-5.0%   3.5%-5.0%            N/A             N/A
</TABLE>

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

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

<TABLE>
<CAPTION>
                                                                         Other Benefits
                                                              ---------------------------------------
     Assumed Health Care Cost Trend Rates                     December 31, 2005     December 31, 2004
                                                              -----------------     -----------------
<S>                                                                   <C>                 <C>
     Health care cost trend rate assumed for next year                11.0%               11.0%
     Rate to which the cost trend rate is assumed to
       decline (ultimate trend rate)                                   5.0%                5.0%
     Year that the rate reaches the ultimate trend rate               2012                2011
</TABLE>

     Assumed  health  care cost  trend  rates have a  significant  effect on the
amounts  reported for the health care plans.  A  one-percentage  point change in
assumed  health care cost trend rates  would have the effects  listed  below for
2005.

<TABLE>
<CAPTION>
     Assumed Health Care Cost Trend                             1% Point Increase     1% Point Decrease
                                                                -----------------     -----------------
                                                                             (thousands)
<S>                                                                     <C>                   <C>
     Effect on total of service cost and interest cost                  $ 11                  $ (9)
     Effect on postretirement benefit obligation                        $107                  $(91)
</TABLE>

Investment Strategy, Asset Allocation, Risk Management and Funding

     U.S.  pension  plan  assets  are  primarily  comprised  of equity  and debt
securities, including both U.S. and foreign securities. At year-end 2005, common
stock of Foamex L.P.  totaled $11 thousand.  At year-end  2004,  common stock of
Foamex L.P. totaled $1.6 million,  or 1.9% of the assets.  Our U.S. pension plan
asset  allocation at year-end 2005 and 2004, and target  allocation for 2006 are
listed below.



                                      F-26
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.  RETIREE BENEFIT PLANS (continued)

                                            Percentage of U. S. Plan Assets
                           2006 Target    --------------------------------------
     Asset Category        Allocation     December 31, 2005   December 31, 2004
     --------------        ----------     -----------------   -----------------
     Equity securities       50-68%              59%                  63%
     Debt securities         34-38%              36                   30
     Other                    3-7%                5                    7
                                                ---                  ---
       Total                                    100%                 100%
                                                ===                  ===

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

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

Canadian Plan Assets

     Pension  plan assets in Canada  totaled  $8.2  million,  or 8.5% of pension
assets,  at  year-end  2005 and $7.2  million,  or 7.9% of  pension  assets,  at
year-end 2004.  Canadian pension plan assets are primarily  invested in Canadian
equity securities with the balance in foreign equities.

Cash Flows

Contributions

     Foamex  L.P.  expects  to  contribute  approximately  $16.0  million to its
pension plan and approximately $0.1 million to its other postretirement  benefit
plans in 2006.

Estimated Future Benefit Payments

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


                                        Pension Benefits       Other Benefits
                                        ----------------       --------------
     2006                                   $ 6,684                 $127
     2007                                   $ 6,952                 $103
     2008                                   $ 7,368                 $100
     2009                                   $ 7,808                 $ 74
     2010                                   $ 8,221                 $ 66
     Years 2011-2015                        $49,588                 $406

Defined Contribution Plan

     Foamex L.P. maintains a defined contribution plan, which is qualified under
Section 401(k) of the Internal Revenue Code ("401(k) Plan") and is available for
eligible employees who elect to participate. Under the terms of the 401(k) Plan,
Foamex L.P. partially matches certain employee contributions.  Expense for these
contributions was $0.8 million,  $0.9 million and $0.9 million in 2005, 2004 and
2003, respectively.


                                      F-27
<PAGE>


                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.  INCOME TAXES

     The sources of loss before income taxes are shown below.

                                            2005          2004           2003
                                        ---------      ---------      ---------
                                                     (thousands)
     United States                      $(42,760)      $(24,144)      $(26,893)
     Foreign                             (11,312)          (256)           974
                                        --------       --------       --------

     Loss before income taxes           $(54,072)      $(24,400)      $(25,919)
                                        ========       ========       ========

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

<TABLE>
<CAPTION>
                                                                 2005            2004              2003
                                                              ---------        --------          -------
                                                                            (thousands)
<S>                                                           <C>              <C>               <C>
     Statutory income taxes                                   $(18,925)        $(8,540)          $(9,072)
     State income taxes, net of federal benefit                    (27)         (1,062)             (831)
     Nondeductible goodwill impairment                          12,500               -                 -
     Nondeductible bankruptcy costs                              3,094               -                 -
     Permanent difference on partnership income                    349           9,552             9,668
     Increase (decrease) in valuation allowance                  2,389               8               649
     Impact of tax rate change                                       -               -                85
     Other, net                                                    157             673               995
                                                              --------         -------           -------
     Provision (benefit) for income taxes                     $   (463)        $   631           $ 1,494
                                                              ========         =======           =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                 2005            2004              2003
                                                              ---------        --------          -------
     Current                                                                (thousands)
<S>                                                           <C>              <C>               <C>
       Federal                                                $      -         $     -           $     -
       State                                                         -              19                60
       Foreign                                                     116             577             1,286
                                                              --------         -------           -------
         Total current                                             116             596             1,346
                                                              --------         -------           -------

     Deferred
       Federal                                                       -               -                 -
       State                                                         -               -                 -
       Foreign                                                  (2,968)             27              (501)
                                                              --------         -------           -------
         Total deferred                                         (2,968)             27              (501)
                                                              --------         -------           -------

     Change in valuation allowance                               2,389               8               649
                                                              --------         -------           -------

     Total provision (benefit) for income taxes               $   (463)        $   631           $ 1,494
                                                              ========         =======           =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                              January 1,         January 2,
                                                                                 2006               2005
                                                                              ----------         ----------
                                                                                       (thousands)
<S>                                                                            <C>                 <C>
     Loss carryforwards and other                                              $ 6,493             $ 4,431
     Valuation allowance for deferred income tax assets                         (4,812)             (2,025)
                                                                               -------             -------
       Deferred income tax assets                                                1,681               2,406
                                                                               -------             -------

                                      F-28
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.  INCOME TAXES (continued)

                                                                              January 1,         January 2,
                                                                                 2006               2005
                                                                              ----------         ----------
                                                                                       (thousands)
     Deferred income tax liabilities
       Basis difference in property, plant and equipment                             -                (612)
       Investment in joint venture                                                (771)               (771)
       Other                                                                    (2,000)             (2,779)
                                                                               -------             --------
       Deferred income tax liabilities                                          (2,771)             (4,162)
                                                                               -------             --------

     Net deferred income tax liabilities                                       $(1,090)            $(1,756)
                                                                               =======             ========
</TABLE>


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

     At January 1, 2006,  Foamex L.P.  had $4.8  million of net  operating  loss
carryforwards  in a Mexican  subsidiary that expire in 2006 through 2015. A full
valuation allowance has been recorded due to uncertainty  regarding  utilization
of the net operating loss carryforwards.

     Cumulative undistributed earnings of foreign subsidiaries for which no U.S.
income or foreign withholding taxes have been provided, amounted to $6.2 million
at January 1, 2006 and $5.2 million at January 2, 2005. Such earnings are deemed
to be permanently invested by Foamex L.P. As such, no deferred tax liability has
been  recognized  with  regard  to the  remittance  of such  earnings.  Further,
determination  of the amount of unrecognized  deferred tax liability with regard
to such earnings is not practicable.

12.  PARTNERS' DEFICIENCY

     Foamex L.P. was formed as a Delaware  limited  partnership  on September 5,
1990, and initially capitalized on October 2, 1990, in accordance with a limited
partnership  agreement as amended through March 2002. As of January 1, 2006, the
partnership  interests of Foamex L.P. are a 1.7%  managing  general  partnership
interest  held by FMXI and a 98.3% limited  partnership  interest held by Foamex
International.

Accumulated Other Comprehensive Loss

     The components of accumulated other comprehensive loss are listed below.

<TABLE>
<CAPTION>
                                                              2005              2004                  2003
                                                           ---------         ----------             ---------
                                                                             (thousands)
<S>                                                        <C>                <C>                   <C>
     Foreign currency translation adjustment               $ (1,342)          $ (1,219)             $ (3,257)
     Minimum pension liability                              (52,045)           (50,809)              (44,556)
                                                           --------           --------              --------
                                                           $(53,387)          $(52,028)             $(47,813)
                                                           ========           ========              ========
</TABLE>

13.  BUSINESS SEGMENTS

     The  reportable   business   segments  reflect  Foamex  L.P.'s   management
organization that is structured based on distinct product lines and customers.

     An executive vice president  heads each operating  segment.  Each executive
vice  president  is  responsible  for  developing  budgets  and plans as well as
directing  the  operations of the segment.  The  performance  of each  operating
segment is measured  based upon income from  operations,  excluding  impairment,
restructuring  and other  charges.  Foamex L.P.  does not  allocate  impairment,
restructuring  and other  charges to operating  segments  because many of Foamex
L.P.'s facilities produce products for multiple segments.


                                      F-29
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


13.  BUSINESS SEGMENTS (continued)

     Foam  Products  manufactures  and  markets  cushioning  foams for  bedding,
furniture,  recreational  and consumer  applications.  Carpet  Cushion  Products
manufactures  and  distributes  rebond  and  prime  carpet  padding.  Automotive
Products  supplies  foam  products and laminates to major tier one suppliers and
OEMs.  Technical  Products   manufactures  and  markets  reticulated  and  other
specialty  foams  used  for  reservoiring,  filtration,  gasketing  and  sealing
applications.

     The "other" column in the table below represents certain  manufacturing and
fabrication operations in Mexico City, corporate expenses not allocated to other
business segments and impairment, restructuring and other charges (credits) (see
Note 6). Asset and capital  expenditure  information by business  segment is not
reported because many of Foamex L.P.'s facilities  produce products for multiple
business segments.

     The accounting  policies of the business segments are the same as described
in Note 2.  Business  segment  results  include  revenues  and  costs  that  are
specifically  identifiable  and costs  shared  by  business  segments  have been
allocated based on utilization.

     Sales to one customer, which are included in Automotive Products, accounted
for  approximately  10.7%,  12.5% and 16.3% of net sales in 2005, 2004 and 2003,
respectively.  No other  customer  accounted  for more  than  10.0% of net sales
during the periods presented.

     Business segment results are presented below.

<TABLE>
<CAPTION>
                                                Carpet
                                   Foam        Cushion      Automotive      Technical
                                 Products      Products      Products        Products        Other        Total
                                 --------     ---------     ----------      ---------     ----------   ----------
2005                                                        (dollars in thousands)
<S>                              <C>          <C>            <C>             <C>          <C>          <C>
Net sales                        $613,507     $178,268       $366,296        $127,712     $  25,828    $1,311,611
Income (loss) from operations    $ 57,516     $  1,820       $ 22,487        $ 32,749     $(112,084)   $    2,488
Depreciation and amortization    $  7,257     $  2,277       $  2,590        $  2,318     $   5,603    $   20,045

2004
Net sales                        $551,414     $209,182       $350,985        $124,146     $  30,667    $1,266,394
Income (loss) from operations    $ 52,418     $  8,539       $ 19,245        $ 32,916     $ (61,318)   $   51,800
Depreciation and amortization    $ 10,213     $  2,978       $  3,116        $  2,801     $   6,825    $   25,933

2003
Net sales                        $507,586     $208,855       $447,068        $117,450     $  23,601    $1,304,560
Income (loss) from operations    $ 43,983     $  5,395       $ 33,399        $ 32,115     $ (50,456)   $   64,436
Depreciation and amortization    $ 11,002     $  3,275       $  2,815        $  2,931     $   6,022    $   26,045
</TABLE>

     Geographical information is presented below.

<TABLE>
<CAPTION>
                                                       United
                                                        States          Canada          Mexico *     Consolidated
                                                     -----------       --------         --------     ------------
2005                                                                           (thousands)
<S>                                                  <C>               <C>              <C>           <C>
Net sales                                            $1,043,280        $63,464          $204,867      $1,311,611
Property, plant and equipment, net                   $   97,815        $ 1,594          $ 13,824      $  113,233

2004
Net sales                                            $1,009,102        $59,435          $197,857      $1,266,394
Property, plant and equipment, net                   $  120,578        $ 5,100          $ 15,865      $  141,543

2003
Net sales                                            $  989,075        $67,542          $247,943      $1,304,560
Property, plant and equipment, net                   $  142,602        $ 5,003          $ 15,245      $  162,850
</TABLE>

* Includes four plants along the U.S. border whose operations are included in
Automotive Products in the business segment results.


                                      F-30
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14.  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

                                            2005           2004           2003
                                          -------        -------        -------
                                                      (thousands)
     Cash paid for interest               $50,829        $73,218        $72,785
                                          =======        =======        =======

     Cash paid for income taxes, net      $   505        $   120        $ 2,349
                                          =======        =======        =======

     Non cash - capital leases            $   665        $    49        $     -
                                          =======        =======        =======

15.  RELATED PARTY TRANSACTIONS AND BALANCES

     Foamex L.P.  regularly enters into  transactions with its affiliates in the
ordinary course of business.

Trace Promissory Notes

     On July 1, 1997, Trace International  Holdings,  Inc. ("Trace"),  which was
formerly a major  stockholder  of Foamex  International,  borrowed  $5.0 million
pursuant to a promissory note with an aggregate principal amount of $5.0 million
issued to Foamex L.P. on June 12, 1997. The promissory  note was due and payable
on demand or, if no demand was made,  on July 7, 2001,  and bears  interest at 2
3/8% plus three-month LIBOR, as defined,  per annum payable quarterly in arrears
commencing  October 1, 1997. On June 12, 1997, another promissory note issued to
Foamex L.P. by Trace in July 1996 was amended. The amended promissory note is an
extension of a promissory note of Trace that was due in July 1997. The aggregate
principal  amount of the amended  promissory note was increased to approximately
$4.8 million and the maturity of the promissory note was extended. The principal
was reduced by approximately  $0.6 million relating to a portion of the proceeds
from the sale of a corporate  aircraft in 1999. The promissory  note was due and
payable on demand or, if no demand was made, on July 7, 2001, and bears interest
at 2 3/8% plus  three-month  LIBOR, as defined,  per annum payable  quarterly in
arrears.

     The  Trace  notes  are  included  in  the  other   component  of  partners'
deficiency.  Based on Trace's bankruptcy filing and financial  condition,  it is
not  probable  that  Trace  will be able to pay  the  aggregate  amount  of $9.2
million.  Upon the conclusion of the Trace bankruptcy  proceedings,  Foamex L.P.
will charge the uncollected  portion of the Trace notes to the general partners'
deficiency.  Foamex L.P. has not  recorded  any  interest  income on these notes
since the Trace bankruptcy.

Trace Accounts Receivable

     At January 1, 2006 and January 2, 2005,  operating accounts receivable from
Trace were  approximately  $3.2 million.  These accounts  receivable  were fully
reserved for prior to 2002.

Other

     Effective February 10, 2004, Foamex  International's  Chairman resigned his
position by mutual agreement with Foamex International's Board of Directors.  In
connection with this resignation, Foamex International entered into a separation
agreement  with  the  former   Chairman  and  recorded  a  one-time   charge  of
approximately  $1.4  million in the first  quarter of 2004 for  amounts  payable
under this  agreement,  none of which  related to past  service  rendered by the
former Chairman.  Additionally,  Foamex  International  recorded the reversal of
approximately  $1.4 million  reflected  on the balance  sheet as of December 28,
2003  related  to  various  retirement  provisions  contained  in an  employment
agreement  with Foamex  International  that are no longer  payable to the former
Chairman under the terms of the separation  agreement.  The separation agreement
was rejected by Foamex International effective as of September 30, 2005 pursuant
to Section 365 of the Bankruptcy  Code and as a result of the rejection,  Foamex
International  has no  further  obligations  to the  former  Chairman  under the
separation agreement.


                                      F-31
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15.  RELATED PARTY TRANSACTIONS AND BALANCES (continued)

     In 2001, one of Foamex  International's former directors received a loan of
$0.2 million from Foamex L.P.'s joint venture in Asia. The loan was evidenced by
a  20-year  non-recourse  promissory  note  bearing  interest  at 4.0% per annum
secured by the former  director's  5.0%  interest in the value of Foamex  L.P.'s
equity  interest in the joint venture in Asia.  Foamex L.P.  also  maintained an
apartment used by this former director.  Rent expense for this facility was $0.1
million in 2004 and $0.2 million in 2003 and 2002.  The apartment  lease expired
in 2004 and was not renewed.

     Foamex L.P.,  Recticel  s.a.  ("Recticel"),  a European  polyurethane  foam
manufacturer,  and Beamech Group Limited,  an unaffiliated  third party, have an
interest in a Swiss corporation that develops new  manufacturing  technology for
the  production  of  polyurethane  foam  including  the VPF  (SM)  manufacturing
process.  Recticel  and  affiliates  of  Recticel  are  shareholders  of  Foamex
International.

     During 2001, Foamex International entered into an agreement that guarantees
two non-recourse  promissory notes, totaling $0.7 million,  payable to a foreign
affiliate that Foamex L.P. accounts for under the equity method.  The promissory
notes were  issued to a former  director  of Foamex  International  and a former
employee  of Foamex  L.P.  Foamex L.P.  established  an accrual of $0.3  million
included in other  liabilities at January 2, 2005 since the promissory notes are
nonrecourse. In 2005, Foamex L.P. accrued the remaining amount of the guarantee,
including accrued interest, upon termination of the former employee's contract.

     Also during 2002,  Foamex L.P.  entered into an agreement  with a member of
Foamex  International's  Board of  Directors to provide  consulting  services in
connection with potential strategic business  opportunities in Asia at an annual
cost of $0.2 million.  The agreement  was  terminated in 2004.  Foamex L.P. also
paid $0.1  million  in 2004 for legal  services  to a law firm in which  another
Foamex  International  director is counsel. A deminimis amount of fees were paid
to this firm in 2005.

16.  COMMITMENTS AND CONTINGENCIES

Operating Leases

     Foamex L.P. is  obligated  under  various  lease  agreements  for rental of
facilities,  vehicles and other  equipment.  Many of the leases contain  renewal
options with varying  terms and  escalation  clauses that provide for  increased
rentals based upon increases in the Consumer Price Index,  real estate taxes and
lessors' operating  expenses.  Total minimum rental  commitments  required under
operating leases at January 1, 2006 are (thousands):

       2006                                            $15,453
       2007                                             13,329
       2008                                             11,438
       2009                                              9,171
       2010                                              7,280
       Balance                                          14,733
                                                       -------
       Total                                           $71,404
                                                       =======

     Rental expense charged to operations  under operating  leases  approximated
$18.3  million,  $19.3  million  and  $18.8  million  in 2005,  2004  and  2003,
respectively.  Substantially  all such rental  expense  represented  the minimum
rental payments under operating leases.

Contractual Commitments

     Foamex L.P. has entered into contracts for information  technology services
and certain raw materials that have minimum  purchase  commitments  estimated at
$268.3 million in 2006,  $237.9 million in 2007 and $115.0 million in 2008, 2009
and 2010.  In addition,  Foamex L.P. has  committed to pay fees  aggregating  $7
million to $8 million to certain financial advisors subject to final approval by
the Bankruptcy Court.


                                      F-32
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


16.  COMMITMENTS AND CONTINGENCIES (continued)

Litigation

     Foamex L.P. is party to various lawsuits,  both as defendant and plaintiff,
arising in the normal course of business.  It is the opinion of management  that
the  disposition of these lawsuits will not,  individually  or in the aggregate,
have a material adverse effect on Foamex L.P.'s financial position or results of
operations.  If management's  assessment of Foamex L.P.'s liability  relating to
these actions is incorrect,  these actions could have a material  adverse effect
on Foamex L.P.'s consolidated financial position, results of operations and cash
flows.

     As a consequence of the Filing,  all pending litigation against the Debtors
was stayed  automatically  by Section  362 of the  Bankruptcy  Code and,  absent
further order of the Bankruptcy  Court,  no party may take any action to recover
on pre-petition claims against the Debtors. In addition, pursuant to Section 365
of the Bankruptcy Code, the Debtors may reject or assume pre-petition  executory
contracts  and unexpired  leases,  and other parties to contracts or leases that
are rejected may assert rejection  damages claims as permitted by the Bankruptcy
Code.

     As of January 1, 2006, Foamex L.P. had accrued  approximately  $0.8 million
for litigation and other legal matters in addition to the environmental  matters
discussed  below.  The litigation  claims are liabilities  subject to compromise
that are capable of being treated as general unsecured claims under the Plan.

Environmental and Health and Safety

     Foamex L.P. is subject to extensive and changing federal,  state, local and
foreign environmental laws and regulations, including those relating to the use,
handling, storage, discharge and disposal of hazardous substances, the discharge
or  emission  of  materials  into  the  environment,   and  the  remediation  of
environmental  contamination,  and as a result, is from time to time involved in
administrative and judicial  proceedings and inquiries relating to environmental
matters.  As of January 1, 2006, Foamex L.P. had accruals of approximately  $2.1
million for environmental matters,  including approximately $1.9 million related
to  remediating   and  monitoring  soil  and   groundwater   contamination   and
approximately  $0.2 million  related to sites where it has been  designated as a
PRP by the EPA or a state  authority,  and  other  matters.  The PRP  sites  are
liabilities  subject to compromise and Foamex L.P. believes they will be treated
as general unsecured claims under the Plan. Additional losses, if any, in excess
of amounts currently  accrued,  cannot be reasonably  estimated at this time. If
there are additional  matters or if our current  estimates are incorrect,  there
could be a material adverse effect on Foamex L.P.'s financial position,  results
of operations and cash flows.

     On  August  31,  2002,   Environment  Canada,  the  Canadian  environmental
regulatory  agency,  finalized a rule which requires flexible  polyurethane foam
manufacturing  operations to reduce  methylene  chloride  (dichloromethane)  air
emissions.  The  rule  established  a  50.0%  reduction  in  methylene  chloride
emissions by December 1, 2004, which we have  implemented,  and 100.0% reduction
by January 1, 2007.  This  standard has not and will not require  Foamex L.P. to
make material expenditures for its Canadian plants.

     Foamex L.P. has reported to the appropriate  state  authorities that it had
found soil and/or  groundwater  contamination  in excess of state  standards  at
certain locations.  Seven sites are currently in various stages of investigation
or  remediation.  Accordingly,  the  extent of  contamination  and the  ultimate
liability is not known with certainty for all sites.

     Foamex L.P. has either upgraded or closed all underground  storage tanks at
its facilities in accordance with applicable regulations.

     The CERCLA and comparable state laws impose liability without fault for the
costs of  cleaning  up  contaminated  sites on certain  classes of persons  that
contributed to the release of hazardous substances into the environment at those
sites, for example, by generating wastes containing  hazardous  substances which
were disposed at such sites. Foamex L.P. is currently designated as a PRP by the
EPA or by state  environmental  agencies  or other  PRPs,  pursuant to CERCLA or
analogous state statutes, with respect to 11 sites. Estimates of total cleanup


                                      F-33
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.  COMMITMENTS AND CONTINGENCIES (continued)

costs and fractional allocations of liability are often provided by the EPA, the
state  environmental  agency  or the  committee  of  PRPs  with  respect  to the
specified site. Based on these estimates (to the extent  available) and on known
information,  in each case and in the  aggregate,  Foamex  L.P.  does not expect
additional  costs, if any, to be material to liquidity,  result of operations or
financial position.

     The  possibility   exists,   that  new  environmental   legislation  and/or
environmental  regulations may be adopted,  or other  environmental  conditions,
including the presence of previously unknown environmental contamination, may be
found  to  exist  or  a  reassessment  of  the  potential  exposure  to  pending
environmental  matters  may  be  necessary  due  to new  information  or  future
developments,  that may require expenditures not currently  anticipated and that
may be material.

17.  GUARANTOR INFORMATION

     The payment obligations of Foamex L.P. and Foamex Capital Corporation under
the 10 3/4% Senior  Secured  Notes are  guaranteed  by Foamex  L.P.'s 100% owned
domestic subsidiaries  ("Guarantors").  Such guarantees are full,  unconditional
and joint and several.  Separate financial  statements of the Guarantors are not
presented because Foamex L.P.'s management has determined that they would not be
material to investors.  The following presents condensed  consolidating  balance
sheets as of January 1, 2006 and January 2, 2005 and the condensed consolidating
statements  of  operations  and cash flows for the years ended  January 1, 2006,
January 2, 2005 and December 28, 2003 of the Guarantors and  nonguarantors.  The
Guarantors  include  Foamex Carpet Cushion LLC ("Foamex  Carpet"),  Foamex Latin
America, Inc., Foamex Mexico, Inc., Foamex Mexico II, Inc. and Foamex Asia, Inc.
On December 30, 2002, Foamex Carpet distributed certain assets,  liabilities and
its business to Foamex L.P. and accordingly,  Foamex Carpet is not included as a
guarantor in the financial  information  as of January 1, 2006,  January 2, 2005
and December 28, 2003 and for the years then ended. The nonguarantors are Foamex
Canada Inc. and Grupo Foamex de Mexico,  S.A. de C.V. and its subsidiaries.  The
following  financial  information  is  intended to provide  information  for the
Guarantors and  nonguarantors  of Foamex L.P. based on amounts  derived from the
financial statements of Foamex L.P.

                      Condensed Consolidating Balance Sheet
                              As of January 1, 2006

<TABLE>
<CAPTION>
                                                                                  Foamex
                                                                                  Capital   Foamex L.P.                 Consolidated
                                                     Guarantors  Nonguarantors  Corporation  (Parent)    Eliminations    Foamex L.P.
                                                     ----------  -------------  ----------- -----------  ------------   ------------
Assets                                                                             (thousands of dollars)
<S>                                                   <C>          <C>           <C>        <C>            <C>            <C>
   Current assets                                     $     -      $25,575       $   1      $ 322,448      $ (6,144)      $ 341,880
   Investment in subsidiaries                           2,870            -           -         31,706       (34,576)              -
   Property, plant and equipment, net                       -       13,403           -         99,830             -         113,233
   Goodwill                                                 -        2,611           -         86,192             -          88,803
   Debt issuance costs                                      -            -           -          6,667             -           6,667
   Other assets                                        17,191        2,312           -         40,281        (9,050)         50,734
                                                      -------      -------       -----      ---------      --------       ---------
     Total assets                                     $20,061      $43,901       $   1      $ 587,124      $(49,770)      $ 601,317
                                                      =======      =======       =====      =========      ========       =========

Liabilities and Partners' Deficiency
   Current liabilities                                $ 1,057      $18,323       $   -      $ 346,899      $ (6,144)      $ 360,135
   Long-term debt                                       4,200        4,876           -            340        (9,050)            366
   Liabilities subject to compromise                      851            -           -        635,114             -         635,965
   Other liabilities                                        -           80           -         19,753             -          19,833
                                                      -------      -------       -----      ---------      --------       ---------
     Total liabilities                                  6,108       23,279           -      1,002,106       (15,194)      1,016,299
   Partners' deficiency                                13,953       20,622           1       (414,982)      (34,576)       (414,982)
                                                      -------      -------       -----      ---------      --------       ---------
     Total liabilities and partners' deficiency       $20,061      $43,901       $   1      $ 587,124      $(49,770)      $ 601,317
                                                      =======      =======       =====      =========      ========       =========
</TABLE>


                                      F-34
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.    GUARANTOR INFORMATION (continued)

                      Condensed Consolidating Balance Sheet
                              As of January 2, 2005

<TABLE>
<CAPTION>
                                                                                  Foamex
                                                                                  Capital   Foamex L.P.                 Consolidated
                                                     Guarantors  Nonguarantors  Corporation  (Parent)    Eliminations    Foamex L.P.
                                                     ----------  -------------  ----------- -----------  ------------   ------------
Assets                                                                             (thousands of dollars)
<S>                                                   <C>          <C>           <C>        <C>           <C>            <C>
   Current assets                                     $     -      $29,953       $   1      $284,159      $ (3,594)      $ 310,519
   Investment in subsidiaries                           8,768            -           -        42,213       (50,981)              -
   Property, plant and equipment, net                       -       18,650           -       122,893             -         141,543
   Goodwill                                                 -        6,328           -       120,486             -         126,814
   Debt issuance costs                                      -            -           -        21,152             -          21,152
   Other assets                                        15,686        2,486           -        36,556        (9,050)         45,678
                                                      -------      -------       -----      --------      --------       ---------
     Total assets                                     $24,454      $57,417       $   1      $627,459      $(63,625)      $ 645,706
                                                      =======      =======       =====      ========      ========       =========

Liabilities and Partners' Deficiency
   Current liabilities                                $ 1,589      $19,020       $   -      $347,549       $(3,594)      $ 364,564
   Long-term debt                                       4,200        4,850           -       568,461        (9,050)        568,461
   Other liabilities                                        -        1,232           -        67,040             -          68,272
                                                      -------      -------       -----      --------      --------       ---------
     Total liabilities                                  5,789       25,102           -       983,050       (12,644)      1,001,297
   Partners' deficiency                                18,665       32,315           1      (355,591)      (50,981)       (355,591)
                                                      -------      -------       -----      --------      --------       ---------
     Total liabilities and partners' deficiency       $24,454      $57,417       $   1      $627,459      $(63,625)      $ 645,706
                                                      =======      =======       =====      ========      ========       =========
</TABLE>

                 Condensed Consolidating Statement of Operations
                       For the year ended January 1, 2006

<TABLE>
<CAPTION>
                                                                    Foamex
                                                                  Capital       Foamex L.P.                          Consolidated
                                     Guarantors   Nonguarantors   Corporation    (Parent)         Eliminations       Foamex L.P.
                                     ----------   -------------   -----------   -----------       ------------       -----------
                                                                 (thousands of dollars)
<S>                                     <C>         <C>             <C>          <C>                <C>                 <C>
Net sales                               $     -     $102,810        $   -        $1,236,105         $(27,304)           $1,311,611

Cost of goods sold                            -      100,119            -         1,102,961          (27,304)            1,175,776
                                        -------     --------        -----         ---------         --------            ----------

   Gross profit                               -        2,691            -           133,144                -               135,835

Selling, general and administrative
   expenses                                   -        8,562            -            72,601                -                81,163

Impairment, restructuring and other
   charges                                    -        7,240            -            44,944                -                52,184
                                        -------     --------        -----         ---------         --------            ----------

Income from operations                        -      (13,111)           -            15,599                -                 2,488

Gain on sale of businesses                    -            -            -            29,719                -                29,719

Interest and debt issuance expense         (310)        (405)           -           (79,708)             674               (79,749)

Equity in undistributed earnings
   of affiliates                         (4,249)           -            -           (10,377)          16,390                 1,764

Other expense, net                          273          559            -            (1,647)            (674)               (1,489)

Reorganization items, net                    (9)        (120)           -            (6,676)               -                (6,805)
                                        -------     --------        -----         ---------         --------            ----------

Loss before income taxes                 (4,295)     (13,077)           -           (53,090)          16,390               (54,072)

Provision (benefit) for income taxes           -        (982)           -               519                -                  (463)
                                        -------     --------        -----         ---------         --------            ----------

Loss before cumulative effect of
   accounting change                     (4,295)     (12,095)           -           (53,609)          16,390               (53,609)

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

Net loss                                $(4,295)    $(12,095)       $   -         $ (57,108)        $ 16,390            $  (57,108)
                                        =======     ========        =====         =========         ========            ==========
</TABLE>


                                      F-35
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.  GUARANTOR INFORMATION (continued)

                 Condensed Consolidating Statement of Operations
                       For the year ended January 2, 2005

<TABLE>
<CAPTION>
                                                                  Foamex
                                                                  Capital       Foamex L.P.                          Consolidated
                                     Guarantors   Nonguarantors   Corporation    (Parent)         Eliminations       Foamex L.P.
                                     ----------   -------------   -----------   -----------       ------------       -----------
                                                                 (thousands of dollars)
<S>                                     <C>         <C>             <C>         <C>                 <C>              <C>
Net sales                               $     -     $100,515        $   -       $1,187,774          $(21,895)        $1,266,394

Cost of goods sold                            -       93,882            -        1,052,560           (21,895)         1,124,547
                                        -------     --------         ----       ----------          --------         ----------

   Gross profit                               -        6,633            -          135,214                 -            141,847

Selling, general and administrative
   expenses                                   -        6,722            -           80,075                 -             86,797

Impairment, restructuring and other
   charges                                    -            -            -            3,250                 -              3,250
                                        -------     --------        -----       ----------         ---------         ----------

Income from operations                        -          (89)           -           51,889                 -             51,800

Interest and debt issuance expense         (250)        (330)           -          (76,614)              527            (76,667)

Equity in undistributed earnings
   of affiliates                           (658)           -            -             (760)            2,105                687

Other expense, net                          202         (524)           -              629              (527)              (220)
                                        -------     --------        -----       ----------         ---------         ----------

Loss before income taxes                   (706)        (943)           -          (24,856)            2,105            (24,400)

Provision for income taxes                    -          456            -              175                 -                631
                                        -------     --------        -----       ----------         ---------         ----------

Net loss                                $  (706)    $ (1,399)       $   -       $  (25,031)        $   2,105         $  (25,031)
                                        =======     ========        =====       ==========         =========         ==========
</TABLE>



                                      F-36
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.  GUARANTOR INFORMATION (continued)

                 Condensed Consolidating Statement of Operations
                      For the year ended December 28, 2003

<TABLE>
<CAPTION>
                                                                  Foamex
                                                                  Capital       Foamex L.P.                          Consolidated
                                     Guarantors   Nonguarantors   Corporation    (Parent)         Eliminations       Foamex L.P.
                                     ----------   -------------   -----------   -----------       ------------       -----------
                                                                 (thousands of dollars)
<S>                                     <C>         <C>             <C>         <C>                 <C>              <C>
Net sales                               $     -     $105,604        $   -       $1,222,399          $(23,443)        $1,304,560

Cost of goods sold                            -       95,567            -        1,088,746           (23,443)         1,160,870
                                        -------     --------        -----       ----------          --------         ----------

   Gross profit                               -       10,037            -          133,653                 -            143,690

Selling, general and administrative
   expenses                                   -        7,399            -           73,614                 -             81,013

Impairment, restructuring and other
   credits                                    -          320            -           (2,079)                -             (1,759)
                                        -------     --------        -----       ----------          --------         ----------

Income from operations                        -        2,318            -           62,118                 -             64,436

Interest and debt issuance expense         (234)         (25)           -          (88,303)              188            (88,374)

Equity in undistributed earnings
   of affiliates                         (1,156)           -            -             (379)            3,001              1,466

Other expense, net                          190       (2,784)           -             (665)             (188)            (3,447)
                                        -------     --------        -----       ----------          --------         ----------

Loss before income taxes                 (1,200)        (491)           -          (27,229)            3,001            (25,919)

Provision for income taxes                    -        1,310            -              184                 -              1,494
                                        -------     --------        -----       ----------          --------         ----------

Net loss                                $(1,200)    $ (1,801)       $   -       $ (27,413)          $  3,001         $  (27,413)
                                        =======     ========        =====       ==========          ========         ==========
</TABLE>


                                      F-37
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.    GUARANTOR INFORMATION (continued)

                 Condensed Consolidating Statement of Cash Flows
                       For the year ended January 1, 2006

<TABLE>
<CAPTION>
                                                                  Foamex
                                                                  Capital       Foamex L.P.                          Consolidated
                                     Guarantors   Nonguarantors   Corporation    (Parent)         Eliminations       Foamex L.P.
                                     ----------   -------------   -----------   -----------       ------------       -----------
                                                                 (thousands of dollars)
Cash Flows from Operating Activities
<S>                                     <C>          <C>             <C>         <C>                 <C>              <C>
   Net income (loss)                    $(4,295)     $(12,095)       $   -       $(57,108)           $16,390          $(57,108)
   Total adjustments to reconcile net
     income (loss) to net cash used
     for operating activities             4,295        12,019            -         35,147            (16,390)           35,071
                                        -------      --------        -----       --------            -------          --------

   Net cash used for operating
     activities                               -           (76)           -        (21,961)                 -           (22,037)
                                        -------      --------        -----       --------            -------          --------

Cash Flows from Investing Activities
   Capital expenditures                       -           (62)           -         (5,650)               517            (5,195)
   Proceeds from sale of assets               -             -            -         39,815                  -            39,815
   Other                                      -           517            -         (2,616)              (517)           (2,616)
                                        -------      --------        -----       --------            -------          --------

   Net cash provided by investing
     activities                               -           455            -         31,549                  -            32,004
                                        -------      --------        -----       --------            -------          --------

Cash Flows from Financing Activities
   Proceeds from long-term debt               -             -            -        119,659                  -           119,659
   Repayments of long-term debt               -             -            -       (118,479)                 -          (118,479)
   Other, net                                 -             -            -         (9,079)                 -            (9,079)
                                        -------      --------        -----       --------            -------          --------

   Net cash used for financing
     activities                               -             -            -         (7,899)                 -            (7,899)
                                        -------      --------        -----       --------            -------          --------

Net decrease in cash and
   cash equivalents                           -           379            -          1,689                  -             2,068

Cash and cash equivalents at                  -         2,200            1          3,146                  -             5,347
                                        -------      --------        -----       --------            -------          --------

Cash and cash equivalents at
   end of period                        $     -      $  2,579        $   1       $  4,835            $     -          $ 7,415
                                        =======      ========        =====       ========            =======          =======
</TABLE>


                                      F-38
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.  GUARANTOR INFORMATION (continued)

                 Condensed Consolidating Statement of Cash Flows
                       For the year ended January 2, 2005

<TABLE>
<CAPTION>
                                                                  Foamex
                                                                  Capital       Foamex L.P.                          Consolidated
                                     Guarantors   Nonguarantors   Corporation    (Parent)         Eliminations       Foamex L.P.
                                     ----------   -------------   -----------   -----------       ------------       -----------
                                                                 (thousands of dollars)
Cash Flows from Operating Activities
<S>                                       <C>         <C>            <C>         <C>                 <C>              <C>
   Net income (loss)                      $(705)      $(1,399)       $   -       $(25,031)           $ 2,104          $(25,031)
   Total adjustments to reconcile net
     income (loss) to net cash provided
     by (used in) operating activities      705         2,665            -         23,962             (2,104)           25,228
                                        -------       -------        -----       --------            -------          --------

   Net cash provided by
     operating activities                     -         1,266            -         (1,069)                 -               197

Cash Flows from Investing Activities
   Capital expenditures                       -        (1,235)           -         (4,275)                 -            (5,510)
   Acquisition                                -             -            -              -                  -                 -
   Other                                      -             -            -          2,801             (2,500)              301
                                        -------       -------        -----       --------            -------          --------

   Net cash used for investing activities     -        (1,235)           -         (1,474)            (2,500)           (5,209)

Cash Flows from Financing Activities
   Net proceeds from revolving loans          -             -            -         18,841                  -            18,841
   Repayments of long-term debt               -             -            -        (10,853)                 -           (10,853)
   Other, net                                 -        (2,500)           -         (4,239)             2,500            (4,239)
                                        -------       -------        -----       --------            -------          --------

   Net cash provided by financing
      activities                              -        (2,500)           -          3,749              2,500             3,749
                                        -------       -------        -----       --------            -------          --------

Net decrease in cash and cash equivalents     -        (2,469)           -          1,206                  -            (1,263)

Cash and cash equivalents at
   beginning of period                        -         4,669            1          1,940                  -             6,610
                                        -------       -------        -----       --------            -------          --------

Cash and cash equivalents at
   end of period                        $     -       $ 2,200        $   1       $  3,146            $     -          $  5,347
                                        =======       =======        =====       ========            =======          ========
</TABLE>



                                      F-39
<PAGE>

                          FOAMEX L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.  GUARANTOR INFORMATION (continued)

                 Condensed Consolidating Statement of Cash Flows
                      For the year ended December 28, 2003

<TABLE>
<CAPTION>
                                                                  Foamex
                                                                  Capital       Foamex L.P.                          Consolidated
                                     Guarantors   Nonguarantors   Corporation    (Parent)         Eliminations       Foamex L.P.
                                     ----------   -------------   -----------   -----------       ------------       -----------
                                                                 (thousands of dollars)
Cash Flows from Operating Activities
<S>                                     <C>           <C>            <C>         <C>                 <C>              <C>
   Net income (loss)                    $(1,200)      $(1,801)       $   -       $(27,413)           $ 3,001          $(27,413)
   Total adjustments to reconcile net
     income (loss) to net cash provided
     by operating activities              1,119         6,429            -         40,887             (2,920)           45,515
                                        -------       -------        -----       --------            -------          --------

   Net cash provided by operating
     activities                             (81)        4,628            -         13,474                 81            18,102
                                        -------       -------        -----       --------            -------          --------

Cash Flows from Investing Activities
   Capital expenditures                       -        (1,740)           -         (5,806)             1,003            (6,543)
   Other                                     81             -            -         (1,089)            (1,084)           (2,092)
                                        -------       -------        -----       --------            -------          --------

   Net cash used for investing
      activities                             81       (1,740)           -          (6,895)               (81)           (8,635)
                                        -------       -------        -----       --------            -------          --------

Cash Flows from Financing Activities
   Net proceeds from (repayments of)
     revolving loans                          -             -            -         44,242                  -           44,242
   Proceeds from long-term debt               -             -            -        130,000                  -           130,000
   Repayments of long-term debt               -             -            -       (164,020)                 -          (164,020)
   Other, net                                 -             -            -        (17,442)                 -           (17,442)
                                        -------       -------        -----       --------            -------          --------

   Net cash used for financing
      activities                              -             -            -         (7,220)                 -            (7,220)
                                        -------       -------        -----       --------            -------          --------

Net increase in cash and
   cash equivalents                           -         2,888            -           (641)                 -             2,247

Cash and cash equivalents at
   beginning of period                        -         1,781            1          2,581                  -             4,363
                                        -------       -------        -----       --------            -------          --------

Cash and cash equivalents at
   end of period                        $     -       $ 4,669        $   1       $  1,940            $     -          $  6,610
                                        =======       =======        =====       ========            =======          ========
</TABLE>


18.    SUBSEQUENT EVENT

     On March 7, 2006,  Foamex L.P.  announced the closure of two  manufacturing
facilities,  including a foam pouring facility,  located in Toronto, Canada, and
on March 20,  2006,  Foamex  L.P.  announced  the  closure  of its foam  pouring
facility  in  Orlando,   Florida.   Foamex  L.P.   expects  to  incur  costs  of
approximately $8.0 million to $11.0 million in connection with the closures.


                                      F-40
<PAGE>
                        REPORT OF INDEPENDENT REGISTERED
                             PUBLIC ACCOUNTING FIRM


The Board of Directors of
Foamex Capital Corporation:


We have audited the  accompanying  balance sheets of Foamex Capital  Corporation
(the "Company"), a wholly-owned subsidiary of Foamex L.P., as of January 1, 2006
and January 2, 2005 which are the  responsibility  of the Company's  management.
Our  responsibility  is to express an opinion on the balance sheets based on our
audits.

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

In our opinion,  the balance  sheets  referred to above present  fairly,  in all
material respects,  the financial  position of Foamex Capital  Corporation as of
January 1, 2006 and January 2, 2005, in conformity with U.S.  generally accepted
accounting principles.

The  accompanying  balance  sheets have been prepared  assuming that the Company
will continue as a going concern.  As discussed in Note 2 to the balance sheets,
on  September  19, 2005 Foamex  International  Inc.  and certain of its domestic
subsidiaries,  including  Foamex L.P.,  its primarily  operating  subsidiary and
Foamex Capital Corporation,  (collectively referred to as the "Debtors"),  filed
voluntary  petitions for relief under Chapter 11 of the United States Bankruptcy
Code in the United  States  Bankruptcy  Court for the District of Delaware  (the
"Bankruptcy  Court")  the  effects of which  raise  substantial  doubt about its
ability to  continue as a going  concern.  Although  the  Debtors are  currently
operating as  debtors-in-possession  under the  jurisdiction  of the  Bankruptcy
Court,  the  continuation of the Company as a going concern is contingent  upon,
among other things, the ability to formulate a plan of reorganization which will
gain approval of the creditors and  confirmation  of the Bankruptcy  Court.  The
accompanying  balance  sheets do not include any  adjustments  that might result
from the outcome of these uncertainties.

/s/ KPMG LLP

Philadelphia, Pennsylvania
March 31, 2006



                                      F-41
<PAGE>




                           FOAMEX CAPITAL CORPORATION
                   (A Wholly-Owned Subsidiary of Foamex L.P.)
                                 BALANCE SHEETS


<TABLE>
<CAPTION>
                                                            January 1,     January 2,
                                                               2006            2005
                                                            ----------     ----------

<S>                                                           <C>             <C>
CASH                                                          $1,000          $1,000
                                                              ======          ======

COMMITMENTS AND CONTINGENCIES

STOCKHOLDER'S EQUITY
   Common stock, par value $.01 per share;
       1,000 shares authorized, issued and outstanding        $   10          $   10
   Additional paid-in capital                                    990             990
                                                              ------          ------
   Total Stockholder's Equity                                 $1,000          $1,000
                                                              ======          ======
</TABLE>


                 The accompanying notes are an integral part of
                              the balance sheets.


                                      F-42
<PAGE>

                           FOAMEX CAPITAL CORPORATION
                   (A Wholly-Owned Subsidiary of Foamex L.P.)
                             NOTES TO BALANCE SHEETS

1.   ORGANIZATION

     Foamex Capital  Corporation  ("FCC"),  a wholly-owned  subsidiary of Foamex
L.P. (the  "Parent"),  was formed on July 20, 1992 and initially  capitalized on
July 23, 1992 for the purpose of obtaining financing from external sources.  All
financing obtained is recorded by the Parent.

2.   BANKRUPTCY AND BASIS OF PRESENTATION

     On September  19, 2005 (the  "Petition  Date"),  Foamex  International  and
certain of its domestic  subsidiaries,  including FCC and Parent,  (collectively
referred  to as the  "Debtors"),  filed  voluntary  petitions  for relief  under
Chapter 11 of the  United  States  Bankruptcy  Code  ("Bankruptcy  Code") in the
United States  Bankruptcy  Court for the District of Delaware  (the  "Bankruptcy
Court").

     Each of the  Debtors  continues  to  operate  its  business  and manage its
property as  debtors-in-possession  pursuant  to  Sections  1107 and 1108 of the
Bankruptcy  Code.  On September  29,  2005,  the United  States  Trustee for the
District of Delaware appointed an official  committee of unsecured  creditors in
these Chapter 11 cases (the "Creditors' Committee"). The Creditors' Committee is
currently  comprised  of The Bank of New  York,  the  Pension  Benefit  Guaranty
Corporation,  Newcastle  Partners,  LP,  Lyondell  Chemical  Corporation,  Shell
Chemicals L.P., Steel Partners II, L.P. and Donovan Williams.  At a hearing held
on September 20, 2005,  the Bankruptcy  Court granted  various first day motions
for relief designed to stabilize Parent's operations and business  relationships
with  customers,  vendors,  employees and others,  and entered  orders  granting
permission to, among other things,  pay employee  salaries,  wages and benefits,
pay amounts owing in connection with workers'  compensation  and other insurance
policies;  utilize our  existing  cash  management  systems;  continue  Parent's
customer programs;  pay vendors for certain critical goods and services provided
prior to September 19, 2005 and, access, on an interim basis, up to $221 million
of a $240 million  debtor-in-possession  (DIP) revolving credit facility and $80
million   of  a  DIP   term   loan.   A   portion   of  the   proceeds   of  the
debtor-in-possession  revolving  credit  facility and all of the proceeds of the
DIP term loan facility were used to repay Parent's prepetition  revolving credit
and term loan  facilities.  On October 17, 2005,  the  Bankruptcy  Court granted
final  approval of the $240 million DIP  revolving  credit  facility and the $80
million DIP term loan.

     On November 17, 2005, the Bankruptcy Court approved a motion  authorizing a
key executive retention program (the "KERP").  The KERP pertains to 77 employees
who may receive cash distributions  aggregating up to $3.2 million. In addition,
certain  participants,  at the  discretion  of the  Board  of  Directors  of the
reorganized  Foamex   International,   may  receive   additional   distributions
aggregating  up to $1.1  million in cash or in common  stock of the  reorganized
Foamex International, at a price per share that reflects the value of the equity
on the effective date of the plan of organization.  Distributions under the KERP
are generally to be made on or around certain milestone dates during the Chapter
11  cases  and  on  and  subsequent  to  the  effective  date  of  the  plan  of
reorganization.  Cash  distributions  pursuant  to the  KERP,  aggregating  $0.4
million,  were paid in December 2005 and  additional  amounts  aggregating  $1.1
million  have  been  paid  in  February   and  March  2006.   The  common  stock
distributions,  if any, will be made at the six month and one year anniversaries
of the effective date of the plan of  reorganization.  The KERP also includes an
additional $0.5 million  discretionary cash pool to address specific  employment
matters and unanticipated needs that may arise during the Chapter 11 cases.

     Parent has  notified  all known or  potential  creditors  of the Chapter 11
filings for the purposes of identifying and quantifying all prepetition  claims.
The Chapter 11 filings  triggered  defaults on substantially  all debt and lease
obligations.  Subject to  certain  exceptions  under the  Bankruptcy  Code,  the
Chapter 11 filings  automatically  stayed the  continuation  of any  judicial or
administrative  proceedings  or  other  actions  against  the  Debtors  or their
property to recover on, collect or secure a claim arising prior to September 19,
2005. On October 18, 2005, the Bankruptcy  Court entered an order (the "Bar Date
Order")  requiring  any person or entity  holding  or  asserting  a  prepetition
claim(s)  against  the  Debtors  to a file a  written  proof of  claim  with the
Debtors' claims processing agent on or before December 8, 2005 (the "Bar Date"),
and, for Governmental Units (as defined in the Bankruptcy Code)


                                      F-43
<PAGE>



                           FOAMEX CAPITAL CORPORATION
                   (A Wholly-Owned Subsidiary of Foamex L.P.)
                             NOTES TO BALANCE SHEETS

2.   BANKRUPTCY AND BASIS OF PRESENTATION (continued)

holding a prepetition claim(s) against the Debtors' on or before March 20, 2006.
With certain enumerated exceptions, the Bar Date Order further provides that any
person or entity  which fails to timely file a proof of claim will,  among other
things,  be forever  barred,  estopped and enjoined from asserting a prepetition
claim against the Debtors.

     The uncertainty  regarding  Parent's  future  prospects may hinder Parent's
ongoing  business  activities  and its  ability  to  operate,  fund and  execute
Parent's  business  plan by impairing  relations  with  existing  and  potential
customers;  negatively  impacting  Parent's  ability to  attract  and retain key
employees;  limiting Parent's ability to obtain trade credit;  impairing present
and future  relationships with vendors and service providers;  and impairing its
ability to continue to operate as a going concern.

     As  a  result  of  the  Chapter  11  filings,  realization  of  assets  and
liquidation  of  liabilities  are  subject  to  significant  uncertainty.  While
operating  as a  debtor-in-possession  under the  protection  of Chapter 11, and
subject to Bankruptcy  Court  approval or otherwise as permitted in the ordinary
course of business, Parent may sell or otherwise dispose of assets and liquidate
or settle  liabilities  for  amounts  other than  those  reflected  in  Parent's
financial statements.  Further, a plan of reorganization could materially change
the  amounts and  classifications  reported  in  Parent's  historical  financial
statements,  which do not give effect to any adjustment to the carrying value of
assets or amounts of  liabilities  that might be necessary as a  consequence  of
confirmation of a plan of reorganization.

     To exit Chapter 11, Parent must obtain confirmation by the Bankruptcy Court
of a Chapter 11 plan. On December 23, 2005, Parent filed a Disclosure  Statement
and Proposed Plan of Reorganization  (the "Plan") with the Bankruptcy Court. The
Plan is designed to  complete a financial  restructuring  which will result in a
reduction of approximately $500 million of total debt from prepetition  amounts.
The Plan  was  supported  by an ad hoc  committee  of  Parent's  Senior  Secured
Noteholders  comprising  more than 50% of the  outstanding  principal  amount of
Senior Secured Notes. The terms of the Plan include the following:

     o    Holders of Allowed  Administrative  Claims,  Priority Tax Claims,  DIP
          Financing Claims, Other Priority Claims, and Other Secured Claims will
          receive full payment in cash;

     o    Holders of Allowed  Senior Secured Note Claims will receive a pro rata
          share  of  100%  of  new  common  stock  of  the  reorganized   Foamex
          International,  subject to dilution,  provided  that the class of such
          Claims votes to accept the Plan;

     o    Holders of Allowed Senior  Subordinated Note Claims will receive a pro
          rata share of warrants to purchase up to 5% of new common stock of the
          reorganized Foamex International,  subject to dilution,  provided that
          the class of such Claims votes to accept the Plan;

     o    Holders of Allowed  General  Unsecured  Claims will receive a pro rata
          share of $1.5 million,  provided that the distribution does not exceed
          5% of the  allowed  amount of each such  claim and  provided  that the
          class of such Claims votes to accept the Plan;

     o    Holders of Foamex International's  existing Preferred Stock and Common
          Stock  will not  receive  any  distribution  under  the Plan and their
          shares will be cancelled on the effective date of the Plan.




                                      F-44
<PAGE>



                           FOAMEX CAPITAL CORPORATION
                   (A Wholly-Owned Subsidiary of Foamex L.P.)
                             NOTES TO BALANCE SHEETS

     2.   BANKRUPTCY AND BASIS OF PRESENTATION (continued)

     Since Parent filed its Plan, Parent and its advisors have continued to work
with its significant  creditor  constituencies and their respective  advisors to
negotiate a fully consensual plan of reorganization. Parent expects that it will
continue to do so in the hope of agreeing with these  constituents  on the terms
of a fully  consensual  plan.  There can be no  guarantee  that Parent will file
and/or confirm such a plan.  However,  even in the absence of a fully consensual
plan, it is likely that Parent will need to modify the plan that is currently on
file with the Bankruptcy Court.

     Subsequent  to the  bankruptcy  filing date,  Statement  of Position  90-7,
"Financial  Reporting by Entities in  Reorganization  Under the Bankruptcy Code"
("SOP 90-7")  applies to the  Debtors'  financial  statements  while the Debtors
operate  under  the  provision  of  Chapter  11.  SOP 90-7 does not  change  the
application of generally  accepted  accounting  principles in the preparation of
financial  statements.  However,  SOP  90-7  does  require  that  the  financial
statements, for periods including and subsequent to the filing of the Chapter 11
petition,  distinguish transactions and events that are directly associated with
the reorganization from the ongoing operations of the business. A confirmed plan
of  reorganization  could  materially  change amounts  reported in FCC's balance
sheet,  which does not give effect to any  adjustments  of the carrying value of
assets and liabilities that will be necessary as a consequence of reorganization
under Chapter 11.

     3.   COMMITMENTS AND CONTINGENCIES

     FCC is a joint obligor and severally liable on the following  borrowings of
Foamex L.P.:

     10 3/4% Senior Secured Notes

     The 10 3/4%  Senior  Secured  Notes  were  issued  by  Parent  and FCC (the
"Issuers")  on  March  25,  2002 and are due on April 1,  2009.  The  notes  are
guaranteed  on a senior  basis by all of  Parent's  domestic  subsidiaries  that
guarantee  the DIP  Revolving  Credit  Facility.  The  notes  are  secured  on a
second-priority  basis (subject to permitted  liens) on  substantially  the same
collateral that secures the obligations  under the DIP Revolving Credit Facility
and the  DIP  Term  Loan.  The  notes  rank  effectively  junior  to all  senior
indebtedness  that is  secured  by first  priority  liens and senior in right of
payment  to all  subordinated  indebtedness.  Interest  is  payable  April 1 and
October 1. The  Issuers did not remit the  interest  payment due October 1, 2005
but have  continued  to accrue  interest  at the  default  rate of 11.75% as the
Senior  Secured  Notes  are a  priority  claim in  bankruptcy.  The notes may be
redeemed at the option of the  Issuers,  in whole or in part,  at any time on or
after April 1, 2006.  The initial  redemption is at 105.375% of their  principal
amount,  plus  accrued  and  unpaid  interest,  if any,  thereon  to the date of
redemption and declining annually to 100.0% on or after April 1, 2008.

     9 7/8% Senior Subordinated Notes due 2007
     ("9 7/8% Senior Subordinated Notes")

     The 9 7/8%  Senior  Subordinated  Notes (the  "Notes")  were  issued by the
Issuers  and are due on June 15,  2007.  The  Notes  represent  uncollateralized
general  obligations of the Issuers and are  subordinated to all Senior Debt, as
defined in the Indenture.  The Issuers do not intent to make any future payments
on the Notes and in conjunction  with the payment  default on the 13 1/2% Senior
Subordinated  Notes discussed below, the Issuers are in default under the Notes.
The Issuers have not accrued interest on the Notes of $4.2 million from the date
of the bankruptcy filed through January 1, 2006.



                                      F-45
<PAGE>


                           FOAMEX CAPITAL CORPORATION
                   (A Wholly-Owned Subsidiary of Foamex L.P.)
                             NOTES TO BALANCE SHEETS

     3.   COMMITMENTS AND CONTINGENCIES (continued)

     13 1/2%  Senior  Subordinated  Notes  due 2005,  Series B ("13 1/2%  Senior
Subordinated Notes")

     The 13 1/2%  Senior  Subordinated  Notes  were  issued by the  Issuers  and
matured on August 15,  2005.  The  principal  due of $51.6  million plus accrued
interest  and unpaid  interest of $3.5  million  were not paid  resulting in the
Issuers  being in  default  under the 13 1/2%  Senior  Subordinated  Notes.  The
Issuers have not accrued  interest on the 13 1/2% Senior  Subordinated  Notes of
$2.3 million from the date of the bankruptcy filing through January 1, 2006. The
notes  represent  uncollateralized  general  obligations  of the Issuers and are
subordinated to all Senior Debt, as defined in the Indenture and a pari passu in
right of payment to the Notes described above.




                                      F-46
<PAGE>



                                   FOAMEX L.P.
                     INDEX TO FINANCIAL STATEMENT SCHEDULES


       Index to Financial Statement Schedules

       Schedule II - Valuation and Qualifying Accounts

     All other  schedules  are omitted  since the  required  information  is not
present or is not present in amounts  sufficient  to require  submission  of the
schedule,  or because the information  required is included in the  consolidated
financial statements and notes thereto.



                                      S-1
<PAGE>


                                                                    Schedule II
                          FOAMEX L.P. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
                                   (thousands)

<TABLE>
<CAPTION>
                                             Balance at      Charged to    Charged to                     Balance at
                                            Beginning of     Costs and       Other                          End of
                                               Period         Expenses      Accounts       Deductions       Period
                                            ------------     ----------    ----------      ----------     ----------
YEAR ENDED JANUARY 1, 2006
<S>                                           <C>             <C>           <C>             <C>            <C>
Allowance for Uncollectible Accounts          $  7,054        $  6,204      $     -         $ 1,841        $11,417
                                              ========        ========      =======         =======        =======

Reserve for Discounts                         $  1,947        $      -      $15,173 (1)     $14,735        $ 2,385
                                              ========        ========      =======         =======        =======


YEAR ENDED JANUARY 2, 2005
Allowance for Uncollectible Accounts          $  8,254        $  3,291      $     -         $ 4,491        $ 7,054
                                              ========        ========      =======         =======        =======

Reserve for Discounts                         $  2,251        $      -      $14,751 (1)     $15,055        $ 1,947
                                              ========        ========      =======         =======        =======


YEAR ENDED DECEMBER 28, 2003
Allowance for Uncollectible Accounts          $  7,963        $  2,115      $  (217)        $ 1,607        $ 8,254
                                              ========        ========      =======         =======        =======

Reserve for Discounts                         $  2,348        $      -      $13,429 (1)     $13,526        $ 2,251
                                              ========        ========      =======         =======        =======
</TABLE>


                                      S-2
<PAGE>










(1) Adjustments reflect a reduction in net sales.