UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549


_________________________________


FORM
      10-K





T
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





For
      the
      fiscal year ended December 31, 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 0-5485





_________________________________





**VISKASE
      COMPANIES, INC**.


(Exact
      name of registrant as specified in its charter)





**Delaware**
            
            **95-2677354**(State
                or other jurisdiction of incorporation
                or organization)
            
            (I.R.S.
                Employer Identification
                No.)**8205
                South Cass Avenue, Suite 115, Darien, IL**
            
            **60561**(Address
                of principal executive offices)
            
            (Zip
                Code)





Registrant's
      telephone number, including area code: **(630)
      789-4900**


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


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





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes £  No T





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act.  Yes £  No T





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes T  No £





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. Yes T  No £





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





Large
                accelerated filer£
            Accelerated
                filer£
            Non-accelerated
                filerT





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





As
      of
      March 26, 2007 the aggregate market value of the voting stock held by
      non-affiliates of the registrant was $16,198,787.





APPLICABLE
      ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING
      FIVE
      YEARS: Indicate by check mark whether the registrant has filed all documents
      and
      reports required to be filed by Section 12, 13 or 15(d) of the Securities
      Exchange Act of 1934 subsequent to the distribution of securities under a plan
      confirmed by a court. Yes T No £





As
      of
      April 5, 2007, there were 29,458,257 shares outstanding of the registrant's
      Common Stock, $.01 par value.







1





**VISKASE
      COMPANIES, INC.**





**Form
      10-K Annual Report - 2006**





Table
      of
      Contents





PART
                I
            PageItem
                1.
            Business
            3Item
                1A.
            Risk
                Factors
            8Item
                1B.
            Unresolved
                Staff Comments
            13Item
                2.
            Properties
            14Item
                3.
            Legal
                Proceedings
            14Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            15PART
                IIItem
                5.
            Market
                for Registrant's Common Equity, Related Stockholder
                Matters and Issuer Purchases of Equity Securities
            16Item
                6.
            Selected
                Financial Data
            17Item
                7.
            Management's
                Discussion and Analysis of Financial Condition
                and Results of Operations
            18Item
                7A.
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            29Item
                8.
            Financial
                Statements and Supplementary
                Data
            30Item
                9.
            Changes
                in and Disagreements with Accountants on Accounting
                and Financial Disclosure
            66Item
                9A.
            Controls
                and Procedures
            66Item
                9B.
            Other
                Information
            66PART
                IIIItem
                10.
            Directors
                and Executive Officers of the
                Registrant
            67Item
                11.
            Executive
                Compensation
            73Item
                12.
            Security
                Ownership of Certain Beneficial Owners and
                Management and Related Stockholder Matters
            77Item
                13.
            Certain
                Relationships and Related
                Transactions
            80Item
                14.
            Principal
                Accountant Fees and Services
            80PART
                IVItem
                15.
            Exhibits
                and Financial Statement Schedules
            81




2
 *Table
            of Contents*





PART
      I





ITEM
                1.
            BUSINESS


(a)
              General
                  Development of Business




General





We
      are a
      leading provider of artificial casings and various plastics products for food
      processors throughout the world. Our primary product, artificial casings, is
      used for preparing processed meats like hot dogs, sausages, and deli meats.
      Due
      to the complexities and variations in our customers’ manufacturing processes, we
      customize nearly all of our casings for use in a specific customer’s processing
      plant.





Our
      customers are located throughout the world and many of them have been buying
      our
      products for decades. We market our product through a combination of direct
      sales representatives, distributors and agents, which enables us to sell our
      products in virtually every country in the world.





In
      addition to our casings business, we also make plastic barrier bags, other
      high-end specialty plastics products for food suppliers, membranes for
      laboratory dialysis and battery separators.





We
      were
      incorporated in Delaware in 1970 and are the successor company to the original
      inventor of cellulosic casings in 1925. Unless the context otherwise requires,
      references to “our company,” “we,” “us” and “our,” refer to us and our
      consolidated subsidiaries and our predecessors.





Bankruptcy
      and Plan of Reorganization





On
      November 13, 2002, Viskase Companies, Inc. (“VCI”) filed a prepackaged Chapter
      11 bankruptcy in the United States Bankruptcy Court for the Northern District
      of
      Illinois, Eastern Division (“Bankruptcy Court”). The Chapter 11 filing was for
      VCI only and did not include any of the Company’s domestic or foreign
      subsidiaries. On December 20, 2002 the Bankruptcy Court confirmed VCI’s
      Prepackaged Plan of Reorganization as Modified (“Plan”). VCI emerged from
      Chapter 11 bankruptcy on April 3, 2003 (“Effective Date”).





Acquisition
      of Majority Control of Our Common Stock





In
      November 2006, the Company entered into an agreement to issue and sell an
      aggregate of $24 million of Series A Preferred Stock of the Company to
      affiliates of three shareholders of the Company, including an affiliate of
      Carl
      C. Icahn. See Part II, Item 8, Note 13 of Notes to Consolidated Financial
      Statements for details of the transaction. This agreement required the Company
      to conduct a rights offering of Common Stock, with the proceeds dedicated to
      the
      redemption of the Series A Preferred Stock along with associated dividends.
      Prior to this transaction, Carl C. Icahn held beneficial ownership of
      approximately 28.9% of our outstanding Common Stock. After giving effect to
      the
      rights offering and the related redemption and mandatory conversion of the
      Series A Preferred Stock, Mr. Icahn benefitically owns approximately 67.0%
      of
      our outstanding common stock. In addition, four of our seven directors are
      employed by affiliates of Mr. Icahn.





Additional
      Information





Our
      principal executive offices are located at 8250 South Cass Avenue, Suite 115,
      Darien, Illinois 60561, our telephone number is 1-630-874-0700 or 1-800-VISKASE
      and our internet website is located at http://www.viskase.com .





The
      Company historically has filed annual, quarterly, and special reports, proxy
      statements and other information with the Securities and Exchange Commission
      (SEC). As of March 22, 2007, the Company terminated its obligation to file
      reports under the Securities Exchange Act of 1934 (the “Exchange Act”). You may
      read and copy these materials at the Public Reference Room maintained by the
      SEC
      at Room 1580, 100 F Street N.E., Washington, D.C. 20549. You may call the SEC
      at
      1-800-SEC-0330 for more information on the operation of the public reference
      room. The SEC maintains an Internet site at http://www.sec.gov that
      contains reports, proxy and information statements and other information
      regarding issuers that file electronically with the SEC. Copies of our filed
      annual, quarterly and special reports are available at no charge through the
      Investor Relations section of our web site at http://www.viskase.com .





3
 *Table
            of Contents*


(b)
              Financial
                  Information About
                  Segments




Reference
      is made to Part II, Item 8, Note 24 of Notes to Consolidated Financial
      Statements.


(c)
              Narrative
                  Description of
                  Business


General





We
      participate in the small-diameter cellulosic, fibrous and plastic casings
      market. Casings are used in the production of processed meat and poultry
      products, such as hot dogs, sausages, salami, ham and bologna. In the
      manufacturing of these products, a meat preparation is stuffed into a casing
      and
      then cooked, smoked or dried. The casing utilized dictates the size, consistency
      of shape, and overall appearance and quality of the final meat product.
      Small-diameter cellulosic, fibrous and plastic casings also permit high-speed
      stuffing and processing of products on commercially available automated
      equipment, which provides a meat processor with consistent product quality,
      high
      production output rates and lower manufacturing costs.





Products





Our
      main
      product lines are as follows:





NOJAX®
      casings — Small-diameter cellulosic casings designed for the production of hot
      dogs, wieners, frankfurters, viennas, cocktail sausages, coarse ground dinner
      sausages and other small-diameter processed meats.





Fibrous
      casings — Paper-reinforced cellulosic casings utilized in the manufacture of a
      wide variety of cooked, smoked and dried processed meats, including large
      sausages, bologna, salami, ham, pepperoni and deli meats.





VISFLEX®,
      VISMAX® and VISLON® plastic casings — Plastic (polyamide) casings, each designed
      with distinct performance characteristics targeted at a wide range of sausage,
      deli meat and other processed meat and poultry applications.





We
      also
      manufacture other specialty cellulosic products, notably a family of large
      cellulosic casings with limited applications for mortadella and specialty
      sausages, as well as some non-food products targeted at dialysis membrane and
      specialized battery separator market applications. Furthermore, on a limited
      and
      geographic basis, we sometimes take on distributor product lines of certain
      allied products that serve as complementary supply items to casings. Examples
      of
      such products include an elastic netting line that we distribute in North
      America and shrinkable barrier bags that we distribute in Italy.





The
      production of regenerated cellulose casings generally involves four principal
      steps: (i) production of a viscose slurry from wood pulp, (ii) regeneration
      of
      cellulosic fibers, (iii) extrusion of a continuous tube during the regeneration
      process, and (iv) "shirring" of the final product. Shirring is a finishing
      process that involves pleating and compressing the casing in tubular form for
      subsequent use in high-speed stuffing machines. The production of regenerated
      cellulose casings involves a complex and continuous series of chemical and
      manufacturing processes, and Viskase believes that its facilities and expertise
      in the manufacture of extruded cellulose are important factors in maintaining
      its product quality and operating efficiencies.





In
      2006,
      we re-entered the market for heat shrinkable bags made from specialty plastic
      films. Our heat-shrinkable plastic bags, sold primarily under the brand name
      SEALFLEXTM, are used to package and preserve products such as fresh and processed
      meat products, poultry and cheese during wholesale and retail distribution.
      We
      participate in the multilayer segment to provide multilayer specialty plastic
      bags.





The
      production of specialty plastic films involve three principal steps: (i) plastic
      resin pellets are melted and extruded into a tubular film; (ii) the tube is
      “bi-oriented” where it is stretched both length-wise and width-wise to enhance
      the heat-shrink characteristics of the final product; and (iii) the tube is
      processed through a bag machine to form the individual bags.





4
 *Table
            of Contents*





As
      part
      of its service orientation, we also provide graphic art and design services
      to
      our customers. We are able to print designs, illustrations and text in multiple
      colors directly on the specialty plastic bags. The use of a nylon platform
      has
      allowed us to offer superior optical and sealing properties in our
      bags.





International
      Operations





Viskase
      has five manufacturing and/or finishing facilities located outside the
      continental United States, in Monterrey, Mexico; Beauvais, France;
      Thâon-les-Vosges, France; Caronno, Italy; and Guarulhos, Brazil. Net sales from
      customers located outside the United States represented approximately 63% of
      our
      total net sales in 2006. Our operations in France are responsible for
      distributing products, directly or through distributors, in Europe, Africa,
      the
      Middle East and parts of Asia. While overall consumption of processed meat
      products in North America and Western Europe is stable, there is a potential
      for
      market growth in Eastern Europe, Latin America and Southeast Asia.





Sales
      and
      Distribution





Viskase
      has a broad base of customers, with no single customer accounting for more
      than
      7% of our net sales. We are able to sell our products in most countries
      throughout the world. In the United States, Viskase has a staff of technical
      sales teams responsible for sales and service to processed meat and poultry
      producers. Approximately 77 distributors market Viskase products to customers
      in
      Europe, Africa, the Middle East, Asia, and Latin America. Our products are
      marketed through our own subsidiaries in France, Germany, Italy, Poland, Brazil,
      and Mexico, and we maintain ten service and distribution centers located in
      the
      United States, Brazil, Canada, Germany, Italy and Poland. The service centers
      perform limited finishing and provide sales, customer service, warehousing
      and
      distribution. Distribution centers provide only warehousing and distribution.
      As
      of December 31, 2006 and 2005, Viskase had backlog orders of approximately
      $69.2
      million and $42.8 million, respectively. Orders on backlog typically are filled
      within 90-120 days.





Competition





Viskase
      is one of the world's leading producers of cellulosic casings. While our
      industry generally competes based on volume and price, we seek to maintain
      a
      competitive advantage and differentiate ourselves from our competitors by
      manufacturing products that have higher quality and superior performance
      characteristics when compared to our competitors' products; by being responsive
      to customer product requirements; by providing technical support services to
      our
      customers for production and formulation requirements; and by producing niche
      products to satisfy individual customer needs.





Viskase's
      principal competitors in the cellulosic casing market are Viscofan, S.A.,
      located in Spain with additional facilities in Germany, the Czech Republic,
      the
      United States, Mexico and Brazil; Kalle Nalo GmbH, located in Germany; Wolff
      Walsrode, a wholly owned subsidiary of Dow Chemical, located in Germany; VT
      Holding Group, located in Finland; and two Japanese manufacturers, Futamura
      Chemical, marketed by Meatlonn, and Toho. Our primary competitors include
      several corporations that are larger and better capitalized than we are and
      thus
      are less vulnerable to price reductions in the market. During the previous
      ten
      years, we have experienced reduced profits due to overcapacity in our industry
      and intense competition based on price.





Research
      and Development





We
      believe our continuing emphasis on research and development is central to our
      ability to maintain industry leadership. In particular, we have focused on
      the
      development of new products that increase our customers' operating efficiencies,
      reduce their operating costs and expand their markets. Our research and
      development projects also include the development of new processes and products
      to improve our own manufacturing efficiencies. Our research scientists,
      engineers and technicians are engaged in continuous product and equipment
      development, and also provide direct technical and educational support to our
      customers.





We
      believe we have achieved and maintained our position as a leading producer
      of
      cellulosic casings for packaging meats through significant expenditures on
      research and development. We expect to continue our research and development
      efforts. The commercialization of certain of our product and process
      applications, and related capital expenditures to achieve commercialization,
      may
      require substantial financial commitments in future periods. Research and
      development costs for the Company are expensed as incurred and totaled $2.3
      million, $2.3 million and $2.7 million for 2006, 2005 and 2004, respectively.





5
 *Table
            of Contents*





Seasonality





Historically,
      our domestic sales and profits have been seasonal in nature, increasing in
      the
      spring and summer months. Sales outside of the United States follow a relatively
      stable pattern throughout the year.





Raw
      Materials





The
      raw
      materials we use include cellulose (derived from wood pulp), specialty fibrous
      paper and various other chemicals. We generally purchase our raw materials
      from
      a single source or small number of suppliers with whom we maintain good
      relations. Certain primary and alternative sources of supply are located outside
      the United States. We believe, but there can be no assurance, that adequate
      alternative sources of supply currently exist for all of our raw materials or
      that raw material substitutes are available, which we could modify our processes
      to utilize.





Employees





We
      believe we maintain productive and amicable relationships with our approximately
      1,582 employees worldwide. Approximately 995 of our 1,582 employees are union
      members. One of our domestic facilities, located in Loudon, Tennessee, is
      unionized. Our collective bargaining agreement covering union employees at
      the
      Loudon facility expires on September 30, 2010. Additionally, all of our
      European, Brazilian and Mexican plants have national agreements with annual
      renewals. Employees at our European plants have negotiations occurring at both
      local and national levels.





Trademarks
      and Patents





We
      hold
      patents on many of our major technologies, including those used in our
      manufacturing processes and those embodied in products sold to our customers.
      We
      believe our ongoing market leadership is derived, in part, from our technology.
      We vigorously protect and defend our patents against infringement on an
      international basis. As part of our research and development program, we have
      developed and expect to continue to develop new proprietary technology. We
      believe these activities will enable us to maintain our competitive position.
      However, we do not believe that any single patent or group of patents is
      material to us. We also own numerous trademarks and registered trade names
      that
      are used actively in marketing our products. We periodically license our process
      and product patents to competitors on a royalty basis.





Environmental
      Regulations





In
      manufacturing our products, we employ certain hazardous chemicals and generate
      toxic and hazardous wastes. The use of these chemicals and the disposal of
      such
      wastes are subject to stringent regulation by several governmental entities,
      including the United States Environmental Protection Agency (“EPA”) and similar
      state, local and foreign environmental control entities. We are subject to
      various environmental, health and safety laws, rules and regulations including
      those of the United States Occupational Safety and Health Administration and
      EPA. These laws, rules and regulations are subject to amendment and to future
      changes in public policy or interpretation, which may affect our operations.





Certain
      of our facilities are or may become potentially responsible parties with respect
      to on-site and off-site waste disposal facilities and remediation of
      environmental contamination.





Under
      the
      Clean Air Act Amendments of 1990, various industries, including casings
      manufacturers, are or will be required to meet maximum achievable control
      technology (“MACT”) air emissions standards for certain chemicals. MACT
      standards applicable to all U.S. cellulosic casing manufacturers were
      promulgated June 11, 2002. We spent approximately $10.3 million in capital
      expenditures for MACT compliance, and we are currently in compliance with MACT
      standards.





Under
      the
      Resource Conservation and Recovery Act, regulations have been proposed that,
      in
      the future, may impose design and/or operating requirements on the use of
      surface impoundments of wastewater. Two of our plants use surface impoundments.
      We do not foresee these regulations being imposed in the near future.





6
 *Table
            of Contents*





On
      December 18, 2006, the Parliament of the European Union passed regulation
      2006/1907, Registration, Evaluation, and Authorization of Chemicals (“REACH”).
      REACH covers the production and use of chemical substances, and applies to
      manufacturers, importers and, in certain cases, downstream users. Once REACH
      takes effect, beginning in June 2007, it will require all chemicals of one
      ton
      or more in annual volume that are manufactured in or imported into the European
      Union to be tested for health and safety and registered with a new central
      European authority, the European Chemicals Agency, located in Helsinki, Finland.
      Registration deadlines vary based on the type of chemical and amount produced
      or
      imported and the entire program will be phased in over eleven
      years.





REACH
      also applies to all chemicals that are considered of very high concern to health
      or the environment, regardless of volume. Depending on the substance in question
      and its use, producers and importers may be obliged to investigate its affects
      on human health and the environment. The most hazardous chemicals, including
      carcinogens, reproductive toxins, or those that accumulate in humans or animals,
      can only be used if authorized by the European Chemicals Agency. We believe
      that
      some of the chemicals we use in our manufacturing process may fall into this
      category.





We
      are
      evaluating the potential effect of this regulation on our business, but at
      this
      time cannot determine the magnitude of the impact, if any.


(d)
              Financial
                  Information About Geographic
                  Areas




Reference
      is made to Part II, Item 8, Note 24 of Notes to Consolidated Financial
      Statements.





7
 *Table
            of Contents*


ITEM
                  1A.
              RISK
                  FACTORS


Risks
      Related to our Business





***We
      emerged from bankruptcy in April 2003, have a history of losses and may not
      become profitable.***





We
      emerged from bankruptcy in April 2003 and have a history of losses. We may
      not
      grow or achieve and maintain profitability in the near future, or at all. On
      November 13, 2002, we filed a prepackaged plan of reorganization under Chapter
      11 of the Bankruptcy Code in the United States Bankruptcy Court for the Northern
      District of Illinois, Eastern Division. On April 3, 2003, we consummated our
      prepackaged plan of reorganization, as modified by the bankruptcy court, and
      emerged from bankruptcy. If we cannot achieve and maintain profitability, the
      value of an investment in our securities may decline. Should we file for
      bankruptcy again in the future, the value of an investment in our securities
      could decline even further.





***We
      face competitors that are better capitalized, and the continuous-flow nature
      of
      the casings manufacturing process forces competitors to compete based on volume,
      which could adversely affect our revenues and
      results.***





We
      face
      competition in the United States and internationally from competitors that
      may
      have substantially greater financial resources than we have. The cellulosic
      casings industry includes several competitors that are larger and better
      capitalized than we are. Currently, our primary competitors include Viscofan,
      S.A., Kalle Nalo GmbH, and VT Holding Group, although new competitors could
      enter the market or competing products could be introduced. Although small
      cellulosic prices appear to have stabilized during the past two years, and
      there
      have been some price increases in the small cellulosic segment of the industry
      recently, since 1995 there had been steady declines in the prices of cellulosic
      casing products generally. Also, although we believe that the current output
      in
      our industry is in balance with global demand, the continuous-flow nature of
      the
      casings manufacturing process has historically required competitors in our
      industry to compete based on volume. We attempt to differentiate our products
      on
      the basis of product quality and performance, product development, service,
      sales and distribution, but we, and competitors in our industry have used price
      as a competitive factor in an attempt to obtain greater volumes. If prices
      decline, we may not be able to achieve profitability, whereas certain of our
      competitors who are better capitalized may be positioned to absorb such price
      declines. Any of these factors could result in a material reduction of our
      revenue, gross profit margins and operating results.





***We
      receive our raw materials from a limited number of suppliers, and problems
      with
      their supply could impair our ability to meet our customer’s product
      demands.***





Our
      principal raw materials, paper and pulp, constitute an important aspect and
      cost
      factor of our operations. We generally purchase our paper and pulp from a single
      source or a small number of suppliers. Any inability of our suppliers to timely
      deliver raw materials or any unanticipated adverse change in our suppliers
      could
      be disruptive and costly to us. Our inability to obtain raw materials from
      our
      suppliers would require us to seek alternative sources. These alternative
      sources may not be adequate for all of our raw material needs, nor may adequate
      raw material substitutes exist in a form that our processes could be modified
      to
      use. These risks could materially and adversely affect our sales volume,
      revenues, costs of goods sold and, ultimately, profit margins.





***Our
      failure to efficiently respond to industry changes in casings technology could
      jeopardize our ability to retain our customers and maintain our market
      share.***





We
      and
      other participants in our industry have considered alternatives to cellulosic
      casings for many years. As resin technology improves or other technologies
      develop, alternative casings or other manufacturing methods may be developed
      that threaten the long-term sustainability and profitability of our cellulosic
      casings, our core product, and our fibrous casings. Our failure to anticipate,
      develop or efficiently and timely integrate new technologies that provide viable
      alternatives to cellulosic casings, including plastics and film alternatives,
      may cause us to lose customers and market share to competitors integrating
      such
      technologies, which, in turn, would negatively impact our revenues and operating
      results.





8
 *Table
            of Contents*





***Sales
      of our products could be negatively affected by problems or concerns with the
      safety and quality of food products.***





We
      could
      be adversely affected if consumers in the food markets were to lose confidence
      in the safety and quality of meat products, particularly with respect to
      processed meat products for which casings are used, such as hot dogs, deli
      meats
      and sausages. Outbreaks of, or even adverse publicity about the possibility
      of,
      diseases such as avian influenza and “mad cow disease,” food-borne pathogens
      such as E. coli and listeria and any other food safety problems or concerns
      relating to meat products, may discourage consumers from buying meat products.
      These risks could also result in additional governmental regulations, and/or
      cause production and delivery disruptions or product recalls. Each of these
      risks could adversely affect the demand for our products, and consequently,
      our
      sales volumes and revenues.





***Changing
      dietary trends and consumer preferences could weaken the demand for our
      products.***





Various
      medical studies detailing the health-related attributes of particular foods,
      including meat products, affect the purchase patterns, dietary trends and
      consumption preferences of consumers. These patterns, trends and preferences
      are
      routinely changing. For example, general dietary concerns about meat products,
      such as the cholesterol, calorie, sodium and fat content of such products,
      could
      result in reduced demand for such products, which would, in turn, cause a
      reduction in the demand for our products and a decrease in our sales volume
      and
      revenue.





***Our
      facilities are capital intensive, and we may not be able to obtain financing
      to
      fund necessary capital expenditures.***





Our
      business is capital intensive. We operate eight manufacturing facilities and
      eleven distribution centers as part of our business. We are required to make
      substantial capital expenditures and substantial repair and maintenance
      expenditures to maintain, repair, upgrade and expand existing equipment and
      facilities to keep pace with competitive developments. In addition, we are
      required to invest in technological advances to maintain compliance with safety
      standards and environmental laws or regulations. For example, we have already
      spent in excess of $10.0 million on maximum achievable control technology
      (“MACT”) to meet certain air emissions standards related to carbon disulfide
      under the Clean Air Act Amendments of 1990. We spent approximately $13.2 million
      for capital expenditures in 2006 and will spend approximately $8.4 million
      in
      2007 and $10.2 million in 2008. At some point in the future, we may be required
      to obtain additional financing to fund capital expenditures. If we need to
      obtain additional funds, we may not be able to do so on terms
      favorable  to
      us, or
      at all, which would ultimately negatively affect our production and operating
      results.





***We
      are in the process of moving operations from our Kentland, Indiana facility
      to
      Monterrey, Mexico, which could affect our worldwide manufacturing capabilities
      and divert attention and resources.***





We
      are
      the process of relocating a majority of our United States finishing operations
      from Kentland, Indiana to Monterrey, Mexico. We have experienced delays in
      the
      process that have resulted in higher costs and decreases in our level of
      customer service. We believe that these delays have already resulted, and will
      continue to result, in lost sales, decreased operating results due to the effect
      of duplicative costs and lost margins and will have a negative effect on our
      liquidity during 2007. During this period, we may have lower revenues due to
      the
      loss of finishing capacity resulting from machine transfers and a loss of
      manufacturing efficiency due to training a new workforce in Mexico.





***Business
      interruptions at any of our production facilities could increase our operating
      costs, decrease our sales or cause us to lose
      customers*** **.**





The
      reliability of our production facilities is critical to the success of our
      business. In recent years, we have streamlined our productive capacity to be
      better aligned with our sale volumes. At current operating levels, we have
      little or no excess production capacity for certain products. If the operations
      of any of our manufacturing facilities were interrupted or significantly delayed
      for any reason, including labor stoppages, we may be unable to shift production
      to another facility without incurring a significant drop in production. Such
      a
      drop in production would negatively affect our sales and our relationships
      with
      our customers. Similarly, inefficiencies in the initial operation of our Mexico
      facility may adversely affect production volumes.





9
 *Table
            of Contents*





***We
      are subject to significant minimum contribution requirements and to market
      exposure with respect to our U.S. defined benefit plan, both of which could
      adversely affect our cashflow.***





Although
      the amount fluctuates, our aggregate minimum funding contribution requirement
      for our U.S. defined benefit plan from 2007 through 2011 is approximately $30.2
      million and our unfunded pension liability is $34.3 million. These amounts
      could
      increase or decrease due to market factors, including actual and expected
      returns on plan assets, and the discount rate used to measure the
      liability.





***Our
      international sales and operations expose us to political and economic risks
      in
      foreign countries, as well as to risks related to currency fluctuations, all
      of
      which could impair our ability to do business at the international
      level.***





We
      currently have manufacturing or sales and distribution centers in seven foreign
      countries, including Brazil, Canada, France, Germany, Italy, Mexico and Poland.
      Our international sales and operations may be subject to various political
      and
      economic risks including, but not limited to: possible unfavorable exchange
      rate
      fluctuations or hyperinflation; changes in a country’s or region’s political or
      economic conditions; governmental regulations, including import and export
      controls; and tariffs.





Our
      sales
      to customers located outside the United States generally are subject to taxes
      on
      the repatriation of funds. In addition, international operations in certain
      parts of the world may be subject to international balance of payments
      difficulties that may raise the possibility of delay or loss in the collection
      of accounts receivable from sales to customers in those countries. Net sales
      to
      customers located outside the United States represented approximately 64% of
      our
      total net sales in 2005 and approximately 63% of our total net sales in 2006.





Should
      any of these risks occur, it could impair our ability to export our products
      or
      conduct sales to customers located outside of the United States and result
      in a
      loss of sales and profits from our international operations.





***Continued
      consolidation of our customers and increasing competition for those customers
      may put pressures on our sales volumes and revenues.***





In
      recent
      years, the trend among our customers has been towards consolidation within
      the
      meat processing industry. These consolidations have enhanced the purchasing
      power of our customers who, not being contractually obligated to purchase our
      products, tend to exert increased pressure with respect to pricing terms,
      product quality and new products. As our customer base continues to consolidate,
      the already high level of competition for the business of fewer customers is
      expected to intensify. If we do not continue to enhance the value of our product
      offering in a way that provides greater benefit to our customers, our sales
      volume and revenues could decrease.





***Consolidation
      in our industry may have an impact on competition and put pressure on our
      financial position.***





Viscofan,
      S.A. acquired the North American operations of Teepak LLC in January 2006,
      and
      VT Holding Group acquired Teepak Europe and Oy Visko AB in January 2007. As
      a
      result, both companies have strengthened their market share in the United States
      and other key markets in which we participate. This could negatively affect
      our
      relationships with certain of our customers, which in turn could have a negative
      impact on our financial position.





***Continued
      compliance with environmental regulations may result in significant costs,
      which
      could negatively affect our financial condition.***





Our
      operations are subject to extensive and increasingly stringent environmental,
      health and safety laws and regulations pertaining to the discharge of substances
      into the environment, the handling and disposition of wastes and land
      reclamation and remediation of hazardous substance substances. We are also
      subject to differing environmental regulations and standards due to the fact
      that we operate in many different countries. Present and future environmental
      laws and regulations applicable to our operations may require substantial
      capital expenditures and may have a material adverse effect on our business,
      financial condition and results of operations.





Failure
      to comply with environmental laws and regulations can have serious consequences
      for us, including criminal as well as civil and administrative penalties and
      negative publicity. Liability under these laws and regulations involves inherent
      uncertainties. In addition, continued government and public emphasis on
      environmental issues can be expected to result in increased future investments
      for environmental controls at ongoing operations, which will be charged against
      income from future operations.





10
 *Table
            of Contents*





We
      have
      incurred, and will continue to incur, significant capital and operating
      expenditures to comply with various environmental laws and regulations. For
      example, we have spent in excess of $10 million on “maximum achievable control
      technology” to meet certain air emissions standards related to carbon disulfide
      under the Clean Air Act Amendments of 1990. Additional environmental
      requirements imposed in the future could require currently unanticipated
      investigations, assessments or expenditures, and may require us to incur
      significant additional costs. As the nature of these potential future charges
      is
      unknown, management is not able to estimate the magnitude of any future costs,
      and we have not accrued any reserve for any potential future costs.





Some
      of
      our facilities have been in operation for many years. During that time, we
      and
      previous owners of these facilities may have generated and disposed of wastes
      that are or may be considered hazardous or may have polluted the soil or
      groundwater at our facilities, including adjacent properties. Some environmental
      regulations impose liability on certain categories of persons who are deemed
      to
      be responsible for the release of “hazardous substances” or other pollutants
      into the environment, without regard to fault or to the legality of such
      person’s conduct. Under certain circumstances, a party may be required to bear
      more than its proportional share of cleanup costs at a contaminated site for
      which it has liability if payments sufficient to remediate the site cannot
      be
      obtained from other responsible parties.





***We
      may be subject to significant tax assessments, which could affect our financial
      condition.***





The
      Company has been assessed significant amounts for taxes due by the State of
      Illinois, USA and the State of São Paulo, Brazil. Should we lose either of these
      cases, it would affect our financial condition. See Part II, Item 8, Note 17
      for
      further information.





***Our
      intellectual property rights may be inadequate or violated, or we may be subject
      to claims of infringement, both of which could negatively affect our financial
      condition.***





We
      rely
      on a combination of trademarks, patents, trade secret rights and other rights
      to
      protect our intellectual property. Our trademark or patent applications may
      not
      be approved and our trademarks or patents may be challenged by third parties.
      We
      cannot be certain that the steps we have taken will prevent the misappropriation
      of our intellectual property, particularly in foreign countries where the laws
      may not protect our rights as fully as the laws of the United States. From
      time
      to time, it has been necessary for us to enforce our intellectual property
      rights against infringements by third parties, and we expect to continue to
      do
      so in the ordinary course of our business. We also may be subjected to claims
      by
      others that we have violated their intellectual property rights. Even if we
      prevail, third party-initiated or Company-initiated claims may be time consuming
      and expensive to resolve, and may result in a diversion of our time and
      resources. The occurrence of any of these factors could diminish the value
      of
      our trademark, patent and intellectual property portfolio, increase competition
      within our industry and negatively impact our sales volume and revenues. One
      of
      our patents, which was licensed to third parties, expired during the third
      quarter of 2006. Royalty income during the first nine months of 2006 from this
      patent was approximately $1.4 million.





***Our
      substantial level of indebtedness could adversely affect our results of
      operations, cash flows and ability to compete in our industry, which could,
      among other things, prevent us from fulfilling our obligations under our debt
      agreements.***





We
      have
      substantial indebtedness. In addition, subject to restrictions in the indenture
      (“Indenture”) governing our 11.5% Senior Secured Notes due June 15, 2011 issued
      on June 29, 2004 (“11.5% Senior Secured Notes”) and our revolving credit
      facility, we may incur additional indebtedness. As of December 31, 2006, we
      had
      approximately $109.9 million ($113.7 million aggregate principal) of total
      debt,
      exclusive of additional indebtedness that we may borrow, and have borrowed,
      under our revolving credit facility.





11
 *Table
            of Contents*





Our
      high
      level of indebtedness has important implications, including the following:





• if
      we
      fail to satisfy our obligations under our indebtedness, or fail to comply with
      the restrictive covenants contained in the Indenture or our revolving credit
      facility, it may result in an event of default, all of our indebtedness could
      become immediately due and payable, and our lenders could foreclose on our
      assets securing such indebtedness following the occurrence and during the
      continuance of an event of default;





• a default
      under either of the Indenture or our revolving credit facility could trigger
      cross-defaults under the other and under other key agreements or leases; and





• repayment
      of our indebtedness may require us to dedicate a substantial portion of our
      cash
      flow from our business operations, thereby reducing the availability of cash
      flow to fund working capital, capital expenditures, development projects,
      general operational requirements and other purposes.





We
      expect
      to obtain the funds to pay our expenses and to repay our indebtedness primarily
      from our operations and, in the case of our indebtedness, from refinancings
      thereof. Our ability to meet our expenses and make these payments thus depends
      on our future performance, which will be affected by financial, business,
      economic and other factors, many of which we cannot control. Our business may
      not generate sufficient cash flow from operations in the future and our
      currently anticipated growth in revenue and cash flow may not be realized,
      either or both of which could result in our being unable to repay indebtedness,
      or to fund other liquidity needs. If we do not have enough funds, we may be
      required to refinance all or part of our then existing debt, sell assets or
      borrow more funds, which we may not be able to accomplish on terms acceptable
      to
      us, or at all. In addition, the terms of existing or future debt agreements
      may
      restrict us from pursuing any of these alternatives.





***Despite
      current indebtedness levels, we may still incur substantially more debt, which
      could decrease cash or other collateral available to pay our current debt.***





We
      may
      incur substantial additional indebtedness in the future. Although the Indenture
      and our revolving credit facility contain restrictions on the incurrence of
      additional indebtedness, these restrictions are subject to a number of
      qualifications and exceptions, and the indebtedness incurred in compliance
      with
      these restrictions could be substantial. For example, we have the ability to
      borrow up to $20.0 million under our revolving credit facility, which is secured
      by liens on all of our North American personal and real property assets, with
      certain exceptions. See “Management’s Discussion and Analysis of Financial
      Condition and Results of Operation” and “Financial Statements and Supplementary
      Data.”





***We
      may not be able to generate the significant amount of cash needed to pay
      interest and principal amounts on our debt.***





Our
      earnings were insufficient to cover our fixed charges for the twelve-month
      period ended December 31, 2006. If our cash flow and capital resources are
      insufficient to pay interest and principal under our revolving credit facility,
      the 11.5% Senior Secured Notes, the 8% Senior Subordinated Secured Notes due
      December 1, 2008 (“8% Notes”) and our other debt, we may be forced to reduce or
      delay capital expenditures, sell assets, seek to obtain additional equity
      capital or attempt to restructure our debt. While recent amendments to the
      Indenture permit us to issue additional 11.5% Senior Secured Notes to repurchase
      or otherwise refinance our 8% Notes, we can provide no assurance that we would
      be able to do so. If any of those alternative measures do not permit us to
      meet
      our scheduled debt service obligations, including the scheduled maturity of
      the
      8% Notes on December 1, 2008, we could face substantial liquidity problems
      and
      the possibility of a default under our 11.5% Senior Secured Notes and revolving
      credit facility. See “Management’s Discussion and Analysis of Financial
      Condition and Results of Operations.”





***A
      substantial portion of our business is conducted through foreign subsidiaries,
      and our failure to generate sufficient cash flow from these subsidiaries, or
      otherwise repatriate or receive cash from these subsidiaries, could result
      in
      our inability to repay our indebtedness.***





Our
      sales
      to customers located outside the United States are conducted primarily through
      subsidiaries organized under the laws of jurisdictions outside of the United
      States. For the period ended December 31, 2006, our foreign restricted
      subsidiaries contributed approximately 46% of our consolidated revenues. As
      of
      December 31, 2006, 42% of our consolidated assets, based on book value, were
      held by foreign subsidiaries. Our ability to meet our debt service obligations
      with cash from foreign subsidiaries will depend upon the results of operations
      of these subsidiaries and may be subject to contractual or other restrictions
      and other business considerations. In addition, dividend and interest payments
      to us from our foreign subsidiaries may be subject to foreign withholding taxes,
      which would reduce the amount of funds we receive from such foreign
      subsidiaries. Dividends and other distributions from our foreign subsidiaries
      may also be subject to fluctuations in currency exchange rates and restrictions
      on repatriation, which could further reduce the amount of funds we receive
      from
      such foreign subsidiaries.





12
 *Table
            of Contents*





***The
      indenture governing our 11.5% Senior Secured Notes and the instruments governing
      our other indebtedness impose significant operating and financial restrictions,
      and a breach of any such restriction may result in a default, which could result
      in the possible acceleration of repayment obligations and our secured creditors
      receiving certain rights against our collateral.***





The
      indenture governing our 11.5% Senior Secured Notes and the credit agreement
      governing our revolving credit facility impose significant operating and
      financial restrictions on us. These restrictions restrict our ability to take
      advantage of potential business opportunities as they arise and may adversely
      affect the conduct of our current business. More specifically, they restrict
      our
      ability to, among other things: incur additional indebtedness or issue
      disqualified capital stock; pay dividends, redeem subordinated debt or make
      other restricted payments; make certain investments or acquisitions; grant
      liens
      on our assets; merge, consolidate or transfer substantially all of our assets;
      and transfer, sell or acquire assets, including capital stock of our
      subsidiaries.





The
      credit agreement governing our revolving credit facility also requires us to
      meet a number of financial ratios and tests. Compliance with these financial
      ratios and tests may adversely affect our ability to adequately finance our
      operations or capital needs in the future or to pursue attractive business
      opportunities that may arise in the future. Our ability to meet these ratios
      and
      tests and to comply with other provisions governing our indebtedness may be
      adversely affected by our operations and by changes in economic or business
      conditions or other events beyond our control. Our failure to comply with our
      debt-related obligations could result in an event of default under our
      indebtedness, resulting in accelerated repayment obligations and giving our
      secured creditors certain rights against our collateral.





***The
      interests of our controlling stockholder may be not aligned with those of other
      stockholders.***





To
      our
      knowledge, entities affiliated with Carl C. Icahn hold a total of approximately
      67.0% of our outstanding shares of common stock. As a result, Mr. Icahn and
      his
      affiliates presently have and will continue to have voting power sufficient
      to
      control the election of the Company’s board of directors and stockholder voting
      on decisions relating to fundamental corporate actions, including potential
      mergers, consolidations or sales of all or substantially all of our assets.
      Current, Mr. Icahn has designated four members of the Company’s board of
      directors, which is comprised of seven directors. It is possible that the
      interests of Mr. Icahn and his affiliates, as stockholders, could conflict
      in
      certain circumstances with those of other stockholders.





***We
      are no longer required to file reports with the Securities and Exchange
      Commission.***





On
      March
      22, 2007, we filed Form 15 with the SEC which terminated our obligation to
      file
      reports under the Exchange Act. As a result, we will not be required to provide
      financial reports or other special reports, such as Forms 10-K, 10-Q and 8-K
      in
      the future. Also, with the exception of providing the trustee of our 11.5%
      Senior Notes with certain financial and other information on a periodic basis,
      we will not be obligated to make such information available on our website
      or in
      any public forum. This may create limitations in the market for our securities,
      which may cause our investors to be unable to sell their securities, or only
      to
      be able to sell them at a price lower than they might otherwise. Also, our
      shareholders will be unable to determine the financial condition of our
      business.


ITEM
                  1B.
              UNRESOLVED
                  STAFF COMMENTS


None.





13
 *Table
            of Contents*





ITEM
                2.
            PROPERTIES





VISKASE
      FACILITIES





LOCATION
            
            SQUARE
                FEET
            
            PRIMARY
                USEManufacturing
                FacilitiesBeauvais,
                France (a)
            
            235,000
            
            Casings
                production and finishingCaronno,
                Italy
            
            73,000
            
            Casings
                finishingGuarulhos,
                Brazil (a)
            
            25,000
            
            Casings
                finishingKentland,
                Indiana (b)
            
            125,000
            
            Casing
                finishingLoudon,
                Tennessee
            
            250,000
            
            Casings
                productionMonterrey,
                Mexico (a)
            
            179,000
            
            Casings
                finishingOsceola,
                Arkansas
            
            223,000
            
            Casings
                production and casings finishingThâon-les-Vosges,
                France
            
            239,000
            
            Casings
                production and finishing





Distribution
                CentersAtlanta,
                Georgia (a)Buffalo,
                New York (a)Fresno,
                California (a)Remington,
                Indiana (a)Dormagen,
                Germany (a)Saskatoon,
                Saskatchewan, Canada (a)Lindsay,
                Ontario, Canada (a)Warsaw,
                Poland (a)





Service
                CentersGuarulhos,
                Brazil (a)Caronno,
                Italy





HeadquartersWorldwide:
            Darien,
                Illinois (a)Europe
            Pantin,
                France (a)





(a)
            Leased.
                All other properties are owned.


(b)
            Asset
                being held for sale





The
      Company believes that its properties generally are suitable and adequate to
      satisfy the Company's present and anticipated needs. The Company's United States
      real property collateralizes the Company's obligations under various financing
      arrangements. For a discussion of these financing arrangements, refer to Part
      II, Item 8, Note 10 of Notes to Consolidated Financial Statements.


ITEM
                  3.
              LEGAL
                  PROCEEDINGS




In
      1993,
      the Illinois Department of Revenue (“IDR”) filed a proof of claim against
      Envirodyne Industries, Inc. (now known as Viskase Companies, Inc.) and its
      subsidiaries in the United States Bankruptcy Court for the Northern District
      of
      Illinois (“Bankruptcy Court”), Bankruptcy Case Number 93 B 319, for alleged
      liability with respect to the IDR’s denial of the Company’s allegedly incorrect
      utilization of certain loss carry-forwards of certain of its subsidiaries.
      The
      IDR asserted it was owed, as of the petition date, $1.0 million in taxes, $0.4
      million in interest and $0.3 million in penalties. The Company objected to
      the
      claim on various grounds. In September 2001, the Bankruptcy Court denied the
      IDR’s claim and determined the debtors were not responsible for 1998 and 1999
      tax liabilities, interest and penalties. IDR appealed the Bankruptcy Court’s
      decision to the United States District Court, Northern District of Illinois,
      Case Number 01 C 7861, and in February 2002, the District Court affirmed the
      Bankruptcy Court’s order denying the IDR claim. IDR appealed the District
      Court’s order to United States Court of Appeals for the Seventh Circuit, Case
      Number 02-1632. On January 6, 2004, the appeals court reversed the judgment
      of
      the District Court and remanded the case for further proceedings on the
      Company’s other objections to the claim. On November 16, 2005, the Bankruptcy
      Court issued an opinion in which it denied the IDR’s claim to the extent it
      seeks principal tax liability and found that no principal tax liability remains
      due. However, because of certain timing issues with respect to the carryback
      of
      subsequent net operating loss used to eliminate the principal tax liabilities
      in
      1988 and 1989, the issue of the amount of interest and penalties (for
      approximately 14 years), if any, has not been determined by the Bankruptcy
      Court. The IDR has asserted that as of February 2006, approximately $0.4 million
      was owed in interest. On June 21, 2006, the Bankruptcy Court issued an order
      granting in part and denying in part the IDR claim. The Bankrutpcy Court order
      determined the amount of interest due through May 2006 to be $0.3 million.
      On
      June 29, 2006, the IDR appealed the Bankruptcy Court November 16, 2005 order
      with regard to the principal tax liability in 1988 and 1989. On October 31,
      2006, the United States District Court affirmed the Bankruptcy Court order.
      The
      Company intends to vigorously defend its position on the utilization of the
      carryback of subsequent net operating losses to eliminate the principal tax
      liabilities in 1988 and 1989 if the District Court's opinion is appealed. The
      IDR has asserted that if it were successful on appeal, that the Company would
      have liability to the IDR as of the beginning of 2005 in the amount of
      approximately $2.9 million.





14
 *Table
            of Contents*





During
      2005, Viskase Brasil Embalagens Ltda. (“Viskase Brazil”) received three tax
      assessments by São Paulo tax authorities with respect to Viskase Brazil’s
      alleged failure to pay Value Added and Sales and Services Tax (“ICMS”) levied on
      the importation of raw materials and sales of goods in and out of the State
      of
      São Paulo. Two of the tax assessments relate to ICMS on the importation by
      Viskase Brazil of raw materials through the State of Espírito Santo (“Import
      Assessments”), and the disputed amount with respect to such assessments
      aggregates R$16.6 million for taxes and R$16.3 million for penalties and
      interest, or about $7.8 million and $7.6 million, respectively at exchange
      rates
      in effect on December 31, 2006. The third tax assessment also relates to ICMS
      and alleges that Viskase Brazil arranged for the remittance of goods to
      addresses other than those indicated on the relevant tax documents
      (“Documentation Assessment”). The disputed amount under the Documentation
      Assessment is R$0.2 million for taxes and R$1.7 million for penalties and
      interest, or about $1.0 million and $0.8 million, respectively, at exchange
      rates in effect on December 31, 2006. The attorneys representing Viskase Brazil
      on these tax disputes have advised the Company that the likelihood of liability
      with respect to the tax assessments is remote. In view of the magnitude of
      the
      assessments, Viskase Brazil sought the advice of another law firm with respect
      to one of the Import Assessments and with respect to the Documentation
      Assessment. The second law firm expressed its belief (i) that the likelihood
      of
      liability on the Import Assessment it reviewed either was possible tending
      to
      probable or was possible, depending on the theory of liability pursued by the
      tax authorities, and (ii) that the likelihood of liability on the Documentation
      Assessment was probable. Viskase believes that the two Import Assessments raise
      essentially the same issues and therefore did not seek advice from the second
      law firm with respect to the other Import Assessment. The Company has provided
      a
      reserve in the amount of $2.0 million as of December 31, 2006. Viskase Brazil
      strongly denies the allegations set forth in the tax assessments and intends
      to
      vigorously defend itself. On October 25, 2006, Viskase Brazil presented oral
      arguments before the Brazilian administrative tax panel.





In
      December 2006, our Canadian subsidiary, Viskase Canada Inc., terminated
      post-retirement health care and life insurance benefits for retirees of Viskase
      Canada Inc. In February 2007, two former employees filed suit in the Ontario
      Superior Court of Justice against Viskase Canada Inc. and Viskase Companies,
      Inc. alleging these benefits were permanently vested as a condition of their
      retirement. Further, they petitioned for class action status on behalf of all
      similarly situated retirees. The complaint requests reinstatement of the
      benefits, or unspecified damages in the alternative, and punitive damages of
      $1.0 million. We intend to vigorously defend ourselves against this lawsuit
      and
      we have not accrued any amount on our statement of financial position with
      regard to this complaint.





In
      addition, the Company from time to time is involved in various other legal
      proceedings, none of which are expected to have a material adverse effect upon
      results of operations, cash flows or financial condition.


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




None.





15
 *Table
            of Contents*





PART
      II





ITEM
                5.
            MARKET
                FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
                PURCHASES OF EQUITY SECURITIES





(a) Market
      Information .
      The
      Company’s Common Stock is traded in the over-the-counter market and is
      quoted on the Pink Sheets Electronic Quotation Service under the symbol
“VKSC” .
      The
      high and low closing bid prices of the Common Stock during 2006 and 2005 are
      set
      forth in the following table. Such prices reflect interdealer prices without
      markup, markdown or commissions and may not represent actual
      transactions.


2006
                
                First
                    Quarter
                
                Second
                    Quarter
                
                Third
                    Quarter
                
                Fourth
                    QuarterHigh
                
                $
                3.25
                
                $
                3.25
                
                $
                2.70
                
                $
                2.25Low
                
                
                2.61
                
                
                2.60
                
                
                2.20
                
                
                1.45
  2005
              
              First
                  Quarter
              
              Second
                  Quarter
              
              Third
                  Quarter
              
              Fourth
                  QuarterHigh
              
              $
              3.30
              
              $
              3.50
              
              $
              2.75
              
              $
              2.65Low
              
              
              2.85
              
              
              2.19
              
              
              1.80
              
              
              2.12




(b) Holders .
      As of
      April 5, 2007, there were approximately 200 holders of record and approximately
      400 beneficial holders of the Company’s Common Stock.





(c) Dividends .
      We have
      not paid dividends on our Common Stock, and we do not anticipate paying
      dividends on our Common Stock in the foreseeable future. In addition, the terms
      of our revolving credit facility and the indenture governing the 11.5% Notes
      restrict our ability to pay dividends on the Common Stock.





(d) Equity
      Compensation Plans. For a
      discussion of the Company’s Equity Compensation Plans, refer to Part III, Item
      11.





16
 *Table
            of Contents*


ITEM
                  6.
              SELECTED
                  FINANCIAL DATA


Reorganized
                  Company
              
              Predecessor
                  CompanyYear
                  Ended
              
              April
                  3 to
              
              January
                  1 to
              
              Year
                  EndedDecember
                31,
                  2006
              
              December
                31,
                  2005
              
              December
                31,
                  2004
              
              December
                31,
                  2003
              
              April
                  2,
                2003
              
              December
                31,
                  2002(in
                  thousands, except for per share amounts)Net
                  sales
              
              $
              210,391
              
              $
              203,769
              
              $
              207,106
              
              $
              152,408
              
              $
              45,402
              
              $
              183,577Operating
                  income (loss)(1)
              
              
              1,016
              
              
              7,718
              
              
              11,094
              
              
              (40,813
              )
              
              (2,019
              )
              
              (19,330
              )Postretirement
                  curtailment gain
              
              
              (14,513
              )
              
              (1,642
              )
              
              (34,055
              )Loss
                  (gain) on early extinguishment of debt(2)
              
              
              
              
              
              
              
              
              13,083
              
              
              
              
              
              (153,946
              )Reorganization
                  expense
              
              
              
              
              
              
              
              
              
              
              
              403
              
              
              399
              
              
              3,401Net
                  income (loss)(1)
              
              
              1,609
              
              
              (2,157
              )
              
              25,317
              
              
              (46,627
              )
              
              151,873
              
              
              (19,330
              )Less
                  preferred dividends
              
              
              (1,193
              )Net
                  income (loss) available to common shareholders
              
              
              416
              
              
              (2,157
              )
              
              25,317
              
              
              (46,627
              )
              
              151,873
              
              
              (19,330
              )Per
                  share (loss) income from continuingoperations-
                  basic
              
              
              0.04
              
              
              (0.22
              )
              
              2.53
              
              
              (4.49
              )
              
              9.92
              
              
              (1.26
              )-
                  diluted
              
              
              0.03
              
              
              (0.22
              )
              
              2.33
              
              
              (4.49
              )
              
              9.92
              
              
              (1.26
              )Cash
                  and equivalents
              
              
              3,692
              
              
              11,904
              
              
              30,255
              
              
              23,160
              
              
              
              
              
              27,700Restricted
                  cash
              
              
              2,419
              
              
              3,251
              
              
              3,461
              
              
              26,245
              
              
              
              
              
              28,347Working
                  capital
              
              
              53,361
              
              
              45,920
              
              
              61,399
              
              
              52,201
              
              
              
              
              
              (174,203
              )Total
                  assets
              
              
              203,755
              
              
              197,840
              
              
              213,432
              
              
              212,093
              
              
              
              
              
              218,681Debt
                  obligations:Short-term
                  debt(3)
                  (4)
              
              
              3,978
              
              
              182
              
              
              384
              
              
              21,303
              
              
              
              
              
              227,343Long-term
                  debt
              
              
              105,916
              
              
              103,299
              
              
              100,962
              
              
              100,652
              
              
              
              
              
              85Stockholders'
                  equity (deficit)
              
              
              4,182
              
              
              (26,679
              )
              
              (12,013
              )
              
              (41,100
              )
              
              
              
              
              (175,146
              )Redeemable
                  preferred stock
              
              
              23,174Cash
                  dividends per common share
              
              
              none
              
              
              none
              
              
              none
              
              
              none
              
              
              none
              
              
              none




(1)
            For
                a discussion on comparability of income from continuing operations
                and net
                income, please see “Item 7 - Management’s Discussion and Analysis of
                Financial Condition and Results of
                Operations.”





(2)
            SFAS
                No. 145 requires that gains and losses on debt extinguishment will
                no
                longer be classified as extraordinary for fiscal years beginning
                after May
                15, 2002. The prior period extraordinary item in 2003 was reclassified
                in
                the consolidated statements of operations.





(3)
            Year
                2002 includes $163,060 of debt classified as current liabilities
                subject
                to compromise on the balance sheet.





(4)
            Year
                2002 includes $64,106 of long-term debt reclassified to current due
                to
                covenant restrictions.





17
 *Table
            of Contents*





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





Results
      of Operations





Company
      Overview





We
      are a
      worldwide leader in the manufacture and sale of cellulosic, fibrous and plastic
      casings for the processed meat industry. We currently operate eight manufacturing
      facilities and eight distribution centers throughout North America, Europe
      and
      South America and we derive approximately 64% of total net sales from customers
      located outside the United States. We believe we are one of the two largest
      manufacturers of non-edible cellulose casings for small-diameter processed
      meats
      and one of the three largest manufacturers of non-edible fibrous casings. In
      2006, we re-entered the market for the manufacture and sale of heat-shrinkable
      plastic bags for the meat, poultry and cheese industry. Our management believes
      that the factors most critical to the success of our business are:





·
            maintainingand
                building upon our reputation for providing a high level of customer
                and
                technical services;


·
            maintainingand building upon our long-standing customer relationships, many
                of which
                have continued for decades;


·
            developingadditional sources of revenue through new products and
                services;


·
            penetrating
                new regional markets; and


·
            continuingto
                streamline our cost structure.





Our
      net
      sales are driven by consumer demand for meat products and the level of demand
      for casings by processed meat manufacturers, as well as the average selling
      prices of our casings and competitive activity. Specifically, demand for our
      casings is dependent on population growth, overall consumption of processed
      meats and the types of meat products purchased by consumers. Average selling
      prices are dependent on overall supply and demand for casings, our product
      mix
      and competitive activity.





We
      have
      experienced little growth in revenues over the last three years (less than
      1%
      per year), with volume increases and currency gains due to a weakening dollar
      offset partially by modest price decreases. Competition solely based on price,
      which was prevalent in our industry since the mid-1990’s, stabilized in the last
      three years and is showing signs of improvement for certain product
      lines.





Operating
      income has declined in the last three years due to increases in costs of sales
      and restructuring expense. These increases were due to start up costs with
      the
      relocation to Mexico, wage inflation, higher energy costs and higher raw
      materials costs, especially wood pulp.





For
      many
      years, primarily due to financial limitations on our ability to invest in new
      equipment, our competitors gained most of the organic growth in our markets.
      Management decided in 2005 to increase our productive capacity in an effort
      to
      participate in more of this growth. To accomplish this, we reopened our
      extrusion facility in Thâon-les-Vosges, France at a total cost of about $2.1
      million. Since then, by adding additional shifts and redeploying certain
      equipment, we have been able to significantly increase, and sell, additional
      output.





Factors
      Affecting Operating Results and Outlook





The
      following is a discussion of some of the key factors that have in the past
      and
      are likely in the future to affect operating results.





*Selling
      price* .
      Selling
      price is the biggest driver of our operating income. We sell products that
      typically have gross margins of less than 20%. Therefore, every dollar of a
      price increase is worth the same amount of profit as is five dollars of new
      sales. Given that we operate at or near capacity for most of our products,
      and
      as significant capacity increases will be far more expensive that the costs
      associated with reopening extrusion in Thâon-les-Vosges, management focuses
      intensely the selling prices of our products. We believe that pricing trends
      for
      our products are promising. Prices for our NOJAX® product line have been
      increased for many customers by double-digit percentages for 2007.





18
 *Table
            of Contents*





*Labor
      costs* .
      In
      recent years, we have taken many actions to reduce our labor costs to the
      minimum sustainable level. With the exception of certain employees covered
      by a
      collective bargaining agreement, we have frozen our defined benefit pension
      plan. We have made our defined contribution plan payments variable to financial
      performance targets. We have moved manufacturing facilities to lower cost areas.
      We have increased medical care deductibles and other employee costs, and we
      have
      cut our workforce to minimal levels. While we don’t believe further cuts are
      advisable, we do believe our labor costs as a percentage of sales will be
      maintained for the foreseeable future.





*Raw
      material and energy costs* .
      While
      labor is the highest cost component of our product, materials and energy are
      nearly as important. Prices for these key elements were stable for many years
      until recently. In 2005 and 2006, we experienced dramatic increases in the
      prices of energy, wood pulp and various chemicals. The timing of these increases
      was poor for the Company, as most of our prices were set for our major customers
      and only afterward did we experience cost increases. We continue to look for
      additional suppliers for our key materials in order to obtain the lowest prices
      available.





*Charges
      associated with our review of strategic alternatives and rights
      offering* .
      We have
      incurred significant additional administrative and other fees and expenses
      in
      connection with both of these projects.





Comparison
      of Results of Operations for Years Ended December 31, 2006, 2005 and
      2004 .





The
      following discussion compares the results of operations for the fiscal year
      ended December 31, 2006 to the results of operations for the fiscal year ended
      December 31, 2005, and compares the results of operations for the fiscal year
      ended December 31, 2005 to the results of operations for the fiscal year ended
      December 31, 2004. We have provided the table below in order to facilitate
      an
      understanding of this discussion. The table shows our results of operations
      for
      the 2006, 2005 and 2004 fiscal years. The table (dollars in millions) is as
      follows:


Year
                  Ended December 31, 2006
              
              %
                  Change Over 2005
              
              Year
                  Ended December 31, 2005
              
              %
                  Change Over 2004
              
              Year
                  Ended December 31, 2004NET
                  SALES
              
              $
              210.4
              
              
              3.2
              %
              $
              203.8
              
              
              -1.6
              %
              $
              207.1COST
                  AND EXPENSESCost
                  of sales
              
              
              173.7
              
              
              5.6
              %
              
              164.4
              
              
              -0.3
              %
              $
              165.0Selling,
                  general and administrative
              
              
              30.9
              
              
              6.6
              %
              
              29.0
              
              
              -1.1
              %
              $
              29.3Amortization
                  of intangibles
              
              
              .5
              
              
              -24.8
              %
              
              .6
              
              
              -42.5
              %
              $
              1.1Restructuring
                  expense
              
              
              1.9
              
              
              -5.2
              %
              
              2.0
              
              
              203.0
              %
              
              .7Asset
                  write-down and charge impairment of fixed assets
              
              
              2.4
              
              
              NM
              
              
              
              
              
              NMOPERATING
                  INCOME (LOSS)
              
              
              1.0
              
              
              -86.8
              %
              
              7.7
              
              
              -30.4
              %
              
              11.1Interest
                  income
              
              
              (.3
              )
              
              -60.6
              %
              
              (.7
              )
              
              23.5
              %
              
              ($.6
              )Interest
                  expense
              
              
              13.6
              
              
              5.4
              %
              
              12.9
              
              
              -2.1
              %
              $
              13.2Other
                  income, net
              
              
              (.4
              )
              
              71.6
              %
              
              (.2
              )
              
              -81.6
              %
              
              ($1.2
              )Postretirement
                  benefits curtailment gain
              
              
              (14.5
              )
              
              783.9
              %
              
              (1.6
              )
              
              -95.2
              %
              
              ($34.1
              )Loss
                  on early extinguishment of debt
              
              
              
              
              
              NM
              
              
              
              
              
              NM
              
              $
              13.1Income
                  tax expense (benefit)
              
              
              1.0
              
              
              NM
              
              
              (.5
              )
              
              -90.1
              %
              
              ($4.6
              )NET
                  INCOME (LOSS)
              
              $
              1.6
              
              
              NM
              
              
              ($2.2
              )
              
              NM
              
              $
              25.3NM
                  = Not meaningful when comparing positive to negative numbers or
                  to
                  zero.


19
 *Table
            of Contents*





2006
      versus 2005





Net
      Sales. Our net sales for 2006 were $210.4 million, which represents an increase
      of $6.6 million or 3.2% from 2005. Net sales benefited $5.3 million from volumes
      in the casings market and $1.5 million due to translation, offset by a $0.2
      million decrease due to price and mix.





Cost
      of
      Sales. Cost of sales increased 5.6% over the prior year. The increase in cost
      of
      sales can be attributed to an increase in raw material costs and labor costs,
      and from operating inefficiencies with the transfer of certain finishing
      operations to Mexico, which we estimate were approximately $3.0 million. These
      increases were offset by a $7.8 million reduction from the elimination of
      certain postretirement medical benefits.





Selling,
      General and Administrative Expenses. Selling, general and administrative
      expenses increased $1.9 million from 2005 to 2006. The change can be attributed
      to savings from internal reorganizations that equaled $3.9 million, but were
      offset by $4.8 million of start up expense for our finishing operations in
      Mexico, $0.5 million of expense for a review of strategic alternatives and
      $0.5
      million for labor cost increases.





Operating
      Income. The operating income for 2006 was $1.0 million, representing a decrease
      of $6.7 million from the prior year period. The reduction in the operating
      income resulted primarily from the increase in expenses for the transfer of
      our
      finishing operations from U.S. to Mexico as described above and fixed asset
      impairment charge of $2.4 million for the write down of our Kentland, Indiana
      facility.





Interest
      Expense. Interest expense, net of interest income, for 2006 totaled $13.3
      million, which represented an increase of $1.1 million from the $12.2 million
      for the comparable period of the prior year. The increase is principally due
      to
      the increase in interest expense from higher revolving loan borrowings and
      a
      decrease in interest income.





Other
      Income. Other income of approximately $0.4 million for 2006 consists principally
      of foreign transaction gains.





Gain
      on
      Curtailment. We terminated postretirement life insurance benefits as of December
      31, 2006 for all active employees and retirees in the United States, and the
      Company eliminated the postretirement medical benefits and life insurance
      benefits for all retirees in Canada. We recognized a $14.5 million gain on
      the
      curtailment of these postretirement benefits.





Income
      Tax Provision. During 2006, a tax provision of $1.0 million was recognized
      on
      the income before income taxes of $2.6 million resulting principally from the
      results of operations of foreign subsidiaries.





Primarily
      as a result of the factors discussed above, net income for 2006 was $1.6 million
      compared to net loss of $2.2 million for the period of 2005.





Adoption
      of SEC Staff Accounting Bulletin No. 108 (“j No. 108”). We adopted SAB No. 108
      in the fourth quarter of 2006, as described in detail in the Summary of
      Significant Accounting Policies footnote to our financial statements. We have
      historically not accrued for anniversary bonuses paid to employees of our French
      subsidiary. These payments are made on each five year anniversary of service
      with the Company, starting with the fifteenth year. With the assistance of
      our
      actuaries, we have determined that, for years prior to and including 2005,
      we
      should have accrued approximately $2.3 million as of December 31, 2005, which
      would have resulted in a decrease of the deferred tax liability of approximately
      $0.8 million. In addition, we made other adjustments in accordance with SAB
      No.
      108 as outlined below.





The
      items
      described as allowance for doubtful accounts, inventory obsolescence, and lower
      of cost or market reserve all arose as the result of estimating the amount
      of
      reserves required for these items over a number of years at amounts different
      than that actually required. The item described below as rent expense is the
      impact of not accounting for rent expense on a straight-line basis for a lease
      with an escalation clause entered into during 2001. The adjustment to accrued
      pension liability is the result of an understatement of the minimum liability
      under one of our qualified pension plans which has accumulated over a number
      of
      years.





20
 *Table
            of Contents*


Amounts
                  in thousandsDescription
                  of Adjustment
              
              Adjustment
                  to 1/1/06 Accumulated DeficitAccrual
                  of French anniversary bonuses (described above), net of tax of
                  $785
              
              $
              (1,500
              )Reduction
                  of allowance for doubtful accounts
              
              
              589Reduction
                  in reserve for inventory obsolescence, net of tax of $151
              
              
              50Reduction
                  of lower of cost or market reserve
              
              
              49Increase
                  in deferred rent expense
              
              
              (197
              )Increase
                  in accrued pension liability
              
              
              192$
              (817
              )


We
      believe that the net effect of these adjustments were not material, either
      quantitatively or qualitatively, in any of the years presented. In reaching
      that
      determination, we estimated the net after-tax effect of the various adjustments
      for each year and compared them to total assets and revenues. Because our income
      (loss) before income taxes and our net income (loss) include significant
      variations, and range from years of significant losses to years of significant
      income, we believe that a measurement based on revenues and assets is most
      appropriate. In each case, the adjustments represented significantly less than
      1% of both total assets and revenues.





2005
      Versus 2004





Net
      Sales. Our net sales for 2005 were $203.8 million, which represents a decrease
      of $3.3 million or 1.6% from the comparable prior year. Net sales benefited
      $2.8
      million due to foreign currency translation gains, offset by a $3.1 million
      decrease due to price and mix and a $3.0 million decrease from
      volume.





Cost
      of
      Sales. Cost of sales for 2005 decreased 0.3% from the comparable prior year
      period. However, cost of sales increased as a percent of net sales (from 79.8%
      in 2004 to 80.7% in 2005). The increase as a percent of sales can be attributed
      to an increase in energy, raw material and labor costs offset by operating
      efficiencies and a $1.7 million reduction from the elimination of certain
      postretirement medical benefits.





Selling,
      General and Administrative Expenses. We were able to reduce selling, general
      and
      administrative expenses from $29.3 million in 2004 to $29.0 million in 2005.
      This can be attributed to reductions from continuous cost saving programs,
      internal reorganizations that occurred in both March 2004 and January 2005,
      and
      elimination of certain postretirement benefits that were effective as of
      December 31, 2004. Additionally, in 2004 there was an unusual income benefit
      of
      $0.4 million consisting of a reversal of a legal liability recorded in
      fresh-start accounting that has been settled.





Operating
      Income. The operating income for 2005 was $7.7 million, representing a decrease
      of $3.4 million from the prior year. The decrease in the operating income
      resulted primarily from increased restructuring expenses and lower gross margin,
      which were partially offset by improvements in selling, general and
      administrative expenses. Operating income for 2005 includes a restructuring
      charge of $2.0 million of which $1.8 million was related to one-time employee
      costs related to our transfer of Kentland, Indiana finishing operations to
      Monterrey, Mexico. Operating income for 2004 includes a restructuring charge
      of
      $0.7 million, offset by a reversal of an unusual income benefit of $0.4 million
      consisting of a reversal of a legal liability recorded in fresh-start accounting
      that has been settled.





Interest
      Expense. Interest expense, net of interest income, for 2005 was $12.2 million,
      representing a decrease of $0.4 million. The decrease is primarily a result
      of a
      $0.8 million increase in capitalized interest related to our capital
      projects.





Other
      Income. Other income of approximately $0.2 million for 2005 consists principally
      of a $0.2 million expense related to foreign currency transactions, offset
      by a
      gain of $0.6 on sales of unrelated securities. Other income for 2004 of $1.2
      million consists principally of a $1.5 million net gain related to foreign
      currency transactions.





21
 *Table
            of Contents*





Gain
      on
      Curtailment. The Company will terminate postretirement health care medical
      benefits for all active employees and retirees in the United States who are
      covered by a collective bargaining agreement as of December 31, 2006. A $0.7
      million gain on the curtailment of these postretirement health care benefits
      was
      recognized during the third quarter of 2005. A
      $0.9
      million gain on the curtailment of the pension benefits associated with the
      Kentland, Indiana plant shutdown was recognized on December 31,
      2005.





Income
      Tax Expense (Benefit). During 2005, an income tax benefit of $0.5 million was
      recognized on the loss before income taxes of $2.6 million resulting principally
      from a $2.3 million benefit from the settlement of a Canadian tax issue and
      a
      provision for the results of operations of foreign subsidiaries.





Primarily
      as a result of the factors discussed above, net loss was $2.2 million compared
      to net income of $25.3 million for 2004.





Effect
      of Changes in Exchange Rates





In
      general, our results of operations are affected by changes in foreign exchange
      rates. Subject to market conditions, we mostly price our products in our foreign
      operations in local currencies, with the exception of the Brazilian export
      market and the U.S. export markets, which are priced in U.S. dollars. As a
      result, a decline in the value of the U.S. dollar relative to the local
      currencies of profitable foreign subsidiaries can have a favorable effect on
      our
      profitability, and an increase in the value of the U.S. dollar relative to
      the
      local currencies of profitable foreign subsidiaries can have a negative effect
      on our profitability. Exchange rate fluctuations increased comprehensive income
      by $4.1 million in 2006 and decreased comprehensive income by $4.9 million
      in
      2005.





Liquidity
      and Capital Resources





Cash
      and
      cash equivalents decreased by $8.2 million during 2006. Cash flows used in
      operating activities were $23.2 million, used in investi ng
      activities were $12.4 million, and provided by financing activities were $26.8
      million. Cash flows used in operating
      activities were principally attributable to decrease in working capital,
      postretirement curtailment gain and foreign currency transaction gain, offset
      by
      depreciation and amortization and non-cash interest. Cash flows used in
      investing activities were principally attributable to capital expenditures
      offset by the release of restricted cash for an escrow account related to
      Brazilian operations. Cash flows provided by financing activities principally
      consisted of the issuance of preferred stock and the proceeds from the revolving
      loan.





As
      a
      result of spending on certain non-recurring and ongoing projects (table below),
      the Company needed an additional infusion of cash in November 2006. We obtained
      this through our issuance of $24 million of Series A Preferred Stock. See Part
      II, Item 8, Note 13 of Notes to Consolidated Financial Statements for additional
      details on these transactions.


2005/2006
              
              2007
                  ProjectedProject
              
              (millions)
              
              (millions)Move
                  of manufacturing facility from Kentland, Indiana to Monterrey,
                  Mexico
              
              $
              26.3
              
              $
              0.8Other
                  capital expenditures
              
              $
              3.5
              
              $
              7.6Research
                  and development costs
              
              $
              4.6
              
              $
              3.4




In
      the
      longer term, the Company has significant debt and not enough projected cash
      flow
      to pay off the principal balances when they come due. We intend to refinance
      our
      debt at maturity with other debt or equity instruments. However, if we are
      unable to do so, we may be required to sell assets or delay capital
      expenditures. We can provide no assurance that we would be able to refinance
      our
      indebtedness. See Part II, Item 8, Note 9 of Notes to Consolidated Financial
      Statements for detailed information about the amounts, due dates, terms and
      conditions of our debt.





As
      of
      December 31, 2006, the
      Company had positive working capital of approximately $53.4 million including
      restricted cash of $2.4
      million, with
      additional amounts available under its revolving credit facility. Management
      believes that the existing resources available to it will be adequate to satisfy
      current and planned operations for at least the next twelve months.





22
 *Table
            of Contents*





Critical
      Accounting Policies





The
      preparation of financial statements includes the use of estimates and
      assumptions that affect a number of amounts included in the Company’s financial
      statements, including, among other things, pensions and other postretirement
      benefits and related disclosures, inventories valued under the last-in,
      first-out method, reserves for excess and obsolete inventory, allowance for
      doubtful accounts, restructuring charges and income taxes. Management bases
      its
      estimates on historical experience and other assumptions that it believes are
      reasonable. If actual amounts are ultimately different from previous estimates,
      the revisions are included in the Company’s results for the period in which the
      actual amounts become known. Historically, the aggregate differences, if any,
      between the Company’s estimates and actual amounts in any year have not had a
      significant effect on the Company’s consolidated financial
      statements.





Revenue
      Recognition





The
      Company’s revenues are recognized at the time products are shipped to the
      customer, under F.O.B. Shipping Point terms or under F.O.B. Port terms. Revenues
      are net of any discounts, rebates and allowances. The Company records all labor,
      raw materials, in-bound freight, plant receiving and purchasing, warehousing,
      handling and distribution costs as a component of cost of goods
      sold.





Allowance
      for Doubtful Accounts Receivable




Accounts
      receivable have been reduced by an allowance for amounts that may become
      uncollectible in the future. This estimated allowance is primarily based upon
      our evaluation of the financial condition of each customer, each customer’s
      ability to pay and historical write-offs.





Allowance
      for Obsolete and Slow Moving Inventories





Inventories
      are valued at the lower of cost or market. The inventories have been reduced
      by
      an allowance for slow moving and obsolete inventories. The estimated allowance
      is based upon management’s estimate of specifically identified items, the age of
      the inventory and historical write-offs of obsolete and excess inventories.





Income
      Taxes





Deferred
      tax assets and liabilities are measured using enacted tax laws and tax rates
      expected to apply to taxable income in the years in which those temporary
      differences are expected to be recovered or settled. The effect on deferred
      tax
      assets and liabilities due to a change in tax rates is recognized in income
      in
      the period that includes the enactment date. In addition, the amounts of any
      future tax benefits are reduced by a valuation allowance to the extent such
      benefits are not expected to be realized on a more likely than not basis.





Pension
      Plans and Other Postretirement Benefit Plans





Using
      appropriate actuarial methods and assumptions, the Company’s defined benefit
      pension plans are accounted for in accordance with Statement of Financial
      Accounting Standards (“SFAS”) No. 87, Employers’ Accounting for Pensions, and
      SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other
      Postretirement Plans. Non-pension postretirement benefits are accounted for
      in
      accordance with SFAS No. 106, Employers’ Accounting for Postretirement Benefits
      Other Than Pensions.





Actual
      results that differ from assumptions used are accumulated and amortized over
      future periods and, accordingly, generally affect recognized expense and the
      recorded obligation in future periods. Therefore, assumptions used to calculate
      benefit obligations as of the end of a fiscal year directly impact the expense
      to be recognized in future periods. The primary assumptions affecting the
      Company’s accounting for employee benefits under SFAS Nos. 87, 106, and 158 as
      of December 31, 2006 are as follows:





23
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•    Long-term rate of return on plan assets: The required
      use of the expected long-term rate of return on plan assets may result in
      recognized returns that are greater or less than the actual returns on those
      plan assets in any given year. Over time, however, the expected long-term rate
      of return on plan assets is designed to approximate actual earned long-term
      returns. The Company uses long-term historical actual return information, the
      mix of investments that comprise plan assets, and future estimates of long-term
      investment returns by reference to external sources to develop an assumption
      of
      the expected long-term rate of return on plan assets. The expected long-term
      rate of return is used to calculate net periodic pension cost. In determining
      its pension obligations, the Company used a long-term rate of return on plan
      assets of 8.5%.




•    Discount rate: The discount rate is used to calculate future
      pension and postretirement obligations. Discount rate assumptions used to
      account for pension and non-pension postretirement benefit plans reflect the
      rates available on high-quality, fixed-income debt instruments on December
      31 of
      each year. In determining its pension and other benefit obligations, the Company
      used a discount rate of 5.75%.




Goodwill
      and Intangible Assets





Goodwill
      and intangible assets that have an indefinite useful life are not amortized
      and
      are tested at least annually for impairment. Due to the prepackaged nature
      of
      our bankruptcy plan, goodwill was tested for impairment by comparing the fair
      value with its recorded amount. As a result of adopting SFAS No. 142, we used
      a
      discounted cash flow methodology for determining fair value. This methodology
      identified an impairment of goodwill and intangible assets in the amount of
      $49.4 million, which was written off in the fourth quarter of 2003. As part
      of
      fresh-start accounting, the Company recognized intangible assets that are being
      amortized. Non-compete agreements in the amount of $1.2 million were amortized
      over the two year period ended March 31, 2005.





Property,
      Plant and Equipment





The
      Company carries property, plant and equipment at cost less accumulated
      depreciation. Property and equipment additions include acquisition of property
      and equipment and costs incurred for computer software purchased for internal
      use including related external direct costs of materials and services and
      payroll costs for employees directly associated with the project. Depreciation
      is computed on the straight-line method over the estimated useful lives of
      the
      assets ranging from (i) building and improvements - 10 to 32 years, (ii)
      machinery and equipment - 4 to 12 years, (iii) furniture and fixtures - 3 to
      12
      years and (iv) auto and trucks - 2 to 5 years. Upon retirement or other
      disposition, cost and related accumulated depreciation are removed from the
      accounts, and any gain or loss is included in results of
      operations.





In
      the
      ordinary course of business, we lease certain equipment, and certain real
      property, consisting of manufacturing and distribution facilities and office
      facilities. Substantially all such leases as of December 31, 2006 were operating
      leases, with the majority of those leases requiring us to pay maintenance,
      insurance and real estate taxes.





Long-Lived
      Assets





The
      Company continues to evaluate the recoverability of long-lived assets including
      property, plant and equipment, patents and other intangible assets. Impairments
      are recognized when the expected undiscounted future operating cash flows
      derived from long-lived assets are less than their carrying value. If impairment
      is identified, valuation techniques deemed appropriate under the particular
      circumstances will be used to determine the asset’s fair value. The loss will be
      measured based on the excess of carrying value over the determined fair value.
      The review for impairment is performed at least once a year or when
      circumstances warrant.





Off-Balance
      Sheet Arrangements





We
      do not
      have off-balance sheet arrangements, financing or other relations with
      unconsolidated entities or other persons.





Contingencies





The
      Company from time to time is involved in various legal proceedings which require
      us to evaluate the probability of potential losses from such proceedings and
      to
      make estimates as to the amounts of such potential losses. We describe some
      of
      these proceedings in “Item 3—Legal Proceedings.” Where losses are probable and
      the amount of the loss can be reasonably estimated, we recognize expense based
      on such estimates.





24
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Contractual Obligations Related to Debt, Leases and Related Risk Disclosure (in
      millions):


Payment
                  Due by Pay PeriodContractual
                  Obligations
              
              Total
              
              Less
                  than 1 year
              
              Years
                  2 & 3
              
              Years
                  4 & 5
              
              More
                  than 5 yearsLong-term
                  debt
              
              $
              113.8
              
              $
              4.0
              
              $
              18.7
              
              $
              90.0
              
              $
              1.1Cash
                  interest obligations
              
              
              51.4
              
              
              12.8
              
              
              23.5
              
              $
              15.1
              
              
              0.0Pension
              
              
              34.8
              
              
              8.5
              
              
              12.0
              
              
              9.7
              
              
              4.6Post-retirement
                  benefits
              
              
              0.1
              
              
              0.1
              
              
              0.0
              
              
              0.0
              
              
              0.0Operating
                  leases
              
              
              13.2
              
              
              2.3
              
              
              4.2
              
              
              4.0
              
              
              2.7Capital
                  expenditures
              
              
              1.2
              
              
              1.2Total
              
              $
              214.5
              
              $
              28.9
              
              $
              58.4
              
              $
              118.8
              
              $
              8.4




New
      Accounting Pronouncements





In
      September 2006, the SEC staff issued Staff Accounting Bulletin No. 108,
“Considering the Effects of Prior Year Misstatements when Quantifying
      Misstatements in Current Year Financial Statements.”  SAB 108 was issued to
      provide consistency between how registrants quantify financial statement
      misstatements.





Historically,
      there have been two widely-used methods for quantifying the effects of financial
      statement misstatements.  These methods are referred to as the “roll-over”
and “iron curtain” method.  The roll-over method quantifies the amount by
      which the current year income statement is misstated.  Exclusive reliance
      on an income statement approach can result in the accumulation of errors on
      the
      balance sheet that may not have been material to any individual income
      statement, but which may misstate one or more balance sheet accounts.  The
“iron curtain” method quantifies the error as the cumulative amount by which the
      current year balance sheet is misstated.   Exclusive reliance on a
      balance sheet approach can result in disregarding the effects of errors in
      the
      current year income statement that results from the correction of an error
      existing in previously issued financial statements.  We have previously
      used the “roll-over” method for quantifying identified financial statement
      misstatements.





SAB
      108
      established an approach that requires quantification of financial statement
      misstatements based on the effects of the misstatement on each of the company’s
      financial statements and the related financial statement disclosures.  This
      approach is commonly referred to as the “dual approach” because it requires
      quantification of errors under both the “roll-over” and “iron curtain”
methods.





SAB
      108
      allows registrants to initially apply the dual approach either by (1)
      retroactively adjusting prior financial statements as if the dual approach
      had
      always been used or by (2) recording the cumulative effect of initially applying
      the dual approach as adjustments to the carrying values of assets and
      liabilities as of January 1, 2006 with an offsetting adjustment recorded to
      the
      opening balance of retained earnings.    Use of this “cumulative
      effect” transition method requires detailed disclosure of the nature and amount
      of each individual error being corrected through the cumulative adjustment
      and
      how and when it arose.





We
      adopted SAB No. 108 in the fourth quarter of 2006 and identified certain
      misstatements that required adjustment under the provisions of the bulletin.
      We
      have historically not accrued for anniversary bonuses paid to employees of
      our
      French subsidiary. These payments are made on each five year anniversary of
      service with the Company, starting with the fifteenth year. With the assistance
      of our actuaries, we have determined that, for years prior to and including
      2005, we should have accrued approximately $2.3 million as of December 31,
      2005,
      which would have resulted in a decrease of the deferred tax liability of
      approximately $0.8 million. In addition, we made other adjustments in accordance
      with SAB No. 108 as outlined below.





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The
      items
      described as allowance for doubtful accounts, inventory obsolescence, and lower
      of cost or market reserve all arose as the result of estimating the amount
      of
      reserves required for these items over a number of years at amounts different
      than that actually required. The item described below as deferred rent expense
      is the impact of not accounting for rent expense on a straight-line basis for
      a
      lease with an escalation clause entered into during 2001. The adjustment to
      accrued pension liability is the result of an understatement of the minimum
      liability under one of our qualified pension plans which has accumulated over
      a
      number of years.


Amounts
                  in thousandsDescription
                  of Adjustment
              
              Adjustment
                  to 1/1/06 Accumulated DeficitAccrual
                  of French anniversary bonuses (described above), net of tax of
                  $785
              
              $
              (1,500
              )Reduction
                  of allowance for doubtful accounts
              
              
              589Reduction
                  in reserve for inventory obsolescence, net of tax of $151
              
              
              50Reduction
                  of lower of cost or market reserve
              
              
              49Increase
                  in deferred rent expense
              
              
              (197
              )Increase
                  in accrued pension liability
              
              
              192$
              (817
              )





We
      believe that the net effect of these adjustments were not material, either
      quantitatively or qualitatively, in any of the years presented. In reaching
      that
      determination, we estimated the net after-tax effect of the various adjustments
      for each year and compared them to total assets and revenues. Because our income
      (loss) before income taxes and our net income (loss) include significant
      variations, and range from years of significant losses to years of significant
      income, we believe that a measurement based on revenues and assets is most
      appropriate. In each case, the adjustments represented significantly less than
      1% of both total assets and revenues.





In
      September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans—an Amendment of FASB Statements
      No. 87, 88, 106, and 132(R),” which requires employers to: (a) recognize in its
      statement of financial position an asset for a plan’s overfunded status or a
      liability for a plan’s underfunded status; (b) measure a plan’s assets and its
      obligations that determine its funded status as of the end of the employer’s
      fiscal year; and (c) recognize changes in the funded status of a defined benefit
      postretirement plan in the year in which the changes occur. Those changes will
      be reported in comprehensive income of a business entity. The requirement to
      recognize the funded status of a benefit plan and the disclosure requirements
      are effective as of the end of the fiscal year ending after December 15, 2006
      for entities with publicly traded equity securities. The requirement to measure
      plan assets and benefit obligations as of the date of the employer’s fiscal
      year-end statement of financial position is effective for fiscal years ending
      after December 15, 2008. The Company has adopted SFAS No. 158 and recorded
      an
      increase of $1.0 million to the unfunded pension liability included in “Accrued
      employee benefits” on the consolidated balance sheet as of December 31, 2006.





In
      September 2006, the FASB issued FSP No. AUG AIR-1, “Accounting for Planned Major
      Maintenance Activities”. This guidance eliminates one of the accounting methods
      used to plan for major maintenance activities. This FSP should be applied to
      the
      first fiscal year beginning after December 15, 2006. The Company plans to adopt
      this FSP on January 1, 2007. The Company does not expect that the adoption
      of
      this FSP will have a significant impact on its financial position and results
      of
      operations.





In
      June
      2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes--an Interpretation of FASB Statement No. 109” (“FIN48”). FIN 48
      clarifies the accounting for uncertainty in income taxes recognized in a
      company’s financial statements in accordance with SFAS No. 109, “Accounting for
      Income Taxes.” FIN 48 prescribes a recognition threshold and measurement
      attribute for the financial statement recognition and measurement of a tax
      position taken or expected to be taken in a tax return. FIN 48 is effective
      for
      fiscal years beginning after December 15, 2006. We are currently reviewing
      this
      new standard to determine its effects, if any, on our results of operations
      or
      financial position.





26
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In
      May
      2005, the FASB issued SFAS No. 154 (“SFAS 154”), “Accounting Changes and Error
      Corrections.” SFAS 154 replaced Accounting Principles Board Opinion, or APB, No.
      20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in
      Interim Financial Statements” and establishes retrospective application as the
      required method for reporting a change in accounting principle. SFAS 154
      provided guidance for determining whether retrospective application of a change
      in accounting principle is impracticable and for reporting a change when
      retrospective application is impracticable. SFAS 154 also addresses the
      reporting of a correction of an error by restating previously issued financial
      statements. SFAS 154 is effective for accounting changes and corrections of
      errors made in fiscal years beginning after December 15, 2005, and did not
      have
      a significant impact on the Company’s financial statements.





In
      December 2004, the FASB issued SFAS No. 123R “Share-Based Payment.” SFAS 123R
      sets accounting requirements for “share-based” compensation to employees,
      requires companies to recognize in the income statement the grant-date fair
      value of stock options and other equity-based compensation issued to employees
      and disallows the use of the intrinsic value method of accounting for stock
      compensation. SFAS 123R also requires the benefits of tax deductions in excess
      of recognized compensation expense to be reported as a financing cash flow,
      rather than as an operating cash flow as prescribed under the prior accounting
      rules. This requirement reduces net operating cash flows and increases net
      financing cash flows in periods after adoption. Total cash flow remains
      unchanged from what would have been reported under prior accounting rules.
      SFAS
      123R is applicable for annual, rather than interim, periods beginning after
      June
      15, 2005, and as such the Company adopted SFAS 123R in January 2006. The effect
      of adopting this standard using the modified prospective methodology is to
      expense $268 and $245 in 2006 and 2007, respectively. Prior to the adoption
      of
      SFAS 123R, the Company followed the intrinsic value method in accordance with
      APB No. 25 to account for its employee stock options and share-based awards
      in
      2005. Accordingly, no compensation expense was recognized for share-based awards
      granted in connection with the issuance of stock options under the Company’s
      equity incentive plans. The adoption of SFAS 123R primarily resulted in a change
      in the Company’s method of recognizing the fair value of share-based
      compensation and estimating forfeitures for all unvested awards. Specifically,
      the adoption of SFAS 123R resulted in the Company recording compensation expense
      for employee stock options and employee share-based awards granted prior to
      the
      adoption using the Black-Scholes pricing valuation model.





In
      November 2004, the FASB issued SFAS No. 151 (“SFAS 151”), “Inventory Costs - an
      Amendment of ARB No. 43 Chapter 4.” SFAS 151 requires that items such as idle
      facility expense, excessive spoilage, double freight and rehandling be
      recognized as current-period charges rather than being included in inventory
      regardless of whether the costs meet the criterion of abnormal as defined in
      ARB
      43. SFAS 151 is applicable for inventory costs incurred during fiscal years
      beginning after June 15, 2005. The Company adopted this standard beginning
      the
      first quarter of fiscal year 2006. The adoption of this standard did not have
      a
      material effect on our financial statements as such costs have historically
      been
      expensed as incurred.





Forward-Looking
      Statements





This
      report includes “forward-looking statements.” Forward-looking statements are
      those that do not relate solely to historical fact. Forward-looking statements in this report are made pursuant to the safe harbor
      provisions of the Private Securities Litigation Reform Act of 1995. These
      statements relate to future events or our future financial performance and
      implicate known and unknown risks, uncertainties and other factors that may
      cause the actual results, performances or levels of activity of our business
      or
      our industry to be materially different from that expressed or implied by any
      such forward-looking statements and are not
      guarantees of future performance . **** They
      include, but are not limited to, any statement that may predict, forecast,
      indicate or imply future results, performance, achievements or events. In some
      cases, you can identify forward-looking statements by use of words such as
      “believe,” “anticipate,” “expect,” “estimate,” “intend,” “project,” “plan,”
“will,” “would,” “could,” “predict,” “propose,” “potential,” “may” or words or
      phrases of similar meaning. Statements concerning our financial position,
      business strategy and measures to implement that strategy, including changes
      to
      operations, competitive strengths, goals, plans, references to future success
      and other similar matters are forward-looking statements. Forward-looking
      statements may relate to, among other things:





27
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•
            our
                ability to meet liquidity requirements and to fund necessary capital
                expenditures;





•
            the
                strength of demand for our products, prices for our products and
                changes
                in overall demand;





•
            assessment
                of market and industry conditions and changes in the relative market
                shares of industry participants;





•
            consumption
                patterns and consumer preferences;





•
            the
                effects of competition;





•
            our
                ability to realize operating improvements and anticipated cost savings,
                including with respect to the planned termination of certain
                postretirement medical and pension benefits and our finishing operations
                restructuring;





•
            pending
                or future legal proceedings and regulatory matters, including but
                not
                limited to proceedings, claims or problems related to environmental
                issues, or the impact of any adverse outcome of any currently pending
                or
                future litigation on the adequacy of our reserves or tax liabilities;





•
            general
                economic conditions and their effect on our
                business;





•
            changes
                in the cost or availability of raw materials and changes in other
                costs;





•
            pricing
                pressures for our products;





•
            the
                cost of and compliance with environmental laws and other governmental
                regulations;





•
            our
                results of operations for future periods;





•
            our
                anticipated capital expenditures;





•
            the
                timing and cost of our finishing operations
                restructuring;





•
            our
                ability to pay, and our intentions with respect to the payment of,
                dividends on shares of our capital stock;





•
            our
                ability to protect our intellectual property; and





•
            our
                strategy for the future,
                includingopportunities that may be presented to and pursued by us.





28
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ITEM
                7A.
            QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK





The
      Company is exposed to certain market risks related to foreign currency exchange
      rates. In order to manage the risk associated with this exposure to such
      fluctuations, the Company occasionally uses derivative financial instruments.
      The Company does not enter into derivatives for trading purposes.





The
      Company also prepared sensitivity analyses to determine the impact of a
      hypothetical 10% devaluation of the U.S. dollar relative to the European
      receivables and payables denominated in U.S. dollars. Based on its sensitivity
      analyses at December 31, 2006, a 10% devaluation of the U.S. dollar would affect
      the Company’s 2006 consolidated net income by approximately $0.4 million and
      would affect 2006 other comprehensive income by $3.2 million.





The
      Company purchases gas futures contracts to lock in set rates on some of its
      gas
      purchases. The Company uses this strategy to minimize its exposure to volatility
      in natural gas. These products are not linked to specific assets and liabilities
      that appear on the balance sheet or to a forecasted transaction and, therefore,
      do not qualify for hedge accounting. As of December 31, 2006 there were no
      open
      gas contracts.





29
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            of Contents*





ITEM
                8.
            FINANCIAL
                STATEMENTS AND SUPPLEMENTARY
                DATA








**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**








Board
      of
      Directors


Viskase
      Companies, Inc.





We
      have
      audited the accompanying consolidated balance sheets of Viskase Companies,
      Inc.
      (a Delaware corporation) and Subsidiaries as of December 31, 2006 and December
      31, 2005, and the related consolidated statements of income, stockholders’
equity (deficit) and cash flows for the years ended December 31, 2006, December
      31, 2005, and December 31, 2004. In connection with our audits, we have also
      audited the schedule of valuation and qualifying accounts (the "Schedule").
      These financial statements and schedule are the responsibility of the Company’s
      management. Our responsibility is to express an opinion on these financial
      statements and schedule based on our audit.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The Company is not required to
      have, nor were we engaged to perform, an audit of its internal control over
      financial reporting. Our audit included consideration of internal control over
      financial reporting as a basis for designing audit procedures that are
      appropriate in the circumstances, but not for the purpose of expressing an
      opinion on the effectiveness of the Company's internal control over financial
      reporting. Accordingly, we express no such opinion. An audit also includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements, assessing the accounting principles used and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





During
      2006, the Company adopted Financial Accounting Standards Board Statements No.
      123(R), *Share-Based
      Payments and No. 158, Employers’ Accounting for Defined Benefit Pension and
      Other Postretirement Plans,* as
      discussed in Note 20 and Note 11, respectively, to the consolidated financial
      statements. As discussed in Note 1 to the consolidated financial statements,
      the
      Company recorded a cumulative effect adjustment as of January 1, 2006, in
      connection with the adoption of the Securities and Exchange Commission Staff
      Accounting Bulletin No. 108, *Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements* .





In
      our
      opinion, the consolidated financial statements and schedule referred to above
      present fairly, in all material respects, the financial position of Viskase
      Companies, Inc. and Subsidiaries as of December 31, 2006 and December 31, 2005,
      and the results of their operations and their cash flows for the years ended
      December 31, 2006, December 31, 2005, and December 31, 2004, in conformity
      with
      accounting principles generally accepted in the United States of
      America.





Grant
      Thornton LLP


Chicago,
      Illinois


April
      6,
      2007





30
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            of Contents*





**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


**(In
      Thousands, Except for Number of Shares and Per Share
      Amounts)**


December
                    31,
                
                December
                    31,2006
                
                2005ASSETSCurrent
                    assets:Cash
                    and cash equivalents
                
                $
                3,692
                
                $
                11,904Restricted
                    cash
                
                
                2,419
                
                
                3,251Receivables,
                    net
                
                
                34,911
                
                
                29,664Inventories
                
                
                43,482
                
                
                36,419Other
                    current assets
                
                
                15,035
                
                
                15,563Total
                    current assets
                
                
                99,539
                
                
                96,801Property,
                    plant and equipment
                
                
                128,800
                
                
                116,509Less
                    accumulated depreciation
                
                
                32,111
                
                
                22,988Property,
                    plant and equipment, net
                
                
                96,689
                
                
                93,521Asset
                    held for sale
                
                
                1,250Deferred
                    financing costs, net
                
                
                3,070
                
                
                3,667Other
                    assets
                
                
                3,207
                
                
                3,851Total
                    Assets
                
                $
                203,755
                
                $
                197,840LIABILITIES
                    AND STOCKHOLDERS' EQUITY (DEFICIT)Current
                    liabilities:Short-term
                    debt including current portion of long-term debt and capital
                    leases
                
                $
                3,978
                
                $
                182Accounts
                    payable
                
                
                19,706
                
                
                17,958Accrued
                    liabilities
                
                
                20,773
                
                
                32,031Deferred
                    income taxes
                
                
                1,721
                
                
                710Total
                    current liabilities
                
                
                46,178
                
                
                50,881Long-term
                    debt, net of current maturities
                
                
                105,916
                
                
                103,299Accrued
                    employee benefits
                
                
                41,193
                
                
                61,429Deferred
                    income taxes
                
                
                6,049
                
                
                8,357Deferred
                    revenue
                
                
                237
                
                
                553Stockholders’
                    equity (deficit):Preferred
                    stock, subject to redemption:Preferred
                    stock, $.01 par value; 12,307,692 shares issued and outstanding
                    at
                    December 31, 2006
                
                
                123Benefical
                    conversion feature
                
                
                2,272Paid
                    in capital
                
                
                20,779Common
                    stockCommon
                    stock, $.01 par value; 10,811,483 shares issued and 9,937,906
                    shares
                    outstanding at December 31, 2006; and 10,651,123 shares issued
                    and
                    9,715,954 shares outstanding at December 31, 2005
                
                
                108
                
                
                106Common
                    stock distributable
                
                
                9Paid
                    in capital
                
                
                3,327
                
                
                1,895Accumulated
                    deficit
                
                
                (23,868
                )
                
                (23,467
                )Less
                    805,270 treasury shares, at cost
                
                
                (298
                )
                
                (298
                )Accumulated
                    other comprehensive income (loss)
                
                
                1,731
                
                
                (4,907
                )Unearned
                    restricted stock issued for future service
                
                
                (1
                )
                
                (8
                )Total
                    stockholders' equity (deficit)
                
                
                4,182
                
                
                (26,679
                )Total
                    Liabilities and Stockholders' Equity
                
                $
                203,755
                
                $
                197,840




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





31
 *Table
            of Contents*





**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(In
      Thousands, Except for Number of Shares and Per Share
      Amounts** )


Year
                  Ended December 31, 2006
              
              Year
                  Ended December 31, 2005
              
              Year
                  Ended December 31, 2004NET
                  SALES
              
              $
              210,391
              
              $
              203,769
              
              $
              207,106COSTS
                  AND EXPENSESCost
                  of sales
              
              
              173,687
              
              
              164,415
              
              
              164,954Selling,
                  general and administrative
              
              
              30,894
              
              
              28,992
              
              
              29,312Amortization
                  of intangibles
              
              
              466
              
              
              620
              
              
              1,078Restructuring
                  expense
              
              
              1,919
              
              
              2,024
              
              
              668Asset
                  impairment charge
              
              
              2,409OPERATING
                  INCOME
              
              
              1,016
              
              
              7,718
              
              
              11,094Interest
                  income
              
              
              (282
              )
              
              (715
              )
              
              (579
              )Interest
                  expense
              
              
              13,611
              
              
              12,916
              
              
              13,192Other
                  income, net
              
              
              (386
              )
              
              (225
              )
              
              (1,223
              )Postretirement
                  benefits curtailment gain
              
              
              (14,513
              )
              
              (1,642
              )
              
              (34,055
              )Loss
                  on early extinguishment of debt, net of income tax provision of
                  $0 in
                  2004
              
              
              
              
              
              
              
              
              13,083INCOME
                  (LOSS) BEFORE INCOME TAXES
              
              
              2,586
              
              
              (2,616
              )
              
              20,676Income
                  tax provision (benefit)
              
              
              977
              
              
              (459
              )
              
              (4,641
              )NET
                  INCOME (LOSS)
              
              
              1,609
              
              
              (2,157
              )
              
              25,317Less
                  preferred dividends
              
              
              (1,193
              )INCOME
                  (LOSS) AVAILABLE TO COMMON SHAREHOLDERS
              
              
              416
              
              
              (2,157
              )
              
              25,317WEIGHTED
                  AVERAGE COMMON SHARES-
                  BASIC
              
              
              9,812,432
              
              
              9,698,196
              
              
              10,013,828PER
                  SHARE AMOUNTS:EARNINGS
                  (LOSS) PER SHARE-
                  BASIC
              
              $
              0.04
              
              
              ($0.22
              )
              $
              2.53WEIGHTED
                  AVERAGE COMMON SHARES-
                  DILUTED
              
              
              13,163,044
              
              
              10,545,067
              
              
              10,868,152PER
                  SHARE AMOUNTS:EARNINGS
                  (LOSS) PER SHARE-
                  DILUTED
              
              $
              0.03
              
              
              ($0.22
              )
              $
              2.33




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





32
 *Table
            of Contents*




**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)**


**(In
      Thousands)**


Accumulated
                  other comprehensive income (loss)Preferred
                  stock
              
              Common
                  stock
              
              Common
                  stock distributable
              
              Paid
                  in capital
              
              Treasury
                  stock
              
              Accumulated
                  deficit
              
              Foreign
                  currency translation adjustments
              
              Minimum
                  pension liability adjustments
              
              Restricted
                  stock issued for future service
              
              Total
                  stockholders' equity (deficit)Balance
                  December 31, 2003
              
              
              
              
              
              106
              
              
              
              
              
              894
              
              
              
              
              
              (46,627
              )
              
              4,547
              
              
              
              
              
              (20
              )
              
              (41,100
              )Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              25,317
              
              
              
              
              
              
              
              
              
              
              
              25,317Issuance
                  of common stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              6
              
              
              6Issuance
                  of warrants
              
              
              
              
              
              
              
              
              
              
              
              1,001
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,001Purchase
                  of treasury stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              ($298
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              (298
              )Other
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,061
              
              
              
              
              
              
              
              
              3,061Balance
                  December 31, 2004
              
              
              
              
              
              106
              
              
              
              
              
              1,895
              
              
              (298
              )
              
              (21,310
              )
              
              7,608
              
              
              
              
              
              (14
              )
              
              (12,013
              )Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,157
              )
              
              
              
              
              
              
              
              
              
              
              (2,157
              )Issuance
                  of common stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              6
              
              
              6Other
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (4,920
              )
              
              (7,595
              )
              
              
              
              
              (12,515
              )Balance
                  December 31, 2005
              
              
              
              
              
              106
              
              
              
              
              
              1,895
              
              
              (298
              )
              
              (23,467
              )
              
              2,688
              
              
              (7,595
              )
              
              (8
              )
              
              (26,679
              )Cumulative
                  effect of adjustments resulting from the adoption of SAB No. 108,
                  net of
                  tax
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (817
              )
              
              
              
              
              
              
              
              
              
              
              (817
              )Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,609
              
              
              
              
              
              
              
              
              
              
              
              1,609Issuance
                  of preferred stock
              
              
              123
              
              
              
              
              
              
              
              
              23,051
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              23,174Issuance
                  of common stock
              
              
              
              
              
              2
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              7
              
              
              9Cashless
                  warrant exercise
              
              
              
              
              
              
              
              
              
              
              
              (2
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2
              )Stock
                  option expense
              
              
              
              
              
              
              
              
              
              
              
              268
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              268Dividend
                  payable
              
              
              
              
              
              
              
              
              9
              
              
              1,166
              
              
              
              
              
              (1,193
              )
              
              
              
              
              
              
              
              
              
              
              (18
              )Other
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              4,110
              
              
              1,507
              
              
              
              
              
              5,617Pension
                  liability adjustment
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,021
              
              
              
              
              
              1,021Balance
                  December 31, 2006
              
              $
              123
              
              $
              108
              
              $
              9
              
              $
              26,378
              
              
              ($298
              )
              
              ($23,868
              )
              $
              6,798
              
              
              ($5,067
              )
              
              ($1
              )
              $
              4,182




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




33
 *Table
            of Contents*




**VISKASE
        COMPANIES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **(In
        Thousands** )


Year
                  Ended December 31, 2006
              
              Year
                  Ended December 31, 2005
              
              Year
                  Ended December 31, 2004Cash
                  flows from operating activities:Net
                  income (loss)
              
              $
              1,609
              
              
              ($2,157
              )
              $
              25,317Adjustments
                  to reconcile net income (loss) to net cash (used in) provided by
                  operating
                  activities:Depreciation
                  and amortization
              
              
              8,763
              
              
              10,681
              
              
              9,832Stock-based
                  compensation
              
              
              268Amortization
                  of intangibles
              
              
              467
              
              
              620
              
              
              1,078Amortization
                  of deferred financing fees
              
              
              735
              
              
              706
              
              
              381Payment
                  of interest on 8% notes
              
              
              
              
              
              
              
              
              (2,196
              )Decrease
                  in deferred income taxes
              
              
              (914
              )
              
              (3,377
              )
              
              (5,203
              )Postretirement
                  plan curtailment gain and amortization
              
              
              (22,356
              )
              
              (3,386
              )
              
              (34,055
              )Foreign
                  currency translation (gain) loss
              
              
              (1,258
              )
              
              1,025
              
              
              (679
              )Loss
                  in disposition of assets
              
              
              10
              
              
              320
              
              
              464Bad
                  debt provision
              
              
              89
              
              
              (147
              )
              
              146Asset
                  impairment charge
              
              
              2,409Non-cash
                  interest on 8% notes and 11.5% notes
              
              
              2,588
              
              
              2,342
              
              
              5,855Loss
                  on debt extinguishment
              
              
              
              
              
              
              
              
              13,083Changes
                  in operating assets and liabilities:Receivables
              
              
              (1,727
              )
              
              (3,871
              )
              
              (230
              )Inventories
              
              
              (5,197
              )
              
              (4,537
              )
              
              595Other
                  current assets
              
              
              1,215
              
              
              (6,528
              )
              
              (1,774
              )Accounts
                  payable
              
              
              762
              
              
              1,330
              
              
              2,503Accrued
                  liabilities
              
              
              (12,377
              )
              
              6,679
              
              
              (2,537
              )Other
              
              
              1,688
              
              
              (873
              )
              
              7,797Total
                  adjustments
              
              
              (24,835
              )
              
              984
              
              
              (4,940
              )Net
                  cash (used in) provided by operating activities
              
              
              (23,226
              )
              
              (1,173
              )
              
              20,377Cash
                  flows from investing activities:Capital
                  expenditures
              
              
              (13,243
              )
              
              (16,550
              )
              
              (9,789
              )Reacquisition
                  of leased assets
              
              
              
              
              
              (624
              )
              
              (9,511
              )Treasury
                  stock purchase
              
              
              
              
              
              
              
              
              (298
              )Proceeds
                  from disposition of assets
              
              
              56
              
              
              1,135
              
              
              1,349Restricted
                  cash
              
              
              832
              
              
              210
              
              
              22,784Net
                  cash (used in) provided by investing activities
              
              
              (12,355
              )
              
              (15,829
              )
              
              4,535Cash
                  flows from financing activities:Issuance
                  of preferred stock
              
              
              23,174Common
                  stock distributable
              
              
              1,175Deferred
                  financing costs
              
              
              (138
              )
              
              (313
              )
              
              (4,477
              )Preferred
                  stock dividend
              
              
              (1,193
              )Proceeds
                  from revolving loan and long-term debt
              
              
              3,943
              
              
              13
              
              
              89,348Proceeds
                  from issuance of warrants
              
              
              
              
              
              
              
              
              1,001Repayment
                  of long-term borrowings and capital obligation
              
              
              (146
              )
              
              (160
              )
              
              (104,273
              )Net
                  cash provided by (used in) financing activities
              
              
              26,815
              
              
              (460
              )
              
              (18,401
              )Effect
                  of currency exchange rate changes on cash
              
              
              554
              
              
              (889
              )
              
              584Net
                  (decrease) increase in cash and equivalents
              
              
              (8,212
              )
              
              (18,351
              )
              
              7,095Cash
                  and equivalents at beginning of period
              
              
              11,904
              
              
              30,255
              
              
              23,160Cash
                  and equivalents at end of period
              
              $
              3,692
              
              $
              11,904
              
              $
              30,255Supplemental
                  cash flow information:Interest
                  paid less capitalized interest
              
              $
              10,187
              
              $
              9,856
              
              $
              8,449Income
                  taxes paid
              
              
              ($1,125
              )
              $
              921
              
              $
              771




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





34
 *Table
            of Contents*





**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





**1.**
            **Summary
                of Significant Accounting
                Policies**





**General**





Viskase
      Companies, Inc. (formerly Envirodyne Industries, Inc.) is a Delaware corporation
      organized in 1970. As used herein, the "Company" means Viskase Companies, Inc.
      and its subsidiaries.





**Nature
      of Operations**





The
      Company is a producer of non-edible cellulosic and plastic casings and specialty
      plastic bags used to prepare and package processed meat products, and provides
      value-added support services relating to these products, for some of the largest
      global consumer products companies. The Company operates eight manufacturing
      facilities and eight distribution centers in North America, Europe and South
      America and, as a result, is able to sell its products in most countries
      throughout the world.





**Principles
      of Consolidation**





The
      consolidated financial statements include the accounts of the Company.
      Intercompany accounts and transactions have been eliminated in
      consolidation.





**Reclassification**





Reclassifications
      have been made to the prior years’ financial statements to conform to the 2006
      presentation.





**Use
      of Estimates in the Preparation of Financial Statements**





The
      preparation of financial statements includes the use of estimates and
      assumptions that affect a number of amounts included in the Company’s financial
      statements, including, among other things, pensions and other postretirement
      benefits and related disclosures, inventories valued under the last-in,
      first-out method, reserves for excess and obsolete inventory, allowance for
      doubtful accounts, restructuring charges and income taxes. Management bases
      its
      estimates on historical experience and other assumptions that they believe
      are
      reasonable. If actual amounts are ultimately different from previous estimates,
      the revisions are included in the Company’s results for the period in which the
      actual amounts become known. Historically, the aggregate differences, if any,
      between the Company’s estimates and actual amounts in any year have not had a
      significant effect on the Company’s consolidated financial
      statements.





**Cash
      Equivalents**





For
      purposes of the statement of cash flows, the Company considers cash equivalents
      to consist of all highly liquid debt investments purchased with an initial
      maturity of approximately three months or less. Due to the short-term nature
      of
      these instruments, the carrying values approximate the fair market value. Cash
      equivalents and restricted cash include $198 and $10,711 of short-term
      investments at December 31, 2006 and 2005, respectively. Restricted cash is
      cash
      held as collateral for outstanding letters of credit with a commercial
      bank.





**Inventories**





Domestic
      inventories are valued primarily at the lower of last-in, first-out (“LIFO”)
      cost or market. Remaining inventories, primarily foreign, are valued at the
      lower of first-in, first-out (“FIFO”) cost or market.





35
 *Table
            of Contents*





**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





**Property,
      Plant and Equipment**





The
      Company carries property, plant and equipment at cost less accumulated
      depreciation. Property and equipment additions include acquisition of property
      and equipment and costs incurred for computer software purchased for internal
      use including related external direct costs of materials and services and
      payroll costs for employees directly associated with the project. Upon
      retirement or other disposition, cost and related accumulated depreciation
      are
      removed from the accounts, and any gain or loss is included in results of
      operations. Depreciation is computed on the straight-line method over the
      estimated useful lives of the assets ranging from (i) building and improvements
      - 10 to 32 years, (ii) machinery and equipment - 4 to 12 years, (iii) furniture
      and fixtures - 3 to 12 years and (iv) auto and trucks - 2 to 5
      years.





In
      the
      ordinary course of business, we lease certain equipment, and certain real
      property, consisting of manufacturing and distribution facilities and office
      facilities. Substantially all such leases as of December 31, 2006 were operating
      leases, with the majority of those leases requiring us to pay maintenance,
      insurance and real estate taxes.





**Deferred
      Financing Costs**





Deferred
      financing costs are amortized on a straight-line basis over the expected term
      of
      the related debt agreement. Amortization of deferred financing costs is
      classified as interest expense.





**Patents**





Patents
      are amortized on the straight-line method over an estimated average useful
      life
      of 10 years.





**Goodwill
      and Intangible Assets**





Intangible
      assets that have an indefinite useful life are not amortized and are tested
      at
      least annually for impairment. In 2003, the Company recorded amortizable
      intangibles consisting of non-compete agreements in the amount of $1,236
      amortized over two years.





**Long-Lived
      Assets**





The
      Company continues to evaluate the recoverability of long-lived assets including
      property, plant and equipment, patents and other intangible assets. Impairments
      are recognized when the expected undiscounted future operating cash flows
      derived from long-lived assets are less than their carrying value. If impairment
      is identified, valuation techniques deemed appropriate under the particular
      circumstances will be used to determine the asset’s fair value. The loss will be
      measured based on the excess of carrying value over the determined fair value.
      The review for impairment is performed at least once a year or when
      circumstances warrant.





**Accounts
      Payable**





The
      Company’s cash management system provides for the daily replenishment of its
      bank accounts for check-clearing requirements. The outstanding check balances
      of
      $1,129 and $1,427 at December 31, 2006 and 2005, respectively, are not deducted
      from cash but are reflected in Accounts Payable on the consolidated balance
      sheets.





**Shipping
      and Handling**





The
      Company periodically bills customers for shipping charges. These amounts are
      included in net revenue, with the associated costs included in cost of
      sales.





36
 *Table
            of Contents*





**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





**Deferred
      Revenue**





License
      fees paid in advance are deferred and recognized on a straight line basis over
      the life of the applicable patent. As of December 31, 2006, the remaining
      balance of unearned revenue was $552 including $315 of short-term license fees
      included in other current liabilities.





**Pensions
      and Other Postretirement Benefits**





Using
      appropriate actuarial methods and assumptions, the Company’s defined benefit
      pension plans are accounted for in accordance with Statement of Financial
      Accounting Standards (“SFAS”) No. 87, Employers’ Accounting for Pensions, and
      SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other
      Postretirement Plans. Non-pension postretirement benefits are accounted for
      in
      accordance with SFAS No. 106, Employers’ Accounting for Postretirement Benefits
      Other Than Pensions.





Actual
      results that differ from assumptions used are accumulated and amortized over
      future periods and, accordingly, generally affect recognized expense and the
      recorded obligation in future periods. Therefore, assumptions used to calculate
      benefit obligations as of the end of a fiscal year directly impact the expense
      to be recognized in future periods. The primary assumptions affecting the
      Company’s accounting for employee benefits under SFAS Nos. 87, 106, and 158 as
      of December 31, 2006 are as follows:





•    Long-term rate of return on plan assets: The required use of
      the expected long-term rate of return on plan assets may result in recognized
      returns that are greater or less than the actual returns on those plan assets
      in
      any given year. Over time, however, the expected long-term rate of return on
      plan assets is designed to approximate actual earned long-term returns. The
      Company uses long-term historical actual return information, the mix of
      investments that comprise plan assets, and future estimates of long-term
      investment returns by reference to external sources to develop an assumption
      of
      the expected long-term rate of return on plan assets. The expected long-term
      rate of return is used to calculate net periodic pension cost. In determining
      its pension obligations, the Company used a long-term rate of return on plan
      assets of 8.5%.





•    Discount rate: The discount rate is used to calculate future
      pension and postretirement obligations. Discount rate assumptions used to
      account for pension and non-pension postretirement benefit plans reflect the
      rates available on high-quality, fixed-income debt instruments on December
      31 of
      each year. In determining its pension and other benefit obligations, the Company
      used a discount rate of 5.75%.





**Income
      Taxes**





Deferred
      tax assets and liabilities are measured using enacted tax laws and tax rates
      expected to apply to taxable income in the years in which those temporary
      differences are expected to be recovered or settled. The effect on deferred
      tax
      assets and liabilities due to a change in tax rates is recognized in income
      in
      the period that includes the enactment date. In addition, the amounts of any
      future tax benefits are reduced by a valuation allowance to the extent such
      benefits are not expected to be realized on a more likely than not
      basis.





**Net
      Income (Loss) Per Share**





Net
      income (loss) per share of common stock is based upon the weighted-average
      number of shares of common stock outstanding during the year.





37
 *Table
            of Contents*





**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





**Other
      Comprehensive Income**





Comprehensive
      income includes all other non-shareholder changes in equity. Changes in other
      comprehensive income in 2006 and 2005 resulted from changes in foreign currency
      translation adjustments and minimum pension liability.





**Revenue
      Recognition**





The
      Company’s revenues are recognized at the time products are shipped to the
      customer, under F.O.B. Shipping Point terms or under F.O.B. Port terms. Revenues
      are net of any discounts, rebates and allowances. The Company records all labor,
      raw materials, in-bound freight, plant receiving and purchasing, warehousing,
      handling and distribution costs as a component of cost of goods
      sold.





**Accounting
      for Stock-Based Compensation**





During
      2006, the Company adopted the provisions of, and began accounting for
      stock-based compensation in accordance with, the Financial Accounting Standards
      Board’s (“FASB”) Statement of Financial Accounting Standards No. 123—revised
      2004 (“SFAS 123R”), “Share-Based Payment,” which replaced Statement of Financial
      Accounting Standards No. 123 (“SFAS 123”), “Accounting for Stock-Based
      Compensation” and supersedes APB Opinion No. 25 (“APB 25”), “Accounting for
      Stock Issued to Employees.” Under the fair value recognition provisions of this
      statement, stock-based compensation cost is measured at the grant date based
      on
      fair value of the award and is recognized as an expense on a straight-line
      basis
      over the requisite service period, which is the vesting period. We elected
      the
      modified-prospective method, under which prior periods are not revised for
      comparative purposes. The valuation provisions of SFAS 123R apply to new grants
      and to grants that were outstanding as of the effective date and are
      subsequently modified. Estimated compensation for grants that were outstanding
      as of the effective date will be recognized over the remaining service period
      using the compensation cost estimated for the SFAS 123 pro forma disclosures.
      The effect of adopting this standard was to record compensation expense of
      $268
      in 2006.





Prior
      to
      the adoption of SFAS 123R, the Company used the instrinsic value method to
      account for options granted to employees for the purchase of common stock.
      No
      compensation expense was recognized on the grant date, since at that date,
      the
      option price equals the market price of the underlying common stock. The pro
      forma effect of accounting for stock options under a fair value method, prior
      to
      the adoption of SFAS 123R, was as follows:


(Dollars
                  in Thousands, Except Per Share Amounts)
              
              Year
                  Ended December 31, 2005
              
              Year
                  Ended December 31, 2004Net
                  (loss) income, as reported
              
              
              ($2,157
              )
              $
              25,317Deduct:
                  Total stock-based compensation expense under a fair value based
                  method,
                  net of related tax effects
              
              
              (268
              )
              
              (22
              )Net
                  (loss) income, pro forma
              
              
              ($2,425
              )
              $
              25,295Basic
                  (loss) earnings per share, as reported
              
              
              ($0.22
              )
              $
              2.53Diluted
                  (loss) earnings per share, as reported
              
              
              ($0.22
              )
              $
              2.53Basic
                  (loss) earnings per share, pro forma
              
              
              ($0.25
              )
              $
              2.33Diluted
                  (loss) earnings per share, pro forma
              
              
              ($0.25
              )
              $
              2.33





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**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





**New
      Accounting Pronouncements**





In
      September 2006, the SEC staff issued Staff Accounting Bulletin No. 108,
“Considering the Effects of Prior Year Misstatements when Quantifying
      Misstatements in Current Year Financial Statements.”  SAB 108 was issued to
      provide consistency between how registrants quantify financial statement
      misstatements.





Historically,
      there have been two widely-used methods for quantifying the effects of financial
      statement misstatements.  These methods are referred to as the “roll-over”
and “iron curtain” method.  The roll-over method quantifies the amount by
      which the current year income statement is misstated.  Exclusive reliance
      on an income statement approach can result in the accumulation of errors on
      the
      balance sheet that may not have been material to any individual income
      statement, but which may misstate one or more balance sheet accounts.  The
“iron curtain” method quantifies the error as the cumulative amount by which the
      current year balance sheet is misstated.   Exclusive reliance on a
      balance sheet approach can result in disregarding the effects of errors in
      the
      current year income statement that results from the correction of an error
      existing in previously issued financial statements.  We have previously
      used the “roll-over” method for quantifying identified financial statement
      misstatements.





SAB
      108
      established an approach that requires quantification of financial statement
      misstatements based on the effects of the misstatement on each of the company’s
      financial statements and the related financial statement disclosures.  This
      approach is commonly referred to as the “dual approach” because it requires
      quantification of errors under both the “roll-over” and “iron curtain”
methods.





SAB
      108
      allows registrants to initially apply the dual approach either by (1)
      retroactively adjusting prior financial statements as if the dual approach
      had
      always been used or by (2) recording the cumulative effect of initially applying
      the dual approach as adjustments to the carrying values of assets and
      liabilities as of January 1, 2006 with an offsetting adjustment recorded to
      the
      opening balance of retained earnings.    Use of this “cumulative
      effect” transition method requires detailed disclosure of the nature and amount
      of each individual error being corrected through the cumulative adjustment
      and
      how and when it arose.





We
      adopted SAB No. 108 in the fourth quarter of 2006 and identified certain
      misstatements that required adjustment under the provisions of the bulletin.
      We
      have historically not accrued for anniversary bonuses paid to employees of
      our
      French subsidiary. These payments are made on each five year anniversary of
      service with the Company, starting with the fifteenth year. With the assistance
      of our actuaries, we have determined that, for years prior to and including
      2005, we should have accrued approximately $2.3 million as of December 31,
      2005,
      which would have resulted in a decrease of the deferred tax liability of
      approximately $0.8 million. In addition, we made other adjustments in accordance
      with SAB No. 108 as outlined below.





The
      items
      described as allowance for doubtful accounts, inventory obsolescence, and lower
      of cost or market reserve all arose as the result of estimating the amount
      of
      reserves required for these items over a number of years at amounts different
      than that actually required. The item described below as rent expense is the
      impact of not accounting for rent expense on a straight-line basis for a lease
      with an escalation clause entered into during 2001. The adjustment to accrued
      pension liability is the result of an understatement of the minimum liability
      under one of our qualified pension plans which has accumulated over a number
      of
      years.





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            of Contents*





**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**


Amounts
                  in thousandsDescription
                  of Adjustment
              
              Adjustment
                  to 1/1/06 Accumulated DeficitAccrual
                  of French anniversary bonuses (described above), net of tax of
                  $785
              
              $
              (1,500
              )Reduction
                  of allowance for doubtful accounts
              
              
              589Reduction
                  in reserve for inventory obsolescence, net of tax of $151
              
              
              50Reduction
                  of lower of cost or market reserve
              
              
              49Increase
                  in deferred rent expense
              
              
              (197
              )Increase
                  in accrued pension liability
              
              
              192$
              (817
              )


We
      believe that the net effect of these adjustments were not material, either
      quantitatively or qualitatively, in any of the years presented. In reaching
      that
      determination, we estimated the net after-tax effect of the various adjustments
      for each year and compared them to total assets and revenues. Because our income
      (loss) before income taxes and our net income (loss) include significant
      variations, and range from years of significant losses to years of significant
      income, we believe that a measurement based on revenues and assets is most
      appropriate. In each case, the adjustments represented significantly less than
      1% of both total assets and revenues.





In
      September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans—an Amendment of FASB Statements
      No. 87, 88, 106, and 132(R),” which requires employers to: (a) recognize in its
      statement of financial position an asset for a plan’s overfunded status or a
      liability for a plan’s underfunded status; (b) measure a plan’s assets and its
      obligations that determine its funded status as of the end of the employer’s
      fiscal year; and (c) recognize changes in the funded status of a defined benefit
      postretirement plan in the year in which the changes occur. Those changes will
      be reported in comprehensive income of a business entity. The requirement to
      recognize the funded status of a benefit plan and the disclosure requirements
      are effective as of the end of the fiscal year ending after December 15, 2006
      for entities with publicly traded equity securities. The requirement to measure
      plan assets and benefit obligations as of the date of the employer’s fiscal
      year-end statement of financial position is effective for fiscal years ending
      after December 15, 2008. The Company has adopted SFAS No. 158 and recorded
      an
      increase of $1.0 million to the unfunded pension liability included in “Accrued
      employee benefits” on the consolidated balance sheet as of December 31, 2006.





In
      September 2006, the FASB issued FSP No. AUG AIR-1, “Accounting for Planned Major
      Maintenance Activities”. This guidance eliminates one of the accounting methods
      used to plan for major maintenance activities. This FSP should be applied to
      the
      first fiscal year beginning after December 15, 2006. The Company plans to adopt
      this FSP on January 1, 2007. The Company does not expect that the adoption
      of
      this FSP will have a significant impact on its financial position and results
      of
      operations.





In
      June
      2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes--an Interpretation of FASB Statement No. 109” (“FIN48”). FIN 48
      clarifies the accounting for uncertainty in income taxes recognized in a
      company’s financial statements in accordance with SFAS No. 109, “Accounting for
      Income Taxes.” FIN 48 prescribes a recognition threshold and measurement
      attribute for the financial statement recognition and measurement of a tax
      position taken or expected to be taken in a tax return. FIN 48 is effective
      for
      fiscal years beginning after December 15, 2006. We are currently reviewing
      this
      new standard to determine its effects, if any, on our results of operations
      or
      financial position.





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**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





In
      May
      2005, the FASB issued SFAS No. 154 (“SFAS 154”), “Accounting Changes and Error
      Corrections.” SFAS 154 replaced Accounting Principles Board Opinion, or APB, No.
      20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in
      Interim Financial Statements” and establishes retrospective application as the
      required method for reporting a change in accounting principle. SFAS 154
      provided guidance for determining whether retrospective application of a change
      in accounting principle is impracticable and for reporting a change when
      retrospective application is impracticable. SFAS 154 also addresses the
      reporting of a correction of an error by restating previously issued financial
      statements. SFAS 154 is effective for accounting changes and corrections of
      errors made in fiscal years beginning after December 15, 2005, and did not
      have
      a significant impact on the Company’s financial statements.





In
      December 2004, the FASB issued SFAS No. 123R “Share-Based Payment.” SFAS 123R
      sets accounting requirements for “share-based” compensation to employees,
      requires companies to recognize in the income statement the grant-date fair
      value of stock options and other equity-based compensation issued to employees
      and disallows the use of the intrinsic value method of accounting for stock
      compensation. SFAS 123R also requires the benefits of tax deductions in excess
      of recognized compensation expense to be reported as a financing cash flow,
      rather than as an operating cash flow as prescribed under the prior accounting
      rules. This requirement reduces net operating cash flows and increases net
      financing cash flows in periods after adoption. Total cash flow remains
      unchanged from what would have been reported under prior accounting rules.
      SFAS
      123R is applicable for annual, rather than interim, periods beginning after
      June
      15, 2005, and as such the Company adopted SFAS 123R in January 2006. The effect
      of adopting this standard using the modified prospective methodology is to
      expense $268 and $245 in 2006 and 2007, respectively. Prior to the adoption
      of
      SFAS 123R, the Company followed the intrinsic value method in accordance with
      APB No. 25 to account for its employee stock options and share-based awards
      in
      2005. Accordingly, no compensation expense was recognized for share-based awards
      granted in connection with the issuance of stock options under the Company’s
      equity incentive plans. The adoption of SFAS 123R primarily resulted in a change
      in the Company’s method of recognizing the fair value of share-based
      compensation and estimating forfeitures for all unvested awards. Specifically,
      the adoption of SFAS 123R resulted in the Company recording compensation expense
      for employee stock options and employee share-based awards granted prior to
      the
      adoption using the Black-Scholes pricing valuation model.




In
      November 2004, the FASB issued SFAS No. 151 (“SFAS 151”), “Inventory Costs - an
      Amendment of ARB No. 43 Chapter 4.” SFAS 151 requires that items such as idle
      facility expense, excessive spoilage, double freight and rehandling be
      recognized as current-period charges rather than being included in inventory
      regardless of whether the costs meet the criterion of abnormal as defined in
      ARB
      43. SFAS 151 is applicable for inventory costs incurred during fiscal years
      beginning after June 15, 2005. The Company adopted this standard beginning
      the
      first quarter of fiscal year 2006. The adoption of this standard did not have
      a
      material effect on our financial statements as such costs have historically
      been
      expensed as incurred.





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**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





**2.**
            **Cash
                and Cash Equivalents**


December
                  31, 2006
              
              December
                  31, 2005Cash
                  and cash equivalents
              
              $
              3,692
              
              $
              11,904Restricted
                  cash
              
              
              2,419
              
              
              3,251$
              6,111
              
              $
              15,155




As
      of
      December 31, 2006 and 2005, cash equivalents and restricted cash of $198 and
      $10,711 are invested in short-term investments, respectively.





**3.**
            **Receivables**





Receivables
      consisted primarily of trade accounts receivable and were net of allowances
      for
      doubtful accounts of $803 and $1,359 at December 31, 2006 and 2005,
      respectively.





The
      Company has a broad base of customers, with no single customer accounting for
      more than 7% of sales or 4% of receivables.





**4.**
            **Inventories**





Inventories
      consisted of:


December
                  31, 2006
              
              December
                  31, 2005Raw
                  materials
              
              $
              6,922
              
              $
              5,880Work
                  in process
              
              
              20,580
              
              
              16,772Finished
                  products
              
              
              15,980
              
              
              13,767$
              43,482
              
              $
              36,419




Approximately
      50% and 52% of the Company’s inventories at December 31, 2006 and 2005,
      respectively, were valued at LIFO. Remaining inventories, primarily foreign,
      are
      valued at the lower of FIFO cost or market. At December 31, 2006 and 2005,
      the
      LIFO values exceeded current manufacturing cost by approximately $(461) and
      $521, respectively. The Company has a reserve for LIFO inventories to the lower
      of cost or market value of $194 and $556 at December 31, 2006 and 2005,
      respectively.





Inventories
      were net of reserves for obsolete and slow-moving inventory of $3,281 and $2,962
      at December 31, 2006 and 2005, respectively.





**5.**
            **Property,
                Plant and Equipment**


December
                  31, 2006
              
              December
                  31, 2005Property,
                  plant and equipmentLand
                  and improvements
              
              $
              2,383
              
              $
              3,661Buildings
                  and improvements
              
              
              27,604
              
              
              22,457Machinery
                  and equipment
              
              
              92,160
              
              
              77,528Construction
                  in progress
              
              
              6,653
              
              
              12,863$
              128,800
              
              $
              116,509




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      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





Capitalized
      interest for 2006, 2005, and 2004 totaled $796, $1,130, and $389 respectively.
      Maintenance and repairs charged to costs and expenses for 2006, 2005, and 2004
      aggregated $15,837, $14,564 and $15,310, respectively. Depreciation is computed
      on the straight-line method over the estimated useful lives of the assets.
      Estimated useful lives of land improvements range from 15 to 30 years; building
      and improvements range from 10 to 32 years; and machinery and equipment,
      including capital leases, range from 2 to 15 years.





**6.**
            **Assets
                Held For Sale**





Assets
      held for sale include land and buildings. These properties had net book values
      of $1,250 at December 31, 2006. Property held for sale with a net book value
      of
      $812 was disposed of during 2005, resulting in a gain of $279.




**7.**
            **Other
                Assets**


December
                  31, 2006
              
              December
                  31, 2005Patents
              
              $
              4,598
              
              $
              4,598Less:
                  Accumulated amortization
              
              
              1,725
              
              
              1,265Patents,
                  net
              
              
              2,873
              
              
              3,333Miscellaneous
              
              
              334
              
              
              518$
              3,207
              
              $
              3,851




Patents
      are amortized on the straight-line method over an estimated average useful
      life
      of 10 years. Amortization of patents for each of the next five years is
      $460.





**8.**
            **Accrued
                Liabilities**





Accrued
      liabilities consisted of:


December
                  31, 2006
              
              December
                  31, 2005Compensation
                  and employee benefits
              
              $
              12,193
              
              $
              24,038Taxes
              
              
              2,701
              
              
              1,820Accrued
                  volume and sales discounts
              
              
              1,340
              
              
              1,210Restructuring
                  (see note 12)
              
              
              1,565
              
              
              1,626Other
              
              
              2,974
              
              
              3,337$
              20,773
              
              $
              32,031




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**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





**9.**
            **Debt
                Obligations (Dollars in Thousands, Except For Number of Shares and
                Warrants, and Per Share, Per Warrant and Per Bond
                Amounts)**





Outstanding
      short-term and long-term debt consisted of:


December
                  31, 2006
              
              December
                  31, 2005Short-term
                  debt including current maturities of long-term debt:Revolving
                  loan
              
              $
              3,929Current
                  maturities of capital leases
              
              
              49
              
              $
              182Total
                  short-term debt
              
              $
              3,978
              
              $
              182Long-term
                  debt:11.5%
                  Senior secured notes
              
              $
              89,357
              
              $
              89,2148%
                  Notes
              
              
              16,401
              
              
              13,956Other
              
              
              158
              
              
              129Total
                  long-term debt
              
              $
              105,916
              
              $
              103,299





On
      June
      29, 2004, the Company issued $90,000 of new 11.5% Senior Secured Notes due
      2011
      (“11.5% Senior Secured Notes”) and 90,000 warrants (“New Warrants”) to purchase
      an aggregate of 805,230 shares of common stock of the Company. The proceeds
      of
      the 11.5% Senior Secured Notes and the 90,000 New Warrants totaled $90,000.
      The
      11.5% Senior Secured Notes have a maturity date of, and the New Warrants expire
      on June 15, 2011. The $90,000 proceeds were used for the (i) repurchase of
      $55,527 principal amount of the 8% Notes at a price of 90% of the aggregate
      principal amount thereof, plus accrued and unpaid interest thereon; (ii) early
      termination of the General Electric Capital Corporation (“GECC”) capital lease
      and repurchase of the operating assets subject thereto for a purchase price
      of
      $33,000; and (iii) payment of fees and expenses associated with the refinancing
      and repurchase of existing debt. In addition, the Company entered into a new
      $20,000 revolving credit facility with a financial institution. The revolving
      credit facility is a five-year facility with a June 29, 2009 maturity date.





Each
      of
      the 90,000 New Warrants entitles the holder to purchase 8.947 shares of the
      Company’s common stock at an exercise price of $.01 per share. The New Warrants
      were valued for accounting purposes using a fair value method. Using a fair
      value method, each of the 90,000 New Warrants was valued at $11.117 for an
      aggregate fair value of the warrant issuance of $1,001. The remaining $88,899
      of
      aggregate proceeds was allocated to the carrying value of the 11.5% Senior
      Secured Notes as of June 29, 2004.





Revolving
      Credit Facility





On
      June
      29, 2004, the Company entered into a new $20,000 secured revolving credit
      facility (“Revolving Credit Facility”). The Revolving Credit Facility includes a
      letter of credit subfacility of up to $10,000 of the total $20,000 maximum
      facility amount. The Revolving Credit Facility expires on June 29, 2009.
      Borrowings under the loan and security agreement governing this Revolving Credit
      Facility are subject to a borrowing base formula based on percentages of
      eligible domestic receivables and eligible domestic inventory. Under the
      Revolving Credit Facility, we will be able to choose between two per annum
      interest rate options: (i) the lender’s prime rate and (ii) LIBOR plus a margin
      of 2.25% currently (which margin will be subject to performance based increases
      up to 2.50% and decreases down to 2.00%); provided that the minimum interest
      rate shall be at least equal to 3.00%. Letter of credit fees will be charged
      a
      per annum rate equal to the then applicable LIBOR rate margin less 50 basis
      points. The Revolving Credit Facility also provides for an unused line fee
      of
      0.375% per annum.





There
      were borrowings under the Revolving Credit Facility of $3.9 million at December
      31, 2006. There were no borrowings in 2005.





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      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





Indebtedness
      under the Revolving Credit Facility is secured by liens on substantially all
      of
      the Company and the Company’s domestic subsidiaries’ assets, with liens (i) on
      inventory, accounts receivable, lockboxes, deposit accounts into which payments
      are deposited and proceeds thereof, will be contractually senior to the liens
      securing the 11.5% Senior Secured Notes and the related guarantees pursuant
      to
      an intercreditor agreement, (ii) on real property, fixtures and improvements
      thereon, equipment and proceeds thereof, will be contractually subordinate
      to
      the liens securing the 11.5% Senior Secured Notes and such guarantees pursuant
      to such intercreditor agreement, (iii) on all other assets, will be
      contractually *pari
      passu* with the
      liens securing the 11.5% Senior Secured Notes and such guarantees pursuant
      to
      such intercreditor agreement.





The
      Revolving Credit Facility contains various covenants which will restrict the
      Company’s ability to, among other things, incur indebtedness, enter into mergers
      or consolidation transactions, dispose of assets (other than in the ordinary
      course of business), acquire assets, make certain restricted payments, prepay
      any of the 8% Notes at a purchase price in excess of 90% of the aggregate
      principal amount thereof (together with accrued and unpaid interest to the
      date
      of such prepayment), create liens on our assets, make investments, create
      guarantee obligations and enter into sale and leaseback transactions and
      transactions with affiliates, in each case subject to permitted exceptions.
      The
      Revolving Credit Facility also requires that we comply with various financial
      covenants, including meeting a minimum EBITDA requirement and limitations on
      capital expenditures in the event our usage of the Revolving Credit Facility
      exceeds 30% of the facility amount. The
      minimum annual level of EBITDA covenant and limitations on capital expenditures
      is not in effect as of December 31, 2006 as the Company’s borrowings under the
      Revolving Credit Facility did not exceed 30% of the facility amount. However,
      the Company would have been in compliance with these requirements had they
      been
      in effect.





The
      Revolving Credit Facility also requires payment of a prepayment premium in
      the
      event that it is terminated prior to maturity. The prepayment premium, as a
      percentage of the $20,000 facility amount, is 1% through June 29, 2007.





On
      March 28, 2006, the Company entered into an amendment of the Revolving
      Credit Facility. Pursuant thereto, the Revolving Credit Facility was amended
      in
      certain respects in order to facilitate the continued relocation of certain
      of
      the Company’s finishing operations from its facility in Kentland, Indiana to a
      new facility in Monterrey, Mexico operated by Viskase del Norte, S.A. de C.V.
      (“Mexico Project”). Pursuant to the amendment, the lender also waived certain
      technical events of default and provided certain consents, each relating to
      the
      Mexico Project.





On
      November 7, 2006, the Company entered into a second amendment to the Revolving
      Credit Facility. Pursuant thereto, the Revolving Credit Facility was amended
      (i)
      to permit the issuance and redemption of $24,000 of Series A Preferred Stock,
      (ii) to permit the offering of $24,000 of Common Stock by the Company in
      connection with and to redeem the Series A Preferred Stock, (iii) to add or
      modify the definitions of *Maquiladora* , *Maquila* Program,
      Capital Expenditures, Notes and Permitted Investments, (iv) to increase the
      amount of the existing Permitted Investment and Permitted Indebtedness baskets,
      and (v) to permit the issuance of additional 11.5% Senior Secured Notes to
      refinance the 8% Subordinated Notes.





11.5%
      Senior Secured Notes





On
      June
      29, 2004, the Company issued $90,000 of 11.5% Senior Secured Notes that bear
      interest at a rate of 11.5% per annum, payable semi-annually in cash on June
      15
      and December 15, commencing on December 15, 2004. The 11.5% Senior Secured
      Notes
      mature on June 15, 2011.





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      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





The
      11.5%
      Senior Secured Notes will be guaranteed on a senior secured basis by all of
      our
      future domestic restricted subsidiaries that are not immaterial subsidiaries
      (as
      defined). The 11.5% Senior Secured Notes and the related guarantees (if any)
      are
      secured by substantially all of the tangible and intangible assets of the
      Company and guarantor subsidiaries (if any); and includes the pledge of the
      capital stock directly owned by the Company or the guarantors; provided that
      no
      such pledge will include more than 65% of any foreign subsidiary directly owned
      by the Company or the guarantor. The Indenture and the security documents
      related thereto provide that, to the extent that any rule is adopted, amended
      or
      interpreted that would require the filing with the SEC (or any other
      governmental agency) of separate financial statements for any of our
      subsidiaries due to the fact that such subsidiary’s capital stock secures the
      Notes, then such capital stock will automatically be deemed not to be part
      of
      the collateral securing the Notes to the extent necessary to not be subject
      to
      such requirement. In such event, the security documents may be amended, without
      the consent of any holder of Notes, to the extent necessary to release the
      liens
      on such capital stock.





With
      limited exceptions, the 11.5% Senior Secured Notes require that the Company
      maintain a minimum annual level of EBITDA calculated at the end of each fiscal
      quarter as follows:


**Fiscal
                  quarter ending**
              
              **Amount**September
                  30, 2004 through September 30, 2006
              
              $
              16,000December
                  31, 2006 through September 30, 2008
              
              $
              15,000December
                  31, 2008 and thereafter
              
              $
              20,000




unless
      the sum of (i) unrestricted cash of the Company and its restricted subsidiaries
      as of such day and (ii) the aggregate amount of advances that the Company is
      actually able to borrow under the Revolving Credit Facility on such day (after
      giving effect to any borrowings thereunder on such day) is at least $10,000. The
      minimum annual level of EBITDA covenant is not in effect as of December 31,
      2006
      as the Company’s unrestricted cash and the amount of available credit under the
      Revolving Credit Facility exceed $10,000. However, the Company would have been
      in compliance with this requirement had it been in effect.





The
      11.5%
      Senior Secured Notes limit the ability of the Company to (i) incur additional
      indebtedness; (ii) pay dividends, redeem subordinated debt, or make other
      restricted payments, (iii) make certain investments or acquisitions; (iv) issue
      stock of subsidiaries; (v) grant or permit to exist certain liens; (vi) enter
      into certain transactions with affiliates; (vii) merge, consolidate, or transfer
      substantially all of our assets; (viii) incur dividend or other payment
      restrictions affecting certain subsidiaries; (ix) transfer, sell or acquire
      assets, including capital stock of subsidiaries; and, (x) change the nature
      of
      our business. At any time prior to June 15, 2008, the Company may redeem, at
      its
      option, some or all of the 11.5% Senior Secured Notes at a make-whole redemption
      price equal to the greater of (i) 100% of the aggregate principal amount of
      the
      11.5% Senior Secured Notes being redeemed and (ii) the sum of the present values
      of 105 3/4% of the aggregate principal amount of such 11.5% Senior Secured
      Notes
      and scheduled payments of interest on such 11.5% Senior Secured Notes to and
      including June 15, 2008, discounted to the date of redemption on a semi-annual
      basis (assuming a 360-day year consisting of twelve 30-day months) at the
      Treasury Rate plus 50 basis points, together with, in each case, accrued and
      unpaid interest and additional interest, if any, to the date of redemption.
      The
      make-whole redemption price as of December 31, 2006 is approximately 114%.





On
      or
      after June 15, 2008, the Company may redeem, at its option, some or all of
      the
      11.5% Senior Secured Notes at the following redemption prices, plus accrued
      and
      unpaid interest to the date of redemption:


For
                  the periods below
              
              PercentageOn
                  or after June 15, 2008
              
              
              105.75
              %On
                  or after June 15, 2009
              
              
              102.88
              %On
                  or after June 15, 2010
              
              
              100
              %





46
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            of Contents*





**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





Prior
      to
      June 15, 2007, the Company may redeem, at its option, up to 35% of the aggregate
      principal amount of the 11.5% Senior Secured Notes with the net proceeds of
      any
      equity offering at 111 1/2% of their principal amount, plus accrued and unpaid
      interest to the date of redemption, provided that at least 65% of the aggregate
      principal amount of the 11.5% Senior Secured Notes remains outstanding
      immediately following the redemption.





Within
      90
      days after the end of each fiscal year ending in 2006 and thereafter, for which
      the Company’s Excess Cash Flow (as defined) was greater than or equal to $2.0
      million, the Company must offer to purchase a portion of the 11.5% Senior
      Secured Notes at 101% of principal amount, together with accrued and unpaid
      interest to the date of purchase, with 50% of our Excess Cash Flow from such
      fiscal year (“Excess Cash Flow Offer Amount”); except that no such offer shall
      be required if the Revolving Credit Facility prohibits such offer from being
      made because, among other things, a default or an event of default is then
      outstanding thereunder. The Excess Cash Flow Offer Amount shall be reduced
      by
      the aggregate principal amount of 11.5% Senior Secured Notes purchased in
      eligible open market purchases as provided in the indenture. The Company had
      no
      Excess Cash Flow for the year ended December 31, 2006.





If
      the
      Company undergoes a change of control (as defined), the holders of the 11.5%
      Senior Secured Notes will have the right to require the Company to repurchase
      their 11.5% Senior Secured Notes at 101% of their principal amount, plus accrued
      and unpaid interest to the date of purchase.





If
      the
      Company engages in asset sales, it must either invest the net cash proceeds
      from
      such sales in its business within a certain period of time (subject to certain
      exceptions), prepay indebtedness under the Revolving Credit Facility (unless
      the
      assets that are the subject of such sales are comprised of real property,
      fixtures or improvements thereon or equipment) or make an offer to purchase
      a
      principal amount of the 11.5% Senior Secured Notes equal to the excess net
      cash
      proceeds. The purchase price of each 11.5% Senior Secured Note so purchased
      will
      be 100% of its principal amount, plus accrued and unpaid interest to the date
      of
      purchase.





On
      November 7, 2006, the Company entered into a First Supplemental Indenture to
      amend the provisions of the 11.5% Senior Notes Indenture. Pursuant thereto,
      the
      Indenture was amended (i) to permit the issuance and redemption of $24,000
      of
      Series A Preferred Stock, (ii) to permit the offering of $24,000 of Common
      Stock
      by the Company in connection with and to redeem the Series A Preferred Stock,
      (iii) to modify the definitions of Consolidated Net Income, Permitted
      Indebtedness and Permitted Investment, (iv) to reduce the minimum annual level
      of EBITDA for the periods ending December 31, 2006 though September 30, 2008
      from $16,000 to $15,000, (v) to modify the proviso that such minimum annual
      level of EBITDA covenant is in effect only when the amount of unrestricted
      cash
      and availability under the Revolving Credit Facility is below $10,000, (vi)
      to
      revise the required reporting to holders, (vii) to modify the Consolidated
      Net
      Worth and Fixed Charge Coverage Ratio requirement related to a merger,
      consolidation or sale of assets and (viii) to permit the possible issuance
      of
      additional 11.5% Senior Secured Notes to refinance the 8% Subordinated Notes
      due
      2008.





8%
      Notes





The
      8%
      Notes bear interest at a rate of 8% per year, and accrue interest from December
      1, 2001, payable semi-annually (except annually with respect to year four and
      quarterly with respect to year five), with interest payable in the form of
      8%
      Notes (paid-in-kind) for the first three years. Interest for years four and
      five
      will be payable in cash to the extent of available cash flow, as defined, and
      the balance in the form of 8% Notes (paid-in-kind). Thereafter, interest will
      be
      payable in cash. The 8% Notes mature on December 1, 2008.





47
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            of Contents*





**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





On
      June
      29, 2004, the Company repurchased $55,527 aggregate principal amount of its
      8%
      Notes, and the holders (i) released the liens on the collateral that secured
      the
      8% Notes, (ii) contractually subordinated the Company’s obligations under the 8%
      Notes to obligations under certain indebtedness, including the new 11.5% Senior
      Secured Notes and the Revolving Credit Facility; and (iii) eliminated
      substantially all of the restrictive covenants contained in the indenture
      governing the 8% Notes.





The
      8%
      Notes are unsecured by the collateral pool and accordingly, are effectively
      subordinated to the 11.5% Senior Secured Notes.





The
      8%
      Notes were valued at market in fresh-start accounting. The discount to face
      value is being amortized using the effective-interest rate methodology through
      maturity with an effective interest rate of 10.46%.





The
      following table summarizes the carrying value of the 8% Notes at December 31
      with interest through 2006 paid in the form of 8% Notes (paid-in-kind):


2006
              
              2007
              
              2008*8%
                  NotesPrincipal
              
              $
              18,684
              
              $
              18,684
              
              $
              18,684Discount
              
              
              (2,283
              )
              
              (1,148
              )Carrying
                  value
              
              $
              16,401
              
              $
              17,536
              
              $
              18,684




*
      2008
      has a maturity date of December 1.





Letter
      of Credit Facility





Letters
      of credit in the amount of $2,419 were outstanding under letter of credit
      facilities with commercial banks, and were cash collateralized at December
      31,
      2006.





The
      Company finances its working capital needs through a combination of internally
      generated cash from operations, cash on hand and it’s Revolving Credit Facility.





Aggregate
      maturities of debt for each of the next five years are (1):


2007
              
              2008
              
              2009
              
              2010
              
              2011
              
              ThereafterRevolving
                  Credit Facility
              
              $
              3,92911.5%
                  Senior Secured Notes
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              90,0008%
                  Notes
              
              
              
              
              $
              18,684Other
              
              $
              49
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              1,059$
              3,978
              
              $
              18,684
              
              
              
              
              
              
              
              $
              90,000
              
              $
              1,059




(1)  Aggregate
      maturities of debt represent amounts to be paid at maturity and not the current
      carrying value of the debt.





**10.**
            **Operating
                Leases**





The
      Company has operating lease agreements for machinery, equipment and facilities.
      The majority of the facility leases require the Company to pay maintenance,
      insurance and real estate taxes.





48
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            of Contents*





**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





Future
      minimum lease payments for operating leases that have initial or remaining
      non-cancelable lease terms in excess of one year as of December 31, 2006,
      are:


2007
              
              $
              2,2542008
              
              
              2,1332009
              
              
              2,1312010
              
              
              2,1602011
              
              
              1,817Total
                  thereafter
              
              
              2,711Total
                  minimum lease payments
              
              $
              13,206




Total
      rent expense during 2006, 2005 and 2004 amounted to $2,170, $2,822 and $2,409,
      respectively.





**11.**
            **Retirement
                Plans**





The
      Company and its subsidiaries have defined contribution and defined benefit
      plans
      varying by country and subsidiary.





Adoption
      of Statement of Financial Accounting Standards No. 158





As
      of
      December 31, 2006, the Company adopted SFAS No. 158, Employers’ Accounting for
      Defined Benefit Pension and Other Postretirement Plans, which requires balance
      sheet recognition of the over funded or under funded status of pension and
      postretirement benefit plans. Under SFAS 158, actuarial gains and losses, prior
      service costs or credits, and any remaining transition assets or obligations
      that have not been recognized under previous accounting standards must be
      recognized as Accumulated Other Comprehensive Income (Loss), net of tax effects,
      until they are amortized as a component of net periodic benefit
      cost.





The
      incremental effect of adopting SFAS No. 158 on the Company’s financial
      statements at December 31, 2006 is presented below:


At
                  December 31, 2006Before
                  Adoption of Statement 158
              
              Impact
                  of Adoption
              
              As
                  reported at December 31, 2006Current
                  Portion of Pension Liability
              
              $
              0
              
              $
              (62
              )
              $
              (62
              )Pension
                  Liability
              
              $
              (33,231
              )
              $
              (960
              )
              $
              (34,191
              )Accumulated
                  other comprehensive loss
              
              
              4,042
              
              
              1,023
              
              
              5,065$
              (29,189
              )
              $
              1
              
              $
              (29,188
              )




North
      American Plans





The
      Company’s operations in the United States and Canada have historically offered
      defined benefit retirement plans and postretirement health care and life
      insurance benefits to their employees. Most of these benefits have been
      terminated, resulting in various reductions in liabilities and curtailment
      gains
      as described below.





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            of Contents*





**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





The
      defined benefit retirement plan for Canadian retirees was settled in April
      2006
      with the purchase of retiree annuity contracts for $374. In accordance with
      SFAS
      No. 88, Employers’ Accounting for Settlements and Curtailments of Defined
      Benefit Pension Plans and for Termination Benefits, all amounts associated
      with
      the Canadian pension plan were removed from the Company’s balance
      sheet.





The
      defined benefit retirement plan for United States employees was closed to new
      entrants on March 31, 2003, except those covered by a collective bargaining
      agreement, for which the closure date was September 30, 2004. The early
      retirement option under the U.S. plan was eliminated on April 1, 2004, except
      for employees covered by a collective bargaining agreement, for which the
      elimination date is December 31, 2007. The plan for U.S. participants not
      covered by a collective bargaining agreement was frozen as of December 31,
      2006;
      accordingly no additional benefits will earned after that date. A curtailment
      gain of $1,721 was recognized as a result of this plan freeze.





Postretirement
      medical benefits for U.S. employees not covered by a collective bargaining
      agreement were terminated as of December 31, 2004, resulting in a $34,055
      curtailment gain. Postretirement medical benefits for U.S. employees covered
      by
      a collective bargaining agreement were terminated as of December 31, 2006,
      under
      an agreement dated September 30, 2005. This resulted in a $668 curtailment
      gain
      for 2005, a reduction of $1,744 to cost of sales for 2005 and a $7,843 reduction
      to cost of sales for 2006.





Postretirement
      medical and life insurance benefits for Canadian retirees, and postretirement
      life insurance benefits for U.S. retirees not covered by a collective bargaining
      agreement, were terminated as of December 31, 2006. This resulted in a
      curtailment gain of $12,792.





The Company
      recognized a one-time $ 974
      curtailment gain related to the closing of our Kentland, Indiana finishing
      operations. This curtailment gain was recognized as of December 31,
      2005.





Included
      in accumulated other comprehensive income, net of tax, as of December 31, 2006
      are the following amounts not yet recognized in net periodic benefit
      cost:





Net
                actuarial loss
            
            $
            6,160Prior
                service cost (credit)
            
            
            ($1,093
            )





Amounts
      included in other comprehensive income expected to be recognized as a component
      of net periodic benefit cost for the year ending December 31, 2007
      are:





Net
                actuarial loss
            
            $
            5Prior
                service cost (credit)
            
            
            ($131
            )





The
      measurement date for all defined benefit plans is December 31. The year end
      status of the plans is as follows:





50
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            of Contents*





**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**


Pension
                  Benefits
              
              Other
                  Benefits2006
              
              2005
              
              2004
              
              2006
              
              2005
              
              2004Change
                  in benefit obligation:Projected
                  benefit obligation at beginning of year
              
              
              140,052
              
              
              131,838
              
              
              126,087
              
              
              13,163
              
              
              22,439
              
              
              57,702Service
                  cost
              
              
              1,351
              
              
              1,737
              
              
              1,730
              
              
              42
              
              
              177
              
              
              918Interest
                  cost
              
              
              7,423
              
              
              7,360
              
              
              7,358
              
              
              660
              
              
              1,231
              
              
              3,762Actuarial
                  losses
              
              
              (1,733
              )
              
              9,250
              
              
              7,303
              
              
              (167
              )
              
              3,176
              
              
              10,289Benefits
                  paid
              
              
              (12,591
              )
              
              (7,485
              )
              
              (7,287
              )
              
              (950
              )
              
              (1,168
              )
              
              (3,260
              )Plan
                  amendment
              
              
              (3
              )
              
              (1,217
              )
              
              (3,579
              )
              
              0
              
              
              (12,768
              )
              
              (3,006
              )Curtailment
                  gain
              
              
              (4,277
              )
              
              (1,725
              )
              
              0
              
              
              (12,838
              )
              
              (159
              )
              
              (44,139
              )Currency
                  translation adjustment
              
              
              109
              
              
              293
              
              
              226
              
              
              90
              
              
              235
              
              
              173Estimated
                  benefit obligation at end of period
              
              $
              130,331
              
              $
              140,051
              
              $
              131,838
              
              $
              0
              
              $
              13,163
              
              $
              22,439Change
                  in plan assets:Fair
                  value of plan assets at beginning of period
              
              
              87,047
              
              
              86,768
              
              
              81,353
              
              
              0
              
              
              0
              
              
              0Actual
                  return on plan assets
              
              
              9,799
              
              
              4,199
              
              
              6,458
              
              
              0
              
              
              0
              
              
              0Employer
                  contribution
              
              
              11,720
              
              
              3,288
              
              
              6,030
              
              
              675
              
              
              623
              
              
              3,070Benefits
                  paid
              
              
              (12,591
              )
              
              (7,485
              )
              
              (7,287
              )
              
              (675
              )
              
              (623
              )
              
              (3,070
              )Currency
                  translation adjustment
              
              
              103
              
              
              278
              
              
              214
              
              
              0
              
              
              0
              
              
              0Fair
                  value of plan assets at end of period
              
              $
              96,078
              
              $
              87,048
              
              $
              86,768
              
              $
              0
              
              $
              0
              
              $
              0Funded
                  status of the plan
              
              
              ($34,253
              )
              
              (53,004
              )
              
              (45,070
              )
              $
              0
              
              
              (13,163
              )
              
              (22,439
              )Unrecognized
                  net actuarial loss
              
              
              
              
              
              15,238
              
              
              4,923
              
              
              
              
              
              2,757
              
              
              921Unrecognized
                  prior service cost
              
              
              
              
              
              (3,184
              )
              
              (3,306
              )
              
              
              
              
              (10,214
              )
              
              (729
              )Net
                  amount recognized
              
              
              
              
              
              ($40,950
              )
              
              ($43,453
              )
              
              
              
              
              ($20,620
              )
              
              ($22,247
              )Amounts
                  recognized in statement of financial position:Current
                  liabilities
              
              
              ($62
              )Accrued
                  benefit liability
              
              
              
              
              
              ($48,545
              )
              
              ($43,602
              )Noncurrent
                  liabilities
              
              
              ($34,191
              )Accumulated
                  other comprehensive loss
              
              
              *
              
              
              7,595
              
              
              149Net
                  amount recognized
              
              
              ($34,253
              )
              
              ($40,950
              )
              
              ($43,453
              )
              $
              0
              
              $
              0
              
              $
              0*
                  Not applicable for 2006Accumulated
                  benefit obligation
              
              $
              129,309
              
              $
              130,310
              
              $
              120,857




Information
      for defined benefit plans with projected benefit obligations in excess of plan
      assets:


Pension
                  Benefits
              
              Other
                  Benefits2006
              
              2005
              
              2004
              
              2006
              
              2005
              
              2004Projected
                  benefit obligation
              
              $
              130,331
              
              $
              140,051
              
              $
              131,838
              
              $
              0
              
              $
              13,163
              
              $
              22,439Fair
                  value of plan assets
              
              $
              96,078
              
              $
              87,048
              
              $
              86,768
              
              $
              0
              
              $
              0
              
              $
              0




Information
      for pension plans with accumulated benefit obligations in excess of plan
      assets:


Pension
                  Benefits2006
              
              2005
              
              2004Projected
                  benefit obligation
              
              $
              130,331
              
              $
              140,051
              
              $
              131,838Accumulated
                  benefit obligation
              
              $
              129,309
              
              $
              130,310
              
              $
              120,857Fair
                  value of plan assets
              
              $
              96,078
              
              $
              87,048
              
              $
              86,768





51
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            of Contents*





**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





Components
      of net periodic benefit cost for the years ended December 31:


Pension
                  Benefits
              
              Other
                  Benefits2006
              
              2005
              
              2004
              
              2006
              
              2005
              
              2004Component
                  of net period benefit costService
                  cost
              
              $
              1,351
              
              $
              1,737
              
              $
              1,730
              
              $
              42
              
              $
              177
              
              $
              918Interest
                  cost
              
              
              7,423
              
              
              7,360
              
              
              7,357
              
              
              660
              
              
              1,231
              
              
              3,762Expected
                  return on plan assets
              
              
              (7,052
              )
              
              (7,236
              )
              
              (7,027
              )Amortization
                  of unrecoginzed translation obligation
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              2
              
              
              0Amortization
                  of prior service cost
              
              
              (373
              )
              
              (365
              )
              
              (273
              )
              
              (10,214
              )
              
              (2,615
              )
              
              (230
              )Amortization
                  of actuarial (gain) loss
              
              
              325
              
              
              249
              
              
              265
              
              
              2,336
              
              
              1,181
              
              
              638Curtailment
                  gain
              
              
              (1,721
              )
              
              (974
              )
              
              0
              
              
              (12,584
              )
              
              (668
              )
              
              (34,055
              )($47
              )
              $
              771
              
              $
              2,052
              
              
              ($19,510
              )
              
              ($692
              )
              
              ($28,967
              )




Weighted
      average assumptions used to determine the benefit obligation and net periodic
      benefit cost as of December 31:


Pension
                  Benefits
              
              Other
                  Benefits2006
              
              2005
              
              2004
              
              2006
              
              2005
              
              2004Discount
                  rate
              
              
              5.75
              %
              
              5.49
              %
              
              5.74
              %
              
              5.25
              %
              
              5.20
              %
              
              5.82
              %Expected
                  return on plan assets
              
              
              8.50
              %
              
              8.56
              %
              
              8.66
              %Rate
                  of compensation increase
              
              
              3.50
              %
              
              3.50
              %
              
              3.50
              %




The
      company evaluates its discount rate assumption annually as of December 31 for
      each of its retirement-related benefit plans based upon the yield of high
      quality, fixed-income debt instruments.





The
      Company’s expected return on plan assets is evaluated annually based upon a
      study which includes a review of anticipated future long-term performance of
      individual asset classes, and consideration of the appropriate asset allocation
      strategy to provide for the timing and amount of benefits included in the
      projected benefit obligation. While the study gives appropriate consideration
      to
      recent fund performance and historical returns, the assumption is primarily
      a
      long-term prospective rate.





For
      measurement purposes, the annual rate of increase in the per capita cost of
      covered health care benefits
      was assumed to be 10.0% in 2005 for the U.S. plan and 7.0% in 2005 for the
      Canadian plan. The Canadian rate was assumed to grade down to 5% by 2008 for
      the
      Canadian plan. As stated above, these plans have been terminated.





The
      weighted average plan asset allocation at December 31, 2006 and 2005, and target
      allocation (not weighted) for 2007, are as follows:


Percentage
                  of Plan Assets
              
              2007
                  TargetAsset
                  Category
              
              2006
              
              2005
              
              AllocationEquity
                  Securities
              
              
              75.9
              %
              
              77.2
              %
              
              60.0
              %Debt
                  Securities
              
              
              15.1
              %
              
              21.2
              %
              
              40.0
              %Other
              
              
              9.0
              %
              
              1.6
              %
              
              0.0
              %Total
              
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %





52
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            of Contents*





**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





The
      following table provides a summary of the estimated benefit payments for the
      postretirement plans for the next five fiscal years individually and for the
      following five fiscal years in the aggregate:


Year
              
              Total
                  Estimated Pension Payments
              
              Total
                  Estimated Postretirement Benefit Payments2007
              
              $
              8,466
              
              $
              1002008
              
              
              6,441
              
              
              02009
              
              
              5,606
              
              
              02010
              
              
              4,963
              
              
              02011
              
              
              4,729
              
              
              02012-2016
              
              
              4,556
              
              
              0





**Savings
      Plans**





The
      Company also has defined contribution savings and similar plans for eligible
      employees, which vary by subsidiary. The Company’s aggregate contributions to
      these plans are based on eligible employee contributions and certain other
      factors. The Company expense for these plans was $698, $774 and $791 in 2006,
      2005 and 2004, respectively.





**International
      Plans**





The
      Company maintains various pension and statutory separation pay plans for its
      European employees. The expense for these plans in 2006, 2005 and 2004 was
      $1,714, $2,144 and $1,318, respectively. As of their most recent valuation
      dates, for those plans where vested benefits exceeded plan assets, the
      actuarially computed value of vested benefits exceeded those plans’ assets by
      approximately $4,919.





**12.**
            **Restructuring
                Charges and Asset
                Impairment**





During
      the fourth quarter of 2006, the company recognized a one-time impairment charge
      of $2,343 for the Kentland plant to the fair market value of the facility.
      The
      restructuring expense of $1,919 was recognized for one-time employee costs
      related to various restructurings to address the Company’s competitive
      environment.





During
      the second quarter of 2005, our board of directors approved a plan under which
      we restructured our operations by relocating finishing operations from our
      facility in Kentland, Indiana to a facility in Mexico. We expect to complete
      the
      restructuring by the end of the first quarter of 2007. The relocation of the
      finishing operations is intended to lower costs and optimize operations. The
      total cost of the restructuring, exclusive of capital expenditures, is expected
      to be approximately $10,000, substantially all of which will result in cash
      expenditures. We have made capital expenditures of approximately $10,344 in
      connection with the restructuring. We began incurring a substantial portion
      of
      these costs and capital expenditures in the second quarter of 2005 and expect
      to
      incur approximately $800 of additional costs in the first quarter of 2007.





A
      $1,787
      charge for one-time employee costs related to the Kentland, Indiana relocation
      was recorded during the second quarter of 2005.





During
      the first quarter of 2005, the Company committed to a restructuring plan to
      continue to address the Company's competitive environment. The plan resulted
      in
      a before tax charge of $387.





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            of Contents*





**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





**Restructuring
      Provisions**





The
      following table provides details of the 2006 and 2005 restructuring provisions
      for the period ended December 31, 2006 (dollars in millions):


Restructuring
                  reserves as of December 31, 2005
              
              2006
                  Charge
              
              2006
                  Payments
              
              Other
                  adjustments
              
              Restructuring
                  reserves as of December 31, 20062006
                  employee costs
              
              
              
              
              $
              1.3
              
              
              ($1.0
              )
              
              
              
              $
              0.32005
                  Kentland costs
              
              $
              1.6
              
              $
              3.0
              
              
              ($3.3
              )
              
              
              
              $
              1.3Total
                  restructuring activity
              
              $
              1.6
              
              $
              4.3
              
              
              ($4.3
              )
              $
              0.0
              
              $
              1.6




**13.**
            **Capital
                Stock and Paid in Capital**





Authorized
      shares of preferred stock ($0.01 par value per share) and common stock ($0.01
      par value per share) for the Company are 50,000,000 shares and 50,000,000
      shares, respectively. A total of 12,307,692 shares of preferred stock were
      issued and outstanding as of December 31, 2006. There were no shares of
      preferred stock issued or outstanding at December 31, 2005. A total of
      10,811,483 shares of common stock were issued and 9,937,906 were outstanding
      as
      of December 31, 2006. A total of 10,651,123 shares of common stock were issued
      and 9,715,954 were outstanding as of December 31, 2005.





On
      November 7, 2006, the Company issued $24,000 of preferred stock to certain
      investors, including Koala Holding Limited Partnership (“Koala”), an affiliate
      of Mr. Icahn. Under the purchase agreement for the preferred stock, we agreed
      to
      initiate a rights offering for common stock, the proceeds of which were to
      be
      used to redeem the preferred stock, along with accrued and unpaid dividends.
      In
      addition, the Company granted to Koala an option to purchase a sufficient number
      of common shares such that Koala and its affiliates could hold at least 50.1%
      of
      our common shares subsequent to all rights offering transactions. The
      transactions contemplated by the preferred stock offering gave effective voting
      control to Mr. Icahn.





On
      March
      7, 2007, the Company completed its rights offering, the proceeds of which were
      used to redeem shares of preferred stock and payment of accrued but unpaid
      dividends. Shares of preferred stock that were not redeemed, together with
      accrued but unpaid dividends thereon, were automatically converted into shares
      of common stock at a specified conversion price. The holders of the preferred
      stock received 17,319,643 shares of common stock upon the conversion of their
      preferred stock and an additional 1,948,460 shares of common stock upon the
      conversion of the accrued but unpaid dividends on their preferred stock. Amounts
      recorded for dividends payable on the statement of financial position were
      computed by determining the 2006 portion of the total dividends to be paid
      as
      amortized over the four months for which the preferred stock was
      outstanding.





In
      April
      2003, 660,000 shares of common stock were reserved for grant to management
      and
      employees under the Viskase Companies, Inc. Restricted Stock Plan. During that
      month, the Company granted 330,070 shares of restricted common stock
      (“Restricted Stock”) under the Restricted Stock Plan. Shares granted under the
      Restricted Stock Plan vested 12.5% on grant date; 17.5% on the first anniversary
      of grant date; 20% on the second anniversary of grant date; 20% on the third
      anniversary; and, 30% on the fourth anniversary of the grant date, subject
      to
      acceleration upon the occurrence of certain events. The Restricted Stock expense
      for 2006, 2005 and 2004, for the Company is $6, $6 and $6, respectively. The
      value of the Restricted Stock was calculated based on the fair market value
      of
      approximately $0.10 per share for the new common stock upon emergence from
      bankruptcy using a multiple of cash flow calculation to determine enterprise
      value and the related equity value.





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            of Contents*





**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





**14.**
            **Warrants
                (Dollars in Thousands, Except Per Share and Per Warrant
                Amounts)**





On
      June
      29, 2004, the Company issued $90,000 of 11.5% Senior Secured Notes together
      with
      the 90,000 Warrants to purchase an aggregate of 805,230 shares of common stock
      of the Company (“New Warrants”). The aggregate purchase price of the 11.5%
      Senior Secured Notes and the 90,000 of New Warrants was $90,000. Each of the
      New
      Warrants entitles the holder to purchase 8.947 shares of the Company's common
      stock at an exercise price of $.01 per share through the June 15, 2011
      expiration date. As of December 31, 2006, 71,695 New Warrants, which entitle
      the
      holders to purchase 641,456 shares of the Company’s common stock, were
      outstanding.





The
      New
      Warrants were valued for accounting purposes using a fair value method. Using
      a
      fair value method, each of the New Warrants was valued at $11.117 for an
      aggregate fair value of the warrant issuance of $1,001.





Pursuant
      to the Bankruptcy Plan, holders of the Old Common Stock received Warrants to
      purchase shares of New Common Stock. At December 31, 2006, 304,127 Warrants
      are
      outstanding. The Warrants have a seven-year term expiring on April 2, 2010,
      and
      have an exercise price of $10.00 per share **.**





**15.**
            **Income
                Taxes**




Income
      tax provision (benefit) consisted of:


2006
              
              2005
              
              2004CurrentFederalForeign
              
              $
              1,891
              
              $
              2,918
              
              $
              558State
                  and local
              
              
              
              
              
              
              
              
              4Total
                  current
              
              
              1,891
              
              
              2,918
              
              
              562DeferredFederal
              
              
              (142
              )
              
              (2,343
              )
              
              (4,700
              )Foreign
              
              
              (772
              )
              
              (1,034
              )
              
              (503
              )State
                  and localTotal
                  deferred
              
              
              (914
              )
              
              (3,377
              )
              
              (5,203
              )Total
              
              $
              977
              
              $
              (459
              )
              $
              (4,641
              )




55
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            of Contents*





**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





The
      reconciliation of income tax provision (benefit) attributable to earnings
      differed from the amounts computed by applying the U.S. Federal statutory income
      tax rate of 35% to earnings by the following amounts:


Income
                  (loss) before income taxes:
              
              2006
              
              2005
              
              2004Domestic
              
              $
              (3,402
              )
              $
              722
              
              $
              22,242Foreign
              
              
              5,988
              
              
              (3,338
              )
              
              (1,566
              )Total
              
              $
              2,586
              
              $
              (2,616
              )
              $
              20,676Computed
                  income tax provision (benefit)
              
              
              905
              
              
              (916
              )
              
              7,237State
                  and local taxes, net of federal tax
              
              
              -
              
              
              (7
              )
              
              56Foreign
                  taxes, net
              
              
              45
              
              
              311
              
              
              (4,772
              )Valuation
                  allowance, net of NOLs
              
              
              27
              
              
              153
              
              
              (7,162
              )Total
                  income tax expense (benefit)
              
              
              977
              
              
              (459
              )
              
              (4,641
              )Computed
                  income tax provision (benefit)
              
              
              35.0
              %
              
              35.0
              %
              
              35.0
              %State
                  and local taxes, net of federal tax
              
              
              0.0
              %
              
              0.3
              %
              
              0.3
              %Foreign
                  taxes, net
              
              
              1.7
              %
              
              -11.9
              %
              
              -23.1
              %Valuation
                  allowance, net of NOLs
              
              
              1.0
              %
              
              -5.9
              %
              
              -34.6
              %Effective
                  income tax rate
              
              
              37.8
              %
              
              17.5
              %
              
              -22.4
              %





56
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            of Contents*





**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





Temporary
      differences and carryforwards that give rise to a significant portion of
      deferred tax assets and liabilities for 2006 and 2005 are as
      follows:


2006
              
              2005Current
                  deferred tax assetPension
                  and healthcare
              
              $
              4,674
              
              $
              7,331Provisions
                  not currently deductible
              
              
              1,320
              
              
              2,804Inventory
                  basis differences
              
              
              70
              
              
              0Valuation
                  allowance
              
              
              (6,064
              )
              
              (10,135
              )Total
                  current deferred tax asset
              
              
              0
              
              
              0Non-current
                  deferred tax assetsStock
                  option
              
              $
              94
              
              $
              0Pension
                  and healthcare
              
              
              10,117
              
              
              18,493Net
                  operating loss carryforwards
              
              
              30,137
              
              
              24,375Valuation
                  Allowance
              
              
              (24,635
              )
              
              (34,268
              )Total
                  non-current deferred tax assets
              
              
              15,713
              
              
              8,600Total
                  deferred tax asset
              
              $
              15,713
              
              $
              8,600Current
                  deferred tax liabilityInventory
                  basis differences
              
              $
              1,679
              
              $
              710Self
                  ins. accruals and reserves
              
              $
              42Total
                  current deferred tax liability
              
              $
              1,721
              
              $
              710Non-current
                  deferred tax liabilityProperty,
                  plant, and equipment
              
              $
              17,465
              
              $
              13,581Intangible
                  asset
              
              
              1,006
              
              
              1,300Foreign
                  exchange and other
              
              
              3,291
              
              
              2,076Total
                  non-current deferred tax liability
              
              
              21,762
              
              
              16,957Total
                  deferred tax liability
              
              $
              23,483
              
              $
              17,667




The
      net
      deferred tax asset (liability) is classified in the balance sheet as
      follows:


As
                    of December 312006
                
                2005Current
                    deferred tax assets
                
                
                -
                
                
                -Current
                    deferred tax liability
                
                
                ($1,721
                )
                
                ($710
                )Current
                    deferred tax assets (liability), net
                
                
                ($1,721
                )
                
                ($710
                )Non-current
                    deferred tax assets
                
                $
                15,713
                
                $
                8,600Non-current
                    deferred tax liability
                
                
                (21,762
                )
                
                (16,957
                )Non-current
                    deferred tax assets (liability), net
                
                
                ($6,049
                )
                
                ($8,357
                )Current
                    deferred tax liability (net)
                
                
                ($1,721
                )
                
                ($710
                )Non-current
                    deferred tax liability (net)
                
                
                (6,049
                )
                
                (8,357
                )Net
                    deferred tax liability
                
                
                ($7,770
                )
                
                ($9,067
                )


57
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            of Contents*





**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





In
      the
      consolidated balance sheets, these deferred tax assets and liabilities are
      classified as either current or non-current based on the classification of
      the
      related liability or asset for financial reporting. A deferred tax asset or
      liability that is not related to an asset or liability for financial reporting,
      including deferred taxes related to carryforwards, is classified according
      to
      the expected reversal date of the temporary differences as of the end of the
      year.





A
      valuation allowance is provided when it is more likely than not that some
      portion or all of the deferred tax assets will not be realized. A valuation
      allowance of $29.5 million has been recorded at December 31, 2006, as
      management believes that it is more likely than not that all deferred tax assets
      will be fully realized based on the expectation of taxable income in future
      years. There were net operating loss carryforwards at December 31, 2006 and
      2005 of $30.1 million and $24.4 million, respectively.





The
      Company joins in filing a United States consolidated Federal income tax return
      including all of its domestic subsidiaries.





**16.**
            **Commitments**





As
      of
      December 31, 2006 and 2005, the Company had capital expenditure commitments
      outstanding of approximately $1,200 and $3,994, respectively.





**17.**
            **Contingencies**





In
      1993,
      the Illinois Department of Revenue (“IDR”) filed a proof of claim against
      Envirodyne Industries, Inc. (our former name) and its subsidiaries in the United
      States Bankruptcy Court for the Northern District of Illinois ("Bankruptcy
      Court"), Bankruptcy Case Number 93 B 319, for alleged liability with respect
      to
      the IDR’s denial of the Company’s allegedly incorrect utilization of certain
      loss carry-forwards of certain of its subsidiaries.  The IDR asserted it
      was owed, as of the petition date, $998 in taxes, $357 in interest and $271
      in penalties.  The Company objected to the claim on various grounds.
 In September 2001, the Bankruptcy Court denied the IDR’s claim and
      determined the debtors were not responsible for 1998 and 1999 tax liabilities,
      interest and penalties. IDR appealed the Bankruptcy Court’s decision to the
      United States District Court, Northern District of Illinois, Case Number 01
      C
      7861, and in February 2002, the District Court affirmed the Bankruptcy
      Court’s order denying the IDR claim.   IDR appealed
      the District Court’s order to United States Court of Appeals for the
      Seventh Circuit, Case Number 02-1632. On January 6, 2004, the appeals court
      reversed the judgment of the District Court and remanded the case for
      further proceedings on the Company’s other objections to the claim. On
      November 16, 2005 the Bankruptcy Court issued an opinion in which
      it denied the IDR’s claim to the extent it seeks principal tax
      liability and found that no principal tax liability remains
      due.   However, because of certain timing issues with respect to
      the carryback of subsequent net operating loss used to eliminate the
      principal tax liabilities in 1988 and 1989, the issue of the amount of
      interest and  penalties (for approximately 14 years), if any, has not
      yet been determined by the Bankruptcy Court.  The IDR
      has asserted that as of February 2006, approximately $432 was owed in
      interest.  The Company disputes this amount and intends to vigorously
      defend its position on interest due. The IDR may appeal the Bankruptcy Court
      order and has asserted that if it were successful on appeal, that the Company
      would have liability to the IDR as of the beginning of 2005 in the amount of
      approximately $2,900.





58
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            of Contents*





**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





During
      2005, Viskase Brasil Embalagens Ltda. (“Viskase Brazil”) received three tax
      assessments by São Paulo tax authorities with respect to Viskase Brazil’s
      alleged failure to pay Value Added and Sales and Services Tax (“ICMS”) levied on
      the importation of raw materials and sales of goods in and out of the State
      of
      São Paulo. Two of the tax assessments relate to ICMS on the importation by
      Viskase Brazil of raw materials through the State of Espírito Santo (“Import
      Assessments”), and the disputed amount with respect to such assessments
      aggregates R$16,588 for taxes and R$16,318 for penalties and interest, or about
      $7,800 and $7,600, respectively, at exchange rates in effect on December 31,
      2006. The third tax assessment also relates to ICMS and alleges that Viskase
      Brazil arranged for the remittance of goods to addresses other than those
      indicated on the relevant tax documents (“Documentation Assessment”). The
      disputed amount under the Documentation Assessment is R$188 for taxes and
      R$1,690 for penalties and interest, or about $100 and $800, respectively, at
      exchange rates in effect on December 31, 2006. The attorneys representing
      Viskase Brazil on these tax disputes have advised the Company that the
      likelihood of liability with respect to the tax assessments is remote. In view
      of the magnitude of the assessments, Viskase Brazil sought the advice of another
      law firm with respect to one of the Import Assessments and with respect to
      the
      Document Assessment. The second law firm expressed its belief (i) that the
      likelihood of liability on the Import Assessment it reviewed either was possible
      tending to probable or was possible, depending on the theory of liability
      pursued by the tax authorities, and (ii) that the likelihood of liability on
      the
      Documentation Assessment was probable. Viskase believes that the two Import
      Assessments raise essentially the same issues and therefore did not seek advice
      from the second law firm with respect to the other Import Assessment. The
      Company has provided a reserve in the amount of $2,000 as of December 31, 2006.
      Viskase Brazil strongly denies the allegations set forth in the tax assessments
      and intends to vigorously defend itself.





From
      1988
      through May 2005, we were involved in a lawsuit with various Union Carbide
      companies related to environmental issues on a property we had purchased from
      Union Carbide in 1986. In May 2005, we reached agreement with Dow Chemical
      (successor to Union Carbide) under which Dow repurchased the site for $1,375
      (Canadian) and accepted full liability for any environmental remediation of
      the
      property. This transaction resulted in a gain of $279 (U.S.).





In
      2001,
      the Province of Quebec, Canada claimed we had failed to collect and remit sales
      taxes for the prior four years. In January 2006, we settled this lawsuit through
      a payment of $300 (Canadian).





In
      addition, the Company from time to time is involved in various other legal
      proceedings, none of which are expected to have a material adverse effect upon
      results of operations, cash flows or financial condition.





**18.**
            **Earnings
                Per Share**





Following
      are the reconciliations of the numerators and denominators of the basic and
      diluted EPS (in thousands, except for number of shares and per share
      amounts):


December
                  31, 2006
              
              December
                  31, 2005
              
              December
                  31, 2004NUMERATOR:Net
                  income (loss)
              
              
              1,609
              
              
              (2,157
              )
              
              25,317Less:
                  preferred dividends
              
              
              (1,193
              )Net
                    income (loss) available to common stockholders for basic and
                    diluted EPS
              
              
              416
              
              
              (2,157
              )
              
              25,317DENOMINATOR:Weighted
                  average shares outstanding for basic EPS
              
              
              9,812,432
              
              
              9,698,196
              
              
              10,013,828Effect
                  of dilutive securities
              
              
              3,350,612
              
              
              846,871
              
              
              854,324Weighted
                  average shares outstanding for diluted EPS
              
              
              13,163,044
              
              
              10,545,067
              
              
              10,868,152





59
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            of Contents*





**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





Common
      stock equivalents, consisting of the Series A Preferred Stock under the rights
      offering, and 805,230 of New Warrants are dilutive and the effect of these
      dilutive securities have been included in weighted average shares for diluted
      EPS using the treasury method for the Company. The Series A Preferred Stock
      dividends, convertible stock dividend shares, and employee stock options were
      not included in the weighted average shares for diluted EPS, because the effect
      would be antidilutive.





The
      vested portion of the Restricted Stock is included in the weighted-average
      shares outstanding for basic earnings per share. Common stock equivalents,
      consisting of the 2010 Warrants, exercisable for a total of 304,127 shares
      of
      common stock, and the unvested restricted stock, totaling 280,005 shares, issued
      by the Company have been excluded as their effect is antidilutive. Non-vested
      shares that vest based solely on continued employment and are not subject to
      any
      performance contingency are included in the computation of diluted EPS using
      the
      treasury stock method **.**





**19.**
            **Comprehensive
                Gain (Loss)**





The
      following sets forth the changes in the components of other comprehensive income
      (loss) and the related income tax provision:


2006
              
              2005
              
              2004Other
                  comprehensive income (loss):Minimum
                  pension liability adjustment(1)
              
              $
              1,021Unrecognized
                  loss on pension benefits
              
              
              1,507
              
              
              ($7,595
              )Foreign
                  currency translation adjustment(2)
              
              
              4,110
              
              
              (4,920
              )
              $
              3,061Other
                  comprehensive income (loss), net of tax
              
              $
              6,638
              
              
              ($12,515
              )
              $
              3,061




(1)  Minimum
      pension liability adjustment, net of a related tax provision of $0 in 2006.
      The
      minimum pension liability adjustment is due to changes in plan return
      assumptions and asset performance.





(2)  Foreign
      currency translation adjustments, net of related tax provision of $0 for all
      periods.





**20.**
            **Stock-Based
                Compensation (Dollars i****n
                Thousands, Except Per Share
                Amounts)**





During
      2006, the Company adopted the provisions of, and began accounting for
      stock-based compensation in accordance with, the Financial Accounting Standards
      Board’s (“FASB”) Statement of Financial Accounting Standards No. 123—revised
      2004 (“SFAS 123R”), “Share-Based Payment,” which replaced Statement of Financial
      Accounting Standards No. 123 (“SFAS 123”), “Accounting for Stock-Based
      Compensation” and supersedes APB Opinion No. 25 (“APB 25”), “Accounting for
      Stock Issued to Employees.” Under the fair value recognition provisions of this
      statement, stock-based compensation cost is measured at the grant date based
      on
      fair value of the award and is recognized as an expense on a straight-line
      basis
      over the requisite service period, which is the vesting period. We elected
      the
      modified-prospective method, under which prior periods are not revised for
      comparative purposes. The valuation provisions of SFAS 123R apply to new grants
      and to grants that were outstanding as of the effective date and are
      subsequently modified. Estimated compensation for grants that were outstanding
      as of the effective date will be recognized over the remaining service period
      using the compensation cost estimated for the SFAS 123 pro forma
      disclosures.





As
      a
      result of the adoption of SFAS 123R, our financial results were lower than
      under
      our previous accounting method for share-based compensation by the following
      amounts:





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**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**


2006Income
                  before income taxes
              
              $
              268Net
                  income
              
              $
              268Basic
                  and diluted earnings per common share
              
              $
              0.03




Prior
      to
      the adoption of SFAS 123R, the Company used the intrinsic value method to
      account for options granted to employees for the purchase of common stock.
      No
      compensation expense was recognized on the grant date, since at that date,
      the
      option price equals the market price of the underlying common stock. The pro
      forma effect of accounting for stock options under a fair value method, prior
      to
      the adoption of SFAS 123R, was as follows:


2005
              
              2004Net
                  (loss) income:As
                  reported
              
              
              ($2,157
              )
              $
              25,317Pro
                  forma
              
              
              ($2,425
              )
              $
              25,295Basic
                  (loss) earnings per share:As
                  reported
              
              
              ($0.22
              )
              $
              2.53Pro
                  forma
              
              
              ($0.25
              )
              $
              2.33Diluted
                  (loss) earnings per share:As
                  reported
              
              
              ($0.22
              )
              $
              2.53Pro
                  forma
              
              
              ($0.25
              )
              $
              2.33





The
      fair
      values of the options granted during 2005 and 2004 were estimated on the date
      of
      grant using the binomial option pricing model. The assumptions used and the
      estimated fair values are as follows:


Estimate
                  Fair Values2005
              
              2004Expected
                  term
              
              
              10
                  years
              
              
              5
                  yearsExpected
                  stock volatility
              
              
              14.88
              %
              
              16.05
              %Risk-free
                  interest rate
              
              
              4.17
              %
              
              3.44
              %




The
      Company has granted non-qualified stock options to its chief executive officer
      for the purchase of 500,000 shares of its common stock under an employment
      agreement. The Company has granted non-qualified stock options to its management
      for the purchase of 495,000 shares of its common stock. Options were granted
      at,
      or above, the fair market value at date of grant and one-third vests on each
      of
      the first, second and third anniversaries of the grant date, subject to
      acceleration in certain events. These options for the Chief Executive Officer
      and those granted to management expire five years and ten years, respectively,
      from the date of grant. The Company's outstanding options were:





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            of Contents*





**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**


Shares
                    Under Option
                
                Weighted
                    Average Exercise Price
                
                Weighted
                    Average Remaining Contractual Life
                
                Weighted
                    Average Grant-Date Fair ValueOutstanding,
                    January 1, 2004Granted
                
                
                500,000
                
                $
                2.40
                
                
                60
                    months
                
                $
                0.54ExercisedForfeitedOutstanding,
                    December 31, 2004
                
                
                500,000
                
                $
                2.40
                
                
                51
                    months
                
                $
                0.54Granted
                
                
                495,000
                
                $
                2.90
                
                
                120
                    months
                
                $
                1.04ExercisedForfeited
                
                
                (10,000
                )
                $
                2.90
                
                
                116
                    months
                
                $
                1.04Outstanding,
                    December 31, 2005
                
                
                985,000
                
                $
                2.65
                
                
                73
                    months
                
                $
                0.80*Vested
                    and exercisable at Dec. 31, 2005*
                
                
                *166,667*
                
                *$*
                *2.40*
                
                
                *39
                    months*
                
                *$*
                *0.54*GrantedExercisedForfeited
                
                
                (58,333
                )
                $
                2.90
                
                
                101
                    months
                
                $
                1.04Outstanding,
                    December 31, 2006
                
                
                926,667
                
                $
                2.63
                
                
                59
                    months
                
                $
                0.79*Vested
                    and exercisable at Dec. 31, 2006*
                
                
                *475,556*
                
                *$*
                *2.55*
                
                
                *48
                    months*
                
                *$*
                *0.70*




As
      of
      December 31, 2006, we have $245 of total unrecognized compensation cost related
      to unvested awards granted under our option plans that we expect to recognize
      over a weighted average period of twelve months. The number of shares of common
      stock reserved for stock options as of December 31, 2006 is 1,500,000
      shares.





**21.**
            **Fair
                Value of Financial
                Instruments**





The
      following table presents the carrying value and estimated fair value as of
      December 31, 2006, of the Company’s financial instruments (refer to Notes 2 and
      9).


Carrying
              
              EstimatedValue
              
              Fair
                  ValueAssetsCash
                  and cash equivalents
              
              $
              3,692
              
              $
              3,692Restricted
                  cash
              
              
              2,419
              
              
              2,419$
              6,111
              
              $
              6,111LiabilitiesLong-term
                  debt
              
              $
              105,916
              
              $
              101,691




**22.**
            **Research
                and Development Costs**





Research
      and development costs are expensed as incurred and totaled $2,345, $2,298 and
      $2,697 for 2006, 2005, and 2004, respectively.





**23.**
            **Related-Party
                Transactions**





During
      the year ended December 31, 2006 and 2005, the Company purchased $161 and $130,
      respectively, in telecommunication services in the ordinary course of business
      from XO Communications, Inc., an affiliate of Carl C. Icahn, who may be deemed
      to be a beneficial owner of approximately 67.0% of the Company's common stock.
      The Company believes that the purchase of the telecommunications services were
      on terms at least as favorable as those that the Company would expect to
      negotiate with an unaffiliated party.





Arnos
      Corp., an affiliate of Carl C. Icahn, was the lender on the Company’s Old
      Revolving Credit Facility. The Company paid Arnos Corp. origination fees,
      interest and unused commitment fees of $144 during the year ended December
      31,
      2004. The Company believes that the terms of the former revolving credit
      facility were at least as favorable as those that the Company would have
      expected to negotiate with an unaffiliated party.





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            of Contents*





**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





**24.**
            **Business
                Segment Information and Geographic Area
                Information**





The
      Company primarily manufactures and sells cellulosic food casings. The Company’s
      operations are primarily in North America, South America and Europe.
      Intercompany sales and charges (including royalties) have been reflected as
      appropriate in the following information. Certain items are maintained at the
      Company’s corporate headquarters and are not allocated geographically. They
      include most of the Company’s debt and related interest expense and income tax
      benefits. Other income for 2006, 2005 and 2004 includes net foreign exchange
      transaction gains (losses) of approximately $522, $(193), and $1,451,
      respectively.





Geographic
      Area Information


2006
              
              2005
              
              2004Net
                  salesUnited
                  States
              
              $
              126,453
              
              $
              124,491
              
              $
              130,654CanadaSouth
                  America
              
              
              14,441
              
              
              8,789
              
              
              7,630Europe
              
              
              91,943
              
              
              84,475
              
              
              87,072Other
                  and eliminations
              
              
              (22,446
              )
              
              (13,986
              )
              
              (18,250
              )$
              210,391
              
              $
              203,769
              
              $
              207,106Operating
                  income (loss)United
                  States
              
              
              ($1,804
              )
              $
              11,610
              
              $
              13,024Canada
              
              
              (242
              )
              
              (490
              )
              
              (665
              )South
                  America
              
              
              1,852
              
              
              (754
              )
              
              (1,243
              )Europe
              
              
              1,198
              
              
              (2,861
              )
              
              (22
              )Other
              
              
              12
              
              
              213
              
              
              0$
              1,016
              
              $
              7,718
              
              $
              11,094Identifiable
                  assetsUnited
                  States
              
              $
              118,515
              
              $
              121,441
              
              $
              113,836Canada
              
              
              13
              
              
              26
              
              
              842South
                  America
              
              
              9,181
              
              
              7,907
              
              
              7,535Europe
              
              
              76,046
              
              
              68,466
              
              
              91,219$
              203,755
              
              $
              197,840
              
              $
              213,432United
                  States export sales(reported
                  in North America net sales above)Asia
              
              $
              17,092
              
              $
              16,915
              
              $
              18,159South
                  and Central America
              
              
              6,973
              
              
              5,819
              
              
              5,529Canada
              
              
              8,261
              
              
              7,938
              
              
              7,794Other
                  international
              
              
              3,165
              
              
              4,822
              
              
              4,718$
              35,491
              
              $
              35,494
              
              $
              36,200




63
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            of Contents*





**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





**25.**
            **Quarterly
                Data (Unaudited)**





Quarterly
      financial information for 2006 and 2005 is as follows (in thousands, except
      for
      per share amounts):


First
              
              Second
              
              Third
              
              Fourth2006
              
              Quarter
              
              Quarter
              
              Quarter
              
              Quarter
              
              AnnualNet
                  sales
              
              $
              50,470
              
              $
              53,451
              
              $
              54,726
              
              $
              51,744
              
              $
              210,391Gross
                  margin
              
              
              9,511
              
              
              11,599
              
              
              10,242
              
              
              5,352
              
              
              36,704Operating
                  income (loss)
              
              
              1,387
              
              
              4,348
              
              
              1,684
              
              
              (6,403
              )
              
              1,016Net
                  (loss) income available to common shareholder
              
              
              (1,323
              )
              
              (130
              )
              
              (2,961
              )
              
              4,830
              
              
              416Net
                  (loss) income per share - basic
              
              
              ($0.14
              )
              
              ($0.01
              )
              
              ($0.30
              )
              $
              0.47
              
              $
              0.04Net
                  (loss) income per share - diluted
              
              
              ($0.14
              )
              
              ($0.01
              )
              
              ($0.30
              )
              $
              0.22
              
              $
              0.03




First
              
              Second
              
              Third
              
              Fourth2005
              
              Quarter
              
              Quarter
              
              Quarter
              
              Quarter
              
              AnnualNet
                  sales
              
              $
              49,524
              
              $
              52,100
              
              $
              52,232
              
              $
              49,913
              
              $
              203,769Gross
                  margin
              
              
              9,532
              
              
              11,118
              
              
              10,390
              
              
              8,314
              
              
              39,354Operating
                  income (loss)
              
              
              1,480
              
              
              1,918
              
              
              2,986
              
              
              1,334
              
              
              7,718Net
                  (loss) income available to common shareholder
              
              
              (1,128
              )
              
              (2,263
              )
              
              3,609
              
              
              (2,375
              )
              
              (2,157
              )Net
                  (loss) income per share - basic
              
              
              ($0.12
              )
              
              ($0.23
              )
              $
              0.37
              
              
              ($0.20
              )
              
              ($0.22
              )Net
                  (loss) income per share - diluted
              
              
              ($0.12
              )
              
              ($0.23
              )
              $
              0.34
              
              
              ($0.20
              )
              
              ($0.22
              )




Net
      income (loss) per share amounts are computed independently for each of the
      quarters presented using weighted average shares outstanding during each
      quarter. The sum of the quarterly per share amounts do not agree principally
      due
      to losses within quarters, issuance of restricted stock in 2006 and 2005 and
      issuance of common stock equivalents for diluted per share amounts in both
      2006
      and 2005.





During
      2006, the Company recognized restructuring expense of $4,328. During the fourth
      quarter of 2006, the Company recognized a one-time charge for the impairment
      charge of $2,409 for the write down of the Kentland plant to the fair market
      value of the facility. The remaining restructuring expense of $1,985 was
      recognized for one- time employee costs related to various restructuring to
      address the Company’s competitive environment. These
      restructuring events were recognized as $298, $114, $531, and $1,042 for first,
      second, third, and fourth quarters respectively.





During
      the fourth quarter of 2006, the elimination of United States and Canadian
      postretirement life and medical benefits resulted in a $12,792 curtailment
      gain,
      and the Company recognized a $1,721 curtailment gain on the freeze of pension
      benefits for all non union U.S. employees.





The
      Company terminated postretirement benefits as of December 31, 2006 for all
      active employees and all retirees in the United States who are covered by a
      collective bargaining agreement. The termination of these United States
      postretirement medical benefits resulted in a $698 curtailment gain in the
      third
      quarter of 2005. During 2006 and the fourth quarter of 2005, $7,843 and $1,744,
      respectively, of unrecognized prior service costs and net actuarial loss related
      to these postretirement medical benefits were amortized and recorded as a
      reduction to cost of sales.





64
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            of Contents*





**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**





During
      the fourth quarter of 2005, the Company recognized a $974 curtailment gain
      recorded in the consolidated statements of operations for pensions related
      to
      the relocation of our finishing from Kentland, Indiana to a facility located
      in
      Monterrey, Mexico.





During
      the second quarter of 2005, our board of directors approved a plan under which
      we will restructure our finishing operations by relocating finishing operations
      from our facility in Kentland, Indiana to a facility in Monterrey, Mexico.
      A
      $1,787 charge for one-time employee costs related to the Kentland, Indiana
      relocation was recorded.





During
      the first quarter of 2005, the Company committed to a restructuring plan to
      continue to address the Company's competitive environment. The plan resulted
      in
      a before tax charge of $387.





**28.**
            **Subsequent
                Events**





Viskase
      Canada Retiree Litigation





In
      December 2006, our Canadian subsidiary, Viskase Canada Inc., terminated
      post-retirement health care and life insurance benefits for retirees of Viskase
      Canada Inc.. In February 2007, two former employees filed suit in the Ontario
      Superior Court of Justice against Viskase Canada Inc. and Viskase Companies,
      Inc. alleging these benefits were permanently vested as a condition of their
      retirement. Further, they petitioned for class action status on behalf of all
      similarly situated retirees. The complaint requests reinstatement of the
      benefits, or unspecified damages in the alternative, along with reimbursement
      of
      legal costs of $20 and punitive damages of $1,000. We believe the complaint
      is
      without merit, we intend to vigorously defend ourselves against this lawsuit
      and
      we have not accrued any amount on our statement of financial position with
      regard to this complaint.





Termination
      of Registration





On
      March
      22, 2007, we filed Form 15 with the SEC, which terminated our obligation to
      file
      reports with the SEC. As a result, the Company is no longer required to file
      reports such as Forms 10-K, 10-Q and 8-K.





Capital
      Stock





On
      November 7, 2006, the Company issued $24,000 of preferred stock. As part of
      the
      preferred stock issuance, the Company agreed to conduct a rights offering of
      up
      to $24,000 of common stock, the proceeds of which were to be used to redeem
      the
      preferred stock plus accrued and unpaid dividends. On February 27, 2007, the
      rights offering was completed and $359 was received by the Company for stock
      subscriptions, representing 183,942 shares of common stock. Under the terms
      of
      the preferred stock issuance and the rights offering, all outstanding shares
      of
      preferred stock not redeemed with the proceeds of the rights offering were
      converted to common stock. The holders of preferred stock received 17,319,643
      shares of common stock upon the conversion of their preferred stock and an
      additional 1,948,460 shares of common stock upon the conversion of the dividend
      on their preferred stock.





65
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            of Contents*





**VISKASE
      COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      Thousands)**


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




None.


Item
                  9A.
              CONTROLS
                  AND PROCEDURES




We
      maintain a system of disclosure controls and procedures designed to provide
      reasonable assurance that information we are required to disclose in the reports
      we file or submit under the Securities Exchange Act of 1934, as amended, is
      recorded, processed, summarized and reported within the time periods specified
      in Securities and Exchange Commission rules and forms. We identified the
      following control deficiency which constitutes a material weakness. In 2006,
      we
      determined that we had not accrued for anniversary bonuses paid to employees
      of
      our French subsidiary. These payments are made on each five year anniversary
      of
      service, starting with the fifteenth year. With the assistance of our actuaries,
      we have determined that, for years prior to and including 2005, we should have
      accrued approximately $2.3 million as of December 31, 2005, which also resulted
      in a decrease of the deferred tax liability of approximately $0.8 million.
      In
      addition, we made other adjustments in accordance with SAB No. 108 which
      resulted in a combined adjustment to beginning retained earnings for the year
      ended December 31, 2006 of $0.8 million.





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 December 31, 2006. Based on that evaluation, our Chief
      Executive Officer and Chief Financial Officer concluded that our disclosure
      controls and procedures were not effective at a reasonable assurance level
      because of the absence of procedures to properly accrue for the anniversary
      bonuses.





There
      were no material changes to the Company’s internal control over financial
      reporting during the fourth quarter of 2006.


ITEM
                  9B.
              OTHER
                  INFORMATION




None.





66
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            of Contents*





PART
      III


ITEM
                  10.
              DIRECTORS
                  AND EXECUTIVE OFFICERS OF THE
                  REGISTRANT


The
      following table sets forth certain information regarding the members of our
      board of directors and our executive officers:





Name
            
            Age
            
            PositionRobert
                L. Weisman
            
            58
            
            President,
                Chief Executive Officer and DirectorGordon
                S. Donovan(1)
            
            53
            
            Vice
                President, Chief Financial Officer, Treasurer and Assistant
                SecretaryCharles
                J. Pullin(1)
            
            43
            
            Vice
                President, Chief Financial Officer, Treasurer and
                SecretaryHenry
                M. Palacci
            
            38
            
            Vice
                President, Chief Operating OfficerMaurice
                J. Ryan
            
            54
            
            Vice
                President, Sales, North AmericaJohn
                O. Cunningham
            
            57
            
            Vice
                President, Human ResourcesBernard
                Lemoine
            
            46
            
            Vice
                President, OperationsJean-Luc
                Tillon
            
            47
            
            President,
                Viskase S.A.S.Vincent
                J. Intrieri
            
            50
            
            Chairman
                of the Board, DirectorEugene
                I. Davis(2)
            
            52
            
            DirectorJames
                L. Nelson(2)
                (3)
            
            57
            
            DirectorPeter
                K. Shea(3)
            
            56
            
            DirectorSungHwan
                Cho(3)
            
            33
            
            DirectorMayuran
                Sriskandarajah
            
            27
            
            Director





(1)
            Mr.
                Donovan served in this capacity through his retirement from the Company
                on
                January 31, 2007. Mr. Pullin assumed these positions with the Company
                on
                February 1, 2007.


(2)
            Member
                of the Audit Committee.


(3)
            Member
                of the Compensation Committee.





Robert
      L.
      Weisman has been our President and Chief Executive Officer since October 2004.
      From December 2002 to June 2004, he served as the Vice President, Innovation
      and
      Business Development for Sara Lee Corporation. Mr. Weisman also served as the
      Chief Executive Officer, Sara Lee Bakery from May 2001 to December 2002 and
      the
      Group President of Sara Lee's Specialty Meat Companies from June 1996 through
      May 2001.





Gordon
      S.
      Donovan was our Vice President and Chief Financial Officer from January 1997
      through January 2007. Mr. Donovan also served as our Treasurer and Assistant
      Secretary from November 1989 through January 2007, and as a Vice President
      from
      May 1995 through January 2007. Mr. Donovan was employed by us since 1987. Mr.
      Donovan elected to retire as of January 31, 2007.





Charles
      J. Pullin has served as our Vice President and Chief Financial Officer,
      Secretary and Treasurer since February 2007. Prior to that, he served as our
      Chief Information Officer from September 2004 to January 2007 and served as
      Director, Strategic Financial Planning from December 2003 to August 2004. Prior
      to joining the Company, from 2002 through 2003, Mr. Pullin served as Vice
      President and Chief Financial Officer of OnlyOne, a telecommunications service
      provider to small businesses. From 2000 through 2002, Mr. Pullin served as
      Managing Director of QuantumShift, a telecommunications management
      firm.





Henry
      M.
      Palacci has served as our Vice President and Chief Operating Officer since
      August 2006 and served as our Vice President, Worldwide Strategic Planning
      from
      July 2005 to August 2006. He also served as a consultant to Viskase from March
      2004 through June 2005. He was Director, Finance for MEMCO SA, a real estate
      development company in Brussels, from January 2000 through September 2004 and
      was a member of the MEMCO SA Board of Directors through October
      2004.





67
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            of Contents*





Maurice
      J. Ryan has served as our Vice President, Sales, North America since September
      2000. He also served as our Vice President, U.S. and Canada Sales beginning
      in
      2000, our Vice President, West Region from 1997 to 2000, Vice President,
      Strategic Accounts from 1995 to 1997 and our Vice President, Sales from 1993
      to
      1995. Mr. Ryan has been employed by us since 1977.





John
      O.
      Cunningham has served as our Vice President, Human Resources since October
      2002.
      He also served as our Director, Human Resources, Compensation and Benefits
      from
      September 1995 to September 2002. Mr. Cunningham has been employed by us since
      1990.





Bernard
      Lemoine has served as our Vice President of Worldwide Operations since August
      2006 and Director of Operations since 1999. He is responsible for all Worldwide
      Operations. Mr. Lemoine has been with Viskase in various positions since
      1985.





Jean-Luc
      Tillon has served as our President, Viskase S.A.S. since January 1999. He
      previously served as our Director of Finance, Europe from January 1999 to June
      2003 and as our Director of Sales and Marketing, Europe from July 2003 to March
      2004. Mr. Tillon has been employed by us since 1986 and currently also serves
      as
      a director of Viskase Spa, Viskase Gmbh and Viskase Polska.





Directors





Vincent
      J. Intrieri has served as Chairman of the Board of Directors and as a director
      since April 2003. Since January 2005, he has been a Senior Managing Director
      of
      Icahn Associates Corp. and Icahn Partners, entities controlled by Carl C. Icahn,
      who may be deemed to be a beneficial owner of approximately 29.52% of our Common
      Stock. From March 2003 through December 2005, Mr. Intrieri served as a Managing
      Director of Icahn Associates. Mr. Intrieri was portfolio manager of High River
      Limited Partnership, an entity controlled by Mr. Icahn, from 1998 to March
      2003.
      From 1995 to 1998, he served as a portfolio manager for distressed investments
      with Elliott Associates L.P., a New York investment fund. Mr. Intrieri currently
      serves on the boards of XO Communications, Inc., a competitive local exchange
      carrier that provides broadband communication services to small-to-large
      enterprise customers; American Railcar Industries, Inc., a manufacturer of
      covered hopper and tank cars; and Philip Services Corporation, a metal recycling
      and industrial services company. Each of these companies are affiliated with
      Mr.
      Icahn.





Eugene
      I.
      Davis has been a director since April 2003. Since 1999, Mr. Davis has been
      chairman and Chief Executive Officer of Pirinate Consulting Group, L.L.C.,
      a
      consulting firm that specializes in, among other things, crisis and turn-around
      management, mergers and acquisitions and strategic planning services. From
      January 2001 to December 2003, he was Chairman, Chief Executive Officer and
      President of RBX Industries, Inc., a manufacturer and distributor of rubber
      and
      plastic based foam products, and prior to that served as RBX Industries' Chief
      Restructuring Officer, and from 1998 to 1999, he served as Chief Operating
      Officer of Total-Tel USA Communications, Inc. Mr. Davis has been the Chief
      Executive Officer, Chief Operating Officer or President of other companies
      including Murdock Communications Corporation and SmarTalk Teleservices, Inc.
      RBX
      Industries and SmarTalk Teleservices were debtors under the federal bankruptcy
      code for which Mr. Davis was retained to provide turnaround management services.
      Mr. Davis is currently a member of the CFN Liquidating Trust Committee for
      the
      former Contifinancial Corporation and its affiliates, and is a director of
      Metals USA, Inc., Metrocall Holdings, Inc., Flag Telecom Group Limited,
      Elder-Beerman Stores, Inc., Tipperary Corporation, Knology, Inc., TelCove,
      Inc.,
      Exide Technologies and a number of private companies. In addition, he is a
      member of the Board of Advisors of PPM America Special Investment
      Funds.





James
      L.
      Nelson has served as a director since April 2003. From March 1998 until July
      2004, Mr. Nelson was Chairman and Chief Executive Officer of Orbit Aviation,
      Inc., a company engaged in the acquisition and completion of Boeing 737 Business
      Jets for private and corporate clients. From 1986 until the present, Mr. Nelson
      has been Chairman and Chief Executive Officer of Eaglescliff Corporation, a
      specialty investment banking, consulting and wealth management company. From
      August 1995 until July 1999, he was Chief Executive Officer and Co-Chairman
      of
      Orbitex Management, Inc., a financial services company. Mr. Nelson currently
      serves on the board of American Real Estate Partners L.P. (“AREP”), a
      NYSE-listed limited partnership controlled by Mr. Icahn that is engaged in
      a
      variety of businesses including oil and gas exploration and production, casino
      gaming, and the manufacture and sale of home textiles.





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Peter
      K.
      Shea has served as a director since November 2006. Since December 2006, Mr.
      Shea
      has served as President of American Property Investors, Inc., which is the
      general partner of AREP. Mr. Shea also has served as Head of Portfolio Company
      Operations of AREP since December 2006. Since December 2006, Mr. Shea has served
      as a director of each of the following companies, for which Mr. Icahn has a
      controlling interest through the ownership of securities: XO Holdings, Inc.,
      a
      telecommunications services provider; American Railcar Industries, Inc., a
      manufacturer of covered hopper and tank railcars; and, WestPoint International
      Inc., a home textiles manufacturer. Mr. Shea has been an independent consultant
      to various companies and an advisor to private equity firms since 2002. Mr.
      Shea
      also has served as a Director, Executive Chairman, Chief Executive Officer
      or
      President of a variety of companies, including, H.J. Heinz Company in Europe,
      SMG Corporation, John Morrell & Company, United Brands Company, Premium
      Standard Farms and New Energy Company of Indiana.





SungHwan
      Cho has served as a director since November 2006. Since October 2006, Mr. Cho
      has been Portfolio Company Associate at Icahn Associates Corp., an entity
      controlled by Mr. Icahn. From 2004 to 2006, Mr. Cho served as Director of
      Finance for Atari, Inc., a publisher of video game software. From 1999 to 2002,
      Mr. Cho served as Director of Corporate Development and Director of Product
      Development at Talk America, a telecommunications provider to small business
      and
      residential customers. Previously, Mr. Cho was an investment banker at Salomon
      Smith Barney in New York and Tokyo. He is also a Director of Philip Services
      Corporation, a metal recycling and industrial services company controlled by
      Mr.
      Icahn.





Mayuran
      Sriskandarajah has served as a director since December 2006. Since February
      2005, Mr. Sriskandarajah has served as an Analyst at Icahn Associates Corp.,
      an
      entity controlled by Mr. Icahn. From 2002 to 2005, Mr. Sriskandarajah served
      as
      a Senior Associate Consultant at Bain & Company, a management consulting
      firm. Previously, Mr. Sriskandarajah was an investment banker at Wasserstein,
      Perella & Company.





Section
      16(a) Beneficial Ownership Reporting Compliance





In
      June
      2003, the Company terminated its registration under Section 12(g) of the
      Securities and Exchange Act of 1934 (“Exchange Act”) and, therefore, it has not
      been subject to the reporting requirements of the Section 16(a) of the Exchange
      Act, which would require the Company's executive officers and directors and
      persons who own more than 10% of a registered class of the Company's equity
      securities to file reports of their ownership thereof and changes in that
      ownership with the SEC. As such, there were no required filings of Section
      16(a)
      reports by our directors, officers and persons who own more than 10% of the
      Company’s equity securities.





Code
      of Ethics





The
      Company has adopted a written code of ethics, entitled “Business Integrity and
      Ethics Policy,” which applies to all directors, officers and employees,
      including our Chief Executive Officer and Chief Financial Officer. A copy of
      the
      code is filed as an exhibit to the Company’s Current Report on Form 8-K filed on
      March 24, 2006. The Company will furnish to any shareholder, without charge,
      a
      copy of the code. A request for the code can be made by writing to the Company’s
      Secretary, Viskase Companies, Inc., 8205 South Cass Avenue, Suite 115, Darien,
      Illinois 60561.





Audit
      Committee





The
      Board
      of Directors has assigned the Audit Committee the following responsibilities:
      to
      review and recommend to the Board of Directors the selection of the Company’s
      independent accountants; to review with the independent accountants the scope
      and results of the annual audit engagement and the system of internal accounting
      controls; and to direct and supervise special audit inquiries.





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The
      current members of the Audit Committee are Eugene I. Davis and James L. Nelson.
      Mr. Davis served as Chairman during 2005; Mr. Nelson has served as Chairman
      since the beginning of 2006.





The
      Board
      of Directors has determined that Mr. Davis is an audit committee financial
      expert and is independent as that term is used in Item 7(d)(3)(iv) of Schedule
      14A under the Exchange Act. While we are not a listed company, we have used
      the
      definition of “independent director” from the NASDAQ Stock Market for purposes
      of making the forgoing determination.





Compensation
      Committee Report





The
      Board
      of Directors formed a Compensation Committee in January 2007, consisting of
      the
      following members: Peter K. Shea (Chairman), James L. Nelson and SungHwan Cho.
      The Committee does not have a charter at this time. During 2006, our entire
      Board of Directors participated in deliberations concerning executive
      compensation. Accordingly, the Board of Directors as a whole reviewed and
      discussed the Compensation Discussion and Analysis with management. Based on
      that review and discussion, the Board of Directors recommended that the
      Compensation Discussion and Analysis be included in this annual report. This
      report is provided by the Board of Directors:





SungHwan
      Cho


Eugene
      I.
      Davis


Vincent
      J. Intrieri


James
      L.
      Nelson


Peter
      K.
      Shea


Mayuran
      Sriskandarajah


Robert
      L.
      Weisman





Compensation
      Committee Interlocks and Insider Participation





The
      Company’s Board of Directors did not maintain a Compensation Committee during
      2006; compensation for executive officers was reviewed and approved by the
      entire Board of Directors, including Mr. Weisman, the Company’s President and
      Chief Executive Officer, except that Mr. Weisman did not participate in
      deliberations regarding his own compensation. No executive officer of the
      Company serves as a member of the board of directors or compensation committee
      of any public entity that has one or more executive officers serving as a member
      of the Company’s Board of Directors.





Compensation
      Discussion and Analysis





*Overview*





The
      Board
      of Directors in the past has reviewed, and the Compensation Committee in the
      future will review, compensation for executive officers on an annual basis,
      subject to the terms of applicable employment agreements. The compensation
      level
      for the President and Chief Executive Officer is established based upon the
      recommendation of our chairman, which is discussed with members of the Board
      of
      Directors. Compensation levels for other executive officers are established
      based upon the recommendation of our President and Chief Executive Officer,
      which is discussed with members of the Board of Directors. The Board of
      Directors has not retained any compensation consultants to determine or
      recommend the amount or form of executive compensation.





*Compensation
      Philosophy and Objectives*





Our
      executive compensation philosophy is designed to support our key business
      objectives while maximizing value to our shareholders. The objectives of our
      compensation structure are to attract and retain valuable employees, assure
      fair
      and internally equitable pay levels and provide a mix of base salary and other
      forms of compensation that provide motivation and award performance. At the
      same
      time, we seek to optimize and manage compensation costs.





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The
      primary components of our executive compensation are base salary, annual cash
      bonuses and stock options. Base salary is paid for ongoing performance
      throughout the year and is determined based on job function and each executive’s
      contribution to our performance and achievement of our overall business
      objectives. Our annual bonuses are intended to reward particular achievement
      during the year, motivate future performance and retain highly qualified key
      employees. Stock options are granted to cause our executives to have an ongoing
      stake in our long-term success.





*Base
      Salaries*





Base
      salaries for executive officers are determined based on job responsibilities
      and
      individual contribution. Job responsibilities are evaluated against similar
      positions at companies of like size and base salaries generally are set at
      approximately 20% below average market salaries. As described below, the minimum
      base salary for Mr. Weisman is set contractually to be $270,384 per year. Base
      salary is the only element of compensation that is used in determining the
      amount of contributions permitted under our 401(k) plan.





*Bonus*





Our
      Management Incentive Program (the “Program”) is intended to provide additional
      compensation to eligible participants for their contribution to the achievement
      of our objectives, to encourage and stimulate superior performance and to assist
      in attracting and retaining highly qualified key employees. Our key managers,
      including our executive officers, are eligible to participate in the Program.
      The Program permits us to make cash awards to participants based upon a
      percentage of each participant’s base salary, as measured against each
      participant’s personal performance and our financial performance. Personal
      performance is evaluated subjectively by the participant’s manager and all
      performance ratings are reviewed collectively by executive management. Personal
      performance of executive officers other than the President and Chief Executive
      Officer is evaluated by the President and Chief Executive Officer, while the
      personal performance of the President and Chief Executive Officer is evaluated
      by the Chairman of the Board of Directors. Financial performance goals are
      based
      on certain adjusted EBITDA targets, as established by our Board of Directors
      and
      based on our annual business plan. These goals are meant to be aggressive but
      achievable in light of current market conditions. Participants are entitled
      to
      payment of a partial award if, during a fiscal year, a participant, among other
      things, dies, retires, becomes permanently disabled or leaves the Company due
      to
      position elimination, provided that the participant was an active employee
      for a
      minimum of thirty consecutive calendar days during such fiscal year. The plan
      is
      subject to the control and supervision of our President and Chief Executive
      Officer and our Board of Directors.





Under
      the
      terms of our Program, bonuses are computed in accordance with the following
      formula:





(Base
      Salary) times (Bonus % of Salary) times (Company Performance % of Target) times
      (Individual Performance Rating Factor)





The
      percentage of salary for which each executive is eligible is as
      follows:





Executive
            
            Percentage
                of SalaryRobert
                L. Weisman
            
            100%Gordon
                S. Donovan
            
            45%Henry
                M. Palacci
            
            50%Charles
                J. Pullin
            
            40%Maurice
                J. Ryan
            
            40%Bernard
                Lemoine
            
            40%





For
      2006,
      the Company did not achieve the minimum Company Performance Target, therefore
      no
      bonuses were paid under the Program.





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*Long-Term
      Incentives*





Stock
      Options. The Board of Directors believes that equity-based compensation causes
      our executives to have an ongoing stake in our long-term success. Our Stock
      Option Plan was designed, in part, to optimize our profitability and growth
      over
      the longer term. During 2004 and 2005, the Company issued 995,000 options to
      key
      employees. Exercise prices for all options were set at the Company’s stock price
      on the actual grant date. See “—Summary Compensation Table” for further
      details.





Restricted
      Stock. There were initially 660,000 shares of Common Stock reserved for grant
      to
      our management and employees under the Viskase Companies, Inc. Restricted Stock
      Plan. On April 3, 2003, the Company granted 330,070 shares of restricted Common
      Stock ("Restricted Stock") under the Restricted Stock Plan. Shares granted
      under
      the Restricted Stock Plan vested 12.5% on the grant date and vest 17.5%, 20%,
      20% and 30% on the first, second, third and fourth anniversaries, respectively,
      of the grant date, subject to acceleration upon the occurrence of certain
      events. As of April 3, 2007, 100% of the restricted stock grants will be vested.
      Messrs. Donovan and Ryan participated in this program. See “—Summary
      Compensation Table” for further details.





*Benefits*





Our
      US-based executive officers participate in a qualified 401(k) retirement savings
      plan, and health, life and disability insurance plans that are offered to all
      of
      our eligible US employees. These are designed to help us attract and retain
      our
      workforce in a competitive environment. In addition, Messrs. Donovan and Ryan
      participate in a defined benefit retirement plan, which was closed to new
      entrants on April 1, 2004. Service credits under this plan were frozen as of
      December 31, 2006.





Our
      qualified 401(k) plan allows eligible US-based employees to contribute up to
      25%
      of their base salary, up to the limits imposed by the Internal Revenue Code
      on a
      pre-tax basis. We currently match, within prescribed limits, 100% of eligible
      employees’ contributions up to 3% of their individual earnings, and 50% of
      eligible employees’ contributions between 3% and 5% of their individual
      earnings. Participants choose to invest their account balances from an array
      of
      investment options as selected by plan fiduciaries from time to time. The 401(k)
      plan is designed to provide for distributions at retirement, or in a lump sum
      for small amounts upon leaving the Company. Under certain circumstances, loans
      are permitted.





We
      contribute additional amounts to our qualified 401(k) plan for all eligible
      US-based employees under certain conditions. Annually, we contribute $1,000
      to
      the plan for each participant as a supplement to future health care costs upon
      retirement. Also, we contribute from 0% to 8% of base salary into the qualified
      401(k) plan as a deferred profit-sharing program. These contributions are based
      on financial performance against certain adjusted EBITDA targets as established
      by our Board of Directors.





In
      addition, Mr. Donovan participated in a Non-Qualified Plan designed to
      supplement our retirement programs. This plan has been closed to new entrants
      for many years.





Perquisites





Our
      US-based executive officers participate in an automobile reimbursement program
      which provides for monthly payments of $600, payment of certain operating
      expenses, and a tax-gross up payment to neutralize the tax impact of the
      payments. The program works in a similar manner for our European-based
      executives, with slight differences for the tax adjustments.





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ITEM
                  11
              EXECUTIVE
                  COMPENSATION




Summary
      Compensation Table





The
      following table sets forth information regarding compensation for the fiscal
      years 2006, 2005 and 2004 awarded to, earned by or paid to the Principal
      Executive Officer (Mr. Weisman), the Principal Financial Officer (Mr. Donovan)
      and the other three most highly compensated executive officers for the fiscal
      year 2006. Robert L. Weisman was appointed President and Chief Executive Officer
      effective October 4, 2004.


Name
                  and Principal Position
              
              Year
              
              Salary
                ($)
              
              Bonus
                ($)
              
              StockAwards
                  ($)(5)
              
              Option
                  Awards($)(6)
              
              Change
                  in Pension Value and Nonqualified Deferred Compensation Earnings
                  ($)(7)
              
              All
                  OtherCompensation
                  ($)(8)
              
              Total
                  ($)Robert
                  L. Weisman, President and
              
              2006
              
              $
              257,508
              
              
              
              
              
              
              
              $
              89,899
              
              
              
              
              $
              30,116
              
              $
              377,523Chief
                  Executive Officer(1)
              
              2005
              
              
              250,008
              
              $
              150,000
              
              
              
              
              
              89,899
              
              
              
              
              
              26,239
              
              
              516,1462004
              
              
              61,510
              
              
              44,714
              
              
              
              
              
              22,475
              
              
              
              
              
              1,563
              
              
              130,262Gordon
                  S. Donovan, Vice President,
              
              2006
              
              
              198,816
              
              
              
              
              $
              456
              
              
              18,129
              
              
              2,060
              
              
              28,419
              
              
              247,880Chief
                  Financial Officer, Treasurer
              
              2005
              
              
              193,020
              
              
              37,697
              
              
              456
              
              
              18,129
              
              
              2,448
              
              
              29,851
              
              
              281,601and
                  Assistant Secretary(2)
              
              2004
              
              
              193,020
              
              
              62,139
              
              
              456
              
              
              
              
              
              2,268
              
              
              33,264
              
              
              291,147Maurice
                  J. Ryan, Vice President,
              
              2006
              
              
              149,436
              
              
              7,770
              
              
              100
              
              
              18,129
              
              
              16,480
              
              
              23,594
              
              
              215,509Sales,
                  North America
              
              2005
              
              
              145,080
              
              
              25,186
              
              
              100
              
              
              18,129
              
              
              
              
              
              22,876
              
              
              211,3712004
              
              
              145,080
              
              
              41,516
              
              
              100
              
              
              
              
              
              
              
              
              22,910
              
              
              209,606Henry
                  M. Palacci, Vice President,
              
              2006
              
              
              189,400
              
              
              
              
              
              
              
              
              18,129
              
              
              
              
              
              26,537
              
              
              234,066Worldwide
                  Strategic Planning(3)
              
              2005
              
              
              214,950
              
              
              44,640
              
              
              
              
              
              18,129
              
              
              
              
              
              27,348
              
              
              305,067Bernard
                  Lemoine, Vice President,
              
              2006
              
              
              133,310
              
              
              29,323
              
              
              
              
              
              7,252
              
              
              
              
              
              17,489
              
              
              187,374




(1) Mr.
      Weisman joined the company in October 2004.





(2) Mr.
      Donovan resigned from the company in January 2007.





(3) Mr.
      Palacci joined the company in July 2005.





(4) Mr.
      Lemoine assumed his responsibilities as an executive officer in August
      2006.





(5) Amounts
      listed as compensation are the *prorata* amounts
      recorded as compensation cost by the Company for the disclosed year. See
“Outstanding Equity Awards at Fiscal Year-End.”





(6) Compensation
      for option values was computed using the *prorata* amounts
      recorded as compensation cost by the Company for the disclosed year. See
      Footnote 20 of the financial statements for details on assumptions
      used.





(7) For
      Mr.
      Ryan, amounts listed are solely for the change in defined benefit pension value
      during 2006. For Mr. Donovan, amounts listed for all years represent
      nonqualified deferred compensation earnings.





(8) All
      other
      compensation for each of the named executives includes the following
      amounts:





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Mr.
                  Weisman
              
              Mr.
                  Donovan
              
              Mr.
                  Ryan
              
              Mr.
                  Palacci
              
              Mr.
                  LemoineContributions
                  to the qualified 401(k) plan
              
              2006
              
              $
              7,725
              
              $
              5,964
              
              $
              4,483
              
              $
              5,8502005
              
              
              7,500
              
              
              5,791
              
              
              4,3522004
              
              
              1,563
              
              
              5,791
              
              
              4,352Car
                  expenses (cost of providing a
              
              2006
              
              
              13,558
              
              
              13,369
              
              
              12,642
              
              
              12,222
              
              $
              15,823vehicle)
              
              2005
              
              
              11,426
              
              
              14,159
              
              
              12,253
              
              
              17,2772004
              
              
              
              
              
              16,250
              
              
              12,276Gross-up
                  of car expense
              
              2006
              
              
              8,833
              
              
              8,561
              
              
              6,073
              
              
              7,9632005
              
              
              7,313
              
              
              9,389
              
              
              5,886
              
              
              9,8332004
              
              
              
              
              
              10,711
              
              
              5,897Group
                  life insurance
              
              2006
              
              
              
              
              
              525
              
              
              396
              
              
              502
              
              
              1,6662005
              
              
              
              
              
              512
              
              
              385
              
              
              2382004
              
              
              
              
              
              512
              
              
              385





Grants
      of Plan-Based Awards





The
      Company made no grants of plan-based awards in 2006.





Outstanding
      Equity Awards at Fiscal Year End


Option
                  Awards
              
              Stock
                  AwardsName
              
              Number
                  of Securities Underlying Unexercised Options (#)
                  Exercisable
              
              Number
                  of Securities Underlying Unexercised Options (#)
                  Unexercisable(1)
              
              Option
                  Exercise Price ($)
              
              Option
                  Expiration Date
              
              Number
                  of Shares of Stock That Have Not Vested (#)(2)
              
              Market
                  Value of Shares of Stock That Have Not Vested ($)Robert
                  L. Weisman
              
              
              333,333
              
              
              166,667
              
              $
              2.40
              
              
              1/13/2010Gordon
                  S. Donovan
              
              
              16,667
              
              
              33,333
              
              $
              2.90
              
              
              1/12/2015
              
              
              13,681
              
              $
              20,658Maurice
                  J. Ryan
              
              
              16,667
              
              
              33,333
              
              $
              2.90
              
              
              1/12/2015
              
              
              3,000
              
              $
              4,530Henry
                  M. Palacci
              
              
              16,667
              
              
              33,333
              
              $
              2.90
              
              
              1/12/2015Bernard
                  Lemoine
              
              
              6,667
              
              
              13,333
              
              $
              2.90
              
              
              1/12/2015
              
              
              1,200
              
              $
              1,812




(1) Mr.
      Weisman’s outstanding options vest on October 4, 2007. Outstanding options for
      all other executives vest in equal parts on January 13, 2007 and January 13,
      2008.





(2) All
      listed shares vested on April 3, 2007.





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Option
      Exercises and Stock Vested


Stock
                  AwardsName
              
              Number
                  of Shares Acquired on Vesting (#)
              
              Value
                  Realized on Vesting ($)Gordon
                  S. Donovan
              
              
              9,121
              
              $
              27,363Maurice
                  J. Ryan
              
              
              2,000
              
              $
              6,000Bernard
                  Lemoine
              
              
              800
              
              $
              2,400




There
      were no option exercises during 2006.





Pension
      Benefits


Name
              
              Plan
                  Name
              
              Number
                  of Years Credited Service (#)
              
              Present
                  Value of Accumulated Benefit ($)Gordon
                  S. Donovan
              
              Retirement
                Program for Employees of Viskase Companies, Inc.
              
              19
              
              
              250,689Maurice
                  J. Ryan
              
              Retirement
                Program for Employees of Viskase Companies, Inc.
              
              30
              
              
              599,227




There
      were no payments or pension benefits paid to any executive officer during
      2006.





Annual
      benefits payable under the retirement program are calculated based on the
      participant’s average base salary for the consecutive thirty-six month period
      immediately prior to retirement. The annual benefits payable are based on a
      straight-life annuity basis at normal retirement age, which under the plan
      is 65
      years of age. The benefits reported in this table are not subject to any
      reduction for benefits paid by other sources, including social security. Entry
      into this plan was closed for executives hired after March 31, 2003. For details
      on assumptions underlying the computation of accumulated benefits, please refer
      to Footnote 11 of the financial statements.





Employment
      Agreements and Potential Payments upon Termination or
      Change-in-Control





Employment
      Agreement with Robert L. Weisman. On October 4, 2004, we entered into an
      employment agreement with Robert L. Weisman. Pursuant to this agreement, Mr.
      Weisman agreed to serve as our President and Chief Executive Officer. The
      initial term of the agreement is three years, commencing on October 4, 2004
      and
      ending on October 4, 2007. However, Mr. Weisman’s employment is at will, and it
      may be terminated by us for various reasons set forth in the agreement and
      by
      Mr. Weisman for any reason.





Under
      the
      agreement, Mr. Weisman receives an annual base salary of $270,384. This salary
      may be increased annually based on reviews by the Board of Directors, but once
      increased, may not be decreased below the new base amount. Mr. Weisman is also
      eligible to participate in our: (i) Management Incentive Plan, a bonus program
      calculated as a percentage of his base salary depending on our performance
      and
      our appraisal of his personal performance; and, (ii) other employee and fringe
      benefit and/or profit sharing plans that we provide to other senior executive
      employees, including medical and health plans. In addition, the agreement
      provided that Mr. Weisman would receive stock options with respect to 500,000
      shares of Common Stock, at an exercise price of $2.40 per share.





If
      Mr.
      Weisman’s employment is terminated by us for reasons other than disability or
“Cause,” as defined in the agreement, we will: (1) continue to pay Mr. Weisman
      for six months at a per annum rate equivalent to his base salary; (2) provide
      Mr. Weisman and his spouse medical and health insurance coverage for six months
      or until Mr. Weisman receives such coverage from another employer, whichever
      is
      earlier; and (3) pay Mr. Weisman a pro rata portion of the bonus for which
      he is
      eligible. Pursuant to the agreement, Mr. Weisman is generally prohibited during
      the term of the agreement, and for a period of twelve months thereafter, from
      competing with us, soliciting any of our customers or inducing or attempting
      to
      persuade any of our employees to terminate his or her employment with us to
      enter into competitive employment.





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Severance
      Benefit Agreement with Gordon S. Donovan. On January 3, 2006, we entered into
      a
      severance benefit agreement ("Severance Benefit Agreement") dated as of January
      3, 2006 with Gordon S. Donovan ("Executive"), the Company's Vice President
      and
      Chief Financial Officer.





Under
      the
      Severance Benefit Agreement, the Executive's employment by the Company shall
      be
      on an "at will" basis and may be terminated at any time subject to the terms
      of
      the Severance Benefit Agreement. In the event the Executive's employment is
      terminated for Cause (as defined in the Severance Benefit Agreement) or as
      a
      result of the Executive's Disability (as defined), the Company shall pay Accrued
      Compensation (as defined) through the termination date. In the event the
      Executive's employment is terminated by the Company except for Cause or as
      a
      result of the Executive's Disability, then the Company shall pay to the
      Executive Accrued Compensation plus six (6) months' base salary. In the event
      the Executive's employment is terminated (i) by the Company within twelve (12)
      months following a Change of Control (as defined), except for Cause or as a
      result of the Executive's Disability, or (ii) by the Executive within twelve
      months following a Change in Control for Good Reason (as defined), then in
      lieu
      of the severance specified in the immediately preceding sentence, the Company
      shall pay to the Executive Accrued Compensation plus twelve (12) months' base
      salary. In addition to the foregoing, the Executive shall be eligible to receive
      the pro rata portion of the Executive's management incentive plan bonus for
      the
      year in which the termination occurs and such other benefits as are provided
      by
      the Company's then-current severance policy for employees at the Executive's
      level.





On
      January 31, 2006, Mr. Donovan retired from the Company. However, the Company
      honored the provisions of his severance agreement as if he were terminated
      except for Cause.





Severance
      Benefit Agreement with Henry M. Palacci. On March 15, 2005, we entered into
      an
      agreement with Henry M. Palacci which provided that, should Mr. Palacci’s
      position be eliminated through no fault of his own, he will be subject to the
      Viskase Companies, Inc. Severance Plan effective July 22, 2003 which entitles
      him to six months of pay continuation at his current base pay at the time of
      the
      job elimination. Further, should his position be eliminated, he will be entitled
      to a relocation arrangement, which includes a guarantee of no loss on the sale
      of his primary residence based on the fair market value.





In
      the
      event of termination without cause, for any reason including a change of
      control, other US-based executive officers would receive continuation of pay
      equal to two weeks of salary for every year of service with the Company. In
      this
      case, including Messrs. Weisman, Donovan and Palacci, the Company would continue
      paying its portion of applicable health care and other benefit programs during
      the pay continuation period. European-based executive officers, in the event
      of
      termination, would receive termination pay for one to two years depending on
      the
      circumstances of the termination and applicable law.





Compensation
      of Directors


Name
              
              Fees
                  Earned or Paid in Cash ($)
              
              Total
                  ($)Vincent
                  J. Intrieri
              
              $
              19,500
              
              $
              19,500Eugene
                  I. Davis
              
              $
              33,500
              
              $
              33,500James
                  L. Nelson
              
              $
              36,000
              
              $
              36,000Peter
                  K. Shea
              
              $
              -
              
              $
              -SungHwan
                  Cho
              
              $
              -
              
              $
              -Mayuran
                  Sriskandarajah
              
              $
              -
              
              $
              -Jon
                  F. Weber(1)
              
              $
              20,500
              
              $
              20,500




(1)
            Mr.
                Weber resigned as a director in December
                2006.





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Each
      director who is not an officer of the Company received an annual retainer of
      $10,000 in 2006 and a fee of $1,000 for each attended meeting of the Board
      of
      Directors. Chairmen of committees of the Board of Directors received an annual
      retainer of $1,500 in 2006. Directors also received a fee for each attended
      meeting of a committee of the Board of Directors of $1,000 ($500 in the case
      of
      committee meetings occurring immediately before or after meetings of the full
      Board of Directors). Directors who are officers of the Company do not receive
      compensation in their capacity as directors.





As
      of
      November 8, 2006, the Company no longer pays director fees for directors
      associated with affiliates of Mr. Icahn. Specifically, Messrs. Intrieri, Shea,
      Cho and Sriskandarajah will not receive director fees from that
      date.





The
      Company did not hold an annual meeting of stockholders during 2006.





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





The
      following table sets forth information, as of March 26, 2007, with respect
      to
      the beneficial ownership of our common stock by (i) each director, (ii) our
      principal executive officer, principal financial officer and our other most
      highly compensated executive officers during the fiscal year ended December
      31,
      2006, (iii) all of our directors and executive officers as a group, and (iv)
      each person who is known to us to be the beneficial owner of more than five
      percent of our common stock. In June 2003, we terminated our registration under
      Section 12(g) of the Exchange Act and, therefore, we have not been subject
      to
      the reporting requirements of the Exchange Act since that time. All information
      below is taken from or based upon ownership filings previously made by such
      persons with the SEC or upon information provided to us by such persons, but
      because such persons have not been subject to the beneficial ownership reporting
      requirements of the Exchange Act, complete and accurate information with respect
      to current beneficial ownership provided may be unavailable. To our knowledge,
      each of the holders of Common Stock listed below has sole voting and investment
      power as to the shares of Common Stock owned, unless otherwise
      noted.





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Name
                  and Address of Beneficial Owner
              
              Number
                  ofShares
                  ofCommon
                  Stock
              
              Percentageof
                  TotalCommon
                  StockCarl
                  C. Icahn(1)
              
              
              19,727,596
              
              
              67.0
              %Barberry
                  Corp.High
                  River Limited PartnershipKoala
                  Holding Limited PartnershipMeadow
                  Walk Limited PartnershipNortheast
                  Investors Trust(2)
              
              
              2,096,128
              
              
              7.1
              %Grace
                  Brothers Ltd.(3)
              
              
              1,910,157
              
              
              6.5
              %Robert
                  L. Weisman(4)(5)
              
              
              333,333
              
              
              1.1
              %Gordon
                  S. Donovan(4)(6)
              
              
              79,481
              
              
              *Maurice
                  J. Ryan(4)(7)
              
              
              43,333
              
              
              *Henry
                  Palacci(4)(8)
              
              
              33,333
              
              
              *Bernard
                  Lemoine(4)(9)
              
              
              13,333
              
              
              *Vincent
                  J. Intrieri(4)Eugene
                  I. Davis(4)James
                  L. Nelson(4)Peter
                  K. Shea(4)SungHwan
                  Cho(4)Mayuran
                  Srisandarajah(4)All
                  directors and named executiveofficers
                  as a group (11 persons)
              
              
              502,813
              
              
              1.7
              %*Represents
                  less than 1%.




(1)
            The
                ownership indicated is derived from the terms of our Series A Preferred
                Stock issuance in November 2006 and Common Stock rights offering,
                which
                concluded in March 2007, as well as from a Schedule 13D filed with
                the SEC
                on April 14, 2003. Mr. Icahn is the sole shareholder, director and
                executive officer of Barberry Corp. ("Barberry"), which is the general
                partner of each of High River Limited Partnership ("High River")
                and
                Meadow Walk Limited Partnership ("Meadow Walk"). In addition, Mr.
                Icahn is
                the beneficial owner of the shares of Common Stock held by Koala
                Holding
                Limited Partnership. As such, Mr. Icahn is in a position, directly
                or
                indirectly, to determine the investment and voting decisions with
                respect
                to the Common Stock owned by Barberry, High River, Koala and Meadow
                Walk.
                The ownership indicated includes 1,236,537 owned directly by Barberry,
                1,331,656 owned directly by High River, 16,859,591 owned directly
                by Koala
                and 299,812 owned directly by Meadow Walk. The address for Mr. Icahn
                is
                c/o Icahn Associates Corp., 767 Fifth Avenue, 47th Floor, New York,
                New
                York 10153 and the address for each of Barberry, High River, Koala
                and
                Meadow Walk is 100 South Bedford Road, Mount Kisco, New York
                10549.





(2)
            The
                ownership indicated is derived from the terms of our Series A Preferred
                Stock issuance in November 2006 and Common Stock rights offering,
                which
                concluded in March 2007, as well as from a Schedule 13G filed with
                the SEC
                on June 11, 2003. The address for Northeast Investors Trust is 50
                Congress
                Street, Boston, Massachusetts
                02109-4096.





(3)
            The
                ownership indicated is derived from the terms of our Series A Preferred
                Stock issuance in November 2006 and Common Stock rights offering,
                which
                concluded in March 2007. The address for Grace Brothers Ltd. is 1560
                Sherman Avenue, Suite 900, Evanston, Illinois
                60201-4809.





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(4)
            The
                address for each of our officers and directors is c/o Viskase Companies,
                Inc., 8205 South Cass Avenue, Suite 115, Darien, Illinois
                60561.





(5)
            Mr.
                Weisman was granted 500,000 Common Stock options pursuant to his
                employment agreement, 333,333 shares of which are
                vested.





(6)
            Mr.
                Donovan was granted 45,605 shares of Restricted Stock pursuant to
                the
                Restricted Stock Plan, which are all vested. Mr. Donovan also directly
                owns warrants to purchase 160 shares of Common Stock and beneficially
                owns
                through our 401(k) plan, his IRA and his spouse's IRA, warrants to
                purchase 324, 59 and 20 shares of Common Stock, respectively. Mr.
                Donovan
                disclaims beneficial ownership of the warrants to purchase 20 shares
                of
                Common Stock held in his spouse's IRA. Mr. Donovan was granted options
                on
                50,000 shares of Common Stock pursuant to the 2005 Stock Option Plan,
                33,333 shares of which are vested or will become vested within 60
                days of
                this filing.





(7)
            Mr.
                Ryan was granted 10,000 shares of Restricted Stock pursuant to the
                Restricted Stock Plan, all of which are vested or will become vested
                within 60 days of this filing. Mr. Ryan was granted options on 50,000
                shares of Common Stock pursuant to the 2005 Stock Option Plan, 33,333
                shares of which are vested or will become vested within 60 days of
                this
                filing.





(8)
            Mr.
                Palacci was granted options on 50,000 shares of Common Stock pursuant
                to
                the 2005 Stock Option Plan, 33,333 shares of which are vested or
                will
                become vested within 60 days of this
                filing.





(9)
            Mr.
                Lemoine was granted options on 20,000 shares of Common Stock pursuant
                to
                the 2005 Stock Option Plan, 13,333 shares of which are vested or
                will
                become vested within 60 days of this
                filing.





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ITEM
                13
            CERTAIN
                RELATIONSHIPS AND RELATED
                TRANSACTIONS





During
      the year ended December 31, 2006, we purchased $0.161 million in
      telecommunication services from XO Communications, Inc., an affiliate of Carl
      C.
      Icahn, who may be deemed to be the beneficial owner of approximately 67.0%
      of
      our Common Stock. We believe that the purchase of the telecommunication services
      was on terms at least as favorable as we would expect to negotiate with an
      unaffiliated party.





Koala
      Holding Limited Partnership was the purchaser of $21,000,000 of the $24,000,000
      shares of Series A Preferred Stock that we issued in November 2006.




The
      board
      of directors does not have an established policy for the approval of related
      party transactions. However, the negotiation and approval of transactions that
      the board considers to be significant in nature are generally delegated to
      a
      special committee of the board that consists entirely of disinterested
      directors. In 2006, the issuance of the Series A Preferred Stock was approved
      by
      such a special committee, while the purchase of telecommunications services
      was
      not.





ITEM
                14.
            PRINCIPAL
                ACCOUNTANT FEES AND SERVICES





The
      following table summarizes the fees for professional audit services rendered
      by
      Grant Thornton LLP for the audits of the financial statements for the years
      ended December 31, 2006 and December 31, 2005, and fees billed to the Company
      by
      Grant Thornton LLP for other services during 2006 and 2005.


Description
              
              2006
                  Amount
              
              2005
                  AmountAudit
                  fees
              
              $
              597,348
              
              $
              424,884Audit-related
                  services
              
              
              41,624
              
              
              45,292Total
                  audit and audit-related services
              
              
              638,972
              
              
              470,176Tax
                  feesAll
                  other feesTotal
              
              $
              638,972
              
              $
              470,176




The
      Audit
      Committee pre-approves all audit fees, audit related services and other services
      with Grant Thornton.





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PART
      IV


ITEM
                  15.
              EXHIBITS
                  AND FINANCIAL STATEMENT
                  SCHEDULES




(a)
            
            The
                following financial statements are set forth in Item 8 of this
                report:1.
            Financial
                Statements:Report
                of independent accountantsConsolidated
                balance sheets, December 31, 2006 and 2005Consolidated
                statements of operations, for the years ended December 31, 2006,
                2005, and
                2004Consolidated
                statements of stockholders' deficit, for the years ended December
                31,
                2006, 2005 and 2004Consolidated
                statements of cash flows, for the years ended December 31, 2006,
                2005, and
                2004Notes
                to consolidated financial statements2.
            Financial
                statement schedules for the years ended December 31, 2006, 2005 and
                2004S-II
                Valuation and Qualifying AccountsAll
                other schedules are omitted because they are not applicable, or not
                required, or because the required information is included in the
                financial
                statements and notes thereto or elsewhere herein.3.
            Exhibits
                are incorporated herein by reference or are filed with this report
                as set
                forth in the Index to Exhibits on pages 88 through 90.








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**SUPPLEMENTAL
      INFORMATION**


**VALUATION
      AND QUALIFYING ACCOUNTS**


Description
              
              Balance
                  at beginning of period
              
              Provision
                  charged to expense
              
              Write-offs
              
              Recoveries
              
              Other
              
              Balance
                  at end of period**Allowance
                  for doubtful accounts**2006
              
              For
                the year ended December 31
              
              $
              1,359
              
              
              ($500
              )
              
              ($65
              )
              $
              0
              
              $
              9
              
              $
              8032005
              
              For
                the year ended December 31
              
              $
              791
              
              
              ($147
              )
              
              ($336
              )
              $
              1,143
              
              
              ($92
              )
              $
              1,3592004
              
              For
                the year ended December 31
              
              
              523
              
              
              146
              
              
              (52
              )
              
              77
              
              
              97
              
              
              791**Inventory
                  accounts**2006
              
              For
                the year ended December 31
              
              
              2,114
              
              
              2,417
              
              
              (827
              )
              
              
              
              
              (229
              )
              
              3,475Reserve
                for obsolete and slow moving inventories2005
              
              For
                the year ended December 31
              
              
              2,546
              
              
              (41
              )
              
              (284
              )
              
              
              
              
              (107
              )
              
              2,114Reserve
                for obsolete and slow moving inventories2004
              
              For
                the year ended December 31
              
              
              1,781
              
              
              1,915
              
              
              (1,264
              )
              
              
              
              
              114
              
              
              2,546Reserve
                for obsolete and slow moving inventories





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SIGNATURES








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





VISKASE
                COMPANIES, INC.(Registrant)By:
            /s/Robert
                L. WeismanRobert
                L. WeismanChief
                Executive Officer and PresidentBy:
            /s/Charles
                J. PullinCharles
                J. PullinVice
                President, Chief Financial Officer, Treasurer and
                Secretary





Date:
      April 9, 2007





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities indicated on this 9th day of April 2007.




/s/
                Robert L. Weisman
            
            /s/
                Charles J. PullinRobert
                L. Weisman
            
            Charles
                J. PullinChief
                Executive Officer and President
            
            Vice
                President, Chief Financial Officer and Treasurer(Principal
                Executive Officer)
            
            (Principal
                Financial and Accounting Officer)/s/
                Vincent Intrieri
            
            /s/
                Eugene I. DavisVincent
                Intrieri, Chairman of the Board
            
            Eugene
                I. Davis (Director)/s/
                James L. Nelson
            
            /s/
                Peter K. SheaJames
                L. Nelson (Director)
            
            Peter
                K. Shea (Director)/s/
                SungHwan Cho
            
            /s/
                Mayuran SriskandarajahSungHwan
                Cho(Director)
            
            Mayuran
                Sriskandarajah (Director)





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INDEX
      TO
      EXHIBITS





Exhibit
                No.
            
            Document3.1
            
            Amended
                and Restated Certificate of Incorporation of Viskase Companies, Inc.
                (“Company”), dated April 3, 2003 (incorporated herein by reference to
                Exhibit 3.1 to Company’s Registration Statement on Form S-4, as filed with
                the Securities and Exchange Commission (the “Commission”) on October 27,
                2004)3.2
            
            Amended
                and Restated Bylaws of the Company (incorporated herein by reference
                to
                Exhibit 3.2 to Company’s Form 8-K, as filed with the Commission on
                November 13, 2006)3.3
            
            Certificate
                of Designations of Series A Preferred Stock (incorporated herein
                by
                reference to Exhibit 3.1 to Company’s Form 8-K, as filed with the
                Commission on November 13, 2006)4.1
            
            Form
                of Subscription Rights Certificate (incorporated herein by reference
                to
                Exhibit 4.1 to the Company’s Amendment No. 1 to the Registration Statement
                on Form S-1, as filed with the Commission on December 22,
                2006)4.2
            
            Indenture,
                dated as of June 29, 2004, among the Company, as issuer, and LaSalle
                Bank National Association, as trustee and collateral agent (incorporated
                herein by reference to Exhibit 4.1 to Company’s Amendment No. 1 to the
                Registration Statement on Form S-4, as filed with the Commission
                on
                December 22, 2004)4.3
            
            Form
                of 11 1/2% Senior Secured Notes due 2011 (incorporated herein by
                reference to Exhibit 4.2 to Company’s Registration Statement on Form S-4,
                as filed with the Commission on October 27, 2004)4.4
            
            Warrant
                Agreement, dated as of June 29, 2004, by and between the Company and
                Wells Fargo Bank, National Association, as warrant agent (incorporated
                herein by reference to Exhibit 4.5 to Company’s Registration Statement on
                Form S-1, as filed with the Commission on December 27,
                2004)4.5
            
            Warrant
                Agreement, dated as of April 3, 2003 by and between the Company and
                Wells Fargo Bank, National Association, as warrant agent (incorporated
                herein by reference to Exhibit 4.7 to Company’s Registration Statement on
                Form S-1, as filed with the Commission on December 27,
                2004)4.6
            
            First
                Supplemental Indenture, dated as of November 7, 2006, by and between
                the
                Company and LaSalle Bank National Association, as Trustee and Collateral
                Agent (incorporated herein by reference to Exhibit 4.1 to Company’s Form
                8-K, as filed with the Commission on November 13, 2006)10.1
            
            Loan
                and Security Agreement, dated as of June 29, 2004, by and between the
                Company and Wells Fargo Foothill, Inc. (incorporated herein by reference
                to Exhibit 10.1 to Company’s Amendment No. 1 to the Registration Statement
                on Form S-4, as filed with the Commission on December 22,
                2004)10.2
            
            Intellectual
                Property Security Agreement, dated as of June 29, 2004, by and
                between the Company and Wells Fargo Foothill, Inc. (incorporated
                herein by
                reference to Exhibit 10.2 to Company’s Amendment No. 1 to the Registration
                Statement on Form S-4, as filed with the Commission on December 22,
                2004)10.3
            
            Pledge
                Agreement (domestic), dated as of June 29, 2004, by and between the
                Company and Wells Fargo Foothill, Inc. (incorporated herein by reference
                to Exhibit 10.3 to Company’s Amendment No. 1 to the Registration Statement
                on Form S-4, as filed with the Commission on December 22,
                2004)





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Exhibit
                No.
            
            Document10.4
            
            Pledge
                Agreement (foreign), dated as of June 29, 2004, by and between the
                Company and Wells Fargo Foothill, Inc. (incorporated herein by reference
                to Exhibit 10.4 to Company’s Amendment No. 1 to the Registration Statement
                on Form S-4, as filed with the Commission on December 22,
                2004)10.5
            
            Intercreditor
                Agreement, dated as of June 29, 2004, by and among the Company, the
                Company’s subsidiaries, Wells Fargo Foothill, Inc, and LaSalle Bank
                National Association (incorporated herein by reference to Exhibit
                10.5 to
                Company’s Registration Statement on Form S-4, as filed with the Commission
                on October 27, 2004)10.6
            
            Indenture,
                dated as of April 3, 2003, among the Company, as issuer, and Wells
                Fargo Minnesota National Association as trustee for $60,000,000 of
                8% Senior Subordinated Secured Notes due 2008 (incorporated herein by
                reference to Exhibit 10.6 to Company’s Registration Statement on Form S-4,
                as filed with the Commission on October 27, 2004)10.7
            
            First
                Supplemental Indenture, dated as of June 29, 2004, among the Company
                and Wells Fargo Bank National Association (incorporated herein by
                reference to Exhibit 10.7 to Company’s Amendment No. 1 to the Registration
                Statement on Form S-4, as filed with the Commission on December 22,
                2004)10.8
            
            Restricted
                Stock Plan of the Company (incorporated herein by reference to Exhibit
                10.8 to Company’s Registration Statement on Form S-4, as filed with the
                Commission on October 27, 2004)10.9
            
            Parallel
                Envirodyne Nonqualified Thrift Plan, dated as of January 1, 1987
                (incorporated herein by reference to Exhibit 10.10 to Company’s
                Registration Statement on Form S-4, as filed with the Commission
                on
                October 27, 2004)10.10
            
            Amendment
                to the Company Parallel Nonqualified Savings Plan, dated as of
                July 29, 1999 (incorporated herein by reference to Exhibit 10.11 to
                Company’s Registration Statement on Form S-4, as filed with the Commission
                on October 27, 2004)10.11
            
            Employment
                Agreement, dated as of October 4, 2004, by and between the Company
                and Robert L. Weisman (incorporated herein by reference to Exhibit
                10.12
                to Company’s Registration Statement on Form S-4, as filed with the
                Commission on October 27, 2004)10.12
            
            Severance
                Plan of the Company, dated as of July 22, 2003 (incorporated herein
                by reference to Exhibit 10.14 to Company’s Amendment No. 1 to the
                Registration Statement on Form S-4, as filed with the Commission
                on
                December 22, 2004)10.13
            
            Restructuring
                Agreement, dated as of July 15, 2002, by and among the Company and
                High River Limited Partnership, Debt Strategies Fund, Inc., Northeast
                Investors Trust (incorporated herein by reference to Exhibit 10.15
                to
                Company’s Amendment No. 1 to the Registration Statement on Form S-4, as
                filed with the Commission on December 22, 2004)10.14
            
            Security
                Agreement, dated as of June 29, 2004, by and among the Company, the
                Company’s Restricted Domestic Subsidiaries, and LaSalle Bank National
                Association (incorporated herein by reference to Exhibit 10.16 to
                Company’s Amendment No. 1 to the Registration Statement on Form S-4, as
                filed with the Commission on December 22, 2004)10.15
            
            Intellectual
                Property Security Agreement, dated as of June 29, 2004, by and
                between the Company and LaSalle Bank National Association (incorporated
                herein by reference to Exhibit 10.17 to Company’s Amendment No. 1 to the
                Registration Statement on Form S-4, as filed with the Commission
                on
                December 22, 2004)10.16
            
            Pledge
                Agreement, dated as of June 29, 2004, by and among the Company, the
                Company’s Restricted Domestic Subsidiaries, and LaSalle Bank National
                Association (incorporated herein by reference to Exhibit 10.18 to
                Company’s Amendment No. 1 to the Registration Statement on Form S-4, as
                filed with the Commission on December 22, 2004)




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Exhibit
                No.
            
            Document10.17
            
            2005
                Stock Option Plan of the Company (incorporated herein by reference
                to
                Exhibit 10.19 to Company’s Amendment No. 3 to the Registration Statement
                on Form S-4, as filed with the Commission on January 25, 2005)10.18
            
            Form
                of Stock Option Agreement, effective as of January 13, 2005
                (incorporated herein by reference to Exhibit 10.1 to Company’s Form 8-K,
                as filed with the Commission on April 14, 2005)10.19
            
            Form
                of Amendment No. 1 to Stock Option Agreement, effective as of
                April 8, 2005 (incorporated herein by reference to Exhibit 10.2 to
                Company’s Form 8-K, as filed with the Commission on April 14, 2005)10.20
            
            Management
                Incentive Plan for Fiscal Year 2005 (incorporated herein by reference
                to
                Exhibit 10.1 to Company’s Form 8-K, as filed with the Commission on May
                25, 2005)10.21
            
            The
                SAVE Program for Employees of Company (incorporated herein by reference
                to
                Exhibit 10.2 to Company’s Form 8-K, as filed with the Commission on May
                25, 2005)10.22
            
            First
                Amendment to The SAVE Program for Employees of Company (incorporated
                herein by reference to Exhibit 10.3 to Company’s Form 8-K, as filed with
                the Commission on May 25, 2005)10.23
            
            Second
                Amendment to The SAVE Program for Employees of Company (incorporated
                herein by reference to Exhibit 10.4 to Company’s Form 8-K, as filed with
                the Commission on May 25, 2005)10.24
            
            Third
                Amendment to The SAVE Program for Employees of Company (incorporated
                herein by reference to Exhibit 10.5 to Company’s Form 8-K, as filed with
                the Commission on May 25, 2005)10.25
            
            Severance
                Benefit Agreement dated as of January 3, 2006 between Company and
                Gordon S. Donovan (incorporated herein by reference to Exhibit 10.1
                to
                Company’s Form 8-K, as filed with the Commission on January 6, 2006)10.26
            
            First
                Amendment to Pledge Agreement, dated as of March 28, 2006, by and
                between
                the Company and Wells Fargo Foothill, Inc. (incorporated herein by
                reference to Exhibit 10.3 to Company’s Form 8-K, as filed with the
                Commission on April 4, 2006)10.27
            
            First
                Amendment to Loan and Security Agreement, dated as of March 28, 2006,
                by
                and between the Company and Wells Fargo Foothill, Inc. (incorporated
                herein by reference to Exhibit 10.2 to Company’s Form 8-K, as filed with
                the Commission on April 4, 2006)10.28
            
            Amendment
                to Pledge Agreement, dated as of March 17, 2006, by and between the
                Company and LaSalle Bank National Association (incorporated herein
                by
                reference to Exhibit 10.1 to Company’s Form 8-K, as filed with the
                Commission on April 4, 2006)10.29
            
            Series
                A Preferred Stock Purchase Agreement, dated as of November 7, 2006,
                by and
                between the Company and the investors party thereto (incorporated
                herein
                by reference to Exhibit 10.1 to Company’s Form 8-K, as filed with the
                Commission on November 13, 2006)10.30
            
            Registration
                Rights Agreement, dated as of November 7, 2006, by and between the
                Company
                and the investors party thereto (incorporated herein by reference
                to
                Exhibit 10.2 to Company’s Form 8-K, as filed with the Commission on
                November 13, 2006)10.31
            
            First
                Amendment to Security Agreement, dated as of November 7, 2006, by
                and
                between the Company and LaSalle Bank National Association, as Collateral
                Agent (incorporated herein by reference to Exhibit 10.3 to Company’s Form
                8-K, as filed with the Commission on November 13, 2006)10.32
            
            First
                Amendment to Intercreditor Agreement, dated as of November 7, 2006,
                by and
                among Wells Fargo Foothill, Inc., LaSalle Bank National Association,
                as
                Collateral Agent, and the Company (incorporated herein by reference
                to
                Exhibit 10.4 to Company’s Form 8-K, as filed with the Commission on
                November 13, 2006)10.33
            
            Consent
                and Second Amendment to Loan and Security Agreement, dated as of
                November
                7, 2006, by and between the Company and Wells Fargo Foothill,
                Inc.(incorporated herein by reference to Exhibit 10.5 to Company’s Form
                8-K, as filed with the Commission on November 13, 2006)14.1
            
            Business
                Integrity and Ethics Policy (incorporated herein by reference to
                Exhibit
                14.1 to Company’s Form 8-K, as filed with the Commission on March 24,
                2006)


86
 *Table
          of Contents*





Exhibit
                No.
            
            Document21.1
            
            List
                of Subsidiaries of the Company31.1
            
            Certification
                by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of
                200231.2
            
            Certification
                by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of
                200232.1
            
            Certification
                by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                Section 906 of the Sarbanes-Oxley Act of 200232.2
            
            Certification
                by CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                Section 906 of the Sarbanes-Oxley Act of
                2002






87