<PAGE>
===============================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

For the quarterly period ended March 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: 0-49741

                         PACKAGING DYNAMICS CORPORATION
             (Exact name of registrant as specified in its charter)

                DELAWARE                                        32-0009217
      (State or other jurisdiction                           (I.R.S. Employer
            of incorporation)                               Identification No.)

          3900 WEST 43RD STREET
            CHICAGO, ILLINOIS                                      60632
 (Address of Principal Executive Office)                        (Zip Code)

                                 (773) 843-8000
              (Registrant's Telephone Number, Including Area Code)


    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 [X] 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 filer [X]

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

    At April 28, 2006, 10,759,583 shares of Common Stock, par value $0.01 per
share, were outstanding.

===============================================================================
<PAGE>
                         PART I - FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS


                         PACKAGING DYNAMICS CORPORATION
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                 (dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                           MARCH 31,        DECEMBER 31,
                                                                             2006              2005
                                                                           ---------        -----------
                                                                          (unaudited)
<S>                                                                        <C>               <C>
                                 ASSETS

Current Assets:
  Cash and cash equivalents                                                $       -         $       3
  Accounts receivable trade (net of allowance for doubtful accounts
     of $530 and $776)                                                        31,271            31,263
  Inventories, net                                                            44,705            42,036
  Other                                                                        7,107             6,502
                                                                           ---------         ---------
     Total current assets                                                     83,083            79,804
                                                                           ---------         ---------

Property, Plant and Equipment
  Property, plant and equipment                                               91,657            87,970
  Less-Accumulated depreciation                                              (38,205)          (36,456)
                                                                           ---------         ---------
     Total property, plant and equipment                                      53,452            51,514
                                                                           ---------         ---------
Other Assets:
  Goodwill                                                                    81,263            81,263
  Other assets, net                                                           19,280            19,632
                                                                           ---------         ---------
     Total other assets                                                      100,543           100,895
                                                                           ---------         ---------
        Total Assets                                                       $ 237,078         $ 232,213
                                                                           =========         =========

                  LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Current maturities of long-term debt                                     $  14,095         $  14,093
  Cash overdraft                                                               4,376             6,573
  Accounts payable                                                            30,948            25,038
  Accrued salary and wages                                                     2,791             2,628
  Other accrued liabilities                                                    8,332             6,989
                                                                           ---------         ---------
     Total current liabilities                                                60,542            55,321

Long-term Debt                                                                95,558            96,894
Other Liabilities                                                              2,695             3,041
Deferred Income Taxes                                                         19,249            18,877
                                                                           ---------         ---------
        Total Liabilities                                                    178,044           174,133
                                                                           ---------         ---------
Commitments and Contingencies
                                                                           ---------         ---------

Stockholders' Equity:
  Common stock, $.01 par value - 40,000,000 shares authorized;
     10,759,583 and 10,751,249 shares issued and outstanding at
     March 31, 2006 and December 31, 2005, respectively                          107               107
  Preferred stock, $.01 par value - 5,000,000 shares authorized; no
     shares issued and outstanding                                                 -                 -
  Paid-in capital in excess of par value                                      60,544            60,260
  Accumulated other comprehensive income                                         551               441
  Accumulated deficit                                                         (2,168)           (2,728)
                                                                           ---------         ---------
     Total stockholders' equity                                               59,034            58,080
                                                                           ---------         ---------
        Total Liabilities and Stockholders' Equity                         $ 237,078         $ 232,213
                                                                           =========         =========
</TABLE>


         The accompanying notes are an integral part of this statement.

                                       2
<PAGE>
                         PACKAGING DYNAMICS CORPORATION
                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED MARCH 31,
                                                     --------------------------------
                                                         2006                2005
                                                     ------------        ------------
<S>                                                  <C>                 <C>
Net sales                                            $     94,657        $     86,784
  Cost of goods sold                                       81,843              74,110
                                                     ------------        ------------
Gross profit                                               12,814              12,674
  Operating expenses                                        9,789               6,935
                                                     ------------        ------------
Operating income                                            3,025               5,739
   Interest expense                                         2,120               2,088
                                                     ------------        ------------
Income before income taxes                                    905               3,651
   Income tax provision                                       345               1,406
                                                     ------------        ------------
Income from continuing operations                             560               2,245
Loss from discontinued operations, net of tax                   -                (223)
                                                     ------------        ------------
Net income                                           $        560        $      2,022
                                                     ============        ============

Basic earnings per share of common stock:
  Continuing operations                              $       0.05        $       0.21
  Discontinued operations                                       -               (0.02)
                                                     ------------        ------------
     Net Income                                      $       0.05        $       0.19
                                                     ============        ============

Diluted earnings per share of common stock:
  Continuing operations                              $       0.05        $       0.21
  Discontinued operations                                       -               (0.02)
                                                     ------------        ------------
     Net Income                                      $       0.05        $       0.19
                                                     ============        ============

Cash dividend declared per share:                    $          -        $      0.065
                                                     ============        ============
Weighted average shares outstanding:
  Basic                                                10,752,786          10,525,653
                                                     ============        ============
  Diluted                                              11,073,120          10,924,037
                                                     ============        ============
</TABLE>


         The accompanying notes are an integral part of this statement.

                                       3
<PAGE>
                         PACKAGING DYNAMICS CORPORATION
                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                    THREE MONTHS ENDED MARCH 31
                                                                                    ---------------------------
                                                                                        2006            2005
                                                                                    -----------      ----------
<S>                                                                                 <C>              <C>
Cash flows from operating activities:
  Net income                                                                          $    560       $  2,022
  Loss from discontinued operations                                                         --            223
  Adjustments to reconcile net income to net cash from operating activities:
    Depreciation and amortization                                                        2,041          2,043
    Amortization and write-off of deferred finance costs                                   158            154
    Stock-based compensation expense                                                       196             --
    Provision for doubtful accounts                                                       (246)             3
    Deferred income taxes                                                                   85            924
    Changes in operating assets and liabilities:
      Accounts receivable                                                                  238            157
      Inventories                                                                       (2,669)        (4,085)
      Other assets                                                                        (240)           158
      Accounts payable and accrued liabilities                                           7,894          2,093
                                                                                      --------       --------
          Net cash from continuing operating activities                                  8,017          3,692
          Net cash used by discontinued operating activities                               (35)          (313)
                                                                                      --------       --------
          Net cash from operating activities                                             7,982          3,379
                                                                                      --------       --------

Cash flows used by investing activities:
      Additions to property, plant and equipment                                        (3,844)          (755)
                                                                                      --------       --------
          Net cash used by investing activities                                         (3,844)          (755)
                                                                                      --------       --------

Cash flows used by financing activities:
      Principal payments for loan obligations                                           (5,109)        (1,460)
      Proceeds under revolving line of credit                                           23,050         19,700
      Repayments under revolving line of credit                                        (19,275)       (18,500)
      Change in cash overdraft                                                          (2,197)        (2,633)
      Payment of dividends                                                                (698)          (685)
      Other, net                                                                            88            159
                                                                                      --------       --------
          Net cash used by financing activities                                         (4,141)        (3,419)
                                                                                      --------       --------

Net decrease in cash and cash equivalents                                                   (3)          (795)
Cash and cash equivalents at beginning of period                                             3          1,175
                                                                                      --------       --------
Cash and cash equivalents at end of period                                            $     --       $    380
                                                                                      ========       ========

Supplemental cash flow disclosures:
      Cash paid during the three months for:
          Interest                                                                    $  1,962       $  1,923
          Income taxes                                                                      30            513
</TABLE>


         The accompanying notes are an integral part of this statement.



                                       4
<PAGE>
                          PACKAGING DYNAMICS CORPORATION
         CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
                           OTHER COMPREHENSIVE INCOME
                                  (UNAUDITED)
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                          ACCUMULATED
                                                COMMON STOCK                                 OTHER
                                            --------------------   PAID-IN  ACCUMULATED  COMPREHENSIVE  STOCKHOLDERS'  COMPREHENSIVE
                                              SHARES      AMOUNT   CAPITAL   DEFICIT        INCOME         EQUITY         INCOME
                                            ----------------------------------------------------------------------------------------
<S>                                         <C>           <C>      <C>      <C>          <C>            <C>            <C>
Balance at December 31, 2005                 10,751,249    $107    $60,260   $(2,728)       $441           $58,080
  Net income                                                                     560                           560           $560
  Stock-based compensation expense                                     196                                     196
  Issuance of common stock                        8,334                 88                                      88
  Other comprehensive income:
    Net change in fair value of derivative
      instruments, net of income taxes
      of $67                                                                                 110               110            110
                                                                                                                             ----
          Comprehensive Income                                                                                               $670
                                                                                                                             ====
                                            ----------------------------------------------------------------------
Balance at March 31, 2006                    10,759,583    $107    $60,544   $(2,168)       $551           $59,034
                                            ======================================================================
</TABLE>


         The accompanying notes are an integral part of this statement.



                                       5


<PAGE>
                         PACKAGING DYNAMICS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

NOTE 1--BASIS OF PRESENTATION

GENERAL

     In the opinion of management, the information in the accompanying unaudited
condensed consolidated financial statements reflect all adjustments necessary
for a fair statement of the results of operations, cash flows and stockholders'
equity for the three months ended March 31, 2006 and 2005 and the financial
position at March 31, 2006. The interim results are not necessarily indicative
of results for a full year and do not contain information included in the
Company's annual consolidated financial statements and notes for the year ended
December 31, 2005. The consolidated balance sheet as of December 31, 2005 was
derived from audited financial statements, but does not include all disclosures
required by accounting principles generally accepted in the United States of
America. These interim financial statements should be read in conjunction with
our audited annual consolidated financial statements and notes thereto included
with the Company's filings with the Securities and Exchange Commission.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

STOCK-BASED COMPENSATION

     Prior to January 1, 2006, we followed APB No. 25, "Accounting for Stock
Issued to Employees," ("APB No. 25") and the related Interpretations in
accounting for our stock option plans. SFAS No. 123, "Accounting for Stock-Based
Compensation," ("SFAS No. 123") issued subsequent to APB No. 25, defines a "fair
value based method" of accounting for employee stock options but allowed
companies to continue to measure compensation cost for employee stock options
using the "intrinsic value based method" prescribed in APB No. 25.

     We adopted SFAS 123R effective beginning January 1, 2006 using the modified
prospective application method. Under this method, compensation expense is
recorded for all unvested stock options and restricted shares beginning in the
first quarter of adoption. The impact of adopting SFAS 123R for the three months
ended March 31, 2006 was an increase of $196 to operating expenses. See note 5 -
Stock-based Compensation for information.

EARNINGS PER SHARE

     Basic earnings per share excludes dilution and is computed by dividing net
income by the weighted average number of common shares outstanding during each
period. Diluted earnings per share reflects the potential dilution that could
occur if common stock options are exercised and is computed by dividing net
income by the weighted average number of common shares outstanding, including
common stock equivalent shares issuable upon exercise of outstanding stock
options, to the extent that they would have a dilutive effect on the per share
amounts. Dilution of the Company's weighted average shares outstanding results
from common stock issuable upon exercise of outstanding stock options (320,334
and 398,384 for the three months ended March 31, 2006 and 2005, respectively).

     In accordance with SFAS 128, "Earnings per Share," the denominator used in
the diluted earnings per share calculation is based on the control number
concept, which requires that the same number of potentially dilutive securities
applied in computing diluted earnings per share from continuing operations be
applied to all other categories of income or loss, regardless of their
anti-dilutive effect on such categories.




                                       6
<PAGE>


     The following table details the calculation of basic and diluted earnings
per share for continuing operations:


<TABLE>
<CAPTION>
                                                                      FOR THE THREE MONTHS ENDED
                                                                      --------------------------
                                                                               MARCH 31,
                                                                               ---------
                                                                        2006              2005
                                                                        ----              ----
<S>                                                                 <C>                <C>
Income from continuing operations                                   $       560        $     2,245
                                                                    ===========        ===========
Weighted average shares used to determine basic earnings per
  share from continuing operations                                   10,752,786         10,525,653
Common stock equivalents                                                320,334            398,384
                                                                    -----------        -----------
Weighted average shares used to determine diluted earnings
  per share from continuing operations                               11,073,120         10,924,037
                                                                    ===========        ===========
Basic earnings per share from continuing operations                 $      0.05        $      0.21
                                                                    ===========        ===========
Diluted earnings per share from continuing operations               $      0.05        $      0.21
                                                                    ===========        ===========
</TABLE>


DERIVATIVES AND OTHER COMPREHENSIVE INCOME

     The Company maintains interest rate derivative instruments (typically
swaps, collars and caps) that are designated as cash flow hedges to manage the
market risk from changes in interest rates on a portion of its variable rate
term loans. The Company recognizes all derivative instruments which are cash
flow hedges as assets or liabilities at fair value, with the related gain or
loss reflected within stockholders' equity through accumulated other
comprehensive income. Such instruments are recorded at fair value, and at March
31, 2006 and December 31, 2005, the fair value approximates an asset of $1,123
and $978, respectively, which is included in other current assets within the
accompanying condensed consolidated balance sheet. Changes in fair value, based
upon the amount at which the instrument could be settled with a third party, are
recorded in other comprehensive income only to the extent of effectiveness. Any
ineffectiveness on the instrument would be recognized in the consolidated
statement of operations. The differentials to be received or paid under the
instrument are recognized in income over the life of the contract as adjustments
to interest expense.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying amounts of financial instruments including cash and cash
equivalents, accounts receivable, accounts payable and variable rate debt
approximate their estimated fair value based either on the short-term maturity
of these instruments or on market prices for the same or similar type of
financial instruments. The fair market value and carrying value of the Company's
interest rate instruments were a net asset of $1,123 and $978 at March 31, 2006
and December 31, 2005, respectively. At March 31, 2006, the fair value of the
remaining amounts payable under a non-compete agreement (six quarterly payments
totaling $2,000) was estimated to be $1,854 determined by discounting the
payments using an 8.75% discount rate. Also at March 31, 2006, the fair value of
a $7,000 note payable on September 14, 2006 and bearing a 5% annual interest
rate payable quarterly approximates $6,873 using an 8.75% discount rate.

ESTIMATES

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


NOTE 3--DISCONTINUED OPERATIONS

     During the fourth quarter of 2003, the Company shut down its paper mill,
located in Detroit, Michigan, and exited the Specialty Paper operation. The
Specialty Paper operation is classified as a discontinued operation.



                                       7
<PAGE>
     The following table details selected income statement information for the
Specialty Paper operation.

<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED
                                                          MARCH 31,
                                                  ------------------------
                                                     2006          2005
                                                  -----------   ----------
<S>                                               <C>           <C>
            Loss before income taxes..........    $        --   $     (362)
            Income tax benefit................             --          139
                                                  -----------   ----------
            Net loss..........................    $        --   $     (223)
                                                  ===========   ==========
</TABLE>


     The net loss for the three months ended March 31, 2005 represents
administrative costs associated with the program to maintain and dispose of the
Detroit property. On December 29, 2005, the Company completed the sale of its
property located in Detroit, Michigan.

    A summary of the changes in the reserves related to the Company's exit from
the Specialty Paper operation is as follows:

<TABLE>
<CAPTION>
                                            SEVERANCE        PENSION
                                           AND BENEFIT        CHARGE         TOTAL
                                           -----------        ------         -----
<S>                                        <C>              <C>            <C>
Balance at December 31, 2004......         $      115       $    1,214     $    1,329
  Charges to expense..............                521               --            521
  Cash payments...................               (394)          (1,214)        (1,608)
                                           ----------       ----------     ----------
Balance at December 31, 2005......                242               --            242
  Charges to expense..............                 --               --             --
  Cash payments...................                (23)              --            (23)
                                           ----------       ----------     ----------
Balance at March 31, 2006.........         $      219       $       --     $      219
                                           ==========       ==========     ==========
</TABLE>


NOTE 4 -- GOODWILL AND INTANGIBLE ASSETS

     Goodwill and intangible assets at March 31, 2006 consist of the following:


<TABLE>
<CAPTION>
                                                    Weighted Average     Carrying      Accumulated
                                                      Life (Years)        Amount      Amortization       Net
                                                   -------------------------------------------------------------
<S>                                                 <C>               <C>             <C>             <C>
Intangible assets subject to amortization
  Customer contracts and relationships...............     19.4        $  10,880       $   1,206       $   9,674
  Covenants not to compete...........................      9.6            4,014             809           3,205
                                                                      ---------       ---------       ---------
                                                                      $  14,894       $   2,015       $  12,879
Intangible assets not subject to amortization
  Trademarks and trade names.........................                 $   4,800       $      --       $   4,800
  Goodwill...........................................                    81,263              --          81,263
                                                                      ---------       ---------       ---------
                                                                      $  86,063       $      --       $  86,063
                                                                      ---------       ---------       ---------
Total intangible assets and goodwill                                  $ 100,957       $   2,015       $  98,942
                                                                      =========       =========       =========
</TABLE>


     Amortization expense for intangible assets subject to amortization was $226
and $249 for the three months ended March 31, 2006 and 2005, respectively.
Amortization expense for the remainder of 2006 and years 2007, 2008, 2009, 2010
is estimated to be $680, $906, $904, $904 and $904, respectively.


NOTE 5 -- STOCK BASED COMPENSATION

Stock-Based Compensation Plans

     Packaging Dynamics has adopted long-term stock incentive plans which
authorize the grant of stock options to acquire the Company's common stock to
participants in the plan. As of March 31, 2006 and December 31, 2005, there were
629,198 and 623,198 shares, respectively, available for grant and there were no
stock options granted to employees during the first quarter of 2006. Generally
options granted under the long-term stock incentive plan


                                       8

<PAGE>
result in the issuance of new shares upon exercise and have contractual terms of
7 to 10 years and vest within a 3 year period.

     Additional information relating to the plans was as follows:

<TABLE>
<CAPTION>
                                                                                 WEIGHTED
                                             SHARES                               AVERAGE
                                             UNDER           OPTION PRICE        EXERCISE
                                             OPTION            RANGE($)          PRICE($)
                                           ---------         ------------        --------
<S>                                        <C>               <C>                 <C>
Outstanding at December 31, 2005.......    1,368,301         3.90 - 14.40            9.22
  Granted..............................           --                   --              --
  Exercised............................       (8,334)        6.81 - 10.50            8.29
  Canceled.............................       (6,000)               14.40           14.40
                                           ---------         ------------           -----
Outstanding at March 31, 2006..........    1,353,967         3.90 - 14.40            9.20
                                           =========         ============           =====
</TABLE>

Exercisable

     At December 31, 2005, 715,652 of the stock options were exercisable. During
the first quarter of 2006, 10,999 stock options became exercisable. The
aggregate intrinsic value of options exercisable and outstanding at March 31,
2006 was $5,196 and $6,470, respectively.

     The following table summarizes information about stock options outstanding
at March 31, 2006:

<TABLE>
<CAPTION>
                                         Total                            Exercisable                    Unexercisable
                       ----------------------------------------    -------------------------     ------------------------------
                                                    Weighted
                                       Weighted      Average                       Weighted                           Weighted
  Range of                              Average     Remaining                       Average                           Average
  Exercise               Options       Exercise    Contractual       Options     Exercisable        Options         Exercisable
  Prices ($)           Outstanding     Price ($)   Life (Years)    Exercisable     Price ($)     Unexercisable       Price ($)
---------------        -----------     ---------   ------------    -----------   -----------     -------------      -----------
<S>                    <C>             <C>         <C>             <C>           <C>             <C>                <C>
       3.90               469,301          3.90         6.25         469,301          3.90                -               -
   6.20 - 7.00             21,000          6.48         6.95          19,002          6.43            1,998            7.00
      10.20               289,000         10.20         6.73               -             -          289,000           10.20
  10.50 - 14.28           288,666         11.88         5.19         132,675         11.00          155,991           12.62
      14.40               286,000         14.40         5.75          95,339         14.40          190,661           14.40
---------------         ---------         -----         ----         -------         -----          -------           -----
  3.90 - 14.40          1,353,967          9.20         6.03         716,317          6.68          637,650           12.04
===============         =========         =====         ====         =======         =====          =======           =====
</TABLE>


     On February 24, 2006, the Company announced that it has entered into an
agreement and plan of merger with Thilmany, L.L.C. pursuant to which the
stockholders of the Company will receive, for each outstanding share of the
Company's common stock, $14.00 in cash. Immediately prior to the effective time
of the merger, each outstanding stock option to acquire our common stock,
whether or not vested or exercisable, will be canceled, and the former holder of
each stock option will be entitled to receive an amount in cash, without
interest and less any applicable withholding tax, equal to the product of the
excess of $14.00 over the exercise price per share of common stock subject to
such option, if any, and the number of shares of common stock subject to such
option. Should this provision of the agreement and plan of merger be triggered,
these awards will become a liability with a corresponding charge to compensation
expense in the amount of approximately $6,622.

For the Quarter Ended March 31, 2006 (SFAS 123R)

     Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004),
"Share-Based Payment" ("SFAS 123R"), which replaced SFAS No. 123, "Accounting
for Stock-Based Compensation," ("SFAS 123") and superseded APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Under SFAS 123R, share-based
compensation cost is measured at the grant date, based on the estimated fair
value of the award, and is recognized as expense over the employee's requisite
service period. The Company has no awards with market conditions. The Company
adopted SFAS 123R using the modified prospective application method. Under the
modified prospective application method, prior periods are not revised for
comparative purposes. The valuation provisions of SFAS 123R apply to new awards
and to unvested awards that are outstanding on the effective date or
subsequently modified or

                                       9


<PAGE>
cancelled. Estimated compensation expense for awards outstanding at the
effective date will be recognized over the remaining service period using the
Black-Scholes option pricing model. As a result of adopting SFAS 123R, during
the first quarter of 2006 the Company recorded additional operating expense of
$196 ($122 after tax) or $0.01 per diluted share related to share-based
compensation. The adoption and related non-cash expense had no material impact
on cash flow from operations or financing activities. The determination of
compensation expense under FAS 123R was based on estimating fair value of
options granted. The weighted average of assumptions used to value all options
granted by the Company were as follows:

<TABLE>

<S>                                             <C>
Expected option life (years)                       5
Risk-free weighted average interest rate        3.37%
Stock price volatility                          31.3%
Dividend yield                                   1.1%
</TABLE>


     The Company used a combination of its historical stock price and implied
volatility for purposes of estimating fair value of the options.

     During the first quarter of 2006, 8,334 stock options were exercised with
an average strike price of $8.29 at a share price of $13.81, resulting in cash
proceeds to the Company of $69 and a tax benefit of $18.

     The total fair value of vested stock options granted through March 31, 2006
was $2,790. The unamortized compensation expense, net of estimated forfeitures,
related to stock options issued and outstanding as of March 31, 2006 will be
recognized in the future periods as follows;

<TABLE>
<S>                                                           <C>
Year ended December 31:
2006 (second to fourth quarter).............................  $   597
2007........................................................      723
2008........................................................      274
                                                              -------
Total.......................................................  $ 1,594
                                                              =======
</TABLE>

For the Quarter Ended March 31, 2005 (SFAS 123)

     For the three months ended March 31, 2005, the following table illustrates
the effect on net income and earnings per share if the Company had applied the
fair value recognition provisions of SFAS No. 123 as amended by SFAS No. 148, to
stock-based employee compensation.


<TABLE>
<CAPTION>
                                                            Three Months Ended
                                                              March 31, 2005
                                                            ------------------
<S>                                                         <C>
Net Income                                                      $ 2,022
Deduct: Stock-based employee compensation
  expense determined under fair value based
  method, net of tax                                                (68)
                                                                -------
Pro forma net income..........................................  $ 1,954
                                                                =======
Income per share:
   Basic - as reported........................................  $  0.19
                                                                =======
   Basic - pro forma..........................................  $  0.19
                                                                =======
   Diluted - as reported......................................  $  0.19
                                                                =======
   Diluted - pro forma......................................... $  0.18
                                                                =======
</TABLE>



                                       10
<PAGE>
     The determination of compensation expense for the pro-forma information was
based upon the estimated fair value of the options on the date of grant using
the Black-Scholes option pricing model with the following assumptions:


<TABLE>
<CAPTION>

                                                     March 31, 2005
                                                     --------------
<S>                                                  <C>
Expected option life (years)                                 5
Risk-free weighted average interest rate                  3.71%
Stock price volatility                                    27.5%
Dividend yield                                            1.8%
</TABLE>


NOTE 6 -- INVENTORIES

     Inventories are stated at the lower of cost or market as determined by the
first-in, first-out (FIFO) method. Such cost includes raw materials, direct
labor and manufacturing overhead. Inventories at March 31, 2006 and December 31,
2005 consisted of the following:


<TABLE>
<CAPTION>
                                         March 31,       December 31,
                                           2006              2005
                                         ---------       ------------
<S>                                      <C>             <C>
Raw materials                            $ 25,656          $ 23,440
Work-in-process                             3,106             2,856
Finished goods                             16,406            16,065
                                         --------          --------
                                         $ 45,168          $ 42,361
Obsolescence reserve                         (463)             (325)
                                         --------          --------
Net                                      $ 44,705          $ 42,036
                                         ========          ========
</TABLE>


NOTE 7 -- LONG-TERM DEBT

     Long-term debt at March 31, 2006 and December 31, 2005 consists of the
following:


<TABLE>
<CAPTION>
                                                March 31,       December 31,
                                                  2006              2005
                                                ---------       ------------
<S>                                             <C>             <C>
Senior Credit Facility:
  Term A Loan                                   $  17,393       $  19,500
  Term B Loan                                      79,985          82,987
  Revolving credit loan                             5,275           1,500
Seller note payable                                 7,000           7,000
                                                ---------       ---------
  Subtotal                                        109,653         110,987
Current maturities of long term debt              (14,095)        (14,093)
                                                ---------       ---------
Long-term debt                                  $  95,558       $  96,894
                                                =========       =========
</TABLE>


SENIOR CREDIT FACILITY

     The Company maintains a credit facility with a group of banks (the "Senior
Credit Facility") that provides for Term A and Term B Loans totaling $115,000
and a $50,000 revolving credit facility, up to $8,000 of which could be in the
form of letters of credit. The Company's primary operating subsidiary, Packaging
Dynamics Operating Company ("PDOC"), entered into the Senior Credit Facility
during the third quarter of 2003 and amended the agreement to expand its
capacity during the fourth quarter of 2004. The Company also amended the Senior
Credit facility during 2005 to reduce interest rates and fees. Borrowings are
collateralized by substantially all of the stock and assets of the Company's
operating subsidiaries.

     As of March 31, 2006, the Term A Loan had a balance of $17,393 and will
mature in 2008. The required



                                       11
<PAGE>
aggregate payments, payable in quarterly installments, total $4,590, $7,006, and
$5,797 in the remainder of 2006 and years 2007 through 2008, respectively. As of
March 31, 2006, the Term B Loan had a balance of $79,985 and will mature in
2009. The aggregate payments, payable in equal quarterly installments, total
$610 in the remainder of 2006, $814 in years 2007 through 2008 and $77,747 in
2009. The revolver had a balance of $5,275 as of March 31, 2006. The revolving
credit facility is due in 2008. The revolving credit facility and Term A Loan
will terminate on September 29, 2008 and the Term B Loan will terminate on
September 29, 2009.

     Loans under the Senior Credit Facility are designated from time to time, at
our election, either (1) as Eurodollar Rate Loans, which bear interest at a rate
based on the London Interbank Offered Rate, or LIBOR, adjusted for regulatory
reserve requirements, or (2) as Base Rate Loans, which bear interest at a rate
based on the Federal Funds rate or the prime rate. The interest rate on
Eurodollar Rate Loans is equal to LIBOR plus an applicable percentage that
varies with the leverage ratio of the Company and its consolidated subsidiaries.
The interest rate on Base Rate Loans is equal to a base rate equal to the
greater of (1) the Federal Funds rate plus 1/2 of 1% or (2) the prime rate, plus
an applicable percentage that varies with the leverage ratio of the Company and
its consolidated subsidiaries.

     The Term A Loan and revolving loans bear interest at rates of up to 1.25%
plus the base rate, in the case of Base Rate Loans, and up to 2.25% plus LIBOR,
in the case of Eurodollar Loans. The Term B Loan bears interest at rates of
1.25% plus the base rate, in the case of Base Rate Loans, and 2.25% plus LIBOR,
in the case of Eurodollar Loans. At March 31, 2006, the interest rates on
borrowings under the Term A Loan and the Term B Loan were 2.00% plus LIBOR
(4.53%) and 2.25% plus LIBOR (4.53%), respectively, compared with 3.0% plus
LIBOR (2.56%) and 3.0% plus LIBOR (2.56%), respectively, at March 31, 2005.

     As of March 31, 2006, we had interest rate instruments in effect with banks
having notional amounts totaling $75,000 and varying maturity dates through
December 31, 2007. We have an interest rate swap agreement with a notional value
of $25,000 which became effective on December 31, 2003 and matures on December
29, 2006. This swap fixes our LIBOR rate for $25,000 of our Senior Credit
Facility indebtedness at a rate of 2.91%. We have an interest rate collar
agreement with a notional amount of $20,000 which became effective on December
31, 2004 and matures on December 31, 2007. This collar results in our paying
market LIBOR rates for $20,000 of our Senior Credit Facility indebtedness from a
floor of 3.08% to a cap of 5.00%. In addition, we have two interest rate caps of
$15,000 each which became effective on December 31, 2004 and mature on December
31, 2007. We purchased these caps for a cap premium of $376 of which $32 was
amortized during the three months ended March 31, 2006. These caps limit our
LIBOR rate for $30,000 of our Senior Credit Facility indebtedness at a maximum
rate of 4.00%.

     Under the Senior Credit Facility, as amended, the Company is required to
comply on a quarterly basis with the following four financial covenants:

     o    under the leverage ratio covenant, as of the last day of each fiscal
          quarter, the ratio of total funded debt of the Company and its
          consolidated subsidiaries to consolidated EBITDA of the Company and
          its consolidated subsidiaries for the 12-month period then ended must
          not exceed specified levels, decreasing from 4.25 to 1 at March 31,
          2006 to 4 to 1;

     o    under the senior secured leverage ratio covenant, as of the last day
          of each fiscal quarter, the ratio of total secured funded debt of the
          Company and its consolidated subsidiaries to consolidated EBITDA of
          the Company and its consolidated subsidiaries for the 12-month period
          then ended must not exceed specified levels, decreasing from 3.50 to 1
          at March 31, 2006 to 3 to 1;

     o    under the fixed charge coverage ratio covenant, as of the last day of
          each fiscal quarter, for the 12-month period then ended, the ratio of
          consolidated EBITDA less capital expenditures and cash tax payments of
          the Company and its consolidated subsidiaries to cash interest expense
          and scheduled funded debt payments (excluding the $7,000 seller note
          issued in connection with the Papercon acquisition) of the Company and
          its consolidated subsidiaries must be equal to or greater than certain
          specified levels, increasing from 1.15 to 1 at March 31, 2006 to 1.2
          to 1; and

     o    under the net worth covenant, Packaging Dynamics' consolidated net
          worth as of the last day of each fiscal quarter must be equal to or
          greater than 80% of the net worth as of September 30, 2003 increased
          on a cumulative basis by (1) as of the last day of each fiscal
          quarter, 50% of the consolidated net income of


                                       12
<PAGE>

          Packaging Dynamics (to the extent positive) for the fiscal quarter
          then ended, (2) 75% of the net cash proceeds from any equity issuance
          by Packaging Dynamics or any subsidiary of Packaging Dynamics, and (3)
          75% of the amount added to the equity of Packaging Dynamics in
          accordance with GAAP in connection with the Papercon acquisition.

     For purposes of the Senior Credit Facility, as amended, consolidated
EBITDA, calculated on a consolidated basis for Packaging Dynamics and its
subsidiaries, consists of (1) net income from continuing operations, excluding
the effect of any extraordinary or other non-recurring gains or losses or
non-cash gains or losses (in each case, other than in connection with the sale
and/or closure of the Detroit paper mill), plus (2) an amount which, in the
determination of net income, has been deducted for interest expense, taxes,
depreciation and amortization, non-cash expenses relating to the granting of
options, cash and non-cash charges and/or losses with respect to the sale and/or
closure of the Detroit paper mill, and charges related to the Papercon owner
bonus program prior to the date of acquisition by the Company, minus (3) cash
expenditures related to non-cash charges previously added back to net income in
determining EBITDA (other than in connection with the closure of the Detroit
paper mill), plus (4) the write-off of capitalized financing costs existing as
of the closing of the Senior Credit Facility.

     The Senior Credit Facility also contains various negative covenants that,
among other things, require Packaging Dynamics and its subsidiaries to limit
future borrowings and payments to related parties and restricts Packaging
Dynamics' ability and the ability of its subsidiaries to merge or consolidate.
In addition, the Senior Credit Facility prohibits changes in the nature of
business conducted by the Company and its subsidiaries. The failure to comply
with the covenants would result in a default under the Senior Credit Facility
and permit the lenders under the Senior Credit Facility to accelerate the
maturity of the indebtedness governed by the Senior Credit Facility.

     The Senior Credit Facility includes terms that limit changes in our
ownership structure. Modifications to the ownership structure outside the limits
prescribed by such agreements could place us in default under these debt
instruments. The Senior Credit Facility requires Packaging Dynamics Operating
Company ("PDOC") to maintain specified financial ratios and levels of tangible
net worth. PDOC was in compliance with those covenants as of March 31, 2006, the
latest measurement date. The occurrence of any default of these covenants could
result in acceleration of our obligations under the Senior Credit Facility
($102,653 as of March 31, 2006) and foreclosure on the collateral securing those
obligations.

     The Senior Credit Facility limits and restricts the payment of dividends
and distribution or transfer of assets by Packaging Dynamics and its
subsidiaries. Dividends to shareholders may not exceed $4 million in any twelve
month period. Additionally, any redemption or repurchase of capital stock of the
Company other than as defined in the Senior Credit Facility is not permitted. As
a result, substantially all of PDOC's net assets are restricted.


SELLER NOTE PAYABLE

     On September 14, 2004, the Company issued a $7,000 note to the former owner
of Papercon in connection with the acquisition of Papercon. The note matures on
September 14, 2006 and bears an annual interest rate of 5% payable quarterly.
This note is unsecured and subordinated to the Senior Credit Facility.


NOTE 8 -- OPERATING SEGMENT INFORMATION

     Our continuing operations operate within, and sell to customers throughout,
the U.S., Canada and Europe in two operating segments - Food Packaging and
Specialty Laminations. The Food Packaging segment converts paper, film and foil
into a variety of specialty value-added food packaging products. The Specialty
Laminations segment produces multi-layer laminated structures from a variety of
substrates (foil, paper, paperboard and film), adhesives and coatings for use in
various food, consumer, medical and industrial packaging applications as well as
in the production of insulation and other products for the building materials
market. Corporate administrative expenses are allocated to the segments on a
direct basis where appropriate with the remainder being allocated based on
revenues. Corporate assets are allocated based on revenues.




                                       13
<PAGE>
     The reconciliation of Segment Operating Income to the Company's
consolidated financial statements is as follows:


<TABLE>
<CAPTION>
                                                                FOR THE THREE MONTHS ENDED
                                                                --------------------------
                                                                 MARCH 31,        MARCH 31,
                                                                   2006             2005
                                                                 --------         --------
<S>                                                              <C>              <C>
Net Sales:
  Food Packaging ............................................    $ 70,061         $ 67,409
  Specialty Laminations .....................................      26,056           20,143
  Elimination of Specialty Laminations intercompany sales....      (1,460)            (768)
                                                                 --------         --------
       Total ................................................    $ 94,657         $ 86,784
                                                                 ========         ========

Segment Operating Income:
  Food Packaging ............................................    $  2,507         $  4,172
  Specialty Laminations .....................................       1,719            1,567
                                                                 --------         --------
  Total .....................................................       4,226            5,739
Facility exit costs .........................................      (1,201)              --
Interest expense ............................................      (2,120)          (2,088)
                                                                 --------         --------
Income before income taxes ..................................    $    905         $  3,651
                                                                 ========         ========

Depreciation and Amortization:
  Food Packaging ............................................    $  1,630         $  1,620
  Specialty Laminations .....................................         411              423
                                                                 --------         --------
       Total ................................................    $  2,041         $  2,043
                                                                 ========         ========
</TABLE>


NOTE 9 -- COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                                                 Three Months Ended,
                                                                         March 31, 2006          March 31, 2005
                                                                       -----------------         --------------
<S>                                                                    <C>                       <C>
   Net Income...............................................           $             560         $        2,022
   Net change in fair value of derivative instruments.......                         110                    358
                                                                       -----------------         --------------
   Comprehensive income.....................................           $             670         $        2,380
                                                                       =================         ==============
</TABLE>

     Accumulated other comprehensive income presented on the accompanying
condensed consolidated balance sheet consists entirely of unrecognized gains and
losses on derivatives.

NOTE 10 -- COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

     We are currently a party to various legal proceedings in various federal
and state jurisdictions arising out of the operations of our business. The
amount of alleged liability, if any, from these proceedings cannot be determined
with certainty; however, we believe that our ultimate liability, if any, arising
from the pending legal proceedings, as well as from asserted legal claims and
known potential legal claims which are probable of assertion, taking into
account established accruals for estimated liabilities, should not be material
to our financial condition or results of operations.

     On March 2, 2006, a purported stockholders class action complaint,
captioned Camp Ger, Inc. and Ruthy Parness v. Frank V. Tannura et al., was filed
by two stockholders of the Company in the Court of Chancery of the State of
Delaware against the Company, the Company's directors, Packaging Investors and
Thilmany challenging the proposed merger.


                                       14
<PAGE>
     The complaint alleges causes of action for (i) illegal and unenforceable
limits placed on the board of directors' exclusive authority and duties to
govern the business and affairs of the Company by the stockholders agreement
between the Company and Packaging Investors pursuant to which Packaging
Investors has been granted special approval rights with respect to certain
extraordinary corporate transactions under certain circumstances and (ii) breach
of fiduciary duty against the Company's directors for not providing an effective
fiduciary out for the board of directors' exercise of its continuing fiduciary
duties in the sale of the Company. The complaint seeks, among other things, to
enjoin the merger, to invalidate Packaging Investors' special approval rights
under the stockholders agreement, to rescind any actions taken to effect the
merger, to require the defendants to fully disclose all material information
regarding the merger and to direct the defendants to disgorge all their profits
from the merger.

LEASE COMMITMENTS

     The Company occupies certain facilities under lease arrangements and leases
certain machinery, automobiles, and equipment. Future minimum rental
commitments, including capital lease obligations, with noncancelable terms in
excess of one year are as follows:


<TABLE>
<S>                                                       <C>
Year ended December 31:
2006 (second through fourth quarter)..................       1,928
2007..................................................       2,285
2008..................................................       2,026
2009..................................................       1,566
2010..................................................         587
Thereafter............................................       3,863
                                                          --------
Total.................................................    $ 12,255
                                                          ========
</TABLE>


     Accumulated amortization on capital leases as of March 31, 2006 is $187.

ENVIRONMENTAL MATTERS AND GOVERNMENT REGULATION

     Since many of our packaging products are used in the food industry, we are
subject to the manufacturing standards of the U.S. Food and Drug Administration.
Historically, compliance with the standards of the food industry has not had a
material effect on our earnings, capital expenditures or competitive position.
There can be no assurance, however, that compliance with those standards will
not have a material adverse effect on our future operating results or financial
condition.

     Our manufacturing operations are subject to federal, state and local
regulations governing the environment and the discharge of materials into air,
land and water, as well as the handling and disposal of solid and hazardous
wastes. As is the case with manufacturers in general, if a release of hazardous
substances occurs on or from our properties or any associated offsite disposal
location, or if contamination from prior activities is discovered at any of our
properties, we may be held liable. From time to time, we are involved in
regulatory proceedings and inquiries relating to compliance with environmental
laws, permits and other environmental matters. We believe that we are in
material compliance with applicable environmental regulations and do not believe
that costs of compliance, if any, will have a material adverse effect on our
financial condition, results of operation, or liquidity.

     Papercon has been identified as a potentially-responsible-party ("PRP")
under Comprehensive Environmental Response Compensation and Liability Act
("CERCLA") with respect to the Constitution Road Drum Superfund Site located in
Atlanta, Georgia by virtue of having allegedly sent drums, totes, or other
containers to the site containing substances classified as hazardous under
CERCLA. During the third quarter of 2005, the Company and other PRPs formed the
Constitution Road PRP Group to develop a plan to resolve liabilities of the
members at the site. The plan may include activities such as negotiation with
United States Environmental Protection Agency ("EPA"), evaluation of cleanup
alternatives, as well as hiring contractors to do cleanup work at the site.
Based on the most current available information, the liability of the entire PRP
group is estimated to be approximately $2,200 in the aggregate. During the first
quarter of 2006, the Company made a payment of $76 representing Papercon's share
of an initial allocation from the PRP group. The PRP group currently anticipates
that the initial allocation should be sufficient to fund the cleanup and EPA's
demand for past costs. However, the PRP group is still negotiating the



                                       15
<PAGE>
Consent Order and Scope of Work with EPA. The Company has a reserve of $144 at
March 31, 2006 related to its estimate of the Company's remaining obligations
with respect to this site. However, there can be no assurance that this reserve
will be adequate. Factors which are likely to impact the Company's potential
liability include, but may not be limited to, the amount and content of any
hazardous substances that Papercon and other parties may have sent to the site,
the ultimate cost to remediate the site and the contributions of other parties
towards the cost of remediation. In addition, the Company is evaluating its
rights under indemnification provisions in agreements executed in connection
with the acquisition of Papercon.

NOTE 11 -- RELATED PARTY TRANSACTIONS

     Pursuant to an acquisition agreement (the "Acquisition Agreement") dated
August 6, 2004, Packaging Dynamics acquired 100% of the issued and outstanding
shares of capital stock of 3141276 Canada Inc., the parent holding company of
Papercon, Inc. ("Papercon"), from its sole shareholder (the "Seller"). The
acquisition closed on September 14, 2004. Prior to the Papercon acquisition, the
Seller was not affiliated with the Company. Effective with the closing, the
Seller became an officer of the Company. Effective September 21, 2005, Seller
was appointed to Packaging Dynamics' Board of Directors and effective January 1,
2006, Seller resigned as an officer of the Company. In connection with the
Papercon acquisition, the Company entered into the Acquisition Agreement and
several related agreements with the Seller. Certain of these agreements obligate
the Company to make payments to, or take other action for the benefit of, the
Seller as discussed below.

     Pursuant to the Acquisition Agreement, Packaging Dynamics acquired Papercon
for aggregate consideration of approximately $66,421, net of $22,650 of cash
acquired.

     The Company issued a $7,000 two year Seller Note to the Seller which is due
and payable on September 14, 2006. The principal amount payable under the Seller
Note accrues interest at a rate of 5% per year, which is due and payable in cash
on a quarterly basis. The Company has the right to set-off against its payment
obligations under the Seller Note for the full amount of any indemnification
obligations required to be paid by the Seller under the Acquisition Agreement.
Events of default under the Seller Note would include the Company's failure to
make any payment that is not subject to a claim for set-off, a material breach
of any of the Company's representations and warranties under the Seller Note
that are not cured within 30 days of notice of such breach and the bankruptcy or
general insolvency of the Company. In addition, a default by the Company under
the Non-Competition Agreement would constitute a cross-default under the Seller
Note. In the event of a default and upon written notice of the Seller (except in
the case of default due to the bankruptcy or general insolvency of the Company,
in which case written notice is not required), the balance of consideration due
under the Seller Note would become immediately due and payable and would also
accrue interest at a rate of 12% per year until such time as the event of
default is cured by the Company (or waived by the Seller) or all amounts due are
paid in full.

     In connection with the Seller Note, the Seller entered into an
intercreditor agreement with Bank of America, the administrative agent for the
Company's credit facility, pursuant to which payments under the Seller Note are
subordinated to payments under the Company's senior credit facility, as amended.

     The Company entered into a Non-Competition Agreement with the Seller which
provides, among other things, that for a period of ten years following the
closing of the Acquisition, the Seller may not own, operate, manage, control,
engage in, invest in or participate in any manner in, act as a consultant or
advisor to, or render services for any other person or entity in any similar or
competitive business as Packaging Dynamics and its subsidiaries (including
Papercon) anywhere in the United States and Canada. Also, during this period,
the Seller may not without the prior written consent of the Company, solicit or
advise any customer or vendor of the Company to patronize a competitive business
or curtail or withdraw their business with the Company or solicit for employment
any person employed by the Company. The Company is required to make twelve (12)
equal quarterly payments of $333 to the Seller under the Non-Competition
Agreement commencing in December 2004. The Company has the right to set-off
against its payment obligations under the Non-Competition Agreement the full
amount of any indemnification obligations required to be paid by the Seller
under the Acquisition Agreement. A failure by the Company to make any payment
under the Non-Competition Agreement that is not subject to a claim for set-off,
so long as the Seller has not breached the Non-Competition Agreement, would
constitute an event of default. Additionally, the failure to pay any amount of
principal or interest due under the Seller Note would constitute a cross-default
under the Non-Competition Agreement. In the event of a default and upon written
notice of the Seller, the balance of consideration due under the Non-Competition
Agreement would become immediately due and payable and would also accrue



                                       16
<PAGE>
interest at a rate of 12% per year until such time as the event of default is
cured by the Company (or waived by the Seller) or all amounts due are paid in
full.

     The Company and the Seller entered into a registration rights agreement,
dated September 14, 2004 (the "Papercon Seller Registration Rights Agreement"),
between the Company, the Seller and Packaging Investors, L.P. ("Packaging
Investors"). The Company also amended its existing registration rights agreement
(the "Initial Registration Rights Agreement") with, among others, Packaging
Investors. Pursuant to the Papercon Seller Registration Rights Agreement, the
Seller has the right, under certain circumstances, to require the Company to
register his shares of Seller Common Stock for sale in the public markets. The
Seller also has piggyback registration rights to include his shares in any
registration statement which the Company files on its own behalf (other than for
employee benefit plans and business acquisitions or corporate restructurings) or
on behalf of other stockholders. The Company amended the Initial Registration
Rights Agreement to provide for the piggyback registration rights granted to the
Seller under the Papercon Seller Registration Rights Agreement. In addition,
under the Papercon Seller Registration Rights Agreement, until the date on which
the Seller ceases to own at least 5% of the outstanding shares of Seller Common
Stock, at each annual meeting of stockholders, the Company has agreed to
nominate or cause to be nominated the Seller for election to the board of
directors of the Company. The Seller and Packaging Investors have agreed that
until the date (a) on which Packaging Investors ceases to own at least 20% of
the outstanding shares of Seller Common Stock, the Seller will vote any shares
of Seller Common Stock then owned by him to nominate and elect the individual
designated by Packaging Investors for election to the board of directors of the
Company and (b) on which the Seller ceases to own at least 5% of the outstanding
shares of Seller Common Stock, Packaging Investors will vote any shares of
Seller Common Stock then owned by it to nominate and elect the Seller for
election to the board of directors of the Company.

     In connection with the Papercon acquisition, Papercon entered into a new
lease (the "Lease") with respect to its Atlanta headquarters and facilities,
effective as of September 14, 2004, with GHGA Properties, L.P. (the "Landlord"),
a limited partnership wholly-owned and controlled by the Seller. The initial
term of the Lease is five years and has options to renew for three additional
five-year terms. The monthly rent for the initial and first renewal terms has
been fixed at $49 and $52, respectively, with the subsequent renewal terms to be
set at the market rate as agreed upon by the parties. The payment and
performance of the obligations arising under the Lease are guaranteed pursuant
to a separate guaranty by the Company in favor of Landlord. This arrangement was
amended during the fourth quarter of 2004 and is reflected in the accompanying
financial statements as an operating lease.

NOTE 12 -- FACILITY EXIT COSTS

     During 2005, the Company announced the closing of its manufacturing plant
in Farmers Branch, Texas. The plant is part of the Company's Food Packaging
segment and employs approximately 55 people. Operations at the plant continued
into January 2006 when production was transferred to other facilities. During
the first quarter of 2006, the Company recorded $1,201 of facility exit costs
associated with this initiative, including $150 of severance costs, $582 of
lease liability costs upon abandonment of the facility, and $469 of costs
related to training and relocating production assets. The Company has
substantially completed the closing and related equipment relocation as of
March 31, 2006.

     At March 31, 2006, the Company had established a reserve of $123 related to
the severance costs, reflected in the following table:


<TABLE>
<CAPTION>
                                                           FOR THE THREE
                                                            MONTHS ENDED
                                                           MARCH 31, 2006
                                                           --------------
<S>                                                        <C>
Balance at December 31, 2005........................            $ 160
Charges taken.......................................              150
Payment of severance and benefits...................             (187)
                                                                -----
Balance at March 31, 2006...........................            $ 123
                                                                =====
</TABLE>



                                       17
<PAGE>

NOTE 13 -- MERGER

     On February 24, 2006, the Company announced that it has entered into an
agreement and plan of merger with Thilmany, L.L.C. pursuant to which the
stockholders of the Company will receive, for each outstanding share of the
Company's common stock, $14.00 in cash. As a result of the merger, the Company
will become a wholly owned subsidiary of Thilmany. The consummation of the
merger is subject to, among other things, the approval of the Company's
stockholders and customary regulatory approvals. The merger is expected to be
completed during the second quarter of 2006.



                                       18
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITIONS AND
        RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

     The following discussion addresses the consolidated financial statements of
Packaging Dynamics Corporation (the "Company," "Packaging Dynamics," "we" or
"our") which is a Delaware corporation established as a holding company to own
all interests in Packaging Dynamics Operating Company ("PDOC"), a Delaware
corporation which is the parent company of all our current operating companies.

     The following discussion should be read in conjunction with our interim
financial statements and accompanying notes thereto, and the other financial
information included elsewhere in this report. This discussion contains
forward-looking statements. Please see "Special Note Regarding Forward-Looking
Statements" for a discussion of the uncertainties, risks and assumptions
associated with these statements. In the discussion that follows, dollar amounts
other than per share data are stated in thousands.

SUMMARY AND OUTLOOK

     During 2006, the Company will be focused on, among other things, executing
on its plans to: achieve meaningful sales volume growth in new and existing
products; realize price increases to compensate for rising raw material (paper,
aluminum and other materials), energy and transportation costs; control
manufacturing overhead, selling and administrative costs; and, achieve the
expected benefits of major projects such as the closure of the Farmers Branch,
Texas facility and capital spending programs in both business segments. The
Company has committed to or is evaluating specific capital investment
opportunities to expand product capabilities and reduce production costs. The
combination of projects which have been approved and others under consideration
are expected to result in total capital expenditures of approximately $13,000 to
$14,000 in 2006. This compares to actual expenditures of $6,990 and $6,081 in
2005 and 2004, respectively, and an estimated normalized range of $7,000 to
$8,000. In addition, the Company is continuing its efforts to identify and
pursue acquisition candidates which have the potential to expand the Company's
product capabilities, market participation and geographical presence.

     On February 24, 2006, the Company entered into an agreement and plan of
merger with Thilmany, L.L.C., ("Thilmany") pursuant to which the stockholders of
the Company will receive, for each outstanding share of the Company's common
stock, $14.00 in cash. As a result of the merger, the Company will become a
wholly owned subsidiary of Thilmany. The consummation of the merger is subject
to, among other things, the approval of the Company's stockholders and customary
regulatory approvals. The merger is expected to be completed during the second
quarter of 2006.

FINANCIAL PERFORMANCE

     Our continuing operations are comprised of two operating segments - Food
Packaging and Specialty Laminations. The Food Packaging segment converts paper,
film and foil into a variety of specialty value-added food packaging products.
The Specialty Laminations segment produces multi-layer laminated structures from
a variety of substrates (foil, paper, paperboard and film), adhesives and
coatings for use in various food, consumer, medical and industrial packaging
applications as well as in the production of insulation and other products for
the building materials market. Our discontinued operation is the Specialty Paper
segment which we exited during 2003 in connection with our decision to shut down
the Detroit Paper mill.

     The Company's management reporting system measures segment operating
performance based on Segment Operating Income. Certain items, such as asset
sales and disposals and facility exit costs are excluded from Segment Operating
Income. Corporate administrative expenses are allocated to the segments on a
direct basis where appropriate with the remainder being allocated based on
revenues.



                                       19
<PAGE>

Food Packaging

<TABLE>
<CAPTION>
                                                                  FOR THE THREE MONTHS ENDED
                                                                  --------------------------
                                                                    MARCH 31,      MARCH 31,
                                                                      2006           2005
                                                                  ------------   -----------
<S>                                                               <C>            <C>
Net Sales................................................         $  70,061        $ 67,409
Segment Operating Income.................................         $   2,507        $  4,172
Segment Operating Income Margin..........................               3.6%            6.2%

Depreciation and Amortization............................         $   1,630        $  1,620
</TABLE>


     Net sales increased $2,652, or 3.9%, during the first quarter of 2006
compared to the same period in 2005 due to volume growth in certain key markets
and increased selling price related to raw material related pricing actions.

     Segment Operating Income decreased $1,665, or 39.9%, during the first
quarter of 2006 compared to the same period in 2005 and Segment Operating Income
margin decreased to 3.6% from 6.2% during the first quarter of 2006 compared to
the same period in 2005. The decrease in Segment Operating Income and Segment
Operating Income Margin was primarily due to the impact of $1,535 of
transactions costs related to the acquisition of the Company as well as
increased raw material and freight costs. The first quarter of 2005 was
negatively impacted by approximately $320 of management severance costs.

Specialty Laminations

<TABLE>
<CAPTION>
                                                                  FOR THE THREE MONTHS ENDED
                                                                  --------------------------
                                                                    MARCH 31,     MARCH 31,
                                                                      2006          2005
                                                                  ------------   -----------
<S>                                                               <C>            <C>
Net Sales................................................         $   26,056       $ 20,143
Segment Operating Income.................................         $    1,719       $  1,567
Segment Operating Income Margin..........................                6.6%           7.8%

Depreciation and Amortization............................         $      411       $    423
</TABLE>

     Net sales increased $5,913, or 29.4%, during the first quarter of 2006
compared to the same period in 2005. The increase was due to price increases and
volume growth in many key markets.

     Segment Operating Income increased $152, or 9.7%, during the first quarter
of 2006 compared to the same period in 2005 and Segment Operating Income Margin
decreased to 6.6% from 7.8% in the first quarter of 2006 compared to the same
period in 2005. The increase in Segment Operating Income was primarily due to
the impact of price and volume increases, partially offset by the impact of $571
of transactions costs related to the acquisition of the Company.

FACILITY EXIT COSTS

     During 2005, the Company announced the closing of its manufacturing plant
in Farmers Branch, Texas. The plant is part of the Company's Food Packaging
segment and employs approximately 55 people. Operations at the plant continued
into January 2006 when production was transferred to other facilities. During
the first quarter of 2006, the Company recorded $1,201 of facility exit costs
associated with this initiative, including $150 of severance costs, $582 of
lease liability costs upon abandonment of the facility, and $469 of costs
related to training and relocating production assets. The Company has
substantially completed the closing and related equipment relocation as of March
31, 2006.

INTEREST EXPENSE

     Interest expense was $2,120 in the first quarter of 2006 compared to $2,088
in same period of 2005. The increase in interest expense was primarily due to
higher average interest rate on borrowings offset by decreased average
outstanding indebtedness of approximately $4.1 million. The average interest
rate on borrowings, net of the impact of the Company's interest rate
derivatives, in the first quarter of 2006 was approximately 6.35% compared to
5.95% in the same period in 2005.




                                       20
<PAGE>

INCOME TAXES

    The income tax provision for continuing operations was $345 and $1,406 for
the first quarter of 2006 and 2005, respectively. The Company's effective tax
rate on income from continuing operations during the first quarter of 2006 was
38.1%, which is generally consistent with the 38.5% effective tax rate for the
first quarter of 2005.

INCOME FROM CONTINUING OPERATIONS

      Income from continuing operations was $560 and $2,245 for the first
quarter of 2006 and 2005, respectively. The decrease in income from continuing
operations of $1,685 or 75.1% during the first quarter of 2006 was primarily due
to the $1,201 of cost related to the closing of the Farmers Branch facility,
$2,106 of transaction of related to the acquisition of the Company and
additional stock based compensation costs of $196 associated with the Company's
adoption of FAS 123R. These decreases in income from continuing operations were
partially offset by increased gross profit associated with the increased sales.

DISCONTINUED OPERATIONS

     The loss from discontinued operations during the first quarter of 2005 was
related to the Company's Specialty Paper operation which we exited in 2003.

IMPLEMENTATION OF FAS 123R

Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004),
"Share-Based Payment" ("SFAS 123R"), which replaced SFAS No. 123, "Accounting
for Stock-Based Compensation," ("SFAS 123") and superseded APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Under SFAS 123R, share-based
compensation cost is measured at the grant date, based on the estimated fair
value of the award, and is recognized as expense over the employee's requisite
service period. The Company has no awards with market conditions. The Company
adopted SFAS 123R using the modified prospective application method. Under the
modified prospective application method, prior periods are not revised for
comparative purposes. The valuation provisions of SFAS 123R apply to new awards
and to unvested awards that are outstanding on the effective date or
subsequently modified or cancelled. Estimated compensation expense for awards
outstanding at the effective date will be recognized over the remaining service
period using the Black-Scholes option pricing model. As a result of adopting
SFAS 123R, during the first quarter of 2006 the Company recorded additional
operating expense of $196 ($122 after tax) or $0.01 per diluted share related to
share-based compensation. The adoption and related non-cash expense had no
material impact on cash flow from operations or financing activities.

LIQUIDITY AND CAPITAL RESOURCES

    At March 31, 2006, we had no cash and cash equivalents and $42,396 was
available under the revolving portion of the Senior Credit Facility, after
taking into account $2,329 in letters of credit outstanding and $5,275 of
revolver borrowings. Our working capital at March 31, 2006 was $22,541 compared
to $24,483 at December 31, 2005. The decrease in working capital is due
primarily to higher accounts payable partially offset by higher inventory.

    Our primary short-term and long-term operating cash requirements are for
debt service, working capital and capital expenditures. We expect to rely on
cash generated from operations supplemented by revolving borrowings under the
Senior Credit Facility to fund short-term and long-term cash requirements.

    The Company generated $7,982 of cash from operating activities in the three
months ended March 31, 2006 compared to $3,379 for the same period in 2005. The
increase in cash from operating activities is primarily due to a decrease in
cash used for operating assets and liabilities, partially offset by a decrease
in operating income. Cash used by discontinued operations decreased
significantly during the three months ended March 31, 2006 compared to the same
period in 2005 as a result of the sale of the Company's Detroit property during
2005.

    Cash used by investing activities was $3,844 for the three months ended
March 31, 2006 compared to $755 for the same period in 2005. The increase in
cash used by investing activities was due to higher capital expenditures in the
first quarter of 2006 compared to the same period in 2005.



                                       21
<PAGE>

     Cash used by financing activities was $4,141 for the three months ended
March 31, 2006 compared to $3,419 in the same period in 2005. The change was
primarily due to greater repayments of debt in 2006.

     Disclosures about contractual obligations and commercial commitments are
included in various parts of this Report, including Note 7 - Long-Term Debt and
Note 10 - Commitments and Contingencies to the financial statements. A summary
of significant contractual obligations as of March 31, 2006 is included as
follows:

<TABLE>
<CAPTION>
                                         LONG-TERM
                                            DEBT            LEASE       NON-COMPETE
                                         MATURITIES      COMMITMENTS     AGREEMENT       TOTAL
                                         ----------      -----------    -----------     --------
<S>                                      <C>             <C>            <C>             <C>
2006 (second through fourth quarter)...   $ 12,200        $  1,928         $  1,000     $ 15,128
2007...................................      7,820           2,285            1,000       11,105
2008...................................     11,887           2,026               --       13,913
2009...................................     77,746           1,566               --       79,312
2010...................................         --             587               --          587
Thereafter.............................         --           3,863               --        3,863
                                          --------        --------         --------     --------
Total..................................   $109,653        $ 12,255         $  2,000     $123,908
                                          ========        ========         ========     ========
</TABLE>



                                       22
<PAGE>


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We use interest rate swaps, collars and caps to modify our exposure to
interest rate movements and to reduce borrowing costs. We have designated these
instruments as cash flow hedges and consider these instruments effective at
offsetting our risk to variable interest rates on debt. Our exposure to interest
rate risk consists of floating rate debt instruments that are benchmarked to
LIBOR. As of March 31, 2006, we had interest rate instruments in effect with
banks having notional amounts totaling $75,000 and varying maturity dates
through December 31, 2007. We have an interest rate swap agreement with a
notional value of $25,000 which became effective on December 31, 2003 and
matures on December 29, 2006. This swap fixes our LIBOR rate for $25,000 of our
Senior Credit Facility indebtedness at a rate of 2.91%. We have an interest rate
collar agreement with a notional amount of $20,000 which became effective on
December 31, 2004 and matures on December 31, 2007. This collar results in our
paying market LIBOR rates for $20,000 of our Senior Credit Facility indebtedness
from a floor of 3.08% to a cap of 5.00%. In addition, we have two interest rate
caps of $15,000 each which became effective on December 31, 2004 and mature on
December 31, 2007. We purchased these caps for a cap premium of $376 of which
$32 was amortized during the three months ended March 31, 2006. These caps limit
our LIBOR rate for $30,000 of our Senior Credit Facility indebtedness at a
maximum rate of 4.00%. A 10% unfavorable movement in LIBOR would not expose us
to material losses of earnings or cash flows.

     Income or expense related to settlements under these agreements is recorded
as adjustments to interest expense in our financial statements. The fair market
value of our derivative instruments outlined above approximates a $1,123 asset
as of March 31, 2006 and is based upon the amount at which it could be settled
with a third party, although we have no current intention to trade any of these
instruments and plan to hold them as hedges for the Senior Credit Facility. The
change in the fair market value of our derivative instruments, net of income
tax, was recorded in other comprehensive income (loss).

     Substantially all of our sales, including export sales, are denominated in
United States Dollars in order to reduce our exposure to changes in foreign
currency exchange rates.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

     The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of the end of the period covered by this
report. Based on such evaluation, the Company's Chief Executive Officer and
Chief Financial Officer have concluded that, as of the end of such period, the
Company's disclosure controls and procedures are effective.

     In addition to our responsibilities with respect to an evaluation of our
disclosure controls and procedures, we, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, are in the process of performing the assessments required by
Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules adopted by
the SEC (collectively, the "Section 404 requirements"). We were not deemed to be
an Accelerated Filer for 2005 and thus the earliest we will be required to
include a report on management's assessment of the effectiveness of our internal
control over financial reporting in our Annual Report on Form 10-K will be the
year ending December 31, 2006. When applicable, our independent registered
public accounting firm will also be required to attest to and report on
management's assessment of the effectiveness of our internal control over
financial reporting. We have been and are continuing to devote significant
resources to prepare for the Section 404 requirements. There can be no
assurances that once completed, management's assessment and the independent
registered public accounting firm's attestation will not report any material
weaknesses in our internal control over financial reporting.

     In connection with our response to the rules pertaining to the evaluation
of our disclosure controls and procedures, as well as our response to the
Section 404 requirements pertaining to the assessment of our internal control
over financial reporting, we are reviewing, documenting and testing our
disclosure controls and procedures and our internal control over financial
reporting, and may from time to time make changes aimed at enhancing their
effectiveness and to ensure that our systems evolve with our business. For
example, we are evaluating, documenting



                                       23
<PAGE>

and testing our key controls over financial reporting in preparation for
management's assessment under the Section 404 requirements. These efforts are
likely to lead to changes in our internal control over financial reporting,
including enhanced documentation of certain of these internal controls.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.

     Except as further described in the following paragraph, there have not been
any changes in the Company's internal control over financial reporting (as such
term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during
the fiscal quarter to which this report relates that have materially affected,
or are reasonably likely to materially affect, the Company's internal control
over financial reporting.

     In 2004 and 2005, the Company implemented a new enterprise wide financial
accounting software system at each of its facilities. The Company continues to
implement additional modules and enhance its use of the financial and accounting
software system.

SPECIAL NOTE REGARDING FORWARD - LOOKING STATEMENTS

     Certain statements included in this quarterly report, including without
limitation, "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations -- Summary and Outlook, --
Financial Performance, -- Liquidity and Capital Resources, -- Recently Issued
Accounting Pronouncements, and -- Quantitative and Qualitative Disclosure About
Market Risk" constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Among the
factors that could cause results to differ materially from current expectations
are: (i) changes in consumer demand and prices resulting in a negative impact on
revenues and margins; (ii) raw material substitutions and increases in the costs
of raw materials, utilities, labor and other supplies; (iii) increased
competition in the Company's product lines; (iv) changes in capital availability
or costs; (v) workforce factors such as strikes or labor interruptions; (vi) the
ability of the Company and its subsidiaries to develop new products, identify
and execute capital programs and efficiently integrate acquired businesses;
(vii) the cost of compliance with applicable governmental regulations and
changes in such regulations, including environmental regulations; (viii) the
general political, economic and competitive conditions in markets and countries
where the Company and its subsidiaries operate, including currency fluctuations
and other risks associated with operating in foreign countries; and (ix) the
timing and occurrence (or non-occurrence) of transactions and events which may
be subject to circumstances beyond the control of Packaging Dynamics and its
subsidiaries.



                                       24
<PAGE>
                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     From time to time Packaging Dynamics and its subsidiaries are involved in
various litigation matters arising in the ordinary course of business. Packaging
Dynamics believes that none of the matters which arose during the quarter,
either individually or in the aggregate are material to Packaging Dynamics.

     On March 2, 2006, a purported stockholders class action complaint,
captioned Camp Ger, Inc. and Ruthy Parness v. Frank V. Tannura et al., was filed
by two stockholders of the Company in the Court of Chancery of the State of
Delaware against the Company, the Company's directors, Packaging Investors and
Thilmany challenging the proposed merger.

     The complaint alleges causes of action for (i) illegal and unenforceable
limits placed on the board of directors' exclusive authority and duties to
govern the business and affairs of the Company by the stockholders agreement
between the Company and Packaging Investors pursuant to which Packaging
Investors has been granted special approval rights with respect to certain
extraordinary corporate transactions under certain circumstances and (ii) breach
of fiduciary duty against the Company's directors for not providing an effective
fiduciary out for the board of directors' exercise of its continuing fiduciary
duties in the sale of the Company. The complaint seeks, among other things, to
enjoin the merger, to invalidate Packaging Investors' special approval rights
under the stockholders agreement, to rescind any actions taken to effect the
merger, to require the defendants to fully disclose all material information
regarding the merger and to direct the defendants to disgorge all their profits
from the merger.

     Papercon has been identified as a potentially-responsible-party ("PRP")
under Comprehensive Environmental Response Compensation and Liability Act
("CERCLA") with respect to the Constitution Road Drum Superfund Site located in
Atlanta, Georgia by virtue of having allegedly sent drums, totes, or other
containers to the site containing substances classified as hazardous under
CERCLA. During the third quarter of 2005, the Company and other PRPs formed the
Constitution Road PRP Group to develop a plan to resolve liabilities of the
members at the site. The plan may include activities such as negotiation with
United States Environmental Protection Agency ("EPA"), evaluation of cleanup
alternatives, as well as hiring contractors to do cleanup work at the site.
Based on the most current available information, the liability of the entire PRP
group is estimated to be approximately $2,200 in the aggregate. During the first
quarter of 2006, the Company made a payment of $76 representing Papercon's share
of an initial allocation from the PRP group. The PRP group currently anticipates
that the initial allocation should be sufficient to fund the cleanup and EPA's
demand for past costs. However, the PRP group is still negotiating the Consent
Order and Scope of Work with EPA. The Company has a reserve of $144 at March 31,
2006 related to its estimate of the Company's remaining obligations with respect
to this site. However, there can be no assurances that this reserve will be
adequate. Factors which are likely to impact the Company's potential liability
include, but may not be limited to, the amount and content of any hazardous
substances that Papercon and other parties may have sent to the site, the
ultimate cost to remediate the site and the contributions of other parties
towards the cost of remediation. In addition, the Company is evaluating its
rights under indemnification provisions in agreements executed in connection
with the acquisition of Papercon.

ITEM 6. EXHIBITS

     (a)  Exhibits

          Exhibit No.                      Description
          -----------                      -----------

               2.1         Agreement and Plan of Merger dated February 24, 2006
                           among the Company, Thilmany, L.L.C. and KTHP
                           Acquisition, Inc. incorporated herein by reference to
                           Exhibit 2.1 of the Company's Current Report on Form
                           8-K dated February 27, 2006.

              31.1         Certification of Chief Executive Officer pursuant to
                           Section 302 of the Sarbanes-Oxley Act of 2002.

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

              32           Certification of CEO and CFO pursuant to 18 U.S.C.,
                           Section 1350, as adopted pursuant to Section 906 of
                           the Sarbanes-Oxley Act of 2002.


                             SIGNATURE PAGE FOLLOWS



                                       25
<PAGE>
                                    SIGNATURE

     Pursuant to the requirements 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.

                                     PACKAGING DYNAMICS CORPORATION



                                     By: /s/ PATRICK T. CHAMBLISS
                                     -------------------------------------------
                                     PATRICK T. CHAMBLISS
                                     Vice President and Chief Financial Officer
                                     (Principal Financial Officer)

April 28, 2006



                                       26