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

                                   ----------

                                    FORM 10-K

(MARK ONE)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2006

[ ]  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 333-28157

                                   ----------

                                TEKNI-PLEX, INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                          <C>
                DELAWARE                                          22-3286312
        (State of Incorporation)                               (I.R.S. Employer
                                                             Identification No.)
</TABLE>

<TABLE>
<S>                                                               <C>
        260 NORTH DENTON TAP ROAD                                   75019
             COPPELL, TEXAS                                       (Zip Code)
(Address of principal executive offices)
</TABLE>

              (Registrant's telephone number, including area code)
                                 (972) 304-5077

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                                      NONE

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

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

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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___

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 Act). Yes     No  X
                            ---    ---

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ITEM 1. BUSINESS

INTRODUCTION

We were founded as a Delaware corporation in 1967 to acquire the General Felt
Products division of Standard Packaging Corporation. At that time, we were
located in Brooklyn, NY, where we produced laminated closure (cap) liners
primarily for the pharmaceutical and food industries. Over the years, we have
built a reputation for solving difficult packaging problems and providing
customers with high quality, advanced packaging materials. In 1970, we built an
additional manufacturing facility in Somerville, New Jersey, diversifying into
the business of producing polystyrene foam trays for the poultry processing
industry.

In March 1994, Tekni-Plex was acquired by Dr. F. Patrick Smith and other
investors. Dr. Smith was elected Chief Executive Officer. At that time, the
principal product lines consisted of clear, high-barrier laminations for
pharmaceutical blister packaging (which we refer to as clear blister packaging);
closure liners, primarily for pharmaceutical end-uses; and foam processor trays
primarily for the poultry industry.

In December 1995, Tekni-Plex acquired the Flemington, NJ, plant and business of
Hargro Flexible Packaging Corporation. The Flemington plant utilized lamination
and coating technology to produce packaging materials primarily for
pharmaceutical products such as transdermal patches, sutures, iodine and alcohol
swabs, aspirin and other physician samples. We relocated the Brooklyn equipment
and business into the Flemington facility during 1996. The synergistic result of
having complementary technologies in one location created a combined operation
with considerably higher efficiencies and lower costs than the sum of the
stand-alone operations.

In February 1996, we expanded our food packaging business by completing our
acquisition of Dolco Packaging Corp., a publicly-traded $81 million foam
products company that was nearly twice the size of Tekni-Plex. Dolco had been in
the business of producing foam packaging products since the 1960s and had
attained the leading share of foam egg carton sales in the United States. The
Dolco acquisition also solidified our position as a leading supplier of foam
processor trays. In August 1997, Dolco, which had been a wholly owned subsidiary
of Tekni-Plex, was merged into Tekni-Plex.

In July 1997, we acquired the business and operating facility of PurePlast Inc.
of Cambridge, Ontario, Canada. PurePlast produced calendered polyvinyl chloride
(vinyl) sheet primarily for food and electronics packaging applications.
Following the acquisition, we diversified the end markets served by this
location by developing proprietary formulations of vinyl sheet for vertical
integration into our clear blister packaging business and for sale directly to
our global pharmaceutical customers.

In March 1998, Tekni-Plex acquired PureTec Corporation, a publicly-traded
company with annual sales of $315 million. PureTec was a leading manufacturer of
plastic packaging, products, and materials primarily for the healthcare and
consumer markets. PureTec enjoyed leading market positions in its core products,
including garden and irrigation hose, precision tubing and gaskets primarily for
the aerosol packaging industry, vinyl medical tubing, and vinyl compounds for
the production of medical devices. PureTec is a wholly-owned subsidiary of
Tekni-Plex.

In January 1999, we acquired substantially all the assets of Tri-Seal
International, Inc., a leader in sophisticated extruded and co-extruded
capliners and seals. The Tri-Seal operations have been integrated with and into
our closure liner business.

In April 1999, we acquired substantially all the assets of Natvar, a producer of
disposable medical tubing and electrical sheathing. As with Tri-Seal, the Natvar
acquisition was intended to strengthen our existing core business and expand
product offerings. The Natvar operation has been integrated into our medical
tubing and industrial extrusions businesses.

In June 2000, we completed a recapitalization of Tekni-Plex. As part of the
recapitalization, existing investors other than management sold most of their
interests, and a group of new investors contributed an aggregate of $167 million
in new equity and agreed to contribute up to $103 million in additional equity
over the next five years, all of which has been funded. All members of
management maintained 100% of their interests in the Company. Also, Tekni-Plex
entered into a new credit agreement, issued $275 million in new senior
subordinated notes, and repaid the debt that existed prior to the
recapitalization.

In October 2000, we acquired substantially all the assets of the Super Plastics
division of RCR International Inc. Super Plastics is primarily a manufacturer of
garden hose and has a manufacturing facility in Mississauga, Ontario, Canada.
The Super Plastics operations have been integrated with and into our garden hose
business.


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In October 2001, we acquired substantially all of the assets of the garden hose
business of Mark IV Industries, Inc. which operates under the name Swan Hose.
Swan, which has one manufacturing facility located in Bucyrus, Ohio, enhanced
Tekni-Plex's geographic coverage of the North American garden hose market. The
Swan operations have been integrated with and into our garden hose business.

In July 2002, we acquired substantially all of the assets of Elm Packaging
Company. Elm produces polystyrene foam plates, bowls, and meat and bakery trays.
The Elm acquisition significantly increases our capacity to produce foamed
polystyrene products primarily for customers in the food packaging and food
service markets.

In July 2004, we acquired the egg carton business of Genpak and we have
integrated this business into our packaging operations.

DESCRIPTION OF SEGMENTS

See footnote 14 of our June 30, 2006 audited consolidated financial statements.

DESCRIPTION OF BUSINESS

We are a global, diversified manufacturer of packaging, packaging products and
materials as well as tubing products. We primarily serve the food, healthcare
and consumer markets. We have built leadership positions in our core markets,
and focus on vertically integrated production of highly specialized products. We
have operations in the United States, Europe, Argentina and Canada. We believe
that our end market and product line diversity has the effect of reducing
overall risk related to any single product or customer. Our operations are
aligned under two business segments: Packaging and Tubing Products. Products
that do not fit in either of these two segments, including recycled PET, vinyl
compounds and specialty resins have been reflected in Other. Representative
product lines in each of our business segments are listed below:

                                BUSINESS SEGMENT

<TABLE>
<CAPTION>
PACKAGING                                        TUBING PRODUCTS
---------                                        ---------------
<S>                                       <C>
- Foam egg cartons                        - Garden and irrigation hose
- Pharmaceutical blister films            - Medical tubing
- Poultry and meat processor trays        - Pool and vacuum hose
- Closure liners
- Aerosol and pump packaging components
- Foam plates
</TABLE>

COMPETITIVE STRENGTHS

We believe that our competitive strengths include:

     -    Strong market positions in core businesses. We have a strong market
          presence in the United States in our core product lines. The following
          table shows what we believe to be our market position in the U.S. in
          our primary product lines:

                             PRODUCT MARKET POSITION

<TABLE>
<S>                                                                            <C>
Vinyl medical device materials..............................................   1
Vinyl medical tubing........................................................   1
Laminated, clear, high barrier pharmaceutical blister packaging.............   1
Multi-layered co-extruded and laminated closure liners......................   1
Garden and irrigation hose..................................................   1
Precision tubing and gaskets for aerosol packaging..........................   1
Egg cartons.................................................................   1
Foam processor trays........................................................   2
</TABLE>

     -    Significant barriers to entry. We believe there are significant
          barriers to entry to our packaging and tubing products businesses. In
          our pharmaceutical packaging business, we believe that pharmaceutical
          companies are generally reluctant to change or substitute packaging
          once a new drug offering has gained FDA approval. In our food
          packaging businesses, we believe that high capital costs and high
          technical competence required for manufacturing processes create
          barriers to entry. In


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          our medical tubing and garden hose businesses, we utilize proprietary
          formulations and are a low cost market leader with technologically
          advanced processes that cannot be readily replicated.

     -    Non-cyclical end markets. A majority of our packaging products and
          materials are sold into markets which are traditionally stable through
          economic cycles, including food and beverages, personal care products,
          pharmaceuticals, and medical tubing. We also believe that our garden
          hose business, while highly seasonal, is resistant to economic
          cyclicality.

     -    Strong customer relationships. We have long-standing relationships
          with many of our customers. We attribute our long-term customer
          relationships to our ability to consistently manufacture high quality
          products and provide a superior level of customer service. We
          routinely win customer awards for our superior products and customer
          service.

     -    Cost efficient producer. We continually focus on improving underlying
          operations and reducing costs. Our acquisitions since 1995 have
          provided significant opportunities to realize cost savings and
          synergies in the combined businesses through the sharing of
          complementary technologies and manufacturing techniques, as well as
          economies of scale, including the purchase of raw materials. For
          example, we applied technologies that we utilize in the manufacturing
          of our aerosol packaging components to our garden hose business which
          significantly increased manufacturing throughput and product
          functionality while reducing material cost.

     -    Producer of high quality, technically sophisticated products. We
          believe, based upon our knowledge and experience in the industry, we
          have a long-standing reputation as a manufacturer of high quality,
          high performance products, materials and primary packaging (where the
          packaging material comes into direct contact with the end product).
          Our emphasis on quality is evidenced by our product lines which
          address the more technically sophisticated areas of their respective
          markets.

     -    Experienced management team. Our Senior management team has an average
          of 25 years of experience in the industry. Since 1994, management has
          successfully integrated the acquisition of the operations and assets
          of 10 businesses. Management has substantially improved the
          competitive position of each of the acquired businesses by integrating
          the acquisitions, effecting turnarounds, providing strategic direction
          and leadership, increasing sales and market share, improving
          manufacturing efficiencies and productivity, and developing new
          technologies to enhance their competitive strengths. Current
          management owns more than 20% of the fully diluted common stock of the
          Company.

EMPLOYEES

We have approximately 3,100 employees. Approximately one-third of our employees
are represented by labor unions; we believe our labor relations with those
unions are satisfactory.

BUSINESS STRATEGY

We seek to maximize our profitability and growth and take advantage of our
competitive strengths by pursuing the following business strategy:

     -    Ongoing cost reduction through technical process improvement. We have
          an ongoing program to improve manufacturing and other processes in
          order to drive down costs. Examples of cost improvement programs
          include:

          -    material and energy conservation through enhanced process
               controls and advanced product design;

          -    reduction in machine set-up time through the use of proprietary
               technology;

          -    continual product line rationalization; and

          -    development of backward and forward integration opportunities.

     -    Growth through product line extension and improvement. We continually
          seek to improve and extend our product lines and leverage our existing
          technological capabilities in order to increase market share in
          existing markets, effectively penetrate new markets and improve
          profitability. Our strategy is to emphasize our expertise in providing
          packaging, products and materials with specific high performance
          characteristics through the development of various unique proprietary
          materials and proprietary manufacturing process techniques.


                                       4

<PAGE>

     -    Growth through international expansion. We believe that there is
          significant opportunity to expand our international sales, which
          currently represent approximately 13.6% of our total revenues. At
          present, we have manufacturing operations with attached sales offices
          in Europe, China, Canada and Argentina. We have a regional sales
          office in Asia and sales representatives in the Middle East. We
          believe that our growing international presence, which is a
          combination of our own regional manufacturing and sales forces and
          independent sales representatives, will continue to generate
          opportunities to increase our sales.

PACKAGING SEGMENT

The Packaging segment of our business had revenues of $374.1 million (50.4% of
total revenues) for the year ended June 30, 2006 and $348.7 million (50.1% of
total revenues) for the year ended July 1, 2005. Further details of the major
markets served by this segment are given below:

FOAM EGG CARTONS

We believe that we are the leading manufacturer of egg cartons in the United
States. Thermoformed foam polystyrene packaging has been the material of choice
for food packaging cartons for many years. In terms of economic and functional
characteristics, foamed polystyrene products offer a combination of high
strength, minimum material content and superior moisture barrier performance.
Foamed polystyrene products also offer greater dimensional consistency that
enhances the high speed mechanical feeding of cartons into automated package
filling operations. We sell these products through our direct sales force.

In the egg packaging market, our primary competitor manufactures pulp-based egg
cartons. We believe that we compete effectively based on product quality,
performance and prompt delivery. Our customer base includes most of the domestic
egg packagers (including those owned by egg retailers).

PHARMACEUTICAL BLISTER FILMS

We believe that we are a market leader for clear, high-barrier laminations for
pharmaceutical blister packaging. These packaging materials are used for
fast-acting pharmaceuticals that are generally highly reactive to moisture.
Transparent, high-barrier blister packaging is primarily used to protect drugs
from moisture vapor infiltration or desiccation. Blister packaging is the
preferred packaging form when dispenser handling can affect shelf life or drug
efficacy, or when unit dose packaging is needed. Unit dose packaging is being
used to improve patient compliance with regard to dosage regimen, and has been
identified as the packaging form of choice in addressing child safety aspects of
drug packaging. The advantages of transparent blisters, as opposed to opaque
foil-based materials manufactured by various competitors, include the ability to
visually inspect the contents of the blister and to present the product with
maximum confidence.

We believe the flexible and semi-rigid packaging segment of the pharmaceutical
packaging industry is growing at a faster rate than the non-plastics segments
because of the generally lower package cost and broader range of functional
characteristics of plastic packaging. As a result, the technologies used to
manufacture plastic packaging materials continue to develop at a faster pace
than those used in the more mature paper, glass, and metal products.

Our high-barrier blister packaging is sold to major pharmaceutical companies (or
their designated contract packagers). We market our full pharmaceutical product
line directly on a worldwide basis, and have assembled a global network of sales
and marketing personnel on six continents.

In the clear blister packaging market, we have one principal competitor
worldwide with resources equal to or greater than ours. However, we believe that
this competitor does not have the breadth of product offering to match ours, and
that this differentiation is significant as viewed by the pharmaceutical
industry. Also, the high manufacturing and compliance standards imposed by the
pharmaceutical companies on their suppliers provide a significant barrier to the
entry of new competitors. Entry barriers also arise due to the lengthy and
stringent approval process required by pharmaceutical companies. Since approval
requires that the drug be tested while packaged in the same packaging materials
intended for commercial use, changing materials after approval risks renewed
scrutiny by the FDA. The packaging materials for pharmaceutical applications
also require special documentation of material sources and uses within the
manufacturing process as well as heightened quality assurance measures.

POULTRY AND MEAT PROCESSOR TRAYS


                                       5
<PAGE>

Our processor tray operations produce thermoformed foam polystyrene poultry and
meat processor trays. We are a leading supplier of processor trays to the
poultry industry.

As with egg cartons, thermoformed foam polystyrene has been the material of
choice for processor trays for the same reasons noted above.

Within the polystyrene foam processor tray market, we compete principally with
one large competitor, who has significantly greater financial resources than
ours and who controls the largest share of this market.

CLOSURE LINERS

Tekni-Plex is also a leading producer of sophisticated extruded, co-extruded and
laminated cap-liners and seals, known as closure liners, for glass and plastic
bottles. Closure liners perfect the seal between a container and its closure,
for example, between a bottle and its cap. The liner material has become an
integral part of the container/closure package. Without the gasketing effect of
the liner, most container/closure packages would not be secure enough to protect
the contents from contamination or loss of product efficacy.

We sell these products through our direct sales force primarily to packagers of
pharmaceutical, healthcare and food products. We have two principal competitors
in North America but also compete with several smaller companies having
substantially smaller market shares. However, as a result of the Tri-Seal
acquisition, we believe that we offer the widest range of liner materials in the
industry. We remain competitive by focusing on product quality, performance and
prompt delivery.

AEROSOL AND PUMP PACKAGING COMPONENTS

Our Aerosol and Pump Packaging Components business produces dip tubes, which
transmit the contents of the container to the nozzle, and specialized, molded or
punched rubber-based valve gaskets that serve to control the release of the
product from the container. The group also produces writing instrument products,
including pen barrels and ink tubing as well as ink reservoirs for felt-tip
pens.

Sales are primarily to manufacturers of aerosol valves, dispenser pumps, and
writing instruments. These products are sold throughout the United States and
Europe, as well as selected worldwide markets. Sales are made through our direct
sales force. We believe that we are the leading supplier of aerosol valve and
dispenser pump gaskets and dip tubes in the world.

Our dip tubes and pen barrels are manufactured at extremely high speeds while
holding to precise tolerances. The process enhancements that allow simultaneous
high speed and precision are proprietary to us. The precision rubber gasket
products, which we have manufactured for over fifty years, are produced using
proprietary formulations. These formulations are designed to provide consistent
functional performance throughout the entire shelf life of the product by
incorporating chemical resistance characteristics appropriate to the fluid being
packaged. For example, we have developed unique formulations that virtually
eliminate contamination of the products packaged in spray dispensers. This has
greatly expanded the use of these dispensers for personal hygiene products,
foods, and fragrances. The Company has also developed proprietary methods for
achieving extremely accurate thickness control, superior surface finish, and the
elimination of internal imperfections prevalent in other processing methods.

We are the single-source supplier to much of the industry. The principal
competitive pressure in this product line, particularly the dip tube portion, is
the possibility of customers switching to internal production, or vertical
integration. To counteract this possibility, the Company focuses on product
quality, cost reduction, prompt delivery, technical service and innovation.

FOAM PLATES

Our foam plate operations produce thermoformed foam polystyrene disposable
plates, bowls, and hinged-lid containers as well as agricultural packaging
products. Our sales are primarily to the consumer, agricultural and foodservice
industries. We compete with numerous participants who use a variety of materials
including foam polystyrene, pulp-based products and various plastic materials.

TUBING SEGMENT

The Tubing Products segment of our business had revenues of $215.8 million
(29.1% of total revenues) for the year ended June 30, 2006 and $213.1 million
(30.6% of total revenues) for the year ended July 1, 2005. Further details of
the major markets served by this segment are given below:


                                        6

<PAGE>

GARDEN AND IRRIGATION HOSE PRODUCTS

We believe that we are the leading producer of garden hose in North America. We
have produced garden hose products for over fifty years, and produce its primary
components internally, including proprietary material formulations and brass
couplings. Innovations have included the patented Colorite(R) Evenflow(R) design
and ultra high quality product lines that utilize medical-grade plastics. We
also manufacture specialty hose products such as air hose and irrigator
("soaker") hose.

We sell these products primarily through our direct sales force and also through
independent representatives. Both private label and brand-name products are sold
to the retail market, primarily to home centers, hardware cooperatives, food,
automotive, drug and mass merchandising chains and catalog companies throughout
the United States and Canada. Our customers include some of the fastest growing
and the most widely respected retail chains in North America. Our market
strategy is to provide a complete line of innovative, high-quality products
along with superior customer service.

The garden hose business is highly seasonal with approximately 75% of sales
occurring in the spring and early summer months. This seasonality tends to have
an impact on the Company's financial results from quarter to quarter.

MEDICAL TUBING

We believe we are the leading non-captive supplier of vinyl medical tubing in
North America and Europe. We manufacture medical tubing using proprietary
plastic extrusion processes. The primary raw materials are proprietary
compounds, which we produce. We specialize in high-quality; close tolerance
tubing for various surgical procedures and related medical applications. These
applications include intravenous ("IV") therapy, hemodialysis therapy,
cardio-vascular procedures such as coronary bypass surgery, suction and
aspiration products, and urinary drainage and catheter products. New medical
tubing products we have developed include microbore tubing and silicone
substitute formulations. Microbore tubing can be used to regulate the delivery
of critical intravenous fluids without the need for more expensive drip control
devices. Medical professionals can precisely control the drug delivery speed
simply by selecting the proper (color-coded) diameter tube, thereby improving
accuracy and reducing cost. More importantly, as home healthcare trends
continue, the use of microbore tubing will help eliminate critical dosage errors
on the part of the non-professional caregiver or the patient.

Medical tubing is sold primarily to manufacturers of medical devices that are
packaged specifically for such procedures and applications. These products are
sold through our direct sales force. We remain competitive by focusing on
product quality, performance and prompt delivery.

ITEM 1A. RISK FACTORS

OUR PROFITS WILL LIKELY DECLINE AS A RESULT OF PRICE VOLATILITY AND AVAILABILITY
OF RAW MATERIALS IF WE ARE UNABLE TO PASS PRICE INCREASES ON TO CUSTOMERS OR TO
OBTAIN NECESSARY RAW MATERIALS.

Our profitability will likely decline if raw material prices increase and we are
unable to pass these price increases on to our customers, employ successful
hedging strategies, enter into supply contracts at favorable prices or buy on
the spot market at favorable prices. Our products are manufactured from
commodity petrochemicals that are readily available in bulk quantities from
numerous large, vertically integrated chemical companies. Except for PCTFE film,
a raw material used in the manufacturing of our clear, laminated blister
packaging materials, we currently purchase each principal raw material from
several of the top suppliers. Prices for our raw materials have fluctuated in
the past and likely will continue to do so in the future. Historically, we have
been able to pass on substantially all of the price increases in raw materials
to our customers on a timely basis, although in the case of most of our garden
hose products we are usually not able to do so until the following season
because prices are typically set annually. While we have not guaranteed prices
for our garden hose product, for the 2006 selling season, we cannot assure you
that we will be able to pass on price increases in the future.

WE OPERATE IN DISCRETE MARKET SEGMENTS OF OUR INDUSTRY, SOME OF WHICH ARE HIGHLY
COMPETITIVE AND INCLUDE PARTICIPANTS WITH GREATER RESOURCES THAN OURS. WE MAY
NOT BE ABLE TO COMPETE SUCCESSFULLY AGAINST THESE PARTICIPANTS.

We compete with a wide variety of manufacturers because we operate in discrete
market segments. Some of our competitors are larger, have greater financial
resources and are less leveraged than we are. As a result, these competitors may
be better able to withstand a change in market conditions within the industry
and throughout the economy as a whole. These competitors may also be able to
maintain significantly greater operating and financial flexibility than we can.
Additionally, a number of our niche product applications are customized or sold
for highly specialized uses. Competitors with greater financial, technological,
manufacturing and marketing resources than ours and that do not currently market
similar applications for these uses could choose to do so in the future. If we
are faced with increased competition, our business, financial condition or
results of operations could suffer as a result of loss of customers and
declining profits.

THE GARDEN AND IRRIGATION HOSE PRODUCTS BUSINESS IS HIGHLY SEASONAL AND IS
IMPACTED BY WEATHER CONDITIONS, WHICH RESULTS IN SIGNIFICANT FLUCTUATION OF OUR
FINANCIAL RESULTS OVER THE COURSE OF THE FISCAL YEAR.

The market for our garden and irrigation hose products is highly seasonal, with
a majority of our sales occurring in spring and early summer. As a result of the
need to build up inventories in anticipation of such sales, our working capital
requirements peak in the spring. In addition, this seasonality has a significant
impact on our net income from quarter to quarter. To the extent such sales peak
later in any fiscal year compared to other fiscal years, as a result of weather
or other factors, cash flows may not be comparable on an interim period basis.
In addition, the market for our garden and irrigation hose products is impacted
by adverse weather conditions.

OUR FOREIGN INVESTMENT AND OPERATIONS SUBJECT OUR BUSINESS TO ONGOING FOREIGN
REGULATION AND OTHER RISKS ASSOCIATED WITH CONDUCTING BUSINESS IN FOREIGN
COUNTRIES. IF WE FAIL TO COMPLY WITH SUCH REGULATION OR ADAPT TO SUCH RISKS, WE
MAY BE UNABLE TO SELL OUR PRODUCTS.

We have operations and other investments in a number of countries outside of the
United States. Our foreign operations and investments are subject to the risks
normally associated with conducting business in foreign countries, including:

- limitations on ownership and on repatriation of earnings;

- import and export restrictions and tariffs;

- additional expenses relating to the difficulties and costs of staffing and
  managing international operations;

- labor disputes and uncertain political and economic environments, including
  risks of war and civil disturbances and the impact of foreign business cycles;

- change in laws or policies of a foreign country;

- delays in obtaining or the inability to obtain necessary governmental permits;

- potentially adverse consequences resulting from the applicability of foreign
  tax laws;

- cultural differences; and

- increased expenses due to inflation.

Our foreign operations and investments may be limited, and our ability to sell
our products may be disrupted by, laws and policies of the United States and the
other countries in which we operate affecting foreign trade, investment and
taxation.

WE ARE DEPENDENT ON CERTAIN KEY PERSONNEL AND THE LOSS OF THEIR SERVICES OR THE
FAILURE TO ATTRACT ADDITIONAL QUALIFIED PERSONNEL COULD HARM OUR BUSINESS.

We are dependent on the management experience and continued services of our
executive officers, including Dr. F. Patrick Smith, who may be difficult to
replace if we lose his services. The loss of the services of these officers
could have a material adverse effect on our business. In addition, our continued
growth depends on our ability to attract and retain experienced key employees.
We maintain a key person life insurance policy on Dr. Smith, and we have an
employment agreement with Dr. Smith.

IF WE WERE REQUIRED TO WRITE DOWN ALL OR PART OF OUR GOODWILL, OUR NET INCOME
AND NET WORTH COULD DECREASE.

Historically, we have amortized goodwill on a straight-line basis. Effective
June 29, 2002, we no longer amortize goodwill. Instead, we are required to
periodically determine if our goodwill has become impaired, in which case we
would write down the impaired portion of our goodwill. If we were required to
write down all or part of our goodwill, our net income and net worth could
decrease. In fiscal 2006 we decreased our goodwill by $35.1 million due to
impairment at our Swan garden hose operation resulting from lost market share.

COMPLIANCE WITH ENVIRONMENTAL AND HEALTH AND SAFETY LAWS AND REGULATIONS COULD
IMPOSE SUBSTANTIAL COSTS UPON US.

Our facilities, operations, and properties are subject to foreign, federal,
provincial, state and local environmental and health and safety laws and
regulations. These laws and regulations are complex, change frequently and they
and the enforcement of them against our industry have tended to become more
stringent over time. We are involved from time to time in administrative or
legal proceedings relating to environmental and health and safety matters and
have in the past and will continue to incur capital costs and other expenditures
relating to these matters. While we have budgeted for future capital and
operating expenditures to maintain compliance with environmental and health and
safety laws and regulations, these laws and regulations may change or become
more stringent in the future. Failures to comply with these laws and regulations
or more stringent enforcement of them could result in fines, other sanctions or
could require changes in our product formulation or labeling.

We could incur significant fines, penalties, capital costs or other liabilities
or obligations associated with any noncompliance, contamination or natural
resource damage or toxic tort liability at or related to any of our current or
former operations, facilities or properties. Changes in laws or the
interpretation thereof, the development of new facts or the failure of third
parties to address contamination at current or former facilities or properties
could also cause us to incur additional costs. Any of these foregoing fines,
penalties, capital costs, liabilities or obligations could impose substantial
costs on us and could, in turn, harm our businesses, financial condition or
results of operations.

Current and prior owners and operators of property or businesses may be subject
to joint and several liability for investigation and remediation costs at
contaminated sites under environmental laws without regard to fault or to
knowledge about the condition or action causing the liability and may have
liability for related damages to natural resources. We are currently, and may in
the future be, required to incur costs relating to the investigation or
remediation of property, including property where we dispose of our waste, under
the requirements of New Jersey's Industrial Site Recovery Act or other laws, and
environmental conditions could lead to other claims for damages to natural
resources, personal injury or property damage.

Certain properties that we now or previously owned or leased are undergoing
investigation or remediation by us or by third parties or may in the future
require such action as a result of historical operations. We cannot assure you
that any costs ultimately borne by us in connection with any of these
remediation projects would not be material.

A SIGNIFICANT PORTION OF OUR WORKFORCE IS UNIONIZED AND UNSATISFACTORY RELATIONS
WITH OUR WORKFORCE, INCLUDING WORK STOPPAGES, COULD DISRUPT OUR PRODUCTION AND
HARM OUR BUSINESS.

As of June 30, 2006, we had approximately 3,100 employees, of whom approximately
one third were represented by labor unions under various collective bargaining
agreements. We have had one labor strike in the United States in our history,
which occurred at our Ridgefield, NJ plant in August 2003. Although we consider
our current relations with these unions to be generally good, if we do not
maintain these good relations, if we cannot negotiate the collective bargaining
agreements on favorable terms or if a major work disruption event were to occur,
it could harm our business.

OUR DISCLOSURE CONTROLS AND PROCEDURES ARE NOT EFFECTIVE.

In connection with the completion of its audit of and the issuance of an
unqualified report on the Company's consolidated financial statements for the
fiscal year ended June 30, 2006, the Company's independent registered public
accounting firm, BDO Seidman, LLP ("BDO"), communicated to the Company's Audit
Committee that the following matters involving the Company's internal controls
and operations were considered to be "significant deficiencies", as defined
under standards established by the Public Company Accounting Oversight Board:

-    Lack of quantity of staff in order to ensure the timeliness and
     completeness of financial reporting.

We agree with this assessment.

Significant deficiencies are matters coming to the attention of the independent
auditors that in their judgment, relate to material weaknesses in the design or
operation of internal controls that could adversely affect the Company's ability
to record, process, summarize and report financial data consistent with the
assertions of management in the financial statements. In addition, BDO has
advised the Company that they consider these matters, which are listed above, to
be a "material weakness" that, by itself, may increase the possibility that a
material misstatement in our financial statements might not be prevented or
detected by our employees in the normal course of performing their assigned
functions.

ITEM 2. FACILITIES

The Company believes that its facilities are suitable for their purposes and
have sufficient productive capacity for its current and foreseeable operational
and administrative needs. Set forth below is a list and brief description of all
of the Company's offices and facilities, all of which are owned unless otherwise
indicated.


<TABLE>
<CAPTION>
                                                                     APPROXIMATE
          LOCATION                            PRIMARY FUNCTION       SQUARE FEET
          --------                     ---------------------------   -----------
<S>                                    <C>                           <C>
Belfast, Northern Ireland...........   Manufacturing                    47,580
Blauvelt, New York(4)...............   Manufacturing                    56,400
Burlington, New Jersey..............   Manufacturing                   124,000
Bucyrus, Ohio.......................   Manufacturing                   587,649
Buenos Aires, Argentina(2)..........   Manufacturing and warehouse      12,900
Cambridge, Ontario, Canada..........   Manufacturing and warehouse      40,000
City of Industry, California(5).....   Manufacturing                   110,000
Clayton, North Carolina.............   Manufacturing                    99,665
Clinton, Illinois...................   Manufacturing                    69,000
Coppell, Texas(6)...................   Executive Offices                 3,125
Dallas, Texas.......................   Manufacturing                   139,000
Dallas, Texas.......................   Warehouse                        10,759
</TABLE>


                                        7

<PAGE>

<TABLE>
<S>                                    <C>                            <C>
Decatur, Indiana....................   Manufacturing                    187,000
Decatur, Indiana(1).................   Warehouse                          3,750
East Farmingdale, New York(5).......   Manufacturing                     56,556
East Farmingdale, New York (5)......   Warehouse                         11,000
Erembodegem (Aalst), Belgium........   Manufacturing                    125,667
Erembodegem (Aalst), Belgium(9).....   Warehouse                         64,070
Flemington, New Jersey..............   Manufacturing                    145,000
Fullerton, California (8)...........   Manufacturing and warehouse       60,250
Harrison, New Jersey(3).............   Warehouse                        135,501
Lawrenceville, Georgia..............   Manufacturing                    150,000
Lawrenceville, Georgia(5)...........   Warehouse                         13,000
Livonia, Michigan(1)................   Warehouse                          7,240
McKenzie, Tennessee.................   Manufacturing and warehouse       60,000
Memphis, Tennessee(4)...............   Manufacturing and warehouse      149,800
Memphis, Tennessee(4)...............   Warehouse                         50,000
Milan (Gaggiano), Italy(7)..........   Warehouse                         12,920
Milan (Gaggiano), Italy.............   Manufacturing                     14,900
Milan (Gaggiano), Italy.............   Manufacturing                     25,800
Milan (Rosate), Italy(5)............   Manufacturing                     24,000
Mississauga, Ontario, Canada(10)....   Manufacturing                    118,196
Mississauga, Ontario, Canada(3).....   Manufacturing                    100,000
Piscataway, New Jersey(3)...........   Manufacturing                    155,000
Ridgefield, New Jersey..............   Manufacturing                    330,000
Rockaway, New Jersey................   Manufacturing                     90,550
Schaumburg, Illinois(11)............   Manufacturing and warehouse       97,966
Schiller Park, Illinois.............   Manufacturing                     15,232
Shelby, Ohio(5).....................   Warehouse                        350,000
Singapore(1)........................   Sales Office                         550
Somerville, New Jersey..............   Manufacturing                    172,000
Sparks, Nevada(7)...................   Manufacturing                    448,000
Suzhou, China (4)...................   Manufacturing & warehouse        120,000
Tonawanda, New York(7)..............   Manufacturing                     32,000
Troy, Ohio(4).......................   Manufacturing and warehouse      220,000
Tustin, California(1)...............   Sales Office                         414
Waco, Texas.........................   Manufacturing                    104,600
Wenatchee, Washington...............   Manufacturing                     97,000
Wenatchee, Washington(4)............   Warehouse                         26,200
Wenatchee, Washington(1)............   Warehouse                          8,000
</TABLE>

(Years relate to calendar years)

(1)  Leased on a month-to-month basis.

(2)  Lease expires in 2006.

(3)  Lease expires in 2007.

(4)  Lease expires in 2008.

(5)  Lease expires in 2009.

(6)  Lease expires in 2011.

(7)  Lease expires in 2012.

(8)  Lease expires in 2013.

(9)  Lease expires in 2014.


                                        8

<PAGE>

(10) Lease expires in 2015.

(11) Lease expires in 2030.

ITEM 3. LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS

The Company is a party to various legal proceedings arising in the normal
conduct of business. Management believes that the final outcome of these
proceedings will not have a material adverse effect on the Company's financial
position.

We previously reported, in January 1993 and 1994, our Belgian subsidiary
received income tax assessments aggregating approximately 74.9 million Belgian
Francs for the disallowance of certain foreign tax credits and investment losses
claimed for the years ended July 31, 1990 and 1991. Additionally, in January
1995, the subsidiary received an income tax assessment of approximately 32.8
million Belgian francs for the year ended July 31, 1992. By Belgium law, these
assessments are capped at the values above, increased by late payment interest
for a period of 18 months only (approximately 15.5 million Belgian francs) and
do not continue to accrue additional penalties or interest as long as the Tax
Director has not rendered a decision in connection with the tax complaints that
have been filed against these tax assessments. To date, the Tax Director has not
rendered a decision. These liabilities, which total approximately EUR 3,054,000
or $3.8 million at current exchange rates, have been fully accrued for in fiscal
2006.

We are subject to environmental laws requiring the investigation and cleanup of
environmental contamination. In addition to remediation being undertaken by
third parties at a limited number of our locations, we are currently remediating
contamination resulting from past industrial activity at three of our New Jersey
facilities which we acquired from PureTec in 1998. This remediation is being
conducted pursuant to the requirements of New Jersey's Industrial Site Recovery
Act which were triggered by the 1998 PureTec transaction. If any other events
were to occur in the future that would be deemed to have effected a "change of
control" of any of our New Jersey facilities as defined under New Jersey's
Industrial Site Recovery Act, we would be required to take additional actions to
comply with such statute, including possibly additional investigations and
remediation. We also are conducting remediation at a formerly-owned New Jersey
facility under a voluntary cleanup agreement with the state.

We recently voluntarily self-disclosed to regulators certain non-compliances
with the air permit for our Troy, OH facility. While discussions with the Ohio
Regional Air Pollution Control Agency are ongoing, we expect that we will be
required to install additional pollution controls at this facility in 2006; the
capital investment of which we estimate should not exceed $1 million, based on
current information. We may also be required to pay a fine, but based on the
preliminary stage of discussions, we cannot predict whether such a fine will be
imposed, or if so, in what amount.

In 2004, the National Enforcement Investigation Center (NEIC), on behalf of the
United States Environmental Protection Agency (EPA), conducted an environmental
review of our Burlington, NJ site concerning federal Clean Air Act requirements.
The EPA subsequently issued a request for further information regarding these
air issues under Section 114 of the federal Clean Air Act. In February and
March, 2006 the New Jersey Department of Environmental Protection (NJDEP) issued
administrative orders alleging violations of certain state air regulations at
the Burlington facility. In March, 2006, the United States Department of Justice
(DOJ) contacted Colorite on behalf of the EPA. The DOJ indicated that certain
violations under several federal environmental statutes had been identified as a
result of the EPA's inspection. They discussed the alleged violations and
attempted to negotiate a settlement. Since that date, representatives of
Colorite have met with representatives of EPA, DOJ and NJDEP on several
occasions to discuss the alleged federal and state violations. Tekni-Plex
continues to evaluate the alleged violations and its defenses to them, and
anticipates negotiating with the government agencies to attempt to resolve these
matters.

In 2004, we also received a similar request for information from the EPA
concerning air emissions at our Wenatchee, Washington plant which we do not
expect to result in significant costs or fines or penalties.

In fiscal 2006 we established an incremental $900,000 reserve in our financial
statements to reflect our best estimate of the aggregate expenses associated
with these environmental matters. This reserve is in addition to existing
environmental reserves which total $522,500 and the reserves described in Note 7
related to our Elm and Swan acquisitions.

Although we believe that, based on historical experience, the costs of achieving
and maintaining compliance with environmental laws and regulations are unlikely
to have a material adverse effect on our business, we could incur significant
fines, penalties, capital costs or other liabilities associated with any
confirmed noncompliance or remediation of contamination or natural resource
damage liability at or related to any of our current or former facilities, the
precise nature of which we cannot now predict. Furthermore, we cannot assure you
that future environmental laws or regulations will not require substantial
expenditures by us or significant modifications of our operations.

                                     PART II

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


                                        9

<PAGE>


     Not Applicable.

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected historical consolidated financial
information of the Company, and has been derived from and should be read in
conjunction with the Company's audited consolidated financial statements,
including the notes thereto, which appear elsewhere herein and previously filed.
Acquisitions the Company made in certain years result in years not being
comparable.

As previously disclosed on Form 8-K as filed September 21, 2005, Tekni-Plex has
identified certain overstated inventory at its American Gasket & Rubber Division
which resulted in a $6.8 million overstatement of inventory. This inventory
overstatement has required a non-cash charge to results of operations as
follows:

<TABLE>
<S>           <C>
Fiscal 2005   $(2.8) million
Fiscal 2004   $(2.7) million
Fiscal 2003   $(0.5) million
Fiscal 2002   $(0.5) million
</TABLE>

<TABLE>
<CAPTION>
                                                                                         YEAR ENDED
                                                               --------------------------------------------------------------
                                                               JUNE 28,   JUNE 27,    JULY 2,
                                                                 2002       2003       2004      JULY 1, 2005   JUNE 30, 2006
                                                               --------   --------   ---------   ------------   -------------
<S>                                                            <C>        <C>        <C>         <C>            <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................................   $577,749   $610,663   $ 635,642    $ 695,524       $ 742,683
Cost of goods sold..........................................    430,920    459,981     530,372      600,170         621,983
Gross profit................................................    146,829    150,682     105,270       95,354         120,700
Integration Expense.........................................         --     11,164       7,775       10,478           5,250
Selling, general and administrative expenses(c).............     69,444     61,600      69,159       60,690          96,490
Income from operations......................................     77,385     77,918      28,336       24,186          18,960
Interest expense, net(a)....................................     70,934     71,266      84,451       89,899         104,831
Unrealized loss (gain) on derivative contracts..............      7,830      1,997     (10,654)      (8,287)         (3,800)
Other expense (income)......................................         (6)      (531)        605       (2,194)         (2,737)
Pre-tax income (loss).......................................     (1,373)     5,186     (46,066)     (55,232)        (79,334)
Income tax provision (benefit)..............................      5,677      2,306      11,121       26,247           4,997
Net income (loss)...........................................     (7,050)     2,880     (57,187)     (81,479)        (84,311)
BALANCE SHEET DATA (AT YEAR END):
Working capital.............................................   $218,136   $248,372    $225,857     $200,818        $215,415
Total Assets................................................    691,180    783,471     743,663      691,695         663,355
Total debt (including current portion and preferred stock)..    692,821    729,484     734,007      800,517         849,621
Stockholders' (deficit).....................................    (91,894)   (66,104)   (105,054)    (213,327)       (288,931)
OTHER FINANCIAL DATA:
Depreciation and amortization...............................   $ 39,863    $28,342     $32,304      $32,653         $31,996
Goodwill impairment(c)......................................         --         --      10,000           --          35,131
Capital expenditures........................................     24,653     32,232      30,128       18,246          19,082
Cash flows:
From (used in) operations...................................      7,922     15,029      (7,364)     (24,461)        (11,199)
From (used in) investing....................................    (88,446)   (49,994)    (34,126)     (19,000)        (18,874)
From financing..............................................     64,092     54,203      23,513       32,272          32,598
</TABLE>

----------
(a)  Interest expense included a $1,400 reduction in deferred financing costs
     and a $5,000 reduction in deferred financing costs in fiscal 2005 and
     fiscal 2004 respectively.

(b)  Income tax provision contains an increase in the valuation allowance of
     deferred tax assets of $23.1 million and $7.0 million in 2005 and 2004,
     respectively.

(c)  In September 2005, we concluded our annual garden hose contract
     negotiations. While we were largely successful in securing our target price
     increases, we lost meaningful market share. With this information in mind,
     in the second quarter of fiscal 2006 we deemed it appropriate to retest the
     goodwill in our Tubing segment in greater detail, evaluating each line of
     business within this segment separately. Accordingly, we recorded a $35.1
     million impairment charge against the goodwill associated with our Swan
     operations as we anticipate reducing the capacity of this operation,
     eliminating much of its fixed costs, to reflect our reduced market
     position. As a result of impairment tests being performed at the end of
     fiscal 2006 and 2005, the Company did not record an impairment charge. In
     fiscal 2004, an impairment charge of $10.0 million associated with its
     specialty resins operations was recorded.


                                       10
<PAGE>

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with the
"Selected Historical Financial Information" and the Financial Statements
included elsewhere in this Annual Report. Restated financial statements can be
found elsewhere in this filing. The table below sets forth, for the periods
indicated, selected operating data as a percentage of net sales.

                         SELECTED FINANCIAL INFORMATION
                            (PERCENTAGE OF NET SALES)

<TABLE>
<CAPTION>
                                                   JULY 2,      JULY 1,   JUNE 30,
                                                    2004         2005       2006
                                                 ------------   -------   --------
<S>                                              <C>            <C>       <C>
Net sales.....................................       100.0%      100.0%    100.0%
Cost of sales.................................        83.4        86.3      83.7
Gross profit..................................        16.6        13.7      16.3
Integration Expense...........................         1.2         1.5       0.7
Selling, general and administrative expenses..        10.9         8.7      13.0
Income from operations........................         4.5         3.5       2.6
Interest expense..............................        13.3        12.9      14.1
Provision (Benefit) for income taxes..........         1.7         3.8       0.7
Net income (loss).............................        (9.0)      (11.7)    (11.4)
Depreciation and amortization.................         5.1         4.7       4.3
</TABLE>

Net sales increased to $742.7 million in fiscal 2006 from $695.5 million the
same period last year, representing a 6.8% increase. Net sales in our Packaging
Segment grew 7.3% to $374.1 million in the most recent period from $348.7
million in fiscal 2005 primarily due to higher selling prices. Net sales in our
Tubing Products Segment increased 1.3% to $215.8 million in fiscal 2006 from
$213.1 million in fiscal 2005 due to significant price increases, in excess of
10% on average, that went into effect midway through our fiscal year for our
garden hose products. These price increases were largely offset by lower sales
volumes due to lost market share, in excess of 10 percentage points, at our
garden hose operations. Other net sales grew 14.2% to $152.8 million in fiscal
2006 compared to $133.8 million in the previous year due to higher selling
prices which rose 16.8% on average, offset by lower volumes which declined by
approximately 2.4%.

Rebates, discounts and sales allowances totaled to $57.3 million or 7.7% of net
sales in fiscal 2006 compared to $43.0 million or 6.2% of net sales in fiscal
2005. The increase was due to changes in our sales programs as well as changes
in the volumes purchased by each of our customers during the relevant years.

Cost of goods sold increased to $622.0 million in fiscal 2006 from $600.2
million in fiscal 2005 due to higher energy, labor and freight costs. Despite
generally higher prices for our raw materials, our material cost decreased a
modest 0.3% in fiscal 2006 compared to fiscal 2005. Lower material costs
resulted from both lower garden hose volumes due to lost market share and
improved material utilization rates. Expressed as a percentage of net sales,
cost of goods sold decreased to 83.7% in the current period compared to 86.3% in
the prior period

Tekni-Plex's primary raw materials are Polyvinyl Chloride (PVC), Polystyrene,
Vinyl Chloride Monomer (VCM) and various plasticizers, all of which are
petrochemical based. Generally higher oil and natural gas prices, coupled with
strong global demand for commodity chemicals and tight supplies, have resulted
in generally higher costs for all of our key raw materials. We expect this trend
to continue for the foreseeable future. In most of our businesses we have been
able to pass on higher material costs to our customers in a relatively short
time period. However, like most seasonal retail products, we traditionally have
sold garden hose under annual agreements, where prices are generally set in the
fall and generally remain in effect for the calendar year. In general, the
increase in raw material costs at our garden hose operations during a 12-month
time period reduces our profitability. In fiscal 2006, the two primary raw
materials for our garden hose business, PVC and plasticizers, rose an average of
12.4% and 18.3% respectively. Price increases on our garden hose products that
generally went into effect in January 2006 coupled with cost reduction
initiatives and product mix improvements more than offset this increase in raw
material costs. To further mitigate the potential impact of continued increases
in the cost of our raw materials and in contrast to previous years, we did not
guarantee garden hose pricing for the 2006 selling season, nor do we anticipate
doing so in fiscal 2007.


                                       11

<PAGE>
Our cost of goods sold includes a $2.8 million inventory write-down (0.4% of net
sales) in fiscal 2005 to reflect inventory restatements at our American Gasket
and Rubber Division.

Gross profit, as a result of the above, increased to $120.7 million in the
current period compared to $95.4 million in the prior period. Expressed as a
percentage of net sales, gross profit increased to 16.3% in fiscal 2006 from
13.7% last year.

Our Packaging Segment gross profit increased 12.7% to $93.7 million in fiscal
2006 from $83.1 million in fiscal 2005 due to higher selling prices. Expressed
as a percentage of net sales, Packaging Segment gross profit increased to 25.1%
in the current period from 23.8% in the previous period.

Our Tubing Products Segment gross profit increased 136.6% to $16.8 million in
fiscal 2006 from $7.1 million in fiscal 2005 as significantly higher selling
prices more than offset both higher raw material costs and reduced volumes.
Expressed as a percentage of net sales, our Tubing Products Segment gross profit
more than doubled to 7.8% in the current period from 3.3% in the previous
period.

Other gross profit increased to $10.1 million in fiscal 2006 from $5.2 million
in fiscal 2005 primarily due to higher pricing. Expressed as a percentage of net
sales, other gross profit improved to 6.6% in fiscal 2006 from 3.8% a year
earlier.

Selling, general and administrative expenses increased to $96.5 million in the
most recent fiscal year from $60.7 million last year largely due to the
inclusion of a $35.1 million non-cash charge in our second fiscal quarter to
write off goodwill associated with our garden hose operations. In recent years
our garden hose operations have not been profitable. While the price increases
we secured for the 2006 selling season has returned these operations to
profitability, we have lost significant market share. In the near term, we
expect to reduce our production capacity at our Swan operations to reflect our
reduced market share and accordingly we have deemed it appropriate to write-off
the goodwill associated with these operations. Measured as a percentage of net
sales, selling, general and administrative expenses increased to 13.0% in the
current period from 8.7% in the previous period.

Integration expenses decreased to $5.3 million or 0.7% of net sales in fiscal
2006 from $10.5 million or 1.5% of net sales in fiscal 2005. The decrease was
largely related to the fact that we completed the closing of our Rockaway
facility early in fiscal 2006 and we incurred lower costs associated with the
integration of our Elm facilities. Our integration expenses are typically cash
expenses and relate to reconfiguring and realignment of acquired facilities to
conform to the Company's current production and product standards as well as the
costs associated with consolidating facilities. These costs are comprised of the
following measured in millions:

<TABLE>
<CAPTION>
                   2006    2005
                   ----   -----
<S>                <C>    <C>
Elm Packaging
   Material        $2.6   $ 3.8
   Labor            0.8     1.5
   Overhead         1.6     2.5
Rockaway closing
   Material         0.0     1.5
   Labor            0.0     0.1
   Overhead         0.0     0.9
   SG&A             0.3     0.2
                   ----   -----
Total              $5.3   $10.5
                   ====   =====
</TABLE>

We expect the closing of our Rockaway facility to result in approximately $1.0
million of annual cost savings. We also expect the reconfiguring and realignment
of our Elm facilities to result in significant cost reductions as well as enable
us to produce higher value added products; however, we cannot currently quantify
these benefits.

Operating profit, as a result of the above, decreased to $19.0 million in fiscal
2006 from $24.2 million in fiscal 2005. Expressed as a percentage of net sales,
operating profit decreased to 2.6% in the most recent period from 3.5% in the
comparable period of last year.

Our Packaging Segment operating profit increased 29.9% to $63.6 million (17.0%
of net sales) in the current period compared to $49.0 million (14.0% of net
sales) in the previous period. Our Tubing Products Segment reported an operating
loss of ($30.5) million in fiscal 2006 compared to an operating loss of ($6.5)
million in fiscal 2005. Measured as a percent of net sales, our Tubing Segment
operating loss decreased to (14.2%) of net sales in the current period compared
to (3.0%) of net sales in the previous year. The 2006 period included a $35.1
million non-cash charge to write-off goodwill associated with our garden hose
operations. Our Tubing Segment reported $4.6 million of operating profit before
goodwill impaiment in fiscal 2006. Our Other segment reported a $3.0 million or
2.0% of net sales operating profit in fiscal 2006 compared to a loss of ($1.2)
million or (0.9%) of net sales in the comparable period of 2005.


                                       12

<PAGE>

Interest expense increased to $104.8 million (14.1% of net sales) in fiscal 2006
from $89.9 million (12.9% of net sales) in fiscal 2005 due to the inclusion of a
$15.2 million, non-cash interest expense associated with our Series A Redeemable
preferred stock reflecting its accretion to its mandatory redemption amount.

Unrealized gain on derivative transactions was $3.8 million or 0.5% of net sales
in fiscal 2006 compared to $8.3 million or 1.2% of net sales in the previous
year due to the various movements of the interest rates embedded in our
derivative contracts. See the Liquidity and Capital Resources discussion below
for a detailed description of our derivative transactions.

Loss before income taxes, as a result, was a loss of ($79.3) million or (10.7%)
of net sales for fiscal 2006 compared to a loss of ($55.2) million or (7.9%) of
net sales for fiscal 2005.

Income tax expense was $5.0 million for fiscal 2006 compared to $26.2 million
for fiscal 2005 primarily reflecting foreign taxes as we continued to fully
reserve against our deferred tax asset. Our fiscal 2005 tax provision include a
$23.1 million charge to increase our deferred tax assets' valuation allowance.

Net loss, as a result, was a loss of ($84.3) million for fiscal 2006 or (11.4%)
of net sales compared with a loss of ($81.5) million for fiscal 2005 or (11.7%)
of net sales.

YEAR ENDED JULY 1, 2005 COMPARED TO THE YEAR ENDED JULY 2, 2004

Net sales increased to $695.5 million in fiscal 2005 from $635.6 million in
fiscal 2004, representing a 9.4% gain. Net sales in our Packaging Segment grew
13.9% to $348.7 million in the most recent period from $306.1 million in the
comparable period of 2004 due to both higher selling prices and sales volumes.
Net sales in our Tubing Products Segment increased 1.3% to $213.1 million in
fiscal 2005 from $210.2 million in fiscal 2004 primarily due to a 3 to 6 percent
increase in our garden hose prices that generally went into effect in January
2005. Higher garden hose prices were partially offset by lower, weather-related,
garden hose sales volumes during fiscal 2005 compared to the previous year.
Other net sales grew 12.2% to $133.8 million in fiscal 2005 compared to $119.3
million in the previous year due to both higher selling prices and higher
volumes.

Our accruals for rebates, discounts and sales allowances decreased to $43.0
million or 6.2% of net sales in fiscal 2005 compared to $49.1 million or 7.7% of
net sales in fiscal 2004. The decrease was due to changes in our sales programs
as well as changes in the volumes purchased by each of our customers during the
year.

Cost of goods sold increased to $600.2 million in fiscal 2005 from $530.4
million in fiscal 2004. Expressed as a percentage of net sales, cost of goods
sold increased to 86.3% in the current period compared to 83.4% in the prior
period, primarily due to higher raw material costs. Tekni-Plex's primary raw
materials are Polyvinyl Chloride (PVC), Polystyrene, Vinyl Chloride Monomer
(VCM) and various plasticizers, all of which are petrochemical based. Generally
higher oil and natural gas prices, coupled with strong global demand for
commodity chemicals and tight supplies, have resulted in generally higher costs
for all of our key raw materials. We expect this trend to continue for the
foreseeable future. In most of our businesses we have been able to pass on
higher material costs to our customers in a relatively short time period.
However, like most seasonal retail products, we traditionally have sold garden
hose under annual agreements, where prices are generally set in the fall and
generally remain in effect for the calendar year. Consequently, in recent fiscal
years, the increase in raw material costs at our garden hose operations during a
12-month time period has reduced our profitability. In fiscal 2005, the two
primary raw materials for our garden hose business, PVC and plasticizers, rose
an average of 12% and 38% respectively. To mitigate the impact of expected
increases in the cost of our raw materials and in contrast to previous years, we
have not guaranteed garden hose pricing for the 2006 selling season.

Our cost of goods sold reflects a $2.8 million inventory write-down (0.5% of net
sales) in fiscal 2005 and a $2.7 million inventory write-down (0.4% of net
sales) in fiscal 2004 to correct inventory restatements at our American Gasket
and Rubber Division.


                                       13

<PAGE>

Gross profit, as a result of the above, decreased to $95.4 million in the
current period compared to $105.3 million in the prior period. Expressed as a
percentage of net sales, gross profit declined to 13.7% in fiscal 2005 from
16.6% in comparable period of last year.

Our Packaging Segment gross profit increased to $83.1 million in fiscal 2005
from $80.1 million for fiscal 2004 as we were largely able to pass on higher raw
material costs to our Packaging Segment customers during the year. Expressed as
a percentage of net sales, Packaging Segment gross profit decreased to 23.8% in
the current period from 26.2% in the previous period.

Our Tubing Products Segment gross profit decreased to $7.1 million in fiscal
2005 from $20.6 million in fiscal 2004. Expressed as a percentage of net sales,
our Tubing Products Segment gross profit decreased to 3.3% in the current period
from 9.8% in the previous period as significantly higher raw material cost,
particularly for plasticizers, more than offset the 3 to 6 percent price
increases that went into effect in January at our garden hose unit.

Other gross profit increased to $5.2 million in fiscal 2005 from $4.5 million in
fiscal 2004. Expressed as a percentage of net sales, other gross profit remained
flat at 3.8%.

Selling, general and administrative expenses decreased to $60.7 million in the
most recent fiscal year from $69.2 million last year, primarily due to the
inclusion of a $10 million reduction in goodwill in fiscal 2004. Measured as a
percentage of net sales, selling, general and administrative expenses decreased
to 8.7% in the current period from 10.9% in the previous period.

Integration expenses increased to $10.5 million or 1.5% of net sales in fiscal
2005 from $7.8 million or 1.2% of net sales in fiscal 2004. The increase was
largely related to the closing of our Rockaway, New Jersey facility and
consolidating its operations at our Clinton, Illinois and Clayton, North
Carolina facilities. Our integration expenses are typically cash expenses and
relate to reconfiguring and realignment of acquired facilities to conform to the
Company's current production and product standards as well as the costs
associated with consolidating facilities. These costs are comprised of the
following:

<TABLE>
<CAPTION>
                    2005   2004
                   -----   ----
<S>                <C>     <C>
Elm Packaging
   Material        $ 3.8   $2.7
   Labor             1.5    1.6
   Overhead          2.5    2.6
Rockaway closing
   Material          1.5    0.1
   Labor             0.1    0.1
   Overhead          0.9    0.3
   SG&A              0.2    0.2
                   -----   ----
Total              $10.5   $7.8
                   =====   ====
</TABLE>

We expect the closing of our Rockaway facility to result in approximately $1
million of annual cost savings. We also expect the reconfiguring and realignment
of our Elm facilities to result in significant cost reductions as well as enable
us to produce higher value added products; however, we cannot currently quantify
these benefits.

Operating profit, as a result of the above, decreased to $24.2 million in fiscal
2005 from $28.3 million in fiscal 2004. Expressed as a percentage of net sales,
operating profit decreased to 3.5% in the most recent period from 4.5% in the
comparable period of last year.

Our Packaging Segment operating profit decreased to $49.0 million (14.0% of net
sales) in the current period compared to $51.3 million (16.8% of net sales) in
the previous period. Our Tubing Products Segment reported an operating loss of
($6.5) million or (3.0%) of net sales in the current period compared to profit
of $6.5 million or 3.1% of net sales in the previous year. Other operating
profit improved to a ($1.2) million loss or (0.9%) of net sales in the current
period compared to a ($11.8) million loss or (9.9%) of net sales in the previous
period.

Interest expense increased to $89.9 million (12.9% of net sales) in fiscal 2005
from $84.5 million (13.3% of net sales) in fiscal 2004 due to an increase of
$11.7 of debt as well as higher average interest rates. Interest expense also
included a reduction in deferred financing costs of $1.4 million in fiscal 2005
and $5.0 million in fiscal 2004 resulting from repaying certain outstanding debt
obligations through the issuance of new senior secured notes (see Note 7 of the
audited consolidated financial statements).

Unrealized gain on derivative transactions was $8.3 million or 1.2% of net sales
in fiscal 2005 compared to $10.7 million or 1.7% of net sales in the previous
year due to the various movements of the interest rates embedded in our
derivative contracts.


                                       14

<PAGE>

Income (loss) before income taxes, as a result, was a loss of ($55.2) million or
(7.9%) of net sales for fiscal 2005 compared to a loss of ($46.1) million or
(7.2%) of net sales for fiscal 2004.

Income tax expense was $26.2 million for fiscal 2005 compared to $11.1 million
for fiscal 2004 as we increased our valuation allowance of our deferred tax
asset by $23.1 million in fiscal 2005 and $15.0 million in fiscal 2004. Given
our continued pre-tax losses in recent years, we decided to reserve fully
against our deferred tax assets at the end of fiscal 2005.

Net income (loss), as a result, was a loss of ($81.5) million for fiscal 2005 or
(11.7%) of net sales compared with a loss of ($57.2) million for fiscal 2004 or
(9.0%) of net sales.

LIQUIDITY AND CAPITAL RESOURCES

For the year ended July 1, 2006, net cash used in operating activities was $11.2
million compared to $24.5 million of cash used in operating activities in the
prior year. The $13.3 million improvement was due primarily to improved earnings
before non-cash charges (such as goodwill impairment and interest accretion) as
our garden hose operations returned to profitability in the second half of our
fiscal year. Beginning with the 2006 selling season, we have discontinued the
practice of guaranteeing garden hose prices for the entire season. While we
believe raw material costs may continue to rise in fiscal 2007, we also
believe the prices we have secured to date for our garden hose products has
helped restore our profitability. Furthermore, we believe that, subject to
prevailing competitive pressures, we will generally be able to pass on future
increases in raw material costs to primarily all of our customers, including our
garden hose customers, albeit with a lag of one to three months. However, we can
give you no assurance to that effect.

Despite improved earnings before non cash charges, increases in our accounts
receivable and inventories as well as a reduction in our trade accounts payable
contributed to our use of cash from operations in fiscal 2006. Other various
year-over-year changes in operating assets, accrued expenses, and liabilities
are generally due to offsetting timing differences.

As of September 22, 2006, we had an outstanding balance of $15.0 million under
our $75.0 million asset backed credit facility. Also as of September 22, 2006
availability under this facility was reduced by $7.0 million of letters of
credit related to our workmen's compensation insurance programs.

Working capital at June 30, 2006 was $215.4 million compared to $200.8 million
at July 1, 2005. The increase was primarily caused by an increase in net
borrowings under our asset backed credit facility reduced by operating losses.

Our principal uses of cash will be debt service, capital expenditures and
working capital requirements. Our capital expenditures for the years ended June
30, 2006, July 1, 2005, and July 2, 2004 were $19.1 million and $18.2 million
and $29.5 million, respectively. Management believes that we will be able to
pass along expected higher raw material costs to our garden hose customers
during fiscal 2007 and consequently, cash generated from operations plus funds
available in the Company's asset backed facility will be sufficient to meet its
needs and to provide it with the flexibility to make capital expenditures and
other investments which management believes are prudent. However, we cannot
assure you that sufficient funds will be available from operations or borrowings
under our credit facility to meet all of our future cash needs.

In June 2000, Tekni-Plex entered into a series of interest rate derivative
transactions designed to protect us from rising interest rates on our senior
term debt facilities while enabling us to partially benefit from falling
interest rates. At that time, Tekni-Plex had $344.0 million of term loans
outstanding with variable rates of interest tied to US$ LIBOR. These loans,
which originally had maturity dates ranging from June 2006 through June 2008,
have been repaid. Concurrent with incurring this debt, Tekni-Plex entered into a
series of interest swap contracts to pay variable rates of interest based on a
basket of LIBOR benchmarks and receive variable rates of interest based on 3
month dollar LIBOR on an aggregate of $344.0 million amount of indebtedness. The
swaps amortized on the same schedule as the original term loans. As of July 1,
2006 the notional amount of the swaps is $230.0 million.

Portfolio theory and empirical evidence suggested that the change in value of a
basket of LIBOR benchmarks would be less volatile than the change in value of a
single benchmark. Since 2000, this has generally been our experience.

In conjunction with its swap contracts Tekni-Plex also purchased an interest
rate cap. Tekni-Plex believes the reduced volatility created by the interest
rate swaps made the interest rate cap less expensive.

We recorded an unrealized gain from derivative transactions of $3.8 million and
$8.3 million in fiscal years 2006 and 2005,


                                       15

<PAGE>

respectively.

Our Senior debt and our Senior Subordinated Notes include various covenants, the
most restrictive of which limit our incremental debt and capital expenditures.
The availability of borrowings under our new asset based facility is subject to
a borrowing base limitations equal to the lesser of the borrowing base as
defined in the asset backed agreement and the then effective commitments under
the new asset based facility minus such availability reserves as the
administrative agent, in its sole discretion, deems appropriate.

At June 30, 2006, the Company's contractual obligations are as follows:

<TABLE>
<CAPTION>
                        PENSION
                       AND POST
PAYMENTS              RETIREMENT   INTEREST   LONG-TERM   PREFERRED (2)   PREFERRED STOCK
DUE BY PERIOD         HEALTHCARE    EXPENSE      DEBT       DIVIDENDS      ACCRETION (3)    LEASES   TOTAL
-------------         ----------   --------   ---------   -------------   ---------------   ------   -----
<S>                   <C>          <C>        <C>         <C>             <C>               <C>      <C>
Less than 1 year...      $ 1.6       86.7         1.2           0.5             12.7          8.2    110.9
Year 2.............        1.7       86.6         0.3           6.6             12.7          6.8    114.0
Year 3.............        1.9       84.1        39.3           6.6             12.7          5.1    149.6
Year 4.............        2.0       83.6       318.2           6.6             12.7          3.8    427.0
Year 5.............        2.2       43.5         0.2           6.6             12.7          3.6     68.7
After 5 years......       11.4       81.6       479.8          24.1             33.7         20.7    651.4
</TABLE>

----------
(1)  Interest expense includes obligations under our interest rate swap
     agreement.

(2)  May be paid in kind

(3)  Non-cash increase in preferred stock.

(4)  Includes initial preferred stock value $54.8 million

CRITICAL ACCOUNTING POLICIES

The Company prepares its financial statements in accordance with accounting
principles generally accepted in the United States. Preparing financial
statements in accordance with generally accepted accounting principles requires
the Company to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities as
of the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The following paragraphs include a
discussion of some critical areas where estimates are required. You should also
review Note 1 to the financial statements for further discussion of significant
accounting policies.

The Company records revenue when products are shipped. Legal title and risk of
loss with respect to the products pass to customers at the point of shipment.
The Company provides an allowance for returned product and volume sales rebates
on an estimated basis based on written agreements and past experience.

The Company makes estimates of sales rebates and allowances related to current
period product revenue. Management analyzes historical trends, current economic
conditions, and compliance with written agreements when evaluating the adequacy
of the reserve for sales rebates and allowances. Management judgments and
estimates must be made and used in connection with establishing the sales
rebates and allowances in any accounting period.

The Company evaluates its long-lived assets for impairment based on the
undiscounted future cash flows of such assets. If a long-lived asset is
identified as impaired, the value of the asset will be reduced to its fair
value.

The Company records inventories at the lower of cost (weighted average) or
market. We record inventory reserves to reduce the carrying value of inventory
for estimated obsolescence or unmarketable inventory equal to the difference
between the cost of inventory and estimated market value based on assumptions
about future demand and market conditions. If actual market conditions are less
favorable than those projected by management, additional inventory reserves may
be required.

The Company extends credit based upon evaluations of a customer's financial
condition and provide for any anticipated credit losses in our financial
statements based upon management's estimates and ongoing reviews of recorded
allowances. If the financial conditions of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
reserves may be required. Conversely, reserves are deducted to reflect credit
and collection improvements.

The Company has intangible assets related to acquired intangibles. The
determination of related estimated useful lives and whether or not these assets
are impaired involves management judgments. Changes in strategy and/or market
conditions could significantly impact these judgments and require adjustments to
recorded asset balances. We adopted SFAS 142, which requires us to cease


                                       16

<PAGE>
amortization of goodwill, but instead be tested for impairment at least annually
or earlier if there are impairment indicators. The Company performs a two-step
process for impairment testing of goodwill as required by SFAS No. 142. The
first step of this test, used to identify potential impairment, compares the
fair value of a reporting unit with its carrying amount. The second step (if
necessary) measures the amount of the impairment. We have traditionally
conducted these tests at the segment level of our businesses. In September 2005,
we concluded our annual garden hose contract negotiations. While we were largely
successful in securing our target price increases, we lost meaningful market
share. With this information in mind, in the second quarter of fiscal 2006 we
deemed it appropriate to retest the goodwill in our Tubing segment. Accordingly,
we recorded a $35.1 million impairment charge against the goodwill associated
with our Swan operations as we anticipate reducing the capacity of this
operation, eliminating much of its fixed costs, to reflect our reduced market
position. As a result of impairment tests being performed at the end of fiscal
2006 and 2005, the Company did not record an impairment charge. In fiscal 2004,
an impairment charge of $10.0 million associated with its specialty resins
operations was recorded.

In performing the above noted goodwill impairment testing, the Company uses a
measure of fair value based on an evaluation of future discounted cash flows.
This evaluation utilized what management believes to be the best information
available in the circumstances, including what management believes to be
reasonable and supportable assumptions and projections. Such assumptions are
consistent with those utilized in the Company's annual planning process and
appropriately take into account managements' initiatives to improve operational
efficiencies. If these turnaround initiatives do not achieve their earning
objectives, the assumptions and estimates underlying this goodwill impairment
evaluation could be modified in the future leading to further impairment in the
recorded value of goodwill.

The Company records a valuation allowance to reduce the amount of our deferred
tax assets to the amount that is more likely than not to be realized. While we
have considered future taxable income and ongoing tax planning strategies in
assessing the need for the valuation allowance, in the event that we determined
that we would be able to realize our deferred tax assets in the future in excess
of the net recorded amount, an adjustment to the deferred tax asset would
increase income in the period such determination was made. Likewise, if it were
determined that we would not be able to realize all or part of the net deferred
tax asset in the future, an adjustment to the deferred tax asset would be
charged to income in the period such determination was made. Based on our recent
financial performance, in fiscal 2006 we continued to fully reserve against our
deferred tax asset.

NEW ACCOUNTING PRONOUNCEMENTS

In February 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 155, Accounting for Certain
Hybrid Financial Instruments--an amendment of FASB Statements No. 133 and 140
("SFAS 155"). SFAS 155 amends FASB Statements No. 133, Accounting for Derivative
Instruments and Hedging Activities and FASB Statement No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
SFAS 155 resolves issues addressed in Statement 133 Implementation Issue No. D1,
Application of Statement 133 to Beneficial Interests in Securitized Financial
Assets. More specifically, SFAS 155:

    1. Permits fair value remeasurement for any hybrid financial instrument that
       contains an embedded derivative that otherwise would require bifurcation.

    2. Clarifies which interest-only strips and principal-only strips are not
       subject to the requirements of Statement 133.

    3. Establishes a requirement to evaluate interests in securitized financial
       assets to identify interests that are freestanding derivatives or that
       are hybrid financial instruments that contain an embedded derivative
       requiring bifurcation.

    4. Clarifies that concentrations of credit risk in the form of subordination
       are not embedded derivatives.

    5. Amends Statement 140 to eliminate the prohibition on a qualifying
       special-purpose entity from holding a derivative financial instrument
       that pertains to a beneficial interest other than another derivative
       financial instrument.

SFAS 155 is effective for all financial instruments acquired or issued after the
beginning of an entity's first fiscal year that begins after September 15, 2006.
The Company has not determined the effect, if any, that the adoption of SFAS 155
will have on the Company's consolidated financial position or results of
operations.

In July 2006, FASB issued interpretation No. 48, Accounting for Uncertainty in
Income Taxes - an interpretation of FASB Statement No. 109 ("FIN 48"). This
interpretation clarifies the accounting for uncertainty in income taxes
recognized in financial statements in accordance that FASB Statement No. 109,
Accounting for Income Taxes. FIN 48 will require companies to determine whether
it is more-likely-than-not that a tax position taken or expected to be taken in
a tax return will be sustained upon examination, including resolution of any
related appeals or litigation processes, based on the technical merits of the
position. If a tax position meets the more-likely-than-not recognition
threshold, it is measured to determine the amount of benefit to recognize in the
financial statements based on guidance in the interpretation. FIN 48 is
effective for fiscal years beginning after December 15, 2006. The Company has
not determined the effect, if any, that the adoption of FIN 48 will have on the
Company's consolidated financial position or results of operations.

                                       17
<PAGE>

INFLATION

During fiscal 2006 and fiscal 2005, we contended with significant and rapidly
rising raw material prices. Over the long term, we believe we have generally
been able to offset the effects thereof through continuing improvements in
operating efficiencies and by increasing prices to our customers to the extent
permitted by competitive factors. However, we cannot assure you that such cost
increases can be passed through to our customers in the future or that the
effects can be offset by further improvements in operating efficiencies.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk inherent in the Company's financial instruments and positions
represents the potential loss arising from adverse changes in interest rates. At
June 30, 2006 and July 1, 2005 the principal amount of the Company's aggregate
outstanding variable rate indebtedness was $39.0 million and $12.0 million
respectively. A hypothetical 1% adverse change in interest rates would have had
an annualized unfavorable impact of approximately $0.4 million and $0.1 million
respectively, on the Company's earnings and cash flows based upon these year-end
debt levels.

ITEM 8. FINANCIAL STATEMENTS

     The financial statements commence on Page F-1.

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

     None

ITEM 9a. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.

The Company maintains disclosure controls and procedures designed to ensure that
information required to be disclosed in its Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to the Company's management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.

In connection with the completion of its audit of and the issuance of an
unqualified report on the Company's consolidated financial statements for the
fiscal year ended June 30, 2006, the Company's independent registered public
accounting firm, BDO Seidman, LLP ("BDO"), communicated to the Company's Audit
Committee that the following matters involving the Company's internal controls
and operations were considered to be "significant deficiencies", as defined
under standards established by the Public Company Accounting Oversight Board:

-    Lack of quantity of staff in order to ensure timeliness and completeness of
     financial reporting.

Management agrees with this assessment.

Significant deficiencies are matters coming to the attention of the independent
auditors that in their judgment, relate to material weaknesses in the design or
operation of internal controls that could adversely affect the Company's ability
to record, process, summarize and report financial data consistent with the
assertions of management in the financial statements. In addition, BDO has
advised the Company that they consider this matter, which is listed above, to be
a "material weakness" that, by itself, may increase the possibility that a
material misstatement in our financial statements might not be prevented or
detected by our employees in the normal course of performing their assigned
functions.


                                       18

<PAGE>

Over the last 12 months we have made a number of significant changes to our
internal controls. They include:

     (1)  creating of an internal audit department;

     (2)  adding additional staff to the accounting and finance functional group

     (3)  centralizing the reporting of financial managers to 4 group
          controllers who will provide increased oversight and improved
          training;

     (4)  during annual performance reviews of accounting and bookkeeping
          personnel; requiring all reviewing personnel to inquire whether the
          reviewed employee has had or observed any problems in the use of
          approved accounting systems or in the accounting function generally;

     (5)  improving its internal financial reporting systems and related
          controls across all of its divisions to, among other things, increase
          both the frequency by which inventory and rebates discounts and
          allowances are monitored as well as increasing the number of managers
          responsible for monitoring these functions;

     (6)  instituting a policy of performing routine credit and background
          checks on all financial staff and key managers; and

     (7)  beginning the process of centralizing our cash management function and
          significantly improving our controls over cash disbursements.

As required by SEC Rule 13a-15(b), the Company carried out an evaluation under
the supervision and with the participation of its management, including its
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operations of the Company's disclosure controls and procedures and
internal controls over financial reporting as of September 26, 2006 as well as
of June 30, 2006. Given the material weakness noted above, the Company's Chief
Executive Officer and Chief Financial Officer determined that its controls are
not effective as of those dates. However, the Chief Executive Officer and Chief
Financial Officer noted that significant improvement in its controls have been
made and they expect its controls can be improved further. Consequently, the
Company will continue to improve and refine its internal controls over the next
12 months.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Our current directors and executive officers are listed below. Each director is
elected at the annual meeting of the stockholders of Tekni-Plex to serve a one
year term until the next annual meeting or until a successor is elected and
qualified, or until his earlier resignation. Each executive officer holds his
office until a successor is chosen and qualified or until his earlier
resignation or removal.

Pursuant to our by-laws, we indemnify our officers and directors to the fullest
extent permitted by the General Corporation Law of the State of Delaware and our
certificate of incorporation.

<TABLE>
<CAPTION>
              NAME                AGE                   POSITION
              ----                ---                   --------
<S>                               <C>   <C>
Dr. F. Patrick Smith...........    58   Chairman of the Board, Chief Executive
                                        Officer and President
James E. Condon................    44   Chief Financial Officer, Vice President,
                                        Secretary and Director
Edward Goldberg................    57   Senior Vice President and Director
John S. Geer...................    61   Director
J. Andrew McWethy..............    65   Director
Michael F. Cronin..............    52   Director
</TABLE>

Dr. F. Patrick Smith has been Chairman of the Board and Chief Executive Officer
of Tekni-Plex since March 1994. He received his doctorate degree in chemical
engineering from Texas A&M University in 1975. He served as Senior Chemical
Engineer to Texas Eastman Company, a wholly owned chemical and plastics
subsidiary of Eastman Kodak, where he developed new grades of polyolefin resins
and hot melt and pressure sensitive adhesives. In 1979, he became Technical
Manager of the Petrochemicals and Plastics Division of Cities Service Company,
and a Member of the Business Steering Committee of that division. From 1982 to
1984, Dr. Smith was Vice President of R&D and Marketing for Guardian Packaging
Corporation, a diversified flexible packaging company. Thereafter, he joined
Lily-Tulip, Inc. and managed their research and marketing functions before
becoming Senior Vice President of Manufacturing and Technology. Following the
acquisition of Lily-Tulip by Fort Howard Corporation in 1986, he became the
Corporate Vice President of Fort Howard, responsible for the manufacturing and
technical functions of the combined Sweetheart Products and Lily-Tulip
operations. From 1987 to 1990, Dr. Smith was Chairman and Chief Executive
Officer of WFP Corporation. Since 1990, Dr. Smith has been a principal of Brazos
Financial Group, a business consulting firm. Since 2000, Dr. Smith has been a
general partner of Eastport Operating Partners L.P.


                                       19

<PAGE>

James E. Condon is a Senior Vice President, Secretary and Chief Financial
Officer of Tekni-Plex, Inc. He joined Tekni-Plex in 2001 and became a Director
in 2004. Prior to joining Tekni-Plex Mr. Condon was a Vice President at J.P.
Morgan Securities Inc.

Edward Goldberg is a Senior Vice President of the Company, and manages six of
its divisions. He has been with the company since June, 2001, and as of March,
2005 was appointed to serve on the Board of Directors. He received his BS and MS
degrees in Chemical Engineering from Rensselaer Polytechnic Institute in 1971.
He worked for P&G and The Scott Paper Company for a total of 25 years, in
diverse roles including Vice President of: Supply Systems; Business Development;
and Strategic Planning. Prior to leaving Scott Paper he was the company's U.S.
V.P. - Consumer Supply System. He subsequently worked for the Nice Pak and the
Lander corporations in senior management positions. His most specific field of
emphasis has been General Management for turn around situations.

John S. Geer has served as a director of Tekni-Plex since June 2000. He also
serves on the Executive Council of Century Park Capital Partners and on the
Board of the Robb Report. He is a former Partner of Mellon Ventures, Inc. and
former Senior Vice President of Security Pacific Capital Corp. He has served on
20 boards of directors of emerging growth and middle market companies.

J. Andrew McWethy has served as a director of Tekni-Plex since March 1994. He
co-founded and managed MST Partners L.P., a private equity investment fund, from
1989 to 2000. In 2000, Mr. McWethy co-founded Eastport Operating Partners, L.P.,
a private equity investment fund that he continues to manage. Prior to 1989, Mr.
McWethy was employed by Irving Trust Company for 12 years.

Michael F. Cronin has served as a director of Tekni-Plex since March 1994. He
has invested in emerging growth companies and various industrial and service
businesses since 1978. Since June 1991, Mr. Cronin has been a general partner of
Weston Presidio Capital.

COMPENSATION OF DIRECTORS

Tekni-Plex reimburses directors for any reasonable out-of-pocket expenses
incurred by them in connection with services provided in such capacity. In
addition, each outside director is paid an annual fee of $50,000.

COMPENSATION OF EXECUTIVE OFFICERS

The following table sets forth the remuneration paid by Tekni-Plex to the Chief
Executive Officer and other highly compensated executive officers of Tekni-Plex.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                       FISCAL                             STOCK       OTHER ANNUAL
             NAME & PRINCIPAL POSITION                  YEAR      SALARY      BONUS    OPTIONS (b)   COMPENSATION(a)
             -------------------------                 ------   ----------   -------   -----------   ---------------
<S>                                                    <C>      <C>          <C>       <C>           <C>
Dr. F. Patrick Smith................................    2006    $4,000,000   $    --        --           $48,694
   Chairman, Chief Executive Officer and President      2005     7,040,000        --        --            51,822
                                                        2004     6,655,000        --        --            54,941
Mr. James E. Condon.................................    2006       569,393        --        --             7,200
   Vice President and Chief Financial Officer           2005       558,000        --        --             7,200
                                                        2004       540,000        --        --             7,200
Mr. Edward Goldberg.................................    2006       260,000        --        --             6,900
   Senior Vice President & Director                     2005       260,000        --        --             6,900
                                                        2004       215,000    27,313        --             6,900
</TABLE>

----------
(a)  Includes amounts reimbursed during the fiscal year for payment of auto
     expense, membership fees, etc.

(b)  In fiscal 2006, Mr. Goldberg and Mr. Condon each received options to
     purchase 4 shares of Tekni-Plex stock with a strike price of $43,681 per
     share. These options have nominal, if any, value today.


                                       20

<PAGE>

                      OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                                                POTENTIAL REALIZABLE
                                                                                  VALUE AT ASSUMED
                            NUMBER OF     PERCENT OF                               ANNUAL RATES OF
                             COMMON          TOTAL      EXERCISE                     STOCK PRICE
                           SECURITIES    OPTIONS/SARS    OR BASE                  APPRECIATION FOR
                           UNDERLYING     GRANTED TO      PRICE                      OPTION TERM
                          OPTIONS/SARS   EMPLOYEES IN      PER     EXPIRATION   --------------------
          NAME               GRANTED      FISCAL YEAR     SHARE       DATE             5%   10%
          ----            ------------   ------------   --------   ----------         ---   ---
<S>                       <C>            <C>            <C>        <C>          <C>         <C>
Dr. F. Patrick Smith...           --           --%            --        --             --    --
Mr. James E. Condon....     4 shares         25.0%       $43,681      2016             $0    $0
Mr. Edward Goldberg....     4 shares         25.0%       $43,681      2016             $0    $0
</TABLE>

               AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                          AND FY-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
                                                               NUMBER OF
                                                               SECURITIES     VALUE ($000)
                                                               UNDERLYING    OF UNEXERCISED
                                                              UNEXERCISED     IN-THE-MONEY
                                                              OPTIONS/SARS    OPTIONS/SARS
                                                               AT FY-END        AT FY-END
                          SHARES ACQUIRED                     EXERCISABLE/    EXERCISABLE/
          NAME              ON EXERCISE     VALUE REALIZED   UNEXERCISABLE    UNEXERCISABLE
          ----            ---------------   --------------   -------------   --------------
<S>                       <C>               <C>              <C>             <C>
Dr. F. Patrick Smith...          --               --               --               --/--
Mr. James E. Condon....          --               --                8               --/--
Mr. Edward Goldberg....          --               --                4               --/--
</TABLE>

EMPLOYMENT AGREEMENTS

     In May 2005, Dr. Smith entered into amended and restated employment
agreement. The two year agreement provides for a $4,000,000 annual salary.

     The employment agreement provides that the executive may be terminated for
cause or upon death or disability. Dr. Smith is entitled to severance benefits
if he is terminated. The employment agreement also contain certain non-compete
provisions.

COMPENSATION COMMITTEE

     The board of directors maintains a two-member compensation committee
comprised of Dr. Smith, and Mr. Cronin. The compensation committee's duties
include the annual review and approval of the compensation for our Chief
Executive Officer, as well as the administration of our stock incentive plan. No
member of the compensation committee is allowed to vote on issues pertaining to
that member's compensation (including option grants). The board may also
delegate additional duties to the compensation committee in the future.

     Changes in Mr. Condon's compensation are subject to approval by Mr. Cronin.
Compensation levels and bonus awards for all other employees are controlled by
Dr. Smith.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Tekni-Plex Partners LLC holds approximately 96.3% and MST/TP Partners LLC
holds approximately 3.7% of Tekni-Plex's outstanding common stock.

     Tekni-Plex Management LLC, controlled by Dr. Smith, is the sole managing
member of both Tekni-Plex Partners LLC and MST/TP Partners LLC.


                                       21

<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CONSULTING ARRANGEMENTS

Our policy is not to enter into any significant transaction with one of our
affiliates unless a majority of the disinterested directors of the board of
directors determines that the terms of the transaction are at least as favorable
as those we could obtain in a comparable transaction made on an arm's-length
basis with unaffiliated parties. This determination is made in the board's sole
discretion.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

In accordance with the requirements of the Sarbanes-Oxley Act of 2002 and the
Audit Committee's charter, all audit and audit-related work and all non-audit
work performed by our independent accountants, BDO Seidman LLP, is approved in
advance by the Audit Committee, including the proposed fees for such work. The
Audit Committee is informed of each service actually rendered.

Audit and audit-related fees billed or expected to be billed to us by BDO
Seidman, LLP for the audit of the financial statements included in our Annual
Report on Form 10-K and reviews of the financial statements included in our
Quarterly Reports on Form 10-Q, for the fiscal years ended June 30, 2006 and
July 1, 2005 totaled approximately $895,000 and $110,000 and $882,000 and
$110,000, respectively. Audit related fees include reviews of offerings, SEC
comment letters, and employee benefit plan audits.

Tax preparation, review, and advisory services billed or expected to be billed
to us by BDO for the fiscal years ended June 30, 2006 and July 1, 2005 totaled
approximately $336,000 and $477,000, respectively.

No other services were provided to us by BDO Seidman, LLP during fiscal 2006
and 2005.

                                     PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) (1) Financial Statements and Schedules

        The financial statements listed in the Index to Financial Statements
        under Part II, Item 8 and the financial statement schedules listed under
        Exhibit 27 are filed as part of this annual report.

(a) (2) Financial Statement Schedule--Schedule II--Valuation and Qualifying
        Accounts

(a) (3) Exhibits

        The exhibits listed on the Index to Exhibits following the Signature
        Page herein are filed as part of this annual report or by incorporation
        by reference from the documents there listed.


                                       22

<PAGE>

                                   SIGNATURES

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

                                        TEKNI-PLEX, INC.


                                        By: /s/ F. PATRICK SMITH
                                            ------------------------------------
                                            F. Patrick Smith
                                            Chairman of the Board and Chief
                                            Executive Officer

Dated: September 28, 2006

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


                                        By: /s/ JAMES E. CONDON
                                            ------------------------------------
                                            James E. Condon
                                            Chief Financial Officer

Dated: September 28, 2006

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of Registrant
and in the capacities indicated, on September 28, 2006.

<TABLE>
<CAPTION>
              SIGNATURE                                   TITLE
              ---------                                   -----
<S>                                     <C>


/s/ F. PATRICK SMITH                    Chairman of the Board and Chief
-------------------------------------   Executive Officer
F. Patrick Smith


/s/ JAMES E. CONDON                     Vice President and Secretary and
-------------------------------------   Director
James E. Condon


/s/ EDWARD GOLDBERG                     Director
-------------------------------------
Edward Goldberg


/s/ JOHN S. GEER                        Director
-------------------------------------
John S. Geer


/s/ J. ANDREW MCWETHY                   Director
-------------------------------------
J. Andrew McWethy


/s/ MICHAEL F. CRONIN                   Director
-------------------------------------
Michael F. Cronin
</TABLE>


                                       23
<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
  NO.                                   DESCRIPTION
-------                                 -----------
<S>       <C>
3.1       Amended and Restated Certificate of Incorporation of Tekni-Plex,
          Inc.******

3.2       Amended and Restated By-laws of Tekni-Plex, Inc.*

3.3       Certificate of Incorporation of PureTec Corporation.*

3.4       By-laws of PureTec Corporation*

3.5       Certificate of Incorporation of Tri-Seal Holdings, Inc.*

3.6       By-laws of Tri-Seal Holding, Inc.*

3.7       Certificate of Incorporation of Natvar Holdings, Inc.*

3.8       By-laws of Natvar Holdings.*

3.9       Certificate of Incorporation of Plastic Specialties and Technologies,
          Inc.*

3.10      By-laws of Plastic Specialties and Technologies, Inc.*

3.11      Certificate of Incorporation of Plastic Specialties and Technologies
          Investments, Inc.*

3.12      By-laws of Plastic Specialties and Technologies Investments, Inc.*

3.13      Certificate of Incorporation of Burlington Resins, Inc.*

3.14      By-laws of Burlington Resins, Inc.*

3.15      Certificate of Incorporation of TPI Acquisition Subsidiary, Inc.**

3.16      By-laws of TPI Acquisition Subsidiary, Inc.**

3.17      Certificate of Incorporation of Distributors Recycling, Inc.*

3.18      By-laws of Distributors Recycling, Inc.*

3.19      Certificate of Incorporation of TP-Elm Acquisition Subsidiary, Inc.**

3.20      By-laws of TP-Elm Acquisition Subsidiary, Inc.**

4.1       Indenture, dated as of June 21, 2000 among Tekni-Plex, Inc., the
          Guarantors listed therein and HSBC Bank USA, as Trustee.*

4.2       First Supplemental Indenture, dated as of May 6, 2002 among
          Tekni-Plex, Inc., TPI Acquisition Subsidiary, Inc. and HSBC Bank USA,
          as Trustee**

4.3       Second Supplemental Indenture, dated as of August 22, 2002 among
          Tekni-Plex, Inc., TP-Elm Acquisition Subsidiary, Inc. and HSBC Bank
          USA, as Trustee**

4.4       Third Supplemental Indenture, dated as of April 25, 2005 among
          Tekni-Plex, Inc., the Guarantors listed therein and HSBC Bank USA,
          National Association, as Trustee*****

4.5       Purchase Agreement, dated as of November 12, 2003 among Tekni-Plex,
          Inc., the Guarantors listed therein, and Lehman Brothers Inc. and
          Citigroup Global Markets Inc.***

4.6       Registration Right Agreement, dated as of November 21, 2003 among
          Tekni-Plex, Inc., the
</TABLE>


                                       24

<PAGE>

<TABLE>
<S>       <C>
          Guarantors listed therein, and Lehman Brothers Inc. and Citigroup
          Global Markets Inc.***

4.7       Indenture, dated as of November 21, 2003 among Tekni-Plex, Inc., the
          Guarantors listed therein and HSBC Bank USA, as Trustee.***

4.8       Purchase Agreement, dated as of June 7, 2005 among Tekni-Plex,Inc.,
          the Guarantors listed therein, and Citigroup Global MarketsInc. and
          Lehman Brothers Inc.*******

4.9       Registration Right Agreement, dated as of June 10, 2005 among
          Tekni-Plex, Inc., the Guarantors listed therein, and Citigroup Global
          Markets Inc. and Lehman Brothers Inc.*******

4.10      Indenture, dated as of June 10, 2005 among Tekni-Plex, Inc., the
          guarantors party thereto and HSBC Bank USA, National Association, as
          Trustee*****

10.1      Credit Agreement, dated as of June 21, 2000, among Tekni-Plex, Inc.,
          the Guarantors party thereto, the Lenders party thereto, the LC
          Issuing Banks referred to therein and Morgan Guaranty Trust Company of
          New York.*

10.1.1    First Amendment to the Credit Agreement dated September 26, 2001***

10.1.2    Second Amendment to the Credit Agreement dated November 1, 2001***

10.1.3    Third Amendment to the Credit Agreement dated September 22, 2003***

10.2      Second Amended and Restated Employment Agreement dated May 13,
          2005****

10.3      Credit Agreement, dated as of June 10, 2005 among the Company, the
          lenders and issuers party thereto, Citicorp USA, Inc., as
          Administrative Agent and General Electric Capital Corporation, as
          Syndication Agent.*****

31.1      Certification of Chief Executive Officer, as required by Section 302
          of the Sarbanes-Oxley Act of 2002********

31.2      Certification of Chief Financial Officer, as required by Section 302
          of the Sarbanes-Oxley Act of 2002********

32.1      Certification of Chief Executive Officer and Chief Financial Officer,
          pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
          of the Sarbanes-Oxley Act of 2002********
</TABLE>

----------
*        Filed previously as an Exhibit to our Registration Statement on Form
         S-4 (File No. 333-43800) filed on August 15, 2000.

**       Filed previously as an Exhibit to our Registration Statement on Form
         S-4 (File No. 333-98561) filed on August 22, 2002.

***      Filed previously as an Exhibit to our Registration Statement on Form
         S-4 (File No. 333-111778) filed on January 8, 2004.

****     Filed previously as an Exhibit to our Form 8-K filed on May 19, 2005.

*****    Filed previously as an Exhibit to our Form 8-K filed on June 16, 2005.

******   Filed previously as an Exhibit to our Registration Statement on Form
         S-4/A (File No. 333-111778) filed on July 13, 2005.

*******  Filed previously as an Exhibit to our Registration Statement on Form
         S-4 (File No. 333-127404) filed on August 10, 2005.

******** Filed herewith.


                                       25

<PAGE>

                                TEKNI-PLEX, INC.
                       CONSOLIDATED FINANCIAL STATEMENTS
             YEARS ENDED JUNE 30, 2006, JULY 1, 2005, JUNE 2, 2004

<TABLE>
<CAPTION>
                                                                        CONTENTS
                                                                        --------
<S>                                                                     <C>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED FINANCIAL STATEMENTS:
   Balance sheets
   Statements of operations
   Statements of stockholders' deficit
   Statements of cash flows
   Notes to financial statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
   SUPPLEMENTAL SCHEDULE

SUPPLEMENTAL SCHEDULE:
   Valuation and qualifying accounts and reserves
</TABLE>


                                       26

<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
Tekni-Plex, Inc.
Somerville, New Jersey

We have audited the accompanying consolidated balance sheets of Tekni-Plex, Inc.
and its subsidiaries (the "Company") as of June 30, 2006 and July 1, 2005, and
the related consolidated statements of operations, stockholders' deficit and
cash flows for each of the three years in the period ended June 30, 2006. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tekni-Plex, Inc. and
its subsidiaries as of June 30, 2006 and July 1, 2005, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 2006, in conformity with accounting principles generally accepted in
the United States of America.


/s/ BDO Seidman, LLP
Woodbridge, New Jersey

September 8, 2006


                                       27
<PAGE>

                                                                TEKNI-PLEX, INC.

                                                     CONSOLIDATED BALANCE SHEETS
                      (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                      JUNE 30, 2006   JULY 1, 2005
                                                      -------------   ------------
<S>                                                   <C>             <C>
ASSETS
CURRENT:
   Cash                                                 $  20,689      $  18,584
   Accounts receivable, net of allowances of
      $7,070 and $9,144 respectively                      145,699        138,383
   Inventories                                            135,758        129,617
   Prepaid expenses and other current assets                5,363          5,845
                                                        ---------      ---------
      Total current assets                                307,509        292,429
Property, plant and equipment, net                        167,787        176,182
Goodwill                                                  167,284        198,532
Intangible assets, net of accumulated amortization
   of $6,806 and $4,943 respectively                        4,096          6,110
Deferred charges, net of accumulated amortization of
   $15,229 and $12,817 respectively                        14,618         16,677
Other assets                                                2,061          1,765
                                                        ---------      ---------
                                                        $ 663,355      $ 691,695
                                                        =========      =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
   Current portion of long term debt                    $   1,241      $   1,082
   Accounts payable - trade                                39,532         48,060
   Accrued payroll and benefits                            16,057         12,185
   Accrued interest                                        11,427          6,385
   Accrued liabilities - other                             17,787         17,508
   Income taxes payable                                     6,050          6,391
                                                        ---------      ---------
      Total current liabilities                            92,094         91,611
Long-term debt                                            772,907        744,613
Series A redeemable preferred stock                        75,473         54,822
Other liabilities                                          11,812         13,976
                                                        ---------      ---------
      Total liabilities                                   952,286        905,022
                                                        ---------      ---------
Stockholders' deficit:
   Common stock                                                --             --
   Additional paid-in capital                             188,018        188,018
   Accumulated other comprehensive loss                    (1,587)       (10,294)
   Accumulated deficit                                   (254,839)      (170,528)
   Less treasury stock                                   (220,523)      (220,523)
                                                        ---------      ---------
      Total stockholders' deficit                        (288,931)      (213,327)
                                                        ---------      ---------
                                                        $ 663,355      $ 691,695
                                                        =========      =========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       28

<PAGE>

                                                                TEKNI-PLEX, INC.

                                           CONSOLIDATED STATEMENTS OF OPERATIONS
                                                          (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                     YEARS ENDED                       JUNE 30, 2006  JULY 1, 2005   JULY 2, 2004
                     -----------                       -------------  ------------   ------------
<S>                                                    <C>            <C>            <C>
Net sales                                                 $742,683      $695,524      $635,642
Cost of sales                                              621,983       600,170       530,372
                                                          --------      --------      --------
      Gross profit                                         120,700        95,354       105,270
Operating expenses:
   Selling, general and administrative                      96,490        60,690        69,159
   Integration expenses                                      5,250        10,478         7,775
                                                          --------      --------      --------
      Income from operations                                18,960        24,186        28,336
Other (income) expenses:
   Interest, net                                           104,831        89,899        84,451
   Unrealized (gain) on derivative contracts                (3,800)       (8,287)      (10,654)
   Other                                                    (2,737)       (2,194)          605
                                                          --------      --------      --------
      (Loss) before provision for income taxes             (79,334)      (55,232)      (46,066)
Provision for income taxes                                   4,977        26,247        11,121
                                                          --------      --------      --------
Net (loss)                                                $(84,311)     $(81,479)     $(57,187)
                                                          ========      ========      ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       29

<PAGE>

                                                                TEKNI-PLEX, INC.

                                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                                                          (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                           ACCUMULATED
                                                             ADDITIONAL       OTHER
                                                               PAID-IN    COMPREHENSIVE   ACCUMULATED    TREASURY
                                              COMMON STOCK     CAPITAL         LOSS         DEFICIT       STOCK       TOTAL
                                              ------------   ----------   -------------   -----------   ---------   ---------
<S>                                           <C>            <C>          <C>             <C>           <C>         <C>
BALANCE, JUNE 27, 2003                          $   --        $188,018      $ (1,737)      $ (31,862)   $(220,523)  $ (66,104)
Net loss, restated                                  --              --            --         (57,187)          --     (57,187)
Foreign currency translation                        --              --          (771)             --           --        (771)
Unrealized loss on pension plan, net of tax         --              --        (3,492)             --           --      (3,492)
                                                                                                                    ---------
   Comprehensive (loss)                             --              --            --              --           --     (61,450)
Capital Contributions                               --          22,500            --              --           --      22,500
                                                   ---        --------      --------       ---------    ---------   ---------
BALANCE, JULY 2, 2004                               --         210,518        (6,000)        (89,049)    (220,523)   (105,054)
Net loss                                            --              --            --         (81,479)          --     (81,479)
Foreign currency translation                        --              --            (4)             --           --          (4)
Unrealized loss on pension plan, net of tax         --              --        (4,290)             --           --      (4,290)
                                                                                                                    ---------
   Comprehensive loss                               --              --            --              --           --     (85,773)
Exchange of Capital for Series A redeemable
   preferred stock (see Note 7E)                    --         (22,500)           --              --           --     (22,500)
                                                   ---        --------      --------       ---------    ---------   ---------
BALANCE, JULY 1, 2005                               --         188,018       (10,294)       (170,528)    (220,523)   (213,327)
Net loss                                            --              --            --         (84,311)          --     (84,311)
Foreign currency translation                        --              --         3,680              --           --       3,680
Unrealized gain on pension plan, net of tax         --              --         5,027              --           --       5,027
                                                                                                                    ---------
   Comprehensive loss                               --              --            --              --           --     (75,604)
                                                   ---        --------      --------       ---------    ---------   ---------
BALANCE, June 30, 2006                             $--        $188,018      $ (1,587)      $(254,839)   $(220,523)  $(288,931)
                                                              ========      ========       =========    =========   =========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       30

<PAGE>

                                                              TEKNI - PLEX, INC.

                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                          (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                        YEARS ENDED                              JUNE 30, 2006   JULY 1, 2005   JULY 2, 2004
                        -----------                              -------------   ------------   ------------
<S>                                                               <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net (loss)                                                       $(84,311)      $(81,479)     $ (57,187)
   Adjustments to reconcile net (loss) to net cash
      (used in) operating activities:
      Depreciation                                                    26,191         25,857         25,377
      Amortization                                                     5,805          6,796          6,927
      Goodwill impairment                                             35,131             --         10,000
      Unrealized (gain) loss on derivative contracts                  (3,800)        (8,287)       (10,654)
      Provision for bad debts                                          1,044          1,970          2,316
      Interest accretion                                              15,228
      Deferred income taxes                                               30         21,247          7,290
      Gain on sale of assets                                          (2,856)            --            177
      Changes in assets and liabilities
         Accounts receivable                                          (7,117)        (2,328)        (4,806)
         Inventories                                                  (5,606)        20,601         10,031
         Prepaid expenses and other current assets                       678            960            129
         Other assets                                                     --           (561)            76
         Accounts payable and other current liabilities               (8,139)        (6,491)         2,600
         Income taxes payable                                           (341)         4,538         (2,318)
         Other liabilities                                            16,864         (7,284)         2,678
                                                                    --------       --------      ---------
            Net cash used in operating activities                    (11,199)       (24,461)        (7,364)
                                                                    --------       --------      ---------
Cash flows from investing activities:
   Capital expenditures                                              (19,082)       (18,246)       (29,472)
   Additions to intangibles                                           (3,638)          (754)        (6,000)
   Proceeds from sale of assets                                        4,142             --          1,346
   Deposits and other assets                                            (296)            --
                                                                    --------       --------      ---------
            NET CASH (USED IN) INVESTING ACTIVITIES                  (18,874)       (19,000)       (34,126)
                                                                    --------       --------      ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Net borrowings (repayments) under line of credit                   27,000        (64,000)       (15,000)
   Proceeds from long-term debt                                           --        146,318        267,438
   Proceeds from issue of Series A redeemable preferred stock          5,423         32,322             --
   Repayments of long-term debt                                          (17)       (71,648)      (248,658)
   Proceeds from capital contributions                                    --             --         22,500
   Debt financing costs                                                  192        (10,720)        (2,767)
                                                                    --------       --------      ---------
            Net cash provided by financing activities                 32,598         32,272         23,513
                                                                    --------       --------      ---------
Effect of exchange rate changes on cash                                 (420)            38           (350)
                                                                    --------       --------      ---------
Net increase (decrease) in cash and cash equivalents                   2,105        (11,151)       (18,327)
Cash, and cash equivalents beginning of year                          18,584         29,735         48,062
                                                                    --------       --------      ---------
Cash, and cash equivalents end of year                              $ 20,689       $ 18,584      $  29,735
                                                                    ========       ========      =========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       31
<PAGE>

                                                                TEKNI-PLEX, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN THOUSANDS, EXCEPT PERCENTAGES AND SHARE AMOUNTS)

<TABLE>
<S>                              <C>
1. SUMMARY OF ACCOUNTING         Nature of Business
   POLICIES
                                 Tekni-Plex, Inc. and its subsidiaries
                                 ("Tekni-Plex" or the "Company") is a global,
                                 diversified manufacturer of packaging,
                                 packaging products, and materials as well as
                                 tubing products. The Company primarily serves
                                 the food, healthcare and consumer markets. The
                                 Company has built a leadership position in its
                                 core markets, and focuses on vertically
                                 integrated production of highly specialized
                                 products. The Company's operations are aligned
                                 under three primary business groups: Packaging,
                                 Tubing Products, and Other.

                                 Consolidation Policy

                                 The consolidated financial statements include
                                 the financial statements of Tekni-Plex, Inc.
                                 and its wholly owned subsidiaries. All
                                 intercompany transactions and balances have
                                 been eliminated in consolidation.

                                 Accounts Receivable and Allowance for Possible
                                 Losses

                                 Accounts receivable are customer obligations
                                 due under normal trade terms. The Company sells
                                 its products primarily to large manufacturers,
                                 retailers, and pharmaceutical companies. The
                                 Company performs continuing credit evaluations
                                 of its customers' financial condition and
                                 although the Company generally does not require
                                 collateral, letters of credit may be required
                                 from its customers in certain circumstances.
</TABLE>


                                       32

<PAGE>

<TABLE>
<S>                              <C>
                                 Management reviews accounts receivable on a
                                 monthly basis to determine if any receivables
                                 will potentially be uncollectible. The Company
                                 includes any accounts receivable balances that
                                 are determined to be uncollectible, along with
                                 a general reserve, in its overall allowance for
                                 possible losses. After all attempts to collect
                                 a receivable have failed, the receivable is
                                 written off against the allowance. Based on the
                                 information available, the Company believes its
                                 allowance for possible losses as of June 30,
                                 2006 is adequate. However, actual write-offs
                                 might exceed the recorded allowance.

                                 Inventories

                                 Inventories are stated at the lower of cost
                                 (weighted average) or market.

                                 Property, Plant and Equipment

                                 Property, plant and equipment are stated at
                                 cost. Depreciation and amortization are
                                 computed over the estimated useful lives of the
                                 assets primarily on the straight-line method
                                 for financial reporting purposes and by
                                 accelerated methods for income tax purposes.
                                 Repairs and maintenance are charged to expense
                                 as incurred.

                                 Intangible Assets (other than goodwill)

                                 The cost of acquiring certain patents,
                                 trademarks, and customer lists is amortized
                                 over their estimated useful lives.

                                 Deferred Financing Costs

                                 The Company amortizes the deferred financing
                                 costs incurred in connection with the Company's
                                 borrowings over the life of the related
                                 indebtedness utilizing the straight-line method.

                                 Income Taxes

                                 Deferred income tax assets and liabilities are
                                 recognized for differences between the
                                 financial statement and income tax basis of
                                 assets and liabilities based upon statutory
                                 rates enacted for future periods. Valuation
                                 allowances are established when necessary to
                                 reduce deferred tax assets to the amount
                                 expected to be realized.

                                 Revenue Recognition

                                 The Company recognizes revenue when title and
                                 risk of loss has transferred to the customer
                                 which is when goods are shipped to customers.
                                 The Company provides for returned goods and
                                 volume rebates on an estimated basis based upon
                                 agreements and past experience.

                                 Sales Allowances

                                 The Company accounts for sales allowances,
                                 including volume rebates and advertising
                                 programs, on an accrued basis as a reduction in
                                 net revenue in the period in which the sales
                                 are recognized.

                                 Shipping and Handling Costs

                                 Shipping and handling costs are included in
                                 cost of sales.

                                 Research and Development
</TABLE>


                                       33

<PAGE>

<TABLE>
<S>                              <C>
                                 Research and development expenditures for the
                                 Company's projects are expensed as incurred.

                                 Cash Equivalents

                                 The Company considers all highly liquid
                                 instruments with an original maturity of three
                                 months or less to be cash equivalents.

                                 Fiscal Year-End

                                 The Company utilizes a 52/53 week fiscal year
                                 ending on the Friday closest to June 30. The
                                 years ended June 30, 2006 and July 1, 2005 each
                                 contained 52 weeks, and July 2, 2004 contained
                                 53 weeks.

                                 Reclassifications

                                 Certain items in the prior year financial
                                 statements have been reclassified to conform to
                                 the current year presentation.

                                 Foreign Currency Translation

                                 Assets and liabilities of international
                                 subsidiaries are translated at year-end
                                 exchange rates and related translation
                                 adjustments are reported as a component of
                                 accumulated other comprehensive (loss). The
                                 statement of operations accounts are translated
                                 at the average rates during the period.

                                 Long-Lived Assets

                                 Long-lived assets, including goodwill, are
                                 evaluated each fiscal year-end for impairment
                                 or when events or changes in circumstances
                                 indicate that the carrying amount of the assets
                                 may not be recoverable through the estimated
                                 undiscounted future cash flows from the use of
                                 these assets. When such impairments exist, the
                                 related assets will be written down to fair
                                 value based on the net present value of
                                 estimated future cash flows. The related charge
                                 is included in selling, general and
                                 administrative expenses in the Statement of
                                 Operations.

                                 Use of estimates

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

                                 Stock Based Compensation

                                 The Company applies the provisions of SFAS No.
                                 123, "Accounting for Stock-Based Compensation.
                                 Had compensation cost been determined based on
                                 the fair value at the grant dates for these
                                 awards consistent with the method of SFAS No.
                                 123, the Company's net (loss) would have
                                 increased to the pro forma amounts indicated
                                 below. The calculations were based on a risk
                                 free interest rate of 4.0%, expected volatility
                                 of zero, a dividend yield of zero, and expected
                                 lives of 8 years.
</TABLE>


                                       34

<PAGE>

<TABLE>
<S>                              <C>

          YEARS ENDED            JUNE 30, 2006   JULY 1, 2005   JULY 2, 2004
          -----------            -------------   ------------   ------------
Net (loss):
   As reported                     $(84,311)       $(81,479)      $(57,187)
   Adjustment for fair value
      of stock options,                  --             (12)           (88)
                                   --------        ---------      --------
   Pro forma net (loss)            $(84,311)       $(81,491)      $(57,275)
                                   ========        =========      ========

                                 Derivative Instruments

                                 All derivative instruments, such as interest
                                 rate swaps, are recognized in the financial
                                 statements and measured at their fair market
                                 value. Changes in the fair market value of
                                 derivative instruments are recognized each
                                 period in current operations or stockholders'
                                 equity (as a component of accumulated other
                                 comprehensive loss), depending on whether a
                                 derivative instrument qualifies as a hedge
                                 transaction.

                                 In the normal course of business, Tekni-Plex is
                                 exposed to changes in interest rates. The
                                 objective in managing its exposure to interest
                                 rates is to decrease the volatility that
                                 changes in interest rates might have on
                                 operations and cash flows. To achieve this
                                 objective, Tekni-Plex uses interest rate swaps
                                 and caps to hedge a portion of total long-term
                                 debt that is subject to variable interest
                                 rates. These derivative contracts are
                                 considered to be a hedge against changes in the
                                 amount of future cash flows associated with the
                                 interest payments on variable-rate debt
                                 obligations, however, they do not qualify for
                                 hedge accounting. Accordingly, the interest
                                 rate swaps are reflected at fair value in the
                                 Consolidated Balance Sheet and the related
                                 gains or losses on these contracts are recorded
                                 as an unrealized gain or loss from derivative
                                 instruments in the Consolidated Statements of
                                 Operations. These are the only derivative
                                 instruments held by Tekni-Plex as of June 30,
                                 2006. The fair value of derivative contracts
                                 are determined based on quoted market values
                                 obtained from a third party.

                                 In June 2000, Tekni-Plex had $344,000 of term
                                 loans outstanding with variable rates of
                                 interest tied to US$ LIBOR. These loans, which
                                 originally had maturity dates ranging from June
                                 2006 through June 2008, have been repaid.
                                 Concurrent with incurring this debt, Tekni-Plex
                                 entered into a series of interest swap
                                 contracts to pay variable rates of interest
                                 based on a basket of LIBOR benchmarks and
                                 receive variable rates of interest based on a 3
                                 month dollar LIBOR on an aggregate of $344,000
                                 amount of indebtedness. The amortization
                                 schedule on the term loans was the same as the
                                 amortization schedule on the swaps. As of June
                                 30, 2006 the notional amount of the swaps is
                                 $230,000.

                                 Portfolio theory and empirical evidence
                                 suggested that the change in value of a basket
                                 of LIBOR benchmarks would be less volatile than
                                 the change in value of a single benchmark.
                                 Since 2000, this has generally been our
                                 experience.

                                 In conjunction with its swap contracts
                                 Tekni-Plex also purchased an interest rate cap.
                                 Tekni-Plex believes the reduced volatility
                                 created by the interest rate swaps made the
                                 interest rate cap less expensive.


</TABLE>


                                       35

<PAGE>

                                 <TABLE>
<S>                              <C>
                                 The aggregate fair market value of these
                                 interest rate swaps and cap contracts was
                                 $(979), $(4,779) and $(13,065) on June 30,
                                 2006, July 1, 2005 and July 2, 2004,
                                 respectively, and is included in other
                                 liabilities on the Consolidated Balance Sheet.
                                 For the years ended June 30, 2006, July 1, 2005
                                 and July 2, 2004, Tekni-Plex recognized
                                 unrealized gains of $3,800, $8,287 and $10,654,
                                 respectively.

                                 Goodwill and Business Combinations

                                 The Company no longer amortizes goodwill, but
                                 instead tests goodwill for impairment at least
                                 annually. This test is performed every year as
                                 of our fiscal year-end. In addition, the
                                 Company identified reporting units for the
                                 purposes of assessing potential future
                                 impairments of goodwill, and when necessary,
                                 reassesses the useful lives of other existing
                                 recognized intangible assets.

                                 The Company completed its year-end analysis of
                                 goodwill and has concluded that there is no
                                 impairment charge as of June 30, 2006 and July
                                 1, 2005. In September 2005, we concluded our
                                 annual garden hose contract negotiations. While
                                 we were largely successful in securing our
                                 target price increases, we lost meaningful
                                 market share. With this information in mind, in
                                 the second quarter of fiscal 2006 we deemed it
                                 appropriate to retest the goodwill in our
                                 Tubing segment. Accordingly, we recorded a
                                 $35.1 million impairment charge against the
                                 goodwill associated with our Swan operations as
                                 we anticipate reducing the capacity of this
                                 operation, and eliminating much of its fixed
                                 costs to reflect our reduced market position.
                                 An impairment charge of $10.0 million was
                                 required for the year ended July 2, 2004. This
                                 impaired goodwill resulted from the recent
                                 losses of our Specialty Resin operations of our
                                 Other Segment.

                                 New Accounting Pronouncements

4
                                 In February 2006, the Financial Accounting
                                 Standards Board ("FASB") issued Statement of
                                 Financial Accounting Standards No. 155,
                                 Accounting for Certain Hybrid Financial
                                 Instruments--an amendment of FASB Statements
                                 No. 133 and 140 ("SFAS 155"). SFAS 155 amends
                                 FASB Statements No. 133, Accounting for
                                 Derivative Instruments and Hedging Activities
                                 and FASB Statement No. 140, Accounting for
                                 Transfers and Servicing of Financial Assets and
                                 Extinguishments of Liabilities. SFAS 155
                                 resolves issues addressed in Statement 133
                                 Implementation Issue No. D1, Application of
                                 Statement 133 to Beneficial Interests in
                                 Securitized Financial Assets. More
                                 specifically, SFAS 155:

                                 1. Permits fair value remeasurement for any
                                    hybrid financial instrument that contains an
                                    embedded derivative that otherwise would
                                    require bifurcation.

                                 2. Clarifies which interest-only strips and
                                    principal-only strips are not subject to the
                                    requirements of Statement 133.

                                 3. Establishes a requirement to evaluate
                                    interests in securitized financial assets to
                                    identify interests that are freestanding
                                    derivatives or that are hybrid financial
                                    instruments that contain an embedded
                                    derivative requiring bifurcation.

                                 4. Clarifies that concentrations of credit risk
                                    in the form of subordination are not
                                    embedded derivatives.

                                 5. Amends Statement 140 to eliminate the
                                    prohibition on a qualifying special-purpose
                                    entity from holding a derivative financial
                                    instrument that pertains to a beneficial
                                    interest other than another derivative
                                    financial instrument.

                                 SFAS 155 is effective for all financial
                                 instruments acquired or issued after the
                                 beginning of an entity's first fiscal year that
                                 begins after September 15, 2006. The Company
                                 has not determined the effect, if any, that the
                                 adoption of SFAS 155 will have on the Company's
                                 consolidated financial position or results of
                                 operations.

                                 In July 2006, FASB issued interpretation No.
                                 48, Accounting for Uncertainty in Income Taxes
                                 - an interpretation of FASB Statement No. 109
                                 ("FIN 48"). This interpretation clarifies the
                                 accounting for uncertainty in income taxes
                                 recognized in financial statements in
                                 accordance that FASB Statement No. 109,
                                 Accounting for Income Taxes. FIN 48 will
                                 require companies to determine whether it is
                                 more-likely-than-not that a tax position taken
                                 or expected to be taken in a tax return will be
                                 sustained upon examination, including
                                 resolution of any related appeals or litigation
                                 processes, based on the technical merits of the
                                 position. If a tax position meets the
                                 more-likely-than-not recognition threshold, it
                                 is measured to determine the amount of benefit
                                 to recognize in the financial statements based
                                 on guidance in the interpretation. FIN 48 is
                                 effective for fiscal years beginning after
                                 December 15, 2006. The Company has not
                                 determined the effect, if any, that the
                                 adoption of FIN 48 will have on the Company's
                                 consolidated financial position or results of
                                 operations.








</TABLE>


                                       36
<PAGE>

<TABLE>
<S>                              <C>
2. RECAPITALIZATION              In June 2000, the Company entered into a
                                 Recapitalization (the "Recapitalization") with
                                 certain of its stockholders, whereby the
                                 Company purchased approximately 51% of the
                                 outstanding stock for approximately $220,500
                                 including related transaction fees. This stock
                                 has been reflected as treasury stock in the
                                 accompanying balance sheet.

                                 As a result of provisions in the Company's
                                 Senior Debt and Subordinated Note Agreements,
                                 the Company redeemed its $200,000 9 1/4%
                                 Senior Subordinated Notes, its $75,000 11 1/4%
                                 Senior Subordinated Notes and repaid its Senior
                                 Debt in the amount of approximately $153,000
                                 during 2000.

                                 These transactions were funded by $43,101 of
                                 new equity, $275,000 12 3/4% Senior
                                 Subordinated Notes (see Note 7(b)) and initial
                                 borrowings of $374,000 on a $444,000 Senior
                                 Credit Facility (see Note 7(a)).

3. ACQUISITIONS                  (a)  In July 2004, the Company acquired
                                      substantially all the net assets of the
                                      egg carton business of Genpak ("Genpak")
                                      for $5,780. Genpak produces a variety of
                                      foam products, including foam egg cartons.
                                      The financial results of the Genpak
                                      transaction are included in the Packaging
                                      Segment. The acquisition was recorded
                                      under the purchase method, whereby the
                                      acquired Genpak net assets were recorded
                                      at estimated fair value, and its
                                      operations have been reflected in the
                                      statement of operations since that date.
</TABLE>

                                       37

<PAGE>


                             (b) In July 2002, the Company acquired
                                 substantially all the net assets of Elm
                                 Packaging Company ("ELM") for $16,762. Elm
                                 produces polystyrene foam plates, bowls, and
                                 meat and bakery trays. The financial results of
                                 Elm are included in the Packaging segment. The
                                 acquisition was recorded under the purchase
                                 method. In connection with the acquisition, the
                                 Company incurred an integration reserve of $4.5
                                 million. The components of the Integration
                                 reserve and activity through June 30, 2006 was
                                 as follows:

<Table>
<Caption>
                                              COSTS                   COSTS   BALANCE    COSTS    BALANCE
                                  BALANCE  CHARGED TO    BALANCE   CHARGED TO JULY 1, CHARGED TO JUNE 30,
                                 JULY 2003   RESERVE  JULY 2, 2004   RESERVE    2005    RESERVE    2006
                                 --------- ---------- ------------ ---------- ------- ---------- --------
<S>                              <C>       <C>         <C>           <C>     <C>        <C>     <C>
Legal and environmental
   liability                       $2,500    $1,337      $1,163        $19     $1,144     $26     $1,118
                                   ------    ------      ------        ---     ------     ---     ------
                                   $2,500    $1,337      $1,163        $19     $1,144     $26     $1,118
                                   ======    ======      ======        ===     ======     ===     ======
</Table>

                                 The remaining legal and environmental costs are
                                 expected to extend over the next four years.
                                 TEKNI-PLEX, INC.

                             (c) In October 2001, the Company purchased certain
                                 assets and assumed certain liabilities of Swan
                                 for approximately $63,600. Swan is a
                                 manufacturer of garden hose. The financial
                                 results of Swan are included in the tubing
                                 segment. The acquisition was recorded under the
                                 purchase method, whereby Swan's net assets were
                                 recorded at estimated fair value and its
                                 operations have been reflected in the statement
                                 of operations since that date.

                                 In connection with the acquisition, the Company
                                 incurred an integration reserve of $10 million.
                                 The components of the Integration reserve and
                                 activity through June 30, 2006 was as follows:

<Table>
<Caption>
                                                       COSTS           COSTS           COSTS
                                              BALANCE CHARGED BALANCE CHARGED BALANCE CHARGED BALANCE
                                             JUNE 27,    TO   JULY 2,    TO   JULY 1,    TO   JUNE 30,
                                               2003   RESERVE   2004  RESERVE   2005  RESERVE   2006
                                             -------- ------- ------- ------- ------- ------- -------
<S>                                          <C>      <C>     <C>     <C>     <C>     <C>     <C>
Legal and environmental                       $2,500  $1,219   $1,281   $316    $965    $216    $749
                                              ------  ------   ------   ----    ----    ----    ----
                                              $2,500  $1,219   $1,281   $316    $965    $216    $749
                                              ======  ======   ======   ====    ====    ====    ====
</Table>



                                       38

<PAGE>

<TABLE>
<S>                              <C>
                                 Company.

4. INVENTORIES                   Inventories are summarized as follows:


                                 JUNE 30, 2006   JULY 1, 2005
                                 -------------   ------------
Raw materials                       $ 60,715       $ 53,450
Work-in-process                       12,834         12,466
Finished goods                        62,209         63,701
                                    --------       --------
                                    $135,758       $129,617
                                    ========       ========

5. PROPERTY, PLANT AND           Property, plant and equipment consists of the
   EQUIPMENT                     following:

                                                                  ESTIMATED
                                 JUNE 30, 2006   JULY 1, 2005   USEFUL LIVES
                                 -------------   ------------   -------------
Land                               $ 15,832        $ 15,870
Building and improvements            61,299          59,258     25 - 40 years
Machinery and equipment             263,088         238,929      5 - 10 years
Furniture and fixtures               10,937           9,482      5 - 10 years
Construction in progress              8,666          18,048
                                   --------        --------
                                    359,822         341,587
Less accumulated depreciation       192,035         165,405
                                   --------        --------
                                   $167,787        $176,182
                                   ========        ========

6. INTANGIBLE ASSETS             Intangible assets consist of the following:

                                 JUNE 30, 2006   JULY 1, 2005
                                 -------------   ------------
Goodwill                            $167,284       $198,532
Customer list and non-compete
   agreement                           8,541          8,756
Patents                                2,361          2,297
                                    --------       --------
                                     178,186        209,585
Less accumulated amortization          6,806          4,943
                                    --------       --------
                                    $171,380       $204,642
                                    ========       ========

                                 Amortization of customer list and non-compete
                                 agreement will be $1,685 annually through the
                                 first quarter of 2007. Patents will be
                                 amortized $220 annually. Amortization is
                                 expected to continue at this amount until 2010
                                 when it will begin to decline. Accumulated
                                 amortization for customer list and patents at
                                 June 30, 2006 and July 1, 2005 were $5,472,
                                 $3,829, and 1,334, and $2,144, respectively. A
                                 $35,131 impairment charge was recorded related
                                 to our Swan garden hose operations in the
                                 second quarter of fiscal 2006. Goodwill was
                                 also increased by $3,883 to reflect the
                                 recognition of a tax liability at our Belgian
                                 subsidiary that existed prior to our
                                 acquisition of this subsidiary.

7. LONG-TERM DEBT                Long-term debt consists of the following:

                                                    JUNE 30, 2006   JULY 1, 2005
                                                    -------------   ------------
Senior Debt (A):
   Revolving line of credit                            $ 39,000       $ 12,000
   Term notes                                                               --
Senior Subordinated Notes issued June 21, 2000 at
   12-3/4%, due June 15, 2010 (less unamortized
   discount of $1,506 and $1,883) (B).                  273,494        273,117
Senior Subordinated Notes issued May 2002 at
   12-3/4%, due June 15, 2010 (less unamortized
   premium of $287 and $362) (B).                        40,287         40,362
Senior Secured Notes issued November 21, 2003 at
   8-3/4 %, due November 15, 2013
</TABLE>


                                       39

<PAGE>

<TABLE>
<S>                              <C>
   (less unamortized discount of $5,609 and
   $6,365) (C).                                         269,391        268,635
Senior Secured Notes issued June 10, 2005 at
   10.875% due August 15, 2012 (less unamortized
   discount of $2,904 and $3,375) (D).                  147,096        146,625
Series A Redeemable Preferred Stock (E).                 75,473         54,822
Other, primarily foreign term loans, with
   interest rates ranging from 4.44% to 5.44%
   and maturities from 2006 to 2010.                      4,880          4,956
                                                       --------       --------
                                                        849,621        800,517
Less: Current maturities                                  1,241          1,082
                                                       --------       --------
                                                       $848,380       $799,435
                                                       ========       ========
</TABLE>

(A) SENIOR DEBT

     In June 2005, we entered into a new asset based facility with Citicorp USA,
Inc., as administrative agent, and the other agents and lenders named therein.
Our asset based facility consists of a four-year, asset-based revolving credit
facility in the maximum amount of $75,000. Availability under the asset based
facility equals (i) the lesser of (A) the borrowing base (as defined in the new
asset based facility) and (B) the then effective commitments under the new asset
based facility minus (ii) such availability reserves as the administrative
agent, in its sole discretion, deems appropriate.

     The asset based facility includes a $25,000 letter of credit sub facility.
We currently have $6,990 of letters of credit outstanding related to workmen's
compensation insurance. Amounts borrowed under our new asset based facility will
be used for general corporate and working capital purposes. The commitments
under our asset based facility will terminate on the fourth anniversary of the
closing date, at which time all loans outstanding under the new asset based
facility will become due and payable.

     Loans under the asset based facility are guaranteed by each of our domestic
subsidiaries. Loans under the asset based facility are secured on a first
priority basis by all of our domestic subsidiaries' assets.

     Loans under our asset based facility bear interest by reference to a base
rate or a reserve adjusted Eurodollar rate, at our option, in each case, plus an
applicable margin, as each such term is defined in the asset based facility.

     In addition, the asset based facility includes a provision permitting, at
our option, an increase in the aggregate amount of the asset based facility by
up to an additional $60,000, subject to certain conditions. In fiscal 2006 we
used $10,000 of this capacity to upsize our asset backed revolver from $65,000
to $75,000.

     The asset based facility imposes certain restrictions on us and our
subsidiaries. As part of these covenants, we are restricted or limited in our
ability to, among other things:

     -    incur and voluntarily prepay certain of our and our subsidiaries'
          debt;

     -    grant liens on our and our subsidiaries' assets;

     -    undertake certain mergers, consolidations and sales / purchases of
          assets;

     -    pay certain dividends or distributions and redeem, purchase, retire or
          make other acquisitions of our equity interests;

     -    make certain investments and acquisitions;

     -    transact with our affiliates; and

     -    make capital expenditures.

     The asset based facility provides that certain events will constitute
events of default under the new asset based facility. These events include,
among other things;


                                       40
<PAGE>
     -    our failure to pay when due amounts owed under the asset based
          facility;

     -    our or our subsidiaries' failure to observe or perform the covenants
          set forth in the asset based facility;

     -    the inaccuracy of the representations and warranties set forth in the
          asset based facility;

     -    the imposition of certain judgments against us or our subsidiaries;

     -    our or our subsidiaries' failure to pay certain other of our or our
          subsidiaries' debt;

     -    the acceleration of the maturity of material debt;

     -    the occurrence of certain bankruptcy or insolvency proceedings or
          events;

     -    the invalidity or unenforceability of any lien or guarantee securing
          our obligations under the asset based facility; and

     -    the occurrence of a change of control.

(B) SENIOR SUBORDINATED NOTES

     In June 2000 and May 2002, we respectively issued $275.0 million and $40.0
million aggregate principal amount of the 12 3/4 % senior subordinated notes due
June 15, 2010. These notes are our senior subordinated unsecured obligations and
are guaranteed by each of our existing and future domestic restricted
subsidiaries with assets or stockholders' equity in excess $25,000. The senior
subordinated notes bear interest at an annual rate of 12 3/4 %, payable
semiannually on each June 15 and December 15.

     The senior subordinated notes are subject to redemption, in whole or in
part, at our option, at any time on or after June 15, 2005 at the redemption
prices described below if redeemed during the twelve month period commencing
June 15 in the years set forth below:

<TABLE>
<CAPTION>
PERIOD                   REDEMPTION PRICE
------                   ----------------
<S>                      <C>
2006 .................       104.250%
2007 .................       102.125%
2008 and thereafter ..       100.000%
</TABLE>

     Holders of the senior subordinated notes have the option of requiring us to
repurchase their notes in cash upon a change of control at a repurchase price
equal to 101% of the principal amount of the notes plus accrued interest, if
any, to the date of the repurchase.

     The indenture governing the senior subordinated notes restricts our ability
and the ability of our restricted subsidiaries to:

     -    incur additional indebtedness and issue preferred stock;

     -    pay dividends or make other distributions;

     -    create liens;

     -    incur restrictions on the ability of our restricted subsidiaries to
          pay dividends or other payments to us;

     -    sell assets;

     -    merge or consolidate with other entities;

     -    enter into transactions with affiliates;

     -    issue capital stock of restricted subsidiaries; and


                                       41

<PAGE>

     -    effect acquisitions.

     However, these limitations are subject to a variety of exceptions and
     qualifications.

     The senior subordinated notes include customary events of default,
     including failure to pay principal and interest on the notes, a failure to
     comply with covenants, a failure by us or our subsidiaries to pay material
     judgments or indebtedness and bankruptcy and insolvency events with respect
     to us and our material subsidiaries.

     In April, 2005, we received the consents required to amend certain
     covenants in the indenture governing our senior subordinated notes
     including our debt incurrence covenant. The amendments allow us, among
     other things, to incur incremental debt, not to exceed $90.0 million at any
     one time outstanding, in ratio of 1.5:1.0 for every dollar of equity
     received after April 1, 2005. Since that date, we have raised $37.2 million
     of additional equity through the issuance of our Series A redeemable
     preferred stock.

(C) SENIOR SECURED NOTES DUE 2013

     We issued $275,000 senior secured notes on November 21, 2003. Interest on
those senior secured notes accrues at the rate of 8 3/4 % per annum and are
payable semi-annually in arrears on May 15 and November 15 of each year,
beginning May 15, 2004. The 2013 Notes will mature on November 15, 2013.

     We may redeem all or part of those senior secured notes on or after
November 15, 2008. Prior to November 15, 2006, we may redeem up to 35% of the
aggregate principal amount of the senior secured notes at a premium of 8.75%
with the proceeds of certain equity offerings.

     The senior secured notes are secured by second priority liens on the
collateral securing our existing credit facility. The collateral includes, but
is not limited to, the following property of us and the guarantors party to the
indenture:

     -    all of the stock and equity interests of certain of our domestic
          subsidiaries and 65% of the capital stock and equity interests of
          certain of the our foreign subsidiaries;

     -    all accounts, inventory, general intangibles, equipment and insurance
          policies;

     -    all documents of title covering, evidencing or representing goods;

     -    all instruments and chattel paper;

     -    commercial tort claims;

     -    certain Company-owned real property;

     -    rights under certain railcar leases;

     -    patents, trademarks, copyrights and other intellectual property;

     -    all letter of credit rights;

     -    all supporting obligations;

     -    certain deposit accounts; and

     -    all proceeds of, and all other profits, products, rents or receipts,
          arising from the collection, sale, lease, exchange, assignment,
          licensing or other disposition or realization upon the collateral
          described in (1) through (11) above.

     Pursuant to a registration rights agreement that we and our subsidiary
     guarantors entered into in connection with our existing senior secured
     notes, we and our subsidiary guarantors agreed to file a registration
     agreement with the SEC relating to an offer to exchange or register the
     senior secured notes and guarantees for publicly tradable notes and
     guarantees having substantially identical terms. We and the guarantors also
     agreed to use all commercially reasonable efforts to cause the registration
     statement to


                                       42

<PAGE>

     be declared effective by the SEC on or prior to the date specified in the
     registration rights agreement. We have not been able to cause the
     registration statement to be declared effective by the SEC on or prior to
     the date specified in the registration rights agreement, as a result, we
     have been paying liquidated damages in an amount equal to 1.0% of the
     principal amount of the senior secured notes per annum to holders of the
     existing senior secured notes as required by the registration rights
     agreement.

(D) SENIOR SECURED NOTES DUE 2012

     We issued $150,000 senior secured notes on June 7, 2005. Interest on those
senior secured notes accrues at the rate of 10 7/8% per annum and is payable
semi-annually in arrears on August 15 and February 15 of each year, beginning
February 15, 2006. The 2013 Notes will mature on August 15, 2012. The proceeds
were used primarily to refinance existing bank debt.

     We may redeem all or part of those senior secured notes on or after August
15, 2009. Prior to August 15, 2008, we may redeem up to 35% of the aggregate
principal amount of the senior secured notes with the proceeds of certain equity
offerings.

     The senior secured notes are secured by second priority liens on the
collateral securing our existing credit facility. The collateral includes, but
is not limited to, the following property of us and the guarantors party to the
indenture:

     -    all of the stock and equity interests of certain of our domestic
          subsidiaries and 65% of the capital stock and equity interests of
          certain of the our foreign subsidiaries;

     -    all accounts, inventory, general intangibles, equipment and insurance
          policies;

     -    all documents of title covering, evidencing or representing goods;

     -    all instruments and chattel paper;

     -    commercial tort claims;

     -    certain Company-owned real property;

     -    rights under certain railcar leases;

     -    patents, trademarks, copyrights and other intellectual property;

     -    all letter of credit rights;

     -    all supporting obligations;

     -    certain deposit accounts; and

     -    all proceeds of, and all other profits, products, rents or receipts,
          arising from the collection, sale, lease, exchange, assignment,
          licensing or other disposition or realization upon the collateral
          described in (1) through (11) above.

(E) SERIES A REDEEMABLE PREFERRED STOCK

On May 13, 2005 we issued 31,800 shares of Series A redeemable Preferred Stock
for $1,000 per share. In July 2005 we issued an additional 5,423 shares at
$1,000 per share. In addition, we issued 22,500 shares to certain investors in
consideration for capital contributions made in 2004. In accordance with SFAS
150, the Series A redeemable preferred stock is being characterized as a
liability. Dividends and accretion to maturity are classified as interest
expense.

The following summary of certain provisions of our Series A Redeemable Preferred
Stock does not purport to be complete and is subject to, and qualified in its
entirety by, our Amended and Restated Certificate of Incorporation.

     Liquidation Event. Upon the occurrence of a sale of the Company or its
subsidiaries, whether by merger, asset sale or change in equity control, or a
liquidation of the Company, the Series A Preferred Stock shall be redeemed at an
amount per share equal to (i) 115% of the purchase price of the Series A
Preferred Stock prior to October 31, 2005, and (ii) three times the purchase
price thereafter (such amount determined in (i) or (ii) hereinafter referred to
as the "Liquidation Value").


                                       43

<PAGE>

     Mandatory Redemption. Upon the earlier of (i) February 15, 2014 or (ii) to
the extent such redemption is permitted under the Company's new asset based
facility, the payment in full of the Company's senior subordinated notes and
existing senior secured notes, the Series A Redeemable Preferred Stock shall be
redeemed in full in cash at the price equal to 115% of the purchase price of the
Series A Preferred Stock prior to October 31, 2005 and three times the purchase
price thereafter.

     Dividends. From and after Trigger Event, the Series A Preferred Stock shall
be entitled to receive out of any assets legally available cumulative dividends
at a rate of 12% per annum, compounded quarterly, on the original purchase
price. The dividends shall begin to accrue on the Trigger Event and shall be
paid quarterly in arrears. However, if the Company is prevented from paying such
dividends in cash for certain reasons, the dividend will accumulate at the rate
of 12% per annum, compounded quarterly.

     Trigger Event. A Trigger Event shall mean:

     (i)  the failure of the Company to redeem any shares of the Series A
          Preferred Stock in cash when required to do so;

     (ii) the failure by the Company or Dr. Smith, the Company's CEO, to perform
          or observe any other covenant in the Series A Preferred Stock Purchase
          Agreement or any ancillary documents that is continued for more than
          sixty (60) days and that reasonably expected to have a material
          adverse effect on the Company or the holders of the Series A Preferred
          Stock;

     (iii) any false or misleading representations or warranty by the Company in
          the Series A Preferred Stock Purchase Agreement that is reasonably
          expected to have a material adverse effect on the Company or the
          holders of the Series A Preferred Stock;

     (iv) the failure by the Company or any Significant Subsidiary (as defined
          in Rule 1-02(w) of Regulation S-X) to make payments when due (which
          failure is continued beyond the cure period contained in the documents
          governing such payments or which has not been waived by the Lender):
          (A) of the principal amount of any indebtedness or other security
          (whether at maturity, upon a scheduled amortization date or any other
          mandatory prepayment date) having an aggregate principal amount in
          Excess of $10 million; or (B) which failure results in the
          acceleration of indebtedness which aggregates in excess of $10
          million;

     (v)  the Company or any Significant Subsidiary pursuant to or within the
          meaning of Title 11 of the United States Code or any other Federal,
          state or foreign bankruptcy, insolvency or similar law ("Bankruptcy
          Law") (A) commences a voluntary case or proceeding, (B) consents to
          the entry of an order for relief against it in an involuntary case or
          proceeding, (C) consents to the appointment of a custodian of it or
          for all or substantially all of its property, (D) makes a general
          assignment for the benefit of its creditors, or (E) generally is not
          paying its debts as they become due;

     (v)  a court of competent jurisdiction enters an order or decree under any
          Bankruptcy Law that (A) is for relief against the Company or any of
          its Significant Subsidiaries in an involuntary case, appoints a
          custodian of the Company or any of its Significant Subsidiaries or for
          all or substantially all of the property of the Company or any of its
          Significant Subsidiaries, or (C) orders the liquidation of the Company
          or any of its Significant Subsidiaries, and in each case, the order or
          decree remains unstayed and in effect for sixty (60) consecutive days;

    (vii) an unsatisfied judgment against the Company or any of its Significant
          Subsidiaries in excess of $10,000 which remains undischarged or
          unstayed (including stays pending appeal) for a period of 60 days;

     (viii) the failure of Dr. Smith to serve as Chief Executive Officer as a
          result of his death or disability or for any other reason except
          voluntary resignation if a replacement, acceptable to the holders of a
          majority of the Series A Preferred Stock in their sole and absolute
          discretion, is not found within six months after such death or
          disability;

     (ix) the failure of Dr. Smith to serve as Chief Executive Officer as a
          result of a voluntary resignation of employment;

     (x)  April 30, 2007; or

     (xi) closing of an underwritten registered initial offering of the
          Company's equity any Liquidation Event or any repayment in full of the
          Notes, in each case upon which the Company does not redeem the Series
          A Preferred Stock in full in cash in an amount equal to the
          Liquidation Value.


                                       44

<PAGE>

     Voting Rights. Holders of shares of Series A Preferred Stock will have no
voting rights except as described below. In such case, each such holder shall be
entitled to one vote for each share held.

     The board of directors of the Company consists of six directors, one of
whom shall be elected by the holders of the Series A Preferred Stock. After the
occurrence of certain Trigger Events (as defined in the Company's Amended and
Restated Certificate of Incorporation) the Series A Preferred Stockholders shall
have the right to increase the vote of the director elected by Series A
Preferred Stockholders from one vote to six votes for all matters considered by
the Company's board of directors.

     Protective Provisions. As long as shares of Series A Preferred Stock are
issued and outstanding, without first obtaining the approval of the Series A
Preferred Stockholders, the Company Shall not, and shall not permit its
subsidiaries to, either directly or indirectly, through a merger, consolidation
or otherwise:

     -    Create, authorize or issue any securities of the Company or any
          significant subsidiary other than common stock or options to purchase
          common stock not to exceed 45.75206 shares of common stock and (ii)
          certain refinancing securities as defined in the Amended and Restated

     Certificate of Incorporation;

     -    Amend the Amended and Restated Certificate of Incorporation or the
          by-laws of the Company;

     -    Except where the proceeds are used to redeem the Series A Preferred
          Stock, consummate any sale of the Company or any significant
          subsidiary or sale of substantially all of the assets of the Company
          or any significant subsidiary;

     -    Liquidate or dissolve the Company or any significant subsidiary;

     -    Declare or pay any dividend or other distribution of the Company or
          its significant subsidiaries' securities or redeem or repurchase any
          securities of the Company or any significant subsidiaries other than
          Series A Preferred Stock;

     -    Increase or decrease the authorized number of directors of the
          Company;

     -    Enter into any related party transactions in excess of $1,000 in the
          aggregate;

     -    Incur any indebtedness other than indebtedness the terms of which do
          not prohibit the Redemption of the Series A Preferred Stock in full in
          cash on February 15, 2014;

     -    Amend the Company's agreements relating to indebtedness that would
          prohibit the redemption of the Series A Preferred Stock in full in
          cash on February 15, 2014;

     -    Hire or terminate the Chief Executive Officer, the Chief Financial
          Officer or the Chief Operating Officer or making any modifications to
          their compensation arrangements; or

     -    Report a distribution on the Series A Preferred Stock for tax purposes
          except to the extent such Distribution is paid in cash or to the
          extent that the Company has received consent from the Representative
          chosen by a majority of the Series A Preferred Stockholder, which
          consent shall not be unreasonably withheld.

     Scheduled principal payments on debt over the next five years and
thereafter are as follows:

<TABLE>
<S>                              <C>
2007                             $  1,241
2008                                  257
2009                               39,264
2010                              313,951
2011                                  159
Thereafter                        494,749

                                 The Company believes the recorded value of
                                 long-term debt approximates fair value
</TABLE>


                                       45

<PAGE>

<TABLE>
<S>                              <C>
                                 based on current rates available to the Company
                                 for similar debt.

8. INCOME TAXES                  The provision for income taxes is summarized as
                                 follows:

                                 JUNE 30,    JULY 1,    JULY 2,
          YEARS ENDED              2006       2005       2004
          -----------            --------   --------   --------
Current:
   Federal                       $   (102)   $    --    $    --
   Foreign                          4,408      4,652      3,781
   State and local                    106        348         50
                                 --------    -------    -------
                                 $  4,412      5,000      3,831
                                 --------    -------    -------
Deferred:
   Federal                             --      21,530      7,000
   Foreign                            565       (283)       290
   State and local                     --         --         --
                                 --------    -------    -------
                                     .565     21,247      7,290
                                 --------    -------    -------
Provision (benefit) for income
   taxes                            4,977    $26,247    $11,121
                                 ========    =======    =======

                                 The components of income (loss) before income
                                 taxes are as follows:

                                 JUNE 30,    JULY 1,    JULY 2,
          YEARS ENDED              2006       2005       2004
          -----------            --------   --------   --------
Domestic                         $(91,860)  $(66,900)  $(51,586)
Foreign                            12,526     11,668      8,246
                                 --------   --------   --------
                                 $(79,334)  $(55,232)  $(43,340)
                                 ========   ========   ========

                                 The provision (benefit) for income taxes
                                 differs from the amounts computed by applying
                                 the applicable Federal rates due to the
                                 following:

                                 JUNE 30,    JULY 1,    JULY 2,
          YEARS ENDED              2006       2005       2004
          -----------            --------   --------   --------
Provision (benefit) for
   Federal income taxes at
   statutory rate                $(26,974)  $(18,779)  $(14,736)
State and local income taxes,      (3,142)
   net of Federal benefit              --     (2,187)    (1,655)
Non-deductible goodwill            11,945
   impairment                                     --      3,400
Non-deductible preferred stock
   interest accretion               4,845         --         --
Foreign tax rates in excess of
   Federal tax rate                   714        402      1,262
Increase in Valuation
   Allowance                       15,373     47,459     23,319
Other, net                          2,216       (648)      (469)
                                 --------   --------   --------
Provision (benefit) for
   income taxes                  $  4,977    $ 26,247   $ 11,121
                                 ========    ========   ========
</TABLE>


                                       46
<PAGE>

<TABLE>
<S>                              <C>
                                 Significant components of the Company's
                                 deferred tax assets and liabilities are as
                                 follows:

                                 JUNE 30,    JULY 1,
                                   2006       2005
                                 --------   --------
Current deferred taxes:
   Allowance for doubtful
      accounts                      1,416   $  2,820
   Inventory                          855        764
   Net operating loss
      carryforwards                 3,171      2,216
   Accrued expenses                 3,251      3,264
                                   -----------------
      Total current deferred
         tax assets                 8,693   $  9,064
                                   -----------------
Long-term deferred taxes:
   Net operating loss
      carryforwards               104,647   $ 86,415
   Accrued pension and
      post-retirement               2,822      1,904
   Unrealized loss on
      derivative contracts            372      1,816
   Unrealized loss of pension
      plan                          3,001      4,896
   Difference in book and tax
      basis of assets                (609)      (609)
   Difference in depreciation     (15,633)   (17,499)
   Goodwill - deductible for
      tax purposes                 (9,740)    (7,427)
   Other expenses                     570        190
   Other foreign                   (3,019)    (2,454)
                                   -----------------
      Total long-term net
         deferred tax assets       82,411     67,232
                                   -----------------
      Total current and long
         term deferred tax
         assets                    91,104     76,296
Valuation allowance               (94,123)   (78,750)
                                   -----------------
Total long-term net deferred
   tax assets/(liabilities)        (3,019)  $ (2,454)
                                   =================

                                 Net Operating Losses

                                 The Company and its U.S. subsidiaries file a
                                 consolidated tax return. The Company and its
                                 U.S. subsidiaries have net operating loss
                                 ("NOL") carryforwards of approximately
                                 $290,000. These NOL's expire at various dates
                                 from 2009 through 2026. Approximately $82,000
                                 of the NOL's are as a result of the acquisition
                                 of PureTec in 1997 (the "PureTec NOL's"). The
                                 PureTec NOL's are subject to the change of
                                 ownership annual limitation of approximately
                                 $5,600. As a result of this limitation the
                                 Company can utilize a maximum of $79,600 of
                                 PureTec NOL's.

                                 In addition to the domestic NOL balances, the
                                 Company has incurred losses relating to a
                                 subsidiary, taxable in Northern Ireland.
                                 Through fiscal 2006 losses aggregated $597
                                 which have no expiration date.

                                 The Company believes that it is more likely
                                 than not that this deferred tax asset will not
                                 be realized currenty and has recorded a full
                                 valuation allowance on these amounts.

                                 No provision was made for U.S. or additional
                                 foreign taxes on undistributed earnings of
                                 foreign subsidiaries. Such earnings will
                                 continue to be reinvested but could become
                                 subject to additional tax if they were remitted
                                 as dividends, or were loaned to the Company or
                                 a U.S. affiliate, or if the Company should sell
                                 its stock in the foreign subsidiaries. It is
                                 not practicable to determine the amount of
                                 additional tax, if any, that might be payable
                                 on the undistributed foreign earnings.
</TABLE>


                                       47

<PAGE>

<TABLE>
<S>                              <C>
9. EMPLOYEE BENEFIT PLANS        (a)  Savings Plans

                                      i.   The Company maintains a discretionary
                                           401(k) plan covering all eligible
                                           employees (excluding Elm employees
                                           from July, 2004 to mid-December,
                                           2004) with at least one year of
                                           service. As of mid-December, 2004 the
                                           plan included all eligible ELM
                                           employees. Contributions to the plan
                                           are determined annually by the Board
                                           of Directors.

                                           The Company will determine matching
                                           contributions to the plan each year
                                           not to exceed 2% of the employee's
                                           eligible compensation. Contributions
                                           for the fiscal years ended June 30,
                                           2006, July 1, 2005 and July 2, 2004,
                                           amounted to $1,105, $1,081 and
                                           $1,043, respectively.

                                      ii.  The plan which was discontinued as of
                                           mid-December, 2004 covered all
                                           eligible Elm employees with at least
                                           sixty days of service and who have
                                           attained the age of twenty-one. The
                                           Company matched 50% of employee
                                           contributions up to 6% of the
                                           employee's eligible compensation.
                                           Contributions for the fiscal year
                                           ended June 30, 2006 and July 1, 2005
                                           amounted to $0 and $46.

                                 (b)  Pension Plans

                                      i.   The Company's Burlington subsidiary
                                           has a non-contributory defined
                                           benefit pension plan that covers
                                           substantially all hourly compensated
                                           employees covered by a collective
                                           bargaining agreement, who have
                                           completed one year of service. The
                                           funding policy of the Company is to
                                           make contributions to this plan based
                                           on actuarial computations of the
                                           minimum required contribution for the
                                           plan year.

                                      The components of net periodic pension
                                      costs are as follows:

                                 YEAR ENDED   YEAR ENDED   YEAR ENDED
                                  JUNE 30,      JULY 1,      JULY 2,
                                    2006         2005         2004
                                 ----------   ----------   ----------
Service cost                       $ 161        $ 125        $ 127
Interest cost on projected
   benefit obligation                407          434          421
Expected actual return on plan
   assets                           (452)        (469)        (443)
Amortization of unrecognized:
   Prior service cost                 12           12           12
   Net loss                          273          187          182
                                   -----        -----        -----
Net pension cost                   $ 401        $ 289        $ 299
                                   -----        =====        =====

                                 YEAR ENDED   YEAR ENDED
                                  JUNE 30,      JULY 1,
                                    2006         2005
                                 ----------   ----------
CHANGE IN PROJECTED BENEFIT
   OBLIGATION
Projected benefit obligation,
   beginning of period             $8,287       $7,114
Service cost                          161          126
Interest cost                         407          434
Actuarial loss                       (918)         988
Benefits paid                        (383)        (375)
                                   ------       ------
Projected benefit obligation,
   end of period                   $7,554       $8,287
                                   ======       ======
CHANGE IN PLAN ASSETS
Plan assets at fair value,
   beginning of period             $5,345       $5,138
Actual return on plan assets          348          184
Company contributions                 237          398
Benefits paid                        (383)        (375)
                                   ------       ------
Plan assets at fair value,
   end of period                   $5,547       $5,345
                                   ======       ======
</TABLE>


                                       48

<PAGE>
<TABLE>
<S>                              <C>
                                      The funded status of the Plan and amounts
                                      recorded in the Company's balance sheets
                                      are as follows:

                                 JUNE 30, 2006   JULY 1, 2005
                                 -------------   ------------
Funded status of the plan           $(2,008)       $(2,942)
Unrecognized prior service
   cost                                  64             76
Unrecognized net loss                 2,315          3,402
                                    -------        -------
Prepaid pension cost                $   371        $   536
                                    =======        =======

                                      The expected long-term rate of return on
                                      plan assets was 8.5% for the periods
                                      presented and the discount rates were
                                      6.25% and 5.00% at June 30, 2006 and July
                                      1, 2005.

                                      The Company recorded an unrecognized
                                      pension liability of $2,315 and $3,402 at
                                      June 30, 2006 and July 1, 2005,
                                      respectively, as an accumulated other
                                      comprehensive loss adjustment to
                                      stockholders' equity. These amounts
                                      represent a portion of the unrecognized
                                      net actuarial loss for the years ending
                                      June 30, 2006 and July 1, 2005 as a result
                                      of an investment return less than the
                                      actuarial assumption.

                                      The Company maintains a non-contributory
                                      defined benefit pension plan that covers
                                      substantially all non-collective
                                      bargaining unit employees of Plastics,
                                      Specialties and Technology ("PS&T") and
                                      Burlington, who have completed one year of
                                      service and are not participants in any
                                      other pension plan required by applicable
                                      regulations. The funding policy of the
                                      Company is to make contributions to the
                                      plan based on actuarial computations of
                                      the minimum required contribution for the
                                      plan year. On September 8, 1998, the
                                      Company approved a plan to freeze this
                                      defined benefit pension plan effective
                                      September 30, 1998.

                                      The components of net periodic pension
                                      cost are as follows:

                                 YEAR ENDED   YEAR ENDED   YEAR ENDED
                                  JUNE 30,      JULY 1,      JULY 2,
                                    2006         2005         2004
                                 ----------   ----------   ----------
Service cost                       $  --        $  --        $  --
Interest cost on projected
   benefit obligation                730          800          792
Expected actual return on plan
   assets                           (781)        (848)        (816)
Amortization of unrecognized
   Net loss                          388          249          280
                                   -----        -----        -----
Net pension cost                   $ 337        $ 201        $ 256
                                   -----        =====        =====

                                 YEAR ENDED   YEAR ENDED
                                  JUNE 30,      JULY 1,
                                    2006         2005
                                 ----------   ----------
CHANGE IN PROJECTED BENEFIT
   OBLIGATION
Projected benefit obligation,
   beginning of period            $15,562      $13,210
Interest cost                         730          800
Actuarial loss (gain)              (2,751)       2,070
Benefits paid                        (574)        (518)
                                  -------      -------
Projected benefit obligation,
   end of period                  $12,967      $15,562
                                  =======      =======
CHANGE IN PLAN ASSETS
Plan assets at fair value,
   beginning of period            $ 9,456      $ 9,660
Actual return on plan assets          645          314
Company Contributions                 147            0
Benefits paid                        (574)        (518)
                                  -------      -------
Plan assets at fair value, end
   of period                      $ 9,674      $ 9,456
                                  =======      =======
</TABLE>

                                       49
<PAGE>

<TABLE>
<S>                              <C>
                                      The funded status of the Plan and amounts
                                      recorded in the Company's balance sheets
                                      are as follows:

                                 JUNE 30, 2006   JULY 1, 2005
                                 -------------   ------------
Funded status of the plan           $(3,294)       $(6,107)
Unrecognized net loss                 4,264          7,267
                                    -------        -------
Prepaid pension cost                $   970        $ 1,160
                                    =======        =======

                                      The expected long-term rate of return on
                                      plan assets was 8.5% for the periods
                                      presented and the discount rate used to
                                      determine the benefit obligation was 6.25%
                                      and 5.00% at June 30, 2006 and July 1,
                                      2005.

                                      The Company recorded an unrecognized
                                      pension liability of $4,264 and $7,267 as
                                      of June 30, 2006 and July 1, 2005,
                                      respectively, as an accumulated other
                                      comprehensive loss adjustment to
                                      stockholders' equity. These amounts
                                      represent a portion of the unrecognized
                                      net actuarial loss for the years ending
                                      June 30, 2006 and July 1, 2005 as a result
                                      of an investment return less than the
                                      actuarial assumption.

                                 ii.  The Company also has a defined benefit
                                      pension plan for the benefit of all
                                      employees having completed one year of
                                      service with Dolco. The funding policy of
                                      the Company is to make the minimum
                                      required contribution for the plan year
                                      required by applicable regulations.
                                      Dolco's Board of Directors approved a plan
                                      to freeze this defined benefit pension
                                      plan on June 30, 1987, at which time
                                      benefits ceased to accrue. The Company has
                                      not been required to contribute to the
                                      plan since 1990.

                                 The components of net periodic pension costs
                                 are as follows:

                                 YEAR ENDED   YEAR ENDED   YEAR ENDED
                                  JUNE 30,      JULY 1,      JULY 2,
                                    2006         2005         2004
                                 ----------   ----------   ----------
Service cost                       $  --        $  --        $  --
Interest cost on projected
   benefit obligation                242          245          251
Expected actual return on plan
   assets                           (272)        (264)        (234)
Amortization of unrecognized
   net loss                          162           91          111
                                   -----        -----        -----
Net pension cost                   $ 132        $  72        $ 128
                                   =====        =====        =====

                                 YEAR ENDED   YEAR ENDED
                                  JUNE 30,      JULY 1,
                                    2006         2005
                                 ----------   ----------
CHANGE IN PROJECTED BENEFIT
   OBLIGATION
Projected benefit obligation,
   beginning of period             $4,949       $3,952
Interest cost                         243          245
Actuarial loss (gain)                (783)         990
Benefits paid                        (199)        (238)
                                   ------       ------
Projected Benefit Obligation,
   end of period                   $4,210       $4,949
                                   ======       ======
CHANGE IN PLAN ASSETS
Plan assets at Fair Value,
   beginning of period             $3,677       $3,380
Actual return on plan assets          224          314
Company contributions                 116          220
Benefits paid                        (199)        (237)
                                   ------       ------
Plan assets at Fair Value, end
   of period                       $3,818       $3,677
                                   ======       ======
</TABLE>


                                       50
<PAGE>

<TABLE>
<S>                              <C>
                                      The funded status of the Plan and amounts
                                      reconciled in the Company's balance sheets
                                      are as follows:

                                 JUNE 30, 2006   JULY 1, 2005
                                 -------------   ------------
Funded status of the Plan           $ (392)        $(1,272)
Unrecognized net loss                1,319           2,216
                                    ------         -------
Prepaid pension cost                $  927         $   944
                                    ======         =======

                                      The expected long term rate of return on
                                      plan assets was 7.5% for the periods
                                      presented. The discount rate used to
                                      determine the benefit obligation was 6.25%
                                      for the fiscal year ended June 30, 2006
                                      and 5.00% for the fiscal year ended July
                                      1, 2005.

                                      The Company recorded an unrecognized
                                      pension liability of $1,319 and $2,216 as
                                      of June 30, 2006 and July 1, 2005,
                                      respectively, an accumulated other
                                      comprehensive loss and adjustment to
                                      stockholders equity. These amounts
                                      represent a portion of the unrecognized
                                      net loss for the years ending June 30,
                                      2006 and July 1, 2005.

                                 (c)  Post-retirement Benefits

                                      In addition to providing pension benefits,
                                      the Company also sponsors the Burlington
                                      Retiree Welfare Plan, which provides
                                      certain healthcare benefits for retired
                                      employees of the Burlington division who
                                      were employed on an hourly basis, covered
                                      under a collective bargaining agreement
                                      and retired prior to July 31, 1997. Those
                                      employees and their families became
                                      eligible for these benefits after the
                                      employee completed five years of service,
                                      if retiring at age fifty-five, or at age
                                      sixty-five, the normal retirement age.
                                      Post retirement healthcare benefits paid
                                      for the years ended June 30, 2006, July 1,
                                      2005 and July 2, 2004 amounted to $211,
                                      $369 and $407 respectively, net of retiree
                                      contributions.

                                      Net periodic post-retirement benefit costs
                                      are as follows:

                                   YEAR ENDED     YEAR ENDED     YEAR ENDED
                                 JUNE 30, 2006   JULY 1, 2005   JULY 2, 2004
                                 -------------   ------------   ------------
Service cost                          $221           $139           $154
Interest cost                          273            338            409
Prior service cost                      20            141            141
Net loss                               153            103            246
                                      ----           ----           ----
   Net post-retirement benefit
      cost                            $667           $721           $950
                                      ====           ====           ====

           CHANGE IN               YEAR ENDED     YEAR ENDED
 PROJECTED BENEFIT OBLIGATION    JUNE 30, 2006   JULY 1, 2005
 ----------------------------    -------------   ------------
Projected benefit obligation,
   beginning of period               $5,584         $5,588
Service cost                            221            139
Interest cost                           273            339
Retiree Contributions                    15              0
Plan amendments                           0           (787)
Actuarial loss (gain)                  (726)           674
Benefits paid                          (211)          (369)
                                     ------         ------
Projected benefit obligation,
   end of period                     $5,156         $5,584
                                     ======         ======
CHANGE IN PLAN ASSETS
Plan assets at fair value,
   beginning of period               $   --         $   --
Retiree contributions                    15              0
Company contributions                   196            369
Benefits paid                          (211)          (369)
                                     ------         ------
Plan assets at fair value,
   end of period                     $   --         $   --
                                     ======         ======
</TABLE>


                                       51

<PAGE>

<TABLE>
<S>                              <C>
                                      The funded status of the Plan and amounts
                                      recorded in the Company's balance sheets
                                      are as follows:

                                   YEAR ENDED     YEAR ENDED
                                 JUNE 30, 2006   JULY 1, 2005
                                 -------------   ------------
Funded status of the plan           $(5,156)       $(5,584)
Unrecognized loss                     1,260          2,140
Unrecognized service cost               109            129
                                    -------        -------
Accrued post retirement cost        $(3,786)       $(3,315)
                                    =======        =======

                                      The accumulated post-retirement benefit
                                      obligation was determined using a 5.00%
                                      and 6.25% discount rate for the periods
                                      presented. The healthcare cost trend rate
                                      for medical benefits was changed from a
                                      flat 6.00% as of June 28, 2002 to a graded
                                      trend started at 12% for 2003 and
                                      decreasing 1% each year to 6.00% in 2009
                                      and then to an ultimate rate of 5.00% for
                                      2012 and beyond. The healthcare cost trend
                                      rate assumption has a significant effect
                                      on the amounts reported. A 1% increase in
                                      healthcare trend rate would increase the
                                      accumulated post-retirement benefit
                                      obligation by $596 and $600 and increase
                                      the service and interest components by $66
                                      and $37 at June 30, 2006 and July 1, 2005,
                                      respectively.

                                      The Company's plan asset allocation at
                                      2006 and 2005 and target allocations for
                                      2007 are as follows:

                                                PERCENTAGE
                                                     OF
                                    TARGET      PLAN ASSETS
                                  ALLOCATION    -----------
         SECURITY TYPE               2007       2006   2005
         -------------            ---------    -----   ----
Guaranteed Investment Contract        --          6%     6%
Equity Securities                     55%        51%    58%
Debt Securities                       45%        43%    36%
                                     ---        ---    ---
Total Plan Assets                    100%       100%   100%
                                     ===        ===    ===

                                      The Company's investment policy is to
                                      invest in stock and balanced funds of
                                      mutual fund and insurance companies to
                                      preserve principal while at the same time
                                      establish a minimum rate of return of
                                      approximately 5%. No more than one-third
                                      of the total plan assets are placed in any
                                      one fund.

                                      The expected long-term
                                      rate-of-return-on-assets is 8.25%. This
                                      return is based upon the historical
                                      performance of the currently invested
                                      funds.

                                      The benefits expected to be paid for each
                                      of the next five years and in the
                                      aggregate for each of the plans over the
                                      following five years are:

2007                             $ 1,550
2008                               1,728
2009                               1,925
2010                               2,045
2011                               2,151
2012-2016                         11,425
</TABLE>


                                       52

<PAGE>

<TABLE>
<S>                              <C>

10. STOCK OPTIONS                     In January 1998, the Company adopted an
                                      incentive stock plan (the "Stock Incentive
                                      Plan"). Under the Stock Incentive Plan,
                                      45.8 shares are available for awards to
                                      employees of the Company. Options are
                                      granted at fair market value on the date
                                      of grant. As of July 2, 1999 options to
                                      purchase 38.2 shares of common stock were
                                      outstanding at weighted-average exercise
                                      price of $177 thousand. During 2001
                                      options were granted to purchase 4.0
                                      shares of common stock at weighted average
                                      exercise prices of $559 thousand per
                                      share. During 2003 options to purchase 2.0
                                      shares of common stock at a weighted
                                      average exercise price of $177 thousand
                                      were forfeited and options to purchase 2.0
                                      shares of common stock at a weighted
                                      average exercise price of $680 thousand
                                      were issued. In fiscal 2006, options to
                                      purchase up to 16.0 shares of common stock
                                      with a strike price of $43 thousand per
                                      share were issued and options to purchase
                                      2.0 share with a strike price of $680
                                      thousand were forfeited. The Company
                                      determined that the fair value of these
                                      options was nominal. The options are
                                      subject to vesting provisions, as
                                      determined by the Board of Directors, and
                                      generally vest 100% five years from grant
                                      date and expire 10 years from date of
                                      grant.

                                      At June 30, 2006, 32.1 options were
                                      outstanding, 12.1 options were exercisable
                                      and no options have been exercised.

11. COMMITMENTS AND                   Commitments
    CONTINGENCIES

                                      (a)  The Company leases building space and
                                           certain equipment in approximately 20
                                           locations throughout the United
                                           States, Canada and Europe. At June
                                           30, 2006, the Company's future
                                           minimum lease payments are as
                                           follows:

2007                             $ 8,228
2008                               6,821
2009                               5,071
2010                               3,828
2011                               3,646
Thereafter                        20,707
                                 -------
                                 $48,301

                                           Rent expense, including escalation
                                           charges, amounted to approximately
                                           $8,447, $9,798, and $9,830 and for the
                                           years ended June 30, 2006, July 1,
                                           2005, and July 2, 2004, respectively.

                                      (b)  The Company has an employment
                                           contract with one officer, providing
                                           a minimum annual salary of $4,000
                                           with no mandatory bonuses. The two
                                           year agreement expires in 2007.

                                      Contingencies

                                      (a)  The Company is a party to various
                                           legal proceedings arising in the
                                           normal conduct of business, including
                                           compliance with environmental
                                           regulations and foreign tax matters.
                                           Management believes that the final
                                           outcome of these proceedings will not
                                           have a material adverse effect on the
                                           Company's financial position, results
                                           of operations or cash flows.


                                       (b) In January 1993 and 1994, our
                                           Belgian subsidiary received income
                                           tax assessments aggregating
                                           approximately 74.9 million Belgian
                                           Francs for the disallowance of
                                           certain foreign tax credits and
                                           investment losses claimed for the
                                           years ended July 31, 1990 and 1991.
                                           Additionally, in January 1995, the
                                           subsidiary received an income tax
                                           assessment of approximately 32.8
                                           million Belgian francs for the year
                                           ended July 31, 1992. By Belgium law,
                                           these assessments are capped at the
                                           values above, increased by late
                                           payment interest for a period of 18
                                           months only (approximately 15.5
                                           million Belgian francs) and do not
                                           continue to accrue additional
                                           penalties or interest as long as the
                                           Tax Director has not rendered a
                                           decision in connection with the tax
                                           complaints that have been filed
                                           against these tax assessments. To
                                           date, the Tax Director has not
                                           rendered a decision. These
                                           liabilities, which total
                                           approximately EUR 3,054,000 or $3.8
                                           million at current exchange rates,
                                           have been fully accrued for in fiscal
                                           2006.

                                      (c)  We are subject to environmental laws
                                           requiring the investigation and
                                           cleanup of environmental
                                           contamination. In addition to
                                           remediation being undertaken by third
                                           parties at a limited number of our
                                           locations, we are currently
                                           remediating contamination resulting
                                           from past industrial activity at
                                           three of our New Jersey facilities
                                           which we acquired from PureTec in
                                           1998. This remediation is being
                                           conducted pursuant to the
                                           requirements of New Jersey's
                                           Industrial Site Recovery Act which
                                           were triggered by the 1998 PureTec
                                           transaction. If any other events were
                                           to occur in the future that would be
                                           deemed to have effected a "change of
                                           control" of any of our New Jersey
                                           facilities as defined under New
                                           Jersey's Industrial Site Recovery
                                           Act, we would be required to take
                                           additional actions to comply with
                                           such statute, including possibly
                                           additional investigations and
                                           remediation. We also are conducting
                                           remediation at a formerly-owned New
                                           Jersey facility under a voluntary
                                           cleanup agreement with the state.

                                           We recently voluntarily
                                           self-disclosed to regulators certain
                                           non-compliances with the air permit
                                           for our Troy, OH facility. While
                                           discussions with the Ohio Regional
                                           Air Pollution Control Agency are
                                           ongoing, we expect that we will be
                                           required to install additional
                                           pollution controls at this facility
                                           in 2006; the capital investment of
                                           which we estimate should not exceed
                                           $1 million, based on current
                                           information. We may also be required
                                           to pay a fine, but based on the
                                           preliminary stage of discussions, we
                                           cannot predict whether such a fine
                                           will be imposed, or if so, in what
                                           amount.

                                           In 2004, the National Enforcement
                                           Investigation Center (NEIC), on
                                           behalf of the United States
                                           Environmental Protection Agency
                                           (EPA), conducted an environmental
                                           review of our Burlington, NJ site
                                           concerning federal Clean Air Act
                                           requirements. The EPA subsequently
                                           issued a request for further
                                           information regarding these air
                                           issues under Section 114 of the
                                           federal Clean Air Act. In February
                                           and March, 2006 the New Jersey
                                           Department of Environmental
                                           Protection (NJDEP) issued
                                           administrative orders alleging
                                           violations of certain state air
                                           regulations at the Burlington
                                           facility. In March, 2006, the United
                                           States Department of Justice (DOJ)
                                           contacted Colorite on behalf of the
                                           EPA. The DOJ indicated that certain
                                           violations under several federal
                                           environmental statutes had been
                                           identified as a result of the EPA's
                                           inspection. They discussed the
                                           alleged violations and attempted to
                                           negotiate a settlement. Since that
                                           date, representatives of Colorite
                                           have met with representatives of EPA,
                                           DOJ and NJDEP on several occasions to
                                           discuss the alleged federal and state
                                           violations. Tekni-Plex continues to
                                           evaluate the alleged violations and
                                           its defenses to them, and anticipates
                                           negotiating with the government
                                           agencies to attempt to resolve these
                                           matters.

                                           In 2004, we also received a similar
                                           request for information from the EPA
                                           concerning air emissions at our
                                           Wenatchee, Washington plant which we
                                           do not expect to result in
                                           significant costs or fines or
                                           penalties.

                                           In fiscal 2006 we established an
                                           incremental $900,000 reserve in our
                                           financial statements to reflect our
                                           best estimate of the aggregate
                                           expenses associated with these
                                           environmental matters. This reserve
                                           is in addition to existing
                                           environmental reserves which total
                                           $522,500 and the reserves described
                                           in Note 7 related to our Elm and Swan
                                           acquisitions.

                                           Although we believe that, based on
                                           historical experience, the costs of
                                           achieving and maintaining compliance
                                           with environmental laws and
                                           regulations are unlikely to have a
                                           material adverse effect on our
                                           business, we could incur significant
                                           fines, penalties, capital costs or
                                           other liabilities associated with any
                                           confirmed noncompliance or
                                           remediation of contamination or
                                           natural resource damage liability at
                                           or related to any of our current or
                                           former facilities, the precise nature
                                           of which we cannot now predict.
                                           Furthermore, we cannot assure you
                                           that future environmental laws or
                                           regulations will not require
                                           substantial expenditures by us or
                                           significant modifications of our
                                           operations.


12. CONCENTRATIONS OF CREDIT          Financial instruments that potentially
    RISKS                             subject the of Company to significant
                                      concentrations of credit risk consist
                                      principally cash deposits and trade
                                      accounts receivable.

                                      The Company provides credit to customers
                                      on an unsecured basis after evaluating
                                      customer credit worthiness. Since the
                                      Company sells to a broad range of
                                      customers, concentrations of credit risk
                                      are limited. The Company provides an
                                      allowance for bad debts where there is a
                                      possibility for loss.
</TABLE>


                                       53

<PAGE>

<TABLE>
<S>                              <C>
                                 The Company maintains demand deposits at
                                 several major banks throughout the United
                                 States, Canada and Europe. As part of its cash
                                 management process, the Company periodically
                                 reviews the credit standing of these banks.

13. SUPPLEMENTAL CASH FLOW            (a)  Cash Paid
    INFORMATION

          YEARS ENDED            JUNE 30, 2006   JULY 1, 2005   JULY 2, 2004
          -----------            -------------   ------------   ------------
Interest                             $82,054        $86,406        $78,547
                                     -------        -------        -------
Income taxes                           3,129        $ 4,546        $ 3,880
                                     =======        =======        =======
Non-Cash Financing Activities:
   Exchange of Capital
   for Series A Redeemable
   Preferred Stock                        --        $22,500             --

14. SEGMENT INFORMATION               Tekni-Plex management reviews its
                                      operating plants to evaluate performance
                                      and allocate resources. Tekni-Plex has
                                      aggregated its operating plants into three
                                      primary industry segments: Tubing
                                      Products, Packaging and Other. The Tubing
                                      Products segment principally produces
                                      garden and irrigation hose, medical tubing
                                      and pool hose. The Packaging segment
                                      principally produces foam egg cartons,
                                      pharmaceutical blister films, poultry and
                                      meat processor trays, closure liners,
                                      aerosol and pump packaging components and
                                      foam plates. Products that do not fit in
                                      either of these segments, including
                                      recycled PET, vinyl compounds and
                                      specialty resins, have been reflected in
                                      Other. The Tubing Products and Packaging
                                      segments have operations in the United
                                      States, Europe and Canada. The Other
                                      segment has operations only in the United
                                      States.
</TABLE>


                                       54

<PAGE>

<TABLE>
<S>                              <C>
                                 Financial information concerning the Company's
                                 business segments and the geographic areas in
                                 which it operates are as follows:

                                  TUBING
    YEAR END JUNE 30, 2006       PRODUCTS   PACKAGING     OTHER     TOTALS
    ----------------------       --------   ---------   --------   --------
Revenues from external
   customers                    $215,801    $374,063    $152,819   $742,683
Interest expense                  49,139      33,524      22,168    104,831
Depreciation and amortization      9,039      14,344       7,590     30,973
Segment income (loss) from
   operations                    (30,538)     63,569       3,015     36,046
Goodwill                          54,490      94,250      18,544    167,284
Segment assets                   248,532     263,843     142,606    654,981
Expenditures for segment fixed
   assets                          3,959      10,247       4,275     18,481

                                  TUBING
     YEAR END JULY 1, 2005       PRODUCTS   PACKAGING     OTHER     TOTALS
     ---------------------       --------   ---------   --------   --------
Revenues from external
   customers                     $213,052    $348,675   $133,797   $695,524
Interest expense                   42,188      28,662     19,049     89,899
Depreciation and amortization       9,311      15,255      7,063     31,629
Segment income(loss) from
   operations                      (6,473)     48,967     (1,239)    41,255
Goodwill                          108,593      63,943     25,996    198,532
Segment assets                    295,176     255,827    132,166    683,169
Expenditures for segment fixed
   assets                           2,481      10,886      4,219     17,586

                                  TUBING
     YEAR END JULY 2, 2004       PRODUCTS   PACKAGING     OTHER     TOTALS
     ---------------------       --------   ---------   --------   --------
Revenues from external
   customers                     $210,239    $306,131   $119,272   $635,642
Interest expense                   39,633      26,889     17,929     84,451
Depreciation and amortization       9,426      15,021      6,833     31,280
Segment income from operations      6,489      51,318    (11,798)    46,009
Goodwill                          108,593      63,943     25,996    198,532
Segment assets                    326,882     267,413    138,705    733,000
Expenditures for segment fixed
   assets                           4,878      16,570      7,323     28,771

                                 JUNE 30,    JULY 1,    JULY 2,
          YEARS ENDED              2006       2005       2004
          -----------            --------   --------   --------
OPERATING PROFIT
Total operating profit for
   reportable segments before
   income taxes                  $ 36,046   $ 41,255   $ 46,009
Corporate and eliminations        (17,086)   (17,069)   (17,673)
                                 --------   --------   --------
   Consolidated total            $ 18,960   $ 24,186   $ 28,336
                                 ========   ========   ========
ASSETS
Total assets from reportable
   segments                      $654,981   $683,169   $733,000
Other unallocated amounts           8,374      8,526     10,663
                                 --------   --------   --------
   Consolidated total            $663,355   $691,695   $743,663
                                 ========   ========   ========
DEPRECIATION AND AMORTIZATION
Segment totals                   $ 30,973   $ 31,629   $ 31,280
Corporate                           1,024      1,024      1,024
                                 --------   --------   --------
   Consolidated total            $ 31,997   $ 32,653   $ 32,304
                                 ========   ========   ========
EXPENDITURES FOR SEGMENT FIXED
   ASSETS
Segment totals                   $ 18,481   $ 17,586   $ 28,711
Other unallocated expenditures        601        660        701
                                 --------   --------   --------
Consolidated total               $ 19,082   $ 18,246   $ 29,472
                                 ========   ========   ========
REVENUES
GEOGRAPHIC INFORMATION
United States                    $641,661   $594,089   $545,597
Canada                             13,603     18,888     17,991
Europe, primarily Belgium          87,419     82,547     72,054
                                 --------   --------   --------
   Total                         $742,683   $695,524   $635,642
                                 ========   ========   ========
LONG-LIVED ASSETS
GEOGRAPHIC INFORMATION
United States                    $320,630   $364,864   $385,120
Canada                              9,582      9,552     10,469
Europe                             25,634     24,850     24,087
                                 --------   --------   --------
   Total                         $355,846   $399,266   $419,676
                                 ========   ========   ========
</TABLE>


                                       55

<PAGE>

<TABLE>
<S>                              <C>
                                 Income from operations is total net sales less
                                 cost of goods sold and operating expenses of
                                 each segment before deductions for general
                                 corporate expenses not directly related to an
                                 individual segment and interest. Identifiable
                                 assets by industry are those assets that are
                                 used in the Company's operation in each
                                 industry segment, including assigned value of
                                 goodwill. Corporate identifiable assets consist
                                 primarily of cash, prepaid expenses, deferred
                                 income taxes and fixed assets.

                                 For each of the three years in the period ended
                                 June 30, 2006 no single customer represented at
                                 least 10% of sales.

                                 Garden hose products represented 24%, 25% and
                                 30% of sales in fiscal years 2006, 2005 and
                                 2004, respectively. Foam egg cartons
                                 represented 15%, 15% and 12% of sales in fiscal
                                 year 2006, 2005 and 2004, respectively. It is
                                 impractical for the Company to provide further
                                 product line information. However, no other
                                 product lines represented 10% or more of
                                 revenues in any years presented.

15. SUPPLEMENTAL CONDENSED       Tekni-Plex, Inc. issued 12 3/4% Senior
    CONSOLIDATING FINANCIAL      Subordinated Notes in June 2000 and May 2002
    STATEMENTS                   and 8 3/4% Senior Secured Notes in November
                                 2003. These notes are guaranteed by all
                                 domestic subsidiaries of Tekni-Plex. The
                                 guarantor subsidiaries are 100% owned by the
                                 issuer. The guaranties are full and
                                 unconditional and joint and several. There are
                                 no restrictions on the transfer of funds from
                                 guarantor subsidiaries to the issuer. The
                                 following condensed consolidating financial
                                 statements present separate information for
                                 Tekni-Plex (the "Issuer") and its domestic
                                 subsidiaries (the "Guarantors") and the foreign
                                 subsidiaries (the "Non-Guarantors").
</TABLE>

Condensed Consolidating Statement of Operations - For the year ended June 30,
2006

<TABLE>
<CAPTION>
                                                            NON-
                                  ISSUER    GUARANTORS   GUARANTORS   TOTAL
                                 --------   ----------   ----------  -------
<S>                              <C>        <C>          <C>         <C>
Sales, net                       $196,727   $444,934      $101,022   $742,683
Cost of sales                     143,386    403,692        74,905    621,983
                                 --------    -------       -------   --------
Gross profit                       53,341     41,242        26,117    120,700
Selling, general and
   administrative                  25,798     60,444        10,248     96,490
Integration expense                 1,494      3,756            --      5,250
                                 --------    -------       -------   --------
Income (loss) from operations      26,049    (22,958)       15,869     18,960
Interest expense, net             104,552        144           135    104,831
Unrealized loss (gain) on
   derivative contract             (3,800)        --            --     (3,800)
Other expense (income)             (4,921)    (1,024)        3,208     (2,737)
                                 --------    -------       -------   --------
Income (loss) before provision
   for income taxes               (69,782)   (22,078)       12,526    (79,334)
Provision for income taxes            (67)        71         4,973      4,977
                                 --------    -------       -------   --------
Net income (loss)                $(69,715)  $(22,149)       $7,553   $(84,311)
                                 ========    =======       =======   ========
</TABLE>

Condensed Consolidating Balance Sheet - at June 30, 2006

<TABLE>
<CAPTION>
                                                              NON-
                                   ISSUER     GUARANTORS   GUARANTORS   ELIMINATIONS     TOTAL
                                 ----------   ----------   ----------   ------------   ---------
<S>                              <C>          <C>          <C>          <C>            <C>
CURRENT ASSETS                   $   36,233    $203,580     $ 67,696    $        --    $ 307,509
Property, plant and equipment,
   net                               40,641     101,724       25,422             --      167,787
Intangible assets                    14,929     147,109        9,342             --      171,380
Investment in subsidiaries          547,778          --           --       (547,778)          --
Deferred taxes                        8,502      (8,502)          --                          --
Deferred financing costs, net        14,502         116           --             --       14,618
Other long-term assets              418,403     283,922          452       (700,716)       2,061
                                 ----------    --------     --------    -----------    ---------
   TOTAL ASSETS                  $1,080,988    $727,949     $102,912    $(1,248,494)   $ 663,355
                                 ==========    ========     ========    ===========    =========
CURRENT LIABILITIES                  33,085      28,800       30,209                      92,094
</TABLE>


                                       56

<PAGE>

<TABLE>
<S>                              <C>          <C>          <C>          <C>            <C>
Long-term debt                      769,268          --        3,639             --      772,907
Preferred stock                      75,473          --                          --       75,473
Other long-term liabilities         491,833     205,765       14,930       (700,716)      11,812
                                 ----------    --------     --------    -----------    ---------
   Total Liabilities              1,369,659     234,565       48,778       (700,716)     952,286
                                 ----------    --------     --------    -----------    ---------
Additional paid-in capital          188,011     294,585       18,951       (313,529)     188,018
Retained earnings (accumulated
   deficit)                        (254,840)    205,381       28,869       (234,249)    (254,839)
Accumulated other
   comprehensive (income) loss       (1,319)     (6,582)       6,314             --       (1,587)
Treasury stock                     (220,523)         --           --             --     (220,523)
                                 ----------    --------     --------    -----------    ---------
   Total stockholders' deficit     (288,671)    493,384       54,134       (547,778)    (288,931)
                                 ----------    --------     --------    -----------    ---------
   Total liabilities and
      stockholders' deficit      $1,080,988    $727,949     $102,912    $(1,248,494)   $ 663,355
                                 ==========    ========     ========    ===========    =========
</TABLE>

Condensed Consolidating Cash Flows - For the year ended June 30, 2006

<TABLE>
<CAPTION>
                                                            NON-
                                  ISSUER    GUARANTORS   GUARANTORS     TOTAL
                                 --------   ----------   ----------   --------
<S>                              <C>        <C>          <C>          <C>
Net cash provided by (used in)
   operating activities:         $(49,790)   $ 27,864     $10,727     $(11,199)
                                 --------    --------     -------     --------
Cash flows from investing
   activities:
   Capital expenditures            (3,406)    (10,835)     (4,841)     (19,082)
   Cash proceeds from sale of
      assets                           --       4,142          --        4,142
   Additions to intangibles           263      (3,898)         (3)      (3,638)
   Deposits and other assets           (3)       (260)        (33)        (296)
                                 --------    --------     -------     --------
Net cash used in investing
   activities                      (3,146)    (10,851)     (4,877)     (18,874)
                                 --------    --------     -------     --------
Cash flows from financing
   activities:
   Net borrowings (repayment)
      under line of credit         27,000          --          --       27,000
   Proceeds from long-term
      debt                             --          --         (17)         (17)
   Repayment of long-term debt         --          --          --           --
   Debt financing                    (237)         --         429          192
   Change in intercompany
      accounts                     18,029     (19,850)      1,821           --
   Proceeds from issuance of
      Series A redeemable
      preferred stock               5,423          --          --        5,423
                                 --------    --------     -------     --------
Net cash flows provided by
   (used in) financing
   activities                      50,215     (19,850)      2,233       32,598
                                 --------    --------     -------     --------
Effect of exchange rate
   changes on cash                     --          --        (420)        (420)
                                 --------    --------     -------     --------
Net increase (decrease) in
   cash                            (2,721)     (2,837)      7,663        2,105
Cash, beginning of year             7,150       7,732       3,702       18,584
                                 --------    --------     -------     --------
Cash, end of year                $  4,429    $  4,895    $ 11,365      $ 20,689
                                 ========    ========     =======     ========
</TABLE>

Condensed Consolidating Statement of Operations - For the year ended July 1,
2005

<TABLE>
<CAPTION>
                                                            NON-
                                  ISSUER    GUARANTORS   GUARANTORS     TOTAL
                                 --------   ----------   ----------   --------
<S>                              <C>        <C>          <C>          <C>
Sales, net                       $180,687    $413,458     $101,379    $695,524
Cost of sales                     136,358     387,452       76,360     600,170
                                 --------    --------     --------    --------
Gross profit                       44,329      26,006       25,019      95,354
Selling, general and
   administrative                  25,872      25,289        9,529      60,690
Integration expense                 2,399       8,079           --      10,478
                                 --------    --------     --------    --------
Income (loss) from operations      16,058      (7,362)      15,490      24,186
Interest expense, net              89,762          --          137      89,899
Unrealized loss (gain) on
   derivative contract             (8,287)         --           --      (8,287)
Other expense (income)             (4,021)     (1,858)       3,685      (2,194)
                                 --------    --------     --------    --------
Income (loss) before provision
   for income taxes               (61,396)     (5,504)      11,668     (55,232)
Provision for income taxes         21,820          58        4,369      26,247
                                 --------    --------     --------    --------
Net income (loss)                $(83,216)   $ (5,562)    $  7,299    $(81,479)
                                 ========    ========     ========    ========
</TABLE>

Condensed Consolidating Balance Sheet - at July 1, 2005

<TABLE>
<CAPTION>
                                                              NON-
                                   ISSUER     GUARANTORS   GUARANTORS   ELIMINATIONS     TOTAL
                                 ----------   ----------   ----------   ------------   ---------
<S>                              <C>          <C>          <C>          <C>            <C>
CURRENT ASSETS                   $   38,998    $192,614      $60,817    $        --    $ 292,429
Property, plant and equipment,
   net                               42,397     109,750       24,035             --      176,182
Intangible assets                    15,268     179,210       10,164             --      204,642
</TABLE>

                                       57
<PAGE>

<TABLE>
<S>                              <C>          <C>          <C>          <C>            <C>
Investment in subsidiaries          562,374          --           --       (562,374)          --
Deferred financing costs, net        16,561         116           --             --       16,677
Other long-term assets              379,589     214,261          203       (592,288)       1,765
                                 ----------    --------      -------    -----------    ---------
   TOTAL ASSETS                  $1,055,187    $695,951      $95,219    $(1,154,662)   $ 691,695
                                 ==========    ========      =======    ===========    =========
CURRENT LIABILITIES                  27,709      39,040       24,862             --       91,611
Long-term debt                      740,739          --        3,874             --      744,613
Preferred stock                      54,822          --                          --       54,822
Other long-term liabilities         437,185     148,101       20,978       (592,288)      13,976
                                 ----------    --------      -------    -----------    ---------
   TOTAL LIABILITIES              1,260,455     187,141       49,714       (592,288)     905,022
                                 ----------    --------      -------    -----------    ---------
Additional paid-in capital          187,999     296,783       16,765       (313,529)     188,018
Retained earnings (accumulated
   deficit)                        (170,528)    222,736       26,109       (248,845)    (170,528)
Accumulated other
   comprehensive (income) loss       (2,216)    (11,005)       2,927             --      (10,294)
Treasury stock                     (220,523)         --           --             --     (220,523)
                                 ----------    --------      -------    -----------    ---------
   TOTAL STOCKHOLDERS' DEFICIT     (205,268)    508,810       45,505       (562,374)    (213,327)
                                 ----------    --------      -------    -----------    ---------
   TOTAL LIABILITIES AND
      STOCKHOLDERS' DEFICIT      $1,055,187    $695,951      $95,219    $(1,154,662)   $ 691,695
                                 ==========    ========      =======    ===========    =========
</TABLE>

Condensed Consolidating Cash Flows - For the year ended July 1, 2005

<TABLE>
<CAPTION>
                                                            NON-
                                  ISSUER    GUARANTORS   GUARANTORS     TOTAL
                                 --------   ----------   ----------   --------
<S>                              <C>        <C>          <C>          <C>
Net cash provided by (used in)
   operating activities:         $(74,070)   $ 42,357     $  7,252    $(24,461)
                                 --------    --------     --------    --------
Cash flows from investing
   activities:
   Acquisitions                       (93)         --           --         (93)
   Capital expenditures            (3,826)    (13,027)      (1,393)    (18,246)
   Additions to intangibles          (331)       (241)         (89)       (661)
                                 --------    --------     --------    --------
Net cash used in investing
   activities                      (4,250)    (13,268)      (1,482)    (19,000)
                                 --------    --------     --------    --------
Cash flows from financing
   activities:
   Net borrowings (repayment)
      under line of credit        (64,000)         --           --     (64,000)
   Proceeds from long-term debt   178,640          --           --     178,640
   Repayment of long-term debt    (70,943)         --         (705)    (71,648)
   Debt financing                 (10,720)         --           --     (10,720)
   Change in intercompany
      accounts                     40,424     (30,280)     (10,144)         --
                                 --------    --------     --------    --------
Net cash flows provided by
   (used in) financing
   activities                      73,401     (30,280)     (10,849)     32,272
                                 --------    --------     --------    --------
Effect of exchange rate
   changes on cash                     --          --           38          38
                                 --------    --------     --------    --------
Net increase (decrease) in
   cash                            (4,919)     (1,191)      (5,041)    (11,151)
Cash, beginning of year            11,890       8,923        8,922      29,735
                                 --------    --------     --------    --------
Cash, end of year                $  6,971    $  7,732     $  3,881    $ 18,584
                                 ========    ========     ========    ========
</TABLE>

Condensed Consolidating Statement of Operations - For the year ended July 2,
2004

<TABLE>
<CAPTION>
                                                            NON-
                                  ISSUER    GUARANTORS   GUARANTORS     TOTAL
                                 --------   ----------   ----------   --------
<S>                              <C>        <C>          <C>          <C>
Sales, net                       $147,923    $397,674      $90,045    $635,642
Cost of sales                     109,294     353,557       67,521     530,372
                                 --------    --------      -------    --------
Gross profit                       38,629      44,117       22,524     105,270
Selling, general and
   administrative                  36,056      24,552        8,551      69,159
Integration expense                 1,717       6,058           --       7,775
                                 --------    --------      -------    --------
Income from operations                856      13,507       13,973      28,336
Interest expense, net              84,363         (36)         124      84,451
Unrealized loss on derivative
   contract                       (10,654)         --           --     (10,654)
Other expense (income)               (847)     (1,734)       3,186         605
                                 --------    --------      -------    --------
Income (loss) before provision
   for income taxes               (72,006)     15,277       10,663     (46,066)
Provision (benefit) for income
   taxes                            6,417       1,605        3,099      11,121
                                 --------    --------      -------    --------
Net income (loss)                $(78,423)   $ 13,672      $ 7,564    $(57,187)
                                 ========    ========      =======    ========
</TABLE>

Condensed Consolidating Balance Sheet - at July 2, 2004


                                       58

<PAGE>

<TABLE>
<CAPTION>
                                                              NON-
                                   ISSUER     GUARANTORS   GUARANTOR   ELIMINATIONS     TOTAL
                                 ----------   ----------   ---------   ------------   ---------
<S>                              <C>          <C>          <C>         <C>            <C>
CURRENT ASSETS                   $   38,357    $214,523    $ 71,107    $        --    $ 323,987
Property, plant and equipment,
   net                               43,178     113,335      26,236             --      182,749
Intangible assets                   (19,936)    216,404      10,810             --      207,278
Investment in subsidiaries          560,638          --          --       (560,638)          --
Deferred financing costs, net         9,536         116          --             --        9,652
Deferred taxes                       30,032      (9,205)     (2,034)            --       18,793
Other long-term assets              339,165     257,456        (456)      (594,961)       1,204
                                 ----------    --------    --------    -----------    ---------
   TOTAL ASSETS                  $1,000,970    $792,629    $105,663    $(1,155,599)   $ 743,663
                                 ==========    ========    ========    ===========    =========
CURRENT LIABILITIES                  26,277      47,577      24,276             --       98,130
Long-term debt                      727,577          --       4,309             --      731,886
Other long-term liabilities         343,537     247,947      22,178       (594,961)      18,701
                                 ----------    --------    --------    -----------    ---------
   TOTAL LIABILITIES              1,097,391     295,524      50,763       (594,961)     848,717
                                 ----------    --------    --------    -----------    ---------
Additional paid-in capital          210,499     296,783      16,765       (313,529)     210,518
Retained earnings (accumulated
   deficit)                         (85,030)    207,550      35,540       (247,109)     (89,049)
Accumulated other
   comprehensive loss                (1,367)     (7,228)      2,595             --       (6,000)
Treasury stock                     (220,523)         --          --             --     (220,523)
                                 ----------    --------    --------    -----------    ---------
   TOTAL STOCKHOLDERS' DEFICIT      (96,421)    497,105      54,900       (560,638)    (105,054)
                                 ----------    --------    --------    -----------    ---------
   TOTAL LIABILITIES AND
      STOCKHOLDERS' DEFICIT      $1,000,970    $792,629    $105,663    $(1,155,599)   $ 743,663
                                 ==========    ========    ========    ===========    =========
</TABLE>

Condensed Consolidating Cash Flows - For the year ended July 2, 2004

<TABLE>
<CAPTION>
                                                             NON-
                                   ISSUER    GUARANTORS   GUARANTORS     TOTAL
                                 ---------   ----------   ----------   ---------
<S>                              <C>         <C>          <C>          <C>
Net cash provided by (used in)
   operating activities:         $ (13,327)   $   (942)    $ 6,905     $  (7,364)
                                 ---------    --------     -------     ---------
Cash flows from investing
   activities:
   Acquisitions                         --      (5,780)         --        (5,780)
   Capital expenditures             (7,459)    (16,851)     (5,162)      (29,472)
   Additions to intangibles             --       1,222         124         1,346
   Cash proceeds on sale of
      assets                          (220)         --          --          (220)
                                 ---------    --------     -------     ---------
Net cash used in investing
   activities                       (7,679)    (21,409)     (5,038)      (34,126)
                                 ---------    --------     -------     ---------
Cash flows from financing
   activities:
   Net borrowings (repayment)
      under line of credit         (15,000)         --          --       (15,000)
   Proceeds from long-term
      debt                         267,438          --          --       267,438
   Repayment of long-term debt    (248,511)         --        (147)     (248,658)
   Proceeds from capital
      contribution                  22,500          --          --        22,500
   Debt financing                   (2,767)         --          --        (2,767)
Change in intercompany
   accounts                        (11,664)     11,624          40            --
                                 ---------    --------     -------     ---------
Net cash provided (used in) by
   financing activities             11,996      11,624        (107)       23,513
                                 ---------    --------     -------     ---------
Effect of exchange rate
   changes on cash                      --          --        (350)         (350)
                                 ---------    --------     -------     ---------
Net increase (decrease) in
   cash                             (9,010)    (10,727)      1,410       (18,327)
Cash, beginning of period           20,900      19,650       7,512        48,062
                                 ---------    --------     -------     ---------
Cash, end of period              $  11,890    $  8,923     $ 8,922     $  29,735
                                 =========    ========     =======     =========
</TABLE>


                                       59

<PAGE>

16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)


<TABLE>
<CAPTION>


                                 FIRST      SECOND      THIRD      FOURTH
                                 QUARTER    QUARTER     QUARTER    QUARTER
                                 --------   --------    --------   ---------
<S>                              <C>        <C>         <C>        <C>
2006
Net sales                        $162,751   $152,396     $194,568   $232,968
Gross profit                       18,508     22,474       36,914     42,804
Income (loss) from operations       1,437    (27,987)(2)   19,830     25,680
Net (loss)                       $(24,299)  $(54,528)(2)  $(4,564)  $   (920)
                                 ========   ========      ========   ========

2005(1) (Restated)
Net sales                        $143,461   $138,247     $194,215   $219,601
Gross profit                       28,415     25,123       27,257     14,559
Income (loss) from operations       9,969      8,704        9,750     (4,237)
Net (loss)                       $ (9,884)  $(11,722)    $(10,223)  $(49,650)
                                 ========   ========      ========   ========
</TABLE>

1. In the fourth quarter of fiscal 2005, the Company identified certain
   overstated inventory at its American Gasket and Rubber Division which
   resulted in a non-cash charge to operations of $2.8 million in fiscal 2005.
   The first three quarters of fiscal 2005 were restated to reflect this charge.

2. In September 2005, we concluded our annual garden hose contract negotiations.
   While we were largely successful in securing our target price increases, we
   lost meaningful market share. With this information in mind, in the second
   quarter of fiscal 2006 we deemed it appropriate to retest the goodwill in our
   Tubing segment. Accordingly, we recorded a $35.1 million impairment charge
   against the goodwill associated with our Swan operations as we anticipate
   reducing the capacity of this operation, eliminating much of its fixed costs,
   to reflect our reduced market position.

                                       60

<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON SUPPLEMENTAL SCHEDULE

Board of Directors
Tekni-Plex, Inc.
Somerville, New Jersey

The audits referred to in our report dated September 8, 2006 relating to the
consolidated financial statements of Tekni-Plex, Inc. and its subsidiaries (the
"Company"), included the audits of the financial statement schedule for the
years ended June 30, 2006, July 1, 2005 and July 2, 2004 listed in the
accompanying index. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statement schedule based upon our audits.

In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.


/s/ BDO Seidman, LLP
Woodbridge, New Jersey
September 8, 2006


                                       62

<PAGE>

                                                                TEKNI-PLEX, INC.

                                  VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                                                          (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                        BALANCE AT     CHARGED TO
                                                       BEGINNING OF     COSTS AND                     BALANCE AT END
                                                          PERIOD      EXPENSES (1)   DEDUCTIONS (2)    OF PERIOD(3)
                                                       ------------   ------------   --------------   --------------
<S>                                                    <C>            <C>            <C>              <C>
YEAR ENDED JULY 2, 2004
   Accounts receivable allowance for possible losses      $3,798         $2,316          $  786           $5,328
                                                          ======         ======          ======           ======
YEAR ENDED JULY 1, 2005
   Accounts receivable allowance for possible losses      $5,328         $1,970          $1,234           $6,064
                                                          ======         ======          ======           ======
YEAR ENDED JUNE 30, 2006
   Accounts receivable allowance for possible losses      $6,064         $1,044          $4,156           $2,952
                                                          ======         ======          ======           ======
</TABLE>

----------
(1)  To increase accounts receivable allowance.

(2)  Uncollectible accounts written off, net of recoveries.

(3)  Amounts do not include certain accounts receivable reserves that are
     disclosed as "allowances" on the Consolidated Balance Sheets since they are
     not valuation reserves.


                                       63