10-K 1 y40103e10vk.txt FORM 10-K -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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 29, 2007 [ ] 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) DELAWARE 22-3286312 (State of Incorporation) (I.R.S. Employer Identification No.) 260 NORTH DENTON TAP ROAD 75019 COPPELL, TEXAS (Zip Code) (Address of principal executive offices) (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] -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- PART I 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 1 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. 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 29, 2007 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, China, 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

PACKAGING TUBING PRODUCTS --------- --------------- -- Foam egg cartons -- Garden and irrigation hose -- Pharmaceutical blister films -- Medical tubing -- Poultry and meat processor trays -- Aeration hose -- Closure liners -- Aerosol and pump packaging components -- Foam plates

2 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 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 - 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 our medical tubing and garden hose business, we utilize proprietary formulations and are a 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. 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 3 strengths. Current management owns more than 20% of the fully diluted common stock of the Company. EMPLOYEES We have approximately 3,200 employees. Approximately one quarter 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. - 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 sales representatives on six continents. 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 $405.4 million (52.4% of total revenues) for the year ended June 29, 2007 and $374.1 million (50.4% of total revenues) for the year ended June 30, 2006. 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). 4 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 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. 5 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 $205.6 million (26.6% of total revenues) for the year ended June 29, 2007 and $215.8 million (29.1% of total revenues) for the year ended June 30, 2006. Further details of the major markets served by this segment are given below: 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 our Pressure Master(R) and Kink Free(R) product lines which utilize our DuraFlow(R) technology as well as our Colorite(R) Evenflow(R) design. We also manufacture specialty hose products such as air hose, aeration 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. 6 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. We currently purchase each principal raw material from a few 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 2007 selling season, we cannot assure you that we will be able to pass on raw material 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. 7 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 and liquidity 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. OUR LIQUIDITY WILL DEPEND ON OUR ABILITY TO EXECUTE OUR BUSINESS PLAN AND HAVE A POSITIVE CASH FLOW. Significant increases in raw material costs and soft demand in our garden hose business brought about by unfavorable weather conditions have negatively impacted our financial performance. As a result, our liquidity position as of June 29, 2007 was constrained. We have developed a business plan aimed at improving our profitability and restoring positive cash flow. However, we cannot assure you that we will be able to execute our business plan, reduce costs or increase prices. If we are unable to execute our business plan, our liquidity position may be constrained again in the future and we cannot assure you that we will have access to additional debt or equity financing. 8 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 LOSS AND NET DEFICIT COULD INCREASE. 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 federal, foreign, 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. Item 3 contains additional information of our known environmental liabilities. 9 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 September 1, 2007, we had approximately 3,200 employees, of whom approximately one quarter 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 29, 2007, 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 "material weakness", as defined under standards established by the Public Company Accounting Oversight Board: - Lack of quantity of staff in order to maintain proper supervision and ensure the accuracy of detailed financial analyses. We agree with this assessment. ITEM 1B. UNRESOLVED STAFF COMMENTS Not Applicable. 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 the Company's offices and facilities, 19 which are owned and 33 are leased. The lease on the Piscataway, New Jersey facility will not be renewed.

APPROXIMATE LOCATION PRIMARY FUNCTION SQUARE FEET -------- ---------------------------------- ----------- Belfast, Northern Ireland............ Manufacturing 47,580 Blauvelt, New York(8)................ Manufacturing, Warehouse & Office 56,431 Burlington, New Jersey............... Manufacturing 124,000 Bucyrus, Ohio........................ Manufacturing 587,649 Cambridge, Ontario, Canada........... Manufacturing and Warehouse 25,000 City of Industry, California(4)...... Manufacturing, Warehouse, & Office 110,000 Clayton, North Carolina.............. Manufacturing, Warehouse, & Office 99,665 Clinton, Illinois.................... Manufacturing, Warehouse, & Office 69,000 Clinton, Illinois(6)................. Warehouse 40,000 Coppell, Texas(6).................... Executive Offices 3,125 Dallas, Texas........................ Manufacturing 139,227 Dallas, Texas(3)..................... Warehouse 10,759 Decatur, Indiana..................... Manufacturing 187,000 Decatur, Indiana(1).................. Warehouse 3,750 East Farmingdale, New York(1)........ Warehouse 1,000 East Farmingdale, New York(1)........ Warehouse 5,000

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APPROXIMATE LOCATION PRIMARY FUNCTION SQUARE FEET -------- ---------------------------------- ----------- East Farmingdale, New York(4)........ Manufacturing & Warehouse 56,556 East Farmingdale, New York(4)........ Warehouse 11,000 Erembodegem (Aalst), Belgium......... Manufacturing 125,667 Erembodegem (Aalst), Belgium(9)...... Manufacturing & Office 64,658 Flemington, New Jersey............... Manufacturing 145,000 Fullerton, California(3)............. Warehouse 64,000 Fullerton, California(8)............. Manufacturing and Warehouse 60,000 Harrison, New Jersey(7).............. Warehouse 135,501 Lawrenceville, Georgia............... Manufacturing 150,000 Lawrenceville, Georgia(4)............ Warehouse 13,000 McKenzie, Tennessee.................. Manufacturing and Warehouse 60,000 Memphis, Tennessee(3)................ Manufacturing and Warehouse 100,000 Memphis, Tennessee(3)................ Warehouse 50,000 Milan (Gaggiano), Italy(4)........... Warehouse & Office 21,913 Milan (Gaggiano), Italy(7)........... Warehouse 19,591 Milan (Gaggiano), Italy.............. Manufacturing 14,900 Milan (Gaggiano), Italy.............. Manufacturing 25,800 Milan (Rosate), Italy(3)............. Manufacturing, Warehouse & Office 44,096 Mississauga, Ontario, Canada(5)...... Warehouse 46,000 Mississauga, Ontario, Canada(5)...... Manufacturing 111,570 Piscataway, New Jersey(2)............ Manufacturing 155,000 Ridgefield, New Jersey............... Manufacturing 330,000 Schaumburg, Illinois(11)............. Manufacturing and Warehouse 97,000 Schiller Park, Illinois.............. Manufacturing 15,232 Shelby, Ohio(4)...................... Warehouse 350,000 Somerville, New Jersey............... Manufacturing 172,000 Sparks, Nevada(7).................... Manufacturing 448,000 Suzhou, China(2)..................... Manufacturing & Warehouse 113,021 Tonawanda, New York(7)............... Manufacturing 49,960 Troy, Ohio(3)........................ Manufacturing and Warehouse 200,000 Tustin, California(1)................ Sales Office 414 Waco, Texas.......................... Manufacturing 104,600 Wenatchee, Washington................ Manufacturing 97,000 Wenatchee, Washington(3)............. Warehouse 26,200 Wenatchee, Washington(1)............. Warehouse 9,000 Wenatchee, Washington(1)............. Warehouse 9,000

(Years relate to calendar years) -------- (1) Leased on a month-to-month basis. (2) Lease expires in December 31, 2007. (3) Lease expires in 2008. (4) Lease expires in 2009. (5) Lease expires in 2010. 11 (6) Lease expires in 2011. (7) Lease expires in 2012. (8) Lease expires in 2013. (9) Lease expires in 2014. (10) Lease expires in 2015. (11) Lease expires in 2029. ITEM 3. LEGAL PROCEEDINGS 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 $4.2 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 two 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. We have installed additional pollution controls at this facility and we are currently in compliance with our air permit. We may also be required to pay a fine, but 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. As of June 29, 2007 we had a $1.4 million 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 12 environmental reserves which total $500,000 and the reserves described in Note 3 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Not Applicable. 13 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.

YEAR ENDED -------------------------------------------------------- JUNE 27, JULY 2, JULY 1, JUNE 30, JUNE 29, 2003 2004 2005 2006 2007 -------- --------- --------- --------- --------- STATEMENT OF OPERATIONS DATA: Net sales........................... $610,663 $ 635,642 $ 695,524 $ 742,683 $ 773,337 Cost of goods sold.................. 459,981 530,372 600,170 621,983 656,150 Gross profit........................ 150,682 105,270 95,354 120,700 117,187 Integration expense................. 11,164 7,775 10,478 5,250 1,715 Selling, general and administrative expenses(c)....................... 61,600 69,159 60,690 96,490 64,469 Income from operations.............. 77,918 28,336 24,186 18,960 51,003 Interest expense, net(a)............ 71,266 84,451 89,899 104,831 104,468 Unrealized loss (gain) on derivative contracts......................... 1,997 (10,654) (8,287) (3,800) (243) Other expense (income).............. (531) 605 (2,194) (2,737) 2,307 Pre-tax income (loss)............... 5,186 (46,066) (55,232) (79,334) (55,529) Income tax provision (benefit)...... 2,306 11,121 26,247 4,977 5,785 -------- --------- --------- --------- --------- Net income (loss)................... $ 2,880 $ (57,187) $ (81,479) $ (84,311) $ (61,314) ======== ========= ========= ========= ========= BALANCE SHEET DATA (AT YEAR END): Working capital..................... $248,372 $ 225,857 $ 200,818 $ 215,415 $ 183,519 Total assets........................ 783,471 743,663 691,695 663,355 639,293 Total debt (including current portion and preferred stock)...... 729,484 734,007 800,517 849,621 873,294 Stockholders' (deficit)............. (66,104) (105,054) (213,327) (288,931) (347,627) OTHER FINANCIAL DATA: Depreciation and amortization....... $ 28,342 $ 32,304 $ 32,653 $ 31,996 $ 29,014 Goodwill impairment(c).............. -- 10,000 -- 35,131 -- Capital expenditures................ 32,232 29,472 18,246 19,082 21,544 Cash flows: From (used in) operating activities........................ 15,029 (7,364) (24,461) (11,199) 14,188 (Used in) investing activities...... (49,994) (34,126) (19,000) (18,874) (24,180) From financing activities........... 54,203 23,513 32,272 32,598 11,860 -------- --------- --------- --------- ---------

-------- (a) Interest expense included a reduction in deferred financing costs of $1,400 and $5,000 in fiscal years 2005 and 2004 respectively. Interest expense includes $11,538 and $15,288 non-cash, preferred stock accretion in fiscal 2007 and 2006, 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 14 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 2007, 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. (d) The fourth quarter of fiscal 2007 includes certain fourth quarter adjustments, including the following: (1) $1.1 million reduction in inventory to correct a misstated inventory count at our Action Technology unit in Clinton, IL. (2) $2.8 million increase in fixed assets to correct excess depreciation charged in prior years. (e) The first quarter of fiscal 2007 included a $2.4 million reduction in interest expense due to a change in the methodology used to accrete our preferred stock to its mandatory redemption value from the straight-line method to the effective interest method. 15 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)

JULY 1, JUNE 30, JUNE 29, 2005 2006 2007 ------- -------- -------- Net sales........................................... 100.0% 100.0% 100.0% Cost of sales....................................... 86.3 83.7 84.8 Gross profit........................................ 13.7 16.3 15.2 Integration expense................................. 1.5 0.7 0.2 Selling, general and administrative expenses........ 8.7 13.0 8.3 Income from operations.............................. 3.5 2.6 6.6 Interest expense.................................... 12.9 14.1 13.5 Provision for income taxes.......................... 3.8 0.7 0.7 Net (loss).......................................... (11.7) (11.4) (7.9) Depreciation and amortization....................... 4.7 4.3 3.8

YEAR ENDED JUNE 29, 2007 COMPARED TO THE YEAR ENDED JUNE 30, 2006 Tekni-Plex faced a number of challenges during fiscal 2007. Adverse weather conditions resulted in a 12.7% decline in our garden hose sales volumes as measured in pounds sold. Higher raw material costs that we did not pass onto our customers negatively affected our operations, particularly our garden hose and egg packaging operations. During fiscal 2007 we closed our Piscataway, New Jersey compounding facility and consolidated those operations into our Ridgefield, New Jersey compounding business. We also exited vinyl garden hose production at our Bucyrus, Ohio location, and we began production at our new packaging and tubing facility in China. Net sales increased to $773.3 million in fiscal 2007 from $742.7 million the same period last year, representing a 4.1% increase. Net sales in our Packaging Segment grew 8.4% to $405.4 million in the most recent period from $374.1 million in fiscal 2006 due to higher selling prices which increased approximately 10.0% on average. Our Packaging Segment sales volume, measured in pounds, declined approximately 1.3% in fiscal 2007. Net sales at our Tubing Products Segment decreased 4.7% to $205.6 million in fiscal 2007 from $215.8 million in fiscal 2006 due to weak demand for our garden hose products. The average price of our Tubing Segment product increased 8.9% in fiscal 2007, while our sales volume, measured in pounds, declined 12.4%. Other net sales grew 6.2% to $162.3 million in fiscal 2007 compared to $152.8 million in the previous year due to higher sales volumes which rose 5.4%. Average prices at our Other Segment was flat. Rebates, discounts and sales allowances totaled to $47.7 million or 6.2% of net sales in fiscal 2007 compared to $57.3 million or 7.7% of net sales in fiscal 2006. 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 relevant years. Cost of goods sold increased to $656.2 million in fiscal 2007 from $622.0 million in fiscal 2006 primarily due to higher raw material costs. During fiscal 2007, our material cost as a percent of net sales increased 16 2.4 percentage points compared to the previous year. Expressed as a percentage of net sales, cost of goods sold increased to 84.8% in the current period compared to 83.7% 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 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. Typically, the increase in raw material costs at our garden hose operations during a 12-month time period reduces our profitability. In fiscal 2007, the two primary raw materials for our garden hose business, PVC and plasticizers, rose an average of 3.5% and 17.6% respectively. To mitigate the potential impact of continued increases in the cost of our raw materials and in contrast to previous years, we no longer guarantee garden hose pricing. During most of fiscal 2007 we did not pass on higher raw material costs to many of our food packaging customers. The primary raw material for our food packaging operations is polystyrene the cost of which increased by 22.3% during fiscal 2007. Gross profit, as a result of the above, decreased to $117.2 million in the current period compared to $120.7 million in the prior period. Expressed as a percentage of net sales, gross profit decreased to 15.2% in fiscal 2007 from 16.3% last year. Our Packaging Segment gross profit increased modestly to $93.9 million in fiscal 2007 from $93.7 million in fiscal 2006. Expressed as a percentage of net sales, Packaging Segment gross profit decreased to 23.2% in the current period from 25.1% in the previous period primarily due to higher raw material costs at our food packaging operations. Our Tubing Products Segment gross profit increased slightly to $17.4 million in fiscal 2007 from $16.8 million in fiscal 2006 as improved pricing was offset by both weaker demand and higher raw material costs. Expressed as a percentage of net sales, our Tubing Products Segment gross profit improved to 8.4% in the current period from 7.8% in the previous period. Other gross profit decreased to $6.0 million in fiscal 2007 from $10.1 million in fiscal 2006 primarily due to weak demand for our specialty resins products and higher VCM costs. Expressed as a percentage of net sales, other gross profit declined to 3.7% in fiscal 2007 from 6.6% a year earlier. Selling, general and administrative expenses decreased to $64.5 million in the most recent fiscal year from $96.5 million last year largely due to the inclusion of a $35.1 million non-cash charge in fiscal 2006 to write off goodwill associated with our garden hose operations. Measured as a percentage of net sales, selling, general and administrative expenses decreased to 8.3% in the current period from 13.0% in the previous period. Integration expenses decreased to $1.7 million, or 0.2% of net sales in fiscal 2007 from $5.3 million, or 0.7% of net sales in fiscal 2006. The decrease was largely related to the fact that we completed the closing of our Rockaway facility early in fiscal 2007 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 17 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:

2007 2006 ---- ---- Elm Packaging Material................................................... $1.1 $2.6 Labor...................................................... 0.3 0.8 Overhead................................................... 0.3 1.6 Rockaway closing SG&A....................................................... -- 0.3 ---- ---- Total........................................................ $1.7 $5.3 ==== ====

We 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. We do not expect to report integration expenses in fiscal 2008. Operating profit, as a result of the above, increased to $51.0 million in fiscal 2007 from $19.0 million in fiscal 2006. Expressed as a percentage of net sales, operating profit increased to 6.6% in the most recent period from 2.6% in the comparable period of last year. Our Packaging Segment operating profit increased to $66.3 million or 16.4% of net sales in the current period compared to $63.6 million or 17.0% of net sales in the previous period. Our Tubing Products Segment reported an operating profit of $4.6 million in fiscal 2007 compared to an operating loss of ($30.5) million in fiscal 2006. Measured as a percent of net sales, our Tubing Segment operating loss improved to 2.2% of net sales in the current period compared to (14.2%) 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 impairment in fiscal 2006. Our Other segment reported a ($1.0) million or (0.6%) of net sales operating loss in fiscal 2007 compared to a profit of $3.0 million or 2.0% of net sales in the comparable period of 2006. Interest expense decreased modestly to $104.5 million (13.5% of net sales) in fiscal 2007 from $104.8 million (14.1% of net sales) in fiscal 2006. Our interest expense included $11.5 million of non-cash interest expense associated with our Series A Redeemable preferred stock in fiscal 2007 reflecting its accretion to its mandatory redemption amount. In fiscal 2006 the accretion on our preferred stock included in interest expense totaled $15.2 million Unrealized gain on derivative transactions was $0.2 million or 0.0% of net sales in fiscal 2007 compared to $3.8 million or 0.5% 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 ($55.5) million or (7.2%) of net sales for fiscal 2007 compared to a loss of ($79.3) million or (10.7%) of net sales for fiscal 2006. Income tax expense was $5.8 million for fiscal 2007 compared to $5.0 million for fiscal 2006 primarily reflecting foreign taxes as we continued to fully reserve against our deferred tax asset. Net loss, as a result, was a loss of ($61.3) million for fiscal 2007 or (7.9%) of net sales compared with a loss of ($84.3) million for fiscal 2006 or (11.4%) of net sales. YEAR ENDED JUNE 30, 2006 COMPARED TO THE YEAR ENDED JULY 1, 2005 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 18 significant price increases, in excess of 10% on average, that went into effect midway through 2006 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 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. 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. 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 19 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:

2006 2005 ---- ----- 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 ==== =====

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. 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. 20 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. LIQUIDITY AND CAPITAL RESOURCES For the year ended June 29, 2007, net cash provided from operating activities was $14.2 million compared to $11.2 million of cash used in operating activities in the prior year. The $25.4 million improvement was primarily due to improved earnings. In addition, we lowered our working capital requirements, largely by selling our European accounts receivable to a third party. 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 2008, we also believe the prices we have secured to date for our garden hose products should continue to improve this unit's 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. Improved earnings, decreases in our accounts receivable and inventories and increases in our accounts payable all contributed to our improvement in cash generated from operations in fiscal 2007. Other various year-over-year changes in operating assets, accrued expenses, and liabilities are generally due to offsetting timing differences. As of September 25, 2007, we had an outstanding balance of $41.0 million under our $75.0 million asset backed credit facility. Also as of September 25, 2007 availability under this facility was reduced by $10.8 million of letters of credit related to our workmen's compensation insurance programs. Working capital at June 29, 2007 was $183.5 million compared to $215.4 million at June 30, 2006. The decrease was primarily caused by an increase in net borrowings under our asset backed credit facility offset by operating losses. Our principal uses of cash are expected to be debt service, capital expenditures and working capital requirements. Our capital expenditures for the years ended June 29, 2007, June 30, 2006 and July 1, 2005 were $21.5 million and $19.1 million and $18.2 million, respectively. Management believes that we will be able to pass along expected higher raw material costs to our garden hose customers during fiscal 2008 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, which are expected to be between $20.0 and $30.0 million annually, 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 June 29, 2007 the notional amount of the swaps is $143.4 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. 21 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 $0.2 million and $3.8 million in fiscal 2007 and 2006, 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 29, 2007, the Company's contractual obligations are as follows:

PENSION AND POST PAYMENTS RETIREMENT INTEREST LONG-TERM PREFERRED PREFERRED STOCK DUE BY PERIOD HEALTHCARE EXPENSE (1) DEBT DIVIDENDS (2) ACCRETION (3) LEASES TOTAL ------------- ---------- ----------- --------- ------------- --------------- ------ ----- Less than 1 year...... $ 1.7 86.7 0.9 7.2 8.3 12.8 117.6 Year 2................ 1.9 85.6 51.4 7.2 9.9 9.1 165.1 Year 3................ 2.0 80.6 314.4 7.2 11.7 6.8 422.7 Year 4................ 2.1 40.4 0.3 7.2 13.9 5.9 69.8 Year 5................ 2.2 40.4 0.3 7.2 16.6 5.5 72.2 After 5 years......... 11.6 35.4 504.8 11.7 33.8 13.1 610.4

-------- (1) Interest expense includes obligations under our interest rate swap agreement. (2) May be paid in kind (3) Non-cash increase in preferred stock. 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 22 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. 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 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 2007, 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 2007 we continued to fully reserve against our deferred tax asset. Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. These accruals are adjusted periodically as assessment and remediation efforts progress or as additional technical or legal information becomes available. Accruals for environmental liabilities are included in the consolidated balance sheets as "Accrued liabilities -- other" at undiscounted amounts. 23 NEW ACCOUNTING PRONOUNCEMENTS SFAS NO. 123R, SHARE-BASED PAYMENT As of July 1, 2006 the Company adopted the Statement of Financial Accounting Standards No. 123(R), "Share-Based Payment," ("SFAS No. 123(R)"). SFAS No. 123(R) requires the Company to recognize in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and directors, including employee stock options and restricted stock. SFAS No. 123(R) supersedes Accounting Principal Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"), which the Company previously applied for all periods prior to 2007. Prior to the adoption of SFAS No. 123(R), we accounted for share-based payment awards using the intrinsic value method in accordance with APB No. 25 as allowed under SFAS No. 123, "Accounting for Stock Based Compensation" ("SFAS No. 123"). The adoption of SFAS No. 123(R), did not impact the Company's net loss for the year ended June 29, 2007. For purposes of determining the estimated fair value of share-based payment awards issued in the form of stock options, under SFAS No. 123(R), we utilize the Black-Scholes option-pricing model. The Black-Scholes model requires the input of certain assumptions that involve judgment. Because stock options have characteristics significantly different from those of traded options, and because changes in the input assumptions can materially affect the fair value estimate, the existing models may not provide a reliable single measure of the fair value of our stock options. Management will continue to assess the assumptions and methodologies used to calculate estimated fair value under the Black-Scholes model. Circumstances may change and additional data may become available over time, which could result in changes to these assumptions and methodologies, and thereby materially impact our fair value determination. The fair value of options granted during the year ended June 29, 2007 was estimated to be negligible on the grant date using the Black Scholes Model with the following weighted average assumptions.

YEAR ENDED JUNE 29, WEIGHTED AVERAGE ASSUMPTIONS 2007 ---------------------------- ---------- Expected holding period (years)............................... 10 Risk-free rate................................................ 5.31% Volatility factor............................................. 100% Dividend yield................................................ 0.00%

The expected holding period was determined based on management's assessment including the Company's historical data. Due to the lack of a public market for the Company's equity instruments, volatility was estimated considering the historical volatility of similar publicly traded manufacturing companies over a period similar to the expected holding period of the option. The risk-free interest rate was based on U.S. Treasury rates appropriate for the expected holding period of the option. SFAS No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R) In September 2006, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 158, which requires the Company to (a) recognize in its statement of financial position the overfunded or underfunded status of a defined benefit postretirement plan measured as the difference between the fair value of plan assets and the benefit obligation, (b) recognize as a component of other comprehensive income, net of tax, the actuarial gains and losses and the prior service costs and credits that arise during the period, (c) measure defined benefit plan assets and defined benefit plan obligations as of the date of the Company's statement of financial position, and (d) disclose additional information about certain effects on net periodic benefit costs in the upcoming fiscal year that arise from the delayed recognition of the actuarial gains and losses and the prior service costs and credits. The Company's adoption of SFAS No. 158 effective for fiscal year ended June 29, 2007 which resulted in an adjustment of $7,898 to the opening balance of accumulated other comprehensive loss. 24 FIN No. 48, Accounting for Uncertain Tax Positions -- An Interpretation of FASB Statement No. 109 In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB interpretation ("FIN") No. 48, "Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109." FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity's financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes, and prescribes a recognition threshold and measurement attribute for the financial statement disclosure of a tax position taken or expected to be taken in a tax return. In addition, this interpretation provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact the adoption of FIN No. 48 may have on its statements of operations and financial position. SFAS No. 157, Fair Value Measurements In September 2006, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements" ("SFAS No. 157"), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies under a number of other accounting pronouncements that require or permit fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact the adoption of SFAS No. 157 may have on its statements of operations and financial position. SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No. 115 The FASB issued Statement of Financial Accounting Standards ("SFAS") No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No. 115" ("SFAS No. 159") in February 2007. SFAS No. 159 permits a company to choose to measure many financial instruments and other items at fair value that are not currently required to be measured at fair value. The objective is to improve financial reporting by providing a company with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. A company shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting. SFAS 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the Company also elects to apply the provisions of FASB Statement No. 157, Fair Value Measurements. The Company is currently evaluating the impact the adoption of SFAS No. 159 may have on its statements of operations and financial position. INFLATION In recent years, we have 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 29, 2007 and June 30, 2006 the principal amount of the Company's aggregate outstanding variable rate indebtedness was $51.0 million and $39.0 million respectively. A hypothetical 1% adverse change in interest rates would have had an annualized unfavorable impact of approximately $0.5 million and $0.4 million respectively, on the Company's earnings and cash flows based upon these year-end debt levels. 25 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 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 29, 2007, 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 "material weakness", as defined under standards established by the Public Company Accounting Oversight Board: - Lack of quantity of staff in order to maintain proper supervision and ensure the accuracy of detailed financial analyses. Management agrees with this assessment. Over the last 2 years we have made a number of significant changes to our internal controls. They include: (1) creating an internal audit/Sarbanes Oxley compliance department; (2) adding additional staff to the accounting and finance functional group (3) centralizing the reporting of financial managers to 5 group controllers who 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 our 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; 26 (6) instituting a policy of performing routine credit and background checks on all financial staff and key managers; and (7) instituting a Code of Ethics. 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 25 2007 as well as of June 29, 2007. 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. ITEM 9B. OTHER INFORMATION Not Applicable PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE DIRECTORS AND EXECUTIVE OFFICERS 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. Except for Dr. Smith, who is party to an employment agreement with the Company, all executive officers of Tekni-Plex are "at will" employees. 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 Amended and Restated Certificate of Incorporation (our "Certificate of Incorporation").

NAME AGE POSITION ---- --- -------- Dr. F. Patrick Smith..... 59 Chairman of the Board, Chief Executive Officer and President James E. Condon.......... 45 Senior Vice President, Chief Financial Officer, Secretary and Director Edward Goldberg.......... 58 Senior Vice President and Director John S. Geer............. 61 Director J. Andrew McWethy........ 66 Director Michael F. Cronin........ 53 Director

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. 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. James E. Condon is Senior Vice President, Chief Financial Officer and Secretary of Tekni-Plex. He joined the Company in 2001 and became a Director in 2004. Edward Goldberg is Senior Vice President, and manages several divisions. He joined Tekni-Plex in 2001 and became a Director in 2005. Prior to joining the company he worked for Procter & Gamble and The Scott Paper Company. He received his BS and MS degrees in Chemical Engineering from Rensselaer Polytechnic Institute in 1971. 27 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. Since 1979, Mr. Cronin has invested in growth companies and various industrial and service businesses. Mr. Cronin co-founded Weston Presidio, a venture capital and private equity firm, in 1991. He currently serves as a Managing Partner of that firm. Prior to the formation of Weston Presidio, Michael served as the Senior Vice President of Security Pacific Venture Capital Group and Managing Director of its Boston office. Mr. Cronin currently serves on the Board of Directors of Amscan Holdings, Inc., Apple & Eve LLC, Durcon Laboratory Tops, National Vascular Care, Star International Holdings, and The Wolf Holdings Organization, Inc. Mr. Cronin earned his A.B. from Harvard College and his MBA from Harvard Graduate School of Business. He has served on the National Association of Small Business Investment Companies' Board of Governors and currently serves on the National Venture Capital Association's Board of Directors and on the Harvard University Board of Overseers. ARRANGEMENTS REGARDING DIRECTORS Pursuant to our Certificate of Incorporation, the Board of Directors currently consists of six directors, one of whom is elected by the holders of the Series A Preferred Stock, as a separate class, and five of whom are elected by the holders of the Common Stock. Effective on April 30, 2007, the Series A Preferred Stockholders exercised their right under the Certificate of Incorporation to increase the votes of the Series A Director from one to six, so that the Series A Director now casts a majority of the votes for all matters considered by the Board. An Amended and Restated Investors' Agreement dated as of May 13, 2005 among the Company and its stockholders (the "Investors' Agreement") provides that the Series A Director will be designated by Weston Presidio (the "WP Designee"), two directors will be designated by a committee consisting of Dr. Smith and the WP Designee (the "Nomination Committee") and three directors will be designated by Dr. Smith from members of Company management. Since May 13, 2005, Michael Cronin has been the WP Designee, Andrew McWethy and John S. Geer have been the designees of the Nomination Committee, and Dr. Smith, James Condon and Edward Goldberg have been Dr. Smith's designees. A quorum of the Board consists of four directors with at least one of those directors being the WP Designee. The right of Weston Presidio to designate a director or to have its designee on the Nomination Committee will terminate when Weston Presidio beneficially owns less than 20% of the Company's outstanding Common Stock (including through its equity ownership in Tekni- Plex LLC); however, to the extent that there are any shares of Preferred Stock outstanding, the Preferred Stockholders would still have the right to appoint a director. Dr. Smith will lose his right to designate directors or be on the Nomination Committee once his beneficial ownership falls below the 20% level or once he is no longer actively involved in the management of the Company. The Investors' Agreement also contains provisions regarding the appointment of the Board's Compensation Committee and Audit Committee, and the level of compensation for non-employee directors. Because the Company's voting securities are closely held and the method for selecting directors is governed by negotiated provisions in the Certificate of Incorporation and the Investors' Agreement, the Board does not maintain a standing nominating committee and does not have a policy regarding the consideration of director candidates recommended by security holders. The preceding summary is qualified in its entirety by the terms and conditions in our Certificate of Incorporation and the Investors' Agreement, each of which has been filed as an exhibit to the Annual Report on Form 10-K, or filed as an exhibit in an earlier SEC filing which is identified in the Index to Exhibits in this Form 10-K. 28 CODE OF ETHICS The Company has adopted a Code of Business Conduct and Ethics for directors, officers, and employees of the Company and its subsidiaries, including but not limited to the principal executive officer, the principal financial officer, the principal accounting officer or controller, or persons performing similar functions for the Company and its subsidiaries. If the Company makes any substantive amendment to the Code of Business Conduct and Ethics or grants any waiver from a provision of the Code of Business Conduct and Ethics for its executive officers or directors, the Company will disclose the nature of such amendment or waiver in a filing on Form 8-K. The Company will also provide a copy of the Code of Business Conduct and Ethics to any person, without charge, upon written request made to the Company's General Counsel at the following address: Michael W. Zelenty, Senior Vice President and General Counsel, Tekni-Plex, Inc., 201 Industrial Parkway, Somerville, NJ 08876. AUDIT COMMITTEE The Company has established an Audit Committee of the Board of Directors consisting of Messrs. Cronin and Geer. The Board has determined that Mr. Cronin is an "audit committee financial expert" under applicable SEC rules. ITEM 11. EXECUTIVE COMPENSATION COMPENSATION DISCUSSION AND ANALYSIS Tekni-Plex believes that executive compensation should be designed to align closely the interest of the Company, the executive officers, and its stockholders and attract, motivate, reward and retain superior management talent. Dr. Smith, the Company's Chief Executive Officer, is paid pursuant to a two-year employment contract that was negotiated in conjunction with the issuance of the Company's preferred stock in April 2005. Because he has a substantial pecuniary interest in the Company's stock, Dr. Smith's interests are closely aligned with those of our other stockholders. His existing employment agreement contains no provision for bonus or stock-based compensation. The Compensation Committee is currently negotiating with Dr. Smith regarding a new agreement, and has extended the term of the current agreement to allow sufficient time for such negotiations. The compensation for our other executive officers is primarily in the following three categories: (1) salary, (2) bonus, and (3) stock options. In compensating these executives, Tekni-Plex seeks to: - Pay a base salary that is competitive with the practices of other competing businesses - Reward performance with bonus payments at times and in amounts determined at the discretion of the Chief Executive Officer. Historically, in determining the amount and timing of such bonus payments, the Chief Executive Officer has taken into account the performance of the Company as a whole, the performance of the business unit or function under the direction of the executive, including a comparison of performance against budget, and the performance of any particular tasks assigned to the executive by the Chief Executive Officer. - Provide long-term incentives in the form of stock options, in order to retain those individuals with the leadership abilities necessary for increasing long-term shareholder value while aligning with the interests of our investors. Tekni-Plex has selected these three compensation elements because each is considered useful and/or necessary to meet one or more of the principal objectives of the business. For instance, base salary and bonuses are set with the goal of motivating employees and adequately compensating and rewarding them on a day-to-day basis for the time spent and the services they perform, while our stock option awards are geared toward providing an incentive and reward for the achievement of long-term business objectives and retaining key talent. Tekni-Plex believes that these elements of compensation, when combined, are effective, and will continue to be effective. The compensation program is reviewed on an annual basis. In setting individual 29 compensation levels for a particular executive, the total compensation package is considered as well as each element individually, and the executive's past and expected future contributions to our business. COMPENSATION COMMITTEE REPORT The Compensation Committee of the Company has reviewed and discussed with management the above Compensation Discussion and Analysis and, based on its review and discussions, the Compensation Committee has recommended to the Board that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K. Compensation Committee of the Board of Directors: Michael Cronin (Chairman) Dr. F. Patrick Smith SUMMARY COMPENSATION TABLE The table below summarizes the total compensation paid or earned by each of the Company's named executive officers for the fiscal year ended June 29, 2007. All compensation paid to Dr. Smith was pursuant to the terms of his employment agreement with the Company.

ALL OTHER NAME AND SALARY BONUS COMPENSATION TOTAL PRINCIPAL POSITION YEAR ($) ($) ($) ($) ------------------ ---- --------- ------ ------------ --------- Dr. F. Patrick Smith, Chief Executive Officer.............................. 2007 4,000,000 0 71,139(1) 4,071,139 James E. Condon, Chief Financial Officer.............................. 2007 579,290 50,000 25,891(2) 655,181 Edward Goldberg, Senior Vice President............................ 2007 351,731 50,000 16,955(3) 418,686

-------- (1) This amount includes payments totaling $26,000 for country club membership and related costs, payments totaling $26,154 for a leased automobile and its insurance and maintenance, a matching contribution to Dr. Smith's 401k plan, payment on a life insurance policy for the benefit of Dr. Smith, payment of the premium on a long-term disability policy for the benefit of Dr. Smith, and a payment to Dr. Smith as a gross- up to cover additional taxes resulting from the payment of that disability policy premium. (2) This amount includes an automobile allowance and additional automobile expenses of $20,100, a matching contribution to Mr. Condon's 401k plan, and payment of a premium on a life insurance policy for his benefit. (3) This amount includes an automobile allowance and additional automobile expenses, a matching contribution to Mr. Goldberg's 401k plan, and payment of a premium on a life insurance policy for his benefit. 2007 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END The following table provides information concerning the current holdings of unexercised stock options for each of our named executive officers as of June 29, 2007. All options have a 10-year life and vest five years after the grant date.

NUMBER OF NUMBER OF SECURITIES UNDERLYING SECURITIES UNDERLYING OPTION UNEXERCISED OPTIONS UNEXERCISED OPTIONS EXERCISE OPTION (#) (#) PRICE EXPIRATION NAME EXERCISABLE UNEXERCISABLE ($) DATE ---- --------------------- --------------------- -------- ---------- Dr. Smith....................... -0- -0- -- -- Mr. Condon...................... 4.0 559,316 4/25/2011 4.0 43,681 6/1/2017 Mr. Goldberg.................... 4.0 43,681 6/1/2017

30 TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS The Company entered into an Amended and Restated Employment Agreement with Dr. Smith effective May 13, 2005. The Employment Agreement initially provided for a two-year term ending May 13, 2007, and has been extended from time to time to allow the Chairman of the Compensation Committee to negotiate with Dr. Smith regarding the terms of his continued employment. The agreement is currently scheduled to expire on September 30, 2007 and it has no "evergreen" or "change in control" provisions. It does contain a covenant restricting Dr. Smith's ability to compete against the Company for a period of one year following the termination of his employment without the consent of the board of directors, which cannot be unreasonably withheld. The Employment Agreement permits the Company to terminate Dr. Smith's employment for "Cause" with no further liability to the Company. If Dr. Smith were to resign for any reason other than the Company's failure to meet its obligations under the Employment Agreement, the Company's only obligation to him would be to pay any accrued but unpaid amounts under the agreement. If Dr. Smith were to die during his employment term, the Company would be obligated to pay to his designated beneficiary or estate a severance benefit (the "Severance Benefit") equal to (i) his then current annual salary, (ii) any bonus amounts awarded pursuant to the Employment Agreement but not yet paid, and (iii) any other accrued benefits if due and payable at the time of his death. Had a termination occurred on June 29, 2007, the Severance Benefit would have been $4,000,000. The Company has the right to terminate the Employment Agreement if disability or incapacity renders Dr. Smith unable to perform his duties for a period in excess of 120 consecutive days or a total of more than 180 days in any 12-month period. Upon termination due to disability or incapacity, the Company would be required to pay the Severance Benefit to Dr. Smith, and to transfer to him ownership of all life insurance policies on his life. Those life insurance policies had no economic value on June 29, 2007. Each outstanding stock option held by named executive officers contains a provision for accelerated vesting of the option upon a change in control of the Company. Because all of the options which were unvested on June 29, 2007 were substantially "out of the money," there would have been no economic benefit to any named executive officer from accelerated vesting had a change in control occurred on that date. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The board of directors maintains a two-member compensation committee comprised of Mr. Cronin (Chairman) and Dr. Smith, who is the Chief Executive Officer of the Company. No member of the compensation committee is allowed to vote on issues pertaining to that member's compensation (including option grants). 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 the Company's stock incentive plan. Changes in Mr. Condon's compensation are subject to approval by Mr. Cronin. Determination of compensation levels and bonus awards for all other employees has been delegated to Dr. Smith. In June and July, 2005, the Company received for shares of the Company's Series A Redeemable Preferred Stock (a) $42 million of equity contributions from existing investors, Weston Presidio Capital III, L.P., Weston Presidio Capital IV, L.P., WPC Entrepreneur Fund, L.P. and WPC Entrepreneur Fund II, L.P. (together, "WP"), (b) $1.8 million from Dr. Smith, (c) $10.5 million from Eastport Partners, a private equity firm of which Dr. Smith and Mr. McWethy are managing members and in which Weston Presidio Capital III, L.P. and WPC Entrepreneur Fund, L.P. are investors, (d) $230,527 from WPC Tekni- Plex Rollover LLC, in which Mr. Cronin owns an approximately 42% interest and (e) approximately $5.2 million from certain other existing investors. In connection with these equity contributions, the Company entered into a Series A Redeemable Preferred Stock Purchase Agreement with the purchasers. We also amended our Investors' Agreement and our Certificate of Incorporation to incorporate the terms of the Series A Redeemable Preferred Stock and we amended Dr. Smith's employment agreement which reduced his salary to $4.0 million. The amended employment agreement, initially set to expire on May 13, 2007, has been extended through September 30, 2007. The Company currently employs Dr. Smith's son, Mr. Frank Smith, as the General Manager of its Natvar division. In this capacity, he received salary, bonus and benefits of approximately $140,000 in fiscal 2007. 31 DIRECTOR COMPENSATION 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 non-employee director is paid a retainer. The retainer for each outside director was payable at the rate of $50,000 per year until May, 2007 when, at the request of Weston Presidio, and with the concurrence of Messrs. Cronin and Geer, the Company changed Mr. Cronin's retainer to $25,000 and Mr. Geer's retainer to $75,000.

FEES EARNED NAME OR PAID IN CASH ($) TOTAL ($) ---- ------------------- --------- John S. Geer........................................ 58,250 58,250 J. Andrew McWethy................................... 50,000 50,000 Michael F. Cronin................................... 41,750 41,750

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth information concerning the beneficial ownership of the Company's Common Stock and its Series A Preferred Stock as of September 14, 2007 by each director, by the Company's named executive officers, by all directors and executive officers as a group, and by any individual or group owning 5% or more of the Company's Common Stock or Series A Preferred Stock. Unless otherwise specified, all persons listed below have sole voting and investment power with respect to their shares.

COMMON STOCK SERIES A PREFERRED STOCK -------------------------------- -------------------------------- NUMBER OF SHARES NUMBER OF SHARES BENEFICIAL OWNER BENEFICIALLY OWNED (A) PERCENT BENEFICIALLY OWNED (A) PERCENT ---------------- ---------------------- ------- ---------------------- ------- Dr. F. Patrick Smith(b).............. 671(c) 100% 1,800(d)(g) 3.0% James Condon(b)...................... 4(e) * -- --% Michael Cronin(b).................... (c) (c) 231(f) * Eastport Partners(g)................. -- --% 10,500(g) 17.6% Weston Presidio(h)................... (c) (c) 42,000(g)(h) 70.3% Forrest Binkley & Brown L.P.(i)...... -- --% 5,000 8.4% All Directors and Executive Officers of the Company as a Group (Six Persons)........................... 675 100% 54,531(j) 91.3%

-------- * Less than one percent. (a) The securities "beneficially owned" by an individual are determined in accordance with the definition of "beneficial interest" set forth in SEC regulations and, accordingly, may include securities owned by or for, among others, the wife and/or minor children of the individual and any other relative who has the same home as the individual, as well as other securities as to which the individual has or shares voting or investment power. Beneficial ownership may be disclaimed as to some of the shares. A person is also deemed to beneficially own shares of stock which the person does not own but has a right to acquire presently or within sixty days after September 14, 2007. (b) Each of these directors has a business address c/o Tekni-Plex, Inc., 260 North Denton Tap Road, Coppell, TX 75019. (c) Tekni-Plex Partners LLC holds approximately 646 shares or 96% and MST/TP Partners LLC holds approximately 25 shares or 4% of the outstanding Tekni-Plex common stock as of September 14, 2007. Tekni-Plex Management LLC, controlled by Dr. Smith, is the sole managing member of both Tekni- Plex Partners LLC and MST/TP Partners LLC and, as such, has sole voting and investment power with respect to 100% of the shares of the Company's outstanding common stock, subject to the rights of the Series A Preferred Stockholders described above under the caption "Arrangements Regarding Directors". (d) Dr. Smith directly owns these 1,800 preferred shares. 32 (e) These are shares that Mr. Condon has the right to acquire within 60 days of September 14, 2007 pursuant to options that are substantially "out of the money." (f) TP Rollover, LLC, an entity controlled by Mr. Cronin and of which Mr. Cronin is a 43% owner, owns these shares. Mr. Cronin disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein. (g) Eastport Operating Partners, L.P. ("Eastport") owns 10,500 preferred shares. Each of Mr. McWethy and Dr. Smith is a managing member of Eastport Partners LLC, the general partner of Eastport, and thus share investment and voting power over the shares owned by Eastport. Mr. McWethy, Dr. Smith, Weston Presidio Capital III, L.P. and WPC Entrepreneur Fund, L.P. each is an investor in Eastport and each disclaims beneficial ownership of the shares owned by Eastport except to the extent of his or its pecuniary interest therein. Eastport's address is 841 Broadway, Suite 504, New York NY 10003. (h) Weston Presidio Capital IV, L.P. owns 26,976 shares, Weston Presidio Capital III, L.P. owns 13,907 shares, WPC Entrepreneur Fund II, L.P. owns 427 shares and WPC Entrepreneur Fund, L.P. owns 690 shares. Mr. Cronin is a managing member of the general partners of these entities and as such has voting and investment power with respect to these shares. Mr. Cronin disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein. The address of the four Weston Presidio entities is c/o Weston Presidio, Pier 1, Bay 2, San Francisco, CA 94111. (i) Forrest Binkley & Brown L.P., with an address at 19800 MacArthur Boulevard, Suite 690, Irvine CA 92612, is the record owner of these shares. Messrs. Gregory J. Forrest, Nicholas B. Binkley and Jeffrey J. Brown hold voting and dispositive power over all of the shares owned by Forrest Binkley & Brown L.P. Messrs. Forrest, Binkley and Brown are executive officers, directors and shareholders of Forrest Binkley & Brown Venture Co., the general partner of Forrest Binkley & Brown L.P. (j) This total includes shares owned by Eastport and by the Weston Presidio entities. See footnotes (g) and (h). EQUITY COMPENSATION PLAN INFORMATION In January 1998, the Company's directors and stockholders adopted an incentive stock plan (the "Stock Incentive Plan") which, as of June 29, 2007, is the only equity compensation plan under which options, warrants or rights to acquire the Company's common stock may be issued. The following table provides information about the Company's common stock that may be issued upon the exercise of options under the Stock Incentive Plan as of June 29, 2007.

NUMBER OF NUMBER OF SECURITIES SECURITIES TO BE REMAINING AVAILABLE ISSUED UPON WEIGHTED-AVERAGE FOR FUTURE ISSUANCE EXERCISE OF EXERCISE PRICE OF UNDER EQUITY OUTSTANDING OUTSTANDING COMPENSATION PLANS OPTIONS, WARRANTS OPTIONS, WARRANTS (EXCLUDING SECURITIES AND RIGHTS AND RIGHTS REFLECTED IN COLUMN (A)) PLAN CATEGORY (A) (B) (C) ------------- ----------------- ----------------- ------------------------ Equity compensation plans approved by security holders.................... 42.0932 $142,716 3.66174 TOTAL............................... 42.0932 $142,716 3.66174

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The de facto policy of our board of directors is that the Company will not enter into any significant transaction with one of its 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. See "Compensation Committee Interlocks and Insider Participation" for a description of related party transactions, including the Company's employment of Mr. Frank Smith. Mr. Smith's employment status and 33 compensation level were determined in the ordinary course of the Company's business and the disinterested directors did not view them as sufficiently significant to merit independent review. The Board is unable to conclude that any of its directors are independent in accordance with New York Stock Exchange standards. 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 29, 2007 and June 30, 2006 totaled approximately $995,000 and $180,000 and $895,000 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 29, 2007 and June 30, 2006 totaled approximately $326,000 and $336,000, 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. 34 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 27, 2007 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ JAMES E. CONDON ------------------------------------ James E. Condon Chief Financial Officer Dated: September 27, 2007 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of Registrant and in the capacities indicated, on September 27, 2007.

SIGNATURE TITLE --------- ----- /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

35 EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION ------- ----------- 3.1 Amended and Restated Certificate of Incorporation of Tekni-Plex, Inc.(6) 3.2 Amended and Restated By-laws of Tekni-Plex, Inc.(1) 3.3 Certificate of Incorporation of PureTec Corporation.(1) 3.4 By-laws of PureTec Corporation.(1) 3.5 Certificate of Incorporation of Tri-Seal Holdings, Inc.(1) 3.6 By-laws of Tri-Seal Holding, Inc.(1) 3.7 Certificate of Incorporation of Natvar Holdings, Inc.(1) 3.8 By-laws of Natvar Holdings, Inc.(1) 3.9 Certificate of Incorporation of Plastic Specialties and Technologies, Inc.(1) 3.10 By-laws of Plastic Specialties and Technologies, Inc.(1) 3.11 Certificate of Incorporation of Plastic Specialties and Technologies Investments, Inc.(1) 3.12 By-laws of Plastic Specialties and Technologies Investments, Inc.(1) 3.13 Certificate of Incorporation of Burlington Resins, Inc.(1) 3.14 By-laws of Burlington Resins, Inc.(1) 3.15 Certificate of Incorporation of TPI Acquisition Subsidiary, Inc.(2) 3.16 By-laws of TPI Acquisition Subsidiary, Inc.(2) 3.17 Certificate of Incorporation of Distributors Recycling, Inc.(1) 3.18 By-laws of Distributors Recycling, Inc.(1) 3.19 Certificate of Incorporation of Tekni-Plex-Elm Acquisition Subsidiary, Inc.(2) 3.20 By-laws of TP-Elm Acquisition Subsidiary, Inc.(2) 4.1 Indenture, dated as of June 21, 2000 among Tekni-Plex, Inc., the Guarantors listed therein and HSBC Bank USA, as Trustee.(1) 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.(2) 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.(2) 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.(5) 4.5 Indenture, dated as of November 21, 2003 among Tekni-Plex, Inc., the Guarantors listed therein and HSBC Bank USA, as Trustee.(3) 4.6 Indenture, dated as of June 10, 2005 among Tekni-Plex, Inc., the guarantors party thereto and HSBC Bank USA, National Association, as Trustee.(5) 4.7 Amended and Restated Investors' Agreement dated as of May 13, 2005 among Tekni-Plex, Inc. and its stockholders (12) 10.1 Second Amended and Restated Employment Agreement between Tekni-Plex, Inc. and F. Patrick Smith dated May 13, 2005 (the "Employment Agreement").(4) 10.1.1 Extension of Employment Agreement dated May 10, 2007.(8) 10.1.2 Extension of Employment Agreement dated July 13, 2007.(9) 10.1.3 Extension of Employment Agreement dated July 30, 2007. (10) 10.1.4 Extension of Employment Agreement dated August 9, 2007. (11) 10.2 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.(5) 10.3 Tekni-Plex, Inc. Stock Incentive Plan (12) 10.3.1 Form of Option Grant under the Tekni-Plex, Inc. Stock Incentive Plan (12) 21 List of Subsidiaries (12)

EXHIBIT NO. DESCRIPTION ------- ----------- 31.1 Certification of Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 (12) 31.2 Certification of Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 (12) 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. (12)

-------- (1) Filed previously as an Exhibit to our Registration Statement on Form S-4 (File No. 333-43800) filed on August 15, 2000. (2) Filed previously as an Exhibit to our Registration Statement on Form S-4 (File No. 333-98561) filed on August 22, 2002. (3) Filed previously as an Exhibit to our Registration Statement on Form S-4 (File No. 333-111778) filed on January 8, 2004. (4) Filed previously as an Exhibit to our Form 8-K filed on May 19, 2005. (5) Filed previously as an Exhibit to our Form 8-K filed on June 16, 2005. (6) Filed previously as an Exhibit to our Registration Statement on Form S- 4/A (File No. 333-111778) filed on July 13, 2005. (7) Filed previously as an Exhibit to our Registration Statement on Form S-4 (File No. 333-127404) filed on August 10, 2005. (8) Filed previously as an Exhibit to our Form 8-K filed on May 14, 2007. (9) Filed previously as an Exhibit to our Form 8-K filed on July 20, 2007. (10) Filed previously as an Exhibit to our Form 8-K filed on August 3, 2007. (11) Filed previously as an Exhibit to our Form 8-K filed on August 14, 2007. (12) Filed herewith. 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 29, 2007 and June 30, 2006, and the related consolidated statements of operations, stockholders' deficit and cash flows for each of the three years in the period ended June 29, 2007. 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 29, 2007 and June 30, 2006, and the results of their operations and their cash flows for each of the three years in the period ended June 29, 2007, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for defined benefit postretirement plans when it adopted SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment to FASB Statements No. 87, 88, 106, and 132(R)" as of June 29, 2007. /s/ BDO Seidman, LLP Woodbridge, New Jersey September 26, 2007 F-1 TEKNI-PLEX, INC. CONSOLIDATED BALANCE SHEETS

JUNE 29, JUNE 30, 2007 2006 --------- --------- (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) ASSETS CURRENT: Cash...................................................... $ 22,345 $ 20,689 Accounts receivable, net of allowances of $2,928 and $7,070 respectively.................................... 129,500 145,699 Inventories............................................... 131,884 135,758 Prepaid expenses and other current assets................. 5,129 5,363 --------- --------- Total current assets................................... 288,858 307,509 Property, plant and equipment, net.......................... 164,027 167,787 Goodwill.................................................... 167,284 167,284 Intangible assets, net of accumulated amortization of $8,116 and $6,806 respectively................................... 4,117 4,096 Deferred charges, net of accumulated amortization of $17,653 and $15,229 respectively.................................. 11,944 14,618 Other assets................................................ 3,063 2,061 --------- --------- $ 639,293 $ 663,355 ========= ========= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Current portion of long term debt......................... $ 876 $ 1,241 Accounts payable -- trade................................. 51,670 39,532 Accrued payroll and benefits.............................. 9,639 16,057 Accrued interest.......................................... 11,453 11,427 Accrued liabilities -- other.............................. 25,442 17,787 Income taxes payable...................................... 6,259 6,050 --------- --------- Total current liabilities.............................. 105,339 92,094 Long-term debt.............................................. 786,385 772,907 Series A redeemable preferred stock......................... 86,033 74,495 Other liabilities........................................... 9,163 12,790 --------- --------- Total liabilities...................................... 986,920 952,286 --------- --------- Commitments and Contingencies Stockholders' deficit: Common stock.............................................. -- -- Additional paid-in capital................................ 188,018 188,018 Accumulated other comprehensive (loss) gain............... 1,031 (1,587) Accumulated deficit....................................... (316,153) (254,839) Less treasury stock....................................... (220,523) (220,523) --------- --------- Total stockholders' deficit............................ (347,627) (288,931) --------- --------- $ 639,293 $ 663,355 ========= =========

See accompanying notes to consolidated financial statements. F-2 TEKNI-PLEX, INC. CONSOLIDATED STATEMENTS OF OPERATIONS

JUNE 29, JUNE 30, JULY 1, YEARS ENDED 2007 2006 2005 ----------- -------- -------- -------- (DOLLARS IN THOUSANDS) Net sales............................................ $773,337 $742,683 $695,524 Cost of sales........................................ 656,150 621,983 600,170 -------- -------- -------- Gross profit.................................... 117,187 120,700 95,354 Operating expenses: Selling, general and administrative................ 64,469 96,490 60,690 Integration expenses............................... 1,715 5,250 10,478 -------- -------- -------- Income from operations.......................... 51,003 18,960 24,186 Other expenses (income): Interest........................................... 104,468 104,831 89,899 Unrealized gain on derivative contracts............ (243) (3,800) (8,287) Other expense (income)............................. 2,307 (2,737) (2,194) -------- -------- -------- (Loss) before provision for income taxes........ (55,529) (79,334) (55,232) Provision for income taxes........................... 5,785 4,977 26,247 -------- -------- -------- Net loss............................................. $(61,314) $(84,311) $(81,479) ======== ======== ========

See accompanying notes to consolidated financial statements. F-3 TEKNI-PLEX, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

ACCUMULATED ADDITIONAL OTHER COMMON PAID-IN COMPREHENSIVE ACCUMULATED TREASURY STOCK CAPITAL LOSS DEFICIT STOCK TOTAL ------ ---------- ------------- ----------- --------- --------- (DOLLARS IN THOUSANDS) 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.......................... -- -- (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.......................... -- -- 5,027 -- -- 5,027 --------- Comprehensive loss............ -- -- -- -- -- (75,604) -- -------- -------- --------- --------- --------- BALANCE, JUNE 30, 2006.......... -- 188,018 (1,587) (254,839) (220,523) (288,931) == ======== ======== ========= ========= ========= Net loss........................ -- -- -- (61,314) -- (61,314) Foreign currency translation.... -- -- 2,240 -- -- 2,240 Unrealized gain on pension plan.......................... -- -- (7,520) -- -- (7,520) --------- Comprehensive loss............ -- -- -- -- -- (66,594) Adjustment to initially apply FASB 158...................... -- -- 7,898 -- -- 7,898 -- -------- -------- --------- --------- --------- BALANCE, JUNE 29, 2007.......... -- $188,018 $ 1,031 $(316,153) $(220,523) $(347,627) ======== ======== ========= ========= =========

See accompanying notes to consolidated financial statements. F-4 TEKNI -- PLEX, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED JUNE 29, 2007 JUNE 30, 2006 JULY 1, 2005 ----------- ------------- ------------- ------------ (DOLLARS IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss........................................ $(61,314) $(84,311) $ (81,479) Adjustments to reconcile net loss to cash provided by (used in) operating activities: Depreciation................................. 23,278 26,191 25,857 Amortization................................. 5,736 5,805 6,796 Goodwill impairment.......................... -- 35,131 -- Fixed assets disposal........................ 2,026 -- -- Unrealized gain on derivative contracts...... (243) (3,800) (8,287) Provision for bad debts...................... 4,826 1,044 1,970 Interest accretion........................... 11,538 15,228 Deferred income taxes........................ 59 30 21,247 Gain on sale of assets....................... -- (2,856) -- Changes in assets and liabilities Accounts receivable........................ 11,537 (7,117) (2,328) Inventories................................ 3,954 (5,606) 20,601 Prepaid expenses and other current assets.. 327 678 960 Other assets............................... -- -- (561) Accounts payable and other current liabilities............................. 12,559 (8,139) (6,491) Income taxes payable....................... 206 (341) 4,538 Other liabilities.......................... (301) 16,864 (7,284) -------- -------- --------- Net cash provided by (used in) operating activities...................................... 14,188 (11,199) (24,461) -------- -------- --------- Cash flows from investing activities: Capital expenditures............................ (21,544) (19,082) (18,246) Additions to intangibles........................ (1,654) (3,638) (754) Proceeds from sale of assets.................... -- 4,142 -- Deposits and other assets....................... (982) (296) -- -------- -------- --------- Net cash (used in) investing activities........... (24,180) (18,874) (19,000) -------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments under line of credit................. (41,000) (25,000) (113,200) Borrowings under line of credit................. 53,000 52,000 49,200 Proceeds from long-term debt.................... (390) -- 146,318 Proceeds from issue of Series A redeemable preferred stock.............................. -- 5,423 32,322 Repayments of long-term debt.................... -- (17) (71,648) Debt financing costs............................ 250 192 (10,720) -------- -------- --------- Net cash provided by financing activities......... 11,860 32,598 32,272 -------- -------- --------- Effect of exchange rate changes on cash........... (212) (420) 38 -------- -------- --------- Net increase (decrease) in cash and cash equivalents..................................... 1,656 2,105 (11,151) Cash, and cash equivalents beginning of year...... 20,689 18,584 29,735 -------- -------- --------- Cash, and cash equivalents end of year............ $ 22,345 $ 20,689 $ 18,584 ======== ======== =========

See accompanying notes to consolidated financial statements. F-5 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PERCENTAGES AND SHARE AMOUNTS) 1. SUMMARY OF ACCOUNTING POLICIES NATURE OF BUSINESS 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. Pursuant to SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, the Company sold most of its European accounts receivable for a fee to a third-party factoring Company in fiscal 2007. The third-party factoring Company assumes the full risk of collection without recourse to the Company in the event of a loss. Management reviews accounts receivable on 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 29, 2007 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. The costs of major additions and improvements are capitalized and maintenance and repairs that do not improve or extend the life of the respective assets are charged to operations as incurred. INTANGIBLE ASSETS (OTHER THAN GOODWILL) The cost of acquiring certain patents, trademarks, and customer lists is amortized using the straight-line method over their estimated useful lives, ranging from 5 to 17 years. F-6 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DEFERRED FINANCING COSTS The Company amortizes deferred financing costs incurred in connection with the Company's borrowings over the life of the related indebtedness utilizing the straight-line method, which approximates the interest 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, discounts 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 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 29, 2007 and June 30, 2006 and July 1, 2005 each contained 52 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. F-7 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. ENVIRONMENTAL LIABILITIES Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. These accruals are adjusted periodically as assessment and remediation efforts progress or as additional technical or legal information becomes available. Accruals for environmental liabilities are included in the consolidated balance sheets as "Other liabilities" at undiscounted amounts. 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. COMPREHENSIVE LOSS SFAS No. 130, "Reporting Comprehensive Income" requires foreign currency translation adjustments and certain other items, which were reported separately in stockholders' deficit, to be included in Accumulated Other Comprehensive Income (Loss). Included within Accumulated Other Comprehensive Income in 2007 are foreign currency translation adjustments and previously unrecognized actuarial gains and losses as a result of implementing SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and other Postretirement Plans". Total comprehensive loss for the years ended June 29, 2007, June 30, 2006 and July 1, 2005 is included in the Statement of Stockholders' deficit. The components of accumulated other comprehensive income (loss) includes:

JUNE 29, JUNE 30, 2007 2006 -------- -------- Cumulative translation adjustment........................ $ 8,551 $ 6,311 Minimum pension liability, net........................... (7,898) Actuarial loss not yet recognized in cost (pension), net.................................................... (6,578) Actuarial loss not yet recognized in cost (postretirement), net.................................. (942) ------- ------- Accumulated other comprehensive income (loss)............ $ 1,031 $(1,587) ======= =======

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 not have increased significantly. The calculations were based on a risk free interest rate of 5.3%, expected volatility of 100%, a dividend yield of zero, and expected lives of 10 years. F-8 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 income/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 29, 2007. 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 LIBOR. These loans, which originally had maturity dates ranging from June 2007 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 29, 2007 the notional amount of the swaps is $143,350. 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. The aggregate fair market value of these interest rate swaps and cap contracts was $(736) and $(979) on June 29, 2007 and June 30, 2006 respectively, and is included in other liabilities on the Consolidated Balance Sheet. For the years ended June 29, 2007, June 30, 2006 and July 1, 2005, Tekni-Plex recognized unrealized gains of $243, $3,800 and $8,287, 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 29, 2007. In fiscal year 2006, 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. F-9 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NEW ACCOUNTING PRONOUNCEMENTS SFAS No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R) In September 2006, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 158, which requires the Company to (a) recognize in its statement of financial position the overfunded or underfunded status of a defined benefit postretirement plan measured as the difference between the fair value of plan assets and the benefit obligation, (b) recognize as a component of other comprehensive income, net of tax, the actuarial gains and losses and the prior service costs and credits that arise during the period, (c) measure defined benefit plan assets and defined benefit plan obligations as of the date of the Company's statement of financial position, and (d) disclose additional information about certain effects on net periodic benefit costs in the upcoming fiscal year that arise from the delayed recognition of the actuarial gains and losses and the prior service costs and credits. The Company's adoption of SFAS No. 158 effective for fiscal year ended June 29, 2007 resulted in an adjustment of $7,898 to the opening balance of accumulated other comprehensive loss. FIN No. 48, Accounting for Uncertain Tax Positions -- An Interpretation of FASB Statement No. 109 In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB interpretation ("FIN") No. 48, "Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109." FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity's financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes, and prescribes a recognition threshold and measurement attribute for the financial statement disclosure of a tax position taken or expected to be taken in a tax return. In addition, this interpretation provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact the adoption of FIN No. 48 may have on its statements of operations and financial position. SFAS No. 157, Fair Value Measurements In September 2006, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements" ("SFAS No. 157"), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies under a number of other accounting pronouncements that require or permit fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact the adoption of SFAS No. 157 may have on its statements of operations and financial position. SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No. 115 The FASB issued Statement of Financial Accounting Standards ("SFAS") No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No. 115" ("SFAS No. 159") in February 2007. SFAS No. 159 permits a company to choose to measure many financial instruments and other items at fair value that are not currently required to be measured at fair value. The objective is to improve financial reporting by providing a company with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. A company shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting. SFAS 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the Company also elects to apply the provisions of FASB F-10 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Statement No. 157, Fair Value Measurements. The Company is currently evaluating the impact the adoption of SFAS No. 159 may have on its statements of operations and financial position. 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 its 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. (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 29, 2007 was as follows:

BALANCE COSTS BALANCE COSTS BALANCE COSTS BALANCE JULY 2, CHARGED TO JULY 1, CHARGED TO JUNE 30, CHARGED TO JUNE 29, 2004 RESERVE 2005 RESERVE 2006 RESERVE 2007 ------- ---------- ------- ---------- -------- ---------- -------- Legal and environmental liability................ $1,163 $19 $1,144 $26 $1,118 $2 $1,116 ------ --- ------ --- ------ -- ------ $1,163 $19 $1,144 $26 $1,118 $2 $1,116 ====== === ====== === ====== == ======

The remaining legal and environmental costs are expected to extend over the next four years. (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. F-11 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In connection with the acquisition, the Company incurred an integration reserve of $10 million. The components of the Integration reserve and activity through June 29, 2007 was as follows:

COSTS COSTS COSTS BALANCE CHARGED BALANCE CHARGED BALANCE CHARGED BALANCE JULY 2, TO JULY 1, TO JUNE 30, TO JUNE 29, 2004 RESERVE 2005 RESERVE 2006 RESERVE 2007 ------- ------- ------- ------- -------- ------- -------- Legal and environmental........ $1,281 $316 $965 $216 $749 $139 $610 ------ ---- ---- ---- ---- ---- ---- $1,281 $316 $965 $216 $749 $139 $610 ====== ==== ==== ==== ==== ==== ====

4. INVENTORIES Inventories are summarized as follows:

JUNE 29, JUNE 30, 2007 2006 -------- -------- Raw materials.......................................... $ 56,561 $ 60,715 Work-in-process........................................ 13,318 12,834 Finished goods......................................... 62,005 62,209 -------- -------- $131,884 $135,758 ======== ========

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

JUNE 29, JUNE 30, ESTIMATED 2007 2006 USEFUL LIVES -------- -------- ------------- Land......................................... $ 15,832 $ 15,832 Building and improvements.................... 61,959 61,299 25 - 40 years Machinery and equipment...................... 278,636 263,088 5 - 10 years Furniture and fixtures....................... 11,703 10,937 5 - 10 years Construction in progress..................... 10,316 8,666 -------- -------- 378,446 359,822 Less accumulated depreciation................ 214,419 192,035 -------- -------- $164,027 $167,787 ======== ========

6. INTANGIBLE ASSETS Intangible assets consist of the following:

JUNE 29, JUNE 30, 2007 2006 -------- -------- Goodwill............................................... $167,284 $167,284 Customer list and non-compete agreement................ 9,340 8,541 Patents................................................ 2,893 2,361 -------- -------- 179,517 178,186 Less accumulated amortization.......................... 8,116 6,806 -------- -------- $171,401 $171,380 ======== ========

F-12 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Amortization of customer list and non-compete agreement will be $1,765 annually through the first quarter of 2007. Patents will be amortized $280 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 29, 2007 and June 30, 2006 were $6,569, $5,472, and $1,547, and $1,334, 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 29, JUNE 30, SENIOR DEBT (A): 2007 2006 ---------------- -------- -------- Revolving line of credit Term notes.......................... $ 51,000 $ 39,000 Senior Subordinated Notes issued June 21, 2000 at 12- 3/4%, due June 15, 2010 (less unamortized discount of $1,129 and $1,506)(B).......................................... 273,871 273,494 Senior Subordinated Notes issued May 2002 at 12- 3/4%, due June 15, 2010 (less unamortized premium of $212 and $287)(B)................................................... 40,212 40,287 Senior Secured Notes issued November 21, 2003 at 8- 3/4% , due November 15, 2013 (less unamortized discount of $4,853 and $5,609)(C)............................................. 270,080 269,391 Senior Secured Notes issued June 10, 2005 at 10.875% due August 15, 2012 (less unamortized discount of $2,433 and $2,904)(D)................................................. 147,530 147,096 Series A Redeemable Preferred Stock(E)....................... 86,033 75,473 Other, primarily foreign term loans, with interest rates ranging from 4.44% to 5.44% and maturities from 2007 to 2013....................................................... 4,568 4,880 -------- -------- 873,294 849,621 Less: Current maturities..................................... 876 1,241 -------- -------- $872,418 $848,380 ======== ========

(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. As of September 21, 2007 we have $10.8 million 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. F-13 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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; - 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 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:

REDEMPTION PERIOD PRICE ------ ---------- 2007.......................................................... 102.125% 2008 and thereafter........................................... 100.000%

F-14 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 - 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 is 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; F-15 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) - 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 have filed 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. The registration statement has been declared effective by the SEC. As a result, we are no longer required to pay liquidated damages in an amount equal to 1.0% of the principal amount of the senior secured notes per annum. (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; F-16 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) - 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"). 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): F-17 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (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; (vi) 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. 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; F-18 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) - 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: 2008........................................................... $ 876 2009........................................................... 51,440 2010........................................................... 314,426 2011........................................................... 324 2012........................................................... 317 Thereafter..................................................... 505,911 -------- $873,294 The Company believes the recorded value of long-term debt approximates fair value. F-19 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. INCOME TAXES The provision for income taxes is summarized as follows:

JUNE 29, JUNE 30, JULY 1, YEARS ENDED 2007 2006 2005 ----------- -------- -------- ------- Current: Federal......................................... $ -- $ (102) $ -- Foreign......................................... 4,253 4,408 4,652 State and local................................. 150 106 348 ------ ------ ------- $4,403 $4,412 $ 5,000 ------ ------ ------- Deferred: Federal......................................... -- -- 21,530 Foreign......................................... 1,382 565 (283) State and local................................. -- -- -- ------ ------ ------- 1,382 565 21,247 ------ ------ ------- Provision (benefit) for income taxes.............. $5,785 $4,977 $26,247 ====== ====== =======

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

JUNE 29, JUNE 30, JULY 1, YEARS ENDED 2007 2006 2005 ----------- -------- -------- -------- Domestic........................................ $(73,170) $(91,860) $(66,900) Foreign......................................... 17,641 12,526 11,668 -------- -------- -------- $(55,529) $(79,334) $(55,232) ======== ======== ========

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

JUNE 29, JUNE 30, JULY 1, YEARS ENDED 2007 2006 2005 ----------- -------- -------- -------- Provision (benefit) for Federal income taxes at statutory rate................................ $(18,880) $(26,974) $(18,779) State and local income taxes,................... 99 -- net of Federal benefit........................ -- (3,142) (2,187) Non-deductible goodwill impairment.............. -- 11,945 -- Non-deductible preferred stock interest accretion..................................... 3,256 4,845 -- Foreign tax rates in excess of Federal tax rate.......................................... (363) 714 402 Increase in Valuation Allowance................. 2,941 15,373 47,459 Foreign Dividends............................... 4,896 Expiration of NOLs.............................. 12,170 Other, net...................................... 1,666 2,216 (648) -------- -------- -------- Provision (benefit) for income taxes............ $ 5,785 $ 4,977 $ 26,247 ======== ======== ========

F-20 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Significant components of the Company's deferred tax assets and liabilities are as follows:

JUNE 29, JUNE 30, 2007 2006 -------- -------- Current deferred taxes: Allowance for doubtful accounts....................... 870 1,416 Inventory............................................. 724 855 Net operating loss carryforwards...................... 2,421 3,171 Accrued expenses...................................... 3,180 3,251 ------- ------- Total current deferred tax assets.................. 7,195 8,693 ------- ------- Long-term deferred taxes: Net operating loss carryforwards...................... 111,292 104,647 Accrued pension and post-retirement................... 2,949 2,822 Unrealized loss on derivative contracts............... 280 372 Unrealized loss of pension plan....................... 2,858 3,001 Difference in book and tax basis of assets............ (609) (609) Difference in depreciation............................ (15,570) (15,633) Goodwill -- deductible for tax purposes............... (12,053) (9,740) Other expenses........................................ 722 570 Other foreign......................................... (1,637) (3,019) ------- ------- Total long-term net deferred tax assets............ 88,232 82,411 ------- ------- Total current and long term deferred tax assets.... 95,427 91,104 Valuation allowance..................................... (97,064) (94,123) ------- ------- Total long-term net deferred tax assets/(liabilities)... (1,637) (3,019) ======= =======

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 $308,000. These NOL's expire at various dates from 2009 through 2026. Approximately $63,000 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 $63,000 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. F-21 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. EMPLOYEE BENEFIT PLANS The following disclosures reflect the Company's adoption of SFAS 158 effective for the fiscal year ended June 29, 2007: (A) SAVINGS PLANS i. The Company maintains a discretionary 401(k) plan covering all eligible employees with at least one year of service. The Company determines matching contributions to the plan each year, not to exceed 2% of the employee's eligible compensation. Contributions for the fiscal years ended June 29, 2007, June 30, 2006 and July 1, 2005, amounted to $1,054, $1,105 and $1,081, respectively. (B) PENSION PLANS Prior to January 1, 2007, the Company had three pension plans as follows: i. The Burlington subsidiary had a noncontributory defined benefit pension plan that covered substantially all hourly compensated employees covered by a collective bargaining agreement, who have completed one year of service. The funding policy of the Company was to make contributions to this plan based on actuarial computations of the minimum required contribution for the plan year. ii. The Company also maintained a noncontributory defined benefit pension plan that covered substantially all noncollective bargaining unit employees of Plastics, Specialties and Technology and Burlington Resins, who have completed one year of service and were not participants in any other pension plan required by applicable regulations. The funding policy of the Company was 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. iii. The Company also had a defined benefit pension plan for the benefit of all employees having completed one year of service with Dolco Packaging Corporation ("Dolco"). The funding policy of the Company was 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. On January 1, 2007, the three plans were combined to become the Tekni-Plex, Inc. Pension Plan ("The Plan"). The components of net periodic pension costs are as follows:

YEAR ENDED YEAR ENDED YEAR ENDED JUNE 29, JUNE 30, JULY 1, 2007 2006 2005 ---------- ---------- ---------- Service cost.................................. $ 129 $ 161 $ 125 Interest cost on projected benefit obligation.................................. 1,507 1,379 1,479 Expected actual return on plan assets......... (1,582) (1,505) (1,581) Amortization of unrecognized: Prior service cost.......................... 12 12 12 Net loss.................................... 488 823 527 ------- ------- ------- Net pension cost.............................. $ 554 $ 870 $ 562 ======= ======= =======

F-22 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEAR ENDED YEAR ENDED JUNE 29, JUNE 30, 2007 2006 ---------- ---------- CHANGE IN PROJECTED BENEFIT OBLIGATION Projected benefit obligation, beginning of period..... $24,732 $28,798 Service cost.......................................... 129 161 Interest cost......................................... 1,508 1,380 Actuarial loss(gain).................................. 686 (4,451) Benefits paid......................................... (1,461) (1,156) ------- ------- Projected benefit obligation, end of period........... 25,594 24,732 CHANGE IN PLAN ASSETS Plan assets at fair value, beginning of period........ 19,039 18,478 Actual return on plan assets.......................... 3,152 1,217 Company contributions................................. 1,479 500 Benefits paid......................................... (1,461) (1,156) ------- ------- Plan assets at fair value, end of period.............. 22,209 19,039 ------- ------- Funded status of the Plan............................. $(3,385) $(5,693) ======= =======

Amounts recognized in the consolidated balance sheet as of June 29, 2007

JUNE 29, 2007 -------- Other non-current liabilities................................... $(3,385) ------- Net pension liability, end of fiscal year....................... $(3,385) =======

Amounts recognized in accumulated other comprehensive income

JUNE 29, 2007 -------- Net actuarial loss.............................................. $6,526 Prior service cost.............................................. 52 ------ Total........................................................... $6,578 ======

The expected long-term rate of return on the Plan assets were 8.25% and 8.5% at June 29, 2007 and June 30, 2006, respectively, except for the Dolco plan which had a long-term rate of return of 7.5% at June 30, 2006. The discount rates were 6.00% and 6.25% for the same periods. (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 29, 2007, June 30, 2006 and July 1, 2005 amounted to $217, $211 and $369, respectively, net of retiree contributions. F-23 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Net periodic post-retirement benefit costs are as follows:

YEAR ENDED YEAR ENDED JUNE 29, JUNE 30, 2007 2006 ---------- ---------- Service cost.......................................... $198 $221 Interest cost......................................... 312 273 Prior service cost.................................... 20 20 Net loss.............................................. 72 153 ---- ---- Net post-retirement benefit cost.................... $602 $667 ==== ====

YEAR ENDED YEAR ENDED JUNE 29, JUNE 30, 2007 2006 CHANGE IN PROJECTED BENEFIT OBLIGATION ---------- ---------- Projected benefit obligation, beginning of period..... $ 5,155 $ 5,584 Service cost.......................................... 198 221 Interest cost......................................... 312 273 Retiree contributions................................. 4 15 Actuarial (gain)...................................... (335) (726) Benefits paid......................................... (217) (211) ------- ------- Projected benefit obligation, end of period........... $ 5,117 $ 5,156 CHANGE IN PLAN ASSETS Plan assets at fair value, beginning of period........ -- -- Retiree contributions................................. 4 15 Company contributions................................. 213 196 Benefits paid......................................... (217) (211) ------- ------- Plan assets at fair value, end of period.............. -- -- ------- ------- Funded status of the Plan............................. $(5,117) $(5,156) ======= =======

Amounts recognized in the consolidated balance sheet as of June 29, 2007

JUNE 29, 2007 -------- Current liabilities............................................. $ (383) Noncurrent liabilities.......................................... (4,734) ------- Net pension liability, end of fiscal year....................... $(5,117) =======

Amounts recognized in accumulated other comprehensive income

JUNE 29, 2007 -------- Net actuarial loss.............................................. $853 Prior service cost.............................................. 89 ---- Total........................................................... $942 ====

The accumulated post-retirement benefit obligation was determined using a 6.00% and 6.25% discount rate for the periods presented. The healthcare cost trend rate for medical benefits was changed from a flat F-24 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 $321 and $596 and increase the service and interest components by $70 and $66 at June 29, 2007 and June 30, 2006, respectively. The Company's plan asset allocation at 2007 and 2006 and target allocation for 2008 are as follows:

PERCENTAGE OF PLAN TARGET ASSETS ALLOCATION ----------- SECURITY TYPE 2008 2007 2006 ------------- ---------- ---- ---- Guaranteed Investment Contract........................ 0% 0% 6% Fixed Income Securities............................... 35% 40% 0% Equity Securities..................................... 65% 60% 51% Debt Securities....................................... 0% 0% 43% --- --- --- 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%. 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 for the following five years are: 2008........................................................... $ 1,712 2009........................................................... 1,914 2010........................................................... 2,032 2011........................................................... 2,128 2012........................................................... 2,223 2013-2017...................................................... 11,635 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 10 options were issued in fiscal 2007 with an average exercise price of $43,681. 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. F-25 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At June 29, 2007, 42.1 options were outstanding, 16.1 options were exercisable and no options have been exercised. 11. COMMITMENTS AND CONTINGENCIES COMMITMENTS (a) The Company leases building space and certain equipment in approximately 33 locations throughout the United States, Canada and Europe. At June 29, 2007, the Company's future minimum lease payments are as follows: 2008........................................................... $12,793 2009........................................................... 9,140 2010........................................................... 6,819 2011........................................................... 5,893 2012........................................................... 5,548 Thereafter..................................................... 13,077 ------- $53,270 Rent expense, including escalation charges, amounted to approximately $10,016 and $8,447 for the years ended June 29, 2007 and June 30, 2006, respectively. (b) The Company has an employment contract with one officer, providing a minimum annual salary of $4.0 million 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 $4.2 million at current exchange rates, have been fully accrued for as of June 29, 2007. (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 two 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 F-26 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. We have installed additional pollution controls at this facility and we are currently in compliance with our air permit. We may also be required to pay a fine, but 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. As of June 29, 2007 we had a $1.4 million 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 $500,000 and the reserves described in Note 14 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 or our operations. 12. CONCENTRATIONS OF CREDIT RISKS Financial instruments that potentially 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. 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. F-27 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 13. SUPPLEMENTAL CASH FLOW INFORMATION CASH PAID

JUNE 29, JUNE 30, JULY 1, YEARS ENDED 2007 2006 2005 ----------- -------- -------- ------- Interest......................................... $89,544 $82,054 $86,406 ------- ------- ------- Income taxes..................................... 5,417 3,129 $ 4,546 ======= ======= ======= 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. Financial information concerning the Company's business segments and the geographic areas in which it operates are as follows:

TUBING YEAR END JUNE 29, 2007 PRODUCTS PACKAGING OTHER TOTALS ---------------------- -------- --------- -------- -------- Revenues from external customers........ $205,632 $405,429 $162,276 $773,337 Interest expense........................ 49,013 33,310 22,145 104,468 Depreciation and amortization........... 5,573 15,309 7,112 27,994 Segment income (loss) from operations... 4,588 66,331 (988) 69,931 Goodwill................................ 70,099 78,641 18,544 167,284 Segment assets.......................... 239,110 275,214 121,877 636,201 Expenditures for segment fixed assets... 4,276 13,050 3,605 20,931

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................................ 70,099 78,641 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

F-28 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

F-29 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

JUNE 29, JUNE 30, JULY 1, YEARS ENDED 2007 2006 2005 ----------- -------- -------- -------- OPERATING PROFIT Total operating profit for reportable segments before income taxes................................. $ 69,931 $ 36,046 $ 41,255 Corporate and eliminations..................... (18,928) (17,086) (17,069) -------- -------- -------- Consolidated total........................... $ 51,003 $ 18,960 $ 24,186 ======== ======== ======== ASSETS Total assets from reportable segments.......... $636,201 $654,981 $683,169 Other unallocated amounts...................... 3,092 8,374 8,526 -------- -------- -------- Consolidated total........................... $639,293 $663,355 $691,695 ======== ======== ======== DEPRECIATION AND AMORTIZATION Segment totals................................. $ 27,994 $ 30,973 $ 31,629 Corporate...................................... 1,020 1,024 1,024 -------- -------- -------- Consolidated total........................... $ 29,014 $ 31,997 $ 32,653 ======== ======== ======== EXPENDITURES FOR SEGMENT FIXED ASSETS Segment totals................................. $ 20,931 $ 18,481 $ 17,586 Other unallocated expenditures................. 613 601 660 -------- -------- -------- Consolidated total............................. $ 21,544 $ 19,082 $ 18,246 ======== ======== ======== REVENUES GEOGRAPHIC INFORMATION United States.................................. $642,029 $641,661 $594,145 Canada......................................... 17,328 13,603 18,832 China & Argentina.............................. 8,557 4,333 2,805 Europe, primarily Belgium...................... 105,423 83,086 79,742 -------- -------- -------- Total........................................ $773,337 $742,683 $695,524 ======== ======== ======== LONG-LIVED ASSETS GEOGRAPHIC INFORMATION United States.................................. $302,687 $320,630 $364,864 Canada......................................... 8,483 9,582 9,552 China & Argentina.............................. 4,028 2,466 427 Europe......................................... 35,237 23,168 24,423 -------- -------- -------- Total........................................ $350,435 $355,846 $399,266 ======== ======== ========

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 29, 2007 no single customer represented at least 10% of sales. F-30 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 CONSOLIDATING FINANCIAL STATEMENTS Tekni-Plex, Inc. issued 12 3/4% Senior Subordinated Notes in June 2000 and May 2002 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"). CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS -- FOR THE YEAR ENDED JUNE 29, 2007

NON- ISSUER GUARANTORS GUARANTORS TOTAL -------- ---------- ---------- -------- Sales, net............................. $198,203 $443,826 $131,308 $773,337 Cost of sales.......................... 147,572 411,218 97,360 656,150 -------- -------- -------- -------- Gross profit........................... 50,631 32,608 33,948 117,187 Selling, general and administrative.... 26,072 26,766 11,631 64,469 Integration expense.................... 712 1,003 -- 1,715 -------- -------- -------- -------- Income (loss) from operations.......... 23,847 4,839 22,317 51,003 Interest expense, net.................. 104,282 (1) 187 104,468 Unrealized loss (gain) on derivative contract............................. (243) -- -- (243) Other expense (income)................. (1,650) (532) 4,489 2,307 -------- -------- -------- -------- Income (loss) before provision for income taxes......................... (78,542) 5,372 17,641 (55,529) Provision for income taxes............. 150 -- 5,635 5,785 -------- -------- -------- -------- Net income (loss)...................... $(78,692) $ 5,372 $ 12,006 $(61,314) ======== ======== ======== ========

F-31 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET -- AT JUNE 29, 2007

NON- ISSUER GUARANTORS GUARANTORS ELIMINATIONS TOTAL ---------- ---------- ---------- ------------ --------- CURRENT ASSETS.................... $ 37,002 $185,019 $ 66,837 $ -- $ 288,858 Property, plant and equipment, net............................. 39,203 97,873 26,951 -- 164,027 Intangible assets................. 16,995 145,793 8,613 -- 171,401 Investment in subsidiaries........ 568,642 -- -- (568,642) -- Deferred financing costs, net..... 11,944 -- -- -- 11,944 Other long-term assets............ 438,409 424,167 844 (860,357) 3,063 ---------- -------- -------- ----------- --------- TOTAL ASSETS.................... $1,112,195 $852,852 $103,245 $(1,428,999) $ 639,293 ========== ======== ======== =========== ========= CURRENT LIABILITIES............... 37,916 30,642 36,781 105,339 Long-term debt.................... 782,693 29 3,663 -- 786,385 Preferred stock................... 86,033 -- -- -- 86,033 Other long-term liabilities....... 569,565 298,846 1,109 (860,357) 9,163 ---------- -------- -------- ----------- --------- Total Liabilities............... 1,476,207 329,517 41,553 (860,357) 986,920 ---------- -------- -------- ----------- --------- Additional paid-in capital........ 188,018 296,764 20,251 (317,015) 188,018 Retained earnings (accumulated deficit)........................ (316,154) 215,546 36,082 (251,627) (316,153) Accumulated other comprehensive (income) loss................... (1,216) (6,460) 8,707 -- 1,031 Treasury stock.................... (220,523) -- -- -- (220,523) ---------- -------- -------- ----------- --------- Total stockholders' deficit..... (349,875) 505,850 65,040 (568,642) (347,627) ---------- -------- -------- ----------- --------- Total liabilities and stockholders' deficit........ $1,126,332 $835,367 $106,593 $(1,428,999) $ 639,293 ========== ======== ======== =========== =========

F-32 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING CASH FLOWS -- FOR THE YEAR ENDED JUNE 29, 2007

NON- ISSUER GUARANTORS GUARANTORS TOTAL -------- ---------- ---------- -------- Net cash provided by (used in) operating activities:................ $(51,860) $ 41,310 $ 24,738 $ 14,188 -------- -------- -------- -------- Cash flows from investing activities: Capital expenditures................. (4,614) (11,487) (5,443) (21,544) Additions to intangibles............. (2,342) 1,119 (431) (1,654) Deposits and other assets............ -- 417 (1,399) (982) -------- -------- -------- -------- Net cash used in investing activities.. (6,956) (9,951) (7,273) (24,180) -------- -------- -------- -------- Cash flows from financing activities: Repayments under line of credit...... (41,000) -- -- (41,000) Borrowings under line of credit...... 53,000 -- -- 53,000 Proceeds from long-term debt......... -- -- (390) (390) Debt financing....................... 250 -- -- 250 Change in intercompany accounts...... 47,765 (30,051) (17,714) -- Net cash flows provided by (used in) financing activities................. 60,015 (30,051) (18,104) 11,860 -------- -------- -------- -------- Effect of exchange rate changes on cash................................. -- -- (212) (212) -------- -------- -------- -------- Net increase (decrease) in cash........ 1,199 1,308 (851) 1,656 Cash, beginning of year................ 4,250 4,895 11,544 20,689 -------- -------- -------- -------- Cash, end of year...................... $ 5,449 $ 6,203 $ 10,693 $ 22,345 ======== ======== ======== ========

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS -- FOR THE YEAR ENDED JUNE 30, 2006

NON- ISSUER GUARANTORS GUARANTORS TOTAL -------- ---------- ---------- -------- 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 (income) expense................. (4,921) (1,024) 3,208 (2,737) -------- -------- -------- -------- Loss (income) 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) ======== ======== ======== ========

F-33 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET -- AT JUNE 30, 2006

NON- ISSUER GUARANTORS GUARANTORS ELIMINATIONS TOTAL ---------- ---------- ---------- ------------ --------- 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 Long-term debt................. 769,268 -- 3,639 -- 772,907 Preferred stock................ 74,495 -- -- 74,495 Other long-term liabilities.... 492,811 205,765 14,930 (700,716) 12,790 ---------- -------- -------- ----------- --------- 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 ========== ======== ======== =========== =========

F-34 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING CASH FLOWS -- FOR THE YEAR ENDED JUNE 30, 2006

NON- ISSUER GUARANTORS GUARANTORS TOTAL -------- ---------- ---------- -------- 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................ 6,971 7,732 3,881 18,584 -------- -------- ------- -------- Cash, end of year...................... $ 4,250 $ 4,895 $11,544 $ 20,689 ======== ======== ======= ========

F-35 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS -- FOR THE YEAR ENDED JULY 1, 2005

NON- ISSUER GUARANTORS GUARANTORS TOTAL -------- ---------- ---------- -------- 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) ======== ======== ======== ========

CONDENSED CONSOLIDATING BALANCE SHEET -- AT JULY 1, 2005

NON- ISSUER GUARANTORS GUARANTORS ELIMINATIONS TOTAL ---------- ---------- ---------- ------------ --------- 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 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) (10,709) 2,631 -- (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 ========== ======== ======= =========== =========

F-36 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING CASH FLOWS -- FOR THE YEAR ENDED JULY 1, 2005

NON- ISSUER GUARANTORS GUARANTORS TOTAL -------- ---------- ---------- -------- 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 ======== ======== ======== ========

16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- 2007 Net sales............................... $172,005 $156,106 $211,681 $233,545 Gross profit............................ 26,935 26,163 34,098 29,991 (3) Income (loss) from operations........... 11,036 11,236 17,169 11,562 (3) Net (loss).............................. $(14,872)(2) $(15,661) $(12,158) $(18,623)(3) ======== ======== ======== ======== 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)(1) 19,830 25,680 Net (loss).............................. $(24,299) $(54,528)(1) $ (4,564) $ (920) ======== ======== ======== ========

-------- (1) 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. F-37 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (2) The first quarter of fiscal 2007 included a $2.4 million reduction in interest expense due to a change in the methodology used to accrete our preferred stock to its mandatory redemption value from the straight-line method to the effective interest method. (3) The fourth quarter of fiscal 2007 includes certain fourth quarter adjustments, including the following: (1) $1.1 million reduction in inventory to correct a misstated inventory count at our Action Technology unit in Clinton, IL. (2) $2.8 million increase in fixed assets to correct excess depreciation charged in prior years. F-38 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 26, 2007 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 29, 2007, June 30, 2006 and July 1, 2005 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 26, 2007 F-39 TEKNI-PLEX, INC. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

BALANCE AT CHARGED TO BEGINNING OF COSTS AND BALANCE AT END PERIOD EXPENSES(1) DEDUCTIONS(2) OF PERIOD(3) ------------ ----------- ------------- -------------- (DOLLARS IN THOUSANDS) 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 ====== ====== ====== ====== YEAR ENDED JUNE 29, 2007 Accounts receivable allowance for possible losses.................................. $2,952 $4,826 $4,850 $2,928 ====== ====== ====== ======

-------- (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. F-40