UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

^{_________________________________}

FORM 10-K

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

For the fiscal year ended December 31, 2005

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________to_____________

Commission file number 0-5485

^{_________________________________}

VISKASE COMPANIES, INC.

(Exact name of registrant as specified in its charter)

Delaware	95-2677354
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

625 Willowbrook Centre Parkway, Willowbrook, IL	60527
(Address of principal executive offices)	(Zip Code)

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

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

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

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

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

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x

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

As of March 24, 2006 the aggregate market value of the voting stock held by non-affiliates of the registrant was $11,635,983.

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

As of March 24, 2006, there were 9,715,954 shares outstanding of the registrant's Common Stock, $.01 par value.

VISKASE COMPANIES, INC.

Form 10-K Annual Report - 2005

Table of Contents

PART I			Page
	Item 1.	Business	3
	Item 1A.	Risk Factors	7
	Item 1B.	Unresolved Staff Comments	14
	Item 2.	Properties	15
	Item 3.	Legal Proceedings	15
	Item 4.	Submission of Matters to a Vote of Security Holders	16

PART II
	Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17
	Item 6.	Selected Financial Data	18
	Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	33
	Item 8.	Financial Statements and Supplementary Data	34
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	73
	Item 9A.	Controls and Procedures	73
	Item 9B.	Other Information	73

PART III
	Item 10.	Directors and Executive Officers of the Registrant	74
	Item 11.	Executive Compensation	77
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	82
	Item 13.	Certain Relationships and Related Transactions	84
	Item 14.	Principal Accountant Fees and Services	84

PART IV
	Item 15.	Exhibits and Financial Statement Schedules	85

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PART I

ITEM 1.

BUSINESS

(a)	General Development of Business

General

Viskase Companies, Inc. is a Delaware corporation organized in 1970. As used herein, Viskase Companies, Inc. and its subsidiaries are referred to as “Viskase” or the “Company,” as well as “we,” “us” and “our”. The Company operates in the casing product segment of the food industry. Viskase is a major producer of cellulosic and plastic casings used in preparing and packaging processed meat products.

Since 1998, the Company has sold certain of its operations in order to reduce indebtedness and increase its operational focus. As a result of these efforts, the Company sold its wholly owned subsidiary Sandusky Plastics, Inc. in June 1998, its wholly owned subsidiary Clear Shield National, Inc. in July 1998 and its plastic barrier and non-barrier shrink film business in August 2000. These divestitures have left the cellulosic and plastics casings business as the Company’s primary operating activity. However, recently the Company has introduced a barrier bag product line. Since its emergence from bankruptcy in 2003, the Company has implemented a number of restructuring measures to reduce the fixed cost structure, and to address competitive price pressures and increases in various production costs in the Company’s business.

For more information about us, our products, services and solutions, visit www.viskase.com. The Company files annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K with the Securities and Exchange Commission ("SEC"). You may read and copy such reports at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reading Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a Web site (www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants like us who file electronically with the SEC. Also, our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K will be made available free of charge through the Investor Relations section of our website as soon as practicable after such material is electronically filed with, or furnished to, the SEC.

Bankruptcy and Plan of Reorganization

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

Upon emerging from bankruptcy, the Company adopted fresh-start accounting resulting in recording all assets and liabilities at fair value.

(b)	Financial Information About Segments

Reference is made to Part II, Item 8, Note 26 of Notes to Consolidated Financial Statements.

(c)	Narrative Description of Business

General

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

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Products

Our main product lines are as follows:

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

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

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

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

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

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

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

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

International Operations

Viskase has five manufacturing and/or finishing facilities located outside the continental United States, in Monterrey, Mexico; Beauvais, France; Thâon-les-Vosges, France; Caronno, Italy; and Guarulhos, Brazil. Net sales from customers located outside the United States represented approximately 60% of our total net sales in 2005. Our operations in France are responsible for distributing products, directly or through distributors, in Europe, Africa, the Middle East and parts of Asia. While overall consumption of processed meat products in North America and Western Europe is stable, there is a potential for market growth in Eastern Europe, Latin America and Southeast Asia.

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Sales and Distribution

Viskase has a broad base of customers, with no single customer accounting for more than 7% of our net sales. We are able to sell our products in most countries throughout the world. In the United States, Viskase has a staff of technical sales teams responsible for sales and service to processed meat and poultry producers. Approximately 77 distributors market Viskase products to customers in Europe, Africa, the Middle East, Asia, and Latin America. Our products are marketed through our own subsidiaries in France, Germany, Italy, Poland and Brazil, and we maintain ten service and distribution centers located in the United States, Brazil, Canada, Germany, Italy and Poland. The service centers perform limited finishing and provide sales, customer service, warehousing and distribution. Distribution centers provide only warehousing and distribution. As of December 31, 2005 and 2004, Viskase had backlog orders of approximately $42.8 million and $33.3 million, respectively. Orders on backlog typically are filled within 90 days.

Competition

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

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

Research and Development

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

We believe we have achieved and maintained our position as a leading producer of cellulosic casings for packaging meats through significant expenditures on research and development. We expect to continue our research and development efforts. The commercialization of certain of our product and process applications, and related capital expenditures to achieve commercialization, may require substantial financial commitments in future periods. Research and development costs for the Reorganized Company (referring to the Company for the periods subsequent to the effective date of our plan of reorganization) are expensed as incurred and totaled $2.298 million, $2.697 million and $2.628 million for 2005, 2004 and the period April 3, 2003 through December 31, 2003, respectively. Research and development costs for the Predecessor Company (referring to the Company for the periods prior to the effective date of our plan of reorganization) were expensed as incurred and totaled $0.970 million for the period January 1, 2003 through April 2, 2003.

Seasonality

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

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Raw Materials

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

Employees

We believe we maintain productive and amicable relationships with our approximately 1,415 employees worldwide. Approximately 731 of our 1,415 employees are union members. One of our domestic facilities, located in Loudon, Tennessee, is unionized. Our collective bargaining agreement covering union employees at the Loudon facility expires on September 30, 2010. Additionally, all of our European, Brazilian and Mexican plants have national agreements with annual renewals. Employees at our European plants have negotiations occurring at both local and national levels.

Trademarks and Patents

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

Environmental Regulations

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

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

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

(d)	Financial Information About Geographic Areas

Reference is made to Part II, Item 8, Note 26 of Notes to Consolidated Financial Statements.

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ITEM 1A.

RISK FACTORS

Risks Related to our Business

We have recently emerged from bankruptcy, have a history of losses and may not become profitable.

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

Our results of operations and financial condition for the periods subsequent to our emergence from bankruptcy may vary significantly from any projections that were prepared in connection with our plan of reorganization and you may be unable to make meaningful comparisons to our historical financial statements for the period prior to our bankruptcy.

In connection with our plan of reorganization, we were required to prepare projected financial information to demonstrate to the United States Bankruptcy Court the feasibility of our plan of reorganization and ability to continue operations upon our emergence from bankruptcy. Also in connection with our emergence from bankruptcy, we have applied the "fresh start" accounting method. This method requires us to revalue all our assets and liabilities based on our estimate of our enterprise value and the fair value of each of our assets and liabilities. These projections and enterprise valuation were prepared solely for the purpose of the bankruptcy and should not be relied upon for any other purpose. The determination of these values was subject to significant estimates, and the fair values recorded based on these estimates may not be fully realized in periods subsequent to our emergence from bankruptcy. The recorded amounts of our assets and liabilities and the results of our operations reflected in the financial statements for periods subsequent to our emergence from bankruptcy are not comparable to the financial statements for the period prior to the emergence from bankruptcy. You may not be able to make meaningful comparisons of certain information reflecting our results of operations and financial condition to the previous periods.

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

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

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

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

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

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

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

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

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

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

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

Our business is capital intensive. We operate eight manufacturing facilities and eight distribution centers as part of our business. We are required to make substantial capital expenditures and substantial repair and maintenance expenditures to maintain, repair, upgrade and expand existing equipment and facilities to keep pace with competitive developments. In addition, we are required to invest in technological advances to maintain compliance with safety standards and environmental laws or regulations. For example, we have already expended $10.2 million, and expect to expend another $0.2 million over the next six months, on maximum achievable control technology ("MACT") to meet certain air emissions standards related to carbon disulfide under the Clean Air Act Amendments of 1990. Historically, we have spent approximately $5.0 million each year on capital expenditures. We currently estimate that we will need to spend approximately $12 million for capital expenditures in 2006 and approximately $8 million annually thereafter. We expect to make capital expenditures of approximately $10 million in connection with our plan to restructure our finishing operations, of which, as of December 31, 2005, we have made capital expenditures of approximately $5 million. At some point in the future, we may be required to obtain additional financing to fund capital expenditures. If we need to obtain additional funds, we may not be able to do so on terms favorable to us, or at all, which would ultimately negatively affect our production and operating results.

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

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

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We are subject to significant minimum contribution requirements with respect to our pension plan, and we are subject to market exposure with respect to our defined benefit plan, both of which could adversely affect our cash flow

We maintain a pension plan for our North American employees, through which monthly benefits are paid to our retired employees. We are subject to substantial minimum contribution requirements with respect to our pension plan. Although the amount fluctuates, our aggregate minimum funding contribution requirement from December 31, 2005 through 2009 is approximately $44.4 million. This amount could increase or decrease due to market factors, including expected returns on plan assets and the discount rate used to measure accounting liabilities, among other factors.

Our unfunded pension plan liabilities with respect to our North American employees were projected to be $48.6 million as of December 31, 2005. The funds in our defined benefit plan are subject to market risks, including fluctuating discount rates, interest rates and asset returns. As of April 1, 2004 for all employees not covered by a collective bargaining agreement, we eliminated the unreduced early retirement benefit within our defined benefit plan and, in addition, we replaced the current defined benefit plan for all employees who were not defined benefit plan participants as of March 31, 2003 with a new defined contribution plan.

Plan documents governing our pension plan reserve our right to terminate, amend or change the pension plan.

Underfunding with respect to our postretirement medical and life insurance benefits provided to our eligible North American retirees could adversely affect our cash position.

We have historically provided postretirement medical and life insurance benefits to eligible North American retirees. Plan documents governing our postretirement medical and life insurance benefits reserve our right to terminate, amend or change the plans under which such benefits are offered. The Company terminated postretirement medical benefits as of December 31, 2004 for all active employees and retirees in the U.S. who are not covered by a collective bargaining agreement. Termination resulted in a $34.1 million reduction in the Company's unfunded postretirement liability.

On September 30, 2005 employees in the U.S. covered by a collective bargaining agreement ratified a new agreement which contained a provision that terminated postretirement medical benefits as of December 31, 2006 for all active employees and retirees covered by the collective bargaining agreement. The termination of the United States postretirement medical benefits for employees covered by the collective bargaining agreement resulted in a $.7 million curtailment gain and reduction in the unfunded postretirement liability included in “Accrued employee benefits” on the consolidated balance sheets in 2005. In addition, the Company will amortize $9.7 million of remaining unrecognized prior service costs and net actuarial loss related to these postretirement medical benefits over the 15 month period from October 1, 2005 through December 31, 2006. During the fourth quarter of 2005, $1.7 million was recorded as a reduction to cost of sales.

We continue to provide post-retirement life insurance benefits for North American retirees, which, as of December 31, 2005, was unfunded by approximately $12.9 million.

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

We currently have manufacturing or sales and distribution centers in seven foreign countries, including Brazil, Canada, France, Germany, Italy, Mexico and Poland. Our international sales and operations may be subject to various political and economic risks including, but not limited to:

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possible unfavorable exchange rate fluctuations or hyperinflation;

changes in a country's or region's political or economic conditions;

governmental regulations, including import and export controls; and

tariffs.

Our sales to customers located outside the United States generally are subject to taxes on the repatriation of funds. In addition, international operations in certain parts of the world may be subject to international balance of payments difficulties that may raise the possibility of delay or loss in the collection of accounts receivable from sales to customers in those countries. Net sales to customers located outside the United States represented approximately 60% of our total net sales in 2005.

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

Continued consolidation of our customers and increasing competition for those customers may put pressures on our operating margins.

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

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

Viscofan, S.A. recently announced that it had acquired the North American operations of Teepak LLC. As a result, Viscofan has strengthened its market share in the United States and other key markets in which we participate. This could negatively affect our relationships with certain of our customers, which in turn could have a negative impact on our financial position.

We may engage in strategic transactions, which could divert attention and resources from other worthwhile endeavors.

In connection with our business strategies and goals of growth of our operations and market share, we may seek to acquire, merge with, enter into partnerships with or enter into other similar transactions with, other companies, including companies that complement our existing products, technologies or distribution, or lower our costs, and we regularly engage in discussions with other companies or their representatives with respect to such transactions. In addition, in May 2005 we announced that our board of directors was evaluating possible strategic alternatives for the Company. We may be unable to identify and/or successfully acquire, merge with, partner with or enter into other similar transactions with suitable companies under terms advantageous to our business. If we do enter into such transactions, we may be unable to efficiently and effectively integrate our business and achieve the anticipated synergies. The integration of the businesses may also result in unforeseen difficulties that require a disproportionate amount of management's attention and other resources, which, in turn, may negatively affect our profitability.

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

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

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

We have incurred, and will continue to incur, significant capital and operating expenditures to comply with various environmental laws and regulations. For example, we have already expended $10.2 million, and expect to expend another $0.2 million over the next six months, on "maximum achievable control technology" to meet certain air emissions standards related to carbon disulfide under the Clean Air Act Amendments of 1990. Although we expect to implement the technology necessary to meet these emissions standards at our two U.S. extrusion facilities, our failure to do so could result in substantial penalties, including civil fines of approximately $50,000 per facility per day or a shutdown of our U.S. extrusion operations. Additional environmental requirements imposed in the future could require currently unanticipated investigations, assessments or expenditures, and may require us to incur significant additional costs. As the nature of these potential future charges is unknown, management is not able to estimate the magnitude of any future costs, and we have not accrued any reserve for any potential future costs.

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

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

In 1993, the Illinois Department of Revenue submitted a proof of claim against Envirodyne Industries, Inc. (our former corporate name) and its subsidiaries in the United States Bankruptcy Court, for liability with respect to our allegedly incorrect utilization of certain loss carry-forwards of certain of our subsidiaries. The Bankruptcy Court ruled that there was no principal tax due, however, the Illinois Department of Revenue may appeal this ruling and has asserted we would have an tax liability of approximately $2.9 million if it was successful upon appeal. This additional tax liability could materially affect our financial condition. See "Item 3 - Legal Proceedings" for more information.

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

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

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

We have substantial indebtedness. In addition, subject to restrictions in the indenture ("Indenture") governing our 11.5% Senior Secured Notes due June 11, 2011 issued on June 29, 2004 ("11.5% Senior Secured Notes"), we may incur additional indebtedness. As of December 31, 2005, we had approximately $103.5 million ($107.6 million aggregate principal) of total debt, not including the availability of additional indebtedness, of up to $20.0 million that we may borrow under our revolving credit facility.

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

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

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

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

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

We may incur substantial additional indebtedness in the future. Although the Indenture and our revolving credit facility contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial. For example, we have the ability to borrow up to $20.0 million under our revolving credit facility, which is secured by liens on all of our personal and real property assets, with certain exceptions. Under certain circumstances, we are permitted to incur in excess of $20.0 million under our revolving credit facility. See “Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operation" and "Item 8 - Financial Statements and Supplementary Data."

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

Our earnings were insufficient to cover our fixed charges for the twelve-month period ended December 31, 2005. If our cash flow and capital resources are insufficient to pay interest and principal under our revolving credit facility, the 11.5% Senior Secured Notes, the 8% Senior Subordinated Secured Notes due December 1, 2008 (“8% Notes”) and our other debt, we may be forced to reduce or delay capital expenditures, sell assets, seek to obtain additional equity capital or attempt to restructure our debt. If any of those alternative measures do not permit us to meet our scheduled debt service obligations, we could face substantial liquidity problems and the possibility of a default under our revolving credit facility. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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Unless we were to obtain an appropriate waiver, an event of default would give our lender under our revolving credit facility the right to demand immediate repayment, a demand we might not be able to meet.

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

Our sales to customers located outside the United States are conducted primarily through subsidiaries organized under the laws of jurisdictions outside of the United States. For the twelve-month period ended December 31, 2005, our foreign restricted subsidiaries contributed approximately 39% of our consolidated revenues. As of December 31, 2005, 40% of our consolidated assets, based on book value, were held by foreign subsidiaries. Our ability to meet our debt service obligations with cash from foreign subsidiaries will depend upon the results of operations of these subsidiaries and may be subject to contractual or other restrictions and other business considerations. In addition, dividend and interest payments to us from our foreign subsidiaries may be subject to foreign withholding taxes, which would reduce the amount of funds we receive from such foreign subsidiaries. Dividends and other distributions from our foreign subsidiaries may also be subject to fluctuations in currency exchange rates and restrictions on repatriation, which could further reduce the amount of funds we receive from such foreign subsidiaries.

The capital stock securing the 11.5% Senior Secured Notes will automatically be released from the collateral to the extent the pledge of such collateral would require the filing with the SEC of separate financial statements for any of our subsidiaries, resulting in a loss of a security interest to the extent of the collateral released.

The Indenture and the security documents related thereto provide that, to the extent that any rule is adopted, amended or interpreted that would require the filing with the SEC (or any other governmental agency) of separate financial statements for any of our subsidiaries due to the fact that such subsidiary’s capital stock secures the 11.5% Senior Secured Notes, then such capital stock will automatically be deemed not to be part of the collateral securing the 11.5% Senior Secured Notes to the extent necessary to not be subject to such requirement. In such event, the security documents may be amended, without the consent of any holder of 11.5% Senior Secured Notes, to the extent necessary to release the liens on such capital stock. As a result, holders of the 11.5% Senior Secured Notes could lose their security interest in such portion of the collateral if, and for so long as, any such rule is in effect. At this time, and at all times since the issuance of the 11.5% Senior Secured Notes, none of our subsidiaries has represented collateral exceeding 10% of the principal amount of the 11.5% Senior Secured Notes. We have concluded that the collateral value of Viskase Europe Limited was equal to 2.68% of the principal amount of the 11.5% Senior Secured Notes as of December 31, 2005. The release of capital stock of a subsidiary pursuant to this provision in certain circumstances could result in less than a majority of the capital stock of a subsidiary being pledged to secure the 11.5% Senior Secured Notes, which could impair the ability of the trustee to sell a controlling interest in such subsidiary or to otherwise realize value on its security interest in such subsidiary’s stock or assets. Finally, the liens of the lenders under our revolving credit facility are not subject to any such restriction, and as a result, the 11.5% Senior Secured Notes will effectively be subordinated in right of payment to our indebtedness under our revolving credit facility to the extent of the value of such capital stock so released.

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The Indenture and our other indebtedness impose significant operating and financial restrictions, and a breach of any such restriction may result in a default, which could result in the possible acceleration of repayment obligations and our secured creditors receiving certain rights against our collateral.

The Indenture and the credit agreement governing our revolving credit facility impose significant operating and financial restrictions on us. These restrictions restrict our ability to take advantage of potential business opportunities as they arise and may adversely affect the conduct of our current business. More specifically, they restrict our ability to, among other things:

incur additional indebtedness or issue disqualified capital stock;

pay dividends, redeem subordinated debt or make other restricted payments;

make certain investments or acquisitions;

grant liens on our assets;

merge, consolidate or transfer substantially all of our assets; and

transfer, sell or acquire assets, including capital stock of our subsidiaries.

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

The interests of our major stockholders may not be aligned with other stockholders or debtholders.

To our knowledge, Carl C. Icahn is the beneficial owner of approximately 29.5% of our outstanding Common Stock. Two employees of companies affiliated with Mr. Icahn are members of our Board of Directors, which is comprised of five directors. When we emerged from bankruptcy, a third individual was designated as a member of our Board of Directors who is a director of other companies affiliated with Mr. Icahn. As the beneficial owner of 29.5% of our Common Stock, Mr. Icahn has significant influence regarding the election of our Board of Directors and stockholder voting on decisions relating to fundamental corporate actions. It is possible that the interests of Mr. Icahn and our other major stockholders, as such, could conflict in certain circumstances with other stockholders and debtholders.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

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ITEM 2.

PROPERTIES

VISKASE FACILITIES

LOCATION	SQUARE FEET	PRIMARY USE

Manufacturing Facilities

Beauvais, France (a)	235,000	Casings production and finishing
Caronno, Italy	73,000	Casings finishing
Guarulhos, Brazil (a)	25,000	Casings finishing
Kentland, Indiana	125,000	Casings finishing
Loudon, Tennessee	250,000	Casings production
Monterrey, Mexico (a)	179,000	Casings finishing
Osceola, Arkansas	223,000	Casings production and casings finishing
Thâon-les-Vosges, France	239,000	Casings production and finishing

Distribution Centers

Atlanta, Georgia (a)

Buffalo, New York (a)

Fresno, California (a)

Remington, Indiana (a)

Dormagen, Germany (a)

Saskatoon, Saskatchewan, Canada (a)

Lindsay, Ontario, Canada (a)

Warsaw, Poland (a)

Service Centers

Guarulhos, Brazil (a)

Caronno, Italy

Headquarters

Worldwide:	Willowbrook, Illinois (a) (b)
Europe	Pantin, France (a)

(a)

Leased. All other properties are owned.

(b)

Darien, Illinois (a) after May 1, 2006.

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

ITEM 3.

LEGAL PROCEEDINGS

In 1993, the Illinois Department of Revenue (“IDR”) filed a proof of claim against Envirodyne Industries, Inc. (now known as Viskase Companies, Inc.) and its subsidiaries in the United States Bankruptcy Court for the Northern District of Illinois ("Bankruptcy Court"), Bankruptcy Case Number 93 B 319, for alleged liability with respect to the IDR’s denial of the Company’s allegedly incorrect utilization of certain loss carry-forwards of certain of its subsidiaries. The IDR asserted it was owed, as of the petition date, $0.998 million in taxes, $0.356 million in interest and $0.270 million penalties. The Company objected to the claim on various grounds. In September 2001, the Bankruptcy Court denied the IDR’s claim and determined the debtors were not responsible for 1998 and 1999 tax liabilities, interest and penalties. IDR appealed the Bankruptcy Court’s decision to the United States District Court, Northern District of Illinois, Case Number 01 C 7861, and in February 2002, the District Court affirmed the Bankruptcy Court’s order denying the IDR claim. IDR appealed the District Court’s order to United States Court of Appeals for the Seventh Circuit, Case Number 02-1632. On January 6, 2004, the appeals court reversed the judgment of the District Court and remanded the case for further proceedings on the Company’s other objections to the claim. On November 16, 2005, the Bankruptcy Court issued an opinion in which it denied the IDR’s claim to the extent it seeks principal tax liability and found that no principal tax liability remains due. However, because of certain timing issues with respect to the carryback of subsequent net operating loss used to eliminate the principal tax liabilities in 1988 and 1989, the issue of the amount of interest and penalties (for approximately 14 years), if any, has not been determined by the Bankruptcy Court. The IDR has asserted that as of February 2006, approximately $0.432 million was owed in interest. The Company disputes this amount and intends to vigorously defend its position on interest due. The IDR may appeal the Bankruptcy Court order and has asserted that if it were successful on appeal, that the Company would have liability to the IDR as of the beginning of 2005 in the amount of approximately $2.9 million.

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During 2005, Viskase Brasil Embalagens Ltda. (”Viskase Brazil”) received three tax assessments by São Paulo tax authorities with respect to Viskase Brazil’s alleged failure to pay Value Added and Sales and Services Tax (“ICMS”) levied on the importation of raw materials and sales of goods in and out of the State of São Paulo. Two of the tax assessments relate to ICMS on the importation by Viskase Brazil of raw materials through the State of Espírito Santo (“Import Assessments”), and the disputed amount with respect to such assessments aggregates R$16.6 million for taxes and R$16.3 million for penalties and interest, or about $7.6 million and $7.5 million, respectively at exchange rates in effect on March 23, 2006. The third tax assessment also relates to ICMS and alleges that Viskase Brazil arranged for the remittance of goods to addresses other than those indicated on the relevant tax documents (“Documentation Assessment”). The disputed amount under the Documentation Assessment is R$0.2 million for taxes and R$1.7 million for penalties and interest, or about $0.1 million and $0.8 million, respectively, at exchange rates in effect on March 23, 2006. The attorneys representing Viskase Brazil on these tax disputes have advised the Company that the likelihood of liability with respect to the tax assessments is remote. In view of the magnitude of the assessments, Viskase Brazil sought the advice of another law firm with respect to one of the Import Assessments and with respect to the Documentation Assessment. The second law firm expressed its belief (i) that the likelihood of liability on the Import Assessment it reviewed either was possible tending to probable or was possible, depending on the theory of liability pursued by the tax authorities, and (ii) that the likelihood of liability on the Documentation Assessment was probable. Viskase believes that the two Import Assessments raise essentially the same issues and therefore did not seek advice from the second law firm with respect to the other Import Assessment. The Company has provided a reserve in the amount of $2.0 million as of December 31, 2005. Viskase Brazil strongly denies the allegations set forth in the tax assessments and intends to vigorously defend itself.

Under the Clean Air Act Amendments of 1990, various industries, including casings manufacturers, are or will be required to meet maximum achievable control technology (“MACT”) air emissions standards for certain chemicals. MACT standards applicable to all U.S. cellulosic casing manufacturers were promulgated June 11, 2002. The Company submitted extensive comments to the EPA during the public comment period. Compliance with these new rules was required by June 13, 2005, although the Company has obtained a one-year extension for both of its facilities. To date, the Company has spent approximately $10.2 million in capital expenditures for MACT, and expects to spend an additional $0.2 million, over the next 6 months, to become compliant with MACT rules at our two U.S. extrusion facilities. In addition, the Company is involved in various other legal proceedings arising out of our business and other environmental matters, none of which are expected to have a material adverse effect upon results of operations, cash flows or financial condition.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II

ITEM 5.

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

(a) Market Information. The Company’s Common Stock is traded in the over-the-counter market and is quoted on the Pink Sheets Electronic Quotation Service under the symbol “VKSC”. The high and low closing bid prices of the Common Stock during 2005 and 2004 are set forth in the following table. Such prices reflect interdealer prices without markup, markdown or commissions and may not represent actual transactions.

2005	First Quarter		Second Quarter		Third Quarter		Fourth Quarter

High	$	3.30	$	3.50	$	2.75	$	2.65
Low		2.85		2.19		1.80		2.12

2004		First Quarter		Second Quarter		Third Quarter		Fourth Quarter

High	$	0.51	$	2.00	$	2.60	$	2.90
Low		0.35		0.35		0.85		2.38

(b) Holders. As of March 24, 2006, there were approximately 204 holders of record and approximately 400 beneficial holders of the Company’s Common Stock.

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

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

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ITEM 6.

SELECTED FINANCIAL DATA

.	Reorganized Company									Predecessor Company
	Year Ended						April 3 to			January 1 to			Year Ended
	December			December			December			April 2,			December			December
	31, 2005			31, 2004			31, 2003			2003			31, 2002			31, 2001
	(in thousands, except for per share amounts)

Net sales	$	203,769		$	207,106		$	152,408		$	45,402		$	183,577		$	189,315

Operating income (loss) (1)		(2,157	)		25,317			(46,627	)		151,873			(19,330	)		(28,715	)

Postretirement curtailment gain		(1,642	)		(34,055	)
Loss (gain) on early extinguishment of debt (2)					13,083						(153,946	)
Reorganization expense								403			399			3,401
Gain on sales of discontinued operations																	3,189

Net (loss) income (1)		(2,157	)		25,317			(46,627	)		151,873			(19,330	)		(25,526	)

Per share (loss) income from continuing operations
- basic		(0.22	)		2.53			(4.49	)		9.92			(1.26	)		(1.88	)
- diluted		(0.22	)		2.33			(4.49	)		9.92			(1.26	)		(1.88	)

Per share (loss) income from discontinued operations
- basic																	0.21
- diluted																	0.21

Per share net (loss) income
- basic		(0.22	)		2.53			(4.49	)		9.92			(1.26	)		(1.67	)
- diluted		(0.22	)		2.33			(4.49	)		9.92			(1.26	)		(1.67	)

Cash and equivalents		11,904			30,255			23,160						27,700			25,540
Restricted cash		3,251			3,461			26,245						28,347			26,558
Working capital		45,920			61,399			52,201						(174,203	)		(178,952	)
Total assets		197,840			213,432			212,093						218,681			234,028

Debt obligations:
Short‑term debt (3) (4) (5)		182			384			21,303						227,343			236,059
Long‑term debt		103,299			100,962			100,652						85			194
Stockholders' (deficit)		(26,679	)		(12,013	)		(41,100	)					(175,146	)		(138,053	)
Cash dividends		none			none			none			none			none			none

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

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

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

(4)	Years 2002 and 2001 include $64,106 and $72,855, respectively of long-term debt reclassified to current due to covenant restrictions.

(5)	Year 2001 includes the current portion of long-term debt.

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ITEM 7.

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

Results of Operations

Company Overview

We are a worldwide leader in the manufacture and sale of cellulosic, fibrous and plastic casings for the processed meat industry. We currently operate eight manufacturing facilities and eight distribution centers throughout North America, Europe and South America and we derive approximately 60% of total net sales from customers located outside the United States. We believe we are one of the two largest manufacturers of non-edible cellulose casings for small-diameter processed meats and one of the three largest manufacturers of non-edible fibrous casings. In 2006, we re-entered the market for the manufacture and sale of heat-shrinkable plastic bags for the meat, poultry and cheese industry. Our management believes that the factors most critical to the success of our business are:

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

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

developing additional sources of revenue through new products and services;

penetrating new regional markets; and

continuing to streamline our cost structure.

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

Our cellulose and fibrous casing extrusion operations are capital-intensive and are characterized by high fixed costs. Our plastic casing extrusion and finishing operations are characterized by relatively high labor costs. The industry’s operating results have historically been sensitive to the global balance of capacity and demand. The industry’s extrusion facilities produce casings under a timed chemical process and operate continuously. We believe that the industry's current output is in the process of balancing with global demand and the recent downward trend in casing prices has stabilized during the past few years.

In 2005, we announced we were restarting extrusion capacity at our Thâon-les-Vosges, France facility. This capacity came on-line during the fourth quarter of 2005. The start-up cost and capital expenditures associated with the restart were approximately $0.9 million and $1.2 million, respectively.

Our contribution margin varies with changes in selling price, input material costs, labor costs and manufacturing efficiencies. The total contribution margin increases as demand for our casings increases. Our financial results benefit from increased volume because we do not have to increase our fixed cost structure in proportion to increases in demand. For certain products, we operate at near capacity in our existing facilities. We regularly evaluate our capacity and projected market demand. The Company made the decision to selectively increase our extrusion capacity through a restart of Thâon-les-Vosges, France extrusion capacity to meet the worldwide demand for small-diameter casing.

We operate in a competitive environment. During the mid-1990's, we experienced significant pricing pressure and volume loss with the entrance of a foreign competitor into the United States market. The market for cellulosic casings experienced declines in selling price over the last ten years; we believe selling price has stabilized over the past few years. While the overall market volume has expanded during this period, the potential for pressure on pricing continues. Our financial performance moves in direct relation to our average selling price.

We have continued to reduce our fixed cost structure in response to market and economic conditions. Since 1998, we have reduced annual fixed costs by approximately $40.0 million by:

closing our Chicago, Illinois plant and selling the facility;

reconfiguring our Loudon, Tennessee, Thâon-les-Vosges, France and Beauvais, France plants;

discontinuing our Nucel® operations;

closing our Lindsay, Ontario, Canada facility; and

reducing the number of employees by approximately 30%.

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Despite these restructuring efforts, the significance of our debt load caused us to be unable to continue meeting our debt service obligations in 2002. As a result, we filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on November 13, 2002. The bankruptcy court confirmed our plan of reorganization and we emerged from bankruptcy on April 3, 2003. We adopted fresh-start accounting in accordance with SOP 90-7, and reflected the effects of the adoption in the consolidated financial statements in 2003.

As a result of our adoption of fresh-start accounting, the results of operations for periods ended after April 2, 2003 are prepared on a different basis of accounting. Therefore, the results of operations prior to April 3, 2003 are not comparable to the periods after April 2, 2003.

Comparison of Results of Operations for Years Ended December 31, 2005, 2004 and 2003.

The following discussion compares the results of operations for the fiscal year ended December 31, 2005 to the results of operations for the fiscal year ended December 31, 2004, and compares the results of operations for the fiscal year ended December 31, 2004 to the results of operations for the fiscal year ended December 31, 2003. We have provided the table below in order to facilitate an understanding of this discussion. The table shows our results of operations for the 2005, 2004 and 2003 fiscal years. Results of operations for 2003 include the combined income statement activity of the Company for the 2003 periods prior to and following our emergence from bankruptcy on April 3, 2003, and therefore are not intended to be a presentation in accordance with accounting principles generally accepted in the United States. The table (dollars in millions) is as follows:

	Year Ended December 31,			% Change Over			Year Ended December 31,			% Change Over			Year Ended December 31,
	2005			2004			2004			2003			2003

NET SALES	$	203.8			-1.6	%	$	207.1			4.7	%	$	197.8

COST AND EXPENSES
Cost of sales		164.1			-0.2	%		164.5			4.1	%	$	158.0
Selling, general and administrative		29.0			-1.1	%		29.3			-12.6	%	$	33.6
Amortization of intangibles		.6			-42.5	%		1.1			-17.6	%	$	1.3
Restructuring expense		2.0			203.0	%		.7			-30.0	%	$	1.0
Asset writedown											NM		$	46.8
OPERATING INCOME (LOSS)		8.0			-30.5	%		11.6			-127.0	%		(42.8	)

Interest income		(.7	)		23.5	%		(.6	)		-31.1	%	$	(.8	)
Interest expense		12.9			-2.1	%		13.2			14.1	%	$	11.6
Other expense (income), net		.1			NM			(.8	)		-85.8	%	$	(5.3	)
Postretirement benefits curtailment gain		(1.6	)		-95.2	%		(34.1	)		NM
Loss (gain) on early extinguishment of debt								13.1			NM		$	(153.9	)
Reorganization expense											NM		$	.8
Income tax (benefit)		(.5	)		-90.1	%		(4.6	)		1392.3	%	$	(.3	)

NET (LOSS) INCOME	$	(2.2	)		-108.5	%	$	25.3			-75.9	%	$	105.2

NM = Not meaningful when comparing positive to negative numbers or to zero.

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2005 Versus 2004

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

Cost of Sales. Cost of sales for 2005 decreased 0.2% from the comparable prior year period. However, cost of sales increased as a percent of net sales (from 79.4% in 2004 to 80.5% in 2005). The increase as a percent of sales can be attributed to an increase in energy, raw material and labor costs offset by operating efficiencies and a $1.7 million reduction from the elimination of certain postretirement medical benefits.

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

Operating Income. The operating income for 2005 was $8.0 million, representing a decrease of $3.6 million from the prior year. The decrease in the operating income resulted primarily from increased restructuring expenses and lower gross margin, which were partially offset by improvements in selling, general and administrative expenses. Operating income for 2005 includes a restructuring charge of $2.0 million of which $1.8 million was related to one-time employee costs related to our transfer of Kentland, Indiana finishing operations to Monterrey, Mexico. Operating income for 2004 includes a restructuring charge of $0.7 million, offset by a reversal of an unusual income benefit of $0.4 million consisting of a reversal of a legal liability recorded in fresh-start accounting that has been settled.

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

Other (Income) Expense. Other expense of approximately $0.1 million for 2005 consists principally of a $0.2 million net loss related to foreign currency translation, a $0.6 million write-off of corporate office leasehold assets and a gain of $0.6 on sales of unrelated securities. Other income for 2004 of $0.8 million consists principally of a $1.5 million net gain related to foreign currency translation.

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

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

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

2004 versus 2003

Net Sales. Our net sales for 2004 were $207.1 million, which represents an increase of $9.3 million or 4.7% from the predecessor period January 1 through April 2, 2003 and reorganized period April 3, 2003 through December 31, 2003. Net sales benefited $1.7 million from volumes in the casings market and $10.3 million due to translation, offset by a $2.7 million decrease due to price and mix.

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Cost of Sales. Cost of sales increased 4.1% over the prior year due to the increased sales level for the same period, and decreased as a percent of sales (from 79.9% in 2003 to 79.4% in 2004). The decrease as a percent of sales can be attributed to favorable plant absorption offset by slightly higher expenditures.

Selling, General and Administrative Expenses. We were able to reduce selling, general and administrative expenses from 17.0% of sales in 2003 to 14.1% in 2004. This can be attributed to reductions in overall spending and internal reorganizations that occurred in July 2003 and March 2004, which reduced employee costs. Additionally, in the first quarter of 2004 there was an unusual income benefit of $0.4 million consisting of a reversal of a legal liability recorded in fresh-start accounting that has been settled.

Operating Income. The operating income for 2004 was $11.6 million, representing an improvement of $54.4 million from the prior year period. The improvement in the operating income resulted primarily the absence of the $46.8 million charge for asset writedown and goodwill impairment incurred in 2003, a $4.1 million decrease in depreciation during 2004 versus 2003 and lower employee costs, reduced selling, general and administrative expenses. Operating income in 2004 includes a restructuring charge of $0.8 million, offset by a reversal of $0.1 million for the 2003 restructuring, in keeping with our strategy to streamline our cost structure. Also included in the 2004 operating income is an unusual income benefit of $0.4 million consisting of a reversal of a legal liability recorded in fresh-start accounting that has been settled.

Interest Expense. Interest expense, net of interest income, for 2004 totaled $12.6 million, which represented an increase of $1.8 million from the $10.8 million for the comparable period of the prior year predecessor and reorganized periods. The increase is principally due to the interest expense of $1.8 million on the 8% Notes during the first quarter of 2004 which was absent in the prior predecessor period ended April 2, 2003.

Other (Expense) Income. Other income of approximately $0.8 million for 2004 consists principally of a $1.4 million gain for foreign exchange gains and losses, and a $0.5 million loss on the disposal of property held for sale. Other income in 2003 of $5.3 million for the prior year predecessor and reorganized periods consists principally of a $4.8 million gain for foreign currency gains and losses and a $0.5 million gain associated with the disposal of property held for sale in 2003.

Gain on Curtailment. We terminated postretirement health care medical benefits as of December 31, 2004 for all active employees and retirees in the United States who were not covered by a collective bargaining agreement. We recognized a $34.1 million gain on the curtailment of these postretirement health care benefits.

Loss on Early Retirement of Debt. The loss on debt extinguishment for 2004 of $13.1 million consists of the losses from the early retirement of $55.5 million of the 8% Notes and of the early termination of the GECC capital lease. The 8% Notes were purchased at a discount to the principal amount; however, the purchase price exceeded the carrying value of the 8% Notes as established in fresh-start accounting. The gain on debt extinguishment for the period from January 1 through April 2, 2003 of $153.9 million consisted of the elimination of the old senior debt of $163.1 million, a gain on the elimination of the accrued interest on the debt of $25.1 million, a loss on the establishment at fair market value of the 8% Notes of $33.2 million and a loss on the fair market value of the new equity at $1.0 million.

Reorganization Expense. The 2003 reorganization expenses of $0.8 million consist principally of fees for legal, financial advisory and professional services incurred due to the Chapter 11 proceeding.

Income Tax Benefit. During 2004, a tax benefit of $4.6 million was recognized on the income before income taxes of $20.8 million resulting principally from the recalculation of deferred tax liabilities and a provision for results of operations of foreign subsidiaries.

Primarily as a result of the factors discussed above, income for 2004 was $25.3 million compared to net income of $105.2 million for the predecessor and reorganized periods of 2003.

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Effect of Changes in Exchange Rates

In general, our results of operations are affected by changes in foreign exchange rates. Subject to market conditions, we price our products in our foreign operations in local currencies, with the exception of the Brazilian export market and the U.S. export markets, which are priced in U.S. dollars. As a result, a decline in the value of the U.S. dollar relative to the local currencies of profitable foreign subsidiaries can have a favorable effect on our profitability, and an increase in the value of the U.S. dollar relative to the local currencies of profitable foreign subsidiaries can have a negative effect on our profitability. Exchange rate fluctuations decreased comprehensive income by $4.9 million in 2005 and increased comprehensive income by $3.0 million in 2004.

Liquidity and Capital Resources

Cash and cash equivalents decreased by $18.4 million during 2005. Cash flows used in operating activities were $1.2 million, used in investing activities were $15.8 million, and used in financing activities were $0.5 million. Cash flows used in operating activities were principally attributable to net loss, increase in working capital, decrease in deferred taxes and postretirement curtailment gain offset by depreciation and amortization, non-cash interest and foreign translation losses. Cash flows used in investing activities were principally attributable to capital expenditures offset by proceeds from the disposition of assets and the release of restricted cash. Cash flows used in financing activities principally consisted of the repayment of debt and incurrence of financing fees.

As of December 31, 2005, the Company had positive working capital of approximately $45.3 million including restricted cash of $3.3 million, with additional amounts available under its revolving credit facility. Management believes that the existing resources available to it will be adequate to satisfy current and planned operations for at least the next twelve months.

On June 29, 2004, the Company issued $90.0 million of 11.5% Senior Secured Notes that bear interest at a rate of 11.5% per annum, payable semi-annually in cash on June 15 and December 15. Also on June 29, 2004, the Company entered into a Loan and Security Agreement (“Loan and Security Agreement”) and related documentation with respect to a revolving credit facility that provides for loans of up to $20.0 million (“Revolving Credit Facility”).

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

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

Fiscal quarter ending	Amount

September 30, 2004 through September 30, 2006	$	16.0 million
December 31, 2006 through September 30, 2008	$	18.0 million
December 31, 2008 and thereafter	$	20.0 million

unless the sum of (i) unrestricted cash of the Company and its restricted subsidiaries as of such day and (ii) the aggregate amount of advances that the Company is actually able to borrow under the Revolving Credit Facility on such day (after giving effect to any borrowings thereunder on such day) is at least $15.0 million. The minimum annual level of EBITDA covenant is not in effect as of December 31, 2005 as the Company’s unrestricted cash and the amount of available credit under the Revolving Credit Facility exceed $15.0 million.

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The 11.5% Senior Secured Notes limit the ability of the Company to (i) incur additional indebtedness; (ii) pay dividends, redeem subordinated debt, or make other restricted payments, (iii) make certain investments or acquisitions; (iv) issue stock of subsidiaries; (v) grant or permit to exist certain liens; (vi) enter into certain transactions with affiliates; (vii) merge, consolidate, or transfer substantially all of our assets; (viii) incur dividend or other payment restrictions affecting certain subsidiaries; (ix) transfer, sell or acquire assets, including capital stock of subsidiaries; and (x) change the nature of our business. At any time prior to June 15, 2008, the Company may redeem, at its option, some or all of the 11.5% Senior Secured Notes at a make-whole redemption price equal to the greater of (i) 100% of the aggregate principal amount of the 11.5% Senior Secured Notes being redeemed and (ii) the sum of the present values of 105 3/4% of the aggregate principal amount of such 11.5% Senior Secured Notes and scheduled payments of interest on such 11.5% Senior Secured Notes to and including June 15, 2008, discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 50 basis points, together with, in each case, accrued and unpaid interest and additional interest, if any, to the date of redemption. The make-whole redemption price as of December 31, 2005 is approximately 120%.

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

For the periods below	Percentage

On or after June 15, 2008		105 3/4	%
On or after June 15, 2009		102 7/8	%
On or after June 15, 2010		100	%

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

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

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

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

The Revolving Credit Facility contains various covenants which will restrict the Company’s ability to, among other things, incur indebtedness, enter into mergers or consolidation transactions, dispose of assets (other than in the ordinary course of business), acquire assets, make certain restricted payments, prepay any of the 8% Notes at a purchase price in excess of 90% of the aggregate principal amount thereof (together with accrued and unpaid interest to the date of such prepayment), create liens on our assets, make investments, create guarantee obligations and enter into sale and leaseback transactions and transactions with affiliates, in each case subject to permitted exceptions. The Revolving Credit Facility also requires that we comply with various financial covenants, including meeting a minimum EBITDA requirement and limitations on capital expenditures in the event our usage of the Revolving

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Credit Facility exceeds 30% of the facility amount. The Revolving Credit Facility also requires payment of a prepayment premium in the event that it is terminated prior to maturity. The prepayment premium, as a percentage of the $20.0 million facility amount, is 2% through June 29, 2006, and 1% through June 29, 2007.

Borrowings under the loan and security agreement governing this Revolving Credit Facility are subject to a borrowing base formula based on percentages of eligible domestic receivables and eligible domestic inventory. Under the Revolving Credit Facility, we will be able to choose between two per annum interest rate options: (i) the lender’s prime rate and (ii) LIBOR plus a margin currently of 2.25% (which margin will be subject to performance based increases up to 2.50% and decreases down to 2.00%); provided that the minimum interest rate shall be at least equal to 3.00%. Letter of credit fees will be charged a per annum rate equal to the then applicable LIBOR rate margin less 50 basis points. The Revolving Credit Facility also provides for an unused line fee of 0.375% per annum.

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

On March 28, 2006, the Company entered into the First Amendment to Loan and Security Agreement (“First Amendment”) with respect to the Revolving Credit Facility. Pursuant to the First Amendment, the Loan and Security Agreement was amended in certain respects in order to facilitate the continued relocation of certain of the Company’s finishing operations from its facility in Kentland, Indiana to a new facility in Monterrey, Mexico operated by Viskase del Norte, S.A. de C.V. (“Mexico Project”). Pursuant to the First Amendment, the lender also waived certain technical events of default and provided certain consents, each relating to the Mexico Project. The Company has not incurred any borrowings under the Revolving Credit Facility.

The 8% Notes bear interest at a rate of 8% per year, and accrue interest from December 1, 2001, payable semi-annually (except annually with respect to year four and quarterly with respect to year five), with interest payable in the form of 8% Notes (paid-in-kind) for the first three years. Interest for years four and five will be payable in cash to the extent of available cash flow, as defined, and the balance in the form of 8% Notes (paid-in-kind). Thereafter, interest will be payable in cash. For the year ended December 31, 2005, interest on the 8% Notes will be paid entirely in the form of 8% Notes (paid-in-kind). We expect to pay all or a majority of interest payable in 2006 in the form of an 8% Notes (paid-in-kind).

The 8% Notes mature on December 1, 2008.

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

On June 29, 2004, the Company repurchased $55.5 million aggregate principal amount of its 8% Notes, and the holders (i) released the liens on the collateral that secured the 8% Notes, (ii) contractually subordinated the Company’s obligations under the 8% Notes to obligations under certain indebtedness, including the new 11.5% Senior Secured Notes and the Revolving Credit Facility; and (iii) eliminated substantially all of the restrictive covenants contained in the indenture governing the 8% Notes. The carrying value of the remaining 8% Notes outstanding at December 31, 2005 is $14.0 million.

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

	2005			2006			2007
8% Notes
Principal	$	17,261		$	18,684		$	18,684
Discount		(3,305	)		(2,283	)		(1,148	)
Carrying value	$	13,956		$	16,401		$	17,536

Letters of credit in the amount of $2.4 million were outstanding under letter of credit facilities with commercial banks, and were cash collateralized at December 31, 2005.

We finance our working capital needs through a combination of internally generated cash from operations, cash on hand and our revolving credit facility.

Our board of directors has approved a plan under which we will restructure our finishing operations by relocating finishing operations from our facility in Kentland, Indiana to a facility in Mexico. We expect to complete the restructuring by the end of 2006. The relocation of the finishing operations is intended to lower costs and optimize operations. The total cost of the restructuring, exclusive of capital expenditures, is expected to be approximately $10.0 million, substantially all of which will result in cash expenditures. We also expect to make capital expenditures of approximately $10.0 million in connection with the restructuring. As of December 31, 2005, we have made capital expenditures of approximately $5 million. We began to incur these costs and capital expenditures in the second quarter of 2005 and expect to continue to incur them through the end of 2006. We believe that the restructuring will yield annual operating cost reductions of between $7.0 million and $8.0 million when the Mexico relocation is complete.

Capital expenditures for 2005 and for 2004 totaled $16.6 million and $9.8 million, respectively. The 2005 capital expenditures are principally related to (i) the installation of environmental equipment to conform to MACT standards for casing manufacturers and (ii) capital expenditures for the relocation of finishing operations to Mexico.

In 2005, we spent approximately $2.3 million on research and development programs, including product and process development, and on new technology development. The 2006 research and development and product introduction expenses are expected to be approximately $2.8 million. Among the projects included in the current research and development efforts are specialty plastic films, Smoke Master™ small diameter and fibrous casings, VISMOKE™ casings, VISCOAT™ casings and the application of certain patents and technology for license by Viskase.

Pension and Postretirement Benefits

Our long-term pension and postretirement benefit liabilities totaled $61.4 million at December 31, 2005.

Expected annual cash contributions for pension and postretirement benefit liabilities are expected to be (in millions):

	2006		2007		2008		2009		2010
Pension	$	13.2	$	8.5	$	7.6	$	7.6	$	7.6
Postretirement benefits		0.9		0.8		0.7		0.7		0.7
Total	$	14.1	$	9.3	$	8.3	$	8.3	$	8.3

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Other

As of December 31, 2005, aggregate maturities of debt for each of the next five years are (in thousands) (1):

	2006		2007	2008		2009	2010	Thereafter

11.5% Senior Secured Notes								$	90,000
8% Notes				$	18,684
Other	$	182							949
	$	182		$	18,684			$	90,949

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

Critical Accounting Policies

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

Revenue Recognition

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

Allowance for Doubtful Accounts Receivable

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

Allowance for Obsolete and Slow Moving Inventories

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

Deferred Income Taxes

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

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Pension Plans and Other Postretirement Benefit Plans

Our North American operations have defined benefit retirement plans that cover substantially all salaried and full-time hourly employees who were hired prior to April 1, 2003 and a fixed defined contribution plan and a discretionary profit sharing plan that covers substantially all salaried and full-time hourly employees who were hired on or after April 1, 2003. Our operations in Germany have a defined benefit retirement plan that covers substantially all salaried and full-time hourly employees. Pension cost is computed using the projected unit credit method. The discount rate used approximates the average yield for high quality corporate bonds as of the valuation date. Our funding policy is consistent with funding requirements of the applicable federal and foreign laws and regulations.

United States employees hired after March 31, 2003 who are not covered by a collective bargaining agreement and United States employees hired after September 30, 2004 who are covered by a collective bargaining agreement are eligible for a defined contribution benefit equal to three percent of base earnings (as defined by the plan), in lieu of the defined benefit retirement plans.

The Company recognized a one-time $.974 million curtailment gain recorded in the consolidated statements of operations and reduction in the unfunded pension liability included in “Accrued employee benefits” on the consolidated balance sheets related to the announced closing of its Kentland, Indiana finishing operations. This curtailment gain was recognized as of December 31, 2005.

The United States and Canadian operations of the Company historically provided postretirement health care and life insurance benefits. The Company accrues for the accumulated postretirement benefit obligation that represents the actuarial present value of the anticipated benefits. Measurement is based on assumptions regarding such items as the expected cost of providing future benefits and any cost sharing provisions. The Company terminated postretirement medical benefits as of December 31, 2004 for all active employees and retirees in the United States who are not covered by a collective bargaining agreement. The termination of the United States postretirement medical benefits resulted in a $34.055 million curtailment gain and reduction in the unfunded postretirement liability included in “Accrued employee benefits” on the consolidated balance sheets in 2004.

On September 30, 2005, employees in the U.S. covered by a collective bargaining agreement ratified a new agreement which contained a provision that terminated postretirement medical benefits as of December 31, 2006 for all active employees and retirees covered by the collective bargaining agreement. The termination of the United States postretirement medical benefits for employees covered by the collective bargaining agreement resulted in a $0.668 million curtailment gain and reduction in the unfunded postretirement medical liability included in “Accrued employee benefits” on the consolidated balance sheets in 2005. In addition, the Company will amortize the remaining unrecognized prior service costs and net actuarial loss related to these postretirement medical benefits over the 15 month period from October 1, 2005 through December 31, 2006. Approximately $1.744 million was recorded as a reduction to cost of sales during the fourth quarter of 2005 and $7.929 million will be recognized during 2006.

The weighted average plan asset allocation at December 31, 2005 and 2004, and target allocation (not weighted) for 2006, are as follows:

	Percentage of Plan Assets						2006 Target
Asset Category	2005			2004			Allocation
Equity Securities		77.2	%		62.5	%		60.0	%
Debt Securities		21.2	%		35.2	%		40.0	%
Other		1.6	%		2.3	%		0.0	%
Total		100.0	%		100.0	%		100.0	%

As of January 1, 2006, we have assumed that the expected long-term rate of return on plan assets will be 8.5%. This is unchanged from the level assumed for 2005 and represents a decrease from the 8.75% level assumed for 2004. To develop the expected long-term rate of return on assets and assumptions, we considered historical returns and future expectations.

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Fresh-Start Accounting

The accompanying consolidated financial statements reflect the use of fresh-start accounting as required by SOP 90-7. Under fresh-start accounting, our assets and liabilities were adjusted to fair values and a reorganization value for the entity was determined based upon the estimated fair value of the enterprise before considering values allocated to debt. The portion of the reorganization value that could not be attributed to specific tangible or identified intangible assets of the Reorganized Company totaled $44.4 million. In accordance with Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets,” this amount is reported as “Goodwill” in the consolidated financial statements. Fresh-start accounting results in the creation of a new reporting entity with no accumulated deficit as of April 3, 2003. Our reorganization value was based on the consideration of many factors and various valuation methods, including discounted cash flow analysis using projected financial information, selected publicly traded company market multiples of certain companies operating businesses viewed to be similar to us, and other applicable ratios and valuation techniques believed by us to be representative of our business and industry.

The valuation was based upon a number of estimates and assumptions, which are inherently subject to significant uncertainties and contingencies beyond our control.

Upon the adoption of fresh-start accounting, as of April 3, 2003, we recorded goodwill of $44.4 million, which equals the reorganization value in excess of amounts allocable to identifiable net assets recorded in accordance with SOP 90-7. In the fourth quarter of 2003, we performed our first annual goodwill impairment analysis under SFAS No. 142. Due to the fact the fair value of our single reporting unit, as estimated by our market capitalization, was significantly less than the net book value at December 31, 2003, we wrote off the entire $44.4 million goodwill balance in the fourth quarter of 2003.

Goodwill and Intangible Assets

Goodwill and intangible assets that have an indefinite useful life are not amortized and are tested at least annually for impairment. Due to the prepackaged nature of our bankruptcy plan, goodwill was tested for impairment by comparing the fair value with its recorded amount. As a result of adopting SFAS No. 142, we used a discounted cash flow methodology for determining fair value. This methodology identified an impairment of goodwill and intangible assets in the amount of $49.4 million, which was written off in the fourth quarter of 2003. As part of fresh-start accounting, the Company recognized intangible assets that are being amortized. Non-compete agreements in the amount of $1.2 million were amortized over the two year period ended March 31, 2005. The intangible backlog in the amount of $2.4 million was written-off in its entirety during 2003.

Property, Plant and Equipment

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

In the ordinary course of business, we lease certain equipment, and certain real property, consisting of manufacturing and distribution facilities and office facilities. Substantially all such leases as of December 31, 2005 were operating leases, with the majority of those leases requiring us to pay maintenance, insurance and real estate taxes.

Long-Lived Assets

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

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Off-Balance Sheet Arrangements

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

Contingencies

In 1993, the Illinois Department of Revenue (“IDR”) filed a proof of claim against Envirodyne Industries, Inc. (now known as Viskase Companies, Inc.) and its subsidiaries in the United States Bankruptcy Court for the Northern District of Illinois ("Bankruptcy Court"), Bankruptcy Case Number 93 B 319, for alleged liability with respect to the IDR’s denial of the Company’s allegedly incorrect utilization of certain loss carry-forwards of certain of its subsidiaries. The IDR asserted it was owed, as of the petition date, $0.998 million in taxes, $0.356 million in interest and $.270 million penalties. The Company objected to the claim on various grounds. In September 2001, the Bankruptcy Court denied the IDR’s claim and determined the debtors were not responsible for 1998 and 1999 tax liabilities, interest and penalties. IDR appealed the Bankruptcy Court’s decision to the United States District Court, Northern District of Illinois, Case Number 01 C 7861, and in February 2002, the District Court affirmed the Bankruptcy Court’s order denying the IDR claim. IDR appealed the District Court’s order to United States Court of Appeals for the Seventh Circuit, Case Number 02-1632. On January 6, 2004, the appeals court reversed the judgment of the District Court and remanded the case for further proceedings on the Company’s other objections to the claim. On November 16, 2005, the Bankruptcy Court issued an opinion in which it denied the IDR’s claim to the extent it seeks principal tax liability and found that no principal tax liability remains due. However, because of certain timing issues with respect to the carryback of subsequent net operating loss used to eliminate the principal tax liabilities in 1988 and 1989, the issue of the amount of interest and penalties (for approximately 14 years), if any, has not been determined by the Bankruptcy Court. The IDR has asserted that as of February 2006, approximately $0.432 million was owed in interest. The Company disputes this amount and intends to vigorously defend its position on interest due. The IDR may appeal the Bankruptcy Court order and has asserted that if it were successful on appeal, that the Company would have liability to the IDR as of the beginning of 2005 in the amount of approximately $2.9 million.

During 2005, Viskase Brasil Embalagens Ltda. (“Viskase Brazil”) received three tax assessments by São Paulo tax authorities with respect to Viskase Brazil’s alleged failure to pay Value Added and Sales and Services Tax (“ICMS”) levied on the importation of raw materials and sales of goods in and out of the State of São Paulo. Two of the tax assessments relate to ICMS on the importation by Viskase Brazil of raw materials through the State of Espírito Santo (“Import Assessments”), and the disputed amount with respect to such assessments aggregates R$16.6 million for taxes and R$16.3 million for penalties and interest, or about $7.6 million and $7.5 million, respectively at exchange rates in effect on March 23, 2006. The third tax assessment also relates to ICMS and alleges that Viskase Brazil arranged for the remittance of goods to addresses other than those indicated on the relevant tax documents (“Documentation Assessment”). The disputed amount under the Documentation Assessment is R$0.2 million for taxes and R$1.7 million for penalties and interest, or about $0.1 million and $0.8 million, respectively, at exchange rates in effect on March 23, 2006. The attorneys representing Viskase Brazil on these tax disputes have advised the Company that the likelihood of liability with respect to the tax assessments is remote. In view of the magnitude of the assessments, Viskase Brazil sought the advice of another law firm with respect to one of the Import Assessments and with respect to the Documentation Assessment. The second law firm expressed its belief (i) that the likelihood of liability on the Import Assessment it reviewed either was possible tending to probable or was possible, depending on the theory of liability pursued by the tax authorities, and (ii) that the likelihood of liability on the Documentation Assessment was probable. Viskase believes that the two Import Assessments raise essentially the same issues and therefore did not seek advice from the second law firm with respect to the other Import Assessment. The Company has provided a reserve in the amount of $2.0 million as of December 31, 2005. Viskase Brazil strongly denies the allegations set forth in the tax assessments and intends to vigorously defend itself.

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In addition, the Company is involved in various other legal proceedings arising out of our business and other environmental matters, none of which are expected to have a material adverse effect upon results of operations, cash flows or financial condition.

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

			Payment Due by Pay Period
Contractual Obligations	Total		Less than 1 year		Years 2 & 3		Years 4 & 5		More than 5 years
Long-term debt	$	109.8	$	0.2	$	18.7			$	90.9
Cash interest obligations		59.6		10.4		23.7		20.8		4.7
Pension		48.5		13.2		16.0		15.1		4.2
Post-retirement benefits		13.2		1.0		1.1		1.0		10.1
Operating leases		11.8		1.4		3.8		3.7		2.9
Capital expenditures		4.0		4.0
Total	$	246.9	$	30.2	$	63.3	$	40.6	$	112.8

New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised 2004) ("SFAS 123R"), "Share-Based Payment." SFAS 123R sets accounting requirements for "share-based" compensation to employees, requires companies to recognize in the income statement the grant-date fair value of stock options and other equity-based compensation issued to employees and disallows the use of a fair value method of accounting for stock compensation. SFAS 123R is applicable for annual, rather than interim, periods beginning after June 15, 2005, and as such the Company must adopt SFAS 123R in January 2006. The Company expects the effect of adopting this standard using the modified prospective methodology will be to expense $0.268 million and $0.245 million in 2006 and 2007, respectively.

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections." SFAS No. 154 replaced Accounting Principles Board Opinion, or APB, No. 20, "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements" and establishes retrospective application as the required method for reporting a change in accounting principle. SFAS No. 154 provided guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. SFAS No. 154 also addresses the reporting of a correction of an error by restating previously issued financial statements. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.

In March 2005, the FASB issued Interpretation No. 47 ("FIN 47"), "Accounting for Conditional Asset Retirement Obligations." FIN 47 clarifies that the term "conditional asset retirement obligation" as used in SFAS No. 143, "Accounting for Asset Retirement Obligations," refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005 and did not have a significant impact on the Company's financial statements.

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

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Forward-looking Statements

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

•

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

•

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

•

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

•

consumption patterns and consumer preferences;

•

the effects of competition;

•

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

•

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

•

general economic conditions and their effect on our business;

•

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

•

pricing pressures for our products;

•

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

•

our results of operations for future periods;

•

our anticipated capital expenditures;

•

the timing and cost of our finishing operations restructuring;

•

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

•

our ability to protect our intellectual property; and

•

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

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ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

The Company also prepared sensitivity analyses to determine the impact of a hypothetical 10% devaluation of the U.S. dollar relative to the European receivables and payables denominated in U.S. dollars. Based on its sensitivity analyses at December 31, 2005, a 10% devaluation of the U.S. dollar would affect the Company’s consolidated financial position by approximately $0.155 million for 2005 and $.047 million for 2004. Exchange rate fluctuations decreased comprehensive income by $4.9 million for 2005 and $0.3 million for 2004.

The Company purchases gas futures contracts to lock in set rates on gas purchases. The Company uses this strategy to minimize its exposure to volatility in natural gas. These products are not linked to specific assets and liabilities that appear on the balance sheet or to a forecasted transaction and, therefore, do not qualify for hedge accounting. As of December 31, 2005 there were no open gas contracts.

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ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

Viskase Companies, Inc.

We have audited the accompanying consolidated balance sheets of Viskase Companies, Inc. (a Delaware corporation) and Subsidiaries as of December 31, 2005 and December 31, 2004, and the related consolidated statements of income, stockholders’ deficit and cash flows for the years ended December 31, 2005, December 31, 2004, the period April 3, 2003 through December 31, 2003, and the period from January 1, 2003 through April 2, 2003. In connection with our audits, we have also audited the schedule of valuation and qualifying accounts (the "Schedule"). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.

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

As discussed in Note 2 to the consolidated financial statements, the Company’s plan of reorganization under Chapter 11 of the United States Bankruptcy Code became effective on April 3, 2003. As a result of the adoption of “fresh-start” reporting in accordance with Statement of Position 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code,” the consolidated financial statements as of and for the year ended December 31, 2003 and for the period from April 3, 2003 to December 31, 2003 are presented on a different basis than the periods before the emergence from bankruptcy, and are therefore not comparable.

In our opinion, the 2005 and 2004 consolidated financial statements and schedule referred to above present fairly, in all material respects, the financial position of Viskase Companies, Inc. and Subsidiaries as of December 31, 2005 and December 31, 2004, and the results of their operations and their cash flows for the years ended December 31, 2005, December 31, 2004 , the period April 3, 2003 through December 31, 2003, and the period from January 1, 2003 through April 2, 2003, in conformity with accounting principles generally accepted in the United States of America.

Grant Thornton LLP

Chicago, Illinois

April 13, 2006

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VISKASE COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

	December 31,			December 31,
	2005			2004
ASSETS
Current assets:
Cash and cash equivalents	$	11,904		$	30,255
Restricted cash		3,251			3,461
Receivables, net		29,664			30,509
Inventories		36,419			32,268
Other current assets		15,563			10,469
Total current assets		96,801			106,962

Property, plant and equipment		116,509			112,158
Less accumulated depreciation		22,988			19,312
Property, plant and equipment, net		93,521			92,846

Deferred financing costs, net		3,667			4,060
Other assets		3,851			9,564
Total Assets	$	197,840		$	213,432

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Short-term debt including current portion of long-term debt and capital leases	$	182		$	384
Accounts payable		17,958			17,878
Accrued liabilities		32,031			25,820
Current deferred income taxes		710			1,481
Total current liabilities		50,881			45,563

Long-term debt, net of current maturities		103,299			100,962

Accrued employee benefits		61,429			66,715
Deferred and noncurrent income taxes		8,357			12,205
Deferred revenue		553

Commitments and contingencies

Stockholders’ deficit:
Preferred stock, $.01 par value; none outstanding
Common stock, $.01 par value; 10,651,123 shares issued and 9,715,954 shares outstanding at December 31, 2005; and 10,670,053 shares issued and 9,632,022 shares outstanding at December 31, 2004		106			106
Paid in capital		1,895			1,895
Accumulated (deficit)		(23,467	)		(21,310	)
Less 805,270 treasury shares, at cost		(298	)		(298	)
Accumulated other comprehensive income		(4,907	)		7,608
Unearned restricted stock issued for future service		(8	)		(14	)
Total stockholders' (deficit)		(26,679	)		(12,013	)
Total Liabilities and Stockholders' Deficit	$	197,840		$	213,432

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

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VISKASE COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

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

	Reorganized Company									Predecessor Company
	Year Ended December			Year Ended December			April 3 through December			January 1 through April
	31, 2005			31, 2004			31, 2003			2, 2003

NET SALES	$	203,769		$	207,106		$	152,408		$	45,402

COSTS AND EXPENSES
Cost of sales		164,095			164,490			119,989			38,031
Selling, general and administrative		28,992			29,312			24,664			8,890
Amortization of intangibles		620			1,078			809			500
Restructuring expense		2,024			668			954
Asset write-down and charge for goodwill impairment								46,805

OPERATING INCOME (LOSS)		8,038			11,558			(40,813	)		(2,019	)

Interest income		(715	)		(579	)		(517	)		(323	)
Interest expense		12,916			13,192			10,362			1,204
Other expense (income), net		95			(759	)		(3,844	)		(1,505	)
Postretirement benefits curtailment gain		(1,642	)		(34,055	)
Loss (gain) on early extinguishment of debt, net of income tax provision of $0 in 2004 and 2003					13,083						(153,946	)

(LOSS) INCOME BEFORE REORGANIZATION EXPENSE AND INCOME TAXES		(2,616	)		20,676			(46,814	)		152,551

Reorganization expense								403			399

(LOSS) INCOME BEFORE INCOME TAXES		(2,616	)		20,676			(47,217	)		152,152

Income tax (benefit) provision		(459	)		(4,641	)		(590	)		279

NET (LOSS) INCOME		(2,157	)		25,317			(46,627	)		151,873

Other comprehensive (loss) income:
Minimum pension liability		(7,595	)
Foreign currency translation adjustments		(4,920	)		3,061			4,547			(845	)

COMPREHENSIVE INCOME (LOSS)	$	(14,672	)	$	28,378		$	(42,080	)	$	151,028

WEIGHTED AVERAGE COMMON SHARES
- BASIC		9,698,196			10,013,828			10,381,298			15,314,553

PER SHARE AMOUNTS:
(LOSS) EARNINGS PER SHARE
- BASIC	$	(0.22	)	$	2.53		$	(4.49	)	$	9.92

WEIGHTED AVERAGE COMMON SHARES
- DILUTED		9,698,196			10,868,152			10,381,298			15,314,553

PER SHARE AMOUNTS:
(LOSS) EARNINGS PER SHARE
- DILUTED	$	(0.22	)	$	2.33		$	(4.49	)	$	9.92

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

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VISKASE COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

(In Thousands)

													Accumulated other comprehensive (loss) income
	Common stock			Paid in capital			Treasury stock			Accumulated deficit			Foreign currency translation adjustments			Minimum pension liability adjustments			Restricted stock issued for future service			Total stockholders’ equity (deficit)
Predecessor Company
Balance December 31, 2002	$	153		$	138,007					$	(291,904	)	$	5,422		$	(26,745	)	$	(79	)	$	(175,146	)

Net income											151,873												151,873
Issuance of Common Stock					(3	)														26			23
Other comprehensive (loss)														(845	)								(845	)

Balance April 2, 2003		153			138,004						(140,031	)		4,577			(26,745	)		(53	)		(24,095	)

Reorganization adjustments		(153	)		(138,004	)					140,031			(4,577	)		26,745			53			24,095


Reorganized Company
Distribution of equity in accordance with plan		106			894															(31	)		969

Balance April 3, 2003		106			894															(31	)		969

Net (loss)											(46,627	)											(46,627	)
Issuance of Common Stock																				11			11
Other comprehensive income														4,547									4,547

Balance December 31, 2003		106			894						(46,627	)		4,547						(20	)		(41,100	)

Net income											25,317												25,317
Issuance of Common Stock																				6			6
Issuance of Warrants					1,001																		1,001
Purchase of Treasury Stock							$	(298	)														(298	)
Other comprehensive income														3,061									3,061

Balance December 31, 2004		106			1,895			(298	)		(21,310	)		7,608						(14	)		(12,013	)

Net income											(2,157	)											(2,157	)
Issuance of Common Stock																				6			6
Other comprehensive income														(4,920	)		(7,595	)					(12,515	)

Balance December 31, 2005	$	106		$	1,895		$	(298	)	$	(23,467	)	$	2,688		$	(7,595	)	$	(8	)	$	(26,679	)

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

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VISKASE COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

	Reorganized Company									Predecessor Company
	Year Ended December			Year Ended December			April 3 through December			January 1 through April
	31, 2005			31, 2004			31, 2003			2, 2003
Cash flows from operating activities:
Net (loss) income	$	(2,157	)	$	25,317		$	(46,627	)	$	151,873

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization under capital lease		10,681			9,832			9,258			4,838
Amortization of intangibles		620			1,078			809			500
Amortization of deferred financing fees		706			381			68			3
Payment of interest on 8% notes					(2,196	)
Reorganization item								403			399
Decrease in deferred income taxes		(3,377	)		(5,203	)		(1,052	)		(339	)
Postretirement plan curtailment gain and amortization		(3,386	)		(34,055	)
Foreign currency translation loss (gain)		1,025			(679	)		(1,251	)		311
Loss (gain) in disposition of assets		320			464			(195	)		(330	)
Bad debt provision		(147	)		146			448			113
Net property, plant and equipment write-off
Goodwill and intangibles write-off								46,805
Non-cash interest on 8% notes and 11.5% notes		2,342			5,855
Loss (gain) on debt extinguishment					13,083						(153,946	)

Changes in operating assets and liabilities:
Receivables		(3,871	)					(179	)		(1,358	)
Inventories		(4,537	)		(230	)		2,638			(1,407	)
Other current assets		(6,528	)		595			1,563			(2,143	)
Accounts payable		1,330			(1,774	)		(119	)		(1,429	)
Accrued liabilities		6,679			(34	)
Other		(873	)		7,797			4,076			(404	)
Total adjustments		984			(4,940	)		63,272			(155,192	)

Net cash provided by (used in) operating activities before reorganization expense		(1,173	)		20,377			16,645			(3,319	)

Net cash used for reorganization								(403	)		(386	)

Cash flows from investing activities:
Capital expenditures		(16,550	)		(9,789	)		(3,764	)		(527	)
Reacquisition of leased assets		(624	)		(9,511	)
Treasury stock purchase					(298	)
Proceeds from disposition of assets		1,135			1,349			2,373			1,302
Restricted cash		210			22,784			2,106			(4	)
Net cash (used in) provided by investing activities		(15,829	)		4,535			715			771

Cash flows from financing activities:
Deferred financing costs		(313	)		(4,477	)		(253	)
Proceeds from issuance of long-term debt		13			89,348
Proceeds from issuance of warrants					1,001
Repayment of long-term borrowings and capital obligation		(160	)		(104,273	)		(4,265	)		(15,242	)
Net cash (used in) financing activities		(460	)		(18,401	)		(4,518	)		(15,242	)

Effect of currency exchange rate changes on cash		(889	)		584			843			354
Net (decrease) increase in cash and equivalents		(18,351	)		7,095			13,282			(17,822	)
Cash and equivalents at beginning of period		30,255			23,160			9,878			27,700
Cash and equivalents at end of period	$	11,904		$	30,255		$	23,160		$	9,878

Supplemental cash flow information:
Interest paid less capitalized interest	$	9,856		$	8,449		$	1,107		$	3,311
Income taxes paid	$	921		$	771		$	2,212		$	843

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

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VISKASE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands)

1.	Summary of Significant Accounting Policies

General

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

Nature of Operations

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

Principles of Consolidation

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

Reclassification

Reclassifications have been made to the prior years’ financial statements to conform to the 2005 presentation.

Use of Estimates in the Preparation of Financial Statements

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

Cash Equivalents

For purposes of the statement of cash flows, the Company considers cash equivalents to consist of all highly liquid debt investments purchased with an initial maturity of approximately three months or less. Due to the short-term nature of these instruments, the carrying values approximate the fair market value. Cash equivalents and restricted cash include $10,711 and $28,272 of short-term investments at December 31, 2005 and 2004, respectively. Restricted cash is principally cash held as collateral for outstanding letters of credit with a commercial bank.

Inventories

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

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VISKASE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands)

Property, Plant and Equipment

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

Deferred Financing Costs

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

Patents

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

Goodwill and Intangible Assets

Goodwill and intangible assets that have an indefinite useful life are not amortized and are tested at least annually for impairment. Due to the prepackaged nature of the Bankruptcy Plan, goodwill was tested for impairment by comparing the fair value with its recorded amount. As a result of adopting Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” the Company used a discounted cash flow methodology for determining fair value. This methodology identified an impairment and goodwill in the amount of $44,430, which was written off in the fourth quarter of 2003. As part of fresh-start accounting, the Company recognized intangible assets that are being amortized. Non-compete agreements in the amount of $1,236 were amortized over two years. The intangible backlog in the amount of $2,375 was amortized in its entirety during 2003.

Long-Lived Assets

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VISKASE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands)

Accounts Payable

The Company’s cash management system provides for the daily replenishment of its bank accounts for check-clearing requirements. The outstanding check balances of $1,427 and $1,092 at December 31, 2005 and 2004, respectively, are not deducted from cash but are reflected in Accounts Payable on the consolidated balance sheets.

Deferred Revenue

License fees paid in advance are deferred and recognized on a straight line basis over the life of the applicable patent. As of December 31, 2005, the remaining balance of unearned revenue was $868 including $315 of short-term license fees included in other current liabilities.

Pensions and Other Postretirement Benefits

The North American operations have defined benefit retirement plans that cover substantially all salaried and full-time hourly employees who were hired prior to April 1, 2003 and a fixed defined contribution plan and a discretionary profit sharing plan that cover substantially all salaried and full-time hourly employees who were hired on or after April 1, 2003. The operations in Germany have a defined benefit retirement plan that covers substantially all salaried and full-time hourly employees. Pension cost is computed using the projected unit credit method. The discount rate used approximates the average yield for high quality corporate bonds as of the valuation date. Our funding policy is consistent with funding requirements of the applicable federal and foreign laws and regulations.

The Company recognized a one-time $974 curtailment gain recorded in the consolidated statements of operations and reduction in the unfunded pension liability included in “Accrued employee benefits” on the consolidated balance sheet related to the announced closing of the its Kentland, Indiana finishing operations. This curtailment gain was recognized as of December 31, 2005.

The United States and Canadian operations of the Company historically provided postretirement health care and life insurance benefits. The Company accrues for the accumulated postretirement benefit obligation that represents the actuarial present value of the anticipated benefits. Measurement is based on assumptions regarding such items as the expected cost of providing future benefits and any cost sharing provisions. The Company terminated postretirement medical benefits as of December 31, 2004 for all active employees and retirees in the United States who are not covered by a collective bargaining agreement. The termination of the United States postretirement medical benefits resulted in a $34,055 curtailment gain and reduction in the unfunded postretirement liability included in “Accrued employee benefits” on the consolidated balance sheets in 2004.

On September 30, 2005 employees in the U.S. covered by a collective bargaining agreement ratified a new agreement which contained a provision that terminated postretirement medical benefits as of December 31, 2006 for all active employees and retirees covered by the collective bargaining agreement. The termination of the United States postretirement medical benefits for employees covered by the collective bargaining agreement resulted in a $668 curtailment gain and reduction in the unfunded postretirement medical liability included in “Accrued employee benefits” on the consolidated balance sheets in 2005. In addition, the Company will amortize the remaining unrecognized prior service costs and net actuarial loss related to these postretirement medical benefits over the 15 month period from October 1, 2005 through December 31, 2006. Approximately $1,744 was recorded as a reduction to cost of sales during the fourth quarter of 2005 and $7,929 will be recognized during 2006.

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VISKASE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands)

Income Taxes

Net (Loss) Income Per Share

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

Other Comprehensive Income

Comprehensive income includes all other non-shareholder changes in equity. Changes in other comprehensive income in 2005 and 2004 resulted from changes in foreign currency translation adjustments and minimum pension liability.

Revenue Recognition

Accounting for Stock-Based Compensation

The Company uses a fair value method to account for options granted to employees for the purchase of common stock. No compensation expense is recognized on the grant date, since at that date, the option price equals the market price of the underlying common stock. The pro forma effect of accounting for stock options under a fair value method is as follows:

(Dollars in Thousands, Except Per Share Amounts)	Year Ended December			Year Ended December
	31, 2005			31, 2004

Net (loss) income, as reported	$	(2,157	)	$	25,317
Deduct: Total stock-based compensation expense under a fair value based method, net of related tax effects		(268	)		(22	)
Net (loss) income, pro forma	$	(2,425	)	$	25,295

Basic (loss) earnings per share, as reported	$	(0.22	)	$	2.53
Diluted (loss) earnings per share, as reported	$	(0.22	)	$	2.33
Basic (loss) earnings per share, pro forma	$	(0.25	)	$	2.53
Diluted (loss) earnings per share, pro forma	$	(0.25	)	$	2.33

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VISKASE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands)

New Accounting Pronouncements

In March 2005, the FASB issued Interpretation No. 47 ("FIN 47"), "Accounting for Conditional Asset Retirement Obligations." FIN 47 clarifies that the term "conditional asset retirement obligation" as used in SFAS No. 143, "Accounting for Asset Retirement Obligations," refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005 and did have a significant impact on the Company's financial statements.

2.	Reorganization Under Chapter 11 and Basis of Presentation (Dollars in Thousands, Except Per Share and Per Bond Amounts)

Viskase Companies, Inc., a stand-alone-entity ("VCI"), filed a prepackaged Chapter 11 bankruptcy plan in the United States Bankruptcy Court for the Northern District of Illinois (“Bankruptcy Court”) on November 13, 2002. The Chapter 11 filing was for VCI only and did not include any domestic or foreign subsidiaries.

On April 3, 2003, VCI consummated its prepackaged Chapter 11 bankruptcy plan, as modified (“Plan”), which had previously been confirmed by order of the Bankruptcy Court. Under the Plan, holders of the Company’s 10.25% Notes due 2001 (“Old Senior Notes”) received just over 90% of the Company’s equity on a fully diluted basis. Suppliers and other trade creditors were not affected by the consummation of the Plan.

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VISKASE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands)

As a result of VCI's emergence from Chapter 11 bankruptcy on April 3, 2003 and the application of fresh-start accounting (see Note 3 Fresh-Start Accounting), consolidated financial statements for the Company for the periods subsequent to the effective date of VCI's plan of reorganization in the bankruptcy proceedings are referred to as the “Reorganized Company” and are not comparable to those for the periods prior to this date, which are referred to as the “Predecessor Company.” The March 31, 2003 unaudited consolidated financial statements were used for the predecessor period ended April 2, 2003; subsequent to March 31, 2003 through the period ending April 2, 2003, net income reflects a $153,946 gain representing the gain on debt extinguishment (refer to Note 3). A black line has been drawn in the audited consolidated financial statements to distinguish, for accounting purposes, the periods associated with the Reorganized Company and the Predecessor Company. Aside from the effects of fresh-start accounting and new accounting pronouncements adopted as of the effective date of the plan of reorganization, the Reorganized Company follows the same accounting policies as the Predecessor Company.

3.	Fresh-Start Accounting

As previously discussed, the accompanying consolidated financial statements reflect the use of fresh-start accounting as required by SOP 90-7, because the reorganized value of the Company's assets immediately before emergence from bankruptcy was less than all post-petition liabilities, and the Predecessor Company's stockholders received less than 50% of the Reorganized Company's voting shares upon emergence from bankruptcy. The reorganization value of the Company was based upon the compilation of many factors and various valuation methods, including: (i) discounted cash flow analysis using five-year projected financial information applying discount rates between 16% and 18% and terminal cash flow multiples of 5.0X to 6.0X based upon review of selected publicly traded company market multiples of certain companies operating businesses viewed to be similar to that of the Company; and (ii) other applicable ratios and valuation techniques believed by the Company and its financial advisors to be representative of the Company’s business and industry. Under fresh-start accounting, the Company’s assets and liabilities were adjusted to fair values and a reorganization value for the entity was determined by the Company based upon the estimated fair value of the enterprise before considering values allocated to debt. The portion of the reorganization value, which could not be attributed to specific tangible or identified intangible assets of the Reorganized Company, totaled $44,430. In accordance with SFAS No. 142, this amount is reported as “Goodwill” in the consolidated financial statements. Fresh-start accounting results in the creation of a new reporting entity with no accumulated deficit as of April 3, 2003.

The valuation was based upon a number of estimates and assumptions, which are inherently subject to significant uncertainties and contingencies beyond the control of the Company.

The Bankruptcy Court confirmed Viskase Companies, Inc.’s plan of reorganization as of December 20, 2002. It was determined that Viskase Companies, Inc.’s reorganization value was $85,000 to $115,000.

Upon the adoption of fresh-start accounting, as of April 3, 2003, the Company recorded goodwill of $44,430, which equals the reorganization value in excess of amounts allocable to identifiable net assets recorded in accordance with SOP 90-7. In the fourth quarter of 2003, the Company performed its first annual goodwill impairment analysis under SFAS No. 142. Due to the fact the fair value of the Company’s single reporting unit, as estimated by the Company’s market capitalization, was significantly less than the net book value at December 31, 2003, goodwill was evaluated for impairment. As a result of the Company’s impairment test the entire $44,430 goodwill balance was written off in the fourth quarter of 2003.

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VISKASE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands)

4.	Cash and Cash Equivalents

	December 31, 2005		December 31, 2004

Cash and cash equivalents	$	11,904	$	30,255
Restricted cash		3,251		3,461
	$	15,155	$	33,716

As of December 31, 2005 and 2004, cash equivalents and restricted cash of $10,711 and $28,272 are invested in short-term investments, respectively.

5.	Receivables

Receivables consisted primarily of trade accounts receivable and were net of allowances for doubtful accounts of $1,359 and $791 at December 31, 2005 and 2004, respectively.

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

6.	Inventories

Inventories consisted of:

	December 31, 2005		December 31, 2004

Raw materials	$	5,880	$	4,816
Work in process		16,772		13,558
Finished products		13,767		13,894
	$	36,419	$	32,268

Approximately 52% and 48% of the Company’s inventories at December 31, 2005 and 2004, respectively, were valued at LIFO. Remaining inventories, primarily foreign, are valued at the lower of FIFO cost or market. At December 31, 2005 and 2004, the LIFO values exceeded current manufacturing cost by approximately $521 and $151, respectively. The Company wrote down $78 and $95 of LIFO inventories to the lower of cost or market value in 2005 and 2004 respectively. The charges were included in cost of sales.

Inventories were net of reserves for obsolete and slow-moving inventory of $2,962 and $2,546 at December 31, 2005 and 2004, respectively.

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VISKASE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands)

7.	Property, Plant and Equipment

	December 31, 2005		December 31, 2004

Property, plant and equipment
Land and improvements	$	3,661	$	4,613
Buildings and improvements		22,457		21,464
Machinery and equipment		77,528		74,537
Construction in progress		12,863		11,544
	$	116,509	$	112,158

Capitalized interest for 2005, 2004, and the reorganized and predecessor periods in 2003 totaled $1,130, $389, and $98 and $43 respectively. Maintenance and repairs charged to costs and expenses for 2005, 2004, and 2003 aggregated $14,564, $15,310 and $14,548, respectively. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. Estimated useful lives of land improvements range from 15 to 30 years; building and improvements range from 10 to 32 years; and machinery and equipment, including capital leases, range from 2 to 15 years.

Land and buildings include property held for sale; these properties had net book values of $838 at December 31, 2004. Property held for sale with a net book value of $812 and $1,813 was disposed of during 2005 and 2004, respectively.

8.	Other Assets

	December 31, 2005		December 31, 2004

Patents	$	4,598	$	4,598
Less: Accumulated amortization		1,265		805
Patents, net		3,333		3,793

Other intangibles		1,236		1,236
Less: Accumulated amortization		1,236		1,082
Other intangibles, net		0		154

Income tax refund receivable		0		5,270
Miscellaneous		518		347

	$	3,851	$	9,564

Patents are amortized on the straight-line method over an estimated average useful life of 10 years. Other intangibles, established in fresh-start, represent the fair market value of non-compete agreements and were amortized over two years. Amortization of intangibles for each of the next five years is $460.

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VISKASE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands)

9.	Accrued Liabilities

	December 31, 2005		December 31, 2004

Compensation and employee benefits	$	24,038	$	15,948
Taxes		1,820		1,758
Accrued volume and sales discounts		1,210		1,452
Restructuring (see note 13)		1,626		192
Other		3,337		6,470
	$	32,031	$	25,820

10.

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

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

	December 31, 2005		December 31, 2004

Short-term debt including current maturities of long-term debt:
Current maturities of capital leases	$	182	$	384

Total short-term debt	$	182	$	384

Long-term debt:
11.5% Senior Secured Notes	$	89,214	$	89,071
8% Notes		13,956		11,757
Other		129		134

Total long-term debt	$	103,299	$	100,962

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

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VISKASE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands)

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

Revolving Credit Facility

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

There were no borrowings under the Revolving Credit Facility in both 2005 and 2004.

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

On March 28, 2006, the Company entered into an amendment of the Revolving Credit Facility. Pursuant thereto, the Revolving Credit Facility as amended in certain respects in order to facilitate the continued relocation of certain of the Company’s finishing operations from its facility in Kentland, Indiana to a new facility in Monterrey, Mexico operated by Viskase del Norte, S.A. de C.V. (“Mexico Project”). Pursuant to the amendment, the lender also waived certain technical events of default and provided certain consents, each relating to the Mexico Project. The Company has not incurred any borrowings under the Revolving Credit Facility.

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VISKASE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands)

11.5% Senior Secured Notes

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

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

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

Fiscal quarter ending	Amount

September 30, 2004 through September 30, 2006	$	16,000
December 31, 2006 through September 30, 2008	$	18,000
December 31, 2008 and thereafter	$	20,000

unless the sum of (i) unrestricted cash of the Company and its restricted subsidiaries as of such day and (ii) the aggregate amount of advances that the Company is actually able to borrow under the Revolving Credit Facility on such day (after giving effect to any borrowings thereunder on such day) is at least $15,000. The minimum annual level of EBITDA covenant is not in effect as of December 31, 2005 as the Company’s unrestricted cash and the amount of available credit under the Revolving Credit Facility exceed $15.0 million.

The 11.5% Senior Secured Notes limit the ability of the Company to (i) incur additional indebtedness; (ii) pay dividends, redeem subordinated debt, or make other restricted payments, (iii) make certain investments or acquisitions; (iv) issue stock of subsidiaries; (v) grant or permit to exist certain liens; (vi) enter into certain transactions with affiliates; (vii) merge, consolidate, or transfer substantially all of our assets; (viii) incur dividend or other payment restrictions affecting certain subsidiaries; (ix) transfer, sell or acquire assets, including capital stock of subsidiaries; and, (x) change the nature of our business. At any time prior to June 15, 2008, the Company may redeem, at its option, some or all of the 11.5% Senior Secured Notes at a make-whole redemption price equal to the greater of (i) 100% of the aggregate principal amount of the 11.5% Senior Secured Notes being redeemed and (ii) the sum of the present values of 105 3/4% of the aggregate principal amount of such 11.5% Senior Secured Notes and scheduled payments of interest on such 11.5% Senior Secured Notes to and including June 15, 2008, discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 50 basis points, together with, in each case, accrued and unpaid interest and additional interest, if any, to the date of redemption. The make-whole redemption price as of December 31, 2005 is approximately 120%.

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VISKASE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands)

For the periods below	Percentage

On or after June 15, 2008		105 3/4	%
On or after June 15, 2009		102 7/8	%
On or after June 15, 2010		100	%

8% Notes

On June 29, 2004, the Company repurchased $55,527 aggregate principal amount of its 8% Notes, and the holders (i) released the liens on the collateral that secured the 8% Notes, (ii) contractually subordinated the Company’s obligations under the 8% Notes to obligations under certain indebtedness, including the new 11.5% Senior Secured Notes and the Revolving Credit Facility; and (iii) eliminated substantially all of the restrictive covenants contained in the indenture governing the 8% Notes. The carrying amount of the remaining 8% Notes outstanding at December 31, 2005 is $13,956.

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VISKASE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands)

Prior to June 29, 2004, the 8% Notes were secured by a collateral pool comprised of (i) all domestic accounts receivable and inventory; (ii) all patents, trademarks and other intellectual property (subject to non-exclusive licensing agreements); (iii) all instruments, investment property and other intangible assets, (iv) substantially all domestic fixed assets and (v) a pledge of 100% of the capital stock of two of the Company’s domestic subsidiaries, but excluding assets subject to the GECC lease, certain real estate and certain assets subject to prior liens. Pursuant to an intercreditor agreement, the prior security interest of the holders of the 8% Notes in such collateral was subordinated to the lender under the Old Revolving Credit Facility and was senior to the security interest of GECC under the GECC lease. As of June 29, 2004, the 8% Notes were no longer secured by the collateral pool and accordingly, are effectively subordinated to the 11.5% Senior Secured Notes.

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

	2005			2006			2007
8% Notes
Principal	$	17,261		$	18,684		$	18,684
Discount		(3,305	)		(2,283	)		(1,148	)
Carrying value	$	13,956		$	16,401		$	17,536

Letter of Credit Facility

Letters of credit in the amount of $2,419 were outstanding under letter of credit facilities with commercial banks, and were cash collateralized at December 31, 2005.

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

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

	2006		2007	2008		2009	2010	Thereafter

11.5% Senior Secured Notes								$	90,000
8% Notes				$	18,684
Other	$	182							949
	$	182		$	18,684			$	90,949

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

11.

Operating Leases

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands)

Future minimum lease payments for operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2005, are:

2006	$	1,441
2007		1,935
2008		1,856
2009		1,868
2010		1,778
Total thereafter		2,933
Total minimum lease payments	$	11,811

Total rent expense during 2005, 2004 and 2003 amounted to $2,822, $2,409 and $2,259, respectively.

12.

Retirement Plans

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

At December 31, 2005, the North American operations of the Company and the Company’s operation in Germany have non-contributory defined benefit retirement plans covering substantially all salaried and full time hourly employees (which is limited in the case of the Company’s U.S. operations to employees hired prior to April 1, 2003).

Benefits are based on years of credited service and final average compensation, as defined in the plans. Pension cost is computed using the projected unit credit method. The discount rate used approximates the average yield for high-quality corporate bonds as of the valuation date. The Company’s policy is to fund the minimum actuarially computed annual contribution required under the Employee Retirement Income Security Act of 1974 and the applicable foreign laws and regulations.

Prior to April 1, 2004, participants under the United States defined benefit plan were eligible for an unreduced benefit calculated based years of credited service and final average compensation upon the earlier of (i) normal retirement age (i.e. 65); (ii) attainment of age 62 and 10 years of credit service; or (iii) reaching “85-points” calculated based upon age and years of credit service. Effective April 1, 2004, the defined benefit retirement plan was amended to (i) eliminate the unreduced early retirement option and (ii) close the defined benefit plan to employees hired after March 31, 2003, for all employees in the United States who are not covered by a collective bargaining agreement. Retirement benefits payable for all United States employees, who are not covered by a collective bargaining unit, will be the greater of benefits earned as of (i) March 31, 2004 or (ii) benefits calculated after elimination of the early retirement option, as defined in the plans. On September 30, 2005, employees in the U.S. covered by a collective bargaining agreement ratified a new agreement which contained provisions to (i) eliminate the unreduced early retirement option as of December 31, 2007 and (ii) close the define benefit plan to employees hired after September 30, 2004. The effects of these plan amendments on the accumulated benefit obligation is included in the pension benefit table that follows.

The Company recognized a one-time $974 curtailment gain recorded in the consolidated statements of operations and reduction in the unfunded pension liability included in “Accrued employee benefits” on the consolidated balance sheets related to the announced closing of the its Kentland, Indiana finishing operations. This curtailment gain was recognized as of December 31, 2005.

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VISKASE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands)

The United States and Canadian operations of the Company historically provided postretirement health care and life insurance benefits. The Company accrues for the accumulated postretirement benefit obligation that represents the actuarial present value of the anticipated benefits. Measurement is based on assumptions regarding such items as the expected cost of providing future benefits and any cost sharing provisions. The Company terminated postretirement medical benefits as of December 31, 2004 for all active employees and retirees in the United States who are not covered by a collective bargaining agreement. The termination of the United States postretirement medical benefits resulted in a $34,055 curtailment gain and reduction in the unfunded postretirement liability included in “Accrued employee benefits” on the consolidated balance sheets in 2004.

On September 30, 2005, employees in the U.S. covered by a collective bargaining agreement ratified a new agreement which contained a provision that terminated postretirement medical benefits as of December 31, 2006 for all active employees and retirees covered by the collective bargaining agreement. The termination of the United States postretirement medical benefits for employees covered by the collective bargaining agreement resulted in a $668 curtailment gain and reduction in the unfunded postretirement medical liability included in “Accrued employee benefits” on the consolidated balance sheets in 2005. In addition, the Company will amortize the remaining unrecognized prior service costs and net actuarial loss related to these postretirement medical benefits over the 15 month period from October 1, 2005 through December 31, 2006. Approximately $1,744 was recorded as a reduction to cost of sales during the fourth quarter of 2005 and $7,929 will be recognized during 2006.

The weighted average plan asset allocation at December 31, 2005 and 2004, and target allocation (not weighted) for 2006, are as follows:

	Percentage of PlanAssets						2006 Target
Asset Category	2005			2004			Allocation
Equity Securities		77.2	%		62.5	%		60.0	%
Debt Securities		21.2	%		35.2	%		40.0	%
Other		1.6	%		2.3	%		0.0	%
Total		100.0	%		100.0	%		100.0	%

Table of Contents

VISKASE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands)

Pensions and Other Postretirement Benefits Plans - North America

	Pension Benefits
	Reorganized Company									Predecessor Company
							April 3 to December 31,			January 1 to April 2,
	2005			2004			2003			2003

Accumulated benefit obligation (ABO)	$	130,310		$	120,857		$	113,127		$	105,878
Change in benefit obligation
Projected benefit obligation at beginning of year		131,838			126,087			117,453			115,186
Service cost		1,737			1,730			1,556			545
Interest cost		7,360			7,358			5,634			1,872
Actuarial losses		9,250			7,303			6,644			2,353
Benefits paid		(7,485	)		(7,287	)		(5,818	)		(2,855	)
Plan amendment		(1,217	)		(3,579	)
Curtailment gain		(1,725	)
Translation	$	293			226			618			352
Estimated benefit obligation at end of period	$	140,051		$	131,838		$	126,087		$	117,453
Change in plan assets
Fair value of plan assets at beginning of period		86,768			81,353			72,161			75,115
Actual return on plan assets		4,199			6,458			13,768			(798	)
Employer contribution		3,288			6,030			633			345
Benefits paid		(7,485	)		(7,287	)		(5,818	)		(2,855	)
Translation		278			214			609			354
Estimated fair value of plan assets at end of period	$	87,048		$	86,768		$	81,353		$	72,161
Reconciliation of accrued benefit cost at end of period
Funded status		(53,004	)		(45,070	)		(44,734	)		(45,292	)
Unrecognized net loss (gain)		15,238			4,923			(2,683	)
Unrecognized prior service cost		(3,184	)		(3,306	)

Accrued benefit cost	$	(40,950	)	$	(43,453	)	$	(47,417	)	$	(45,292	)
Amounts recognized in statement of financial position
Prepaid benefit cost
Accrued benefit liability	$	(48,545	)	$	(43,602	)	$	(47,517	)	$	(45,292	)
Intangible asset
Accumulated other comprehensive loss		7,595			149			100
Net amount recognized	$	(40,950	)	$	(43,453	)	$	(47,417	)	$	(45,292	)
Weighted-average assumptions as of end of period
Discount rate		5.49	%		5.74	%		6.25	%		6.75	%
Expected return on plan assets		8.56	%		8.66	%		8.67	%		8.67	%
Rate of compensation increase		3.50	%		3.50	%		3.50	%		3.75	%

Table of Contents

VISKASE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands)

	Other Benefits
	Reorganized Company								Predecessor Company
							April 3 to December 31,		January 1 to April 2,
	2005			2004			2003		2003

Accumulated benefit obligation (ABO)
Change in benefit obligation
Projected benefit obligation at beginning of period	$	22,439		$	57,702		$	53,038	$	50,846
Service cost		177			918			709		227
Interest cost		1,231			3,762			2,585		837
Plan amendment		(12,768	)		(3,006	)
Actuarial losses		3,176			10,289			3,542		1,502
Effect of curtailment		(159	)		(44,139

VISKASE COMPANIES INC 10-K