~~Table~~UNITED ofSTATES SECURITIES ~~Contents~~AND EXCHANGE COMMISSION

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

~~WASHINGTON,~~FORM ~~D.C. 20549~~10-Q

~~FORM~~þ ~~10-Q~~ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~þ QUARTERLY~~For ~~REPORT~~the ~~PURSUANT~~Quarterly TOPeriod ~~SECTION~~Ended 13November 30, ~~OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~ 2007

~~For the Quarterly Period Ended May 31, 2005~~ OR

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

~~o TRANSITION~~For ~~REPORT~~the ~~PURSUANT~~Transition TOPeriod ~~SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~ from to

~~For~~Commission ~~the~~File ~~Transition Period from to~~ No. 33-95318

~~Commission~~PORTOLA ~~File~~PACKAGING, NoINC. ~~33-95318~~

~~PORTOLA~~(Exact ~~PACKAGING,~~name ~~INC.~~ of Registrant as specified in its charter)

Delaware (~~Exact~~State ~~name~~or other jurisdiction of ~~Registrant~~incorporation asor ~~specified~~organization) in94-1582719 ~~its~~(I.R.S. ~~charter~~Employer Identification No.)

~~Delaware~~951 ~~(State~~Douglas orRoad Batavia, ~~other~~Illinois ~~jurisdiction~~60510 (Address of ~~incorporation~~principal orexecutive ~~organization)~~offices, ~~94-1582719~~including ~~(I.R.S.~~zip ~~Employer Identification No.~~code)

~~898A Faulstich Court~~(630) 406-8440 ~~San Jose, California 95112~~ (~~Address~~Registrant’s oftelephone ~~principal executive offices~~number, including ~~zip~~area code)

Indicate by check mark whether the Registrant (~~408~~1) ~~453-8840~~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’s ~~telephone~~was ~~number,~~required ~~including~~to ~~area~~file ~~code~~such reports) and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o.

Indicate by check mark whether the Registrant ~~(1) has~~is ~~filed~~large ~~all~~accelerated ~~reports~~filer, ~~required~~and toaccelerated befiler, ~~filed~~or bya ~~Section 13~~non-accelerated orfiler. ~~15(d)~~See ofdefinition ~~the Securities Exchange Act~~ of ~~1934~~“accelerated ~~during~~filer ~~the~~and ~~preceding~~large ~~12 months~~accelerated ~~(or for~~filer ~~such~~in ~~shorter period that the Registrant was required to file such reports) and (~~Rule 12b-2~~) has~~ ~~been subject~~of ~~to such filing requirements for~~ the ~~past~~Exchange ~~90 days~~Act. ~~YES~~(Check ~~þ NO o.~~one):

~~Indicate~~Large ~~by check mark whether the Registrant is an~~ accelerated filer o Accelerated ~~(as defined in Rule~~filer ~~12b~~o Non-2accelerated ~~of the Exchange Act). YES o NO~~ filer þ.

~~11,889,770~~Indicate ~~shares~~by ofcheck ~~Registrant’s~~mark ~~$.001~~whether ~~par~~the ~~value~~Registrant ~~common~~is ~~stock,~~a ~~consisting~~shell ofcompany ~~2,134,992~~(as ~~shares~~defined ~~of non–voting~~in ~~Class~~Rule A12b-2 ~~Common~~of ~~Stock and 9,754,778 shares in~~ the Exchange ~~aggregate~~Act). ~~of voting Class~~YES ~~B Common Stock, Series~~o ~~1 and 2 combined, were outstanding at June~~NO ~~30, 2005~~þ.

~~PORTOLA PACKAGING~~12,014,770 ~~INC~~shares of Registrant’s $.001 ~~AND~~par ~~SUBSIDIARIES~~value common stock, consisting of 2,134,992 shares of non-voting Class A Common Stock and 9,879,778 shares in the aggregate of voting Class B Common Stock, Series 1 and 2 combined, were outstanding at January 18, 2008.

~~INDEX~~PORTOLA PACKAGING, INC. AND SUBSIDIARIES

		Page
Part I — Financial Information
Item 1.	Financial Statements
	Unaudited Condensed Consolidated Balance Sheets as of May 31, 2005 and August 31, 2004 (restated)		3
	Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended May 31, 2005 and the Three and Nine Months Ended May 31, 2004 (restated)		4
	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended May 31, 2005 and 2004		5
	Notes to Unaudited Condensed Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		48
Item 4.	Controls and Procedures		50
Part II — Other Information
Item 1.	Legal Proceedings		51
Item 6.	Exhibits		52
Signatures			53
Exhibit 31.01
Exhibit 31.02
Exhibit 32.01

INDEX

Trademark acknowledgments:


		Page
Part I — Financial Information

Item 1.	Financial Statements

	Unaudited Condensed Consolidated Balance Sheets as of November 30, 2007 and August 31, 2007	3

	Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended November 30, 2007 and 2006	4

	Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended November 30, 2007 and 2006	5

	Notes to Unaudited Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	33

Part II — Other Information

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 6.	Exhibits	43

Signatures		44

~~Cap~~Trademark ~~Snap®, Portola Packaging®, Portola Tech International and the Portola logo are our~~acknowledgments: ~~registered trademarks used in this Quarterly Report on Form 10–Q.~~

2 Portola Packaging ®, Cap Snap ® , Snap Cap ®, Nepco ®, Tech Industries, Inc ®, Easy Fit ®, Fusion®, Smart Flow ®, Steri-Shield ® and the Portola logo are our trademarks used in this Quarterly Report on Form 10—Q.

~~Table~~PART ofI ~~Contents~~— FINANCIAL INFORMATION

~~PART~~ITEM I1. — FINANCIAL ~~INFORMATION~~STATEMENTS

~~ITEM~~PORTOLA 1PACKAGING, INC. ~~FINANCIAL~~AND ~~STATEMENTS~~SUBSIDIARIES

~~PORTOLA~~UNAUDITED ~~PACKAGING~~CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, ~~INC.~~except ~~AND~~par ~~SUBSIDIARIES~~value data)

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS


	November 30,			August 31,
	2007			2007
ASSETS
Current assets:
Cash and cash equivalents, including restricted cash of $100	$	3,628		$	3,297
Accounts receivable, net of allowance for doubtful accounts of $1,194 and $1,074 respectively		34,450			33,559
Inventories, net (Note 7)		29,094			26,671
Other current assets		6,783			5,520

Total current assets		73,955			69,047

Property, plant and equipment, net (Note 8)		72,844			71,723
Goodwill (Note 9)		10,517			10,215
Debt issuance costs, net (Note 9)		4,997			5,415
Patents, net (Note 9)		1,019			1,052
Covenants not-to-compete and other intangible assets, net (Note 9)		1,374			1,477
Other assets, net		2,600			2,541

Total assets	$	167,306		$	161,470


LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	21,619		$	21,188
Accrued liabilities		10,362			9,930
Accrued compensation		2,794			3,224
Accrued interest		4,950			1,238

Total current liabilities		39,725			35,580

Long-term debt (Note 10)		222,763			219,590
Deferred income taxes		1,490			1,533
Other long-term obligations		1,711			1,442

Total liabilities		265,689			258,145


Commitments and contingencies (Note 11)
Shareholders’ deficit:
Class A convertible Common Stock of $.001 par value:
Authorized: 5,203 shares; Issued and outstanding: 2,135 shares		2			2
Class B, Series 1, Common Stock of $.001 par value:
Authorized: 17,715 shares; Issued and outstanding: 8,709 shares		9			9
Class B, Series 2, convertible Common Stock of $.001 par value:
Authorized: 2,571 shares; Issued and outstanding: 1,170 shares		1			1
Additional paid-in capital		6,643			6,632
Accumulated other comprehensive income		1,658			784
Accumulated deficit		(106,696	)		(104,103	)

Total shareholders’ deficit		(98,383	)		(96,675	)

Total liabilities and shareholders’ deficit	$	167,306		$	161,470

~~(in~~The ~~thousands,~~accompanying ~~except per~~notes ~~share~~are ~~data)~~an integral part of the unaudited condensed consolidated financial statements.

	May 31,			August 31,
	2005			2004
				(restated)
ASSETS
Current assets:
Cash and cash equivalents	$	5,878		$	12,249
Accounts receivable, net		33,534			31,223
Inventories		19,681			17,857
Other current assets		5,034			4,737
Deferred income taxes		1,562			1,573
Total current assets		65,689			67,639
Property, plant and equipment, net		75,358			78,523
Goodwill		19,758			19,824
Debt issuance costs, net		8,707			9,748
Trademarks		5,000			5,000
Customer relationships, net		2,379			2,477
Patents, net		1,693			2,005
Covenants not-to-compete and other intangible assets, net		854			1,192
Other assets, net		3,243			2,674
Total assets	$	182,681		$	189,082
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt	$	53		$	82
Accounts payable		21,035			22,268
Book overdraft		—			674
Accrued liabilities		6,452			6,887
Accrued compensation		3,978			3,611
Accrued interest		4,950			1,238
Total current liabilities		36,468			34,760
Long-term debt, less current portion		200,772			199,402
Deferred income taxes		2,001			1,318
Other long-term obligations		478			473
Total liabilities		239,719			235,953
Commitments and contingencies (Note 12) Shareholders’ equity (deficit):
Class A convertible Common Stock of $.001 par value:
Authorized: 5,203 shares; Issued and outstanding: 2,135 shares		2			2
Class B, Series 1, Common Stock of $.001 par value:
Authorized: 17,715 shares; Issued and outstanding: 8,585 shares		8			8
Class B, Series 2, convertible Common Stock of $.001 par value:
Authorized: 2,571 shares; Issued and outstanding: 1,170 shares		1			1
Additional paid-in capital		6,488			6,593
Accumulated other comprehensive loss		(1,682	)		(1,706	)
Accumulated deficit		(61,855	)		(51,769	)
Total shareholders’ equity (deficit)		(57,038	)		(46,871	)
Total liabilities and shareholders’ equity (deficit)	$	182,681		$	189,082

~~The~~PORTOLA ~~accompanying~~PACKAGING, ~~notes~~INC. ~~are~~AND ~~an integral part of the unaudited condensed consolidated financial statements.~~ SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)


	For the Three Months Ended
	November 30,			November 30,
	2007			2006

Sales	$	72,598		$	67,404
Cost of sales		63,378			57,129

Gross profit		9,220			10,275


Selling, general and administrative		5,979			5,719
Research and development		1,076			1,027
Loss (gain) from sale of property, plant and equipment		48			(2	)
Amortization of intangibles		137			174
Restructuring costs		10			89

		7,250			7,007

Income from operations		1,970			3,268


Other (income) expense:
Interest income		(14	)		(33	)
Interest expense		4,633			4,441
Amortization of debt financing costs		418			413
Foreign currency transaction gain, net		(1,768	)		(104	)
Other income, net		(5	)		(79	)

		3,264			4,638

Loss before income taxes		(1,294	)		(1,370	)
Income tax expense		1,299			699


Net loss		(2,593	)		(2,069	)
Other comprehensive income (loss)		874			(95	)

Comprehensive loss	$	(1,719	)	$	(2,164	)

~~Table~~The accompanying notes are an integral part of ~~Contents~~the unaudited condensed consolidated financial statements.

~~PORTOLA PACKAGING, INC. AND SUBSIDIARIES~~4

~~UNAUDITED~~PORTOLA ~~CONDENSED~~PACKAGING, ~~CONSOLIDATED~~INC. ~~STATEMENTS~~AND ~~OF OPERATIONS (in thousands)~~ SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

	For the Three						For the Nine
	For the Three Months Ended
	Months Ended						Months Ended
	November 30,			November 30,
	May 31, 2005			May 31, 2004			May 31, 2005			May 31, 2004
	2007			2006
				(restated)						(restated)
Cash flows provided by operating activities:	$	907		$	2,937
Sales	$	70,533		$	62,281		$	196,409		$	176,328
Cash flows from investing activities:
Cost of sales		57,324			50,782			165,192			146,260
Additions to property, plant and equipment		(3,982	)		(3,173	)
Gross profit		13,209			11,499			31,217			30,068
Proceeds from sale of property, plant and equipment		22			5
Selling, general and administrative		7,589			7,632			21,737			23,296
Other investing activities		1			(178	)
Research and development		969			1,725			2,900			4,651
Net cash used in investing activities		(3,959	)		(3,346	)
Loss (gain) from sale of property, plant and equipment		45			(1,029	)		57			(1,024	)
Cash flows from financing activities:
Amortization of intangibles		245			318			747			940
Borrowings under revolver		5,673			6,030
Restructuring costs		1,512			1,624			1,878			3,490
Repayments under revolver		(2,500	)		(5,500	)
		10,360			10,270			27,319			31,353
Repayments on other long-term obligations		—			(9	)
Income (loss) from operations		2,849			1,229			3,898			(1,285	)
Payments of debt issuance costs		—			(125	)
Other (income) expense:
Other financing activities		12			281
Interest income		(6	)		(115	)		(29	)		(139	)
Net cash provided by financing activities		3,185			677
Interest expense		4,195			4,232			12,330			11,642
Effect of exchange rate changes on cash		198			21
Warrant interest income		—			—			—			(57	)
Increase in cash and cash equivalents		331			289
Amortization of debt financing costs		396			469			1,203			2,029
Cash and cash equivalents at beginning of period		3,197			2,549
Loss on warrant redemption		—			—			—			1,867
Cash and cash equivalents at end of period	$	3,528		$	2,838
Foreign currency transaction loss (gain)		1,055			694			(1,372	)		(1,561	)
Supplemental disclosure of cash flow information:
Other (income) expense, net		(133	)		(158	)		(192	)		(122	)
Cash paid for interest	$	921		$	558
		5,507			5,122			11,940			13,659
Cash paid for income taxes	$	576		$	1,385
Loss before income taxes		(2,658	)		(3,893	)		(8,042	)		(14,944	)
Income tax expense		498			642			2,038			1,384
Net loss		(3,156	)		(4,535	)		(10,080	)		(16,328	)
Other comprehensive (loss) income		(392	)		(177	)		24			(67	)
Comprehensive loss	$	(3,548	)	$	(4,712	)	$	(10,056	)	$	(16,395	)

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

~~Table~~Portola ofPackaging, ~~Contents~~Inc. and Subsidiaries

~~PORTOLA~~Notes ~~PACKAGING,~~to ~~INC.~~Unaudited ~~AND~~Condensed ~~SUBSIDIARIES~~ Consolidated Financial Statements

~~UNAUDITED~~(in ~~CONDENSED~~thousands, ~~CONSOLIDATED~~except ~~STATEMENTS~~share OFdata ~~CASH~~and ~~FLOWS (in thousands~~percentages)

	For the Nine Months Ended
	May 31, 2005			May 31, 2004
Cash flows provided by operating activities:	$	256		$	2,846
Cash flows from investing activities:
Additions to property, plant and equipment		(7,370	)		(16,898	)
Proceeds from sale of property, plant and equipment		29			3,471
Payment for Portola Tech International		—			(35,894	)
Payment of transaction costs		—			(633	)
Additions to intangible assets		—			(1,343	)
Increase in other assets, net		(517	)		(557	)
Net cash used in investing activities		(7,858	)		(51,854	)
Cash flows from financing activities:
Borrowings under Senior Notes due 2012		—			180,000
Payments of Senior Notes due 2005		—			(110,000	)
Payments for warrant redemption		—			(12,112	)
Payments of debt issuance costs		(161	)		(9,300	)
Borrowings under revolver		23,455			111,164
Repayments under revolver		(22,128	)		(104,615	)
Repayments under long-term debt obligations, net		(41	)		(373	)
Borrowings (repayments) on other long-term obligations, net		14			(62	)
Decrease in shareholder note		—			104
Distributions to minority owners		—			(57	)
Issuance of common stock through employee stock purchase program		—			11
Net cash provided by financing activities		1,139			54,760
Effect of exchange rate changes on cash		92			319
(Decrease) increase in cash and cash equivalents		(6,371	)		6,071
Cash and cash equivalents at beginning of period		12,249			4,292
Cash and cash equivalents at end of period	$	5,878		$	10,363
Supplemental non-cash investing and financing activity:
Liabilities assumed in Portola Tech International acquisition	$	—		$	2,513
Debt forgiveness on shareholder note	$	104		$	57
Supplemental disclosure of cash flow information:
Cash paid for interest	$	8,618		$	11,331
Cash paid for income taxes	$	1,713		$	2,581

Basis of presentation and accounting policies:

The accompanying ~~notes~~unaudited ~~are~~condensed anconsolidated ~~integral~~financial ~~part~~statements ofhave been prepared by Portola Packaging, Inc. and its subsidiaries (the ~~unaudited~~“Company” ~~condensed~~or “PPI”) without audit and in the opinion of management include all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement. The consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended August 31, 2007 previously filed with the Securities and Exchange Commission (“SEC”) on November 27, 2007 (the “Form 10-K”). The August 31, 2007 consolidated balance sheet data was derived from audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). Interim results are subject to seasonal variations, and the results of operations for the three months ended November 30, 2007 are not necessarily indicative of the results to be expected for the full fiscal year ending August 31, 2008.

5 2. Recent accounting pronouncements:

~~Table~~ In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of ~~Contents~~FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes by prescribing the recognition threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 and was adopted by the Company in the first quarter of fiscal 2008.

~~Portola~~ We ~~Packaging,~~have ~~Inc.~~reviewed the impact of FIN 48 on our condensed consolidated financial statements and have ~~Subsidiaries~~determined we do not have material uncertain tax positions or unrecognized tax benefits and there is no material impact on our financial position, results of operations or cash flows. The Company’s FIN 48 evaluation was performed for the tax years 2003 through 2006, which are the years that remain subject to federal and state examinations as of September 1, 2007.

~~Notes~~ In toSeptember 2006, ~~Unaudited~~the ~~Condensed~~FASB ~~Consolidated~~issued ~~Financial~~SFAS ~~Statements~~No. 157, “Accounting for Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, and establishes a framework for measuring fair value in ~~thousands~~accordance with GAAP, ~~except~~and ~~share~~expands disclosure about fair value measurements. SFAS No. 157 is effective for the Company for financial statements issued subsequent to November 15, 2007. On November 16, 2007 the FASB partially delayed the implementation of SFAS No. 157. The delay pertains to non-financial assets and ~~per~~liabilities ~~share~~being ~~data~~disclosed at fair value, measuring of fair values of liabilities at exit prices and ~~percentages)~~the applicability of disclosure requirements to retirement plan assets. The effective date of these items will be for financial statements issued subsequent to November 15, 2008. The Company is currently evaluating the requirements of SFAS No. 157.

1 In February 2007, the FASB issued SFAS No. 159, ~~Basis~~“The ofFair ~~Presentation~~Value Option for Financial Assets and ~~Accounting~~Financial ~~Policies:~~Liabilities” (“SFAS No. 159”). SFAS No. 159 permits the measurement of certain financial instruments at fair value. Entities may choose to measure eligible items at fair value at specified election dates, reporting unrealized gains and losses on such items at each

~~The accompanying unaudited condensed consolidated financial statements have been prepared by~~6 Portola Packaging, Inc. and its subsidiaries (the “Company” or “PPI”) without audit and in the opinion of management include all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement. The consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in Amendment No. 2 to the Company’s Annual Report on Form 10-K/A for the year ended August 31, 2004 previously filed with the Securities and Exchange Commission on May 5, 2005 (the “Form 10-K/A”). The August 31, 2004 consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. Interim results are subject to seasonal variations and the results of operations for the three and nine months ended May 31, 2005 are not necessarily indicative of the results to be expected for the full fiscal year ending August 31, 2005.

AsPortola ~~of May 31~~Packaging, ~~2005,~~Inc. ~~the~~and ~~Company had several stock-based compensation plans, which are~~Subsidiaries ~~described in Note 12 of the~~ Notes to ~~the~~Unaudited ~~Audited~~Condensed Consolidated Financial Statements of Amendment No. 2 to the Form 10-K/A. The Company accounts for those plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (~~“SFAS”~~Continued) ~~No. 123, “Accounting for Stock-Based~~ ~~Compensation.”~~(in ~~Accordingly~~thousands, noexcept ~~compensation~~share ~~expense~~data ~~has been recognized for the Company’s stock plans. Had compensation expense for the stock plans been determined based on the fair value at the grant date for options granted for the three-~~ and ~~nine-month periods ended May 31, 2005 and 2004~~percentages) ~~consistent with the provisions of SFAS No. 123, the pro forma net loss would have been reported as follows:~~

	For the Three						For the Nine
	Months Ended						Months Ended
	May 31, 2005			May 31, 2004			May 31, 2005			May 31, 2004
				(as restated)						(as restated)
Net loss as reported	$	(3,156	)	$	(4,535	)	$	(10,080	)	$	(16,328	)
Add total compensation cost deferred under fair value based method for all awards, net of tax		(34	)		(37	)		(153	)		(174	)
Net loss pro forma	$	(3,190	)	$	(4,572	)	$	(10,233	)	$	(16,502	)

subsequent reporting period. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the requirements of SFAS No. 159.

~~These~~In ~~results~~December 2007, ~~are~~the ~~not~~FASB ~~necessarily~~issued ~~representative~~SFAS No. 141 (revised 2007), “Business combinations” (“SFAS No. 141R”), which replaces SFAS No. 141. SFAS No. 141R establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any controlling interest; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects onof ~~reported~~the ~~net~~business ~~(loss)~~combination. SFAS No. ~~income~~141R is to be applied prospectively to business combinations for ~~future~~which ~~years~~the acquisition date is on or after an entity’s fiscal year that begins after December 15, 2008. The Company is currently evaluating the requirements of SFAS No. 141R.

6 In December 2007, FASB issued SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements — an amendment to ARB No. 51” (“SFAS No. 160”). SFAS No. 160 establishes accounting and reporting standards that require the ownership interest in subsidiaries held by parties other than the parent be clearly identified and presented in the consolidated balance sheets within equity, but separate from the parent’s equity; the amount of consolidated net income attributable to the parent and the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of earnings; and changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently. This statement is effective for fiscal years beginning on or after December 15, 2008. The Company is currently evaluating the requirements of SFAS No. 160.

~~Table~~3. ofOther ~~Contents~~comprehensive income (loss):

~~Portola~~ Other ~~Packaging,~~comprehensive ~~Inc.~~income ~~and~~(loss) consisted ~~Subsidiaries Notes~~of tocumulative ~~Unaudited~~foreign ~~Condensed~~currency ~~Consolidated~~translation adjustments ~~Financial~~of ~~Statements~~$874 and $(~~Continued~~95) ~~(in~~ ~~thousands,~~for ~~except~~the ~~share~~three ~~and~~months ~~per~~ended ~~share~~November 30, ~~data~~2007 and ~~percentages)~~2006, respectively.

24. ~~Restatement~~Reclassifications:

OnCertain ~~April 4,~~reclassifications ~~2005,~~have ~~the~~been ~~Company~~made ~~adjusted~~to ~~its~~prior ~~accounting~~year’s ~~for~~business ~~leases~~segment ~~and~~information ~~depreciation of leasehold improvements in order~~ to conform with ~~generally accepted accounting principles. Accordingly, as set forth below,~~ the ~~Company~~2008 ~~restated its Condensed Consolidated Statements of Operations for the three- and nine-month periods ended May 31, 2004~~presentation.

~~The Company leases certain of its manufacturing and office facilities under operating lease agreements with various terms~~5. Most of these agreements require the Company to pay an initial base rent for a certain period of time, with escalation based on a fixed amount or percentage tied to an economic index. Historically, when accounting for these leases, the Company’s policy was to record as rent expense the amount due for that time period according to the scheduled payments. Consequently, such escalation amounts were not included in minimum lease payments at the inception of the lease. The Company has restated its financial statements to include escalation amounts and recognize the rent expense on a straight-line basis over the lease term. In addition, the Company restated its financial statements to amortize all leasehold improvements over the shorter of the economic life or term of the lease, as defined in Statement of Financial Accounting Standard No. 13, “Accounting for Leases.” Segments:

The ~~following~~Company’s ~~tables~~reportable ~~reflect~~operating businesses are organized primarily by geographic region and, in one case, by function. The Company’s United Kingdom, Mexico and Canada operations produce both closure and bottle product lines. The Company’s United States and China operations produce closure products for plastic beverage containers and cosmetics, fragrance and toiletries (“CFT”) jars and closures. The Company’s China operations also manufacture plastic parts for the ~~effects~~high-tech industry. ofThe Company has one operating measure. Management evaluates the ~~restatement~~performance of, and allocates resources to, regions based on ~~the~~earnings ~~Condensed~~before ~~Consolidated~~interest, taxes, depreciation and ~~Statements~~amortization ofexpenses ~~Operations:~~(“EBITDA”). The Company does not allocate interest expense, taxes, depreciation and amortization to its subsidiaries. Certain Company businesses and activities, including the equipment division, do not meet the definition

~~Selected Statements of Operations Data:~~7

	For the three months ended
	May 31, 2004			May 31, 2004
	as previously reported			restated
Cost of sales	$	50,734		$	50,782
Gross profit		11,547			11,499
Selling, general and administrative		7,605			7,632
Income from operations		1,304			1,229
Loss before income taxes		(3,818	)		(3,893	)
Net loss		(4,460	)		(4,535	)

Portola Packaging, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(in thousands, except share data and percentages)

	For the nine months ended
	May 31, 2004			May 31, 2004
	as previously reported			restated
Cost of sales	$	146,149		$	146,260
Gross profit		30,179			30,068
Selling, general and administrative		23,269			23,296
Loss from operations		(1,147	)		(1,285	)
Loss before income taxes		(14,806	)		(14,944	)
Net loss		(16,190	)		(16,328	)

of a reportable operating segment and have been aggregated into “Other.” Revenue generating activities within “Other” include equipment sales and geographical regions which meet neither the quantitative nor qualitative thresholds of the Company’s reportable segments. The accounting policies of the segments are consistent with those policies used by the Company as a whole.

7 The table below presents information about reported segments for the three-month period ended November 30, 2007 and 2006, respectively:


	For the Three
	Months Ended
	November 30,		November 30,
	2007		2006
Revenues:
United States — Closures & Corporate	$	29,417	$	27,409
United States — CFT		6,829		6,415
Canada		13,078		11,885
United Kingdom		9,761		9,555
Mexico		5,027		5,291
China		4,999		2,838
Other		3,487		4,011

Total consolidated	$	72,598	$	67,404

~~Portola~~ Inter-segment ~~Packaging,~~revenues ~~Inc.~~totaling $4,046 and ~~Subsidiaries Notes~~$3,437 tohave ~~Unaudited~~been ~~Condensed~~eliminated ~~Consolidated~~from ~~Financial~~the ~~Statements~~segment ~~(Continued)~~totals ~~(in~~presented ~~thousands,~~above ~~except~~for ~~share~~the ~~and~~three ~~per~~months ~~share~~ended ~~data~~November 30, 2007 and ~~percentages)~~2006, respectively.

3 One Canadian customer, Saputo, accounted for approximately 11% and 10% of sales for the three months ended November 30, 2007 and 2006, respectively. ~~Recent~~It ~~Accounting~~also ~~Pronouncements:~~accounted for 7% and 6% of accounts receivable as of November 30, 2007 and August 31, 2007, respectively.

In The ~~December 2004,~~Company’s bonds are registered with the ~~Financial~~SEC ~~Accounting~~and ~~Standards~~are ~~Board~~publicly ~~(“FASB”)~~traded, ~~issued~~but ~~Statement~~its ~~No.~~stock is not ~~123(R),~~registered ~~Shared-Based~~or ~~Payment~~publicly traded. ~~Statement~~The ~~123(R)~~Company ~~requires~~has ~~the~~presented ~~measurement~~EBITDA as a measure of ~~all~~liquidity ~~employee~~due to ~~stock-based~~the ~~compensation~~fact ~~awards~~that ~~using~~certain acovenants ~~fair~~governing ~~value~~our ~~method~~senior assecured ofcredit ~~the~~facility ~~grant~~are ~~date~~tied ~~and~~to ~~recording~~ratios ~~such~~and ~~expense~~other incalculations ~~the~~based ~~consolidated~~on ~~financial~~this ~~statements~~measure. InEBITDA ~~addition~~does not represent, ~~the~~and ~~adoption~~should ofnot ~~Statement~~be ~~No.~~considered, ~~123(R)~~an ~~will~~alternative ~~require~~to ~~additional~~net ~~accounting~~income ~~related~~or tocash ~~the~~flow ~~income~~from ~~tax~~operations, ~~effects~~as determined by GAAP, and ~~additional~~our ~~disclosure~~calculation ~~regarding~~may ~~the~~not ~~cash~~be ~~flow~~comparable ~~effects~~to ~~resulting~~a ~~from~~similarly ~~share-based~~entitled ~~payment~~measure ~~arrangements~~reported by other companies. ~~Statement~~Based Noon our industry and debt financing experience, we believe EBITDA is customarily used to provide useful information regarding a company’s ability to service and/or incur indebtedness. ~~123(R)~~ In addition, EBITDA is ~~effective~~defined ~~for~~in ~~public~~our ~~companies~~senior ~~for~~secured ~~annual~~credit ~~periods~~facility ~~beginning~~under ~~after~~which ~~June 15~~we are required to satisfy specified financial ratios and tests, including a borrowing base calculation, which take ~~2005~~into account the product of trailing 12 month restricted EBITDA. ~~The~~We ~~Company~~have isto ~~currently~~maintain ~~evaluating~~EBITDA for any 12 month period ending the ~~impact~~last fiscal day of ~~the~~each ~~adoption~~month of ~~Statement~~at Noleast $17,500. ~~123(R).~~ Therefore, creditors, investors and analysts focus on EBITDA as the primary measure of the Company’s liquidity.

~~In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151 (“SFAS~~8 151”), Inventory Costs, an amendment of Accounting Research Bulletin No. 43 (“ARB” No. 43), Chapter 4. This Statement amends the guidance in ARB No. 43 Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, excessive spoilage, double freight, handling costs, and wasted material (spoilage). The provisions of this Statement will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not believe that the adoption of this Statement will have a material impact on its financial position, results of operations or cash flows.

4Portola Packaging, Inc. ~~Reclassifications:~~and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements (Continued) (in thousands, except share data and percentages)

~~Certain~~The ~~prior~~tables ~~year~~below ~~balances~~present ~~have~~the ~~been~~detail ~~reclassified~~of toEBITDA ~~conform~~by ~~with~~segment for the ~~current~~three ~~quarter~~months ended November ~~financial~~30, ~~statement~~2007 ~~presentation.~~and 2006, respectively:

5. Other Comprehensive Income:


	United States		United
	—Closures &		States —					United
EBITDA	Corporate		CFT			Canada		Kingdom		Mexico		China		Other			Total

For the three months ended November 30, 2007	$	2,933	$	(26	)	$	2,428	$	1,209	$	367	$	780	$	(49	)	$	7,642

For the three months ended November 30, 2006	$	3,861	$	(150	)	$	1,669	$	749	$	463	$	477	$	156		$	7,225

~~Other~~The ~~comprehensive~~following ~~income~~table ~~consisted~~presents ofa ~~cumulative~~reconciliation ~~foreign currency translation adjustments~~ of ~~$(392),~~ ~~net~~EBITDA ofto ~~tax of $(192), and $(177),~~ net ofcash ~~tax~~provided ofby ~~$(87),~~operating activities for the three months ended ~~May~~November 3130, ~~2005~~ ~~and~~2007 ~~2004, respectively,~~ and ~~$24, net of tax of $12, and $(67), net of tax of $(33), for the~~2006: ~~nine months ended May 31, 2005 and 2004, respectively.~~

6. Segments:


	For the Three
	Months Ended
	November 30,			November 30,
	2007			2006
EBITDA	$	7,642		$	7,225

Interest expense		(4,633	)		(4,441	)
Tax expense		(1,299	)		(699	)
Deferred income taxes		178			(122	)
Provision (benefit) provision for doubtful accounts		66			(6	)
Provision for restructuring		10			89
Loss (gain) on sale of property, plant and equipment		48			(2	)
Other		(3	)		(73	)
Changes in working capital items		(1,102	)		966


Net cash provided by operating activities	$	907		$	2,937

~~The Company’s reportable operating businesses are organized by geographic region and, in one case, by function~~6. The Company’s United Kingdom and Mexico operations, as well as its Blow Mold Technology Division described below (“BMT”), produce both closure and bottle product lines. The Company’s United States and China operations produce closure products for plastic beverage containers and cosmetics, fragrance and toiletries (“CFT”) jars and closures. The Company’s China operations also manufacture plastic parts for the high-tech industry. The BMT segment includes elements of the Canadian division and Portola Allied Tool, Inc. (“Allied Tool”). The Company has one operating measure. Management evaluates the performance of, and allocates resources to, regions based on earnings before interest, taxes, depreciation and amortization expenses (“EBITDA”). The Company does not allocate interest expense, taxes, depreciation, amortization and amortization of debt issuance costs to its subsidiaries. Certain Restructuring:

8 The Company incurred restructuring costs of $10 for the three months ended November 30, 2007, related primarily to its CFT operations.

~~Table~~ The Company incurred restructuring costs of ~~Contents~~$89 for the three months ended November 30, 2006. During the first three months of fiscal 2007, the Company incurred restructuring charges of $67 due to the elimination of certain positions in its US Closure plants. The remaining $22 is due to the Company’s United States — CFT segment primarily related to employee severance costs.

~~Portola~~ At ~~Packaging~~November 30, ~~Inc.~~2007 and ~~Subsidiaries~~August 31, 2007, accrued restructuring costs related to employee ~~Notes~~severance and other amounted to ~~Unaudited~~$13 ~~Condensed~~and ~~Consolidated~~$89, ~~Financial~~respectively. ~~Statements~~As ~~(Continued) (in~~of ~~thousands~~November 30, ~~except~~2007, ~~share~~approximately $86 ~~and~~has ~~per~~been ~~share~~paid ~~data~~from ~~and~~the ~~percentages)~~restructuring reserve for the employee severance

~~Company businesses and activities, including the equipment division, do not meet the definition of~~9 ~~a reportable operating segment and have been aggregated into “Other.” The accounting policies of the segments are consistent with those policies used by the Company as a whole.~~

~~The~~Portola ~~table~~Packaging, ~~below~~Inc. ~~presents~~and ~~information~~Subsidiaries Notes ~~about~~to ~~reported~~Unaudited ~~segments~~Condensed ~~for~~Consolidated ~~the~~Financial ~~three-~~Statements ~~and nine-month~~(Continued) ~~periods~~(in ~~ended May 31~~thousands, ~~2005~~except ~~and~~share ~~2004,~~data ~~respectively:~~and percentages)

	For the Three Months				For the Nine
	Ended				Months Ended
	May 31, 2005		May 31, 2004		May 31, 2005		May 31, 2004
Revenues:
United States – Closures & Corporate	$	26,583	$	25,885	$	74,854	$	77,596
United States – CFT		7,193		7,630		20,894		20,093
Blow Mold Technology		12,581		9,803		35,898		29,010
United Kingdom		12,150		11,073		34,616		28,755
Mexico		5,055		4,490		13,467		11,840
China		2,674		1,463		6,867		3,887
Other		4,297		1,937		9,813		5,147
Total consolidated	$	70,533	$	62,281	$	196,409	$	176,328

costs. Management anticipates that the accrual balance will be paid within the next twelve months.

~~Inter-segment~~The ~~revenues~~following ~~totaling~~table ~~$4,537~~represents ~~and $3,488 have been eliminated from~~ the ~~segment~~activity ~~totals presented~~in ~~above for~~ the ~~three~~restructuring ~~months~~reserve ~~ended~~by ~~May 31,~~segment ~~2005 and 2004, respectively, and $11,284 and $9,121~~ for the nine months ended ~~May~~November 3130, ~~2005 and 2004, respectively.~~2007:

The tables below present a reconciliation of net (loss) income to total EBITDA for the three and nine-month periods ended May 31, 2005 and 2004, respectively:


	August 31,								November 30,
	2007		Provision			Cost Paid			2007
United States — Closures & Corporate	$	35	$	(2	)	$	(26	)	$	7
United States — CFT		54		12			(60	)		6

Total	$	89	$	10		$	(86	)	$	13

	United States			United
For the Three Months	– Closures &			States -			Blow Mold		United
Ended May 31, 2005	Corporate			CFT			Technology		Kingdom			Mexico			China			Other
Net (loss) income	$	(3,873	)	$	(218	)	$	243	$	968		$	58		$	301		$	(635	)
Add:
Interest expense		4,144			—			—		—			19			31			1
Tax expense (benefit)		166			—			649		(62	)		(130	)		(126	)		1
Depreciation and amortization		1,950			402			442		714			265			108			71
Amortization of debt financing costs		391			—			5		—			—			—			—
EBITDA	$	2,778		$	184		$	1,339	$	1,620		$	212		$	314		$	(562	)

Inventories:

9 As of November 30, 2007 and August 31, 2007, inventories consisted of the following:


	November 30,			August 31,
	2007			2007

Raw materials	$	17,057		$	14,484
Work in process		1,921			2,131
Finished goods		11,310			11,653

Total inventory		30,288			28,268
Less: inventory reserves		(1,194	)		(1,597	)

Inventory — net	$	29,094		$	26,671

~~Portola Packaging, Inc~~8. ~~and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements (Continued) (in thousands~~Property, ~~except~~plant ~~share~~ and ~~per share data and percentages)~~ equipment:

	United States			United
For the Three Months	– Closures &			States -		Blow Mold			United
Ended May 31, 2004	Corporate			CFT		Technology			Kingdom		Mexico			China		Other
(restated)
Net (loss) income	$	(5,912	)	$	275	$	692		$	709	$	(81	)	$	210	$	(428	)
Add:
Interest expense		4,215			—		11			—		6			—		—
Tax expense (benefit)		281			—		(13	)		347		27			—		—
Depreciation and amortization		2,964			383		349			756		157			73		45
Amortization of debt financing costs		464			—		5			—		—			—		—
EBITDA	$	2,012		$	658	$	1,044		$	1,812	$	109		$	283	$	(383	)

The Company had proceeds of $22 on the sale of property and equipment that resulted in a loss of $48 for the three months ended November 30, 2007. The Company had proceeds of $5 on the sale of other assets that resulted in a gain of $2 for the three months ended November 30, 2006.

	United States			United
For the Nine Months	– Closures &			States -			Blow Mold		United
Ended May 31, 2005	Corporate			CFT			Technology		Kingdom		Mexico			China			Other
Net (loss) income	$	(10,939	)	$	(986	)	$	2,074	$	1,489	$	279		$	(105	)	$	(1,892	)
Add:
Interest expense		12,201			—			—		1		49			78			1
Tax expense (benefit)		250			—			1,482		600		(169	)		(125	)		—
Depreciation and amortization		5,878			1,185			1,236		2,233		678			318			210
Amortization of debt financing costs		1,187			—			16		—		—			—			—
EBITDA	$	8,577		$	199		$	4,808	$	4,323	$	837		$	166		$	(1,681	)

Capital lease obligations:

	United States			United
For the Nine Months	– Closures &			States -			Blow Mold		United
Ended May 31, 2004	Corporate			CFT			Technology		Kingdom		Mexico			China		Other
(restated)
Net (loss) income	$	(17,056	)	$	(923	)	$	1,816	$	972	$	(443	)	$	560	$	(1,254	)
Add:
Interest expense		11,612			—			12		—		16			—		2
Tax (benefit) expense		(414	)		—			602		992		204			—		—
Depreciation and amortization		8,532			1,069			1,061		2,052		494			218		148
Amortization of debt financing costs		2,014			—			15		—		—			—		—
EBITDA	$	4,688		$	146		$	3,506	$	4,016	$	271		$	778	$	(1,104	)

The Company acquired certain machinery and office equipment under non-cancelable capital leases. Property, plant and equipment include the following items held under capital lease obligations:

No customer accounted for more than 10% of sales for the three- and nine-month periods ended May 31, 2005 and 2004, respectively.


	November 30,			August 31,
	2007			2007
Equipment	$	1,152		$	1,152
Less accumulated depreciation		(807	)		(779	)

	$	345		$	373

~~Table~~Portola ofPackaging, ~~Contents~~Inc. and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements (Continued) (in thousands, except share data and percentages)

~~Portola Packaging, Inc~~9. ~~and~~Goodwill ~~Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements (Continued) (in thousands, except share~~ and ~~per~~intangible ~~share data and percentages)~~ assets:

7. The ~~Restructuring~~following table represents the activity in goodwill by segment for the three months ended November 30, 2007:

The Company incurred restructuring costs of $1,512 and $1,878 for the three- and nine-month periods ended May 31, 2005. During the quarter ended May 31, 2005, the Company incurred restructuring costs due to the restructuring of various divisions throughout the Company.


					Foreign
	August 31,				Currency		November 30,
	2007		Impairment		Translation		2007

United States — Closures	$	5,918	$	—	$	—	$	5,918
Canada		4,212		—		302		4,514
Other		85		—		—		85

Total Consolidated	$	10,215	$	—	$	302	$	10,517

~~During~~Effective September 1, 2001, the ~~third~~Company ~~quarter~~adopted ofSFAS ~~fiscal~~No. 142 ~~2004,~~for ~~the~~existing goodwill and other identifiable assets and performs its annual test at August 31st each year. The Company uses ~~incurred~~a ~~restructuring~~two ~~charges~~step ofapproach ~~$1,624~~when testing for impairment based on the EBITDA methodology. The Company will perform the calculation by using actual EBITDA and the plan EBITDA for ~~employee~~the ~~severance~~next ~~costs~~fiscal ~~related~~year. Based on these two calculations the Company will review to determine if the ~~closing~~assets ofare ~~its~~impaired. The ~~Sumter,~~Company ~~South~~measures ~~Carolina~~goodwill ~~plant~~by operating unit and reviews for impairment by utilizing the EBITDA ~~Chino~~multiplier ~~and~~methodology ~~San~~for ~~Jose,~~United ~~California~~States ~~plants~~— Closures, asCanada ~~well~~and asOther. aSFAS ~~reduction~~No. 142 allows the use of ~~work~~multiple ~~force~~methods into determine the ~~research~~fair value and the Company has been consistent in applying ~~development~~those ~~and~~methods ~~selling~~to the segments. In management’s judgment, ~~general~~no ~~and~~events ~~administrative~~transpired ~~staffs.~~during the first three months of fiscal 2008 that would have required management to review goodwill for impairment as of November 30, 2007.

AtThe ~~May 31,~~change ~~2005~~in ~~and~~the ~~August 31,~~gross ~~2004,~~carrying ~~accrued~~amounts ~~restructuring~~and ~~costs~~accumulated ~~related~~amortization tofor ~~employee~~Canada ~~severance amounted~~from ~~to $1~~August 31,~~569~~ ~~and~~2007 ~~$1,391,~~to ~~respectively. As of May~~November 3130, ~~2005,~~2007 ~~approximately~~was ~~$1,700~~due ~~has~~to ~~been paid from~~ the ~~restructuring~~effects ~~reserve~~of ~~for~~foreign ~~the~~currency ~~employee severance costs~~translation. ~~Management anticipates that~~ ~~the accrual balance will be paid within the next twelve months.~~

The ~~following~~components ~~table~~of ~~represents~~ the ~~activity~~Company’s inintangible ~~the~~assets ~~restructuring~~are ~~reserve~~as ~~by segment for the nine months ended May 31, 2005~~follows:

	August 31,
	November 30, 2007					August 31, 2007
	2004					Cost			May 31, 2005
	Gross					Gross
	Balance		Provision			Paid			Balance
	Carrying		Accumulated			Carrying			Accumulated
United States - Closures & Corporate	$	1,308	$	1,038		$	(1,222	)	$	1,124
	Amount		Amortization			Amount			Amortization
United States - CFT		—		301			(204	)		97
Amortizable intangible assets:
Blow Mold Technology		23		111			(56	)		78
Patents	$	9,688	$	(8,669	)	$	9,688		$	(8,636	)
Mexico		—		113			(113	)		—
Debt issuance costs		12,137		(7,140	)		12,100			(6,685	)
Austria		60		301			(91	)		270
Customer relationships		2,600		(2,600	)		2,600			(2,600	)
United Kingdom		—		14			(14	)		—
Covenants not-to-compete		817		(577	)		817			(522	)
Total	$	1,391	$	1,878		$	(1,700	)	$	1,569
Technology		400		(400	)		400			(400	)
Other		1,999		(865	)		1,995			(813	)
Total amortizable intangible assets		27,641		(20,251	)		27,600			(19,656	)
Non-amortizable intangible assets:
Trademarks		5,000		(5,000	)		5,000			(5,000	)
Total intangible assets	$	32,641	$	(25,251	)	$	32,600		$	(24,656	)

~~8. Inventories:~~11

AsPortola ~~of May 31~~Packaging, ~~2005~~Inc. and ~~August 31,~~Subsidiaries Notes ~~2004~~to Unaudited Condensed Consolidated Financial Statements (Continued) (in thousands, ~~inventories~~except ~~consisted~~share ofdata ~~the~~and ~~following:~~percentages)

	May 31,		August 31,
	2005		2004
Raw materials	$	9,597	$	9,439
Work in process		685		773
Finished goods		9,399		7,645
	$	19,681	$	17,857

Gross carrying amounts and accumulated amortization may fluctuate between periods due to the effects of foreign currency translation. In addition, amortization expense for the net carrying amount of intangible assets, including debt issuance costs, for the three months ended November 30, 2007 and 2006 was $555 and $587, respectively. Amortization expense is estimated to be $1,633 for the remaining nine months of fiscal 2008, $1,661 in fiscal 2009, $1,403 in fiscal 2010, $1,403 in fiscal 2011, $671 in fiscal 2012 and $619 in the remaining years thereafter.

11 10. Debt:

~~Table~~Long term debt consists of ~~Contents~~the following:

Portola Packaging, Inc. and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements (Continued) (in thousands, except share and per share data and percentages)


	November 30,		August 31,
	2007		2007
Senior notes	$	180,000	$	180,000
Senior revolving credit facility		42,763		39,590

	$	222,763	$	219,590

9.Senior ~~Goodwill and Intangible Assets~~notes:

AsOn January 23, 2004, the Company completed an offering of ~~May~~$180,000 in aggregate principal amount of Senior Notes that mature on February 311, ~~2005~~2012 and bear interest at 81/4% per annum (the “Senior Notes”). Interest payments of $7,425 are due semi-annually on February 1 and August 1 of each year. Interest began accruing January 3123, 2004, ~~goodwill~~and the first interest payment was made on August 1, 2004. The Senior Notes indenture contains covenants and ~~accumulated~~provisions ~~amortization~~that byrestrict, ~~segment~~among ~~category~~other things, the Company’s ability to: (~~see~~i) incur ~~Note~~additional 6indebtedness or issue preferred stock, (ii) incur ~~consisted~~liens on its property, (iii) make investments, (iv) enter into guarantees and other contingent obligations, (v) merge or consolidate with or acquire another person or engage in other fundamental changes, (vi) engage in certain sales of ~~the~~assets ~~following:~~and subsidiary stock, (vii) engage in certain transactions with affiliates, (viii) engage in sale/leaseback transactions, (ix) engage in any business other than a related business, (x) make restricted payments, and (xi) declare or pay dividends.

	May 31, 2005					August 31, 2004
	Gross					Gross
	Carrying		Accumulated			Carrying		Accumulated
	Amount		Amortization			Amount		Amortization
Goodwill:
United States – Closures & Corporate	$	12,585	$	(6,667	)	$	12,585	$	(6,667	)
United States – CFT		9,163		—			9,163		—
Blow Mold Technology		5,217		(1,696	)		5,155		(1,679	)
Mexico		3,469		(2,313	)		3,801		(2,534	)
Total consolidated	$	30,434	$	(10,676	)	$	30,704	$	(10,880	)

Senior revolving credit facility:

~~Effective~~Concurrently ~~September~~with the offering of the Senior Notes on January 123, ~~2001~~2004, the Company ~~adopted~~entered into ~~SFAS~~an Noamended and restated five-year senior revolving credit facility of up to $50,000, maturing on January 23, 2009. The Company entered into an amendment to this senior secured credit facility on May ~~142~~21, ~~for~~2004, ~~existing~~a ~~goodwill~~limited waiver and ~~other~~second amendment to this senior secured credit facility on ~~identifiable~~November 24, ~~assets.~~2004 ~~During~~(the “November 24 Amendment”), a fifth amendment to the ~~fourth~~senior ~~quarter~~secured ofcredit facility ~~fiscal~~on ~~2004~~April 4, 2005 (the ~~Company~~“April ~~measured~~4 ~~goodwill~~Amendment”), ~~by operating~~a ~~unit~~sixth ~~and~~amendment ~~reviewed~~to ~~for~~the ~~impairment~~senior bysecured ~~utilizing~~credit facility on May 2, 2005 (the ~~EBITDA~~“May ~~multiplier~~2 ~~methodology~~Amendment”), ~~for~~a seventh amendment to the senior secured credit ~~United~~facility ~~States~~on –June 21, ~~Closures~~2005 (the “June 21 Amendment”), ~~Blow~~an ~~Mold~~eighth ~~Technology~~amendment ~~and~~to ~~Mexico~~the senior secured credit facility on June 29, 2006 (the “June 29 Amendment”) and ~~used~~a ~~the~~ninth ~~discounted~~amendment ~~cash~~to ~~flows~~the senior ~~methodology~~secured ~~for~~credit ~~United~~facility ~~States~~on –October 19, ~~CFT~~2006 (the “October 19 Amendment”). InThe ~~management~~amended and restated credit facility contains covenants and provisions that restrict, among other things, the Company’s ability ~~judgment~~to: no(i) redeem ~~events~~warrants ~~transpired~~and repurchase stock, except during ~~fiscal~~the first year, (ii) incur ~~2005~~additional ~~that~~indebtedness, ~~would~~(iii) incur ~~have~~liens ~~required~~on ~~management~~its toproperty, ~~review~~(iv) make ~~goodwill~~investments, ~~for~~(v) enter ~~impairment~~into guarantees asand other contingent obligations, (vi) merge or consolidate with or acquire another person or engage in other fundamental changes, or in certain sales of ~~May~~assets, (vii) 31engage in certain transactions with affiliates, ~~2005.~~(viii) make

~~The change in the gross carrying amounts and accumulated amortization for Blow Mold Technology~~12 ~~and Mexico from August 31, 2004 to May 31, 2005 was due to foreign currency translation.~~

InPortola ~~connection~~Packaging, ~~with the adoption of SFAS No~~Inc. ~~142,~~ ~~effective~~and ~~September 1, 2001, the Company~~Subsidiaries ~~reassessed~~Notes ~~the~~to ~~useful~~Unaudited ~~lives~~Condensed ~~and~~Consolidated ~~the~~Financial ~~classifications~~Statements of(Continued) (in ~~its~~thousands, ~~identifiable~~except ~~intangible~~share ~~assets~~data and ~~determined~~ ~~that they continue to be appropriate. The components of the Company’s intangible assets~~percentages) ~~are as follows:~~

restricted junior payments, and (ix) declare or pay dividends. The June 21 Amendment, which superseded the April 4 Amendment and the May 2 Amendment and their covenants, revised the credit agreement as follows: (a) the borrowing base calculation is based on the product of trailing 12 month restricted EBITDA and a leverage multiple of 2.5 less any outstanding senior indebtedness, which excludes senior indebtedness evidenced by the Senior Notes and any guaranties thereof and excluding any fees, liabilities or other obligations payable with respect to such senior indebtedness; (b) the Company is required to maintain EBITDA for any 12-month period ending on the last day of each fiscal month, commencing with the fiscal month ending May 31, 2005, of at least $17,500; (c) the Company no longer is required to maintain a borrowing availability amount; and (d) the amount the Company can invest in certain specified subsidiaries was increased from $6,700 to $8,500. The June 21 Amendment also eliminated the fixed charge coverage and senior leverage ratios. The Company’s future compliance with the amended covenants is dependent upon the Company achieving its projected operating results in fiscal 2007 and beyond. The June 29 Amendment allows a maximum of $7,000 to be added back to EBITDA for the Blackhawk Molding Company Inc. litigation settlement. The October 19 Amendment increased the maximum loan limit under the credit facility from $50,000 to $60,000 with the amount in excess of $50,000 being based on the Company’s working capital/fixed asset borrowing base calculation. It also increased the amount of capital expenditures the Company is able to make each fiscal year from $13,500 to $16,500. The Company believes that it will attain its projected results and that it will be in compliance with the covenants throughout fiscal 2008 and beyond. An unused fee is payable on the facility based on the total commitment amount less the average daily aggregate amount of outstanding liability, at the rate of 0.50% per annum. In addition, interest payable is based on, at the Company’s election, either the Bank Prime Loan rate plus 1.50% or the LIBOR Loan rate plus 3.00% determined by a pricing table based on the outstanding credit facility balance. At November 30, 2007, the Bank Prime Loan rate and the LIBOR Loan rate were 7.50% and 4.53%, respectively. At November 30, 2007, the Company had approximately $15,402 available for borrowing under the credit facility under the borrowing base formula described above.

~~Table~~Aggregate maturities of ~~Contents~~long-term debt:

~~Portola~~ The ~~Packaging,~~aggregate ~~Inc.~~maturities ~~and~~of ~~Subsidiaries Notes~~long-term todebt ~~Unaudited~~for ~~Condensed~~the ~~Consolidated~~remaining ~~Financial~~nine ~~Statements~~months ~~(Continued)~~of fiscal 2008 and ~~(in~~the ~~thousands,~~next ~~except~~four ~~share~~years and ~~per~~thereafter ~~share~~based ~~data~~on ~~and~~amounts ~~percentages)~~outstanding at November 30, 2007 were as follows:

	May 31, 2005					August 31, 2004
Nine months ended August 31, 2008	$	—
	Gross					Gross
Year ended August 31, 2009		42,763
	Carrying		Accumulated			Carrying		Accumulated
Year ended August 31, 2010		—
	Amount		Amortization			Amount		Amortization
Year ended August 31, 2011		—
Amortizable intangible assets:
Year ended August 31, 2012		180,000
Patents	$	9,659	$	(7,966	)	$	9,658	$	(7,653	)
Thereafter		—
Debt issuance costs		11,609		(2,902	)		11,793		(2,045	)
	$	222,763
Customer relationships		2,600		(221	)		2,600		(123	)
Covenants not-to-compete		829		(529	)		829		(405	)
Technology		400		(136	)		550		(226	)
Trademarks		—		—			360		(360	)
Other		710		(420	)		709		(265	)
Total amortizable intangible assets	$	25,807	$	(12,174	)	$	26,499	$	(11,077	)
Non-amortizable intangible assets:
Trademarks		5,000		—			5,000		—
Total intangible assets	$	30,807	$	(12,174	)	$	31,499	$	(11,077	)

~~Gross carrying amounts and accumulated amortization may fluctuate between periods due to foreign currency translation~~11. InCommitments ~~addition, amortization expense for the net carrying amount of intangible assets, including debt issuance costs, for the nine months ended May 31, 2005~~ and 2004 was $1,950 and $2,969, respectively. Amortization expense is estimated to be $646 for the fourth quarter of fiscal 2005, $2,401 in fiscal 2006, $2,023 in fiscal 2007, $1,929 in fiscal 2008, $1,493 in fiscal 2009 and $5,141 in the remaining years thereafter. contingencies:

~~10. Property, Plant and Equipment~~Legal:

On May 1831, ~~2005~~2006, the Company ~~entered~~and ~~into~~Blackhawk aMolding ~~sale~~Co., ~~agreement~~Inc. ~~with~~(“Blackhawk”) ~~Gray~~settled ~~Gamwell~~a ~~Corporation for~~patent ~~the~~infringement ~~sale~~claim ofby the Company’s ~~warehouse~~agreeing ~~building~~to inpay ~~Woonsocket~~Blackhawk $4,000 ~~Rhode~~on ~~Island~~June 30, ~~for~~2006, a$500 ~~purchase price of~~per ~~$1,300.~~quarter ~~The~~for ~~expected~~four ~~sale~~quarters ofthereafter ~~the~~and ~~building~~$250 ~~would~~for ~~result~~the infollowing afour ~~gain,~~quarters. ~~after~~Of ~~deducting~~the ~~closing costs,~~settlement ofamount, ~~approximately~~ $~~450.~~1,500 ~~The~~was ~~sale~~expensed isin ~~subject~~the toperiod aending ~~number~~February 28, of2006 ~~contingencies~~and ~~but is expected to close in~~ the ~~first quarter of fiscal 2006.~~remainder

~~11. Debt:~~13

~~Debt:~~Portola Packaging, Inc. and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements (Continued) (in thousands, except share data and percentages)

	May 31,			August 31,
	2005			2004
Senior notes	$	180,000		$	180,000
Senior revolving credit facility		20,677			19,349
Capital lease obligations		23			59
Other		125			76
		200,825			199,484
Less: Current portion long-term debt		(53	)		(82	)
	$	200,772		$	199,402

was expensed on the settlement date. The Company has made these payments through December 31, 2007 and has adequate cash flow from operations and availability under its lines of credit to make the remaining payments.

13 In the normal course of business, except for the Blackhawk litigation mentioned above, the Company is subject to various legal proceedings and claims. Based on the facts currently available, management believes that the ultimate amount of liability from these pending actions will not have a material adverse effect on the Company’s financial position, results of operations or liquidity.

~~Table~~Commitments ofand ~~Contents~~Contingencies:

~~Portola~~ The ~~Packaging~~Company leases certain office, ~~Inc.~~production and ~~Subsidiaries~~warehouse facilities under operating lease ~~Notes~~agreements expiring on various dates through 2021 and with various terms. Most of these agreements require the Company to ~~Unaudited~~pay ~~Condensed~~an ~~Consolidated~~initial ~~Financial~~base ~~Statements~~rent ~~(Continued)~~for a certain period of time, with escalation based ~~(in~~on ~~thousands~~a fixed amount or a percentage tied to an economic index. The Company calculates its lease obligation, ~~except~~including ~~share~~the escalation, and ~~per~~recognizes ~~share~~the ~~data~~rent ~~and~~expense ~~percentages)~~on a straight-line basis over the lease term. Under the terms of the facilities’ leases, the Company is responsible for common area maintenance expenses, which include taxes, insurance, repairs and other operating costs. Rent expense for the three month periods ended November 30, 2007 and 2006 was $1,441 and $1,370 respectively.

~~Senior~~ The ~~Notes~~future minimum rental commitments under agreements with terms in excess of twelve months were as follows:

On January 23, 2004, the Company completed an offering of $180,000 in aggregate principal amount of Senior Notes that mature on February 1, 2012 and bear interest at 8 1/4% per annum (the “Senior Notes”). Interest payments of $7,425 are due semi-annually on February 1 and August 1 of each year. Interest began accruing January 23, 2004 and the first interest payment date commenced on August 1, 2004. The Senior Notes’ indenture contains covenants and provisions that restrict, among other things, the Company’s ability to: (i) incur additional indebtedness or issue preferred stock, (ii) incur liens on its property, (iii) make investments, (iv) enter into guarantees and other contingent obligations, (v) merge or consolidate with or acquire another person or engage in other fundamental changes, (vi) engage in certain sales of assets and subsidiary stock, (vii) engage in certain transactions with affiliates, (viii) engage in sale/leaseback transactions, (ix) engage in any business other than a related business, (x) make restricted payments, and (xi) declare or pay dividends.


Nine months ending August 31, 2008	$	4,052
Fiscal year ending August 31, 2009		4,968
Fiscal year ending August 31, 2010		4,737
Fiscal year ending August 31, 2011		4,219
Fiscal year ending August 31, 2012		3,766
Thereafter		15,015

	$	36,757

~~The following table sets forth the uses of funds in connection with the $180,000 senior notes~~14 ~~offering:~~

Redemption of 10 3/4% Senior Notes due 2005	$	110,000
Payment of accrued interest on 10 3/4% Senior Notes due 2005		4,664
Pay down of senior secured credit facility		44,617
		159,281
Warrant redemption and distribution on February 23, 2004		10,659
Warrant redemption and distribution on May 4, 2004		1,453
		12,112
Transaction fees and expenses for Senior Notes and credit facility		8,607
	$	180,000

Portola Packaging, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(in thousands, except share data and percentages)

~~On March 15, 2005, the Company terminated its proposed tender offer to purchase 172,413 shares of its common stock~~12. ~~The~~Supplemental ~~Company~~condensed ~~did~~consolidated ~~not~~financial ~~purchase any of its common stock.~~ statements:

On January 23, 2004, the Company completed the offering of $180,000 in aggregate principal amount of 81/4% Senior ~~Revolving~~Notes ~~Credit~~due ~~Facility~~2012. The majority of the net proceeds of such offering were used to redeem all of the previously outstanding $110,000 in aggregate principal amount of 103/4% Senior Notes. In the fourth quarter of fiscal 2004, the Company exchanged the outstanding Senior Notes for registered exchange notes having substantially the same terms. The exchange notes have the following guarantors, all of which are 100% owned subsidiaries of the Company and have provided guarantees that are full and unconditional and for which they are jointly and severally liable: Allied Tool; Portola Limited; Portola Packaging, Inc. Mexico, S.A. de C.V.; Portola Packaging Canada Ltd.; Portola Packaging Limited; and Portola Tech International (“PTI”). The tables below set forth financial information of the guarantors and non-guarantors at November 30, 2007 and August 31, 2007 and for the three months ended November 30, 2007 and 2006.

~~Concurrently~~Supplemental ~~with~~Condensed ~~the~~Consolidated ~~offering~~Balance ~~of the Senior Notes, the Company entered into an amended and~~Sheet restated five-year senior revolving credit facility of up to $50,000, maturing on January 23, 2009. The Company entered into an amendment to this senior secured credit facility on May 21, 2004, a limited waiver and second amendment to this senior secured credit facility on November 2430, ~~2004~~2007 ~~(the “November 24 Amendment”), a fifth amendment to the senior secured credit facility on April 4, 2005 (the “April 4 Amendment”), a sixth amendment to the senior secured~~


				Combined			Combined
	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated

ASSETS
Current assets:
Cash and cash equivalents	$	781		$	1,135		$	1,712		$	—		$	3,628
Accounts receivable, net		12,139			18,385			9,001			(5,075	)		34,450
Inventories, net		11,539			14,451			3,104			—			29,094
Other current assets		2,452			1,446			2,885			—			6,783

Total current assets		26,911			35,417			16,702			(5,075	)		73,955
Property, plant and equipment, net		39,547			28,174			5,139			(16	)		72,844
Goodwill		5,917			4,600			—			—			10,517
Debt issuance costs, net		4,997			—			—			—			4,997
Investment in subsidiaries		11,351			13,314			897			26			25,588
Common stock of subsidiaries		(14,444	)		(18,988	)		(4,318	)		13,177			(24,573	)
Other assets		3,835			51			92			—			3,978

Total assets	$	78,114		$	62,568		$	18,512		$	8,112		$	167,306


LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	8,708		$	12,806		$	5,180		$	(5,075	)	$	21,619
Inter-company (receivable) payable		(73,502	)		65,301			8,169			32			—
Other current liabilities		14,759			841			2,105			401			18,106

Total current liabilities		(50,035	)		78,948			15,454			(4,642	)		39,725
Long-term debt, less current portion		222,763			—			—			—			222,763
Other long-term obligations		3,769			358			(926	)		—			3,201

Total liabilities		176,497			79,306			14,528			(4,642	)		265,689

Other equity (deficit)		8,313			2,740			(1,163	)		(1,577	)		8,313
Accumulated equity (deficit)		(106,696	)		(19,478	)		5,147			14,331			(106,696	)

Total shareholders’ equity (deficit)		(98,383	)		(16,738	)		3,984			12,754			(98,383	)

Total liabilities and shareholders’ equity (deficit)	$	78,114		$	62,568		$	18,512		$	8,112		$	167,306

~~Table of Contents~~15

Portola Packaging, Inc. and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements (Continued) ~~(in thousands, except share and per share data and percentages)~~

~~credit facility on May 2, 2005~~ (~~the~~in ~~“May 2 Amendment”) and a seventh amendment to the senior secured credit facility on June 21~~thousands, 2005 (the “June 21 Amendment”). The amended and restated credit facility contains covenants and provisions that restrict, among other things, the Company’s ability to: (i) redeem warrants and repurchase stock, except ~~during~~share ~~the~~data ~~first year, (ii) incur additional indebtedness, (iii) incur liens on its property, (iv) make investments, (v) enter into guarantees~~ and ~~other contingent obligations, (vi~~percentages) ~~merge or consolidate with or acquire another~~ person or engage in other fundamental changes, or in certain sales of assets, (vii) engage in certain transactions with affiliates, (viii) make restricted junior payments, and (ix) declare or pay dividends. The June 21 Amendment, which superseded the April 4 Amendment and the May 2 Amendment and their covenants, revised the credit agreement as follows: (a) the borrowing base calculation is based on the product of trailing 12 month restricted EBITDA and a leverage multiple of 2.5 less any outstanding senior indebtedness, which excludes senior indebtedness evidenced by the Senior Notes and any guaranties thereof and excluding any fees, liabilities or other obligations payable with respect to such senior indebtedness; (b) the Company is required to maintain EBITDA for any 12-month period ending on the last day of each fiscal month, commencing with the fiscal month ending May 31, 2005, of at least $17,500; (c) the Company no longer is required to maintain a borrowing availability amount; and (d) the amount the Company can invest in certain specified subsidiaries was increased from $6,700 to $8,500. The June 21 Amendment also eliminated the fixed charge coverage and senior leverage ratios. The Company’s future compliance with the amended covenants is dependent upon the Company achieving its projected operating results in fiscal 2005 and beyond. The Company believes that it will attain its projected results and that it will be in compliance with the covenants throughout fiscal 2005 and beyond. However, if the Company does not achieve these projected results and all outstanding borrowings become immediately due and payable, the Company’s liquidity would be negatively affected. An unused fee is payable on the facility based on the total commitment amount less the average daily aggregate amount of outstanding liability, at the rate of 0.50% per annum. In addition, interest payable is based on, at the Company’s election, either the Bank Prime Loan rate plus 1.25% or the LIBOR loan rate plus 2.75% determined by a pricing table based on the outstanding credit facility balance. At May 31, 2005, the Bank Prime Loan rate and the LIBOR Loan rate were 6.00% and 3.09%, respectively.

~~Aggregate~~Supplemental ~~Maturities~~Condensed ofConsolidated ~~Long-Term~~Balance ~~Debt:~~Sheet August 31, 2007

The aggregate maturities of long-term debt for the remaining three months of fiscal 2005 and the next four years and thereafter based on amounts outstanding at May 31, 2005 were as follows:


				Combined			Combined
	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated


ASSETS
Current assets:
Cash and cash equivalents	$	987		$	1,796		$	514		$	—		$	3,297
Accounts receivable, net		12,605			17,603			10,185			(6,834	)		33,559
Inventories, net		10,041			14,107			2,523			—			26,671
Other current assets		1,721			1,087			2,712			—			5,520

Total current assets		25,354			34,593			15,934			(6,834	)		69,047
Property, plant and equipment, net		39,426			27,780			4,533			(16	)		71,723
Goodwill		5,917			4,298			—			—			10,215
Debt issuance costs, net		5,415			—			—			—			5,415
Investment in subsidiaries		11,351			13,317			897			26			25,591
Common stock of subsidiaries		(16,554	)		(18,988	)		(4,318	)		15,287			(24,573	)
Other assets		3,928			49			75			—			4,052

Total assets	$	74,837		$	61,049		$	17,121		$	8,463		$	161,470


LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	9,040		$	13,512		$	5,470		$	(6,834	)	$	21,188
Inter-company (receivable) payable		(71,487	)		63,600			7,854			33			—
Other current liabilities		10,808			1,442			1,746			396			14,392

Total current liabilities		(51,639	)		78,554			15,070			(6,405	)		35,580
Long-term debt, less current portion		219,590			—			—			—			219,590
Other long-term obligations		3,561			319			(905	)		—			2,975

Total liabilities		171,512			78,873			14,165			(6,405	)		258,145

Other equity (deficit)		7,428			1,594			(893	)		(701	)		7,428
Accumulated equity (deficit)		(104,103	)		(19,418	)		3,849			15,569			(104,103	)

Total shareholders’ equity (deficit)		(96,675	)		(17,824	)		2,956			14,868			(96,675	)

Total liabilities and shareholders’ equity (deficit)	$	74,837		$	61,049		$	17,121		$	8,463		$	161,470

Three months ended August 31, 2005	$	13
Year ended August 31, 2006		54
Year ended August 31, 2007		29
Year ended August 31, 2008		25
Year ended August 31, 2009		20,698
Thereafter		180,006
	$	200,825

15Portola Packaging, Inc. and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements (Continued) (in thousands, except share data and percentages)

~~Table~~Supplemental Condensed Consolidated Statements of ~~Contents~~Operations For the Three Months Ended November 30, 2007

Portola Packaging, Inc. and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements (Continued) (in thousands, except share and per share data and percentages)


				Combined			Combined
	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated


Sales	$	32,941		$	35,062		$	8,641		$	(4,046	)	$	72,598
Cost of sales		27,881			32,095			7,353			(3,951	)		63,378

Gross profit		5,060			2,967			1,288			(95	)		9,220

Selling, general and administrative		3,924			1,443			707			(95	)		5,979
Research and development		765			311			—			—			1,076
Loss on sale of property, plant and equipment		—			48			—			—			48
Amortization of intangibles		136			1			—			—			137
Restructuring costs		(2	)		12			—			—			10

Income from operations		237			1,152			581			—			1,970

Interest income		—			(11	)		(3	)		—			(14	)
Interest expense		4,587			46			—			—			4,633
Amortization of debt financing costs		418			—			—			—			418
Foreign currency transaction gain		(495	)		(1,267	)		(6	)		—			(1,768	)
Inter-company interest (income) expense		(1,351	)		1,136			212			3			—
Other (income) expense, including (income) expense from equity investments, net		(412	)		5			—			402			(5	)


(Loss) income before income taxes		(2,510	)		1,243			378			(405	)		(1,294	)

Income tax expense		83			1,110			106			—			1,299


Net (loss) income	$	(2,593	)	$	133		$	272		$	(405	)	$	(2,593	)

~~12. Commitments and Contingencies:~~17

~~Legal:~~Portola Packaging, Inc. and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements (Continued) (in thousands, except share data and percentages)

~~The~~Supplemental ~~Company~~Condensed isConsolidated ~~currently~~Statements ~~a defendant in a suit filed by Blackhawk Molding Co., Inc. on August 28, 2003 in the U.S. District Court for the Northern District~~ of ~~Illinois, Eastern Division.~~Operations ~~Blackhawk~~For ~~Molding alleges that a “single-stick” label attached to~~ the ~~Company’s~~Three ~~five–gallon~~Months ~~caps~~Ended causes the Company’s caps to infringe a patent held by it and is seeking damages. The Company has answered the complaint denying all allegations and asserting that its product does not infringe the Blackhawk patent and that the patent is invalid. The Court has completed the first phase of claim construction. Fact and expert witness discovery has substantially been completed. Pre-trial proceedingsNovember 30, ~~including hearings on various motions for summary judgment brought by both parties,~~2006 ~~and the trial are not scheduled at this time. The ultimate outcome of this action or any~~ litigation is uncertain. An unfavorable outcome in this action could result in the Company sustaining material damages. In addition, any litigation concerning intellectual property could be protracted and costly and could have a material adverse effect on the Company’s business and results of operations regardless of its outcome.

In the normal course of business, except for the Blackhawk litigation mentioned above, the Company is subject to various legal proceedings and claims. Based on the facts currently available, management believes that the ultimate amount of liability beyond reserves provided, if any, for any such pending actions will not have a material adverse effect on the Company’s financial position.


				Combined			Combined
	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated


Sales	$	30,348		$	33,507		$	6,986		$	(3,437	)	$	67,404
Cost of sales		24,705			30,475			5,197			(3,248	)		57,129

Gross profit		5,643			3,032			1,789			(189	)		10,275

Selling, general and administrative		3,691			1,582			635			(189	)		5,719
Research and development		689			338			—			—			1,027
Gain on sale of property, plant and equipment		—			(2	)		—			—			(2	)
Amortization of intangibles		173			1			—			—			174
Restructuring costs		67			22			—			—			89

Income from operations		1,023			1,091			1,154			—			3,268

Interest income		(21	)		(11	)		(1	)		—			(33	)
Interest expense		4,399			42			—			—			4,441
Amortization of debt financing costs		413			—			—			—			413
Foreign currency transaction (gain) loss		(269	)		194			(29	)		—			(104	)
Inter-company interest (income) expense		(1,307	)		1,174			133			—			—
Other (income) expense, including (income) expense from equity investments, net		(207	)		(70	)		—			198			(79	)


(Loss) income before income taxes		(1,985	)		(238	)		1,051			(198	)		(1,370	)

Income tax expense		84			524			91			—			699


Net (loss) income	$	(2,069	)	$	(762	)	$	960		$	(198	)	$	(2,069	)

~~Commitments and Contingencies:~~18

~~The~~Portola ~~Company issued a letter of credit in October 1999~~Packaging, ~~expiring~~Inc. inand ~~December 2010, that~~Subsidiaries ~~guarantees~~Notes ~~$437 of a loan related~~ to ~~the~~Unaudited ~~purchase~~Condensed ofConsolidated ~~machinery~~Financial ~~for~~Statements ~~Capsnap Europe Packaging GmbH’s~~ (~~“CSE”~~Continued) ~~50% owned Turkish joint venture, Watertek. CSE is an unconsolidated, 50% owned Austrian~~ ~~joint venture that sells five-gallon water bottles and closures that are produced primarily by the Company’s United Kingdom operating subsidiary and the Company’s joint venture partner~~ (in ~~CSE. The Company also extended the expiration date of a letter of credit in February 2004~~thousands, ~~that~~except ~~now~~share ~~expires February 2007,~~data and ~~that guarantees a loan of $352 for the purchase of machinery by CSE. These~~percentages) ~~guarantee agreements are in Eurodollars and were valued using a conversion rate as of May 31, 2005.~~

InSupplemental ~~November 2000,~~Condensed ~~the~~Consolidated ~~Company’s~~Statements Mexican consolidated subsidiary entered into a ten-year lease for a building in Guadalajara, Mexico commencing in May 2001, at which time the Company guaranteed approximately $595 in future lease payments relating to the lease. The Company’s Mexican operations relocated to the new building during May 2001. In April 2004, the Company amended the lease of ~~its~~Cash ~~Mexican building to allow for construction of a 20,000 square foot expansion to its~~Flows ~~existing~~For ~~facilities. Construction of this expansion began in~~ the ~~third~~Three ~~quarter~~Months ~~of fiscal 2004 and~~Ended ~~was completed in September~~November ~~2004~~30, ~~at which time the ten-year amended lease became effective. At the~~2007 ~~time the expansion was completed, the Company guaranteed approximately $200 in additional future~~ ~~lease payments related to the amended lease.~~


				Combined			Combined
	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations		Consolidated


Cash flow (used in) provided by operations	$	(1,282	)	$	628		$	1,561		$	—	$	907


Additions to property, plant and equipment		(2,111	)		(1,362	)		(509	)		—		(3,982	)
Proceeds from the sale of property, plant and equipment		—			22			—			—		22
Increase (decrease) in other assets, net		2			—			(1	)		—		1

Net cash used in investing activities		(2,109	)		(1,340	)		(510	)		—		(3,959	)


Borrowings under revolver		5,673			—			—			—		5,673
Repayments under revolver		(2,500	)		—			—			—		(2,500	)
Other		12			—			—			—		12

Net cash provided by financing activities		3,185			—			—			—		3,185


Effect of exchange rate changes on cash		—			51			147			—		198

(Decrease) increase in cash		(206	)		(661	)		1,198			—		331

Cash and cash equivalents at beginning of period		887			1,796			514			—		3,197

Cash and cash equivalents at end of period	$	681		$	1,135		$	1,712		$	—	$	3,528

~~Table of Contents~~19

Portola Packaging, Inc. and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements (Continued) (in thousands, except share ~~and per share~~ data and percentages)

~~The~~Supplemental ~~future~~Condensed ~~minimum~~Consolidated ~~rental~~Statements ~~commitments~~of ~~under~~Cash ~~agreements~~Flows For ~~with~~the ~~terms~~Three inMonths ~~excess of twelve months were~~Ended asNovember 30, ~~follows:~~2006

Fiscal years ending August 31,
				Combined			Combined
2005	$	4,892
	Parent			Guarantor			Non-Guarantor
2006		3,280
	Company			Subsidiaries			Subsidiaries			Eliminations		Consolidated
2007		3,001
Cash flow provided by operations	$	1,261		$	991		$	685		$	—	$	2,937
2008		2,848
Additions to property, plant and equipment		(1,420	)		(1,403	)		(350	)		—		(3,173	)
2009		2,765
Proceeds from the sale of property, plant and equipment		—			5			—			—		5
Thereafter		18,822
(Increase) decrease in other assets, net		(233	)		126			(71	)		—		(178	)
	$	35,608
Net cash used in investing activities		(1,653	)		(1,272	)		(421	)		—		(3,346	)
Borrowings under revolver		6,030			—			—			—		6,030
Repayments under revolver		(5,500	)		—			—			—		(5,500	)
Repayments on other long-term obligations		(1	)		—			(8	)		—		(9	)
Payment on debt issuance costs		(125	)		—			—			—		(125	)
Other		—			281			—			—		281
Net cash provided by (used in) financing activities		404			281			(8	)		—		677
Effect of exchange rate changes on cash		—			6			15			—		21
Increase in cash		12			6			271			—		289
Cash and cash equivalents at beginning of period		727			1,270			552			—		2,549
Cash and cash equivalents at end of period	$	739		$	1,276		$	823		$	—	$	2,838

13. ~~Supplemental~~Income ~~Condensed Consolidated Financial Statements~~taxes:

OnIncome ~~January 23,~~tax ~~2004,~~expense the Company completed the offering of $180,000 in aggregate principal amount of 8 1/4% Senior Notes due 2012. The majority of the net proceeds of such offering were used to redeem all of the previously outstanding $110,000 in aggregate principal amount of 10 3/4% Senior Notes. In the fourth quarter of fiscal 2004, the Company exchanged the outstanding Senior Notes for ~~registered exchange notes having substantially~~ the ~~same~~three ~~terms.~~months ~~The~~ended exchange notes have the following guarantors, all of which are wholly owned subsidiaries of the Company and have provided guarantees that are full and unconditional and for which they are jointly and severally liable: Allied Tool; Portola Limited; Portola Packaging, Inc. Mexico, S.A. de C.V.; Portola Packaging Canada Ltd.; Portola Packaging Limited; and Portola Tech International. The parent company was the issuer of the Senior Notes. In Post-Effective Amendment No.November ~~1 to the Company’s registration statement on Form S-1 filed on December~~ 30, ~~2004,~~2007 ~~the~~and ~~Company~~2006 ~~supplied~~consisted ~~financial information as~~ of ~~August 31,~~ ~~2004 for~~ the ~~above guarantor subsidiaries. The tables below updates the information~~ ~~from the Amended Form S-1 as of May 31, 2005 and for the three and nine months ended May 31, 2005 and 2004~~following:


	For the Three
	Months Ended
	November 30,		November 30,
	2007		2006

Current:
Federal	$	—	$	—
State		—		—
Foreign		1,120		588

		1,120		588

Deferred		179		111

	$	1,299	$	699

~~Table of Contents~~20

Portola Packaging, Inc. and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements (Continued) (in thousands, except share ~~and per share~~ data and percentages)

~~Supplemental~~ Income tax expense reported in the accompanying Condensed Consolidated ~~Balance~~Statements ~~Sheet~~of Operations is primarily the result of taxable earnings generated in the Company’s Canada and China operations. The effective tax rate differs from the statutory tax rate primarily as a result of the benefit of taxable losses being offset by increases in the valuation allowance. The Company has provided valuation allowances of $30,109 and $29,446 against deferred tax assets as of November 30, 2007 and August 31, 2007, respectively, to reduce net deferred tax assets to the amounts expected to be realized. The increase in the valuation allowances is primarily related to increases in net operating losses in certain of the Company’s taxable jurisdictions.

~~May~~ As the Company was implementing FIN 48 for the first quarter of fiscal 2008 ended November 30, 2007, the Company’s management evaluated a potential income tax matter arising under its senior secured credit facility that had been entered into by the Company and its subsidiaries. The Company evaluated whether under Section 956 of the Internal Revenue Code, pledging assets of its foreign subsidiaries for the Company’s domestic borrowings from August 31, 2000 through August 31, ~~2005~~2007 could result in U.S. taxable income. As a result of this review, management of the Company determined that U.S. taxable income from August 31, 2000 through August 31, 2007 was understated by $37,352. The Company plans to make the necessary corrections when filing their August 31, 2007 U.S. tax return. Such corrections will not result in any additional tax due because each affected year had available other losses to reduce the aggregate taxable income to below zero. In footnote 12 of the Company’s financial statements included in its 2007 10-K filed with the SEC, the Company had disclosed that it had approximately $83,432 in net operating loss carry forwards and a full valuation allowance. As a result of the Section 956 taxable income, the Company’s revised net operating loss carry forward at August 31, 2007 is approximately $46,080 and at November 30, 2007 is approximately $48,770. However, these reductions were fully offset by reduction in the recorded valuation allowance and, as such, no resulting income statement or balance sheet adjustments are required. The Company will amend its historical disclosure of net operation loss carry forwards and valuation allowance in its future filings. The valuation allowance disclosures in the previous paragraph have been resolved for this matter.

							Combined
				Combined			Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	788		$	4,466		$	624		$	—		$	5,878
Accounts receivable, net		11,896			19,693			5,496			(3,551	)		33,534
Inventories		5,094			11,986			2,601			—			19,681
Other current assets		3,089			2,317			1,190			—			6,596
Total current assets		20,867			38,462			9,911			(3,551	)		65,689
Property, plant and equipment, net		36,982			33,533			4,859			(16	)		75,358
Goodwill		5,917			13,841			—			—			19,758
Debt issuance costs		8,702			5			—			—			8,707
Trademarks		—			5,000			—			—			5,000
Customer relationships, net		—			2,379			—			—			2,379
Investment in subsidiaries		18,257			13,563			896			70			32,786
Common stock of subsidiaries		(1,267	)		(25,842	)		(4,457	)		—			(31,566	)
Other assets		3,833			691			48			(2	)		4,570
Total assets	$	93,291		$	81,632		$	11,257		$	(3,499	)	$	182,681
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	5,548		$	14,492		$	4,546		$	(3,551	)	$	21,035
Intercompany (receivable) payable		(71,394	)		61,100			10,294			—			—
Other current liabilities		9,916			4,150			895			472			15,433
Total current liabilities		(55,930	)		79,742			15,735			(3,079	)		36,468
Long-term debt, less current portion		200,681			—			91			—			200,772
Other long-term obligations		3,556			(251	)		(826	)		—			2,479
Total liabilities		148,307			79,491			15,000			(3,079	)		239,719
Other equity (deficit)		7,343			(181	)		(870	)		(1,475	)		4,817
Accumulated equity (deficit)		(62,359	)		2,322			(2,873	)		1,055			(61,855	)
Total shareholders’ equity (deficit)		(55,016	)		2,141			(3,743	)		(420	)		(57,038	)
Total liabilities and shareholders’ equity (deficit)	$	93,291		$	81,632		$	11,257		$	(3,499	)	$	182,681

14.

Related party transactions:

18 The Company engages in certain related party transactions throughout the course of its business. Related party sales of $1,437 and $1,096 for the three months ended November 30, 2007 and 2006, respectively, consisted primarily of closures produced by the Company’s U.K. operations that were sold to the Company’s joint venture, CSE. There have been no other significant additional related party transactions from those disclosed in “Item 13. — Certain Relationships and Related Transactions” and Note 14 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended August 31, 2007.

~~Table~~15. ofSubsequent ~~Contents~~Events:

~~Portola~~ On ~~Packaging~~December 19, ~~Inc.~~2007 ~~and~~the ~~Subsidiaries Notes~~Company tosold ~~Unaudited~~its ~~Condensed~~50% ~~Consolidated~~ownership ~~Financial~~of ~~Statements~~Capsnap ~~(Continued)~~Europe Packaging GmbH for ~~(in~~445 ~~thousands,~~Euros. ~~except~~The ~~share~~Company ~~and~~also ~~per~~entered ~~share~~into ~~data~~a continuing distribution and ~~percentages)~~licensing agreements.

~~Supplemental~~ On ~~Condensed~~December 28, ~~Consolidated~~2007 ~~Balance~~the ~~Sheet August~~Company purchased 1,875 Class 31A Units of Leonard S. Slaughter and Associates, ~~2004~~LLC, a distributor for the Company, for $250. ~~(restated)~~

							Combined
				Combined			Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	7,955		$	2,708		$	1,586		$	—		$	12,249
Accounts receivable, net		18,254			17,928			1,655			(6,614	)		31,223
Inventories		6,522			10,160			1,175			—			17,857
Other current assets		3,579			2,037			694			—			6,310
Total current assets		36,310			32,833			5,110			(6,614	)		67,639
Property, plant and equipment, net		38,777			35,971			3,775			—			78,523
Goodwill		5,917			13,907			—			—			19,824
Debt issuance costs		9,728			20			—			—			9,748
Trademarks		—			5,000			—			—			5,000
Customer relationships, net		—			2,477			—			—			2,477
Investment in subsidiaries		18,772			13,514			1,069			70			33,425
Common stock of subsidiaries		(1,267	)		(26,312	)		(4,457	)		—			(32,036	)
Other assets		3,935			675			(128	)		—			4,482
Total assets	$	112,172		$	78,085		$	5,369		$	(6,544	)	$	189,082
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	12,617		$	15,355		$	910		$	(6,614	)	$	22,268
Intercompany (receivable) payable		(65,599	)		59,118			6,481			—			—
Other current liabilities		6,834			4,380			784			494			12,492
Total current liabilities		(46,148	)		78,853			8,175			(6,120	)		34,760
Long-term debt, less current portion		199,359			—			43			—			199,402
Other long-term obligations		2,433			4			(646	)		—			1,791
Total liabilities		155,644			78,857			7,572			(6,120	)		235,953
Other equity (deficit)		6,604			(242	)		10			(1,474	)		4,898
Accumulated equity (deficit)		(50,076	)		(530	)		(2,213	)		1,050			(51,769	)
Total shareholders’ equity (deficit)		(43,472	)		(772	)		(2,203	)		(424	)		(46,871	)
Total liabilities and shareholders’ equity (deficit)	$	112,172		$	78,085		$	5,369		$	(6,544	)	$	189,082

19ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~Table~~ In addition to historical information, this report includes “forward-looking statements” within the meaning of ~~Contents~~Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in this Form 10-Q, including, without limitation, statements related to the impact of the final disposition of legal matters in the “Commitments and Contingencies” footnote to the unaudited condensed consolidated financial statements, anticipated cash flow sources and uses under “Liquidity and Capital Resources” and other statements contained in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section regarding our critical accounting policies and estimates, financial position, business strategy, plans and objectives of our management for future operations, and industry conditions, are forward-looking statements. In addition, certain statements, including, without limitation, statements containing the words “believes,” “anticipates,” “estimates,” “expects,” “plans,” and words of similar import, constitute forward-looking statements. Readers are referred to sections of this Report entitled “Risk Factors,” “Critical Accounting Policies and Estimates,” and “Quantitative and Qualitative Disclosures About Market Risk.” Although we believe that the expectations reflected in any such forward-looking statements are reasonable, we cannot assure you that such expectations will prove to be correct. Any forward-looking statements herein are subject to certain risks and uncertainties in our business, including, but not limited to, competition in our markets and reliance on key customers, all of which may be beyond our control. Any one or more of these factors could cause actual results to differ materially from those expressed in any forward-looking statement. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in this paragraph, elsewhere in this Report and in other documents we file from time to time with the Securities and Exchange Commission.

~~Portola Packaging, Inc. and Subsidiaries~~Overview ~~Notes to Unaudited Condensed Consolidated Financial Statements (Continued) (in thousands, except share and per share data and percentages)~~

~~Supplemental~~ We ~~Condensed~~are ~~Consolidated~~a ~~Statements~~leading designer, manufacturer and marketer of ~~Operations~~plastic closures and bottles and ~~For~~related equipment used for packaging applications in the ~~Three~~non-~~Month~~carbonated ~~Period~~beverage ~~Ended~~and institutional ~~May 31~~foods market. We also design, ~~2005~~manufacture and sell closures and containers for the cosmetics, fragrance and toiletries (“CFT”) market. Our products provide our customers with a number of value-added benefits, such as the ability to increase the security and safety of their products by making them tamper evident and substantially leak-proof.

				Combined			Combined
	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Sales	$	31,354		$	36,978		$	6,738		$	(4,537	)	$	70,533
Cost of sales		24,664			31,278			5,533			(4,151	)		57,324
Gross profit		6,690			5,700			1,205			(386	)		13,209
Selling, general and administrative.		4,856			1,947			1,173			(387	)		7,589
Research and development		528			441			—			—			969
Loss (gain) on sale of property, plant and equipment		56			(27	)		—			16			45
Amortization of intangibles		173			72			—			—			245
Restructuring costs		899			321			292			—			1,512
Income (loss) from operations		178			2,946			(260	)		(15	)		2,849
Interest income		—			(6	)		—			—			(6	)
Interest expense		4,144			19			32			—			4,195
Amortization of debt financing costs		391			5			—			—			396
Foreign currency transaction loss (gain)		705			363			(13	)		—			1,055
Intercompany interest (income) expense		(1,049	)		932			117			—			—
Other (income) expense, net		(207	)		124			(48	)		(2	)		(133	)
(Loss) income before income taxes		(3,806	)		1,509			(348	)		(13	)		(2,658	)
Income tax expense (benefit)		166			457			(125	)		—			498
Net (loss) income	$	(3,972	)	$	1,052		$	(223	)	$	(13	)	$	(3,156	)

Critical accounting policies and estimates

20 General. The unaudited condensed consolidated financial statements and notes to the unaudited condensed consolidated financial statements contain information that is pertinent to “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment based on various assumptions and other factors such as historical experience, current and expected economic conditions and, in some cases, actuarial techniques. We constantly re—evaluate these factors and make adjustments where facts and circumstances dictate. We believe that the following accounting policies are critical due to the degree of estimation required.

~~Table~~ Allowance for doubtful accounts. We provide credit to our customers in the normal course of business, ~~Contents~~perform ongoing credit evaluations of our customers and maintain reserves for potential

~~Portola Packaging, Inc. and Subsidiaries~~22 ~~Notes to Unaudited Condensed Consolidated Financial Statements (Continued) (in thousands, except share and per share data and percentages)~~

~~Supplemental~~credit ~~Condensed~~losses. ~~Consolidated~~The ~~Statements~~allowance for doubtful accounts related to trade receivables is determined based on two methods. The amounts calculated from each of ~~Operations~~these methods are combined to determine the ~~For~~total amount reserved. First, an evaluation of specific accounts is conducted when information is available indicating that a customer may not be able to meet its financial obligations. Judgments are made in these specific cases based on available facts and circumstances, and a specific reserve for that customer may be recorded to reduce the ~~Three-Month~~receivable ~~Period~~to ~~Ended~~the amount that is expected to be ~~May 31~~collected. These specific reserves are re—evaluated and adjusted as additional information is received that impacts the amount reserved. Second, ~~2004~~a general reserve is established for all ~~(restated)~~customers based on historical collection and write—off experience. The collectibility of trade receivables could be significantly reduced if default rates are greater than expected or if an unexpected material adverse change occurs in a major customer’s ability to meet its financial obligations. The allowance for doubtful accounts totaled approximately $1.2 million and $1.1 million as of November 30, 2007 and August 31, 2007, respectively.

							Combined
				Combined			Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Sales	$	30,492		$	32,995		$	2,282		$	(3,488	)	$	62,281
Cost of sales		25,431			26,865			1,563			(3,077	)		50,782
Gross profit		5,061			6,130			719			(411	)		11,499
Selling, general and administrative		5,223			1,997			823			(411	)		7,632
Research and development		1,252			446			27			—			1,725
Gain from sale of property, plant and equipment		(1,029	)		—			—			—			(1,029	)
Amortization of intangibles		246			85			—			(13	)		318
Restructuring costs		1,415			209			—			—			1,624
(Loss) income from operations		(2,046	)		3,393			(131	)		13			1,229
Interest income		(112	)		(2	)		(1	)		—			(115	)
Interest expense		4,215			17			—			—			4,232
Amortization of debt financing costs		464			5			—			—			469
Foreign currency transaction loss		297			396			1			—			694
Intercompany interest (income) expense		(930	)		885			45			—			—
Other (income) expense, net		(134	)		135			(158	)		(1	)		(158	)
Loss before income taxes		(5,846	)		1,957			(18	)		14			(3,893	)
Income tax expense		280			362			—			—			642
Net (loss) income	$	(6,126	)	$	1,595		$	(18	)	$	14		$	(4,535	)

Revenue recognition. The Company recognizes revenue upon shipment of our products when persuasive evidence of an arrangement exists with fixed pricing and collectibility is reasonably assured. Our general conditions of sale explicitly state that the delivery of our products is F.O.B. shipping point and that title and all risks of loss and damages pass to the buyer upon delivery of the sold products to the common carrier. The Company has one CFT customer who receives shipments of goods under a consignment arrangement. Revenue for the customer is recognized upon consumption by the customer. All shipping and handling fees billed to customers are classified as revenue and the corresponding costs are recognized in cost of goods sold.

21 Inventory valuation. Cap and bottle related inventories are stated at the lower of cost (first—in, first—out method) or market and equipment related inventories are stated at the lower of cost (average cost method) or market. We record reserves against the value of inventory based upon ongoing changes in technology and customer needs. These reserves are estimates, which could vary significantly, either favorably or unfavorably, from actual requirements if future economic conditions, customer inventory levels or competitive conditions differ from our expectations. The inventory reserve accounts totaled approximately $1.2 million and $1.6 million as of November 30, 2007 and August 31, 2007, respectively.

~~Table~~ Impairment of ~~Contents~~assets. We periodically evaluate our property, plant and equipment, and other intangible assets for potential impairment. Management’s judgment regarding the existence of impairment indicators are based on market conditions and operational performance of the business. Future events could cause management to conclude that impairment indicators exist and that property, plant and equipment and other intangible assets may be impaired. Any resulting impairment loss could have a material adverse impact on our results of operations and financial condition. Based on the Company’s review of impairment for fiscal 2007, the management of the company determined that the fixed assets of PTI were impaired as a result of deteriorating operating performance. For fiscal 2007 the Company recorded an impairment loss of $1.6 million. No significant impairment loss was recognized during the three months ended November 30, 2007 and 2006, respectively.

~~Portola~~ Impairment ~~Packaging,~~of ~~Inc.~~goodwill and ~~Subsidiaries~~non amortizing assets. At August 31, 2007, we measured goodwill by ~~Notes~~operating tounit ~~Unaudited~~and ~~Condensed~~reviewed ~~Consolidated~~for ~~Financial~~impairment ~~Statements~~by ~~(Continued)~~utilizing the EBITDA multiplier methodology for ~~(in~~United ~~thousands,~~States ~~except~~— ~~share~~Closures and ~~per~~Corporate, ~~share~~Canada, ~~data~~Mexico and ~~percentages)~~the United Kingdom. Based on our reviews, we did not record an impairment loss for fiscal 2007. The impairment test for the non-amortizable intangible assets other than goodwill consisted of a comparison of the estimated fair value with carrying amounts. The value of the trademark and tradename was measured using the relief-from-royalty method. The Company tests these assets annually as of August 31 or more frequently if events or changes in circumstances indicate that the assets might be impaired.

~~Supplemental Condensed Consolidated Statements of Operations~~23 ~~For the Nine-Month Period Ended May 31, 2005~~

							Combined
				Combined			Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Sales	$	86,906		$	104,874		$	15,913		$	(11,284	)	$	196,409
Cost of sales		71,026			90,248			14,078			(10,160	)		165,192
Gross profit		15,880			14,626			1,835			(1,124	)		31,217
Selling, general and administrative		14,071			5,764			3,026			(1,124	)		21,737
Research and development		1,708			1,174			18			—			2,900
Loss (gain) on sale of property, plant and equipment		56			(15	)		—			16			57
Amortization of intangibles		532			215			—			—			747
Restructuring costs		1,038			539			301			—			1,878
(Loss) income from operations		(1,525	)		6,949			(1,510	)		(16	)		3,898
Interest income		(16	)		(12	)		(1	)		—			(29	)
Interest expense		12,201			50			79			—			12,330
Amortization of debt financing costs		1,187			16			—			—			1,203
Foreign currency transaction gain		(461	)		(908	)		(3	)		—			(1,372	)
Intercompany interest (income) expense		(3,038	)		2,772			266			—			—
Other (income) expense, net		(416	)		262			(17	)		(21	)		(192	)
(Loss) income before income taxes		(10,982	)		4,769			(1,834	)		5			(8,042	)
Income tax expense (benefit)		250			1,913			(125	)		—			2,038
Net (loss) income	$	(11,232	)	$	2,856		$	(1,709	)	$	5		$	(10,080	)

Income taxes. We estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the unaudited condensed consolidated balance sheets. We then assess the likelihood that the deferred tax assets will be recovered from future taxable income and, to the extent recovery is not likely, a valuation allowance is established. When an increase in this allowance within a period is recorded, we include an expense in the tax provision in the unaudited condensed consolidated statement of operations. Management’s judgment is required in determining the provision (benefit) for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against the net deferred tax assets. Although realization is not assured, management believes that the deferred tax assets will be realized before expiration through the recognition of future taxable income, except where a valuation allowance has been provided. While the deferred tax assets for which valuation allowances have not been provided are considered realizable, actual amounts could be reduced if future taxable income is not achieved. We have provided valuation allowances of $30.1 million and $29.4 million against net deferred tax assets as of November 30, 2007 and August 31, 2007, respectively. For additional information regarding the change in the valuation allowance, see Note 13 of the Notes to Unaudited Condensed Consolidated Financial Statements.

22 Foreign currency translation. Our foreign subsidiaries use the local currency as their functional currency. Assets and liabilities are translated at quarter-end exchange rates. Income and expense items are translated at average exchange rates for the relevant period. Translation gains and losses are not included in determining net income (loss) but are accumulated as a separate component of shareholders’ equity (deficit). Gains (losses) arising from foreign currency transactions and the revaluation of certain intercompany debt are included in determining net income (loss).

~~Table~~Results of ~~Contents~~operations

~~Portola~~Three ~~Packaging,~~months ~~Inc.~~ended ~~and~~November 30, ~~Subsidiaries Notes~~2007 compared to ~~Unaudited~~the ~~Condensed~~three ~~Consolidated~~months ~~Financial~~ended ~~Statements (Continued) (in thousands~~November 30, ~~except share and per share data and percentages)~~2006

~~Supplemental~~ Sales. ~~Condensed~~Sales ~~Consolidated~~increased ~~Statements~~$5.2 million to $72.6 million for the first quarter of ~~Operations~~fiscal 2008 ~~For~~compared to $67.4 million for the ~~Nine-Month~~first ~~Period~~quarter ~~Ended~~of fiscal 2007. Sales at our China operations ~~May~~increased $2.2 31million primarily due to increased sales volume of cosmetics products and push pull closures. Sales at our Canada operations increased $1.2 million primarily due to higher bottle and closure volume and foreign exchange rate. Sales at PTI increased $0.4 million due to a favorable change in product mix and higher jar volume. Sales in US Closures increased $2.0 million due primarily to higher 38mm, ~~2004~~5 ~~(restated)~~gallon and fitment closure volume. United Kingdom sales increased $0.2 million due to a favorable change in product mix. Offsetting these increases were decreased sales at our Mexico operations of $0.3 million due to an unfavorable change in product mix due to the decrease in sales volume of 5 gallon closures. Czech sales decreased $0.7 million due to a decrease in cosmetic closure sales resulting from a reduction in volume from one of our largest customers. US Closure and Canada also experienced higher sales dollars due to increased resin related average selling price.

							Combined
				Combined			Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Sales	$	89,407		$	89,696		$	6,346		$	(9,121	)	$	176,328
Cost of sales		74,400			75,483			4,051			(7,674	)		146,260
Gross profit		15,007			14,213			2,295			(1,447	)		30,068
Selling, general and administrative		16,242			6,042			2,459			(1,447	)		23,296
Research and development		3,405			1,172			74			—			4,651
Gain from sale of property, plant and equipment		(1,024	)		—			—			—			(1,024	)
Amortization of intangibles		738			215			—			(13	)		940
Restructuring costs		3,047			443			—			—			3,490
(Loss) income from operations		(7,401	)		6,341			(238	)		13			(1,285	)
Interest income		(134	)		(8	)		3			—			(139	)
Interest expense		11,611			29			2			—			11,642
Warrant interest income		(57	)		—			—			—			(57	)
Amortization of debt financing costs		2,014			15			—			—			2,029
Loss on warrant redemption		1,867			—			—			—			1,867
Foreign currency transaction (gain) loss		(1,958	)		395			2			—			(1,561	)
Intercompany interest (income) expense		(2,552	)		2,452			100			—			—
Other (income) expense, net		(230	)		237			(155	)		26			(122	)
(Loss) income before income taxes		(17,962	)		3,221			(190	)		(13	)		(14,944	)
Income tax (benefit) expense		(415	)		1,799			—			—			1,384
Net (loss) income	$	(17,547	)	$	1,422		$	(190	)	$	(13	)	$	(16,328	)

Gross profit. Gross profit decreased $1.1 million to $9.2 million for the first quarter of fiscal 2008 compared to $10.3 million for the first quarter of fiscal 2007. The decrease in gross profit was due primarily to the lower gross profits at US Closures of $0.7 million resulting from higher resin costs and increased freight, utilities and repair and maintenance costs. Also contributing to lower gross margins was increased resin costs in Mexico coupled with higher labor and utility costs. Czech gross margin was lower by $0.3 million due to a decrease in cosmetic closure sales volume. The increase in resin at our United Kingdom facility lowered gross margin slightly for that segment. Partially offsetting these lower margins were increased margins in China due to higher sales volume. Canada gross margin also increased quarter over quarter mainly due to increased sales volume. As a percentage of sales, gross profit decreased to 12.7% for the first quarter of fiscal 2008 from 15.2% for the same quarter of fiscal 2007.

2324

~~Table~~ For the three months ended November 30, 2007, direct materials, labor and overhead costs represented 50.1%, 15.5% and 21.6% of ~~Contents~~sales, respectively, compared to 48.9%, 15.1% and 20.7%, respectively, for the three months ended November 30, 2006.

~~Portola Packaging~~ Selling, ~~Inc~~general and administrative expenses. Selling, general and ~~Subsidiaries~~administrative expenses ~~Notes~~increased $0.3 million to ~~Unaudited~~$6.0 million ~~Condensed~~for ~~Consolidated~~the ~~Financial~~first ~~Statements~~quarter ~~(Continued)~~of fiscal 2008 compared to $5.7 ~~(in~~million ~~thousands,~~for ~~except~~the ~~share~~first quarter of fiscal 2007. Selling costs remained consistent quarter over quarter. General and ~~per~~administrative ~~share~~costs ~~data~~increased $0.3 million due to higher inflationary salary expense and ~~percentages)~~increased bonus and consulting expense. Selling, general and administrative expenses remained relatively stable as a percentage of sales at 8.2% for the first quarter of fiscal 2008 as compared to 8.5% for the same quarter of fiscal 2007.

~~Supplemental~~ Research ~~Condensed~~and ~~Consolidated~~development ~~Statements~~expenses. ofResearch ~~Cash~~and ~~Flows~~development expenses increased $0.1 million ~~For~~to $1.1 million for the ~~Nine-Month~~first ~~Period~~quarter ~~Ended May~~of fiscal 2008 compared to $1.0 ~~31,~~million ~~2005~~for the first quarter of fiscal 2007. The increase is due primarily to additional resources relating to new product development initiatives.

							Combined
				Combined			Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Cash flow (used in) provided by operations	$	(4,610	)	$	4,503		$	363		$	—		$	256
Additions to property, plant and equipment		(3,841	)		(2,189	)		(1,436	)		96			(7,370	)
Other		194			(598	)		12			(96	)		(488	)
Net cash used in investing activities		(3,647	)		(2,787	)		(1,424	)		—			(7,858	)
Borrowings under revolver		23,455			—			—			—			23,455
Repayments under revolver		(22,128	)		—			—			—			(22,128	)
Other		(237	)		—			49			—			(188	)
Net cash provided by financing activities		1,090			—			49			—			1,139
Effect of exchange rate changes on cash		—			42			50			—			92
(Decrease) increase in cash		(7,167	)		1,758			(962	)		—			(6,371	)
Cash and cash equivalents at beginning of period		7,955			2,708			1,586			—			12,249
Cash and cash equivalents at end of period	$	788		$	4,466		$	624		$	—		$	5,878

(Loss)/gain from sale of property, plant and equipment. For the first quarter ended November 30, 2007, there was a loss on sale of equipment of $48,000. For the first quarter ended November 30, 2006 there was minimal activity resulting in a small gain.

24 Amortization of intangibles. Amortization of intangibles (consisting primarily of amortization of patents, technology, licenses, tradenames, covenants not-to-compete and customer relationships) decreased to $0.1 million for the first quarter of fiscal 2008 compared to $0.2 million reported for the first quarter of fiscal 2007.

~~Table~~ Restructuring costs. Restructuring charges decreased to $10,000 for the first quarter of fiscal ~~Contents~~2008 compared to $0.1 million for the first quarter of fiscal 2007. Fiscal year 2007 restructuring charges for the first quarter relate primarily to the Company’s PTI divisions. These restructuring charges related to the elimination of certain personnel in the PTI US plants and relate primarily to employee severance.

~~Portola~~ Income ~~Packaging,~~from ~~Inc~~operations. ~~and~~Reflecting ~~Subsidiaries~~the effect of the factors summarized above, income from ~~Notes~~operations decreased $1.3 million to ~~Unaudited~~$2.0 million ~~Condensed~~for ~~Consolidated~~the ~~Financial~~first ~~Statements~~quarter ~~(Continued)~~of fiscal 2008 compared to ~~(in~~income ~~thousands,~~from ~~except~~operations ~~share~~of ~~and~~$3.3 million ~~per~~for ~~share~~the ~~data~~first ~~and~~quarter ~~percentages)~~of fiscal 2007. Income from operations decreased as a percentage of sales to 2.6% in the first quarter of fiscal 2008 compared to 4.8% in the same period of fiscal 2007.

~~Supplemental~~ Other ~~Condensed~~(income) expense. ~~Consolidated~~Other ~~Statements~~(income) expense ofincludes ~~Cash~~interest ~~Flows~~income, interest expense, ~~For~~amortization ~~the~~of ~~Nine-Month~~debt ~~Period~~financing ~~Ended~~costs, foreign currency transactions, minority interest expense, ~~May~~equity (income) 31loss of unconsolidated affiliates and other expense, ~~2004~~net.

							Combined
				Combined			Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Cash flow (used in) provided by operations	$	(6,038	)	$	7,728		$	1,156		$	—		$	2,846
Additions to property, plant and equipment		(9,120	)		(8,493	)		(1,195	)		1,910			(16,898	)
Payment for Portola Tech International		(35,894	)		—			—			—			(35,894	)
Proceeds from the sale of property, plant and equipment		3,463			8			—			—			3,471
Other		12			(604	)		(31	)		(1,910	)		(2,533	)
Net cash used in investing activities		(41,539	)		(9,089	)		(1,226	)		—			(51,854	)
Borrowings under Senior Notes due 2012		180,000			—			—			—			180,000
Payments of Senior Notes due 2005		(110,000	)		—			—			—			(110,000	)
Payments for warrant redemption		(12,112	)		—			—			—			(12,112	)
Payments of debt issuance costs		(9,300	)		—			—			—			(9,300	)
Borrowings under revolver		111,164			—			—			—			111,164
Repayments under revolver		(104,615	)		—			—			—			(104,615	)
Other		(270	)		—			(107	)		—			(377	)
Net cash provided by (used in) financing activities		54,867			—			(107	)		—			54,760
Effect of exchange rate changes on cash		—			299			20			—			319
Increase (decrease) in cash		7,290			(1,062	)		(157	)		—			6,071
Cash and cash equivalents at beginning of period		496			2,871			925			—			4,292
Cash and cash equivalents at end of period	$	7,786		$	1,809		$	768		$	—		$	10,363

Interest expense increased $0.2 million to $4.6 million for the first quarter of fiscal 2008 compared to $4.4 million for the first quarter of fiscal 2007. The increase is due to a higher outstanding balance on our senior secured credit facility.

14 Amortization of debt issuance costs remained constant at $0.4 million ~~Income~~for ~~Taxes:~~the three months ended November 30, 2007 and 2006. The amortization of debt issuance cost is consistent between periods due to the Company incurring minimal additional cost related to issuance cost.

~~Income~~ We ~~tax~~recognized ~~provision~~a gain of $1.8 million on foreign exchange transactions for the first quarter of fiscal 2008 compared to a gain of $0.1 million for the first quarter of fiscal 2007. The gain on foreign exchange transactions for the three months ended ~~May~~November 3130, ~~2005~~2007 ~~and~~was ~~2004~~due ~~consisted~~primarily ofto the ~~following:~~Canadian dollar performing stronger against the U.S. dollar. In general the gain is due to

	May 31, 2005			May 31, 2004
Current:
Federal	$	—		$	—
State		—			—
Foreign		727			642
Deferred		(229	)		—
	$	498		$	642

~~Income~~the ~~tax~~weak ~~provision~~performance of the US dollar. The gain in foreign exchange transactions for the ~~nine~~three months ended ~~May~~November 3130, ~~2005~~2006 was due primarily to the United Kingdom pound sterling and ~~2004~~the ~~consisted~~Canadian dollar ofperforming stronger against the U.S. dollar. ~~following:~~

	May 31, 2005			May 31, 2004
Current:
Federal	$	—		$	—
State		—			—
Foreign		2,067			1,384
Deferred		(29	)		—
	$	2,038		$	1,384

Income tax expense. The income tax expense for the first quarter of fiscal 2008 was $1.3 million on loss before income taxes of $1.3 million, compared to $0.7 million on loss before income taxes of $1.4 million for the first quarter of fiscal 2007. The income tax expense for first quarter is a result of income generated primarily in Canada, UK and China. Our effective tax rate differs from the U.S. statutory rate principally due to providing a valuation allowance against net deferred tax assets in our domestic jurisdictions as well as our China, Mexico and Czech operations.

25 Net loss. Net loss was $2.6 million for the first quarter of fiscal 2008 compared to a net loss of $2.1 million for the first quarter of fiscal 2007. This increase was due primarily to the decrease in gross margins for the first quarter of fiscal 2008 compared to the same quarter of fiscal 2007.

~~Table~~Liquidity ofand ~~Contents~~capital resources

~~Portola~~ In ~~Packaging~~recent years, ~~Inc.~~we have relied primarily upon cash from operations and ~~Subsidiaries Notes~~borrowings to ~~Unaudited~~finance our ~~Condensed~~operations ~~Consolidated~~and ~~Financial~~fund ~~Statements~~capital ~~(Continued) (in~~expenditures ~~thousands~~and acquisitions. At November 30, ~~except~~2007, ~~share~~we had cash and ~~per~~cash ~~share~~equivalents, ~~data~~including ~~and~~restricted ~~percentages)~~cash, of $3.6 million, an increase of $0.3 million from August 31, 2007.

15 Operating activities. ~~Related~~Cash ~~Party~~provided ~~Transactions:~~by operations totaled $0.9 million for the three months ended November 30, 2007, which represented a $2.0 million decrease from the $2.9 million provided by operations for the three months ended November 30, 2006. The decrease in cash provided by operations is due to a reduction in cash provided by accounts receivables and an increase in inventory. Partially offsetting these reductions was a decrease in cash used for payables. Working capital (current assets less current liabilities) increased by $0.8 million to $34.2 million as of November 30, 2007, compared to $33.4 million as of August 31, 2007.

~~The~~Investing ~~Company engages in certain related party transactions throughout the course of its business~~activities. ~~Related~~Cash ~~party~~used ~~sales~~in ofinvesting ~~$2,586~~activities ~~and~~consist ~~$3,142 for the three months ended May 31, 2005 and 2004, respectively, and $6,297 and $7,728 for the nine months ended May 31, 2005 and 2004, respectively, consisted~~ primarily of ~~closures~~additions ~~produced by the Company’s U.K. operations that were sold~~ to ~~the Company’s joint venture~~ property, ~~CSE.~~plant ~~Related party expenses in selling, general~~ and ~~administrative~~ ~~included $61 and $33 of legal fees and expenses incurred from Tomlinson Zisko LLP~~equipment, ~~$83~~ ~~and~~which ~~$68~~totaled ~~of legal fees and expenses incurred from Themistocles Michos and~~ $~~6 and $~~4.0 million ~~of investment advisory costs incurred from The Breckenridge Group~~ for the three months, ended ~~May~~November 3130, ~~2005 and 2004~~2007, ~~respectively,~~this ~~and~~represented ~~$113~~a ~~and~~ $~~178~~0.7 million ofincrease ~~legal fees and expenses incurred~~ from ~~Tomlinson Zisko~~the ~~LLP,~~ $~~187~~3.3 million ~~and~~cash ~~$183 of legal fees and expenses incurred~~ from ~~Themistocles~~investing ~~Michos and $24 and~~activities ~~$31 of investment advisory costs incurred from The Breckenridge Group~~ for the ~~nine~~three months ended ~~May 31~~November 30, ~~2005 and 2004, respectively~~2006. ~~There~~We ~~have~~are ~~been~~projecting noto ~~other~~spend ~~significant~~approximately ~~additional related party transactions from those disclosed in “Item 13~~$16. ~~– Certain Relationships and Related Transactions”~~5 ~~and~~million ~~Note~~for 16additions ~~of Notes~~ to ~~Consolidated~~property, ~~Financial~~plant ~~Statements~~and ofequipment ~~Amendment No. 2 to the Company’s Annual Report on Form 10-K/A~~ for the fiscal year ended August 31, ~~2004~~2008.

16 Financing activities. ~~Subsequent~~At ~~Events~~November 30, :2007, we had total indebtedness of $222.8 million, $180.0 million of which was attributable to the Senior Notes. The remaining indebtedness of $42.8 million was attributable to our senior secured credit facility.

On ~~June~~January 2123, ~~2005~~2004, ~~the~~we ~~Company’s~~completed ~~board~~an offering of ~~directors~~$180.0 million ~~elected~~in ~~Martin~~aggregate ~~Imbler~~principal toamount of beSenior Notes. Interest payments of approximately $7.4 million are due semi-annually on February ~~Chairman~~1 and August 1 of each year. Interest began accruing January 23, 2004, and the ~~Board~~first interest inpayment awas ~~non-executive~~made ~~capacity~~on August 1, 2004. ~~Jack~~The ~~Watts~~indenture under which the senior notes were issued contains covenants and provisions that restrict, ~~former~~among ~~Board~~other ~~Chairman~~things, ~~continues~~our ability to: (i) ~~serve~~incur asadditional aindebtedness ~~member~~or issue preferred stock, (ii) incur liens on our property, (iii) make investments, (iv) enter into guarantees and other contingent obligations, (v) merge or consolidate with or acquire another person or engage in other fundamental changes, (vi) engage in certain sales of ~~the~~assets ~~Board.~~and subsidiary stock, (vii) engage in certain transactions with affiliates, (viii) engage in sale/leaseback transactions, (ix) engage in any business other than a related business, (x) make restricted payments, and (xi) declare or pay dividends.

~~On June 21, 2005 the Company entered into the June 21 Amendment. The June 21 Amendment, which~~26 superseded the April 4 Amendment and the May 2 Amendment and their covenants, revised the credit agreement as follows: (a) the borrowing base calculation is based on the product of trailing 12 month restricted EBITDA and a leverage multiple of 2.5 less any outstanding senior indebtedness, which excludes senior indebtedness evidenced by the Senior Notes and any guaranties thereof and excluding any fees, liabilities or other obligations payable with respect to such senior indebtedness; (b) the Company is required to maintain EBITDA for any 12-month period ending on the last day of each fiscal month, commencing with the fiscal month ending May 31, 2005, of at least $17,500; (c) the Company no longer is required to maintain a borrowing availability amount; and (d) the amount the Company can invest in certain specified subsidiaries was increased from $6,700 to $8,500. The June 21 Amendment also eliminated the fixed charge coverage and senior leverage ratios.

26 Concurrently with the offering of the Senior Notes, we amended our credit agreement by entering into an amended and restated five-year senior revolving credit agreement that provided a secured credit facility of up to $50.0 million, maturing on January 23, 2009. We entered into an amendment to this agreement on May 21, 2004, a limited waiver and second amendment to this credit agreement on November 24, 2004 (the “November 24 Amendment”), a fifth amendment to the senior secured credit facility on April 4, 2005 (the “April 4 Amendment”), a sixth amendment to the senior secured credit facility on May 2, 2005 (the “May 2 Amendment”), a seventh amendment to the senior secured credit facility on June 21, 2005 (the “June 21 Amendment”), an eighth amendment to the senior secured credit facility on June 29, 2006 (the “June 29 Amendment”) and a ninth amendment to the senior secured credit facility on October 19, 2006 (the “October 19 Amendment”). The amended and restated credit agreement contains covenants and provisions that restrict, among other things, our ability to: (i) redeem warrants and repurchase stock, except during the first year, (ii) incur additional indebtedness, (iii) incur liens on our property, (iv) make investments, (v) enter into guarantees and other contingent obligations, (vi) merge or consolidate with or acquire another person or engage in other fundamental changes, or in certain sales of assets, (vii) engage in certain transactions with affiliates, (viii) make restricted junior payments, and (ix) declare or pay dividends. The June 21 Amendment, which superseded the April 4 Amendment and the May 2 Amendment and their covenants, revised the credit agreement as follows: (a) the borrowing base calculation is based on the product of trailing 12 month restricted EBITDA and a leverage multiple of 2.5 less any outstanding senior indebtedness, which excludes senior indebtedness evidenced by the Senior Notes and any guaranties thereof and excluding any fees, liabilities or other obligations payable with respect to such senior indebtedness; (b) we are required to maintain EBITDA for any 12-month period ending on the last day of each fiscal month, commencing with the fiscal month ending May 31, 2005, of at least $17.5 million; (c) we no longer are required to maintain a borrowing availability amount; and (d) the amount we can invest in certain specified subsidiaries was increased from $6.7 million to $8.5 million. The June 21 Amendment also eliminated the fixed charge coverage and senior leverage ratios. The June 29 Amendment allows a maximum of $7.0 million to be added back to EBITDA for the Blackhawk Molding Company Inc. litigation settlement. The October 19 Amendment increased the maximum loan limit under the credit facility from $50.0 million to $60.0 million with the amount in excess of $50.0 million being based on the Company’s working capital/fixed asset borrowing base calculation. It also increased the amount of capital expenditures the Company is able to make each fiscal year from $13.5 million to $16.5 million. An unused fee is payable under the facility based on the total commitment amount less the average daily aggregate amount of outstanding liability, at the rate of 0.50% per annum. In addition, interest payable is based on, at our election, the Bank Prime Loan rate plus 1.50% or the LIBOR Loan rate plus 3.00% determined by a pricing table based on the outstanding credit facility balance. At November 30, 2007, the Bank Prime Loan rate and LIBOR Loan rate were 7.50% and 4.53%, respectively. At November 30, 2007, we had $15.4 million available for borrowings under our credit facility under the borrowing base formula described above.

~~Table~~ Our senior secured credit agreement, as amended, and the indenture governing our Senior Notes contain a number of ~~Contents~~significant restrictions and covenants as discussed above. We were in compliance with these covenants at November 30, 2007 and believe that we will remain in compliance with the covenants throughout fiscal 2008. However, adverse changes in our operating results or other negative developments, such as significant increases in interest rates or in resin prices, severe shortages of resin supply or decreases in sales of our products could result in non-compliance with financial covenants in our senior secured credit agreement. If we violate these covenants and are unable to obtain waivers from our lenders, we would be in default under the indenture and our secured credit agreement, and our lenders could accelerate our obligations thereunder. If our indebtedness is accelerated, we may not be able to repay these debts or borrow sufficient funds to refinance them. Our senior secured credit agreement is due on January 23, 2009. Even if we are able to obtain new financing, it may not be on commercially reasonable terms, or

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~27

Interms ~~addition~~that toare ~~historical~~acceptable ~~information,~~to ~~this report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934~~us. ~~All~~If ~~statements~~our ~~other~~expectations ~~than statements~~ of ~~historical~~future ~~fact included in this Form~~operating ~~10-Q,~~results ~~including,~~are ~~without~~not ~~limitation~~achieved, ~~statements~~or ~~related~~our todebt ~~the~~is ~~impact of the final disposition of legal matters~~ in ~~the~~default ~~“Commitments~~for ~~and~~any ~~Contingencies” footnote to the unaudited condensed consolidated financial statements~~reason, anticipated cash flow sources and uses under “Liquidity and Capital Resources” and other statements contained in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section regarding our ~~critical accounting policies and estimates, financial position,~~ business ~~strategy~~, ~~plans and objectives of our management for future operations~~liquidity, ~~and industry conditions, are forward-looking statements. In addition, certain~~ ~~statements,~~financial ~~including,~~condition ~~without limitation, statements containing the words “believes,” “anticipates,” “estimates,” “expects,” “plans,”~~ and ~~words~~results of ~~similar~~operations ~~import,~~would ~~constitute forward-looking~~be ~~statements.~~materially ~~Readers are referred to sections of this Report entitled “Risk Factors,” “Critical Accounting Policies~~ and ~~Estimates,”~~adversely ~~and “Quantitative and Qualitative Disclosures About Market Risk~~affected.” ~~Although we believe that the expectations reflected in any such~~In ~~forward-looking statements are reasonable~~addition, wecomplying ~~cannot~~with ~~assure~~these ~~you~~covenants ~~that~~may ~~such~~make ~~expectations~~it ~~will~~more ~~prove to~~difficult befor ~~correct.~~us ~~Any forward-looking statements herein are subject~~ to ~~certain~~successfully ~~risks and~~execute ~~uncertainties in~~ our business, ~~including,~~strategy ~~but not limited to, competition in our markets~~ and ~~reliance~~ oncompete ~~key~~against ~~customers,~~companies ~~all~~who ofare ~~which~~not ~~may~~subject ~~be beyond our control. Any one or more of these factors could cause actual results~~ to ~~differ~~such ~~materially from those expressed in any forward-looking statement~~restrictions. ~~We undertake no obligation to revise or publicly release the results of any revision to~~ these forward-looking statements. Readers should carefully review the risk factors described in this paragraph, elsewhere in this Report and in other documents we file from time to time with the Securities and Exchange Commission.

~~Overview~~ We believe that our existing financial resources, together with our current and anticipated results of operations, will be adequate to service our secured and long-term debt, to meet our applicable debt covenants and to fund our other liquidity needs, but, for the reasons stated above, we cannot assure you that this will be the case. In this respect, we note that competitive pressures and costs of raw materials have not been favorable. We expect favorable results from our continuing efforts at reducing costs and implementing manufacturing and organizational efficiencies, we cannot assure you that substantial improvements will occur through the remainder of fiscal 2008 or beyond.

WeContractual ~~are a leading designer, manufacturer and marketer of plastic closures and bottles and~~obligations related equipment used for packaging applications in the non-carbonated beverage and institutional foods market. We also design, manufacture and sell closures and containers for the cosmetics, fragrance and toiletries (“CFT”) market. Our products provide our customers with a number of value-added benefits, such as the ability to increase the security and safety of their products by making them tamper evident and substantially leak-proof.

~~Critical~~ The ~~Accounting~~following ~~Policies~~sets ~~and~~forth ~~Estimates~~our contractual obligations as of November 30, 2007:

General. The unaudited condensed consolidated financial statements and notes to the unaudited condensed consolidated financial statements contain information that is pertinent to “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment based on various assumptions and other factors such as historical experience, current and expected economic conditions and, in some cases, actuarial techniques. We constantly re–evaluate these factors and make adjustments where facts and circumstances dictate. We believe that the following accounting policies are critical due to the degree of estimation required.


	Payments Due by Period
			Less than 1				3 — 5		More than 5
	Total		Year		1 — 3 Years		Years		Years
Contractual obligations:	(dollars in thousands)

Long-term debt, including current portion:

Senior Notes (1)	$	243,113	$	14,850	$	29,700	$	198,563	$	—

Revolver (2)	$	47,327	$	3,221	$	44,106	$	—	$	—

Operating Lease Obligations (3)	$	36,757	$	4,052	$	9,705	$	7,985	$	15,015

Blackhawk Settlement	$	750	$	750	$	—	$	—	$	—


(1)		On January 23, 2004, we completed an offering of $180.0 million in aggregate principal amount of Senior Notes that mature on February 1, 2012 and bear interest at 8¹/4% per annum. Interest payments of approximately $7.4 million are due semi-annually on February 1st and August 1st of each year. Interest began accruing January 23, 2004 and the first interest payment was made August 1, 2004. The indenture governing the Senior Notes contains certain restrictive covenants and provisions. The table above includes an estimate of interest to be paid over the life of the loan.

(2)		Concurrently with the offering of $180.0 million in aggregate principal amount of our 8¹/4% Senior Notes due 2012 on January 23, 2004, we entered into an amended and restated five-year senior revolving credit facility of up to $50.0 million. On October 19, 2006 the Company amended its senior revolving credit facility, this amendment increased the maximum loan limit under the credit facility from $50.0 million to $60.0 million with the amount in excess of $50.0 million being based on the Company’s working capital/fixed asset borrowing base calculation. The Company’s future compliance with the amended covenants is dependent upon the Company achieving its projected operating results in fiscal 2007 and beyond. If the Company does not achieve these projected results and all outstanding borrowings become immediately due and payable, the Company’s liquidity would be negatively affected. The table above includes an estimate of interest to be paid over the life of the loan.

~~Table of Contents~~28

~~Allowance~~(3) ~~for doubtful accounts.~~ We ~~provide~~lease ~~credit~~certain ~~to our customers in the normal course of business~~office, ~~perform~~production ~~ongoing credit evaluations of our customers~~ and ~~maintain~~warehouse ~~reserves~~facilities ~~for potential~~under ~~credit~~operating ~~losses.~~lease ~~The~~agreements ~~allowance~~expiring ~~for~~on ~~doubtful~~various ~~accounts~~dates ~~related~~through ~~to trade receivables is determined based on two methods~~2021. ~~The~~Under ~~amounts~~the ~~calculated~~terms ~~from each~~ of ~~these methods are combined to determine~~ the ~~total~~facilities’ ~~amount reserved. First~~leases, anwe ~~evaluation of specific accounts is conducted when information is available indicating that a customer may not be able to meet its financial obligations. Judgments~~ are ~~made~~responsible infor ~~these~~common ~~specific~~area ~~cases~~maintenance ~~based~~expenses, onwhich ~~available~~include ~~facts~~taxes, ~~and circumstances~~insurance, ~~and~~ arepairs ~~specific reserve for that customer may be recorded to reduce the receivable to the amount that is expected to be collected. These specific reserves are re–evaluated~~ and ~~adjusted~~other ~~as additional~~operating ~~information is received that impacts the amount reserved~~costs. ~~Second,~~Base arent ~~general~~expense ~~reserve is established~~ for ~~all~~fiscal ~~customers~~2008 ~~based on historical collection and write–off experience. The collectibility of trade receivables could be significantly reduced if default rates~~ are ~~greater than~~estimated ~~expected or if an unexpected material adverse change occurs in a major customer’s ability~~ to ~~meet~~ ~~its~~be ~~financial obligations. The allowance for doubtful accounts totaled approximately~~ $15.~~7 million~~5 ~~and $1.2~~ million ~~as of May 31, 2005 and August 31, 2004, respectively~~.

~~Revenue~~Related ~~recognition.~~party ~~We follow Staff Accounting Bulletin 104, “Revenue Recognition,” in~~transactions recognizing revenues within our financial statements. This bulletin requires, among other things, that revenue be recognized only when title has transferred and risk of loss has passed to a customer with the capability to pay, and when we have no significant remaining obligations related to the sale.

~~Inventory~~We ~~valuation.~~engage ~~Cap~~in ~~and~~certain ~~bottle~~ related ~~inventories~~party ~~are~~transactions ~~stated~~throughout at the ~~lower~~course of ~~cost~~our business. ~~(first–in,~~Related ~~first–out~~party ~~method)~~sales orof ~~market~~$1.4 million and ~~equipment~~$1.1 million ~~related~~for ~~inventories~~the ~~are~~three ~~stated~~months atended ~~the~~November 30, ~~lower~~2007 and 2006, respectively, consisted primarily of ~~cost~~ ~~(average~~closures ~~cost~~produced ~~method)~~by orour ~~market~~U.K. Weoperations ~~record~~that ~~reserves~~were sold ~~against~~to ~~the~~our ~~value~~joint ofventure, ~~inventory~~CSE. ~~based~~There ~~upon ongoing~~have ~~changes~~been inno ~~technology~~other ~~and~~significant ~~customer~~additional ~~needs.~~related ~~These~~party transactions ~~reserves~~from ~~are~~those ~~estimates,~~disclosed ~~which~~in ~~could~~“Item 13. ~~vary~~— Certain Relationships and Related Transactions” ~~significantly,~~and ~~either~~Note ~~favorably~~14 orof ~~unfavorably,~~Notes ~~from~~to ~~actual~~Consolidated ~~requirements~~Financial ifStatements ~~future~~in ~~economic conditions,~~our ~~customer~~Annual ~~inventory~~Report ~~levels~~on orForm ~~competitive~~10-K ~~conditions~~for ~~differ~~the year ~~from~~ended ~~our~~August 31, ~~expectations~~2007.

~~Depreciation~~Recent ~~lives.~~accounting ~~We periodically evaluate the depreciable lives of our fixed assets.~~pronouncements Management performed detailed analysis and also researched industry averages concerning the average life of our molds. We concluded that the lives for our molds should be five years based on our findings. As of September 1, 2003, we changed the depreciable lives of our molds from three years to five years.

~~Impairment~~In ofJuly 2006, ~~assets.~~the WeFinancial ~~periodically~~Accounting ~~evaluate~~Standards ~~our~~Board ~~property,~~(“FASB”) ~~plant~~issued ~~and~~FASB ~~equipment,~~Interpretation ~~and other~~No. ~~intangible~~48, ~~assets~~“Accounting for ~~potential~~Uncertainty ~~impairment.~~in ~~Management’s~~Income ~~judgment~~Taxes, ~~regarding~~an ~~the~~interpretation ~~existence~~ of FASB Statement No. 109” (“FIN ~~impairment~~48”). ~~indicators~~FIN ~~are~~48 ~~based~~clarifies onthe ~~market~~accounting ~~conditions~~for ~~and~~uncertainty ~~operational~~in ~~performance~~income oftaxes ~~the~~by ~~business.~~prescribing the ~~Future~~recognition ~~events~~threshold ~~could~~a ~~cause~~tax ~~management~~position is required to ~~conclude~~meet ~~that~~before ~~impairment~~being ~~indicators~~recognized ~~exist~~in ~~and~~the ~~that~~financial ~~property,~~statements. ~~plant~~It ~~and~~also ~~equipment~~provides ~~and~~guidance ~~other~~on ~~intangible~~derecognition, ~~assets~~classification, ~~may~~interest beand ~~impaired. Any resulting impairment~~penalties, ~~loss~~accounting ~~could~~in ~~have~~interim aperiods, ~~material~~disclosure, ~~adverse~~and ~~impact~~transition. onFIN ~~our~~48 ~~results~~is ofeffective ~~operations~~for ~~and~~fiscal ~~financial~~years beginning ~~condition.~~after ~~No impairment~~December 15, ~~loss~~2006 and was ~~recognized~~adopted ~~during~~by the ~~three-~~Company ~~and~~in ~~nine-month~~the ~~periods~~first ~~ended~~quarter ~~May 31,~~of ~~2005 and~~fiscal ~~2004, respectively~~2008.

~~Impairment~~We ofhave ~~goodwill.~~reviewed ~~Effective~~the ~~September 1,~~impact ~~2001,~~of weFIN ~~adopted~~48 ~~SFAS~~on ~~No. 142~~our ~~for~~condensed ~~existing goodwill~~consolidated ~~and~~financial ~~other~~statements ~~identifiable~~and have ~~assets.~~determined ~~During the fourth quarter of fiscal 2004,~~ we ~~measured goodwill~~do bynot ~~operating~~have ~~unit~~material ~~and~~uncertain ~~reviewed~~tax ~~for~~positions ~~impairment~~or byunrecognized ~~utilizing~~tax ~~the~~benefits ~~EBITDA multiplier~~and ~~methodology~~there ~~for~~is ~~United~~no ~~States~~material –impact ~~Closures,~~on ~~Blow~~our ~~Mold~~financial ~~Technologies and Mexico~~position, ~~and~~results ~~used~~of ~~the discounted~~operations or cash flows ~~methodology for United States – CFT~~. ~~Based~~The Company’s onFIN ~~this~~48 ~~review,~~evaluation wewas ~~did~~performed ~~not~~for ~~record an~~the ~~impairment~~tax ~~loss~~years ~~during~~2003 ~~fiscal~~through ~~2004.~~2006, Nowhich ~~event~~are ~~transpired~~the years that ~~would~~remain ~~have~~subject ~~required management~~ to ~~review~~ ~~goodwill~~federal ~~for~~and ~~impairment~~state examinations as of ~~May~~September 311, ~~2005~~2007.

28 In September 2006, the FASB issued SFAS No. 157, “Accounting for Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, and establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States of America, and expands disclosure about fair value measurements. SFAS No. 157 is effective for the Company for financial statements issued subsequent to November 15, 2007. On November 16, 2007 the FASB partially delayed the implementation of SFAS No. 157. The delay pertains to non-financial assets and liabilities being disclosed at fair value, measuring of fair values of liabilities at exit prices and the applicability of disclosure requirements to retirement plan assets. The effective date of these items will be for financial statements issued subsequent to November 15, 2008. The Company is currently evaluating the requirements of SFAS No. 157.

~~Table~~ In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”) SFAS No. 159 permits the measurement of ~~Contents~~certain financial instruments at fair value. Entities may choose to measure eligible items at fair value at specified election dates, reporting unrealized gains and losses on such items at each subsequent reporting period. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the requirements of SFAS No. 159.

~~Income~~In taxes. We estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilitiesDecember 2007, ~~which are included in~~ the ~~unaudited condensed~~FASB ~~consolidated~~issued ~~balance~~SFAS ~~sheet~~No. 141 We(revised ~~then assess the likelihood that the deferred tax assets will be recovered from future taxable income~~2007), ~~and,~~“Business tocombinations” ~~the extent recovery is not likely, a~~(“SFAS ~~valuation allowance is established~~No. When an increase in this allowance within a period is recorded, we include an expense in the tax provision in the unaudited condensed consolidated statement of operations. Management’s judgment is required in determining the provision (benefit) ~~for income taxes~~141R”), deferred tax assets and liabilities and any valuation allowance recorded against the net deferred tax assets. Although realization is not assured, management believes that the deferred tax assets will be realized before expiration through the recognition of future taxable income, except where a valuation allowance has been provided. While the deferred tax assets for which ~~valuation allowances~~replaces ~~have~~SFAS ~~not been provided are considered realizable, actual amounts could be reduced if future taxable income is not achieved~~No. ~~We provided valuation allowances of $49.8~~ ~~million and $16~~141.~~3 million~~ ~~against~~SFAS ~~net deferred tax assets as of May~~No. ~~31,~~141R ~~2005 and August 31, 2004, respectively.~~establishes

~~Foreign currency translation. Our foreign subsidiaries use the local currency as their~~29 functional currency. Assets and liabilities are translated at quarter-end exchange rates. Income and expense items are translated at average exchange rates for the relevant period. Translation gains and losses are not included in determining net income (loss) but are accumulated as a separate component of shareholders’ equity (deficit). Gains (losses) arising from foreign currency transactions and the revaluation of certain intercompany debt are included in determining net income (loss).

~~Results~~principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any controlling interest; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of ~~Operations~~the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141R is to be applied prospectively to business combinations for which the acquisition date is on or after an entity’s fiscal year that begins after December 15, 2008. The Company is currently evaluating the requirements of SFAS No. 141R.

~~Three~~ In ~~Months~~December 2007, ~~Ended~~FASB ~~May~~issued SFAS No. ~~31,~~160 ~~2005~~“Noncontrolling ~~Compared~~Interests in Consolidated Financial Statements — an amendment to ~~the~~ARB ~~Three~~No. 51” ~~Months~~(“SFAS ~~Ended~~No. 160”). ~~May~~SFAS No. 31160 establishes accounting and reporting standards that require the ownership interest in subsidiaries held by parties other than the parent be clearly identified and presented in the consolidated balance sheets within equity, but ~~2004~~separate from the parent’s equity; the amount of consolidated net income attributable to the parent and the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of earnings; and changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently. This statement is effective for fiscal years beginning on or after December 15, 2008. The Company is currently evaluating the requirements of SFAS No. 160.

~~Sales. Sales increased $8.2 million to $70.5 million for the third quarter of fiscal~~30 2005 compared to $62.3 million for the third quarter of fiscal 2004. Sales increased in all divisions except for the U.S. Equipment division and Portola Tech International (“PTI”). Increased selling prices resulting from higher cost of resin across all divisions that we were able to pass through to customers was a contributing factor to our increased sales compared to the same period of the prior year. Sales at our Blow Mold Technology operations increased $2.8 million primarily due to increased volume for closures. United Kingdom sales increased $1.1 million due to higher volume and the favorable effects of exchange rates. Sales at our Austrian and Czech Republic operations increased $3.0 million due to increased production, as those operations were in the start up phase during 2004. Sales at our China operations increased $1.2 million primarily due to increased volume for closures and cutlery sales. Sales at our Mexico operations increased $0.6 million due to increased volume and pricing on bottles and closures. We also realized increased sales in our U.S. Closures operations by $1.8 million primarily due to increased selling prices, as we were able to pass through to customers increased resin costs, and U.S. Closures also had a favorable product mix. Offsetting these increases were decreased PTI sales of $0.4 million and U.S. Equipment sales of $0.9 million, primarily due to timing of customer orders. Inter-company transactions decreased sales by $1.0 million due to increased activity among our European divisions.

~~Gross~~ITEM ~~Profit~~3. ~~Gross~~QUANTITATIVE ~~profit~~AND ~~increased~~QUALITATIVE ~~$1.7 million~~DISCLOSURES toABOUT ~~$13.2 million~~MARKET ~~for the third quarter of~~RISK fiscal 2005 compared to $11.5 million for the third quarter of fiscal 2004. The increase in gross margin was primarily due to increased sales, lower employee and overhead costs resulting from the consolidation of three of our plants in the U.S. in fiscal 2004 as well as other productivity

29 We are exposed to market risk related to changes in interest rates, foreign currency exchange rate, credit risk and resin prices. We do not use derivative financial instruments for speculative or trading purposes. There have been no material changes in market risk related to changes in interest rates from that which were disclosed in our Annual Report on Form 10-K for the fiscal year ended August 31, 2007.

~~Table~~Interest ofrate ~~Contents~~sensitivity

~~enhancements~~ We ~~from~~are ~~our~~exposed ~~continuous~~to ~~improvement~~market ~~programs.~~risk ~~Gross~~from ~~profit~~changes in ~~the~~interest ~~U.S.~~rates ~~Closures~~on ~~division~~long—term ~~increased~~debt ~~by $1~~obligations.~~7 million due primarily to increased sales related to our ability~~ toWe ~~pass~~manage ~~increased~~such ~~resin~~risk ~~prices~~ through tothe ~~our~~use ~~customers,~~of ~~employee cost reductions, productivity enhancements and cost reduction activities, offset by~~ a ~~$0.6 million~~combination reserve for uncollectible freight costs. Blow Mold Technology and China increased gross profit by $0.2 million due to increased sales volume and cost reduction activities. Austria and Czech gross profit increased by $0.4 million due to the establishing of ~~business~~fixed in these markets as well as increased volume in the cosmetic closures European market. These improvements were offset partially by increased resin costs that we were not able to fully pass through to our customers, freight and ~~utility~~variable ~~costs~~rate ~~in our Mexico operations and lower sales volume at PTI~~debt. ~~In addition~~Currently, ~~gross profit in the third quarter of fiscal 2004 was benefited by a favorable inventory~~we ~~adjustment~~do ~~that did~~ not ~~recur~~use inderivative ~~the~~financial ~~third~~instruments ~~quarter of fiscal 2005. As a percentage of sales, gross profit increased~~ to ~~18.7%~~manage ~~for~~our ~~the~~interest ~~third~~rate ~~quarter of fiscal 2005 from 18~~risk.~~5% for the same quarter of~~ ~~fiscal 2004.~~

~~Selling,~~Exchange ~~General~~rate ~~and Administrative Expenses. Selling, general and administrative expenses~~sensitivity remained relatively constant at approximately $7.6 million for the third quarter of fiscal 2005 compared to the third quarter of fiscal 2004. The stability in these expenses was primarily a result of various cost improvement programs that were implemented in late 2004, including a reduction in manpower levels. Selling, general and administrative expenses decreased as a percentage of sales to 10.8% for the third quarter of fiscal 2005 from 12.2% for the same quarter of fiscal 2004.

~~Research~~Our ~~and~~foreign ~~Development~~subsidiaries ~~Expenses~~use the local currency as their functional currency. ~~Research~~Assets and liabilities ~~development~~are ~~expenses~~translated ~~decreased~~at $0month—end exchange rates.~~7 million~~ Income and expense items are translated at toaverage ~~$1.0 million~~exchange rates for the ~~third~~relevant ~~quarter~~periods. ofTranslation ~~fiscal~~gains and ~~2005~~losses ~~compared~~are tonot ~~$1.7~~included in determining net income (loss) ~~million~~but ~~for~~are ~~the~~accumulated ~~third~~as ~~quarter~~ a separate component of ~~fiscal~~shareholders’ ~~2004~~equity (deficit). ~~The~~Gains ~~decrease~~(losses) arising from foreign currency transactions are included in ~~expenses~~determining net ~~was~~income ~~primarily~~(loss). ~~due~~During tothe ~~staff~~three ~~reductions~~months ~~relating~~ended toNovember 30, 2007, we incurred a ~~restructuring~~ gain of ~~the~~$1.8 million ~~research~~arising ~~and~~from ~~development~~foreign ~~department~~currency ~~in 2004~~transactions. To date, we have not entered into any foreign currency forward exchange contracts or other derivative financial instruments relative to foreign currency exchange rates.

~~Loss~~Credit ~~(Gain)~~risk ~~from Sale of Property, Plant and Equipment. We recognized a net gain of $1.0~~sensitivity ~~million on the sale of property, plant and equipment during the third quarter of fiscal 2004 due to the sale of a manufacturing building in Chino, California.~~

~~Amortization~~Financial ofinstruments ~~Intangibles.~~that ~~Amortization~~potentially ofsubject ~~intangibles~~us ~~(consisting~~to ~~primarily~~concentrations of credit risk consist ~~amortization~~principally of ~~patents~~cash and ~~technology~~cash ~~licenses,~~equivalents ~~tradenames,~~and ~~covenants~~trade ~~not-to-compete~~receivables. Our cash and ~~customer~~cash equivalents are ~~relationships)~~concentrated ~~remained~~primarily ~~relatively~~in ~~constant~~several atUnited ~~approximately~~States ~~$0.2 million~~banks ~~for~~as ~~the~~well ~~third~~as ~~quarter~~banks ofin Canada, Mexico, China, ~~fiscal~~Czech ~~2005~~Republic ~~compared~~and tothe $0United Kingdom.~~3 million~~ ~~for~~At ~~the~~times, ~~third~~such ~~quarter~~deposits may be in excess of ~~fiscal~~insured ~~2004~~limits. Management believes that the financial institutions which hold our financial instruments are financially sound and, accordingly, minimal credit risk exists with respect to these financial instruments.

~~Restructuring~~Our ~~Costs.~~products ~~Restructuring~~are ~~charges~~principally ~~decreased~~sold ~~$0.1 million~~ to ~~$1.5 million~~entities ~~for~~in the ~~third~~ ~~quarter~~beverage, offood ~~fiscal~~and ~~2005~~CFT ~~compared~~industries toin ~~$1.6 million~~the United ~~for~~States, Canada, the ~~third~~United ~~quarter~~Kingdom, ofMexico, ~~fiscal~~China, ~~2004.~~Australia, ~~Fiscal 2005~~New ~~restructuring~~Zealand ~~charges~~and ~~were~~throughout Europe. ~~for~~Ongoing ~~severance~~credit ~~costs~~evaluations ~~related~~of tocustomers’ ~~the~~financial ~~restructuring~~condition ofare ~~various~~performed and collateral ~~divisions~~is ~~throughout~~generally ~~our~~not ~~company~~required. ~~Fiscal~~We ~~2004~~maintain ~~restructuring~~reserves ~~charges were~~ for ~~severance~~potential ~~costs related~~credit tolosses ~~the~~which, ~~closing~~on ofa ~~our Sumter~~historical basis, ~~South~~have ~~Carolina~~not ~~plant~~been ~~and~~significant. ~~our~~One ~~Chino~~Canadian ~~and~~customer, ~~San Jose~~Saputo, ~~California plants~~accounted for approximately 11% and a10% ~~reduction~~of insales for the ~~work~~three ~~force~~months inended ~~our~~November 30, ~~research~~2007 and ~~development~~2006 ~~and selling~~respectively, ~~general~~ and 7% of ~~administrative~~accounts ~~staffs~~receivable as of November 30, 2007.

~~Income from Operations. Reflecting the effect of the factors summarized above, income from~~31 ~~operations increased $1.6 million to $2.8 million for the third quarter of fiscal 2005 compared to $1.2 million for the third quarter of fiscal 2004. Income from operations increased~~

30Resin price sensitivity

~~Table~~ The majority of ~~Contents~~our products are molded from various plastic resins that comprise a significant portion of our cost of sales. These resins are subject to substantial price fluctuations, resulting from shortages in supply, changes in prices in petrochemical products and other factors. During fiscal year 2007 the price of resin continued to fluctuate substantially in both a favorable and unfavorable manner. In the past, we generally have been able to pass on increases in resin prices directly to our customers after delays required in many cases because of governing contractual provisions. Significant increases in resin prices coupled with an inability to promptly pass such increases on to customers could have a material adverse impact on us. The significant resin price increases we experienced during the first quarter of fiscal 2008 have materially and adversely affected our gross margins and operating results for that period. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations.”

~~as a~~32 ~~percentage of sales to 4.0% in the third quarter of fiscal 2005 compared to 1.9% in the same period of fiscal 2004.~~

~~Other~~ITEM ~~(Income) Expense~~4. ~~Other~~CONTROLS ~~(income) expense~~AND ~~includes interest income, interest expense, amortization of debt financing costs, minority interest expense, equity (income) loss of unconsolidated affiliates and other expense, net~~PROCEDURES.

~~Interest~~Evaluation ~~expense~~of ~~remained~~disclosure ~~relatively~~controls ~~constant at $4.2 million for the three months ended May 31, 2005~~ and ~~2004.~~procedures

~~Amortization~~We carried out an evaluation, under the supervision and with the participation of ~~debt~~our management, ~~issuance~~including ~~costs~~our ~~decreased~~Chief ~~$0.1 million~~Executive toOfficer ~~$0.4 million~~and ~~for~~Chief Financial Officer, of the ~~third~~effectiveness ~~quarter~~of the design and operation of ~~fiscal~~our ~~2005~~disclosure ~~compared~~controls and procedures pursuant to ~~$0.5~~Rule ~~million~~13a—15e ~~for~~ of the ~~third~~Securities ~~quarter~~Exchange Act of ~~fiscal~~1934 ~~2004~~(the “Exchange Act”). ~~This~~Based upon that evaluation, our Chief ~~decrease~~Executive ~~was~~Officer ~~due~~and toChief Financial Officer concluded that as of November 30, 2007, the ~~write-off~~end of the ~~certain~~period ~~debt~~covered ~~financing~~by ~~costs~~this report, our disclosure controls and procedures were effective at the reasonable assurance level in timely alerting them to material information relating to Portola (including its consolidated subsidiaries) required to be included in our Exchange Act filings and to ensure that information required to be disclosed by the ~~$110.0 million~~Company in the report it files under the ~~aggregate~~Exchange ~~principal~~Act ~~amount~~is ofrecorded, ~~senior~~processed, ~~notes~~summarized ~~that~~and ~~were~~reported ~~redeemed~~within ~~during~~the ~~February 2004~~time periods specified by the SEC’s rules and forms.

WeChanges ~~recognized~~in ainternal ~~loss~~control ofover ~~$1.1 million~~financial ~~on foreign exchange transactions for the third quarter of~~reporting fiscal 2005 compared to a loss of $0.7 million for the third quarter of fiscal 2004. The loss on foreign exchange transactions for the three months ended May 31, 2005 was due primarily to the United Kingdom Pound Sterling and the Austrian Eurodollar performing stronger against the U.S. dollar.

~~Income~~During ~~Tax~~the ~~Provision~~quarter ended November 30, 2007, there were no changes in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ~~The~~However, ~~income~~as ~~tax~~the ~~provision~~Company was implementing FIN 48 for the first ~~third~~ quarter of fiscal ~~2005~~2008 ~~was~~ended ~~$0.5 million~~November 30, on2007, ~~loss~~the ~~before~~Company’s management evaluated a potential income ~~taxes~~tax ofmatter $2arising under its senior secured credit facility that had been entered into by the Company and its subsidiaries.7 The Company evaluated whether under Section ~~million~~956 of the Internal Revenue Code, ~~compared~~pledging toassets ~~$0.6~~of its foreign subsidiaries for the Company’s domestic borrowings from August ~~million~~31, on2000 ~~loss~~through ~~before~~August 31, 2007 could result in U.S. taxable income. As a ~~taxes~~result of ~~$3.9 million~~this ~~for~~review, ~~the~~management ~~third~~of ~~quarter~~the ofCompany ~~fiscal~~determined ~~2004~~that U.S. ~~Our~~taxable ~~effective~~income ~~tax~~from ~~rate~~August 31, ~~differs~~2000 ~~from~~through August 31, 2007 was understated by $37,352. The Company plans to make the necessary corrections when filing their August 31, 2007 U.S. ~~statutory~~tax ~~rate~~return. ~~principally~~Such corrections will not result in any additional tax due because each affected year had available other losses to ~~providing~~reduce the aggregate taxable income to below zero. In footnote 12 of the Company’s financial statements included in its 2007 10-K filed with the SEC, the Company had disclosed that it had approximately $83,432 in net operating loss carry forwards and a full valuation allowance. ~~against~~As a result of the Section 956 taxable income, the Company’s revised net ~~deferred~~operating ~~tax~~loss carry forward at August 31, ~~assets~~2007 is approximately $46,080 and at November 30, 2007 is approximately $48,770. However, these reductions were fully offset by reduction in ~~our~~the ~~domestic~~recorded ~~jurisdictions~~valuation allowance and, ~~providing~~as asuch, ~~tax~~no resulting ~~provision~~income ~~for~~statement or balance sheet adjustments are required. The Company will amend its historical disclosure of net ~~income~~operation ~~produced~~loss bycarry ~~our~~forwards and valuation allowance in its future ~~foreign~~filings. ~~operations~~The ~~located~~valuation allowance disclosures in ~~Canada~~the previous paragraph have been resolved for this matter.

~~Net~~Management considered ~~Loss.~~this ~~Net~~tax ~~loss~~error ~~was~~in ~~$3.2 million~~its inassessment of internal control over financial reporting relating to our accounting for income taxes and determined that the ~~third~~error ~~quarter~~indicates ofa ~~fiscal~~significant ~~2005~~deficiency ~~compared~~in its internal control over financial reporting related to the aaccounting ~~net~~for income taxes. A significant deficiency is a ~~loss~~deficiency, or combination of ~~$4.5 million~~deficiencies, in internal controls over financial reporting that is important enough to merit attention by management. Specifically, the ~~third~~Company ~~quarter~~did not have sufficient knowledge of international ~~fiscal~~tax ~~2004~~laws applicable in the Company’s circumstances, to properly account for U.S. ~~The~~income ~~improvement~~tax inramifications ~~net~~related ~~loss~~to ~~was~~foreign ~~due~~operations. The Company is taking steps to remediate this control deficiency ~~increased~~for ~~sales~~future ~~and~~reporting ~~decreased~~periods ~~employee~~including ~~costs,~~having ~~corporate~~additional ~~overhead,~~discussions ~~research~~with ~~and~~its ~~development~~third ~~expense~~party tax ~~and~~consultant ~~one~~that ~~time~~assists ~~expense~~the ~~incurred~~Company ~~for~~in ~~relocation~~accounting for ~~the~~complex ~~third~~issues ~~quarter~~relating ofinternational ~~2005~~tax laws. ~~compared~~The Company expects to ~~the~~have ~~same~~this ~~quarter~~control deficiency remediated by the end of ~~2004~~fiscal 2008.

~~Nine~~Limitations ~~Months~~on ~~Ended~~effectiveness ~~May 31,~~of ~~2005~~controls ~~Compared~~and ~~to the Nine Months Ended May 31, 2004~~procedures

~~Sales. Sales~~Our ~~increased~~management, ~~$20.1 million~~including toour ~~$196.4 million~~Chief ~~for~~Executive ~~the~~Officer ~~nine~~and ~~months~~Chief ~~ended~~Financial ~~May 31~~Officer, ~~2005~~ ~~compared~~does tonot expect ~~$176.3 million~~that ~~for~~our ~~the~~disclosure ~~nine~~controls ~~months~~and ~~ended~~procedures ~~May 31,~~or ~~2004.~~our ~~The~~internal ~~increase~~controls inwill ~~sales~~prevent ~~for~~all errors ~~the~~and ~~first~~all ~~nine~~fraud. ~~months~~A ofcontrol ~~fiscal~~system, ~~2005~~no ~~compared~~matter tohow ~~the~~well ~~same~~conceived ~~period~~and inoperated, ~~fiscal~~can ~~2004~~provide ~~was mainly~~only ~~attributable~~reasonable, tonot ~~increased~~absolute, ~~sales~~assurance inthat ~~our~~the ~~non-U.S.~~objectives ~~markets~~ of ~~$24.0 million.~~the ~~Increased~~control ~~selling~~system ~~prices resulting~~are ~~from~~met. ~~higher~~Further, ~~cost~~the design of ~~resin~~a ~~across~~control ~~all~~system ~~divisions~~must ~~that~~reflect wethe ~~were~~fact ~~able~~that tothere ~~pass~~are ~~through~~resource ~~to customers~~constraints ~~was~~and athe benefits ~~contributing~~of ~~factor~~controls tomust ~~our~~be ~~increased~~considered ~~sales~~relative ~~compared~~ to ~~the~~their ~~same~~costs. ~~period~~Because inof the inherent ~~prior~~limitations ~~year.~~in ~~United~~all ~~Kingdom~~control ~~sales~~systems, ~~increased~~no ~~$5.9 million~~evaluation ~~due~~of tocontrols ~~the~~can ~~favorable~~provide ~~effect~~absolute ofassurance that ~~exchange~~all ~~rates~~control asissues ~~well~~and asinstances ~~increased~~of ~~volume~~fraud, ~~and~~if ~~increased~~any, ~~equipment~~within ~~sales.~~Portola ~~Blow~~have ~~Mold~~been ~~Technology’s~~detected. These ~~sales~~inherent ~~increased~~limitations ~~$6.9 million~~include, ~~due~~but toare ~~increased~~not ~~closures~~limited ~~volume~~to, ~~and~~the ~~favorable~~realities ~~foreign~~that ~~exchange~~judgments ~~rates.~~in ~~Austrian~~decision—making can be faulty and ~~Czech~~that ~~Republic~~breakdowns ~~sales~~can ~~increased~~occur ~~$6.6 million~~because ~~due~~of tosimple ~~increased~~error ~~production~~or mistake. Additionally, ascontrols ~~those entities~~can ~~were~~be incircumvented by the ~~start~~individual upacts ~~phase~~of ~~during~~some ~~2004.~~persons, ~~China’s~~by ~~sales~~collusion ~~increased~~of two ~~$3.0 million~~or ~~due~~more ~~to increased~~people, ~~closure~~or ~~volume~~by ~~and~~management ~~cutlery~~override ~~sales~~of the control. ~~Mexico~~The ~~sales~~design ~~increased~~of ~~$1.6 million~~any ~~due~~system toof ~~increased~~controls ~~bottle~~is ~~volume~~based ~~and~~in ~~additional~~part ~~closures~~upon ~~sales~~certain ~~related~~assumptions toabout ~~our~~the ~~newer~~likelihood ~~38mm~~of ~~product~~future ~~line.~~events ~~PTI~~and ~~sales increased~~there ~~$0.8 million~~can ~~due~~be tono assurance ~~increased~~that ~~volume.~~any ~~The~~design ~~increases~~will succeed in ~~our~~achieving ~~sales~~its ~~for~~stated ~~the~~goals ~~first~~under ~~nine~~all potential future ~~months~~conditions; ofover ~~fiscal~~time, ~~2005~~a ~~were~~control ~~offset~~may bybecome ~~decreased~~inadequate ~~sales~~because of changes in ~~our~~conditions, ~~U.S.~~or ~~Equipment~~the degree of ~~$2.2 million~~compliance ~~due~~with ~~to lower~~the ~~customer~~policies ~~orders~~or ~~and~~procedures ~~our~~may Udeteriorate.S. ~~Closures~~Because ~~operations~~ of ~~$0.3 million~~the inherent limitations in a cost—effective control system, misstatements due to ~~lower~~error ~~volume~~or fraud may occur and not be detected.

3133

~~Table~~PART ofII ~~Contents~~— OTHER INFORMATION

inITEM ~~the first quarter of 2005 as well as price decreases, which occurred in fiscal 2004, due to competitive pricing pressures~~1. ~~The~~LEGAL ~~loss of volume in the U.S. Closures operations during the first quarter of~~PROCEEDINGS 2005 resulted from lower sales in the juice market due to low carbohydrate diet trends, the unusually bad weather in Florida caused by the hurricanes and moving production of certain sports caps to Europe and China so that work cells would be closer to the customer base. These decreases in U.S. Closures sales during the first quarter of 2005 were offset by increases in revenue during the second and third quarter of 2005 primarily due to increased selling prices, as we were able to pass through to customers increased resin costs; in addition, U.S Closures also had a favorable product mix. Inter-company sales increased $2.2 million due to increased activity among the European divisions.

~~Gross~~In ~~Profit. Gross profit increased $1.1 million to $31.2 million for~~ the ~~nine~~normal ~~months~~course ~~ended May 31~~of business, ~~2005~~except ~~compared to $30.1 million~~ for the ~~nine~~Blackhawk ~~months~~litigation ~~ended~~mentioned ~~May 31~~below, ~~2004. The increase in gross profit was primarily due to~~ the ~~following factors: decreased labor and overhead costs~~ ~~relating~~Company tois ~~the~~subject ~~U.S. Closures plant consolidation activity that occurred during fiscal 2004 and our continuous productivity and cost reduction improvement programs, decreased labor costs in our PTI operations due~~ to avarious ~~reduction~~legal ofproceedings ~~headcount,~~ and ~~increased sales volume in our international operations~~claims. ~~These~~Based ~~improvements~~on ~~to gross profit were offset by increases in resin prices and~~ the ~~lag~~ infacts ~~which~~currently ~~we are able to pass these higher costs to the contract customer, competitive pricing~~available ~~pressures~~Management inbelieves ~~the U.S. and U.K. markets~~ that ~~occurred~~the ~~during~~ultimate ~~fiscal~~amount ~~2004,~~of ~~increased~~liability ~~freight~~from ~~charges in~~these ~~our~~pending ~~China~~actions ~~operations~~will ~~and~~not have a ~~reserve~~material ~~for~~adverse ~~uncollectible~~effect ~~freight~~on ~~costs in~~ the ~~U.S.~~Company’s Asfinancial ~~a percentage of sales~~position, ~~gross~~results ~~profit~~of ~~decreased~~operations toor 15liquidity.~~9% for the nine months ended May 31, 2005 from 17.1% for the~~ ~~same period of fiscal 2004.~~

InOn ~~addition~~May 31, ~~during~~2006, the ~~nine-month~~Company ~~period~~and ~~ended~~Blackhawk ~~May 31,~~Molding ~~2004~~Co., weInc. ~~incurred~~(“Blackhawk”) ~~one-time~~settled ~~relocation~~a patent ~~and~~infringement ~~plant~~claim ~~consolidation~~by ~~expenses~~the ofCompany agreeing to pay Blackhawk $1.4.0 million ~~related~~on toJune 30, ~~the~~2006, ~~move~~$0.5 million ~~from~~per ~~six~~quarter ~~facilities~~for to four ~~facilities~~ inquarters ~~our~~thereafter Uand $0.S.25 million ~~Closures~~for ~~operations;~~the ~~these~~following ~~expenses~~four ~~were~~quarters. The ~~charged~~Company tohas ~~cost~~made ofall ~~goods~~required ~~sold.~~payments ~~We also~~under ~~incurred~~the ~~one-time~~settlement ~~charges~~agreement ofto ~~approximately~~date ~~$0.5 million~~and ~~associated~~has ~~with~~adequate cash ~~integration~~flow from operations and ~~process~~ ~~improvement~~availability ~~costs~~under atits ~~the~~lines ~~PTI~~of ~~facility~~credit into ~~Rhode~~make ~~Island~~the remaining payments.

~~For~~ITEM ~~the nine months ended May 31, 2005, direct materials, labor and overhead costs represented 44~~1A.~~4%,~~ ~~17.2%~~RISK ~~and 22.5% of sales, respectively, compared to 39.0%, 18.5% and 25.4%, respectively,~~FACTORS for the nine months ended May 31, 2005. Direct material costs increased by $18.3 million for the nine-month period ended May 31, 2005 compared to the nine-month period ended May 31, 2004 due primarily to an increase in resin costs.

~~Selling,~~The ~~General~~following ~~and~~risk ~~Administrative~~factors ~~Expenses.~~may ~~Selling,~~cause ~~general~~actual ~~and~~results ~~administrative expenses decreased $1.6 million~~ to ~~$21.7 million~~differ ~~for~~materially ~~the~~from ~~nine~~those ~~months~~in ~~ended May 31, 2005 compared to $23.3~~any ~~million~~forward—looking ~~for~~statements ~~the~~contained ~~nine~~in ~~months~~such ~~ended~~business ~~May 31,~~description ~~2004.~~or ~~This~~elsewhere ~~decrease~~in ~~was~~this ~~primarily~~report ~~due~~or made ~~to a reduction~~ in ~~discretionary~~ ~~spending and decreased employee costs due to~~ the ~~restructuring~~future ofby ~~several~~us ~~departments and~~or ~~the dissolution of~~ our ~~water equipment division. These savings were partially offset by~~representatives: increased consulting fees of $0.5 million for the implementation of Section 404 of the Sarbanes Oxley Act, as well as increased legal expenses of $1.0 million. As a percentage of sales, selling, general and administrative expenses decreased to 11.1% for the nine months ended May 31, 2005 from 13.2% for the same period of fiscal 2004.

~~Research~~Risks ~~and~~related ~~Development Expenses. Research and development expenses decreased $1.8 million~~ to ~~$2.9 million~~our ~~for~~outstanding ~~the nine months ended May 31, 2005 compared to $4.7 million for the nine months~~indebtedness ~~ended May 31, 2004. The decrease was primarily due to staff reductions relating to a restructuring of the department in 2004.~~

32Our level of indebtedness could limit cash flow available for our operations and could adversely affect our ability to obtain additional financing.

~~Table~~ As of ~~Contents~~November 30, 2007, our total indebtedness was approximately $222.8 million, $180.0 million of this amount represented the 81/4 Senior Notes due 2012, $42.8 million represented funds drawn down under our senior secured credit facility. Our senior secured credit agreement is due on January 23, 2009. Moreover, as of November 30, 2007 we have a total shareholders’ deficit of $98.4 million. Our level of indebtedness could restrict our operations and make it more difficult for us to fulfill our obligations under our 81/4 Senior Notes. Among other things, our level of indebtedness may:

~~Loss~~• ~~(Gain)~~limit ~~from~~our ~~Sale~~ability ofto ~~Property~~obtain additional financing for working capital, ~~Plant~~capital expenditures, and ~~Equipment.~~general Wecorporate ~~recognized~~purposes; • require us to dedicate all or a ~~net~~substantial ~~gain~~portion of ~~$1.0 million~~our oncash ~~the~~flow ~~sale~~to ofservice ~~property~~our debt, ~~plant~~which ~~and~~will ~~equipment~~reduce ~~during~~funds ~~the~~available ~~third~~for ~~quarter~~other ofbusiness ~~fiscal~~purposes, ~~2004~~such ~~due~~as capital expenditures; • limit our flexibility in planning for or reacting to changes in the ~~sale~~markets ofin which we compete; • place us at a ~~manufacturing~~competitive ~~building~~disadvantage inrelative ~~Chino,~~to ~~California~~our competitors with less indebtedness; • render us more vulnerable to general adverse economic and industry conditions; and • make it more difficult for us to satisfy our financial obligations.

~~Amortization~~Nonetheless, ofwe ~~Intangibles.~~and ~~Amortization~~our ofsubsidiaries ~~intangibles~~may ~~(consisting~~still ofbe ~~amortization~~able ~~of patents~~to ~~and~~incur ~~technology~~more ~~licenses,~~debt. ~~tradenames,~~The ~~covenants~~terms ~~not-to-compete~~of ~~and customer relationships)~~our ~~decreased~~senior ~~$0.2 million~~secured tocredit ~~$0.7 million~~facility ~~for~~and the ~~nine~~indenture ~~months~~governing ~~ended~~our ~~May 31,~~81/4 ~~2005~~Senior ~~compared~~Notes topermit ~~$0.9~~additional ~~million~~borrowings ~~for~~and ~~the~~such ~~nine~~borrowings ~~months~~may ~~ended~~be ~~May 31,~~secured ~~2004~~debt. ~~This decrease was due primarily to certain~~ ~~trademarks and technology becoming fully amortized.~~

~~Restructuring Costs. Restructuring charges decreased $1.6 million to $1.9 million for the nine~~34 months ended May 31, 2005 compared to $3.5 million for the nine months ended May 31, 2004. During the nine months ended May 31, 2005, approximately $1.7 million had been paid against the restructuring reserve. We estimate that annual cost savings from this restructuring will be approximately $5.0 million.

~~During~~Our ~~the~~ability ~~first~~to ~~nine~~service ~~months~~our ofdebt ~~fiscal~~and ~~2005,~~meet weour ~~incurred~~cash ~~restructuring~~requirements ~~charges~~depends ofon ~~$1.9 million for~~many ~~employee~~factors, ~~severance~~some ~~costs related to measures we implemented across all divisions to increase~~of ~~efficiency~~which ~~within~~are ~~all~~beyond of our ~~operations~~control.

~~During~~Our ~~the~~ability ~~first nine months of fiscal 2004, we incurred restructuring charges of $3.5 million for employee severance costs related~~ to ~~the~~satisfy ~~closing~~our ~~and~~obligations ~~relocation~~will ofdepend on our ~~three~~future ~~plants~~operating inperformance ~~Chino~~ and ~~San~~financial ~~Jose~~results, ~~California~~which ~~and~~will ~~Sumter~~be subject, ~~South Carolina. The operations from the two California plants were relocated to a new facility located~~ in ~~Tolleson~~part, ~~Arizona,~~to afactors ~~suburb~~beyond ofour ~~Phoenix~~control, ~~during~~such ~~the~~as ~~third~~interest ~~quarter~~rates ofand ~~fiscal~~general ~~2004.~~economic, ~~The~~financial ~~operations~~and ~~from~~business ~~the~~conditions. ~~South~~If ~~Carolina~~we ~~plant~~are ~~were~~unable ~~relocated~~to ~~in the first~~generate ~~quarter~~sufficient ofcash ~~fiscal~~flow ~~2004 primarily~~ to service our ~~existing facility in Kingsport~~debt, ~~Tennessee,~~we asmay ~~well~~be asrequired to: ~~other facilities within our company.~~

~~Income~~• ~~(Loss)~~refinance ~~from~~all ~~Operations.~~or ~~Reflecting~~a ~~the~~portion ~~effect~~ of ~~the~~our ~~factors~~debt; ~~summarized~~• ~~above,~~obtain ~~income from~~additional ~~operations~~financing; ~~increased~~• ~~$5.2 million~~sell tocertain ~~an operating income~~ of ~~$3.9 million~~our ~~for~~assets ~~the~~or ~~nine~~operations; ~~months ended~~• ~~May 31,~~reduce ~~2005~~or ~~compared~~delay tocapital anexpenditures; ~~operating~~or ~~loss~~• ofrevise ~~$1.3 million~~or ~~for~~delay ~~the nine months ended May 31, 2004. The improvement in operating income was due to~~ our ~~continual~~strategic ~~focus on process improvement and the decrease in moving, relocation and severance costs~~ plans.

~~Other~~If ~~(Income)~~we ~~Expense.~~are ~~Other~~required ~~(income) expense~~to ~~includes~~take ~~interest~~any ~~income,~~of ~~interest~~these ~~expense~~actions, ~~amortization~~ ofit ~~debt~~could ~~financing~~have ~~costs,~~a ~~gain~~material oradverse ~~loss~~effect on our ~~the~~business, ~~sale~~financial condition and results of ~~property~~operations. In addition, ~~plant~~we ~~and~~cannot ~~equipment,~~assure you that ~~minority~~we ~~interest~~would ~~expense,~~be ~~equity~~able ~~(income) loss~~to take any of ~~unconsolidated~~these ~~affiliates~~actions, ~~loss~~that onthese ~~warrant~~actions would enable us to continue to ~~redemption~~satisfy ~~and~~our ~~other~~capital ~~expense~~requirements or that these actions would be permitted under the terms of our various credit agreements, ~~net~~including the indenture governing our 81/4 Senior Notes.

~~Interest expense increased $0.6 million to $12.3 million for the nine months ended May 31, 2005 compared to $11.7 million for the nine months ended May 31, 2004.~~ The ~~increase~~covenants in ~~interest expense~~our ~~was~~senior ~~due~~secured tocredit ~~the~~facility ~~issuance~~and of the ~~$180.0 million~~indenture ingoverning ~~aggregate~~our ~~principal amount of 8 1~~81/4% Senior Notes impose ~~due~~restrictions ~~2012~~that ~~and~~may ~~increased~~limit ~~interest~~our ~~rates~~operating ~~over~~and ~~the~~financial ~~past several months~~flexibility.

~~Amortization~~Our ofsenior ~~debt~~secured ~~issuance~~credit ~~costs~~facility ~~decreased~~and ~~$0.8 million to $1.2 million for~~ the ~~nine~~indenture ~~months ended~~governing ~~May 31,~~our 2005 compared to $2.0 million for the nine months ended May 31, 2004. For the nine months ended May 31, 2004, we wrote off financing fees related to the $110.0 million in aggregate principal amount of 10 381/4% ~~senior~~Senior ~~notes~~Notes ~~due~~contain ~~2005. In addition, amortization~~a ~~expense~~number ~~increased due to debt financing costs capitalized which related to the financing~~ of ~~the $180.0 million~~significant inrestrictions ~~aggregate~~and ~~principal~~covenants ~~amount~~that oflimit 8our ~~1/4%~~ability ~~senior notes due 2012 (the “Senior Notes”)~~ and ~~the~~ ~~fourth amendment of~~ our ~~senior~~subsidiaries’ ability ~~secured credit facility.~~to:

33 • incur liens and debt or provide guarantees in respect of obligations of any other person; • issue redeemable preferred stock and subsidiary preferred stock; • make redemptions and repurchases of capital stock; • make loans, investments and capital expenditures; • prepay, redeem or repurchase debt; • engage in mergers, consolidations and asset dispositions; • engage in sale/leaseback transactions and affiliate transactions; • change our business, amend certain debt and other material agreements, and issue and sell capital stock of subsidiaries; and • make distributions to shareholders.

~~Table~~ Future adverse changes in our operating results or other negative developments, such as increases in interest rates or in resin prices, shortages of ~~Contents~~resin supply or decreases in sales of our products, could result in our being unable to comply with the fixed charge covenant ratio and other financial covenants in our senior secured credit facility. If we fail to comply with any of our loan

~~There was no warrant interest income for the nine months ended May 31, 2005 compared to~~35 $57,000 for the nine months ended May 31, 2004 due to the redemption of the Class A common stock warrants. We incurred a loss on the redemption of $1.9 million during the nine months ended May 31, 2004.

Wecovenants ~~recognized~~in athe ~~gain~~future ofand ~~$1.4 million~~are ~~for~~unable ~~the~~to ~~nine~~obtain ~~months~~waivers ~~ended~~from ~~May 31~~our lenders, ~~2005~~we ~~compared~~could be declared in default under these agreements, and our lenders could accelerate our obligations hereunder. If our indebtedness is accelerated, we may not be able to arepay ~~gain~~our debt or borrow ofsufficient $1funds to refinance it.~~6 million~~ ~~for~~Even ~~the~~if ~~nine~~we ~~months~~are ~~ended~~able ~~May 31~~to obtain new financing, ~~2004~~it may not be on commercially ~~foreign~~reasonable ~~exchange~~terms ~~transactions~~or terms that are acceptable to us. ~~The~~If ~~gain~~our expectations of future onoperating ~~foreign~~results ~~exchange~~are ~~transactions~~not achieved, or our debt is in default for ~~the~~any ~~nine~~reason, ~~months~~our ~~ended~~business, financial ~~May 31~~condition, ~~2005~~results isof ~~due~~operations ~~primarily~~and tocash ~~the~~flows would be materially and adversely Uaffected.S. ~~dollar~~In ~~performing~~addition, ~~stronger~~complying ~~against~~with ~~the~~these ~~United~~covenants ~~Kingdom~~may ~~Pound~~make it more difficult for us to ~~Sterling~~successfully execute our business strategy and ~~the~~compete ~~Austrian~~against ~~Eurodollar~~companies who are not subject to such restrictions.

~~Income Tax~~Our ~~Provision.~~81/4 ~~The~~Senior ~~income~~Notes ~~tax~~are ~~provision~~effectively ~~for~~subordinated ~~the nine months ended May 31, 2005 was $2.0 million on loss before income taxes of $8.0 million, compared~~ to ~~$1.4 million~~all ~~on loss before income taxes~~ of ~~$14.9 million~~our ~~for~~secured ~~the nine months ended May 31~~debt, ~~2004.~~and ~~Our~~if ~~effective tax rate differs from the U.S. statutory rate principally due to providing~~ a ~~valuation allowance~~default ~~against~~occurs, ~~net~~we ~~deferred~~may ~~tax~~not ~~assets~~have insufficient ~~our~~funds ~~domestic~~to ~~jurisdictions~~fulfill ~~and providing a tax provision for net income produced by~~ our ~~foreign operations~~obligations ~~located~~under in the ~~United~~Senior ~~Kingdom and Canada~~Notes.

~~Net~~Our ~~Loss.~~81/4 ~~Net~~Senior ~~loss~~Notes ~~was~~are ~~$10~~not secured by any of our assets.~~1 million~~ ~~for~~The indenture governing the ~~nine~~Senior Notes ~~months~~permits ~~ended~~us ~~May 31~~to incur certain secured indebtedness, ~~2005~~including ~~compared~~indebtedness tounder aour ~~net~~senior ~~loss~~secured ofcredit ~~$16~~facility.~~3 million~~ ~~for~~If we become insolvent or are liquidated, or if payment under the ~~nine~~credit facility ~~months~~or ~~ended~~other ~~May 31~~secured indebtedness is accelerated, ~~2004.~~the ~~The~~lenders ~~improvement~~under inthe ~~net~~credit ~~loss~~facility ~~was~~and the ~~due~~holders of any other secured indebtedness would be entitled to exercise the remedies available to ~~increased~~them ~~sales~~as secured creditors under applicable laws and ~~decreased~~pursuant ~~employee~~to ~~costs,~~instruments ~~corporate~~governing ~~overhead~~such indebtedness. Accordingly, ~~research~~such secured indebtedness would have a prior claim on the collateral and would ~~development~~effectively be senior to the Senior Notes to the extent that the value of such collateral is ~~expense~~sufficient ~~and~~to ~~restructuring~~satisfy ~~costs~~the ~~for~~indebtedness secured thereby. To the ~~first~~extent ~~nine~~that ~~months~~the value of ~~fiscal~~such collateral ~~2005~~is ~~compared~~not sufficient to satisfy the ~~same~~secured indebtedness, amounts remaining outstanding on ~~period~~such indebtedness would be entitled to share with holders of ~~2004~~Senior Notes and other claims on us with respect to any of our other assets. In either event, because the Senior Notes are not secured by any of our assets, it is possible that there will be insufficient assets remaining from which claims of the holders of the Senior Notes could be satisfied. In addition, ~~fiscal~~we ~~2004~~cannot ~~results~~assure ~~reported~~you that $1the guarantees from our subsidiary guarantors, or any guarantee delivered by a restricted subsidiary formed in the future, would not be subject to avoidance by another creditor as a fraudulent transfer or for other reasons.~~9 million~~ Our unrestricted subsidiaries do not guarantee our obligations under the Senior Notes. Upon liquidation of ~~warrant~~any ~~redemption~~unrestricted subsidiary, such ~~expense~~obligations would be effectively subordinated to claims of such subsidiary’s creditors upon its assets. It is likely that this will also be the case for other unrestricted subsidiaries that we may form in the future. See Note 16 of our Notes to Consolidated Financial Statements of our Annual Report Form 10-K for the fiscal year ended August 31, 2007 for additional information regarding our restricted and unrestricted subsidiaries.

~~Liquidity~~We ~~and~~may ~~Capital~~be ~~Resources~~unable to purchase our 81/4 Senior Notes upon a change of control.

InUpon ~~recent~~a ~~years~~change of control of Portola (as defined in the indenture governing our 8 1/4% Senior Notes), weeach holder of Senior Notes will have ~~relied~~certain ~~primarily~~rights ~~upon~~to ~~cash~~require ~~from~~us ~~operations~~to ~~and~~repurchase ~~borrowings~~all or a portion of such holder’s Senior Notes. If a change of control were to ~~finance~~occur, we cannot assure you ~~our~~that ~~operations~~we ~~and~~would ~~fund~~have ~~capital~~sufficient ~~expenditures~~funds ~~and~~to ~~acquisitions~~pay the repurchase price for all Senior Notes tendered by the holders thereof. AtIn ~~May 31~~addition, ~~2005~~a change of control would constitute a default under our senior secured credit facility and, since indebtedness under the credit facility effectively ranks senior in priority to indebtedness under the Senior Notes, we ~~had~~would ~~cash~~be ~~and~~obligated to repay indebtedness ~~cash~~under ~~equivalents~~the credit facility in advance of $5indebtedness under our Senior Notes.~~8 million,~~ Our repurchase of Senior Notes as a ~~decrease~~result of ~~$6.4 million~~the occurrence of a change of control may be prohibited or limited by, or create an event of default under, the terms of other agreements relating to borrowings that we may enter into from ~~August 31~~time to time, ~~2004~~including agreements relating to secured indebtedness. Failure by us to make or consummate a change of control offer would constitute an immediate event of default under the indenture governing the Senior Notes, thereby entitling the trustee or holders of at least 25% in principal amount of the then outstanding Senior Notes to declare all of the Senior Notes to be due and payable immediately; provided that so long as any indebtedness permitted to be incurred pursuant to the senior secured credit facility is outstanding, such acceleration shall not be effective

~~Operating Activities. Cash provided by operations totaled $0.3 million for the nine months~~36 ended May 31, 2005, which represented a $2.5 million decrease from the $2.8 million provided by operations for the nine months ended May 31, 2004. Net cash from operations for both periods was the result of a net loss offset primarily by non-cash charges for depreciation and amortization. Working capital (current assets less current liabilities) decreased by $3.7 million to $29.2 million as of May 31, 2005, compared to $32.9 million as of August 31, 2004. The decrease in working capital was due primarily to a decrease in cash due to the pay down of the revolving credit facility and the increase in accrued interest due to the timing of the payments on the Senior Notes.

~~Investing~~until ~~Activities. Cash used in investing activities was $7.9 million for~~ the ~~nine~~earlier ~~months ended~~of ~~May~~(i) ~~31,~~an ~~2005~~acceleration ~~compared~~of toany ~~$51.9 million~~such ~~for~~indebtedness ~~the~~under ~~nine months ended May 31, 2004. For~~ the ~~nine~~credit ~~months~~facility ~~ended~~or ~~May~~(ii) ~~31,~~five ~~2005,~~business ~~cash~~days ~~used~~after inreceipt ~~investing~~by ~~activities~~us ~~was~~of ~~primarily~~written ~~for~~notice ~~additions~~of ~~to property,~~such ~~plant and equipment~~acceleration. ~~For~~ In the ~~nine~~event ~~months~~all ~~ended~~of ~~May 31,~~the ~~2004,~~Senior ~~net~~Notes ~~cash~~are ~~used~~declared indue ~~investing activities~~and ~~consisted~~payable, ofour ~~$36.5 million~~ability ~~for~~to repay the ~~acquisition~~Senior Notes ofwould ~~PTI,~~be ~~$13.5 million~~subject ~~for additions~~ to ~~and~~ ~~sale~~the oflimitations ~~property~~referred ~~plant~~to ~~and equipment and $1~~above.~~9 million for intangible assets.~~

~~Financing~~Risks ~~Activities.~~related ~~At May 31, 2005, we had total indebtedness of $200.8 million, $180.0 million of which was attributable~~ to ~~the Senior Notes. Of the remaining indebtedness, $20.7 million was attributable to~~ our ~~senior secured credit facility and $0.1 million was principally comprised~~business ~~of capital lease and other obligations.~~

34We have completed the integration of PTI with the beverage product elements of our Company, and we have not realized the anticipated benefits of this acquisition.

~~Table~~ The integration of ~~Contents~~PTI with our other operations has been completed. Nonetheless, we have not realized the expected operating efficiencies, growth opportunities and other benefits of the transaction. Our management was not initially experienced in the sales and marketing of CFT products and we depend significantly on the sales and marketing capabilities of inherited PTI management.

OnWe ~~January 23,~~may ~~2004,~~be wesubject ~~completed~~to anpricing ~~offering~~pressures ofand ~~$180.0 million~~credit inrisks ~~aggregate principal amount of Senior Notes. Interest payments of approximately $7.4 million are~~ due semi-annually on February 1 and August 1 of each year. Interest began accruing January 23, 2004, and the first interest payment was made on August 1, 2004. The indenture under which the senior notes were issued contains covenants and provisions that restrict, among other things, our ability to: ~~(i) incur additional~~consolidation ~~indebtedness~~in ~~or issue preferred stock, (ii) incur liens on~~ our ~~property, (iii) make~~customers’ ~~investments~~industries, ~~(iv) enter into guarantees~~ and ~~other~~we ~~contingent~~do ~~obligations,~~not ~~(v) merge~~have orlong—term ~~consolidate~~ contracts with ormost ~~acquire another person or engage in other fundamental changes, (vi) engage in certain sales~~ of ~~assets~~our and subsidiary stock, (vii) engage in certain transactions with affiliates, (viii) engage in sale/leaseback transactions, (ix) engage in any business other than a related business, (x) make restricted payments, and (xi) declare or pay dividendscustomers.

~~Concurrently~~The ~~with~~dairy, ~~the~~bottled ~~offering~~water ofand ~~the~~fruit ~~Senior~~juice ~~Notes~~industries, wewhich ~~amended~~constitute our ~~credit~~largest ~~agreement by~~customer ~~entering~~base ~~into~~from ~~an amended and restated five-year senior revolving credit agreement that provided~~ a ~~secured~~ ~~credit~~revenue ~~facility of up to $50.0 million~~perspective, ~~maturing~~have onexperienced ~~January 23,~~consolidations ~~2009.~~through Wemergers ~~entered~~and ~~into an~~acquisitions ~~amendment~~in torecent ~~this agreement on May 21~~years, ~~2004, a limited waiver~~ and ~~second amendment to~~ this ~~credit agreement~~trend onmay ~~November 24,~~continue. ~~2004~~We ~~(the~~could ~~“November 24~~experience ~~Amendment”),~~additional ~~a fifth amendment to the senior~~customer ~~secured credit facility on April 4~~concentration, ~~2005~~and ~~(the~~our ~~“April~~results 4of ~~Amendment”),~~operations awould ~~sixth~~be ~~amendment~~increasingly tosensitive ~~the senior secured credit facility on May 2, 2005 (the “May 2 Amendment”) and a seventh amendment~~ to ~~the senior~~changes ~~secured~~in ~~credit facility on June 21, 2005 (~~the ~~“June 21 Amendment”). The amended and~~ ~~restated~~business ~~credit~~of ~~agreement~~customers ~~contains covenants and provisions~~ that ~~restrict,~~represent ~~among~~an ~~other~~increasingly ~~things,~~large ~~our ability~~portion ~~to:~~of ~~(i) redeem warrants and repurchase stock, except during the first year, (ii) incur additional indebtedness, (iii) incur liens on~~ our ~~property,~~sales ~~(iv) make investments, (v) enter into guarantees and other contingent obligations, (vi) merge~~ or ~~consolidate with or acquire another~~any ~~person~~deterioration ~~or engage in other fundamental changes, or in certain sales~~ of assets, (vii) engage in certain transactions with affiliates, (viii) make restricted junior payments, and (ix) declare or pay dividends. The June 21 Amendment, which superseded the April 4 Amendment and the May 2 Amendment and their ~~covenants,~~financial ~~revised the credit agreement as follows: (a) the borrowing base calculation is based on the product of trailing 12 month restricted EBITDA and a leverage multiple of 2~~condition.5 ~~less~~During ~~any~~fiscal ~~outstanding~~2007 ~~senior~~our ~~indebtedness,~~top ~~which~~ten ~~excludes~~customers ~~senior~~accounted indebtedness evidenced by the Senior Notes and any guaranties thereof and excluding any fees, liabilities or other obligations payable with respect to such senior indebtedness; (b) we are required to maintain EBITDA for ~~any 12-month period ending on the last day of each fiscal month, commencing with the~~ ~~fiscal~~approximately ~~month~~43% ~~ending May 31, 2005,~~ of atour ~~least $17~~sales.~~5 million;~~ ~~(c) we~~Consolidation nohas ~~longer~~resulted ~~are required to maintain a borrowing availability amount; and (d) the amount we can invest~~ in ~~certain~~pricing specified subsidiaries was increased from $6.7 million to $8.5 million. The June 21 Amendment also eliminated the fixed charge coverage and senior leverage ratios. An unused fee is payable under the facility based on the total commitment amount less the average daily aggregate amount of outstanding liabilitypressures, atas ~~the rate of 0.50% per annum. In addition, interest payable is based on,~~larger atcustomers ~~our~~often ~~election,~~have ~~the~~been ~~Bank~~able ~~Prime~~to ~~Loan~~make ~~rate~~greater ~~plus 1.25% or the LIBOR loan rate plus 2.75% determined by a~~ pricing ~~table~~and ~~based~~other ondemands ~~the~~over ~~outstanding credit facility balance~~us.

~~Our~~We ~~senior~~do ~~secured~~not ~~credit~~have ~~agreement,~~firm aslong—term ~~amended,~~contracts ~~and~~covering ~~the indenture governing our Senior Notes contain~~ a ~~number~~majority of ~~significant~~our ~~restrictions and covenants as discussed above~~sales. ~~Adverse~~Although ~~changes in~~customers ~~our~~that ~~operating~~are ~~results~~not orunder ~~other~~firm ~~negative~~contracts ~~developments,~~provide ~~such~~indications asof ~~significant~~their ~~increases~~product inneeds ~~interest rates~~and orpurchases inon ~~resin~~a periodic ~~prices~~basis, ~~severe~~they ~~shortages~~generally ofpurchase ~~resin~~our ~~supply~~products oron ~~decreases~~an inorder—by—order ~~sales~~basis, ofand ~~our products~~the ~~could~~relationship, ~~result~~as inwell ~~non-compliance~~as ~~with~~particular ~~financial~~orders, ~~covenants~~can inbe ~~our~~terminated ~~senior~~at ~~secured~~any ~~credit agreement~~time. ~~If we~~The ~~violate~~loss ~~these~~or ~~covenants~~significant decrease ~~and~~in ~~are~~business ~~unable~~or toa ~~obtain~~change ~~waivers from our lender, we would be~~ in ~~default under~~ the ~~indenture~~procurement ~~and~~practices ~~our~~of ~~secured~~any ~~credit~~of ~~agreement, and~~ our ~~lenders~~major ~~could~~customers ~~accelerate our obligations thereunder. If our indebtedness is accelerated, we~~ may ~~not be able to repay these~~ ~~debts~~produce orpricing ~~borrow~~pressures ~~sufficient~~that ~~funds~~could tohave ~~refinance~~a ~~them.~~material ~~Even~~adverse ifeffect ~~we are able to obtain new financing, it may not be~~ on ~~commercially~~our ~~reasonable terms~~business, orresults ~~terms~~of operations ~~that~~and ~~are~~financial ~~acceptable to us~~condition. ~~If our~~ ~~expectations of~~

35We are subject to competition in our markets.

~~Table~~ We face direct competition in each of ~~Contents~~our product lines from a number of companies, many of which have financial and other resources that are substantially greater than ours. We are experiencing significant competition from existing competitors with entrenched positions, and we may encounter new competitors with respect to our existing product lines as well as with respect to new products we might introduce. We have experienced a negative impact due to competitor pricing, and this impact has accelerated during the past and current fiscal years. Further, numerous well—capitalized competitors might expand their product offerings, either through internal product development or acquisitions of our direct competitors. Such competitors could introduce products or establish prices for their products in a manner that could adversely affect our ability to compete. Additionally, from time to time, we also face direct competition from bottling companies, carton manufacturers and other food and beverage providers that elect to produce their own closures rather than purchase them from outside sources.

~~future~~We ~~operating results~~ are ~~not~~subject ~~achieved,~~to orthe ~~our~~risk ~~debt~~of ischanges in ~~default~~resin ~~for any reason, our business, liquidity, financial condition and results of operations would be materially and adversely affected~~prices. ~~In addition, complying with these covenants may make it more difficult for~~ ~~us to successfully execute our business strategy and compete against companies who are not subject to such restrictions.~~

~~Pursuant~~Our toproducts anare ~~Offer~~molded tofrom ~~Purchase~~various ~~dated~~plastic ~~March 5~~materials, ~~2004,~~primarily welow ~~offered~~density ~~to purchase up to 1,319,663~~polyethylene ~~shares~~(“LDPE”) ofresin. ~~our~~LDPE ~~common stock~~resin, ~~representing~~which ~~approximately~~is ~~11% of our outstanding shares of common stock, at~~ a ~~purchase~~broadly ~~price~~traded ~~of $5.80 per share in cash. This offer was terminated on March 15~~commodity, ~~2005.~~ Weaccounts ~~did~~for ~~not~~a ~~purchase any shares of our common stock.~~significant

~~Cash and Cash Equivalents. In May 2004, appraisals of our property, plant and equipment~~37 assets in the U.S., Canada and the U.K. were completed. At that time, the value of these assets was included in the borrowing base of our revolving credit line, and that had the effect of increasing our borrowing capacity by approximately $15.0 million, as well as increasing our minimum availability requirement from $3.0 million to $5.0 million since the loan arrangements were completed. The June 21 Amendment eliminated the minimum availability requirement. However, continuing sales declines and increased costs of raw materials, among other factors, has adversely affected our financial condition. As of May 31, 2005, we had $5.8 million in cash and cash equivalents, and our unused borrowing capacity under the senior secured credit facility was approximately $29.1 million.

Weportion ~~believe~~of ~~that~~ our ~~existing~~cost ~~financial~~of ~~resources~~sales for closures. Plastic resins, ~~together~~including ~~with~~LDPE, ~~our~~are ~~current~~subject to substantial price fluctuations resulting from increasingly chronic shortages in supply and ~~anticipated~~frequent increases in the ~~results~~prices of ~~operations~~natural gas, ~~will~~crude beoil ~~adequate~~and ~~for~~other ~~the~~petrochemical ~~foreseeable~~products ~~future~~from which resins are produced, as well as other factors. These factors will likely continue to ~~service~~materially ~~our~~adversely ~~secured~~affect ~~and~~the ~~long-term~~price ~~debt,~~and totimely ~~meet~~availability ~~our~~of ~~applicable~~these ~~debt~~raw ~~covenants~~materials. ~~and~~We tohave ~~fund~~contracts with our ~~other~~three ~~liquidity~~principal resin ~~needs,~~suppliers ~~but,~~ that provide for the ~~reasons~~adjustment ~~stated~~of ~~above,~~prices wepayable ~~cannot~~by ~~assure~~us ~~you~~depending ~~that~~on ~~this~~periodic increases ~~will~~or bedecreases ~~the~~in ~~case~~published indices of national resin bulk pricing. InThe ~~this~~effects ~~respect,~~of weresin ~~note~~price ~~that~~increases ~~trends~~on ~~for~~us to a certain extent lag the ~~past~~market. ~~two~~Unprecedented ~~years~~significant inresin ~~our~~price increases ~~sales~~experienced during fiscal 2005, ~~competitive~~fiscal ~~pressures~~2006 and ~~costs~~fiscal of2007 ~~raw~~have materially and adversely ~~materials~~affected ~~have~~our ~~not~~gross ~~been~~margins ~~favorable~~and operating results for those periods. ~~Elements~~During offiscal year 2008 resin prices have significantly affected our ~~financial~~gross ~~performance,~~margin ~~including~~and ~~run-rate~~operating results in an unfavorable manner. In the event that significant increases in resin prices continue in the future, ~~are~~we may not be able ~~likely~~to pass such increases on to ~~remain~~customers atpromptly ~~currently~~in ~~depressed~~whole ~~levels~~or ~~relative~~in part. Such inability to ~~historical~~pass ~~performance~~on ~~during~~such increases, ~~the~~or delays in passing them on, would continue to have a material adverse effect on our ~~remainder~~sales ofand ~~fiscal~~margins ~~2005~~on a current or delayed basis. ~~Further,~~Most ~~while~~of weour ~~believe~~sales ~~that~~are ~~these~~either ~~trends~~made ~~have~~to ~~stabilized~~customers on a purchase order basis, ~~and~~which provide us with no assurance that we ~~are~~can pass on price increases to ~~beginning~~these customers, or pursuant to ~~achieve~~contracts ~~favorable~~that ~~results~~generally ~~from~~allow only quarterly price adjustments, which could delay our ~~continuing~~ability ~~efforts~~to pass on price increases to these customers, if at all. Moreover, even if the full amount of such price increases were passed on to customers, the increases would have the effect of reducing ~~costs~~our ~~and~~gross margins. On the other hand, if resin prices decrease, ~~implementing~~customers ~~manufacturing~~typically ~~and~~would ~~organizational~~expect ~~efficiencies~~rapid pass—through of the decrease, and we cannot assure you that ~~substantial~~ ~~improvements~~we ~~will~~would ~~occur~~be ~~through~~able ~~the~~to ~~remainder~~maintain ofour ~~fiscal~~gross ~~2005 or beyond~~margins.

~~Off-Balance~~ We ~~Sheet~~may ~~Arrangements~~not be able to arrange for sources of resin from our regular vendors or alternative sources in the event of an industry—wide general shortage of resins used by us, or a shortage or discontinuation of certain types of grades of resin purchased from one or more of our suppliers.

We ~~own a 50% interest in Capsnap Europe Packaging GmbH (“CSE”). CSE is an unconsolidated, 50% owned Austrian joint venture that sells five-gallon closures and bottles that~~ are ~~produced~~capital ~~by Portola Packaging Limited (UK). CSE has a 50% ownership interest in Watertek~~constrained, ~~a joint venture Turkish company,~~ which ~~produces~~has ~~and~~reduced ~~sells~~our ~~five-gallon~~ability ~~water~~to ~~bottles~~make ~~and~~capital ~~closures~~expenditures ~~for the European~~ and ~~Middle Eastern market places. Watertek is the owner of a 50% interest in a Greek company, Cap~~has ~~Snap~~limited ~~Hellas, that is selling~~ our ~~products~~flexibility in ~~Greece.~~operating Inour ~~2003, CSE acquired all of the stock of Semopac, a French producer of five gallon polycarbonate bottles, for a note having a principal amount of approximately $3~~business.~~0 million and a three-year term. Our portion of the results of these~~ ~~joint venture operations is reflected in other (income) expense, net. See “Contractual Obligations” and Note 10 of the Notes to unaudited condensed consolidated financial statements.~~

36 At November 30, 2007, we had cash and cash equivalents, including restricted cash, of $3.6 million. A significant portion of our cash and cash equivalents and cash from operations must be used to service our significant debt obligations, which includes $7.4 million in semi-annual interest payments with respect to our Senior Notes and the remaining $0.75 million payments for the Blackhawk Molding Company Inc. litigation settlement. In addition, our senior secured credit facility and the indenture governing our Senior Notes contain a number of significant restrictions and covenants that limit our ability and our subsidiaries’ ability to incur further indebtedness or make capital expenditures. We would also likely encounter difficulties in raising capital through an equity offering, particularly as a company whose stock is not publicly traded. As a result of our current financial position, we may be limited in our ability to allocate equipment and other resources to meet emerging market and customer needs and from time to time are unable to take advantage of sales opportunities for new products. Similarly, we are sometimes unable to implement cost-reduction measures that might be possible if we were able to bring on line more efficient plant and equipment. These limitations in operating our business could adversely affect our operating results and growth prospects.

~~Table~~The integration of ~~Contents~~future acquisitions may result in substantial costs, delays and other problems.

~~Contractual~~ We ~~Obligations~~may not be able to successfully integrate future acquisitions, if any, without substantial costs, delays or other problems. Future acquisitions would require us to expend substantial managerial, operating, financial and other resources to integrate any new businesses. The costs of such integration could have a material adverse effect on our operating results and financial condition. Such costs would likely include non—recurring acquisition costs, investment banking fees,

~~The following sets forth our contractual obligations as of May 31, 2005:~~38

	Payments Due by Period
			Less than				3–5		More than
	Total		1 Year		1–3 Years		Years		5 Years
Contractual Obligations:	(dollars in thousands)
Long-Term Debt, including current portion:
Senior Notes (1)	$	280,238	$	14,850	$	29,700	$	29,700	$	205,988
Revolver (2)		23,019		639		1,277		21,103		—
Capital Lease Obligations (3)		148		53		62		33		—
Operating Lease Obligations (4)		35,608		4,892		6,281		5,613		18,822
Guarantees (5)	$	1,584	$	—	$	352	$	437	$	795

recognition of transaction—related obligations, plant closing and similar costs and various other acquisition—related costs. In addition, each transaction inherently carries an unavoidable level of risk regarding the actual condition of the acquired business, regardless of the investigation we may conduct beforehand. Until we assume operating control of such businesses, we may not be able to ascertain the actual value or understand the potential liabilities of the acquired entities. If and when we acquire a business, we would likely be subject to risks including:

(1)		On January 23, 2004, we completed an offering of $180.0 million in aggregate principal amount of Senior Notes that mature on February 1, 2012 and bear interest at 8 1/4% per annum. Interest payments of approximately $7.4 million are due semi-annually on February 1 and August 1 of each year. Interest began accruing January 23, 2004 and the first interest payment date commenced August 1, 2004. The indenture governing the Senior Notes contains certain restrictive covenants and provisions.
(2)		Concurrently with the offering of the Senior Notes, we entered into an amended and restated five-year senior revolving credit facility of up to $50.0 million. We entered into an amendment to this senior secured credit facility on May 21, 2004, a limited waiver and second amendment to this credit agreement on November 24, 2004, a fifth amendment to the senior secured credit facility on April 4, 2005, a sixth amendment to the senior secured credit facility on May 2, 2005 and a seventh amendment to the senior secured credit facility on June 21, 2005 (the “June 21 Amendment”). The amended and restated credit facility contains covenants and provisions that restrict, among other things, our ability to: (i) redeem warrants and repurchase stock, except during the first year, (ii) incur additional indebtedness, (iii) incur liens on our property, (iv) make investments, (v) enter into guarantees and other contingent obligations, (vi) merge or consolidate with or acquire another person or engage in other fundamental changes, or in certain sales of assets, (vii) engage in certain transactions with affiliates, (viii) make restricted junior payments, and (ix) declare or pay dividends. The June 21 Amendment, which superseded the April 4 Amendment and the May 2 Amendment and their covenants, revised the credit agreement as follows: (a) the borrowing base calculation is based on the product of trailing 12 month restricted EBITDA and a leverage multiple of 2.5 less any outstanding senior indebtedness, which excludes senior indebtedness evidenced by the Senior Notes and any guaranties thereof and excluding any fees, liabilities or other obligations payable with respect to such senior indebtedness; (b) we are required to maintain EBITDA for any 12-month period ending on the last day of each fiscal month, commencing with the fiscal month ending May 31, 2005, of at least $17.5 million; (c) we no longer are required to maintain a borrowing availability amount; and (d) the amount we can invest in certain specified subsidiaries was increased from $6.7 million to $8.5 million. The June 21 Amendment also eliminated the fixed charges coverage and senior leverage ratios. An unused fee is payable on the facility

	•		the possibility that it would be difficult to integrate the operations into our existing operations;

	•		the possibility that we had acquired substantial undisclosed liabilities;

	•		the risks of entering markets, producing products or offering services for which we had no prior experience;

	•		the potential loss of customers of the acquired business; and

	•		the possibility we might be unable to recruit managers with the necessary skills to supplement or replace the incumbent management of the acquired business.

37 We may not be successful in overcoming these risks.

~~Table~~We ofdepend ~~Contents~~on new business development, international expansion and acquisition.

		based on the total commitment amount less the average daily aggregate amount of outstanding liability, at the rate of 0.50% per annum. In addition, interest payable is based on at our election, the Bank Prime Loan rate plus 1.25% or the LIBOR loan rate plus 2.75% determined by a pricing table based on the outstanding credit facility balance.
(3)		We acquired certain machinery and office equipment under non-cancelable capital leases.
(4)		We lease certain office, production and warehouse facilities under operating lease agreements expiring on various dates through 2021. Under the terms of the facilities’ leases, we are responsible for common area maintenance expenses, which include taxes, insurance, repairs and other operating costs. Base rent expense for fiscal 2005 is estimated to be $4.7 million.
(5)		We issued a letter of credit in October 1999, expiring December 2010, that guarantees $0.4 million of a loan related to the purchase of machinery for CSE’s 50% owned Turkish joint venture, Watertek. CSE is an unconsolidated, 50% owned Austrian joint venture that sells five-gallon water bottles and closures that are produced by Portola Packaging Limited (UK). We extended the expiration date of a letter of credit in February 2004, that now expires in February 2007, and that guarantees a loan of $0.4 million for the purchase of machinery by CSE. These guarantee agreements are in Eurodollars and were valued using a conversion rate as of May 31, 2005.
		In November 2000, our Mexican consolidated subsidiary entered into a ten-year lease for a building in Guadalajara, Mexico commencing in May 2001, at which time we guaranteed approximately $0.6 million in future lease payments relating to the lease. Our Mexican operations relocated to the new building during May 2001. In April 2004, we amended the lease of our Mexican building to allow for construction of a 20,000 square foot expansion to our existing facilities. Construction of this expansion began in the third quarter of fiscal 2004 and was completed in September 2004, at which time the ten-year amended lease became effective. At the time the expansion was completed, we guaranteed approximately $0.2 million in additional future lease payments related to the amended lease.

We believe that growth has slowed in the domestic markets for our traditional beverage products. In order to increase our sales, we have intensified and streamlined domestic sales channels but we cannot assure you that these changes will cause improvements in sales. We believe we must also continue to develop new products in the markets we currently serve and new products in different markets and to expand in our international markets. Developing new products and expanding into new markets will require a substantial investment and involve additional risks. We cannot assure you that our efforts to achieve such development and expansion will be successful. Expansion poses risks and potential adverse effects on our operating results, such as the diversion of management’s attention, the loss of key personnel and the risks of unanticipated problems and liabilities. We do not anticipate making acquisitions in the near future because of capital constraints and because, our senior credit facility imposes significant restrictions on our ability to make investments in or to acquire other companies.

~~Related~~Difficulties ~~Party~~presented ~~Transactions~~by non—U.S. economic, political, legal, accounting and business factors could negatively affect our interests and business efforts.

WeApproximately ~~engage~~54% ~~in certain related party transactions throughout the course~~ of our ~~business. Related party~~ sales ~~of $2.6 million and $3.1 million~~ for ~~the~~fiscal ~~three~~2007 ~~months~~were ~~ended~~derived ~~May 31,~~from ~~2005~~shipments ~~and~~to destinations ~~2004,~~outside ~~respectively,~~of ~~and $6.3 million and $7.7 million for~~ the ~~nine~~United ~~months~~States ~~ended~~or ~~May 31,~~from ~~2005 and 2004, respectively, consisted primarily of closures produced by~~ our ~~U.K.~~ operations ~~that~~outside ~~were~~the ~~sold to~~United ~~our joint venture, CSE~~States. ~~Related~~We ~~party~~intend ~~expenses~~to inexpand such ~~selling,~~exports ~~general~~ and ~~administrative~~our ~~include $61,000~~international ~~and~~operations ~~$33,000 of legal fees~~ and ~~expenses~~customer ~~incurred~~base. ~~from~~Our ~~Tomlinson~~sales ~~Zisko~~outside ~~LLP,~~of ~~$83,000~~the ~~and~~United ~~$68,000~~States ofgenerally ~~legal~~involve ~~fees~~longer ~~and~~payment ~~expenses~~cycles ~~incurred~~ from ~~Themistocles~~customers ~~Michos~~than ~~and~~our ~~$6,000~~sales ~~and~~inside $0the ofUnited ~~investment~~States. ~~advisory~~Our ~~costs~~operations ~~incurred~~outside ~~from The Breckenridge Group for~~ the ~~three~~United ~~months~~States ~~ended~~require ~~May 31, 2005~~us ~~and~~to ~~2004,~~comply ~~respectively,~~with ~~and~~the ~~$113,000 and $178,000 of~~ legal ~~fees and expenses incurred from~~requirements ~~Tomlinson Zisko LLP, $186,000 and $183,000~~ of ~~legal~~foreign ~~fees~~jurisdictions and ~~expenses~~expose ~~incurred~~us ~~from~~to ~~Themistocles Michos~~the ~~and~~political ~~$24,000~~consequences ~~and $31,000~~ of ~~investment~~operating ~~advisory~~in ~~costs incurred from The Breckenridge Group~~foreign ~~for the nine months ended May 31, 2005 and 2004, respectively~~jurisdictions. ~~There~~Our ~~have~~operations ~~been~~outside nothe ~~other significant~~United ~~additional~~States ~~related~~are ~~party~~also ~~transactions~~subject ~~from those disclosed in “Item 13. – Certain Relationships and Related Transactions” and Note 16 of Notes~~ to ~~Consolidated Financial Statements of Amendment No. 2 to our Annual Report on Form 10-K/A for~~ the ~~year~~following ~~ended August 31, 2004.~~potential risks:

38 • difficulty in managing and operating such operations because of distance, and, in some cases, language and cultural differences; • fluctuations in the value of the U.S. dollar that could increase or decrease the effective price of our products sold in U.S. dollars and might have a material adverse effect on sales or costs, require us to raise or lower our prices or affect our reported sales or margins in respect of sales conducted in foreign currencies;

~~Table of Contents~~39

~~Recent~~• ~~Accounting~~difficulty ~~Pronouncements~~ entering new international markets due to greater regulatory barriers than those of the United States and differing political systems; • increased costs due to domestic and foreign customs and tariffs, adverse tax legislation, imposition or increases of withholding and other taxes on remittances and other payments by subsidiaries; • credit risk or financial condition of local customers and distributors; • potential difficulties in staffing and labor disputes; • risk of nationalization of private enterprises; • government embargoes or foreign trade restrictions such as anti—dumping duties; • increased costs of transportation or shipping; • ability to obtain supplies from foreign vendors and ship products internationally during times of crisis or otherwise; • difficulties in protecting intellectual property; • increased worldwide hostilities; • potential imposition of restrictions on investments; and • local political, economic and social conditions such as hyper—inflationary conditions and political instability.

InAny ~~December 2004,~~further ~~the~~expansion ~~FASB issued Statement No. 123(R), Shared-Based Payment. Statement 123(R) requires the measurement~~ of ~~all~~our ~~employee~~international ~~stock-based~~operations ~~compensation~~would ~~awards~~increase ~~using~~these aand ~~fair~~other ~~value~~risks. As ~~method~~we asenter ofnew ~~the~~geographic ~~grant~~markets, ~~date~~we ~~and~~may ~~recording~~encounter ~~such~~competition ~~expense~~from in the ~~consolidated~~primary ~~financial~~participants ~~statements.~~in Inthose ~~addition,~~markets ~~the~~that ~~adoption~~may ofhave ~~Statement~~significantly ~~123(R)~~greater ~~will~~market ~~require~~knowledge ~~additional~~and ~~accounting~~that ~~related~~may tohave ~~the~~substantially ~~income~~greater ~~tax~~resources ~~effects~~than ~~and~~we ~~additional disclosure regarding the cash flow effects resulting from share-based payment arrangements~~do. ~~Statement~~In ~~123(R)~~addition, iswe ~~effective~~conduct ~~for~~some ~~public~~of ~~companies~~our ~~for~~international ~~annual~~operations through ~~periods~~joint ~~beginning~~venture ~~after~~arrangements ~~June 15,~~in ~~2005.~~which Weour ~~are~~operational ~~currently~~and ~~evaluating~~financial ~~the~~control ~~impact~~ of the ~~adoption~~business ofare ~~Statement 123(R)~~limited.

InAdverse ~~November 2004,~~weather ~~the~~conditions ~~FASB~~could ~~issued~~adversely Statement of Financial Accounting Standards No. 151 (“SFAS 151”), Inventory Costs, and amendment of ARB No. 43, Chapter 4. This Statement amends the guidance in ARB No. 43 Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, excessive spoilage, double freight, handling costs, and wasted material (spoilage). The provisions of this Statement will be effective for inventory costs during fiscal years beginning after June 15, 2005. We do not believe that the adoption of this Statement will have a material impact on our financial ~~position,~~ results ~~of operations or cash flows~~.

~~Risk~~ Weather ~~Factors~~conditions around the world can have a significant impact on our sales. Unusually cool temperatures during a hot weather season in one or more of our markets have adversely affected, and could again adversely affect, sales of our products in those markets.

~~The~~We ~~following~~are ~~risk~~subject ~~factors may cause actual results~~ to ~~differ~~risks ~~materially~~that ~~from~~our ~~those~~intellectual ~~in any~~property ~~forward–looking~~may ~~statements~~not ~~contained~~be inadequately ~~such~~protected, ~~business~~and ~~description~~we ~~or elsewhere in this report~~may orbe ~~made~~adversely inaffected by the ~~future~~intellectual byproperty usrights orof ~~our representatives:~~others.

~~Risks~~ We ~~related~~rely on a combination of patents and trademarks, licensing agreements and unpatented proprietary know—how and trade secrets to establish and protect our ~~outstanding~~intellectual ~~indebtedness~~property rights. We enter into confidentiality agreements with customers, vendors, employees, consultants and potential acquisition candidates to protect our know—how, trade secrets and other proprietary information. However, these measures and our patents and trademarks may not afford complete protection of our intellectual property, and it is possible that third parties may copy or otherwise obtain and use our proprietary information and technology without authorization or otherwise infringe on our intellectual property rights. We cannot assure you that our competitors will not independently develop equivalent or superior know—how, trade secrets or production methods.

~~Our level of indebtedness and restrictions on our ability to incur additional indebtedness under~~40 ~~existing credit agreements could limit cash flow available for our operations and could adversely affect our ability to obtain additional financing.~~

AsWe are involved in litigation from time to time in the course of ~~May 31,~~our ~~2005~~business to protect and enforce our intellectual property rights, and third parties from time to time initiate litigation against us asserting that our ~~total~~business ~~indebtedness~~infringes ~~was~~or ~~approximately~~violates ~~$200.8 million.~~their ~~$180~~intellectual property rights.~~0 million~~ ofWe ~~this~~cannot ~~amount~~assure ~~represented~~you ~~the~~that ~~Senior~~our ~~Notes~~intellectual ~~due~~property ~~2012,~~rights ~~$20.7 million~~have ~~represented~~the ~~funds~~value ~~drawn~~that ~~down~~we ~~under~~believe them to have or that our ~~senior~~products ~~secured~~will ~~credit~~not ~~facility~~be ~~and~~found ~~$0.1 million~~to ~~was~~infringe ~~principally~~upon ~~composed~~the ofintellectual ~~capital~~rights ~~leases~~of others. ~~Moreover~~Further, we cannot assure you that we will prevail in any such litigation, or that the results or costs of any such litigation will not have a ~~total~~material ~~shareholders’~~adverse ~~deficit~~effect ofon ~~$55~~our business.7 For example, on May ~~million~~31, 2006, the Company and Blackhawk Molding Co., ~~Our~~Inc. ~~level~~(“Blackhawk”) ofsettled ~~indebtedness~~a ~~and~~patent ~~limits~~infringement onclaim ~~our~~by ~~ability~~the Company agreeing to ~~incur~~pay ~~additional~~Blackhawk ~~indebtedness~~$4.0 million ~~under~~on ~~existing~~June 30, ~~credit~~2006, ~~agreements~~$0.5 million ~~could~~per quarter for four quarters thereafter and $0.25 million for the following four quarters. ~~restrict~~The ~~our~~Company has adequate cash flow from operations and ~~make~~availability itunder ~~more~~its ~~difficult~~lines ~~for~~of uscredit to make ~~fulfill~~the ~~our~~remaining ~~obligations thereunder~~payments. ~~Among~~ ~~other~~Any ~~things,~~litigation ~~our~~concerning ~~level~~intellectual ofproperty ~~indebtedness~~could be protracted and ~~restrictions~~costly and is inherently unpredictable and could have a material adverse effect on our ~~indebtedness~~business and ~~may:~~results of operations regardless of its outcome.

• A ~~limit~~number of our ~~ability~~patents relating to ~~obtain~~one ~~additional~~of ~~financing~~our ~~for~~closure ~~working~~product ~~capital,~~lines ~~capital~~have ~~expenditures,~~expired ~~strategic~~in ~~acquisitions~~recent years. ~~and~~We ~~general~~believe ~~corporate~~that ~~purposes;~~such •expirations ~~require~~have, us to ~~dedicate~~varying ~~all~~effect, oradversely aaffected ~~substantial~~our ~~portion~~margins ofas competitors ~~our~~who ~~cash~~have ~~flow~~become free to ~~service~~imitate our ~~debt,~~designs ~~which~~have ~~will~~begun ~~reduce~~to ~~funds~~compete ~~available~~aggressively ~~for~~against us ~~other~~in ~~business~~the ~~purposes,~~pricing ~~such~~of ascertain ~~capital~~products. ~~expenditures~~These oradverse ~~acquisitions;~~effects •will ~~limit~~only ~~our~~be ~~flexibility~~partially inameliorated ~~planning for or reacting~~ to ~~changes in~~ the ~~markets~~extent inthat ~~which~~ we ~~compete;~~continue ~~• place us at a competitive disadvantage relative~~ to ~~our~~obtain ~~competitors~~new ~~with less indebtedness;~~patents.

39 The laws of certain countries in which our products or technology are or may be licensed may not protect our intellectual property rights to the same extent as the laws of the United States. The protection offered by the patent laws of foreign countries may be less protective than the United States patent laws.

~~Table~~Defects ofin ~~Contents~~our products could result in litigation and harm our reputation.

• Many ~~render~~of usour ~~more~~products ~~vulnerable~~are used to ~~general~~cap ~~adverse~~beverage ~~economic~~and food products. From time to time in the past, we and ~~industry~~other ~~conditions;~~producers of similar products have received complaints from customers and end—consumers •claiming ~~make~~that itsuch ~~more~~products ~~difficult~~might ~~for~~cause usor have almost caused injury to ~~satisfy~~the end—consumer. In some instances, such claims have alleged defects in manufacture or faulty design of our ~~financial~~closures. ~~obligations~~In the event an end—consumer suffers a harmful accident, we could incur substantial costs in responding to complaints or litigation. Further, if any of our products were found to be defective, we could incur damages and significant costs in correcting any defects, lose sales and suffer damage to our reputation.

~~Nonetheless,~~Our atcustomers’ ~~present~~products wecould ~~and our subsidiaries may still~~ be ~~able~~contaminated tothrough ~~incur~~tampering, ~~substantially~~which ~~more debt.~~could ~~The~~harm ~~terms of~~ our ~~senior secured credit facility and the indenture governing our Senior Notes~~reputation ~~permit additional borrowings~~ and ~~such borrowings may be secured debt~~business.

~~Our~~ Terrorist ~~ability~~activities tocould ~~service~~result ~~our~~in ~~debt~~contamination ~~and~~or ~~meet~~adulteration of our ~~cash~~customers’ ~~requirements~~products, as ~~depends~~our onproducts ~~many~~are ~~factors,~~tamper ~~some~~resistant but not tamper proof. We cannot assure you that a disgruntled employee or third party could not introduce an infectious substance into packages of our finished ~~which~~products, ~~are~~either ~~beyond~~at our ~~control~~manufacturing plants or during shipment of our products. Were our products or our customers’ products to be tampered with in a manner not readily capable of detection, we could experience a material adverse effect to our reputation, business, operations and financial condition.

~~Our ability to satisfy our obligations will depend on our future operating performance and~~41 financial results, which will be subject, in part, to factors beyond our control, such as interest rates and general economic, financial and business conditions. If we are unable to generate sufficient cash flow to service our debt, we may be required to:

•Changes ~~refinance~~to ~~all~~government orregulations aaffecting ~~portion of~~ our ~~debt;~~products •could ~~obtain~~harm ~~additional financing; • sell certain of~~ our ~~assets or operations; • reduce or delay capital expenditures; or • revise or delay our strategic plans~~business.

IfOur weproducts are ~~required~~subject to ~~take~~governmental ~~any~~regulation, ofincluding ~~these~~regulation ~~actions,~~by itthe ~~could~~Federal ~~have~~Food and aDrug ~~material~~Administration ~~adverse~~and ~~effect~~other ~~on our~~agencies ~~business,~~in ~~financial~~the ~~condition~~United States and ~~results~~elsewhere. ofA ~~operations.~~change Inin government ~~addition,~~regulation wecould adversely affect our business. We cannot assure you that federal, state weor ~~would~~foreign beauthorities ~~able~~will tonot ~~take~~issue ~~any~~regulations ofin ~~these~~the ~~actions,~~future that ~~these~~could ~~actions~~materially ~~would~~increase ~~enable~~our costs usof tomanufacturing ~~continue~~certain of our products. Our failure to comply with applicable laws and ~~satisfy~~regulations ~~our~~could ~~capital~~subject ~~requirements~~us to civil remedies, including fines, injunctions, recalls, or ~~that~~seizures as ~~these~~well ~~actions~~as ~~would~~potential becriminal ~~permitted~~sanctions, ~~under~~which ~~the~~could ~~terms~~have ofa ~~our various~~material ~~credit~~adverse ~~agreements~~effect on us.

~~The~~Our ~~covenants~~business inmay ~~our~~be ~~senior~~adversely ~~secured~~affected ~~credit~~by ~~facility~~compliance ~~and~~obligations ~~the~~or ~~indenture~~liabilities ~~governing our Senior Notes~~under ~~impose~~environmental, ~~restrictions~~health ~~that~~and ~~may~~safety ~~limit~~laws ~~our operating~~ and ~~financial flexibility~~regulations.

~~Our~~We ~~senior~~are ~~secured~~subject ~~credit~~to ~~facility~~federal, state, local and ~~the~~foreign ~~indenture~~environmental ~~governing~~and ~~our~~health ~~Senior~~and ~~Notes~~safety ~~contain~~laws and aregulations that could result in liability, affect ongoing operations and increase capital ~~number~~costs and operating expenses in order to maintain compliance with such requirements. Some of ~~significant~~these laws ~~restrictions~~and regulations provide for strict and ~~covenants~~joint ~~that~~and ~~limit~~several ~~our~~liability ~~ability~~regarding contaminated sites. Such sites may include properties currently or formerly owned or operated by us and properties ~~our~~to ~~subsidiaries’~~which we disposed of, or arranged to dispose of, wastes or hazardous substances. ~~ability~~Based on the information presently known to: us, we do not expect environmental costs or contingencies to have a material adverse effect on us. We may, however, be affected by hazards or other conditions presently unknown to us. In addition, we may become subject to new requirements pursuant to evolving environmental, and health and safety, laws and regulations. Accordingly, we cannot assure you that we will not incur material environmental costs or liabilities in the future.

•We ~~incur~~depend ~~liens~~upon ~~and~~key debt or provide guarantees in respect of obligations of any other person; • issue redeemable preferred stock and subsidiary preferred stock; • make redemptions and repurchases of capital stock; • make loans, investments and capital expenditures; • prepay, redeem or repurchase debt; • engage in mergers, consolidations and asset dispositions; • engage in sale/leaseback transactions and affiliate transactions;personnel.

40 We believe that our future success depends upon the knowledge, ability and experience of our personnel. The loss of key personnel responsible for managing Portola or for advancing our product development could adversely affect our business and financial condition.

~~Table~~We are controlled by Jack L. Watts, a Director and major shareholder, and J.P. Morgan Partners 23A SBIC, LLC, an affiliate of ~~Contents~~J.P. Morgan Securities Inc., and their interests may conflict with those of our other security holders.

• Jack ~~change~~L. Watts (a member of our ~~business~~Board of Directors), ~~amend~~and ~~certain~~J.P. ~~debt~~Morgan ~~and~~Partners ~~other~~23A ~~material~~SBIC, ~~agreements~~LLC (an affiliate of J.P. Morgan Securities Inc., one of the initial purchasers of our 8 1/4% Senior Notes) own a majority of our common stock. Robert Egan, a member of our Board of Directors, is a affiliate of J.P. Morgan Partners, LLC and ~~issue~~a Partner of J.P. Morgan Entertainment Partners, LLC, each of which is an affiliate of J.P. Morgan Partners 23A SBIC, LLC, may not in all cases be aligned with the interests of our other security holders. We currently have three independent directors (as defined under the rules of the NASDAQ Stock Market) on our Board of Directors. Our Board of Directors and ~~sell~~Compensation ~~capital~~Committee ~~stock~~have not met, including at such times when they have considered issues of ~~subsidiaries~~importance to us, the standard “independence” requirements that would be applicable if our equity securities were traded on NASDAQ or the New York Stock Exchange (“NYSE”); however, the Audit Committee does meet such independence requirements, but only has two members rather than the three that would be required by NASDAQ and •the ~~make~~NYSE.. ~~distributions~~We have engaged in a number of related party transactions. For example, from 1999 through 2002, we engaged in several transactions with Sand Hill Systems, Inc., an entity in which Mr. Watts and other of our officers and directors had a financial interest. See “Item 13—Certain Relationships and Related Transactions” and Note 14 of the Notes to ~~shareholders~~Consolidated Financial Statements of our Annual Report on Form 10-K for the fiscal year ended August 31, 2007.

~~Future adverse changes in our operating results or other negative developments, such as~~42 increases in interest rates or in resin prices, shortages of resin supply or decreases in sales of our products, could result in our being unable to comply with the financial covenants in our senior secured credit facility. If we fail to comply with any of our loan covenants in the future and are unable to obtain waivers from our lenders, we could be declared in default under these agreements, and our lenders could accelerate our obligations thereunder. If our indebtedness is accelerated, we may not be able to repay our debt or borrow sufficient funds to refinance it. Even if we are able to obtain new financing, it may not be on commercially reasonable terms, or terms that are acceptable to us. If our expectations of future operating results are not achieved, or our debt is in default for any reason, our business, financial condition and results of operations would be materially and adversely affected. In addition, complying with these covenants may make it more difficult for us to successfully execute our business strategy and compete against companies who are not subject to such restrictions.

~~Our~~ITEM ~~Senior~~6. ~~Notes are effectively subordinated to all of our secured debt, and if a default occurs,~~EXHIBITS ~~we may not have sufficient funds to fulfill our obligations under the Senior Notes.~~

~~Our Senior Notes are not secured by any of our assets. The indenture governing the Senior~~Exhibits Notes permits us to incur certain secured indebtedness, including indebtedness under our senior secured credit facility. If we become insolvent or are liquidated, or if payment under the credit facility or other secured indebtedness is accelerated, the lenders under the credit facility and the holders of any other secured indebtedness would be entitled to exercise the remedies available to them as secured creditors under applicable laws and pursuant to instruments governing such indebtedness. Accordingly, such secured indebtedness would have a prior claim on the collateral and would effectively be senior to the Senior Notes to the extent that the value of such collateral is sufficient to satisfy the indebtedness secured thereby. To the extent that the value of such collateral is not sufficient to satisfy the secured indebtedness, amounts remaining outstanding on such indebtedness would be entitled to share with holders of Senior Notes and other claims on us with respect to any of our other assets. In either event, because the Senior Notes are not secured by any of our assets, it is possible that there will be insufficient assets remaining from which claims of the holders of the Senior Notes could be satisfied. In addition, we cannot assure you that the guarantees from our subsidiary guarantors, or any guarantee delivered by a restricted subsidiary formed in the future, would not be subject to avoidance by another creditor as a fraudulent transfer or for other reasons. Our unrestricted subsidiaries do not guarantee our obligations under the Senior Notes. Upon liquidation of any unrestricted subsidiary, such obligations would be effectively subordinated to claims of such subsidiary’s creditors upon its assets. It is likely that this will also be the case for other unrestricted subsidiaries that we may form in the future. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Overview” of Amendment No. 2 to our Annual Report Form 10-K/A for the fiscal year ended August 31, 2004 for additional information regarding our restricted and unrestricted subsidiaries.

We may be unable to purchase our Senior Notes upon a change of control.

	31.01		Certification of Brian J. Bauerbach, Chief Executive Officer of Portola Packaging, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	31.02		Certification of Michael T. Morefield, Chief Financial Officer of Portola Packaging, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	32.01		Certification of Brian J. Bauerbach, Chief Executive Officer of Portola Packaging, Inc., and Michael T. Morefield, Chief Financial Officer of Portola Packaging, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes — Oxley Act of 2002

~~Upon a change of control of Portola (as defined in the indenture governing our Senior Notes),~~43 each holder of Senior Notes will have certain rights to require us to repurchase all or a portion of such holder’s Senior Notes. If a change of control were to occur, we cannot assure you that we would have sufficient funds to pay the repurchase price for all Senior Notes tendered by the holders

41SIGNATURES

~~Table~~ Pursuant to the requirements of ~~Contents~~the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

thereof. In addition, a change of control would constitute a default under our senior secured credit facility and, since indebtedness under the credit facility effectively ranks senior in priority to indebtedness under the Senior Notes, we would be obligated to repay indebtedness under the credit facility in advance of indebtedness under our Senior Notes. Our repurchase of Senior Notes as a result of the occurrence of a change of control may be prohibited or limited by, or create an event of default under, the terms of other agreements relating to borrowings that we may enter into from time to time, including agreements relating to secured indebtedness. Failure by us to make or consummate a change of control offer would constitute an immediate event of default under the indenture governing the Senior Notes, thereby entitling the trustee or holders of at least 25% in principal amount of the then outstanding Senior Notes to declare all of the Senior Notes to be due and payable immediately; provided that so long as any indebtedness permitted to be incurred pursuant to the senior secured credit facility is outstanding, such acceleration shall not be effective until the earlier of (i) an acceleration of any such indebtedness under the credit facility or (ii) five business days after receipt by us of written notice of such acceleration. In the event all of the Senior Notes are declared due and payable, our ability to repay the Senior Notes would be subject to the limitations referred to above.


	PORTOLA PACKAGING, INC. (Registrant)
Date: January 18, 2008	/s/ Michael T. Morefield
	Michael T. Morefield
	Senior Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Officer)

~~Risks related to our business~~44

WeEXHIBIT ~~have completed the integration of Portola Tech International (“PTI”) with the beverage product~~INDEX ~~elements of our Company. We have not realized some of the anticipated benefits of this acquisition and other expected benefits may not be realized at all.~~

The integration of PTI with our other operations is substantially completed. Not all expected operating efficiencies, growth opportunities and other benefits of the transaction that we anticipated at the time of the acquisition have been realized and others may be realized later than planned or not at all.


Exhibit
Number		Exhibit Title

31.01		Certification of Brian J. Bauerbach, Chief Executive Officer of Portola Packaging, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.02		Certification of Michael T. Morefield, Chief Financial Officer of Portola Packaging, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.01		Certification of Brian J. Bauerbach, Chief Executive Officer of Portola Packaging, Inc., and Michael T. Morefield, Chief Financial Officer of Portola Packaging, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes — Oxley Act of 2002

~~The integration of PTI’s accounting records and systems into our own information and reporting~~45 systems has resulted in adjustments to PTI’s historical financial statements. We filed a form 8-K/A with the SEC on February 9, 2004 amending historical financial statements of PTI to adjust the amount of revenue and cost of sales previously reported on a Form 8-K/A filed with the SEC on December 4, 2003.

We may be subject to pricing pressures and credit risks due to consolidation in our customers’ industries, and we do not have long–term contracts with most of our customers.

The dairy, bottled water and fruit juice industries, which constitute our largest customer base from a revenue perspective, have experienced consolidations through mergers and acquisitions in recent years, and this trend may continue. We could experience additional customer concentration, and our results of operations would be increasingly sensitive to changes in the business of customers that represent an increasingly large portion of our sales or any deterioration of their financial condition. During fiscal 2004 our top ten customers accounted for approximately 34% of our sales. Consolidation has resulted in pricing pressures, as larger customers often have been able to make greater pricing and other demands over us.

We do not have firm long–term contracts covering a majority of our sales. Although customers that are not under firm contracts provide indications of their product needs and purchases on a periodic basis, they generally purchase our products on an order–by–order basis, and the relationship, as well as particular orders, can be terminated at any time. The loss or significant decrease in business or a change in the procurement practices of any of our major customers may

produce pricing pressures that could have a material adverse effect on our business, results of operations and financial condition.

We are subject to competition in our markets.

We face direct competition in each of our product lines from a number of companies, many of which have financial and other resources that are substantially greater than ours. We are experiencing significant competition from existing competitors with entrenched positions, and we may encounter new competitors with respect to our existing product lines as well as with respect to new products we might introduce. We have experienced a negative impact due to competitor pricing, and this impact has accelerated during the past and current fiscal years. Further, numerous well–capitalized competitors might expand their product offerings, either through internal product development or acquisitions of our direct competitors. Such competitors could introduce products or establish prices for their products in a manner that could adversely affect our ability to compete. Additionally, from time to time, we also face direct competition from bottling companies, carton manufacturers and other food and beverage providers that elect to produce their own closures rather than purchase them from outside sources.

We are subject to the risk of changes in resin prices.

Our products are molded from various plastic materials, primarily low density polyethylene (“LDPE”) resin. LDPE resin, which is a broadly traded commodity, accounts for a significant portion of our cost of sales for closures. Plastic resins, including LDPE, are subject to substantial price fluctuations resulting from increasingly chronic shortages in supply and frequent increases in the prices of natural gas, crude oil and other petrochemical products from which resins are produced, as well as other factors. These factors will likely continue to materially adversely affect the price and timely availability of these raw materials. We have contracts with our three principal resin suppliers that provide for the adjustment of prices payable by us depending on periodic increases or decreases in published indices of national resin bulk pricing. The effects of resin price increases on us to a certain extent lag the market. Unprecedented significant resin price increases experienced during fiscal 2003, 2004 and for the first six months of fiscal 2005, which stabilized or lessened slightly in the third quarter, have materially and adversely affected our gross margins and operating results. In the event that significant increases in resin prices continue in the future, we may not be able to pass such increases on to customers promptly in whole or in part. Such inability to pass on such increases, or delays in passing them on, would continue to have a material adverse effect on our sales and margins on a current or delayed basis. Most of our sales are either made to customers on a purchase order basis, which provide us with no assurance that we can pass on price increases to these customers, or pursuant to contracts that generally allow only quarterly price adjustments, which could delay our ability to pass on price increases to these customers, if at all. Moreover, even if the full amount of such price increases were passed on to customers, the increases would have the effect of reducing our gross margins. On the other hand, if resin prices decrease, customers typically would expect rapid pass–through of the decrease, and we cannot assure you that we would be able to maintain our gross margins.

We may not be able to arrange for sources of resin from our regular vendors or alternative sources in the event of an industry–wide general shortage of resins used by us, or a shortage or discontinuation of certain types of grades of resin purchased from one or more of our suppliers.

We are capital constrained, which has reduced our ability to make capital expenditures and has limited our flexibility in operating our business.

At May 31, 2005, we had cash and cash equivalents of $5.8 million. A significant portion of our cash and cash equivalents and cash from operations must be used to service our significant debt obligations, which includes $7.4 million in semi-annual interest payments with respect to

our Senior Notes. In addition, our senior secured credit facility and the indenture governing our Senior Notes contain a number of significant restrictions and covenants that limit our ability and our subsidiaries’ ability to incur further indebtedness or make capital expenditures. We would also likely encounter difficulties in raising capital through an equity offering, particularly as a company whose stock is not publicly traded. As a result of our current financial position, we may be limited in our ability to allocate equipment and other resources to meet emerging market and customer needs and from time to time are unable to take advantage of sales opportunities for new products. Similarly, we are sometimes unable to implement cost-reduction measures that might be possible if we were able to bring on line more efficient plant and equipment. These limitations in operating our business could adversely affect our operating results and growth prospects.

We depend on new business development and international expansion.

Difficulties presented by non–U.S. economic, political, legal, accounting and business factors could negatively affect our interests and business efforts.

Approximately 46% of our sales for fiscal 2004 were derived from shipments to destinations outside of the United States or from our operations outside the United States. We intend to expand such exports and our international operations and customer base. Our sales outside of the United States generally involve longer payment cycles from customers than our United States sales. Our operations outside the United States require us to comply with the legal requirements of foreign jurisdictions and expose us to the political consequences of operating in foreign jurisdictions. Our operations outside the United States are also subject to the following potential risks:

• difficulty in managing and operating such operations because of distance, and, in some cases, language and cultural differences; • fluctuations in the value of the U.S. dollar that could increase or decrease the effective price of our products sold in U.S. dollars and might have a material adverse effect on sales or costs, require us to raise or lower our prices or affect our reported sales or margins in respect of sales conducted in foreign currencies; • difficulty entering new international markets due to greater regulatory barriers than those of the United States and differing political systems; • increased costs due to domestic and foreign customs and tariffs, adverse tax legislation, imposition or increases of withholding and other taxes on remittances and other payments by subsidiaries;

• credit risk or financial condition of local customers and distributors; • potential difficulties in staffing and labor disputes; • risk of nationalization of private enterprises; • government embargoes or foreign trade restrictions such as anti–dumping duties; • increased costs of transportation or shipping; • ability to obtain supplies from foreign vendors and ship products internationally during times of crisis or otherwise; • difficulties in protecting intellectual property; • increased worldwide hostilities; • potential imposition of restrictions on investments; and • local political, economic and social conditions such as hyper–inflationary conditions and political instability.

Any further expansion of our international operations would increase these and other risks. As we enter new geographic markets, we may encounter competition from the primary participants in those markets that may have significantly greater market knowledge and that may have substantially greater resources than we do. In addition, we conduct some of our international operations through joint venture arrangements in which our operational and financial control of the business are limited.

Adverse weather conditions could adversely impact our financial results.

Weather conditions around the world can have a significant impact on our sales. Unusually cool temperatures during a hot weather season in one or more of our markets have adversely affected, and could again adversely affect, sales of our products in those markets.

We are subject to risks that our intellectual property may not be adequately protected, and we may be adversely affected by the intellectual property rights of others.

We rely on a combination of patents and trademarks, licensing agreements and unpatented proprietary know–how and trade secrets to establish and protect our intellectual property rights. We enter into confidentiality agreements with customers, vendors, employees, consultants and potential acquisition candidates to protect our know–how, trade secrets and other proprietary information. However, these measures and our patents and trademarks may not afford complete protection of our intellectual property and it is possible that third parties may copy or otherwise obtain and use our proprietary information and technology without authorization or otherwise infringe on our intellectual property rights. We cannot assure you that our competitors will not independently develop equivalent or superior know–how, trade secrets or production methods.

We are involved in litigation from time to time in the course of our business to protect and enforce our intellectual property rights, and third parties from time to time initiate litigation against us asserting that our business infringes or violates their intellectual property rights. We cannot assure you that our intellectual property rights have the value that we believe them to have or that

our products will not be found to infringe upon the intellectual rights of others. Further, we cannot assure you that we will prevail in any such litigation, or that the results or costs of any such litigation will not have a material adverse effect on our business. Any litigation concerning intellectual property could be protracted and costly and is inherently unpredictable and could have a material adverse effect on our business and results of operations regardless of its outcome.

A number of our patents relating to one of our closure product lines have expired in recent years. We believe that such expirations have, to varying effect, adversely affected our margins as competitors who have become free to imitate our designs have begun to compete aggressively against us in the pricing of certain products. These adverse effects will only be partially ameliorated to the extent that we continue to obtain new patents.

The laws of certain countries in which our products or technology are or may be licensed may not protect our intellectual property rights to the same extent as the laws of the United States. The protection offered by the patent laws of foreign countries may be less protective than the United States patent laws.

Defects in our products could result in litigation and harm our reputation.

Many of our products are used to cap beverage and food products. From time to time in the past, we and other producers of similar products have received complaints from customers and end–consumers claiming that such products might cause or have almost caused injury to the end–consumer. In some instances, such claims have alleged defects in manufacture or faulty design of our closures. In the event an end–consumer suffers a harmful accident, we could incur substantial costs in responding to complaints or litigation. Further, if any of our products were found to be defective, we could incur damages and significant costs in correcting any defects, lose sales and suffer damage to our reputation.

Our customers’ products could be contaminated through tampering, which could harm our reputation and business.

Terrorist activities could result in contamination or adulteration of our customers’ products, as our products are tamper resistant but not tamper proof. We cannot assure you that a disgruntled employee or third party could not introduce an infectious substance into packages of our finished products, either at our manufacturing plants or during shipment of our products. Were our products or our customers’ products to be tampered with in a manner not readily capable of detection, we could experience a material adverse effect to our reputation, business, operations and financial condition.

Changes to government regulations affecting our products could harm our business.

Our products are subject to governmental regulation, including regulation by the Federal Food and Drug Administration and other agencies in the United States and elsewhere. A change in

government regulation could adversely affect our business. We cannot assure you that federal, state or foreign authorities will not issue regulations in the future that could materially increase our costs of manufacturing certain of our products. Our failure to comply with applicable laws and regulations could subject us to civil remedies, including fines, injunctions, recalls, or seizures as well as potential criminal sanctions, which could have a material adverse effect on us.

Our business may be adversely affected by compliance obligations or liabilities under environmental, health and safety laws and regulations.

We are subject to federal, state, local and foreign environmental and health and safety laws and regulations that could result in liability, affect ongoing operations and increase capital costs and operating expenses in order to maintain compliance with such requirements. Some of these laws and regulations provide for strict and joint and several liability regarding contaminated sites. Such sites may include properties currently or formerly owned or operated by us and properties to which we disposed of, or arranged to dispose of, wastes or hazardous substances. Based on the information presently known to us, we do not expect environmental costs or contingencies to have a material adverse effect on us. We may, however, be affected by hazards or other conditions presently unknown to us. In addition, we may become subject to new requirements pursuant to evolving environmental, and health and safety, laws and regulations. Accordingly, we cannot assure you that we will not incur material environmental costs or liabilities in the future.

We depend upon key personnel.

We believe that our future success depends upon the knowledge, ability and experience of our personnel. The loss of key personnel responsible for managing Portola or for advancing our product development could adversely affect our business and financial condition.

We are controlled by Jack L. Watts, a member of our Board of Directors, and J.P. Morgan Partners 23A SBIC, LLC, an affiliate of J.P. Morgan Securities Inc., and their interests may conflict with those of our other security holders.

Jack L. Watts (a member of our Board of Directors), and J.P. Morgan Partners 23A SBIC, LLC (an affiliate of J.P. Morgan Securities Inc., one of the initial purchasers of our Senior Notes) own a majority of our common stock. Robert Egan, a member of our Board of Directors, is a Senior Advisor to J.P. Morgan Partners, LLC and a Partner of J.P. Morgan Entertainment Partners, LLC, each of which is an affiliate of J.P. Morgan Partners 23A SBIC, LLC. The interests of Mr. Watts, Mr. Egan and J.P. Morgan Partners 23A SBIC, LLC may not in all cases be aligned with the interests of our security holders. We currently have two independent directors on our Board of Directors. However, for most of fiscal 2004 there was only one independent director (as defined under the federal securities laws) on our Board of Directors. Our Board of Directors, Audit Committee and Compensation Committee have not met the standard “independence” requirements that would be applicable if our equity securities were traded on NASDAQ or the New York Stock Exchange. We have engaged in a number of related party transactions. For example, from 1999 through 2002, we engaged in several transactions with Sand Hill Systems, Inc., an entity in which Mr. Watts and other of our officers and directors had a financial interest. See “Item 13—Certain Relationships and Related Transactions” and Note 16 of the Notes to Consolidated Financial Statements of Amendment No. 2 to our Annual Report on Form 10-K/A for the fiscal year ended August 31, 2004.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk related to changes in interest rates, foreign currency exchange rates, credit risk and resin prices. We do not use derivative financial instruments for speculative or trading purposes. There have been no material changes in market risk related to changes in interest rates from that which was disclosed in our Amendment No. 2 to our Annual Report on Form 10-K/A for the fiscal year ended August 31, 2004.

Interest Rate Sensitivity

We are exposed to market risk from changes in interest rates on long–term debt obligations and we manage such risk through the use of a combination of fixed and variable rate debt. Currently, we do not use derivative financial instruments to manage our interest rate risk.

Exchange Rate Sensitivity

Our foreign subsidiaries use the local currency as their functional currency. Assets and liabilities are translated at month–end exchange rates. Income and expense items are translated at average exchange rates. Translation gains and losses are not included in determining net income (loss) but are accumulated as a separate component of shareholders’ equity (deficit). Gains (losses) arising from foreign currency transactions are included in determining net income (loss). During the three months ended May 31, 2005, we incurred a loss of $1.0 and during the nine months ended May 31, 2005, we incurred a gain of $1.4 million arising from foreign currency transactions. To date, we have not entered into any foreign currency forward exchange contracts or other derivative financial instruments relative to foreign currency exchange rates.

Credit Risk Sensitivity

Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables. Our cash and cash equivalents are concentrated primarily in several United States banks. At times, such deposits may be in excess of insured limits. Management believes that the financial institutions which hold our financial instruments are financially sound and, accordingly, minimal credit risk exists with respect to these financial instruments.

Our products are principally sold to entities in the beverage, food and CFT industries in the United States, Canada, the United Kingdom, Mexico, China, Australia, New Zealand and throughout Europe. Ongoing credit evaluations of customers’ financial condition are performed and collateral is generally not required. We maintain reserves for potential credit losses which, on a historical basis, have not been significant. There were no customers that accounted for 10% or more of sales for the three and nine months ended May 31, 2005 and 2004.

Resin Price Sensitivity

The majority of our products are molded from various plastic resins that comprise a significant portion of our cost of sales. These resins are subject to substantial price fluctuations, resulting from shortages in supply, changes in prices in petrochemical products and other factors. During fiscal 2004 and the first six months of fiscal 2005, which stabilized or lessened slightly in the third quarter, we experienced unprecedented significant increases in resin prices. In the past, we generally have been able to pass on increases in resin prices directly to our customers after delays required in many cases because of governing contractual provisions. Significant increases in resin prices coupled with an inability to promptly pass such increases on to customers could have a material adverse impact on us. The significant resin price increases we experienced during fiscal 2003, 2004 and for the six-months ended February 28, 2005, materially and adversely affected our gross margins and operating results for those periods. We experienced a decrease in gross margins due to the impact of the resin increases during fiscal 2004 and the first nine months of fiscal 2005. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations.”

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of disclosure controls and procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a–15e of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of May 31, 2005, the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level in timely alerting them to material information relating to Portola (including its consolidated subsidiaries) required to be included in our Exchange Act filings and to ensure that information required to be disclosed by us in the reports we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.

Changes in internal control over financial reporting

During the quarter ended May 31, 2005, there were no changes in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on effectiveness of controls and procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Portola have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision–making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost–effective control system, misstatements due to error or fraud may occur and not be detected.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the normal course of business, we are subject to various legal proceedings and claims. Based on the facts currently available, management believes that, subject to the qualifications expressed in the following paragraph, the ultimate amount of liability beyond reserves provided, if any, for any such pending actions in the ordinary course of business will not have a material adverse effect on our financial position.

We are currently a defendant in a suit filed by Blackhawk Molding Co., Inc. on August 28, 2003 in the U.S. District Court for the Northern District of Illinois, Eastern Division. Blackhawk Molding alleges that a “single-stick” label attached to our five–gallon caps causes our caps to infringe a patent held by it and is seeking damages. We have answered the complaint denying all allegations and asserting that Portola’s products do not infringe the Blackhawk patent and that the patent is invalid. The Court has completed the first phase of claim construction. Fact and expert witness discovery has substantially been completed. Pre-trial proceedings, including hearings on various motions for summary judgment brought by both parties, and the trial are not scheduled at this time. The ultimate outcome of this action or any litigation is uncertain. An unfavorable outcome in this action could result in our sustaining material damages. In addition, any litigation concerning intellectual property could be protracted and costly and could have a material adverse effect on our business and results of operations regardless of its outcome.

ITEM 6. EXHIBITS

Exhibits
31.01		Certification of Brian J. Bauerbach, Chief Executive Officer of Portola Packaging, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.02		Certification of Michael T. Morefield, Chief Financial Officer of Portola Packaging, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01		Certification of Brian J. Bauerbach, Chief Executive Officer of Portola Packaging, Inc., and Michael T. Morefield, Chief Financial Officer of Portola Packaging, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		PORTOLA PACKAGING, INC.
		(Registrant)
Date: July 12, 2005		/s/ Michael T. Morefield
		Michael T. Morefield
		Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Officer)

EXHIBIT INDEX

Exhibit
Number		Exhibit Title
31.01		Certification of Brian J. Bauerbach, Chief Executive Officer of Portola Packaging, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.02		Certification of Michael T. Morefield, Chief Financial Officer of Portola Packaging, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01		Certification of Brian J. Bauerbach, Chief Executive Officer of Portola Packaging, Inc., and Michael T. Morefield, Chief Financial Officer of Portola Packaging, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002

Filing Compare · PORTOLA PACKAGING INC