PORTOLA PACKAGING, INC. 10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10–K


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

For the fiscal year ended August 31, 2007


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

For the Transition Period from to

Commission File No. 33–95318

PORTOLA PACKAGING, INC.

(Exact name of Registrant as specified in its charter)


Delaware		94–1582719
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

951 Douglas Road
Batavia, Illinois 60510
(Address of principal executive offices, including zip code)

(630) 406-8440
(Registrant’s telephone number, including area code)

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

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

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

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

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

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

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

Large accelerated filer o Accelerated filer o Non-accelerated filer þ

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b–2 of the Exchange Act). Yes o No þ

Registrant’s voting and non–voting common stock is privately held and there is no public market for such common stock. The aggregate market value of Registrant’s voting and non–voting common stock cannot be computed by reference to the price at which the stock was sold, or the average bid and ask price of such common stock, as of the last business day of the Registrant’s most recently completed second fiscal quarter. There have been no sales of the voting or non–voting common stock since the last business day of the Registrant’s most recently completed second fiscal quarter.

12,014,770 shares of Registrant’s $.001 par 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 November 27, 2007.

SAFE HARBOR STATEMENT UNDER
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

In addition to historical information, 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. All statements other than statements of historical fact included in this Form 10–K, including, without limitation, statements contained in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financing alternatives, financial position, business strategy, plans and objectives of management for future operations, and industry conditions, are forward–looking statements. 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 the sections of this report entitled “Raw Materials and Production,” “Product Development,” “Competition,” “Risk Factors,” “Critical Accounting Policies and Estimates” and “Quantitative and Qualitative Disclosures About Market Risk.” These sections describe risks that could cause actual results to differ materially from such forward–looking statements. 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 have been correct, as they only reflect management’s opinions as of the date hereof. 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 except as required by law. 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, including Quarterly Reports on Form 10–Q we will file in fiscal 2008.

PART I

Item 1. BUSINESS

We are a leading designer, manufacturer and marketer of plastic closures, bottles and related equipment used for packaging applications in the non–carbonated beverage and institutional foods markets. 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 leak–proof.

We believe that we are the sole or largest supplier to our top 25 customers of the products we supply to them. We have supplied products to these customers for an average of sixteen years. We sold 12.3 billion closures and bottles in fiscal 2007 to over 2,100 customers under the names Snap Cap, Nepco, Portola, Tech Industries, Portola Tech International and other brand names. We sell our products to such beverage, food and consumer product companies as Dean Foods, Saputo, Dairy Crest, Arla Foods, Kroger, Perrier Water/Nestle, Estée Lauder, Avon and Coca–Cola.

Many features of our products have been developed through our significant research and development efforts. For example, we developed the “tear strip” feature that has become a standard tamper evident mechanism for non–carbonated beverage and food products. In addition, we have developed most of the technical information and know–how that we believe necessary to operate our business. We hold more than 277 domestic and foreign patents, with additional patent applications pending, on the design of container closures and compatible neck finishes.

Our products are manufactured through technologically advanced, high speed injection molding, compression molding and blow molding processes at twelve manufacturing facilities, including five located in the United States, three in Canada and one in each of the United Kingdom (“U.K.”), Mexico, China, and the Czech Republic. In addition, we have one equipment and tooling facility located in the United States.

History

We were founded in 1964 and were acquired from our founders in 1986 by a group led by Jack L. Watts. We reincorporated in the State of Delaware on April 29, 1994. We have grown from $31.4 million in sales and 2.4 billion in closure units sold in fiscal 1988 to $269.6 million in sales and 12.0 billion closures and 305.0 million bottles sold in fiscal 2007. Portola’s senior management has significant experience in the plastic packaging business.

On June 30, 1994, we acquired Northern Engineering & Plastics Corp., a Pennsylvania corporation, and certain related companies and assets (collectively, “Pennsylvania Nepco”) for a purchase price of $43.7 million. The acquisition of Pennsylvania Nepco, a designer, manufacturer and marketer of tamper evident plastic closures in markets similar to those served by Portola, enabled us to establish new customer relationships, diversify and expand our product offerings and customer base and benefit from Pennsylvania Nepco’s proprietary product designs.

On June 16, 1995, we purchased for $13.6 million the 50% interest we had not previously owned in Canada Cap Snap Corporation, a British Columbia corporation engaged in manufacturing and distributing small closures in western Canada, together with all the capital stock of two affiliated plastic bottle manufacturers. On September 1, 1996, we purchased for $2.1 million Rapid Plast J–P, Inc., a company headquartered in Montreal, Quebec engaged in manufacturing and distributing plastic bottles, primarily in eastern Canada. The Canadian acquisitions enabled us to establish a position in the Canadian bottle manufacturing marketplace and to advance our position in the Canadian closure marketplace.

During fiscal 1999, we entered into a joint venture with Greiner A.G. of Austria to form an Austrian company now named Capsnap Europe Packaging GmbH (“CSE”), which is 50% owned by Portola. CSE currently sells five–gallon closures and bottles that are produced by our United Kingdom subsidiary and our joint venture partner in CSE. CSE also has a 50% ownership interest in Watertek, a joint venture in Turkey that produces and sells five–gallon water bottles and closures for the European and Middle Eastern market places. Watertek is the owner of a 50% interest in a Greek company, Cap Snap Hellas that sells our products in Greece.

On March 31, 1999, we purchased certain operating and intangible assets and repaid certain liabilities of Allied Tool, Inc. (“Portola Allied”) for a total purchase price of $2.2 million. Portola Allied was located in Michigan and during fiscal 2006, these operations were moved to Pennsylvania. Portola Allied is engaged primarily in the manufacture and sale of tooling and molds used in the blowmolding industry.

Effective March 22, 2000, we acquired the remaining 45% ownership interest in Shanghai Portola Packaging Company Limited (“PPI China”) for $1.4 million. PPI China is located in the Shanghai province of China and is engaged in the manufacture and distribution of cosmetic plastic closures, plastic cutlery and plastic components for the electronics industry in Asia, Australia and New Zealand.

Effective January 1, 2001, we purchased certain assets and assumed certain liabilities of Consumer Cap Corporation (“Consumer”) for approximately $9.9 million. Consumer’s manufacturing and distributing operations were merged with our existing operations at that time.

On September 19, 2003, we acquired all of the outstanding capital stock of Tech Industries, Inc., (renamed as Portola Tech International, or PTI, subsequent to the acquisition; accordingly, we refer to Tech Industries, Inc. as PTI throughout this Form 10-K) for approximately $40.0 million (including assumed liabilities and transaction costs). PTI is a manufacturer of plastic closures and containers for the CFT industries. PTI’s customers include Estée Lauder and Avon, each of which has used our products for approximately 40 years. Tech Industries, Inc. provided us with an entrance to the CFT market, where advanced design capabilities and specialized manufacturing processes are required. We funded the purchase price for PTI through borrowings under our existing credit facility.

Business strategy

Our primary strategy is to increase cash flow by maintaining and extending our position as a leader in significant segments in the plastic closure, bottle and CFT markets. The key elements of this strategy are as follows:

Emphasizing research and development and product engineering. Packaging of food, beverages and CFT products is rapidly changing in the marketplace, as producers encounter increased competition and escalating sophistication among their customers. The demands for new packaging solutions can only be met by using new materials and innovative design and manufacturing techniques. We are continuing our commitment to the research and development of new containers, closures and packaging systems.

Emphasizing customer support and total product solutions. We build long–term relationships with customers and attract new customers by providing on–time delivery and technical service and support, and by positioning and selling our products as total product solutions. We work closely with our customers to design closures and compatible

container necks and neck inserts that meet their specific needs, provide them with a wide range of stock and customizable products, and support their ongoing needs for service and support. Many of our beverage closure customers also use our capping equipment, which we believe improves their products and strengthens our relationships with them.

Expanding sales in markets outside of the United States. We expect significant growth in markets outside of the United States for plastic closures, containers and capping equipment, as bottled water, other non–carbonated beverage and CFT companies in international markets adopt more advanced packaging materials and techniques. We are seeking to capitalize on these growth opportunities by entering into joint ventures with local bottle manufacturers, bottlers and distributors, by increasing export sales and by establishing direct operations in local markets.

Low cost producers in our markets. Our operations use advanced automated and proprietary manufacturing processes to provide high quality products at relatively low production costs. We have a continuous process improvement program designed to further automate our production flow, enhance the capabilities of our workforce and upgrade our molds, equipment and systems. This enables us to limit our direct labor costs while meeting the strict sanitary requirements necessary for producing food and beverage packaging products in our markets.

Product integrity initiative. We have adopted a product integrity strategy in which we focus on providing products and services that leverage our core strengths in enhancing our customers’ product safety and protecting their brand equity. We design our products to assure customers that their products will be received by end–users with all of the attributes the manufacturer intended, including taste, freshness, odor and effectiveness. In addition, product integrity encompasses other safety and security services designed to protect the integrity of the manufacturing process and protect products as they move through the distribution chain.

Plastic closure market

Portola competes in the closure segment of the worldwide plastic container packaging industry, focusing on proprietary tamper evident plastic closure applications. Plastic closures have various applications and are designed and engineered to meet specific uses. Portola’s major product applications of plastic closures for beverages include dairy, fruit juice, bottled water, sport drinks, other non–carbonated beverage products and institutional food products, as well as closures and containers for the CFT market.

Closure design is a function of the type of container and its contents. Products which are perishable, highly acidic or susceptible to tampering all require specialized capping applications. In many instances, it may be necessary for the container to be re–sealable, or it may be preferable for the contents to be dispensed through the closure without the closure being removed.

The use of plastic closures has grown as the demand for tamper evident packaging has grown. A tamper evident feature is highly valued by the non–carbonated beverage and food market. While certain tamper evident devices can be incorporated into metal closures, the most sophisticated devices have been developed for plastic closures. We invented the original snap–on cap design as well as the “tear strip” feature with breakaway bands for plastic closures. These Portola innovations established the standard tamper evident mechanism for the non–carbonated beverage and food industries.

Historically, growth in demand for our products has been driven by population growth, increasing concerns about the sanitation and safety of packaged food and beverage products, and the continued shift from glass or metal to plastic containers throughout the packaged food industry. In addition, in many international markets, demand for plastic containers is growing with increasing consumer disposable income. For the fruit juice, dairy and bottled water markets, demand is also a function of climate variations, with warm weather tending to increase consumption. In the CFT market, growth has been driven by trends such as the aging of the population, increasing demand by younger consumers and the development of new cosmetic and skin care products. As packaging has shifted from glass and metal to plastic containers, which tend to rely on plastic closures, the use of plastic closures has grown more than the overall closures market. See “Products” and “Product development” that follow.

Products

We design, manufacture and sell a wide array of tamper evident plastic closures for dairy, fruit juice, bottled

water, sport drinks, other non–carbonated beverage products and institutional food products and for cosmetics, fragrances and toiletries. We also design, manufacture and sell (i) blowmolded bottles used in the dairy, bottled water, fruit juice and industrial markets, (ii) closures and jars for CFT products, (iii) injection stretch bottles blowmolded for bottled water markets, (iv) high speed capping equipment used by our plastic closure customers in their bottling and packaging operations and (v) tooling and molds used in the blowmolding industry to manufacture bottles.

Plastic closures. We offer a wide variety of plastic closures under each of our principal product lines to satisfy a great number of application and customer requirements. Our plastic closures for beverages are broadly grouped into five categories: (i) small closures used to cap blowmolded plastic bottles, (ii) closures for five–gallon returnable glass and plastic water cooler bottles, (iii) widemouth closures for institutional food products, (iv) fitments for gable–top containers (such as conventional paperboard milk and juice cartons) and (v) push–pull dispensing closures for bottled water, flavored water and sports drinks. Our plastic closures range in size from 26 mm to 110 mm and conform to international packaging standards. We offer 30 standard colors, and also offer a high degree of product distinction for our customers through over 300 custom–blended colors. In addition, we offer sophisticated printing, embossing and adhesive labeling capabilities. Most of our plastic closures offer a snap–on, snap–screw or screw feature, designs which are preferred by packagers because they reduce production costs. Our plastic closures also incorporate tear strips, breakaway bands or other visible tamper evident devices, a feature that has become an industry standard for non–carbonated beverage and food products. Our sales of plastic closures represented approximately 62%, 64% and 66% of total sales in fiscal 2007, 2006 and 2005, respectively.

The following describes our principal closure lines for the non-carbonated beverage and institutional food markets:

	•		Closures for gallon and half–gallon plastic containers. We are a leading provider of 38 mm closures used primarily for gallon and half–gallon blowmolded containers for milk, fruit juices and bottled water in the United States, and similar plastic containers in Canada, Mexico and the United Kingdom. These closures represented $123.6 million of total sales in fiscal 2007.

	•		Five–gallon closures. We are a leading provider of plastic closures for five–gallon returnable glass and plastic water cooler bottles in the United States and similar containers in Canada, Mexico, China and the United Kingdom. These closures represented $28.1 million of total sales in fiscal 2007.

	•		Other food and beverage closures. We produce a variety of specialty closures for the beverage and food markets. These products include (i) wide mouth closures for plastic containers used in institutional food applications such as condiments, mayonnaise and salad dressing, (ii) re–closeable plastic dispensing fitments for gable–top paperboard cartons used for orange juice, lemonade, other juice, dairy and soy products, and (iii) push–pull dispensing tamper evident closures for bottled water, fruit juices and sport drinks. We believe that we are a leader in many of these markets in the United States, Canada and the United Kingdom. These products represented $15.9 million of total sales in fiscal 2007.

Cosmetic closures and jars. We produce and market custom bottle caps and jar covers for personal care, cosmetics products, fragrance and toiletries. We believe that we are a leader in providing closures for the CFT market, with particular strength in compression–molded closures used in high–end product applications. PTI has had long–standing relationships, averaging over 20 years, with five out of the seven major global cosmetics companies, including Avon, Estée Lauder and L’Oreal. These closures and jars represented $34.8 million, $30.5 million and $28.5 million of total sales for fiscal 2007, 2006 and 2005, respectively or 13% of total sales for fiscal 2007, and 11% for fiscal year 2006 and 2005.

Plastic bottles. We produce a wide variety of blowmolded high density plastic bottles in Canada for use primarily in the dairy, bottled water and fruit juice industries. We also produce five–gallon polycarbonate water bottles in Mexico and the United Kingdom. The ability to sell the closures and bottles together enables the Canadian, Mexican and United Kingdom operations to provide their customers with a complete packaging system. Through our joint venture, Capsnap Europe Packaging, GmbH (“CSE”), we sell five–gallon polycarbonate bottles and closures primarily in Europe. In the CFT market, PTI offers a line of heavy wall PETG and polypropylene jars that complement our closure offerings. Our sales of bottles represented $43.1 million, $45.6 million and $41.5 million of total sales for fiscal 2007, 2006 and 2005, respectively or 16%, 17% and 16% of total sales in fiscal 2007, 2006 and 2005, respectively.

Capping equipment and tooling. We design, manufacture and sell capping equipment for use in high speed bottling, filling and packaging beverage production lines. A substantial majority of our plastic closure customers use our capping equipment. Our ability to supply capping equipment and technical assistance along with our plastic closures represents an important competitive advantage, as customers have confidence that our plastic closures will be applied properly to provide leak–proof seals, and that any capping problems will be resolved quickly.

We also manufacture and sell high quality tooling and molds used in the blowmolding industry for the manufacture of bottles. These capabilities allow us to rapidly respond to customers tooling needs, enhancing our ability to provide a complete solution to our customers. Our sales of equipment and tooling represented $7.6 million, $7.0 million and $7.5 million of total sales for fiscal 2007, 2006 and 2005, respectively or 3% of total sales for each fiscal year 2007, 2006 and 2005.

Product development

We continue to be committed to product development and engineering in areas of our sales and operations. Our research and development group and engineering staff, as well as a number of skilled package design consultants, engage in a range of design and development services, focusing on (i) new products and existing product enhancements, (ii) tooling and molds necessary for manufacturing plastic closures and (iii) capping equipment compatible with our closures and our customers’ containers. Research and development expenditures for fiscal 2007, 2006 and 2005 were $4.0 million, $3.9 million and $3.8 million, respectively.

We have made a substantial investment in developing both new and enhanced products. To facilitate this process and to increase the chances of ultimate market acceptance of such products, we encourage ongoing exchanges of ideas with customers, container manufacturers, machinery manufacturers and sales and service personnel. Ongoing consultations with our customers have enabled us to identify new product opportunities to develop improved traditional closures, as well as fitments and closures, for institutional foods industries. However, in many cases, customers who are comfortable with their existing closure products are generally slow to switch to a new design.

Intellectual property

As of August 31, 2007, we held more than 277 domestic and foreign patents on the design of our products, including container closures, compatible neck finishes, handling equipment and related processes and additional patent applications are pending. We rely primarily on our patents to protect our intellectual property and are committed to developing new proprietary innovations in tamper evident plastic closures, bottles, related equipment and tooling for the food and beverage and CFT industries, which we expect to provide us with a competitive advantage in many new product areas. A number of our prior patents relating to one of our beverage closure product lines have expired in recent years. We believe this adversely affected our gross margins as competitors who have become free to imitate Portola designs have begun to compete aggressively in product pricing. Our current issued patents expire on various dates between 2008 and 2025. Similarly, we face the risk that our intellectual property may be misappropriated, particularly in certain foreign countries whose laws may not protect our intellectual property rights to the same extent as the laws of the United States, which could negatively affect our business. Our continued innovation in the markets served, as well as new markets, is designed to counteract this situation. We also have a number of trademarks that are deemed valuable to our business. We have developed most of the technical information and know–how in house that is used to operate our business.

Raw materials and production

As of August 31, 2007, the principal raw material for our plastic closures and bottles was injection and blowmolding grade resin, which accounted for approximately 65.4% of the cost of all raw materials purchased for our plastic closures and bottles in fiscal 2007. Resin can be purchased from a number of reliable, competitive producers and is priced as a commodity. The majority of the resin we use in production is low density polyethylene (“LDPE”). We also use high density polyethylene, linear low density polyethylene, polypropylene and polycarbonate. 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 bulk resin pricing. These prices are based on current market conditions and do not involve fixed quantities and therefore they are not considered derivatives. While resin

prices can fluctuate substantially over relatively short periods of time, we have not experienced any significant difficulties over the past ten years in obtaining sufficient quantities of resin. In the past, we generally have been able to pass on increases in resin prices directly to our customers, in many cases after delays because of contractual provisions. However, during the past three years, with the significant increases in resin prices, we experienced difficulty passing on all such resin price increases to certain customers. Significant increases in resin prices from current levels, coupled with an inability to promptly pass such increases on to customers, had an adverse effect on our sales and margins during fiscal 2007, 2006 and 2005 and will continue to do so in the foreseeable future.

To produce plastic closures and bottles, resin, which is delivered as small pebble–size pellets to large storage silos, is conveyed through a pipeline system to injection or compression molding, or blowmolding machines where it is melted into a thick liquid state. Coloring agents are added as appropriate and the mixture is injected or blowmolded at high pressure into a specially designed, multi–cavity mold. The principal equipment in our plants includes injection molding, compression molding and blowmolding machines, finishing lines that print, label and insert closures with foam or foil to meet customer requirements and automated systems for handling and processing raw materials and finished goods. We use similar, automated processes in the production of our bottles.

Our operations use advanced automated and proprietary manufacturing processes to provide high quality products at relatively low production costs. We have a continuous process improvement program designed to further automate our production flow, enhance the capabilities of our workforce and upgrade our molds, equipment and systems. This enables us to limit our direct labor costs while meeting the strict sanitary requirements necessary for producing food and beverage packaging products. In addition, we have developed significant propriety manufacturing processes that we believe provide us with a competitive advantage.

Backlog

Production and delivery cycles for closures and bottles are very short and our backlog is generally cancelable on short notice. Backlog for closures and bottles is generally two to three weeks of orders and is relatively constant from period to period. Contracts for equipment purchases and tooling generally include cancellation penalties. Due to the short production and delivery cycles for closures and bottles, we do not believe backlog information is a material factor in understanding our business.

The backlog for CFT closures and containers at PTI is subject to greater variability than our other businesses. CFT orders received from customers may require product deliveries that may be immediate or may extend over a three- to nine-month period. In addition, one of PTI’s major customers receives shipments under a consignment arrangement. Revenue for this customer is recognized upon consumption. Due to these factors, it is difficult to predict PTI’s sales for any given period based on the backlog.

Sales, marketing and customer service

We sell our products through our in–house sales staff, sales representatives and, to a lesser extent, distributors. Domestically, a substantial portion of our sales and marketing activities are conducted by majority–owned subsidiaries. Calls on customers and participation at trade shows are our primary means of customer contact. A number of our customers are large corporate clients with numerous production facilities, and each facility may make its own purchase decisions. Our customers include processors and packagers of fluid milk, non–carbonated bottled water, chilled juice and flavored drink products sold on the retail level and condiments sold in the wholesale and institutional market, as well as producers and distributors of CFT products. Our top ten customers (including our European joint venture, which is one of our customers) accounted for approximately 43.2% of our sales during fiscal 2007. One Canadian customer, Saputo, accounted for approximately 10.2% of total sales during fiscal 2007 and 7.0% of accounts receivable during fiscal 2007. We believe that we are the sole or largest supplier to our top 25 customers for the products we supply to them. Our consistent product quality and customer service have allowed us to develop strong relationships with our customers; our relationships with our top 25 customers average sixteen years in length. For information regarding revenues and EBITDA by segment, see Note 13 of the Notes to Consolidated Financial Statements.

Attention to customer service is a critical component of our marketing efforts. Our customers generally operate high–speed, high–volume production lines, many of which handle perishable products. In order to help assure that the production lines operate efficiently and avoid costly line stoppages, many customers rely on our ability to

provide reliable, on–time delivery of our closure and bottle products and to maintain uniform quality of those products. We also provide technical assistance to domestic and foreign customers by dispatching service personnel on short notice to solve bottling line problems. Several of our field service representatives have extensive blowmolding technical expertise that is especially important in resolving bottle leakage problems for customers.

International sales and joint ventures

Our international sales have increased in recent years. Export sales from the United States and sales from our non–U.S. facilities increased to $145.3 million in fiscal 2007 from $143.0 million and $142.6 million in fiscal 2006 and 2005, respectively. Bottled water companies and other non–carbonated beverage companies in Europe, East Asia, Latin America, Australia and elsewhere have continued to adopt more advanced packaging materials and techniques and have increasingly chosen to purchase our products from our nearby plants rather than from the U.S. facilities. Correspondingly, our foreign subsidiaries have increased their production, and total foreign sales accounted for 54% of our consolidated sales in fiscal 2007. For fiscal 2007, 2006 and 2005, export closure sales from the United States to unaffiliated customers were $4.1 million, $4.8 million and $6.7 million, respectively, and export CFT sales were $4.7 million, $4.0 million and $4.4 million in fiscal 2007, 2006 and 2005, respectively. For information regarding international revenues by geographical region, see Note 13 of the Notes to Consolidated Financial Statements.

We have historically entered new markets outside of the United States through joint ventures with bottle manufacturers, bottlers and distributors that have an established presence in the local market. We currently are a party to a joint venture with CSE that sells certain products in Europe. For risks associated with our foreign operations, see “Item 1A—Risk Factors—Difficulties presented by non–U.S. economic, political, legal, accounting and business factors could negatively affect our interests and business efforts.”

Competition

We compete in sales of container closures and bottles to the beverage and food industry, many of which are proprietary, on the basis of price, product design, product quality, reliability, on–time delivery and customer service. We believe that our broad range of beverage and food products and our ability to provide our customers with innovative, low–cost closures and complete capping systems, as well as our reputation for quality, reliability and service, and our automated and strategically located production facilities give us a competitive advantage. We compete in the same manner with our CFT products and are able to offer our customers a range of customization in that area that we believe provides us with competitive advantages.

While no single competitor offers products that compete with all of our product lines, we face direct competition in each of those lines from a number of companies, many of which have financial and other resources that are substantially greater than ours. For example, we compete with divisions or subsidiaries of Alcoa, Inc., Berry Plastics Corporation, Crown Cork & Seal Company, Inc., International Paper Company and Rexam PLC, as well as a number of smaller companies, such as IPEC, Blackhawk Molding Company and Integra. Additionally, from time to time we also face direct competition from bottling companies and other beverage and food providers that elect to produce their own closures rather than purchase them from outside sources. A significant increase in competition, through technological innovations, offerings of lower priced products or introduction of new products not offered by us, could have a significant adverse effect on our financial condition and results of operations.

Employees

As of August 31, 2007, we had 1,239 full–time employees, 40 of whom were engaged in product development, 76 in marketing, sales and customer support, 1,031 in manufacturing and 92 in finance and administration. We use seasonal and part–time employees for training, vacation replacements and other short–term requirements. None of our employees in the United States are covered by any collective bargaining agreement. Approximately 32 employees of our Canadian subsidiary are members of the Teamsters Union, and during fiscal 2005, we entered into a three–year agreement with this Union. In addition, approximately 108 of our employees are covered by a collective bargaining agreement in Mexico. We have never experienced a work stoppage and believe that employee relations are good.

Item 1A. RISK FACTORS

The following risk factors may cause actual results to differ materially from those in any forward–looking statements contained in such business description or elsewhere in this report or made in the future by us or our representatives:

Risks related to our outstanding indebtedness

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

As of August 31, 2007, our total indebtedness was approximately $219.6 million. $180.0 million of this amount represented the aggregate principal amount of our 8¹/4% Senior Notes due 2012, and the remaining $39.6 million represented funds drawn down under our senior secured credit facility. The amount of our total indebtedness and our interest expense has increased during each of the past five fiscal years. Moreover, as of August 31, 2007, we had a total stockholders’ deficit of $96.7 million and we had $3.3 million of cash. Our level of indebtedness could restrict our operations and make it more difficult for us to fulfill our obligations under our Senior Notes. Among other things, our indebtedness may:

	•		limit our ability to obtain additional financing for working capital, capital expenditures, strategic acquisitions and general corporate purposes;

	•		require us to dedicate all or a substantial portion of our cash flow to service our debt, which will reduce funds available for other business purposes, such as capital expenditures or acquisitions;

	•		limit our flexibility in planning for or reacting to changes in the markets in which we compete;

	•		place us at a competitive disadvantage relative to 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.

Nonetheless, we and our subsidiaries may still be able to incur substantially more debt. The terms of our senior secured credit facility and the indenture governing our 8¹/4% Senior Notes permit additional borrowings and such borrowings may be secured debt.

Our ability to service our debt and meet our cash requirements depends on many factors, some of which are beyond our control.

Our ability to satisfy our obligations will depend on our future operating performance and financial results, which will be subject, in part, to factors beyond our control, such as interest rates and general economic, financial and business conditions. A significant portion of our cash and cash equivalents and cash from operations must be used to service our significant debt obligations. We have a relatively small cash balance and accordingly, a reduction in our revenues or gross margins could leave us unable to generate sufficient cash to service our debt or fund other fixed expenses. When our current debt matures or if we are unable to generate sufficient cash flow to service our debt, we may be required to:

	•		refinance all or a portion of our debt;

	•		obtain additional financing;

	•		sell certain of our assets or operations;

	•		reduce or delay capital expenditures; or

	•		revise or delay our strategic plans.

If we are required to take any of these actions, it could have a material adverse effect on our business, financial

condition and results of operations. In addition, we cannot assure you that we would be able to take any of these actions, that these actions would enable us to continue to satisfy our capital requirements or that these actions would be permitted under the terms of our various debt instruments, including the indenture governing our 8¹/4% Senior Notes.

The covenants in our senior secured credit facility and the indenture governing our 8¹/4% Senior Notes impose restrictions that may limit our operating and financial flexibility.

Our senior secured credit facility and the indenture governing our 8¹/4% Senior Notes contain a number of significant restrictions and covenants that limit our ability and our subsidiaries’ ability to:

	•		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.

Future adverse changes in our operating results or other negative developments, such as 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 fixed charge coverage ratio and other 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 8¹/4% Senior Notes are effectively subordinated to all of our secured debt, and if a default occurs, we may not have sufficient funds to fulfill our obligations under the notes.

Our 8¹/4% Senior Notes are not secured by any of our assets. The indenture governing the Senior 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 Note 16 of Notes to Consolidated Financial Statements of this Form 10-K for additional information regarding our restricted and unrestricted subsidiaries.

We may be unable to purchase our 8¹/4% Senior Notes upon a change of control.

Upon a change of control of Portola (as defined in the indenture governing our 8¹/4% Senior Notes), 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 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.

Risks related to our business

We have completed the integration of PTI with the beverage product elements of our company, and we may not realize the anticipated benefits of this acquisition on a timely basis or at all.

The integration of 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 that we anticipated at the time of the acquisition. 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.

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 2007, our top ten customers accounted for approximately 43.2% 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 shortages in supply and changes in the prices of natural gas, crude oil and other petrochemical products from which resins are produced, as well as other factors. Instability in the world markets for petroleum and natural gas could materially adversely affect the price and timely availability of 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. Accordingly, the effects of resin pricing on us to a certain extent lag the market. Unprecedented significant resin price increases experienced during fiscal 2005 and 2006 and the continued rise in resin cost during fiscal 2007 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 August 31, 2007, we had cash and cash equivalents of $3.3 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 $1.0 million over the next fiscal year for the settlement of patent litigation with Blackhawk Molding Company and $7.4 million in semi-annual interest payments with respect to our 8¹/4% Senior Notes and $3.2 million in interest obligations under our senior secured revolving credit facility based on current borrowing levels and interest rates under that facility. In addition, our senior secured credit facility and the indenture governing our 8¹/4% 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 are 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. In 2007, the Company depended on increased borrowings to fund a portion of its expenses, and there will be a need to increase borrowings further in fiscal 2008 to pay expenses and interest. If adverse trends in competition and/or resin prices continue, it could jeopardize availability of funds under the Company’s revolving credit agreement.

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

We may not be able to successfully integrate future acquisitions, if any, without substantial costs, delays or other problems. For example, we had difficulty integrating the operations of PTI. 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, 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:

	•		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.

We may not be successful in overcoming these risks.

We depend on new business development, international expansion or acquisitions.

We believe that growth has slowed in the domestic markets for our traditional beverage products and that, in order to increase our sales, we must 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, expanding into new markets and identifying and completing acquisitions will require a substantial investment and involve additional risks. We cannot assure you that our efforts to achieve such development and expansion or to identify and complete potential acquisitions 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 may be unsuccessful in making acquisitions because of capital constraints and because our senior credit facility imposes significant restrictions on our ability to make investments in or acquire other companies.

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

Approximately 54% of our sales for fiscal 2007 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. Hurricanes and other natural disasters can adversely affect the availability and cost of resins.

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. For example, on May 31, 2006, Portola and Blackhawk Molding Company settled a patent infringement claim where we agreed to pay Blackhawk Molding Company $4.0 million on June 30, 2006, $0.5 million per quarter for four quarters thereafter and $0.25 million for the following four quarters. The Company has ample cash flow from operations and lines of credit to make the remaining payments. 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 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 Director and major shareholder, 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 Director and major shareholder), and J.P. Morgan Partners 23A SBIC, LLC (an affiliate of J.P. Morgan Securities Inc., one of the initial purchasers of our 8¹/4% Senior Notes) own a majority of our common stock. Robert Egan, a member of our Board of Directors, is an affiliate of 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 other security holders. We currently have three independent directors (as defined under rules of the NASDAQ stock market) on our Board of Directors. Our Board of Directors and Compensation Committee have not met, including at such times when they have considered issues of 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 NYSE. 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 Director Independence” and Note 14 of the Notes to Consolidated Financial Statements.

Item 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

Item 2. PROPERTIES

Properties

We believe that our facilities are well–maintained, in good operating condition and strategically located. We also believe our facilities are adequate for our current needs and near–term growth requirements. However, substantial capital expenditures will be required to meet the production requirements for new and developing product lines. We cannot assure you that unanticipated developments will not occur that would require us to add production facilities sooner than expected. The table below indicates the locations, functions, square footage and nature of ownership of our current facilities as of August 31, 2007.


				Nature of
Location	Functions	Square feet		ownership(1)
San Jose, CA (1)	Administrative and IT		3,017	Leased
Kingsport, TN	Closure Mfg./Warehouse		93,400	Owned
Kingsport, TN (1)	Warehouse		6,000	Leased
Clifton Park, NY	Closure Mfg./Warehouse		51,400	Leased
Batavia, IL	Principal Executive Office/Closure Mfg./Warehouse /Engineering/Research and Development		73,100	Leased
New Castle, PA	Administrative/Warehouse/Equipment Division		60,000	Owned
Kansas City, MO	Sales Representative Organization		150	Leased
Tolleson, AZ	Closure Mfg./Warehouse		115,000	Leased
Woonsocket, RI	Closure and Container Mfg./Warehouse		247,500	Owned
Czech Republic(2)	Land		362,722	Owned
Louny, Czech Republic(3)	Closure Mfg.		34,000	Leased
Shanghai, China(4)	Closure Mfg./Warehouse/Engineering/Research and Development		123,116	Leased
Richmond, British Columbia, Canada	Bottle & Closure Mfg./Warehouse		49,205	Leased
Edmonton, Alberta, Canada	Bottle Mfg./Warehouse		55,600	Leased
Montreal, Quebec, Canada	Bottle Mfg./Warehouse		43,500	Leased
Guadalajara, Mexico	Bottle & Closure Mfg./Warehouse		80,000	Leased
Doncaster, South Yorkshire, England	Bottle & Closure Mfg./Warehouse/Engineering/Research and Development		80,000	Leased
Albany, Auckland, New Zealand(1)	Office/Warehouse		1,400	Leased


(1)		The facilities shown as leased in the table above are subject to long–term leases or lease options that extend for at least five years, except as follows: (a) the lease for Kingsport, TN warehouse is on a month to month basis, (b) the lease for New Zealand expires in March 2008, with one right of renewal, for a twelve month period and (c) the lease for San Jose which expires on December 31, 2008.

(2)		We purchased land in Czech Republic in November 2003. In the first quarter of fiscal 2008 ending November 30, 2007, we completed the sale of the land we owned in Louny, Czech Republic for approximately 450,000 Euros and signed a 10 year lease for the building that has been constructed on the land by the purchaser. We have moved our CFT manufacturing facility from Litvinov, Czech Republic to the new facility in Louny.

(3)		In the first quarter of fiscal 2008, ending November 30, 2007 we entered into a lease totaling 34,000 square feet in Louny, Czech Republic. The lease term is 10 years and expires in November 2017


(4)		In March 2006, we entered into a lease totaling 26,900 square feet, in Shanghai, China. The lease term is two years and expires on March 17, 2008. In July 2007, we entered into another lease totaling 27,416 square feet, in Shanghai, China. The lease term is one year and expires on June 30, 2008. In October 2007 we entered into a lease totaling 68,800 square feet for our location at Chun Zhong Road No. 66 buildings A and B in Shanghai, China. The lease term is five years and expires in October 2012.

Item 3. 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 the ultimate amount of liability for any such pending actions in the ordinary course of business will not have a material adverse effect on the Company’s financial position, results of operations or liquidity.

On May 31, 2006, the Company and Blackhawk Molding Co., Inc. (“Blackhawk”) settled a patent infringement claim by the Company agreeing to pay Blackhawk $4.0 million on June 30, 2006, $0.5 million per quarter for four quarters thereafter and $0.25 million for the following four quarters. The Company has made all of the settlement payments through September 30, 2007 and has ample cash flow from operations and lines of credit to make the remaining three payments.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is privately held and no class of voting securities is registered pursuant to Section 12 of the Securities Exchange Act of 1934. There is no established trading market for any class of our common stock.

We have two classes of common stock, Class A Common Stock and Class B Common Stock, Series 1 and Series 2. Shares of Class A Common Stock are not entitled to vote. Our Class B Common Stock, Series 1 and Class B Common Stock, Series 2 have the same voting rights, each share being entitled to one vote.

As of November 27, 2007, there were two holders of record of the 2,134,992 outstanding shares of Class A Common Stock. As of November 27, 2007, there were 196 holders of record of the 8,709,383 outstanding shares of Class B Common Stock, Series 1 and 13 holders of record of the 1,170,395 outstanding shares of Class B Common, Series 2. See Note 10 of the Notes to Consolidated Financial Statements for additional information regarding our common stock.

Dividend Policy

We have not paid dividends on any class of our common stock. Furthermore, certain of our agreements, including the indenture related to our Senior Notes issued on January 23, 2004 and the fourth amendment to the amended and restated senior revolving credit facility entered into on January 23, 2004, and as subsequently amended, restrict our ability to pay dividends.

Recent Sales of Unregistered Securities

During the fiscal 2007 period covered by this report, we did not issue or sell any shares of our common stock, except for 83,332 shares upon the exercise of a stock option pursuant to our 2002 Stock Option Plan.

Item 6. SELECTED FINANCIAL DATA

The following table sets forth Portola’s selected consolidated historical financial data for each of the five years in the period ended August 31, 2007, which have been derived from the consolidated financial statements of Portola, which have been audited by BDO Seidman, LLP, independent registered public accounting firm for the years ended August 31, 2007 and 2006 and by PricewaterhouseCoopers LLP, an independent registered public accounting firm, for all prior periods presented. The consolidated balance sheet as of August 31, 2007 and 2006 and the consolidated statements of operations, of shareholders’ equity (deficit) and of cash flows for the years ended August 31, 2007, 2006 and 2005 are included elsewhere in this report. The following data should be read in conjunction with our consolidated financial statements and related notes, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the other financial information included elsewhere in this report.


	Year ended August 31,
(Dollars in thousands)	2007			2006			2005			2004			2003

Consolidated statements of operations data, as amended:
Sales(1)	$	269,607		$	271,603		$	264,964		$	242,507		$	215,315
Cost of sales		230,291			226,263			220,994			201,808			166,777

Gross profit		39,316			45,340			43,970			40,699			48,538

Selling, general and administrative		23,161			24,138			28,252			30,894			29,307
Research and development		3,962			3,872			3,836			6,209			4,729
Loss/(gain) on sale of property plant and equipment(2)		14			(893	)		39			(1,582	)		30
Fixed asset impairment charge(3) (4)		1,620			—			—			1,120			—
Amortization of intangibles(5)		605			846			989			1,233			903
Goodwill and other intangibles impairment charge(6)		—			17,851			—			—			207
Litigation settlement		—			7,000			—			—			—
Restructuring costs(7) (8) (9) (10)		434			840			2,471			3,809			405

		29,796			53,654			35,587			41,683			35,581

Income (loss) from operations		9,520			(8,314	)		8,383			(984	)		12,957

Interest income(11)		(68	)		(53	)		(43	)		(212	)		(120	)
Interest expense		17,966			17,101			16,439			15,843			12,544
Amortization of debt issuance costs		1,666			1,614			1,609			2,545			777
Loss on warrant redemption(12)		—			—			—			1,867			—
Minority interest (income) expense(13)		(17	)		—			(3	)		5			73
Equity loss (income) of unconsolidated affiliates, net(14)		389			(252	)		(235	)		(625	)		(415	)
Foreign currency transaction gain		(553	)		(1,444	)		(1,523	)		(968	)		(348	)
Other (income) expense, net		(1	)		(37	)		(37	)		159			194

		19,382			16,929			16,207			18,614			12,705

(Loss) income before income taxes		(9,862	)		(25,243	)		(7,824	)		(19,598	)		252
Income tax provision		2,153			3,523			3,729			1,193			2,071

Net loss	$	(12,015	)	$	(28,766	)	$	(11,553	)	$	(20,791	)	$	(1,819	)


	As of August 31,
(Dollars in thousands)	2007			2006			2005			2004			2003

Consolidated balance sheet data:
Working capital	$	33,467		$	28,020		$	31,291		$	32,879		$	10,457
Total assets		161,470			156,741			179,969			189,082			132,674
Total debt		219,590			204,988			203,977			199,484			127,235
Redeemable warrants(15)		—			—			—			—			10,302
Total shareholders’ deficit		(96,675	)		(85,861	)		(57,754	)		(46,871	)		(26,413	)
Cash Flow Data:
Net cash provided by (used in) operating activities		2,311			9,576			(1,196	)		(383	)		14,294
Net cash used in investing activities		(16,268	)		(9,676	)		(12,992	)		(53,038	)		(10,582	)
Net cash provided by (used in) financing activities		14,572			788			3,551			61,089			(3,870	)
Other data:
Closure unit volume (in millions) (unaudited)		11,972			12,001			12,645			12,174			12,337
Closure unit volume growth (unaudited)		(0.2	)%		(5.1	)%		3.9	%		(1.3	)%		(2.8	)%
EBITDA(16)		27,092			27,057			25,962			17,023			31,590
Depreciation and amortization		17,322			33,585			15,738			18,233			18,017
Amortization of debt issuance costs		1,666			1,614			1,609			2,545			777
Capital expenditures		15,960			13,399			12,493			22,150			11,081

Notes to selected consolidated financial data

(1)		During fiscal 2004, the Company acquired Tech Industries, Inc. (renamed Portola Tech International or PTI) for approximately $40.0 million. PTI is a manufacturer of plastic closures and containers for the CFT industries.

(2)		(Gain) loss on sale of property, plant and equipment in fiscal 2006 is due primarily to the sale of land and building in San Jose and the sale of our warehouse in Woonsocket, Rhode Island. The gain on these two transactions was $0.9 million. A gain of $1.6 million on the sale of our manufacturing buildings in Chino and San Jose, California occurred in fiscal 2004.

(3)		We identified the Sumter, South Carolina facility would not be utilized in the near term and recognized an asset impairment loss of $1.1 million related to this building in 2004. As part of our restructuring plan in fiscal 2004, we closed our Sumter, South Carolina plant and moved the operations to our Kingsport, Tennessee plant.

(4)		Based on our review of the fixed assets of PTI, we determined that an impairment loss existed based on the deteriorating operating performance of PTI. The amount of impairment loss of $1.6 million was booked during fiscal year 2007.

(5)		Includes amortization of patents and technology licenses, tradename, covenants not–to–compete and customer relationships for all years presented. Effective September 1, 2001, we chose early adoption of the Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” for existing goodwill and other identifiable assets, at which time the amortization of goodwill ceased.

(6)		Based on our review of goodwill and other intangible assets, we identified the goodwill for Mexico and the goodwill, trademark, covenants not to compete, technology licenses and customer lists for Portola Tech were impaired based on EBITDA multiplier methodology for Mexico and the discounted cash flows method for Portola Tech. The Company recorded an impairment loss during fiscal 2006 of $1.2 million for Mexico and $16.7 million for United States – CFT.

(7)		During fiscal 2007, we incurred restructuring cost of $0.4 million related to a reduction in work force in our US Closure and Corporate facilities and our PTI facility. These costs relate primarily to employee severance. For more information see Note 4 of the Notes to our Consolidated Financial Statements.

(8)		We incurred restructuring costs of $0.8 million during fiscal 2006, related to the reduction of workforce and movement of operations. During fiscal 2006, the Company moved its tooling operation from Michigan to Pennsylvania. The Company also reduced its workforce in its corporate division, Blow Mold and United Kingdom divisions; costs related primarily to employee severance.

(9)		We incurred restructuring costs of $2.5 million during fiscal 2005, related to the reduction of workforce in selling, general and administrative areas primarily in the corporate division and in various manufacturing divisions throughout the Company, including PTI, Mexico, U.K., United States – Closures and Other. At August 31, 2005 accrued restructuring costs amounted to $1.1 million for employees severance costs. As of August 31, 2005 approximately $2.8 million had been charged against the restructuring reserve for the employee severance costs.

(10)		We incurred restructuring costs of $3.8 million during fiscal 2004, related to the closing and relocation of three plants in San Jose and Chino, California and Sumter, South Carolina, as well as a reduction of work force in the research and development and selling, general and administrative staffs. At August 31, 2004, accrued restructuring costs amounted to $1.4 million for employee severance costs. As of August 31, 2004, approximately $2.7 million had been charged against the restructuring reserve for the employee severance costs. The operations from the two California plants have been relocated to a new facility located in Tolleson, Arizona, a suburb of Phoenix. We entered into a fifteen-year lease commencing December 1, 2003 for the Tolleson, Arizona facility.

		During the second quarter of fiscal 2003, we implemented a restructuring plan to reduce our work force. During fiscal 2003, we incurred restructuring charges of $0.4 million for employee severance costs. The restructuring resulted in the termination of nine employees in general and administration, two employees in customer service, one employee in research and development and two employees in sales.

(11)		Interest income includes income on the revaluation of redeemable warrants to purchase shares of our Class A Common Stock.

(12)		Represents loss on warrant redemption in fiscal 2004 (see Note 15 to selected consolidated financial data below).

(13)		Represents minority interest expense (income) for our consolidated subsidiaries that are not wholly owned.

(14)		Represents equity (income) loss relating to our 50% interest in Capsnap Europe Packaging GmbH.

(15)		We had two outstanding warrants to purchase shares of our Class A Common Stock, each redeemable at the option of the holder upon 60 days’ prior written notice to us. These warrants were redeemable through June 30, 2004 and June 30, 2008, respectively. The redemption prices of the warrants were based on the higher of the price per share of our common stock or an amount computed under formulas in the warrant agreements. Following the offering of $180.0 million of our 8¹/4% Senior Notes due 2012 on January 23, 2004, we offered to repurchase both of the warrants. During February 2004, one warrant holder agreed to our repurchase of 2,052,526 shares of our Class A Common Stock into which the warrant was convertible at a net purchase price of $5.19 1/3 per share. This new price was based upon a price per share of common stock of $5.80 that was agreed to with the holder, minus the warrant exercise price of 60-2/3 cents for each share of Class A Common Stock. The aggregate warrant repurchase price was $10.7 million and the funds were paid on February 23, 2004. We recognized a loss of $1.7 million on the transaction during the second quarter of fiscal 2004 due to having increased the deemed price of our common stock from $5.00 per share to $5.80 per share as agreed with the warrant holder. During March 2004, the second warrant holder agreed to our repurchase of 440,215 shares of our Class A Common Stock into which the warrant was convertible at a net repurchase price of $3.30 per share. This new price was based upon an agreed price per share of common stock of $5.80, minus the warrant exercise price of $2.50 for each share of Class A Common Stock. The aggregate warrant repurchase price was $1.5 million and the funds were paid on May 4, 2004. We recognized a loss of $0.2 million on the transaction during the second quarter of fiscal 2004 due to having increased the deemed price of our common stock from $5.00 per share to the agreed-upon price of $5.80 per share. Prior to the redemption of the warrants, the carrying value of the warrants totaled $10.2 million, which represented the estimated fair value of the instruments as determined by our management using the Black-Scholes pricing model.

(16)		EBITDA represents, for any relevant period, income (loss) before interest expense, taxes, depreciation of property, plant and equipment, amortization of debt issuance costs and amortization of intangibles. EBITDA is not a recognized term under generally accepted accounting principles (“GAAP”) and does not purport to be an alternative to net income as a measure of operating performance or to cash flow from operating activities as a measure of liquidity. Additionally, EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. EBITDA is used as a measure of financial performance by the Company and certain investors may use this as a measure of financial performance for our Company. Because not all companies use identical calculations, this presentation of EBITDA may not be comparable to other similarly titled measures of other companies. The following table provides the Company’s calculation of EBITDA:


	Year ended August 31,
(Dollars in thousands)	2007			2006			2005			2004			2003

Consolidated net loss	$	(12,015	)	$	(28,766	)	$	(11,553	)	$	(20,791	)	$	(1,819	)
Add: Interest expense		17,966			17,101			16,439			15,843			12,544
Taxes		2,153			3,523			3,729			1,193			2,071
Depreciation and amortization		17,322			33,585			15,738			18,233			18,017
Amortization of debt issuance costs		1,666			1,614			1,609			2,545			777

EBITDA	$	27,092		$	27,057		$	25,962		$	17,023		$	31,590

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our Consolidated Financial Statements and related notes included elsewhere in this Form 10–K. This discussion contains forward–looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of this Form 10–K. Our actual results may differ materially from those contained in any forward–looking statements.

In addition to historical information, 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. All statements other than statements of historical fact included in this Form 10-K, 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.

Overview

We are a leading designer, manufacturer and marketer of plastic closures, bottles and related equipment used for packaging applications in the non–carbonated beverage and institutional foods markets. We also design, manufacture and sell closures and containers for the cosmetics, fragrance and toiletries 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 leak–proof.

As of August 31, 2007, we had the following principal holding and operating subsidiaries:

Portola Allied Tool, Inc.—U.S.
Northern Engineering and Plastics Corporation—U.S.
Portola Tech International, Inc.—U.S.
Portola Ltd.—U.K.
Portola Packaging Limited—U.K.
Portola Packaging Canada Ltd.—Canada
Portola Packaging Inc. Mexico, S.A. de C.V.—Mexico
Shanghai Portola Packaging Company Limited—Republic of China
Portola Holding (Asia Pacific) Limited—Hong Kong
Portola s.r.o.—Czech Republic
Portola Packaging (ANZ) Limited – New Zealand

All of these subsidiaries, except Portola Packaging (ANZ) Limited, are restricted subsidiaries under the indenture governing our $180.0 million in aggregate principal amount of 8¹/4% Senior Notes that we issued in January 2004. These restricted subsidiaries 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. The following subsidiaries are restricted subsidiaries under the terms of our senior revolving credit facility entered into in January 2004: Portola Allied Tool,

Inc., Northern Engineering and Plastics Corporation, PTI, Portola Ltd., Portola Packaging Limited, Portola Packaging Canada Ltd., and Portola Packaging, Inc. Mexico, S.A. de C.V. Restricted subsidiary status allows greater flexibility in funding the operations of these subsidiaries under the terms of the indenture governing our Senior Notes and the terms of our senior credit facility. Unrestricted subsidiary status imposes limitations on our ability and the ability of our restricted subsidiaries to finance the operations of unrestricted subsidiaries.

Critical accounting policies and estimates

General. The consolidated financial statements and notes to 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 evaluate these factors regularly and make adjustments where facts and circumstances dictate. We believe that the following accounting policies are critical due to the degree of estimation required.

Allowance for doubtful accounts. We provide credit to our customers in the normal course of business, perform ongoing credit evaluations of our customers and maintain reserves for potential credit losses. The allowance for doubtful accounts related to trade receivables is determined based on two methods. The amounts calculated from each of these methods are combined to determine the 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 receivable to the amount that is expected to be collected. These specific reserves are re–evaluated and adjusted as additional information is received that impacts the amount reserved. Second, a general reserve is established for all 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 $1.1 million and $1.4 million as of August 31, 2007 and August 31, 2006, respectively.

Revenue recognition. The Company recognizes revenue upon shipment of our products when persuasive evidence of an arrangement exists, title and all risks of loss transfers to the customers, 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. All shipping and handling fees billed to customers are classified as revenue and the corresponding costs are recognized in cost of goods sold.

Inventory valuation. Cap, bottle and CFT 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 $1.6 million and $1.4 million as of August 31, 2007 and August 31, 2006, respectively.

Depreciation lives. We periodically evaluate the depreciable lives of our fixed assets. Management performed detailed analysis and also researched industry averages concerning the average life of molds. We concluded that the lives for our molds should be five years based on our findings.

Impairment of assets. We periodically evaluate our property, plant and equipment and other intangible assets for potential impairment. Management’s judgments 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 a review by management the fixed assets of PTI were determined to be impaired based on the deteriorating operating performance of PTI. The amount of impairment loss recorded during fiscal 2007 was $1.6 million.

Impairment of goodwill and other intangible assets. At August 31, 2007 and 2006, we measured goodwill by operating unit and reviewed for impairment by utilizing the EBITDA multiplier methodology for United States – Closures, Blow Mold Technology, Mexico, and the United Kingdom, and used the discounted cash flows methodology for United States – CFT. Based on our reviews, we did not record an impairment loss during fiscal 2007. The Company did record an impairment loss during fiscal 2006 of $1.2 million for Mexico and $16.7 million for United States – CFT, representing all of the goodwill and other intangible assets recorded for our CFT business. 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.

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 consolidated balance sheet. 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 consolidated statements 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 provided valuation allowances of $42.3 million and $36.1 million against net deferred tax assets as of August 31, 2007 and August 31, 2006, respectively.

Foreign currency translation. Our foreign subsidiaries use the local currency as their functional currency. Assets and liabilities are translated at year-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 of operations

Fiscal year ended August 31, 2007 compared to fiscal year ended August 31, 2006

Sales. Sales decreased $2.0 million, or 0.7%, to $269.6 million for fiscal 2007 from $271.6 million for fiscal 2006. Volume decreases in the U.K. and Mexico operations, lower average selling prices resulting from price erosion, resin related contract price decreases and product mix were the primary contributing factors to our decreased sales compared to last fiscal year. Sales by our United States Closures operations decreased $1.8 million in total mainly due to an unfavorable change in product mix and resin related reductions, partially offset by increased sales volume in our 38mm product line. Sales by our Blow Mold Technology operations decreased $1.3 million due to price concessions given to two of our largest customers and a decrease in our average selling price for both the bottle and closure operations. Sales by our U.K. operations decreased $3.6 million due primarily to decreased product sales and price erosion in dairy closure and a volume decrease for our push pull and 5 gallon closures due to poor summer weather. Sales by our Mexico operations decreased $1.1 million due to lower volume for the 38mm caps and 5 gallon caps, offset partially by sales increases in one of our newer DBJ cap products. These decreases were partially offset by the following. Sales by our China operations increased $3.5 million primarily due to increased sales for cosmetic products and 5 gallon closures. Sales by our Czech operations increased $2.4 million due primarily to higher sales volume of cosmetic products. Sales by our U.S. Equipment operations increased $0.7 million due to the transfer of the tooling operations from Blow Mold Technology in fiscal 2006. PTI increased $0.1 million due to higher unit volumes.

During fiscal 2007 and 2006, our top ten customers accounted for approximately 43% and 40% of our sales, respectively. During fiscal 2007 and 2006, one company accounted for 10% or more of sales and 7.0% and 5.6% of accounts receivables for fiscal 2007 and 2006, respectively.

Gross profit. Gross profit decreased $6.0 million or 13.3% to $39.3 million for fiscal 2007 from $45.3 million for fiscal 2006. Gross profit decreased as a percentage of sales to 14.6% in fiscal 2007 from 16.7% in fiscal 2006. Gross profit decreased primarily due to margin decreases in the U.S. Closures, Blow Mold Technology, PTI, U.K. and Mexico operations. In U.S. Closures, margins decreased by $2.8 million primarily due to the changes in product mix previously mentioned, increased resin costs, and a lag in passing these higher costs to customer and higher overhead costs particularly in energy related areas. These costs were partially offset by lower labor costs related to certain efficiency projects currently in progress. Blow Mold Technology margins decreased by $1.1 million due to price concessions given to two of our largest customers as well as increased labor costs. The margins in Mexico’s operations decreased by $0.3 million due to lower sales volume. U.K. margins decreased by $2.4 million due mainly to a decrease in sales, higher utility and lease rent rates and an unfavorable foreign currency exchange rate. The decrease in gross margin of $4.7 million at PTI was attributable to higher labor and material costs due to production inefficiency and higher resin costs not passed to customers, an increase in China imports, which carry a lower margin and higher repair and maintenance costs. These decreases in gross profit were partially offset by increases in China and Czech operations. China’s margin increased $0.8 million due to additional volume in the cosmetic products and 5 gallon closures. China was able to keep manufacturing costs consistent year over year even with higher sales volume. Czech gross profit increased by $0.2 million due to increased volume from cosmetic product sales. The Company also negotiated higher raw material rebates which helped offset the lower margins reported by some business units.

Overall, fiscal 2007 direct materials, labor and overhead costs represented 48.2%, 15.6% and 22.4% of sales, respectively, compared to fiscal 2006 percentages of 46.8%, 15.1% and 21.4%. Direct material costs as a percentage of sales increased for fiscal 2007 from fiscal 2006 primarily due to increased resin prices coupled with lower average selling prices and an unfavorable product mix.

Selling, general and administrative expenses. Selling, general and administrative expenses decreased $1.0 million or 4.0% to $23.2 million in fiscal 2007 from $24.2 million in fiscal 2006. The decrease in expenses was mainly due to no bonus expense being earned in fiscal 2007 and lower legal and consulting and IT related expenses as well as decreased expenses as a result of various cost reduction programs that were implemented throughout fiscal 2007 and fiscal 2006, which included a reduction in manpower partially offset by increased domestic conversion costs as well as higher director fees. Selling, general and administrative expenses decreased as a percentage of sales to 8.6% for fiscal 2007 from 8.9% for fiscal 2006.

Research and development expenses. Research and development expenses increased $0.1 million or 2.3% to $4.0 million in fiscal 2007 from $3.9 million in fiscal 2006, and remained steady as a percentage of sales at 1.5% and 1.4% for fiscal years 2007 and 2006. The increase is due primarily to an increase in developmental activities and prototype costs. These increases were partially offset by customer finance projects.

Litigation settlement. The decrease of $7.0 million is due to the settlement of the Blackhawk litigation, which occurred in fiscal 2006.

Loss (gain) on sale of property, plant and equipment. We recognized a net loss of $14,000 on the sale of property, plant and equipment during fiscal 2007 compared to a net gain of $0.9 million during the same period of fiscal 2006. The gain in fiscal 2006 was due primarily to the sale of our building in San Jose, California and our warehouse in Woonsocket, Rhode Island.

Amortization of intangibles. Amortization of intangibles (consisting of amortization of patents and technology, licenses, certain tradenames, covenants not–to–compete and customer relationships) decreased $0.3 million or 33.3% to $0.6 million for fiscal 2007 from $0.9 million in fiscal 2006. This decrease was due to certain intangible assets being fully amortized during fiscal 2007.

Asset impairment. 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.

Goodwill and other intangibles impairment. Based on the Company’s review for impairment for fiscal 2007, the Company did not record an impairment loss for fiscal 2007 on goodwill and other intangible assets. During fiscal 2006 the Company did recognized impairment of goodwill in our Mexico operations of $1.2 million and of goodwill and other intangibles assets in our PTI operations of $16.7 million.

Restructuring costs. During fiscal 2007, we incurred restructuring charges of $0.4 million for severance costs relating to various restructuring activities throughout the Company including PTI, Corporate and U.K. As of August 31, 2007, we have a reserve balance of $0.1 million, which will be paid within twelve months from the end of fiscal 2007. During fiscal year 2007 approximately $0.4 million had been charged against the restructuring reserve for employee severance costs.

Income/(loss) from operations. Due to the effect of the factors summarized above, especially the one time items that affected fiscal 2006, which were the litigation settlement of $7.0 million and the goodwill and other intangible impairment of $17.9 million, income/(loss) from operations increased $17.8 million to income of $9.5 million for fiscal 2007 compared to a (loss) of $(8.3) million for fiscal 2006. These one time items were particularly offset by the decreased gross margins for discussed earlier.

Other (income) expense. Other (income) expense includes interest income, interest expense, amortization of debt issuance costs, minority interest expense, equity income of unconsolidated affiliates, foreign currency transaction (gain) and loss, and loss on warrant redemption.

Interest expense increased by $0.9 million or 5.1% to $18.0 million in fiscal 2007 from $17.1 million in fiscal 2006. The increase was due primarily to higher debt levels and increased interest rates on our senior secured credit facility.

Amortization of debt issuance costs increased $0.1 million or 3.2% to $1.7 million in fiscal 2007 from $1.6 million in fiscal 2006. The increase is due primarily to additional loan expense on the October 19 Amendment to the senior secured credit facility incurred in fiscal year 2007.

We recognized a gain of $0.6 million on foreign exchange transactions for fiscal 2007 compared to a gain of $1.4 million in fiscal 2006. The gain on foreign currency transactions for fiscal 2007 is primarily due to the weak performance of the US dollar. The gain on foreign currency transaction for fiscal 2006 is due primarily to favorable rates against the United Kingdom Pound Sterling and Canadian Dollar.

Income tax provision. The income tax provision for fiscal 2007 was $2.2 million on loss before income taxes of $9.9 million, compared to an income tax provision of $3.5 million in fiscal 2006 on loss before income taxes of $25.2 million. The tax expense for fiscal 2007 is due primarily to our Blow Mold Technology and Portola Holding Limited – Hong Kong operations, which had net income for fiscal 2007. 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 and increased valuation allowances for our China, Mexico, Czech/Austria and New Zealand operations.

Net loss. Net loss was $12.0 million in fiscal 2007 compared to a net loss of $28.8 million in fiscal 2006. This decrease in net loss was primarily due to the litigation settlement expense of $7.0 million and the goodwill and other intangible impairment charge of $17.9 million incurred during fiscal 2006.

Fiscal year ended August 31, 2006 compared to fiscal year ended August 31, 2005

Sales. Sales increased $6.6 million, or 2.5%, to $271.6 million for fiscal 2006 from $265.0 million for fiscal 2005. Increased selling prices resulting from higher cost of resin across all divisions that we were able to pass through to customers and improved foreign exchange rates were the primary contributing factors to our increased sales compared to fiscal 2005. Sales by our Blow Mold Technology operations increased $1.8 million due to increased product sales in both the bottle and closure operations through new products and customers and, to a lesser extent, favorable changes in the Canadian foreign exchange rate, this was partially offset by the transfer of the tooling operations to U.S. Equipment. Sales by our China operations increased $4.2 million primarily due to increased sales for cutlery and push-pull closures as well as the addition of cosmetic product sales. Sales by our Mexico operations increased $1.6 million due to higher product sales in the bottle operations, increased average selling price and a favorable foreign exchange rate. Sales by our U.S. Equipment operations increased $2.5 million due to the transfer of the tooling operations from Blow Mold Technology in fiscal 2006. Sales by our Czech/Austria operations decreased $2.3 million due to the closure of the Austrian office in fiscal 2005, offset partially by higher sales volume of cosmetic

products. Sales by our U.K. operations decreased $2.7 million due primarily to decreased product sales in the closure operations and equipment sales. Sales by our United States Closures operations decreased $0.5 million in total mainly due to reduced volume partially offset by increased prices as we were able to pass through to customers our higher resin costs. PTI decreased $0.6 million due mainly to the transfer of orders to the Czech and China facilities as well as decreased orders from our customers, which resulted from a slow down in the cosmetics market for the first two fiscal quarters of 2006.

During fiscal 2006 and 2005, our top ten customers accounted for approximately 40% and 39% of our sales, respectively. During fiscal 2006, one Canadian customer, Saputo, accounted for approximately 10% of total sales and 5.6% of accounts receivable. During 2005, no customer accounted for 10% or more of total sales.

Gross profit. Gross profit increased $1.3 million or 3.1% to $45.3 million for fiscal 2006 from $44.0 million for fiscal 2005. Gross profit increased as a percentage of sales to 16.7% in fiscal 2006 from 16.6% in fiscal 2005. Gross profit increased primarily due to margin increases in the U.S. Closures, Blow Mold Technology, and China operations. In U.S. Closures, margins increased by $0.8 million primarily due to productivity enhancements and cost reduction activities from our continuous improvement programs as well as employee cost reductions. Blow Mold Technology margins increased by $0.6 million due to additional volume and cost reduction activities. China’s margin increased $2.1 million due to additional volume in the cutlery, push-pull and cosmetic product lines as well as stable costs. Austria and Czech gross profit increased by $0.3 million due to increased volume from transfers of PTI business into the European market. Other factors affecting margins were a decrease in costs of $0.4 million, incurred in fiscal 2005 relating to anti-counterfeiting project, not incurred during fiscal 2006 and $0.9 million increase do to our sales operations. These increases in gross profit were partially offset by decreases in Mexico, U.K. and PTI operations. The margins in Mexico’s operations decreased by $0.6 million due to increased labor, utility and repair and maintenance costs. U.K. margins decreased by $2.2 million due mainly to a decrease in sales offset partially by cost reduction activities. The decrease in gross margin of $1.2 million at PTI was mostly attributable to lower sales volume.

Overall, fiscal 2006 direct materials, labor and overhead costs represented 46.8%, 15.1% and 21.4% of sales, respectively, compared to fiscal 2005 percentages of 44.3%, 16.6% and 22.5%. Direct material costs as a percentage of sales increased for fiscal 2006 from fiscal 2005 primarily due to increased resin prices. In addition, labor and overhead costs decreased as a percentage of sales in fiscal 2006 compared to fiscal 2005 due to reductions in expenses as a result of the continuous process improvement programs implemented in fiscal year 2005 as well as other additional voluntary labor reductions.

Selling, general and administrative expenses. Selling, general and administrative expenses decreased $4.1 million or 14.6% to $24.2 million in fiscal 2006 from $28.3 million in fiscal 2005. The decrease in expenses was mainly due to lower consulting and legal expenses and decreased expenses as a result of various cost reduction programs that were implemented throughout fiscal 2006 and fiscal 2005, which included a reduction in manpower. Selling, general and administrative expenses decreased as a percentage of sales to 8.9% for fiscal 2006 from 10.7% for fiscal 2005.

In connection with the preparation of its financial statements for the quarter ended November 30, 2005, the Company determined that its Management Deferred Compensation Plan (the “MDC Plan”), which it terminated in December 2005 in accordance with the December 31, 2005 transition period under Internal Revenue Code section 409A, had not been accounted for by the Company. In connection with terminating the MDC Plan, it was determined that the liability for the plan benefits of $0.9 million exceeded plan assets of $0.6 million by $0.3 million. The amount of plan liability in excess of assets of $0.3 million was charged to expense in the three-month period ended November 30, 2005. Had the Company been properly recording the MDC Plan since inception, $0.2 million of this amount would have been charged in years prior to fiscal 2006. However, the Company believes that the impact of not previously recording the MDC Plan was not material to the Company’s consolidated financial statements for any prior year or quarter. Further, the Company does not believe that the $0.2 million relating to periods prior to fiscal 2006 is material to the consolidated financial statements for fiscal 2006.

Litigation settlement. The increase of $7.0 million is due to the settlement of the Blackhawk litigation.

Research and development expenses. Research and development expenses increased $0.1 million or 0.9% to $3.9 million in fiscal 2006 from $3.8 million in fiscal 2005, and remained steady as a percentage of sales at 1.4% for both fiscal years 2006 and 2005. The increase is due primarily to an increase in prototype costs.

Loss (gain) on sale of property, plant and equipment. We recognized a net gain of $0.9 million on the sale of property, plant and equipment during fiscal 2006 due primarily to the sale of our building in San Jose, California and our warehouse in Woonsocket, Rhode Island compared to a net loss of $39,000 incurred during the same period of fiscal 2005 due to the sale of property, plant and equipment.

Amortization of intangibles. Amortization of intangibles (consisting of amortization of patents and technology, licenses, certain tradenames, covenants not–to–compete and customer relationships) decreased $0.1 million or 14.4% to $0.9 million for fiscal 2006 from $1.0 million in fiscal 2005. This decrease was due to certain intangible assets being fully amortized during fiscal 2006.

Goodwill and other intangibles impairment. Based on the Company’s review of impairment for fiscal 2006, the Company recognized impairment of goodwill in our Mexico operations of $1.2 million and our PTI operations of $16.7 million for fiscal 2006.

Restructuring costs. During fiscal 2006, we incurred restructuring charges of $0.8 million for severance and moving costs relating to the moving of our tooling division from Michigan to Pennsylvania and the restructuring of various divisions throughout the company including Blow Mold Technology, U.K., and Corporate. As of August 31, 2006, we have a reserve balance of $15,000 which will be paid within twelve months from the end of fiscal 2006. During fiscal year 2006 approximately $2.8 million had been charged against the restructuring reserve for employee severance costs.

(Loss)/income from operations. Due to the effect of the factors summarized above, especially the litigation settlement of $7.0 million and the goodwill and other intangible impairment of $17.9 million, (loss)/income from operations decreased $16.7 million to $(8.3) million for fiscal 2006 from income of $8.4 million for fiscal 2005.

Interest expense increased by $0.7 million or 4.3% to $17.1 million in fiscal 2006 from $16.4 million in fiscal 2005 due to higher debt levels and increased interest rates on our senior secured credit facility.

Amortization of debt issuance costs remained steady at $1.6 million in for both fiscal years 2006 and 2005.

We recognized a gain of $1.4 million on foreign exchange transactions for fiscal 2006 compared to a gain of $1.5 million in fiscal 2005. The gain on foreign currency transaction for fiscal 2006 is due primarily to favorable rates against the United Kingdom Pound Sterling and Canadian Dollar.

Income tax provision. The income tax provision for fiscal 2006 was $3.5 million on loss before income taxes of $25.2 million, compared to an income tax provision of $3.8 million in fiscal 2005 on loss before income taxes of $7.8 million. The tax expense for fiscal 2006 is due primarily to our U.K. and Blow Mold Technology operations, which had net income for fiscal 2006. 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 and increased valuation allowances for our China, Mexico and Czech/Austria operations. The increase in the valuation allowance was due primarily to the effect of the impairment of goodwill and other intangible assets as well as a portion of the patent litigation settlement.

Net loss. Net loss was $28.8 million in fiscal 2006 compared to a net loss of $11.6 million in fiscal 2005. This increase in net loss was primarily due to the litigation settlement expense of $7.0 million and the goodwill and other intangible impairment charge of $17.9 million incurred during the fiscal year, partially offset by improvements in gross margin and selling, general and administrative expenses year over year.

Liquidity and capital resources

Fiscal year ended August 31, 2007 compared to fiscal year ended August 31, 2006

In recent years, we have relied primarily upon cash from operations and borrowings from financial institutions to finance our operations and fund capital expenditures and acquisitions. At August 31, 2007, we had cash and cash equivalents of $3.3 million, an increase of $0.6 million from August 31, 2006. The increase in cash is due primarily to the timing of accounts payable checks clearing.

Operating activities. Net cash provided by operations totaled $2.3 million and $9.6 million in fiscal 2007 and 2006, respectively. Net cash provided by operations for fiscal 2007 was the result of our financial performance, offset partially by cash used for working capital. Working capital (current assets less current liabilities) increased $5.4 million to $33.4 million as of August 31, 2007 from $28.0 million as of August 31, 2006. The change in cash provided by operations was due primarily to increases in inventory, other receivables, prepaid workers compensation and a decrease in accrued compensation, offset partially by an increase in accounts payables as a result of higher capital expenditures and a decrease in accounts receivable.

Investing activities. Cash used in investing activities totaled $16.3 million and $9.7 million in fiscal 2007 and 2006, respectively. In fiscal 2007, cash used in investing activities consisted primarily of $16.0 million for additions to property, plant and equipment and $0.3 million for intangible and other assets. The increase of $6.6 million was due primarily to increased capital expenditures and $4.4 million of proceeds from the sale of assets which occurred in fiscal 2006 with minimal proceeds from the sale of assets in fiscal 2007.

Our total capital expenditures for fiscal 2007 totaled $16.0 million. The increase in capital expenditures was primarily due to equipment and mold expenditures relating to new products and additional capacity for US Closures, PTI, U.K. and Mexico.

Financing activities. At August 31, 2007, we had total indebtedness of $219.6 million, $180.0 million of which was attributable to our 8¹/4% Senior Notes due 2012. Of the remaining indebtedness, $39.6 million was attributable to our senior secured credit facility. Net cash provided by financing activities increased by $13.7 million, reflecting an increase in borrowings outstanding under our senior secured credit facility to fund capital expenditures and expenses.

On January 23, 2004, we completed an offering of $180.0 million in aggregate principal amount of 8¹/4% Senior Notes due February 1, 2012 (the “8¹/4% Senior Notes” or “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 indebtedness 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 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.

Concurrently with the offering of $180.0 million in aggregate principal amount of our 8¹/4% Senior Notes on January 23, 2004, 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 and 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 sum of trailing 12 months restricted EBITDA times 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 $17.5 million; (c) the Company no longer is required to maintain a minimum borrowing availability amount and (d) the amount the Company can invest in certain specified subsidiaries was increased from $6.7 million to $8.5 million. The Company was in compliance with the covenants of the senior secured credit facility at August 31, 2005. The June 21 Amendment also eliminated the fixed charge coverage and senior leverage ratios. The June 29 Amendment allows a minimum of $7.0 million to be added back to EBITDA for the Blackhawk Molding Company, Inc. litigation settlement. The October 19 Amendment increases 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 October 19 Amendment also increases the amount of capital expenditures the Company is able to make each fiscal year from $13.5 million to $16.5 million. The Company believes it will be in compliance with these covenants during fiscal year 2008 and beyond. 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, 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 August 31, 2007, the Bank Prime Loan rate and LIBOR Loan rate were 8.25% and 5.18%, respectively. At August 31, 2007, we had $18.4 million available for borrowings under our credit facility under the borrowing base formula described above.

Our senior secured credit agreement as amended and the indenture governing our 8¹/4% Senior Notes contain a number of significant restrictions and covenants as discussed above. While the June 21 Amendment eliminated the fixed charge coverage ratios under the secured credit agreement, there are covenants that we are required to meet to remain in compliance. Adverse changes in our operating results or other negative developments, such as significant increases in interest rates or in resin prices, which cannot be passed onto customers, severe shortages of resin supply or decreases in sales of our products could result in non-compliance with these and other financial covenants in our senior secured credit agreement. If we violate these covenants and are unable to obtain waivers from our lender, 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. 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.

Cash and cash equivalents. As of August 31, 2007, we had $3.3 million in cash and cash equivalents and our unused borrowing capacity under the senior secured credit facility was approximately $18.4 million.

We believe that our existing financial resources, together with our current and anticipated results of operations, will be adequate for the foreseeable future to service our secured and long-term debt, to meet our applicable debt covenants and to fund our other liquidity needs, but we cannot assure you that this will be the case. In this respect we note that trends for the past two years in competitive pressures on pricing and costs of raw materials have not been favorable. We believe that historical negative trends have stabilized, and we expect favorable results from our continuing efforts at reducing costs and implementing manufacturing and organizational efficiencies. However, we cannot assure you that substantial improvements will occur during fiscal 2008.

Fiscal year ended August 31, 2006 compared to fiscal year ended August 31, 2005

Operating activities. Net cash provided by (used in) operations totaled $9.6 million and $(1.2) million in fiscal 2006 and 2005, respectively. Net cash provided by operations for fiscal 2006 was principally the result of our change in working capital and also due to improved financial performance related to employee cost reductions programs, productivity enhancements and other cost reduction activities. Working capital (current assets less current liabilities) decreased $3.3 million to $28.0 million as of August 31, 2006 from $31.3 million as of August 31, 2005. The decrease in working capital was due primarily to increases in accounts payable and accrued expenses, offset partially by an increase in inventory as a result of higher resin cost.

Investing activities. Cash used in investing activities totaled $9.7 million and $13.0 million in fiscal 2006 and 2005, respectively. In fiscal 2006, cash used in investing activities consisted primarily of $13.4 million for additions to property, plant and equipment and $1.0 million for intangible and other assets. The decrease of $3.3 million was due primarily to proceeds of $4.4 million from the sale of our office building in San Jose, California, the warehouse in Woonsocket, Rhode Island and our facility in Sumter, South Carolina in fiscal 2006.

Our total capital expenditures for fiscal 2006 totaled $13.4 million. The increase in capital expenditures was primarily due to equipment and mold expenditures for US Closures and Mexico.

Financing activities. At August 31, 2006, we had total indebtedness of $205.0 million, $180.0 million of which was attributable to our 8¹/4% Senior Notes due 2012. Of the remaining indebtedness, $24.9 million was attributable to our senior secured credit facility and $0.1 million was principally comprised of capital lease obligations. Net cash provided by financing activities decreased by $2.8 million, the decrease primarily reflects a decrease in revolver activity.

Off-balance sheet arrangements

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 by Portola Packaging Limited (UK). CSE has a 50% ownership interest in Watertek, a joint venture Turkish company, which produces and sells five-gallon water bottles and closures for the European and Middle Eastern market places. Watertek is the owner of a 50% interest in a Greek company, Cap Snap Hellas, that is selling our products in Greece. In 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 $3.0 million and a three-year term. Our portion of the results of these joint venture operations is reflected in other (income) expense, net.

Contractual obligations

The following sets forth our contractual obligations as of August 31, 2007:


	Payments Due by Period
			Less
			than 1		1 – 3		3 – 5		After 5
	Total		Year		Years		Years		Years
Contractual Obligations:	(dollars in thousands)
Long-Term Debt, including current portion:

Senior Notes (1)	$	246,825	$	14,850	$	29,700	$	202,275	$	—

Revolver (2)		44,181		3,240		40,941		—		—

Operating Lease Obligations (3)		37,359		4,853		8,958		7,602		15,946

Blackhawk Settlement		1,000		1,000		—		—		—


(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 1 and August 1 of each year. Interest began accruing January 23, 2004 and the first interest payment commenced 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. 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.

(3)		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 2007 was $5.7 million.

Related party transactions

We enter into certain related party transactions throughout the course of our business. In connection with the financing transactions related to the $180.0 million offering of our 8¹/4% Senior Notes due 2012, we paid fees of $5.0 million to JPMorgan Securities, Inc. (Robert Egan, one of our directors, is affiliated with JPMorgan Partners, an affiliate of JP Morgan Securities, Inc.), $1.1 million to The Breckenridge Group (of which Larry Williams, one of our directors, is a principal), $0.4 million to Tomlinson Zisko LLP and $30,000 to Timothy Tomlinson (Mr. Tomlinson was one of our directors until February 29, 2004, and he is a partner in Tomlinson Zisko LLP), and $0.1 million to Themistocles Michos our former Vice President, General Counsel and Secretary for services rendered. We also repurchased a warrant from JPMorgan Partners for $10.7 million, resulting in the recognition of a loss totaling $1.7 million. In addition, we paid fees to The Breckenridge Group, Tomlinson Zisko LLP and Themistocles Michos for services rendered related to operational matters. Mr. Tomlinson resigned from the Board on February 29, 2004 and Mr. Michos resigned as Vice President, General Counsel and Secretary on August 17, 2005.

Related party sales of $6.2 million and $6.9 million for fiscal 2007 and 2006, respectively, consisted primarily of closures produced by our U.K. operations that were sold to our 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 Directors Independence” and Note 14 of Notes to Consolidated Financial Statements.

Raw material price volatility

Most of our closures are priced based in part on the cost of the plastic resins from which they are produced.

Historically, we have been able to pass on increases in resin prices directly to our customers, subject to delays because of contractual provisions. However, during the past three years, with significant increases in resin prices, we experienced difficulty passing on all such resin price increases to certain customers. PTI has only one contract with a customer that allows price increases due to increases in raw material costs. The significant resin price increases we experienced during fiscal 2005, 2006 and 2007 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 2006 and fiscal 2007. Significant increases in resin prices coupled with a continued inability to fully and promptly pass such increases on to customers have had, and could continue to have, a material adverse impact on us. See “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations.”

Seasonality

Our sales and earnings reflect a slightly seasonal pattern as a result of greater sales volumes during the summer months. As such, 49% of sales occurred in the first half of the year (September through February) while 51% of sales were generated in the second half (March through August) for fiscal 2007. Sales for fiscal year 2006 were seasonally divided at 48% for the first half and 52% for the second half of 2006.

Income taxes

The relationship of income tax expense to income before income taxes is affected primarily by not providing a benefit for losses generated in certain foreign jurisdictions and a portion of our domestic operations. See Note 12 of the Notes to Consolidated Financial Statements.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement No. 123R, Shared-Based Payment (“SFAS 123R”). SFAS 123R requires the measurement of all employee stock-based compensation awards using a fair value method as of the grant date and recording such expense in the consolidated financial statements. In addition, the adoption of SFAS 123R will require additional accounting related to the income tax effects and additional disclosure regarding the cash flow effects resulting from share-based payment arrangements. The Company adopted SFAS 123R in the first quarter of 2007.

In July 2006, the FASB issued FIN No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No.109.” This interpretation clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” It prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. This interpretation is effective for fiscal years beginning after December 15, 2006. The Company will be required to adopt this interpretation in the first quarter of fiscal year 2008. The Company is currently evaluating the requirements of FIN No. 48.

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 GAAP, 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.

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB No. 108”). SAB No. 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The SEC staff believes that registrants should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. The guidance in SAB No. 108 must be applied to annual financial statements for fiscal years ending after November 15, 2006. The Company’s adoption of SAB No. 108 had no impact on its financial condition, results of operations or cash flows.

In September 2006, the FASB issued FASB Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“SFAS No. 158”). This Statement requires an employer to recognize the over funded or under funded status of a defined benefit post retirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position, and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. The Company is currently evaluating the requirements of SFAS No. 158.

In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial 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 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.

In May 2007, the FASB issued FSP No. FIN 48-1 “Definition of Settlement in FASB Interpretation No. 48,” (FSP FIN 48-1) amends FIN 48 to provide guidance on how an entity should determine whether a tax provision is effectively settled for the purpose of recognizing previously unrecognized tax benefits. The term “effectively settled” replaces the term “ultimately settled” when used to describe recognition, and the terms “settlement” or ‘settled” replace the terms “ultimate settlement” of “ultimately settled” when used to describe measurement of a tax position under FIN 48. FSP FIN 48-1 clarifies that a tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax positions considered more likely than not to be sustained based solely on the basis of its technical merits and the statue of limitations remains open. We do not anticipate that the adoption of FSP FIN 48-1 will have a material effect on our results of operations or financial position, although we are continuing to evaluate the full impact of the adoption of FSP FIN 48-1.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following discussion about our market risk exposure involves forward–looking statements. Actual results could differ materially from those projected in any forward–looking statements. 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.

Interest Rate Sensitivity

We are exposed to market risk from changes in interest rates on long–term debt obligations. 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.

The following table provides information about our debt obligations and related interest rates by expected maturity dates.


	August 31,
	2008		2009		2010		2011		2012		Thereafter			Total
	(dollars in thousands)
Liabilities:
Long–Term Debt, including current portion:
Fixed Rate—Notes		—		—		—		—		—	$	180,000		$	180,000
Average Interest Rate		—		—		—		—		—		8.25	%
Variable Rate—Revolver (a)		—	$	39,590		—		—		—		—		$	39,590


(a)		Average interest is equal to, at our election, either the Bank Prime Loan rate plus 1.50% or LIBOR Loan rate plus 3.00% determined by a pricing table based on the outstanding credit facility balance. At August 31, 2007, the Bank Prime Loan rate was 8.25% and the LIBOR Loan rate was 5.18%.

The following table provides information about the fair value of our debt obligations. The fair value of our $180.0 million fixed rate notes was calculated based on the trading value at August 31, 2007.


	Fair Value August 31,
	2007		2006
	(dollars in thousands)
Liabilities:
Long–Term Debt, including current portion:
Fixed Rate—$180 million Senior Notes	$	151,200	$	152,550

Variable Rate—Revolver		39,590		24,901

Fixed Rate—Notes		—		87

Exchange Rate Sensitivity

Our foreign subsidiaries use the local currency as their functional currency. Assets and liabilities are translated at year–end exchange rates. Items of income and expense 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 are included in determining net income (loss). During fiscal 2007, we incurred a gain of $0.6 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 that 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 as well as in banks in Canada, Mexico, China, the Czech Republic and the United Kingdom. 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 and food 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. One Canadian customer, Saputo, accounted for approximately 10% of sales for the years ended August 31, 2007 and 2006 and 7.0% and 5.6% of accounts receivable at August 31, 2007 and 2006, respectively.

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 2005, fiscal 2006 and fiscal 2007 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. However, during the past three years, with significant increases in resin prices, we experienced difficulty passing on all such resin increases to certain customers. The significant resin price increases we experienced during fiscal 2005, 2006 and 2007 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 2006 and fiscal 2007. Significant increases in resin prices coupled with a continued inability to fully and promptly pass such increases on to customers have had, and continue to have a material adverse impact on us. See “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations.”

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders
Portola Packaging, Inc.
Batavia, Illinois

We have audited the accompanying consolidated balance sheet of Portola Packaging, Inc. (the “Company”) as of August 31, 2007 and 2006 and the related consolidated statements of operations, shareholders’ equity (deficit), and cash flows for the years then ended. We have also audited the 2007 and 2006 schedules listed in the accompanying index. These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Portola Packaging, Inc. at August 31, 2007 and 2006, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the 2007 and 2006 schedules present fairly, in all material respects, the information set forth therein.

/s/ BDO SEIDMAN, LLP
Chicago, Illinois
November 26, 2007

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders
of Portola Packaging, Inc. and Subsidiaries:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the results of operations and cash flows of Portola Packaging, Inc. and its subsidiaries for the year ended August 31, 2005 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule as of and for the year ended August 31, 2005 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.


/s/ PricewaterhouseCoopers LLP Pittsburgh, Pennsylvania
November 17, 2005

Portola Packaging, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except per share data)


August 31,	2007			2006

Assets
Current assets:
Cash and cash equivalents, including restricted cash of $100	$	3,297		$	2,649
Accounts receivable, net of allowance for doubtful accounts of $1,074 and $1,409, respectively		33,559			33,976
Inventories (Note 5)		26,671			21,527
Other current assets		5,520			4,222

Total current assets		69,047			62,374
Property, plant and equipment, net (Note 6)		71,723			72,123
Goodwill, net (Note 7)		10,215			10,035
Debt issuance costs, net of accumulated amortization of $6,685 and $4,996, respectively (Note 7)		5,415			6,907
Patents, net of accumulated amortization of $8,636 and $8,414, respectively (Note 7)		1,052			1,274
Covenants not–to compete and other intangible assets, net of accumulated amortization of $1,735 and $1,882, respectively (Note 7)		1,477			1,065
Other assets		2,541			2,963

Total assets	$	161,470		$	156,741

Liabilities, minority interest and shareholders’ equity (deficit)
Current liabilities:
Current portion of long–term debt (Note 8)	$	—		$	30
Accounts payable		21,188			20,075
Accrued liabilities		9,930			8,552
Accrued compensation		3,224			4,459
Accrued interest		1,238			1,238

Total current liabilities		35,580			34,354
Long–term debt, less current portion (Note 8)		219,590			204,958
Deferred income taxes		1,533			1,272
Other long–term obligations		1,442			2,018

Total liabilities		258,145			242,602

Commitments and contingencies (Note 9)
Shareholders’ equity (deficit):
Class A convertible Common Stock of $.001 par value:
Authorized: 5,203 shares; Issued and outstanding: 2,135 shares in 2007 and 2006		2			2
Class B, Series 1, Common Stock of $.001 par value:
Authorized: 17,715 shares; Issued and outstanding: 8,709 shares in 2007 and 8,626 shares in 2006		9			8
Class B, Series 2, convertible Common Stock of $.001 par value:
Authorized: 2,571 shares; Issued and outstanding: 1,170 shares in 2007 and 2006		1			1
Additional paid–in capital		6,632			6,514
Accumulated other comprehensive gain (loss)		784			(298	)
Accumulated deficit		(104,103	)		(92,088	)

Total shareholders’ equity (deficit)		(96,675	)		(85,861	)

Total liabilities, minority interest and shareholders’ equity (deficit)	$	161,470		$	156,741

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

Portola Packaging, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)


Year ended August 31,	2007			2006			2005

Cash flows from operating activities:
Net loss	$	(12,015	)	$	(28,766	)	$	(11,553	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		15,155			15,734			15,738
Amortization of debt issuance costs		1,666			1,614			1,609
Deferred income taxes		261			611			902
Loss (gain) on property and equipment dispositions		14			(893	)		39
Fixed asset impairment charge		1,620			—			—
Goodwill impairment charge		—			17,851			—
Provision for doubtful accounts		(184	)		194			645
Provision for excess and obsolete inventories		168			229			120
Provision for restructuring		434			840			2,471
Executive stock based compensation SFAS 123R		67			—			—
Minority interest income		(17	)		—			(3	)
Equity loss (income) of unconsolidated affiliates, net		389			(252	)		(235	)
Restricted cash for self-insured medical claims		—			—			(100	)
Other assets		—			—			(593	)
Changes in working capital:
Accounts receivable		1,626			666			(2,673	)
Inventories		(4,891	)		(2,085	)		(1,261	)
Other current assets		(1,454	)		(107	)		1,436
Accounts payable		621			1,302			(4,533	)
Accrued liabilities and compensation		(1,149	)		2,638			(3,205	)

Net cash provided by (used in) operating activities		2,311			9,576			(1,196	)

Cash flows from investing activities:
Additions to property, plant and equipment		(15,960	)		(13,399	)		(12,493	)
Proceeds from sale of property, plant and equipment		44			4,426			33
Additions to intangible assets		—			(1,026	)		—
(Increase) decrease in other assets		(352	)		323			(532	)

Net cash used in investing activities		(16,268	)		(9,676	)		(12,992	)

Cash flows from financing activities:
Borrowings under revolver, net		14,690			1,055			4,496
Payment of debt issuance costs		(175	)		(50	)		(330	)
Decrease in bank overdraft		—			(103	)		(571	)
Repayments of long–term debt arrangements		(87	)		(44	)		(3	)
Issuance of common stock		52			26			—
Payments on other long–term obligations		—			(96	)		(41	)
Distributions to minority owners		92			—			—

Net cash provided by financing activities		14,572			788			3,551

Effect of exchange rate changes on cash and cash equivalents		33			(2	)		251

Increase (decrease) in cash and cash equivalents		648			686			(10,386	)
Cash and cash equivalents, less restricted cash, at beginning of year		2,549			1,863			12,249

Cash and cash equivalents, less restricted cash, at end of year	$	3,197		$	2,549		$	1,863

See Note 15 for supplemental cash flow disclosures.

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

Portola Packaging, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Equity (Deficit)

(in thousands, except per share data)


																	Notes		Accumulated
					Class B									Additional			receivable		other						Total			Total
	Class A				Series 1					Series 2				paid–in			from		comprehensive			Accumulated			shareholders’			comprehensive
	Shares		Amount		Shares			Amount		Shares		Amount		capital			shareholders		income (loss)			deficit			equity (deficit)			income (loss)

Balance, August 31, 2004		2,135	$	2		8,603		$	8		1,170	$	1	$	6,593		$	—	$	(1,706	)	$	(51,769	)	$	(46,871	)
Repurchase of common stock		—		—		(19	)		—		—		—		(105	)		—		—			—			(105	)
Net loss		—		—		—			—		—		—		—			—		—			(11,553	)		(11,553	)		(11,553	)
Other comprehensive income		—		—		—			—		—		—		—			—		775			—			775			775

Balance, August 31, 2005		2,135		2		8,584			8		1,170		1		6,488			—		(931	)		(63,322	)		(57,754	)	$	(10,778	)

Issuance of common stock		—		—		42			—		—		—		26			—		—			—			26
Net loss		—		—		—			—		—		—		—			—		—			(28,766	)		(28,766	)		(28,766	)
Other comprehensive income		—		—		—			—		—		—		—			—		633			—			633			633

Balance, August 31, 2006		2,135		2		8,626			8		1,170		1		6,514			—		(298	)		(92,088	)		(85,861	)	$	(28,133	)

Issuance of common stock		—		—		83			1		—		—		51			—		—			—			52
Stock option expense		—		—		—			—		—		—		67			—		—			—			67
Net loss		—		—		—			—		—		—		—			—		—			(12,015	)		(12,015	)		(12,015	)
Other comprehensive income		—		—		—			—		—		—		—			—		1,082			—			1,082			1,082

Balance, August 31, 2007		2,135	$	2		8,709		$	9		1,170	$	1	$	6,632		$	—	$	784		$	(104,103	)	$	(96,675	)	$	(10,933	)

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

Portola Packaging, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share data)

1. Summary of significant accounting policies:

Nature of operations:

Portola Packaging, Inc. and Subsidiaries (the “Company” or “PPI” or “Portola”) designs, manufactures and markets tamper–evident plastic closures and related equipment used for packaging applications in dairy, fruit juice, bottled water, sport drinks, institutional foods and other non–carbonated beverage products. The Company’s Canadian subsidiary also designs, manufactures and markets a wide variety of plastic bottles for use in the dairy, fruit juice and bottled water industries. The Company’s Mexican and United Kingdom subsidiaries also manufacture five–gallon polycarbonate water bottles. The Company has production facilities throughout the United States, Canada, the United Kingdom, the Czech Republic, Mexico and China. The Company also has facilities in the United States and Europe through joint venture agreements. In addition, the Company entered the cosmetics, fragrance and toiletries (“CFT”) market with the acquisition of Tech Industries, which was subsequently renamed Portola Tech International (“PTI”).

Through the period ended August 31, 2006, all earnings of our foreign operations were considered as permanently reinvested. Undistributed earnings of our foreign subsidiaries amounted to approximately $ 3,336 at August 31, 2006. Those earnings are considered to be indefinitely reinvested and, accordingly, no provision for US federal and state income taxes has been provided thereon. Upon distribution of those earnings, we would be subject to US income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to various foreign countries. During fiscal 2007, we determined there was no clear need for future earnings and cash to remain in the foreign subsidiaries. Therefore, all post fiscal 2006 earnings cannot be considered as permanently reinvested. During fiscal 2007, foreign earnings were $ 3,429.

Principles of consolidation:

The consolidated financial statements of the Company include the financial statements of Portola Packaging, Inc. and all of its subsidiaries. Joint venture investments are accounted for by the equity method. All material intercompany accounts and transactions between consolidated entities have been eliminated.

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. All shipping and handling fees billed to customers are classified as revenue and the corresponding costs are recognized in cost of goods sold.

Cash equivalents:

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Included in cash equivalents is restricted cash of $100 for health insurance claims.

Accounts receivable and allowance for doubtful accounts:

Trade accounts receivable are recorded at the invoice amount and do not bear interest. The Company provides credit to its customers in the normal course of business, performs ongoing credit evaluations of its customers and maintains reserves for potential credit losses. The allowance for doubtful accounts related to trade receivables is determined based on two methods. The amounts calculated from each of these methods are combined to determine the 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 receivable to the amount that is expected to be collected. These specific reserves are re–evaluated and adjusted as additional information is received that impacts the amount reserved. Second, a general reserve is established for all 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.

Inventories:

Cap, bottle and CFT 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.

Property, plant and equipment:

Property, plant and equipment are stated at cost and depreciated on a straight–line basis over their estimated useful lives. The cost of maintenance and repairs is expensed as incurred. Leasehold improvements are amortized on a straight–line basis over their useful lives or

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

the lease term, whichever is shorter. When assets are disposed of, the cost and related accumulated depreciation are removed and the resulting gains or losses are included in the results of operations. During fiscal years 2007 and 2006, the Company had no capitalized interest related to construction in progress projects.

Carrying value of long–lived assets:

Long–lived assets, including property, plant and equipment and other intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in relation to the operating performance and future undiscounted cash flows of the underlying assets. Adjustments are made if the sum of expected future cash flows is less than book value. No impairment charge was recognized during fiscal 2005 or 2006. Based on Management’s assessment of the carrying values of such long –lived assets, the Company identified that PTI’s long lived assets were impaired as a result of deteriorating operating performance. An impairment loss of $1,620 was recorded during fiscal 2007.

Intangible assets:

Patents, licenses, technology, trademarks, certain tradenames, covenants not–to–compete and customer lists are valued at cost and are amortized on a straight–line basis over the lesser of their remaining useful or contractual lives (generally two to sixteen years). Goodwill, representing the excess of cost over the net tangible and identifiable intangible assets, recorded in connection with acquisitions by the Company is not amortized, but is tested for impairment annually, in the fourth quarter. During the fourth quarter, the Company measured goodwill by operating unit and reviewed for impairment by utilizing the EBITDA multiplier methodology for United States – Closures, Blow Mold Technology, Mexico, and the United Kingdom, and used the discounted cash flows methodology for United States – CFT. There was no impairment losses recorded for fiscal 2007. Based on this review, the Company has recorded an impairment loss for fiscal 2006 of $1,154 for Mexico and $16,697 for the United States – CFT. 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 plans to test these assets annually as of August 31 or more frequently if events or changes in circumstances indicate that the assets might be impaired.

Debt issuance costs:

Debt issuance costs are amortized using the straight–line method over the term of the related loans; this method approximates the interest method.

Research and development expenditures:

Research and development expenditures are charged to operations as incurred.

Income taxes:

The Company accounts for income taxes under the liability method, which requires that deferred taxes be computed annually on an asset and liability basis and adjusted when new tax laws or rates are enacted. Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established to reduce deferred tax assets when it is determined more likely than not that the amount will not be realized.

Stock based compensation:

Effective September 1, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) 123R, “Share-Based Payment” (“SFAS 123R”). This statement replaces SFAS 123, “Accounting for Stock-Based Compensation” and supersedes Accounting Principles Board Opinion (“APB”) 25. SFAS 123R requires that all share-based compensation be recognized as an expense in the financial statements and that such cost be measured at the fair value of the award. Also under the new standard, excess tax benefits related to issuance of equity instruments under share-based payment arrangements are considered financing instead of operating cash flow activities. The Company has adopted the modified prospective method of applying SFAS 123R, which requires the recognition of compensation expense on a prospective basis. Accordingly, prior period financial statements have not been restated and do not include the impact of SFAS 123R. The adoption of SFAS 123R did not have a material effect on our financial position, results of operations or cash flows.

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

The Company will recognize compensation expense for awards granted after September 1, 2006 on a straight-line basis over the requisite service period. SFAS 123R requires forfeitures to be estimated at the time of grant and revised if necessary, in subsequent periods if actual forfeitures differ from those estimates. Estimated forfeitures are based upon historical experience.

Concentrations of credit risk and other risks and uncertainties:

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables. The Company’s cash and cash equivalents are concentrated primarily in several United States banks, as well as in banks in Canada, Mexico, China, the Czech Republic and the United Kingdom. At times, such deposits may be in excess of insured limits.

Management believes that the financial institutions that hold the Company’s financial instruments are financially sound and, accordingly, minimal credit risk exists with respect to these financial instruments.

The Company’s products are principally sold to entities in the beverage and food 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 not required. The Company maintains reserves for potential credit losses, which, on a historical basis, have not been significant. During fiscal 2007 and 2006, one Canadian customer, Saputo, accounted for approximately 10% of sales for both years and 7.0% and 5.6% of accounts receivables at August 31, 2007 and 2006, respectively. There were no customers that accounted for 10% or more of sales for fiscal 2005.

The majority of the Company’s products are molded from various plastic resins, which comprise a significant portion of the Company’s 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 the past three years, the Company incurred increases in resin prices. The Company passes the majority of these increases on to its customers depending upon the competitive environment and contractual terms for customers with contracts. Significant increases in resin prices coupled with an inability to promptly pass such increases on to customers could have a material adverse impact on the Company. Resin price increases had a negative impact on the Company during the last three years.

Use of estimates:

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

Foreign currency translation:

The Company’s foreign subsidiaries use the local currency as their functional currency. Assets and liabilities are translated at year end exchange rates. Items of income and expense 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). Gains arising from foreign currency transactions and the revaluation of certain intercompany debt for fiscal 2007, 2006 and 2005 totaled $553, $1,444 and $1,523, respectively. To date, the Company has not entered into any foreign currency forward exchange contracts or other derivative financial instruments relative to foreign currency exchange rates. In addition, the Company has two guarantee agreements in Eurodollars that were valued using a conversion rate as of August 31, 2007.

Fair value of financial instruments:

Carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, accounts payable and other liabilities, approximate fair value due to their short maturities. Based on borrowing rates currently available to the Company for loans with similar terms, the carrying value of long–term debt except for the 8¹/4% Senior Notes due 2012, approximates fair value. The fair value of the Senior Notes was estimated to be approximately $151,200 as of August 31, 2007 (Note 8).

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

Recent accounting pronouncements:

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 generally accepted accounting principles (GAAP), 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.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB No. 108”). SAB No. 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The SEC staff believes that registrants should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. The guidance in SAB No. 108 must be applied to annual financial statements for fiscal years ending after November 15, 2006. The Company’s adoption of SAB No. 108 had no impact on its financial condition, results of operations or cash flows.

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 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.

In May 2007, the FASB issued FSP No. FIN 48-1 “Definition of Settlement in FASB Interpretation No. 48,” (FSP FIN 48-1) amends FIN 48 to provide guidance on how an entity should determine whether a tax provision is effectively settled for the purpose of recognizing previously unrecognized tax benefits. The term “effectively settled” replaces the term “ultimately settled” when used to describe recognition, and the terms “settlement’ or “settled” replace the terms “ultimate settlement’ or “ultimately settled’ when used to describe measurement of a tax position under FIN 48. FSP FIN 48-1 clarifies that a tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statue of limitations remains open. The Company does not anticipate that the adoption of FSP FIN 48-1 will have a material effect on the Company’s results of operations or financial position, although the Company is continuing to evaluate the full impact of the adoption of FSP FIN 48-1.

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

2. New business activity:

On September 1, 2004, the Company formed a wholly owned subsidiary, Portola Packaging (ANZ) Limited, under the laws of New Zealand. Portola ANZ was formed to manage sales of the Company’s products in New Zealand and Australia and to facilitate the growth of operations in the region.

3. Other comprehensive income:

Other comprehensive income consisted of cumulative foreign currency translation adjustments of $(1,082), $(633) and $(775) for fiscal 2007, 2006 and 2005, respectively.

4. Restructuring:

The Company incurred restructuring costs of $434, primarily relating to its U.S. Closures and PTI segments, during fiscal 2007. These costs related to selling, general and administrative areas primarily in the corporate division and in plant management for PTI. The amount of restructuring costs the Company incurred in fiscal 2007 approximated the amount that the Company was expecting to incur. The Company is not expecting to incur any restructuring expenses related to this plan in the future. At August 31, 2007, accrued restructuring cost amounted to $89 for employee severance costs. Management anticipates the accrual balance will be paid within twelve months from year end.

The Company incurred restructuring costs of $840, primarily relating to its U.S. Closures and other segments, during fiscal 2006 related to selling, general and administrative areas primarily in the corporate division and in various manufacturing divisions throughout the Company including PTI, Mexico, U.K., United States –Closures and Other. The amount of restructuring costs the Company incurred in fiscal 2006 approximated the amount that the Company was expecting to incur. The Company is not expecting to incur any restructuring expenses related to this plan in the future.

The Company incurred restructuring costs of $2,471, primarily relating to its U.S. Closures segment, during fiscal 2005 related to selling, general and administrative areas primarily in the corporate division and in various manufacturing divisions throughout the Company including PTI, Mexico, U.K., United States – Closures and Other. The amount of restructuring costs the Company incurred in fiscal 2005 approximated the amount that the Company was expecting to incur. The Company is not expecting to incur any restructuring expenses related to this plan in the future. At August 31, 2005, accrued restructuring cost amounted to $1,103 for employee severance costs. As of August 31, 2005, approximately $2,759 had been charged against the restructuring reserve for employee severance costs. Management anticipated the majority of the accrual balance to be paid within twelve months from year end.

The following table represents the activity in the restructuring reserve by segment for the fiscal year ended August 31, 2006 and 2007:


	August 31,							August 31,							August 31,
	2005							2006							2007
	Balance		Provision		Cost Paid			Balance		Provision		Cost Paid			Balance

United States - Closures & Corporate	$	809	$	304	$	(1,098	)	$	15	$	151	$	(131	)	$	35
United States – CFT		25		—		(25	)		—		261		(207	)		54
Blow Mold Technology		139		95		(234	)		—		—		—			—
Mexico		—		46		(46	)		—		—		—			—
United Kingdom		—		88		(88	)		—		22		(22	)		—
Other		130		307		(437	)		—		—		—			—


Total	$	1,103	$	840	$	(1,928	)	$	15	$	434	$	(360	)	$	89

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

5. Inventories:


August 31,	2007			2006

Raw materials	$	14,484		$	12,546
Work in process		2,131			1,154
Finished goods		11,653			9,236

Total Inventory		28,268			22,936
Less: Inventory reserve		(1,597	)		(1,409	)

Inventory – net		26,671		$	21,527

6. Property, plant and equipment:


August 31,	2007			2006

Assets (asset lives in years):
Buildings and land (35)	$	10,961		$	10,551
Machinery and equipment (5–10)		184,703			185,511
Leasehold improvements (10–20)		12,068			11,697

		207,732			207,759
Less accumulated depreciation		(136,009	)		(135,636	)

	$	71,723		$	72,123

Depreciation expense charged to operations was $14,550, $14,888 and $14,749 for fiscal 2007, 2006 and 2005, respectively.

Based on management’s review, the fixed assets of PTI were determined to be impaired as a result of the deteriorating operating performance of PTI. An impairment loss of $1,620 was recorded during fiscal 2007.

The Company had sales of other assets that resulted in a loss of $14 for the year ended August 31, 2007.

On November 9, 2005, the Company sold the remaining building and land at its San Jose, California location for proceeds of $2,139 which resulted in a gain on sale of $366. Also, during the first quarter ended November 30, 2005, the Company disposed of equipment in its closed Sumter, South Carolina facility resulting in a loss of $148. On December 28, 2005, the Company sold its facility in Sumter, South Carolina for $904 which resulted in a gain on sale of $54. On January 13, 2006, the Company sold its facility located at 84 Fairmont Avenue, Woonsocket, Rhode Island for $1,084 which resulted in a gain on sale of $532, including a reduction in the gain of $28 during the third quarter due to the early termination of the leaseback transactions. The Company had sales of other assets that resulted in a gain of $117 for the year ended August 31, 2006 on proceeds of $299.

Capital lease obligations:

The Company acquired certain machinery and office equipment under noncancelable capital leases. Property, plant and equipment includes the following items held under capital lease obligations:


August 31,	2007			2006

Equipment	$	1,152		$	1,152
Less accumulated depreciation		(779	)		(663	)

	$	373		$	489

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

7. Goodwill and intangible assets:

The following table represents the activity in goodwill by segment for the fiscal year ended August 31, 2006 and 2007:


	August 31,					Foreign			August 31,				Foreign		August 31,
	2005					Currency			2006				Currency		2007
	Balance		Impairment			Translation			Balance		Impairment		Translation		Balance

United States – Closures	$	5,918	$	—		$	—		$	5,918	$	—	$	—	$	5,918
United States – CFT		9,163		(9,163	)		—			—		—		—		—
Blow Mold Technology		3,750		—			282			4,032		—		180		4,212
Mexico		1,160		(1,154	)		(6	)		—		—		—		—
Other		85		—			—			85		—		—		85

Total Consolidated	$	20,076	$	(10,317	)	$	276		$	10,035	$	—	$	180	$	10,215

Effective September 1, 2001, the Company adopted SFAS No. 142 for existing goodwill and other identifiable assets and performs its annual test at August 31^st each year. The Company uses a two step approach when testing for impairment based on the EBITDA methodology. The Company will perform the calculation by using actual EBITDA and the plan EBITDA for the next fiscal year. Based on these two calculations the Company will review to determine if the assets are impaired. During the fourth quarter, the Company measured goodwill by operating unit and reviewed for impairment by utilizing the EBITDA multiplier methodology for United States – Closures, Blow Mold Technology, Mexico, and Other, and used the discounted cash flows methodology for United States – CFT. Based on this review, the Company did not record an impairment loss during fiscal 2007 on goodwill and other intangible assets. The Company did record an impairment loss during fiscal 2006 of $16,697 for United States – CFT and $1,154 for Mexico.

The components of the Company’s intangible assets are as follows:


	August 31, 2007					August 31, 2006
	Gross					Gross
	carrying		Accumulated			carrying		Accumulated
	amount		amortization			amount		amortization

Amortizable intangible assets:
Patents	$	9,688	$	(8,636	)	$	9,688	$	(8,414	)
Debt issuance costs		12,100		(6,685	)		11,903		(4,996	)
Customer relationships		2,600		(2,600	)		2,600		(2,600	)
Covenants not–to–compete		817		(522	)		829		(829	)
Technology		400		(400	)		400		(400	)
Other		1,995		(813	)		1,718		(653	)

Total amortizable intangible assets		27,600		(19,656	)		27,138		(17,892	)

Non-amortizable intangible assets:
Trademarks and tradename		5,000		(5,000	)		5,000		(5,000	)


Total intangible assets	$	32,600	$	(24,656	)	$	32,138	$	(22,892	)

The gross carrying amounts and accumulated amortization may fluctuate between periods due to foreign currency translation. In addition, amortization expense for the net carrying amount of intangible assets, including debt issuance costs, at August 31, 2006 was $2,460 for fiscal 2006 and $2,271 for fiscal 2007. For the remaining fiscal years amortization expense should be $2,189 in fiscal 2008, $1,661 in fiscal 2009, $1,403 in fiscal 2010, $1,403 in fiscal 2011 and $1,288 in the remaining fiscal years thereafter.

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

8. Debt:

Debt:


August 31,	2007		2006

Senior notes	$	180,000	$	180,000
Senior revolving credit facility		39,590		24,901
Other		—		87

		219,590		204,988
Less: Current portion long–term debt		—		(30	)

	$	219,590	$	204,958

Senior Notes:

On October 2, 1995, the Company completed an offering of $110,000 in aggregate principal amount of 10.75% Senior Notes that were due October 1, 2005 (the “10.75% Senior Notes”). Interest payments of approximately $5,913 were paid semi-annually on April 1 and October 1 of each year, commencing on April 1, 1996. The Company redeemed all of these 10.75% Senior Notes in February 2004. 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 8¹/4% per annum (the “8¹/4% Senior Notes” or “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.

The following table sets forth the uses of funds in connection with the $180,000 Senior Notes offering:


Redemption of 10.75% Senior Notes due 2005	$	110,000
Payment of accrued interest on 10.75% Senior Notes due 2005		4,664
Pay down of senior secured credit facility		36,729

		151,393


Warrant redemption and distribution on February 23, 2004		10,659
Warrant redemption and distribution on May 4, 2004		1,453
Potential stock tender and distribution to be paid on or after January 15, 2005		7,888

		20,000


Transaction fees and expenses for Senior Notes and credit facility		8,607

	$	180,000

Senior revolving credit facility:

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

Concurrently with the offering of $110,000 in aggregate principal amount of 10.75% Senior Notes in October 1995, the Company entered into a five-year senior revolving credit facility of up to $35,000. On September 29, 2000, the Company entered into a new four-year amended and restated senior secured credit facility for operating purposes in the amount of $50,000 subject to a borrowing base of eligible receivables and inventory, plus property, plant and equipment, net, which served as collateral for the line. The credit facility, which was due to expire on August 31, 2004, contained covenants and provisions that restricted, among other things, the Company’s ability to: (i) incur additional indebtedness, (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, or in certain sales of assets, (vi) engage in certain transactions with affiliates, (vii) make restricted junior payments and (viii) declare or pay dividends. An unused fee was payable on the facility based on the total commitment amount less the balance outstanding at the rate of 0.35% per annum. In addition, interest payable was based on, at the Company’s election, either the Bank Prime Loan rate plus 1.00% or the LIBOR Loan rate plus 2.50% determined by a pricing table based on total indebtedness to EBITDA.

On September 19, 2003, the Company entered into a consent and first amendment to the amended and restated senior secured credit facility in connection with the Company’s purchase of Tech Industries, Inc., increasing the amount available under the credit facility to $54,000, subject to a borrowing base and covenants similar to those in the amended and restated senior secured credit facility existing at August 31, 2003. An unused fee was 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. Interest payable was based on, at the Company’s election, either the Bank Prime Loan rate plus 1.00% or the LIBOR loan rate plus 2.50%.

Concurrently with the offering of $180,000 in aggregate principal amount of 8¹/4% Senior Notes on January 23, 2004, the Company entered into an amended 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 21, 2004 and a limited waiver and second amendment to this senior secured credit facility 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 facility contains covenants and provisions that restrict, among other things, the Company’s ability to: (i) redeem warrants and repurchase stock, except during the first year, (ii) incur additional indebtedness, (iii) incur liens on its 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) 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 minimum 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 2006 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 increases 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. The October 19 Amendment also increases the amount of capital expenditures the Company is able to make each fiscal year from $13,500 to $16,500. The Company was in compliance with the covenants of the senior secured credit facility at August 31, 2006 and 2007. 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. 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 1.50% or the LIBOR loan rate plus 3.00% determined by a pricing table based on the outstanding credit facility balance. At August 31, 2007, the Bank Prime Loan rate and the LIBOR Loan rate were 8.25% and 5.18%, respectively. At August 31, 2007, the Company had approximately $18,405 available for borrowing under the credit facility under the borrowing base formula described above.

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

Aggregate maturities of long–term debt:

The aggregate maturities of long–term debt as of August 31, 2007 were as follows:


Fiscal years ending August 31,

2008	$	—
2009		39,590
2010		—
2011		—
2012		—
Thereafter		180,000

	$	219,590

9. Commitments and contingencies:

Legal:

On May 31, 2006, the Company and Blackhawk Molding Co., Inc. (“Blackhawk”) settled a patent infringement claim by the Company agreeing to pay Blackhawk $4,000 on June 30, 2006, $500 per quarter for four quarters thereafter and $250 for the following four quarters. The Company has made these payments through September 30, 2007 and has ample cash flow from operations and lines of credit to make the remaining three payments.

In the normal course of business, the Company is subject to various legal proceedings and claims. Based on the facts currently available, management believes that the ultimate amount of liability for any such pending actions in the ordinary course of business will not have a material adverse effect on the Company’s financial position, results of operations or liquidity.

Commitments and contingencies:

The Company leases certain office, production and warehouse facilities under various operating lease agreements expiring on various dates through 2021. 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 a percentage tied to an economic index. The Company calculates its lease obligation, including the escalation, and recognizes the rent expense 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.

At August 31, 2007, future minimum rental commitments under agreements with terms in excess of twelve months were as follows:


Fiscal years ending August 31,

2008	$	4,853
2009		4,583
2010		4,375
2011		3,928
2012		3,674
Thereafter		15,946

	$	37,359

Rent expense for fiscal 2007, 2006 and 2005 totaled $5,693, $5,370 and $4,436 respectively.

10. Shareholders’ equity (deficit):

Class A and B common stock:

The Company has authorized 5,203,000 shares of Class A Common Stock, the holders of which are not entitled to elect members of the Board of Directors. In the event of an aggregate public offering exceeding $10,000, the Class A Common Stock and Class B, Series 2, Common Stock will automatically convert into Class B, Series 1 Common Stock, based on a one to one ratio. The holders of the Class B Common Stock have the right to elect members of the Board of Directors, with the holders of Series 1 having one vote per share, and the

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

holders of Series 2 having a number of votes equal to the number of shares into which the Series 2 shares are convertible into Series 1 shares.

In the event of a liquidation or dissolution in which the value of the Company is less than $1.75 per share of common stock, the holders of Class B, Series 2 will receive 60% of the proceeds until they have received $1.75 per share. All other amounts available for distribution shall be distributed to the Class B, Series 1 and Series 2 holders pro rata based on the number of shares outstanding. If the value of the Company is greater than or equal to $1.75 per share, the holders of all classes of Common Stock are entitled to a pro rata distribution based on the number of shares outstanding.

The Company is required to reserve shares of Class B, Series 1 Common Stock for the conversion of Class A Common Stock and Class B, Series 2 Common Stock into Class B, Series 1 Common Stock.

2002 Stock Option Plan:

The Company’s 2002 Stock Option Plan (the “2002 Plan”) was adopted by the Company’s Board of Directors in December 2001 and by the Company’s stockholders in January 2002. A total of 5,000,000 shares of Class B Common Stock, Series 1 have been reserved for issuance under the 2002 Plan. Options may be granted under the 2002 Plan to employees, officers, directors, consultants and other independent contractors and service providers of the Company, or of any subsidiary or parent of the Company. Options granted under the 2002 Plan may be incentive stock options within the meaning of Section 422 of the Code, or non–statutory options; however, only employees of the Company, or a parent or subsidiary of the Company, may be granted incentive options. Generally, options under the 2002 Plan expire ten years after the date of grant (or five years in the case of any option granted to a person holding more than 10% of the total combined voting power of all classes of stock of the Company or of any parent or subsidiary of the Company).

The exercise price of an option granted under the 2002 Plan may not be less than 85% with respect to a non–statutory option or 100% with
respect to an incentive option of the fair market value of the Company’s Class B Common Stock, Series 1 on the date of grant, except that for an incentive option granted to a person holding more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary of the Company, the exercise price must be not less than 110% of such fair market value. Options generally become exercisable as to 20% of the shares one year after the vesting start date and an additional 5% of the shares for each full quarter thereafter that the optionee renders services to the Company.

In March 2007 the Company’s stockholders approved an amendment of the 2002 Plan to authorize the granting of restricted stock in addition to stock options. Such restricted stock may be granted by the Board of Directors or the Compensation Committee appointed by the Board upon such terms and conditions as they deem appropriate. No restricted stock was granted under the 2002 Plan in fiscal 2007.

The 2002 Plan may be administered by the Board of Directors or by a Compensation Committee appointed by the Board, which has discretion to select optionees and to establish the terms and conditions for the options, subject to the provisions of the 2002 Plan.

All stock option plans:

At August 31, 2007, the Company had reserved 15,800 and 4,895,000 shares of Class B, Series 1 Common Stock for issuance under the Company’s 1994 and 2002 stock option plans, respectively. Under both plans, stock options are granted by the Board of Directors at prices not less than 85% of fair market value of the Company’s Class B Common Stock, Series 1 at the date of grant for non–statutory options and not less than 100% of the fair market value of the Company’s Class B Common Stock, Series 1 at the date of grant for incentive options, except that for an incentive option granted to a person holding more than 10% of the total combined voting power of all classes of the Company or any parent or subsidiary of the Company, the exercise price must be not less than 110% of such fair market value.

The Company adopted SFAS 123R effective September 1, 2006. This pronouncement requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The cost is recognized over the period during which an employee is required to provide service in exchange for the award, usually the vesting period. Prior to the adoption of SFAS 123R, this accounting treatment was optional with pro forma disclosures required. Stock based compensation expense recognized under SFAS 123R for the year ended August 31, 2007 recorded in selling, general and administrative expenses was $0.1 million.

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

Prior to September 1, 2006, we applied the recognition and measurement principles of Accounting Principles Board, or APB, Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for stock awards. Accordingly, no compensation expense for employee stock options was recognized, as all options granted had an exercise price that was equal to or greater than the market value of the underlying stock on the date of the grant.

The following pro forma information illustrates the pro forma effect on net loss for the years ended August 31, 2006 and 2005, as if the Company had applied the fair value recognition provision of Statement of Financial Accounting Standards “Accounting for Stock-based Compensation”, to stock-based employee compensation.


	2006			2005

Net loss as reported	$	(28,766	)	$	(11,553	)
Deduct total compensation cost under fair value based method for all awards, net of tax		352			251

Net loss—pro forma	$	(29,118	)	$	(11,804	)

The table below summarized stock option activity under the stock option plans for the years ended August 31, 2007, 2006 and 2005:


				Options outstanding
	Available			Number of			Weighted average
	for grant			shares			exercise price

Balances, August 31, 2004		6,249,000			2,352,000		$	4.99
Retirement of shares		—			—
Granted		(62,000	)		62,000		$	5.80
Exercised		—			—			—
Canceled		884,000			(998,000	)	$	4.92

Balances, August 31, 2005		7,071,000			1,416,000		$	5.08
Retirement of shares		(3,341,000	)		—
Granted		(1,800,000	)		1,800,000		$	0.69
Exercised		—			(42,000	)	$	0.62
Canceled		664,000			(664,000	)	$	5.10

Balances, August 31, 2006		2,594,000			2,510,000		$	1.99
Retirement of shares		—			—
Granted		(120,000	)		120,000		$	3.12
Exercised		—			(83,000	)	$	0.62
Canceled		213,000			(213,000	)	$	4.57

Balances, August 31, 2007		2,687,000			2,334,000		$	1.87
Exercisable at August 31, 2007		—			2,133,000		$	1.84

At August 31, 2007, 2006 and 2005, vested options to purchase approximately 2,133,000, 1,762,000 and 1,227,000 shares, respectively, were unexercised. At August 31, 2007 the aggregate intrinsic value for these options was zero and the weighted average life of these options was 5.94 years.

The following is a summary of the Company’s nonvested shares:


				Weighted-average
	Shares under			exercise price
	option			per share

Nonvested at August 31, 2006		748,000		$	0.68

Granted		120,000			3.12
Vested		(650,000	)		(0.77	)
Canceled		(17,000	)		(3.19	)


Nonvested at August 31, 2007		201,000		$	1.61

As of August 31, 2007 there was $64 of total unrecognized compensation cost related to the non-vested option awards under the 2002 Stock Option Plan. That cost is expected to be recognized over the 2 year remaining vesting period of the non-vested option awards.

Effective March 1, 2002, the Company cancelled 1,857,296 options outstanding under its 1994 Stock Option Plan, as amended, in connection with the tender by the holders of such options pursuant to a stock option exchange program conducted by the Company during

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

February 2002. The options tendered for cancellation represented approximately 96% of the options eligible to participate in the stock option exchange program. Approximately seven months from the date of cancellation, new options were granted to persons eligible to participate in the Company’s stock option exchange program during fiscal 2003.

The following table summarizes information about stock options outstanding at August 31, 2007:


	Options outstanding						Options exercisable
			Weighted
			average		Weighted				Weighted
			remaining		average				average
	Number		contractual life		exercise		Number		exercise
Range of exercise prices	outstanding		(years)		price		exercisable		price

$0.62		1,625,000		8.0	$	0.62		1,504,000	$	0.62
$3.12		120,000		9.0	$	3.12		40,000	$	3.12
$5.00		511,000		5.11	$	5.00		511,000	$	5.00
$5.25-$6.25		78,000		5.94	$	5.70		78,000	$	5.70

		2,334,000						2,133,000

The intrinsic value of the exercised options was zero at August 31, 2007.

The value of each option grant estimated at the date of grant using the Black–Scholes pricing model with the following weighted average assumptions:


	2007			2006			2005

Risk–Free Interest Rate		4.50	%		4.61	%		3.39	%
Expected Life	5 years			5 years			5 years
Volatility		30	%		30	%		n/a
Grant Price		$3.19			$0.62			$—
Dividend Yield		—			—			—
Expected Forfeiture Rate		—			—			—

Using the Black-Scholes option pricing model, the weighted average fair value per share of those options granted in fiscal 2007, 2006 and 2005 was $1.09, $0.15 and $4.92, respectively. The Company is required to estimate the expected forfeiture rate and recognize expense only for those shares expected to vest. If the Company’s actual forfeiture rate is materially different from our estimate, the stock based compensation expense could be significantly different from what we have recorded.

11. Employee benefit plans:

The Company maintains a defined contribution plan. To be eligible, employees of the Company must be 21 or older and not covered by a collective bargaining agreement. Eligible employees may begin to defer amounts the first of the month following the month of hire, but do not receive a match from the Company until they have completed one year of service. Employer matching contributions amounted to approximately $186, $188 and $230 for the years ended August 31, 2007, 2006 and 2005, respectively.

In fiscal 1996, the Board of Directors approved an Employee Stock Purchase Plan (the “ESPP”) under which 750,000 shares of Class B, Series 1 Common Stock have been reserved for issuance to employees meeting minimum employment criteria. The ESPP was terminated effective December 31, 2003. Employees were able to participate through payroll deductions in amounts related to their base compensation. The fair value of shares made available to any employee for purchase under the ESPP could not exceed $25 in any calendar year. The participant’s purchase price was 85% of the lower of the fair market value at the beginning or the end of the offering

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

period. Shares purchased under the ESPP were issued by the Company once a year, at calendar year end. In fiscal 2004, 2,560 shares were issued to employees under the ESPP at an annual aggregate purchase price of $11. As of August 31, 2007, the Company had issued a total of 39,392 shares under the ESPP at an aggregate purchase price of $182. The Company did not recognize compensation expense related to the ESPP during fiscal 2005, 2006 and fiscal 2007.

12. Income taxes:

The source of income (loss) before tax expense:


	2007			2006			2005

Domestic loss before income taxes	$	(12,986	)	$	(31,258	)	$	(14,642	)
Foreign income before income taxes		3,124			6,015			6,818

(Loss) income before income taxes	$	(9,862	)	$	(25,243	)	$	(7,824	)

Income tax provision for fiscal 2007, 2006 and 2005 consisted of the following:


August 31,	2007			2006		2005

Current:
Federal	$	—		$	—	$	(222	)
State		—			—		(58	)
Foreign		1,878			2,912		3,107

		1,878			2,912		2,827


Deferred:
Federal		333			334		667
State		—			—		—
Foreign		(58	)		277		235

		275			611		902

	$	2,153		$	3,523	$	3,729

The reconciliation setting forth the differences between the effective tax rate of the Company and the U.S. federal statutory tax rate is as follows:


Year ended August 31,	2007			2006			2005

Federal statutory rate (benefit)		(34.0	)%		(34.0	)%		(34.0	)%
State taxes, net of federal income tax benefit		—			—			(0.1	)
Effects of foreign operations		(3.7	)		1.3			11.0
Nondeductible expenses		—			—			0.8
Change in valuation allowance		62.6			48.8			70.0
Other		(3.1	)		(2.1	)		—

Effective income tax rate		21.8	%		14.0	%		47.7	%

Full valuation allowances have been established against net deferred tax assets in the Company’s domestic jurisdictions in 2007, 2006 and 2005. In addition, the Company had reversed a valuation allowance in fiscal 2004 that was provided in prior years for its China operations as China had taxable income in 2004 and had utilized a portion of its net operating loss in 2004. However in 2005, the Company reestablished the valuation allowance for China as China had a taxable loss in 2005 and the net operating loss started to expire in 2006. The Company also established a valuation allowance in fiscal 2005 for Czech, Austria and Mexico and in fiscal 2007 for New Zealand.

The components of the net deferred tax liabilities are as follows:

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


August 31,	2007			2006

Deferred tax assets:
Federal and state credits	$	3,874		$	3,874
Accounts receivable		174			235
Inventories		347			124
Fixed assets		614			—
Intangible assets		8,499			8,556
Net operating loss—foreign		4,679			3,516
Net operating loss—domestic		28,445			24,390
Accrued liabilities and other		1,155			1,730

Total gross assets		47,787			42,425
Less: valuation allowance		(42,316	)		(36,138	)

Total assets		5,471			6,287

Deferred tax liabilities:
Property, plant and equipment		5,671			6,559
Non amortizing intangibles and goodwill		1,333			1,000

Total liabilities		7,004			7,559

Net deferred tax (assets) liabilities	$	1,533		$	1,272

At August 31, 2007, the Company had a net operating loss carryforward of approximately $83,432 available to offset future U.S. federal income taxes that expire on various dates from August 31, 2020 through August 31, 2027.

For the first quarter ended November 30, 2007 in fiscal 2008, the Company will adopt FSP No. FIN 48-1 “Definition of Settlement in FASB Interpretation No. 48,” (FSP FIN 48-1). The Company does not anticipate that the adoption of FSP FIN 48-1 will have a material effect on the Company’s results of operations or financial position, although the Company is continuing to evaluate the full impact of the adoption of FSP FIN 48-1.

13. Segment information:

The Company’s reportable operating businesses are organized primarily by geographic region and, in one case, by function. The Company’s United Kingdom and Mexico operations, as well as its Blow Mold Technology Division produce both closure and bottle product lines. The Company’s United States and China operations produce closure products for plastic beverage containers and CFT jars and closures. The Company’s China operations also produces plastic cutlery and plastic parts for the high-tech industry. During fiscal 2006, Portola Allied Tool operations were moved from Michigan to Pennsylvania. As a result of this move, Portola Allied Tool is no longer included in the Blow Mold Technologies segment; it is now a part of the Other segment data. The Blow Mold Technologies segment includes only the Canadian division. In the following tables all periods have been restated for this presentation. The Company has one operating measure. Management evaluates the performance of, and allocates resources to, segments based on earnings before interest, taxes, depreciation and amortization expenses (“EBITDA”). The Company does not allocate interest, taxes, depreciation, amortization and amortization of debt issuance costs to its subsidiaries. Certain Company businesses and activities, including the equipment division, do not meet the definition of a reportable operating segment and have been aggregated into “Other.” Revenue generating activities within “Other” includes equipment sales and geographical regions which meets 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.

The table below presents revenue information about reported segments for fiscal 2007, 2006 and 2005:


	2007		2006		2005

Revenues
United States – Closures and Corporate	$	106,873	$	108,712	$	102,289
United States – CFT		25,336		25,280		26,608
Blow Mold Technology		46,960		48,317		43,928
United Kingdom		40,071		43,701		46,681
Mexico		19,452		20,554		18,930
China		15,205		11,662		9,700
Other		15,710		13,377		16,828

Total Consolidated	$	269,607	$	271,603	$	264,964

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

Inter-segment revenues totaling $14,964, $11,165 and $14,575 have been eliminated from the segment totals presented above for fiscal 2007, 2006 and 2005, respectively.

The table below presents total asset information by reported segment for fiscal 2007, 2006 and 2005:


	2007		2006		2005

United States – Closures and Corporate	$	79,726	$	79,164	$	86,426
United States – CFT		15,908		16,899		35,502
Blow Mold Technology		18,747		17,825		17,701
United Kingdom		20,792		21,972		22,806
Mexico		7,728		9,397		9,570
China		12,540		6,237		4,400
Other		6,029		5,247		3,564

Total Assets	$	161,470	$	156,741	$	179,969

The Company’s bonds are registered with the Securities and Exchange Commission and are publicly traded, but its stock is not registered or publicly traded. The Company has presented EBITDA as a measure of liquidity due to the fact that certain covenants governing our senior secured credit facility are tied to ratios and other calculations based on this measure. EBITDA does not represent, and should not be considered, an alternative to net income or cash flow from operations, as determined by GAAP, and our calculation may not be comparable to a similarly entitled measure reported by other companies. Based on our industry and debt regarding a company’s ability to service and/or incur indebtedness. In addition, EBITDA is defined in our senior secured credit facility under which we are required to satisfy specified financial ratios and tests, including a borrowing base calculation, which take into account the product of trailing 12 month restricted EBITDA and we have to maintain EBITDA for any 12 month period ending the last fiscal day of each month of at least $17,500. Therefore, creditors, investors and analysts focus on EBITDA as a primary measure of the Company’s liquidity.

The table below presents the detail of EBITDA by segment for the years ended August 31, 2007, 2006 and 2005, respectively:


	United States
	– Closures &		United			Blow Mold		United
EBITDA	Corporate		States - CFT			Technology		Kingdom		Mexico		China		Other			Total

For the year ended August 31, 2007	$	14,684	$	(1,419	)	$	8,095	$	2,456	$	438	$	2,705	$	133		$	27,092
For the year ended August 31, 2006	$	9,147	$	1,913		$	8,104	$	5,460	$	538	$	2,220	$	(325	)	$	27,057
For the year ended August 31, 2005	$	9,371	$	1,854		$	6,407	$	8,184	$	652	$	1,169	$	(1,675	)	$	25,962

The following table presents a reconciliation of EBITDA to net cash provided by operating activities for the years ended August 31, 2007,2006 and 2005, respectively:


	For the			For the			For the
	Year Ended			Year Ended			Year Ended
	August 31, 2007			August 31, 2006			August 31, 2005
EBITDA	$	27,092		$	27,057		$	25,962
Interest expense		(17,966	)		(17,101	)		(16,439	)
Tax expense		(2,153	)		(3,523	)		(3,729	)
Deferred income taxes		261			611			902
Provision for doubtful accounts		(184	)		194			645

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


	For the			For the			For the
	Year Ended			Year Ended			Year Ended
	August 31, 2007			August 31, 2006			August 31, 2005
Provision for restructuring		434			840			2,471
Loss (gain) on property and equipment dispositions		14			(893	)		39
Other		60			(23	)		(811	)
Changes in working capital		(5,247	)		2,414			(10,236	)


Net cash provided by (used in) operating activities	$	2,311		$	9,576		$	(1,196	)

The table below presents revenues by product line for the fiscal 2007, 2006 and 2005:


	2007		2006		2005

Revenues:
Closures	$	167,587	$	174,756	$	175,216
CFT		34,794		30,499		28,541
Bottles		43,062		45,627		41,525
Equipment		7,614		7,023		7,516
Other		16,550		13,698		12,166

Total	$	269,607	$	271,603	$	264,964

One Canadian customer, Saputo, accounted for approximately 10% of total sales during fiscal 2007 and 2006 and 7.0% and 5.6% of accounts receivable during fiscal 2007 and 2006, respectively. During fiscal 2005 there were no customers that accounted for 10% or more of total sales.

The following is a breakdown of revenue and long–lived assets by geographic region for and as of fiscal 2007, 2006 and 2005:


	2007		2006		2005

Revenue:
United States	$	133,091	$	138,969	$	137,580
Foreign		136,516		132,634		127,384

Total	$	269,607	$	271,603	$	264,964


Long–lived assets:
United States	$	55,776	$	57,226	$	69,959
Canada		6,554		6,244		6,763
United Kingdom		7,686		7,990		9,093
China		3,082		2,941		3,155
Mexico		6,567		7,203		7,068
Other Foreign		2,422		2,191		2,295

Total	$	82,087	$	83,795	$	98,333

14. Related party transactions:

The Company enters into certain related party transactions throughout the course of its business. In connection with the financing transactions related to the $180,000 offering of its 8¹/4% Senior Notes due 2012, the Company paid fees of $5,000 to JPMorgan Securities, Inc. (Robert Egan, one of the Company’s directors, is affiliated with JPMorgan Partners, an affiliate of JP Morgan Securities, Inc.), $1,178 to The Breckenridge Group (of which Larry Williams, one of the Company’s directors, is a principal), $368 to Tomlinson Zisko LLP and $30 to Timothy Tomlinson (one of the Company’s directors until February 29, 2004, and a partner in Tomlinson Zisko LLP), and $69 to Themistocles Michos (the Company’s Vice President, General Counsel and Secretary until August 17, 2005) for services rendered. The Company also repurchased a warrant from JPMorgan Partners for $10,659, resulting in the recognition of a loss totaling $1,639. In addition, the Company paid fees to The Breckenridge Group, Tomlinson Zisko LLP and Themistocles Michos for services rendered related to operational matters. Mr. Tomlinson, who resigned from the Board on February 29, 2004, was a member of the Company’s Audit Committee until February 29, 2004 and also served as a member of its Compensation Committee until October 2003.

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

In addition to a base salary of $12, the Company paid $84 and $232 for fiscal 2006 and 2005, respectively, to Themistocles Michos, the Company’s former Vice President, General Counsel and Secretary, for legal services rendered and expense reimbursement.

The Company paid $146 in fiscal 2005 to Tomlinson Zisko LLP for legal services rendered.

The Company sold products to and performed certain services for its non–consolidated affiliated companies totaling approximately $6,200, $6,867 and $8,744 for fiscal 2007, 2006 and 2005, respectively. The Company had trade receivables due from these non–consolidated affiliated companies, which amounted to $1,143, $2,055 and $2,101 as of August 31, 2007, 2006 and 2005, respectively.

15. Supplemental cash flow disclosures:

The Company paid $17,790, $16,821 and $19,811 in interest during fiscal 2007, 2006 and 2005, respectively.

The Company paid $2,849, $4,117 and $2,248 in income taxes during fiscal 2007, 2006 and 2005, respectively.

For fiscal 2007 the Company wrote-off $530 in fully amortized intangible assets. During fiscal 2006 the Company had no write offs of fully amortized intangible assets. For fiscal 2005 the Company wrote-off fully amortized intangible assets totaling approximately $360.

No equipment was purchased under capital leases during fiscal 2007, 2006 and 2005.

16. Supplemental condensed consolidated financial statements:

On January 23, 2004, the Company completed the offering of $180,000 in aggregate principal amount of 8¹/4% Senior Notes due 2012 (the outstanding notes). 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 10.75% Senior Notes. In the fourth quarter of fiscal 2004, the Company exchanged the outstanding 8¹/4% Senior Notes for registered exchange notes having substantially the same terms. The 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: Portola Allied Tool, Inc.; Portola Limited; Portola Packaging, Inc. Mexico, S.A. de C.V.; Portola Packaging Canada Ltd.; Portola Packaging Limited; and Tech Industries, Inc. The parent company was the issuer of the Senior Notes.

Supplemental Condensed Consolidating Balance Sheet
As of August 31, 2007


							Combined
				Combined			Non-
	Parent			Guarantor			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		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		5,415			—			—			—			5,415
Investment in subsidiaries		11,351			13,317			897			26			25,591
Common stock of subsidiary		(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


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

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	9,040		$	13,512		$	5,470		$	(6,834	)	$	21,188
Intercompany (receivables) payables		(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 equity (deficit)	$	74,837		$	61,049		$	17,121		$	8,463		$	161,470

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

Supplemental Condensed Consolidating Balance Sheet
As of August 31, 2006


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

ASSETS
Current assets:
Cash and cash equivalents	$	827		$	1,270		$	552		$	—		$	2,649
Accounts receivable, net		10,530			19,873			5,266			(1,693	)		33,976
Inventories		7,921			11,583			2,023			—			21,527
Other current assets		1,059			1,449			1,714			—			4,222

Total current assets		20,337			34,175			9,555			(1,693	)		62,374
Property, plant and equipment, net		37,042			30,847			4,250			(16	)		72,123
Goodwill		5,917			4,118			—			—			10,035
Debt issuance costs		6,907			—			—			—			6,907
Investment in subsidiaries		(2,115	)		25,667			897			1,597			26,046
Common stock of subsidiary		(1,267	)		(18,988	)		(4,357	)		—			(24,612	)
Other assets		3,715			82			71			—			3,868

Total assets	$	70,536		$	75,901		$	10,416		$	(112	)	$	156,741


LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	8,609		$	11,587		$	1,572		$	(1,693	)	$	20,075
Intercompany (receivables) payables		(71,898	)		61,138			10,804			(44	)		—
Other current liabilities		10,518			2,530			726			505			14,279

Total current liabilities		(52,771	)		75,255			13,102			(1,232	)		34,354
Long-term debt, less current portion		204,900			—			58			—			204,958
Other long-term obligations		4,268			(127	)		(851	)		—			3,290

Total liabilities		156,397			75,128			12,309			(1,232	)		242,602


Other equity (deficit)		6,227			517			(999	)		482			6,227
Accumulated equity (deficit)		(92,088	)		256			(894	)		638			(92,088	)

Total shareholders’ equity (deficit)		(85,861	)		773			(1,893	)		1,120			(85,861	)

Total liabilities and equity (deficit)	$	70,536		$	75,901		$	10,416		$	(112	)	$	156,741

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

Supplemental Condensed Consolidating Statements of Operations
For the fiscal year ended August 31, 2007


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

Sales	$	120,757		$	132,923		$	30,890		$	(14,963	)	$	269,607
Cost of sales		98,449			123,568			22,768			(14,494	)		230,291

Gross profit (loss)		22,308			9,355			8,122			(469	)		39,316

Selling, general and administrative		14,612			6,262			2,756			(469	)		23,161
Research and development		2,578			1,384			—			—			3,962
Loss (gain) on sale of assets		39			(8	)		(17	)		—			14
Fixed asset impairment		—			1,620			—			—			1,620
Amortization of intangibles		602			3			—			—			605
Restructuring costs		152			282			—			—			434

Income from operations		4,325			(188	)		5,383			—			9,520

Interest income		(24	)		(37	)		(7	)		—			(68	)
Interest expense		17,787			178			1			—			17,966
Amortization of debt issuance costs		1,666			—			—			—			1,666
Foreign currency transaction (gain) loss		(749	)		161			35			—			(553	)
Intercompany interest (income) expense		(5,229	)		4,629			600			—			—
Other expense (income), net		2,556			1,379			(524	)		(3,040	)		371


(Loss) income before income taxes		(11,682	)		(6,498	)		5,278			3,040			(9,862	)

Income tax expense		333			1,241			579			—			2,153


Net (loss) income	$	(12,015	)	$	(7,739	)	$	4,699		$	3,040		$	(12,015	)

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

Supplemental Condensed Consolidating Statements of Operations
For the fiscal year ended August 31, 2006


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

Sales	$	119,684		$	140,420		$	22,663		$	(11,164	)	$	271,603
Cost of sales		95,395			124,281			16,854			(10,267	)		226,263

Gross profit (loss)		24,289			16,139			5,809			(897	)		45,340

Selling, general and administrative		15,125			6,678			3,232			(897	)		24,138
Research and development		2,545			1,327			—			—			3,872
Gain on sale of assets		(336	)		(557	)		—			—			(893	)
Goodwill impairment		—			17,851			—			—			17,851
Amortization of intangibles		558			288			—			—			846
Litigation settlement		7,000			—			—			—			7,000
Restructuring costs		309			531			—			—			840

(Loss) income from operations		(912	)		(9,979	)		2,577			—			(8,314	)

Interest income		(1	)		(44	)		(8	)		—			(53	)
Interest expense		16,912			185			4			—			17,101
Amortization of debt issuance costs		1,614			—			—			—			1,614
Foreign currency transaction (gain) loss		(1,220	)		(254	)		30			—			(1,444	)
Intercompany interest (income) expense		(5,133	)		4,622			511			—			—
Other expense (income), net		15,435			67			(21	)		(15,770	)		(289	)


(Loss) income before income taxes		(28,519	)		(14,555	)		2,061			15,770			(25,243	)

Income tax expense		247			2,991			285			—			3,523


Net (loss) income	$	(28,766	)	$	(17,546	)	$	1,776		$	15,770		$	(28,766	)

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

Supplemental Condensed Consolidating Statements of Operations
For the fiscal year ended August 31, 2005


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

Sales	$	117,717		$	140,275		$	21,547		$	(14,575	)	$	264,964
Cost of sales		94,294			120,761			18,951			(13,012	)		220,994

Gross profit (loss)		23,423			19,514			2,596			(1,563	)		43,970

Selling, general and administrative		17,995			7,834			3,986			(1,563	)		28,252
Research and development		2,279			1,540			17			—			3,836
Loss (gain) on sale of assets		49			(26	)		—			16			39
Amortization of intangibles		702			287			—			—			989
Restructuring costs		1,406			763			302			—			2,471

Income (loss) from operations		992			9,116			(1,709	)		(16	)		8,383

Interest income		(16	)		(25	)		(2	)		—			(43	)
Interest expense		16,369			71			(1	)		—			16,439
Amortization of debt issuance costs		1,588			21			—			—			1,609
Foreign currency transaction (gain) loss		(433	)		(1,112	)		22			—			(1,523	)
Intercompany interest (income) expense		(4,197	)		3,781			416			—			—
Other (income) expense, net		(1,153	)		252			38			588			(275	)


(Loss) income before income taxes		(11,166	)		6,128			(2,182	)		(604	)		(7,824	)

Income tax expense		387			2,622			720			—			3,729


Net (loss) income	$	(11,553	)	$	3,506		$	(2,902	)	$	(604	)	$	(11,553	)

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

PricewaterhouseCoopers, LLP (“PWC”) were previously the principal accountants for Portola Packaging, Inc. (the “Company”). On February 13, 2006 the Audit Committee of the Board of Directors authorized the Company’s senior management to solicit proposals from various accounting firms to provide audit and related services for the Company’s fiscal year ended August 31, 2006. The decision resulted from the Audit Committee’s concerns about the increasing costs of such services. On June 26, 2006 the Audit Committee dismissed PWC as the Company’s principal accountants and appointed BDO Seidman, LLP (“BDO”) to be the Company’s principal accountants for the fiscal year ended August 31, 2006. PWC will continue to perform tax services for the Company.

PWC’s report on the Company’s financial statements for the fiscal years ended August 31, 2004 and 2005 did not contain any adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.

During the fiscal years ended August 31, 2004 and 2005 and through June 26, 2006, there were no disagreements with PWC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to PWC’s satisfaction would have caused PWC to make reference thereto in connection with PWC’s reports on the financial statements for such fiscal years.

The Company has restated its second quarter of fiscal 2006 to record a $1.5 million loss contingency because the Company offered to settle the Blackhawk litigation by paying $1.5 million and has considered the effects of this decision on its internal controls.

The Audit Committee of the Board of Directors has authorized PWC to respond fully to any inquiries the successor accountants, BDO may have.

The Company provided PWC with a copy of this Form 8-K prior to its filing with the Securities and Exchange Commission and requested that PWC furnish a letter addressed to the Securities and Exchange Commission stating whether it agrees with the statements made above and, if not, stating the respects in which it does not agree. A copy of PWC’s letter, which the Company disagrees with, is included as Exhibit 16.01 to this Form 10-K.

Item 9A. 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 August 31, 2007, 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 the Company in the report it files 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 August 31, 2007, there were no significant changes in our internal control over financial reporting that materially affected, or are 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 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

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Management

Our directors and executive officers and their ages as of November 26, 2007 are as follows:


Name	Age	Title
Brian J. Bauerbach	42	Director, President, Chief Executive Officer

Michael T. Morefield	51	Senior Executive Vice President and Chief Financial Officer

Richard D. Lohrman	54	Vice President, Engineering/R&D

Kim Wehrenberg	55	Vice President, General Counsel and Secretary

Jeff Swoyer	54	Chief Human Resource Officer

Martin Imbler(2)	59	Chairman of the Board

Jack Watts	59	Director

Robert Egan(1)	43	Director

Larry C. Williams(1)	58	Director

Debra Leipman-Yale	51	Director

Richard Cross(2)	59	Director


(1)		Member of the Compensation Committee.

(2)		Member of the Audit Committee.

Brian J. Bauerbach joined Portola as our Chief Operating Officer on January 11, 2005 and was named President and Chief Executive Officer on April 20, 2005. Mr. Bauerbach was elected as a director on February 14, 2006. Prior to joining Portola, Mr. Bauerbach spent over 17 years with Alcoa Corporation, a manufacturer of aluminum and aluminum products. From 2000 until 2002 he was Vice President of North American Operations for Closure Systems International and then served as General Manager of Alcoa’s Flexible Packaging division.

Michael T. Morefield has been our Senior Vice President and Chief Financial Officer since October 2004 and was also named Senior Executive Vice President in 2006. He has over twenty-five years of global experience in finance, accounting, administration and general management. Most recently, from 2002 to 2003 Mr. Morefield was Chief Financial Officer for Exelon Services, a subsidiary of the Fortune 500 company Exelon Inc., a provider of energy services. From 1999 to 2002, he was Vice President and Chief Financial Officer for United Plastics Group Inc., a global plastic injection molding manufacturer servicing the electronics, consumer, medical and automotive industries. Prior to that, he held CFO positions for a number of multinational manufacturing companies including Schmalbach-Lubeca Holdings, Inc., White Cap, Inc. and Toyoda Machinery USA Inc.

Richard D. Lohrman has been our Vice President, Engineering/R&D since July 2002. Prior to joining Portola, Mr. Lohrman was Manager of Technology for the Closure and Specialty group of Owens–Illinois, a producer of glass and plastic packaging from 1996 to 2002. Mr. Lohrman also held a Vice President position in R&D for Zeller Plastik, Inc., a manufacturer of closures and dispensing systems owned by Crown Cork and Seal and was Vice President of Manufacturing for Betts Packaging.

Kim Wehrenberg joined Portola as Vice President, General Counsel and Secretary on August 17, 2005. Prior to joining Portola Mr. Wehrenberg co-founded in 2004 Quaestor Equity Partners, LLC a private equity investment company. Prior to that, he served for 17 years as Vice President, General Counsel and Secretary of Federal Signal Corporation, a diversified New York Stock Exchange listed manufacturer, including tools for the packaging industry.

Jeffrey Swoyer joined Portola on December 1, 2005 as Chief Human Resource Officer. Prior to joining Portola, he was Vice President, Human Resources for Regal Beloit Corporation, a manufacturer of motion control and power generation equipment from August 2005 to November 2005 and prior to Beloit, he served as Vice President, Human Resources for several divisions of Alcoa Corporation from 1994 to August 2005.

Martin Imbler has been one of our directors since June 2003 and was elected Chairman of the Board in June 2005. Mr. Imbler is also a board member of various small privately owned venture capital businesses. Previously, Mr. Imbler was President and Chief Executive Officer of Berry Plastics Corporation, a manufacturer of proprietary plastic packaging, a position he held from 1991 until 2002. From 1987 to 1991, Mr. Imbler was President and CEO of Risdon Corporation, a manufacturer of metal and plastic packaging for the

cosmetics industry. From 1973 to 1987, he held various executive positions with American Can Company, Conrail, Gulf Oil and The Boston Consulting Group. Previously, he was a Captain in the U.S. Army.

Jack L. Watts was our Chairman of the Board and Chief Executive Officer from 1986 to 2005. He continues to serve as one of our directors. From 1982 to 1985, he was Chairman of the Board of Faraday Electronics, a supplier of integrated circuits and board level microprocessors.

Robert Egan has been one our directors since June 2003. Mr. Egan founded Environmental Capital Partners, LLC, a private equity firm in 2007 and is a Managing Partner. Prior to 2007 Mr. Egan had a 20 year private equity career including being a Partner of J.P.Morgan Entertainment Partners (JPMEP) and a Senior Advisor to J.P.Morgan Partners. J.P.Morgan Partners is a large private equity fund. Previous to JPMEP, Mr. Egan was the President of Hudson River Capital LLC, a private equity fund that focused on investments in middle market companies. Prior to Hudson, Mr. Egan was a Principal and founding member of Chase Capital Partners, a predecessor to J.P.Morgan Partners. In addition, Mr. Egan has served as a Vice President of The Chase Manhattan Bank’s Merchant Banking Group.

Larry C. Williams has been one of our directors since January 1989. He co–founded The Breckenridge Group, Inc., an investment banking firm in Atlanta, Georgia, in April 1987 and is one of its principals.

Debra Leipman-Yale has been one of our directors since August 2004. Ms. Yale has over twenty-five years of experience in marketing and general management of cosmetic, fragrance and toiletry products. She currently serves as Chief Marketing Officer for Intermark, USA. Prior to that she served as Executive Vice President of Revlon, Inc., a cosmetics company from 2002 through 2003. Prior to her position at Revlon Inc., she held senior positions at Clairol, Inc., a division of Bristol-Myers Squibb from 1983 to 2002, including serving as President of Clairol International.

Richard Cross was elected as one of our directors on August 24, 2006. Mr. Cross has served as Chairman and Chief Executive Officer of CARSTAR Incorporated and CARSTAR Franchising Systems, Inc., a franchisor of automobile collision shops since October 2004. Prior to that, he served as Managing Director of D. Cross Partnership, Ltd., a consulting company, from August 2001 to January 2004. Prior to that he served as President of Spalding and Slyer, Inc. a full service real estate company from September 1998 to August 2001.

Each director listed above was elected at our Annual Meeting of Shareholders held on March 1, 2007, and each will serve until his or her successor has been elected and qualified or until his or her earlier resignation or removal.

Audit Committee Matters

Our Board of Directors has an Audit Committee that is responsible, among other things, for overseeing our accounting and financial reporting processes and audits of our financial statements. The Audit Committee is comprised of Mr. Imbler and Mr. Cross. Our Board of Directors has determined that Mr. Imbler qualifies as an “audit committee financial expert,” and that both members are “independent” as defined by the rules of the NASDAQ Stock Market.

Section 16(a) Beneficial Ownership Reporting

We do not have a class of equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934. Accordingly, no persons are presently required to file reports with the Securities and Exchange Commission pursuant to Section 16(a) of the Exchange Act.

Code of Ethics

We have adopted a written code of ethics, the “Corporate Code of Conduct” (the “Code”), which is applicable to all of our officers and employees including the Chief Executive Officer and senior financial officer. We have added a non-retaliation provision to the Code and have determined that the Code complies with the requirements of a “code of ethics” within the meaning of Item 406(b) of Regulation S–K. We believe that our revised Code is sufficient to deter wrongdoing and promote the honest and ethical conduct of our officers and employees.

In accordance with the rules and regulations of the Securities and Exchange Commission, a copy of the Code has been filed as an exhibit to this Form 10–K. We intend to disclose any changes in or waivers from the Code by filing a Form 8–K.

Item 11. EXECUTIVE COMPENSATION

Executive Compensation

Compensation Discussion and Analysis

Role of our Compensation Committee

The Compensation Committee of the Board of Directors is responsible for establishing the base salary for the Chief Executive Officer and incentive cash bonus programs for our executive officers and administering certain other compensation programs for such individuals, subject in each instance to approval by the full Board. The Compensation Committee also has the responsibility for the administration of our stock option plans. The Chief Executive Officer annually reviews the performance of each named executive officer and based on these reviews the named executive officer’s base salaries are adjusted. The Compensation Committee meets in executive session without the Chief Executive present when it establishes the Chief Executive’s compensation.

Compensation Committee’s Philosophy and Objectives

The fundamental policy of the Compensation Committee is to provide our Chief Executive Officer (“CEO”) and the named executive officers with competitive compensation opportunities based upon their contribution to our financial success and their personal performance. It is the Compensation Committee’s objective to have a substantial portion of each officer’s compensation contingent upon our performance as well as upon his or her own level of performance. The Committee also believes our executive compensation programs should enable us to attract and retain strong performers. These programs are designed to motivate the senior management team to achieve or exceed key objectives by making individual compensation directly dependent on our achievement of financial goals and by providing significant rewards for exceeding those goals.

Compensation program considerations.

We take the following factors into consideration in establishing the compensation for the Chief Executive Officer and the other named executive officers:

Compensation position and comparative framework.

In order to attract and retain the talent that we need to meet corporate objectives, our executive compensation programs are designed to deliver overall cash compensation and employee benefits competitive with comparable manufacturing companies based on our experience in the industry. Bonuses are tied closely to corporate performance, such that actual awards are made only if our performance meets or exceeds objectives established for adjusted EBITDA. These awards thus may vary considerably according to the overall performance of our company.

Mix of Compensation.

The compensation package for the CEO and the named executive officers is comprised of three elements; (i) base salary, which reflects individual performance and is designed primarily to be competitive with salary levels in the industry based on our experience, (ii) annual variable performance awards payable in cash and tied to our achievement of financial targets, and (iii) long-term stock-based incentive awards that strengthen the mutuality of interests between the executive officers and our stockholders. As an executive officer’s level of responsibility increases, it is the intent of the Compensation Committee to have a greater portion of his or her total compensation be dependent upon the performance of our company and stock price appreciation rather than base salary.

Several of the more important factors that the Compensation Committee considers for the components of each executive officer’s compensation package for fiscal 2007 are summarized below. Additional factors were also taken into account, and the Compensation Committee may in its discretion apply entirely different factors, particularly different measures of financial performance, in setting executive compensation for future fiscal years.

Base Salary. The base salary for each officer is determined on the basis of the following factors: experience, personal performance, the average salary levels in effect for comparable positions within and without the industry based on the Compensation Committee’s experience and internal comparability considerations. The weight given to each of these factors differs from individual to individual. Mr. Morefield’s salary was increased from $227,044 in fiscal 2006 to $251,346 in fiscal 2007 because of his additional title of Senior Executive Vice President and a merit raise. Mr. Wehrenberg’s received a merit salary increase from $200,678 in fiscal 2006 to $208,538 in fiscal 2007 . Mr. Swoyer’s salary increased from $136,654 in fiscal 2006 to $196,538 in fiscal 2007 because he only worked for the Company for part of the year in fiscal 2006 and he received a merit raise.

Annual Incentive Compensation. Bonuses are earned by each executive officer primarily on the basis of our achievements of certain corporate financial performance goals established for each fiscal year. For fiscal 2007, the criteria for determination of payment of bonuses were based on our EBITDA performance net of capital expenditures, or Adjusted EBITDA relative to the target established by the Compensation Committee. The Company needed achieve 90% of the Adjusted EBITDA target in order for the named executives to receive any bonus; at this level they would receive 10% of target bonus. No bonuses were paid to the named officers for fiscal 2007 because sufficient Adjusted EBITDA was not achieved. If the Company had achieved 115% of its Adjusted EBITDA target for fiscal 2007, the named executives would have received 200% of their bonus, and at levels between 90% and 115%, the executives would receive an increasing amount, between 10% and 200% of the target bonus amount. The target bonus is set as a percentage of base salary for each named executive officer. For fiscal 2007 the target bonuses were: 50% for Messrs. Bauerbach and Morefield and 30% for Messrs. Lohrman, Swoyer and Wehrenberg.

Long-Term Equity Compensation. Long-term incentives are provided through stock option grants. The grants are designed to align the interests of each executive officer with those of the stockholders and provide each executive officer with a significant incentive to manage us from the perspective of an owner with an equity stake in the business. Each grant allows the executive officer to acquire shares of our common stock at a fixed price per share (the Board established price on the grant date) over a specified period of time (up to ten years). The fixed price per share for options held by our executive officers is 100% of fair market value at the date of issuance. The options will provide the maximum return to the executive officer only if the executive officer remains employed by us, and then only if the Board established price of the underlying shares of common stock appreciates over the option term. The number of shares of common stock subject to each grant is set at a level intended to create a meaningful opportunity for stock ownership based on the executive officer’s current position with us, the base salary associated with that position, the average size of comparable awards made to

executive officer’s in similar positions within the industry, the executive officer’s potential for increased responsibility and promotion over the option term, and the executive officer’s personal performance in recent periods. The Compensation Committee also takes into account the number of vested and unvested options held by the executive officer in order to maintain an appropriate level of equity incentive for that executive officer. However, the Compensation Committee does not adhere to any specific guidelines as to the relative option holdings of our executive officers. No options were granted to named officers in fiscal 2007.

Compensation of the Chief Executive Officer.

The compensation of the Chief Executive Officer is reviewed annually on the same basis as discussed above for all executive officers. Mr. Brian J. Bauerbach’s base salary for fiscal 2007 was approximately $308,462. This was an increase from his 2006 fiscal year salary of $258,394 to further adjust for the additional responsibilities he assumed when became President and Chief Executive Officer. Mr. Bauerbach’s base salary was established in part by comparing the base salaries of Chief Operating Officers at other companies of similar size based on the experience and knowledge of the Compensation Committee. The Committee does not use a mechanical formula or a set benchmark of companies to establish compensation. Mr. Bauerbach did not receive any bonus in fiscal 2007 because the Adjusted EBITDA target for fiscal 2007 was not achieved.

Compensation Limitations.

Under Section 162(m) of the Internal Revenue Code, and regulations adopted thereunder by the Internal Revenue Service, publicly held companies may be precluded from deducting certain compensation paid to certain executive officers in excess of $1.0 million in a year. The regulations exclude from this limit performance—based compensation and stock options provided certain requirements, such as stockholder approval, are satisfied. We believe that our 2002 Stock Option Plan qualifies for the exclusions. We do not currently anticipate taking action necessary to qualify our executive annual cash bonus plans for the exclusion.

The following table sets forth information concerning compensation earned during the fiscal year 2007 for our Chief Executive Officer and our four other most highly compensated executive officers who were serving in such capacity at the end of the fiscal year (collectively the “Named Executive Officers”).

Summary compensation table


					All Other
Name and principal position	Salary (1)		Option Awards (2)		Compensation (3)		Totals
Brian J. Bauerbach President and Chief Executive Officer	$	308,462	$	—	$	10,600		319,062
Michael T. Morefield Senior Executive Vice President and Chief Financial Officer		251,346		—		1,000		252,346
Richard D. Lohrman Vice President, Engineering/R&D		188,269		—		1,000		189,269
Kim Wehrenberg Vice President, General Counsel and Secretary		208,538		—		1,000		209,538
Jeffrey Swoyer Vice President, Human Resources		196,538		—		1,000		197,538


(1)		No bonus was paid in fiscal 2007.

(2)		No options were granted in fiscal 2007. The dollar amounts reflect the amount recognized for financial statement reporting purposes for fiscal 2007 in accordance with SFAS 123R for options granted in fiscal 2006.

(3)		All other compensation consists of a $1,000 Company match under the 401(k) plan and a $9,600 car allowance for Brian Bauerbach.

Retirement Benefits

The Company does not have a retirement plan. The named executive officers participate in the Company’s broad-based 401K plan that is available to all employees. The maximum Company matching contribution under the 401K plan is $1,000.

Health and Welfare Plans

The named executive officers participate in the same broad-based health and welfare plans (medical, prescription, dental, vision, life and disability) that are available to all employees.

Perquisites and Other Personal Benefits

The named executive officers do not have any perquisites or other personal benefits, except that Mr. Bauerbach has a $9,000 car allowance.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

The following table provides information with respect to each unexercised stock option held by the Named Executive Officers as of August 31, 2007. None of the Named Executive Officers holds any shares of restricted stock or other equity awards. We did not grant any stock options to the Named Executive Officers in fiscal 2007 nor did any Named Executive Officer exercise any of his stock options during 2007.


					Number of securities
	Option		Option		underlying unexercised
	exercise		expiration		options at August 31, 2007
Name	price		date		Exercisable		Unexercisable
Brian J. Bauerbach	$	0.62		2/14/16		320,000		80,000
Michael T. Morefield		0.62		2/14/16		175,000		—
Richard D. Lohrman		0.62		2/14/16		200,000		—
Kim Wehrenberg		0.62		2/14/16		83,334		—
Jeffrey Swoyer		0.62		2/14/16		83,333		41,667

Director compensation

For fiscal 2007 Directors received quarterly retainers of $4,250 for Board service and $2,000 for attendance per Board meeting. Compensation Committee members received a quarterly retainer of $1,000 and Audit Committee members received a retainer of $2,500 per quarter. The Board Chairman also receives an additional retainer of $4,250 per quarter. Brian Bauerbach, a Director and our President and CEO, does not receive any compensation as a director.

The non-employee directors earned the following compensation during the 2007 fiscal year.


	Fees Earned or
	Paid in Cash		Option Awards		Total
Robert Egan	$	29,000	$	—	$	29,000
Richard Cross		25,000		—		25,000
Martin Imbler		55,000		—		55,000
Debra Leipman-Yale		34,000		—		34,000
Jack Watts		25,000		—		25,000
Larry Williams		23,000		—		23,000

Employment and change of control arrangements

Certain of the stock option agreements entered into pursuant to the 2002 Stock Option Plan provide for acceleration of vesting of options governed thereby in the event of a “change in control,” as defined in such stock option agreements. In this regard, the stock options granted during fiscal 2006 directors and executive officers, provide for acceleration of vesting upon a change in control of Portola.

Mr. Bauerbach has an employment agreement that provides for a base salary of $400,000 and a bonus of 60% of base salary upon attainment of certain business goals for fiscal 2008. He also received a $75,000 signing bonus and standard moving expenses in fiscal 2005. He is entitled to payment of one year of severance if his employment is terminated without cause.

Mr. Morefield has an employment agreement that provides for a base salary of $260,000 and a bonus of 50% of base salary upon attainment of certain business goals. He is entitled to payment of one year’s salary if his employment is terminated without cause.

The following table sets forth the potential payments the named executive officers could receive for employment termination.


	Cash on
	Termination		Option Vesting on
	without Cause		Change of Control		Total
Brian J. Bauerbach	$	310,000	$	—	$	310,000
Michael T. Morefield		260,000		—		260,000
Richard D. Lohrman		97,000		—		97,000
Kim Wehrenberg		106,000		—		106,000
Jeffrey Swoyer		200,000		—		200,000


Item 12.		SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information with respect to beneficial ownership of each class of our voting securities as of November 26, 2007 by (i) each person known by us to be the beneficial owner of more than 5% of such class, (ii) each director, (iii) each Named Officer and (iv) all executive officers and directors as a group. Our equity securities are privately held and no class of our voting securities is registered pursuant to Section 12 of the Securities Exchange Act of 1934.


	Shares of Class A					Shares of Class B
	common stock					common stock
	beneficially owned(1)					beneficially owned(2)
Name of beneficial owner	Number(3)		Percent(3)			Number(3)		Percent(3)
Suez Equity Investors, L.P.(4)		2,134,992		100.0	%		—		—
SEI Associates(4)		2,134,992		100.0			—		—
Robert Egan(5)		—		—			2,438,048		24.5	%
J.P. Morgan Partners 23A (formerly Chase Manhattan Capital Corporation)(6)		—		—			2,388,048		24.0	%
Jack L. Watts(7)		—		—			3,374,446		34.0	%
Gary L. Barry(8)		—		—			607,965		6.2	%
Brian J. Bauerbach (9)		—		—			400,000		3.9	%
Michael T. Morefield (10)		—		—			175,000		1.7	%
Kim Wehrenberg (11)		—		—			125,000		1.3	%
Larry C. Williams(12)		—		—			141,942		1.4	%
Richard Lohrman(13)		—		—			200,000		2.0	%
Martin Imbler(14)		—		—			97,500		*
Debra Leipman-Yale(15)		—		—			70,000		*
Jeff Swoyer (16)		—		—			83,332		*
Richard Cross		—		—			—		*

All executive officers and directors as a group (11 persons)(17)		—		—			7,105,268		71.7	%


*		Less than 1%

(1)		As of November 27, 2007, there were 2,134,992 shares of Class A Common Stock issued and outstanding. The Class A Common Stock is non–voting and each share of Class A Common Stock may be converted into one share of Class B Common Stock, Series 1 in the event that shares of Class B Common Stock, Series 1 shall be sold in a firm commitment public offering in which the aggregate public offering price is equal to or greater than $10.0 million or there is a capital reorganization or reclassification of our capital stock. See Note 12 of Notes to Consolidated Financial Statements.

(2)		As of November 27, 2007, there were 9,879,778 shares of Class B Common Stock issued and outstanding, consisting of 8,709,383 shares of Class B Common Stock, Series 1 and 1,170,395 shares of Class B Common Stock, Series 2. The Class B Common Stock, Series 1 carry voting rights of one vote per share. Holders of Class B Common Stock, Series 2 have a number of votes equal to the number of shares of Class B Common Stock, Series 1 into which such holder’s shares of Class B Common Stock, Series 2 is then convertible. The Class B Common Stock, Series 2 has a liquidation preference equal to $0.60 on each distributed dollar in the event that the value of our assets available for distribution is less than $1.75 per share. Each share of Class B Common Stock, Series 2 is convertible at any time at the option of the holder into that number of shares of Class B Common Stock, Series 1 that results from dividing the Conversion Price (as defined in our certificate of incorporation) by $1.75 and will be automatically converted into one such share (i) in the event that shares of Class B Common Stock, Series 1 shall be sold in a firm commitment public offering in which the aggregate public offering price is equal to or greater than $10 million or (ii) immediately prior to the effectiveness of a merger or consolidation in which Portola is not the surviving entity and in which the value of the property to be received by the stockholders shall be not less than $1.75 per share. See Note 10 of Notes to Consolidated Financial Statements.

(3)		In accordance with the rules of the SEC, shares are beneficially owned by the person who has or shares voting or investment power with respect to such shares. Unless otherwise indicated below, the persons and entities named in the table have sole voting


		and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Shares of common stock issuable upon exercise of outstanding options identified in the footnotes to this table and exercisable on November 17, 2006 or within 60 days thereafter are included, and deemed to be outstanding and to be beneficially owned by the person holding such option for the purpose of computing the percentage ownership of such person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

(4)		Represents 2,028,242 shares held by Suez Equity Investors, L.P. and 106,750 shares held by SEI Associates, an affiliate of Suez Equity Investors, L.P. The address of both Suez Equity Investors, L.P. and SEI associates is 712 5th Avenue, 24th Floor, New York, New York 10019.

(5)		Mr. Egan is an affiliate of JPMorgan Partners (formerly Chase Capital Partners), an affiliate of JPMorgan Partners 23A (formerly Chase Manhattan Capital Corporation). Includes (i) 1,552,333 shares of Class B Common Stock, Series 1 held of record by JPMorgan Partners 23A and affiliates (of which 149,047 shares are held by Archery Partners and 99,800 shares held by Baseball Partners) and 10,000 shares of Class B Common Stock, Series 1 subject to options held by JPMorgan Partners Global 2001 SBIC, LLC, an affiliate of JPMorgan Partners 23A, that are exercisable within 60 days of November 27, 2007, and (ii) 10,000 shares of Class B Common Stock, Series 1 subject to options held by JPMorgan Partners 23A and 50,000 options held by Mr. Egan that are exercisable within 60 days of November 27, 2007. Also includes 726,095 shares of Class B Common Stock, Series 2 held of record by JPMorgan Partners 23A, 39,620 shares of Class B Common Stock, Series 2 held of record by Archery Partners and 50,000 shares of Class B Common Stock, Series 2 held of record by Baseball Partners, both affiliates of JPMorgan Partners 23A. Mr. Egan disclaims beneficial ownership of the 1,569,333 shares of Class B Common Stock, Series 1 owned by JPMorgan Partners 23A and affiliates, and the 815,715 shares of Class B Common Stock, Series 2 owned by JPMorgan Partners 23A and affiliates. The address of this shareholder is 1221 Avenue of the Americas, New York, New York 10017.

(6)		With respect to Class B Common Stock, Series 1, includes (i) 149,047 shares held by Archery Partners, (ii) 99,800 shares held by Baseball Partners, and (iii) (a) 10,000 shares subject to options held by JPMorgan Partners Global 2001 SBIC, LLC, an affiliate of JPMorgan Partners 23A, that are exercisable within 60 days of November 27, 2007 and (b) 9,000 shares subject to options held by JPMorgan Partners 23A that are exercisable within 60 days of November 27, 2007. With respect to Class B Common Stock, Series 2, includes 39,620 shares held of record by Archery Partners and 50,000 shares held of record by Baseball Partners, such entities being affiliates of JPMorgan Partners 23A. The address of this shareholder is 1221 Avenue of the Americas, New York, New York 10017.

(7)		Includes 2,889,972 shares held by Mr. Watts individually, 424,474 shares held of record by LJL Cordovan Partners, L.P., of which Mr. Watts is the general partner, and 10,000 shares held of record by the Watts Family Foundation, of which Mr. Watts is the President and a Trustee. Also includes 50,000 shares subject to options that are exercisable within 60 days of November 27, 2007. The shares listed do not include 55,332 shares held in the names of trusts for the benefit of Mr. Watts’ children, due to the fact that Mr. Watts does not exercise voting or investment control over such trusts. Mr. Watts’ business address is 951 Douglas Road, Batavia, IL 60510.

(8)		Mr. Barry’s forwarding address is 951 Douglas Road, Batavia, IL 60510.

(9)		Represents 400,000 shares subject to options that are exercisable within 60 days of November 27, 2007. Mr. Bauerbach’s address is 951 Douglas Road, Batavia, IL 60510.

(10)		Represents 175,000 shares subject to options that are exercisable within 60 days of November 27, 2007. Mr. Morefield’s address is 951 Douglas Road, Batavia, IL 60510.

(11)		Includes 83,334 shares subject to options that are exercisable within 60 days of November 27, 2007. Mr. Wehrenberg’s address is 951 Douglas Road, Batavia, IL 60510.

(12)		Includes 90,000 shares subject to options that are exercisable within 60 days of November 27, 2007. Excludes shares held in the individual names of three other principals of The Breckenridge Group, Inc., of which Mr. Williams is a principal. Mr. Williams’ address is Resurgens Plaza, Suite 2100, 945 East Paces Ferry Road, Atlanta, Georgia 30326.

(13)		Represents 200,000 shares subject to options that are exercisable within 60 days of November 27, 2007. Mr. Lohrman’s address is 951 Douglas Road, Batavia, IL 60510.

(14)		Includes 77,500 shares subject to options that are exercisable within 60 days of November 27, 2007. Mr. Imbler’s address is 5901 Lincoln Avenue, Evansville, IN 47715.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Transactions with related persons

Other than the compensation arrangements described in Item 11 above, since September 1, 2006, there has not been, nor is there currently proposed, any transactions or series of similar transactions to which we were or will be a party in which the amount involved exceeded or will exceed $120,000 and in which any director, executive officer, holder of more than 5% of our common stock or any member of his or her immediate family had or will have a direct or indirect material interest, other than the following:

A majority of our shares, including shares held by Jack L. Watts and his affiliates, are subject to shareholders agreements under which we have a right of first refusal in the event of a proposed transfer of such shares of our common stock to a transferee not related to the shareholder. In the event we do not exercise our right of first refusal, the other shareholders that are parties to the agreements have similar first refusal rights.

Approval of Related Party Transaction

Pursuant to the requirements of its written charter, the Audit Committee is required to review and approve any related party transactions, which include any transactions in which any of our directors, executive officers, holders of more than 5% of our common stock or any member of his or her immediate family had or will have a direct or indirect material interest. Such review would typically occur during one of the Audit Committee’s regularly scheduled meetings. We did not engage in any related party transactions in fiscal 2007 which would have required the review and approval of the Audit Committee.

Director Independence

Our Chief Executive Officer, Brian J. Bauerbach, is a member of our Board of Directors and Jack L. Watts was our Chief Executive Officer until April 2005. Consequently, neither of Mr. Bauerbach or Mr. Watts qualifies as “independent” in accordance with the rules of the NASDAQ Stock Market. Each of our other non-employee directors, Martin Imbler, Richard Cross, Robert Egan, Debra Leipman-Yale and Larry C. Williams, qualifies as “independent” in accordance with the rules of the NASDAQ Stock Market. The NASDAQ independence definition includes a series of objective tests, including that a director may not be our employee and that the director has not engaged in various types of business dealings with us. In addition, as further required by the NASDAQ rules, our Board of Directors has made a subjective determination as to each independent director that no relationship exists which, in the opinion of the Board of Directors, would interfere with the exercise of such director’s independent judgment in carrying out the responsibilities of a director.

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

The aggregate fees billed by BDO Seidman, LLP for the audit of our financial statements included in our annual report on Form 10-K for fiscal years 2007 and 2006, the reviews of our financial statements included in our quarterly reports on Form 10-Q and related required regulatory filings were approximately $487,466 and $473,250 for the year ended August 31, 2007 and August 31, 2006, respectively.

Audit Related Fees

There were no audit related fees for fiscal 2007 and 2006, respectively.

All Other Fees

There were no aggregate fees billed for any other non-audit services for the years ended August 31, 2007 and 2006.

All non-audit services require an engagement letter to be signed prior to commencing any services. The engagement letter must detail the fee estimates and the scope of services to be provided. The current policy of our audit committee is that the audit committee must be informed and approve of the non-audit services in advance of the engagement and the audit committee’s responsibilities in this regard may not be delegated to management.

PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) The following financial statements of Portola Packaging, Inc. and the Report of Independent Registered Public Accounting Firm are filed herewith:


	Page in
	Form 10–K
Reports of Independent Registered Public Accounting Firms		37
Consolidated Balance Sheets as of August 31, 2007 and 2006		39
Consolidated Statements of Operations for the Years Ended August 31, 2007, 2006 and 2005		40
Consolidated Statements of Cash Flows for the Years Ended August 31, 2007, 2006 and 2005		41
Consolidated Statements of Shareholders’ Equity (Deficit) for the Years Ended August 31, 2007, 2006 and 2005		42
Notes to Consolidated Financial Statements		43

(a)(2) Financial Statement Schedules. The following financial statement schedule is filed herewith and should be read in conjunction with the consolidated financial statements:


	Page in
	Form 10–K
Schedule II—Valuation and Qualifying Accounts		90

All other schedules are omitted because they are not applicable or the required information is shown on the consolidated financial statements or notes thereto.

(a)(3) Exhibits. The following exhibits are filed as part of, or incorporated by reference into, this Form 10–K:


Exhibit
Number		Exhibit Title
	3.01	Certificate of Incorporation (filed with Secretary of State of Delaware on April 29, 1994, as amended and filed with Secretary of State of Delaware on October 4, 1995)(1)

	3.02	Bylaws(2)

	4.01	Indenture, dated as of January 23, 2004, by and among the Registrant, the Subsidiary Guarantors listed thereto and U.S. Bank National Association, as trustee (including form of Note)(3)

	4.02	Form of Stock Certificate evidencing ownership of Registrant’s Class B Common Stock, Series 1(4)

	10.01	Shareholders Agreement, dated as of June 23, 1988, by and among the Registrant, Chase Manhattan Investment Holdings, Inc. and certain shareholders and warrant holders, amended by Amendment to Shareholders Agreement, dated as of May 23, 1989, further amended by Second Amendment to Shareholders Agreement, dated November 29, 1989, and further amended by Amendment to Shareholders Agreement, dated as of June 30, 1994(5)*

	10.02	Shareholders Agreement, dated as of June 30, 1994, by and among the Registrant, Chase Manhattan Capital Corporation, and certain shareholders and warrant holders(6)*

	10.03	First Offer Agreement, dated as of October 17, 1990, by and among the Registrant, Chase Manhattan Investment Holdings, Inc., Chase Manhattan Capital Corporation and Robert Fleming Nominees, Ltd., as amended by Amendment to First Offer Agreement, dated as of June 30, 1994(7)

	10.04	Director’s Agreement, dated September 1, 1989, by and between the Registrant and Larry C. Williams, as amended by Amendment to Director’s Agreement, dated January 16, 1990 and Amendment Number Two to Director’s Agreement, dated August 31, 1991(8)*

	10.05	Stock Purchase Agreement, dated October 17, 1990, by and among the Registrant, Robert Fleming Nominees, Ltd., Jack Watts, John Lemons and LJL Cordovan Partners(9)*


Exhibit
Number		Exhibit Title
	10.06	Stock Purchase Agreement, dated as of June 30, 1994, by and among the Registrant, Jack L. Watts, LJL Cordovan Partners, Robert Fleming Nominees, Ltd., Chase Manhattan Capital Corporation and certain other selling shareholders(10)*

	10.07	Form of Subscription Agreement by and between the Registrant and the related director or officer (said form being substantially similar to the form of Subscription Agreement utilized by the Registrant for certain officers and directors of the Registrant)(11)*

	10.08	Form of Indemnification Agreement by and between the Registrant and the related director or officer (said form being substantially similar to the form of Indemnification Agreement utilized by the Registrant for certain officers and directors of the Registrant)(12)*

	10.09	Stock Purchase Agreement, dated as of June 9, 1995, by and among the Registrant, Oakley T. Hayden Corp., Lyn Leigers as Executor of the Estate of Oakley T. Hayden, Chase Manhattan Capital Corporation and Heller Financial, Inc.(13)*

	10.10	Stock Purchase Agreement, dated October 10, 1995, by and among the Registrant, Jack L. Watts, John L. Lemons, Mary Ann Lemons, LJL Cordovan Partners, L.P., Robert Fleming Nominees, Ltd., Suez Equity Investors, L.P. and SEI Associates(14)*

	10.11	Amendment to Investors’ Rights Agreements, dated as of October 10, 1995, by and among the Registrant, Jack L. Watts, John L. Lemons, Mary Ann Lemons, LJL Cordovan Partners, L.P., Robert Fleming Nominees, Ltd., Suez Equity Investors, L.P., SEI Associates and Chase Manhattan Capital Corporation(15)*

	10.12	Third Amended and Restated Registration Rights Agreement, dated as of October 10, 1995, by and among the Registrant, Heller Financial, Inc., Chase Manhattan Capital Corporation, Robert Fleming Nominees, Ltd., Suez Equity Investors, L.P. and SEI Associates(16)*

	10.13	1994 Stock Option Plan, as amended, and related documents(17)*

	10.14	Form of Indemnification Agreement by and between the Registrant and the related director or officer(18)*

	10.15	Form of Amendment to Indemnification Agreement by and between the Registrant and certain directors and officers of the Registrant(19)*

	10.16	Registrant’s Management Deferred Compensation Plan Trust Agreement(20)*

	10.17	Registrant’s Management Deferred Compensation Plan(21)*

	10.18	Fourth Amended and Restated Credit Agreement, dated as of January 16, 2004, by and among Registrant, as Borrower, General Electric Capital Corporation, as Agent, and the other financial institutions that are a party thereto, as Lenders(22)

	10.19	2002 Stock Option Plan and Related Materials(23) *

	10.20	Stock Purchase Agreement, dated as of September 1, 2003, by and among the Registrant, Tech Industries, Inc. and the shareholders of Tech Industries, Inc.(24)

	10.21	Stock Purchase Agreement, dated as of September 1, 2003, by and among the Registrant, Tech Industries UK Ltd. and the shareholders of Tech Industries UK Ltd.(25)

	10.22	Equity Purchase Agreement, dated as of September 1, 2003, by and among the Registrant and the partners of Fairmount Realty Associates(26)

	10.23	Equity Purchase Agreement, dated as of September 1, 2003, by and among the Registrant and the partners of 84 Fairmount Street Limited Partnership(27)


Exhibit
Number		Exhibit Title
	10.24	Closing Agreement, dated as of September 19, 2003, by and among the Registrant, the shareholders of Tech Industries, Inc., the shareholders of Tech Industries UK Ltd. and the partners of Fairmount Realty Associates and 84 Fairmount Street Limited Partnership(28)

	10.25	Amendment No. 1 to Fourth Amended and Restated Credit Agreement, dated as of May 21, 2004, by and among the Registrant, as Borrower, General Electric Capital Corporation, as Agent, and the other financial institutions that are a party thereto, as Lenders(29)

	10.26	Employment Agreement with Michael T. Morefield *

	10.27	Limited Waiver and Second Amendment to Fourth Amended and Restated Credit Agreement Among the Registrant and General Electric Capital Corporation (31)

	10.28	Option to Renew (32)

	10.29	Second Amendment to Lease Agreement between Santa Maria Industrial Partners, L.P. and the Registrant (33)

	10.30	Lease between Cabot Industrial Properties, L.P., Landlord, and the Registrant, Tenant (34)

	10.31	Employment Agreement with Brian J. Bauerbach (35) *

	10.32	Seventh Amendment to Fourth Amended and Restated Credit Agreement dated as of June 21, 2005, by and between the Registrant and General Electric Capital Corporation (36)

	10.33	Severance Agreement with Jack L. Watts *

	10.35	First Amendment of Portola Packaging, Inc. 2002 Stock Option Plan. (38)

	10.36	Amended Employment Agreement with Michael T. Morefield * (30)

	14.01	Corporate Code of Ethics (37)

	16.01	Letter of PricewaterhouseCoopers LLP to the Securities and Exchange Commission

	21.01	Subsidiaries of the Registrant

	23.01	Consent of BDO Seidman LLP

	23.02	Consent of PricewaterhouseCoopers LLP

	31.01	Certification of Brian J. Bauerbach, Chief Executive Officer of the Registrant, pursuant to Section 302 of the Sarbanes–Oxley Act of 2002

	31.02	Certification of Michael T. Morefield, Chief Financial Officer of the Registrant, pursuant to Section 302 of the Sarbanes–Oxley Act of 2002

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


*		Denotes a management contract or a compensatory plan or arrangement

(1)		Incorporated herein by reference to the exhibit with the same number included in the Registrant’s Quarterly Report on Form 10–Q for the period ended November 30, 1995, as filed with the Securities and Exchange Commission on January 16, 1996.

(2)		Incorporated herein by reference to the exhibit with the same number included in the Registrant’s Registration Statement on Form S–1 (Commission File No. 33–95318), as filed with the Securities and Exchange Commission on August 1, 1995.

(3)		Incorporated herein by reference to exhibit 4.01 included in Amendment No. 1 to the Registrant’s Registration Statement on Form S–4/A (Commission File No. 334–115862), as filed with the Securities and Exchange Commission on June 25, 2004.


(4)		Incorporated herein by reference to the exhibit with the same number included in the Registrant’s Quarterly Report on Form 10–Q for the period ended November 30, 1996, as filed with the Securities and Exchange Commission on January 13, 1997.

(5)		Incorporated herein by reference to exhibit 10.02 included on the Registrant’s Registration Statement on Form S–1 (Commission File No. 33–95318), as filed with the Securities and Exchange Commission on August 1, 1995.

(6)		Incorporated herein by reference to exhibit 10.03 included on the Registrant’s Registration Statement on Form S–1 (Commission File No. 33–95318), as filed with the Securities and Exchange Commission on August 1, 1995.

(7)		Incorporated herein by reference to exhibit 10.07 included in the Registrant’s Registration Statement on Form S–1 (Commission File No. 33–95318), as filed with the Securities and Exchange Commission on August 1, 1995.

(8)		Incorporated herein by reference to exhibit 10.13 included in the Registrant’s Registration Statement on Form S–1 (Commission File No. 33–95318), as filed with the Securities and Exchange Commission on August 1, 1995.

(9)		Incorporated herein by reference to exhibit 10.15 included in the Registrant’s Registration Statement on Form S–1 (Commission File No. 33–95318), as filed with the Securities and Exchange Commission on August 1, 1995.

(10)		Incorporated herein by reference to exhibit 10.16 included in the Registrant’s Registration Statement on Form S–1 (Commission File No. 33–95318), as filed with the Securities and Exchange Commission on August 1, 1995.

(11)		Incorporated herein by reference to exhibit 10.20 included in the Registrant’s Registration Statement on Form S–1 (Commission File No. 33–95318), as filed with the Securities and Exchange Commission on August 1, 1995.

(12)		Incorporated herein by reference to exhibit 10.21 included in the Registrant’s Registration Statement on Form S–1 (Commission File No. 33–95318), as filed with the Securities and Exchange Commission on August 1, 1995.

(13)		Incorporated herein by reference to exhibit 10.22 included in pre–effective Amendment No. 2 to the Registrant’s Registration Statement on Form S–1 (Commission File No. 33–95318), as filed with the Securities and Exchange Commission on September 25, 1995.

(14)		Incorporated herein by reference to exhibit 10.25 included in the Registrant’s Quarterly Report on Form 10–Q for the period ended November 30, 1995, as filed with the Securities and Exchange Commission on January 16, 1996.

(15)		Incorporated herein by reference to exhibit 10.26 included in the Registrant’s Quarterly Report on Form 10–Q for the period ended November 30, 1995, as filed with the Securities and Exchange Commission on January 16, 1996.

(16)		Incorporated herein by reference to exhibit 10.27 included in the Registrant’s Quarterly Report on Form 10–Q for the period ended November 30, 1995, as filed with the Securities and Exchange Commission on January 16, 1996.

(17)		Incorporated herein by reference to exhibit 4.03 to the Registrant’s Registration Statement on Form S–8 (Commission File No. 333–82125), as filed with the Securities and Exchange Commission on July 1, 1999, as amended by Post–Effective Amendment thereto, as filed with the Securities and Exchange Commission on May 15, 2001.

(18)		Incorporated herein by reference to exhibit 10.37 included in the Registrant’s Annual Report on Form 10–K for the period ended August 31, 1996, as filed with the Securities and Exchange Commission on November 25, 1996.

(19)		Incorporated herein by reference to exhibit 10.38 included in the Registrant’s Annual Report on Form 10–K for the period ended August 31, 1996, as filed with the Securities and Exchange Commission on November 25, 1996.

(20)		Incorporated herein by reference to exhibit 10.43 included in the Registrant’s Quarterly Report on Form 10–Q for the period ended November 30, 1996, as filed with the Securities and Exchange Commission on January 13, 1997.

(21)		Incorporated herein by reference to exhibit 10.44 with the same number included in Post–Effective Amendment No. 2 to Registrant’s Registration Statement on Form S–1 (Commission File No. 33–95318), as filed with the Securities and Exchange Commission on March 11, 1997.

(22)		Incorporated herein by reference to exhibit 10.03 included in the Registrant’s Quarterly Report on Form 10–Q for the period ended February 29, 2004, as filed with the Securities and Exchange Commission on April 9, 2004.


(23)		Incorporated herein by reference to exhibit 10.34 included in the Registrant’s Quarterly Report on Form 10–Q for the quarter ended May 31, 2002, as filed with the Securities and Exchange Commission on July 3, 2002.

(24)		Incorporated herein by reference to exhibit 2.01 included in the Registrant’s Report on Form 8–K, as filed with the Securities and Exchange Commission on October 6, 2003.

(25)		Incorporated herein by reference to exhibit 2.02 included in the Registrant’s Report on Form 8–K, as filed with the Securities and Exchange Commission on October 6, 2003.

(26)		Incorporated herein by reference to exhibit 2.03 included in the Registrant’s Report on Form 8–K, as filed with the Securities and Exchange Commission on October 6, 2003.

(27)		Incorporated herein by reference to exhibit 2.04 included in the Registrant’s Report on Form 8–K, as filed with the Securities and Exchange Commission on October 6, 2003.

(28)		Incorporated herein by reference to exhibit 2.05 included in the Registrant’s Report on Form 8–K, as filed with the Securities and Exchange Commission on October 6, 2003.

(29)		Incorporated herein by reference to exhibit 10.34 included in the Registrant’s Registration Statement on Form S–4 (Commission File No. 334–115862), as filed with the Securities and Exchange Commission on May 25, 2004.

(30)		Incorporated herein by reference to exhibit 10.36 included in the Registrant’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2007, as filed with the Securities and Exchange Commission on April 12, 2007.

(31)		Incorporated herein by reference to exhibit 10.27 included in the Registrant’s Annual Report on Form 10-K/A Amendment No. 1 for the year ended August 31, 2004, as filed with the Securities and Exchange Commission on December 14, 2004.

(32)		Incorporated herein by reference to exhibit 10.28 included in the Registrant’s Annual Report on Form 10-K/A Amendment No. 1 for the period ended August 31, 2004, as filed with the Securities and Exchange Commission on December 14, 2004.

(33)		Incorporated herein by reference to exhibit 10.29 included in the Registrant’s Annual Report on Form 10-K/A Amendment No. 1 for the period ended August 31, 2004, as filed with the Securities and Exchange Commission on December 14, 2004.

(34)		Incorporated herein by reference to exhibit 10.30 included in the Registrant’s Annual Report on Form 10-K/A Amendment No. 1 for the period ended August 31, 2004, as filed with the Securities and Exchange Commission on December 14, 2004.

(35)		Incorporated herein by reference to exhibit 10.31 included in the Registrant’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2005, as filed with the Securities and Exchange Commission on April 19, 2005.

(36)		Incorporated herein by reference to exhibit 99.01 included in the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on June 27, 2005.

(37)		Incorporated herein by reference to exhibit 14.01 included in the Registrant’s Annual on Form 10-K/A Amendment No. 1 for the period ended August 31, 2004, as filed with the Securities and Exchange Commission on December 14, 2004.

(38)		Incorporated herein by reference to exhibit 10.35 included in the Registrant’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2007, as filed with the Securities and Exchange Commission on April 12, 2007.

EXHIBIT INDEX


Exhibit
Number		Exhibit Title
	3.01	Certificate of Incorporation (filed with Secretary of State of Delaware on April 29, 1994, as amended and filed with Secretary of State of Delaware on October 4, 1995)(1)

	3.02	Bylaws(2)

	4.01	Indenture, dated as of January 23, 2004, by and among the Registrant, the Subsidiary Guarantors listed thereto and U.S. Bank National Association, as trustee (including form of Note)(3)

	4.02	Form of Stock Certificate evidencing ownership of Registrant’s Class B Common Stock, Series 1(4)

	10.01	Shareholders Agreement, dated as of June 23, 1988, by and among the Registrant, Chase Manhattan Investment Holdings, Inc. and certain shareholders and warrant holders, amended by Amendment to Shareholders Agreement, dated as of May 23, 1989, further amended by Second Amendment to Shareholders Agreement, dated November 29, 1989, and further amended by Amendment to Shareholders Agreement, dated as of June 30, 1994(5)*

	10.02	Shareholders Agreement, dated as of June 30, 1994, by and among the Registrant, Chase Manhattan Capital Corporation, and certain shareholders and warrant holders(6)*

	10.03	First Offer Agreement, dated as of October 17, 1990, by and among the Registrant, Chase Manhattan Investment Holdings, Inc., Chase Manhattan Capital Corporation and Robert Fleming Nominees, Ltd., as amended by Amendment to First Offer Agreement, dated as of June 30, 1994(7)

	10.04	Director’s Agreement, dated September 1, 1989, by and between the Registrant and Larry C. Williams, as amended by Amendment to Director’s Agreement, dated January 16, 1990 and Amendment Number Two to Director’s Agreement, dated August 31, 1991(8)*

	10.05	Stock Purchase Agreement, dated October 17, 1990, by and among the Registrant, Robert Fleming Nominees, Ltd., Jack Watts, John Lemons and LJL Cordovan Partners(9)*

	10.06	Stock Purchase Agreement, dated as of June 30, 1994, by and among the Registrant, Jack L. Watts, LJL Cordovan Partners, Robert Fleming Nominees, Ltd., Chase Manhattan Capital Corporation and certain other selling shareholders(10)*

	10.07	Form of Subscription Agreement by and between the Registrant and the related director or officer (said form being substantially similar to the form of Subscription Agreement utilized by the Registrant for certain officers and directors of the Registrant)(11)*

	10.08	Form of Indemnification Agreement by and between the Registrant and the related director or officer (said form being substantially similar to the form of Indemnification Agreement utilized by the Registrant for certain officers and directors of the Registrant)(12)*

	10.09	Stock Purchase Agreement, dated as of June 9, 1995, by and among the Registrant, Oakley T. Hayden Corp., Lyn Leigers as Executor of the Estate of Oakley T. Hayden, Chase Manhattan Capital Corporation and Heller Financial, Inc.(13)*

	10.10	Stock Purchase Agreement, dated October 10, 1995, by and among the Registrant, Jack L. Watts, John L. Lemons, Mary Ann Lemons, LJL Cordovan Partners, L.P., Robert Fleming Nominees, Ltd., Suez Equity Investors, L.P. and SEI Associates(14)*

	10.11	Amendment to Investors’ Rights Agreements, dated as of October 10, 1995, by and among the Registrant, Jack L. Watts, John L. Lemons, Mary Ann Lemons, LJL Cordovan Partners, L.P., Robert Fleming Nominees, Ltd., Suez Equity Investors, L.P., SEI Associates and Chase Manhattan Capital Corporation(15)*


Exhibit
Number		Exhibit Title
	10.12	Third Amended and Restated Registration Rights Agreement, dated as of October 10, 1995, by and among the Registrant, Heller Financial, Inc., Chase Manhattan Capital Corporation, Robert Fleming Nominees, Ltd., Suez Equity Investors, L.P. and SEI Associates(16)*

	10.13	1994 Stock Option Plan, as amended, and related documents(17)*

	10.14	Form of Indemnification Agreement by and between the Registrant and the related director or officer(18)

	10.15	Form of Amendment to Indemnification Agreement by and between the Registrant and certain directors and officers of the Registrant(19)*

	10.16	Registrant’s Management Deferred Compensation Plan Trust Agreement(20)*

	10.17	Registrant’s Management Deferred Compensation Plan(21)*

	10.18	Fourth Amended and Restated Credit Agreement, dated as of January 16, 2004, by and among Registrant as Borrower, General Electric Capital Corporation, as Agent, and the other financial institutions that are a party thereto, as Lenders(22)

	10.19	2002 Stock Option Plan and Related Materials(23)*

	10.20	Stock Purchase Agreement, dated as of September 1, 2003, by and among the Registrant, Tech Industries, Inc. and the shareholders of Tech Industries, Inc.(24)

	10.21	Stock Purchase Agreement, dated as of September 1, 2003, by and among the Registrant, Tech Industries UK Ltd. and the shareholders of Tech Industries UK Ltd.(25)

	10.22	Equity Purchase Agreement, dated as of September 1, 2003, by and among the Registrant and the partners of Fairmount Realty Associates(26)

	10.23	Equity Purchase Agreement, dated as of September 1, 2003, by and among the Registrant and the partners of 84 Fairmount Street Limited Partnership(27)

	10.24	Closing Agreement, dated as of September 19, 2003, by and among the Registrant, the shareholders of Tech Industries, Inc., the shareholders of Tech Industries UK Ltd. and the partners of Fairmount Realty Associates and 84 Fairmount Street Limited Partnership(28)

	10.25	Amendment No. 1 to Fourth Amended and Restated Credit Agreement, dated as of May 21, 2004, by and among the Registrant, as Borrower, General Electric Capital Corporation, as Agent, and the other financial institutions that are a party thereto, as Lenders(29)

	10.26	Employment Agreement with Michael T. Morefield*

	10.27	Limited Waiver and Second Amendment to Fourth Amended and Restated Credit Agreement Among the Registrant and General Electric Capital Corporation (31)

	10.28	Option to Renew (32)

	10.29	Second Amendment to Lease Agreement between Santa Maria Industrial Partners, L.P. and the Registrant (33)

	10.30	Lease between Cabot Industrial Properties, L.P., Landlord, and the Registrant, Tenant (34)

	10.31	Employment Agreement with Brian J. Bauerbach (35) *

	10.32	Seventh Amendment to Fourth Amended and Restated Credit Agreement dated as of June 21, 2005, by and between the Registrant and General Electric Capital Corporation (36)


Exhibit
Number		Exhibit Title
	10.33	Severance Agreement with Jack L. Watts *

	10.35	First Amendment of Portola Packaging, Inc. 2002 Stock Option Plan. (38)

	10.36	Amended Employment Agreement with Michael T. Morefield* (30)

	14.01	Corporate Code of Ethics (36)

	16.01	Letter of PricewaterhouseCoopers LLP to the Securities and Exchange Commission

	21.01	Subsidiaries of the Registrant

	23.01	Consent of BDO Seidman LLP

	23.02	Consent of PricewaterhouseCoopers LLP

	31.01	Certification of Brian J. Bauerbach, Chief Executive Officer of the Registrant, pursuant to Section 302 of the Sarbanes–Oxley Act of 2002

	31.02	Certification of Michael T. Morefield, Chief Financial Officer of the Registrant, pursuant to Section 302 of the Sarbanes–Oxley Act of 2002

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


*		Denotes a management contract or compensating plan or arrangement

(1)		Incorporated herein by reference to the exhibit with the same number included in the Registrant’s Quarterly Report on Form 10–Q for the period ended November 30, 1995, as filed with the Securities and Exchange Commission on January 16, 1996.

(2)		Incorporated herein by reference to the exhibit with the same number included in the Registrant’s Registration Statement on Form S–1 (Commission File No. 33–95318), as filed with the Securities and Exchange Commission on August 1, 1995.

(3)		Incorporated herein by reference to exhibit 4.01 included in Amendment No. 1 to the Registrant’s Registration Statement on Form S–4/A (Commission File No. 334–115862), as filed with the Securities and Exchange Commission on June 25, 2004.

(4)		Incorporated herein by reference to the exhibit with the same number included in the Registrant’s Quarterly Report on Form 10–Q for the period ended November 30, 1996, as filed with the Securities and Exchange Commission on January 13, 1997.

(5)		Incorporated herein by reference to exhibit 10.02 included in the Registrant’s Registration Statement on Form S–1 (Commission File No. 33–95318), as filed with the Securities and Exchange Commission on August 1, 1995.

(6)		Incorporated herein by reference to exhibit 10.03 included in the Registrant’s Registration Statement on Form S–1 (Commission File No. 33–95318), as filed with the Securities and Exchange Commission on August 1, 1995.

(7)		Incorporated herein by reference to exhibit 10.07 included in the Registrant’s Registration Statement on Form S–1 (Commission File No. 33–95318), as filed with the Securities and Exchange Commission on August 1, 1995.

(8)		Incorporated herein by reference to exhibit 10.13 included in the Registrant’s Registration Statement on Form S–1 (Commission File No. 33–95318), as filed with the Securities and Exchange Commission on August 1, 1995.

(9)		Incorporated herein by reference to exhibit 10.15 included in the Registrant’s Registration Statement on Form S–1 (Commission File No. 33–95318), as filed with the Securities and Exchange Commission on August 1, 1995.

(10)		Incorporated herein by reference to exhibit 10.16 included in the Registrant’s Registration Statement on Form S–1 (Commission File No. 33–95318), as filed with the Securities and Exchange Commission on August 1, 1995.

(11)		Incorporated herein by reference to exhibit 10.20 included in the Registrant’s Registration Statement on Form S–1 (Commission File No. 33–95318), as filed with the Securities and Exchange Commission on August 1, 1995.


(12)		Incorporated herein by reference to exhibit 10.21 included in the Registrant’s Registration Statement on Form S–1 (Commission File No. 33–95318), as filed with the Securities and Exchange Commission on August 1, 1995.

(13)		Incorporated herein by reference to exhibit 10.22 included in pre–effective Amendment No. 2 to the Registrant’s Registration Statement on Form S–1 (Commission File No. 33–95318), as filed with the Securities and Exchange Commission on September 25, 1995.

(14)		Incorporated herein by reference to exhibit 10.25 included in the Registrant’s Quarterly Report on Form 10–Q for the period ended November 30, 1995, as filed with the Securities and Exchange Commission on January 16, 1996.

(15)		Incorporated herein by reference to exhibit 10.26 included in the Registrant’s Quarterly Report on Form 10–Q for the period ended November 30, 1995, as filed with the Securities and Exchange Commission on January 16, 1996.

(16)		Incorporated herein by reference to exhibit 10.27 included in the Registrant’s Quarterly Report on Form 10–Q for the period ended November 30, 1995, as filed with the Securities and Exchange Commission on January 16, 1996.

(17)		Incorporated herein by reference to exhibit 4.03 to the Registrant’s Registration Statement on Form S–8 (Commission File No. 333–82125), as filed with the Securities and Exchange Commission on July 1, 1999, as amended by Post–Effective Amendment thereto, as filed with the Securities and Exchange Commission on May 15, 2001.

(18)		Incorporated herein by reference to exhibit 10.37 included in the Registrant’s Annual Report on Form 10–K for the period ended August 31, 1996, as filed with the Securities and Exchange Commission on November 25, 1996.

(19)		Incorporated herein by reference to exhibit 10.38 included in the Registrant’s Annual Report on Form 10–K for the period ended August 31, 1996, as filed with the Securities and Exchange Commission on November 25, 1996.

(20)		Incorporated herein by reference to exhibit 10.43 included in the Registrant’s Quarterly Report on Form 10–Q for the period ended November 30, 1996, as filed with the Securities and Exchange Commission on January 13, 1997.

(21)		Incorporated herein by reference to exhibit 10.44 with the same number included in Post–Effective Amendment No. 2 to Registrant’s Registration Statement on Form S–1 (Commission File No. 33–95318), as filed with the Securities and Exchange Commission on March 11, 1997.

(22)		Incorporated herein by reference to exhibit 10.03 included in the Registrant’s Quarterly Report on Form 10–Q for the period ended February 29, 2004, as filed with the Securities and Exchange Commission on April 9, 2004.

(23)		Incorporated herein by reference to exhibit 10.34 included in the Registrant’s Quarterly Report on Form 10–Q for the quarter ended May 31, 2002, as filed with the Securities and Exchange Commission on July 3, 2002.

(24)		Incorporated herein by reference to exhibit 2.01 included in the Registrant’s Report on Form 8–K, as filed with the Securities and Exchange Commission on October 6, 2003.

(25)		Incorporated herein by reference to exhibit 2.02 included in the Registrant’s Report on Form 8–K, as filed with the Securities and Exchange Commission on October 6, 2003.

(26)		Incorporated herein by reference to exhibit 2.03 included in the Registrant’s Report on Form 8–K, as filed with the Securities and Exchange Commission on October 6, 2003.

(27)		Incorporated herein by reference to exhibit 2.04 included in the Registrant’s Report on Form 8–K, as filed with the Securities and Exchange Commission on October 6, 2003.

(28)		Incorporated herein by reference to exhibit 2.05 included in the Registrant’s Report on Form 8–K, as filed with the Securities and Exchange Commission on October 6, 2003.

(29)		Incorporated herein by reference to exhibit 10.34 included in the Registrant’s Registration Statement on Form S–4 (Commission File No. 334–115862), as filed with the Securities and Exchange Commission on May 25, 2004.


(30)		Incorporated herein by reference to exhibit 10.36 included in the Registrant’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2007, as filed with the Securities and Exchange Commission on April 12, 2007.

(31)		Incorporated herein by reference to exhibit 10.27 included in the Registrant’s Annual Report on Form 10-K/A Amendment No. 1 for the year ended August 31, 2004, as filed with the Securities and Exchange Commission on December 14, 2004.

(32)		Incorporated herein by reference to exhibit 10.28 included in the Registrant’s Annual Report on Form 10-K/A Amendment No. 1 for the period ended August 31, 2004, as filed with the Securities and Exchange Commission on December 14, 2004.

(33)		Incorporated herein by reference to exhibit 10.29 included in the Registrant’s Annual Report on Form 10-K/A Amendment No. 1 for the period ended August 31, 2004, as filed with the Securities and Exchange Commission on December 14, 2004.

(34)		Incorporated herein by reference to exhibit 10.30 included in the Registrant’s Annual Report on Form 10-K/A Amendment No. 1 for the period ended August 31, 2004, as filed with the Securities and Exchange Commission on December 14, 2004.

(35)		Incorporated herein by reference to exhibit 10.31 included in the Registrant’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2005, as filed with the Securities and Exchange Commission on April 19, 2005.

(36)		Incorporated herein by reference to exhibit 99.01 included in the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on June 27, 2005.

(37)		Incorporated herein by reference to exhibit 14.01 included in the Registrant’s Annual Report on Form 10-K/A Amendment No. 1 for the period ended August 31, 2004, as filed with the Securities and Exchange Commission on December 14, 2004.

(38)		Incorporated herein by reference to exhibit 10.35 included in the Registrant’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2007, as filed with the Securities and Exchange Commission on April 12, 2007.


		Page
	PART I

Item 1.	Business		1
Item 1A.	Risk Factors		8
Item 1B.	Unresolved Staff Comments		15
Item 2.	Properties		16
Item 3.	Legal Proceedings		17
Item 4.	Submission of Matters to a Vote of Security Holders		17
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		18
Item 6.	Selected Financial Data		19
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		34
Item 8.	Financial Statements and Supplementary Data		36
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		70
Item 9A.	Controls and Procedures		70
Item 9B.	Other Information		71
	PART III
Item 10.	Directors and Executive Officers of the Registrant		72
Item 11.	Executive Compensation		74
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		79
Item 13.	Certain Relationships and Related Transactions and Director Independence		82
Item 14	Principal Accountant Fees and Services		82
	PART IV
Item 15.	Exhibits and Financial Statement Schedules		83
	Signatures		88
	Supplemental Information to be Furnished with Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act		90
EX-16.01
EX-21.01
EX-23.01
EX-23.02
EX-31.01
EX-31.02
EX-32.01


NOTE:		ALL REQUESTS FOR TRANSFER OR OTHER CHANGES IN YOUR PORTOLA PACKAGING, INC. STOCK CERTIFICATES SHOULD BE SENT TO: KIM WEHRENBERG, SECRETARY, PORTOLA PACKAGING, INC., 951 DOUGLAS ROAD, BATAVIA, IL 60510


	Page in
	Form 10–K
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firms		37
Consolidated Balance Sheets as of August 31, 2007 and 2006		39
Consolidated Statements of Operations for the Years Ended August 31, 2007, 2006 and 2005		40
Consolidated Statements of Cash Flows for the Years Ended August 31, 2007, 2006 and 2005		41
Consolidated Statements of Shareholders’ Equity (Deficit) for the Years Ended August 31, 2007, 2006 and 2005		42
Notes to Consolidated Financial Statements		43

INDEX TO FINANCIAL STATEMENT SCHEDULE

Schedule II—Valuation and Qualifying Accounts		90


Year ended August 31	2007			2006			2005

Sales	$	269,607		$	271,603		$	264,964
Cost of sales		230,291			226,263			220,994

Gross profit		39,316			45,340			43,970

Selling, general and administrative		23,161			24,138			28,252
Research and development		3,962			3,872			3,836
Loss (gain) from sale of property, plant and equipment		14			(893	)		39
Fixed asset impairment charge		1,620			—			—
Goodwill impairment charge		—			17,851			—
Amortization of intangibles		605			846			989
Litigation settlement		—			7,000			—
Restructuring costs		434			840			2,471

		29,796			53,654			35,587

Income/(loss) from operations		9,520			(8,314	)		8,383

Other (income) expense:
Interest income		(68	)		(53	)		(43	)
Interest expense		17,966			17,101			16,439
Amortization of debt issuance costs		1,666			1,614			1,609
Minority interest income		(17	)		—			(3	)
Equity loss (income) of unconsolidated affiliates, net		389			(252	)		(235	)
Foreign currency transaction gain		(553	)		(1,444	)		(1,523	)
Other (income) expense, net		(1	)		(37	)		(37	)

		19,382			16,929			16,207

Loss before income taxes		(9,862	)		(25,243	)		(7,824	)
Income tax expense		2,153			3,523			3,729

Net loss	$	(12,015	)	$	(28,766	)	$	(11,553	)



/s/ Martin Imbler
Martin Imbler
Compensation Committee Member


/s/ Robert Egan
Robert Egan
Compensation Committee Member


(15)		Represents 70,000 shares subject to options that are exercisable within 60 days of November 27, 2007. Ms. Leipman-Yale’s address is 18 Fawn Lane, Armonk, NY 10504.

(16)		Represents 83,332 shares subject to options that are exercisable within 60 days of November 27, 2007. Mr. Swoyer’s address is 951 Douglas Road, Batavia, IL 60510.

(17)		Includes the shares shown in footnotes 5, 7 and 9 through 16. Includes 1,279,166 shares subject to options that are exercisable within 60 days of November 27, 2007.


(1)		All such plans involve only our Class B, Series 1 Common Stock.


	PORTOLA PACKAGING, INC., a Delaware corporation
	By:	/s/ Michael T. Morefield
		Michael T. Morefield
November 27, 2007		Senior Executive Vice President and Chief Financial Officer


	PRINCIPAL EXECUTIVE OFFICER
	By:	/s/ BRIAN J. BAUERBACH
		Brian J. Bauerbach
November 27, 2007		President and Chief Executive Officer

	PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER
	By:	/s/ MICHAEL T. MOREFIELD
		Michael T. Morefield
November 27, 2007		Senior Executive Vice President and Chief Financial Officer

	DIRECTORS
	By:	/s/ MARTIN IMBLER
November 27, 2007		Martin Imbler



	By:	/s/ ROBERT EGAN
November 27, 2007		Robert Egan



November 27, 2007	By:	/s/ JACK L. WATTS
		Jack L. Watts



	By:	/s/ LARRY C. WILLIAMS
November 27, 2007		Larry C. Williams



	By:	/s/ DEBRA LEIPMAN-YALE
November 27, 2007		Debra Leipman-Yale



	By:	/s/ RICHARD CROSS
November 27, 2007		Richard Cross



	By:	/s/ BRIAN J. BAUERBACH
November 27, 2007		Brian J. Bauerbach


Allowance for	Beginning		Charged to Costs					Deductions From		Other		Ending
Doubtful Accounts	Balance		and Expenses		Recoveries			Reserves(1)		Adjustments		Balance
August 31, 2007		1,409		236		42			613		—		1,074
August 31, 2006		1,601		859		(24	)		1,027		—		1,409
August 31, 2005		1,204		792		(24	)		371		—		1,601


									Other
Allowance for Inventory	Beginning		Charged to Costs				Deductions From		Adjustments			Ending
Valuation	Balance		and Expenses		Recoveries		Reserves(2)		(3)			Balance
August 31, 2007		1,409		1,795		—		1,607		—			1,597
August 31, 2006		1,228		1,269		—		1,087		(1	)		1,409
August 31, 2005		1,408		1,021		—		1,202		1			1,228


Deferred Tax	Beginning		Charged to Costs				Deductions from		Other		Ending
Valuation Allowance	Balance		and Expenses		Recoveries		Reserves		Adjustments		Balance
August 31, 2007		36,138		6,178		—		—		—		42,316
August 31, 2006		23,815		12,323		—		—		—		36,138
August 31, 2005		16,318		7,497		—		—		—		23,815


(1)		Represents uncollected accounts charged against the allowance

(2)		Represents scrapped inventory and other charges against the reserve

(3)		Represents foreign currency translation adjustments


		PricewaterhouseCoopers
		LLP
		600 Grant Street
		Pittsburgh PA 15219
		Telephone (412) 355 6000

1.		I have reviewed this annual report on Form 10–K of Portola Packaging, Inc.;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) for the registrant and have:

	a)		designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	c)		disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

	a)		all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


		/s/ BRIAN J. BAUERBACH
Date: November 27, 2007		Brian J. Bauerbach President and Chief Executive Officer