Table of Contents

PART II

In this filing, unless indicated otherwise, “Viskase” or the “Company” refers to Viskase Companies, Inc., and “we,” “us” and “our” refer to Viskase and its subsidiaries.

Results of Operations

          Overview

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

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

Our cellulose and fibrous casing extrusion operations are capital-intensive and are characterized by high fixed costs. Our plastic casing extrusion and finishing operations are characterized by dominant labor costs. The industry’s operating results have historically been sensitive to the global balance of capacity and demand. The industry’s extrusion facilities produce casings under a timed chemical process and operate continuously. We believe that the industry’s current output is in balance with global demand and the recent downward trend in casing prices has stabilized. Recently, some competitors have announced plans to expand extrusion capacity at their existing facilities. The projected increase in global capacity from these expansion projects (and idled capacity) is approximately 5%.

Our contribution margin varies with changes in selling price, input material costs, labor costs and manufacturing efficiencies. Subject to the limits of our capacity discussed below, the total contribution margin increases as demand for our casings increases. Our financial results benefit from increased volume because we do not have to increase our fixed cost structure in proportion to increases in demand. For certain products, we operate at near capacity in our existing facilities. We continue to seek ways to increase our throughput at these facilities; however, should demand for those products increase substantially, we would not be able to meet that increased demand in the short term. We regularly evaluate our capacity limitations and compare those limitations to projected market demand.

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

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We have continued to reduce our fixed cost structure in response to market and economic conditions. Since 1998, we have reduced annual fixed costs by approximately $35.0 million by:

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

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

Comparison of Results of Operations for Fiscal Years Ended December 31, 2002, 2003 and 2004. The following discussion compares the results of operations for the fiscal year ended December 31, 2002 to the results of operations for the fiscal year ended December 31, 2003, and compares the results of operations for the fiscal year ended December 31, 2003 to the results of operations for the fiscal year ended December 31, 2004. We have provided the table below in order to facilitate an understanding of this discussion. The table shows our results of operations for the 2002, 2003 and 2004 fiscal years. Results of operations for 2003 include the combined income statement activity of the Reorganized Company (referring to the Company for the periods subsequent to the effective date of Viskase’s plan of reorganization in the bankruptcy proceeding) and the Predecessor Company (referring to the Company for the periods prior to that date), and are not intended to be a presentation in accordance with accounting principles generally accepted in the United States. The table (dollars in millions) is as follows:

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

2004 Versus 2003

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

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

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

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

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

Other Income (Expense). Other income of approximately $0.7 million for 2004 consists principally of a $1.4 million gain for foreign exchange gains and losses, and a $0.5 million loss on the disposal of property held for sale. Other income in 2003 of $5.4 million for the prior year predecessor and reorganized periods consists principally of a $4.8 million gain for foreign currency gains and losses and a $0.5 million gain associated with the disposal of property held for sale in 2003.

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

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

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

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

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

2003 Versus 2002

Net Sales. Our net sales for 2003 were $197.8 million, which represents an increase of $14.2 million from 2002. The increase in sales benefited $6.2 million from volume, $10.4 million due to translation, offset by $2.4 million due to reduced selling prices in the casing industry.

Cost of Sales. Our cost of sales increased proportionately with net sales in 2003 (from 80.0% of net sales in 2002 to 79.9% of net sales in 2003), with the benefit of various cost reduction programs and lower depreciation of $5.9 million due to fresh-start accounting offset, for the most part, by increases in the costs of labor and materials.

Selling, General and Administration Expense. We were able to reduce our selling, general and administrative expenses in 2003 by $5.0 million compared to 2002, and from 21.0% to 17.0% of net sales in the same period. This reduction reflected decreases in depreciation of certain assets that reached the end of their depreciable lives, employee expenses and other costs associated with our headquarters facility.

Operating Income (Loss). Our operating loss during 2003 was $42.8 million. This operating loss included net restructuring expense of $1.0 million and an asset write-down of $46.8 million. The asset write-down occurred during our annual impairment review in the fourth quarter of the year and resulted in a complete write-off of the goodwill created under fresh-start accounting after consummation of our bankruptcy reorganization plan. The restructuring expense was the result of a year 2003 charge of $2.6 million to reduce employees and employee-related costs to offset the effects of the industry’s competitive environment. This expense was offset by a reversal of $1.2 million from our year 2002 restructuring accrual due to a revised estimate of employee costs, and by a reversal of $0.3 million from our year 2000 restructuring accrual due to the renegotiated Nucel® license fee.

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Debt Extinguishment. We recognized a gain on the early extinguishment of debt in the amount of $153.9 million in the period January 1 through April 2, 2003. We did not recognize income tax expense on that gain. Internal Revenue Code Section 108 prescribes that we will not recognize any taxable income for calendar year 2003 but that we must reduce tax attributes up to the extent of the cancellation of debt income (COD). In 2003, the tax benefit recognized of $0.3 million resulted from the benefit related to sales to customers outside the U.S.

Interest Expense. Interest expense, net of interest income, during 2003 totaled $10.8 million, which represented a decrease of $10.2 million from 2002. The decrease was due to the emergence from bankruptcy and the establishment of 8% Notes with a fair market value of $33.3 million, which replaced $163.1 million of 10.25% Senior Notes. The principal components of the 2003 interest expense were approximately $4.2 million on the GECC lease and $6.6 million on the 8% Notes issued upon emergence from bankruptcy in April 2003. The principal components of the 2002 interest expense were approximately $15.2 million on the 10.25% Senior Notes due 2001 (“10.25% Senior Notes”) that were cancelled upon emergence bankruptcy in April 2003 and $6.0 million on the GECC lease. Cash interest paid was $4.4 million in 2003, which compared to $3.2 million in 2002. This increase was primarily associated with the timing of payments under the GECC capital lease.

Other Income (Expense). Other income (expense) of approximately $5.4 million and $1.5 million in 2003 and 2002, respectively, consisted principally of foreign exchange gains.

Reorganization Expense. The reorganization expenses in 2003 of $0.8 million consisted principally of fees for legal, financial advisory and professional services incurred due to the Chapter 11 proceeding, which compared to $3.4 million in 2002.

Income Tax Benefit. Net domestic cash income taxes paid (refunded) in 2003 and 2002 were $0 and $(2.1) million, respectively. In 2002, we received a refund of a 2001 alternative minimum tax payment, resulting from passage of the 2002 Job Creation Act which retroactively changed the law under which we made the 2001 payment. Net foreign cash income taxes paid during the same periods were $3.0 million and $0.9 million, respectively. The increase in 2003 compared to 2002 was due to improved profits reported for tax purposes in our foreign subsidiaries.

Effect of Changes in Exchange Rates

In general, our results of operations are affected by changes in foreign exchange rates. Subject to market conditions, we price our products in our foreign operations in local currencies, with the exception of the Brazilian export market and the U.S. export markets, which are priced in U.S. dollars. As a result, a decline in the value of the U.S. dollar relative to the local currencies of profitable foreign subsidiaries can have a favorable effect on our profitability, and an increase in the value of the U.S. dollar relative to the local currencies of profitable foreign subsidiaries can have a negative effect on our profitability. Exchange rate fluctuations increased comprehensive income by $3.1 million for 2004 and $3.7 million for the comparable predecessor and reorganized periods of 2003.

Liquidity and Capital Resources

Cash and cash equivalents increased by $7.1 million during 2004. Cash flows provided by operating activities were $20.4 million, provided by investing activities were $4.5 million, and used in financing activities were $18.4 million. Cash flows provided by operating activities were principally attributable to net income, depreciation, amortization, the loss on debt extinguishment, the non-cash accrued interest on the debt offset by the post-retirement curtailment gain, the change in deferred taxes and an increase in working capital usage. Cash flows provided by investing activities were principally attributable to the release of restricted cash, which was used to pay the GECC capital lease obligation, capital expenditures, and the reacquisition of the leased assets. Cash flows used in financing activities principally consisted of the proceeds from the issuance of 11.5% Senior Secured Notes offset by the repurchase of $55.5 million of the 8% Notes at a discount, the payment of the renegotiated GECC lease and the incurrence of financing fees associated with the issuance of 11.5% Senior Secured Notes.

As of December 31, 2004, the Company had positive working capital of approximately $61.3 million and unrestricted cash of $30.3 million, with additional amounts available under its revolving credit facility. While the Company could decide to raise additional amounts through the issuance of new debt or equity, management believes that the existing resources available to it will be adequate to satisfy current and planned operations for at least the next twelve months.

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On June 29, 2004, we issued $90.0 million of new 11.5% Senior Secured Notes and 90,000 warrants (“New Warrants”) to purchase an aggregate of 805,230 shares of common stock of the Company. The proceeds of the 11.5% Senior Secured Notes and the 90,000 New Warrants totaled $90.0 million. The 11.5% Senior Secured Notes have a maturity date of, and the New Warrants expire on June 15, 2011. The $90.0 million proceeds were used for the (i) repurchase $55.527 million principal amount of the 8% Notes at a price of 90% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon; (ii) early termination of the GECC capital lease and repurchase of the operating assets subject thereto for a purchase price of $33.0 million; and (iii) payment of fees and expenses associated with the refinancing and repurchase of existing debt. In addition, we entered into a $20.0 million secured revolving credit facility (“New Revolving Credit Facility”) with a financial institution. The New Revolving Credit Facility is a five-year facility with a June 29, 2009 maturity date.

The 11.5% Senior Secured Notes require that we maintain a minimum annual level of EBITDA calculated at the end of each fiscal quarter as follows:

unless the sum of (i) unrestricted cash as of such day and (ii) the aggregate amount of advances that we are actually able to borrow under the New Revolving Credit Facility on such day (after giving effect to any borrowings thereunder on such day) is at least $15.0 million.

The 11.5% Senior Secured Notes limit our ability and the ability of our subsidiaries to (i) incur additional indebtedness; (ii) pay dividends, redeem subordinated debt, or make other restricted payments; (iii) make certain investments or acquisitions; (iv) issue stock of subsidiaries; (v) grant or permit to exist certain liens; (vi) enter into certain transactions with affiliates; (vii) merge, consolidate, or transfer substantially all of our assets; (viii) incur dividend or other payment restrictions affecting certain subsidiaries; (ix) transfer, sell or acquire assets, including capital stock of subsidiaries; and (x) change the nature of our business.

The New Revolving Credit Facility contains various covenants which will restrict our ability to, among other things, incur indebtedness, enter into mergers or consolidation transactions, dispose of assets (other than in the ordinary course of business), acquire assets, make certain restricted payments, prepay any of the 8% Notes at a purchase price in excess of 90% of the aggregate principal amount thereof (together with accrued and unpaid interest to the date of such prepayment), create liens on our assets, make investments, create guarantee obligations and enter into sale and leaseback transactions and transactions with affiliates, in each case subject to permitted exceptions. If our usage of the revolving credit facility exceeds 30%, the revolving credit facility requires that we comply with various financial covenants, including meeting a minimum four-quarter EBITDA (calculated each calendar quarter) of $19.4 million through September 30, 2006 and $21.0 million thereafter and an annual limitation on capital expenditures of $9.7 million in 2004, $5.5 million in 2005 and $6.0 million in 2006 and thereafter (with any unused amount being carried over to the immediately following fiscal year). The minimum level of EBITDA and annual limitations on capital expenditures are not currently in effect because we have no borrowings outstanding, and as such, our usage is below the 30% threshold applicable to the covenant. The New Revolving Credit Facility also requires payment of a prepayment premium in the event that it is terminated prior to maturity. The prepayment premium, as a percentage of the $20.0 million facility amount, is 3% through June 29, 2005, 2% through June 29, 2006, and 1% through June 29, 2007.

In April 2004, we renegotiated and amended our lease arrangement with GECC. Under terms of the amended lease, six payments of approximately $6.1 million were due semi-annually on February 28 and August 28 beginning in February 2005. We and GECC mutually agreed to a $9.5 million fair market sales value for the leased equipment, which amount was used to value the equipment in fresh-start accounting. We had the option to terminate the lease early upon payment of $33.0 million through February 28, 2005, thereafter the amount of the early termination payment would decrease upon payment of each semi-annual capital lease payment. The equipment would transfer to us free and clear of all liens on the earlier of (i) the payment of the early termination amount, plus any accrued interest due and payable at 6% per annum or (ii) the payment of the final installment due August 28, 2007.

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On June 29, 2004, we exercised our $33.0 million early termination payment option, terminated the lease and acquired title to the leased equipment. The leased equipment was transferred to us free and clear of all liens.

Capital expenditures (excluding the repurchase of the leased equipment under the GECC capital lease) for 2004 and 2003 totaled $9.7 million and $4.3 million, respectively. In June 2004, we repurchased the leased assets under the GECC capital lease for $9.5 million. Significant 2004 capital expenditures, other than the repurchase of the leased equipment, are related to the installation of environmental equipment to conform to MACT standards for casing manufacturers. Significant 2003 capital expenditures included costs associated with the Viskase Food Science Quality Institute (“FSQI”) plastic casing line. Significant 2002 capital expenditures included costs associated with FSQI and numerous smaller projects throughout our manufacturing facilities worldwide. Capital expenditures for 2005 are expected to be approximately $14 million and $7 million to $8 million thereafter.

In 2004, we spent approximately $2.7 million on research and development programs, including product and process development, and on new technology development. The 2005 research and development and product introduction expenses are expected to be in the $3.0 million range. Among the projects included in the current research and development efforts are SmokeMaster® small diameter and fibrous casings, Visflex® casings and the application of certain patents and technology for license by Viskase.

Letter of Credit Facility

Letters of credit in the amount of $2.6 million were outstanding under letter of credit facilities with commercial banks, and were cash collateralized at December 31, 2004.

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

Revolving Credit Facility

On June 29, 2004, we terminated our existing revolving credit facility with Arnos Corp., an affiliate of Carl C. Icahn, and entered into a credit facility for up to $20.0 million with Wells Fargo Foothill. This revolving credit facility will be used for working capital and other general corporate purposes.

Borrowings under the loan and security agreement governing this revolving credit facility (the “Credit Agreement”) are subject to a borrowing base formula based on percentages of eligible domestic receivables and eligible domestic inventory. Under the Credit Agreement, we are able to choose between two per annum interest rate options: (x) the lender’s prime rate and (y) (1) LIBOR plus (2) a margin of 2.25% (which margin will be subject to performance based increases up to 2.50% and decreases down to 2.00%); provided that LIBOR shall be at least equal to 1.00%. Letter of credit fees will be charged a per annum rate equal to the then applicable margin described in clause (y)(2) of the immediately preceding sentence less 50 basis points. The Credit Agreement also provides for an unused line fee of 0.375% per annum and a monthly servicing fee. The Credit Agreement has a term of five years from the date of the closing thereof.

Indebtedness under the Credit Agreement is secured by liens on substantially all of our and our domestic subsidiaries’ assets, which liens (i) on inventory, account receivables, lockboxes, deposit accounts into which payments therefore are deposited and proceeds thereof, are contractually senior to the liens securing the Notes and the related guarantees pursuant to an intercreditor agreement, (ii) on real property, fixtures and improvements thereon, equipment and proceeds thereof, are contractually subordinate to the liens securing the Notes and such guarantees pursuant to such intercreditor agreement, (iii) on all other assets, are contractually pari passu with the liens securing the Notes and such guarantees pursuant to such intercreditor agreement.

The Credit Agreement also contains various covenants that restrict our and our subsidiaries’ ability to, among other things, incur indebtedness, enter into mergers or consolidation transactions, dispose of assets (other than in the ordinary course of business), acquire assets (with permitted exceptions), make certain restricted payments, prepay any of the 8% Notes at a purchase price in excess of 90% of the aggregate principal amount thereof, together with accrued and unpaid interest to the date of such prepayment, create liens on our assets, make investments, create

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guarantee obligations and enter into sale and leaseback transactions and transactions with affiliates. The Credit Agreement also requires that we comply with various financial covenants, including meeting a minimum EBITDA requirement and limitations on capital expenditures, in the event our usage of the Credit Agreement exceeds 30%. The Credit Agreement provides for certain events of default, including default upon the nonpayment of principal, interest, fees or other amounts, a cross default with respect to other obligations of ours and our subsidiaries, failure to comply with certain covenants, conditions or provisions under the Credit Agreement, the existence of certain unstayed or undischarged judgments, the invalidity or unenforceability of the relevant security documents, the making of materially false or misleading representations or warranties, commencement of reorganization, bankruptcy, insolvency or similar proceedings and the occurrence of certain ERISA events. Upon the occurrence of an event of default under the Credit Agreement, the lender will be entitled to declare all obligations thereunder to be immediately due and payable. The Credit Agreement requires us to pay a prepayment premium in the event that it is prepaid prior to maturity.

8% Notes

The 8% Notes are unsecured, bear interest at a rate of 8% per year, and will accrue interest from December 1, 2001, payable semi-annually (except annually with respect to year four and quarterly with respect to year five), with interest payable in the form of 8% Notes (paid-in-kind) for the first three years. Interest for years four and five will be payable in cash to the extent of available cash flow, as defined, and the balance in the form of 8% Notes (paid-in-kind). Thereafter, interest will be payable in cash. The 8% Notes will mature on December 1, 2008 with a principal value of approximately $18.7 million, assuming interest in the first five years is paid-in-kind.

The 8% Notes were valued at market under fresh-start accounting. The 8% Notes were recorded on the books at April 3, 2003 at their discounted value of $33.2 million. The discount to face value is being amortized using the effective-interest rate methodology through maturity with an effective interest rate of 10.46%.

On June 29, 2004, we purchased $55.527 million aggregate principal amount of the outstanding 8% Notes. In connection therewith and in accordance with the indenture for the 8% Notes, the holders thereof agreed to, among other things, release the liens on the collateral that had been securing the 8% Notes and eliminate substantially all of the restrictive covenants contained in such indentures governing the 8% Notes. From time to time, we may offer to purchase at a substantial discount any or all of the remaining 8% Notes through privately negotiated transactions, purchases in the public marketplace or otherwise. The following table summarizes the carrying value of the 8% Notes at December 31 (in millions):

As a result of the purchase of 8% Notes and the termination of the GECC lease on June 29, 2004, we have recorded a net loss of approximately $13.1 million during the second quarter of 2004, which reduced our operating income and net income, and we expect interest expense to be $13.2 million for 2004.

Pension and Post-Retirement Benefits

Our long-term pension and post-retirement benefit liabilities totaled $66.7 million at December 31, 2004. Expected cash contributions for pension and post-retirement benefit liabilities are expected to be (in millions):

Other

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The fair value of our debt obligations (excluding capital lease obligations) is estimated based upon the quoted market prices for the same or similar issues or on the current rates offered to us for the debt of the same remaining maturities. At December 31, 2004, the carrying amount and estimated fair value of our debt obligations (excluding capital lease obligations) were $100.7 million and $103.8 million, respectively.

As of December 31, 2004, aggregate maturities of debt for each of the next five years are (in thousands):

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying financial statements. In preparing these financial statements, management bases our estimates on historical experience and other assumptions that they believe are reasonable. We do not believe there is a great likelihood that materially different amounts would be reported under different conditions or using different assumptions related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and the use of assumptions as to uncertainties and, as a result, actual results could differ from these estimates. If actual amounts are ultimately different from previous estimates, the revisions are included in our results for the period in which the actual amounts become known. Historically, the aggregate differences, if any, between our estimates and actual amounts in any year have not had a significant impact on our consolidated financial statements. We are not aware of any trend, event or uncertainty that would materially affect the methodology or assumptions used within our critical accounting policies. We have not made any material changes to accounting estimates in the past three years, and at this time we do not intend to make any changes in the underlying assumptions to our accounting estimates.

Revenue Recognition

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

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Allowance for Doubtful Accounts Receivable

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

Allowance for Obsolete and Slow Moving Inventories

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

Deferred Income Taxes

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

Pension Plans and Other Post-Retirement Benefit Plans

Our North American operations have a defined benefit retirement plan that covers substantially all salaried and full-time hourly employees who were hired prior to April 1, 2003 and a fixed defined contribution plan and a discretionary profit sharing plan that covers substantially all salaried and full-time hourly employees who were hired on or after April 1, 2003. Our operations in Germany have a defined benefit retirement plan that covers substantially all salaried and full-time hourly employees. Pension cost is computed using the projected unit credit method. The discount rate used approximates the average yield for high quality corporate bonds as of the valuation date. Our funding policy is consistent with funding requirements of the applicable federal and foreign laws and regulations. Our North American operations have postretirement health care and life insurance benefits. We accrue for the accumulated postretirement benefit obligation that represents the actuarial present value of the anticipated benefits. Measurement is based on assumptions regarding such items as the expected cost of providing future benefits and any cost sharing provisions. We terminated postretirement medical benefits as of December 31, 2004 for all active employees and retirees in the U.S. who were not covered by a collective bargaining agreement. It is estimated that said termination resulted in a $34.1 million reduction in our unfunded post-retirement liability.

The weighted average plan asset allocation at December 31, 2004 and 2003, and target allocation (not weighted) for 2005, are as follows:

Fresh-Start Accounting

As previously discussed, the accompanying consolidated financial statements reflect the use of fresh-start accounting as required by SOP 90-7. Under fresh-start accounting, our assets and liabilities were adjusted to fair values and a reorganization value for the entity was determined based upon the estimated fair value of the enterprise before considering values allocated to debt. The portion of the reorganization value that could not be attributed to specific tangible or identified intangible assets of the Reorganized Company totaled $44.4 million. In accordance with Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets,” this

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amount was reported as goodwill in the consolidated financial statements. Fresh-start accounting results in the creation of a new reporting entity with no accumulated deficit as of April 3, 2003. Our reorganization value was based on the consideration of many factors and various valuation methods, including discounted cash flow analysis using projected financial information, selected publicly traded company market multiples of certain companies operating businesses viewed to be similar to us, and other applicable ratios and valuation techniques believed by us to be representative of our business and industry.

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

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

Goodwill and Intangible Assets

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

Property, Plant and Equipment

We carry property, plant and equipment at cost less accumulated depreciation. Property and equipment additions include acquisition of property and equipment and costs incurred for computer software purchased for internal use including related external direct costs of materials and services and payroll costs for employees directly associated with the project. Depreciation is computed on the straight-line method over the estimated useful lives of the assets ranging from 2 to 32 years. Upon retirement or other disposition, cost and related accumulated depreciation are removed from the accounts, and any gain or loss is included in results of operations.

Long-Lived Assets

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

Other Matters

We do not have off-balance sheet arrangements (sometimes referred to as “special purpose entities”), financing or other relations with unconsolidated entities or other persons. In the ordinary course of business, we lease certain casing manufacturing and finishing equipment, and certain real property, consisting of manufacturing and distribution facilities and office facilities. Substantially all such leases as of December 31, 2004 were operating leases, with the majority of those leases requiring us to pay maintenance, insurance and real estate taxes.

Contractual Obligations Related to Debt, Leases and Related Risk Disclosure

11

The following table reflects our future contractual cash obligations and commercial commitments as of December 31, 2004, determined on a historical basis (in millions):

Recent Accounting Pronouncements

In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities — an Interpretation of ARB No. 51.” FIN 46 clarified the application of Accounting Research Bulletin Number 51, “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Qualifying special-purpose entities as defined by FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” are excluded from the scope of FIN 46. FIN 46 applied immediately to all variable interest entities created after January 31, 2003, and was originally effective for fiscal periods beginning after July 1, 2003, for existing variable interest entities. In October 2003, the FASB postponed the effective date of FIN 46 to December 31, 2003. The Company does not have any variable interest entities and, therefore, the adoption of the provisions of FIN 46 did not have a material impact on the Company’s results of operations or financial position.

In December 2003, a revised version of FIN 46 (“Revised FIN 46”) was issued by the FASB. The revisions clarify some requirements, ease some implementation problems, add new scope exceptions, and add applicability judgments. Revised FIN 46 is required to be adopted by most public companies no later than March 31, 2004. The adoption of Revised FIN 46 did not have a material impact on the Company’s results of operations or financial position.

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

In December 2004, the FASB issued SFAS No. 153 (“SFAS 153”), “Exchanges of Nonmonetary Assets – an Amendment of APB Opinion No. 29,” which addresses the measurement of exchanges of nonmonetary assets and eliminates the exception from fair value accounting for nonmonetary exchanges of similar productive assets and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of an entity are expected to change significantly as a result of the exchange. This statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005 and is not expected to have a significant impact on the Company’s financial statements.

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In December 2004, the FASB issued SFAS No. 123 (revised 2004) (“SFAS 123R”), “Share-Based Payment.” SFAS 123R sets accounting requirements for “share-based” compensation to employees, requires companies to recognize in the income statement the grant-date fair value of stock options and other equity-based compensation issues to employees and disallows the use of the intrinsic value method of accounting for stock compensation. SFAS 123R is applicable for all interim and fiscal periods beginning after June 15, 2005. The Company is currently evaluating the impact this statement will have on the financial statements.

Quantitative and Qualitative Disclosure About Market Risk

We are exposed to certain market risks related to foreign currency exchange rates. In order to manage the risk associated with this exposure to such fluctuations, we occasionally use derivative financial instruments. We do not enter into derivatives for trading purposes.

We have prepared sensitivity analyses to determine the impact of a hypothetical 10% devaluation of the U.S. dollar relative to our European receivables, payables, sales and purchases denominated in U.S. dollars. Based on our sensitivity analyses at December 31, 2004, a 10% devaluation of the U.S. dollar would affect our consolidated financial position by $47,000.

Forward-looking Statements

Forward-looking statements in this report are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results and our plans and objectives to differ materially from those projected. Such risks and uncertainties include, but are not limited to, general business and economic conditions; competitive pricing pressures for our products; changes in other costs; opportunities that may be presented to and pursued by us; determinations by regulatory and governmental authorities, and the ability to achieve other cost reductions and efficiencies.

Related Party Transactions (Dollars in Thousands)

During the year ended December 31, 2004, we purchased $98 in telecommunication services from XO Communications, Inc., an affiliate of Carl C. Icahn, a beneficial owner whom may be deemed to be a beneficial owner of approximately 29.1% of the common stock. We believe that the purchase of the telecommunication services was on terms at least as favorable as we would expect to negotiate with an unaffiliated party.

Arnos Corp., an affiliate of Carl C. Icahn, was the lender under our secured revolving credit facility (“Old Revolving Credit Facility”) with an initial availability of $10,000. We paid Arnos Corp. origination fees, interest and unused commitment fees of $144 during 2004 and $175 during the period April 3, 2003 through December 31, 2003. We believe the terms of the Old Revolving Credit Facility were at least as favorable as those that we would have expected to negotiate with an unaffiliated party.

On June 29, 2004 we repurchased 805,270 shares of common stock (representing approximately 7.34% of the issued and outstanding common stock on a fully diluted basis as of June 17, 2004) held by Jefferies & Company, Inc., the initial purchaser of the 11.5% Senior Secured Notes, or our affiliates for total consideration of $298.

Predecessor Company

Gregory R. Page, the President and Chief Operating Officer of Cargill, Inc., resigned as a director of the Company as of the date we emerged from bankruptcy in April 2003. During 2003, we had sales in the ordinary course of business of $613 to Cargill, Inc. and our affiliates, $200 of which occurred prior to Mr. Page’s resignation in April 2003.

Contingencies

13

In 1988, Viskase Canada Inc. (“Viskase Canada”), a subsidiary of the Company commenced a lawsuit against Union Carbide Canada Limited and Union Carbide Corporation (“Union Carbide”) in the Ontario Superior Court of Justice, Court File No.: 292270188 seeking damages resulting from Union Carbide’s breach of environmental representations and warranties under the Amended and Restated Purchase and Sale Agreement, dated January 31, 1986 (“Agreement”). Pursuant to the Agreement, Viskase Corporation and various affiliates (including Viskase Canada) purchased from Union Carbide and Union Carbide Films Packaging, Inc., our cellulosic casings business and plastic barrier films business (“Business”), which purchase included a facility in Lindsay, Ontario, Canada (“Site”). Viskase Canada is claiming that Union Carbide breached several representations and warranties and deliberately and/or negligently failed to disclose to Viskase Canada the existence of contamination on the Site.

In November 2000, the Ontario Ministry of the Environment (“MOE”) notified Viskase Canada that it had evidence to suggest that the Site was a source of polychlorinated biphenyl (“PCB”) contamination. Viskase Canada and The Dow Chemical Company, corporate successor to Union Carbide (“Dow”), have been working with the MOE in investigating the PCB contamination and developing and implementing, if appropriate, a remedial plan for the Site and the affected area.

We and Dow have reached an agreement in principle whereby Dow would repurchase the site for $1.375 million (Canadian), would be responsible for, and assume the cost of remediation of the site, and would indemnify Viskase Canada and our affiliates, including the Company, for all claims. As of December 31, 2004, we had a reserve of $0.5 million (U.S.) for property remediation and cost.

In 1993, the Illinois Department of Revenue (“IDR”) submitted a proof of claim against Envirodyne Industries, Inc. (now known as Viskase Companies, Inc.) and our subsidiaries in Bankruptcy Court, Bankruptcy Case Number 93 B 319 for alleged liability with respect to the IDR’s denial of our allegedly incorrect utilization of certain loss carry-forwards of certain of our subsidiaries. In September 2001, the Bankruptcy Court denied the IDR’s claim and determined the debtors were not responsible for 1998 and 1999 tax liabilities, interest and penalties. The IDR appealed the Bankruptcy Court’s decision to the United States District Court, Northern District of Illinois, Case Number 01 C 7861; and in February 2002 the district court affirmed the Bankruptcy Court’s order. IDR appealed the district court’s order to United States Court of Appeals for the Seventh Circuit, Case Number 02-1632. On January 6, 2004, the appeals court reversed the judgment of the district court and remanded the case for further proceedings. The matter is now before the Bankruptcy Court for further determination. As of December 31, 2004, the tax liabilities, interest and penalties claimed totaled approximately $2,860.

In August 2001, the Department of Revenue of the Province of Quebec, Canada issued an assessment against Viskase Canada in the amount of $2.7 million (Canadian) plus interest and possible penalties. This assessment is based upon Viskase Canada’s failure to collect and remit sales tax during the period July 1, 1997 to May 31, 2001. During this period, Viskase Canada did not collect and remit sales tax in Quebec on reliance of the written advice of our outside accounting firm. Viskase Canada filed a Notice of Objection in November 2001 with supplementary submission in October 2002. The Notice of Objection found in favor of the Department of Revenue. We have appealed the decision. The ultimate liability for the Quebec sales tax lies with the customers of Viskase Canada during the relevant period. Viskase Canada could be required to pay the amount of the underlying sales tax prior to receiving reimbursement for such tax from our customers. We have, however, provided for a reserve of $0.3 million (U.S.) for interest and penalties, if any, but have not provided for a reserve for the underlying sales tax. Viskase Canada is negotiating with the Quebec Department of Ministry to avoid having to collect the sales tax from customers who will then be entitled to credit for such sales tax collected. Those negotiations have resulted in Viskase Canada making a settlement offer, whereby Viskase Canada would pay $0.3 million (Canadian) and there would be no collection of the underlying sales tax from the customers of Viskase Canada. The settlement offer has been recommended internally for approval by the ultimate decision making authority within the Quebec Department of Revenue.

During 1999 and 2000, we and certain of our subsidiaries and one other sausage casings manufacturer were named in ten virtually identical civil complaints filed in the United States District Court for the District of New Jersey. The District Circuit ordered all of these cases consolidated in Civil Action No. 99-5195-MLC (D.N.J.). Each complaint brought on behalf of a purported class of sausage casings customers alleges that the defendants unlawfully conspired to fix prices and allocate business in the sausage casings industry. In 2001, all of the consolidated cases were

14

transferred to the United States District Court for the Northern District of Illinois, Eastern Division. We strongly deny the allegations set forth in these complaints.

In May 2004, we entered into settlement agreement, without the admission of any liability (“Settlement Agreement”) with the plaintiffs. Under terms of the Settlement Agreement, the plaintiffs fully released us and our subsidiaries from all liabilities and claims arising from the civil action in exchange for the payment of a $0.3 million settlement amount, which amount was reserved in the December 31, 2003 financial statements.

Under the Clean Air Act Amendments of 1990, various industries, including casings manufacturers, will be required to meet maximum achievable control technology (“MACT”) air emissions standards for certain chemicals. MACT standards applicable to all U.S. cellulosic casing manufacturers were promulgated June 11, 2002. We submitted extensive comments to the EPA during the public comment period. Compliance with these new rules is required by June 13, 2005, although we have obtained a one-year extension for both of our facilities. To date, we have spent approximately $5.8 million in capital expenditures for MACT, and expect to spend an additional $4.5 million over the next 12 months, to become compliant with MACT rules at our two U.S. extrusion facilities. Although we are in the process of installing the technology necessary to meet these emissions standards at our two extrusion facilities, our inability to do so, or our inability to receive any further compliance extensions from the necessary regulatory agencies, if required, could result in substantial penalties, including civil fines of up to $65 thousand per facility per day or a shutdown of our U.S. extrusion operations.

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

This annual report on From 10-K for the fiscal year ended December 31, 2004, is being filed pursuant to Rule 15d-2 under the Securities Exchange Act of 1934, as amended, and contains only certified financial statements as required by Rule 15d-2. Rule 15d-2 provides generally that, if a registrant files a registration statement under the Securities Act of 1933, as amended, which does not contain certified financial statements for the registrant’s last full fiscal year preceding the fiscal year in which the registration statement becomes effective, then the registrant shall, within 90 days of the effective date of the registration statement, file a special report furnishing certified financial statements for such last fiscal year or other period, as the case may be, meeting the requirements of the form appropriate for annual reports of the registrant. Rule 15d-2 further provides that such special financial report is to be filed under cover of the facing sheet of the form appropriate for annual reports of the registrant. Viskase’s Registration Statement on Form S-4 (Registration No. 333-120002) was declared effective on January 25, 2005 and did not contain certified financial statements for the fiscal year ended December 31, 2004, the registrant’s last full fiscal year preceding the fiscal year in which the Registration Statement became effective. Therefore, as required by Rule 15d-2, certified financial statements for the registrant’s fiscal year ended December 31, 2004, are filed herewith under cover of the facing page of an Annual Report on Form 10-K.

ITEM 9A. CONTROLS AND PROCEDURES

We maintain a system of disclosure controls and procedures designed to provide reasonable assurance that information we are required to disclose in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Our management, with the participation of our chief executive officer and our chief financial officer, evaluated the effectiveness of out disclosure controls and procedures as of December 31, 2004. Based on that evaluation, our chief executive officer and chief financial officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

There have been no significant changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2004 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

15

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Documents filed as part of this report.

(1) Financial Statements. The following financial statements are filed as part of this report:

Report of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm

Report of Grant Thornton LLP, Independent Registered Public Accounting Firm

Consolidated Financial Statements

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Stockholders’ Deficit

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

(2) Financial Statement Schedules.

Schedule II — Valuation And Qualifying Accounts

(3) Exhibits. The following exhibits are filed as part of this report:

Certification by CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification by CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification by CEO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Certification by CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

16

SIGNATURES

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

Date: April 6, 2005

According to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities indicated on April 6, 2005.

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Consolidated Financial Statements
and Report of Independent
Registered Public Accounting Firm

Viskase Companies, Inc.
and Subsidiaries
December 31, 2004, 2003, and 2002

F-1

Index to Financial Statements

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors
Viskase Companies, Inc.

We have audited the accompanying consolidated balance sheets of Viskase Companies, Inc. (a Delaware corporation) and Subsidiaries as of December 31, 2004 and December 31, 2003, and the related consolidated statements of income, stockholders’ deficit and cash flows for the year ended December 31, 2004, the period April 3, 2003 through December 31, 2003, and the period from January 1, 2003 through April 2, 2003. In connection with our audits, we have also audited the Schedule of Valuation and qualifying accounts (the “Schedule”). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit. The financial statements and schedule of Viskase Companies, Inc. and Subsidiaries as of and for the year ended December 31, 2002 and for the year then ended, were audited by other auditors, whose report thereon, dated March 14, 2003, included an explanatory paragraph that described the Company’s filing of its voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code, which raised substantial doubt about the Company’s ability to continue as a going concern and that the financial statements were prepared assuming the Company and its subsidiaries will continue as a going concern.

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

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

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

Grant Thornton LLP
Chicago, Illinois
March 25, 2005

F-4

VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except for Number of Shares and Per Share Amounts)

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

F-5

VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In Thousands, Except for Number of Shares and Per Share Amounts)

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

F-6

VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(In Thousands)

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

F-7

VISKASE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

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

F-8

VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)

1. Summary of Significant Accounting Policies

General

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

Nature of Operations

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

Principles of Consolidation

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

Reclassification

Reclassifications have been made to the prior years’ financial statements to conform to the 2004 presentation.

Use of Estimates in the Preparation of Financial Statements

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

Cash Equivalents

For purposes of the statement of cash flows, the Company considers cash equivalents to consist of all highly liquid debt investments purchased with an initial maturity of approximately three months or less. Due to the short-term nature of these instruments, the carrying values approximate the fair market value. Cash equivalents and restricted cash include $28,272 and $44,172 of short-term investments at December 31, 2004 and 2003, respectively. Restricted cash is principally cash held as collateral for outstanding letters of credit with a commercial bank.

Inventories

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

F-9

VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)

Property, Plant and Equipment

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

Deferred Financing Costs

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

Patents

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

Goodwill and Intangible Assets

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

Long-Lived Assets

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

Accounts Payable

The Company’s cash management system provides for the daily replenishment of its bank accounts for check-clearing requirements. The outstanding check balances of $47 and $79 at December 31, 2004 and 2003, respectively, are not deducted from cash but are reflected in Accounts Payable on the consolidated balance sheets.

F-10

VISKASE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)