UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

__________________

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 29, 2006

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

333-137618
(Commission File Number)

__________________
COVALENCE SPECIALTY MATERIALS
CORP.
(Exact names of registrant as specified in its charter)

__________________

Delaware		20-4104433
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



1 Crossroads Drive, Bldg. A, Third Floor, Bedminster, NJ		07921
(Address of principal executive offices)		(Zip code)

(Registrants's telephone number, including area code) (908) 547-6061

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 o No x

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 x

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

__________________

COVALENCE SPECIALTY MATERIALS CORP.

INDEX TO FORM 10-Q

Part I.	Financial Information

		Page
Item 1.	Financial Statements (unaudited)

	Statements of Operations for the Three Months Ended December 29, 2006
	(Successor) and December 30, 2005 (Predecessor)	3
	Balance Sheets (Successor) as of December 29, 2006 and September 29, 2006	4
	Statements of Cash Flows for the Three Months Ended December 29, 2006
	(Successor) and December 30, 2005 (Predecessor)	5
	Statements of Equity and Comprehensive Income (Loss) (Successor) and Parent
	Company Equity and Comprehensive Income (Predecessor) for the Three Months
	Ended December 29, 2006 and December 30, 2005	6
	Notes to Financial Statements (unaudited)	7

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28

Item 4.	Controls and Procedures	28

Part II.	Other Information

Item 1.	Legal Proceedings	29

Item 6.	Exhibits	30

Signatures		31

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

COVALENCE SPECIALTY MATERIALS CORP. (SUCCESSOR) AND
TYCO PLASTICS AND ADHESIVES (PREDECESSOR)

STATEMENTS OF OPERATIONS
For The Three Months Ended December 29, 2006 and December 30, 2005
(unaudited, in millions)

	Successor			Predecessor
	Three Months			Three Months
	Ended December			Ended December
	29, 2006			30, 2005

Net revenue, including related party revenue	$	366.7		$	450.2
Cost of sales		342.5			385.5
Gross profit		24.2			64.7

Charges and allocations from Parent Company and affiliates		-			10.1
Selling, general and administrative expenses		41.8			33.5
Restructuring and impairment charges (credits), net		0.2			-
Operating income (loss)		(17.8	)		21.1
Other Expense		0.1			-
Interest expense		17.6			1.1
Interest income		(0.6	)		-
Interest expense – Parent Company and affiliates		-			3.0
Interest income – Parent Company and affiliates		-			(0.1	)
Income (loss) before income taxes		(34.9	)		17.1
Income taxes		(13.1	)		0.7
Net income (loss)	$	(21.8	)	$	16.4

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

COVALENCE SPECIALTY MATERIALS CORP. (SUCCESSOR) AND
TYCO PLASTICS AND ADHESIVES (PREDECESSOR)

BALANCE SHEETS
As of December 29, 2006 and September 29, 2006
(unaudited, in millions)

	Successor
	December 29,			September 29,
	2006			2006

Assets
Current Assets:
Cash and cash equivalents	$	54.1		$	66.8

Accounts receivable, less allowance for doubtful		146.7			195.7
accounts of $3.4, $3.3, respectively
Inventories		191.6			233.9
Prepaid expenses and other current assets		9.7			13.0
Total current assets		402.1			509.4
Property, plant and equipment, net		333.1			334.8
Intangible assets, net		333.1			337.2
Other assets		21.5			22.3
Total Assets	$	1,089.8		$	1,203.7

Liabilities and Equity
Current Liabilities:
Accounts payable		122.7			170.4
Accrued and other current liabilities		47.9			77.4
Long Term Debt - current		3.0			3.0
Total current liabilities		173.6			250.8
Long Term Debt		729.2			729.9
Deferred Income Tax Liabilities		36.4			49.7
Other liabilities		1.8			1.5
Total Liabilities		941.0			1,031.9

Commitments and contingencies

Contributions from Holdings		196.4			197.8
Retained Defecit		(47.9	)		(26.1	)
Accumulated Other Comprehensive Income		0.3			0.1
Total Equity		148.8			171.8
Total Liabilities and Equity	$	1,089.8		$	1,203.7

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

COVALENCE SPECIALTY MATERIALS CORP. (SUCCESSOR) AND
TYCO PLASTICS AND ADHESIVES (PREDECESSOR)
STATEMENTS OF CASH FLOWS
For The Three Months Ended December 29, 2006 and December 30, 2005
(unaudited, in millions)

	Successor			Predecessor
	Three Months			Three Months
	Ended			Ended
	December 29,			December 30,
	2006			2005

Cash Flows from Operating Activities:
Net Income (loss)	$	(21.8	)	$	16.4
Adjustments to reconcile net cash from operating activities
Depreciation and amortization		20.3			10.3
Amortization of debt issuance costs		0.8			-
Provisions for losses on accounts receivable and inventory		1.6			1.9
Deferred income taxes		(13.1	)		-
Changes in assets and liabilities
Accounts receivable, net		47.2			(6.0	)
Inventories		36.8			(90.9	)
Prepaid expenses and other current assets		3.4			-
Other non-current assets		-			-
Accounts payable		(47.6	)		55.0
Due to Tyco International, Ltd and affiliates		-			(109.9	)
Accrued and other current liabilities		2.6			(3.7	)
Income taxes		0.2			0.8
Other, net		(0.1	)		0.1
Net cash provided by (used in) operating activities		30.3			(126.0	)

Cash Flows from Investing Activities:
Purchase of property, plant and equipment		(10.3	)		(8.6	)
Proceeds from disposal of assets		-			1.3
Acquisition of business, net of cash acquired		(30.2	)		-
Net cash used in investing activities		(40.5	)		(7.3	)
Cash Flows from Financing Activities:
Return of equity to Holdings		(1.3	)		-
Repayment of long-term debt		(0.7	)		-
Change in book overdraft		-			1.1
Change in Predecessor parent company investment		-			135.0
Net cash provided by (used in) financing activities		(2.0	)		136.1

Effect of currency translation on cash		(0.5	)		(0.3	)
Net increase (decrease) in cash and cash equivalents		(12.7	)		2.5
Cash and cash equivalents, beginning of period		66.8			2.7
Cash and cash equivalents, end of period	$	54.1		$	5.2

Supplementary Cash Flow Information:
Interest paid		10.7			0.2
Income taxes paid		0.1			0.4

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

COVALENCE SPECIALTY MATERIALS CORP. (SUCCESSOR) AND
TYCO PLASTICS AND ADHESIVES (PREDECESSOR)

STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME (LOSS) AND
PARENT COMPANY EQUITY AND COMPREHENSIVE INCOME
For The Three Months Ended December 29, 2006 and December 30, 2005
(unaudited, in millions)

STATEMENT OF PARENT COMPANY EQUITY AND COMPREHENSIVE INCOME (PREDECESSOR)

		Total			Parent		Currency			Minimum
		Parent			Company		Translation			Pension			Comprehensive
		Company			Investment					Liability			Income
		Equity
Balance at September 30, 2005 (Predecessor)	$	855.1		$	895.0	$	(25.5	)	$	(14.4	)
Comprehensive income:
Net income		16.4			16.4		-			-		$	16.4
Currency translation		(3.9	)		-		(3.9	)		-			(3.9	)
Total comprehensive income												$	12.5
Net transfers to parent		8.2			8.2		-			-
Balance at December 30, 2005 (Predecessor)	$	875.8		$	919.6	$	(29.4	)	$	(14.4	)

STATEMENT OF EQUITY AND COMPREHENSIVE INCOME (LOSS) (SUCCESSOR)

		Total			Retained			Contributions			Currency		Comprehensive
		Equity			Deficit			from			Translation		Income
								Holdings
Balance at September 29, 2006 (Successor)	$	171.8		$	(26.1	)	$	197.8		$	0.1
Comprehensive loss:
Net loss		(21.8	)		(21.8	)		-			-	$	(21.8	)
Currency translation		0.2			-			-			0.2		0.2
Total comprehensive loss												$	(21.6	)
Compensation expense		(0.1	)		-			(0.1	)		-
Contributions from Holdings		(1.3	)		-			(1.3	)		-
Balance at December 29, 2006 (Successor)	$	148.8		$	(47.9	)	$	196.4		$	0.3

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

COVALENCE SPECIALTY MATERIALS CORP. (SUCCESSOR) AND
TYCO PLASTICS AND ADHESIVES (PREDECESSOR)

NOTES TO FINANCIAL STATEMENTS (UNAUDITED, IN MILLIONS)

1. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation—The accompanying financial statements (the “financial statements”) are presented for Covalence Specialty Materials Corp. (the “Successor” or the “Company”) on a consolidated basis, and Tyco Plastics & Adhesives (the “Predecessor”) on a combined basis. The financial statements of the Successor and Predecessor herein consist of the combined operations of the following formerly wholly-owned operating units of Tyco: Tyco Plastics (“Plastics”), Tyco Adhesives (“Adhesives”) and Ludlow Coated Products (“Coatings”). These financial statements present the consolidated financial position, results of operations and cash flows of the Successor as a stand-alone entity and combined financial position, results of operations and cash flows of the Predecessor as a subsidiary of Tyco, including adjustments, allocations and related party transactions and have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). All intercompany transactions have been eliminated. The Predecessor financial statements presented may not be indicative of the results that would have been achieved had the Predecessor operated as a separate, stand-alone entity.

The financial statements have been prepared in accordance with the instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended. These financial statements should be read in conjunction with the Company’s Financial Statements and accompanying notes contained in the Company's Offer to Exchange Prospectus dated February 9, 2007 filed with the Securities and Exchange Commission.

The financial statements included herein are unaudited, in the opinion of management, such financial statements include all adjustments, consisting of normal recurring adjustments, necessary to summarize fairly the Company's financial position, results of operations and cash flows for the interim period. The results reported in these financial statements should not be taken as indicative of results that may be expected for the entire year.

The Acquisition - On February 16, 2006, substantially all of the assets and liabilities of the Predecessor were acquired by the Company, under a Stock and Asset Purchase Agreement dated December 20, 2005 and entered into among Covalence Specialty Materials Holding Corp. (“Holdings”), an affiliate of Apollo Management V, L.P. and the direct parent of the Company, Tyco International S.A. and Tyco Group S.a.r.l. Under the agreement, the Successor acquired Predecessor’s businesses through the acquisition of certain equity interests of, and certain assets and liabilities held by direct and indirect operating subsidiaries of, Tyco International Ltd. (the “Acquisition”). See Note 2 for further discussion. Tyco International Ltd. and its subsidiaries, excluding the Predecessor, are referred to herein as “Tyco.”

Use of Estimates—The preparation of the financial statements in conformity with U.S. GAAP requires management to make extensive use of estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of sales and expenses. Significant estimates in these financial statements include restructuring charges and credits, allowances for doubtful accounts receivable, estimates of future cash flows associated with long-lived assets, useful lives for depreciation and amortization, loss contingencies and net realizable value of inventories, revenue credits, vendor rebates, income taxes and tax valuation reserves and the determination of discount and other rate assumptions for pension and postretirement employee benefit expenses. Actual results could differ materially from these estimates. Changes in estimates are recorded in results of operations in the period that the event or circumstances giving rise to such changes occur.

Recent Accounting Pronouncements – In December 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. 109–1 (“FSP 109–1”), “Application of FASB Statement No. 109, Accounting for Income Taxes (“SFAS No. 109”) to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004”, which provides guidance on the American Jobs Creation Act of 2004 (the “Act”). The Act provides a tax deduction for income from qualified domestic production activities. FSP 109–1 provides for the treatment of the deduction as a special deduction as described in Statement of Financial Accounting Standards (“SFAS”) No. 109. As such, the deduction will have no effect on existing deferred tax assets and liabilities. The impact of the deduction is to be reported in the period in which the deduction is claimed on our U.S. tax return. We plan to adopt FSP 109–1 in fiscal 2007 and expect it to decrease our effective tax rate for financial statement purposes in periods in which the deduction is claimed.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), which is an interpretation of SFAS No. 109, “Accounting for Income Taxes.” FIN 48 provides measurement and recognition guidance related to accounting for uncertainty in income taxes. FIN 48 also requires increased disclosure with

respect to the uncertainty in income taxes. The Company will adopt the provisions of FIN 48 on October 1, 2007, as required, and is currently evaluating the impact of such adoption on its financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements.” This statement establishes a standard definition for fair value, establishes a framework under generally accepted accounting principles for measuring fair value and expands disclosure requirements for fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of the statement on its financial statements.

In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB No. 108 requires that companies utilize a “dual-approach” to assessing the quantitative effects of financial statement misstatements. The dual approach includes both an income statement focused and balance sheet focused assessment. SAB No. 108 is applicable for the Company’s fiscal year ending September 28, 2007. The adoption of SAB No. 108 will not have a significant impact on the Company’s financial position or results of operations.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an Amendment of FASB Statements No. 87, 88, 106 and 132(R).” This statement requires an employer to recognize the overfunded or underfunded status of defined benefit pension and postretirement plans as an assets or liabilities in its statement of financial position. Under SFAS No. 158, unrecognized actuarial gains and losses, prior service costs and credits and any remaining unrecognized transition amounts, net of their related income tax effect, are to be reported as a component of accumulated other comprehensive income. Incremental changes in these amounts not recognized in the statements of operations in the year in which they arise are recognized as changes in other comprehensive income in the year in which the changes occur. The statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position. The requirement to recognize the funded status of defined benefit pension and postretirement plans is effective for fiscal years ending after December 15, 2006 for companies with publicly traded stock, and June 15, 2007 for all other companies. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for the fiscal years ending after December 15, 2008. The Company currently measures plan assets and benefit obligations as of August at each fiscal year-end, and is evaluating the impact that the other aspects of this Statement will have on its financial statements.

2. Acquisition Purchase Price Allocation

The Company has performed an evaluation of the fair values of the real and personal property, inventory and certain identifiable intangible assets in connection with the purchase price allocation related to the Acquisition. A valuation study was undertaken, which supports the purchase price allocation. The valuation study resulted in a fair value step-up of real and personal property, inventory and certain identifiable intangible assets. The Company recognized $6.8 million as a charge to cost of sales relating to the sale of inventory that was stepped-up to fair value. The Company is in the process of finalizing its purchase accounting information and, based on the valuation study and other available information, has recorded a purchase price of $916.1 million, which includes $975.2 million of original purchase price partially offset by net favorable working capital adjustments from Tyco of approximately $59.1. During the three months ended December 29, 2006, the company recorded a $9.0 million change to the allocation of the excess fair value over purchase price as a result of finalizing its evaluation of the fair values of the certain current assets, real and personal property, and inventories. The Company anticipates that it will completely finalize its purchase accounting allocation for the Acquisition during the first calendar quarter of 2007. The remaining excess of the fair value of the net assets acquired over the purchase price paid has been allocated to non current assets on a prorated basis. The following table summarizes the current allocation of fair values of the Company’s assets acquired and liabilities assumed at the date of acquisition.

			Allocation of
	Estimated		Excess		Allocation of
	Fair Value at		Fair Value over		Purchase Price At
	February 16, 2006		Purchase Price		February 16, 2006
			(in millions)
Current assets	$	429.0	$ —		$	429.0
Property, plant and equipment		345.4	(1.6	)		343.8
Intangible assets		364.4	(1.5	)		362.9
Other non current assets		24.1	—			24.1
Assets acquired		1,162.9	(3.1	)		1,159.8

Current liabilities		176.6	—			176.6
Non current liabilities		67.1	—			67.1
Liabilities assumed		243.7	—			243.7
	$	919.2	$ (3.1	)	$	916.1

3. Long-term Debt

In connection with the Acquisition, the Company entered into senior secured credit facilities, which included a term loan in the amount of $350.0 million with a maturity date of February 16, 2013. On May 18, 2006, the Company refinanced its senior secured credit facilities, which now consist of a new term loan in the principal amount of $300.0 million and a new revolving credit facility which provides borrowing availability equal to the lesser of (a) $200.0 million or (b) the borrowing base, which is a function, among other things, of the Company’s accounts receivable and inventory. The term loan matures on May 18, 2013 and the revolving credit facility matures on May 18, 2012.

The borrowings under the senior secured credit facilities bear interest at a rate equal to an applicable margin plus, as determined at our option, either (a) a base rate (“Base Rate”) determined by reference to the higher of (1) the prime rate of Bank of America, N.A., as administrative agent, and (2) the U.S. federal funds rate plus 1/2 of 1% or (b) a eurodollar rate (“LIBOR”) determined by reference to the costs of funds for eurodollar deposits in dollars in the London interbank market for the interest period relevant to such borrowing adjusted for certain additional costs. As of December 29, 2006 the applicable margin for LIBOR rate borrowings under the revolving credit facility was 1.50% and under the term loan is 2.00% . As of December 29, 2006 the applicable margin for base rate borrowings under the revolving credit facility was 0% and under the term loan was 1.00% . The applicable margin for such borrowings under the revolving credit facility will be reduced if the Company achieves certain leverage ratios.

The senior secured credit facilities require minimum quarterly principal payments of $0.750 million on the term loan for the first six years and nine months, commencing in September 2006, with the remaining amount payable on May 18, 2013. In addition, the Company must prepay the outstanding term loan, subject to certain exceptions, with:

Beginning with the Company’s first full fiscal year after the closing, 50% (which percentage is subject to a minimum of 0% upon the achievement of certain leverage ratios) of excess cash flow (as defined in the credit agreement); and
100% of the net cash proceeds of all non-ordinary course asset sales and casualty and condemnation events, if the Company does not reinvest or commit to reinvest those proceeds in assets to be used in its business or to make certain other permitted investments within 15 months, subject to certain limitations.

In addition to paying interest on outstanding principal under the senior secured credit facilities, the Company is required to pay a commitment fee to the lenders under the revolving credit facilities in respect of the unutilized commitments thereunder at a rate equal to 0.25% to 0.35% per annum depending on the average daily available unused borrowing capacity. The Company also pays a customary letter of credit fee, including a fronting fee of 0.25% per annum of the stated amount of each outstanding letter of credit, and customary agency fees.

The Company may voluntarily repay outstanding loans under the senior secured credit facilities at any time without premium or penalty, other than customary “breakage” costs with respect to eurodollar loans.

The senior secured credit facilities contain various restrictive covenants that, among other things and subject to specified exceptions, prohibits the Company from prepaying other indebtedness, restricts its ability to incur indebtedness or liens, make investments or declare or pay any dividends.

All obligations under the senior secured credit facilities are unconditionally guaranteed by Holdings and, subject to certain exceptions, each of the Company’s existing and future direct and indirect domestic subsidiaries. The guarantees of those obligations are secured by substantially all of the Company’s assets as well as those of Holdings and each domestic subsidiary guarantor.

In connection with the Acquisition, the Company entered into the $175.0 million second priority floating rate loan. The second priority floating rate loan matures on August 16, 2013, and bears interest at a rate per annum, reset at the end of each interest period, equal to LIBOR plus 3.25% or Base Rate plus 2.25% . No principal payments are required with respect to the second priority floating rate loan prior to maturity. Voluntary prepayments under the floating rate loan are subject to a premium of 2% of any principal amount prepaid in the first year, 1% of any principal amount prepaid in the second year and no premium thereafter.

All obligations under the floating rate loan are unconditionally guaranteed by each of the Company’s existing domestic subsidiaries that guarantees debt under the Company’s senior secured credit facilities and by certain of the Company’s future domestic subsidiaries, and are secured on a second priority basis by the same assets securing the loans under the senior secured credit facilities.

The Company also issued $265.0 million of 10.25% senior subordinated notes due March 1, 2016. Included as a reduction of the balance in long term debt is the unamortized portion of the original issue discount of $6.3 million relating to the notes, which is reflected on the Company’s Balance Sheet. Included in the Successor Statement of Operations is $0.1 million of amortization of this discount using the effective interest method. On February 9, 2007, the Company commenced an Offer to Exchange the notes for substantially identical notes, except that the notes we issued in exchange are not subject to transfer restrictions. The Offer to Exchange is scheduled to expire on March 12, 2007. The currently outstanding senior notes are senior subordinated obligations of the Company and rank junior to all other senior indebtedness of the Company that does not contain similar subordination provisions. No principal payments are required with respect to the senior subordinated notes prior to maturity.

The second priority floating rate loan agreement and the indenture relating to the notes each contain a number of covenants that, among other things and subject to certain exceptions, restrict the Company’s ability and the ability of its restricted subsidiaries to incur indebtedness or issue disqualified stock or preferred stock, pay dividends or redeem or repurchase stock, make certain types of investments, sell assets, incur certain liens, restrict dividends or other payments from subsidiaries, enter into transactions with affiliates and consolidate, merge or sell all or substantially all of the Company’s assets. No principal payments are required with respect to the second priority floating rate loan and the senior subordinated notes prior to maturity.

The Company’s weighted-average rate of interest on total debt was 8.72% for the three months ended December 29, 2006. Outstanding long-term debt on December 29, 2006 and maturities are as follows:

Payments Due by Period

Less than

1–3

4–5

More than

Total

1 year

years

years </