UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

For the fiscal year ended February 29, 200828, 2009

or

For the transition period fromto

Commission File Number 0-21161

Q.E.P. CO., INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (561) 994-5550

Securities Registered Pursuant to Section 12(b) of the Act:

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

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

The aggregate market value of Q.E.P. Co., Inc. Common Stock, $.001 par value, held by non-affiliates, computed by reference to the price at which the stock was sold as of August 31, 200729, 2008 was $21.1approximately $10.7 million.

The number of shares outstanding of each of the registrant’s classes of common stock as of May 26, 20082009 is 3,433,3633,531,085 shares of Common Stock, par value $0.001 per share.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Form 10-K incorporates certain information by reference from the registrant’s definitive proxy statement for the 20082009 Annual Meeting of Stockholders or an amendment of this Annual Report on Form 10-K, which proxy statement or amendment will be filed no later than 120 days after the close of the registrant’s fiscal year ended February 29, 2008.28, 2009.

Q.E.P. CO., INC. AND SUBSIDIARIES

FISCAL YEAR 2008 FORM 10-K

TABLE OF CONTENTS

Forward-Looking Statements

This report contains certain forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements present the Company’s expectations or forecasts of future events. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They are frequently accompanied by words such as “believe”, “intend”, “expect”, “anticipate”, “plan”, or “estimate” and other words of similar meaning, and include statements relating to the Company’s liquidity sources and the adequacy of those sources to meet the Company’s working capital needs, anticipated capital expenditures and debt obligations for the next twelve months; the Company’s beliefs and expectations regarding the impact of the global economy on consumer demand and on its operating and financial results during 2009 and beyond; the Company’s beliefs and expectations regarding significant improvements in the Company’s operations during the fourth quarter of fiscal 2009 and first quarter of fiscal 2010; the Company’s ability to increase the amount of sales of its products and expected sales levels of its products; the Company’s ability to increase prices and maintain or improve its gross margins; the Company’s ability to maintain good relationships with its suppliers and major customers; the Company’s ability to make itself more attractive to new and existing customers; the Company’s ability to pass cost increases on to its customers; the Company’s ability to compete for limited shelf space at home improvement retailers; the Company’s expectations regarding the importance of service and promotional support to its major customers; the Company’s expectations regarding consolidation among the national and large regional home improvement retailers and expectations regarding increases in their future market share and its effect on the Company, including the Company’s reliance on Home Depot and Lowe’s; the Company’s expectations regarding Home Depot’s and Lowe’s plans for store growth; the Company’s ability to continue to do business around the world; the Company’s ability to successfully expand its market share, capitalize on new customers and cross-sell its products; the Company’s ability to introduce new and innovative products, expand existing product lines, and increase its sales and market penetration; the Company’s ability to successfully identify and complete acquisitions and to improve its distribution capabilities; the Company’s intent to delist its common stock from NASDAQ and deregister its common stock under the Exchange Act and the expected timing of such actions; the Company’s expectations that its common stock will continue to trade on the Pink Sheets; the Company’s potential consolidation of operations; the Company’s ability to continue its performance and that of its products and to increase stockholder returns;products; the Company’s ability to evaluate both domestic and worldwide specialty tool companies; the Company’s ability to enhance its position as a worldwide manufacturer and distributor of specialty tools; expectations regarding the growth in sales of the largest home improvement retailers as compared to the rate of sales growth in the overall market; expectations regarding the strength of the housing, residential and commercial construction and home improvement markets; expectations regarding broadening the Company’s product lines; expectations regarding growth trends in the flooring segment of the home improvement market and among its customer base and its impact on the Company; expectations regarding degree of credit risk due to the Company being directly affected by the well being of the home center industry; expectations regarding sources of supply for its products; expectations regarding competition in the home improvement market; expectations that the Company will continue to penetrate more foreign markets; expectations regarding the benefits that the Company can offer and are not otherwise available to foreign manufacturers; expectations regarding payment of dividends; expectations regarding the impact of inflation; expectations regarding the steps the Company plans to implement for fiscal 2010 to remediate its material weaknesses; expectations regarding recently issued accounting standards; the Company’s ability to improve its distribution capabilities through increased use of technology and reevaluation of geographic locations; the Company’s ability to compete with foreign competitors; the impact of the loss of one or more of the Company’s patents; the adequacy of the Company’s existing physical facilities; the ability of the Company to lease facilities for future needs; the expected impact of the outcome of any legal proceedings in which the Company is involved; the Company’s expectations regarding its future effective tax rate; the cost of compliance with Environmental Laws and the Company’s anticipated expenditures on monitoring of wells and other environmental activity.

These forward-looking statements are based on currently available information and are subject to risks and uncertainties which could cause actual results to differ materially from those discussed in the forward-looking statements and from historical results of operations (See Item 1A-Risk Factors). Among the risks and uncertainties which could cause such a difference are the assumptions

upon which the Company bases its assessments of its future working capital and capital expenditures; the general economic conditions in North America and the world; the state of the housing, residential and commercial construction and home improvement markets; the Company’s ability to satisfy its working capital needs and to finance its anticipated capital expenditures; the Company’s ability to comply with the covenants in its debt facilities and its ability to obtain additional financing if necessary; the Company’s dependence upon a limited number of customers for a substantial portion of its sales and the continued success of initiatives with those customers; the success of the Company’s marketing and sales efforts; interruptions in supply or price changes in the items purchased by the Company; improvements in productivity and cost reductions; increased pricing pressures from customers and competitors and the ability to defend market share in the face of price competition; the Company’s ability to maintain and improve its brands; the Company’s

reliance upon certain major foreign suppliers; the Company’s reliance upon suppliers and sales agents for the purchase of finished products which are then resold by it; the level of demand for the Company’s products among existing and potential new customers; the state ofCompany’s ability to successfully delist its common stock under NASDAQ and deregister its common stock under the housing, residential and commercial construction and home improvement markets;Exchange Act on its anticipated timeline; the Company’s ability to have its common stock trade on the Pink Sheets; the Company’s ability to successfully integrateimplement the remedial measures to address its acquired businesses;material weaknesses; the Company’s dependence upon the efforts of Mr. Lewis Gould, the Company’s Chief Executive Officer and certain other key personnel; the Company’s ability to successfully integrate new management personnel into the Company; the Company’s ability to accurately predict the number and type of employees required to conduct its operations and the compensation required to be paid to such personnel; the Company’s ability to manage its growth, and the risk of economic and market factors affecting the Company or its customers; the impact of new accounting standards on the Company; the Company’s belief that there will be no future adverse effect on the fair value of the Company’s goodwill or other intangible assets; decisions by management related to accounting issues, and regulation and litigation matters; the general economic conditions in North America and the world; and other risks and uncertainties described elsewhere herein and in other reports filed by the Company with the Securities and Exchange Commission.

All forward looking statements included herein are made only as of the date such statements are made and the Company does not undertake any obligation to publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur or of which the Company hereafter becomes aware. Subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements set forth above and elsewhere in this report and in other reports filed by the Company with the Securities and Exchange Commission.

PART I

General

Founded in 1979 and incorporated in Delaware in 1996, Q.E.P. Co., Inc. (the “Company” or “Q.E.P.”) manufactures, markets and distributes a broad line of specialty tools and flooring related products for the home improvement market in the United States of America and throughout the world. Under brand names including Q.E.P.®, ROBERTS®, Capitol®, QSet™Vitrex®, Vitrex®PRCI® and Elastiment™Elastiment®, the Company markets over 3,000 specialty tools and flooring related products used primarily for surface preparation and installation of ceramic tile, carpet, vinyl and wood flooring. Q.E.P.’s products include flooring adhesives and underlayments, wet saws, trowels, floats, tile cutters, wet saws, spacers, nippers, pliers, carpet trimmers and cutters, flooring adhesives, seaming tape, tack strips, knives, dry set powders and grouts. These products are sold to home improvement retailers, including national and regional chains such as Home Depot and Lowe’s, international chain stores such as Bunnings, Wickes, and Topps Tiles, Leroy Merlin and Sodimac, specialty distributors to the hardware, construction, flooring and home improvement trades and chain or independent hardware, tile, and carpet retailers for use by the do-it-yourself consumers as well as the construction or remodeling professional.

The Company’s principal subsidiaries include Roberts Consolidated Industries, Inc., a worldwide leader in the carpet installation market; Roberts Capitol, Inc., a manufacturer of adhesives in Dalton, Georgia; QEP – QEP–California, Inc., a manufacturer of adhesives in Adelanto, California; Q.E.P. Stone Holdings (See Sale of Businesses, Note C to the Consolidated Financial Statements, “Note C”), which manufactures dry set powders and grouts in Georgia; O’Tool Company (See Note C), a distributor to the trowel trades; Boiardi Products Corp. of Little Falls, N.J., a manufacturer of a full line of thin-set mortars, grouts, self-leveling concrete toppings and crack-suppressing waterproof membranes used in the flooring industry; PRCI S.A.,Roberts Company Canada Limited, a manufacturer of adhesives and grouts, and a distributor of ceramic tile tools to the retail and distribution marketplaceflooring accessories in France;Canada; Q.E.P. Co. U.K., Ltd., Roberts U.K., Ltd. (See Note C) and Q.E.P. Roberts Ireland, Ltd., manufacturers and distributors of accessory flooring and safety products in the United Kingdom and Ireland; Q.E.P. AustraliaAust. Pty, Ltd., one of the largest distributors of tools and installation products for all types of flooring in the Australian marketplace; Q.E.P. New Zealand,Co. N.Z. Limited, a distributor of accessory flooring supplies;supplies in New Zealand; Q.E.P. Co. U.K., Ltd. and Q.E.P. Roberts Ireland, Ltd., distributors of accessory flooring and safety products in the United Kingdom and Ireland; PRCI S.A., a distributor of ceramic tile tools to the retail and distribution marketplace in France; Q.E.P. Roberts Mexicana S.A.S. de R.L. de C.V., a manufacturer and distributor of flooring installation products in Mexico; Q.E.P. Chile Limitada, a distributor of ceramic tile accessories located in Santiago, Chile; Zocalis, SRL,

S.R.L., an Argentinean manufacturer of ceramic borders and trim; Q.E.P. Peru S.A.C., a Peruvian distributor of ceramic borders and trim; Q.E.P. Co. HK Ltd.Limited., a Hong Kong registered company with a representative office in Shanghai, China, that provides purchasing services to QEP and its subsidiaries.subsidiaries; and Harmony Depot Trading Shanghai Company Limited, a licensed trading company in China.

The Company operates in five business segments: Domestic, Canada, Europe, Australia/New Zealand and Other. Management has chosen to organize the segments into geographic areas, with each segment being the responsibility of a segment manager, except for the Canadian segment and Mexico in the Other segment, which isare managed by members of the Domestic segment’s senior management team. Each segment markets and sells flooring-related products to the residential, new construction, do-it-yourself and professional remodeling and renovation markets and home centers. The European segment is made up of our operations in the UK, France, and Ireland. The Other segment is made up of operations in Latin America and Asia.

Market Overview

The Company is a supplier of specialty flooring installation products and sells to the home improvement market. According to the industry information published byFloor Covering Weekly, a trade publication, total installed floor covering sales for 20062007 in the United States remained relatively flat atwere approximately $62 billion.$21.7 billion, a decline of 7.5% from 2006. The housing starts and turnover decline that started in 2005, continued to decline in 2007; however, at the same time, commercial property construction remained stable.2008. With the slowdown in residential construction, the unprecedented number of home foreclosures, the weakening of consumer demand and high energy costs,the uncertainty in the financial markets, the Company expects that 20082009 will also be a challenging year for the home improvement market. The Company believes, however, that the long-term demographics for housing are sound. As in prior years, home improvement market distribution channels continue to consolidate as a result of the success of the warehouse home center format. The continued dominance of national home improvement retailers results from their ability to offer broad product lines, project advice and orientation, competitive pricing, aggressive promotions, and multiple location, large-format stores.

The Company’s two largest customers, Home Depot and Lowe’s, accounted for approximately $126$122 billion of home center sales for their fiscal year 2007.2008. Home Depot and Lowe’s, experienced annual sales decline of 2%8% and growth of 2%less than 1% in fiscal 2008, respectively, according to their published financial reports and both have plans to continue increasing the number of stores each operates at slower than recent historical rates. As consolidation continues among home improvement retailers, the Company expects that the sales growth rate of the largest national and regional home improvement retailers will continue to increase at greater rates than the sales growth rate in the overall market. The Company expects that the growth trends in the flooring segment of the home improvement market and among its customer base will directly affect the Company’s ability to generate growth in its sales and net income, its expansion strategyopportunities and the nature of its sales and marketing initiatives.

Business Strategy

The Company’s long-term strategy is to continue to enhance its position as a worldwide leading manufacturer and distributor of specialty tools and related products by introducing new products in traditional and non-traditional segments, cross-selling products among its channels of distribution, expanding market share by obtaining new customers, and capitalizing on the expected long-term growth of its largest customers and of the home improvement market as a whole.whole, and seeking new markets through acquisitions and product line expansion. Key elements of the Company’s strategy include:

Increase Sales By Expanding Product Lines and Adding New Customers. The Company seeks to expand its product lines by introducing new and innovative products which can be marketed to the Company’s existing customer base. Through its prior acquisitions, the Company has expanded the number of products available and its line of flooring installation products. In addition to expanding product offerings through acquisitions, the Company internally develops and offers products both in response to customer demands.demands and in order to develop an expanded product line. The Company believes that broadening its product lines in traditional and non-traditional segments will make it a more attractive supplier to the major home improvement retailers and specialty distributors, thereby increasing the Company’s sales and market penetration. Additionally, the Company is targeting mass merchandisers as prospective customers for a portion of its current product line.

Capitalize on Cross-Selling Opportunities.The Company believes that there are significant opportunities for “cross selling” its products among its existing markets and channels of distribution. The Company has sought to identify acquisition candidates with complementary product lines and to “cross sell” acquired product lines to its existing customer base and its existing product lines to the customers of the acquired business.

Pursue Strategic Acquisitions. The Company has historically broadened its product lines, increased its customer base and increased its manufacturing, distribution and marketing capabilities through acquisitions. The Company expects to continue to evaluate acquisitions of both domestic and worldwide specialty tool and adhesive manufacturers, distributors and other companies whose products, distribution channels and brand names are complementary to those of the Company and which could offer further opportunities for product cross selling, expansion of manufacturing and marketing operations and the addition of new customers.

Enhance Distribution and Manufacturing Capabilities. In order to effectively serve the customer base and help to control cost increases, the Company seeks to improve its distribution capabilities through the increased use of technology as well as reviewing its facilities for correct size and geographic location. In fiscal 2008, theThe Company closedconsiders and evaluates consolidating its facility in Nevada and moved the distribution operations to its Adelanto, California manufacturing and distribution facility, which was acquired in fiscal 2008. The Company is considering consolidating other operations where appropriate. The Company currently has distribution and manufacturing capabilitycapabilities located throughout the United States, Canada, Australia, New Zealand, the United Kingdom, Mexico, France, Ireland, and South America. On October 24, 2007, theThe Company expanded itshas also entered into license and royalty agreementagreements with Estillon B.V., a European supplier of carpet specialty tools, to include Great Britain and Ireland. The agreement grants Estillonthird parties that grant them the right to manufacture, market and distribute products using the Company’s Roberts® and Smoothedge® brand names to customers, other than mass merchants, principally within certain European Union countries.merchants. The Company estimates that in fiscal 2008,2009, it manufactured approximately 25%26% of its Q.E.P.™® and Roberts™Roberts® product lines.

Products

The Company manufactures, markets and distributes a broad line of over 3,000 specialty tools and flooring related products. The Company’s products are offered under brand names including Q.E.P.®, ROBERTS®, Capitol®, QSet™Vitrex®, Vitrex®PRCI® and Elastiment™Elastiment® and are used primarily for surface preparation and installation of ceramic tile, carpet, vinyl and wood flooring and laminate.

The Company manufactures and distributes adhesives, underlayment, grouts, mortars, dry set powders and distributes an assortment of carpet installation tools as well as floats, tile cutters, trowels, electric saws, nippers and other products to the flooring industry. These products are sold to distributors, retailers and do-it-yourself customers. Although the Company manufactures and distributes over 3,000 products, a majority of the Company’s sales are to customers who purchase between 20 and 250 individual stock-keeping

units. As the Company seeks to broaden its product lines, the competition for limited shelf space available at home improvement retailers for specialty tools and related products may limit sales of existing or newly introduced products.

The Company maintains a research and development program through which it seeks to identify new product opportunities within its core markets. Methods by which the Company seeks to identify product opportunities include soliciting product feedback from customers through its outside sales force and manufacturers’ representatives, review of product brochures and catalogs issued by foreign and domestic competitors of specialty tools, review of product concepts with buyers employed by its customers, and attendance at industry trade shows and conventions at which new product concepts are introduced and discussed. The Company also considers participation in joint ventures, royalty agreements and evaluation of product samples to be an important part of its effort to identify new product opportunities. The Company maintains a product quality control program primarily to verify the quality of its existing products and to develop ideas for additional products or enhancements to existing products.

Relationship with Major Customers

In 1982, the Company began selling products to Home Depot, which is currently the largest home improvement retailer in the world third largest retailer globally and the second largest retailer in the United States based on annual sales volume. In 1993, the Company added Lowe’s as a customer, which is now the second largest home improvement retailer in the world and eighth largest retailer in the United States. Home Depot and Lowe’s are the Company’s two largest customers accounting for 51%59% and 10%7% of the Company’s fiscal 20082009 sales, respectively.

Because of the importance of home improvement retailers to its business, the Company has worked with these major customers to supplement their customer service programs to ensure that the specific needs of the end user are given a high priority. Features of the Company’s customer service programs for its major customers include providing a wide range of in-store services, such as, assistance with inventory, maintenance of product displays, introduction of new products, maintaining inventories of tools and related products in multiple locations to permit rapid shipping capabilities, delivering orders promptly, holding education classes for retail store personnel, packaging with multilingual labels, prepaying delivery for product shipments with minimum purchase requirements, participating in cooperative promotions and special sales events, providing product research for buyers, operating a customer service hotline, providing parts and repair service, extension of advertising and other promotional allowances, accepting orders electronically and billing through electronic data interchange, bar coding for each individual stock-keeping unit, and incorporating anti-theft tags in packaging. The Company believes that its major customers place considerable value on service and promotional support and frequently evaluatesevaluate its service and promotional activities in an effort to serve its customers more effectively.

The Company believes that the consolidation among home improvement retailers will continue and that the national and large regional home improvement retailers will continue to increase their market share in the near future.future, although Home Depot and Lowe’s have plans to increase the number of stores each operates over the next several years at slower than historical rates. As a result, the Company expects the percentage of its sales to these customers to continue to be significant.

The loss of, or any significant reduction in business with, Home Depot or Lowe’s as a customer of the Company would have a material adverse effect on the financial position and results of operations of the Company.

Manufacturing and Suppliers

The Company estimates that in fiscal 20082009 it manufactured approximately 25%26% of its Q.E.P.™® and Roberts™Roberts® product lines. The Company manufactures flooring adhesives carpetat its facilities in Mexico Missouri; Dalton, Georgia; Adelanto California; and Bramalea, Ontario. Carpet installation tools and ceramic tile spacers at its main manufacturing facility in Mexico, Missouri. Flooring adhesives are produced at the Company’s facilitiesfacility in Bramalea, Ontario, Canada; Dalton, Georgia; Adelanto, California and Mexico, City, Mexico.Missouri. Grouts and related products are manufactured at the Company’s Little Falls, New Jersey;Jersey, and Bramalea, Ontario, Canada facilities,facilities; and laminate flooring underlayment is manufactured in Dalton, Georgia. In Australia, the Company manufactures accessories used for the installation of ceramic tile. Ceramic trim is manufactured in Argentina.

The Company purchased finished products and raw materials from approximately 200150 different suppliers in fiscal 2008.2009. Although the Company believes that multiple sources of supply exist for nearly all of the products and components purchased from outside suppliers and generally maintains at least two sources of supply for each item purchased, interruptions in supply or price changes in the items purchased by the Company could have a material adverse effect on the Company’s operations. The Company receives products from its suppliers into its four main North American warehouses located in Mexico, Missouri; Dalton, Georgia; Adelanto, California and Bramalea, Ontario, Canada. Disruption in supply to any of these warehouses may result in excessive inventory levels and added costs to the Company. Further, inIn fiscal 2008,2009, the Company purchased in excess of $12.2approximately $11.4 million and $8.6$7.7 million of finished products for its domestic operations from two foreign suppliers representing 14%12% and 10%8%, respectively of total domestic product purchases.

Distribution, Sales and Marketing

The Company’s specialty tools and related products are currently sold through four distinct distribution channels: (i) the Company’s sales staff; (ii) independent manufacturing representatives; (iii) an in-house telemarketing sales force; and (iv) outside salaried and commissioned sales representatives.representatives; and (iv) in-house telemarketing sales force. Management estimates that gross sales through its primary distribution channels in fiscal 20082009 were as follows: 73%78% to national and regional home improvement retailers and 27%22% to specialty distributors, other specialty retailers and original equipment manufacturers.

The Company maintains an in-house creative services department through which it produces and develops color product catalogs, signage, point of purchase materials, display layouts and distinctive packaging to enhance sales per square foot at the retail level and to reinforce the Company’s brand images. The Company maintains a website which allows customers to obtain product information, catalogues and order replacement parts. The Company also informs customers of product promotions through direct contact via regular mail, e-mail or fax.

The Company’s marketing and sales representatives, or its manufacturers’ representatives, conduct regular visits to many customers’ individual retail stores. In addition, the Company or its sales representatives provide product knowledge classes for retail store personnel. The Company also evaluates the product mix at its customers’ locations from time to time with a view toward evolving the product mix to increase sales per square foot. When the Company secures a new customer, or introduces a new product into existing customer stores, the Company generally resets all displays and assists store personnel in becoming familiar with the Company’s product line or new product, as applicable.

Competition

The Company believes that competition in the home improvement flooring product market is based primarily on product quality, delivery capabilities, brand name recognition, availability of retail shelf space and price. The Company believes that its competitive strengths are its product quality, its wide range of products, delivery capabilities, brand recognition and strong customer relationships. The Company faces competition largely on a product-by-product basis from numerous manufacturing and distribution companies. The Company believes that the diversity of its product portfolio, among other things, allows it to compete effectively, although some competitors may sell larger quantities of a particular product than the Company.

The Company is aware of a number of competitors, many of which are foreign and may have greater financial, marketing and other resources than the Company. The Company’s foreigninternational sales, excluding Canada, accounted for approximately 23%20% of net sales during fiscal year 2008.2009. Fiscal 20082009 net sales generated by the Company’s Australian/New Zealand subsidiaries were approximately 11%, its European subsidiaries were approximately 9%, its Australian/New Zealand subsidiaries approximately 12%7% and its Latin American subsidiaries waswere approximately 2%. The Company is continuing to penetrate more markets within the countries it currently serves and, as a result, the Company may experience competition from foreign companies, which could adversely affect the Company’s gross margins on its foreigninternational sales.

Certain of the Company’s larger customers have in the past contacted one or more of the Company’s foreign suppliers to discuss purchasing home improvement products directly from these suppliers. Although the Company believes that its diversified product line, brand recognition and customer service will continue to offer benefits not otherwise available to the Company’s customers from foreign manufacturers, the Company could experience competition from one or more foreign manufacturers which now serve as suppliers to the Company. If one or more of the Company’s larger customers were to begin purchasing products previously supplied by the Company directly from foreign manufacturers, the Company’s business would be adversely affected. Increased competition from these manufacturers or others could result in lower sales, price reductions or loss of market share, each of which would have an adverse effect on the Company’s results of operations.

Environmental Matters

The Company is subject to federal, state and local laws, regulations and ordinances governing activities or operations that may have adverse environmental effects, such as discharges to air and water, handling and disposal practices for solid, special and hazardous wastes, and imposing liability for the cost of clean up, and for certain damages resulting from sites of past spills, disposal or other releases of hazardous substances (together, “Environmental Laws”). Sanctions which may be imposed for violation of Environmental Laws include the payment or reimbursement of investigative and clean up costs, administrative penalties and, in certain cases, prosecution under environmental criminal statutes. The Company’s manufacturing facilities are subject to environmental regulation by, among other agencies, the Environmental Protection Agency, the Occupational Safety and Health Administration, and various state authorities in the states where such facilities are located. The activities of the Company, including its manufacturing operations at its leased facilities, are subject to the requirements of Environmental Laws. The Company believes that the cost of compliance with Environmental Laws to date has not been material to the Company. The Company is not currently aware of any situations requiring remedial or other action which would involve a material expense to the Company, or expose the Company to material liability under Environmental Laws. As the operations of the Company involve the storage, handling, discharge and disposal of substances which are subject to regulation under Environmental Laws, there can be no assurance that the Company will not incur any material liability under Environmental Laws in the future or will not be required to expend funds in order to effect compliance with applicable Environmental Laws.

The Company completed testing at its facility in Bramalea, Ontario, Canada for leakage of hazardous materials and, as a result, in fiscal 1999 the Company prepared a plan to remediate the contamination over a period of years and this plan was subsequently approved by the Canadian Ministry of Environment. The Company recorded a reserve for potential environmental liability on the closing date of the Roberts Consolidated Industries, Inc. acquisition of approximately $0.3 million and this amount was subsequently increased by $0.6 million to $0.9 million based on an estimate for the cost of remediation. During fiscal 2008, the Company increased the reserve by an additional $0.1 million. Through fiscal 2008,2009, the Company has spent approximately $0.9$1.0 million and anticipates spending less thanapproximately $0.1 million on ongoing monitoring of wells and other environmental activity per year for the next three years.

During fiscal 2002, the Company received notice from the United States Environmental Protection Agency (the “EPA”) that an entity identified as Roberts Consolidated Industries, Inc. may be involved in the contamination of landfill sites in Clark County, Ohio and Santa Barbara County, California. In addition, in April 2003 and October 2006, the record owner and a prior owner of certain real property in Vancouver, Washington informed the Company that an entity known as Roberts Consolidated Industry, Inc. owned or operated a facility during which time hazardous substances were disposed of or released at the site, and that, pursuant to Washington State law, the Company is or may be liable for clean up action costs at the site. At this time, the Company is not aware whether these entities are predecessors to any of its affiliates or whether they are unrelated entities.

During fiscal 2005, the Company settled a lawsuit that was filed on December 27, 2002 whereby Roberts Holdings International, Inc. (“Roberts Holding”), an inactive subsidiary of the Company, was named as a third party defendant in a case before the United States District Court for the Western District of Michigan titled Strebor Inc. v. International Paper Co., Case No. 1:02 CV0948. The third party plaintiff alleged that Roberts Holding is a successor to a company known as Roberts Consolidated Industries, Inc. and was required to indemnify previous owners for costs associated with the clean-up of a property in Kalamazoo, Michigan. The Company agreed to pay $40,000 per year beginning in October 2004 for five consecutive years in settlement of this action. In accordance with the settlement agreement, the final payment was made in fiscal 2009.

Intellectual Property

The Company markets its specialty tools and related products under various trademarks owned by the Company or its subsidiaries, including Q.E.P.®, ROBERTS®, Capitol®, QSet™Vitrex®, Vitrex®PRCI® and Elastiment™Elastiment^™. The Company has devoted substantial time, effort

and expense to the development of brand name recognition and goodwill for products sold under its trademarks, has not received any

notice that its use of such marks infringes upon the rights of others, and is not aware of any activities which would appear to constitute infringement of any of its marks. Roberts Consolidated Industries, Inc. has secured domestic and foreign patents relating to certain of its products. These patents are scheduled to expire in the years 2008 and 2013.2009 through 2026. Although the patents are important to the operation of Roberts Consolidated Industries, Inc., the Company does not believe that the loss of any one or more of these patents would have a material adverse effect on the Company. Roberts Consolidated Industries, Inc. also licenses its name to various foreign distributors and a domestic manufacturer of tackstrip and carpet seaming tape.

Employees

As of May 13, 2008,1, 2009, the Company had 484381 employees, including 13558 administrative employees, 11779 sales and marketing employees, 103148 manufacturing and operation employees and 12996 employees responsible for shipping activities. Of the 484381 total employees, 521 are part-time and 16966 are located outside of the Company’s North American subsidiaries. The Company has not experienced any work stoppages and none of the Company’s employees are represented by a union. The Company considers its relations with the employees to be good.

Item 1A.

Risk Factors

You should carefully consider the risks described below and all other information contained in this annual report on Form 10-K, including our consolidated financial statements and the related notes thereto. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us, or not presently deemed material by us, may also impair our operations and performance. If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected.

The statecurrent weakness and any further deterioration of the housing, constructionglobal economic environment could negatively impact the Company’s business, working capital, liquidity, access to the credit markets and business prospects.

The current weakness in the global economic environment and the credit and financial markets could negatively impact the Company’s business in several ways. For instance, falling home prices, increases in foreclosure rates, increases in unemployment rates, declines in the equity markets, a tightening of credit availability, and concerns about the general health of the global economy have led to a significant decline in consumer confidence and consumer discretionary spending, which has caused and may continue to cause consumers to delay undertaking or determine not to undertake new home improvement markets, rising costsprojects, cause a decline in customer transactions overall, cause the Company’s customers to delay purchasing or determining not to purchase Company products, or cause the Company’s customers to extend or implement inventory management programs and a reduction in the availability of financing in North America couldconsequently adversely affect the Company’s cost of doing business, demand for its products and its financial performance.

In recent months, the housing, residential construction and home improvement markets have deteriorated dramatically. The Company expects the deterioration to continue through at least 2008. Other factors that could adversely affect the demand for the Company’s products and consequently its financial performance include currency exchange rate fluctuations, interest rate fluctuations, fuel and other energy costs, inflation or deflation of commodity prices, the reduced availability and/or higher cost of credit to the Company and its customers, slower rates of growth in real disposable personal income, higher rates of unemployment, higher consumer debt levels, the state of the credit markets, including mortgages, home equity loans and consumer credit, consumer confidence, and other factors beyond the Company’s control. These

The Company intends to delist from the NASDAQ Global Market and other similar factors could:

The Company is exposed to foreign currency risks resulting from changes in currency exchange rates because of its international operations and its dependence on Asian suppliers. The deterioration in the global economic environment has resulted in significant volatility in the global currency markets. Most recently, the volatility has resulted in a substantial strengthening of the U.S. dollar against the Canadian, European and Australian currencies. A relatively stronger U.S. dollar means that the revenues, profits and losses of our international operations will translate into lower U.S. dollar amounts. Moreover, the general strengthening of the Chinese Renminbi and inflationary pressures in China during the first half of the year put increased pressures on U.S Dollar denominated pricing from major suppliers. The Company does not use forward contracts or other derivative instruments to mitigate the risks associated with fluctuating exchange rates. Although the Company finances certain foreign operations utilizing debt denominated in the currency of the local operating unit in order to mitigate its foreign currency exposure, the Company cannot predict the effect foreign currency fluctuations will have on its results of operations in future periods.

Volatility in currency exchange rates has affected and may continue to affect the Company’s financial results. The Company records foreign currency translation adjustments as other comprehensive income. For fiscal 2009, comprehensive loss resulting from foreign currency translation adjustments was $3.4 million and for fiscal 2008 comprehensive income was $2.1 million. Further fluctuations in currency exchange rates could adversely affect the Company’s results of operations in future periods.

The Company may be unable to pass on to its customers increases in the costs of raw materials.

The prices of many of the Company’s raw materials vary with market conditions. In addition the price of many of the Company’s finished goods is impacted by changes in currency, freight costs and raw materials at the point of production. TheOver the past two years, the Company’s costs of raw materials and fuel-related costs are currently higher than historical averageshave fluctuated significantly and may remaincontinue to do so indefinitely due to the historically high pricevolatility of currency exchange rates and oil, gas and gas.energy costs. Although the Company generally attempts to pass on increases in the costs of raw materials and fuel-related costs to its customers, the Company’s ability to pass these increases on varies depending on the product line, rate and magnitude of any increase. There may be periods of time during which increases in these costs cannot be recovered. During such periods of time, the Company’s profitability may be materially adversely affected.

If the Company is unable to manage its relationships with suppliers or if the domestic and international supply chain for finished products and raw materials is disrupted, the Company’s sales and gross margin would be adversely affected.

The Company purchases finished products and raw materials from approximately 200150 different suppliers. If the Company is unable to effectively and efficiently manage the relationships with its suppliers, this could negatively impact the Company’s business plan and financial results. Additionally, the Company depends on suppliers that are located both domestically and internationally. Political or financial instability among suppliers, trade restrictions, tariffs, currency exchange rates and transport capacity and costs are beyond the Company’s control and could negatively impact the Company’s business if they seriously disrupted the movement of products through the Company’s supply chain.

The Company’s largest customers may seek to purchase products directly from foreign suppliers.

Certain of the Company’s largerlargest customers have in the past contacted one or more of the Company’s foreign suppliers to discuss purchasing home improvement products directly from these suppliers. Although the Company believes that its diversified product line, brand recognition and customer service will continue to offer benefits not otherwise available to the Company’s customers from foreign manufacturers, the Company could experience competition from one or more foreign manufacturers that now serve as suppliers to the Company.

The Company dependshas debt service obligations which are subject to restrictive covenants that limit the Company’s flexibility to manage its business and could trigger an acceleration of the Company’s outstanding indebtedness.

The Company’s credit facilities require that the Company maintain specific financial ratios, maintain minimum EBITDA and comply with certain covenants, including various financial covenants that contain numerous restrictions on the Company’s ability to incur additional debt, pay dividends or make other restricted payments, sell assets, or take other actions. Furthermore, the Company’s existing credit facilities are, and future financing arrangements are likely to be, secured by substantially all of the Company’s assets. If the Company breaches any of these covenants, a limited number of customers, and the loss ofdefault could result under one or more of these customersagreements. The Company has in the past violated certain covenants under its credit facilities and cannot provide assurance that it will not violate certain covenants in the future. A default, if not waived by the Company’s lenders, could result in the acceleration of outstanding indebtedness and cause the Company’s debt to become immediately due and payable. In the event of default, if the lenders elect to pursue their remedies under one or more of the credit facilities, including limiting or terminating the Company’s right to borrow, the Company may be unable to obtain the capital it needs to continue its operations as a going concern.

The Company could be required to record a significant charge to earnings if it determines that its deferred income taxes, deferred costs, goodwill or other intangible assets become impaired.

During fiscal 2009, the Company determined that goodwill related to certain of the Company’s reporting units was impaired and recorded a non-cash charge of $7.9 million for the impairment. Future significant declines in the Company’s market capitalization or expected cash flows, or other significant adverse changes in the business climate could result in further goodwill impairment or in the impairment of either deferred costs or other intangible assets. A future write down of its deferred income taxes, deferred costs, goodwill or other intangible assets could result in material non-cash charges that are adverse to our operating results and financial position.

The Company’s inability to maintain access to the debt and capital markets may adversely affect our business and financial results

The Company’s ability to invest in its business, refinance maturing debt obligations and make strategic acquisitions requires access to sufficient bank credit lines and capital markets to support short-term borrowings and cash requirements. If the Company’s level of cash flow is insufficient and it is unable to access additional resources, the Company could experience a material adverse affect on its business and financial results.

The Company may not be able to retain key personnel or replace them when they leave.

Senior management changes, including, without limitation to Lewis Gould, the Company’s Chief Executive Officer, and Leonard Gould, the Company’s President, could disrupt the Company’s ability to manage its business, and any such disruption could adversely affect our business.

In particular, the Company is substantially dependent on two of its customers, Home Depot and Lowe’s, for a large percentage of its revenues. These two customers accounted for approximately 61% and 57% of the Company’s total netoperations, growth, financial condition and results of operations. The Company’s success is also dependent upon its ability to hire and retain qualified finance and accounting, sales, in fiscal 2008marketing, operations, and fiscal 2007, respectively.other personnel. The Company expectscannot assure you that it will be able to hire or retain the personnel necessary for its planned operations or that the loss of any such personnel will not have a material impact on the Company’s financial condition and results of operations.

The Company faces intense competition in its industry, which could decrease demand for its products and could have a material adverse effect on its profitability.

The Company’s industry is highly competitive. The Company faces competition from a large number of manufacturers and independent distributors. Many of its competitors are larger and have greater resources and access to capital than the Company. In order to maintain the Company’s competitive position, the Company will need to continue to rely upondevelop new products and expand its customer base both domestically and internationally. Competitive pressures may also result in decreased demand for the Company’s products. Any of these customers for a significant portion of its revenues. Any significant reduction in business with Home Depot or Lowe’s as a customer of the Company wouldfactors could have a material adverse effect on the financial position and results of operations of the Company.

The Company has foreign currency exposures related to buying, selling, and financing in currencies other than the local currencies in which it operates.

Because a portion of the Company’s business is conducted in foreign currencies, fluctuations in currency prices can have a material impact on its results of operations. As a result of the fluctuations in currency prices, the Company had a total foreign exchange benefit on net revenue of approximately $6.5 million during the twelve months ended February 29, 2008. Although the Company finances certain foreign operations utilizing debt denominated in the currency of the local operating unit in order to mitigate its foreign currency exposure, the Company cannot predict the effect foreign currency fluctuations will have on its results of operations in future periods.

The Company estimates that a 10% change of the U.S. dollar against local currencies would have changed its operating income by approximately $0.3 million in fiscal 2008 and approximately $0.2 million in fiscal 2007. However, this quantitative measure has inherent limitations. The sensitivity analysis disregards the possibility that rates can move in opposite directions and that changes in currency may or may not be offset by losses from another currency.

The translation of the assets and liabilities of international operations is made using the currency exchange rates as of the end of the fiscal year. Translation adjustments are not included in determining net income but are disclosed asAccumulated Other Comprehensive Income within shareholders’ equity. In certain markets, the Company could recognize a significant gain or loss related to unrealized cumulative translation adjustments if it were to exit the market and liquidate its net investment. As of February 29, 2008, the net foreign currency translation adjustments increased shareholders’ equity by $0.1 million.

Failure to identify suitable acquisition candidates, to complete acquisitions and to integrate successfully the acquired operations.

As part of its business strategy, the Company continues to evaluate acquisitions that could enhance its current product line, manufacturing capabilities and distribution channels either in the United States or around the world. Although the Company regularly evaluates acquisition opportunities, it may not be able to successfully identify suitable acquisition candidates, obtain sufficient financing on acceptable terms to fund acquisitions, or profitably manage the acquired businesses. In addition, the Company may not be able to successfully integrate the acquired operations and the acquired operations may not achieve the expected results.

The Company has been, and in the future may be subject to claims and liabilities under environmental, health and safety laws and regulations, which could be significant.

The Company is subject to federal, state and local laws, regulations and ordinances governing activities or operations that may have adverse environmental effects, such as discharges to air and water, and handling and disposal practices for solid, special and hazardous wastes. The activities of the Company, including its manufacturing operations at its owned and leased facilities, are subject to the requirements of Environmental Laws. The Company has received various notices from state and federal agencies that it may be responsible for certain environmental remediation activities and is, or has been, a defendant in environmental litigation. Although the Company is not currently aware of any situation requiring remedial or other action that would involve a material expense to the Company or expose the Company to material liability under Environmental Laws, the Company cannot provide assurance that it will not incur any material liability under Environmental Laws in the future or that it will not be required to expend funds in order to effect compliance with applicable Environmental Laws, either of which could have a material adverse effect on the Company.

The Company faces intense competition in its industry, which could decrease demand for its products and could have a material adverse effect on its profitability.

The Company’s industry is highly competitive. The Company faces competition from a large number of manufacturers and independent distributors. Many of its competitors are larger and have greater resources and access to capital than the Company. In order to maintain the Company’s competitive position, the Company will need to continue to develop new products and expand its customer base both domestically and internationally. Competitive pressures may also result in decreased demand for the Company’s products. Any of these factors could have a material adverse effect on the Company.

The Company may not be able to retain key personnel or replace them when they leave.

Senior management changes, including, without limitation to Lewis Gould, the Company’s Chief Executive Officer, could disrupt the Company’s ability to manage its business, and any such disruption could adversely affect the Company’s operations, growth, financial condition and results of operations. The Company’s success is also dependent upon its ability to hire and retain qualified finance and accounting, sales, marketing, operations, and other personnel. The Company cannot assure you that it will be able to hire or retain the personnel necessary for its planned operations or that the loss of any such personnel will not have a material impact on the Company’s financial condition and results of operation.

The Company’s inability to maintain access to the debt and capital markets may adversely affect our business and financial results

The Company’s ability to invest in its business, refinance maturing debt obligations and make strategic acquisitions may require access to sufficient bank credit lines and capital markets to support short-term borrowings and cash requirements. If the Company’s current level of cash flow is insufficient and it is unable to access additional resources, the Company could experience a material adverse affect on its business and financial results.

The Company has debt service obligations which are subject to restrictive covenants that limit the Company’s flexibility to manage its business and could trigger an acceleration of the Company’s outstanding indebtedness.

The Company’s credit facilities require that the Company maintain specific financial ratios and comply with certain covenants, including various financial covenants that contain numerous restrictions on the Company’s ability to incur additional debt, pay dividends or make other restricted payments, sell assets, or take other actions. Furthermore, the Company’s existing credit facilities are, and future financing arrangements are likely to be, secured by substantially all of the Company’s assets. If the Company

breaches any of these covenants, a default could result under one or more of these agreements. The Company has in the past violated certain covenants under its credit facilities and cannot provide assurance that it will not violate certain covenants in the future. A default, if not waived by the Company’s lenders, could result in the acceleration of outstanding indebtedness and cause the Company’s debt to become immediately due and payable.

The Company and its independent auditors have identified material weaknesses in the Company’s internal control over financial reporting and the Company cannot assure you that additional material weaknesses will not be identified in the future.

The Company and its independent auditors have identified material weaknesses in the Company’s internal control over financial reporting relating to the Company’s procedures for (i) the reconciliation and elimination of intercompany balances, and (ii) the local

preparation and review of the financial results of its foreign subsidiaries. Under current standards of the Public Company Accounting Oversight Board, aA material weakness in internal control over financial reporting is a control deficiency, or a combination of deficiencies, in internal control deficiencies,over financial reporting, such that results in more thanthere is a remote likelihoodreasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected.detected on a timely basis. Although the Company has implemented, and continues to implement, various measures to improve internal control over financial reporting, there can be no assurance that the Company will be able to remedy the material weaknesses that have been identified or that additional material weaknesses will not be identified by the Company or its independent auditors. Any failure to remediate the material weaknesses identified by the Company and its independent auditors or to implement required new or improved controls, or difficulties encountered in their implementation, could harm the Company’s operating results, cause the Company to fail to meet its reporting obligations or result in material misstatements in the Company’s financial statements. Any such failure could affect the ability of the Company’s management to certify that the Company’s internal controls are effective when it provides an assessment of internal control over financial reporting pursuant to rules of the Securities and Exchange Commission under Section 404 of the Sarbanes-Oxley Act of 2002 and could affect the results of the Company’s independent registered public accounting firm’s attestation report when it becomes applicable. The Company is working on the presumption that a proposed ruling by the SEC would make the independent registered public accounting firm’s attestation applicable for the year ending February 28, 2010. Inferior internal controls could also cause investors to lose confidence in the Company’s reported financial information, which could have a negative effect on the trading price of the Company’s stock. For more discussion, see “Controls and Procedures” beginning on page 28.26.

The Company may be required to record a significant charge to earnings if it determines that its goodwill or other intangible assets arising from acquisitions are impaired.

The Company is required to review its goodwill and other intangible assets for impairment in accordance with SFAS No. 142 at least annually or when events or changes in circumstances indicate the carrying value may not be recoverable. If the Company determines that significant impairment has occurred in the future, it would be required to write off goodwill or other intangible assets. The Company’s annual impairment assessment date is August 31^st.

During fiscal 2007, the Company completed its annual impairment test on the goodwill and other intangible assets currently recorded. These tests indicated that the carrying amount of the goodwill exceeded fair value in our Mexico, UK and Domestic reporting units, and led the Company to conclude that goodwill and other intangibles were impaired. Therefore, under the provisions of Statement of Financial Accounting Standards No. 142,Goodwill and Other Intangible Assets, the Company recorded a non-cash impairment charge of $7.5 million to reduce the carrying value of goodwill and other intangibles to their implied fair value.

During fiscal 2008, the Company completed its annual impairment test on the goodwill and other intangible assets currently recorded and determined that there was no further impairment of goodwill and other intangible assets. Any future impairment charges could have a material adverse effect on our financial condition, earnings and results of operations and could cause our stock price to decline.

Item 1B.

Unresolved Staff Comments

Not Applicable.

The Company operates 3128 facilities in the United States, Canada, Mexico,Australia, Europe, Australia, South America, New Zealand and China. EightSix of these facilities are used in whole or in part for manufacturing operations. The remainder of the facilities are used for administrative, sales and warehousing functions.

The following are the Company’s most significant physical properties and their current function:

Located in the United States: Boca Raton, Florida (administration/corporate headquarters), Mexico, Missouri (manufacturing, distribution, administration), Dalton, Georgia (manufacturing, distribution, administration) and Adelanto, California (manufacturing, distribution, administration).

Located outside the United States: Bramalea, Canada (manufacturing, distribution, administration); Lancashire, UK (distribution, administration); Dandenong (distribution) and Wetherill Park (administration and distribution), Australia; and Vallejo, MexicoLancashire, UK (distribution, administration).;

The Company currently owns the facilities in Adelanto, California and Bramalea, Ontario, Canada. The Company leases all other facilities located in the United States, Canada, Europe, Australia, New Zealand, South America and China.facilities.

The Company believes that its existing facilities are adequate to meet its current needs and that additional facilities can be leased to meet future needs. During fiscal 2008, the Company purchased the Adelanto, California facility to expand its adhesive manufacturing capacity and distribution presence on the West coast of the United States.

The Company is involved in litigation from time to time in the ordinary course of its business. Based on information currently available to management, the Company does not believe that the outcome of any legal proceedings in which the companyCompany is involved will have a material adverse impact on the Company.

On October 29, 2007, Roberts Consolidated Industries, Inc. and Roberts Holding International, Inc., wholly owned subsidiaries of the Company, received a notice of claim for indemnity from International Paper Corporation, one of many defendants named in a Verified Complaint in the lawsuit captioned John Rosebery et al v. 3M Marine, et al., Index No. 21464/07, pending in the New York Supreme Court, County of Suffolk. The plaintiff alleges that he contracted leukemia as a result of exposure to benzene in various products allegedly manufactured and distributed by several defendants, including International Paper Corporation or its predecessors. Although Roberts Consolidated Industries, Inc. and Roberts Holding International, Inc. are not named as defendants in the action, International Paper Corporation has stated in the demand for indemnity that “the products identified by Mr. Rosebery appear to be products which, as of December 31, 1975, were products of Roberts.” The Company has responded on behalf of its subsidiaries to International Paper’s demand by requesting that International Paper provide additional documentation and information regarding the contentions. Insufficient information exists at this time for the Company to opine on the merits, if any, of the claim for indemnity or the underlying claims.

No matters were submitted to a vote of security holders of the Company during the fourth quarter of the period covered by this report.

PART II

Market Price and Dividend Information

The Company’s Common Stock is traded on the Nasdaq Global Market. The following table sets forth the high and low sales price per share for the Common Stock for each quarter during fiscal year 20082009 and 2007,2008, as reported on the Nasdaq Global Market.

On May 12, 2008,8, 2009, the closing price of the Common Stock on the Nasdaq Global Market was $6.63.$2.42. As of that date, there were 2226 holders of record of the common stock and approximately 1,815 beneficial owners of theCompany’s common stock.

The Company has not paid cash dividends on its common stock and does not intend for the foreseeable future to declare or pay any cash dividends on this stock; rather it intends to retain earnings, if any, for the future operation and expansion of the Company’s business. Any determination to declare or pay dividends will be at the discretion of the Company’s board of directors and will depend upon the Company’s future results of operations, financial condition, capital requirements, considerations imposed by applicable law and other factors deemed relevant by the board of directors. The Company’s credit facility also prohibits the payment of dividends on its common stock without the consent of the lenders.

Issuer Purchases of Equity Securities

Beginning inSince fiscal 1999, the Company has from time to time repurchased shares of its outstanding Common Stockcommon stock from Ms. Susan Gould, Corporate Secretary having a value of approximately $1.0 million pursuant to a Board resolution to purchase, from time to time, up to 1,000 shares of Common Stock per month at a price per share equal to $.50 less than the closing price of the Common Stockcommon stock on the date of repurchase. Ms. GouldThis individual is not obligated to sell any shares of Common Stockcommon stock to the Company. As of May 16, 2008, Ms. GouldFebruary 28, 2009, this individual has sold a total of 126,038138,038 shares to the Company. TheDuring fiscal 2009, the Company repurchased 12,000 shares from Ms. Gould duringunder this plan.

During the second quarter of fiscal 2008.2009, the Company entered into a formal purchase plan pursuant to which the Company may purchase up to $2.0 million of its common shares from time to time on the open market or in privately negotiated transactions. During the third quarter of fiscal 2009, the Company discontinued purchases under the plan. In fiscal 2009, the Company purchased 68,778 shares of common stock at an aggregated cost of $0.4 million under this plan, including 10,000 shares of common stock from Ms. Susan Gould at a cost of approximately $0.1 million.

Through February 28, 2009 the number of shares held in treasury was 163,756 at an aggregate cost of $1.1 million. No shares were repurchased in the fourth quarter of fiscal 2008.2009.

Equity Compensation Plan Information

The following table provides information as of February 29, 200828, 2009 about shares of the Company’s Common Stock to be issued upon exercise of options, warrants and other rights under the Company’s existing equity compensation plans.

Not required.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview

The Company is a worldwide leader in the manufacturing, marketing and distribution of a broad line of specialty tools and flooring related products, marketing over 3,000 specialty tools and related products used primarily for the surface preparation and installation of ceramic tile, carpet, vinyl and wood flooring. The Company’s products are sold to home improvement retailers, specialty distributors to the hardware, construction, flooring and home improvement trades, chain or independent hardware, tile and carpet retailers for use by the do-it-yourself consumer as well as the construction or remodeling professional, and original equipment manufacturers. The Company has executed a growth strategy intended to improvedirected at improving overall performance and profitability of operations that has included growth through acquisitions and strategic alliances, enhanced cross selling of products within and among the Company’s channels of distribution, and, where feasible, the reduction of risk associated with certain large customer concentrations and the enhancement of cross selling of products among the Company’s channels of distribution. Althoughconcentrations. In addition, the Company has realized certain benefits from its growth strategy, the Company’s rapid growthimplemented various working capital management and challenges relatingcost control measures in order to the Company’s overseas operations and integration of acquired businesses has had certain negative effects on the Company’s financial performance.

As described in Note D of the Notesremain responsive to the Consolidated Financial Statements, the prior year financial statements have been revised based on the guidance of Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”).changing economic circumstances.

The Company experienced a 1% increase in nethad sales of $203.6 million for fiscal 2009 compared to $217.5 million in fiscal 2008, in comparisona decrease of $13.9 million or 6%. The Company attributes this to the previousweakening of the economic environment, especially during the latter half of fiscal year, which management attributes primarily2009. Falling home prices, increases in foreclosure rates, decreases in new construction, increases in unemployment rates, significant declines in the equity markets, a tightening of credit availability, and concerns about the general health of the global economy led to a significant decline in consumer confidence and consumer discretionary spending resulting in a significant softening of the growthresidential and commercial improvement and construction markets. As a result, in the latter half of fiscal 2009, this softening of the residential and commercial improvement and construction markets along with concerns of a deeper deterioration of the global economic environment led to a decrease in sales by customers in almost all of flooring underlaymentthe markets in which we operate and adhesives products. In addition, further penetrationin the implementation of inventory management programs by our most significant customers. Although the effects of the challenging global economic environment were more sharply experienced by the Company’s domestic segment, its international segments have also felt the economic pressure that the Company experienced domestically.

Additionally, the deterioration in the global economic environment resulted in significant volatility in the global currency markets. Substantially all of the revenues of the Company’s existinginternational operations are denominated in currencies other than the U.S. dollar, including the Canadian dollar, the British pound, the Euro and new product offerings across more and within existing home center locations also contributed to the increase. These increases were partially offset by lost sales associated withAustralian dollar, although significant portions of our international operations’ purchases are priced in US dollars. Starting late in the dispositionCompany’s second fiscal 2009 quarter, currency volatility resulted in a substantial strengthening of twothe U.S. dollar against these four currencies. A relatively stronger US dollar means that the revenues of the Company’s North Americaninternational operations translate into lower U.S. dollar amounts. Moreover, inflationary pressures in China and the general strengthening of the Chinese Renminbi against the U.S. dollar through the Company’s second fiscal 2008. 2009 quarter placed increased pressures on pricing from the Company’s major suppliers.

Due to the pressures on the global economic environment in the second half of fiscal 2009, the corresponding decline in Company sales, earnings and cash flow, and the continuing economic uncertainty, the Company took significant actions in the third and fourth quarter of fiscal 2009 to reduce expenses and adjust its operating plans. The Company’s cash management and cost reduction measures included tighter purchasing, inventory and working capital management, workforce reductions, work schedule adjustments for manufacturing and distribution personnel, business restructurings, reductions in planned expenses, and the restructuring of the Company’s credit facilities.

Late in the last quarter of fiscal 2009 and continuing into fiscal 2010 the Company experienced significant improvements in the Company’s operations as a result of both modestly improving economic circumstances and the working capital and expense control measures implemented. As the Company looks forward to fiscal year 2010, it is extremely difficult to project how the global economic environment will perform and whether the recently experienced improvements in the Company’s operations will continue or be undermined by a resurgence of weaknesses in the economies in which the Company operates or by new pressures on the general performance of those economies.

The Company’s gross profit as a percent of sales increaseddecreased to 27.5% in fiscal 2009 from 28.9% in fiscal 2008 from 27.5%2008. This decrease is due to commodity price volatility during fiscal 2009 that resulted in fiscal 2007overall higher cost of certain of the Company’s finished products and was positively impacted by several factors inraw material components compared to fiscal 2008. TheAdditionally, the Company experienced success in increasing the saleprovided certain price concessions and increased rebates and allowances to one of higher margin products, most notably the underlayment products, and was able to increase selling prices on select categories of products. This offset the raw material cost increases that occurred throughout fiscal 2008, primarily for petroleum-based raw materials used in adhesives and aluminum, copper and other commodity items used in other flooring tools. Gross margin was positively impacted by an increase in the level of sales and negatively impacted by rebates issued toits home center customers in exchange for incremental penetration of existing products in new stores.

Total operating expenses for fiscal 2009 increased by $7.3 million or 14% compared to fiscal 2008 due to a non-cash goodwill impairment charge of $7.9 million. In fiscal 2009, total operating expenses excluding the goodwill impairment charge decreased by $0.6 million or 1% compared to the previous year. As a percentage of sales, operating expenses excluding the impairment charge were 26% for fiscal 2009 compared to 24% for fiscal 2008. AsThis increase was primarily due to additional shipping costs incurred in fiscal 2009 related to the rollout of a regular practice, customers in the home center distribution channel are issued rebates from each vendor, the magnitude of which depends on the particular level of business activity.

In fiscal 2008, the Company continued to evaluate the performance and strategic values of certain of its non-core business operations. This resulted in the Company’s disposition of its O’Tool and Stone Mountain operations in North America andnational specialty tile tool program with one of the Company’s operationshome center customers. Additionally, fiscal 2008 included a one-time gain of $0.6 million on the sales of the Company’s Stone Mountain operation.

Principally as a result of the decline in the UK.Company’s market valuation during the third quarter of fiscal 2009, the Company reevaluated the carrying value of goodwill. The gain onimpairment tests indicated that the salecarrying amount of thesesthe goodwill exceeded fair value in certain of the Company’s operations, netand led the Company to conclude that goodwill was impaired. The Company recorded a non-cash impairment charge of realized currency translation losses,$7.9 million to reduce the carrying value of goodwill to its implied fair value. The non-cash charge for impairment was immaterial to net income.recorded at the Company’s Domestic ($6.5 million), Australia/New Zealand ($1.1 million) and Europe ($0.3 million) segments.

Net incomeloss for fiscal 20082009 was $7.3 million or $2.13 per diluted share compared with net income of $2.2 million or $0.61 per diluted share compared with net loss of $5.8for fiscal 2008. The decrease was due principally to the $7.9 million or $1.71 per diluted share in fiscal 2007. A non-cash goodwill and other intangibles impairment charge and dispositionthe reduction in net sales due to the global economic downturn partially offset by $1.4 million, non-tax deductible, expense in fiscal 2008 for the settlement of the Company’s Holland operations described below contributed to net loss in the fiscal 2007 period.put warrant obligation.

Accounting Policies and Estimates

Significant accounting policies are contained in Note B to the Consolidated Financial Statements. The following are our most critical accounting policies which are those that require complex judgments and estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

Revenue Recognition

The Company recognizes revenue when products are shipped and title has passed to the customer, the selling price is fixed and determinable, and collectibility of the sales price is reasonably assured. The Company provides for estimated costs of future anticipated product returns based on historical experience when the related revenues are recognized. The Company records estimated reductions to revenue for customer programs including volume-based incentives. The Company presents taxes collected from customers and remitted to governmental authorities on a net basis.

Inventories

The Company records inventory at the lower of standard cost or market, which approximates first-in, first-out or net realizable value. The Company maintains reserves for excess and obsolete inventory based on market conditions and expected future demand. If actual market conditions were to be less favorable than those projected by management, additional inventory reserves could be required.

Accounts Receivable

The Company’s accounts receivable are principally due from home centers or flooring accessory distributors. Credit is extended based on an evaluation of a customer’s financial condition, and collateral is not required. Accounts receivable are due at various times based on each customer’s credit worthiness and selling arrangement. The outstanding balances are stated net of an allowance for doubtful accounts. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the customer’s previous loss history, the customer’s ability to pay its obligations and the condition of the general economy and the industry as a whole.

Impairment Evaluations

The Company evaluates the recoverability of long-lived assets, including property, plant and equipment, and identifiable intangible assets, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company performs indefinite-lived impairment tests on at least an annual basis and more frequently in certain circumstances. When the Company determines that the carrying amount of long-lived assets may not be recoverable based upon the existence of certain indicators, the assets are assessed for impairment based on the future undiscounted cash flows expected to result from the use of the asset. For goodwill and other indefinite-lived intangibles, impairment assessments are generally determinedinitially evaluated using the estimated future discounted cash flows of the asset’s reporting unit using a discount rate determined by management to be commensurate with the risk inherent in the current business model.model and are also impacted by the Company’s market capitalization. In both instances, if the carrying amount of the asset being tested exceeds its fair value, an impairment of the value has occurred and the asset may be written down. The Company will assess impairment of its intangible assets as of August 31^st of each fiscal year or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Should the Company’s operating performance and resulting cash flows be less than expected or should the Company’s market capitalization decrease, an impairment charge could be incurred which may have a material impact on the Company’s results of operations.

Income Taxes

The Company accounts for income taxes in accordance with Statement of Financial Accounting Standard No. 109, or FAS 109, Accounting“Accounting for Income Taxes,Taxes”, as clarified by FASB Interpretation No. 48, Accounting“Accounting for Uncertainty in Income TaxesTaxes” (“FIN 48”). Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which it operates, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria of FAS No. 109.

FIN 48 requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more-likely-than-not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

Results of Operations

Fiscal 20082009 as compared to Fiscal 20072008

Sales

Net sales for the twelve months ended February 28, 2009 (“fiscal 2009”, or the “fiscal 2009 period”) were $203.6 million compared to $217.5 million for the twelve months ended February 29, 2008 (“fiscal 2008”, or the “fiscal 2008 period”) were $217.5 million compared to $216.0 million for the twelve months ended February 28, 2007 (“fiscal 2007”, or the “fiscal 2007 period”), an increasea decrease of $1.5$13.9 million or 1%6%.

Net sales at the Company’s North American subsidiaries declined by approximately $2.0$5.4 million in fiscal 20082009 compared to fiscal 2007.2008. This decline was due to the weakening of the economy and the effect of customer inventory reduction programs in fiscal 2009, along with the sale of the Company’s O’Tool and Stone Mountain operations in the first and second quarterhalf of fiscal 2008, respectively. Net sales of these operations2008. These declines were $7.6 million lower in fiscal 2008 compared to fiscal 2007. This decline was partially offset by increasedadditional sales to the Company’s largest home center customer due to increasedthe penetration of existing products in new stores and the introduction of new product introductions.products in existing stores. Currency translation gains contributed $2.0$1.1 million in additionallower sales to the Company’s North American operation due to changes in the Canadian Dollar compared to the US Dollar.

Sales at the Company’s foreign subsidiaries increaseddecreased by approximately $3.5$8.5 million in fiscal 20082009 compared to fiscal 2007. This increase was2008 due to currencythe effects of the weakening global economy, with declines of $4.2 million in the Europe segment and $4.3 million in the Australia/New Zealand segment. Currency translation gains of $4.5contributed $2.5 million generatedto the decline in sales due primarily byto changes in the Australian Dollar and British Pound and Euro compared to the US Dollar. These gains were partially offset by a decline in sales at the Company’s European operations, primarily due to the disposition of the Company’s Holland operation during fiscal 2007.

Sales from the Company’s non-North American subsidiaries were 23%20% and 21%23% of total sales in fiscal 20082009 and 2007,2008, respectively.

Gross Profit

Gross profit for fiscal 20082009 was approximately $62.8$56.0 million compared to approximately $59.3$62.8 million in fiscal 2007, an increase2008, a decrease of approximately $3.5$6.8 million or 6%11%. As a percentage of net sales, gross profit increaseddeclined to 27.5% in the fiscal 2009 period from 28.9% in the fiscal 2008 period from 27.5% in the fiscal 2007 period.

The increasedecrease in gross profit as a percentage ofwas partially attributable to the sales is primarily due to favorable changes in sales product mixvolume decrease at the Company’s North American operations throughdomestic and foreign operations. Additionally, the Company’s domestic operation provided its largest home center customer with additional sales growthrebates and allowances, and price concessions on certain product lines as part of higher margin products, including underlayment and new adhesive products. Foreign currency exchange rate changes accounted for approximately $2.1the award in the first quarter of fiscal 2009 of a national specialty tile tool program. Currency translation contributed $1.0 million to the increasedecline in gross profit due primarily to changes in the Canadian Dollar, Australian Dollar and Australian operations. These increases in gross profit were partially offset by $2.5 million less gross profit in fiscal 2008British Pound compared with fiscal 2007 due to the sale of the Company’s O’Tool and Stone Mountain operations in fiscal 2008.US Dollar.

Operating Expenses

Total operating expenses, excluding the non-cash charge for goodwill impairment, for fiscal 20082009 were $53.1$52.5 million compared to $55.5$53.1 million in fiscal 2007,2008, a decrease of $2.4$0.6 million, or 4%1%.

Shipping expenses for fiscal 20082009 were approximately $23.0$22.6 million compared to approximately $23.6$23.0 million for fiscal 2007,2008, a decrease of approximately $0.6$0.4 million or 2.3%2%. The decrease in shipping expenseexpenses is due to home center customerlower sales which have

lower freight costs, replacing distributor customer sales, which typically have higher freight costs. This reduction wasvolume partially offset by higher charges from common carriers arising from increased fuel costs.additional shipping cost incurred in the second quarter of fiscal 2009 associated with the rollout of the national specialty tile tool program. Foreign currency exchange rate changes increasedreduced shipping expenses by $0.8$0.4 million. During fiscal 2008,2009, shipping expenses remained consistent as a percent of sales remained consistent with the level experienced in fiscal 20072008 at approximately 11%.

General and administrative expenses for fiscal 20082009 were approximately $18.1$17.1 million compared to approximately $19.4$18.1 million for fiscal 2007,2008, a decrease of approximately $1.3$1.0 million or 7%5%. Included in fiscal 2007 was approximately $1.4 million of expenses relatedThe decrease is primarily attributed to the dispositionaccrual of the Holland operation. Excluding the amount related to the Holland transaction, general and administrative expenses increased by $0.1$1.0 million in management bonuses in fiscal 2008 compared tothat were not repeated in fiscal 2007.2009. Foreign currency exchange rate changes increasedreduced general and administrative expenses by $0.5$0.4 million. GeneralDuring fiscal 2009, general and administrative expenses wereas a percentage of sales remained consistent with fiscal 2008 at approximately 8% and 9% of sales in fiscal 2008 and fiscal 2007, respectively..

Selling and marketing costs for fiscal 2008 increased2009 were $12.9 million compared to approximately $13.2 million from approximately $12.6 million in fiscal 2007, an increase2008, a decrease of approximately $0.6$0.2 million or 5%2%. Foreign currency exchange rate changes increasedreduced selling and marketing expenses by $0.5 million.$0.2 million in fiscal 2009. As a percent of sales, selling and marketing expenses were approximately 6% for both fiscal 20082009 and fiscal 2007.2008.

Impairment Loss on Goodwill and Other Intangibles

The Company performs an impairment test on goodwill during the second quarter of each fiscal year. The Company performed anits annual impairment test during the second quarter of fiscal 20082009 and determined that there was no impairment to goodwill. However, principally as a result of the decline in the Company’s market valuation during the third quarter of fiscal 2009, the Company reevaluated its remaining goodwill for impairment. Earnings forecasts for each of our reporting units that supported the fair value estimates used in the impairment test performed in the second quarter of fiscal 2009 were updated. The updated valuations considered market approaches, the present value of future cash flows and the market valuation of the Company as of August 31, 2007. The impairment test in the previousthird quarter of fiscal year led to the determination2009. These tests indicated that the carrying amount of the goodwill exceeded its fair value in certain of the Company’s Mexico, UKoperating entities, and US reporting units. This resultedled the Company to conclude that goodwill was impaired. The non-cash charge for impairment was recorded at the Company’s Domestic ($6.5 million), Australia/New Zealand ($1.1 million) and Europe ($0.3 million) segments.

After the non-cash charge for impairment, $0.8 million of goodwill remains in a non-cash impairment charge of $7.5 million being recordedthe Canada segment. No balance remains in fiscal 2007.the Domestic, Australia/New Zealand, Europe or Other segments.

The Company will continue to assess the potential of impairment of goodwill and other indefinite-lived intangibles in accordance with FASB Statement No. 142 in future periods. Should the Company’s business prospects change, and theits expectations for acquired business be further reduced, or as other circumstances that affect the Companyour business dictate, the Company may be required to recognize additional impairment charges in accordance with SFAS No. 142.charges.

Other Income / Expense

On May 4, 2007, the Company entered into agreements with Bon Tool Co.,Other income for fiscal 2009 was $0.1 million compared to $1.1 million in fiscal 2008, a US supplierdecrease of construction tools, equipment and decorative concrete products, for the sale of the business, inventory and certain intangible assets of the Company’s O’Tool operation, and the sublease of the warehouse space previously occupied by the O’Tool operation. The assets sold consist mainly of inventory with a cost of approximately $1.3 million at May 30, 2007. In$1.0 million. During fiscal 2008, the Company recorded a lossnet gain of $0.8 million on the sale of theits O’Tool, business of less than $0.1 million as other expense.

On July 18, 2007, the Company entered into an asset purchase agreement with ParexLahabra, a manufacturer of premixed mortars for the construction industry, for the sales of the business, accounts receivable, inventory and certain intangible assets of the Company’s Stone Holdings operation. The sale proceeds were approximately $2.4 million. In fiscal 2008, the Company recorded a gain on the sale of the Stone Holdings operation of approximately $0.6 million as other income.

In the third quarter of fiscal 2008, the Company’s UK operation completed the closure of its manufacturing operation and will be sourcing all of its products from the Company’s Asian and other worldwide suppliers. In connection with this product sourcing initiative the Company’s UK operation sold certain of its manufacturing equipment to one of its overseas suppliers. In connection with this sale the Company recorded a gain of $0.2 million as other income.

In connection with the disposition of the Company’s Holland operation in fiscal 2007Mountain and one of its UK operations in 2008, the

Company receives royalty income in connection with the associated license and royalty agreement entered into with Estillon B.V. During fiscal 2008, the Company recorded royalty income of $0.2 million as other income.U.K. operations.

Changes in the Put Warrant Liability

On July 23, 2007,In fiscal 2008, the Company received written notice from HillStreet of the exercise of their rightagreed to “put” to the Company the put warrants in the Company pursuant to the Warrant Agreement. On July 31, 2007, the Company and HillStreet agreed upon a cash settlement value of $2.3 million for the put obligation. The Company paid the settlement out of funds available under its existing revolving credit facility.

For accounting purposes, the Company has historically recorded thethen outstanding put warrant liability by calculating the difference between the closing stock price at the end of a reporting period and the exercise price of $3.63 per share multiplied by the 325,000 warrants outstanding. Based on this methodology, a liability of $0.9 million was reported for the put warrants as of the end of fiscal 2007.obligation. As a result of the settlement, the Company reported aadditional put warrant expense of $1.4 million in fiscal 2008. This compares with income of $1.4 million recorded in fiscal 2007 related to the revaluation of the put warrant liability. No further income or expense will be recorded related to this Warrant Agreement. For a more detailed discussion regarding the put warrants, see “Liquidity and Capital Resources”.

Interest Expense

Interest expense for the fiscal 20082009 period was approximately $2.5$1.7 million compared to approximately $3.0$2.5 million in fiscal 2007.2008. Interest expense decreased as a result of a reduction in average borrowings throughout the year to fund the Company’s acquisition debt and working capital needs, as well as lower interest rates during the fiscal 2008 period.2009 period, which was partially offset by higher average borrowing in the fiscal 2009 period, and interest income of $0.2 million relating to certain IRS tax refunds.

Income Taxes

The Company recorded a provision for income taxes in fiscal 20082009 of approximately $3.5$1.1 million compared to approximately $0.6$3.5 million in fiscal 2007. The Company performed a detailed analysis under the guidelines of Statement of Financial Accounting Standards No. 109, which included a review of each subsidiaries’ financial results and projections and considers the likelihood that deferred tax assets will be recoverable from future taxable income and, to the extent that the Company believes that recoverability is not likely, establishes a valuation allowance. The Company does not realize a tax benefit or incur a tax provision associated with the accounting for the put warrant liability.2008. Estimated tax rates are based upon the most recent effective tax rates available in every jurisdiction in which the Company operates.

Despite having a pre-tax loss in fiscal 2009, the Company recorded an income tax provision due to various permanent differences, including approximately $7.2 million of goodwill impairment charges that are non deductible for tax purposes and a full valuation allowance taken on certain of the Company’s net operating losses, primarily in the UK and Mexico, and foreign tax rate differential.

The effective tax rate for fiscal 2008 was 62% due to the put warrant expense in the current year that provides no tax benefit, full valuation allowance taken on certain of the Company’s net operating losses, primarily in the UK and Mexico, and foreign tax rate differential.

Despite having a pre-tax loss in fiscal 2007, the Company recorded an income tax provision due to various permanent differences including approximately $2.4 million of goodwill impairment charges in the Domestic segment that are non deductible for tax purposes.

Net Income and Net Income, as Adjusted

Due to the reasons stated above the Company recorded net loss of $7.3 million or $2.13 per diluted share in fiscal 2009 compared to net income of approximately $2.2 million or $0.61 per diluted share in fiscal 2008 compared to net loss of $5.8 million or $1.71 per diluted share in fiscal 2007. Net income adjusted for the change in the put warrant liability and other non-recurring items was $3.6 million or $1.00 per diluted share in fiscal 2008 compared to net loss of $0.2 million or $0.05 per diluted share in fiscal 2007.2008.

Reconciliation of Net Income to Net Income Adjusted for the Change in the Put Warrant Liability and Other Non-Recurring Items

Net Income Adjusted for the Change in the Put Warrant Liability and Other Non-Recurring Items and Earnings Per Share Adjusted for the Change in the Put Warrant Liability and Other Non-Recurring Items are Non-GAAP financial measures. The Company has included these Non-GAAP financial measures because it believes that the measures provide an indicator of profitability and performance of the Company’s operations and provide a meaningful comparison of its current operating performance with its historical results. The Company uses Net Income Adjusted for the Change in the Put Warrant Liability and Other Non-Recurring Items and Earnings Per Share Adjusted for the Change in the Put Warrant Liability and Other Non-Recurring Items as internal measures of its business. Net Income Adjusted for the Change in the Put Warrant Liability and Other Non-Recurring Items and Earnings Per Share Adjusted for the Change in the Put Warrant Liability and Other Non-Recurring Items are not meant to be considered a substitute or replacement for Net Income and Earnings Per Share as prepared in accordance with generally accepted accounting principles.

The reconciliation of Net Income to Net Income Adjusted for the Change in the Put Warrant Liability and Other Non-Recurring Items and Earnings Per Share Adjusted for the Change in the Put Warrant Liability and Other Non-Recurring Items is as follows (in thousands except for per share amounts):

Liquidity and Capital Resources

Working capital increased to approximately $9.1 million, as of February 29, 2008 from approximately $4.8 million at February 28, 2007, an increase of approximately $4.3 million.General Economic Conditions

Net cash provided by operating activitiesGlobal financial markets experienced a significant decline in liquidity and credit availability during the Company’s fiscal 2008 period was approximately $7.2 million compared2009 third quarter and have remained unsettled since that time. Moreover, during the second half of the Company’s fiscal 2009 year in particular, broad weaknesses developed in each of the major economies in which the Company operates, including weakness in consumer spending, substantial declines in housing markets, changes in business inventories and instability in the foreign exchange markets. In response, the Company implemented significant actions to approximately $4.9 million for the comparable fiscal 2007 period. The increase in cash flow from operating activities was primarily due to net income as adjusted for non-cash income statement items, which would includereduce expenses and improve liquidity. Those actions included tighter purchasing, inventory and working capital management, workforce reductions, work schedule adjustments for depreciation, amortization, goodwill impairment, change in the fair value of the put warrant, and the gain on the sale of plant, equipment and businesses, increasing by $7.3 million in fiscal 2008 compared to fiscal 2007. In fiscal 2008, the reduction in accounts receivables provided cash of approximately $1.7 million that was partially offset by the use of cash to increase prepaid expense by $1.1 million and reduce accounts payable by $0.6 million.

Net cash provided by investing activities was approximately $1.1 million in fiscal 2008 compared to net cash used of approximately $0.7 million in fiscal 2007. The cash provided by investing activities in fiscal 2008 was comprised of proceeds from the sale of plant, equipment and businesses of approximately $4.0 million, partially offset by capital expenditures of $3.0 million, which consist mainly of the purchase of the Adelanto, California manufacturing and distribution facility.

Net cash usedpersonnel, business restructurings, reductions in financing activities was approximately $8.3 million inplanned expenses, and the fiscal 2008 period compared to approximately $4.1 million in the fiscal 2007 period. The change is primarily due to the settlementrestructuring of the Company’s put warrant obligation for $2.3 millioncredit facilities.

As a result, late in the Company’s fourth fiscal 20082009 quarter and continuing into the repayment of acquisition and term debt of $6.2 million inCompany’s first fiscal 2008 compared to repayment of $4.7 million in fiscal 2007.

The Company has an asset based loan agreement with two domestic financial institutions to provide a revolving credit facility, mortgage and term note financing. The loan agreement expires in July 2008. Under the agreement,2010 quarter, the Company is allowedrealized significant improvements in its operations, reestablished its credit facilities worldwide and substantially improved liquidity. Nonetheless, market conditions are likely to borrow upcontinue to $29 million underbe extremely challenging during the revolving credit facility based on a formula for eligible accounts receivableCompany’s 2010 fiscal year given the continued uncertainty in the global economic and inventory. On April 26, 2007, the loan agreement was amended to make certain financial covenants from February 28, 2007 through July 2008 less restrictive and to increase the ability ofmarkets. Accordingly, the Company will continue to borrow against eligible inventory of raw materialfocus on liquidity preservation to ensure its ability to fund its operations, secure its supply chains and finished goods of the Company and certain subsidiaries. As of February 29, 2008, the term loan has an interest rate that ranges from Libor plus 2.13%be well positioned to Libor plus 2.88%, while the revolver bears an interest rate that ranges from Libor plus 1.50%respond to Libor plus 2.25%. These loans are collateralized by substantially all of the Company’s assets. The agreement also prohibits the Company from incurring certain additional indebtedness, limits certain investments, advances or loans, restricts substantial asset sales and capital expenditures and prohibits the payment of dividends, except for dividends due on the Company’s Series A and C preferred stock. At February 29, 2008 the rate was Libor (3.26%) plus 1.75% and the Company had borrowed approximately $22.0 million and had $4.3 million available for future borrowings under its revolving loan facility net of approximately $0.9 million in outstanding letters of credit. The loan agreement contains a subjective acceleration clause and lockbox arrangement; therefore, the borrowing under this agreement is classifiedgrowth opportunities as a current liability.

In May 2008, the Company amended its existing asset based loan agreement with two domestic institutions. The amendment extended the maturity date for the $29 million revolving credit facility and the mortgage on the Canadian facility to May 20, 2011. The amendment revises the loan agreement so that the loan agreement will no longer provide for the BV loan or term loan and will consist solely of the revolving credit loan and mortgage on the Canadian facility. The amendment also made the following modifications to the loan agreement: (i) all foreign subsidiaries other than Roberts Company Canada Limited were released as borrowers under the loan agreement, (ii) all foreign subsidiaries excluding all subsidiaries in Canada, the U.K., France, Australia and New Zealand executed negative pledge agreements, and (iii) the covenants relating to the maintenance of a minimum current ratio and a minimum tangible net worth were eliminated. The total amount available for borrowing under the revolving credit loan, the interest rates applicable to the borrowings outstanding and all other covenants under the loan agreement remain unchanged from the loan agreement, as amended by prior amendments.

The Company’s Australian subsidiary has a payment facility that allows it to borrow against a certain percentage of inventory and accounts receivable. In March 2007, this facility was amended to make the maximum permitted borrowing approximately $1.9 million of which $1.4 million was outstanding at February 29, 2008. The facility is considered a demand note and carries an interest rate of the Australian Commercial Bill Rate (8.14% as of February 29, 2008) plus 1.25%.

In connection with the purchase of the Company’s United Kingdom operations, a U.K. subsidiary of the Company entered into two financing arrangements with a U.K. financial institution. In January 2008, the Company replaced these facilities with an additional asset based loan agreement with a domestic financial institution to provide a revolving credit facility with a borrowing capacity of $3.5 million for the Company’s U.K. operations. The facility has a term that varies with the term of the Company’s other domestic revolving credit facility and bears an interest rate that ranges from Sterling Libor plus 1.50% to Sterling Libor plus 2.25%. This agreement is collateralized by substantially all of the Company’s UK operation’s assets and is guaranteed by the Company. The agreement similarly prohibits the Company’s U.K. operations from incurring certain additional indebtedness, limits certain investments, advances or loans, restricts substantial asset sales and capital expenditures, and prohibits the payment of dividends. At February 29, 2008 the interest rate was Sterling Libor (5.60%) plus 2.00%, the Company’s U.K. operations had borrowed approximately $2.0 million under this facility and had $0.5 million available for future borrowing. The facility is considered a demand note.they arise.

Payable to Banks Under Term LoanCredit Facilities

The Company has a term loan financing arrangement that provides for repayment of this facility at a rate of $0.2 million per month. At February 29, 2008, the interest rate was Libor (3.26%) plus 2.38% and the balancehistorically relied on the term note was $0.3 million.

In March 2007, the Company’s Australian subsidiary amended its payment facility by consolidating the then existing three term facilities into one three-year term facility. The subsidiary received approximately $1.4 million of additional financing under the amendment. The loan requires quarterly payments of AUD 0.2 million (US $0.2 million) for the first four installments and AUD 0.1 million (US $0.1 million) thereafter with a final balloon payment. The balance of this term note was US $1.4 million at February 29, 2008. The term loan is collateralized by substantially all of the assets of the subsidiary (approximately $12.6 million) as well as a parent company guaranty.

In July 2003, the Company refinanced its mortgage loan in Canada to finance the expansion of the Canadian physical facilities. As of February 29, 2008, the mortgage balance was $1.9 million and is amortized based on a 15-year period. The mortgage bears an interest rate of Libor (4.05% as of February 29, 2008) plus 2.00% and will mature in September 2008. The mortgage loan requires payments of less than $0.1 million per month. In May 2008, the Company entered into an agreement with its existing lenders to renew the Canadian mortgage for an additional three years. Although, the maturity date is within one year as at February 29, 2008, the Company continues to classify the mortgage as long term debt in accordance with Statement of Financial Accounting Standards No. 6, “Classification of Short-Term Obligations Expected to Be Refinanced” due to the May 2008 amendment to its loan agreement.

In February 2008, the Company entered into a mortgage agreement to finance its purchase of the manufacturing and distribution facility located in Adelanto, California. As of February 29, 2008, the mortgage balance is approximately $1.7 million and is amortized based on a 15-year period. The mortgage bears an interest rate of LIBOR (3.26% at February 29, 2008) plus 1.50% and will mature in February 2013. The mortgage loan requires principal payments of less than $0.1 million per month.

In connection with an acquisition during fiscal years 2000, the Company issued an unsecured note, which was amended on two occasions to extend the final $0.3 million due as of February 29, 2004 to October 10, 2009 with interest payable quarterly at 7%.

In connection with the August 2004 purchase of the assets of Tuplex Corporation, a flooring underlayment manufacturer in the United States, the Company issued a note to the seller in the amount of $0.8 million. The note requires an annual payment of $0.2 million over four years. Interest on the note accrues at 4% per year. At February 29, 2008, $0.2 million remains unpaid.

In connection with the acquisition of PRCI S.A. in November 2004, the Company issued a note to the related seller for approximately $1.1 million. The note is repayable in four equal annual installments beginning November 2005. Interest on the note accrues at the EURIBOR three month rate (4.38% at February 29, 2008) per year. Approximately $0.3 million was outstanding at February 29, 2008.

In May 2005, in connection with the acquisition of adhesives manufacturing assets, the Company issued a four-year, non-interest-bearing $4.0 million note due in annual installments of $1.0 million. The principal balance of the note is discounted at an imputed interest rate of 5.2%. In the fourth quarter of fiscal 2008, the Company paid approximately $1.7 million to settle the two remaining outstanding installments of $1.0 million each, which would become due in May 2008 and 2009. The company recorded a gain on the early extinguishment of this debt of approximately $0.2 million, net of any unamortized discount on the note. At February 29, 2008 this note was paid in full.

In November 2005, in connection with the acquisition of the Australian distributor of tools and flooring installation products, the Company issued a three-year, AUD 0.5 million note (approximately US $0.5 million) bearing interest at the Australian 180-day commercial bill rate (8.14% at February 29, 2008) due in semi-annual installments totaling approximately AUD 0.2 million per year. At February 29, 2008, $0.2 million remains unpaid.

In connection with the subordinated loan agreement between the Company and HillStreet Fund, L.P. (“HillStreet”), entered into on April 5, 2001, the Company issued 325,000 10-year warrants (the “put warrants”) at an exercise price of $3.63 per share. Once the put warrants are put to the Company, the Company is required to pay the holder of the put warrants in cash in accordance with the put warrant agreement. The payment is based on the determination of the Company’s entity value, which is defined in the warrant agreement as the greatest of: (1) the fair market value of the Company established as of a capital transaction or public offering; (2) a formula value based on a multiple of the trailing twelve month EBITDA; or (3) an appraised value as if the Company was sold as a going concern.

On July 23, 2007, the Company received written notice from HillStreet of the exercise of their right to “put” to the Company the put warrants pursuant to the warrant agreement. On July 31, 2007, the Company and HillStreet agreed upon a cash settlement value of $2.3 million for the put obligation. On August 6, 2007, the Company paid the settlement out of funds available under its existing revolving credit facility.

For accounting purposes, the Company has historically recorded the put warrant liability by calculating the difference between the closing stock price at the end of a reporting period and the exercise price of $3.63 per share multiplied by the 325,000 warrants outstanding. Based on this methodology, a liability of $0.9 million was reported for the put warrants as of February 28, 2007. As a result of the settlement, the Company reported a put warrant expense of $1.4 million during fiscal 2008. No further income, expense or payments will be recorded related to this Warrant Agreement.

The Company believes its existing cash balances, internally generated funds from operations and several bank lines of credit to support the working capital requirements of its various operations (see Note I to the consolidated financial statements).

As a result of operating losses driven by the sudden weakness in economic conditions and volatility in the securities markets that affected the Company during its fiscal 2009 third quarter (including the third quarter non-cash charge of $7.9 million for the impairment of goodwill) and that continued into its fiscal fourth quarter, as of the end of each of those fiscal quarters the Company was in violation of certain financial covenants under its domestic revolving credit and Canadian mortgage facility, as well as under certain other international and domestic facilities. Consequently, in January 2009, the Company entered into a Forbearance Agreement applicable to its domestic revolving credit and Canadian mortgage facility under which the revolving credit facility was reduced and the lenders agreed to forbear from exercising any of their default rights and remedies in response to the occurrence and continuance of the default, subject to the Company’s compliance with certain requirements enumerated in the Forbearance Agreement.

In April 2009 the Company amended its domestic revolving credit facility and Canadian mortgage facility, amended the revolving credit facility of its U.K. subsidiary, and refinanced the revolving credit and term loan facilities of its Australian subsidiary. As a result, the Company’s violation of the financial covenants under its domestic revolving credit and Canadian mortgage facility was cured, as well as other international and domestic facilities, and the Forbearance Agreement was terminated.

The Company believes that its internally generated funds from operations, its revised financing facilities, including available bank lines of credit, and its existing cash balances will provide the liquidity necessary to satisfy the Company’s working capital needs including the growth in inventory and accounts receivable balances, and will be adequate to finance anticipated capital expenditures and debt obligations for the next twelve months. There can be no assurance, however, that the assumptions upon which the Company bases its future working capital and capital expenditure

requirements and the assumptions upon which it bases its belief that funds will be available to satisfy such requirements will prove to be correct. If these assumptions are not correct, the Company may be required to raise additional capital through loans or the issuance of debt securities that would require the support or consent of the Company’s current lenders, or through the issuance of equity securities.

Working Capital and Cash Flow

Working capital was approximately $5.9 million as of February 28, 2009, a decrease of approximately $3.2 million from approximately $9.1 million at February 29, 2008.

Net cash used in operating activities during the fiscal 2009 period was $0.5 million compared to cash provided by operating activities of $7.2 million for the comparable fiscal 2008 period, a decline of $7.7 million. The reduction in cash flow from operating activities in fiscal 2009 reflected a decline of $5.3 million in net income as adjusted for non-cash income statement items, which would include adjustments for depreciation, amortization, goodwill impairment, change in the fair value of the put warrant, deferred taxes, and the gain on the sale of plant, equipment and businesses. Additionally, during fiscal 2009, the Company used net cash of $5.2 million associated with the increase in inventory, for the upfront consideration paid related to national specialty tool program and the decrease in accounts payable and accrued liabilities. This use of cash was partially offset by the reduction in accounts receivable and prepayments that provided cash of $2.6 million. For the same period in fiscal 2008, increases in inventory and prepayments, and reduction in trade payables used cash of $2.0 million and the reduction in accounts receivable and other assets provided cash of $1.8 million.

Net cash used in investing activities was $0.5 million in fiscal 2009. This was comprised of the final proceeds from the sale of the Company’s O’Tool operation of $0.3 million that was offset by capital expenditures of $0.8 million. Cash provided by investing activities in fiscal 2008 was $1.1 million, which was comprised of the initial proceeds from the sale of the Company’s O’Tool operation, proceeds from the sale of the Stone Holding operation and proceeds from the sale of equipment of $4.0 million, partially offset by capital expenditures of $3.0 million, which consist primarily of the purchase of a manufacturing and distribution facility in Adelanto, California for $2.1 million.

Net cash provided by financing activities was $0.9 million in fiscal 2009 as compared to cash used in financing activities of $8.3 million in fiscal 2008. During fiscal 2009, the Company increased its borrowings under its lines of credit and Canadian mortgage facility by $2.6 million primarily to finance its working capital requirements and fund $1.5 million of scheduled debt maturities. In fiscal 2008, the Company repaid $3.2 million on its line of credit and $6.2 million of long-term debt, settled the Company’s put warrant obligation of $2.3 million and financed $1.7 million for the Adelanto, California facility and refinanced $1.4 million of long-term debt associated with its Australian subsidiary.

During the second quarter of fiscal 2009, the Company entered into a purchase plan under which it purchased the Company’s common stock from time to time on the open market or in privately negotiated transactions. During the third quarter of fiscal 2009, the Company discontinued purchases under the plan. The Company funded the repurchases through the use of borrowings under the current credit facility.

To the extent the Company raises additional capital by issuing equity securities or obtaining borrowings convertible into equity, ownership dilution to existing stockholders will result, and future investors may be granted rights superior to those of existing stockholders. Moreover, additional capital may be unavailable to the Company on acceptable terms, or may not be available at all.

On May 29, 2009, the Company announced that it intends to delist its common stock from the NASDAQ Global Market and deregister its common stock under the Securities Exchange Act of 1934 which could have a negative impact on the Company’s liquidity. The Company’s Board of Directors concluded that the costs of compliance, the demands on management time, and the Company resources required to maintain its listed and registered status outweigh the benefits the Company receives from that status given the low trading volume in its stock, the Company’s low market capitalization and the limited analyst coverage of the Company.

Impact of Inflation and Changing Prices

During fiscal 20072008 and continuing through fiscal 2008,2009, the Company experienced price increasesvolatility in certain key commodities and components related to the purchase of raw materials and finished goods. The Company believes that its level of gross profit as a percent of net sales is affected by both increases and decreases in these increases.prices. Other than the changes described, the effect of inflation on the Company’s operations has been minimal.

Recently Issued Accounting Standards

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS No. 157 does not require any new fair value measurements. In February 2008, the FASB issued FSP 157-2 “Partial DeferralRefer to Note P of the Effective Date of Statements 157,” which delaysNotes to the effective date of SFAS 157, for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. The Company is currently evaluating the impact, if any, that the adoption of SFAS No. 157 will have on the Company’s operating income or net earnings.

In February 2007, the FASB issued Statement ofConsolidated Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 permits companies to choose to measure certain financial instruments and certain other items at fair value, and requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. SFAS No. 159 is effective for the Company beginning in the first fiscal quarter of 2008 although earlier adoption is permitted. The Company expects that SFAS No. 159 will not have an impact on its consolidated financial statements.

In June 2007, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards” (“EITF 06-11”). EITF 06-11 states that an entity should recognize a realized tax benefit associated with dividends on nonvested equity shares, nonvested equity share units and outstanding equity share options charged to retained earnings as an increase in additional paid in capital. The amount recognized in additional paid in capital should be included in the pool of excess tax benefits available to absorb potential future tax deficiencies on share-based payment awards. EITF 06-11 should be applied prospectively to income tax benefits of dividends on equity-classified share-based payment awards that are declared in fiscal years beginning after December 15, 2007. The Company expects that EITF 06-11 will not have an impact on its consolidated financial statements.

In November 2007, the FASB issued FSP FAS 142-f, “Goodwill and Other Intangible Assets”. This proposed FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of an intangible asset under FASB Statement No. 142, “Goodwill and Other Intangibles” (FAS 142). The FSP aims to improve the consistency between the useful life of an intangible asset as determined under FAS 142 and the period of expected cash flows used to measure the fair value of the asset under FASB Statement No. 141, “Business Combinations”, and other applicable accounting literature. As a result of this FSP, entities generally will be able to align the assumptions used for valuing an intangible asset with those used to determine its useful life. This FSP will be effective for financial statements issued for fiscal years beginning after June 15, 2008 and interim periods within those fiscal years. The Company is currently evaluating the effect, if any, of this statement on its consolidated financial statements.

In December 2007, the FASB issued FAS No. 141(R) “Business Combinations”, which is effective for fiscal years beginning after December 15, 2008. This statement retains the fundamental requirements in FAS 141 that the acquisition method be used for all business combinations and for an acquirer to be identified for each business combination. FAS 141(R) broadens the scope of FAS 141 by requiring application of the purchase method of accounting to transactions in which one entity establishes control over another

entity without necessarily transferring consideration, even if the acquirer has not acquired 100% of its target. Among other changes, FAS 141(R) applies the concept of fair value and “more likely than not” criteria to accounting for contingent consideration, and preacquisition contingencies. As a result of implementing the new standard, since transaction costs would not be an element of fair value of the target, they will not be considered part of the fair value of the acquirer’s interest and will be expensed as incurred. This pronouncement may impact the Company in the event that acquisitions are done in the future.

In December 2007, the FASB also issued FAS No. 160, “Accounting for Noncontrolling Interests”, which is effective for fiscal years beginning after December 15, 2008. This statement clarifies the classification of noncontolling interests in the consolidated statements of financial position and the accounting for and reporting of transactions between the reporting entity and the holders of non-controlling interests. The Company does not expect that the adoption of this standard will have a significant impact on its consolidated financial statements.Statements.

Off Balance Sheet Arrangements

The Company isdoes not involved inhave any off-balance sheet arrangements.

Not required.required

The response to this item is submitted on pages F-1F1 – F-30F25 of this Report.

None.

Evaluation of Disclosure Controls and Procedures

For the year ended February 29, 2008,28, 2009, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including Lewis Gould, the Company’s Chief Executive Officer, and Stuart Fleischer,Richard Brooke, the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report pursuant to Exchange Act Rule 13a-15(e). The Company’s disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in its reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. Based upon the Company’s evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that as a result of the material weaknesses in the Company’s internal control over financial reporting described more fully below, the Company’s disclosure controls and procedures were not effective as of February 29, 2008.28, 2009.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Management necessarily applied its judgment in assessing the benefits of controls relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and may not be detected.

Management’s Annual Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of the Company’s management, the Company’s Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting as of February 29, 200828, 2009 based on criteria set forth in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

On performing this assessment, management identified the following material weaknesses:

As a result of these material weaknesses in the Company’s internal control over financial reporting, the Company’s management concluded that its internal control over financial reporting, as of February 29, 2008,28, 2009, was not effective based on the criteria set forth by COSO in Internal Control - Control—Integrated Framework. A material weakness in internal control over financial reporting is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’sCompany’s annual or interim financial statements will not be prevented or detected on a timely basis.

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report on Form 10-K.

Management’s Plan for Remediation of Material Weaknesses

The Company has implemented and continues to implement various measures to address the identified material weaknesses and to improve the overall internal control over financial reporting. The following steps are planned for fiscal 20092010 to remediate the conditions leading to the above stated material weaknesses:

Changes in Internal Control over Financial Reporting

There were no changes duringDuring the quarter ended February 29, 2008 in28, 2009, as part of the Company’s internal control over financial reporting that has materially affected, or is reasonably likelyremedial measures discussed above related to materially affect, the registrant’s internal control over financial reporting.Company’s foreign operations, the Company employed an additional staff accountant, in part to perform operational and accounting reviews of certain of the Company’s foreign operations.

None.

PART III

Information required by this item regarding directors, executive officers and officerscorporate governance is incorporated by reference from the Company’s definitive Proxy Statement for its 20082009 Annual Meeting of Stockholders or an amendment to this Annual Report on Form 10-K to be filed no later than 120 days after February 29, 2008.28, 2009.

Information required by this item regarding the compensation of officers and directors is incorporated by reference from the Company’s definitive Proxy Statement for its 20082009 Annual Meeting of Stockholders or an amendment to this Annual Report on Form 10-K to be filed no later than 120 days after February 29, 2008.28, 2009.

Information required by this item is incorporated by reference from the Company’s definitive Proxy Statement for its 20082009 Annual Meeting of Stockholders or an amendment to this Annual Report on Form 10-K to be filed no later than 120 days after February 29, 2008.28, 2009.

Information required by this item is incorporated by reference from the Company’s definitive Proxy Statement for its 20082009 Annual Meeting of Stockholders or an amendment to this Annual Report on Form 10-K to be filed no later than 120 days after February 29, 2008.28, 2009.

Information required by this item is incorporated by reference from the Company’s definitive Proxy Statement for its 20082009 Annual Meeting of Stockholders or an amendment to this Annual Report on Form 10-K to be filed no later than 120 days after February 29, 2008.28, 2009.

PART IV

1. and 2. The financial statements and financial statement schedule filed as part of this report are listed separately in the index to Financial Statements beginning on page F-1 of this report.

3. For Exhibits see Item 15(b), below.

Exhibit Description No.

10.23

10.16		Fifth Amendment and Waiver Agreement dated June 14, 2005 by and between the Company, its subsidiaries, Fleet Capital Corporation, HSBC Bank USA and Fleet Capital Corporation, as agent.(9)
10.17		Form of Term Notes, Amended and Restated Domestic Advances Note and Debenture executed in connect with Fourth Amendment and Waiver Agreement dated March 31, 2005.(9)
10.20		Seventh Amendment and Waiver Agreement dated June 1, 2006 by and among the Company, certain affiliates of the Company, Bank of America, N.A., successor-in-interest to Fleet Capital Corporation, and HSBC Bank USA, National Association, successor-by-merger to HSBC Bank USA.(10)
10.21		Employment Letter Agreement, dated July 14, 2006, between Stuart Fleischer and Q.E.P. Co., Inc.(11) +
10.22		Ninth Amendment and Waiver Agreement dated April 26, 2007 by and among the Company, certain affiliates of the Company, Bank of America, N.A., successor-in-interest to Fleet Capital Corporation, and HSBC Bank USA, National Association, as successor-by-merger to HSBC Bank USA, and Bank of America, N.A., as agent.(13)
10.23		Employment Letter Agreement, dated November 9, 2007, between Lawrence P. Levine and Q.E.P. Co., Inc.(14)(10) +
10.24		Eleventh Amendment Agreement dated May 21, 2008 by and among the Company, certain affiliates of the Company, Bank of America N.A., successor-in-interest to Fleet Capital Corporation, and HSBC Bank USA, National Association as successor-by-merger to HSBC Bank USA, and Bank of America as agent.(15)(11)
10.25		Thirteenth Amendment Agreement, dated as of August 13, 2008, to Second Amended and Restated Loan Agreement by and among the Company, certain of the Company’s subsidiaries, Bank of America, N.A., successor-in-interest to Fleet Capital Corporation, and HSBC Bank USA, National Association, successor-by-merger to HSBC Bank USA.(12)

10.26		Fifteenth Amendment Agreement, dated as of November 5, 2008, to Second Amended and Restated Loan Agreement by and among the Company, certain of the Company’s subsidiaries, Bank of America, N.A., successor-in-interest to Fleet Capital Corporation, and HSBC Bank USA, National Association, successor-by-merger to HSBC Bank USA.(12)
10.27		Third Amended and Restated Loan Agreement, December 30, 2008, by and among the Company, certain of the Company’s subsidiaries, Bank of America, N.A., successor-in-interest to Fleet Capital Corporation, and HSBC Bank USA, National Association, successor-by-merger to HSBC Bank USA.(12)
10.28		Forbearance Agreement, dated January 22, 2009, by and among the Company, certain of the Company’s subsidiaries, Bank of America, N.A., successor-in-interest to Fleet Capital Corporation, and HSBC Bank USA, National Association, successor-by-merger to HSBC Bank USA.(12)
10.29		Forbearance Agreement Extension dated March 16, 2009.(13)
10.30		First Amendment to Third Amended and Restated Loan Agreement, by and among the Company, certain of the Company’s subsidiaries, Bank of America, N.A. and Bank of America, N.A., as agent, dated as of April 14, 2009.(14)
14.1		Code of Ethics for Senior Financial Officers.(5)(4)
21		Subsidiaries of the Company.(15)
23		Consent of Independent Registered Public Accountants.(15)
31.1		Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(15)
31.2		Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(15)
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(15)
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(15)

(3)	Filed with the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on January 13, 2003, and incorporated herein by reference.

(4)	Filed with the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 28, 2003, and incorporated herein by reference.

(5)	Filed with the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 27, 2004, and incorporated herein by reference.

(6)(5)

Filed with the Company’s Current Report on Form 8-K with the Securities and Exchange Commission on September 27, 2004, and incorporated herein by reference.

(7)(6)

Filed with the Company’s Quarterly Report herein on Form 10-Q filed with the Securities and Exchange Commission on October 14, 2004, and incorporated herein by reference.

(8)(7)

Filed with the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 1,3, 2005, and incorporated herein by reference.

(9)	Filed with the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 15, 2005, and incorporated herein by reference.

(10)	Filed with the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 13, 2006 and incorporated herein by reference.

(11)(8)

Filed with the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on October 23, 2006 and incorporated herein by reference.

(12)(9)

Filed with the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 28, 2007 and incorporated herein by reference.

(13)	Filed with the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 29, 2007 and incorporated herein by reference.

(14)(10)

Filed with the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on January 14, 2008 and incorporated herein by reference.

(11)	Filed with the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 29, 2008.

(12)	Filed with the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on January 22, 2009.

(13)	Filed with the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 16, 2009.

(14)	Filed with the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 14, 2009.

(15)	Filed herewith.

+	Management contracts or compensatory plans or arrangements.

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, in the City of Boca Raton, State of Florida, on May 29, 2008.2009.

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Lewis Gould and Stuart F. FleischerRichard A. Brooke and each of them, his true and lawful attorney-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

CONTENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Q.E.P. Co., Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Q.E.P. Co., Inc. (a Delaware Corporation) and Subsidiaries as of February 29, 200828, 2009 and February 28, 2007,29, 2008, and the related consolidated statements of operations, shareholders’ equity and comprehensive income (loss), and cash flows for the years then ended. Our audits of the basic consolidated financial statements included the financial statement schedule listed in the index appearing under Item 15(a)(2). These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Q.E.P. Co., Inc. and Subsidiaries as of February 29, 200828, 2009 and February 28, 2007,29, 2008, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note B to the consolidated financial statements, effective March 1, 2007 the Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No 48, “Accounting for Uncertainty in Income Taxes”. Also as discussed in Note B to the consolidated financial statements, the Company recorded a cumulative effect adjustment as of March 1, 2006, in connection with the adoption of SEC Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.”

Miami, Florida

May 29, 20082009

Q.E.P. CO., Inc. and SubsidiariesINC. AND SUBSIDIARIES

Consolidated Balance SheetsCONSOLIDATED BALANCE SHEETS

(In thousands, except par values)

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

Q.E.P. CO., INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share data)

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

Q.E.P. CO., INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except share data)