10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended February 29, 2008

or

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

For the transition period from              to             

Commission File Number 0-21161

Q.E.P. CO., INC.

(Exact name of registrant as specified in its charter)

DELAWARE	13-2983807
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1001 BROKEN SOUND PARKWAY NW, SUITE A, BOCA RATON, FLORIDA	33487
(Address of principal executive offices)	(Zip Code)

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

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

Title of each class	Name of each exchange on which registered
Common Stock, $001 Par Value Per Share	The NASDAQ Stock Market LLC (NASDAQ Global Market)

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 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.

Large accelerated filer  ¨	Accelerated filer  ¨
Non-accelerated filer  ¨ (Do not check if a smaller reporting company)	Smaller reporting company  x

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, 2007 was $21.1 million.

The number of shares outstanding of each of the registrant’s classes of common stock as of May 26, 2008 is 3,433,363 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 2008 Annual Meeting of Stockholders, which proxy statement will be filed no later than 120 days after the close of the registrant’s fiscal year ended February 29, 2008.

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

FISCAL YEAR 2008 FORM 10-K

TABLE OF CONTENTS

PART I
Item 1.	Business	4
Item 1A.	Risk Factors	11
Item 1B.	Unresolved Staff Comments	15
Item 2.	Properties	15
Item 3.	Legal Proceedings	15
Item 4.	Submission of Matters to a Vote of Security Holders	15
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	16
Item 6.	Selected Financial Data	17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	28
Item 8.	Financial Statements and Supplementary Data	28
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	28
Item 9A(T).	Controls and Procedures	28
Item 9B.	Other Information	30
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	31
Item 11.	Executive Compensation	31
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	31
Item 13.	Certain Relationships and Related Transactions, and Director Independence	31
Item 14.	Principal Accounting Fees and Services	31
PART IV
Item 15.	Exhibits and Financial Statement Schedules	32
	Signatures	35

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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 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 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 potential consolidation of operations; the Company’s ability to continue its performance and that of its products and to increase stockholder returns; 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 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 Company’s ability to satisfy its working capital needs and to finance its anticipated capital expenditures; 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

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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 of the housing, residential and commercial construction and home improvement markets; the Company’s ability to successfully integrate its acquired businesses; 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

Item 1. Business

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® and 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 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, 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 – 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., a distributor of ceramic tile tools to the retail and distribution marketplace in France; 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. Australia 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, a distributor of accessory flooring supplies; Roberts Mexicana S.A. de C.V., a manufacturer and distributor of flooring installation products in Mexico; Q.E.P. Chile, a distributor of ceramic tile accessories located in Santiago, Chile; Zocalis, SRL,

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an Argentinean manufacturer of ceramic borders and trim; and Q.E.P. HK Ltd., a Hong Kong registered company with a representative office in Shanghai, China, that provides purchasing services to QEP and its subsidiaries.

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, which is 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 by Floor Covering Weekly, a trade publication, total installed floor covering sales for 2006 in the United States remained relatively flat at approximately $62 billion. 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. With the slowdown in residential construction, the unprecedented number of home foreclosures and high energy costs, the Company expects that 2008 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 billion of home center sales for fiscal year 2007. Home Depot and Lowe’s, experienced annual sales decline of 2% and growth of 2% 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 strategy and the nature of its sales and marketing initiatives.

Business Strategy

The Company’s 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 and cross-selling products among its channels of distribution, expanding market share by obtaining new customers, and capitalizing on expected growth of its largest customers and of the home improvement market as a whole. 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 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 in response to customer demands. The Company believes that broadening its product lines 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.

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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 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, the Company closed 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 capability located throughout the United States, Canada, Australia, New Zealand, the United Kingdom, Mexico, France, Ireland, and South America. On October 24, 2007, the Company expanded its license and royalty agreement with Estillon B.V., a European supplier of carpet specialty tools, to include Great Britain and Ireland. The agreement grants Estillon 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. The Company estimates that in fiscal 2008, it manufactured approximately 25% of its Q.E.P.™ and 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® and 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 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.

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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% and 10% of the Company’s fiscal 2008 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, 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 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 evaluates 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. 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 2008 it manufactured approximately 25% of its Q.E.P.™ and Roberts™ product lines. The Company manufactures adhesives, carpet installation tools and ceramic tile spacers at its main manufacturing facility in Mexico, Missouri. Flooring adhesives are produced at the Company’s facilities in Bramalea, Ontario, Canada; Dalton, Georgia; Adelanto, California and Mexico City, Mexico. Grouts and related products are manufactured at the Company’s Little Falls, New Jersey; and Bramalea, Ontario, Canada 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 200 different suppliers in fiscal 2008. 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, in fiscal 2008, the Company purchased in excess of $12.2 million and $8.6 million of finished products from two foreign suppliers representing 14% and 10%, respectively of domestic product purchases.

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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. Management estimates that gross sales through its primary distribution channels in fiscal 2008 were as follows: 73% to national and regional home improvement retailers and 27% 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 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 foreign sales, excluding Canada, accounted for approximately 23% of net sales during fiscal year 2008. Fiscal 2008 net sales generated by the Company’s European subsidiaries were approximately 9%, its Australian/New Zealand subsidiaries approximately 12% and its Latin American subsidiaries was 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 foreign 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.

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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, the Company has spent approximately $0.9 million and anticipates spending less than $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.

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® and 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

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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. 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, the Company had 484 employees, including 135 administrative employees, 117 sales and marketing employees, 103 manufacturing employees and 129 employees responsible for shipping activities. Of the 484 total employees, 5 are part-time and 169 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.

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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 state of the housing, construction and home improvement markets, rising costs and a reduction in the availability of financing in North America could 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 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 and other similar factors could:

• cause consumers of the Company’s products to delay undertaking or determine not to undertake new home improvement projects;

• cause the Company’s customers to delay purchasing or determine not to purchase home improvement products and services;

• lead to a decline in customer transactions overall and consequently adversely affect the Company’s financial performance; and

• increase the Company’s costs.

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. The Company’s costs of raw materials and fuel-related costs are currently higher than historical averages and may remain so indefinitely due to the historically high price of oil and gas. 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 200 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.

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

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 that now serve as suppliers to the Company.

The Company depends on a limited number of customers, and the loss of one or more of these customers 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 net sales in fiscal 2008 and fiscal 2007, respectively. The Company expects that it will continue to rely upon 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 would 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 as Accumulated 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.

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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

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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, a material weakness is a control deficiency, or a combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. 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.

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.

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Item 1B. Unresolved Staff Comments

Not Applicable.

Item 2. Properties

The Company operates 31 facilities in the United States, Canada, Mexico, Europe, Australia, South America, New Zealand and China. Eight 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, Mexico (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.

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.

Item 3. Legal Proceedings

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 company 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.

Item 4. Submission of Matters to a Vote of Security Holders

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

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

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 2008 and 2007, as reported on the Nasdaq Global Market.

	Fiscal Year Ended February 29 or 28,
	2008				2007
	High		Low		High		Low
First Quarter	$	6.74	$	5.26	$	12.55	$	9.27
Second Quarter	$	13.10	$	5.40	$	10.21	$	6.00
Third Quarter	$	14.99	$	9.33	$	7.69	$	6.07
Fourth Quarter	$	10.97	$	8.18	$	6.90	$	4.37

On May 12, 2008, the closing price of the Common Stock on the Nasdaq Global Market was $6.63. As of that date, there were 22 holders of record of the common stock and approximately 1,815 beneficial owners of the 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 in fiscal 1999, the Company has from time to time repurchased shares of its outstanding Common Stock from Ms. Susan Gould, Corporate Secretary, having a value of approximately $1.0 million pursuant to a Board resolution to purchase 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 Stock on the date of repurchase. Ms. Gould is not obligated to sell any shares of Common Stock to the Company. As of May 16, 2008, Ms. Gould has sold a total of 126,038 shares to the Company. The Company repurchased 12,000 shares from Ms. Gould during fiscal 2008. No shares were repurchased in the fourth quarter of fiscal 2008.

Equity Compensation Plan Information

The following table provides information as of February 29, 2008 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.

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Plan Category	Number Of Securities To Be Issued Upon Exercise Of Outstanding Options/SARS (a)	Weighted Average Exercise Price Of Outstanding Options/SARS(2) (b)		Number Of Securities Remaining Available For Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected In Column (a))
Equity Compensation Plans Approved by Security Holders(1)	382,125	$	7.63	426,057
Equity Compensation Plans Not Approved by Security Holders(3)	40,000	$	4.00	—
Total	422,125			426,057

⁽¹⁾ This plan is the Company’s Omnibus Stock Plan of 1996.

⁽²⁾ Does not include restricted stock as the price is determined on the date of issuance and not the grant date.

⁽³⁾ This relates to options granted to Lewis Gould outside of the Company’s Omnibus Stock Plan of 1996 in July 2001.

Item 6. Selected Financial Data

Not required.

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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 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 improve overall performance and profitability of operations that included acquisitions, 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. Although the Company has realized certain benefits from its growth strategy, the Company’s rapid growth and challenges relating 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 Notes 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”).

The Company experienced a 1% increase in net sales in fiscal 2008 in comparison to the previous fiscal year, which management attributes primarily to the growth in sales of flooring underlayment and adhesives products. In addition, further penetration of the Company’s existing 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 with the disposition of two of the Company’s North American operations in fiscal 2008. The Company’s gross profit as a percent of sales increased to 28.9% in fiscal 2008 from 27.5% in fiscal 2007 and was positively impacted by several factors in fiscal 2008. The Company experienced success in increasing the sale 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 to home center customers in fiscal 2008. As 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 and one of the Company’s operations in the UK. The gain on the sale of theses operations, net of realized currency translation losses, was immaterial to net income.

Net income for fiscal 2008 was $2.2 million, or $0.61 per diluted share compared with net loss of $5.8 million or $1.71 per diluted share in fiscal 2007. A non-cash goodwill and other intangibles impairment charge and disposition of the Company’s Holland operations described below contributed to net loss in the fiscal 2007 period.

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.

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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 determined 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. 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, 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 for Income Taxes, as clarified by FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“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.

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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 2008 as compared to Fiscal 2007

Sales

Net sales 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 increase of $1.5 million or 1%.

Net sales at the Company’s North American subsidiaries declined by approximately $2.0 million in fiscal 2008 compared to fiscal 2007. This was due to the sale of the Company’s O’Tool and Stone Mountain operations in the first and second quarter of fiscal 2008, respectively. Net sales of these operations were $7.6 million lower in fiscal 2008 compared to fiscal 2007. This decline was partially offset by increased sales to the Company’s home center customer due to increased penetration of existing products and new product introductions. Currency translation gains contributed $2.0 million in additional sales to the Company’s North American operation due to changes in Canadian Dollar compared to the US Dollar.

Sales at the Company’s foreign subsidiaries increased by approximately $3.5 million in fiscal 2008 compared to fiscal 2007. This increase was due to currency translation gains of $4.5 million generated primarily by changes in the Australian Dollar, 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% and 21% of total sales in fiscal 2008 and 2007, respectively.

Gross Profit

Gross profit for fiscal 2008 was approximately $62.8 million compared to approximately $59.3 million in fiscal 2007, an increase of approximately $3.5 million or 6%. As a percentage of net sales, gross profit increased to 28.9% in the fiscal 2008 period from 27.5% in the fiscal 2007 period.

The increase in gross profit as a percentage of sales is primarily due to favorable changes in sales product mix at the Company’s North American operations through the sales growth of higher margin products, including underlayment and new adhesive products. Foreign currency exchange rate changes accounted for approximately $2.1 million to the increase in gross profit, primarily in the Canadian and Australian operations. These increases in gross profit were partially offset by $2.5 million less gross profit in fiscal 2008 compared with fiscal 2007 due to the sale of the Company’s O’Tool and Stone Mountain operations in fiscal 2008.

Operating Expenses

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

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

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lower freight costs, replacing distributor customer sales, which typically have higher freight costs. This reduction was partially offset by higher charges from common carriers arising from increased fuel costs. Foreign currency exchange rate changes increased shipping expenses by $0.8 million. During fiscal 2008, shipping expenses remained consistent as a percent of sales with the level experienced in fiscal 2007 at approximately 11%.

General and administrative expenses for fiscal 2008 were approximately $18.1 million compared to approximately $19.4 million for fiscal 2007, a decrease of approximately $1.3 million or 7%. Included in fiscal 2007 was approximately $1.4 million of expenses related to the disposition of the Holland operation. Excluding the amount related to the Holland transaction, general and administrative expenses increased by $0.1 million in fiscal 2008 compared to fiscal 2007. Foreign currency exchange rate changes increased general and administrative expenses by $0.5 million. General and administrative expenses were approximately 8% and 9% of sales in fiscal 2008 and fiscal 2007, respectively.

Selling and marketing costs for fiscal 2008 increased to approximately $13.2 million from approximately $12.6 million in fiscal 2007, an increase of approximately $0.6 million or 5%. Foreign currency exchange rate changes increased selling and marketing expenses by $0.5 million. As a percent of sales, selling and marketing expenses were 6% for both fiscal 2008 and fiscal 2007.

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 an impairment test during the second quarter of fiscal 2008 and determined that there was no impairment to goodwill as of August 31, 2007. The impairment test in the previous fiscal year led to the determination that the carrying amount of goodwill exceeded its fair value in the Company’s Mexico, UK and US reporting units. This resulted in a non-cash impairment charge of $7.5 million being recorded in fiscal 2007.

The Company will continue to assess potential 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 the expectations for acquired business be further reduced, or as other circumstances that affect the Company business dictate, the Company may be required to recognize additional impairment charges in accordance with SFAS No. 142.

Other Income / Expense

On May 4, 2007, the Company entered into agreements with Bon Tool Co., a US supplier 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 fiscal 2008, the Company recorded a loss on the sale of the 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 2007 and one of its UK operations in 2008, the

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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.

Changes in the Put Warrant Liability

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 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 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 the end of fiscal 2007. As a result of the settlement, the Company reported a 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 2008 period was approximately $2.5 million compared to approximately $3.0 million in fiscal 2007. 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.

Income Taxes

The Company recorded a provision for income taxes in fiscal 2008 of approximately $3.5 million compared to approximately $0.6 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. Estimated tax rates are based upon the most recent effective tax rates available in every jurisdiction in which the Company operates.

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 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.

22

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):

	Year Ended
	February 29, 2008			February 28, 2007
Net income (loss), as reported (a)	$	2,196		$	(5,806	) *
Add back (deduct):
(Gain) loss on sale of businesses, net of tax		(346	)		563
Impairment loss on goodwill and other intangible assets, net of tax		—			6,052
Realization of currency translation loss related to the disposition of certain assets and obligations of foreign subsidiary		323			478
Change in put warrant liability		1,439			(1,437	)
Net income adjusted for the change in the put warrant liability and non-recurring items (b)	$	3,612		$	(150	) *
Earnings (loss) per share, as reported:
Basic ((a)/(c))	$	0.63		$	(1.71	) *
Diluted ((a)/(d))	$	0.61		$	(1.71	) *
Weighted average number of shares outstanding, as reported:
Basic (c)		3,435			3,411
Diluted (d)		3,588			3,411
Earnings per share adjusted for the change in the put warrant liability and non-recurring items:
Basic ((b)/(e))	$	1.05		$	(0.05	) *
Diluted ((b)/(f))	$	1.00		$	(0.05	) *
Weighted average number of shares outstanding as adjusted for the change in the put warrant liability and non-recurring items:
Basic (e)		3,435			3,411
Diluted (f)		3,588			3,411	*

* Amounts revised. See Note D of Notes to the Consolidated Financial Statements.

23

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.

Net cash provided by operating activities during the fiscal 2008 period was approximately $7.2 million compared 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 include 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 used in financing activities was approximately $8.3 million in the fiscal 2008 period compared to approximately $4.1 million in the fiscal 2007 period. The change is primarily due to the settlement of the Company’s put warrant obligation for $2.3 million in fiscal 2008 and the repayment of acquisition and term debt of $6.2 million in 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, the Company is allowed to borrow up to $29 million under the revolving credit facility based on a formula for eligible accounts receivable 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 of the Company to borrow against eligible inventory of raw material 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% to Libor plus 2.88%, while the revolver bears an interest rate that ranges from Libor plus 1.50% 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 classified 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%.

24

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.

Payable to Banks Under Term Loan 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 balance 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.

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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 its available bank lines of credit 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 consent of the Company’s current lenders, or through the issuance of equity securities.

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.

26

Impact of Inflation and Changing Prices

During fiscal 2007 and continuing through fiscal 2008, the Company experienced price increases 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 these increases. 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 Deferral of the Effective Date of Statements 157,” which delays 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 of 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

27

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.

Off Balance Sheet Arrangements

The Company is not involved in any off-balance sheet arrangements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Not required.

Item 8. Financial Statements and Supplementary Data

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

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A(T). Controls and Procedures

Evaluation of Disclosure Controls and Procedures

For the year ended February 29, 2008, 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, the 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.

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.

28

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, 2008 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:

• Intercompany Accounts – A material weakness existed with the recording, reconciling and elimination of intercompany account balances between the Company’s Domestic and foreign subsidiaries and amongst the Company’s foreign subsidiaries.

• Review of Foreign Operations – A material weakness existed with the local preparation and review of the financial results of certain of the Company’s foreign operations.

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, was not effective based on the criteria set forth by COSO in Internal 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’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 2009 to remediate the conditions leading to the above stated material weaknesses:

• Intercompany Accounts – (i) develop and implement standardized policy and procedure for the recording of inter-company transactions, (ii) identify, procure and implement an appropriate technology to record, match and track intercompany transactions, (iii) complete timely reconciliation of all intercompany accounts, and (iv) record in a timely manner the foreign currency translation and exchange rate gains or losses related to intercompany accounts.

• Review of Foreign Operations – (i) use of a comprehensive, standard financial close disclosure checklist, (ii) provide additional training to financial personnel at the Company’s foreign subsidiaries, and (iii) implement an internal review function over all foreign operations coordinated through the Company’s corporate office.

29

Changes in Internal Control over Financial Reporting

There were no changes during the quarter ended February 29, 2008 in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 9B. Other Information

None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

Information required by this item regarding directors and officers is incorporated by reference from the Company’s definitive Proxy Statement for its 2008 Annual Meeting of Stockholders to be filed no later than 120 days after February 29, 2008.

Item 11. Executive Compensation

Information required by this item regarding compensation of officers and directors is incorporated by reference from the Company’s definitive Proxy Statement for its 2008 Annual Meeting of Stockholders to be filed no later than 120 days after February 29, 2008.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information required by this item is incorporated by reference from the Company’s definitive Proxy Statement for its 2008 Annual Meeting of Stockholders to be filed no later than 120 days after February 29, 2008.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Information required by this item is incorporated by reference from the Company’s definitive Proxy Statement for its 2008 Annual Meeting of Stockholders to be filed no later than 120 days after February 29, 2008.

Item 14. Principal Accounting Fees and Services

Information required by this item is incorporated by reference from the Company’s definitive Proxy Statement for its 2008 Annual Meeting of Stockholders to be filed no later than 120 days after February 29, 2008.

31

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of the report:

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.

(b) List of Exhibits:

Exhibit No.	Description
2.1	Form of Agreement and Plan of Merger regarding the change in incorporation of the Company from a New York Corporation to a Delaware Corporation (1)
2.2	Stock Purchase Agreement dated October 21, 1997 between the Company and RCI Holdings, Inc.(2)
3.1	Certificate of Incorporation of the Company (1)
3.2	Amended and Restated Bylaws of the Company (12)
3.3	Form of Indemnification Agreement executed by Officers and Directors of the Company (1)
4.1	Form of specimen certificate for Common Stock of the Company (1)
9	Voting Trust Agreement, dated August 3, 1996, by and between Lewis Gould and Susan J. Gould(1)
10.1	Q.E.P. Co., Inc. Omnibus Stock Plan of 1996, as amended on July 9, 2004 (7)+
10.2	Employment Agreement dated May 1, 2002 by and between Lewis Gould and the Company. (3)+
10.7	Second Amended and Restated Loan Agreement dated November 14, 2002, by and among the Company, its subsidiaries, Fleet Capital Corporation, HSBC Bank USA and Fleet Capital Corporation, as agent. (3)
10.8	Form of Term Note, Domestic Advances Note, Foreign Advances Note and B.V. Note executed in connect with Second Amended and Restated Loan Agreement dated November 14, 2002. (3)
10.9	Agreement by the Company and Lewis Gould, dated May 12, 2003. (4)+
10.10	Agreement between the Company and Valfin, SA dated September 23, 2004. (6)
10.11	Liability and Asset Guarantee between Company and Valfin, SA dated September 23, 2004. (6)
10.12	QEP Executive Deferred Compensation Plan effective December 15, 2004.(8) +
10.13	Trust under the QEP Executive Deferred Compensation Plan dated December 27, 2004. (8)
10.14	Fourth Amendment and Waiver Agreement dated March 31, 2005 by and among the Company, its subsidiaries, Fleet Capital Corporation, HSBC Bank USA and Fleet Capital Corporation, as agent. (9)

32

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) +
10.24	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)
14.1	Code of Ethics for Senior Financial Officers. (5)
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)

⁽¹⁾ Filed with the Company’s Registration Statement on Form S-1, as amended (Reg. No. 333-07477) filed with the Securities and Exchange Commission, and incorporated herein by reference.

⁽²⁾ Filed with the Company’s Report on Form 8-K filed with the Securities and Exchange Commission on November 3, 1997, and incorporated herein by reference.

33

⁽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⁾ 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⁾ 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⁾ Filed with the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 1, 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⁾ 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⁾ 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⁾ 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.

⁽¹⁵⁾ Filed herewith.

+ Management contracts or compensatory plans or arrangements.

(c) The financial statement schedule filed as part of this report is listed separately in the Index to Financial Statements beginning on page F-1 of this report.

34

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.

Q.E.P. CO., INC.
By:	/s/ Lewis Gould
	Lewis Gould
	Chairman and Chief Executive Officer
	May 29, 2008

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Lewis Gould and Stuart F. Fleischer 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.

/s/ Lewis Gould	Chairman and Chief Executive Officer	May 29, 2008
Lewis Gould	(Principal Executive Officer)
/s/ Stuart F. Fleischer	Chief Financial Officer	May 29, 2008
Stuart F. Fleischer	(Principal Financial Officer and
	Principal Accounting Officer)
/s/ Emil Vogel	Director	May 29, 2008
Emil Vogel
/s/ David W. Kreilein	Director	May 29, 2008
David Kreilein
/s/ Leonard Gould	Director	May 29, 2008
Leonard Gould
/s/ Robert Walters	Director	May 29, 2008
Robert Walters

35

CONTENTS

	Page
Report of Independent Registered Public Accounting Firm	F-2
Financial Statements
Consolidated Balance Sheets	F-3
Consolidated Statements of Operations	F-4
Consolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss)	F-5
Consolidated Statements of Cash Flows	F-6
Notes to Consolidated Financial Statements	F-7 to F-30
Schedule II - Valuation and Qualifying Accounts	S-1

F-1

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, 2008 and February 28, 2007, 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, 2008 and February 28, 2007, 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.”

/s/ GRANT THORNTON LLP

Miami, Florida

May 29, 2008

F-2

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

Consolidated Balance Sheets

(In thousands, except par values)

	February 29, 2008			February 28, 2007
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	949		$	822
Accounts receivable, less allowance for doubtful accounts of approximately $431 and $354 as of February 29, 2008 and February 28, 2007, respectively		32,543			34,491
Inventories (Note G)		26,496			27,042
Prepaid expenses and other current assets		2,505			1,349
Deferred income taxes (Note M)		754			1,299
Total current assets		63,247			65,003
Property and equipment, net (Note H)		7,851			6,770
Deferred income taxes, net (Note M)		1,787			2,764
Goodwill (Note I)		9,685			9,563
Other intangible assets, net (Note I)		2,717			2,831
Other assets		339			225
Total Assets	$	85,626		$	87,156
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Trade accounts payable	$	15,968		$	18,037	*
Accrued liabilities		11,690			9,769	*
Lines of credit (Note J)		24,537			27,405
Current maturities of long term debt (Note J)		1,977			4,085
Put warrant liability (Note J)		—			861
Total current liabilities		54,172			60,157	*
Notes payable (Note J)		4,472			2,398
Other long-term debt (Note J)		250			2,551
Other long-term liabilities		377			—
Total Liabilities		59,271			65,106	*
Commitments and Contingencies (Note K)		—			—
SHAREHOLDERS’ EQUITY
Preferred stock; 2,500 shares authorized, $1.00 par value; 337 shares issued and outstanding at February 29, 2008 and February 28, 2007 (Note O)		337			337
Common stock; 20,000 shares authorized, $.001 par value; 3,528 shares and 3,523 shares issued, and 3,433 shares and 3,440 shares outstanding at February 29, 2008 and February 28, 2007, respectively		3			3
Additional paid-in capital		10,154			9,981
Retained earnings		16,574			14,770	*
Treasury stock; 95 and 83 shares held at cost at February 29, 2008 and February 28, 2007, respectively (Note O)		(756	)		(639	)
Accumulated other comprehensive income (loss)		43			(2,402	)
		26,355			22,050	*
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	85,626		$	87,156

* Amounts revised. See Note D to the Consolidated Financial Statements.

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

F-3

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

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share data)

	Year Ended
	February 29, 2008			February 28, 2007
Net sales (Note F)	$	217,505		$	216,006
Cost of goods sold		154,684			156,658	*
Gross profit		62,821			59,348	*
Costs and expenses:
Shipping		23,037			23,577
General and administrative		18,051			19,355
Selling and marketing		13,166			12,581
Impairment loss on goodwill and other intangibles		—			7,520
Other expense (income), net		(1,118	)		(43	)
Total costs and expenses		53,136			62,990
Operating income (loss)		9,685			(3,642	) *
Change in put warrant liability (Note J)		(1,439	)		1,437
Interest expense, net		(2,538	)		(2,977	)
Income (loss) before provision for income taxes		5,708			(5,182	) *
Provision for income taxes (Note M)		3,512			624	*
Net income (loss)	$	2,196		$	(5,806	) *
Net income (loss) per share:
Basic	$	0.63		$	(1.71	) *
Diluted	$	0.61		$	(1.71	) *
Weighted average number of common shares outstanding
Basic		3,435			3,411
Diluted		3,588			3,411

* Amounts revised. See Note D to the Consolidated Financial Statements.

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

F-4

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

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

(In thousands, except share data)

	Preferred Stock			Common Stock			Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Shareholders’ Equity			Comprehensive Income (Loss)
	Shares	Amount		Shares	Amount
Balance at Feb 28, 2006	336,660	$	337	3,458,341	$	3	$	9,539	$	21,205		$	(3,524	)	$	(543	)	$	27,017		$	(68	)
Cumulative effect of adjustments resulting from the adoption of SAB 108, net of tax										(607	)								(607	)
Adjusted balance at Feb 28, 2006	336,660	$	337	3,458,341	$	3	$	9,539	$	20,598		$	(3,524	)	$	(543	)	$	26,410
Net loss										(5,806	)								(5,806	)	$	(5,806	) *
Foreign currency translation adjustment													644						644			644
Realized foreign currency translation adjustment													478						478			478
Stock option expense								145											145
Purchase of Treasury Stock																(96	)		(96	)
Issuance of stock in connection with the exercise of stock options				65,000		—		297											297
Dividends										(22	)								(22	)
Balance at Feb 28, 2007	336,660	$	337	3,523,341	$	3	$	9,981	$	14,770		$	(2,402	)	$	(639	)	$	22,050		$	(4,684	) *
Cumulative effect of adjustments resulting from the adoption of FIN 48										(370	)								(370	)
Adjusted balance at Feb 28, 2007	336,660	$	337	3,523,341	$	3	$	9,981	$	14,400		$	(2,402	)	$	(639	)	$	21,680				*
Net income										2,196									2,196		$	2,196
Foreign currency translation adjustment													2,122						2,122			2,122
Realized foreign currency translation adjustment													323						323			323
Stock option expense								139											139
Purchase of Treasury Stock																(117	)		(117	)
Issuance of stock in connection with the exercise of stock options				5,000		—		34											34
Dividends										(22	)								(22	)
Balance at Feb 29, 2008	336,660	$	337	3,528,341	$	3	$	10,154	$	16,574		$	43		$	(756	)	$	26,355		$	4,641

* Amounts revised. See Note D to the Consolidated Financial Statements.

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

F-5

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended
	February 29, 2008			February 28, 2007
Cash flows from operating activities:
Net income (loss)	$	2,196		$	(5,806	)  *
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		2,089			2,568
Impairment loss on goodwill and other intangibles		—			7,520
Change in fair value of put warrant liability (Note J)		1,439			(1,437	)
Write-off of accumulated foreign translation adjustment		323			478
Bad debt expense		284			313
Gain on sale of plant and equipment		(135	)		—
Gain on sale of businesses		(547	)		—
Stock-based compensation expense		244			171
Deferred income taxes (Note M)		1,522			(3,657	)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		1,708			(1,256	)
Inventories		(254	)		7,355
Prepaid expenses		(1,126	)		2,381
Other assets		115			(78	)
Trade accounts payable and accrued liabilities		(646	)		(3,693	)  *
Net cash provided by operating activities		7,212			4,859
Cash flows from investing activities:
Capital expenditures		(2,981	)		(730	)
Proceeds from sales of equipment		244			—
Proceeds from sales of businesses		3,801			—
Net cash provided by (used in) investing activities		1,064			(730	)
Cash flows from financing activities:
Net borrowings under lines of credit (Note J)		(3,202	)		443
Borrowings of long term debt (Note J)		3,509			—
Repayments of notes payable (Note J)		(3,218	)		(2,771	)
Repayments of acquisition debt (Note J)		(2,948	)		(1,885	)
Settlement of put warrant liability (Note J)		(2,300	)		—
Purchase of treasury stock		(120	)		(120	)
Proceeds from exercise of stock options		34			297
Dividends		(22	)		(22	)
Net cash used in financing activities		(8,267	)		(4,058	)
Effect of exchange rate changes on cash		118			(101	)
Net increase (decrease) in cash		127			(30	)
Cash and cash equivalents at beginning of year		822			852
Cash and cash equivalents at end of year	$	949		$	822

* Amounts revised. See Note D to the Consolidated Financial Statements.

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

F-6

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE A – DESCRIPTION OF BUSINESS

Q.E.P. Co., Inc. (the “Company”) is a leading manufacturer, marketer and distributor of a broad line of specialty tools and flooring related products for the home improvement market. Under brand names including Q.E.P.®, ROBERTS®, Capitol®, QSet^™, Vitrex® and Elastiment^™, the Company markets specialty tools and flooring related products used primarily for the surface preparation and installation of ceramic tile, carpet, vinyl and wood flooring. Q.E.P. and its subsidiaries market approximately 3,000 products in the U.S., Canada, Europe, Australia and Latin America. The Company sells its products primarily to large home improvement retail centers, as well as traditional distribution outlets in all the markets it serves.

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. Principles of Consolidation

The consolidated financial statements include the accounts of Q.E.P. Co., Inc. and its wholly owned subsidiaries, after eliminating all significant inter-company accounts and transactions.

2. Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents include $0.9 million and $0.8 million of foreign balances as of February 29, 2008 and February 28, 2007, respectively.

3. 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. An account may be determined to be uncollectible if all collection efforts have been exhausted, the customer has filed for bankruptcy, and all recourse against the account is exhausted, or disputes are unresolved and negotiations to settle are exhausted. Uncollectible accounts are written off against the allowance. Payments subsequently received on such receivables are credited to the allowance for doubtful accounts.

4. Inventories

Inventories are stated at the lower of standard cost or market, which approximates first-in, first-out or net realizable value.

5. Property and Equipment

Property and equipment are stated at cost. Depreciation is recorded using the straight-line method in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives. Leasehold improvements are amortized over their expected useful life or the remaining life of the respective lease, whichever is shorter.

F-7

The following are the estimated lives of the Company’s property and equipment:

Machinery and warehouse equipment	5 to 10 years
Furniture and computer equipment	3 to 10 years
Capital leases	3 to 5 years
Building	30 to 33 years
Leasehold improvements	5 to 15 years

Maintenance and repairs are charged to expense and significant renewals and betterments are capitalized. When property is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in operations for the period.

6. Goodwill and Other Intangible Assets

Goodwill is tested for impairment in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, using a fair value approach applied to each reporting unit. Impairment charges are recognized for amounts where the reporting unit’s goodwill exceeds its fair value. The Company amortizes the cost of other intangibles over their estimated useful lives. Amortizable intangible assets may also be tested for impairment if indications of impairment exist. The impairment test is based on a valuation provided by an independent appraiser and, if the asset is impaired, it is written down to fair value. The Company’s annual impairment assessment date is August 31^st.

7. Impairment of Long-Lived Assets

The Company evaluates its long-lived assets and definite-lived intangibles for impairment in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, whenever events or circumstances indicate that the carrying amount of such assets or intangibles may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to its fair value as provided by an independent appraiser. If such an asset is considered to be impaired, the impairment to be recognized is the amount by which the carrying amount of the asset exceeds its fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

8. Income Taxes

The Company accounts for income taxes in accordance with Statement of Financial Accounting Standard No. 109, or FAS 109, Accounting for Income Taxes, as clarified by FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“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.

F-8

9. Leases

Leases which meet certain criteria are classified as capital leases. For such leases, assets and obligations are recorded initially at the present value of the contractual lease payments. The capitalized leases are amortized using the straight-line method over the shorter of the assets’ estimated economic lives or the term of the lease. Interest expense relating to the lease liabilities is recorded to affect a constant rate of interest over the terms of the obligations. Leases not meeting capitalization criteria are classified as operating leases and related rentals are charged to expense as incurred.

10. Stock-Based Compensation

The Company grants stock options for a fixed number of shares to employees and directors with an exercise price equal to at least 85% of the fair market value of the shares at the date of grant. As of the current date, however, no options have been issued at a discount to market price. The Company adopted SFAS 123(R), “Share-Based Payments”, in the first quarter of fiscal 2007. In accordance with the provisions of SFAS 123(R), the Company has recognized compensation expense related to outstanding stock options that vested in fiscal 2007 and 2008.

No stock options were granted in fiscal 2008. The weighted average fair value at date of grant for options granted during fiscal 2007 was $2.78 per option. The fair value of each option at date of grant was estimated using the Black-Scholes option pricing model with the weighted average assumptions for grants noted in the table below. Expected volatility is based on the historical volatility of the Company’s stock. The expected lives of the options represents the period that the options granted are expected to be outstanding and was calculated based on historical averages. The risk free rate is based on the yield curve of a zero coupon U.S. Treasury bond. The Company does not expect to pay a dividend on common stock.

	2007
Expected stock price volatility	39.3	%
Expected lives of options:
Directors and officers	4.2 years
Employees	4.2 years
Risk-free interest rate	4.8	%
Expected dividend yield	0.0	%

11. Earnings Per Share

Basic earnings per share is computed based on weighted average shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. Dilutive common stock equivalent shares consist of the dilutive effect of stock options and warrant common stock equivalents.

12. Fair Value of Financial Instruments

The following methods and assumptions were used in estimating the indicated fair values of financial instruments:

Cash and cash equivalents: The carrying amount approximates fair value due to the short maturity of these instruments.

Trade accounts receivable and payable: The carrying amount approximates fair value due to the short maturity of these instruments.

F-9

Short term debt: The carrying amount approximates fair value due to the short maturity of these instruments.

Long term debt: The fair value of the Company's borrowings approximates the carrying value based on current rates offered to the Company for similar debt.

13. Foreign Currencies

The financial statements of subsidiaries outside the United States are generally measured using the local currency as the functional currency. Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Translation adjustments resulting from this process are charged or credited to equity. Revenues, costs and expenses are translated at average rates of exchange prevailing during the year. Gains and losses on foreign currency transactions are included in general and administrative expenses. In fiscal 2008, a gain of $0.1 million was recorded on foreign currency transactions, which included a net loss of $0.3 million for the write-off of the accumulated foreign currency translation associated with the disposition of one of the Company’s UK operations (see Note C). A net loss of $0.4 million was recorded in fiscal 2007 for foreign currency transactions.

14. Revenue Recognition

Sales are recognized when merchandise is shipped and title has passed to the customer, the selling price is fixed and determinable and collectibility of the sales price is reasonably assured. Such revenue is recorded net of estimated sales returns, discounts and allowances. The Company establishes reserves for returns and allowances based on current and historical information and trends. Sales and accounts receivable have been reduced by such amounts. The Company adopted Emerging Issues Task Force (EITF) Issue 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation).” EITF Issue 06-3 became effective for the Company on March 1, 2007. This adoption has not had an impact on the Company’s financial statements as the Company has not changed its existing accounting policy which is to present taxes within the scope of EITF Issue 06-3 on a net basis.

The Company accounts for upfront consideration given to customers as a reduction to revenue in accordance with EITF Issue 01-9, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)”. Where the Company has an agreement with the customer in which the Company expects to receive a benefit from the incentive over time and the Company can control the benefit through a legally enforceable contract, the incentive is recorded as a deferred cost and is amortized as a reduction to revenue over the term of the agreement. Otherwise, the incentive is recorded as a reduction to revenue at the earlier of the Company making payment or incurring an obligation to the customer. The Company evaluates the recoverability of incentives recorded as a deferred cost on a quarterly basis. Prepaid expenses and other current assets include $0.7 million of deferred customer incentives as of February 29, 2008.

15. Shipping and Handling Costs

Shipping and handling costs are classified as a separate operational expense on the accompanying Consolidated Statements of Operations. Shipping costs billed to customers are included in sales.

16. Advertising Costs

Advertising costs are expensed as incurred and totaled $0.1 million and $0.2 million for the year ended February 29, 2008 and February 28, 2007, respectively. These costs are recorded in selling and marketing expenses and primarily consist of advertisement in trade publications.

Advertising allowances are expensed as incurred and totaled $4.1 million and $3.7 million for the year ended February 29, 2008 and February 28, 2007, respectively. The majority of these allowances were paid to the Company’s two largest customers. In return, the Company receives and tracks the advertising in various forms of media of its products on a local, regional and national level. These retailers also display the Company’s products on in-store signage and sends advertising of the Company’s products directly to its professional contractor customers. The Company is not able to reasonably estimate the fair value of the benefit received under these arrangements. Accordingly, consistent with the guidance under Emerging Issues Task Force 01-9,

F-10

“Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)”, the Company accounts for these promotional funds as a reduction to the selling price and the costs are netted against gross sales.

17. Adoption of SAB No. 108

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”, which provides interpretive guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB No. 108 is effective for fiscal years ending after November 15, 2006, and therefore was effective for the Company in fiscal 2007. In accordance with SAB No. 108, the cumulative effect of the initial application of SAB No. 108 was reported in the carrying amount of assets and liabilities, with the offsetting balance to retained earnings. Upon adoption, the Company recorded as of March 1, 2006, a decrease in inventory of $0.8 million for excess capitalized inventory costs, a decrease in accrued liabilities, inclusive of income tax, of $0.2 million for various obligations and a decrease in retained earnings of $0.6 million to correct for errors arising prior to fiscal 2007 that were considered immaterial under the Company’s previous method of evaluating materiality.

18. Use of Estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States, management is required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Significant estimates include the valuation of stock options, income taxes, the allowance for doubtful accounts, inventory valuation reserves, depreciation and amortization. Actual results could differ from those estimates.

19 Comprehensive Income (Loss)

Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company’s balance in comprehensive income (loss) is specifically derived from foreign currency translation adjustments. The Company presents accumulated other comprehensive income (loss), net of taxes, in its consolidated statement of shareholders’ equity.

NOTE C – SALE OF BUSINESSES

On May 4, 2007, the Company entered into agreements with Bon Tool Co., a US supplier 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. Proceeds for the sale are required to be paid over a period of one year, subject to specified minimum and maximum payments, based on the gross margin realized by the purchaser upon the sale of purchased inventory. The sale proceeds are collateralized by a first priority lien on unsold inventory. The assets sold consist mainly of inventory with a cost of approximately $1.3 million at May 31, 2007. During fiscal 2008, the Company recorded a loss on the sale of the O’Tool operation of $0.1 million, which is recorded in other expense. This transaction was not disclosed as a discontinued operation due to the immateriality of the transaction to the Company’s overall operation.

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 cash and the Company recorded a gain on the sale of the Stone Holdings operation of approximately $0.6 million in fiscal 2008, which is recorded in other income. This transaction was not disclosed as a discontinued operation due to the immateriality of the transaction to the Company’s overall operation.

In fiscal 2007, the Company entered into a license and royalty agreement with Estillon B.V., a European supplier of carpet specialty tools, granting Estillon the rights to manufacture, market and distribute products using the Company’s Roberts® and Smoothedge® brand names to customers, other than mass merchants, within certain continental European countries. On October 24, 2007, the Company expanded its license and royalty agreement with Estillon B.V to include Great Britain and Ireland. At the same time, additional agreements were executed with Estillon whereby Estillon purchased inventory and accounts receivable from the Company in exchange for cash. The Company recorded a charge of $0.3 million for the write-off of the Roberts UK‘s accumulated foreign currency translation adjustment during fiscal 2008, which is recorded in general and administrative expenses. This transaction did not qualify for treatment as a discontinued operation due to the Company’s continued involvement in the market through the license and royalty agreement. For fiscal 2008, the Company recorded royalty income of $0.2 million in other income related to the arrangement with Estillion in continental Europe.

F-11

NOTE D – REVISION OF PRIOR PERIOD AMOUNTS

During the fourth quarter of fiscal 2008, the Company discovered an accounting error at one of the Company’s foreign subsidiaries relating to the accrual for trade accounts payable which caused cost of goods sold to be understated and the related tax expense to be overstated in fiscal 2007 by $0.3 million and $0.1 million, respectively. This error had no impact on the previously reported cash flows from operating, financing or investing activities, and is considered immaterial to the Company’s previously reported results of operations for fiscal 2007. However, since the cumulative impact of this error would be material to the results of operations for fiscal 2008, the Company applied 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”). This guidance requires that the prior period financial statements be corrected, even though the revision was immaterial to the prior period financial statements.

Based on SAB 108, the prior period income statement and balance sheet amounts have been corrected to include the following adjustments (in thousands):

	Cost of Goods Sold						Income Tax Provision							Net Income
	Reported		Adjustment		Revised		Reported		Adjustment			Revised		Reported			Adjustment			Revised
Fiscal 2007	$	156,326	$	332	$	156,658	$	723	$	(99	)	$	624	$	(5,573	)	$	(233	)	$	(5,806	)
	Accounts Payable						Accrued Liabilities							Retained Earnings
	Reported		Adjustment		Revised		Reported		Adjustment			Revised		Reported			Adjustment			Revised
Fiscal 2007	$	17,705	$	332	$	18,037	$	9,868	$	(99	)	$	9,769	$	15,003		$	(233	)	$	14,770

The statement of cash flows has been corrected to include the following adjustments (in thousands):

	Change in Accounts Payable and Accrued Liabilites								Net Cash Provided by Operating Activities
	Reported			Adjustment		Revised			Reported		Adjustment		Revised
Fiscal 2007	$	(3,926	)	$	233	$	(3,693	)	$	4,859	$	—	$	4,859

NOTE E – EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income, after deducting preferred stock dividends accumulated during the period, by the weighted average number of shares of common stock outstanding. Diluted earnings per share is computed by dividing net income, after deducting preferred stock dividends accumulated during the period, by the weighted average number of shares of common and dilutive common stock equivalent shares outstanding. The amount of preferred stock dividends is immaterial in all periods presented. There were 0.1 million and 0.7 million common stock equivalent shares excluded from the dilutive earnings per share calculation because they were anti-dilutive in fiscal 2008 and fiscal 2007, respectively. The following is a reconciliation of the number of shares used in the basic and diluted computation of income per share (in thousands):

	Year Ended
	February 29, 2008	February 28, 2007
Weighted average number of common shares outstanding - basic	3,435	3,411
Dilution from stock options and warrants	153	—
Weighted average number of common shares outstanding - diluted	3,588	3,411

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NOTE F – SEGMENT INFORMATION

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, except Canada, which is managed by members of the Domestic segment’s senior management team, being the responsibility of a segment manager. 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 operations in the UK, France and Holland. The Australia/New Zealand segment is made up of operations in Australia and New Zealand. The Other segment is made up of operations in Latin America and Asia. Segment results were as follows (in thousands):

	Year Ended
	2008			2007
Revenues
Domestic	$	143,762		$	148,687
Canada		23,909			21,029
Europe		19,682			20,945
Australia/New Zealand		26,795			22,334
Other		3,357			3,011
	$	217,505		$	216,006
Operating income (loss)
Domestic	$	7,054		$	(3,012	)
Canada		3,864			2,556
Europe		(1,389	)		(2,816	)
Australia/New Zealand		792			662	*
Other		(636	)		(1,032	)
Subtotal		9,685			(3,642	) *
Change in put warrant liability		(1,439	)		1,437
Interest income		21			—
Interest expense		(2,559	)		(2,977	)
Income (loss) before provision for income taxes	$	5,708		$	(5,182	) *

* Amounts revised. See Note D.

F-13

	Year Ended
	2008		2007
Depreciation expense
Domestic	$	778	$	1,057
Canada		483		461
Europe		136		221
Australia/New Zealand		320		305
Other		49		41
	$	1,766	$	2,085
	February 29, 2008		February 28, 2007
Total assets
Domestic	$	49,949	$	53,779
Canada		9,594		8,319
Europe		9,943		10,862
Australia/New Zealand		13,499		11,768
Other		2,641		2,428
	$	85,626	$	87,156
	Year Ended
	2008		2007
Capital expenditures
Domestic	$	2,674	$	197
Canada		16		21
Europe		64		3
Australia/New Zealand		179		394
Other		48		115
	$	2,981	$	730

The fiscal 2007 operating income includes the non-cash charge for the impairment of goodwill and other intangibles in the Company’s Domestic segment of $6.2 million, Europe segment of $1.0 million and Other segment of $0.3 million.

The results from the Canadian operations are included as their own segment according to the provisions of Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information”. The reported results do not contain allocations of corporate expenses and sales infrastructure and their product costs are not burdened based on Canada’s level of sales to external customers.

Amounts are attributed to the country of the legal entity that recognized the sale or holds the assets. The intercompany sales are billed at prices established by the Company. The price takes into account the product cost and overhead of the selling location.

NOTE G – INVENTORIES

Inventories consisted of the following (in thousands):

	February 29, 2008	February 28, 2007
Raw materials and work-in-process	3,891	4,703
Finished goods	22,605	22,339
	26,496	27,042

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NOTE H – PROPERTY AND EQUIPMENT

Property, plant and equipment consisted of the following (in thousands):

	February 29, 2008		February 28, 2007
Machinery and warehouse equipment	8,551		9,069
Office furniture, equipment and computer equipment	7,975		8,735
Building and leasehold improvements	7,209		4,668
	23,735		22,472
Less: Accumulated depreciation and amortization	(15,884	)	(15,702	)
	7,851		6,770

On September 28, 2007, the Company purchased a manufacturing and distribution facility situated on 5.8 acres of land in the City of Adelanto, San Bernardino County, California. The Company’s previous distribution operation in Henderson, Nevada, was relocated to the Adelanto facility in January 2008. The Company paid approximately $2.0 million for the Adelanto facility. The purchase price and other related costs, which totaled $0.1 million, were allocated to land, building and machinery in the amounts of $0.4 million, $1.3 million and $0.4 million, respectively.

Depreciation expense of property and equipment was $1.8 million and $2.1 million for fiscal 2008 and 2007, respectively. Amortization of assets recorded under capital leases is included in depreciation expense.

NOTE I – INTANGIBLE ASSETS

Under Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” ("SFAS No. 142"), intangible assets with definite lives are amortized while intangibles with indefinite lives, such as goodwill, are tested annually for impairment or when events or changes in circumstances indicate the carrying value may not be recoverable. The Company performs an impairment test on goodwill during the second quarter of each fiscal year. The Company performed an impairment test during the second quarter of fiscal 2008 and determined that there was no impairment to goodwill. The impairment test in fiscal 2007 resulted in an impairment charge of $7.5 million. The Company will continue to assess the impairment of goodwill and other assets in accordance with SFAS No. 142 in the future. If the Company’s operating performance and resulting cash flows in the future are less than expected, an additional impairment charge could be incurred which may have a material impact on the Company’s results of operations.

The changes in the carrying amount of goodwill were as follows (in thousands):

	Goodwill
Balance on February 28, 2006	$	16,799
Additions to goodwill		—
Goodwill impairment		(7,457	)
Translation adjustments		221
Balance on February 28, 2007		9,563
Additions to goodwill		—
Reductions to goodwill due to sale of businesses		(423	)
Translation adjustments		545
Balance on February 29, 2008	$	9,685

F-15

All other intangible assets are subject to amortization. The total balance of intangible assets is classified as follows (in thousands):

		February 29, 2008							February 28, 2007
	Weighted Avg Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Trademarks	20		3,081		(1,165	)		1,916		3,007		(986	)		2,021
Other intangibles	5		1,419		(618	)		801		1,303		(493	)		810
		$	4,500	$	(1,783	)	$	2,717	$	4,310	$	(1,479	)	$	2,831

The balance of goodwill by segment as of February 29, 2008 is as follows: Domestic $6.5 million, Canada $1.0 million, Europe $0.4 million and Australia/New Zealand $1.8 million. No goodwill remains in the Other segment.

Other intangibles include customer lists, non-compete agreements, patents and financing fees. Amortization expense of $0.3 million was recorded related to intangible assets in both fiscal 2008 and fiscal 2007. The following table provides information regarding estimated amortization expense for each of the following years ending February 28 or 29 (in thousands):

2009	$	287
2010		247
2011		229
2012		228
2013		202
Thereafter		1,524
	$	2,717

NOTE J – DEBT AND PUT WARRANT LIABILITY

Total debt consists of the following (in thousands):

	February 29, 2008		February 28, 2007
Payable to banks under revolving credit facilities	$	24,537	$	27,405
Payable to banks under term loan credit facilities		1,748		3,087
Payable to banks under mortgage agreements		3,561		1,730
Acquisition notes payable		975		4,042
Other debt, including capital leases		415		175
	$	31,236	$	36,439
Less current installments		26,514		31,490
Long Term Debt	$	4,722	$	4,949

Payable to banks under revolving credit facilities

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, the Company is allowed to borrow a maximum of $29 million under the revolving credit facility based on a formula for eligible accounts receivable and inventory. On April 26, 2007, the loan agreement was amended to make certain financial covenants less restrictive from February 28, 2007 through July 2008 and to increase the ability of the Company to borrow against eligible inventory of raw material 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% to Libor plus 2.88%, while the revolver bears an interest rate that ranges from Libor plus 1.50% 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

F-16

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 classified 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%.

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.

Payable to Banks Under Term Loan Facilities

The Company has a term loan financing arrangement under the asset based loan agreement 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 balance 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.

Payable to a Bank Under Mortgage Agreements

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 of 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.

F-17

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.

Acquisition Notes Payable

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 in other income 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.

Put Warrant Liability

In connection with a 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. When 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.

F-18

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 aggregate maturities of all debt maturing during each of the next five years as of February 29, 2008, is as follows (in thousands):

2009	$	26,514
2010		1,116
2011		810
2012		1,530
2013		1,254
Thereafter		12
Total		31,236
Less current portion		26,514
Total	$	4,722

Interest paid for all debt was $2.7 million and $3.0 million in fiscal 2008 and 2007, respectively.

There were approximately $0.4 million and $0.2 million, respectively, outstanding under capital lease arrangements at the end of fiscal 2008 and fiscal 2007 respectively. The assets purchased under capital leases are composed primarily of manufacturing equipment and the latest maturity date on the final lease is October 2012.

NOTE K – COMMITMENTS AND CONTINGENCIES

The Company provides accruals for all direct costs associated with the estimated resolution of contingencies at the earliest date at which it is deemed probable that a liability has been incurred and the amount of such liability can be reasonably estimated.

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 proceeding in which the Company is involved will have a material adverse impact on the Company.

1. Future Minimum Obligations

The Company conducts its operations from various leased facilities. Future minimum payments under non-cancelable operating leases consist of the following in fiscal years ending after February 29, 2008 (in thousands):

2009	$	2,045
2010		1,683
2011		1,311
2012		754
2013		770
Total	$	6,563

Total rent expense under non-cancelable operating leases approximated $ 2.5 million and $ 2.6 million in fiscal 2008 and 2007, respectively.

2. Contingencies.

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

F-19

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. Based on information currently available to management, the Company is not aware of any situation requiring remedial action by the Company or which would expose the Company to liability under Environmental Laws which are reasonably expected to have a material adverse effect on the Company as a whole. 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. From fiscal 1999 through fiscal 2008, the Company has spent approximately $0.9 million and anticipates spending less than $0.1 million on ongoing monitoring of wells and other environmental activity per year for approximately the next three years. The accrued liability at February 29, 2008 was approximately $0.1 million.

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 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 is 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.

On October 15, 2007, the court entered an order of dismissal approving the Stipulation of Dismissal Without Prejudice jointly filed by the plaintiff and the Company on October 4, 2007 as to the Company as a Defendant, providing for the voluntary dismissal of plaintiff's claims against the Company in Greene v. Ashland Chemical, Inc., et al., Case No. 03-CV-231458, Div. 7, which matter was pending in the Circuit Court of Jackson County, Missouri at Kansas City. In this wrongful death matter, the plaintiff alleged that the Company, and Roberts Consolidated Industries, Inc., a wholly owned subsidiary of the Company, along with more than 30 other defendants, manufactured products containing benzene with which the plaintiff came into contact while

F-20

working between approximately 1954 and 1999, and which allegedly caused his death. This action was originally instituted against the Company on August 11, 2006, when the plaintiff served the Company with a petition for unspecified damages. An answer to the complaint was filed in December 2006 denying the allegations and asserting several defenses.

On December 13, 2007, the court entered an Order and Judgment approving the confidential settlement reached in mediation that occurred on November 16, 2007, in the case of Imogene Calcaterra-Lepique and C.C., by and through her Next Friend, Brenda O’Neal v. Q.E.P. Co., Inc. and Roberts Consolidated Industries, Inc., Home Depot, Inc., General Electric Co., and Rheem Mfg. Co., Case No. 4:06-CV-1050 CAS, which matter was pending in the US District Court for the Eastern Distinct of Missouri. The Company’s insurers funded the Company’s settlement payment in its entirety. In this wrongful death case, originally instituted against the Company on July 12, 2006, plaintiffs alleged that the decedent suffered burns, allegedly causing his death, when installing carpet using Roberts 4000 carpet adhesive, a product manufactured by Roberts Consolidated Industries, Inc., a wholly owned subsidiary of the Company. Plaintiffs alleged that fumes from the Roberts 4000 caused the fire that injured the decedent. The plaintiff originally sought $20,000,000 in damages.

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.

NOTE L – 401(k) BENEFIT PLAN

The Company and its subsidiaries offer a 401(k) benefit plan which provides for voluntary contributions by employees subject to a maximum annual contribution. The Company may, at the discretion of the board of directors, make contributions to the plan. The Company contributed approximately $0.1 million in each of the years ended February 29, 2008 and February 28, 2007.

On December 27, 2004, the Company adopted the QEP Executive Deferred Compensation Plan (the “Deferred Plan”) effective December 15, 2004. The purpose of the Deferred Plan is to provide participants with an opportunity to defer receipt of a portion of their salary, bonus, and other specified cash compensation. Participation in the Deferred Plan is limited to employees who are part of a select group of management or highly compensated employees of the Company. The Company also entered into a Trust under the QEP Executive Deferred Compensation Plan (the “Trust”) with Reliance Trust Company as the trustee. The Trust will be a “rabbi trust” and will be used to set aside the amounts of deferred compensation allocated to the participants in the Plan and the earnings from the investment of such amounts. As of February 29, 2008 and February 28, 2007, the Company’s liability under the Deferred Plan was approximately $0.2 million.

NOTE M – INCOME TAXES

Income (loss) before provision for income taxes consisted of the following (in thousands):

	Year Ended February 29 or 28,
	2008		2007
United States	$	4,534	$	(3,711	)
Foreign		1,174		(1,471	)  *
Total	$	5,708	$	(5,182	)  *

* Amounts revised. See Note D.

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The components of the provision for income taxes are as follows (in thousands):

	Year Ended February 29 or 28,
	2008			2007
Current:
Federal	$	150		$	2,857
State		579			392
Foreign		1,261			1,032	*
		1,990			4,281	*
Deferred:
Federal		1,553			(3,440	)
State		(323	)		(243	)
Foreign		292			26
		1,522			(3,657	)
Total income tax provision	$	3,512		$	624	*

* Amounts revised. See Note D.

The tax effects of temporary differences which give rise to deferred tax assets / (liabilities) are as follows (in thousands):

	February 29 or 28,
	2008			2007
Deferred Tax Assets:
Provision for doubtful accounts	$	104		$	55
Accrued expenses		968			542
Fixed assets		373			134
Intangible assets		794			1,028
Inventory		883			378
Federal and State net operating loss		437			2,282
Foreign net operating loss carryforward		2,824			2,186
Foreign tax credit carryforward		627			601
Other		102			—
		7,112			7,206
Less: valuation allowance on certain foreign net operating loss carryforwards and foreign tax credit carryforwards		(3,360	)		(2,658	)
Total deferred tax assets		3,752			4,548
Deferred Tax Liabilities:
Prepaid expenses		(500	)		—
Foreign exchange gain on long-term debt		(619	)		(320	)
Other		(92	)		(165	)
Total deferred tax liabilities		(1,211	)		(485	)
Net deferred tax asset	$	2,541		$	4,063

F-22

The Company has a net operating loss carryforward of approximately $0.2 million which expire in the years 2009 through 2011, all of which relate to the Company’s acquisitions in fiscal 2000. The net operating loss carry forward is subject to separate IRC Section 382 Limitation. The Section 382 limitation limits the Company's utilization of its net operating losses to an annual amount after an ownership change.

The Company has various US state net operating loss carryforwards of approximately $6.0 million.

The Company has net operating losses in various foreign countries of approximately $9.6 million. Approximately $6.7 million of these losses expire in the years 2009 through 2015 and the remainder have no limitation on their expiration. The Company has recorded a deferred tax asset based on its estimate of the recoverability of the balance of the foreign net operating losses. Further, the Company has determined that certain foreign net operating losses may not be realized; therefore, a valuation allowance of approximately $2.7 million has been established.

The Company has a foreign tax credit carry forward of approximately $0.6 million which begin to expire in 2017. The Company has determined that utilization of these tax credits may not be realized; therefore, a full valuation allowance has been established. The net change in the valuation allowance is $0.7 million.

During the fourth quarter of fiscal 2005, the Company determined, based on an independent appraisal, that the Company’s Holland subsidiary was insolvent and therefore met the requirements for a worthless stock and bad debt deduction under the Internal Revenue Code. Accordingly, the Company recognized the United States tax benefit of $1.6 million during fiscal 2005. This matter was under exam by the IRS and was settled during fiscal 2008.

During fiscal 2008, the IRS approved the position taken by the Company with regards to the worthless stock and bad debt deduction. As a result of this settlement, the Company reclassified the $5.8 million of its net operating loss carryforward as disclosed in the prior year Form 10-K, and instead elected to carryback the loss to fiscal 2003 and 2004. The Company has used this refundable tax as a credit towards the fiscal 2008 tax liability. In addition, as a result of this settlement, $0.5 million of the FIN 48 provision has been released.

The following is a reconciliation of the statutory federal income tax rate to the effective rate reported in the financial statements (in thousands except percentage data):

	Year Ended February 29 or 28,
	2008					2007
	Amount			%		Amount			%
Provision for federal income taxes at the statutory rate	$	1,941		34.0	%	$	(1,762	)*	-34.0	%
State and local income taxes-net of federal income tax benefit		168		2.9	%		252		4.9	%
Put warrant liability		488		8.5	%		(488	)	-9.4	%
Goodwill impairment/charge		52		0.9	%		812		15.7	%
Change in valuation allowance		702		12.3	%		1,512		29.2	%
US tax on foreign deemed dividend		—		—			511		9.9	%
Foreign tax rate differential		445		7.8	%		(90	)	-1.7	%
Net change in FIN 48 reserve		(519	)	-9.1	%		—		—
Other		235		4.1	%		(123	)	-2.4	%
Actual provision	$	3,512		61.5	%	$	624	*	12.2	%

* Amounts revised. See Note D.

F-23

In June 2006, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (“FIN 48”). On March 1, 2007, the Company adopted the provisions of FIN 48. FIN 48 provides recognition criteria and a related measurement model for tax positions taken by companies. In accordance with FIN 48, a tax position is a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets and liabilities. Tax positions shall be recognized only when it is more likely than not (likelihood of greater than 50%), based on technical merits, that the position will be sustained upon examination. Tax positions that meet the more likely than not threshold should be measured using a probability weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. At the adoption date, the Company applied FIN 48 to all tax positions for which the statute of limitations remained open.

Prior to adopting FIN 48, the Company had recorded approximately $0.5 million for Federal unrecognized tax benefit liability. As a result of the implementation of FIN 48, the Company recognized an increase of approximately $0.4 million in the liability for unrecognized net tax benefits (in excess of $0.4 million gross) associated with uncertain state income tax positions, $0.1 million for accrued penalties and less that $0.1 million for accrued interest, which was accounted for as a reduction to the March 1, 2007, balance of retained earnings. This resulted in total unrecognized tax benefits of $0.9 million as of March 1, 2007.

During fiscal 2008, the Company reduced the liability for unrecognized tax benefits by $0.5 million based on the Internal Revenue Services finalizing the audit of the fiscal 2005 tax return. The amount of unrecognized tax benefits as of February 29, 2008, was approximately $0.4 million. Any benefit ultimately recognized will reduce the Company’s annual effective tax rate.

A reconciliation of the beginning and ending balances of unrecognized tax benefits is as follows (in thousands):

Balance at March 1, 2007	$	907
Additions based on tax position related to the current year		—
Addition for tax positions of prior years		262
Reductions for tax positions of prior years		(194	)
Reduction due to statute of limitations		(4	)
Settlements		(526	)
Balance at February 29, 2008	$	445

This amount represents the amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate in future periods. The Company classifies interest and penalties related to unrecognized tax benefits in tax expense. The Company had approximately $0.1 million of interest and penalties accrued at February 29, 2008.

The Company is subject to income taxes in the US federal jurisdiction, and various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to US federal, state and local, or non-US income tax examinations by tax authorities for the years before 2003.

As previously discussed, the Internal Revenue Service commenced an examination of the Company’s US income tax return for fiscal 2005 that was completed during fiscal 2008. Based on the settlement of the 2005 audit, the Company recognized $0.5 million of previously unrecognized tax benefits. In addition, the Canadian Revenue Agency has commenced an examination of the Company’s Canadian tax returns for 2004 and 2005 that is anticipated to close within twelve months.

Undistributed earnings of the Company's foreign subsidiaries included in retained earnings amounted to approximately $7.7 million at February 29, 2008. These earnings are considered to be permanently reinvested and, accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company

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would be subject to both U.S. income taxes (net of foreign tax credits) and withholding taxes payable to the various foreign countries. Management has determined that it is not practical to determine the amount of tax that would be payable upon remittance of these earnings.

Cash paid for income taxes was approximately $2.7 million and $1.2 million in fiscal 2008 and 2007, respectively.

NOTE N – SIGNIFICANT CUSTOMER AND VENDOR INFORMATION

1. Significant Customer Information

The Company sells products to a large number of customers which are primarily in the United States. The Company performs ongoing credit evaluations of its customers’ financial condition and requires no collateral from its customers. The Company’s customer base includes a high concentration of home improvement retailers with two such customers accounting for a total of approximately 61% and 57% of sales in fiscal 2008 and 2007, respectively. One customer represented 51% and 47% and the other customer represented 10% and 10% of sales in fiscal 2008 and 2007, respectively. These same two customers represented 49% and 8% of accounts receivable at February 29, 2008, and 39% and 14% of accounts receivable at February 28, 2007. Although the Company is directly affected by the well-being of the home improvement industry, management does not believe significant credit risk exists at February 29, 2008.

2. Significant Vendor Information

Although the Company believes that multiple sources of supply exist for nearly all of the finished products and raw materials purchased from outside suppliers, the Company purchased through two vendors approximately 14% and 10% in fiscal 2008 and 17% and 7% in fiscal 2007 of domestic product purchases.

NOTE O – SHAREHOLDERS’ EQUITY

The Company is authorized to issue a maximum of 2,500,000 shares of $1 par value preferred stock.

Series A

500,000 of the Company’s 2,500,000 authorized shares of preferred stock, $1 par value per share, are designated as Series A Preferred Stock. The holders of each share of Series A Preferred Stock shall be entitled to receive, before any dividends shall be declared, or paid on, or set aside for the Company’s common stock, out of funds legally available for that purpose, cumulative dividends in cash at the rate of $.035 per share per annum through September 30, 2000, payable in semiannual installments, accruing from the date of issuance of the shares. Commencing October 1, 2000, the rate of dividends is equal to the prime interest rate on the first day of the month in which the dividends are payable, less 1-1/4%.

The Company may redeem any or all of the shares of Series A Preferred Stock outstanding at a price per share of $1.07 plus an amount equal to any accrued but unpaid dividends thereon during the first year following the issuance of such shares and such price shall be reduced by one percent (1%) each year thereafter until $1.00 per share is reached. The Series A Preferred Stock has no voting rights, but do have a liquidation preference equal to par value plus accrued but unpaid dividends. During fiscal 1995, the Company issued 425,547 shares of Series A preferred stock in connection with a business acquisition. In fiscal 1997, 106,387 of these shares were converted to 3,129 shares of common stock. At February 29, 2008 and February 28, 2007, there were 319,160 shares of Series A Preferred Stock issued and outstanding. Dividends declared and paid related to the Series A Preferred Stock were immaterial in all periods presented.

F-25

Series B

1,000,000 of the Company’s 2,500,000 authorized shares of preferred stock, $1 par value per share, are designated as Series B Preferred Stock. The holder of each share of Series B Preferred Stock shall be entitled to receive, out of the surplus of the Company, a non-cumulative dividend at the rate of $.05 per share per annum, payable annually before any dividend shall be set apart for, or paid on, the common shares for such years. The Series B Preferred Stock has no voting rights. The Company may redeem any or all of the shares of Series B Preferred Stock then outstanding at a price per share of $1.00. At February 29, 2008, there were no outstanding shares of Series B preferred stock.

Series C

1,000,000 of the Company’s 2,500,000 authorized shares of preferred stock, $1 par value per share, are designated as Series C Preferred Stock. The holder of each share of Series C Preferred Stock shall be entitled to receive, before any dividends shall be declared, or paid on, or set aside for the Company’s common stock, out of funds legally available for that purpose, cumulative dividends at the rate of $.035 per share per annum, payable in annual installments accruing from the date of issuance of the shares. The Series C Preferred Stock has no voting rights, but do have a liquidation preference equal to par value plus accrued but unpaid dividends. The Company may redeem any or all of the shares of Series C Preferred Stock then outstanding at a price per share of $1.00. During fiscal year 1995, 17,500 shares of Series C Preferred Stock were issued in connection with a business acquisition. The dividend amounts paid and accrued were immaterial in all periods presented.

Treasury Stock

Since fiscal 1996, the Company has purchased common shares to be held in treasury. Through February 29, 2008 the amount of shares held in treasury were 94,978 at an aggregate cost of $0.8 million. In fiscal 2008, the Company purchased 12,038 shares of common stock at an aggregated cost of $0.1 million.

NOTE P – STOCK PLANS

The Company has adopted a stock option plan (the “Plan”) for employees, consultants and directors of the Company. Stock options granted pursuant to the Plan shall be authorized by the board of directors. The aggregate number of shares which may be issued under the Plan, as amended, shall not exceed 1,000,000 shares of common stock. Stock options are granted at prices not less than 85% of the fair market value on the date of the grant. Option terms, vesting and exercise periods vary, except that the term of an option may not exceed ten years. As of the current date, however, no options have been issued at a discount to market price on the date of the grant. In each of fiscal 2008 and 2007, the Company recorded compensation cost of $0.2 million within general and administrative expenses related to stock option and stock appreciation rights granted in previous periods. As at February 29, 2008, total compensation cost related to non-vested awards not yet recognized was $0.1 million and is expected to be recognized over two years.

No stock options were granted during fiscal 2008. The weighted average fair value at date of grant for options granted during fiscal 2007 was $2.78. The fair value of each option at date of grant was estimated using the Black-Scholes option pricing model with the following weighted average assumptions for grants.

F-26

	2007
Expected stock price volatility	39.3	%
Expected lives of options:
Directors and officers	4.2 years
Employees	4.2 years
Risk-free interest rate	4.8	%
Expected dividend yield	0.0	%

The following information relates to options outstanding as of the dates included:

	Shares		Weighted Average Exercise Price
Options outstanding at February 28, 2006	326,375		$	7.65
Exercised	(55,000	)	$	4.71
Granted	110,000		$	7.25
Cancelled or forfeited	(95,750	)	$	10.79
Options outstanding at February 28, 2007	285,625		$	7.01
Exercised	(5,000	)	$	6.75
Granted	—		$	—
Cancelled or forfeited	(25,000	)	$	6.75
Options outstanding at February 29, 2008	255,625		$	7.04
Options currently exercisable	197,292		$	6.84

The following table summarizes information about nonvested stock options outstanding as of February 29, 2008:

	Shares		Weighted Average Grant Date Fair Value
Nonvested options at February 28, 2007	123,333		$	4.60
Granted	—		$	—
Vested	(40,000	)	$	5.00
Cancelled or forfeited	(25,000	)	$	3.99
Nonvested options at February 29, 2008	58,333		$	4.58

F-27

The following table summarizes information about stock options outstanding as of February 29, 2008:

Range of exercise prices	Number outstanding	Weighted average remaining contractual life	Weighted average exercise price		Number exercisable	Weighted average exercise price
$ 3.65 – $ 5.55	67,250	3.55	$	4.13	67,250	$	4.13
$ 5.56 – $ 7.25	101,375	3.27	$	6.77	81,375	$	6.77
$ 7.26 – $15.56	87,000	7.58	$	9.62	48,667	$	10.69
Total	255,625				197,292

During fiscal 2002, the Company issued 50,000 non-qualified stock options to an officer of the Company. These options have an exercise price of $4.00 and expire in ten years. These options are not included in the above table. The officer exercised 10,000 of these options in fiscal 2007. In addition, in May 2003 the Company granted 50,000 shares of its common stock to the same officer. The value of the shares, as determined by an unrelated third party, was $0.3 million at the time of the issuance. The value was recorded in expense through fiscal 2006.

In fiscal 2007, the Board of Directors approved the granting of approximately 81,000 of stock appreciation right grants to various members of management. These grants vest 100% after three years. The average stock price on the date of the grants was $7.05 per stock appreciation right. No stock appreciation rights were granted in fiscal 2008. The Company records an expense over the vesting period based on the fair value of the option granted. During fiscal 2008, the Company recorded $0.1 million of expenses related to outstanding stock appreciation rights. The expense in fiscal 2007 was immaterial. These awards will be settled in cash and are presented as a liability on the balance sheet. At February 29, 2008, there were 122,500 stock appreciation rights outstanding.

In fiscal 2008, the Board of Directors approved the granting of 3,000 shares of restricted stock to its non-employee directors and 1,000 shares of restricted stock to an employee director. These shares vest on the one year anniversary of the grant date. In fiscal 2008, the Company recorded compensation cost of less than $0.1 million within general and administrative expenses related to restricted stock units. As at February 29, 2008, total compensation cost related to restricted stock units not yet recognized was less than $0.1 million and is expected to be recognized within one year.

As of February 29, 2008 and February 28, 2007, there were 0.4 million shares available for award under the Company’s current equity compensation plan. The intrinsic value of options exercised in fiscal 2008 and fiscal 2007 was less than $0.1 million and $0.1 million, respectively. At February 29, 2008 the intrinsic value of options outstanding and options exercisable was $0.9 million and $0.8 million, respectively. At February 28, 2007 the intrinsic value of options outstanding and options exercisable was $0.2 million and $0.2 million, respectively.

NOTE Q – NEW ACCOUNTING PRONOUNCEMENTS

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 Deferral of the Effective Date of Statements 157,” which delays 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 of 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.

F-28

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.

NOTE R: RELATED PARTY TRANSACTIONS

The Company currently employs three individuals that are related to the current Chief Executive Officer and Senior Vice-President of National Accounts. These individuals were paid a total of $0.3 million and $0.2 million fiscal 2008 and 2007, respectively.

Beginning in fiscal 1999 and continuing during fiscal 2008, the Company repurchased shares of its outstanding Common Stock from an individual related to the Chief Executive Officer 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 Stock on the date of repurchase. This individual is not obligated to sell any shares of Common Stock to the

F-29

Company. As of February 29, 2008, this individual has sold a total of 126,038 shares to the Company. The Company has recorded an amount payable to this individual at the end of fiscal 2008 and 2007 of less than $0.1 million.

NOTE S: SUBSEQUENT EVENTS

On May 21, 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.

F-30

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

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

Column A	Column B		Column C			Column D		Column E
			Additions
Description	Balance at beginning of period		Charged to costs and expenses		Charged to other accounts	Deductions (a)		Balance at End of period
Year ended February 28, 2007
Deducted from asset accounts
Allowance for doubtful accounts	$	361	$	313	—	$	320	$	354
Foreign net operating loss valuation allowance	$	1,146	$	1,512	—		—	$	2,658
Year ended February 29, 2008
Deducted from asset accounts
Allowance for doubtful accounts	$	354	$	284	—	$	207	$	431
Foreign net operating loss valuation allowance	$	2,658	$	702	—		—	$	3,360

(a) Accounts written off as uncollectible, net of recoveries.

S-1

EXHIBIT INDEX

Exhibit Number	Exhibit Description
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.
21	Subsidiaries of the Company.
23	Consent of Independent Registered Public Accountants.
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.
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.
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.
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.

EX-10.24

Exhibit 10.24

ELEVENTH AMENDMENT AGREEMENT

THIS ELEVENTH AMENDMENT AGREEMENT (this “Agreement”), is dated as of May 21, 2008 by and between Q.E.P. CO., INC., a Delaware corporation with its chief executive office and principal place of business at 1001 Broken Sound Parkway NW, Suite A, Boca Raton, Florida 33487, Q.E.P. - O’TOOL, INC., a corporation with its chief executive office and principal place of business at 1001 Broken Sound Parkway, NW, Suite A, Boca Raton, Florida, 33437, MARION TOOL CORPORATION, a corporation with its chief executive office and principal place of business at 1001 Broken Sound Parkway NW, Suite A, Boca Raton, Florida 33487, ROBERTS CONSOLIDATED INDUSTRIES, INC., a Delaware corporation with its chief executive office and principal place of business at 1001 Broken Sound Parkway NW, Suite A, Boca Raton, Florida 33487, ROBERTS HOLDING INTERNATIONAL, INC., a Delaware corporation with its chief executive office and principal place of business at 1001 Broken Sound Parkway NW, Suite A, Boca Raton, Florida 33487, ROBERTS COMPANY CANADA LIMITED, an entity organized in Ontario, Canada with its chief executive office and principal place of business at 2070 Steeles Avenue, Bramalea, Ontario, Canada L6T1A7, Q.E.P. STONE HOLDINGS, INC., a Florida corporation with a place of business at 1001 Broken Sound Parkway NW, Suite A, Boca Raton, Florida 33487, Q.E.P. ZOCALIS HOLDING L.L.C., a Delaware limited liability company with a place of business at 1001 Broken Sound Parkway NW, Suite A, Boca Raton, Florida 33487, BOIARDI PRODUCTS CORPORATION, an Ohio corporation, with its chief executive office and principal place of business at 453 Main Street, Little Falls, New Jersey 07424, ROBERTS CAPITOL, INC., a Florida corporation with a chief executive office and principal place of business at 1001 Broken Sound Parkway NW, Suite A, Boca Raton, Florida 33487, QEP CALIFORNIA, INC., a California corporation with its chief executive office and principal place of business at 1001 Broken Sound Parkway NW, Suite A, Boca Raton, Florida 33487, (all of the foregoing are hereinafter collectively referred to as, the “Borrower”), BANK OF AMERICA, N.A., successor-in-interest to FLEET CAPITAL CORPORATION (“BOA”) and HSBC BANK USA, NATIONAL ASSOCIATION, successor-by-merger to HSBC BANK USA (“HSBC” and together with BOA, the “Lenders” and each individually a “Lender”), and BANK OF AMERICA, N.A., successor-in-interest to FLEET CAPITAL CORPORATION, with an office at 200 Glastonbury Boulevard, Glastonbury, Connecticut, 06033, as agent for the Lenders, (hereinafter referred to as the “Agent”).

PREAMBLE

WHEREAS, pursuant to that certain Second Amended and Restated Loan Agreement dated as of November 14, 2002 by and among the Borrower, the Lenders and the Agent (as amended and in effect from time to time, the “Loan Agreement”), the Lenders made, or agreed to make in the future, certain Loans to the Borrower;

WHEREAS, the Borrower has requested that the Agent and the Lenders amend the Loan Agreement in order to, among other things, remove the Foreign Companies as Borrowers so that the only Borrowers are the companies listed above in the Preamble and collectively defined as the “Borrowers”, delete certain covenants, release certain Collateral of the Foreign Companies, and extend the Maturity Date of the Revolving Loan and the Mortgage Loan; and

WHEREAS, the Agent and the Lenders are willing to amend the Loan Agreement and waive such requirements subject to and in reliance upon the representations, warranties, acknowledgments, covenants and agreements of Borrower contained herein.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein and acknowledging that the Agent and the Lenders are relying upon the representations, warranties, acknowledgments, covenants and agreements of Borrower contained herein, Borrower, the Agent and the Lenders agree as follows:

I. Acknowledgments and Affirmations.

A. Borrower, the Agent and the Lenders acknowledge and agree that capitalized terms used herein and without definition shall have the meanings assigned to them in the Loan Agreement.

B. Borrower acknowledges and affirms that:

1. As of May 1, 2008, Borrower is legally and validly indebted to the Lenders under the Loan Agreement in the principal amount (including the face amount of outstanding Letters of Credit) of $20,744,894.24 with respect to the Revolving Loan, $0 with respect to the Term Loans, $0 with respect to the BV Loans and $1.795,714.86 (USD) with respect to the Mortgage Loan, plus interest, fees and charges accrued and accruing thereon and thereunder, and there is no defense, offset or counterclaim with respect to any such indebtedness or independent claim or action against the Agent or the Lenders.

2. Before giving effect to this Amendment, all indebtedness of Borrower to the Agent and the Lenders, whenever and however arising, is secured by a duly perfected, first priority security interest in the Collateral (or, in the case of QEP UK, Vitrex, Roberts Mexicana, S.A. de C.V., and P.R.C.I. SA a second priority security interest in the Collateral which is and shall be junior only to the liens described in subsection III (ii) of the Fourth Amendment and Waiver Agreement dated as of March 31, 2005, by and between the Borrowers, the Lenders and the Agent).

C. Borrower represents and warrants that:

1. The resolutions previously adopted by the Board of Directors of each Borrower with respect to the Loan Agreement and provided to Lenders have not in any way been rescinded or modified and have been in full force and effect since their adoption to and including the date hereof and are now in full force and effect, except to the extent that they have been modified or supplemented to authorize this Agreement and the documents and transactions described herein.

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2. Each Borrower has the corporate power and authority to enter into this Agreement and the transactions contemplated herein, and each Borrower has taken all necessary corporate action to authorize this Agreement and the transactions contemplated herein.

3. Except as amended by this Agreement, all representations, warranties and covenants contained in the Loan Agreement, and in the schedules and exhibits attached thereto, are true and correct on and as of the date hereof, are incorporated herein by reference and, with respect to each Borrower organized under the laws of any jurisdiction within the United States or Canada are hereby remade.

4. No Borrower is currently in default under the Loan Agreement, and, except as otherwise consented to in writing by the Agent and the Lenders, no condition exists or has occurred which would constitute a default thereunder but for the giving of notice or passage of time, or both.

D. The consummation of the transactions contemplated herein (a) is not prevented or limited by, nor does it conflict with or result in a breach of the terms, conditions or provisions of, any Borrower’s articles of incorporation or bylaws, or any evidence of indebtedness, agreement or instrument of whatever nature to which any Borrower is a party or by which any of them is bound, (b) does not constitute a default under any of the foregoing, and (c) does not violate any federal, state or local law, regulation or order of any court or agency which is binding upon any Borrower.

II. Amendments to Loan Agreement. The Loan Agreement is hereby amended as follows:

A. Section 1.1 is hereby amended by deleting the definitions of “Borrower”, “Borrowing Base”, “Foreign Companies, “Loans”, “Maturity Date”, “Note”, and “Revolving Advance” and replacing them with the following:

“Borrower” means that term as defined in the preamble to the Eleventh Amendment Agreement dated as of May 21, 2008.”

“Borrowing Base” means, at the relevant time of reference, the amount which is equal to (i) 85% of Eligible Accounts Receivable, plus (ii) the lesser of (a) the sum of (1) 44% of Eligible Raw Material Inventory of Q.E.P. Co., Inc., Roberts Consolidated Industries, Inc., Roberts Holding International, Inc., Roberts Company Canada Limited and Roberts Capitol, Inc., plus (2) 65% of Eligible Finished Goods Inventory of Q.E.P. Co., Inc., Roberts Consolidated Industries, Inc., Roberts Holding International, Inc., Roberts Company Canada Limited and Roberts Capitol, Inc., plus (3) 26% of Eligible Raw Materials Inventory of Boiardi Products Corporation, plus (4) 51% of Eligible Finished Goods Inventory of Boiardi Products Corporation or (b) $14,000,000, provided that the Required Lenders may, in their sole discretion, at any time and from time to time upon three (3) Business Days’ prior written notice (unless a Default or an Event of Default shall have occurred and be continuing, in which event no such notice shall be required), adjust the advance rates set forth within this definition of “Borrowing Base”.

“Foreign Companies” shall mean Roberts Japan KK, Roberts U.K. Limited, Roberts Deutschland GmbH, Roberts

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S.A.R.L., Roberts Holland B.V., Q.E.P. Holding B.V., Q.E.P. Aust. Pty. Limited, Q.E.P. Chile Limitada, Q.E.P. Co., New Zealand Limited, Q.E.P. Zocalis S.R.L., Q.E.P. Co., U.K. Limited, Vitrex Limited, Roberts Mexicana, S.A. de C.V., P.R.C.I. SA, Q.E.P. HK Limited, Q.E.P. Co. Aust. Pty. Limited, Roberts Distribution S.A.R.L., Q.E.P. Roberts Ireland Limited, and Harmony Depot Shanghai Trading Company Limited.

“Loans” means the Revolving Advances and the Mortgage Loan made or to be made pursuant to this Agreement.

“Maturity Date” means, (i) in the case of the Revolving Credit Loan, May 20, 2011 and (ii) in the case of the Mortgage Loan, May 20, 2011, in each case or earlier as set forth in this Agreement.

“Notes” means collectively the Revolving Credit Notes and the Mortgage Notes.

“Revolving Advance” or “Revolving Advances” means that term as defined in Section 2.1(a).

B. Section 1.1 is hereby amended by deleting the definitions of “BV”, “BV Advance, “BV Advances”, “BV Borrowing Base”, “BV Loan”, “BV Note”, “BV Sublimit”, “Domestic Advances”, “Domestic Companies”, “Eligible BV Accounts Receivable”, “Excess Borrowing Base”, “Foreign Advances”, “Foreign Advance Note”, “Foreign Borrowing Base”, “Foreign Sublimit”, “Term Loan Commitment”, “2005 Term Loan” and “2005 Term Note”.

C. Section 2.1 (c) of the Loan Agreement is hereby deleted and replaced with the following:

(c) All Revolving Advances shall be evidenced by, and repaid with interest in accordance with one or more promissory notes of Borrower, each substantially in the form of Exhibit A hereto (each such promissory note is referred to herein as a “Revolving Credit Note”, and all such notes are collectively referred to as “Revolving Credit Notes”). The Revolving Credit Note issued to each Lender shall (i) be executed by the Borrower, (ii) be payable to such Lender or its registered assigns and be dated the Fourth Amendment Effective Date, (iii) be in a stated principal amount equal to the Revolving Loan Commitment of such Lender and be payable in the outstanding principal amount of the Revolving Loans evidenced thereby, (iv) mature on the Maturity Date, (v) bear interest as provided in the appropriate clause of Section 2.3 in respect of the Prime Rate Advances and LIBOR Rate Advances, as the case may be, evidenced thereby, and (vi) be entitled to the benefits of this Agreement and the other Loan Documents. Borrower hereby authorizes each Lender to record on its Revolving Credit Note or in its internal computerized records the amount of each Revolving Advance and of each payment of principal received by such Lender on account of the Revolving Loan, which recordation shall, in the absence of manifest error, be conclusive as to the outstanding principal balance of the Revolving Loan and shall be considered correct and binding on Borrower provided, however, that the failure to make such recordation with respect to any Revolving Advance or payment shall not limit or otherwise affect the obligations of Borrower under this Agreement or the Revolving Credit Note. With respect to the Revolving Loan, Borrower shall pay to the Agent, for the ratable benefit of the Lenders, a fee on the first day of each

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month and on the Maturity Date, in an amount equal to one-quarter of one percent (.25%) per annum of the difference between the Revolving Loan Commitment and the average daily outstanding principal balance of the Revolving Loan for the prior one month period.

D. Sections 2.1A, 2.1B, and 2.2 are hereby deleted and each is replaced with “Intentionally Omitted”.

E. Section 2.3(a) of the Loan Agreement is hereby deleted and replaced with the following:

Section 2.3(a) Interest Provisions.

(a) Commencing with the first such date following the date of this Agreement, Borrower promises to pay interest to the Agent, on the outstanding and unpaid principal balances of the Revolving Loan, at a rate per annum equal to, at the option of Borrower, (i) the Prime Rate or (ii) the LIBOR Rate plus the LIBOR Spread (the “LIBOR Spread”) as set forth in the following table:

Fixed Charge Coverage Ratio	LIBOR SPREAD (Revolving Loan)
< 1.00	225 basis points
> 1.00 - < 1.30	200 basis points
> 1.30 - < 1.75	175 basis points
> 1.75 x	150 basis points

Changes in the LIBOR Spread resulting from a change in the above ratios shall become effective on the due date of delivery by the Borrower of a compliance certificate evidencing such change. If the Borrower shall fail to timely deliver a compliance certificate within five days of such certificate’s due date in accordance with Section 5.8(c) of this Agreement, the LIBOR Spread shall be 225 basis points from the day such certificate was due until the day a certificate evidencing a lower LIBOR Spread is actually delivered to the Lender. Each Revolving Advance shall be comprised entirely of a Prime Rate Advance or a LIBOR Rate Advance as Borrower may request pursuant to Section 2.4. Borrower shall not be entitled to request any Revolving Advance which, if made, would result in more than six (6) LIBOR Rate Advances outstanding hereunder at any time. For purposes of the foregoing, LIBOR Rate Advances having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate LIBOR Rate Advances. Each LIBOR Rate Advance shall be in a principal amount of $500,000 (or the equivalent in an Alternative Currency) or in $50,000 (or the equivalent in an Alternative Currency) increments in excess thereof.

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F. Section 2.4(a) and 2.4(b) are hereby amended by deleting the phrases “or a BV Advance” and “or BV Advance” wherever they appear.

G. Section 2.5 is hereby amended by deleting the phrase “and BV Loans” wherever it appears.

H. Section 2.8 is hereby deleted and replaced with the following:

Section 2.8 Collection of Funds. All proceeds of notes, instruments, Inventory and Receivables of Borrower shall be collected into a lockbox account established by Borrower with the Agent pursuant to the Lockbox Agreement (the “Lockbox Account”). Promptly after the execution of this Agreement, Borrower shall direct each of its Account Debtors to make all payments to Borrower directly into the Lockbox Account. Borrower shall hold in trust for the Agent and immediately remit to the Agent by depositing the same into the Lockbox Account all checks, notes, cash and other proceeds of its Receivables as well as all proceeds from the sale of inventory, securities (other than securities issued by Borrower) and other Collateral and other cash receipts of every kind and nature (other than the proceeds of other borrowings expressly permitted by this Agreement). Borrower agrees that all payments received in the Lockbox Account will be the sole and exclusive property of the Agent. The Agent shall on the Business Day on which any payment is received into the Lockbox Account, and on a provisional basis until the final receipt of good funds, credit such payments to the principal amount of the outstanding Revolving Advances as a prepayment of such Revolving Advances. Any such provisional credit is subject to reversal if the final collection of a payment is not received by the Agent within five (5) Business Days following the initial receipt of such payment and will thereafter be credited when such payment is actually received in good funds. If at the time of any such credit there are no outstanding Revolving Advances such credit shall (i) if a Default or an Event of Default shall exist, be credited to a cash collateral account under the sole dominion and control of the Agent until such Default or Event of Default is cured by Borrower or waived by Agent or (ii) subject to the provisions of Section 2.2B(d), to amounts due on the Mortgage Loan, in each case in the inverse order of maturity, (iii) be applied to cash collateralize any outstanding Letters of Credit, or (iv) otherwise be made to Borrower’s regular account with Lender.

I. Section 2.17 is hereby deleted and replaced with the following:

Use of Proceeds. The proceeds of the Revolving Loans made hereunder shall be used by Borrower for Borrower’s short term working capital requirements. The proceeds of the Mortgage Loan were used to refinance existing mortgage debt of Borrower in favor of a third party lender. Borrower will not, directly or indirectly, use any part of the proceeds of any of the Loans for the purpose of purchasing or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or to extend credit to any Person for the purpose of purchasing or carrying any such margin stock.

J. Section 2.25 is hereby deleted and replaced with “Intentionally Omitted”.

K. Section 6.1 is hereby amended by adding the following new subsections thereto:

(f) Liens on the assets of Roberts U.K. Limited, Q.E.P. Aust. Pty. Limited, Q.E.P. Co. New Zealand Limited, Q.E.P. Co. U.K. Limited, Vitrex Limited, and P.R.C.I. SA;

6

(g) Liens on the assets of Foreign Companies listed on Schedule 6.1; and

(h) Liens securing capitalized leases of Foreign Companies not to exceed an aggregate dollar amount of $500,000 at any time.

L. The following new Section 6.15 is added to the Loan Agreement:

“Section 6.15. Foreign Companies. Send or otherwise transfer funds to the Foreign Companies in an aggregate amount in excess of $500,000 in any calendar year, other than (i) intercompany trade transactions in the ordinary course of business and consistent with past practice, (ii) up to $300,000 to Harmony Trading; and (iii) to Roberts Mexicana S.A. de C.V. in amounts not to exceed (a) $350,000 for operations in any calendar year and (b) $150,000 for inventory purchasing in any calendar year.

M. Section 7.1 and 7.2 are hereby deleted and each is replaced with “Intentionally Omitted”.

N. Section 7.3 of the Loan Agreement is hereby deleted and replaced with the following:

Section 7.3 Leverage Ratio. Maintain as of the end of each quarter of the Borrower, a ratio of (i) Total Liabilities minus Subordinated Debt to (ii) Tangible Net Worth of not more than 3.75:1.00.

O. Section 7.4 of the Loan Agreement is hereby deleted and replaced with the following:

Section 7.4 Senior Debt to Trailing EBITDA Ratio. The Borrower shall maintain as of the end of each fiscal quarter of the Borrower, on a rolling four quarter basis, a ratio of (i) Senior Debt to (ii) trailing twelve-month Earnings Before Interest, Taxes, Depreciation and Amortization of not more than 4.00:1.00.

P. Section 7.7 of the Loan Agreement is hereby deleted and replaced with the following:

Section 7.7 Fixed Charge Coverage Ratio. The Borrower shall maintain, as of the end of each fiscal quarter of the Borrower, on a rolling four quarter basis, a ratio of (i) Earnings Before Interest, Taxes, Depreciation and Amortization minus unfinanced Capital Expenditures minus all taxes paid during such period minus all dividends paid during such period, to (ii) Current Maturities of Long-Term Debt plus Interest Expense of not less than 1.15:1.00.

O. Schedule 1 to the Loan Agreement is hereby deleted and replaced with the following:

Borrowers:

Q.E.P. Co., Inc.

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Q.E.P. – O’Tool, Inc.

Marion Tool Corporation

Roberts Consolidated Industries, Inc.

Roberts Holding International, Inc.

Roberts Company Canada Limited

Q.E.P. Stone Holdings, Inc.

Q.E.P. Zocalis Holdings L.L.C.

Q.E.P. California, Inc.

Boiardi Products Corporation

Roberts Capitol, Inc.

R. Schedule 2 to the Loan Agreement is hereby deleted and replaced with the following:

SCHEDULE 2

COMMITMENTS

Lender	Mortgage Loan Commitment			Revolving Loan Commitment		Total Commitment
Bank of America, N.A.	$	1,077,428.92	(USD)	$	17,400,000	$	18,477,428.92
HSBC Bank USA, National Association	$	718,285.94	(USD)	$	11,600,000	$	12,318,285.94
TOTAL	$	1,795,714.86		$	29,000,000	$	30,795,714.86

III. Release of Certain Collateral. The Agent hereby releases the Collateral consisting of the assets of the Foreign Companies other than (i) any shares of capital stock or other ownership interest in a Foreign Company which are pledged to the Agent, and (ii) any such assets of any Foreign Company which secure indebtedness to the Agent or any Lender other than the Loans (it being understood and agreed that such assets shall continue to secure such other indebtedness but shall no longer secure the Loans), as more particularly set forth on Schedule 3.

IV. Conditions Precedent; Covenant

A. The effectiveness of this Agreement shall be subject to the prior satisfaction of each of the following conditions:

1. the Agent and the Lenders shall have received each of the following, in form and substance satisfactory to the Agent and its counsel:

(a) This Agreement, duly executed by Borrower;

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(b) A certificate, dated as of the date of this Agreement, of the Secretary of Q.E.P. Co., Inc., certifying the names and true signatures of the officers of such Borrower authorized to sign this Agreement and the other documents to be delivered by it under this Agreement;

(c) Copies of all corporate action taken by Q.E.P. Co., Inc., including resolutions of its Board of Directors, authorizing the execution, delivery, and performance of this Agreement and each other document to be delivered pursuant to this Agreement, certified as of the date of this Agreement by the Secretary of such Borrower;

(d) A negative pledge agreement, duly executed by each Foreign Company;

(e) An amended and restated stock pledge agreement duly executed by the applicable Borrowers and/or Foreign Companies;

(f) An amendment and renewal fee of $30,000; and

(g) All other documents, instruments and agreements that the Agent and the Lenders shall reasonably require in connection with this Agreement, including without limitation those documents, instruments, and agreements required under previous amendments to the Loan Agreement which have not yet been delivered to the Agent and the Lenders.

B. On or prior to June 21, 2008, the Borrowers and, as applicable, the Foreign Companies, will deliver to the Lender:

(b) A certificate, dated as of the date of this Agreement, of the Secretary of each Borrower (other than Q.E.P., Co., Inc.) certifying the names and true signatures of the officers of such Borrower authorized to sign this Agreement and the other documents to be delivered by it under this Agreement:

(c) Copies of all corporate action taken by each Borrower (other than Q.E.P., Co., Inc.) and each Foreign Company, including resolutions of its Board of Directors, authorizing the execution, delivery, and performance of this Agreement or, as applicable, the negative pledge agreement, and each other document to be delivered pursuant to this Agreement, certified as of the date of this Agreement by the Secretary of such Borrower or Foreign Company.

V. Miscellaneous.

A. This Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut (except its conflicts of laws provisions).

9

B. Upon the execution of this Agreement, the Loan Agreement is amended to the extent this Agreement amends the Loan Agreement. Except as specifically amended by the terms of this Agreement, all terms and conditions set forth in the Loan Agreement shall remain in full force and effect.

C. This Agreement may be executed in any number of counterparts, each of which shall constitute an original and all of which taken together shall constitute one instrument.

[The remainder of this page has been left blank intentionally.]

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the date first above written.

BORROWER:
Q.E.P. CO., INC.
By:	/s/ Lewis Gould
Name:	Lewis Gould
Title:	Authorized Signatory Duly Authorized
Q.E.P.-O’TOOL, INC.
By:	/s/ Lewis Gould
Name:	Lewis Gould
Title:	Authorized Signatory Duly Authorized
MARION TOOL CORPORATION
By:	/s/ Lewis Gould
Name:	Lewis Gould
Title:	Authorized Signatory Duly Authorized
ROBERTS CONSOLIDATED INDUSTRIES, INC.
By:	/s/ Lewis Gould
Name:	Lewis Gould
Title:	Authorized Signatory Duly Authorized

ROBERTS HOLDING INTERNATIONAL INC.
By:	/s/ Lewis Gould
Name:	Lewis Gould
Title:	Authorized Signatory Duly Authorized
ROBERTS COMPANY CANADA LIMITED
By:	/s/ Lewis Gould
Name:	Lewis Gould
Title:	Authorized Signatory Duly Authorized
Q.E.P. STONE HOLDINGS, INC.
By:	/s/ Lewis Gould
Name:	Lewis Gould
Title:	Authorized Signatory Duly Authorized
Q.E.P. ZOCALIS HOLDING, L.L.C.
By:	/s/ Lewis Gould
Name:	Lewis Gould
Title:	Authorized Signatory Duly Authorized
BOIARDI PRODUCTS CORPORATION
By:	/s/ Lewis Gould
Name:	Lewis Gould
Title:	Authorized Signatory Duly Authorized

ROBERTS CAPITOL, INC.
By:	/s/ Lewis Gould
Name:	Lewis Gould
Title:	Authorized Signatory Duly Authorized
QEP-CALIFORNIA, INC.
By:	/s/ Lewis Gould
Name:	Lewis Gould
Title:	Authorized Signatory Duly Authorized

Execution Version

AGENT:
BANK OF AMERICA, N.A., successor-in-interest to FLEET CAPITAL CORPORATION
By:	/s/ Deirdre Z. Sikora
Name:	Deirdre Z. Sikora
Title:	Vice President Duly Authorized
LENDERS:
BANK OF AMERICA, N.A., successor-in-interest to FLEET CAPITAL CORPORATION
By:	/s/ Deirdre Z. Sikora
Name:	Deirdre Z. Sikora
Title:	Vice President Duly Authorized
HSBC BANK USA, NATIONAL ASSOCIATION successor-by-merger to HSBC Bank USA
By:	/s/ Jose V. Mazariegos
Name:	Jose V. Mazariegos
Title:	Senior Vice President Duly Authorized

AMENDED AND RESTATED

STOCK PLEDGE AGREEMENT

THIS AMENDED AND RESTATED STOCK PLEDGE AGREEMENT (“Agreement”) made as of the 21st day of May, 2008 by and between Q.E.P. CO., INC., a Delaware corporation with its chief executive office and principal place of business at 1081 Holland Drive, Boca Raton, Florida 33487 (“Q.E.P.”), ROBERTS CONSOLIDATED INDUSTRIES, INC., a Delaware corporation with its chief executive office and principal place of business at 1001 Broken Sound Parkway NW, Suite A, Boca Raton Florida 33487 (“Roberts Consolidated”), MARION TOOL CORPORATION, an Indiana corporation with its chief executive office and principal place of business at 1001 Broken Sound Parkway NW, Suite A Boca Raton, Florida 33487 (“Marion Tool”), Q.E.P. ZOCALIS HOLDING L.L.C., a Delaware limited liability company with a place of business at 1001 Broken Sound Parkway NW, Suite A, Boca Raton Florida 33487 (“Zocalis” and together with Q.E.P., Roberts Consolidated, and Marion Tool, the “Borrower”), Q.E.P. Aust. Pty. Limited, an entity organized in Australia with a place of business at No. 2 Dunlopillo Drive, Dandenong, Victoria, Australia 3175 (“Q.E.P. Aust.”), Q.E.P. Co. U.K. Limited, an entity organized in England with its chief executive office in Everest Road, Lytham St. Annes, Lancashire FY8 3AZ (“Q.E.P. U.K.”), Vitrex Limited, an entity organized in England with its chief executive office and principal place of business at Everest Road, Lytham St. Annes, Lancashire FY8 3AZ (“Vitrex”), Q.E.P. Holding B.V., an entity organized in the Netherlands with its chief executive office and principal place of business at 3360 AB Sliedrecht, Parrallelweg, The Netherlands (“Q.E.P. Holding”), Roberts Holland B.V., an entity organized in the Netherlands with its chief executive office and principal place of business at Everest Road, Lytham St. Annes, Lancashire FY8 3AZ, (“Roberts Holland”), Roberts S.A.R.L., an entity organized in France with its chief executive office and principal place of business at 25 rue de la Gare, 78370 Plaisir, France (“S.A.R.L” and together with Q.E.P. Aust., Q.E.P. U.K., Vitrex, Q.E.P. Holding, and Roberts Holland, the “Foreign Pledgors” and the Foreign Pledgors together with the Borrower collectively, the “Pledgor”), BANK OF AMERICA, N.A., successor-in-interest to FLEET CAPITAL CORPORATION (the “Agent”) as agent for BANK OF AMERICA, N.A., successor-in-interest to FLEET CAPITAL CORPORATION (“BOA”) and HSBC BANK USA, NATIONAL ASSOCIATION successor-by-merger to HSBC BANK USA (“HSBC” and BOA together “Lender”).

WITNESSETH:

WHEREAS, Q.E.P. and certain of its affiliates and Fleet National Bank (“Assignor”) entered into a certain Amended and Restated Loan Agreement, dated as of October 21, 1997, as amended from time to time (the “Original Loan Agreement”), which was assigned by Assignor to the Fleet Capital Corporation (“Original Lender”) pursuant to an Assignment and Assumption Agreement dated as of November 30, 2000; and

WHEREAS, the Q.E.P. and the Original Lender previously entered into that certain Stock Pledge Agreement dated as of April 5, 2001 (the “Original Pledge Agreement”) in which Q.E.P. granted the Original Lender a security interest in the Pledged Collateral as provided in the Original Pledge Agreement; and

WHEREAS, the Original Loan Agreement has been amended and restated pursuant to that certain Second Amended and Restated Loan Agreement dated as of November 15, 2002 by and among the Borrower and certain of its affiliates, the Lender and the Agent (as amended and in effect from time to time, the “Loan Agreement”) and Pledgor, the Lender and the Agent, wish to amend and restate the Original Pledge agreement in its entirety;

WHEREAS, Pledgor owns, directly or indirectly, substantially all of the equity interests in the entities listed on Schedule A and Schedule B attached hereto (the “Entities”); and

WHEREAS, the obligation of the Lender to enter into that certain Eleventh Amendment to the Loan Agreement dated as of the date hereof and to make loans or extensions of credit or furnish financial accommodations to the Borrower is subject to the condition, among others, that the Pledgor shall execute and deliver this Agreement amending and restating in its entirety the Original Pledge Agreement and granting the security interest hereinafter described;

NOW, THEREFORE, in consideration of the premises, and for other good and valuable consideration, receipt of which is acknowledged, it is hereby agreed as follows:

I. Definitions; Rules of Interpretation. The following additional terms, as used herein, have the respective meanings set forth below:

“Affiliate” shall mean any Person controlling, controlled by or under common control with another Person.

“Associate” shall have the meaning ascribed to such term in Rule 405 promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended.

“Default” shall mean any event or condition the occurrence of which would, with the lapse of time or the giving of notice, or both, constitute an Event of Default.

“Event of Default” shall mean any default hereunder or under the Loan Agreement, and any other Event of Default as defined in any one or more of the Financing Documents.

“Financing Documents” means any and all documents evidencing, securing or relating to the Obligations.

“Lien” or “Liens” shall mean any interest in property securing an obligation owed to, or a claim by, a Person other than the owner of the property, whether such interest is based on the common law, statute or contract, and including but not limited to the security interest lien arising from a security agreement, mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes.

“Obligations” shall mean all indebtedness, advances, obligations and liabilities of every kind and description now or in the future owing by Borrower to Lender under the Financing Documents or otherwise, whether direct or indirect, joint or several, absolute or contingent; due or to become due.

“Person” shall mean any individual, corporation, partnership, joint venture, association, joint stock company, limited liability company, trust (including any beneficiary thereof), unincorporated organization or government or any agency or political subdivision thereof.

“Pledged Collateral” shall mean (a) the Shares, (b) all income and profits on the Shares, including all interest, dividends, and other payments and distributions with respect to the Shares, including without limitation promissory notes, other instruments, distributions in connection with total or partial liquidation or dissolution of the Entities and distributions in connection with a reduction of capital, capital surplus or paid-in-surplus of the Entities, (c) all proceeds of the foregoing, and (d) all other rights and privileges with respect to the Shares.

“Security Interest” shall mean the pledge and security interest granted by Pledgor under this Agreement.

“Shares” shall mean (a) one hundred percent (100%) of the equity interests in the Entities formed under the laws of any jurisdiction in the United States of America or Canada, and sixty-five percent (65%) of the equity interests in the Entities formed under the laws of any jurisdiction outside of the United States of America or Canada, (b) all substitutions and replacements thereof, (c) all warrants, options and rights (if any) for the purchase of equity interests in the Entities, and (d) any additional equity interests in or capital stock of the Entities required to be pledged and delivered to Lender pursuant to Section 9 hereof.

This Agreement shall be governed by the following rules of interpretation: The use of any gender shall include all genders. The singular number shall include the plural and the plural the singular as the context may require. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms. The words “include,” “including,” and “such as” shall each be construed as if followed by the phrases “without being limited to.” The words “herein,” “hereof,” “hereunder” and words of similar import shall be construed to refer to this Agreement as a whole and not to any particular Section hereof unless expressly so stated. The section headings herein are for convenience of reference only and shall not affect in any way the interpretation of any of the provisions hereof.

II. Pledge. The Pledgor hereby pledges and grants a security interest to Lender in the Pledged Collateral, now existing and hereafter arising or acquired, as security for the payment and performance of the Obligations.

III. Delivery of the Shares. The Shares have been previously delivered to the Lender accompanied by duly executed instruments of transfer, or assignment in blank, with signatures appropriately guaranteed, accompanied by any required transfer tax stamps, all in form and substance satisfactory to Lender. Lender may at any time in its discretion, without notice to the Pledgor, transfer or register in the name of the Lender or any of its nominees any or all of the Shares.

IV. Representations and Warranties. The Pledgor represents and warrants that:

A. The Pledgor owns all of the Pledged Collateral, free and clear of any Liens other than the Security Interest. The equity interests shown on Schedule A, are all of the Pledged Collateral. All of such equity interests have been duly authorized and validly issued, are fully paid and non-assessable, and none of such equity interests are subject to options to purchase or similar rights of any Person. The remaining equity interests of the Entities formed under the law of any jurisdiction outside the United States of America or Canada are set forth on Schedule B.

B. There are no restrictions upon the voting rights or upon the transfer of any of the Shares other than as may appear on the face of the certificates evidencing the Shares or as provided under applicable state, federal or foreign securities laws. The Pledgor has the right to vote, pledge and grant a security interest in or otherwise transfer such Pledged Collateral free of any encumbrances. The Pledgor is not a party to or otherwise bound by any agreement, other than this Agreement, which restricts in any manner the rights of any present or future holder of any of the Shares with respect thereto.

C. Lender has a valid perfected first priority security interest in all of the Pledged Collateral, subject to no prior Lien. No registration, recordation or filing with any governmental body, agency or authority is required in connection with the execution or delivery of this Agreement or necessary for the validity or enforceability hereof or for the perfection or enforcement of the Security Interest.

V. Authority. The Pledgor hereby appoints the Lender as its attorney-in-fact to arrange, at Lender’s option, for the transfer upon, or at any time after, the existence or occurrence of an Event of Default, of the Pledged Collateral on the books of the Pledgor or on the books of each of the Entities to the name of the Lender or to the name of the Lender’s nominee.

VI. Certain Restrictions. Neither the Pledgor nor any Affiliate or Associate of the Pledgor shall sell, transfer or grant any rights with respect to any equity interests in the Entities or any subsidiary of the Entities without the prior written consent of Lender.

VII. Voting Rights; Dividends.

A. During the term of this Agreement, and so long as there shall not occur a Default or an Event of Default:

1. the Pledgor shall have the right to vote the Shares on all corporate questions for all purposes not inconsistent with the terms of this Agreement or the Financing Documents and, to that end, if Lender transfers the Shares into its name or the name of its nominee, Lender shall, upon the request of the Pledgor, unless a Default or an Event of Default shall have occurred, execute and deliver or cause to be executed and delivered to the Pledgor proxies with respect to the Shares; and

2. the Pledgor may receive and retain any and all dividends or other distributions paid in respect of the Pledged Collateral; provided, however, that any and all (A) dividends and interest paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of or in exchange for, any Pledged Collateral, (B) dividends and other distributions paid or payable in cash in respect of any Pledged Collateral in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in surplus and (C) cash paid, payable or otherwise distributed in any permitted redemption of, or permitted exchange of, any Pledged Collateral, shall be, and shall forthwith be delivered to or at the direction of the Lender to hold as Pledged Collateral and shall, if received by the Pledgor, be received in trust for the benefit of the Lender, shall be segregated from the other property or funds of the Pledgor, and shall be forthwith delivered to or at the direction of the Lender in the exact form received with any necessary endorsement and/or appropriate stock powers duly executed in blank, to be held by the Lender as Pledged Collateral and as further collateral security for the Obligations;

B. Upon the occurrence of an Event of Default:

1. the Lender shall thereafter be entitled to exercise all voting powers pertaining to the Shares and all proxies theretofore executed by Lender shall terminate and thereafter be null and void and of no effect whatsoever, and the Pledgor, forthwith upon the request of the Lender, shall secure (if not already secured by the Lender) executed resignations of the officers and directors of the Pledgor and of the Entities in order that the Lender may elect the officers and directors of the Pledgor and of the Entities designated by Lender; and

2. all rights of the Pledgor to receive the dividends, payments or other distributions which it would otherwise be authorized to receive and retain pursuant to Section 7(a)(ii), shall cease, and all such rights shall thereupon become vested in the Lender which shall thereupon have the sole right to receive and hold as Pledged Collateral such dividends and interest payments; and

3. all dividends and interest payments which are received by the Pledgor contrary to the provisions of this Section 7 shall be received in trust for the benefit of the Lender, shall be segregated from other funds of the Pledgor, and shall be forthwith paid over to the Lender as Pledged Collateral in the exact form received with any necessary endorsement and/or appropriate stock powers duly executed in blank, to be held by or on behalf of the Lender as Pledged Collateral and as further collateral security for the Obligations.

VIII. Subsequent Changes Affecting Pledged Collateral. The Pledgor represents to the Lender that the Pledgor has made its own arrangements for keeping informed of changes or potential changes affecting the Pledged Collateral (including, but not limited to, rights to convert, rights to subscribe, payment of dividends, reorganization or other exchanges, tender offers and voting rights), and the Pledgor agrees that the Lender shall have no responsibility or liability for informing the Pledgor of any such changes or potential changes or for taking any action or omitting to take any action with respect thereto. The Lender may, upon or at any time after the occurrence of an Event of Default, without notice and at its option, transfer or register the Pledged Collateral or any part thereof into its or its nominee’s name with or without any indication that such Pledged Collateral is subject to the security interest hereunder.

IX. Shares Adjustments; Warrants and Rights; Dividends. In the event that, during the term of this Agreement, (a) any stock dividend, reclassification, recapitalization, readjustment or other change is declared or made in the capital structure of the Pledgor or of any of the Entities, (b) any option included within the Pledged Collateral is exercised, (c) the Pledgor or any of the Entities issue any additional or substitute shares of its capital stock, (d) subscription rights, options, warrants or any other rights shall be issued or exercised in connection with the Pledged Collateral, or (e) if the Pledgor shall otherwise receive or be entitled to receive any (i) shares of capital stock of any of the Entities, (ii) promissory note or other instrument by virtue of its being or having been an owner of any Pledged Collateral, (iii) payment of dividends or other distribution payable in cash or in securities or other property (but only to the extent permitted under subparagraph 7(ii) hereof), or (iv) payment of dividends or other distribution in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in surplus, all such shares, promissory notes, instruments, options, warrants, rights, dividends, payments or distributions and all new stock or other securities so acquired by the Pledgor as a result of any of the foregoing, shall be immediately pledged and assigned by the Pledgor to the Lender and immediately delivered to and held by Lender under the terms of this Agreement in the same manner as the Pledged Collateral originally pledged hereunder; and in the event that the Pledgor shall receive such shares, promissory notes, instruments, options, warrants, rights, dividends, payments or distributions, the same shall be held in trust for the benefit of the Lender, and the Pledgor shall segregate them from the Pledgor’s other property and shall deliver the same forthwith to or at the direction of the Lender in the exact form received, with any necessary endorsement and/or appropriate stock powers duly executed in blank, to be held by or on behalf of the Lender as Pledged Collateral. Nothing contained in this Section shall be deemed to permit any issuance of stock, subscription rights, options, warrants or any other rights, or any stock dividend, reclassification, readjustment or other change in the capital structure of the Pledgor or of any of the Entities which is not expressly permitted in the Financing Documents.

X. Registration. In the event that Lender determines that it is advisable to register under or otherwise comply in any way with the Securities Act of 1933 or any similar Federal or State Law, or if such registration or compliance is required with respect to the securities included in the Pledged Collateral prior to the sale thereof by Lender, upon or at any time after the occurrence of an Event of Default, the Pledgor will use its best efforts to cause such registration to be effectively made, at no expense to Lender, and to continue such registration effective for such time as may be reasonably necessary in the option of the Lender, and will reimburse Lender for any expense incurred by Lender, including reasonable attorneys’ and accountants’ fees and expenses, in connection therewith.

XI. Default.

A. Upon the occurrence and during the continuance of an Event of Default, the Lender shall have, in addition to any other rights given by law or the rights hereunder or in the Financing Documents, all of the rights and remedies with respect to the Pledged Collateral of a secured party under the Uniform Commercial Code. In addition, with respect to the Pledged Collateral, or any part thereof, which shall then be or shall thereafter come into the possession or custody of the Lender, the Lender may sell the Pledged Collateral or any part thereof at public or private sale or at any broker’s board or on any securities exchange, for cash, upon credit (without assumption of any credit risk) or for future delivery, and at such price or prices as the Lender may deem satisfactory. Lender may be the purchaser of any or all of the Pledged Collateral so sold at any public sale (or, if the Pledged Collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations, at any private sale).

B. The Pledgor recognizes that the Lender may deem it impracticable to effect a public sale of all or any part of the Pledged Collateral or any other securities constituting Pledged Collateral and that the Lender may, therefore, determine to make one or more private sales of any such securities to a restricted group of purchasers who will be obligated to agree, among other things, to acquire such securities for their own account, for investment and not with a view to the distribution or resale thereof. The Lender is authorized, in connection with any sale of the Pledged Collateral, if it deems it advisable so to do, (i) to restrict the prospective bidders on or purchasers of any of the Shares to a limited number of sophisticated investors who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or sale of any of such Shares, (ii) to cause to be placed on certificates for any or all of the Shares or on any other securities pledged hereunder a legend to the effect that such security has not been registered under the Securities Act of 1933 and may not be disposed of in violation of the provision of said Act, and (iii) to impose such other limitations or conditions in connection with any such sale as the Lender deems necessary or advisable in order to comply with said Act or any other law. The Pledgor acknowledges that any such private sale may be at prices and on terms less favorable to the seller than the prices and other terms which might have been obtained at a public sale and, notwithstanding the foregoing, agrees that such private sales shall be deemed to have been made in a commercially reasonable manner and that the Lender shall have no obligation to delay sale of any such securities for the period of time necessary to permit the issuer of such securities to register such securities for public sale under the Securities Act of 1933.

C. The Pledgor covenants and agrees that it will execute and deliver such documents and take such other action as the Lender deems necessary or advisable in order that any sale hereunder may be made in compliance with law.

D. Upon any sale hereunder the Lender shall have the right to deliver, assign and transfer to the purchaser thereof the Pledged Collateral so sold. Each purchaser at such sale shall hold the Pledged Collateral so sold absolutely and free from any claim or right of whatsoever kind, including any equity or right of redemption of the Pledgor which may be waived, and the Pledgor, to the extent permitted by law, hereby specifically waive all rights of redemption, stay or appraisal which they have or may have under any law now existing or hereafter adopted.

E. Unless the Collateral threatens to decline speedily in value or is or becomes of a type sold on a recognized market, Lender will give the Pledgor reasonable notice of the time and place of any public sale thereof, or of the time after which any private sale or other intended disposition is to be made. Any requirements of reasonable notice shall be met if such notice is sent to the Lender in conformity with Section 23 hereof, at least ten (10) days before the time of the sale or disposition. Any other requirement of notice, demand or advertisement for sale is, to the extent permitted by law, waived. The notice (if any) of any sale hereunder shall (1) in case of a public sale, state the time and place fixed for such sale, (2) in case of sale at a broker’s board or on a securities exchange, state the board or exchange at which such sale is to be made and the day on which the Pledged Collateral, or the portion thereof so being sold, will first be offered for sale at such board or exchange, and (3) in the case of a private sale, state the day after which such sale may be consummated. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Lender may fix in the notice of such sale. At any such sale the Pledged Collateral may be sold in one lot as an entirety or in separate parcels, as the Lender may determine. The Lender shall not be obligated to make any such sale pursuant to any such notice. The Lender may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned. In case of any sale of all or any part of the Pledged Collateral on credit or for future delivery, the Pledged Collateral so sold may be retained by the Lender until the selling price is paid by the purchaser thereof, but the Lender shall not incur any liability in case of the failure of such purchaser to take up and pay for the Pledged Collateral so sold and, in case of any such failure, such Pledged Collateral may again be sold upon like notice. The Lender, instead of exercising the power of sale herein conferred upon it, may proceed by a suit or suits at law or in equity to foreclose the security interest granted under this Agreement and sell the Pledged Collateral, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction.

XII. Proceeds of Dispositions; Expenses. The Pledgor shall pay to the Lender on demand any and all expenses, including court costs and reasonable attorneys’ fees and disbursements, incurred or paid by the Lender in protecting, preserving or enforcing the Lender’s rights under or in respect of any of the Pledged Collateral. After deducting all of said expenses, the residue of any proceeds of collection or sale of the Pledged Collateral shall, to the extent actually received in cash, be applied to the payment of the Obligations in such order or preference as the Lender may determine, proper allowance being made for any Obligations not then due. Upon the final payment and satisfaction in full of all of the Obligations and after making any payments required by the Uniform Commercial Code of the State of Connecticut, any excess shall be returned to the Pledgor.

XIII. Waivers. The Pledgor hereby waives notice of acceptance of this Agreement and of extensions of credit, loans, advances or other financial assistance by the Lender to any Borrowers under the Financing Documents or under any other agreement, note, document or instrument now or at any time or times hereafter executed by any of the Borrowers and delivered to the Lender. The Pledgor further waives presentment and demand for payment of any of the Obligations, protest and notice of dishonor or default with respect to any of the Obligations, and all other notices and demands of any description to which the Pledgor might otherwise be entitled except as herein otherwise expressly provided. The Pledgor further waives all defenses based upon suretyship or impairment of collateral. The Lender shall not be deemed to have waived any of its rights upon or under the Obligations or the Pledged Collateral unless such waiver shall be in writing and signed by the Lender. No delay or omission on the part of the Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver on any one occasion shall not be construed as a bar to or waiver of any right on any future occasion. All rights and remedies of the Lender with respect to the Obligations or the Pledged Collateral, whether evidenced hereby or by any other instrument or papers, shall be cumulative and may be exercised singularly, alternatively, successfully or concurrently at such time or at such times as the Lender deems expedient.

XIV. Consent. The Pledgor hereby consents that from time to time, before or after the occurrence or existence of any Default or Event of Default, with or without notice to or assent from the Pledgor, any other security at any time held by or available to the Lender for any of the Obligations or any other security at any time held by or available to the Lender for any obligation of any other person, firm or corporation secondarily or otherwise liable for any of the Obligations, may be exchanged, surrendered or released and any of the Obligations may be changed, altered, renewed, extended, continued, surrendered, compromised, waived or released, in whole or in part, as Lender may see fit, and Pledgor shall remain bound under this Agreement notwithstanding any such exchange, surrender, release, alteration, renewal, extension, continuance, compromise, waiver or inaction, extension of further credit or other dealing. Without limiting the generality of the foregoing, the Pledgor assents to any extension or postponement of the time of payment or any other indulgence, to the addition or release of any party or person primarily or secondarily liable, to the acceptance of partial payment on any Obligation, and the settlement, compromising or adjusting of any thereof, all in such manner and at such time or times as the Lender may deem advisable.

XV. Limitation of Lender’s Duty. Lender shall have no duty with respect to any Pledged Collateral in its possession or control or in the possession or control of any agent or bailee, other than the duty to use reasonable care in the safe custody thereof. Without limiting the generality of the foregoing, Lender shall be under no obligation to take any steps necessary as to (a) the collection or protection of the Pledged Collateral, (b) the preservation of rights in Pledged Collateral against any other parties, (c) or the preservation of any other rights. Lender may take such steps at its option, but all expenses incurred in connection therewith shall be for the sole account of the Pledgor. The Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession or control if the Pledged Collateral is accorded treatment substantially equal to that which it

accords its own property. Lender shall not be liable or responsible for any loss or damage to any of the Pledged Collateral, or for any diminution in the value thereof, by reason of the act or omission of any agent or bailee selected by the Lender in good faith.

XVI. Term. This Agreement shall remain in full force and effect until all of the Obligations have been fully paid and satisfied.

XVII. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Pledgor, the Lender and its respective successors and assigns, and the transferees and holders of any of the Obligations. This Agreement may be sold, assigned and transferred to any other person, firm, association or corporation to whom any of the Obligations may be sold, assigned, transferred and when so sold, assigned, negotiated or transferred this Agreement shall apply to, and the Pledged Collateral shall secure, any credit given, loans or advances made or financial assistance otherwise extended at any time or from time to time by such assignee to Borrower and any notes, mortgages, conditional sale contracts, security agreements or other forms of obligations and all other debts, obligations and liabilities then or thereafter existing, direct or indirect, absolute or contingent, howsoever evidenced and without limitation as to amount, of the Borrower to such assignee and transferee, and any renewal or extensions thereof, as if such assignee or transferee had been the original Lender hereunder.

XVIII. Applicable Law. This Agreement shall be governed by and construed under the laws of the State of Connecticut. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but, if any provision of this Agreement shall be held to be prohibited or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

XIX. Service of Process; Consent to Jurisdiction

A. The Pledgor represents, warrants and covenants that the Pledgor is subject to service of process in the State of Connecticut and that the Pledgor will remain subject to such service of process so long as any of the Obligations is outstanding. If for any reason the Pledgor should not be subject to such service of process, the Pledgor hereby designates and appoints, without power of revocation, the Connecticut Secretary of State as the Pledgor’s agent upon whom may be served all process, pleadings, notices or other papers which may be served upon the Pledgor as a result of the Pledgor’s obligations under this Agreement.

B. The Pledgor irrevocably (i) agrees that any suit, action or other legal proceeding arising out of this Agreement may be brought in the courts of record of the State of Connecticut or the courts of the United States located in such state; (ii) consents to the jurisdiction of each such court in any such suit, action or proceeding; and (iii) waives any objection which the Pledgor may have to the laying of venue of any such suit, action or proceeding in any of such courts. For such time as any of the liabilities is outstanding, the Pledgor’s agent designated in Section 19(a) hereof shall accept and acknowledge on the Pledgor’s behalf services of any and all

process in any such suit, action or proceeding brought in any such court. The Pledgor agrees and consents that any such services of process upon such agent and written notice of such service to the Pledgor by registered mail shall be taken and held to be valid personal service upon the Pledgor and that any such service of process shall be of the same force and validity as if services were made upon the Pledgor according to the laws governing the validity and requirements of such service in such state, and waives all claim of error by reason of any such service.

XX. Prejudgment Remedies. THE PLEDGOR AGREES THAT THIS IS A COMMERCIAL TRANSACTION AND NOT A CONSUMER TRANSACTION, AND WAIVES WITH RESPECT TO ALL RIGHTS OF CREDITORS TO PROPERTY UNDER CONNECTICUT LAW, ANY RIGHT TO A NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, AS AMENDED, OR OTHER STATUTE OR STATUTES AFFECTING PREJUDGMENT REMEDIES AND AUTHORIZES LENDER’S ATTORNEY TO ISSUE A WRIT FOR A PREJUDGMENT REMEDY WITHOUT COURT ORDER, PROVIDED THE COMPLAINT SHALL SET FORTH A COPY OF THIS WAIVER, AND WAIVES ANY CLAIM IN TORT, CONTRACT OR OTHERWISE AGAINST LENDER’S ATTORNEY WHICH MAY ARISE OUT OF SUCH ISSUANCE OF THE WRIT FOR A PREJUDGMENT REMEDY WITHOUT COURT ORDER.

XXI. Waiver of Jury Trial. PLEDGOR HEREBY EXPRESSLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION (1) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND PLEDGOR HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THE LENDER MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF DEBTOR’S CONSENT TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY. EXCEPT AS PROHIBITED BY LAW, THE PLEDGOR WAIVES ANY RIGHT WHICH IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN THE PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. The Pledgor (a) certifies that neither the Lender nor any representative, agent or attorney of the Lender has represented, expressly or otherwise, that the Lender would not, in the event of litigation, seek to enforce the foregoing waivers, and (b) acknowledges that, in entering into the LSA and the other Financing Agreements to which the Lender is a party, the Lender is relying upon, among other things, the waivers and certifications contained in this Section 21.

XXII. Further Assurances. The Pledgor agrees that it will cooperate with the Lender and, at its own expense, shall do, make, execute and deliver all such additional and further acts, things, deeds, assurances, assignments, documents, agreements and instruments as the Lender may require more completely to vest in and assure to the Lender its rights hereunder or in any of the Pledged Collateral. Without limiting the generality of the foregoing, Pledgor shall execute and deliver, or cause to be executed and delivered, all such other stock powers, proxies, instruments, documents and resignations of officers and directors, as the Lender may request from time to time in order to carry out the provisions and purposes hereof.

XXIII. Notices. Any notice or other communication required or desired to be served, given or delivered hereunder shall be in writing, and shall be deemed to have been validly served, given or delivered upon deposit in the United States mails, as registered or certified mail, with proper postage prepaid and addressed to the party to be notified as provided in the Loan Agreement, or to such other address as either party may hereafter designate for itself by written notice to the other party in the manner herein prescribed.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

PLEDGOR:
Q.E.P. CO., INC.
By	/s/ Lewis Gould
Name:	Lewis Gould
Its:	Authorized Signatory Duly Authorized
ROBERTS CONSOLIDATED INDUSTRIES, INC.
By	/s/ Lewis Gould
Name:	Lewis Gould
Its:	Authorized Signatory Duly Authorized
MARION TOOL CORPORATION
By	/s/ Lewis Gould
Name:	Lewis Gould
Its:	Authorized Signatory Duly Authorized
Q.E.P. ZOCALIS HOLDING L.L.C.
By	/s/ Lewis Gould
Name:	Lewis Gould
Its:	Authorized Signatory Duly Authorized
Q.E.P. Aust. Pty. Limited
By	/s/ Lewis Gould
Name:	Lewis Gould
Its:	Authorized Signatory Duly Authorized

Q.E.P. Co. U.K. Limited
By	/s/ Lewis Gould
Name:	Lewis Gould
Its:	Authorized Signatory Duly Authorized
Vitrex Limited
By	/s/ Lewis Gould
Name:	Lewis Gould
Its:	Authorized Signatory Duly Authorized
Q.E.P. Holding B.V.
By	/s/ Lewis Gould
Name:	Lewis Gould
Its:	Authorized Signatory Duly Authorized
Roberts Holland B.V.
By	/s/ Lewis Gould
Name:	Lewis Gould
Its:	Authorized Signatory Duly Authorized
Roberts S.A.R.L.
By	/s/ Lewis Gould
Name:	Lewis Gould
Its:	Authorized Signatory Duly Authorized

AGENT:
BANK OF AMERICA, N.A., successor-in-interest to FLEET CAPITAL CORPORATION as agent for itself and HSBC Bank USA, National Association
By:	/s/ Deirdre Z. Sikora
Name:	Deirdre Z. Sikora
Its:	Vice President
	Duly Authorized

Schedule A

List of all of the equity interests that make up the Pledged Collateral:

Pledgor

Pledged Collateral

Q.E.P. Co., Inc.

100% of Q.E.P. Co., Inc.’s equity interests in the following entities: 1.      Roberts Consolidated Industries Inc., a Delaware corporation 2.      American Trowel and Float Co. Inc. (inactive) 3.      Q.E.P. Andrews, Inc. (inactive) 4.      Marion Tool Corporation (Inactive), an Indiana corporation 5.      Q.E.P. TradeMates Pty., Ltd., (inactive) 6.      Q.E.P. Stone Holdings Inc., a Florida corporation 7.      Boiardi Products Corporation, an Ohio corporation 8.      Q.E.P. Nevada, Inc. (Inactive), a Nevada entity 9.      Q.E.P.-O’Tool, Inc. (Inactive), a California corporation 10.    QEP-California, a California corporation 11.    Q.E.P. Zocalis Holding L.L.C., a Delaware limited liability company 65% of Q.E.P. Co., Inc’s equity interests in the following entities: 1.      Q.E.P. Chile Limitada, a Chilean entity 2.      Q.E.P. Roberts Mexicana, S.A. DE C.V., a Mexican entity 3.      Q.E.P. Co. New Zealand Limited, a New Zealand entity 4.      P.R.C.I. SA, a French entity 5.      Q.E.P. Co., HK Limited, a Hong Kong entity, 6.      Harmony Depot Trading Shanghai Company Limited, a Chinese entity, (WFOE: Limited liability corporation) 7.      Q.E.P. Aust. Pty. Limited (Australia) 8.      Q.E.P. Co. U.K. Limited, a United Kingdom Company 9.      Q.E.P. Holding B.V., a Holland entity

Roberts Consolidated Industries, Inc.	100% of Roberts Consolidated Industries, Inc.’s equity interests in the following entities: 1.      Roberts Company Canada Limited, a Canadian corporation 2.      Roberts Capitol, Inc., a Florida corporation 3.      Roberts Holding International Inc., a Delaware corporation 65% of Roberts Consolidated Industries., Inc.’s equity interests in the following entities: 1.      Roberts Japan KK (Inactive)
Marion Tool Corporation	100% of Westpoint Foundry, Inc. (Inactive), an Indiana corporation
Q.E.P. Zocalis Holding L.L.C	65% of Zocalis S.R.L. (Argentina)
Q.E.P. Aust. Pty. Limited	65% of Q.E.P. Co. Aust. Pty. Limited (Australia)
Q.E.P. Co. U.K. Limited	65% of Vitrex Limited, a United Kingdom Company
Vitrex Limited	65% of Roberts U.K., Limited, a United Kingdom entity
Q.E.P. Holding B.V.	65% of Roberts Holland B.V. (Holland)
Roberts Holland B.V.	65% of Roberts Holland B.V.’s equity interests in: 1.      Roberts S.A.R.L. (Inactive), a French entity 2.      Roberts Germany GmbH (Inactive), a German entity 3.      Q.E.P. Roberts Ireland Limited, an Ireland entity
Roberts S.A.R.L.	65% of Roberts Distribution S.A.R.L. (Inactive), a French entity

Schedule B

List of all the equity interests which make up the non-pledged collateral broken down by ownership

Entity	Percentage Interest		Owner
Q.E.P. AUST. PTY. LIMITED, an Australian entity	35	%	100% owned by Q.E.P. Co., Inc.
Q.E.P, CO. AUST. PTY. LIMITED (Inactive), an Australian entity	35	%	100% owned by Q.E.P. AUST. PTY. LIMITED, an Australian entity
Q.E.P. Holding B.V., a Holland entity	35	%	100% owned by Q.E.P. Co., Inc.
Roberts Holland B.V.,	35	%	100% owned by Q.E.P. Holding B.V.
Roberts S.A.R.L. (Inactive), a French entity	35	%	100% owned by Roberts Holland B.V.
Roberts Distribution S.A.R.L. (Inactive), a French entity	35	%	100% owned by Roberts S.A.R.L.
Roberts Germany GmbH (Inactive), a German entity	35	%	100% owned by Roberts Holland B.V.
Q.E.P. Roberts Ireland Limited, an Ireland entity	35	%	100% owned by Roberts Holland B.V.
Q.E.P. Co. New Zealand Limited, a New Zealand entity	35	%	100% owned by Q.E.P. Co., Inc.
Q.E.P. Co. U.K. Limited, a United Kingdom Company	35	%	100% owned by Q.E.P. Co., Inc.
Vitrex Limited, a United Kingdom Company	35	%	100% owned by Q.E.P. Co. U.K. Limited
Roberts U.K., Limited, a United Kingdom entity	35	%	100% owned by Q.E.P. Co. U.K. Limited
Roberts Mexicana, S.A. de C.V., a Mexican entity	35	%	100% owned by Q.E.P. Co, Inc.
Q.E.P. Co., HK Limited, a Hong Kong entity	35	%	100% owned by Q.E.P. Co, Inc.
Harmony Depot Trading Shanghai Company Limited, a Chinese entity, (WFOE: Limited liability corporation)	35	%	100% owned by Q.E.P. Co, Inc.
P.R.C.I. SA, a French entity	35	%	100% owned by Q.E.P. Co, Inc.
Q.E.P. Chile Limitada, a Chilean entity	35	%	100% owned by Q.E.P. Co, Inc.
Zocalis S.R.L, an Argentinean entity	35	%	95% of the total stock of Zocalis S.R.L. or more is owned by Q.E.P. Zocalis Holding L.L.C and 5% or less of the total stock is owned by Lewis Gould.

Execution Version

NEGATIVE PLEDGE AGREEMENT

This AGREEMENT made as of the 21st day of May, 2008, by and among Roberts Japan KK, an entity organized in Japan with its chief executive office and principal place of business at 1001 Broken Sound Parkway NV, Suite A, Boca Raton, Florida 33487, Roberts Deutschland GmbH, an entity organized in Germany with its chief executive office and principal place of business at Everest Road, Lytham St. Annes, Lancashire FY8 3AZ, Q.E.P. Holdings B.V., an entity organized in the Netherlands with its chief executive office and principal place of business at Everest Road, Lytham St. Annes, Lancashire FY8 3AZ, Q.E.P. Chile Limitada, an entity organized in Chile with a place of business at San Gerardo 731, Comuna de Recoleta, Santiago, Chile, Zocalis S.R.L., an entity organized in Argentina with its chief executive office and principal place of business at 1607 Villa Adelina, Buenos Aries, Argentina, Q.E.P. Roberts Mexicana, S.A. de C.V., an entity organized in Mexico with its chief executive office and principal place of business at Poniente 152, numero 935, Colonia Industrial Vallejo, C.P. 02300, Mexico, D.F. and Harmony Depot Trading Shanghai Company Limited, a Chinese limited liability company with its chief executive office and principal place of business at 1001 Broken Sound Parkway NW, Suite A, Boca Raton, Florida 3348, Roberts Holland B.V., an entity organized in the Netherlands with its chief executive office and principal place of business at Everest Road, Lytham St. Annes, Lancashire FY8 3AZ, Q.E.P. CO., HK Limited, an entity organized in China with its chief executive office and principal place of business at Cross Region Plaza, Suite 16A, 899 Lingling Road, Shanghai, China 200030, (individually each a “Foreign Company” and collectively the “Foreign Companies”) and Bank of America, N.A., successor in interest to Fleet Capital Corporation, as Agent for itself and HSBC Bank, USA, National Association (the “Agent”).

W I T N E S S E T H:

WHEREAS, the Foreign Companies are foreign direct and indirect subsidiaries of Q.E.P. Co., Inc., a Delaware corporation (“QEP”) party to that certain Second Amended and Restated Loan Agreement dated as of November 14, 2002 (as amended and in effect from time to time, the “Loan Agreement”) by and among QEP and certain subsidiaries named in the Purchase Agreement (QEP and such subsidiaries together “Borrower”) Bank of America, N.A. and HSBC Bank USA, National Association, successor by merger to HSBC Bank USA (collectively the “Lenders”), and the Agent, pursuant to which the Lenders made, subject to the terms and conditions of the Loan Agreement, certain loans or otherwise extended credit or provided financial accommodations to the Borrower as set forth in the Loan Agreement (hereinafter the “Loans”); and

WHEREAS, Borrower has requested that the Loan Agreement be amended by delivery of that certain Eleventh Amendment Agreement dated as of the date hereof in order to, among other things, remove the Foreign Companies as Borrowers and release certain Collateral of the Foreign Companies; and

WHEREAS, as a condition precedent to its making the changes set forth in the Amendment and a condition therefor, the Agent has required, and each Foreign Company has agreed, that each Foreign Company shall not encumber in any way any of its assets (collectively, “Assets”); and

NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein the parties hereto agree as follows:

1. Each Foreign Company represents and warrants to, and covenants with, Agent that, as of the date hereof, its Assets are not subject to any pledge, lien, security interest, charge or encumbrances except (i) in favor of the Agent or (ii) as set forth in Schedule A.

2. Each Foreign Company agrees from the date hereof, during the term of the Loans, not to sell or transfer its Assets or create, assume or suffer to exist any mortgage, pledge, encumbrance, lien, security interest or other charges of any kind upon its Assets, except (i) to the extent permitted by Section 6.1 (f), (g), or (h) of the Loan Agreement, (ii) with the prior written consent of the Agent, which may be given or withheld in its sole discretion, or (iii) transactions in the ordinary course of business.

3. Each Foreign Company agrees from the date hereof, during the term of the Loans, not to grant a negative pledge agreement or any other instrument similar to this Negative Pledge Agreement to any other entity other than the Agent with respect to its Assets.

4. QEP agrees to cause each Foreign Company to comply with the terms of this Agreement and further agrees that any failure by it or by any Foreign Company to comply with the terms hereof shall constitute an Event of Default (as defined in the Loan Agreement).

5. EACH FOREIGN COMPANY IRREVOCABLY WAIVES ALL OF ITS RIGHT TO A TRIAL BY JURY IN ANY PROCEEDING HEREAFTER INSTITUTED BY OR AGAINST IT IN RESPECT OF THIS DOCUMENT.

6. This Agreement shall inure to, and be binding upon, the parties hereto and their successors and assigns.

7. If all sums and indebtedness owing under the Loans shall be fully and indefeasibly paid in cash, the right of the Borrowers to request advances terminated, and all other obligations, agreements and provisions in the documents evidencing, securing or otherwise relating to the Loans are fully kept and performed, then this Agreement shall become null and void, otherwise to remain in full force and effect.

8. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Connecticut, without regard to conflicts of law principles.

9. This Agreement may be executed in counterparts, each of which shall constitute an original and all of which taken together shall constitute one instrument.

[signature page to follow]

Execution Version

IN WITNESS WHEREOF, the Company and the Purchaser have each caused this Agreement to be executed and delivered as an instrument under seal as of the day and year first above written.

AGENT:
BANK OF AMERICA, N.A., successor-in-interest to FLEET CAPITAL CORPORATION, as Agent
By:	/s/ Deirdre Z. Sikora
Name:	Deirdre Z. Sikora
Title:	Vice President
FOREIGN COMPANIES:
ROBERTS JAPAN KK
By:	/s/ Lewis Gould
Name:	Lewis Gould
Its:	Authorized Signatory
ROBERTS DEUTSCHLAND GMBH
By:	/s/ Lewis Gould
Name:	Lewis Gould
Its:	Authorized Signatory
Q.E.P. HOLDING B.V.,
By:	/s/ Lewis Gould
Name:	Lewis Gould
Its:	Authorized Signatory

Q.E.P. CHILE LIMITADA
By:	/s/ Lewis Gould
Name:	Lewis Gould
Its:	Authorized Signatory
ZOCALIS S.R.L.
By:	/s/ Lewis Gould
Name:	Lewis Gould
Its:	Authorized Signatory
Q.E.P. ROBERTS MEXICANA, S.A. DE C.V.
By:	/s/ Lewis Gould
Name:	Lewis Gould
Its:	Authorized Signatory
HARMONY DEPOT TRADING SHANGHAI COMPANY LIMITED
By:	/s/ Lewis Gould
Name:	Lewis Gould
Its:	Authorized Signatory

ROBERTS HOLLAND B.V.
By:	/s/ Lewis Gould
Name:	Lewis Gould
Its:	Authorized Signatory
Q.E.P. Co., HK LIMITED
By:	/s/ Lewis Gould
Name:	Lewis Gould
Its:	Authorized Signatory

Schedule A

As to any Foreign Company, as such defined in the Agreement, we are aware of only two capital leases of de minimis amounts.

EX-21

Exhibit 21

SUBSIDIARIES OF THE COMPANY

List of Subsidiaries

Q.E.P. Co., Inc., a Delaware corporation, owns 100% of the issued and outstanding shares of stock/units of the following entities:

1. Roberts Consolidated Industries, Inc., a Delaware corporation, which owns 100% of the issued and outstanding shares of stock units of the following entities:

(i) Roberts Japan KK (Inactive)

(ii) Roberts Company Canada Limited, a Canadian corporation

(iii) Roberts Holding International, Inc., a Delaware corporation

(iv) Roberts Capitol, Inc., a Florida corporation

2. Q.E.P.-O’Tool, Inc. (Inactive), a California corporation

3. Boiardi Products Corporation, an Ohio corporation

4. Marion Tool Corporation (Inactive), an Indiana corporation, which owns 100% of the issued and outstanding shares of stock of the following entity:

(i) Westpoint Foundry, Inc. (Inactive), an Indiana corporation

5. Q.E.P. Stone Holdings, Inc., a Florida corporation

6. Q.E.P. Zocalis Holding L.L.C., a Delaware limited liability company, which owns 95% or more of the issued and outstanding shares of stock/units of the following entity (Lewis Gould has a minority interest)

(i) Zocalis S.R.L., an Argentinean entity

7. QEP-California Inc., a California corporation

8. Q.E.P. Nevada, Inc. (Inactive), a Nevada entity

9. Q.E.P. Aust. Pty. Ltd, an Australian entity, which owns 100% of the issued and outstanding shares of stock/units of the following entity:

(i) Q.E.P. Co. Aust. Pty. Ltd (Inactive), an Australian entity

10. Q.E.P. Holding B.V., a Holland entity, which owns 100% of the issued and outstanding shares of stock of the following entity:

(i) Roberts Holland B.V., which owns 100% of the issued and outstanding shares of stock/units of the following entities:

(a) Roberts SARL (Inactive), a French entity, which owns 100% of the issued and outstanding shares of stock of the following entity:

(i) Roberts Distribution SARL (Inactive), a French entity

(b) Roberts Deutschland GmbH (Inactive), a German entity

(c) Q.E.P. Roberts Ireland Limited, an Ireland entity

11. Q.E.P. Co. N. Z. Limited, a New Zealand entity

12. Q.E.P. Co. U.K. Limited, a United Kingdom Company, which owns 100% of the issued and outstanding shares of stock of the following entity:

(i) Vitrex Limited, a United Kingdom Company, which owns 100% of the issued and outstanding shares of stock of the following entity:

(a) Roberts U.K., Limited, a United Kingdom entity

13. QEP Roberts Mexicana, S.A. de C.V., a Mexican entity

14. Q.E.P. Co., HK Limited, a Hong Kong entity

15. Harmony Depot Trading Shanghai Company Limited, a Peoples Republic of China entity

16. PRCI SA, a French entity

17. Q.E.P. Chile Limitada, a Chilean entity

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our report dated May 29, 2008, with respect to the consolidated financial statements and schedule included in the Annual Report of Q.E.P. Co., Inc. on Form 10-K for the year ended February 29, 2008 (which report expressed an unqualified opinion and contains an explanatory paragraph relating to the adoption of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” and SEC Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”). We hereby consent to the incorporation by reference of said report in the Registration Statement of Q.E.P. Co., Inc. on Form S-8 (File No. 333-135129, effective June 19, 2006).

/s/ Grant Thornton LLP

Miami, Florida

May 29, 2008

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Lewis Gould, certify that:

1. I have reviewed this Annual Report on Form 10-K of Q.E.P. Co., Inc.;

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

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

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

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

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

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

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

DATE: May 29, 2008

/s/ Lewis Gould

Lewis Gould

Chairman and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Stuart F. Fleischer, certify that:

1. I have reviewed this Annual Report on Form 10-K of Q.E.P. Co., Inc.;

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

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

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

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

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

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

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

DATE: May 29, 2008

/s/ Stuart F. Fleischer

Stuart F. Fleischer

Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Q.E.P. Co., Inc. (the “Company”) on Form 10-K for the year ending February 29, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lewis Gould, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition, and result of operations of the Company.

/s/ Lewis Gould

Lewis Gould

Chairman and Chief Executive Officer

May 29, 2008

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Q.E.P. Co., Inc. (the “Company”) on Form 10-K for the year ending February 29, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stuart F. Fleischer, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition, and result of operations of the Company.

/s/ Stuart F. Fleischer

Stuart F. Fleischer

Chief Financial Officer

May 29, 2008