LETTER TO SHAREHOLDERS

     1999, our 90th year, will be remembered as a pivotal one for
Homasote Company. It is when architects began to realize the benefits
of using our 440 Sound Barrier (1/2" 440 Homasote) in UL series L500
floor systems, and specifying our floor decking products.  The use of
both the 1-3/4" floor deck system, and the 1/2" 440 Sound Barrier  for
L500 floor systems improved business in November and December due to
multiple housing projects in Charlotte, North Carolina, the suburbs
of Chicago, Illinois, and Phoenix, Arizona.  We anticipate that sales
of Homasote for flooring systems will continue to attract architects
to these products and increase market penetration substantially.
     We continue to test our products for both sound and fire control.
In the year 2000, more floor system sound tests are planned,
predominantly with hardwood and tile.  Fire testing of a commercial
roof system has been scheduled for the first quarter of the year.
Positive test results of these products would enable their
introduction into new markets.
     In 1999, orders were placed with three manufacturers for
equipment, which will process and pack our Homex expansion and forming
board products.  The automatic feeder and saw were received in the
fourth quarter and placed in service in the first quarter of 2000.
The deliveries of the accumulator bar coder, bundler and unitizer are
anticipated early in the second quarter of 2000, with operations
targeted to commence by the end of May 2000.  This cutting/packaging
line will allow us to position our Homex products in the marketplace
at competitive prices, which should thereby substantially improve
demand.
     As of this writing, we have not reached a settlement with our
insurance company for the losses incurred in the November 1997 and
January 1998 fires in our then newly installed Coe dryer.  The matter
is currently being considered by a Federal judge.
     Net sales for 1999 were $24,653,401 versus 1998 sales of
$23,915,187, an increase of $738,214 or 3.1%.  The Company incurred
a net loss for the year of ($386,820) after an income tax benefit of
$20,514, resulting in a  net loss per share of ($1.11).  Net working
capital was $2,564,212, a decrease of $338,003 from the previous year.
     The Company's common stock was previously listed on the
Philadelphia Stock Exchange (the "Exchange").  In April of 1999, the
Exchange notified the Company that it had taken action pursuant to its
rules to delist the common stock because the Company did not meet
certain of the Exchange's continued listing requirements.  The
Company's common stock continues to trade in the over-the-counter
market.
     We wish to thank our loyal shareholders, directors, officers,
management, employees, customers, and suppliers for their continued
support.


Warren L. Flicker   Irving Flicker           Shanley E. Flicker
President           Chairman of the          Vice Chairman of
                    Board and Chief          the Board
                    Executive Officer


<TABLE>
Homasote Company and Subsidiary
<CAPTION>
Consolidated Five Year Highlights
                                                 1999
                                             ---------
<S>                                          <C>
Net Sales                                  $  24,653,401
Depreciation and amortization              $   1,533,583
Net loss                                   $    (386,820)
Common shares outstanding
 (weighted average basic and diluted)            348,599
Basic and diluted net loss per common share$       (1.11)
Dividends-cash                             $        0.00
Dividends per share                        $        0.00
Working capital                            $   2,564,212
Working capital ratio                              1.8:1
Capital expenditures                       $   1,282,412
Total assets                               $  19,560,532
Long-term debt, excluding current
 portion                                   $   2,738,333
Stockholders' equity                       $   6,885,778
Common shares outstanding                        348,599
Per share book value of common stock       $       19.75
</TABLE>
<TABLE>
                                                 1998
                                             ---------
<S>                                          <C>
Net Sales                                  $  23,915,187
Depreciation and amortization              $   1,365,692
Net loss                                   $    (698,229)
Common shares outstanding
 (weighted average basic and diluted)            348,630
Basic and diluted net loss per common share$       (2.00)
Dividends-cash                             $        0.00
Dividends per share                        $        0.00
Working capital                            $   2,902,215
Working capital ratio                              1.6:1
Capital expenditures                       $   1,284,154
Total assets                               $  21,621,616
Long-term debt, excluding current
 portion                                   $   3,155,833
Stockholders' equity                       $   7,272,598
Common shares outstanding                        348,599
Per share book value of common stock       $       20.86
</TABLE>











<TABLE>
Homasote Company and Subsidiary
<CAPTION>
Consolidated Five Year Highlights
                                                 1997
                                             ---------
<S>                                          <C>
Net Sales                                  $  24,979,819
Depreciation and amortization              $     888,944
Net loss                                   $    (445,778)
Common shares outstanding
 (weighted average basic and diluted)            364,479
Basic and diluted net loss per common share$       (1.22)
Dividends-cash                             $      90,300
Dividends per share                        $        0.24
Working capital                            $   3,383,330
Working capital ratio                              2.0:1
Capital expenditures                       $   4,291,324
Total assets                               $  20,137,096
Long-term debt, excluding current
 portion                                   $   3,562,500
Stockholders' equity                       $   7,974,309
Common shares outstanding                        348,801
Per share book value of common stock       $       22.86
</TABLE>



<TABLE>
Homasote Company and Subsidiary
<CAPTION>
Consolidated Five Year Highlights
                                                 1996
                                             ---------
<S>                                          <C>
Net Sales                                  $  26,969,869
Depreciation and amortization              $     606,830
Net earnings                               $     708,489
Common shares outstanding
 (weighted average basic and diluted)            376,528
Basic and diluted net earnings per common
 share                                     $        1.88
Dividends-cash                             $     165,694
Dividends per share                        $        0.44
Working capital                            $   5,931,981
Working capital ratio                              3.9:1
Capital expenditures                       $   2,444,627
Total assets                               $  20,067,202
Long-term debt, excluding current
 portion                                   $   3,987,500
Stockholders' equity                       $   8,943,929
Common shares outstanding                        376,251
Per share book value common stock          $       23.77
</TABLE>



<TABLE>
                                                 1995
                                             ---------
<S>                                          <C>
Net Sales                                  $  25,536,461
Depreciation and amortization              $     532,895
Net earnings                               $     786,100
Common shares outstanding
 (weighted average basic and diluted)            383,756
Basic and diluted net earnings per common
 share                                     $        2.05
Dividends-cash                             $     221,087
Dividends per share                        $        0.58
Working capital                            $   6,503,700
Working capital ratio                              4.4:1
Capital expenditures                       $     886,221
Total assets                               $  15,302,966
Long-term debt, excluding current
portion                                    $         ---
Stockholders' equity                       $   8,424,834
Common shares outstanding                        377,451
Per share book value common stock          $       22.32
</TABLE>

<TABLE>
TWO YEAR DIVIDEND AND STOCK PRICE COMPARISON
<CAPTION>
CASH DIVIDENDS

Quarterly cash dividends for the last two years were as follows:

Quarter        1999      1998
               ----      ----
<S>           <C>       <C>
First       $  0.00   $  0.00
Second         0.00      0.00
Third          0.00      0.00
Fourth         0.00      0.00
               ----      ----
            $  0.00   $  0.00
</TABLE>
<TABLE>
<CAPTION>
STOCK PRICES

Stock prices for the last two years were as follows:

                    1999                1998
Quarter        High      Low       High      Low
               -----     -----     -----     -----
<S>           <C>       <C>       <C>       <C>
First        $ 14.25   $ 11.12   $ 16.25   $ 15.75
Second       $ 12.50   $  9.87   $ 16.25   $ 16.00
Third        $ 11.37   $  9.00   $ 16.13   $ 15.25
Fourth       $  9.25   $  5.62   $ 15.25   $ 14.00

The number of Stockholders of record of the Company at December 31,
1999 and 1998 is 232 and 251, respectively.
</TABLE>
PROFILE

Homasote Company manufactures building and industrial products used
in various construction and manufacturing industries.

Homasote International Sales Co., Inc. is an export company.

<TABLE>
<CAPTION>
                  Homasote Company and Subsidiary
     CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

                                   Years ended December 31


                                 1999         1998         1997
                               ---------   ----------   ---------
<S>                          <C>          <C>          <C>

Net sales                   $ 24,653,401 $ 23,915,187 $24,979,819
Cost of sales                 19,017,672   18,647,626  19,419,846
                              ----------   ----------  ----------
Gross profit                   5,635,729    5,267,561   5,559,973
Selling, general and
 administrative expenses       5,975,088    6,597,579   6,350,194
                               ---------   ----------  ----------
Operating loss                  (339,359)  (1,330,018)  (790,221)
Other income (expense):
Gain on sale of assets             5,850        6,218      10,942
Interest income                   79,860       72,002     159,678
Interest expense                (172,718)    (284,277)   (185,678)
Other income (note 10)            19,033      500,695      86,681
                              ----------   ----------  ----------
                                 (67,975)     294,638      71,623
                              ----------   ----------  ----------
Loss before
 income tax benefit             (407,334)  (1,035,380)   (718,598)
Income tax benefit
 (note 5)                        (20,514)    (337,151)   (272,820)
                              ----------   ----------  ----------
Net loss                        (386,820)    (698,229)   (445,778)

Retained earnings at beginning
 of year                      13,716,042   14,414,271  14,950,349
 Less cash dividends paid
 (0.24 per share in 1997)            ---          ---     (90,300)
                              ----------   ----------  ----------
Retained earnings at
 end of year                $ 13,329,222 $ 13,716,042 $14,414,271
                              ==========   ==========  ==========

Basic and diluted net loss
 per common share           $      (1.11)$      (2.00)$     (1.22)
                              ==========   ==========  ==========
Common shares outstanding
 (weighted average basic and
  diluted)                       348,599      348,630     364,479
                              ==========   ==========  ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
                       Homasote Company and Subsidiary
                         CONSOLIDATED BALANCE SHEETS

ASSETS
                              December 31,        December 31,
                                  1999               1998
                             ------------         -----------
<S>                          <C>                  <C>

CURRENT ASSETS:
Cash and cash equivalents    $    291,729       $   1,115,815
Accounts receivable (net
 of allowance for doubtful
 accounts of $51,392 and
 $41,464 in 1999 and 1998,
 respectively)                  2,030,090           1,897,904
Inventories (note 2)            2,980,970           3,828,817
Refundable income taxes               ---             218,377
Deferred income
 taxes (note 5)                   127,992             170,095
Prepaid expenses and
 other current assets             284,480             228,745
                             ------------         -----------
Total Current Assets            5,715,261           7,459,753
                             ------------         -----------
Property, Plant and
 Equipment, Net
 (notes 3 and 4)               10,655,141          10,911,139
Restricted cash (notes 4 and 6)   820,623           1,163,601
Other (note 6)                  2,369,507           2,087,123
                             ------------         -----------
                             $ 19,560,532       $  21,621,616
                             ============         ===========

See accompanying notes to consolidated financial statements.
</TABLE>




















<TABLE>
<CAPTION>

LIABILITIES AND STOCKHOLDERS' EQUITY

                              December 31,        December 31,
                                  1999               1998
                             ------------         -----------
<S>                          <C>                  <C>

CURRENT LIABILITIES:
Short term debt (note 4)     $        ---       $   2,000,000
Current installments of
 long-term debt (note 4)          417,500             406,667
Accounts payable                2,014,423           1,403,721
Accrued expenses (note 7)         719,126             747,150
                             ------------         -----------
Total Current Liabilities       3,151,049           4,557,538

Long-term debt, excluding
 current installments (note 4)  2,738,333           3,155,833
Deferred income taxes (note 5)    127,992              52,435
Other liabilities (note 6)      6,657,380           6,583,212
                             ------------         -----------
Total Liabilities              12,674,754          14,349,018
                             ------------         -----------

COMMITMENTS AND CONTINGENCIES (note 10)


STOCKHOLDERS' EQUITY
Common stock, par value $0.20
 per share; Authorized
 1,500,000 shares;
 Issued 863,995 shares            172,799             172,799
Additional paid-in capital        898,036             898,036
Retained earnings              13,329,222          13,716,042
                             ------------         -----------
                               14,400,057          14,786,877
Less cost of common shares in
 treasury - 515,396 shares in
 1999 and 1998 (note 8)         7,514,279           7,514,279
                             ------------         -----------
Total Stockholders' Equity      6,885,778           7,272,598
                             ------------         -----------
                             $ 19,560,532       $  21,621,616
                             ============         ===========

See accompanying notes to consolidated financial statements.
</TABLE>







<TABLE>
<CAPTION>
                            Homasote Company and Subsidiary
                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   YEARS ENDED DECEMBER 31

                                 1999          1998        1997
                             -----------   ----------  -----------
<S>                          <C>          <C>          <C>

Cash flows from operating
 activities:
Net loss                     $  (386,820) $   (698,229) $(445,778)
Adjustments to reconcile
 net loss to net cash
 provided by (used in)
 operating activities:
Depreciation and amortization  1,533,583     1,365,692    888,944
Gain on disposal of fixed
 assets                           (5,850)       (4,065)   (10,942)
Deferred income taxes            117,660        21,061     21,903
Changes in assets and
 liabilities:
(Increase) decrease in
 accounts receivable, net       (132,186)      314,544   (339,108)
Decrease (increase) in
 inventories                     847,847    (1,177,828)   434,897
Increase in other assets        (277,557)     (280,086)  (341,565)
Decrease (increase) in
 refundable income taxes         218,377       214,327   (432,704)
(Increase) decrease in prepaid
 expenses and other current
  assets                         (55,735)      242,342   (229,834)
Increase (decrease) in accounts
 payable                         610,702       (22,469)   439,528
(Decrease) increase in accrued
 expenses                        (28,024)      170,617   (335,624)
Increase in other liabilities     74,168     1,378,148    120,610
                              ----------    ----------   --------
Net cash provided by (used in)
 operating activities          2,516,165     1,524,054   (229,673)
                              ----------    ----------  ---------
Cash flows from investing
 activities:
Proceeds from sale of
 equipment                         5,850        6,100      21,803
Capital expenditures          (1,282,412)  (1,284,154) (4,291,324)
Decrease (increase) in
 restricted cash                 342,978     (626,353)  2,420,125
                              ----------   ----------   ---------
Net cash used in investing
 activities                     (933,584)  (1,904,407) (1,849,396)
                              ----------   ----------  ----------




Cash flows from financing
 activities:

(Repayment of) proceeds from
 short-term debt              (2,000,000)    1,000,000  1,000,000
Repayment of long-term debt     (406,667)     (392,500)  (185,000)
Cash dividends paid                  ---           ---    (90,300)
Proceeds from sale of
 treasury stock                      ---        58,650     32,500
Purchase of treasury
 stock                               ---       (62,132)  (466,042)
                               ----------   ----------   --------
Net cash (used in) provided by
 financing activities:        (2,406,667)      604,018    291,158
                              ----------   -----------  ---------
Net (decrease) increase in
 cash and cash equivalents      (824,086)      223,665 (1,787,911)
Cash and cash equivalents
 at beginning of year          1,115,815       892,150  2,680,061
                              ----------    ----------  ----------
Cash and cash equivalents
 at end of year              $   291,729   $ 1,115,815 $  892,150
                              ==========    ==========  ==========
Supplemental disclosures of
 cash flow information:
 Cash paid during the year for:

  Interest                   $   172,718  $   284,277  $  185,678
                              ==========    ==========  ==========

  Income taxes               $       ---  $       ---  $  479,640
                              ==========    ==========  ==========

See accompanying notes to consolidated financial statements.
</TABLE>























Homasote Company and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 and 1997

NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS:  Homasote Company is in the business of
manufacturing insulated wood fiberboard and polyisocyanurate foam
products, and operates in only one industry segment: the manufacture
and sale of rigid polyisocyanurate and structural insulating building
materials, and packing products for industrial customers.  Sales in
1999 were distributed as follows: Building material wholesalers and
contractors, approximately 76%; industrial manufacturers,
approximately 24%; in 1998: Building material wholesalers and
contractors, approximately 79%; industrial manufacturers,
approximately 21%; in 1997; Building material wholesalers and
contractors, approximately 77%, industrial manufacturers,
approximately 23%.  The Company's primary basic raw material,
wastepaper, is generally readily available from two suppliers with
which the Company has purchase contracts that expire in 2009 (see
note 10).

PRINCIPLES OF CONSOLIDATION:  The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiary,
Homasote International Sales Co., Inc.  All significant intercompany
balances and transactions have been eliminated in consolidation.

CASH AND CASH EQUIVALENTS:  The Company considers all highly liquid
debt instruments purchased with a maturity of three months or less to
be cash equivalents.

INVENTORY VALUATION:  Inventories are valued at the lower of weighted
average actual cost, which approximates first in, first out (FIFO),
or market.

DEPRECIATION:  Property, plant and equipment are stated at cost.
Depreciation of plant and equipment is computed using the straight-
line and various accelerated methods at rates adequate to depreciate
the cost of applicable assets over their expected useful lives.
Maintenance and repairs are charged to operations as incurred and
major improvements are capitalized.  The cost of assets retired or
otherwise disposed of and the accumulated depreciation thereon is
removed from the accounts with any gain or loss realized upon sale or
disposal charged or credited to operations.

FAIR VALUE OF FINANCIAL INSTRUMENTS: As of December 31, 1999 and 1998
the fair value of the Company's financial instruments approximates
cost.

REVENUE RECOGNITION:  Revenue from product sales is recognized when
the related goods are shipped and all significant obligations of the
Company have been satisfied.

NET LOSS PER SHARE:  Basic net loss per share has been computed by
dividing net loss by the weighted average number of common shares
outstanding during the period.  Diluted net loss per share is the
same as basic net loss per common share since the Company has a
simple capital structure with only common stock outstanding in 1999,
1998, and 1997.

BUSINESS AND CREDIT CONCENTRATIONS:  Sales of the Company's products
are dependent upon the economic conditions of the housing and manu-

facturing industries.  Changes in these industries may significantly
affect management's estimates and the Company's performance.
     The majority of the Company's customers are located in the
northeastern United States, with the remainder spread throughout the
United States and Canada.   One customer accounted for 11% of the
Company's sales in 1999 and accounts receivable at December 31, 1999.
     The Company estimates an allowance for doubtful accounts based
upon the actual payment history of each individual customer.
Consequently, an adverse change in the financial condition or the
local economy of a particular customer could affect the Company's
estimate of its bad debts.

EMPLOYEE BENEFIT PLANS:  The Company has a non-contributory pension
plan covering substantially all of its employees who meet age and
service requirements.  Additionally, the Company provides certain
health care and life insurance benefits to retired employees.  The
net periodic pension costs are recognized as employees render the
services necessary to earn pension and post-retirement benefits.

INCOME TAXES:  Income taxes are accounted for under the asset and
liability method.  Deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and
tax credit carryforwards.  Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recovered or settled.

IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED
OF:   Long-lived assets and intangibles are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.  Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of the assets to the future net cash flows expected
to be generated by the asset.  If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the assets exceeds the fair value of
the assets.  Assets to be disposed of are reported at the lower of
the carrying amount or fair value less the cost to sell.

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

NOTE 2-INVENTORIES
<TABLE>
<CAPTION>
     The following are the major classes of inventories as of
December 31, 1999 and 1998:
                                1998           1998
                              ---------      ---------
<S>                          <C>            <C>
          Finished goods    $ 2,098,051    $ 2,782,031
          Work in process        25,360         80,617
          Raw materials         857,559        966,169
                              ---------      ---------
                            $ 2,980,970    $ 3,828,817
                              =========      =========
Inventories include the cost of materials, direct labor and
manufacturing overhead.
</TABLE>

<TABLE>
<CAPTION>
NOTE 3-PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following at
December 31:
                          --------------------------------------
                                                       Estimated
                              1999        1998       Useful Lives
                          ----------    ----------   ------------
<S>                      <C>           <C>          <C>
Land                    $    591,492  $    577,152
Buildings and additions    8,724,489     8,676,972    10-50 years
Machinery and equipment   27,472,963    26,506,340     5-20 years
Office equipment           1,335,512     1,327,391     3-10 years
Automotive equipment         517,977       531,683     3-5  years
Construction in progress     675,439       452,977
                          ----------    ----------
                        $ 39,317,872  $ 38,072,515

Less accumulated
depreciation              28,662,731    27,161,376
                          ----------    ----------
                        $ 10,655,141  $ 10,911,139
                          ==========    ==========
</TABLE>

     In the third quarter of 1999, the Company reevaluated the
estimated useful life of certain manufacturing equipment and, based
upon the durability of the asset and other similar assets, increased
the estimated useful life from ten to twenty years.  The impact on
net loss for the year ended December 31, 1999, was a decrease of
$251,958.  The corresponding decrease in basic and diluted net loss
per common share for the year ended December 31, 1999 was $.72.






NOTE 4-DEBT

     In November 1996, the Company entered into a loan agreement (the
"Agreement") and promissory note with the New Jersey Economic Devel-

opment Authority (the "Authority"). Under the Agreement, the
Authority loaned the Company $4,140,000 out of the proceeds from the
issuance of the Authority's Economic Growth Bonds (Greater Mercer
County Composite Issue) 1996 Series E (the "Bonds") to be used in
connection with specified capital expenditures described in the
Agreement.  Interest is charged at the variable rate of interest due
on the Bonds (1.9% to 5.5% in 1999).

     In connection with the Agreement, the Authority also entered
into a trust indenture with a bank to serve as trustee and tender
agent for the loan proceeds.  Principal and interest are payable
monthly to the trustee in varying amounts through 2006.  The funds
held by the bank amounted to $0 and $163,952 at December 31, 1999 and
1998, respectively, and are classified as a restricted non-current
asset in the accompanying consolidated balance sheets.

     The trust indenture is secured in part by the Agreement and by
a direct pay Letter of Credit facility in the face amount of
$4,209,000.  The Letter of Credit facility contains financial and
other restrictive covenants.  At December 31, 1998, the Company was
not in compliance with certain financial covenants, and on February
26, 1999, the Company and the bank amended the Agreement (the
"Amended Agreement") to include amended terms and covenants
retroactive to December 31, 1998.  The Amended Agreement contains
financial and other covenants including tangible net worth, cash flow
coverage, current ratio and liabilities to tangible net worth (all as
defined) with which the Company is in compliance at December 31, 1999
and 1998.  The Amended Agreement further provides for
collateralization of the Letter of Credit facility by substantially
all of the Company's assets.  On April 4, 2000 the Company and the
bank agreed to amend certain financial covenants for the fiscal year
2000, with which management believes the Company will be in
compliance through December 31, 2000.
     The balance of long-term debt outstanding (including current
installments) at December 31, 1999 and 1998 was $3,155,833 and
$3,562,500, respectively.  The aggregate maturities of long-term debt
for each of the five years subsequent to December 31, 1999, are as
follows:  2000, $417,500; 2001, $432,500; 2002, $447,500; 2003,
$462,500; 2004, $477,500; thereafter $918,333.
     At December 31, 1998 the Company had a $2,000,000 unsecured
demand note line of credit agreement with a bank which had no
specific expiration date but was cancelable by the bank at any time.
Interest is charged at the bank's index rate (8.50% at December 31,
1999) less 0.25%.  As of December 31, 1999 and 1998, $0 and
$2,000,000, respectively, was outstanding under the line of credit.
In connection with the aforementioned Amended Agreement, the demand
note line of credit was amended under an Amended and Restated Line of
Credit Note (the "New Note") dated February 26, 1999, under which the
line of credit expires February 28, 2000.  On February 25, 2000, the
bank extended the expiration of the line of credit to May 28, 2000.
The Company believes that the demand note line of credit will be
extended in the normal course of business into 2001.  The New Note
provides for prepayments and advances as required to satisfy working
capital needs.  The New Note is collateralized by substantially all
of the Company's assets.  Interest is payable monthly at the prime
lending rate (as defined) less 0.25%.
     Total interest costs incurred during 1999 and 1998 were
approximately $173,000 and $284,000, respectively.
     In order to reduce its risks from interest rate fluctuations
under the Agreement, the Company entered into a five-year interest
rate cap agreement with a bank at a cost of $101,000 which is being
amortized to interest expense over the life of the Agreement.  The
Agreement entitles the Company to receive, on a monthly basis, the
amounts, if any, by which the interest payments on the Bonds exceed
4.5% per annum.

NOTE 5-INCOME TAXES

     Income tax benefit is computed based on the applicable
statutory rates and is comprised of the following:
<TABLE>
<CAPTION>
                                  1999         1998        1997
                                 -------     -------     -------
Current:

<S>                             <C>         <C>         <C>
     Federal                  $  (70,998) $ (358,212) $ (294,723)
     State                       (67,176)        ---         ---
                                 -------     -------     -------
                                (138,174)   (358,212)   (294,723)
                                 -------     -------     -------
Deferred:
     Federal                     103,911      17,902      62,384
     State                        13,749       3,159     (40,481)
                                 -------     -------     -------
                                 117,660      21,061      21,903
                                 -------     -------     -------

                              $  (20,514) $ (337,151) $ (272,820)
                                 =======     =======     =======

     The actual income tax benefit differs from the amounts
computed by applying the U.S. Federal Income Tax rate of 34% to
loss before income taxes as a result of the following:



                                  1999         1998        1997
                                 -------     -------     -------
Computed "expected" tax
 benefit                       $(138,494)  $(352,029)  $(244,323)
State income taxes (net of
 Federal income tax benefit)     (35,262)      2,085     (26,717)
Change in valuation reserve      207,237         ---         ---
Reversal of prior year
 overaccrual of Federal tax      (70,998)        ---         ---
Other                             17,003      12,793      (1,780)
                                 -------     -------     -------
                               $ (20,514)  $(337,151)  $(272,820)
                                 =======     =======     =======



     The tax effect of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1999 and 1998 are presented below:
</TABLE>


<TABLE>
<CAPTION>
                                               1999        1998
                                             -------     -------
<S>                                       <C>         <C>
Deferred tax assets:
Accounts receivable, due to allowance
 for doubtful accounts                    $   20,557  $   16,586
Inventories                                  184,525     199,960
Other liabilities, principally due to
 supplemental pension and post-
 retirement costs                          2,338,623   2,233,426
Nondeductible accrued expense                 28,201      62,582
Net operating loss carryforwards--
 Federal and State                           281,160    110,760
Alternative minimum tax credit                26,000        ---
                                           ---------   ---------
Total deferred tax assets                  2,879,066   2,623,314
Less valuation allowance                  (1,299,447) (1,092,210)
                                           ---------   ---------
Net deferred tax assets                    1,579,619   1,531,104
                                           ---------   ---------
Deferred tax liabilities:
Fixed assets, due to accelerated
 depreciation                                663,981     603,981
Other assets, due to pension costs           906,284     795,432
Accumulated DISC income                        9,354      14,031
                                           ---------   ---------
Total deferred tax
 liabilities                               1,579,619   1,413,444
                                           ---------   ---------
Net deferred tax asset                    $     0     $  117,660
                                           =========   =========


     The net change in the total valuation allowance for the years
ended December 31, 1999 and 1998 was an increase of $207,237 and
$59,270, respectively.  In addition, at December 31, 1999, the
Company has net operating loss carryforwards for federal and state
income tax purposes of approximately $400,000 and
$2,300,000,respectively, which are available to reduce future
taxes, if any.  The net operating loss carryforwards will begin to
expire in year 2019 for federal and 2005 for state tax purposes.
</TABLE>








NOTE 6-OTHER LIABILITIES

     The Company has a noncontributory defined benefit retirement
plan (the "Pension Plan") covering all eligible employees.
Benefits under the Pension Plan are calculated at a rate of $22.00
per month per year of service, as defined (increased to $23.00 in
January 2000). Additionally a supplemental noncontributory plan
(the "Supplemental Plan") covering certain key employees of the
Company provides benefits based upon the employee's compensation,
as defined, during the highest five of the last ten consecutive
years preceding retirement.
     The Company's funding policy for the Pension Plan is to
contribute amounts sufficient to meet minimum funding requirements
set forth in U.S. employee benefit and tax laws.  The Company's
policy for funding the Supplemental Plan is to contribute benefits
in amounts as determined at the discretion of management.  As of
December 31, 1999 and 1998, the Supplemental Plan was unfunded.
     The Company also provides certain health care and life
insurance benefits for retired employees who have reached the age
of 65.  Partial benefits are provided to early retirees who have
not reached the age of 65.  The Company's policy is to fund the
cost of health care and life insurance benefits for retirees in
amounts determined at the discretion of management.  As of December
31, 1999, 1998 and 1997, the plan was unfunded.
     The following table sets forth the Company's defined benefit
pension plans' benefit obligations, fair value of assets, funded
status and other information:




<TABLE>
<CAPTION>
                                                 1999
                                       Pension          Other
     Change in benefit obligation      Benefits        Benefits
     ----------------------------    -----------     ------------
<S>                                  <C>                 <C>
Benefit obligation at beginning
 of year                             $8,757,675        $2,545,993
Service cost                            143,982            85,625
Interest cost                           574,426           174,119
Plan amendments                         335,537           589,763
Actuarial gain                       (1,580,567)         (868,272)
Benefits paid                          (494,577)         (133,499)
                                      ---------         ---------
Benefit obligation at end of year    $7,736,476        $2,393,729
                                      =========         =========










                                                 1998
                                       Pension          Other
     Change in benefit obligation      Benefits        Benefits
     ----------------------------    -----------     ------------
<S>                                  <C>                 <C>
Benefit obligation at beginning
 of year                             $8,008,258        $  971,462
Service cost                            165,404            69,104
Interest cost                           562,400           160,561
Plan amendments                         576,175         1,409,643
Actuarial (gain) loss                   (69,211)           35,839
Benefits paid                          (485,351)         (100,616)
                                      ---------         ---------
Benefit obligation at end of year    $8,757,675        $2,545,993
                                      =========         =========
</TABLE>

<TABLE>

                                                 1999
                                        Pension         Other
     Change in plan assets              Benefits       Benefits
     -------------------------       -----------     ------------
<S>                                  <C>                 <C>
Fair value of plan assets at
 beginning of year                   $9,635,327        $      ---
Actual return on plan assets            313,709               ---
Employer contributions                  100,105           133,499
Administrative expenses                (139,550)              ---
Benefits paid                          (494,577)         (133,499)
                                      ---------         ---------
Fair value of plan assets at end
 of year                             $9,415,014        $      ---
                                      =========         =========


                                                 1998
                                        Pension         Other
     Change in plan assets              Benefits       Benefits
     -------------------------       -----------     ------------
<S>                                  <C>                 <C>
Fair value of plan assets at
 beginning of year                   $9,305,347        $      ---
Actual return on plan assets            819,741               ---
Employer contributions                   95,374           100,616
Administrative expenses                 (99,784)              ---
Benefits paid                          (485,351)         (100,616)
                                      ---------         ---------
Fair value of plan assets at end
 of year                             $9,635,327        $      ---
                                      =========         =========
</TABLE>






<TABLE>
                                               1999
                                       Pension         Other
Reconciliation of funded status        Benefits       Benefits
-------------------------------       -----------   ------------
<S>                                  <C>               <C>
Funded status                       $ 1,678,538     $(2,393,729)
Unrecognized transition obligation      212,658             ---
Unrecognized prior service cost         925,774       1,709,978
Unrecognized actuarial gain          (3,795,705)     (1,918,359)
                                      ---------       ----------
Net amount recognized at year-end   $  (978,735)    $(2,602,110)
                                      =========       ==========


                                              1998
                                     Pension           Other
Reconciliation of funded status      Benefits         Benefits
-------------------------------     -----------    -------------
<S>                                  <C>           <C>
Funded status                       $   877,652      $(2,545,993)
Unrecognized transition obligation      321,758              ---
Unrecognized prior service cost         675,655        1,285,336
Unrecognized actuarial gain          (3,059,761)      (1,149,629)
                                      ---------        ---------
Net amount recognized at year-end   $(1,184,696)     $(2,410,286)
                                      =========        =========
</TABLE>

<TABLE>

                                              1999
Amounts recognized in the
 consolidated balance sheet          Pension          Other
 consist of:                         Benefits        Benefits
-------------------------------     -----------    -------------
<S>                                  <C>               <C>
Prepaid benefit cost(included in
 other long-term assets)            $ 2,265,713      $       ---
Accrued benefit liability            (3,244,448)      (2,602,110)
                                      ---------         ---------
Net amount recognized at year-end   $  (978,735)     $(2,602,110)
                                      =========         =========

Benefit obligation                  $ 1,891,870      $ 2,393,729
Projected benefit obligation          1,891,870           N/A
Accumulated benefit obligation        1,751,863           N/A











                                              1998
Amounts recognized in the
 consolidated balance sheet          Pension          Other
 consist of:                         Benefits        Benefits
-------------------------------     -----------    -------------
<S>                                  <C>               <C>
Prepaid benefit cost(included in
 other long-term assets)            $ 1,988,581      $       ---
Accrued benefit liability            (3,173,277)      (2,410,286)
                                      ---------         ---------
Net amount recognized at year-end   $(1,184,696)     $(2,410,286)
                                      =========         =========

Benefit obligation                  $ 2,712,543      $ 2,545,993
Projected benefit obligation          2,712,543           N/A
Accumulated benefit obligation        2,261,446           N/A
</TABLE>


<TABLE>

                                              1999
Components of net period benefit       Pension         Other
 cost                                  Benefits       Benefits
-------------------------------       -----------   ------------
<S>                                  <C>               <C>
Service cost                        $   143,982      $    85,625
Interest cost                           574,426          174,119
Expected return on plan assets         (801,086)             ---
Amortization of transitional
 obligation                             109,100              ---
Amortization of prior service cost       85,418          165,121
Recognized actuarial gain              (217,696)         (99,542)
                                      ---------         ---------
Net periodic pension (benefit) cost $  (105,856)     $   325,323
                                      =========         =========


                                              1998
Components of net period benefit     Pension           Other
cost                            Benefits         Benefits
-------------------------------     -----------    -------------
<S>                                  <C>               <C>
Service cost                        $   165,404      $    69,104
Interest cost                           562,400          160,561
Expected return on plan assets         (774,336)             ---
Amortization of transitional
 obligation                             109,100              ---
Amortization of prior service cost       60,692          124,307
Recognized actuarial gain              (179,494)         (67,794)
                                      ---------         ---------
Net periodic pension (benefit) cost $   (56,234)     $   286,178
                                      =========         =========




                                              1997
Components of net period benefit       Pension         Other
 cost                                  Benefits       Benefits
-------------------------------       -----------   ------------
<S>                                  <C>               <C>
Service cost                        $   135,188      $     3,329
Interest cost                           534,090           67,350
Expected return on plan assets         (675,420)             ---
Amortization of transitional
 obligation                             109,100              ---
Amortization of prior service cost       16,608              ---
Recognized actuarial gain              (133,217)        (105,757)
                                      ---------         ---------
Net periodic pension benefit        $   (13,651)     $   (35,078)
                                      =========         =========
</TABLE>



<TABLE>
                                               1999
Weighted-Average Assumptions as        Pension         Other
 of December 31                        Benefits       Benefits
-------------------------------       -----------   ------------
<S>                                  <C>               <C>
Discount rate                              8.00%          8.00%
Expected return an plan assets             8.50%          N/A



                                              1998
Weighted-Average Assumptions as        Pension         Other
 of December 31                        Benefits       Benefits
-------------------------------       -----------   ------------
<S>                                  <C>               <C>
Discount rate                              6.75%          6.75%
Expected return an plan assets             8.50%           N/A



                                               1997
Weighted-Average Assumptions as        Pension         Other
 of December 31                        Benefits       Benefits
-------------------------------       -----------   ------------
<S>                                  <C>               <C>
Discount rate                              7.00%          7.00%
Expected return an plan assets             8.50%           N/A
</TABLE>









Assumed health care cost trend

     For measurement purposes, an 8% annual rate of increase in the
per capita cost of covered health care benefits was assumed for
2000.  The rate is assumed to decrease gradually to 5.0% in 2006 and
remain at that level thereafter.
     Assumed health care cost trend rates have a significant effect
on the amounts reported for the health care plan.  A one-percentage-
point change in assumed health care cost trend rates would have the
following effects at year-end 1999:

<TABLE>
                                    One-Percentage- One-Percentage-
                                    Point Increase  Point Decrease
                                    -------------   ------------
<S>                                  <C>               <C>
Effect on postretirement benefit
 obligation                        $    251,499     $  (212,636)
Effect on total of service and
 interest cost components                32,015         (26,502)
</TABLE>

     The Company has a voluntary savings plan for which all employees
are eligible.  The Plan provides for the Company to contribute a
minimum of $0.25 for every dollar contributed by employees, up to 4%
of their salaries.  Company contributions charged to operations under
this Plan amounted to approximately $28,000 in 1999,$28,000 in 1998,
and $29,000 in 1997.
     Included in other liabilities at December 31, 1999 and 1998 is
$810,822 and $999,649, respectively,  of monies received by the Company
in December 1998 from its insurance company related to the dryer fires
(included in restricted cash in the accompanying consolidated balance
sheet at December 31, 1999 and December 31, 1998).  The cash is
restricted for use under the terms of its loan agreement with the New
Jersey Economic Development Authority to pay costs incurred in
connection with and to repair the dryer damaged in the fires described
in note 10.


NOTE 7-ACCRUED EXPENSES
<TABLE>
<CAPTION>
     Accrued expenses as of December 31, 1999 and 1998 consist of the
following:
                                        1999        1998
                                      -------     -------
<S>                                  <C>         <C>
Commissions                         $ 185,114   $ 236,401
Payroll                               144,274     114,241
Other                                 389,738     396,508
                                      -------     -------
                                    $ 719,126   $ 747,150
                                      =======     =======
</TABLE>

NOTE 8-TREASURY STOCK

     The Company has a policy of offering directors, officers, and
employees the option to purchase reacquired shares of Homasote Company
common stock on the date acquired and at the purchase price paid by the
Company.  A summary of activity for the years 1999, 1998 and 1997 is
as follows:
<TABLE>
             Acquired           Sold       Retained in Treasury
        ----------------    -------------    ----------------
        Shares    Cost      Shares  Cost     Shares      Cost
        ------    ----      ------  ----     ------      ----
<S>    <C>       <C>         <C>    <C>     <C>       <C>
1999       ---  $     ---     ---  $    ---     ---  $     ---
1998     3,602  $  62,132   3,400  $ 58,650     202  $   3,482
1997    29,950  $ 466,042   2,500  $ 32,500  27,450  $ 433,542
</TABLE>

NOTE 9-FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying amounts of the Company's financial instruments at
December 31, 1999 and 1998 approximate fair value because of the short
maturity of those instruments and with respect to the Bonds (see note
4) due to the variable interest rates which approximate current market
rates.


NOTE 10-COMMITMENTS AND CONTINGENCIES

     The Company's primary basic raw material, wastepaper, is generally
readily available from two suppliers with which the Company has
purchase contracts that expire in 2009.  Under the terms of the
contracts, the Company is required to make purchases at a minimum price
per ton, as defined, or at the prevailing market price, whichever is
greater.  The contracts require minimum quantity purchases by the
Company which are generally below the Company's normal usage.
Purchases in 1999 and 1998 aggregated approximately $860,000 and
$1,000,000, respectively.
     During the normal course of business, the Company is from time to
time involved in various claims and legal actions.  In the opinion of
management, uninsured losses, if any, resulting from the ultimate
resolution of these matters will not have a material adverse effect on
the Company's consolidated financial position or results of operations.
     The Company is a party to an employment agreement with an officer
requiring annual compensation payments of $200,000, adjusted biennially
for changes in the Consumer Price Index (as defined).  The agreement
expires May 6, 2009.
     As previously disclosed, on November 1, 1997, and again on January
30, 1998, fires broke out in the Company's new gas fired board dryer.
These fires caused severe damage to the dryer, as well as disruptions
to production.  The Company has filed several insurance claims related
to the fires, including a significant claim under its business
interruption policy.  The claims process is lengthy and its outcome
cannot be predicted with certainty.  The Company is presently in
litigation with the insurance company over coverage and the amount to
be paid.  The matter is being considered by a Federal judge in the U.S.
District Court - District of New Jersey.  During 1998, the Company
received advance payments of approximately $465,000 of business
interruption insurance proceeds, which are included in Other Income in
the accompanying consolidated statement of operations for 1998.  There
were no insurance proceeds received in 1999.
INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
HOMASOTE COMPANY:

We have audited the accompanying consolidated balance sheets of
Homasote Company and subsidiary as of December 31, 1999 and 1998, and
the related consolidated statements of operations and retained earnings
and cash flows for each of the years in the three-year period ended
December 31, 1999.  These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement.  An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements.  An audit also includes 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
Homasote Company and subsidiary as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1999, in conformity
with generally accepted accounting principles.


KPMG LLP

March 8, 2000
Short Hills, New Jersey



















MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS
OF OPERATIONS

GENERAL
     This combined annual report, including our Letter to Stockholders
and this Management's Discussion and Analysis, contains forward-looking
statements about the future that are necessarily subject to various
risks and uncertainties.  These statements are based on the beliefs and
assumptions of management and on information currently available to
management.  These forward-looking statements are identified by words
such as "estimates", "expects", "anticipates", "plans", "believes", and
other similar expressions.
     Factors that could cause future results to differ materially from
those expressed in or implied by the forward-looking statements or
historical results include the impact or outcome of:
     -    events or conditions which affect the building and
          manufacturing industries in general and the Company in
          particular, such as general economic conditions, employment
          levels, inflation, weather, strikes and other factors;
     -    competitive factors such as changes in choices regarding
          structural building materials by architects and builders
          and packing products by industrial firms;
     -    the undue delay in receipt and amount of insurance proceeds
          for business interruption relating to the Company's fires in
          its new dryer;
     -    unanticipated disruption in production caused by delays
          in repairs or replacement of the fire-damaged dryer and
          the resulting pressure of heightened usage of other older
          equipment.
Although the ultimate impact of the above and other factors are
uncertain, these and other factors may cause future operating results
to differ materially from results or outcomes we currently seek or
expect.  These factors are discussed in greater detail below.
     The Company installed a new dryer that was originally scheduled
for partial completion in June 1997, but was placed into modified
production during the last week of September 1997 for an initial
shakedown period in order to surface potential operating problems.
However, on November 1, 1997, a fire occurred in the new dryer, causing
severe damage to the rolls, insulation and other structural steel
components, rendering it inoperable and resulting in an interruption
of the Company's anticipated productivity of its major product line,
which adversely affected revenues and profitability.  The dryer was
placed in a temporary state of repair and production resumed on January
12, 1998.  On January 30, 1998, there was another fire in the new dryer
that was restricted to an area at the end of the dryer.  The damage was
repaired in a short period of time with a resumption of production on
February 9, 1998.  Once back into production, the new dryer produced
at a level of 40% of its anticipated production capacity, which level
is equivalent to the Company's previous capacity in running five units.
     Based on its present assessment of the situation, management
believes the fires have had an adverse effect on the Company's
financial position and operating results which can be expected to
continue well into 2000.
     The Company believes that recovery under its business interruption
policy, when finally received, should provide the wherewithal to cover
a substantial portion of lost revenues.

     Management believes that insurance will cover substantially all
of the Company's property and business losses relating to the fires.
However, the Company may incur costs as a result of the fires which
will not be covered by insurance.  Management is unable to estimate at
this time the magnitude of such costs.  The insurance claims process
is lengthy, and its outcome cannot be predicted with certainty.  The
Company is presently in litigation with the insurance company over
coverage and the amount to be paid.  The matter is being considered by
a Federal judge in the U.S. District CourtRESULTS OF OPERATIONS 1999-1998

     The Company's sales are derived from building material wholesalers
and industrial manufacturers.  Net sales in 1999 increased by $738,214
or 3.1% to $24,653,401 from $23,915,187.  The increase is attributable
primarily to improved demand through customer recognition of the sound
absorbent and light weight qualities of the Company's millboard and
floor system products during the fourth quarter.
     Gross profit as a percentage of sales increased from 22.0% in 1998
to 22.9% in 1999.  The increase resulted in part from a raise in the
price of most millboard products early in the fourth quarter, and
increased sales over 1998.  Programs to increase margins through
reduction of overtime costs and production inefficiencies were
partially offset by an increase in depreciation.
     In the third quarter of 1999, the Company reevaluated the
estimated useful life of certain manufacturing equipment and, based
upon the durability of the asset and other similar assets, increased
the estimated useful life from ten to twenty years.  The impact on net
loss for the year ended December 31, 1999, was a decrease of $251,958.
The corresponding decrease in basic and diluted net loss per common
share for the year ended December 31, 1999 was $.72.
     Selling, general and administrative expenses as a percentage of
sales were 24.2% in 1999 as compared to 27.6% in 1998.  The decrease
in the relative percentage of selling, general and administrative
expenses is attributable primarily to lower sales commissions resulting
from a modification in the Company's commission structure and, to a
lesser extent, successful expense reduction programs in areas such as
advertising, workers' compensation costs, and professional fees.
     Interest income increased 10.9% to $79,860 in 1999 from $72,002
in 1998.  In 1999, interest income on the restricted cash received in
December 1998 was offset by a decrease in interest income resulting
from a change in the method of investment of excess cash balances.
Prior to April 1, 1999, such balances were invested daily in a money
market fund.  Effective April 1, 1999, these balances are applied daily
against the Company's outstanding demand line of credit, resulting in
reduced interest income and interest expense.
    Interest expense on debt decreased by 39.2% to $172,718 in 1999
from $284,277 in 1998.  The decrease is due primarily to the change in
investment of excess cash balances as discussed above.
     Other income decreased by $481,662 to $19,033 in 1999 from
$500,695 in 1998, primarily as a result of the receipt in 1998 of
$464,640 of business interruption insurance proceeds.
     In 1999, the Company recorded an income tax benefit of $20,514 as
compared to $337,151 in 1998.  The amount in 1999 includes $138,175
resulting from receipt of a federal tax refund in excess of the
recorded receivable, and the reduction of certain other tax related
accruals no longer required, offset by an increase in the valuation
allowance for deferred tax assets.  The 1998 amount is primarily
related to losses which are being carried back to taxes previously
paid.  No carryback is available to the tax loss sustained in 1999.
RESULTS OF OPERATIONS 1998-1997

     Sales during 1998 decreased by $1,064,632, or 4.3%, to
$23,915,187, from $24,979,819 in 1997.  Management believes the
decrease in net sales of millboard products to be a result of weather
effects of El Nino across the North American continent during the first
six months of 1998 which directly affected our foam sheathing and
roofing sales.  Construction was curtailed and this resulted in lost
construction time.  These construction jobs eventually pushed others
back, creating a backlog into the first quarter of 1999.  Industrial
packaging was affected by two major factors during 1998.  First, the
General Motors strike during the second quarter directly affected our
sales to the glass and metal separator industries.  Second, the
economic problems in the Far East affected all exports, i.e. glass into
Thailand and Korea, metal separators into Korea, automotive packs into
Japan and Korea, and the shoe heel business into the Philippines and
Korea.  The millboard division also suffered from lack of shipments to
our principal building material distributors in Korea, Japan and
Australia.
     Gross profit as a percentage of sales decreased from 22.3% in
1997, to 22.0% in 1998.  This decrease is attributable to increased
overhead due to production inefficiencies, repairs to the new dryer,
higher maintenance costs on the older equipment, and overtime incurred
in an effort to meet demand for the Company's product.
     Selling, general and administrative expenses as a percentage of
sales were 27.6% in 1998 as compared to 25.4% in 1997.  These expenses
increased primarily in the areas of salaries, due to the hiring of
additional personnel for the sales force, advertising, and claims for
unsatisfactory material.
     Interest income decreased by 54.9% to $72,002 in 1998 from
$159,678 in 1997, due to a decreased balance of funds available for
investment.
     Interest expense on debt increased by 53.1% to $284,277 in 1998,
from $185,678 in 1997, due to debt incurred with relation to the dryer
project.
     Other income increased by $414,014, to $500,695 in 1998, from
$86,681 in 1997, due primarily to the receipt of $464,640 of business
interruption insurance proceeds.
     During 1998, the Company recorded an income tax benefit of
$337,151 as compared to $272,280 in 1997, primarily related to
increased losses which are being carried back to recover taxes
previously paid.  However, should the Company incur a tax loss in 1999,
no further carryback is available.












LIQUIDITY AND CAPITAL RESOURCES

     Cash flows from operating activities and bank borrowings are
the primary sources of liquidity.  Net cash provided by (used in)
operating activities amounted to $2.5 million in 1999, $1.5 million
in 1998, and $(0.2) million in 1997.  At December 31, 1999, the
Company had working capital of  $2,564,212 as compared to
$2,902,215 at December 31, 1998, a decrease of $338,003.
     Capital expenditures for new and improved facilities and
equipment, which are financed primarily through internally
generated funds and debt, were $1.3 million in 1999, $1.3 million
in 1998, and $4.3 million in 1997.  The Company has estimated
capital expenditures for 2000 in the amount of $1.3 million, in
part for a new automated saw production line to cut, bar code and
package Homex expansion and forming materials.  The line will also
be used to cut other strip products that are currently marketed.
Additional funds will be expended to overhaul one of the Company's
production lines and on other replacement projects.  Such amounts
may be revised based on the timing and extent of receipt of
payments or settlements from its insurance carrier on the fire loss
described previously.
     Cash flows from financing activities decreased from $0.6
million provided in 1998 to $2.4 million used in 1999.  The
decrease is attributable primarily to a change in the method of
investment of excess cash balances.
     As discussed above, in November 1997 and January 1998, fires
occurred in the Company's new dryer.  Management believes that
insurance will cover substantially all of the Company's property
and business losses relating to the fires.  However, the Company
may incur costs as a result of the fires which will not be covered
by insurance.  Management is unable to estimate at this time the
magnitude of such costs.  The insurance claims process is lengthy,
and its outcome cannot be predicted with certainty.
     The Company is presently in litigation with the insurance
company over coverage and the amount to be paid.  The matter is
being considered by a federal judge in the U.S. District Court -
District of New Jersey.  The Company is unable to assess the extent
to which it will be successful in the action.
     Based on its present assessment of the situation, management
believes that the fires have had an adverse effect on the Company's
financial position and operating results.  The Company believes
that recovery under its business interruption policy, when finally
received, should provide the wherewithal to cover a substantial
portion of lost revenues.
     The Company is party to a loan agreement (the "Agreement") and
promissory note with the New Jersey Economic Development Authority
(the "Authority").  Under the Agreement, the Authority loaned the
Company $4,140,000 out of the proceeds from the issuance of the
Authority's Economic Growth Bonds (Greater Mercer County Composite
Issue) 1996 Series E (the "Bonds") to be used in connection with
specified capital expenditures described in the Agreement.
Interest is charged at the variable rate of interest due on the
Bonds (1.9% to 5.5% in 1999).
     In connection with the Agreement, the Authority also entered
into a trust indenture with a bank to serve as trustee and tender
agent for the loan proceeds.  Principal and interest are payable
monthly to the trustee in varying amounts through 2006.

     The trust indenture is secured in part by the Agreement and by
a direct pay Letter of Credit facility in the face amount of
$4,209,000.  The Letter of Credit facility contains financial and
other restrictive covenants.  At December 31, 1998, the Company was
not in compliance with certain financial covenants and on February
26, 1999, the Company and the bank amended the Agreement (the
"Amended Agreement") to include amended terms and covenants
retroacative to December 31, 1998.  The Amended Agreement contains
financial and other covenants including tangible net worth, cash
flow coverage, current ratio and liabilities to tangible net worth
(all as defined) with which the Company is in compliance at
December 31, 1999.  The Amended Agreement further provides for the
collateralization of the Letter of Credit Facility by substantially
all of the Company's assets.  On April 4, 2000 the Company and the
bank agreed to amend certain financial covenants for the fiscal
year 2000, with which management believes the Company will be in
compliance through December 31, 2000.
     At December 31, 1998 the Company had a $2,000,000 unsecured
demand note line of credit agreement with a bank which had no
specific expiration date but was cancelable by the bank at any
time.  Interest is charged at the bank's index rate (8.5% at
December 31, 1999), less 0.25%.  As of December 31, 1999 and 1998,
$0 and $2,000,000, respectively, was outstanding under the line of
credit.  In connection with the aforementioned Amended Agreement,
the demand note line of credit was amended under an Amended and
Restated Line of Credit Note (the "New Note") dated February 26,
1999, under which the line of credit expires February 28, 2000.  On
February 25, 2000, the bank extended the expiration of the line of
credit to May 28, 2000.  The Company believes that the demand note
line of credit will be extended in the normal course of business
into 2001. The New Note provides for prepayments and advances as
required to satisfy working capital needs.  The New Note is
collateralized by substantially all of the Company's assets.
Interest is payable monthly at the prime lending rate (as defined)
less 0.25%.
     Management believes that cash flows from operations, coupled
with its bank credit facilities, are adequate for the Company to
meet its obligations throughout 2000.


RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the FASB issued Statement on Financial
Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities".  SFAS No. 133 standardizes the
accounting for derivative instruments by requiring that an entity
recognize derivatives as assets or liabilities  in the statement of
financial position and measure them at fair value.
     In June 1999, the FASB issued SFAS No. 137.  This statement
defers the effective date of SFAS No. 133, which is now effective
for all quarters of all fiscal years beginning after June 15, 2000.
The Company is currently evaluating the effects of SFAS No. 133.






INFLATION AND ECONOMY

     The Company will continue to maintain a policy of constantly
monitoring such factors as product demand and costs, and will
adjust prices as these factors and the economic conditions warrant.


OTHER DEVELOPMENTS
     The Company is a party to purchase agreement contracts to
purchase readily available wastepaper from two suppliers. Under the
terms of the contracts, the Company is required to make purchases
at a minimum price per ton, as defined, or at the prevailing market
price, whichever is greater. The contracts require minimum quantity
purchases by the Company which are generally below the Company's
normal usage.  Purchases in 1999, 1998 and 1997 aggregated
approximately $860,000, $1,000,000 and  $923,000, respectively.
The contracts expire in 2009.
     The Company's Common Stock was previously listed on the
Philadelphia Stock Exchange (the "Exchange").  The Exchange has
notified the Company that it has taken action pursuant to its rules
to delist the Common Stock because the Company does not meet
certain of the Exchange's continued listing requirements.  The
Company's Common Stock continues to trade in the over-the-counter
market.

































<TABLE>
<CAPTION>
SUMMARIZED (unaudited) QUARTERLY FINANCIAL DATA OF THE COMPANY FOR
THE YEARS 1999 AND 1998 ARE AS FOLLOWS:
          (in thousands of dollars except per share data)


                                      1999
                       -----------------------------------
<S>                   <C>      <C>        <C>       <C>
                       First    Second     Third    Fourth
                       -----     -----     -----     -----
Net sales            $ 6,497   $ 5,967   $ 6,130   $ 6,059
                       =====     =====     =====     =====
Gross profit         $ 1,576   $ 1,461   $ 1,198   $ 1,401
                       =====     =====     =====     =====
Net earnings (loss)  $   (84)  $  (155)  $  (165)  $    17
                       =====     =====     =====     =====
Net earnings (loss)
per common share     $ (0.24)  $ (0.45)   $(0.47)   $ 0.05
                       =====     =====     =====     =====


                                      1998
                       -----------------------------------
<S>                   <C>      <C>        <C>       <C>
                       First    Second     Third    Fourth
                       -----     -----     -----     -----
Net sales            $ 6,524   $ 5,646   $ 6,180   $ 5,565
                       =====     =====     =====     =====
Gross profit         $ 1,690   $ 1,285   $ 1,371   $   922
                       =====     =====     =====     =====
Net earnings (loss)  $    47   $  (189)  $  (180)  $  (376)
                       =====     =====     =====     =====
Basic and diluted net
earnings (loss)
per common share     $  0.13   $ (0.54)   $(0.53)   $(1.09)
                       =====     =====     =====     =====
</TABLE>

The fourth quarter of 1998 was adversely affected by depreciation
expense in the amount of $244,000 representing depreciation
recorded in the fourth quarter of 1998 pertaining to earlier 1998
quarters, and higher maintenance costs on older equipment.
INDEPENDENT AUDITORS' REPORT

THE BOARD OF DIRECTORS AND STOCKHOLDERS
HOMASOTE COMPANY

     Under date of March 8, 2000, we reported on the consolidated
balance sheets of Homasote Company and subsidiary as of December
31, 1999 and 1998, and the related consolidated statements of
operations and retained earnings, and cash flows for the years then
ended, as contained in the 1999 annual report on Form 10-K.  In
connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated
financial statement schedule as listed in the accompanying index.
This financial statement schedule is the responsibility of the
Company's management.  Our responsibility is to express an opinion
on the financial statement schedule based on our audits.

     In our opinion, such financial statement schedule when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material
respects, the information set forth therein.


KPMG LLP


March 8, 2000
Short Hills, New Jersey

<TABLE>
           Schedule II, Valuation and Qualifying Accounts
            Years Ended DECEMBER 31, 1999, 1998 and 1997
<CAPTION>
                   Homasote Company and Subsidiary

Col A         Col B      Col C        Col D            Col E

<S>        <C>         <C>           <C>            <C>

             Balance
               at       Additions        Other
             Beginning   Charged       Additions       Balance
               of          to             or           End of
Description  Period      Expenses  (Subtractions)(a)   Period

Allowance for
 Doubtful
 Accounts

Year ended
 December 31,
 1999       $42,000      $9,000              ---      $51,000

Year  ended
December 31,
 1998       $59,000     $40,000        $(57,000)      $42,000

Year  ended
December 31,
 1997       $60,000         -           $(1,000)      $59,000

(a)  Principally bad debts written-off, less recoveries.


</TABLE>