FORM
10-Q





UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION





Washington,
D.C.  20549





Quarterly
Report Pursuant to Section 13 or 15(d)


of the
Securities Exchange Act of 1934





For
      Quarter Ended June 30, 2008
            Commission
      File Number 1-4773





AMERICAN
BILTRITE INC.


(Exact
name of registrant as specified in its charter)





Delaware
            04-1701350(State
      or other jurisdiction of
            (I.R.S.
      Employer Identification No.)incorporation
      or organization)





57
River Street


Wellesley
Hills, Massachusetts  02481-2097


(Address
of Principal Executive Offices)




(781)
237-6655


(Registrant’s
telephone number, including area code)





Not
Applicable


(Former
name, former address and former fiscal year if changed since last
report)





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
o





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 o    Accelerated
filer o


Non-accelerated
filer o  (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 o     No
x





Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.





Class
            
            Outstanding
      at August 8, 2008Common
      Stock
            
            3,441,551
      shares





FORWARD
LOOKING STATEMENTS





Some of
the information presented in or incorporated by reference in this report
constitutes "forward-looking statements," within the meaning of the Private
Securities Litigation Reform Act of 1995, that involve risks, uncertainties and
assumptions.  These statements can be identified by the use of the
words such as "anticipate," "believe," "estimate," "expect," "intend," "plan,"
"project" and other words of similar meaning.  In particular, these
include statements relating to intentions, beliefs or current expectations
concerning, among other things, future performance, results of operations, the
outcome of contingencies, such as bankruptcy and other legal proceedings, and
financial conditions.  These statements do not relate strictly to
historical or current facts.  These forward-looking statements are
based on American Biltrite Inc.’s expectations and American Biltrite Inc.’s
understanding of its majority-owned subsidiary Congoleum Corporation’s
expectations, as of the date of this report, of future events, and American
Biltrite Inc. undertakes no obligation to update any of these forward-looking
statements, except as required by federal securities laws.  Although
American Biltrite Inc. believes that these expectations are based on reasonable
assumptions, within the bounds of its knowledge of its business and operations,
there can be no assurance that actual results will not differ materially from
its expectations.  Readers are cautioned not to place undue reliance
on any forward-looking statements.  Any or all of these statements may
turn out to be incorrect.  By their nature, forward-looking statements
involve risks and uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future.  Any
forward-looking statements made in this report speak only as of the date of this
report unless the statement indicates that another date applies.  It
is not possible to predict or identify all factors that could potentially cause
actual results to differ materially from expected and historical
results.  Factors that could cause or contribute to American Biltrite
Inc.’s actual results differing from its expectations include those factors
discussed in Item 1A of Part II of this Quarterly Report on Form 10-Q and in
American Biltrite Inc.’s other filings with the Securities and Exchange
Commission.








AMERICAN
BILTRITE INC.
 
 INDEX
 
 PART
      I.
              FINANCIAL
      INFORMATIONItem
      1.
              Financial
      Statements:Consolidating
      Condensed Balance Sheets – Assets as of June 30, 2008 (Unaudited) and
      December 31, 2007
              1Consolidating
      Condensed Balance Sheets – Liabilities and Stockholders’ Equity as of June
      30, 2008 (Unaudited) and December 31, 2007
              2Consolidating
      Condensed Statements of Operations (Unaudited) For the Three Months Ended
      June 30, 2008 and 2007
              3Consolidating
      Condensed Statements of Operations (Unaudited) For the Six Months Ended
      June 30, 2008 and 2007
              4Consolidating
      Condensed Statements of Cash Flows – Operating Activities (Unaudited) For
      the Six Months Ended June 30, 2008 and 2007
              5Consolidating
      Condensed Statements of Cash Flows – Investing &
      Financing  Activities (Unaudited) For the Six Months Ended June
      30, 2008 and 2007
              6Notes
      to Unaudited Consolidating Condensed Financial Statements
              7Item
      2.
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
              28Item
      4T.
              Controls
      and Procedures
              41PART
      II.
              OTHER
      INFORMATIONItem
      1.
              Legal
      Proceedings
              41Item
      1A.
              Risk
      Factors
              42Item
      3.
              Defaults
      Upon Senior Securities
              50Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              50Item
      5.
              Other
      Information
              52Item
      6.
              Exhibits
              53Signature
              55







PART
I.   FINANCIAL INFORMATION





Item
1. Financial Statements








AMERICAN
BILTRITE INC. AND SUBSIDIARIES


CONSOLIDATING
CONDENSED BALANCE SHEETS – ASSETS


(In
thousands of dollars)





ABI
      Consolidated
            
            
            Eliminations
            
            
            Congoleum
            
            
            American
      BiltriteJune
      30,
              2008
            
            
            December 31,
      2007
            
            
            June
      30,
              2008
            
            
            December 31,
      2007
            
            
            June
      30,
              2008
            
            
            December 31,
      2007
            
            
            June
      30,
              2008
            
            
            December 31,
      2007(Unaudited)
            
            
            
            
            
            (Unaudited)
            
            
            
            
            
            (Unaudited)
            
            
            
            
            
            (Unaudited)AssetsCurrent
      Assets:Cash
      and cash equivalents
            
            $
            29,049
            
            
            $
            30,185
            
            
            
            
            
            
            
            
            $
            26,474
            
            
            $
            26,327
            
            
            $
            2,575
            
            
            $
            3,858Restricted
      cash
            
            
            29,373
            
            
            
            6,501
            
            
            
            
            
            
            
            
            
            29,373
            
            
            
            6,501Accounts
      receivable, net
            
            
            43,968
            
            
            
            41,345
            
            
            $
            (433
            )
            
            $
            (316
            )
            
            
            17,120
            
            
            
            14,162
            
            
            
            27,281
            
            
            
            27,499Inventories
            
            
            83,552
            
            
            
            78,401
            
            
            
            (123
            )
            
            
            (125
            )
            
            
            40,979
            
            
            
            35,182
            
            
            
            42,696
            
            
            
            43,344Deferred
      income taxes
            
            
            961
            
            
            
            961
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            961
            
            
            
            961Prepaid
      expense & other current assets
            
            
            6,228
            
            
            
            20,001
            
            
            
            
            
            
            
            
            
            
            
            3,301
            
            
            
            13,138
            
            
            
            2,927
            
            
            
            6,863Total
      current assets
            
            
            193,131
            
            
            
            177,394
            
            
            
            (556
            )
            
            
            (441
            )
            
            
            117,247
            
            
            
            95,310
            
            
            
            76,440
            
            
            
            82,525Property,
      plant & equipment, net
            
            
            93,709
            
            
            
            99,153
            
            
            
            
            
            
            
            
            
            
            
            58,391
            
            
            
            61,993
            
            
            
            35,318
            
            
            
            37,160Other
      assets:Insurance
      for asbestos-related liabilities
            
            
            11,140
            
            
            
            11,140
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            11,140
            
            
            
            11,140Goodwill,
      net
            
            
            11,605
            
            
            
            11,605
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            11,605
            
            
            
            11,605Other
      assets
            
            
            18,809
            
            
            
            19,014
            
            
            
            (117
            )
            
            
            (126
            )
            
            
            11,741
            
            
            
            11,909
            
            
            
            7,185
            
            
            
            7,23141,554
            
            
            
            41,759
            
            
            
            (117
            )
            
            
            (126
            )
            
            
            11,741
            
            
            
            11,909
            
            
            
            29,930
            
            
            
            29,976Total
      assets
            
            $
            328,394
            
            
            $
            318,306
            
            
            $
            (673
            )
            
            $
            (567
            )
            
            $
            187,379
            
            
            $
            169,212
            
            
            $
            141,688
            
            
            $
            149,661





See
accompanying notes to consolidating condensed financial
statements.


1


AMERICAN
BILTRITE INC. AND SUBSIDIARIES


CONSOLIDATING
CONDENSED BALANCE SHEETS – LIABILITIES AND STOCKHOLDERS’ EQUITY


(In
thousands of dollars)





ABI
      Consolidated
            
            
            Eliminations
            
            
            Congoleum
            
            
            American
      BiltriteJune
      30,
              2008
            
            
            December 31,
      2007
            
            
            June
      30,
              2008
            
            
            December 31,
      2007
            
            
            June
      30,
              2008
            
            
            December 31,
      2007
            
            
            June
      30,
              2008
            
            
            December 31,
      2007(Unaudited)
            
            
            
            
            
            (Unaudited)
            
            
            
            
            
            (Unaudited)
            
            
            
            
            
            (Unaudited)LiabilitiesCurrent
      liabilities:Accounts
      payable
            
            $
            18,211
            
            
            $
            22,570
            
            
            $
            (433
            )
            
            $
            (316
            )
            
            $
            8,687
            
            
            $
            10,715
            
            
            $
            9,957
            
            
            $
            12,171Accrued
      expenses
            
            
            34,106
            
            
            
            37,035
            
            
            
            
            
            
            
            
            
            
            
            17,400
            
            
            
            20,742
            
            
            
            16,706
            
            
            
            16,293Asbestos-related
      liabilities
            
            
            45,647
            
            
            
            31,207
            
            
            
            
            
            
            
            
            
            
            
            45,647
            
            
            
            31,207Deferred
      income taxes
            
            
            7,725
            
            
            
            7,725
            
            
            
            
            
            
            
            
            
            
            
            7,725
            
            
            
            7,725Notes
      payable
            
            
            32,336
            
            
            
            30,309
            
            
            
            
            
            
            
            
            
            
            
            17,436
            
            
            
            10,551
            
            
            
            14,900
            
            
            
            19,758Current
      portion of long-term debt
            
            
            2,207
            
            
            
            2,376
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,207
            
            
            
            2,376Liabilities
      subject to compromise
            
            
            4,997
            
            
            
            4,997
            
            
            
            
            
            
            
            
            
            
            
            4,997
            
            
            
            4,997Total
      current liabilities
            
            
            145,229
            
            
            
            136,219
            
            
            
            (433
            )
            
            
            (316
            )
            
            
            101,892
            
            
            
            85,937
            
            
            
            43,770
            
            
            
            50,598Long-term
      debt, less current portion
            
            
            6,235
            
            
            
            6,725
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            6,235
            
            
            
            6,725Asbestos-related
      liabilities
            
            
            12,840
            
            
            
            12,600
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            12,840
            
            
            
            12,600Other
      liabilities
            
            
            12,685
            
            
            
            12,195
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            12,685
            
            
            
            12,195Noncontrolling
      interests
            
            
            895
            
            
            
            1,093
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            895
            
            
            
            1,093Liabilities
      subject to compromise
            
            
            129,926
            
            
            
            129,605
            
            
            
            (117
            )
            
            
            (126
            )
            
            
            130,043
            
            
            
            129,731Total
      liabilities
            
            
            307,810
            
            
            
            298,437
            
            
            
            (550
            )
            
            
            (442
            )
            
            
            231,935
            
            
            
            215,668
            
            
            
            76,425
            
            
            
            83,211Stockholders’
      equityCommon
      stock
            
            
            46
            
            
            
            46
            
            
            
            (93
            )
            
            
            (93
            )
            
            
            93
            
            
            
            93
            
            
            
            46
            
            
            
            46Additional
      paid-in capital
            
            
            19,651
            
            
            
            19,607
            
            
            
            (49,377
            )
            
            
            (49,368
            )
            
            
            49,377
            
            
            
            49,368
            
            
            
            19,651
            
            
            
            19,607Retained
      earnings
            
            
            31,746
            
            
            
            30,835
            
            
            
            35,423
            
            
            
            35,413
            
            
            
            (63,526
            )
            
            
            (65,417
            )
            
            
            59,849
            
            
            
            60,839Accumulated
      other comprehensive loss
            
            
            (15,727
            )
            
            
            (15,487
            )
            
            
            6,111
            
            
            
            6,110
            
            
            
            (22,687
            )
            
            
            (22,687
            )
            
            
            849
            
            
            
            1,090Less
      treasury shares
            
            
            (15,132
            )
            
            
            (15,132
            )
            
            
            7,813
            
            
            
            7,813
            
            
            
            (7,813
            )
            
            
            (7,813
            )
            
            
            (15,132
            )
            
            
            (15,132
            )Total
      stockholders’ equity
            
            
            20,584
            
            
            
            19,869
            
            
            
            (123
            )
            
            
            (125
            )
            
            
            (44,556
            )
            
            
            (46,456
            )
            
            
            65,263
            
            
            
            66,450Total
      liabilities and stockholders’ equity
            
            $
            328,394
            
            
            $
            318,306
            
            
            $
            (673
            )
            
            $
            (567
            )
            
            $
            187,379
            
            
            $
            169,212
            
            
            $
            141,688
            
            
            $
            149,661





See
accompanying notes to consolidating condensed financial
statements.


2


AMERICAN
BILTRITE INC. AND SUBSIDIARIES


CONSOLIDATING
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)


For
the Three Months Ended June 30, 2008 and 2007


(In
thousands of dollars, except number of shares and per share
amounts)





ABI
      Consolidated
            
            
            Eliminations
            
            
            Congoleum
            
            
            American
      Biltrite2008
            
            
            2007
            
            
            2008
            
            
            2007
            
            
            2008
            
            
            2007
            
            
            2008
            
            
            2007Net
      sales
            
            $
            101,239
            
            
            $
            115,558
            
            
            $
            -
            
            
            $
            -
            
            
            $
            47,166
            
            
            $
            57,541
            
            
            $
            54,073
            
            
            $
            58,017Cost
      of products sold
            
            
            77,677
            
            
            
            86,058
            
            
            
            (400
            )
            
            
            (371
            )
            
            
            37,277
            
            
            
            43,797
            
            
            
            40,800
            
            
            
            42,632Selling,
      general & administrative expenses
            
            
            23,576
            
            
            
            24,975
            
            
            
            
            
            
            
            
            
            
            
            9,238
            
            
            
            9,963
            
            
            
            14,338
            
            
            
            15,012(Loss)
      income from operations
            
            
            (14
            )
            
            
            4,525
            
            
            
            400
            
            
            
            371
            
            
            
            651
            
            
            
            3,781
            
            
            
            (1,065
            )
            
            
            373Other
      income (expense)Interest
      income
            
            
            212
            
            
            
            180
            
            
            
            
            
            
            
            
            
            
            
            64
            
            
            
            130
            
            
            
            148
            
            
            
            50Interest
      expense
            
            
            (611
            )
            
            
            (3,687
            )
            
            
            
            
            
            
            
            
            
            
            -
            
            
            
            (3,077
            )
            
            
            (611
            )
            
            
            (610
            )Other
      (expense) income
            
            
            (146
            )
            
            
            196
            
            
            
            (407
            )
            
            
            (368
            )
            
            
            (350
            )
            
            
            8
            
            
            
            611
            
            
            
            556(545
            )
            
            
            (3,311
            )
            
            
            (407
            )
            
            
            (368
            )
            
            
            (286
            )
            
            
            (2,939
            )
            
            
            148
            
            
            
            (4
            )(Loss)
      income before taxes and other items
            
            
            (559
            )
            
            
            1,214
            
            
            
            (7
            )
            
            
            3
            
            
            
            365
            
            
            
            842
            
            
            
            (917
            )
            
            
            369Provision
      for income taxes
            
            
            563
            
            
            
            63
            
            
            
            
            
            
            
            
            
            
            
            153
            
            
            
            7
            
            
            
            410
            
            
            
            56Noncontrolling
      interests
            
            
            27
            
            
            
            (20
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            27
            
            
            
            (20
            )(Loss)
      income from continuing operations
            
            
            (1,095
            )
            
            
            1,131
            
            
            
            (7
            )
            
            
            3
            
            
            
            212
            
            
            
            835
            
            
            
            (1,300
            )
            
            
            293Discontinued
      operation
            
            
            1,025
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,025
            
            
            
            -Net
      (loss) income
            
            $
            (70
            )
            
            $
            1,131
            
            
            $
            (7
            )
            
            $
            3
            
            
            $
            212
            
            
            $
            835
            
            
            $
            (275
            )
            
            $
            293





Basic
            
            
            Diluted2008
            
            
            2007
            
            
            2008
            
            
            2007(Loss)
      income per common share from continuing operations
            
            $
            (0.32
            )
            
            $
            0.33
            
            
            $
            (0.32
            )
            
            $
            0.33Discontinued
      operation
            
            
            0.30
            
            
            
            -
            
            
            
            0.30
            
            
            
            -Net
      (loss) income per common share
            
            $
            (0.02
            )
            
            $
            0.33
            
            
            $
            (0.02
            )
            
            $
            0.33Weighted
      average number of common and equivalent shares outstanding
            
            
            3,441,551
            
            
            
            3,441,551
            
            
            
            3,441,551
            
            
            
            3,442,346





See
accompanying notes to consolidating condensed financial
statements.


3


AMERICAN
BILTRITE INC. AND SUBSIDIARIES


CONSOLIDATING
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)


For
the Six Months Ended June 30, 2008 and 2007


(In
thousands of dollars, except number of shares and per share
amounts)





ABI
      Consolidated
            
            
            Eliminations
            
            
            Congoleum
            
            
            American
      Biltrite2008
            
            
            2007
            
            
            2008
            
            
            2007
            
            
            2008
            
            
            2007
            
            
            2008
            
            
            2007Net
      sales
            
            $
            196,996
            
            
            $
            215,589
            
            
            $
            -
            
            
            $
            -
            
            
            $
            94,863
            
            
            $
            106,856
            
            
            $
            102,133
            
            
            $
            108,733Cost
      of products sold
            
            
            150,270
            
            
            
            160,253
            
            
            
            (700
            )
            
            
            (554
            )
            
            
            74,101
            
            
            
            81,113
            
            
            
            76,869
            
            
            
            79,694Selling,
      general & administrative expenses
            
            
            45,965
            
            
            
            48,229
            
            
            
            
            
            
            
            
            
            
            
            18,370
            
            
            
            19,414
            
            
            
            27,595
            
            
            
            28,815Income
      (loss) from operations
            
            
            761
            
            
            
            7,107
            
            
            
            700
            
            
            
            554
            
            
            
            2,392
            
            
            
            6,329
            
            
            
            (2,331
            )
            
            
            224Other
      income (expense)Interest
      income
            
            
            1,363
            
            
            
            336
            
            
            
            
            
            
            
            
            
            
            
            1,192
            
            
            
            254
            
            
            
            171
            
            
            
            82Interest
      expense
            
            
            (1,319
            )
            
            
            (7,235
            )
            
            
            
            
            
            
            
            
            
            
            (197
            )
            
            
            (6,058
            )
            
            
            (1,122
            )
            
            
            (1,177
            )Other
      income (expense)
            
            
            87
            
            
            
            148
            
            
            
            (699
            )
            
            
            (549
            )
            
            
            (414
            )
            
            
            (34
            )
            
            
            1,200
            
            
            
            731131
            
            
            
            (6,751
            )
            
            
            (699
            )
            
            
            (549
            )
            
            
            581
            
            
            
            (5,838
            )
            
            
            249
            
            
            
            (364
            )Income
      (loss) before taxes and other items
            
            
            892
            
            
            
            356
            
            
            
            1
            
            
            
            5
            
            
            
            2,973
            
            
            
            491
            
            
            
            (2,082
            )
            
            
            (140
            )Provision
      for (benefit from)  income taxes
            
            
            1,082
            
            
            
            (59
            )
            
            
            
            
            
            
            
            
            
            
            1,082
            
            
            
            7
            
            
            
            -
            
            
            
            (66
            )Noncontrolling
      interests
            
            
            67
            
            
            
            (25
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            67
            
            
            
            (25
            )(Loss)
      income from continuing operations
            
            
            (123
            )
            
            
            390
            
            
            
            1
            
            
            
            5
            
            
            
            1,891
            
            
            
            484
            
            
            
            (2,015
            )
            
            
            (99
            )Discontinued
      operation
            
            
            1,025
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,025
            
            
            
            -Net
      income (loss)
            
            $
            902
            
            
            $
            390
            
            
            $
            1
            
            
            $
            5
            
            
            $
            1,891
            
            
            $
            484
            
            
            $
            (990
            )
            
            $
            (99
            )





Basic
            
            
            Diluted2008
            
            
            2007
            
            
            2008
            
            
            2007(Loss)
      income per common share from continuing operations
            
            $
            (0.04
            )
            
            $
            0.11
            
            
            $
            (0.04
            )
            
            $
            0.11Discontinued
      operation
            
            
            0.30
            
            
            
            -
            
            
            
            0.30
            
            
            
            -Net
      income per common share
            
            $
            0.26
            
            
            $
            0.11
            
            
            $
            0.26
            
            
            $
            0.11Weighted
      average number of common and equivalent shares outstanding
            
            
            3,441,551
            
            
            
            3,441,551
            
            
            
            3,441,551
            
            
            
            3,442,326





See
accompanying notes to consolidating condensed financial
statements.


4


AMERICAN
BILTRITE INC. AND SUBSIDIARIES


CONSOLIDATING
CONDENSED STATEMENTS OF CASH FLOWS – OPERATING ACTIVITIES
(Unaudited)


For
the Six Months Ended June 30, 2008 and 2007


(In
thousands of dollars)




ABI
      Consolidated
            
            
            Eliminations
            
            
            Congoleum
            
            
            American
      Biltrite2008
            
            
            2007
            
            
            2008
            
            
            2007
            
            
            2008
            
            
            2007
            
            
            2008
            
            
            2007Operating
      activitiesNet
      income (loss)
            
            $
            902
            
            
            $
            390
            
            
            $
            1
            
            
            $
            5
            
            
            $
            1,891
            
            
            $
            484
            
            
            $
            (990
            )
            
            $
            (99
            )Net
      income from discontinued operation
            
            
            (1,025
            )
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,025
            )
            
            
            -Income
      (loss) from continuing operations
            
            
            (123
            )
            
            
            390
            
            
            
            1
            
            
            
            5
            
            
            
            1,891
            
            
            
            484
            
            
            
            (2,015
            )
            
            
            (99
            )Adjustments
      to reconcile net income (loss) to net cash (used) provided by operating
      activities:Depreciation
      and amortization
            
            
            7,915
            
            
            
            8,130
            
            
            
            
            
            
            
            
            
            
            
            5,299
            
            
            
            5,393
            
            
            
            2,616
            
            
            
            2,737Stock
      compensation expense
            
            
            53
            
            
            
            10
            
            
            
            
            
            
            
            
            
            
            
            9
            
            
            
            10
            
            
            
            44
            
            
            
            -Change
      in operating assets and liabilities:Accounts
      and notes receivable
            
            
            (2,335
            )
            
            
            (5,091
            )
            
            
            108
            
            
            
            402
            
            
            
            (2,958
            )
            
            
            (504
            )
            
            
            515
            
            
            
            (4,989
            )Inventories
            
            
            (5,039
            )
            
            
            (1,387
            )
            
            
            (1
            )
            
            
            (5
            )
            
            
            (5,797
            )
            
            
            (1,329
            )
            
            
            759
            
            
            
            (53
            )Prepaid
      expenses and other assets
            
            
            593
            
            
            
            2,770
            
            
            
            
            
            
            
            
            
            
            
            669
            
            
            
            2,805
            
            
            
            (76
            )
            
            
            (35
            )Proceeds
      from legal fees disgorgement
            
            
            9,168
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            9,168
            
            
            
            -Accounts
      payable and accrued expenses
            
            
            (7,330
            )
            
            
            8,027
            
            
            
            (108
            )
            
            
            (402
            )
            
            
            (6,456
            )
            
            
            7,683
            
            
            
            (766
            )
            
            
            746Asbestos-related
      expenses
            
            
            (8,472
            )
            
            
            (7,783
            )
            
            
            
            
            
            
            
            
            
            
            (8,472
            )
            
            
            (7,783
            )Noncontrolling
      interests
            
            
            (198
            )
            
            
            (51
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (198
            )
            
            
            (51
            )Other
            
            
            1,690
            
            
            
            (1,460
            )
            
            
            
            
            
            
            
            
            
            
            1,373
            
            
            
            (1,041
            )
            
            
            317
            
            
            
            (419
            )Net
      cash (used) provided by operating activities of continuing
      operations
            
            $
            (4,078
            )
            
            $
            3,555
            
            
            $
            -
            
            
            $
            -
            
            
            $
            (5,274
            )
            
            $
            5,718
            
            
            $
            1,196
            
            
            $
            (2,163
            )





See
accompanying notes to consolidating condensed financial
statements.


5


AMERICAN
BILTRITE INC. AND SUBSIDIARIES


CONSOLIDATING
CONDENSED STATEMENTS OF CASH FLOWS – INVESTING & FINANCING ACTIVITIES
(Unaudited)


For
the Six Months Ended June 30, 2008 and 2007


(In
thousands of dollars)




ABI
      Consolidated
            
            
            Eliminations
            
            
            Congoleum
            
            
            American
      Biltrite2008
            
            
            2007
            
            
            2008
            
            
            2007
            
            
            2008
            
            
            2007
            
            
            2008
            
            
            2007Investing
      activitiesInvestments
      in property, plant and equipment
            
            $
            (2,274
            )
            
            $
            (2,034
            )
            
            $
            -
            
            
            $
            -
            
            
            $
            (1,504
            )
            
            $
            (1,073
            )
            
            $
            (770
            )
            
            $
            (961
            )Net
      cash used by investing activities of continuing operations
            
            
            (2,274
            )
            
            
            (2,034
            )
            
            
            -
            
            
            
            -
            
            
            
            (1,504
            )
            
            
            (1,073
            )
            
            
            (770
            )
            
            
            (961
            )Financing
      activitiesNet
      short-term borrowings (repayments)
            
            
            2,173
            
            
            
            4,488
            
            
            
            
            
            
            
            
            
            
            
            6,885
            
            
            
            800
            
            
            
            (4,712
            )
            
            
            3,688Payments
      on long-term debt
            
            
            (662
            )
            
            
            (663
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (662
            )
            
            
            (663
            )Collection
      on Janus note receivable
            
            
            4,034
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            4,034
            
            
            
            -Net
      change in restricted cash
            
            
            40
            
            
            
            (41
            )
            
            
            
            
            
            
            
            
            
            
            40
            
            
            
            (41
            )Net
      cash provided (used) by financing activities of continuing
      operations
            
            
            5,585
            
            
            
            3,784
            
            
            
            -
            
            
            
            -
            
            
            
            6,925
            
            
            
            759
            
            
            
            (1,340
            )
            
            
            3,025Effect
      of foreign exchange rate changes on cash
            
            
            (369
            )
            
            
            (602
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (369
            )
            
            
            (602
            )Net
      (decrease) increase in cash
            
            
            (1,136
            )
            
            
            4,703
            
            
            
            -
            
            
            
            -
            
            
            
            147
            
            
            
            5,404
            
            
            
            (1,283
            )
            
            
            (701
            )Cash
      and cash equivalents at beginning of period
            
            
            30,185
            
            
            
            21,180
            
            
            
            
            
            
            
            
            
            
            
            26,327
            
            
            
            18,591
            
            
            
            3,858
            
            
            
            2,589Cash
      and cash equivalents at end of period
            
            $
            29,049
            
            
            $
            25,883
            
            
            $
            -
            
            
            $
            -
            
            
            $
            26,474
            
            
            $
            23,995
            
            
            $
            2,575
            
            
            $
            1,888





See
accompanying notes to consolidating condensed financial statements.








6


AMERICAN
BILTRITE INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATING CONDENSED


FINANCIAL
STATEMENTS


June
30, 2008


(Unaudited)





Note A - Basis of
Presentation





The
accompanying unaudited consolidating condensed financial statements which
include the accounts of American Biltrite Inc. and its wholly owned subsidiaries
(and including, unless the context otherwise indicates, its majority-owned
subsidiary K&M Associates L.P., referred to herein as "ABI", "American
Biltrite" or the "Company") as well as entities over which it has voting control
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information, the instructions to Form
10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial
statements.  In the opinion of management, all adjustments (consisting
of normal recurring adjustments, provisions for discontinued operations and
provisions to effect a plan of reorganization under Chapter 11 of the United
States Bankruptcy Code (the "Bankruptcy Code") of Congoleum Corporation
("Congoleum"), a majority-owned subsidiary of the Company, to settle asbestos
liabilities) considered necessary for a fair presentation have been
included.  Operating results for the three and six months ended June
30, 2008 are not necessarily indicative of the results that may be expected for
future periods, including the year ending December 31, 2008.  For
further information, refer to the consolidating financial statements and the
notes to those financial statements included in American Biltrite Inc.'s Annual
Report on Form 10-K for the year ended December 31, 2007.





The
consolidating balance sheet at December 31, 2007 has been derived from the
audited financial statements as of that date but does not include all of the
information and notes required by accounting principles generally accepted in
the United States for complete financial statements.





During
2003, the Company decided to discontinue the operations of its Janus Flooring
Corporation subsidiary ("Janus"), a manufacturer of pre-finished hardwood
flooring, and sell the related assets.  Historical financial results
were restated to reflect the classification of Janus as a discontinued operation
in accordance with the Financial Accounting Standards Board's ("FASB") Statement
of Financial Accounting Standards ("SFAS") No. 144, Accounting for the Impairment or
Disposal of Long-lived Assets.  Results of Janus, including
charges resulting from the shutdown, are being reported as a discontinued
operation.  In April 2006, the Company completed the sale of Janus’
remaining building and land (see Note C).  As a result of the sale of
property, the discontinued operation was effectively dissolved during
2006.  As of December 31, 2006, the Company merged Janus with and into
American Biltrite Inc.’s subsidiary, American Biltrite (Canada) Ltd. ("AB
Canada"), primarily for the purposes of utilizing Janus’ prior years’ net
operating losses against future taxable income.


7


Note A - Basis of
Presentation (continued)





As
discussed more fully below and elsewhere in these notes to consolidating
condensed financial statements, the Company's subsidiary Congoleum filed for
bankruptcy protection on December 31, 2003 in the United States Bankruptcy Court
for the District of New Jersey (the "Bankruptcy Court").  The
accompanying consolidated financial statements include the results for Congoleum
for all periods presented.  Congoleum’s results include losses
(including other comprehensive losses) of $44.6 million and $46.5 million in
excess of the value of ABI’s investment in Congoleum at June 30, 2008 and
December 31, 2007, respectively.  ABI owns a majority of the voting
stock of Congoleum, and expects to continue doing so until Congoleum’s
reorganization proceedings are concluded, at which time ABI expects its
ownership interests in Congoleum will be eliminated.  The Company has
elected to continue to consolidate the financial statements of Congoleum in its
consolidated results because it believes that is the appropriate presentation
given its current voting control of Congoleum.  However, the
accompanying financial statements also present the details of consolidation to
separately show the financial condition, operating results and cash flows of ABI
(including its non-debtor subsidiaries) and Congoleum, which may be more
meaningful for certain analyses.





For more
information regarding Congoleum’s asbestos liability and plan for resolving that
liability, please refer to Note K.





The
financial statements of Congoleum have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business.  Accordingly, the financial
statements do not include any adjustments that might be necessary should
Congoleum be unable to continue as a going concern.  In light of
Congoleum’s substantial asbestos liabilities, which are further described in
Note K, there is substantial doubt about Congoleum’s ability to continue as a
going concern unless it obtains relief from those liabilities through a
successful reorganization under Chapter 11 of the Bankruptcy Code.





The
American Institute of Certified Public Accountants Statement of Position 90-7,
Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code ("SOP 90-7"),
provides financial reporting guidance for entities that are reorganizing under
the Bankruptcy Code.  Congoleum has implemented this guidance in its
consolidated financial statements for periods commencing after December 31,
2003.  Pursuant to SOP 90-7, companies in reorganization under the
Bankruptcy Code are required to segregate pre-petition liabilities that are
subject to compromise and report them separately on the balance sheet.
Liabilities that may be affected by a plan of reorganization are recorded at the
amount of the expected allowed claims, even if they may be settled for lesser
amounts.  Liabilities for asbestos claims are recorded based upon the
minimum amount Congoleum expects to spend for its contribution to, and costs to
settle asbestos liabilities through, the Plan Trust (as defined in Note K).
Obligations arising post-petition and pre-petition obligations that are secured
or that the Bankruptcy Court has authorized Congoleum to pay, are not classified
as liabilities subject to compromise.  Other pre-petition claims (which
would be classified as liabilities subject to compromise) may arise due to the
rejection by Congoleum of executory contracts or unexpired leases pursuant to
the Bankruptcy Code or as a result of the allowance by the Bankruptcy Court of
contingent or disputed claims related to pre-petition matters.


8


Note A - Basis of
Presentation (continued)





Recently
Issued Accounting Principles





In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
("SFAS No. 157").  SFAS No. 157 provides a common fair value hierarchy
for companies to follow in determining fair value measurements in the
preparation of financial statements and expands disclosure requirements relating
to how such fair value measurements were developed.  SFAS No. 157
clarifies the principle that fair value should be based on the assumptions that
the marketplace would use when pricing an asset or liability, rather than
company-specific data.  SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007.  However, on February 12, 2008, the
FASB issued Staff Position 157-2 which delays the effective date of SFAS No. 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.  For items within its scope, this Staff Position
defers the effective date of SFAS No. 157 to fiscal years beginning after
November 15, 2008.  The Company does not believe that the adoption of
SFAS No. 157 for its non-financial assets and liabilities, effective January 1,
2009, will have a material impact to the consolidated financial
statements.  The Company adopted SFAS No. 157 effective January 1,
2008 for its financial assets and liabilities.  The adoption did not
have a material impact to the consolidated financial statements (See Notes E and
F).





In July
2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes – An Interpretation of FASB Statement No. 109("FIN
48").  FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in financial statements in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes
("FAS 109").  This interpretation prescribes a recognition threshold
and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax
return.  FIN 48 also provides guidance on derecognition of tax
benefits, classification on the balance sheet, interest and penalties,
accounting in interim periods, disclosure and transition.  The Company
adopted FIN 48 effective January 1, 2007.  As a result of the
adoption, the Company determined that no cumulative effect adjustment was
necessary to the opening balance of retained earnings as of January 1,
2007.  The Company’s unrecognized tax benefits as of January 1, 2007
were immaterial, and recognition of such tax benefits is not expected to have a
material impact on the Company’s income tax provision in future
periods.  Changes in the Company’s unrecognized tax benefits during
the six months ended June 30, 2008 were immaterial.  Furthermore, the
Company does not expect such changes in the next twelve months to be material to
the Company’s financial position or results of operation.





9


Note A - Basis of
Presentation (continued)





For tax
return purposes, ABI and Congoleum are not part of a consolidated group and,
consequently, file separate federal and state tax returns. ABI’s and Congoleum’s
federal income tax returns are open and subject to examination from the 2004 and
2003 tax return years and forward, respectively.  ABI’s and
Congoleum’s various state income tax returns are generally open from the 2002
and later tax return years based on individual state statute of
limitations.  Congoleum’s tax return net operating loss carryforwards
are significant.  The tax years in which losses arose may be subject
to audit when such carryforwards are utilized to offset taxable income in future
periods.  AB Canada’s federal and provincial tax returns are open and
subject to examination from 2002 and later.




For the
six months ended June 30, 2008, the Company did not record a tax benefit for
American Biltrite’s year-to-date loss due to uncertainty in the future benefit
and utilization of net operating losses. Income tax expense was recorded for the
three months ended June 30, 2008 as a result of the reversal of a tax benefit
recorded in the first quarter. Congoleum recorded a tax provision of $153
thousand and $1.1 million for the three and six months ended June 30, 2008,
respectively, based on its expected effective tax rate for the year. Income tax
provision and benefit recorded by American Biltrite and Congoleum for the three
and six months ended June 30, 2007 were not significant.


The
Company records tax penalties and interest as a component of income tax
expense.





Note B -
Inventories




Inventories
at June 30, 2008 and December 31, 2007 consisted of the following (in thousands):




June
      30,
              2008
            
            
            December 31,
              2007Finished
      goods
            
            $
            59,667
            
            
            $
            55,478Work-in-process
            
            
            12,749
            
            
            
            10,327Raw
      materials and supplies
            
            
            11,136
            
            
            
            12,596$
            83,552
            
            
            $
            78,401





Note C – Sale of
Property





In April
2006, the Company completed the sale of a building and land owned by Janus, a
discontinued operation (see Note A).  The building and land were sold
for $5.0 million Canadian dollars ("C$").  The Company received C$1.0
million in cash and a C$4.0 million note.  The note was paid in full
in May 2008 subsequent to the receipt of an environmental certification on the
land sold.  The Company recognized a gain of approximately C$1.0
million on the sale of the building and land in May 2008.  The gain
has been recorded as a gain from the discontinued operation.





10


Note D – Accrued
Expenses





Accrued
Expenses at June 30, 2008 and December 31, 2007 consisted of the following (in thousands):





June
      30,
              2008
            
            
            December 31,
              2007Accrued
      advertising and sales promotions
            
            $
            14,644
            
            
            $
            20,906Employee
      compensation and related benefits
            
            
            9,401
            
            
            
            7,581Interest
            
            
            460
            
            
            
            7Environmental
      matters
            
            
            849
            
            
            
            849Royalties
            
            
            721
            
            
            
            828Income
      taxes
            
            
            1,827
            
            
            
            477Other
            
            
            6,204
            
            
            
            6,387$
            34,106
            
            
            $
            37,035





See Note
H for Liabilities Subject to Compromise.





Note E – Financing
Arrangements





American
Biltrite Inc.’s primary source of borrowings are the revolving credit facility
(the "Revolver") and the term loan ("Term Loan") it has with Bank of America,
National Association ("BofA") and BofA acting through its Canada branch (the
"Canadian Lender") pursuant to an amended and restated credit agreement (the
"Credit Agreement").  The Credit Agreement provides American Biltrite
Inc. and its subsidiary K&M Associates L.P. ("K&M") with (i) a $30.0
million commitment under the Revolver with a $12.0 million borrowing sublimit
(the "Canadian Revolver") for American Biltrite Inc.’s subsidiary AB Canada and
(ii) the $10.0 million Term Loan.  The Credit Agreement also provides
for domestic and Canadian letter of credit facilities with availability of up to
$5.0 million and $1.5 million, respectively, subject to availability under the
Revolver and the Canadian Revolver, respectively.





On August
14, 2008, American Biltrite Inc. and its subsidiaries, K&M and AB Canada,
entered into an amendment, effective as of June 30, 2008, to the Credit
Agreement with BofA and BofA acting through its Canada branch, each in their
respective capacities as lenders and administrative agents under the Credit
Agreement.  The amendment permits the Company to include the principal
proceeds it received from the payoff of a note (see Note C) to its Consolidated
Adjusted earnings before interest, taxes, depreciation and amortization
("EBITDA"), as determined under the Credit Agreement, for the periods ending
June 30, 2008, September 30, 2008 and December 31, 2008.  The Credit
Agreement includes a financial covenant that requires the Company's Consolidated
Adjusted EBITDA for the four consecutive fiscal quarters then ending to exceed
100% of the Company's Consolidated Fixed Charges for the 12-month period ending
on such date, as determined under the Credit Agreement (the "Fixed Charge
Covenant").  Further, under








11


Note E – Financing
Arrangements (continued)





the
amendment, the lenders waived defaults that may have otherwise existed as of
June 30, 2008 with respect to the Fixed Charges covenant.  ABI paid
BofA a fee of $50 thousand in connection with this amendment.  On
March 12, 2008, the same parties entered into an amendment to the Credit
Agreement to revise a financial covenant to remove the financial covenant that
required the Company not to have any consecutive quarterly net losses from
continuing operations (reporting Congoleum on the equity method of
accounting).  In addition, for purposes of determining the Company's
compliance with the financial covenant requiring its Consolidated Adjusted
EBITDA to exceed 100% of the Company's Consolidated Fixed Charges (in each case,
as determined under the Credit Agreement), the amendment permits the Company to
add certain amounts to its Consolidated Adjusted EBITDA to the extent those
amounts are deducted in determining the Company's Consolidated Net Income (as
determined under the Credit Agreement).  Further, under the amendment,
the lenders waived defaults that may have otherwise existed as of December 31,
2007 with respect to the financial covenants that were amended by the
amendment.  ABI paid BofA a fee of $50 thousand in connection with
this amendment.  On May 14, 2007, the same parties entered into an
amendment, effective as of March 31, 2007, to the Credit Agreement to revise a
financial covenant to provide that for each of the two consecutive fiscal
quarters of the Company ending December 31, 2006 and March 31, 2007, the Company
may not have a quarterly net loss from continuing operations in excess of $400
thousand.  As a result of the amendments, the Company was in
compliance with the Credit Agreement as of each quarter end for the year ended
December 31, 2007 and the six months ended June 30, 2008.





On
September 29, 2006, American Biltrite Inc. entered into swap agreements to
convert the interest rates on the Term Loan and $6.0 million of borrowings under
the Revolver from floating rates to fixed rates of interest.  The swap
agreement for the Term Loan (the "Term Loan Swap") has a five year term with the
same quarterly payment dates as the Term Loan and reduces proportionately in
line with the amortization of the Term Loan.  The swap agreement for
the $6.0 million outstanding under the Revolver (the "Revolver Swap") has a
three year term with quarterly settlement dates beginning December 31,
2006.  The Company expects its borrowings under the Revolver to remain
above $6.0 million through September 29, 2009, the termination date of the
Revolver Swap and the Revolver.  The Term Loan Swap and the Revolver
Swap are carried at fair value.  Changes in the fair value of the swap
agreements are recorded in Other Income (Expense).  For the three and
six months ended June 30, 2008, the Company recorded a gain and a loss of $180
thousand and $80 thousand, respectively, for the adjustment of the fair values
of the swap agreements.  For the three and six months ended June 30,
2007, the Company recorded a gain of $134 thousand and $90 thousand,
respectively.





12


Note F – Fair Value
Measurements





Effective
January 1, 2008, the Company adopted SFAS No. 157, which defines fair value as
the exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants at the
measurement date.  SFAS No. 157 establishes a three-level fair value
hierarchy that prioritizes the inputs used to measure fair
value.  This hierarchy requires entities to maximize the use of
observable inputs and minimize the use of unobservable inputs.  The
three levels of inputs used to measure fair value are as follows:





§
            Level
      1 – Quoted prices in active markets for identical assets or
      liabilities.





§
            Level
      2 – Quoted prices for similar assets and liabilities in active markets;
      quoted prices for identical or similar assets or liabilities in markets
      that are not active; inputs other than quoted prices that are observable
      for the asset or liability; inputs that are derived principally from or
      corroborated by observable market data by correlation or other
      means.





§
            Level
      3 – Unobservable inputs that are supported by little or no market activity
      and that are significant to the fair value of the assets or
      liabilities.





The
Company’s only financial assets or liabilities subject to SFAS No. 157 are its
interest rate swap agreements (see Note E).  Prior to the adoption of
SFAS No. 157, the Company recorded the swap agreements at fair
value.  The fair value of the swap agreements is based on quoted
prices for similar assets or liabilities in active markets (Level
2).  As of June 30, 2008, the Company had recorded an unrealized loss
of $408 thousand for its interest rate swap agreements.





Note G – Other
Liabilities





Other
Liabilities at June 30, 2008 and December 31, 2007 consisted of the following
(in
thousands):





June
      30,
              2008
            
            
            December 31,
              2007Pension
      benefits
            
            $
            3,055
            
            
            $
            2,817Environmental
      remediation and product related liabilities
            
            
            5,576
            
            
            
            5,336Deferred
      income taxes
            
            
            1,528
            
            
            
            1,337Other
            
            
            2,526
            
            
            
            2,705$
            12,685
            
            
            $
            12,195





See Note
H for Liabilities Subject to Compromise.





13


Note H – Liabilities Subject
to Compromise





As a
result of Congoleum’s Chapter 11 filing (see Notes A and K), pursuant to SOP
90-7, Congoleum is required to segregate pre-petition liabilities that are
subject to compromise and report them separately on the consolidated balance
sheet.  Liabilities that may be affected by a plan of reorganization
are recorded at the amount of the expected allowed claims, even if they may be
settled for lesser amounts. Substantially all of Congoleum’s pre-petition debt
is recorded at face value and is classified within liabilities subject to
compromise. In addition, Congoleum’s accrued but unpaid interest expense on its
8 5/8% Senior Notes Due 2008 is also recorded in liabilities subject to
compromise. See Notes A and K for further discussion of Congoleum’s asbestos
liability and its pending Chapter 11 case.  Liabilities subject to
compromise at June 30, 2008 and December 31, 2007 and included in ABI’s
consolidated balance sheet at each such date were as follows (in thousands):





June
      30,
              2008
            
            
            December 31,
              2007Current
      liabilityPre-petition
      other payables and accrued interest
            
            $
            4,997
            
            
            $
            4,997Non-currentDebt
      (at face value)
            
            
            100,000
            
            
            
            100,000Pension
      liability
            
            
            11,209
            
            
            
            10,772Other
      post-retirement benefit obligation
            
            
            9,572
            
            
            
            9,337Pre-petition
      other liabilities
            
            
            9,262
            
            
            
            9,622130,043
            
            
            
            129,731Elimination
      – Payable to American Biltrite
            
            
            (117
            )
            
            
            (126
            )Total
      non-current liability
            
            
            129,926
            
            
            
            129,605Total
      liabilities subject to compromise
            
            $
            134,923
            
            
            $
            134,602





Additional
pre-petition claims (which would be classified as liabilities subject to
compromise) may arise due to the rejection by Congoleum of executory contracts
or unexpired leases pursuant to the Bankruptcy Code, or as a result of the
allowance by the Bankruptcy Court of contingent or disputed claims.





14


Note I – Pension
Plans





The
Company and Congoleum sponsor several noncontributory defined benefit pension
plans covering most of their employees.  Benefits under the plans are
based on years of service and employee compensation.  Amounts funded
annually by the Company and Congoleum are actuarially determined using the
projected unit credit and unit credit methods and are equal to or exceed the
minimum required by government regulations.  Congoleum also maintains
health and life insurance programs for retirees (reflected in the table below
under the columns entitled "Other Benefits").





The table
below summarizes the components of the net periodic benefit cost for the
Company's and Congoleum's pension and other benefit plans during the three and
six months ended June 30, 2008 and 2007 (in thousands):





Three
      Months Ended June 30,2008
            
            
            2007Pension
            
            
            Other
      Benefits
            
            
            Pension
            
            
            Other
      BenefitsService
      cost
            
            $
            642
            
            
            $
            56
            
            
            $
            611
            
            
            $
            53Interest
      cost
            
            
            1,652
            
            
            
            144
            
            
            
            1,606
            
            
            
            142Expected
      return on plan assets
            
            
            (1,719
            )
            
            
            -
            
            
            
            (1,614
            )
            
            
            -Recognized
      net actuarial loss
            
            
            384
            
            
            
            15
            
            
            
            337
            
            
            
            18Amortization
      of prior service cost
            
            
            31
            
            
            
            -
            
            
            
            28
            
            
            
            3Net
      periodic benefit cost
            
            $
            990
            
            
            $
            215
            
            
            $
            968
            
            
            $
            216





Six
      Months Ended June 30,2008
            
            
            2007Pension
            
            
            Other
              Benefits
            
            
            Pension
            
            
            Other
              BenefitsService
      cost
            
            $
            1,284
            
            
            $
            112
            
            
            $
            1,214
            
            
            $
            106Interest
      cost
            
            
            3,304
            
            
            
            288
            
            
            
            3,201
            
            
            
            284Expected
      return on plan assets
            
            
            (3,438
            )
            
            
            -
            
            
            
            (3,211
            )
            
            
            -Recognized
      net actuarial loss
            
            
            768
            
            
            
            30
            
            
            
            675
            
            
            
            36Amortization
      of prior service cost
            
            
            62
            
            
            
            -
            
            
            
            54
            
            
            
            6Net
      periodic benefit cost
            
            $
            1,980
            
            
            $
            430
            
            
            $
            1,933
            
            
            $
            432


15


Note I – Pension Plans
(continued)





The
weighted average assumptions used to determine net periodic benefit cost for the
six months ended June 30, 2008 and 2007 were as follows:





2008
            
            2007Pension
            
            Other
              Benefits
            
            Pension
            
            Other
              BenefitsDiscount
      rate
            5.50%
      - 6.00%
            
            6.00%
            
            5.20%
      - 6.00%
            
            6.00%Expected
      long-term return on plan assets
            7.00%
      - 7.50%
            
            —
            
            7.00%
      - 7.50%
            
            —Rate
      of compensation increase
            4.00%
      - 5.00%
            
            —
            
            4.00%
      - 5.00%
            
            —





Note J - Commitments and
Contingencies





The
Company and Congoleum are subject to federal, state and local environmental laws
and regulations, and certain legal and administrative claims are pending or have
been asserted against the Company and Congoleum.  Among these claims,
the Company and Congoleum are separately a named party in several actions
associated with waste disposal sites. These actions include possible obligations
to remove or mitigate the effects on the environment of wastes deposited at
various sites, including Superfund sites and certain of the Company’s and
Congoleum’s owned and previously owned facilities.  The contingencies
also include claims for personal injury and/or property damage.  The
exact amount of such future cost and timing of payments are indeterminable due
to such unknown factors as the magnitude of cleanup costs, the timing and extent
of the remedial actions that may be required, the determination of the Company’s
and Congoleum’s liability in proportion to other potentially responsible
parties, the financial viability of other potentially responsible parties, and
the extent to which costs may be recoverable from
insurance.  Provisions in the financial statements have been recorded
for the estimated probable loss associated with all known general and
environmental contingencies for the Company and Congoleum. While the Company and
Congoleum believe their estimate of the future amount of these liabilities is
reasonable, and that they will be paid over a period of five to ten years, the
timing and amount of such payments may differ significantly from the Company’s
and Congoleum’s assumptions.  Although the effect of future government
regulation could have a significant effect on the Company’s and Congoleum’s
costs, the Company and Congoleum are not aware of any pending legislation that
would have such an effect.  There can be no assurances that the costs
of any future government regulations could be passed along to their
customers.  Estimated insurance recoveries related to these
liabilities are reflected in other non-current assets.





The
Company and Congoleum record a liability for environmental remediation claims
when it becomes probable that the Company or Congoleum, as applicable, will
incur costs relating to a clean-up program or will have to make claim payments,
and the costs or payments can be reasonably estimated. As assessments are
revised and clean-up programs progress, these liabilities are adjusted as
appropriate to reflect such revisions and progress.





16


Note J - Commitments and
Contingencies (continued)





Liabilities
of Congoleum comprise the substantial majority of the environmental and other
liabilities reported on the Company’s consolidated balance sheet.  Due
to the relative magnitude and wide range of estimates of these liabilities and
the fact that recourse related to these liabilities is generally limited to
Congoleum, these matters are discussed separately following matters for which
ABI has actual or potential liability.  However, since ABI includes
Congoleum in ABI’s consolidating financial statements, to the extent that
Congoleum incurs a liability or expense, it will be reflected in ABI's
consolidating financial statements.





American Biltrite
Inc.





ABI is a co-defendant with many other
manufacturers and distributors of asbestos containingproducts in approximately
1,339pending claims
involvingapproximately 1,894individualsas ofJune 30, 2008.  The claimants allege
personal injury or death from exposure to asbestos or asbestos-containing
products.Activity related to ABI's asbestos
claims is as follows:





Six
      Months
              Ended
              June
      30,
              2008
            
            
            Year
      Ended
              December 31,
              2007Beginning
      claims
            
            
            1,360
            
            
            
            1,332New
      claims
            
            
            261
            
            
            
            523Settlements
            
            
            (8
            )
            
            
            (20
            )Dismissals
            
            
            (274
            )
            
            
            (475
            )Ending
      claims
            
            
            1,339
            
            
            
            1,360





The total
indemnity costs incurred to settle claims during the six months ended June 30,
2008 and the year ended December 31, 2007 were $0.6 million and $2.2 million,
respectively, all of which were paid by ABI's insurance carriers pursuant to a
February 1996 coverage-in-place agreement with ABI's applicable primary layer
insurance carriers, as were the related defense costs.  In June 2008,
ABI’s primary layer insurance carriers advised ABI that coverage limits under
the February 1996 coverage-in-place agreement had exhausted.  ABI’s
first-layer umbrella carriers are providing defense and indemnity coverage
pursuant to an umbrella/first-layer excess policies arrangement (the “Umbrella
Coverage”) between ABI
and the applicable insurance carriers. The Umbrella Coverage addresses
defense and indemnity obligations, allocation of claims to specific policies,
and other matters.


17


Note J - Commitments and
Contingencies (continued)





In
addition to coverage available under the Umbrella Coverage, ABI has
additional excess liability insurance policies that should provide further
coverage if and when limits of certain policies within the Umbrella
Coverage exhaust.  While ABI expects the Umbrella
Coverage will result in the substantial majority of defense and indemnity
for asbestos claims against ABI being paid by its insurance
carriers for the foreseeable future, ABI may incur uninsured costs related
to asbestos claims, and those costs could be material.  If ABI were to
incur significant uninsured costs for asbestos claims, or its insurance carriers
failed to fund insured costs for asbestos claims, such costs could have a
material adverse impact on its liquidity, financial condition and results of
operations.





In
general, governmental authorities have determined that asbestos-containing sheet
and tile products are nonfriable (i.e., cannot be crumbled by hand pressure)
because the asbestos was encapsulated in the products during the manufacturing
process.  Thus, governmental authorities have concluded that these
products do not pose a health risk when they are properly maintained in place or
properly removed so that they remain nonfriable.  The Company has
issued warnings not to remove asbestos-­containing flooring by sanding or
other methods that may cause the product to become friable.





The
Company estimates its liability to defend and resolve current and reasonably
anticipated future asbestos-related claims (not including claims asserted
against Congoleum) based upon a strategy to actively defend against or
strategically seek settlement for those claims on a case by case basis in the
normal course of business.  Factors such as recent and historical
settlement and trial results, the incidence of past and recent claims, the
number of cases pending against it and asbestos litigation developments that may
impact the exposure of the Company were considered in performing these
estimates.  In 2007, the Company utilized an actuarial study to assist
it in developing estimates of the Company’s potential liability for resolving
present and possible future asbestos claims.  At December 31, 2007,
the estimated range of liability for settlement of current claims pending and
claims anticipated to be filed through 2013 was $12.6 million to $41.4
million.  The Company believed no amount within this range is more
likely than any other, and accordingly, recorded the minimum liability estimate
of $12.6 million in its consolidated financial statements at December 31,
2007.  At June 30, 2008, the Company has recorded $12.8 million for
the estimated minimum liability.  The Company has also recorded, based
on this minimum liability estimate, an estimate of the amount of insurance
probable of recovery is $11.1 million at June 30, 2008 and December 31, 2007,
which has been included in other assets in the Company’s consolidated balance
sheet.  The same factors that affect developing forecasts of potential
indemnity costs for asbestos-related liabilities also affect estimates of the
total amount of insurance that is probable of recovery, as do a number of
additional factors.  These additional factors include the financial
viability of some of the insurance companies, the method in which losses will be
allocated to the various insurance policies and the years covered by those
policies, how legal and other loss handling costs will be covered by the
insurance policies, and interpretation of the effect on coverage of various
policy terms and limits and their interrelationships.  These amounts were based on currently
known facts and a number of assumptionsmade prior to the completion of the
umbrella/first-layer excess policies arrangement.The Company intends to engage an actuary
to estimate the amount





18


Note J - Commitments and
Contingencies (continued)





of insurance probable of recovery taking
that arrangement into consideration.However, projecting future events, such
as the number of new claims to be filed each year, the average cost of disposing
of each such claim, andthe continuing solvency of various
insurance companies, as well as numerous uncertainties surrounding asbestos
legislation in the United States, could cause the actual liability and insurance
recoveries for the Company to be higher or lower than those projected or
recorded.





Due to
the numerous variables and uncertainties, including the effect of Congoleum's
Chapter 11 case and any plan of reorganization on the Company's liabilities, the
Company does not believe that reasonable estimates can be developed of
liabilities for asbestos-related claims against the Company (not including
claims asserted against Congoleum) beyond a six year horizon.  The
Company will continue to evaluate its range of future exposure, and the related
insurance coverage available, and when appropriate, record future adjustments to
those estimates, which could be material.





The
Company anticipates that any resolution of its asbestos related liabilities that
may result from any reorganization plan for Congoleum will be limited at most to
liabilities derivative of claims asserted against Congoleum as may be afforded
under Section 524(g)(4) of the Bankruptcy Code.





There
have been no material developments relating to the environmental sites or the
other environmental matters described in ABI's Annual Report on Form 10-K during
the six month period ended June 30, 2008.





Congoleum





Congoleum
is a defendant in a large number of asbestos-related lawsuits and on December
31, 2003, filed a petition commencing a voluntary reorganization case under
Chapter 11 of the Bankruptcy Code for purposes of resolving its asbestos-related
liabilities.  See Note K.





Congoleum
is named, together with a large number (in most cases, hundreds) of other
companies, as a potentially responsible party ("PRP") in pending proceedings
under the Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA") and similar state laws.  In addition, in four other
instances, although not named as a PRP, Congoleum has received a request for
information.  The pending proceedings in which Congoleum is a named
PRP currently relate to eight disposal sites in New Jersey, Pennsylvania and
Maryland in which recovery from generators of hazardous substances is sought for
the cost of cleaning up the contaminated waste sites.  Congoleum’s
ultimate liability and funding obligations in connection with those other sites
depends on many factors, including the volume of material contributed to the
site by Congoleum, the number of other PRP’s and their financial viability, the
remediation methods and technology to be used and the extent to which costs may
be recoverable by Congoleum from relevant insurance
policies.  However, under CERCLA and certain other laws, Congoleum, as
a PRP, can be held jointly and severally liable for all environmental costs
associated with a site.





19


Note J - Commitments and
Contingencies (continued)





The most
significant exposure for which Congoleum has been named a PRP relates to a
recycling facility site in Elkton, Maryland (the "Galaxy/Spectron Superfund
Site").  The PRP group at this site is made up of 81 companies,
substantially all of which are large, financially solvent
entities.  Two removal actions were substantially complete as of
December 31, 1998, and a groundwater treatment system was installed
thereafter.  The United States Environmental Protection Agency has
selected a remedy for the soil and shallow groundwater (Operable Unit 1 or
OU-1); however, the remedial investigation/feasibility study related to the deep
groundwater (Operational Unit 2 or OU-2) has not been completed.  The
PRP group, of which Congoleum is a part, has entered into a consent decree to
perform the remedy for OU-1 and resolve natural resource damage claims. The
consent decree also requires the PRP group to perform the OU-2 remedy, assuming
that the estimated cost of the remedy is not more than $10.0
million.  If the estimated cost of the OU-2 remedy is more than $10.0
million, the PRP group may decline to perform it or they may elect to perform it
anyway. Cost estimates for the OU-1 and OU-2 work combined (including natural
resource damages) range between $22 million and $34 million, with Congoleum’s
share ranging between approximately $1.0 million and $1.6
million.  This assumes that all parties participate and that none
cash-out and pay a premium; those two factors may account for some fluctuation
in Congoleum’s share of the costs. Fifty percent (50%) of Congoleum’s share of
the costs is presently being paid by one of its insurance carriers, Liberty
Mutual Insurance Company, whose remaining policy limits for this claim are
expected to cover approximately $300 thousand in additional
costs.  Congoleum expects to fund the balance to the extent further
insurance coverage is not available.





Congoleum
filed a motion before the Bankruptcy Court seeking authorization and approval of
the consent decree and related settlement agreements for the Galaxy/Spectron
Superfund Site, as well as authorization for Liberty Mutual Insurance Company
and Congoleum to make certain payments that have been invoiced to Congoleum with
respect to the consent decree and related settlement agreements.  An
order authorizing and approving consent decree and settlement agreements was
issued by the Bankruptcy Court in August 2006.





Congoleum
also accrues remediation costs for certain of Congoleum’s owned facilities on an
undiscounted basis.  Congoleum has entered into an administrative
consent order with the New Jersey Department of Environmental Protection and has
established a remediation trust fund of $100 thousand as financial assurance for
certain remediation funding obligations.  Estimated total clean-up
costs of $1.3 million for Congoleum’s expected portion of those remediation
funding obligations, including capital outlays and future maintenance costs for
soil and groundwater remediation, are primarily based on engineering
studies.  Of this amount, $300 thousand was included in current
liabilities subject to compromise and $1.0 million was included in non-current
liabilities subject to compromise in ABI’s consolidated balance sheet as of June
30, 2008 and December 31, 2007.





20


Note J - Commitments and
Contingencies (continued)





At June
30, 2008 and December 31, 2007, Congoleum recorded a total of $4.4 million for
estimated environmental liabilities, which liabilities were not reduced by the
amount of expected insurance recoveries.  At June 30, 2008 and
December 31, 2007, such estimated insurance recoveries are approximately $2.2
million.  Receivables for expected insurance recoveries are recorded
if the related carriers are solvent and paying claims under a reservation of
rights or under an obligation pursuant to coverage in place or a settlement
agreement.  Substantially all of Congoleum’s recorded insurance assets
for environmental matters are collectible from a single carrier.





Congoleum
anticipates that these matters will be resolved over a period of years, and that
after application of expected insurance recoveries, funding of the costs by
Congoleum will not have a material adverse impact on Congoleum’s liquidity or
financial position.  However, unfavorable developments in these
matters could result in significant expenses or judgments that could have a
material adverse effect on Congoleum’s and the Company’s business, results of
operations or financial condition.





Other





In
addition to the matters referenced above and in Note K, in the ordinary course
of their businesses, the Company and Congoleum become involved in lawsuits and
administrative proceedings in connection with product liability claims and other
matters.  In some of these proceedings, plaintiffs may seek to recover
large and sometimes unspecified amounts, and the matters may remain unresolved
for several years.





Note K – Congoleum Asbestos
Liabilities and Reorganization





On
December 31, 2003, Congoleum filed a voluntary petition with the Bankruptcy
Court seeking relief under Chapter 11 of the Bankruptcy Code as a means to
resolve claims asserted against it related to the use of asbestos in its
products decades ago.  During 2003, Congoleum had obtained the
requisite votes of asbestos personal injury claimants necessary to seek approval
of a proposed, pre-packaged Chapter 11 plan of reorganization.  In
January 2004, Congoleum filed its proposed plan of reorganization and disclosure
statement with the Bankruptcy Court.  From that filing through 2007,
several subsequent plans were negotiated with representatives of the Asbestos
Claimants’ Committee (the "ACC"), the Future Claimants’ Representative (the
"FCR") and other asbestos claimant representatives.  In addition, an
insurance company, Continental Casualty Company, and its affiliate, Continental
Insurance Company (collectively, "CNA"), filed a plan of reorganization and the
Bondholders’ Committee also filed a plan of reorganization.  In May
2006, the Bankruptcy Court ordered the principal parties in interest in
Congoleum’s reorganization proceedings to participate in global mediation
discussions.  Numerous mediation sessions took place during 2006,
culminating in two competing plans, one which Congoleum filed jointly with the
ACC in September 2006 (the "Tenth Plan") and the other filed by CNA, both of
which the Bankruptcy Court subsequently ruled were not confirmable as a matter
of law.





21


Note K – Congoleum Asbestos
Liabilities and Reorganization (continued)





In March
2007, Congoleum resumed global plan mediation discussions with the various
parties seeking to resolve the issues raised in the Bankruptcy Court’s ruling
with respect to the Tenth Plan.  In July 2007, the FCR filed a plan of
reorganization and proposed disclosure statement.   After
extensive further mediation sessions, on February 5, 2008, the FCR, the ACC, the
Bondholders’ Committee and Congoleum jointly filed a plan of reorganization (the
"Joint Plan"). The Bankruptcy Court approved the disclosure statement for the
Joint Plan in February 2008, and the Joint Plan was solicited in accordance with
court-approved voting procedures.  Various objections to the Joint
Plan were filed, and on May 12, 2008 the Bankruptcy Court heard oral argument on
summary judgment motions relating to certain of those objections.  On
June 6, 2008, the Bankruptcy Court issued a ruling that the Joint Plan was not
legally confirmable, and issued an Order to Show Cause why the case should not
be converted or dismissed pursuant to 11 U.S.C. § 1112.  Following a
further hearing on June 26, 2008, the Bankruptcy Court issued an opinion that
vacated the Order to Show Cause and instructed the parties to submit a
confirmable plan by the end of calendar year 2008.





Although
the Joint Plan was ruled not legally confirmable, the following description of
the terms of the Joint Plan is provided as it may be useful to the
reader.  Under the terms of the Joint Plan, a trust would have been
created upon consummation of the Joint Plan, which trust would have assumed the
liability for Congoleum’s current and future asbestos claims (the "Plan
Trust").  That trust would have received the proceeds of various
settlements Congoleum has reached with a number of insurance carriers, and would
have been assigned Congoleum’s rights under its remaining policies covering
asbestos product liability.  The trust would also have received 50.1%
of the newly issued common stock of reorganized Congoleum when the plan took
effect (the "Trust Shares"), which Trust Shares would have been subject to the
Put/Call Agreement described below.





Holders
of Congoleum’s $100 million in 8.625% Senior Notes due in August 2008 would have
received when the plan took effect on a pro rata basis $80 million principal
amount of new 9.75% senior secured notes that matured five years from
issuance.  The new senior secured notes would have been subordinated
to the working capital facility providing Congoleum’s financing upon exiting
reorganization.  In addition, holders of the $100 million 8.625%
Senior Notes due in August 2008 would have received 49.9% of the newly issued
common stock of reorganized Congoleum when the plan took
effect.  Congoleum’s obligations for the $100 million in 8.625% senior
notes due in August 2008, including accrued pre-petition interest (which
amounted to $3.6 million) would have been satisfied by the new senior secured
notes and the common stock issued when the Joint Plan took effect.





Under the
terms of the Joint Plan, existing shares of Class A and Class B common stock of
Congoleum would have been eliminated when the plan took effect and holders of
those shares, including ABI, would not have received anything on account of
their eliminated shares.  ABI expects its ownership interest in
Congoleum would be eliminated under any alternate plan or outcome in Congoleum’s
Chapter 11 case.


22


Note K – Congoleum Asbestos
Liabilities and Reorganization (continued)





In
connection with the Joint Plan, Congoleum and certain parties have entered into
an agreement (the "Put/Call Agreement").  Pursuant to the Put/Call
Agreement, for the first 60 days after the date the Joint Plan was effective
(the "Effective Date"), the Plan Trust could have, at its sole option, elected
to cause participating holders of Senior Notes (the "Backstop Participants") to
purchase all, but not less than all, of the Trust Shares for an aggregate
purchase price equal to $5.25 million. Similarly, for the first 90 days after
the Effective Date, the Backstop Participants would have had the right to cause
the Plan Trust to sell all, but not less than all, of the Trust Shares to the
Backstop Participants for an aggregate purchase price equal to $7.5
million.  The Put/Call Agreement expired by its terms as of June 30,
2008.





The Joint
Plan also included certain terms that would have governed an intercompany
settlement among ABI and its non-debtor subsidiaries and Congoleum and ongoing
intercompany arrangements among American Biltrite and its subsidiaries and
reorganized Congoleum which would have been effective when the Joint Plan took
effect and would have had a term of two years.  Those intercompany
arrangements included the provision of management services by American Biltrite
to reorganized Congoleum and other business relationships substantially
consistent with their traditional relationships.  The Joint Plan
provided that the final terms of the intercompany arrangements among American
Biltrite and its subsidiaries and reorganized Congoleum would be memorialized in
a new agreement to be entered into by reorganized Congoleum and American
Biltrite in form and substance mutually agreeable to the FCR, the official
committee of bondholders, the ACC and American Biltrite. Expiration or
termination of these existing arrangements, failure to reach definitive
agreement on final terms of future arrangements, or failure to consummate such
arrangements in connection with the effectiveness of a plan of reorganization
for Congoleum could have a material adverse impact on the business relationships
between ABI and Congoleum, and ABI’s business, operations and financial
condition.  The existing arrangements currently in effect among ABI
and its non-debtor subsidiaries and Congoleum expire September 30, 2008 unless
renewed.





There can
be no assurance that any plan of reorganization will subsequently be proposed
or, if proposed, will receive the acceptances necessary for confirmation, that
any plan will not be modified further, that any other plan will receive
necessary court approvals from the Bankruptcy Court and the United States
District Court for the District of New Jersey (the "District Court"), or that
such approvals will be received in a timely fashion, that any plan will be
confirmed, that any plan, if confirmed, will become effective, or that Congoleum
will continue to earn sufficient funds to pay for continued litigation over any
plan of reorganization and the state court insurance coverage
litigation.  It also is unclear whether any other person might
successfully propose a plan that gets confirmed or what any such plan, when
confirmed, would ultimately provide, and whether the Bankruptcy Court would
approve such a plan.  Any plan of reorganization pursued by Congoleum
will be subject to numerous conditions, approvals and other requirements,
including Bankruptcy Court and District Court approvals, and there can be no
assurance that such conditions, approvals and other requirements will be
satisfied or obtained.





23


Note K – Congoleum Asbestos
Liabilities and Reorganization (continued)





In
anticipation of Congoleum's commencement of the Chapter 11 cases, Congoleum
entered into a settlement agreement (the "Claimant Agreement"), which provides
for an aggregate settlement value of at least $466 million as well as an
additional number of individually negotiated trial listed settlements with an
aggregate value of approximately $25 million, for total settlements in excess of
$491 million.  As contemplated by the Claimant Agreement, Congoleum
also entered into agreements establishing a trust (the "Collateral Trust") to
distribute funds in accordance with the terms of the Claimant Agreement and
granting the Collateral Trust a security interest in Congoleum’s rights under
its applicable insurance coverage and payments from Congoleum’s insurers for
asbestos claims.  In December 2005, Congoleum commenced certain
adversary proceedings (the "Avoidance Actions") seeking to void the security
interest granted to the Collateral Trust and such pre-petition
settlements.  Following summary judgment hearings, the Bankruptcy
Court has rendered decisions that the grant of the security interest was not
valid but denying motions to avoid the pre-petition settlements; certain of
these decisions are under appeal.  The terms of the Joint Plan
provided for a settlement of litigation related to the Avoidance Actions, but it
is not possible to determine if any future plan will include such a settlement
or how any such plan-based settlement of the Avoidance Actions may affect the
nominal liability of Congoleum under the pre-petition settlements.  In
connection with soliciting acceptance of the Joint Plan, the voting agent
distributed ballots to approximately 146 thousand personal injury claimants,
which included holders of claims under the Claimant Agreement and the individual
trial listed settlements discussed above, as well as holders of additional
alleged claims.  Approximately 71 thousand valid ballots were returned
indicating claims with a value of $1.46 billion based on the settlement values
applicable under the Joint Plan.  It is also likely that additional
new claims will be asserted in connection with solicitation of acceptances of
any future plan.  Congoleum does not believe it can reasonably
estimate the liability associated with claims that may be pending.





During
the first six months of 2008, Congoleum paid $8.5 million (before recoveries) in
fees and expenses related to implementation of its planned reorganization under
Chapter 11 of the Bankruptcy Code and insurance coverage
litigation.  Congoleum has made provision in its financial statements
for the minimum estimated cost to effect its plan to settle asbestos liabilities
through confirmation of a plan that complies with section 524(g) of the
Bankruptcy Code. Congoleum recorded charges aggregating approximately $51.3
million in years prior to 1997.  In the fourth quarter of 2007
Congoleum recorded an additional $41.3 million charge based upon the terms of
the then-pending Joint Plan.  Of this charge, $14.9 million related to
the write-off of certain insurance litigation costs receivable that would not be
collected under the terms of the Joint Plan and $26.4 million was an additional
provision for estimated costs for the reorganization proceedings and the state
court insurance coverage litigation.  In the fourth quarter of 2007,
Congoleum also recorded a $41.0 million interest expense credit to reverse
post-petition interest accrued on its $100 million 8.625% Senior Notes due in
August 2008.  Terms of previous reorganization plans had provided,
among other things, for the payment of post-petition interest on the Senior
Notes and therefore Congoleum had continued to accrue such
interest.  Under the terms of the Joint Plan, the holders of the
Senior Note would not have received any post-petition
interest.  Congoleum has ceased to accrue interest on its Senior
Notes.  Congoleum may record further charges based on the terms and
expected timing of any future proposed plan of reorganization.





24


Note K – Congoleum Asbestos
Liabilities and Reorganization (continued)





In
February 2006, the Bankruptcy Court ordered Congoleum’s former counsel, Gilbert,
Heintz & Randolph LLP (currently known as Gilbert Randolph LLP) ("GHR") to
disgorge all fees and certain expenses it was paid by Congoleum.  In
October 2006, Congoleum and GHR entered into a settlement pursuant to which GHR
was to pay Congoleum approximately $9.2 million plus accruing interest in full
satisfaction of the disgorgement order.  The obligation was secured by
assets of GHR and was to be made over time according to a formula based on GHR’s
earnings.  The Bankruptcy Court approved that settlement with GHR in
April 2007.  Congoleum received $9.2 million plus $1.0 million of
accrued interest in full satisfaction of that settlement in March
2008.





Note L - Comprehensive
Income (Loss)





The
following table presents total comprehensive income for the three and six months
ended June 30, 2008 and 2007 (in thousands):





Three
      Months Ended
              June
      30,
            
            
            Six
      Months Ended
              June
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007Net
      (loss) income
            
            $
            (70
            )
            
            $
            1,131
            
            
            $
            902
            
            
            $
            390Foreign
      currency translation adjustments
            
            
            243
            
            
            
            1,473
            
            
            
            (240
            )
            
            
            1,708Total
      comprehensive income
            
            $
            173
            
            
            $
            2,604
            
            
            $
            662
            
            
            $
            2,098





Note M - Earnings (Loss) Per
Share





Basic and
diluted earnings per share are computed in accordance with FASB Statement No.
128, Earnings per Share
("SFAS 128").  SFAS 128 requires both basic earnings per share, which
is based on the weighted-average number of common shares outstanding, and
diluted earnings per share, which is based on the weighted-average number of
common shares outstanding and all dilutive potential common share equivalents
outstanding.  The dilutive effect of options is determined under the
treasury stock method using the average market price for the
period.  Common equivalent shares are included in the per share
calculations when the effect of their inclusion would be dilutive.





25


Note N - Industry
Segments





Description
of Products and Services





The
Company has four reportable segments:  flooring products, tape
division, jewelry and a Canadian division. The flooring products segment
consists of Congoleum, a manufacturer of resilient floor coverings, which are
sold primarily through floor covering distributors to retailers and contractors
for commercial and residential use. The tape division segment manufactures
paper, film, HVAC, electrical, shoe and other tape products for use in
industrial and automotive markets in two production facilities in the United
States, and in finishing and sales facilities in Belgium and
Singapore.  The jewelry segment consists of the Company's
majority-owned subsidiary K&M Associates L.P., a national costume jewelry
supplier to mass merchandisers and department stores.  The Company's
Canadian division produces flooring, rubber and other industrial
products.





Net sales
by segment for the three and six months ended June 30, 2008 and 2007 were as
follows (in
thousands):





Three
      Months Ended
              June
      30,
            
            
            Six
      Months Ended
              June
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007Net
      sales to external customers:Flooring
      products
            
            $
            47,166
            
            
            $
            57,541
            
            
            $
            94,863
            
            
            $
            106,856Tape
      products
            
            
            26,042
            
            
            
            25,804
            
            
            
            48,485
            
            
            
            49,922Jewelry
            
            
            12,709
            
            
            
            17,143
            
            
            
            24,456
            
            
            
            30,733Canadian
      division
            
            
            15,322
            
            
            
            15,070
            
            
            
            29,192
            
            
            
            28,078Total
      net sales to external customers
            
            
            101,239
            
            
            
            115,558
            
            
            
            196,996
            
            
            
            215,589Intersegment
      net sales:Flooring
      products
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Tape
      products
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Jewelry
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Canadian
      division
            
            
            995
            
            
            
            1,334
            
            
            
            2,216
            
            
            
            2,599Total
      intersegment net sales
            
            
            995
            
            
            
            1,334
            
            
            
            2,216
            
            
            
            2,599Reconciling
      items
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Intersegment
      net sales
            
            
            (995
            )
            
            
            (1,334
            )
            
            
            (2,216
            )
            
            
            (2,599
            )Total
      consolidated net sales
            
            $
            101,239
            
            
            $
            115,558
            
            
            $
            196,996
            
            
            $
            215,589





26


Note N - Industry
Segments





Segment
profit or loss is before income tax expense or benefit, noncontrolling
interests, and net income (loss) from discontinued operations.  Profit
(loss) by segment for the three and six months ended June 30, 2008 and 2007 was
as follows (in
thousands):





Three
      Months Ended
              June
      30,
            
            
            Six
      Months Ended
              June
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007Segment
      profit (loss)Flooring
      products
            
            $
            365
            
            
            $
            842
            
            
            $
            2,973
            
            
            $
            491Tape
      products
            
            
            (642
            )
            
            
            (242
            )
            
            
            (231
            )
            
            
            (663
            )Jewelry
            
            
            (625
            )
            
            
            774
            
            
            
            (1,956
            )
            
            
            536Canadian
      division
            
            
            454
            
            
            
            295
            
            
            
            556
            
            
            
            382Total
      segment profit
            
            
            (448
            )
            
            
            1,669
            
            
            
            1,342
            
            
            
            746Reconciling
      itemsCorporate
      expenses
            
            
            (105
            )
            
            
            (458
            )
            
            
            (452
            )
            
            
            (395
            )Intercompany
      profit
            
            
            (6
            )
            
            
            3
            
            
            
            2
            
            
            
            5Total
      consolidated (loss) income before income taxes and other
    items
            
            $
            (559
            )
            
            $
            1,214
            
            
            $
            892
            
            
            $
            356





Assets by
segment as of the end of the quarter and the end of the prior year were as
follows (in
thousands):





June
      30,
              2008
            
            
            December
      31,
              2007Segment
      assetsFlooring
      products
            
            $
            187,379
            
            
            $
            169,212Tape
      products
            
            
            60,348
            
            
            
            52,287Jewelry
            
            
            31,782
            
            
            
            38,046Canadian
      division
            
            
            34,656
            
            
            
            37,907Total
      segment assets
            
            
            314,165
            
            
            
            297,452Reconciling
      itemsCorporate
      items
            
            
            31,676
            
            
            
            31,523Intersegment
      accounts receivable
            
            
            (17,206
            )
            
            
            (10,417
            )Intersegment
      profit in inventory
            
            
            (124
            )
            
            
            (126
            )Intersegment
      other asset
            
            
            (117
            )
            
            
            (126
            )Consolidated
      assets
            
            $
            328,394
            
            
            $
            318,306


27


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





American
Biltrite’s consolidated financial statements include its majority-owned
subsidiary, Congoleum.  However, under the terms of the Joint Plan,
ABI’s ownership interest in
Congoleum wouldhavebeeneliminatedandABI expects its ownership interest in
Congoleum to be eliminated under any alternate plan or outcome in Congoleum’s
Chapter 11 case.On December 31, 2003, Congoleum filed a
voluntary petition with the Bankruptcy Court seeking relief under Chapter 11 of
the Bankruptcy Code as a means to resolve claims asserted against it related to
the use of asbestos in its products decades ago.  During 2003,
Congoleum had obtained the requisite votes of asbestos personal injury claimants
necessary to seek approval of a proposed, pre-packaged Chapter 11 plan of
reorganization.  In January 2004, Congoleum filed its proposed joint
plan of reorganization and disclosure statement with the Bankruptcy
Court.  From that filing through 2007, several subsequent plans were
negotiated with representatives of the ACC, the FCR and other asbestos claimant
representatives.  In addition, an insurance company, CNA, filed a plan
of reorganization and the Bondholders’ Committee also filed a plan of
reorganization.  In May 2006, the Bankruptcy Court ordered the
principal parties in interest in Congoleum’s reorganization proceedings to
participate in global mediation discussions.  Numerous mediation
sessions took place during 2006, culminating in two competing plans, one which
Congoleum filed jointly with the ACC in September 2006 and the other filed by
CNA, both of which the Bankruptcy Court subsequently ruled were not confirmable
as a matter of law. In March 2007, Congoleum resumed global plan mediation
discussions with the various parties seeking to resolve the issues raised in the
Bankruptcy Court’s ruling with respect to the Tenth Plan.  In July
2007, the FCR filed a plan of reorganization and proposed disclosure
statement.  After extensive further mediation sessions, on February 5,
2008, the FCR, the ACC, the Bondholders’ Committee and Congoleum jointly filed
the Joint Plan.  The Bankruptcy Court approved the disclosure
statement for the Joint Plan in February 2008, and the Joint Plan was solicited
in accordance with court-approved voting procedures.  Various
objections to the Joint Plan were filed, and on May 12, 2008 the Bankruptcy
Court heard oral argument on summary judgment motions relating to certain of
those objections.  On June 6, 2008, the Bankruptcy Court issued a
ruling that the Joint Plan was not legally confirmable, and issued an Order to
Show Cause why the case should not be converted or dismissed pursuant to 11
U.S.C. § 1112.  Following a further hearing on June 26, 2008, the
Bankruptcy Court issued an opinion that vacated the Order to Show Cause and
instructed the parties to submit a confirmable plan by the end of calendar year
2008.





There can
be no assurance that any plan of reorganization will subsequently be proposed
or, if proposed, will receive the acceptances necessary for confirmation, that
any plan will not be modified further, that any other plan will receive
necessary court approvals from the Bankruptcy Court and the District Court, or
that such approvals will be received in a timely fashion, that any plan will be
confirmed, that any plan, if confirmed, will become effective, or that Congoleum
will continue to earn sufficient funds to pay for continued litigation over any
plan of reorganization and the state court insurance coverage
litigation.  It also is unclear whether any other person might
successfully propose a plan that gets confirmed or what any such plan, when
confirmed, would ultimately provide, and whether the Bankruptcy Court would
approve such a plan.  Any plan of reorganization pursued by Congoleum
will be subject to numerous conditions, approvals and other requirements,
including Bankruptcy Court and District Court approvals, and there can be no
assurance that such conditions, approvals and other requirements will be
satisfied or obtained.





28


ABI
estimates that it will spend $400 thousand for legal fees in 2008, which it has
accrued, in connection with Congoleum’s reorganization plan.  Actual
costs for pursuing and implementing any plan of reorganization could be
materially higher, and Congoleum and the Company may record significant
additional charges should the minimum estimated cost increase.





Due to
Congoleum’s reorganization and separate capital structure, as well as the
anticipated elimination of ABI’s ownership interest in Congoleum, the Company
believes that presenting the results of operations of ABI and its non-debtor
subsidiaries separately from those of Congoleum is the most meaningful way to
discuss and analyze its financial condition and results of
operations.





Please
refer to "Risk Factors – The Company and its majority-owned subsidiary Congoleum
have significant asbestos liability and funding exposure, and the Company’s and
Congoleum’s strategies for resolving this exposure may not be
successful.  Any plan of reorganization for Congoleum is expected to
result in elimination of the interests of Congoleum's equity holders, including
the Company" and "Elimination of the Company’s interests in Congoleum could have
a material adverse impact on the business relationships between ABI and
Congoleum, and ABI’s business, operations and financial condition" included in
Part II, Item 1A of this Quarterly Report on Form 10-Q for a discussion of
certain factors that could cause actual results to differ from the Company’s and
Congoleum’s goals for resolving their asbestos liabilities.








Application
of Critical Accounting Policies and Estimates





The
discussion and analysis of the Company’s financial condition and results of
operations are based upon the Company’s consolidating financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States.  The preparation of these financial
statements requires the Company to make estimates and assumptions that affect
the reported amounts of assets and liabilities, and disclosure of contingent
assets and liabilities as of the date of the Company’s financial statements and
the reported amounts of revenues and expenses during the reporting period. The
Company’s actual results may differ from these estimates under different
assumptions or conditions.





Critical
accounting policies are defined as those that reflect significant judgments and
uncertainties, and could potentially result in materially different results
under different assumptions and conditions.  The Company believes that
its most critical accounting policies, upon which its financial condition
depends and which involve the most complex or subjective decisions or
assessments, are those described in the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2007, filed with the Securities and Exchange
Commission.





There
have been no material changes in what the Company considers to be its critical
accounting policies or the applicability of the disclosure the Company provided
regarding those policies in that Form 10-K.


29


Results
of Operations





ABI
and Non-Debtor Subsidiaries





Three
      Months Ended June 30
            
            
            Six
      Months Ended June 302008
            
            
            2007
            
            
            2008
            
            
            2007(In
      thousands)Net
      sales
            
            $
            54,073
            
            
            
            
            
            $
            58,017
            
            
            
            
            
            $
            102,133
            
            
            
            
            
            $
            108,733Cost
      of sales
            
            
            40,800
            
            
            
            
            
            
            42,632
            
            
            
            
            
            
            76,869
            
            
            
            
            
            
            79,694Gross
      profit
            
            
            13,273
            
            
            24.5
            %
            
            
            15,385
            
            
            26.5
            %
            
            
            25,264
            
            
            24.7
            %
            
            
            29,039
            
            
            26.7
            %Selling,
      general & administrative expenses
            
            
            14,338
            
            
            26.5
            %
            
            
            15,012
            
            
            25.9
            %
            
            
            27,595
            
            
            27.0
            %
            
            
            28,815
            
            
            26.5
            %Operating
      (loss)  income
            
            
            (1,065
            )
            
            
            
            
            
            373
            
            
            
            
            
            
            (2,331
            )
            
            
            
            
            
            224Interest
      expense, net
            
            
            (463
            )
            
            
            
            
            
            (560
            )
            
            
            
            
            
            (951
            )
            
            
            
            
            
            (1,084
            )Other
      income, net
            
            
            611
            
            
            
            
            
            
            556
            
            
            
            
            
            
            1,200
            
            
            
            
            
            
            731(Loss)
      income before taxes and other items
            
            
            (917
            )
            
            
            
            
            
            369
            
            
            
            
            
            
            (2,082
            )
            
            
            
            
            
            (140
            )Provision
      for (benefit from) income taxes
            
            
            410
            
            
            
            
            
            
            56
            
            
            
            
            
            
            -
            
            
            
            
            
            
            (66
            )Noncontrolling
      interests
            
            
            27
            
            
            
            
            
            
            (20
            )
            
            
            
            
            
            67
            
            
            
            
            
            
            (25
            )(Loss)
      income from continuing operations
            
            
            (1,300
            )
            
            
            
            
            
            293
            
            
            
            
            
            
            (2,015
            )
            
            
            
            
            
            (99
            )Discontinued
      operation
            
            
            1,025
            
            
            
            
            
            
            -
            
            
            
            
            
            
            1,025
            
            
            
            
            
            
            -Net
      (loss) income
            
            $
            (275
            )
            
            
            
            
            $
            293
            
            
            
            
            
            $
            (990
            )
            
            
            
            
            $
            (99
            )





Net sales
in the second quarter of 2008 were $54.1 million compared to $58.0 million in
the second quarter of 2007, a decrease of $3.9 million or 6.8%.  This
sales decrease was due to lower jewelry sales, which were down $4.4 million or
25.8% in the second quarter of 2008 compared with the second quarter of
2007.  Retail demand for jewelry through mass merchandisers under
current economic conditions is weak and anticipated to remain so until general
conditions improve.





Net sales
for the first six months of 2008 decreased $6.6 million (6.1%) to $102.1 million
from $108.7 million for the first half of 2007.  This decrease was
primarily due to the lower sales of jewelry in the first half of 2008, which
were down $6.3 million or 20.4% over the same period in 2007.  Lower
Tape division sales in the first quarter of 2008 compared to the first quarter
of 2007 of paper, film, HVAC and electrical products in the U.S. also
contributed to the decrease.





Gross
profit decreased from 26.5% of net sales for the second quarter of 2007 to 24.5%
for the second quarter of 2008.  The decline in gross profit as a
percent of sales was primarily due to lower gross profit margins in the jewelry
segment, which experienced increased merchandise costs and price allowances, as
well as the impact of a lower proportion of jewelry sales, which have higher
profit margins than other segment sales, on the overall sales
mix.  Gross profit margins were also slightly lower at the Tape and
Canadian divisions, due to inflation on raw materials and energy.





30


Gross
profit for the six months ended June 30, 2008 was 24.7% compared to 26.7% for
the first six months of 2007.  The decline in gross profit as a
percent of sales was primarily due to lower gross profit margins in the jewelry
segment, which experienced increased merchandise costs and price allowances, as
well as the impact of a lower proportion of jewelry sales, which have higher
profit margins than other segment sales, on the overall sales
mix.  Gross profit margins were also slightly lower at the Tape
division, due to inflation on raw materials and energy and lower production
volumes.  Gross profit margins at the Canadian division for the six
months ended June 30, 2008 improved slightly over the year earlier period as
cost reductions and pricing exceeded inflation.





The
Company includes the cost of purchasing and finished goods inspection in
selling, general and administrative ("SG&A") expenses.  Some
companies also record such costs in operating expenses while others record them
in cost of goods sold.  Consequently, the Company’s gross profit
margins may not be comparable to other companies.  Had the Company
recorded these expenses in cost of sales, the gross profit margins for the
quarter ended June 30, 2008 and 2007 would have been 23.9% and 26.0%%,
respectively.  The gross profit margins for the six months ended June
30, 2008 and 2007 would have been 24.1% and 26.2%, respectively.





SG&A
expenses in the second quarter of 2008 decreased by $674 thousand or 4.5%
compared to the second quarter of 2007.  This decrease was due to
expense reductions at K&M, partly offset by somewhat higher expense levels
at Tape and Canada.  As a percentage of net sales, SG&A increased
from 25.9% for the second quarter of 2007 to 26.5% for the second quarter of
2008.  SG&A expenses for the six months ended June 30, 2008 were
$27.6 million (27.0% of net sales) versus $28.8 million (26.5% of net sales) for
the first half of 2007, a decrease of $1.2 million, due to expense reductions at
K&M and the effect of an insurance settlement for a product recall at the
Tape division.





Net
interest expense for the second quarter and first half of 2008 was lower
compared to the same periods in 2007 due to lower average
borrowings.





For the
six months ended June 30, 2008, the Company did not record a tax benefit for
American Biltrite’s year-to-date loss due to uncertainty in the future benefit
and utilization of net operating losses.  Income tax expense was
recorded for the three months ended June 30, 2008 as a result of the reversal of
a tax benefit recorded in the first quarter.





The loss
from continuing operations in the second quarter of 2008 was $1.3 million
compared to income from operations of $293 thousand in the corresponding prior
year period.  For the six months ended June 30, 2008, the loss from
continuing operations was $2.0 million compared to a loss of $99 thousand for
the same period last year.





In April
2006, the Company entered into an agreement to sell a building and land owned by
Janus, a discontinued operation.  The gain on the sale was deferred
and then recognized in May 2008 subsequent to the receipt of an environmental
certification on the land sold and receipt of payment of the $4 million
principal amount of the note previously issued by the buyer as part of the
consideration for that sale.  The gain of approximately $1 million was
recorded as a gain from a discontinued operation during the second quarter of
2008.


31


Congoleum





Three
      Months Ended June 30
            
            
            Six
      Months Ended June 302008
            
            
            2007
            
            
            2008
            
            
            2007(In
      thousands)Net
      sales
            
            $
            47,166
            
            
            
            
            
            $
            57,541
            
            
            
            
            
            $
            94,863
            
            
            
            
            
            $
            106,856Cost
      of sales
            
            
            37,277
            
            
            
            
            
            
            43,797
            
            
            
            
            
            
            74,101
            
            
            
            
            
            
            81,113Gross
      profit
            
            
            9,889
            
            
            21.0
            %
            
            
            13,744
            
            
            23.9
            %
            
            
            20,762
            
            
            21.9
            %
            
            
            25,743
            
            
            24.1
            %Selling,
      general & administrative expenses
            
            
            9,238
            
            
            19.6
            %
            
            
            9,963
            
            
            17.3
            %
            
            
            18,370
            
            
            19.4
            %
            
            
            19,414
            
            
            18.2
            %Operating
      income
            
            
            651
            
            
            
            
            
            
            3,781
            
            
            
            
            
            
            2,392
            
            
            
            
            
            
            6,329Interest
      income (expense), net
            
            
            64
            
            
            
            
            
            
            (2,947
            )
            
            
            
            
            
            995
            
            
            
            
            
            
            (5,804
            )Other
      (expense) income, net
            
            
            (350
            )
            
            
            
            
            
            8
            
            
            
            
            
            
            (414
            )
            
            
            
            
            
            (34
            )Income
      before taxes
            
            
            365
            
            
            
            
            
            
            842
            
            
            
            
            
            
            2,973
            
            
            
            
            
            
            491Provision
      for income taxes
            
            
            153
            
            
            
            
            
            
            7
            
            
            
            
            
            
            1,082
            
            
            
            
            
            
            7Net
      income
            
            $
            212
            
            
            
            
            
            $
            835
            
            
            
            
            
            $
            1,891
            
            
            
            
            
            $
            484





Net sales
for the three months ended June 30, 2008 were $47.2 million as compared to $57.5
million for the three months ended June 30, 2007, a decrease of $10.3 million or
18% on net sales.  The decrease is attributable to significant
declines in new residential construction demand, continued weakness in the
remodeling activity and a downturn in manufactured housing and recreational
vehicle production.





Net sales
for the six months ended June 30, 2008 total $94.9 million as compared to $106.9
million for the six months ended June 30, 2007, a decrease of $12.0 million or
11.2%.  The factors driving the decrease are substantially the same as
those affecting the decrease in second quarter sales, described
above.





Gross
profit for the three months ended June 30, 2008 totaled $9.9 million, or 21.0%
of net sales, compared to $13.7 million, or 23.9% of net sales, for the same
period last year.  The decrease in gross profit dollars reflects the
lower sales levels while the reduced gross profit margin percentage reflects
sharp increases in raw material costs (negative impact of 2.9%), partially
offset by manufacturing cost reductions instituted in the manufacturing
facilities.





Gross
profit for the six months ended June 30, 2008 totaled $20.8 million, or 21.9% of
net sales, compared to $25.7 million, or 24.1% of net sales, for the same period
last year.  The decrease in gross profit dollars reflects the lower
sales levels, with the decline in gross profit margins reflecting escalating raw
material costs and lower production volume over which to spread fixed
manufacturing overhead, partially offset by manufacturing cost
reductions.





32


SG&A
expenses were $9.2 million for the three months ended June 30, 2008 as compared
to $10.0 million for the three months ended June 30, 2007, a decrease of $0.8
million.  The decrease reflects cost reduction measures enacted during
the 2008 second quarter including headcount and expense
reductions.  Congoleum took a one-time severance charge of $750
thousand during the 2008 second quarter.





SG&A
expenses were $18.4 million for the six months ended June 30, 2008 compared to
$19.4 million for the six months ended June 30, 2007, a decrease of $1.0
million.  Cost reduction measures instituted during the second quarter
of 2008 substantially accounted for most of the decrease.





Income
from operations totaled $0.7 million for the three months ended June 30, 2008
compared to income of $3.8 million for three months ended June 30, 2007,
reflecting lower sales and gross margins, partially offset by lower operating
expenses.  Income from operations was $2.4 million for the six months
ended June 30, 2008 compared to $6.3 million for the six months ended June 30,
2007, reflecting lower sales and gross margins, partially offset by the reduced
SG&A expenses.





The
provision for income taxes was $1.1 million for the six months ending June 30,
2008.   The full year effective tax rate is expected to
approximate 34%. Congoleum recorded a minimal provision for income taxes for the
six months ended June 30, 2007.








Liquidity
and Capital Resources





ABI
& Non-Debtor Subsidiaries





Cash and
cash equivalents decreased $1.3 million in the six months ended June 30, 2008 to
$2.6 million. Working capital at June 30, 2008 was $32.7 million compared to
$31.9 million at December 31, 2007.  The ratio of current assets to
current liabilities at June 30, 2008 was 1.75 compared to 1.63 at December 31,
2007.  Cash from operating activities for the six months ended June
30, 2008 exceeded requirements for working capital and capital expenditures, and
the excess, together with the $4.0 million in proceeds from the Janus note
receivable, were used to reduce short term borrowings.  Net cash
provided by operating activities was $1.2 million for the six months ended June
30, 2008, compared to cash used by operating activities of $2.2 million for the
six months ended June 30, 2007, primarily due to lower investment in accounts
receivable.





Capital
expenditures in the first half of 2008 were $770 thousand compared to $961
thousand for the first half of 2007.  It is anticipated that capital
spending for the full year 2008 will be approximately $3-4 million.





33


The
Company has recorded provisions which it believes are adequate for environmental
remediation, including provisions for testing and potential remediation of
conditions at its own facilities, and non-asbestos product-related
liabilities.  While the Company believes its estimate of the future
amount of these environmental liabilities is reasonable, that most of such
amounts will be paid over a period of five to ten years and that the Company
expects to have sufficient resources to fund such amounts, the actual timing and
amount of such payments may differ significantly from the Company's
assumptions.  Although the effect of future government regulation
could have a significant effect on the Company's costs, the Company is not aware
of any pending legislation or regulation relating to these matters that would
have a material adverse effect on its consolidated results of operations or
financial position.  There can be no assurances that any such costs
could be passed along to its customers.





American
Biltrite Inc.’s primary source of borrowings are the revolving credit facility
(the "Revolver") and the term loan ("Term Loan") it has with Bank of America,
National Association ("BofA") and BofA acting through its Canada branch (the
"Canadian Lender") pursuant to an amended and restated credit agreement (the
"Credit Agreement").  The Credit Agreement provides American Biltrite
Inc. and its subsidiary K&M with (i) a $30.0 million commitment under the
Revolver with a $12.0 million borrowing sublimit (the "Canadian Revolver") for
American Biltrite Inc.’s subsidiary AB Canada and (ii) the $10.0 million Term
Loan.  The Credit Agreement also provides for domestic and Canadian
letter of credit facilities with availability of up to $5.0 million and $1.5
million, respectively, subject to availability under the Revolver and the
Canadian Revolver, respectively.





On
September 25, 2006, American Biltrite Inc., K&M and AB Canada entered into
an amendment and restatement to the Credit Agreement with BofA and the Canadian
Lender.  Pursuant to the amendment and restatement, the Term Loan was
added to the Credit Agreement and the amount of the Revolver was increased by
$10.0 million to its current $30.0 million amount.  In addition, the
availability for domestic letters of credit issued under the Credit Agreement
was increased from $4.0 million to $5.0 million.  In connection with
that amendment and restatement, American Biltrite Inc. used approximately $17.0
million of new borrowings from the proceeds of the Term Loan, which was fully
drawn, and under the Revolver to fully prepay $16.0 million of aggregate
outstanding principal amount of the Company’s senior notes, all of which were
held by The Prudential Insurance Company of America, together with approximately
$1.0 million in interest and yield maintenance fees in connection with those
notes and prepayment.  A charge of approximately $860 thousand for
early extinguishment of debt was recorded in connection with this prepayment,
which was included in other expense.





The
amount of borrowings available from time to time for American Biltrite Inc. and
K&M under the Revolver may not exceed the lesser of (a) $30.0 million less
the then outstanding amount of borrowings by AB Canada under the Canadian
Revolver less any outstanding borrowings under the domestic letter of credit
facility and (b) the applicable borrowing base.  The formula used for
determining the domestic borrowing base is based upon inventory, receivables and
fixed assets of the Company and certain of its subsidiaries (not including,
among others, AB Canada and Congoleum), reduced by amounts outstanding under the
Term Loan.





34


The
amount of borrowings available from time to time for AB Canada under the
Canadian Revolver is limited to the lesser of (a) $12 million less any
outstanding borrowings under the Canadian letter of credit facility, (b) AB
Canada's borrowing base amount, which is based upon AB Canada's accounts
receivable, inventory and fixed assets, and (c) $30.0 million less the amount of
domestic borrowings outstanding under the Revolver on behalf of the Company and
K&M.  AB Canada may borrow amounts under the Canadian Revolver in
United States or Canadian dollar denominations; however, solely for purposes of
determining amounts outstanding and borrowing availability under the Revolver,
all Canadian dollar denominated amounts will be converted into United States
dollars in the manner provided in the Credit Agreement.





Interest
is payable quarterly on the Term Loan and Revolver borrowings by American
Biltrite Inc. and K&M under the Credit Agreement at rates which vary
depending on the applicable interest rate in effect and are generally determined
based upon: (a) if a LIBOR based rate is in effect, at a rate between a LIBOR
based rate plus 1.0% to a LIBOR based rate plus 2.75%, depending on the
Company's leverage ratio, as determined under the Credit Agreement, (b) if a
fixed rate is in effect, at a rate between the fixed rate plus 1.0% to a fixed
rate plus 2.75%, depending on the Company's leverage ratio, as determined under
the Credit Agreement, and (c) for loans not based on a LIBOR or fixed rate, the
higher of (i) BofA's applicable prime rate and (ii) 0.50% plus the federal funds
rate, as determined under the Credit Agreement.  Under the Credit
Agreement, American Biltrite Inc. and K&M may generally determine whether
interest on domestic revolving loans will be calculated based on a LIBOR based
rate, and if BofA elects to make a fixed rate option available, whether interest
on revolving loans will be calculated based on a fixed rate.





Interest
is payable quarterly on revolving loans under the Canadian Revolver at rates
which vary depending on the applicable interest rate in effect and are generally
determined based upon: (a) if a LIBOR based rate is in effect, at a rate between
a LIBOR based rate plus 1.0% to a LIBOR based rate plus 2.75%, depending on the
Company's leverage ratio, as determined under the Credit Agreement, and (b) if a
LIBOR based rate is not in effect, for outstanding revolving loans denominated
in Canadian dollars, the higher of (i) 0.50% plus the applicable 30-day average
bankers' acceptance rate as quoted on Reuters CDOR page and (ii) the Canadian
Lender's applicable prime rate for loans made in Canadian dollars to Canadian
customers, and for outstanding revolving loans denominated in United States
dollars, the higher of (i) 0.50% plus the federal funds rate as calculated under
the Credit Agreement and (ii) the applicable rate announced by the Canadian
Lender as its reference rate for commercial loans denominated in United States
dollars made to a person in Canada.  Under the Credit Agreement, AB
Canada may generally determine whether interest on Canadian revolving loans will
be calculated based on a LIBOR based rate.





American
Biltrite Inc. has entered into interest rate swap agreements that effectively
fix the LIBOR rate component of the Term Loan and $6.0 million of the Revolver
at 5.18% and 5.15%, respectively.





The Term
Loan principal is payable in 20 quarterly installments of $500 thousand
beginning December 31, 2006 and ending on September 30, 2011.  All
indebtedness under the Credit Agreement, other than the Term Loan, matures on
September 30, 2009.





35


The
Credit Agreement contains certain covenants that the Company must
satisfy.  The covenants included in the Credit Agreement include
certain financial tests, restrictions on the ability of the Company to incur
additional indebtedness or to grant liens on its assets and restrictions on the
ability of the Company to pay dividends on its capital stock.  The
financial tests are required to be calculated based on the Company accounting
for its majority-owned subsidiary Congoleum Corporation on the equity method and
include a maximum ratio of total liabilities to tangible net worth, a minimum
ratio of earnings before interest, taxes, depreciation and amortization
(“EBITDA") less certain cash payments for taxes, debt service, and dividends to
interest expense, a minimum level of tangible net worth, and a maximum level of
capital spending.  Pursuant to the amendment and restatement to the
Credit Agreement entered into on September 25, 2006, certain of the financial
covenants under the Credit Agreement were amended to, among other things, (i)
increase the permitted ratio of the Company's consolidated total liabilities to
consolidated tangible net worth to 200%, (ii) to provide for a higher threshold
for satisfying the consolidated tangible net worth test and (iii) to provide a
higher permitted aggregate amount for capital expenditures in any fiscal year.
The Credit Agreement also requires, for each fiscal quarter ending on and after
March 31, 2007, the Company's consolidated adjusted EBITDA for the four
consecutive fiscal quarters then ending to exceed 100% of the Company's
consolidated fixed charges for the 12-month period ending on such date, as
determined under the Credit Agreement.





Pursuant
to the Credit Agreement, the Company and certain of its subsidiaries previously
granted BofA and the Canadian Lender a security interest in most of the
Company's and its subsidiaries' assets.  The security interest granted
does not include the shares of capital stock of Congoleum or the assets of
Congoleum.  In addition, pursuant to the Credit Agreement, certain of
the Company’s subsidiaries have agreed to guarantee the Company's obligations
(excluding AB Canada's obligations) under the Credit Agreement.





In the
past, the Company has had to amend its debt agreements in order to avoid being
in default of those agreements as a result of failing to satisfy certain
financial covenants contained in those agreements.  At March 31, 2007,
the Company was not in compliance with the financial covenant under the Credit
Agreement that there be no consecutive quarterly net losses from continuing
operations.  On May 14, 2007, American Biltrite Inc. and its
subsidiaries, K&M and AB Canada, entered into an amendment, effective as of
March 31, 2007, to the Credit Agreement with BofA and BofA acting through its
Canada branch, each in their respective capacities as lenders and administrative
agents under the Credit Agreement.  The amendment revised that
financial covenant to provide that for each of the two consecutive fiscal
quarters of the Company ending December 31, 2006 and March 31, 2007, the Company
may not have a quarterly net loss from continuing operations in excess of $400
thousand.  The Company was in compliance with the financial covenants
of its debt agreements at June 30 and September 30, 2007.  At December
31, 2007, the Company was not in compliance with the financial covenant under
the Credit Agreement that requires a ratio of Adjusted EBITDA to Consolidated
Interest Expense (as such terms are defined in the Credit Agreement) to exceed
1.0 and that there be no consecutive quarterly net losses from continuing
operations.  On March 12, 2008, the same parties entered into an
amendment to the Credit Agreement to revise a financial covenant to remove the
financial covenant that required the Company not to have any consecutive
quarterly net losses from continuing operations (reporting Congoleum on the
equity method of accounting).  In addition, for purposes of
determining the Company's compliance with the financial covenant requiring its
Consolidated Adjusted EBITDA to exceed 100% of the Company's Consolidated Fixed
Charges (in each case, as determined under the Credit Agreement), the amendment
permits the Company to add certain amounts to its Consolidated Adjusted EBITDA
to the extent those amounts are deducted in determining the Company's
Consolidated Net Income (as determined under the Credit
Agreement).  Further, under the amendment, the lenders waived defaults
that may have otherwise existed as of December 31, 2007 with respect to the
financial covenants that were amended by the amendment.





36


On August
14, 2008, American Biltrite Inc. and its subsidiaries, K&M and AB Canada,
entered into an amendment, effective as of June 30, 2008, to the Credit
Agreement with BofA and BofA acting through its Canada branch, each in their
respective capacities as lenders and administrative agents under the Credit
Agreement.  The amendment permits the Company to add the principal
proceeds it received from the payoff of a note (see Note Cof the Notes to
Unaudited Consolidating Condensed Financial Statements, which is included in
Part I, Item 1 of this Quarterly Report on Form 10-Q) to its Consolidated
Adjusted EBITDA, as determined under the Credit Agreement, for the periods
ending June 30, 2008, September 30, 2008 and December 31, 2008.  The
Credit Agreement includes a financial covenant that requires the Company's
Consolidated Adjusted EBITDA for the four consecutive fiscal quarters then
ending to exceed 100% of the Company's Consolidated Fixed Charges for the
12-month period ending on such date, as determined under the Credit Agreement
(the "Fixed Charge Covenant").  Further, under the amendment, the
lenders waived defaults that may have otherwise existed as of June 30, 2008 with
respect to the Fixed Charge Covenant.  ABI paid BofA a fee of $50
thousand in connection with this amendment.





The
Company may need to further amend the Credit Agreement or obtain waivers from
the lenders under that agreement in order to avoid being in default at some
future date.  There can be no assurances that the Company would be
successful in obtaining any such amendment or waiver.





Under the
terms of the Joint Plan, ABI’s ownership interest in Congoleum would have been
eliminated and ABI expects that its ownership interest in Congoleum will likely
be eliminated under any alternate plan or outcome in Congoleum’s Chapter 11
case. While the Company does not believe the loss of the value of its equity
interest in Congoleum would have a direct material adverse effect on ABI’s
liquidity, the loss of a controlling interest could have a material adverse
impact on the business relationships between ABI and Congoleum, which in turn
could have a material adverse impact on ABI’s business, operations and financial
condition. In connection with Congoleum’s plan of reorganization, ABI expects to
spend $400 thousand in 2008, which is not expected to have a material adverse
effect on ABI’s working capital or cash flow.





The
Company has not declared a dividend subsequent to the third quarter of
2003.  Future dividends, if any, will be determined by the Company's
Board of Directors based upon the financial performance and capital requirements
of the Company, among other considerations.  Under the Credit
Agreement, aggregate dividend payments (since June 30, 2003) are generally
limited to 50% of cumulative consolidated net income (computed treating
Congoleum under the equity method of accounting), as determined under the Credit
Agreement, earned from June 30, 2003.





37


Congoleum





The
consolidated financial statements of Congoleum have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.  Accordingly,
Congoleum’s consolidated financial statements do not include any adjustments
that might be necessary should Congoleum be unable to continue as a going
concern.  In light of Congoleum’s substantial asbestos liabilities,
which are further described in the Notes to Unaudited Consolidating Condensed
Financial Statements contained in Part I, Item 1 of this Quarterly Report on
Form 10-Q, there is substantial doubt about Congoleum's ability to continue as a
going concern unless it obtains relief from those liabilities through a
successful reorganization under Chapter 11 of the Bankruptcy Code.





On
December 31, 2003, Congoleum filed a voluntary petition with the Bankruptcy
Court (Case No. 03-51524) seeking relief under the Bankruptcy
Code.  Please refer to Notes 1 and 9 of the Notes to Consolidated
Financial Statements, which are contained in Item 8 of the Company’s Annual
Report on Form 10-K for the year ended December 31, 2007 filed with the
Securities and Exchange Commission, for a discussion of Congoleum’s bankruptcy
proceedings.  These matters continue to have a material adverse impact
on Congoleum’s liquidity and capital resources.  During the first six
months of 2008, Congoleum paid $8.5 million in fees and expenses related to
reorganization proceedings under Chapter 11 and the Coverage
Action.  Furthermore, at June 30, 2008, Congoleum had incurred but not
paid approximately $10.0 million in additional fees and expenses for services
rendered through that date.





Based on
the Joint Plan that was the subject of the Bankruptcy Court’s June 6, 2008
ruling (see Note K of the Notes to Unaudited Consolidating Condensed Financial
Statements contained in Part I. Item 1 of this quarterly Report on Form 10-Q),
Congoleum has made provision in its financial statements for the minimum
estimated cost to effect its plan to settle asbestos liabilities through
confirmation of a plan that complies with section 524(g) of the Bankruptcy Code.
Congoleum recorded charges aggregating approximately $51.3 million in years
prior to 2007.  Based on the terms of the Joint Plan, in the fourth
quarter of 2007 Congoleum recorded an additional $41.3 million
charge.  Of this charge, $14.9 million related to the write-off of
certain insurance litigation costs receivable that would not have been collected
under the terms of the Joint Plan and $26.4 million was an additional provision
for estimated costs for the reorganization proceedings and the Coverage
Action.  In the fourth quarter of 2007 Congoleum also recorded a $41.0
million interest expense credit to reverse post-petition interest accrued on its
$100 million 8.625% Senior Notes due August 2008.  Terms of previous
reorganization plans had provided, among other things, for the payment of
post-petition interest on the Senior Notes and therefore Congoleum had continued
to accrue such interest.  Under the terms of the Joint Plan, the
holders of the Senior Notes would not have received any post-petition
interest.  Congoleum has ceased to accrue interest on its Senior
Notes.





In
February 2006, the Bankruptcy Court ordered GHR to disgorge all fees and certain
expenses it was paid by Congoleum.  In October 2006, Congoleum and GHR
entered into a settlement pursuant to which GHR was to pay Congoleum
approximately $9.2 million plus accruing interest in full satisfaction of the
disgorgement order.  The obligation was secured by assets of GHR and
was to be made over time according to a formula based on GHR’s
earnings.  The Bankruptcy Court approved that settlement in April
2007.  Congoleum received $9.2 million plus $1.0 million of accrued
interest in full satisfaction of that settlement in March 2008.





38


Unrestricted
cash and cash equivalents, including short-term investments at June 30, 2008,
were $26.5 million, an increase of $0.1 million from December 31,
2007.  Under the terms of its revolving credit agreement, payments on
Congoleum’s accounts receivable are deposited in an account assigned by
Congoleum to its lender and the funds in that account are used by the lender to
pay down any loan balance.  There were no funds deposited in this
account at June 30, 2008 and December 31, 2007.  Additionally, $6.6
million remaining from a $14.5 million settlement received in August 2004 from
an insurance carrier, which is subject to a court order, is included as
restricted cash at June 30, 2008. In the second quarter of 2008 Congoleum
received an additional $22.7 million from another insurance carrier which is
also included in restricted cash.  Congoleum expects to contribute
these funds, less any amounts withheld pursuant to reimbursement arrangements,
to the Plan Trust should the Bankruptcy Court confirm a plan pursuant to Section
524(g) of the Bankruptcy Code.  Working capital was $15.4 million at
June 30, 2008, up from $9.4 million at December 31, 2007.  The ratio
of current assets to current liabilities was 1.2 to 1.0 at June 30, 2008 and 1.1
to 1.0 at December 31, 2007, respectively.  Net cash used in
operations during the six months ended June 30, 2008 was $5.3 million, as
compared to net cash provided by operations of $5.7 million during the six
months ended June 30, 2007.





Capital
expenditures for the six months ended June 30, 2008 totaled $1.5
million.  Congoleum is currently planning capital expenditures of
approximately $6.0 million in 2008 and between $5.0 million and $7.0 million in
2009, primarily for maintenance and improvement of plants and equipment, which
it expects to fund with cash from operations and credit facilities.





In
January 2004, the Bankruptcy Court authorized entry of a final order approving
Congoleum’s debtor-in-possession financing, which replaced its pre-petition
credit facility on substantially similar terms. The debtor-in-possession
financing agreement (as amended and approved by the Bankruptcy Court to date)
provides a revolving credit facility expiring on the earlier of (i) December 31,
2008 and (ii) the date the plan of reorganization in Congoleum's bankruptcy
cases as confirmed by the Bankruptcy Court becomes effective.  Total
borrowing under the facility may not exceed $30.0 million. Interest is based on
0.25% above the prime rate.  This financing agreement contains certain
covenants, which include the maintenance of minimum earnings before interest,
taxes, depreciation and amortization.  It also includes restrictions
on the incurrence of additional debt and limitations on capital expenditures.
The covenants and conditions under this financing agreement must be met in order
for Congoleum to borrow from the facility. Congoleum was in compliance with
these covenants at June 30, 2008. Borrowings under this facility are
collateralized by inventory and receivables.  At June 30, 2008, based
on the level of receivables and inventory, $25.0 million was available under the
facility, of which $2.2 million was utilized for outstanding letters of credit
and $17.4 million was utilized by the revolving loan.  Congoleum
anticipates that its debtor-in-possession financing facility (including
anticipated extensions thereof) together with cash from operations will provide
it with sufficient liquidity to operate during 2008 while under Chapter 11
protection.  There can be no assurances that Congoleum will continue to be
in compliance with the required covenants under this facility or that the
debtor-in-possession facility (as extended) will be renewed prior to its
expiration if a plan of reorganization is not confirmed before that time.
 For a plan of reorganization to be confirmed, Congoleum will need to
obtain and demonstrate the sufficiency of exit financing.  Congoleum cannot
presently determine the terms of such financing, nor can there be any assurances
of its success obtaining it.





39


In
addition to the provision for asbestos litigation discussed previously,
Congoleum has also recorded what it believes are adequate provisions for
environmental remediation and product-related liabilities (other than
asbestos-related claims), including provisions for testing for potential
remediation of conditions at its own facilities. Congoleum is subject to
federal, state and local environmental laws and regulations and certain legal
and administrative claims are pending or have been asserted against
Congoleum.  Among these claims, Congoleum is a named party in several
actions associated with waste disposal sites (more fully discussed in Note 5 of
the Notes to Unaudited Consolidating Condensed Financial Statements contained in
Part I, Item 1 of this Quarterly Report on Form 10-Q).  These actions
include possible obligations to remove or mitigate the effects on the
environment of wastes deposited at various sites, including Superfund sites and
certain of Congoleum’s owned and previously owned facilities.  The
contingencies also include claims for personal injury and/or property
damage.  The exact amount of such future cost and timing of payments
are indeterminable due to such unknown factors as the magnitude of cleanup
costs, the timing and extent of the remedial actions that may be required, the
determination of Congoleum’s liability in proportion to other potentially
responsible parties, and the extent to which costs may be recoverable from
insurance.  Congoleum has recorded provisions in its financial
statements for the estimated probable loss associated with all known general and
environmental contingencies. While Congoleum believes its estimate of the future
amount of these liabilities is reasonable, and that they will be paid over a
period of five to ten years, the timing and amount of such payments may differ
significantly from Congoleum’s assumptions.  Although the effect of
future government regulation could have a significant effect on Congoleum’s
costs, Congoleum is not aware of any pending legislation which it expects would
reasonably have such an effect.  There can be no assurances that the
costs of any future government regulations could be passed along by Congoleum to
its customers.  Estimated insurance recoveries related to these
liabilities are reflected in other non-current assets in ABI’s consolidated
balance sheet.





The
outcome of these environmental matters could result in significant expenses
incurred by or judgments assessed against Congoleum.





Congoleum's
principal sources of capital are net cash provided by operating activities and
borrowings under its financing agreement. Congoleum believes that its existing
cash (excluding restricted cash), cash generated from operations, and
debtor-in-possession credit arrangements should be sufficient to provide
adequate working capital for operations during 2008.  Congoleum’s
ability to emerge from Chapter 11 will depend on obtaining sufficient exit
financing to settle administrative expenses of the reorganization and any other
related obligations, and to provide adequate future liquidity.




40


Item
4T:  Controls and Procedures





a)
            Evaluation
      of Disclosure Controls and Procedures.  The Company's
      management, with the participation of the Company's Chief Executive
      Officer and Chief Financial Officer, has evaluated the effectiveness of
      the Company's disclosure controls and procedures (as such term is defined
      in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
      1934, as amended (the "Exchange Act")), as of the end of the period
      covered by this report.  Based on such evaluation, the Company's
      Chief Executive Officer and Chief Financial Officer have concluded that,
      as of the end of such period, the Company’s disclosure controls and
      procedures were effective, in that they provide reasonable assurance that
      information required to be disclosed by the Company in the reports that it
      files or submits under the Exchange Act is recorded, processed,
      summarized, and reported within the time periods specified in the
      Securities and Exchange Commission's rules and forms, and is accumulated
      and communicated to the Company’s management, including the Company’s
      Chief Executive Officer and Chief Financial Officer, as appropriate to
      allow timely decisions regarding required
  disclosure.





(b)
            Changes
      in Internal Control Over Financial Reporting.  There have not
      been any changes in the Company's internal control over financial
      reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under
      the Exchange Act) during the fiscal quarter to which this report relates
      that have materially affected, or are reasonably likely to materially
      affect, the Company’s internal control over financial
      reporting.








PART
II.   OTHER INFORMATION





Item
1.  Legal Proceedings





The
information contained in Note J "Commitments and Contingencies" and Note K
"Congoleum Asbestos Liabilities and Reorganization" of the Notes to Unaudited
Consolidating Condensed Financial Statements included in Part I, Item 1 of this
Quarterly Report on Form 10-Q, in "Management’s Discussion and Analysis of
Financial Condition and Results of Operations" included in Part I, Item 2 of
this Quarterly Report on Form 10-Q, and in "Risk Factors – The Company and its
majority-owned subsidiary Congoleum have significant asbestos liability and
funding exposure, and the Company's and Congoleum's strategies for resolving
this exposure may not be successful.  Any plan of reorganization for
Congoleum is expected to result in elimination of the interests of Congoleum’s
equity holders, including the Company" and "Elimination of the Company’s
interests in Congoleum could have a material adverse impact on the business
relationships between ABI and Congoleum, and ABI’s business, operations and
financial condition" included in Part II, Item 1A of this Quarterly Report on
Form 10-Q, are incorporated herein by reference.








41


Item
1A.  Risk Factors





The Company and its majority-owned
subsidiary Congoleum have significant asbestos liability and funding exposure,
and the Company's and Congoleum's strategies for resolving this exposure may not
be successful.Anyplan of reorganization for Congoleum is
expected to result in elimination of the interests of Congoleum's equity
holders, including the Company.





As more
fully set forth in Notes J and K of the Notes to Unaudited Consolidating
Condensed Financial Statements included in Part I, Item 1 of this Quarterly
Report on Form 10-Q, the Company and Congoleum have significant liability and
funding exposure for asbestos personal injury claims.  On December 31,
2003, Congoleum filed a voluntary petition with the Bankruptcy Court seeking
relief under Chapter 11 of the Bankruptcy Code as a means to resolve claims
asserted against it related to the use of asbestos in its products decades
ago.  A joint plan of reorganization for Congoleum proposed by the
FCR, the ACC, the Bondholders’ Committee and Congoleum was filed in the
Bankruptcy Court, which plan is referred to elsewhere in this Quarterly Report
on Form 10-Q as the "Joint Plan."  While that plan was found to be
legally unconfirmable, it had sufficient creditor support to have been confirmed
and may be a starting point for any subsequent plan
negotiations.  Under the terms of the Joint Plan, ABI's ownership
interest in Congoleum would have been eliminated and ABI expects that its
ownership interest in Congoleum would be eliminated under any alternate plan or
outcome in Congoleum’s Chapter 11 case.





Any plan
of reorganization for Congoleum, if proposed, will be subject to numerous
conditions, approvals and other requirements, including the receipt of necessary
creditor, claimant and court approvals.  Certain insurers are
contesting the Joint Plan in the bankruptcy court and Congoleum is involved in
ongoing litigation against its insurers in a state court coverage
action.  If the insurers are successful in contesting any future
reorganization plan or in denying coverage under the insurance policies, such
reorganization plan may not receive necessary court approval or may not become
effective.  Further, even if the insurers are not successful in
contesting any future plan that may be proposed or in denying coverage under the
insurance policies, Congoleum may be required to incur significant time and
expense litigating against the insurers, which could further delay any
confirmation or effectiveness of any reorganization plan.  In order to
obtain confirmation of any reorganization plan, Congoleum will need sufficient
funds to pay for the continued litigation with these insurers as well the
bankruptcy proceedings generally.





Under the
terms of the Joint Plan, ABI’s rights and claims to indemnification from
Congoleum under the existing joint venture agreement between ABI and Congoleum
that relate to ABI's contribution to Congoleum in 1993 of ABI's tile division,
and the joint venture agreement itself, would have been deemed rejected and
disallowed upon the effective date of the Joint Plan, and therefore
eliminated.  The Joint Plan's rejection and disallowance of the joint
venture agreement and ABI’s claims thereunder included any unfunded
indemnification claims ABI may have had prepetition and during the pendency of
Congoleum's Chapter 11 case as well as any such claims ABI might otherwise have
been entitled to assert after the Joint Plan became effective.





42


In
addition, in view of ABI’s relationships with Congoleum, ABI will be affected by
Congoleum's negotiations regarding, and its pursuit of, any plan of
reorganization, and there can be no assurance as to what that impact, positive
or negative, might be.  In any event, the failure of Congoleum to
obtain confirmation and consummation of a Chapter 11 plan of reorganization
would have a material adverse effect on Congoleum's business, results of
operations or financial condition and could have a material adverse effect on
ABI’s business, results of operations or financial condition.





The
Company has its own direct asbestos liability as well.  The Company's
strategy remains to vigorously defend against and strategically settle its
asbestos claims on a case-by-case basis.  To date, the Company's
insurers have funded substantially all of the Company's liabilities and expenses
related to its asbestos liability under the Company's applicable insurance
policies.  The Company expects its insurance carriers will continue to
defend and indemnify it for a substantial amount of its asbestos liabilities for
the foreseeable future pursuant to an umbrella/first-layer excess policies
arrangement between the Company and the applicable insurance
carriers.  It is possible that asbestos claims may be asserted against
the Company alleging exposure allocable solely to years in which the Company’s
insurance policies excluded coverage for asbestos, that the policies providing
coverage under the umbrella/first-layer excess policies arrangement will
exhaust, or that the carriers responsible for such policies may at some future
date be unwilling or unable to meet their obligations under the policies or that
arrangement.  If ABI were to incur significant additional asbestos
liabilities for which it did not have insurance coverage or was not able to
receive recoveries under its insurance policies due to the carriers which
underwrote those policies being insolvent or otherwise, ABI may have to fund
such liabilities, which could have a material adverse effect on ABI's business,
results of operations or financial condition.





As a
result of Congoleum's significant liability and funding exposure for asbestos
claims, there can be no assurance that if Congoleum were to incur any
unforecasted or unexpected liability or disruption to its business or operations
it would be able to withstand that liability or disruption and continue as an
operating company.  Any significant increase of the Company's asbestos
liability and funding exposure would likely have a material adverse effect on
the Company's business, operations and financial condition and possibly its
ability to continue as a going concern.





In the
past, federal legislation has been proposed which would establish a national
trust to provide compensation to victims of asbestos-related injuries and
channel all current and future asbestos-related personal injury claims to that
trust.  In light of the numerous uncertainties surrounding this and
other possible asbestos legislation in the United States, ABI does not know what
effects any such legislation, if adopted, may have upon its or Congoleum's
businesses, results of operations or financial conditions, or upon any plan of
reorganization for Congoleum.





For
further information regarding the Company's and Congoleum's asbestos liability,
insurance coverage and strategies to resolve that asbestos liability, please see
Notes A and K of the Notes to Unaudited Consolidating Condensed Financial
Statements and "Management’s Discussion and Analysis of Financial Condition and
Results of Operations," which are included in Part I, Item 1 and Part I, Item 2,
respectively, of this Quarterly Report on Form 10-Q.





43


Elimination
of the Company’s interests in Congoleum could have a material adverse impact on
the business relationships between ABI and Congoleum and ABI’s business,
operations and financial condition.





Under the
Joint Plan, ABI's ownership interest in Congoleum would have been eliminated and
ABI expects that its ownership interest in Congoleum would be eliminated under
any alternate plan or outcome in Congoleum’s Chapter 11
case.  Pursuant to the terms of the Joint Plan, the plan trust
established upon effectiveness of the Joint Plan would have owned 50.1% of
reorganized Congoleum's outstanding common stock and Congoleum’s bondholders
would have owned the remaining 49.9% of reorganized Congoleum's outstanding
common stock, with the plan trust’s share of reorganized Congoleum’s outstanding
common stock being subject to a put/call agreement that ABI expected would have
resulted in the plan trust’s divestiture of its 50.1% share of reorganized
Congoleum’s outstanding common stock following the effective date of the Joint
Plan.  There can be no assurances as to the ownership structure under
the terms of any new reorganization plan that may be proposed or how such
structure and any other change in ownership and control may affect reorganized
Congoleum’s business, operations and financial condition, or its future
relationships with ABI.





ABI
provides management services to Congoleum, sells and purchases products to and
from Congoleum, and receives royalties from Congoleum.  Agreements for
these current intercompany arrangements expire on September 30,
2008.  It is not known whether ABI, Congoleum and the other parties in
interest will agree to extend the term of these arrangements, and if so, for how
long any extension would last or what the terms of any such extension and
related intercompany arrangements would be.  The terms of the Joint
Plan provided for certain intercompany arrangements continuing for a two year
period ending on the second anniversary of the effective date of the Joint Plan
pursuant to a new agreement to be entered into by ABI and reorganized Congoleum
on the effective date of the Joint Plan.  The Joint Plan provided that
the new agreement would be in form and substance mutually agreeable to the FCR,
the Bondholders' Committee, the ACC and ABI.  Pursuant to that new
agreement, ABI's current chief executive officer would serve as a director and
the chief executive officer of reorganized Congoleum and ABI would have to make
available to reorganized Congoleum substantially all of his time during normal
working hours on an annual basis, ABI would have to make available to
reorganized Congoleum approximately 25% of the time of ABI's current president
and chief operating officer during normal working hours and on an annual basis,
and ABI's current chief financial officer would serve as the chief financial
officer of reorganized Congoleum and ABI would have to make available to
reorganized Congoleum approximately 50% of his time during normal working hours
and on an annual basis.  Expiration or termination of such
intercompany arrangements, failure to reach definitive agreement on final terms
of future arrangements between ABI and reorganized Congoleum, or failure to
consummate such arrangements in connection with the effectiveness of a plan of
reorganization for Congoleum could have a material adverse impact on the
business relationships between ABI and Congoleum, and ABI’s business, operations
and financial condition.





44


The
Company has had to amend its debt agreements in the past in order to avoid being
in default of those agreements and may have to do so again in the future, and
the Company's ability to obtain additional financing may be
limited.





In the
past, the Company has had to amend its debt agreements in order to avoid being
in default of those agreements as a result of failing to satisfy certain
financial covenants contained in those agreements.  Most
recently,on August
14, 2008, American Biltrite Inc. and its subsidiaries, K&M and AB Canada,
entered into an amendment, effective as of June 30, 2008, to the Credit
Agreement with BofA and BofA acting through its Canada branch, each in their
respective capacities as lenders and administrative agents under the Credit
Agreement.  That credit agreement, as amended and restated, governs
ABI's primary source of borrowings.  The August 14, 2008 amendment
permits the Company to add the principal proceeds it received from the payoff of
a note to its Consolidated Adjusted EBITDA, as determined under the Credit
Agreement, for the periods ending June 30, 2008, September 30, 2008 and December
31, 2008.  The Credit Agreement includes a financial covenant that
requires the Company's Consolidated Adjusted EBITDA for the four consecutive
fiscal quarters then ending to exceed 100% of the Company's Consolidated Fixed
Charges for the 12-month period ending on such date, as determined under the
Credit Agreement (the "Fixed Charge Covenant").  Further, under the
amendment, the lenders waived defaults that may have otherwise existed as of
June 30, 2008 with respect to the Fixed Charge Covenant.  ABI paid
BofA a fee of $50 thousand in connection with this amendment.  On
March 12, 2008, American Biltrite Inc. and its subsidiaries, K&M and AB
Canada, entered into an amendment, effective as of December 31, 2007, to the
credit agreement with BofA and BofA acting through its Canada branch, each in
their respective capacities as lenders and administrative agents under that
credit agreement.  The March 12, 2008 amendment removed the financial
covenant that required the Company not to have any consecutive quarterly net
losses from continuing operations (reporting Congoleum on the equity method of
accounting).  In addition, for purposes of determining the Company's
compliance with the financial covenant requiring its Consolidated Adjusted
EBITDA to exceed 100% of the Company's Consolidated Fixed Charges (in each case,
as determined under the credit agreement), the amendment permits the Company to
add certain amounts to its Consolidated Adjusted EBITDA to the extent those
amounts are deducted in determining the Company's Consolidated Net Income (as
determined under the credit agreement).  On May 14, 2007, the same
parties entered into an amendment, effective as of March 31, 2007, to the Credit
Agreement to revise a financial covenant to provide that for each of the two
consecutive fiscal quarters of the Company ending December 31, 2006 and March
31, 2007, the Company may not have a quarterly net loss from continuing
operations in excess of $400 thousand.  On September 25, 2006, the
Company entered into an amendment and restatement to the credit agreement it has
with Bank of America, National Association and Bank of America, National
Association acting through its Canada branch.  In connection with that
amendment and restatement, certain financial covenants were amended under the
credit agreement to enable the Company to comply with those
covenants.  The Company may need to further amend the credit agreement
or obtain waivers from the lenders under that agreement in order to avoid being
in default at some future date.  There can be no assurances that the
Company would be successful in obtaining any such amendment or
waiver.  If the Company were to violate one of those or other
covenants or provisions under the credit agreement and not amend the credit
agreement to address or obtain a waiver of the violation, it


45


could
breach the credit agreement, resulting in a default of the credit
agreement.  If such a default were to occur, the lenders could require
the Company to repay all amounts outstanding under the credit
agreement.  If the Company were unable to repay those amounts due, the
lenders could have its rights over the collateral (most of the Company’s and its
domestic subsidiaries’ (excluding Congoleum) assets) exercised, which would
likely have a material adverse effect on the Company’s business, results of
operations or financial condition.





In
addition, under the terms of the credit agreement, the Company's ability to
obtain additional debt financing is limited.  Moreover, since the Company
and most of its domestic subsidiaries have already granted security interests in
most of their assets, the Company's ability to obtain any additional debt
financing may be limited.





The
Company and its majority-owned subsidiary Congoleum may incur substantial
liability for environmental claims and compliance matters.





Due to
the nature of the Company's and its majority-owned subsidiary Congoleum's
businesses and certain of the substances which are or have been used, produced
or discharged by them, the Company's and Congoleum's operations and facilities
are subject to a broad range of federal, state, local and foreign legal and
regulatory provisions relating to the environment, including those regulating
the discharge of materials into the environment, the handling and disposal of
solid and hazardous substances and wastes and the remediation of contamination
associated with releases of hazardous substances at Company and Congoleum
facilities and off-site disposal locations.  The Company and Congoleum
have historically expended substantial amounts for compliance with existing
environmental laws or regulations, including environmental remediation costs at
both third-party sites and Company and Congoleum-owned sites.  The
Company and Congoleum will continue to be required to expend amounts in the
future because of the nature of their prior activities at their facilities, in
order to comply with existing environmental laws, and those amounts may be
substantial.  Although the Company and Congoleum believe that those
amounts should not have a material adverse effect on their respective financial
positions, there is no certainty that these amounts will not have a material
adverse effect on their respective financial positions because, as a result of
environmental requirements becoming increasingly strict, neither the Company nor
Congoleum is able to determine the ultimate cost of compliance with
environmental laws and enforcement policies.





Moreover,
in addition to potentially having to pay substantial amounts for compliance,
future environmental laws or regulations may require or cause the Company or
Congoleum to modify or curtail their operations, which could have a material adverse effect on the
Company's business, results of operations or financial
condition.





46


The
Company and its majority-owned subsidiary Congoleum, may incur substantial
liability for other product and general liability claims.





In the
ordinary course of their businesses, the Company and its majority-owned
subsidiary Congoleum become involved in lawsuits, administrative proceedings,
product liability claims and other matters.  In some of these
proceedings, plaintiffs may seek to recover large and sometimes unspecified
amounts and the matters may remain unresolved for several
years.  These matters could have a material adverse effect on the
Company's business, results of operations or financial condition if the Company
or Congoleum, as applicable, is unable to successfully defend against or settle
these matters, and its insurance coverage is insufficient to satisfy any
judgments against it or settlements relating to these matters, or the Company or
Congoleum, as applicable, is unable to collect insurance proceeds relating to
these matters.





The
Company and its majority-owned subsidiary Congoleum are dependent upon a
continuous supply of raw materials from third party suppliers and would be
harmed if there were a significant, prolonged disruption in supply or increase
in its raw material costs.





The
Company and its majority-owned subsidiary Congoleum generally design and
engineer their own products.  Most of the raw materials required by
the Company for its manufacturing operations are available from multiple
sources; however, the Company does purchase some of its raw materials from a
single source or supplier.  Any significant delay in or disruption of
the supply of raw materials could substantially increase the Company's cost of
materials, require product reformulation or require qualification of new
suppliers, any one or more of which could materially adversely affect the
Company's business, results of operations or financial condition.  The
Company's majority-owned subsidiary Congoleum does not have readily available
alternative sources of supply for specific designs of transfer print paper,
which are produced utilizing print cylinders engraved to Congoleum's
specifications.  Although Congoleum does not anticipate any loss of
this source of supply, replacement could take a considerable period of time and
interrupt production of certain products, which could have a material adverse
affect on the Company's business, results of operations or financial
condition.  The Company and Congoleum have occasionally experienced
significant price increases for some of its raw materials.  Although
the Company has been able to obtain sufficient supplies of raw materials, there
can be no assurances that it may not experience difficulty in the future,
particularly if global supply conditions deteriorate, which could have a
material adverse effect on profit margins.





The
Company and its majority-owned subsidiary Congoleum operate in highly
competitive markets and some of their competitors have greater resources, and in
order to be successful, the Company and Congoleum must keep pace with and
anticipate changing customer preferences.





The
market for the Company's and its majority-owned subsidiary Congoleum's products
and services is highly competitive.  Some of their respective competitors
have greater financial and other resources and access to capital.Furthermore, to the extent any of the Company's or Congoleum's
competitors make a filing under Chapter 11 of the Bankruptcy Code and emerge
from bankruptcy as continuing operating companies that have shed much of their
pre-filing liabilities, those competitors could have a cost competitive
advantage over Congoleum.  In addition, in order


47


to maintain their competitive positions,
the Company and Congoleum may need to make substantial investments in their
businesses, including, as applicable, product development, manufacturing
facilities, distribution network and sales and marketing activities. Competitive
pressures may also result in decreased demand for their products and in the loss
of market share for their products. Moreover, due to the competitive nature of
their industries, they may be commercially restricted from raising or even
maintaining the sales prices of their products, which could result in the
incurrence of significant operating losses if their expenses were to increase or
otherwise represent an increased percentage of sales.





The
markets in which the Company and Congoleum compete are characterized by frequent
new product introductions and changing customer preferences. There can be no
assurance that the Company's and Congoleum's existing products and services will
be properly positioned in the market or that the Company and Congoleum will be
able to introduce new or enhanced products or services into their respective
markets on a timely basis, or at all, or that those new or enhanced products or
services will receive customer acceptance. The Company's and Congoleum's failure
to introduce new or enhanced products or services on a timely basis, keep pace
with industry or market changes or effectively manage the transitions to new
products, technologies or services could have a material adverse effect on the
Company's business, results of operations or financial condition.





The
Company and its majority-owned subsidiary Congoleum are subject to general
economic conditions and conditions specific to their respective
industries.





The
Company and its majority-owned subsidiary Congoleum are subject to the effects
of general economic conditions.  A sustained general economic slowdown
could have serious negative consequences for the Company's business, results of
operations and financial condition.  Moreover, their businesses are
affected by the economic factors that affect their respective
industries.  The slowdown in the housing industry has resulted in
reduced demand for the Company’s and Congoleum’s products.  In
addition, current economic conditions have resulted in reduced demand for the
Company’s jewelry and automotive products.  The impact of these
conditions on the Company’s business, results of operations and financial
condition could become more severe if such conditions continue or
deteriorate.





The
Company and its majority-owned subsidiary Congoleum could realize shipment
delays, depletion of inventory and increased production costs resulting from
unexpected disruptions of operations at any of the Company's or Congoleum's
facilities.





The
Company's and its majority-owned subsidiary Congoleum's businesses depend upon
their ability to timely manufacture and deliver products that meet the needs of
their customers and the end users of their products.  If the Company
or Congoleum were to realize an unexpected, significant and prolonged disruption
of its operations at any of its facilities, including disruptions in its
manufacturing operations, it could result in shipment delays of its products,
depletion of its inventory as a result of reduced production and increased
production costs as a result of taking actions in an attempt to cure the
disruption or carry on its business while the disruption remains.  Any
resulting delay, depletion or increased production cost could result in
increased costs, lower revenues and damaged customer and product end user
relations, which could have a material adverse effect on the Company's business,
results of operations or financial condition.





48


The
Company and its majority-owned subsidiary Congoleum offer limited warranties on
their products which could result in the Company or Congoleum incurring
significant costs as a result of warranty claims.





The
Company and its majority-owned subsidiary Congoleum offer a limited warranty on
many of their products against manufacturing defects.  In addition, as
a part of its efforts to differentiate mid- and high-end products through color,
design and other attributes, Congoleum offers enhanced warranties with respect
to wear, moisture discoloration and other performance characteristics which
generally increase with the price of such products.  If the Company or
Congoleum were to incur a significant number of warranty claims, the resulting
warranty costs could be substantial.





The
Company and its majority-owned subsidiary Congoleum rely on a small number of
customers and distributors for a significant portion of their sales or to sell
their products.





The
Company's Tape Division principally sells its products through
distributors.  Sales to five unaffiliated customers accounted for
approximately 20% of the Company's Tape Division's net sales for the year ended
December 31, 2007.  The loss of the largest unaffiliated customer
and/or two or more of the other four unaffiliated customers could have a
material adverse effect on the Company's business, results of operations or
financial condition.





The
Company's majority-owned subsidiary Congoleum principally sells its products
through distributors.  Although Congoleum has more than one
distributor in some of its distribution territories and actively manages its
credit exposure to its distributors, the loss of a major distributor could have
a material adverse impact on the Company's business, results of operations, or
financial condition.  Congoleum derives a significant percentage of
its sales from two of its distributors.  These two distributors
accounted for approximately 66% of Congoleum's net sales for the year ended
December 31, 2007.





The
Company's subsidiary K&M sells its products through its own direct sales
force and, indirectly, through a wholly owned subsidiary and through third-party
sales representatives.  Four of K&M's customers accounted for
approximately 58% of its net sales for the year ended December 31, 2007. The
loss of the largest of these customers would have a material adverse effect on
K&M’s business, results of operations and financial condition and would
likely have a material adverse effect on the Company’s business, results of
operations or financial condition.





The
Company and its majority-owned subsidiary Congoleum depend on key executives to
run their businesses, and the loss of any of these executives would likely harm
the Company's business.





The
Company and its majority-owned subsidiary Congoleum depend on key executives to
run their businesses.  In particular, three of the persons that serve
as key executives at the Company also serve as key executives at
Congoleum.  The Company's future success will depend largely upon the
continued service of these key executives, all of whom have no employment
contract with the Company or Congoleum, as applicable, and may terminate their
employment at any time without notice.  Although certain key
executives of the Company and Congoleum are, directly or indirectly, large
shareholders of the Company or Congoleum, and thus are less likely to terminate
their employment, the loss of any key executive, or the failure by the key
executive to perform in his current position, could have a material adverse
effect on the Company's business, results of operations or financial
condition.








49


Item
3.  Defaults Upon Senior Securities





On August
3, 1998, Congoleum issued $100 million of the Senior Notes priced at 99.505% to
yield 8.70%.  The Senior Notes are redeemable at the option of
Congoleum, in whole or in part, at any time on or after August 1, 2003 at
predetermined redemption prices (ranging from 104% to 100%), plus accrued and
unpaid interest to the date of redemption.  The indenture governing
the Senior Notes includes certain restrictions on additional indebtedness and
uses of cash, including dividend payments.  The commencement of
Congoleum’s Chapter 11 proceedings constituted an event of default under the
indenture governing the Senior Notes.  During 2003, Congoleum and the
trustee under the indenture governing the Senior Notes amended the indenture,
and sufficient note holders consented, to explicitly permit Congoleum to take
steps in connection with preparing and filing its prepackaged plan of
reorganization under Chapter 11 of the Bankruptcy Code.  The amount of
accrued interest on the Senior Notes that was not paid as of the bankruptcy
filing on December 31, 2003 was approximately $3.6 million.  The
accrued pre-petition interest and the principal amount of the Senior Notes are
included in “Liabilities Subject to Compromise” as of June 30, 2008 (see Note H
of the Notes to the Unaudited Consolidating Condensed Financial Statements
contained in Part I, Item 1 of this Quarterly Report on Form
10-Q).   During 2007, Congoleum reversed all accrued
post-petition interest on the Senior Notes to reflect the terms of the Joint
Plan.






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





At the
annual meeting of the Company’s stockholders held on May 6, 2008, all director
nominees were elected.





The four
nominees who were elected as Class II directors will hold office until the
annual meeting of stockholders to be held in 2011 and until their successors are
duly elected and qualified. The results of the vote for the election of those
directors are set forth below.





Name
            
            Number
      of
              Votes
      For
            
            Number
      of
              Votes
      WithheldMark
      N. Kaplan
            
            2,689,194
            
            481,773Natalie
      S. Marcus
            
            2,703,351
            
            467,616William
      M. Marcus
            
            2,703,155
            
            467,812Kenneth
      I. Watchmaker
            
            3,095,228
            
            75,739







At the
annual meeting of the Company’s stockholders held on May 6, 2008, the Company's
stockholders also approved the American Biltrite Inc. Amended and Restated 1999
Stock Option Plan for Non-Employee Directors (the "Amended and Restated 1999
Plan") and an amendment (the "1993 Plan Amendment") to the American Biltrite
Inc. 1993 Stock Award and Incentive Plan, as amended and restated as of March 4,
1997 (the "1993 Plan"). The Amended and Restated 1999 Plan and the 1993 Plan
Amendment became effective upon receipt of such stockholder
approval.




50




The
Amended and Restated 1999 Plan increased by 50,000 (from 50,000 to 100,000) the
number of shares of American Biltrite Inc. common stock reserved and available
for issuance under the plan, extended the term of the plan to July 1, 2019 and
reflected certain conforming and administrative changes.




The 1993
Plan Amendment increased by 250,000 (from 550,000 to 800,000) the number of
shares of American Biltrite Inc. common stock reserved for the grant of awards
under the 1993 Plan. In addition, in connection with the 1993 Plan Amendment,
the Company's stockholders were asked to re-approve the "Performance Factors"
included in the 1993 Plan. The attainment of the "Performance Factors" may be
made a condition to the vesting of awards made under the 1993 Plan. The
stockholders of American Biltrite Inc. re-approved the "Performance Factors" at
the annual meeting. The 1993 Plan Amendment also includes a technical fix to
correct an administrative error included in the "Performance
Factors."




The
results of the vote for the approval of the Amended and Restated 1999 Plan are
set forth below.




Number
      of
              Votes
      For
            
            Number
      of
              Votes
      Against
            
            Number
      of
              Votes
              Abstaining
            
            Number
      of
              Broker
              Non-Votes2,602,340
            
            100,780
            
            3,207
            
            464,820





The
results of the vote for the approval of the 1993 Plan Amendment are set forth
below.





Number
      of
              Votes
      For
            
            Number
      of
              Votes
      Against
            
            Number
      of
              Votes
              Abstaining
            
            Number
      of
              Broker
              Non-Votes2,601,408
            
            102,018
            
            2,721
            
            464,820




The
foregoing descriptions of the Amended and Restated 1999 Plan and the 1993 Plan
Amendment are summaries and are qualified in their entirety by the terms of the
Amended and Restated 1999 Plan and the 1993 Plan Amendment. A copy of the
Amended and Restated 1999 Plan is attached to the Company’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2008, filed with the Securities and
Exchange Commission, as Exhibit 10.5 and is incorporated herein by reference. A
copy of the 1993 Plan together with the 1993 Plan Amendment is attached to the
Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008,
filed with the Securities and Exchange Commission, as Exhibit 10.6 and is
incorporated herein by reference.







51


Item
5.  Other Information





On August
13, 2008, American Biltrite Inc. issued a press release announcing its financial
results for the three and six months ended June 30, 2008.  A copy of
that press release is being furnished to the Securities and Exchange Commission
pursuant to this Part II, Item 5 of Form 10-Q and is attached hereto as Exhibit
99.1.





On August 14, 2008,the Company and its
subsidiaries K&M and AB Canada entered into an amendment effective June 30,
2008 to the Credit Agreement with BofA and BofA acting through its Canada
branch, each in their respective capacities as lenders and administrative agents
under the Credit Agreement, and the other lenders from time to time party
thereto.  The amendment permits the Company to include the principal
proceeds it received in May 2008 from the payoff of a note from the buyer of a
building and land that Janus had sold in April 2006 to the Company's
Consolidated Adjusted EBITDA, as determined under the Credit Agreement, for the
periods ending June 30, 2008, September 30, 2008 and December 31,
2008.  The Credit Agreement includes a financial covenant that
requires the Company's Consolidated Adjusted EBITDA for the four consecutive
fiscal quarters then ending to exceed 100% of the Company's Consolidated Fixed
Charges for the 12-month period ending on such date, as determined under the
Credit Agreement (the "Fixed Charge Covenant").  Further, under the
amendment, the lenders waived defaults that may have otherwise existed as of
June 30, 2008 with respect to the Fixed Charge Covenant.  The
foregoing description is a summary of the amendment and is qualified in its
entirety to the terms of the amendment.  A copy of the amendment is
being filed as Exhibit 4.1 and Exhibit 10.1 to this Quarterly Report on Form
10-Q and is incorporated herein by reference.


52


Item
6.  Exhibits





Exhibit
      No.
            Description3.1   I
            Restated
      Certificate of Incorporation3.2   II
            By-Laws,
      amended and restated as of November 7, 20074.1
            Amendment
      No. 5 to Amended and Restated Credit Agreement, dated as of June 30, 2008,
      among American Biltrite Inc., K&M Associates L.P., and American
      Biltrite (Canada) Ltd., Bank of America, National Association, both in its
      capacity as a domestic lender and as a domestic administrative agent, Bank
      of America, National Association, acting through its Canada branch, both
      in its capacity as a Canadian lender and as Canadian administrative agent,
      and the other lenders from time to time party thereto10.1
            Amendment
      No. 5 to Amended and Restated Credit Agreement, dated as of June 30, 2008,
      among American Biltrite Inc., K&M Associates L.P., and American
      Biltrite (Canada) Ltd., Bank of America, National Association, both in its
      capacity as a domestic lender and as a domestic administrative agent, Bank
      of America, National Association, acting through its Canada branch, both
      in its capacity as a Canadian lender and as Canadian administrative agent,
      and the other lenders from time to time party thereto (a copy of which is
      filed as Exhibit 4.1)10.2   III
            American
      Biltrite Inc. Amended and Restated 1999 Stock Option Plan for Non-Employee
      Directors10.3   III
            American
      Biltrite Inc. 1993 Stock Award and Incentive Plan As Amended and Restated
      as of March 4, 1997 and Amendment dated as of March 31, 2008 to the
      American Biltrite Inc. 1993 Stock Award and Incentive Plan As Amended and
      Restated as of March 4, 199710.4   IV
            Form
      of Stock Option Agreement for American Biltrite Inc.'s 1993 Stock Award
      and Incentive Plan, as amended and restated as of March 4, 1997 (for
      awards issued under the plan on and after March 17,
  2008)10.5   III
            Form
      of Stock Option Agreement for American Biltrite Inc.’s 1999 Stock Option
      Plan for Non-Employee Directors (for awards issued under the plan on and
      after April 1, 2008)31.1
            Certification
      of the Principal Executive Officer of the Registrant Pursuant to Rule
      13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as
      amended





53





Exhibit
      No.
            Description31.2
            Certification
      of the Principal Financial Officer of the Registrant Pursuant to Rule
      13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as
      amended32
            Certification
      of the Chief Executive Officer and Chief Financial Officer of the
      Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of 200299.1
            Press
      release dated August 13, 2008





___________________________







I
            
            Incorporated
      by reference to the exhibits filed with the Company’s Annual Report on
      Form 10-K for the year ended December 31, 1996 and filed with the
      Securities and Exchange Commission on March 27,
      1997  (1-4773)II
            
            Incorporated
      by reference to the exhibits filed with the Company's Quarterly Report on
      Form 10-Q for the quarter ended September 30, 2007 and filed with the
      Securities and Exchange Commission on November 14, 2007III
            
            Incorporated
      by reference to the exhibits filed with the Company’s Quarterly Report on
      Form 10-Q for the quarter ended March 31, 2008 and filed with the
      Securities and Exchange Commission on May 12, 2008IV
            
            Incorporated
      by reference to the exhibits filed with the Company’s Annual Report on
      Form 10-K for the year ended December 31, 2007 and filed with the
      Securities and Exchange Commission on March 31,
  2008





54





SIGNATURE







Pursuant
to the requirements 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.









AMERICAN BILTRITE
      INC.(Registrant)Date:  August
      14, 2008
            BY:
            /s/  Howard
      N. Feist IIIHoward
      N. Feist IIIVice
      President-Finance(Duly
      Authorized Officer andPrincipal
      Financial and ChiefAccounting
      Officer)





55


INDEX OF
EXHIBITS





Exhibit
      No.
            Description3.1   I
            Restated
      Certificate of Incorporation3.2   II
            By-Laws,
      amended and restated as of November 7, 20074.1
            Amendment
      No. 5 to Amended and Restated Credit Agreement, dated as of June 30, 2008,
      among American Biltrite Inc., K&M Associates L.P., and American
      Biltrite (Canada) Ltd., Bank of America, National Association, both in its
      capacity as a domestic lender and as a domestic administrative agent, Bank
      of America, National Association, acting through its Canada branch, both
      in its capacity as a Canadian lender and as Canadian administrative agent,
      and the other lenders from time to time party thereto10.1
            Amendment
      No. 5 to Amended and Restated Credit Agreement, dated as of June 30, 2008,
      among American Biltrite Inc., K&M Associates L.P., and American
      Biltrite (Canada) Ltd., Bank of America, National Association, both in its
      capacity as a domestic lender and as a domestic administrative agent, Bank
      of America, National Association, acting through its Canada branch, both
      in its capacity as a Canadian lender and as Canadian administrative agent,
      and the other lenders from time to time party thereto (a copy of which is
      filed as Exhibit 4.1)10.2   III
            American
      Biltrite Inc. Amended and Restated 1999 Stock Option Plan for Non-Employee
      Directors10.3   III
            American
      Biltrite Inc. 1993 Stock Award and Incentive Plan As Amended and Restated
      as of March 4, 1997 and Amendment dated as of March 31, 2008 to the
      American Biltrite Inc. 1993 Stock Award and Incentive Plan As Amended and
      Restated as of March 4, 199710.4   IV
            Form
      of Stock Option Agreement for American Biltrite Inc.'s 1993 Stock Award
      and Incentive Plan, as amended and restated as of March 4, 1997 (for
      awards issued under the plan on and after March 17,
  2008)10.5   III
            Form
      of Stock Option Agreement for American Biltrite Inc.’s 1999 Stock Option
      Plan for Non-Employee Directors (for awards issued under the plan on and
      after April 1, 2008)31.1
            Certification
      of the Principal Executive Officer of the Registrant Pursuant to Rule
      13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as
      amended











Exhibit
      No.
            Description31.2
            Certification
      of the Principal Financial Officer of the Registrant Pursuant to Rule
      13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as
      amended32
            Certification
      of the Chief Executive Officer and Chief Financial Officer of the
      Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of 200299.1
            Press
      release dated August 13, 2008





___________________________





I
            
            Incorporated
      by reference to the exhibits filed with the Company’s Annual Report on
      Form 10-K for the year ended December 31, 1996 and filed with the
      Securities and Exchange Commission on March  27,
      1997  (1-4773)II
            
            Incorporated
      by reference to the exhibits filed with the Company's Quarterly Report on
      Form 10-Q for the quarter ended September 30, 2007 and filed with the
      Securities and Exchange Commission on November 14, 2007III
            
            Incorporated
      by reference to the exhibits filed with the Company’s Quarterly Report on
      Form 10-Q for the quarter ended March 31, 2008 and filed with the
      Securities and Exchange Commission on May 12, 2008IV
            
            Incorporated
      by reference to the exhibits filed with the Company’s Annual Report on
      Form 10-K for the year ended December 31, 2007 and filed with the
      Securities and Exchange Commission on March 31,
  2008