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 March 31,
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 oNon-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 May 9, 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 March 31, 2008 (unaudited) and
      December 31, 2007
            1Consolidating
      Condensed Balance Sheets – Liabilities and Stockholders’ Equity as of
      March 31, 2008 (unaudited) and December 31, 2007
            2Consolidating
      Condensed Statements of Operations (unaudited) for the three months ended
      March 31, 2008 and 2007
            3Consolidating
      Condensed Statements of Cash Flows (unaudited) for the three months ended
      March 31, 2008 and 2007
            4Notes
      to Unaudited Consolidating Condensed Financial Statements
            5Item
      2.
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
            25Item
      4T.
            Controls
      and Procedures
            37PART
      II.
            OTHER
      INFORMATIONItem
      1.
            Legal
      Proceedings
            38Item
      1A.
            Risk
      Factors
            38Item
      3.
            Defaults
      Upon Senior Securities
            46Item
      5.
            Other
      Information
            46Item
      6.
            Exhibits
            48Signature
            51








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
      BiltriteMarch
      31,
              2008
            
            
            December 31,
      2007
            
            
            March
      31,
              2008
            
            
            December 31,
      2007
            
            
            March
      31,
              2008
            
            
            December 31,
      2007
            
            
            March
      31,
              2008
            
            
            December 31,
      2007(Unaudited)
            
            
            
            
            
            (Unaudited)
            
            
            
            
            
            (Unaudited)
            
            
            
            
            
            (Unaudited)AssetsCurrent
      Assets:Cash
      and cash equivalents
            
            $
            31,586
            
            
            $
            30,185
            
            
            
            
            
            
            
            
            $
            29,560
            
            
            $
            26,327
            
            
            $
            2,026
            
            
            $
            3,858Restricted
      cash
            
            
            6,557
            
            
            
            6,501
            
            
            
            
            
            
            
            
            
            6,557
            
            
            
            6,501Accounts
      receivable, net
            
            
            44,291
            
            
            
            41,345
            
            
            $
            (672
            )
            
            $
            (316
            )
            
            
            17,353
            
            
            
            14,162
            
            
            
            27,610
            
            
            
            27,499Inventories
            
            
            84,186
            
            
            
            78,401
            
            
            
            (117
            )
            
            
            (125
            )
            
            
            40,828
            
            
            
            35,182
            
            
            
            43,475
            
            
            
            43,344Deferred
      income taxes
            
            
            1,146
            
            
            
            961
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,146
            
            
            
            961Prepaid
      expense & other current assets
            
            
            9,444
            
            
            
            20,001
            
            
            
            
            
            
            
            
            
            
            
            3,127
            
            
            
            13,138
            
            
            
            6,317
            
            
            
            6,863Total
      current assets
            
            
            177,210
            
            
            
            177,394
            
            
            
            (789
            )
            
            
            (441
            )
            
            
            97,425
            
            
            
            95,310
            
            
            
            80,574
            
            
            
            82,525Property,
      plant & equipment, net
            
            
            96,068
            
            
            
            99,153
            
            
            
            
            
            
            
            
            
            
            
            59,885
            
            
            
            61,993
            
            
            
            36,183
            
            
            
            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
            
            
            22,447
            
            
            
            22,507
            
            
            
            (117
            )
            
            
            (126
            )
            
            
            15,318
            
            
            
            15,402
            
            
            
            7,246
            
            
            
            7,23145,192
            
            
            
            45,252
            
            
            
            (117
            )
            
            
            (126
            )
            
            
            15,318
            
            
            
            15,402
            
            
            
            29,991
            
            
            
            29,976Total
      assets
            
            $
            318,470
            
            
            $
            321,799
            
            
            $
            (906
            )
            
            $
            (567
            )
            
            $
            172,628
            
            
            $
            172,705
            
            
            $
            146,748
            
            
            $
            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
      BiltriteMarch
      31,
              2008
            
            
            December 31,
              2007
            
            
            March
      31,
              2008
            
            
            December 31,
              2007
            
            
            March
      31,
              2008
            
            
            December 31,
              2007
            
            
            March
      31,
              2008
            
            
            December 31,
              2007(Unaudited)
            
            
            
            
            
            (Unaudited)
            
            
            
            
            
            (Unaudited)
            
            
            
            
            
            (Unaudited)LiabilitiesCurrent
      liabilities:Accounts
      payable
            
            $
            20,323
            
            
            $
            22,570
            
            
            $
            (672
            )
            
            $
            (316
            )
            
            $
            11,534
            
            
            $
            10,715
            
            
            $
            9,461
            
            
            $
            12,171Accrued
      expenses
            
            
            36,221
            
            
            
            37,035
            
            
            
            
            
            
            
            
            
            
            
            18,893
            
            
            
            20,742
            
            
            
            17,328
            
            
            
            16,293Asbestos-related
      liabilities
            
            
            27,688
            
            
            
            31,207
            
            
            
            
            
            
            
            
            
            
            
            27,688
            
            
            
            31,207Deferred
      income taxes
            
            
            7,725
            
            
            
            7,725
            
            
            
            
            
            
            
            
            
            
            
            7,725
            
            
            
            7,725Notes
      payable
            
            
            32,356
            
            
            
            30,309
            
            
            
            
            
            
            
            
            
            
            
            12,672
            
            
            
            10,551
            
            
            
            19,684
            
            
            
            19,758Current
      portion of long-term debt
            
            
            2,319
            
            
            
            2,376
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,319
            
            
            
            2,376Liabilities
      subject to compromise
            
            
            4,997
            
            
            
            4,997
            
            
            
            
            
            
            
            
            
            
            
            4,997
            
            
            
            4,997Total
      current liabilities
            
            
            131,629
            
            
            
            136,219
            
            
            
            (672
            )
            
            
            (316
            )
            
            
            83,509
            
            
            
            85,937
            
            
            
            48,792
            
            
            
            50,598Long-term
      debt, less current portion
            
            
            6,744
            
            
            
            6,725
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            6,744
            
            
            
            6,725Asbestos-related
      liabilities
            
            
            12,720
            
            
            
            12,600
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            12,720
            
            
            
            12,600Other
      liabilities
            
            
            12,308
            
            
            
            12,195
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            12,308
            
            
            
            12,195Noncontrolling
      interests
            
            
            933
            
            
            
            1,093
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            933
            
            
            
            1,093Liabilities
      subject to compromise
            
            
            133,774
            
            
            
            133,098
            
            
            
            (117
            )
            
            
            (126
            )
            
            
            133,891
            
            
            
            133,224Total
      liabilities
            
            
            298,108
            
            
            
            301,930
            
            
            
            (789
            )
            
            
            (442
            )
            
            
            217,400
            
            
            
            219,161
            
            
            
            81,497
            
            
            
            83,211Stockholders’
      equityCommon
      stock
            
            
            46
            
            
            
            46
            
            
            
            (93
            )
            
            
            (93
            )
            
            
            93
            
            
            
            93
            
            
            
            46
            
            
            
            46Additional
      paid-in capital
            
            
            19,607
            
            
            
            19,607
            
            
            
            (49,373
            )
            
            
            (49,368
            )
            
            
            49,373
            
            
            
            49,368
            
            
            
            19,607
            
            
            
            19,607Retained
      earnings
            
            
            31,811
            
            
            
            30,835
            
            
            
            35,425
            
            
            
            35,413
            
            
            
            (63,738
            )
            
            
            (65,417
            )
            
            
            60,124
            
            
            
            60,839Accumulated
      other comprehensive loss
            
            
            (15,970
            )
            
            
            (15,487
            )
            
            
            6,111
            
            
            
            6,110
            
            
            
            (22,687
            )
            
            
            (22,687
            )
            
            
            606
            
            
            
            1,090Less
      treasury shares
            
            
            (15,132
            )
            
            
            (15,132
            )
            
            
            7,813
            
            
            
            7,813
            
            
            
            (7,813
            )
            
            
            (7,813
            )
            
            
            (15,132
            )
            
            
            (15,132
            )Total
      stockholders’ equity
            
            
            20,362
            
            
            
            19,869
            
            
            
            (117
            )
            
            
            (125
            )
            
            
            (44,772
            )
            
            
            (46,456
            )
            
            
            65,251
            
            
            
            66,450Total
      liabilities and stockholders’ equity
            
            $
            318,470
            
            
            $
            321,799
            
            
            $
            (906
            )
            
            $
            (567
            )
            
            $
            172,628
            
            
            $
            172,705
            
            
            $
            146,748
            
            
            $
            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 March 31, 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
            
            $
            95,757
            
            
            $
            100,031
            
            
            
            
            
            
            
            
            $
            47,697
            
            
            $
            49,315
            
            
            $
            48,060
            
            
            $
            50,716Cost
      of products sold
            
            
            72,593
            
            
            
            74,195
            
            
            $
            (300
            )
            
            $
            (183
            )
            
            
            36,824
            
            
            
            37,316
            
            
            
            36,069
            
            
            
            37,062Selling,
      general & administrative expenses
            
            
            22,389
            
            
            
            23,254
            
            
            
            
            
            
            
            
            
            
            
            9,132
            
            
            
            9,451
            
            
            
            13,257
            
            
            
            13,803Income
      (loss) from operations
            
            
            775
            
            
            
            2,582
            
            
            
            300
            
            
            
            183
            
            
            
            1,741
            
            
            
            2,548
            
            
            
            (1,266
            )
            
            
            (149
            )Other
      income (expense)Interest
      income
            
            
            1,151
            
            
            
            156
            
            
            
            
            
            
            
            
            
            
            
            1,128
            
            
            
            124
            
            
            
            23
            
            
            
            32Interest
      expense
            
            
            (708
            )
            
            
            (3,548
            )
            
            
            
            
            
            
            
            
            
            
            (197
            )
            
            
            (2,981
            )
            
            
            (511
            )
            
            
            (567
            )Other
      (expense) income
            
            
            233
            
            
            
            (48
            )
            
            
            (292
            )
            
            
            (181
            )
            
            
            (64
            )
            
            
            (42
            )
            
            
            589
            
            
            
            175676
            
            
            
            (3,440
            )
            
            
            (292
            )
            
            
            (181
            )
            
            
            867
            
            
            
            (2,899
            )
            
            
            101
            
            
            
            (360
            )Income
      (loss) before taxes and other items
            
            
            1,451
            
            
            
            (858
            )
            
            
            8
            
            
            
            2
            
            
            
            2,608
            
            
            
            (351
            )
            
            
            (1,165
            )
            
            
            (509
            )Provision
      for (benefit from) income taxes
            
            
            519
            
            
            
            (122
            )
            
            
            
            
            
            
            
            
            
            
            929
            
            
            
            —
            
            
            
            (410
            )
            
            
            (122
            )Noncontrolling
      interests
            
            
            40
            
            
            
            (5
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            40
            
            
            
            (5
            )Net
      income (loss)
            
            $
            972
            
            
            $
            (741
            )
            
            $
            8
            
            
            $
            2
            
            
            $
            1,679
            
            
            $
            (351
            )
            
            $
            (715
            )
            
            $
            (392
            )2008
            
            
            2007Net
      income (loss) per shareBasic
            
            $
            0.28
            
            
            $
            (0.22
            )Diluted
            
            
            0.28
            
            
            
            (0.22
            )Weighted
      average number of common and equivalent shares outstandingBasic
            
            
            3,441,551
            
            
            
            3,441,551Diluted
            
            
            3,441,551
            
            
            
            3,441,551





See
accompanying notes to consolidating condensed financial
statements.


3


AMERICAN
BILTRITE INC. AND SUBSIDIARIES


CONSOLIDATING
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)


For
the Three Months Ended March 31, 2008 and 2007


(In
thousands of dollars)





ABI
      Consolidated
            
            
            Eliminations
            
            
            Congoleum
            
            
            American
      Biltrite2008
            
            
            2007
            
            
            2008
            
            
            2007
            
            
            2008
            
            
            2007
            
            
            2008
            
            
            2007Operating
      activitiesNet
      income (loss)
            
            $
            972
            
            
            $
            (741
            )
            
            $
            8
            
            
            $
            2
            
            
            $
            1,679
            
            
            $
            (351
            )
            
            $
            (715
            )
            
            $
            (392
            )Adjustments
      to reconcile net income (loss) to net cash provided (used) by operating
      activities:Depreciation
      and amortization
            
            
            3,991
            
            
            
            4,098
            
            
            
            
            
            
            
            
            
            
            
            2,673
            
            
            
            2,750
            
            
            
            1,318
            
            
            
            1,348Stock
      compensation expense
            
            
            5
            
            
            
            5
            
            
            
            
            
            
            
            
            
            
            
            5
            
            
            
            5Change
      in operating assets and liabilities:Accounts
      and notes receivable
            
            
            (2,744
            )
            
            
            (2,489
            )
            
            
            347
            
            
            
            11
            
            
            
            (3,191
            )
            
            
            (651
            )
            
            
            100
            
            
            
            (1,849
            )Inventories
            
            
            (5,832
            )
            
            
            (2,502
            )
            
            
            (8
            )
            
            
            (2
            )
            
            
            (5,646
            )
            
            
            (532
            )
            
            
            (178
            )
            
            
            (1,968
            )Prepaid
      expenses and other assets
            
            
            1,403
            
            
            
            978
            
            
            
            
            
            
            
            
            
            
            
            843
            
            
            
            461
            
            
            
            560
            
            
            
            517Proceeds
      from legal fees disgorgement
            
            
            9,168
            
            
            
            —
            
            
            
            
            
            
            
            
            
            
            
            9,168
            
            
            
            —Insurance
      recovery for oven replacement
            
            
            —
            
            
            
            1,561
            
            
            
            
            
            
            
            
            
            
            
            —
            
            
            
            1,561Accounts
      payable and accrued expenses
            
            
            (3,889
            )
            
            
            (53
            )
            
            
            (347
            )
            
            
            (11
            )
            
            
            (1,906
            )
            
            
            47
            
            
            
            (1,636
            )
            
            
            (89
            )Asbestos-related
      expenses
            
            
            (3,575
            )
            
            
            (4,657
            )
            
            
            
            
            
            
            
            
            
            
            (3,575
            )
            
            
            (4,657
            )Noncontrolling
      interests
            
            
            (160
            )
            
            
            (99
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (160
            )
            
            
            (99
            )Other
            
            
            1,390
            
            
            
            (496
            )
            
            
            
            
            
            
            
            
            
            
            1,586
            
            
            
            (406
            )
            
            
            (196
            )
            
            
            (90
            )Net
      cash provided (used) by operating activities of continuing
      operations
            
            
            729
            
            
            
            (4,395
            )
            
            
            —
            
            
            
            —
            
            
            
            1,636
            
            
            
            (1,773
            )
            
            
            (907
            )
            
            
            (2,622
            )Investing
      activitiesInvestments
      in property, plant and equipment
            
            
            (1,024
            )
            
            
            (656
            )
            
            
            —
            
            
            
            —
            
            
            
            (468
            )
            
            
            (384
            )
            
            
            (556
            )
            
            
            (272
            )Net
      cash used by investing activities of continuing operations
            
            
            (1,024
            )
            
            
            (656
            )
            
            
            —
            
            
            
            —
            
            
            
            (468
            )
            
            
            (384
            )
            
            
            (556
            )
            
            
            (272
            )Financing
      activitiesNet
      short-term borrowings
            
            
            2,312
            
            
            
            4,093
            
            
            
            
            
            
            
            
            
            
            
            2,121
            
            
            
            236
            
            
            
            191
            
            
            
            3,857Payments
      on long-term debt
            
            
            (42
            )
            
            
            (573
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (42
            )
            
            
            (573
            )Net
      change in restricted cash
            
            
            (56
            )
            
            
            873
            
            
            
            
            
            
            
            
            
            
            
            (56
            )
            
            
            873Net
      cash provided by financing activities of continuing
    operations
            
            
            2,214
            
            
            
            4,393
            
            
            
            —
            
            
            
            —
            
            
            
            2,065
            
            
            
            1,109
            
            
            
            149
            
            
            
            3,284Effect
      of foreign exchange rate changes on cash
            
            
            (518
            )
            
            
            (336
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (518
            )
            
            
            (336
            )Net
      increase (decrease) in cash
            
            
            1,401
            
            
            
            (994
            )
            
            
            —
            
            
            
            —
            
            
            
            3,233
            
            
            
            (1,048
            )
            
            
            (1,832
            )
            
            
            54Cash
      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
            
            $
            31,586
            
            
            $
            20,186
            
            
            $
            —
            
            
            $
            —
            
            
            $
            29,560
            
            
            $
            17,543
            
            
            $
            2,026
            
            
            $
            2,643





See
accompanying notes to consolidating condensed financial
statements.


4


AMERICAN
BILTRITE INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATING CONDENSED


FINANCIAL
STATEMENTS


March
31, 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 the proposed amended 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 months ended March 31, 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 (Canada) Ltd. ("AB Canada"), primarily for the purposes of
utilizing Janus’ prior years’ net operating losses against future taxable
income.


5


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.  The accompanying
consolidated financial statements include the results for Congoleum for all
periods presented.  Congoleum’s results include losses (including
other comprehensive losses) of $44.8 million and $46.5 million in excess of the
value of ABI’s investment in Congoleum at March 31, 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 pursuant to the terms of the plan of reorganization for
Congoleum pending in the United States Bankruptcy Court for the District of New
Jersey (the “Bankruptcy Court”).  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.





6


Note A - Basis of
Presentation (continued)





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. 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.





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).





7


Note A - Basis of
Presentation (continued)





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 three months ended March 31, 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.





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.





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





Note B -
Inventories







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







March
      31,
              2008
            
            
            December 31,
              2007Finished
      goods
            
            $
            60,020
            
            
            $
            55,478Work-in-process
            
            
            13,322
            
            
            
            10,327Raw
      materials and supplies
            
            
            10,844
            
            
            
            12,596$
            84,186
            
            
            $
            78,401





8


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.  Commissions and other
expenses incurred in connection with the sale totaled C$200 thousand, resulting
in net cash proceeds of C$800 thousand.  Payment of the note is due
within 60 days of receipt of an environmental certification on the land sold,
which the Company received on March 20, 2008.  As of March 31, 2008
and December 31, 2007, the Company had recorded a deferred gain of approximately
C$1.1 million.  The Company expects to recognize the gain upon receipt
of payment on the C$4.0 million note.





Note D – Accrued
Expenses





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





March
      31,
              2008
            
            
            December 31,
              2007Accrued
      advertising and sales promotions
            
            $
            16,915
            
            
            $
            20,906Employee
      compensation and related benefits
            
            
            9,043
            
            
            
            7,581Interest
            
            
            351
            
            
            
            7Environmental
      matters
            
            
            849
            
            
            
            849Royalties
            
            
            614
            
            
            
            828Income
      taxes
            
            
            1,263
            
            
            
            477Other
            
            
            7,186
            
            
            
            6,387$
            36,221
            
            
            $
            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.


9


Note E – Financing
Arrangements (continued)





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 the Credit
Agreement.  The 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).  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.





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
months ended March 31, 2008 and 2007, the Company recorded a charge of $261
thousand and $44 thousand, respectively, for the adjustment of the fair values
of the swap agreements.





10


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 March 31, 2008, the Company had recorded an unrealized loss
of $588 thousand for its interest rate swap agreements.





Note G – Other
Liabilities





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





March
      31,
              2008
            
            
            December 31,
              2007Pension
      benefits
            
            $
            2,936
            
            
            $
            2,817Environmental
      remediation and product related liabilities
            
            
            5,336
            
            
            
            5,336Deferred
      income taxes
            
            
            1,528
            
            
            
            1,337Other
            
            
            2,508
            
            
            
            2,705$
            12,308
            
            
            $
            12,195





See Note
H for Liabilities Subject to Compromise.





11


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.  Liabilities subject to compromise at March 31, 2008 and
December 31, 2007 were as follows (in thousands):





March
      31,
              2008
            
            
            December 31,
              2007Current
      liabilityPre-petition
      other payables and accrued interest
            
            $
            4,997
            
            
            $
            4,997Non-currentDebt
      (at face value)
            
            
            100,000
            
            
            
            100,000Pension
      liability
            
            
            11,527
            
            
            
            10,772Other
      post-retirement benefit obligation
            
            
            9,449
            
            
            
            9,337Pre-petition
      other liabilities
            
            
            12,915
            
            
            
            13,115133,891
            
            
            
            133,224Elimination
      – Payable to American Biltrite
            
            
            (117
            )
            
            
            (126
            )Total
      non-current liability
            
            
            133,774
            
            
            
            133,098Total
      liabilities subject to compromise
            
            $
            138,771
            
            
            $
            138,095





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.





12


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
months ended March 31, 2008 and 2007 (in thousands):





Three
      Months Ended March 31,2008
            
            
            2007Pension
            
            
            Other
              Benefits
            
            
            Pension
            
            
            Other
              BenefitsService
      cost
            
            $
            642
            
            
            $
            56
            
            
            $
            602
            
            
            $
            53Interest
      cost
            
            
            1,652
            
            
            
            144
            
            
            
            1,595
            
            
            
            142Expected
      return on plan assets
            
            
            (1,719
            )
            
            
            —
            
            
            
            (1,597
            )
            
            
            —Recognized
      net actuarial loss
            
            
            384
            
            
            
            15
            
            
            
            338
            
            
            
            18Amortization
      of prior service cost
            
            
            31
            
            
            
            —
            
            
            
            26
            
            
            
            3Net
      periodic benefit cost
            
            $
            990
            
            
            $
            215
            
            
            $
            964
            
            
            $
            216





The
weighted average assumptions used to determine net periodic benefit cost for the
three months ended March 31, 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%
            
            —


13


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, 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.





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.





14


Note J - Commitments and
Contingencies (continued)





American Biltrite
Inc.





ABI is a co-defendant with many other
manufacturers and distributors of asbestos containingproducts in approximately
1,344pending claims
involvingapproximately 1,899individualsas ofMarch 31, 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:





Three
      Months Ended
              March
      31,
              2008
            
            
            Year
      Ended December 31,
              2007Beginning
      claims
            
            
            1,360
            
            
            
            1,332New
      claims
            
            
            181
            
            
            
            523Settlements
            
            
            (5
            )
            
            
            (20
            )Dismissals
            
            
            (192
            )
            
            
            (475
            )Ending
      claims
            
            
            1,344
            
            
            
            1,360





ABI has
primary and multiple excess layers of insurance coverage for asbestos
claims.  The total indemnity costs incurred to settle claims during
the three months ended March 31, 2008 and the year ended December 31, 2007 were
$0.1 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.  ABI will seek reimbursement for asbestos claims under its
excess layer coverage upon exhaustion of its primary layer insurance
coverage.  The amount of indemnity coverage limits remaining at March
31, 2008 under ABI's primary layer insurance coverage relating to policies
underwritten from 1961 to 1985 ("Primary Layer") was approximately $135 thousand
to $1.3 million, depending on the interpretation of the terms of the
above-referenced coverage-in-place agreement.  ABI is negotiating with
the three insurance carriers currently providing coverage under the Primary
Layer (the "Carrier Group") to determine the amount of coverage remaining under
that coverage-in-place agreement.





ABI
expects its first layer excess liability insurance will provide coverage for
ABI's asbestos claims after the Primary Layer has been determined to be
exhausted, including as a result of coverage otherwise payable by carriers which
are now insolvent.  If the first layer excess liability insurance does
not provide such coverage, ABI may have to fund those amounts, which could have
a material adverse effect on ABI’s business, results of operations and financial
condition.   The same insurance companies comprising the Carrier
Group also underwrote ABI’s first layer excess coverage during the period from
1964 to1984 (the "Umbrella Coverage").  Coverage limits for the
Umbrella Coverage are $105 million to $155 million, depending on the
interpretation of certain policy provisions, with certain policies providing
defense costs within the coverage limits and other policies providing defense
costs in addition to coverage limits.





15


Note J - Commitments and
Contingencies (continued)





ABI is
negotiating with the Carrier Group to reach agreement (the "Umbrella Agreement")
on how the Umbrella Coverage will apply to asbestos bodily injury
claims.  Any Umbrella Agreement that ABI may enter into is expected to
address defense and indemnity obligations, allocation of claims to specific
policies, and other matters.  There can be no assurance that ABI will
be successful in negotiating and entering into an Umbrella Agreement on terms
acceptable to it.





In
addition to the Umbrella Coverage, ABI has additional excess liability insurance
policies that should provide further coverage if and when the Umbrella Coverage,
taking into account any Umbrella Agreement, is exhausted.  Depending
on the terms of any Umbrella Agreement, the terms of ABI's excess liability
insurance policies and the dates of asbestos exposure alleged in claims, ABI may
incur uninsured costs related to asbestos claims once the Primary Layer has been
exhausted.  ABI does not expect these costs to have a material adverse
impact on its financial condition or results of operations, although there can
be no assurances in that regard.





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 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 March 31,
2008, the Company has recorded $12.7 million for the estimated minimum
liability.  The Company also believes that, based on this minimum
liability estimate, the corresponding amount of insurance probable of recovery
is $11.1 million at March 31, 2008 and December 31, 2007, which has been
included in other assets.  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





16


Note J - Commitments and
Contingencies (continued)





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 assumptions.  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, and the 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 three month period ended March 31, 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 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.





17


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 as of March 31, 2008 and December 31,
2007.


18


Note J - Commitments and
Contingencies (continued)





At March
31, 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 March 31, 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 is 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.





19


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 is being solicited in
accordance with court-approved voting procedures.  Various objections
have been filed to the Joint Plan, and a hearing has been scheduled for May 12,
2008 to hear oral argument on summary judgment motions relating to certain of
those objections.  A confirmation hearing on the Joint Plan is
scheduled for June 26, 2008.  Under the terms of the Joint Plan, ABI's
ownership interest in Congoleum
would be eliminated.  ABI expects its ownership interest in Congoleum
would be eliminated under any alternate plan or outcome in Congoleum’s Chapter
11 case.





Under the
terms of the Joint Plan, a trust will be created upon consummation of the Joint
Plan, which trust will assume the liability for Congoleum’s current and future
asbestos claims (the “Plan Trust”).  That trust will receive the
proceeds of various settlements Congoleum has reached with a number of insurance
carriers, and will be assigned Congoleum’s rights under its remaining policies
covering asbestos product liability.  The trust will also receive
50.1% of the newly issued common stock of reorganized Congoleum when the plan
takes effect (the “Trust Shares”), which Trust Shares will be subject to the
Put/Call Agreement described below.





Holders
of Congoleum’s $100 million in 8.625% Senior Notes due in August 2008 will
receive on a pro rata basis $80 million in new 9.75% senior secured notes that
mature five years from issuance.  The new senior secured notes will be
subordinated to the working capital facility that provides Congoleum’s financing
upon exiting reorganization.  In addition, holders of the $100 million
in 8.625% Senior Notes due in August 2008 will receive 49.9% of the newly issued
common stock of reorganized Congoleum.  Congoleum’s obligations for
the $100 million in 8.625% senior notes due in August 2008, including accrued
interest (which amounted to $3.6 million at December 31, 2007) will be satisfied
by the new senior secured notes and the common stock issued when the Joint Plan
takes effect.





Under the
terms of the Joint Plan, existing shares of Class A and Class B common stock of
Congoleum will be eliminated when the plan takes effect and holders of those
shares, including ABI, will not receive anything on account of their eliminated
shares.





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 is effective (the
“Effective Date”), the Plan Trust may, at its sole option, elect 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 will have 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.


20


Note K – Congoleum Asbestos
Liabilities and Reorganization (continued)





The Joint
Plan also includes certain terms that would govern an intercompany settlement
and ongoing intercompany arrangements among American Biltrite and its
subsidiaries and reorganized Congoleum which would be effective when the Joint
Plan takes effect and would have a term of two years.  Those
intercompany arrangements include the provision of management services by
American Biltrite to reorganized Congoleum and other business relationships
substantially consistent with their traditional relationships.  The
Joint Plan provides that the final terms of the intercompany arrangements among
American Biltrite and its subsidiaries and reorganized Congoleum will 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.





There can
be no assurance that the Joint Plan or any other plan will receive the
acceptances necessary for confirmation, that the Joint Plan will not be modified
further, that the conditions to the Joint Plan or any other plan will be
satisfied or waived, that the Joint Plan or any other plan will timely receive
necessary court approvals from the Bankruptcy Court and the United States
District Court for the District of New Jersey (the “District Court”), that the
Joint Plan or any other  plan will be confirmed, that the Joint Plan
or any other plan, if confirmed, will become effective, or that Congoleum will
have sufficient funds to pay for continued litigation over any plan of
reorganization and the state court insurance coverage litigation.  Any
other plan of reorganization that may be proposed for Congoleum may contain
terms substantially different from those contained in the Joint
Plan.





In
anticipation of Congoleum's commencement of the Chapter 11 cases, Congoleum
entered into the Claimant Agreement, which provides settlement of certain
prepetition asbestos claims against Congoleum and 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.  Participants in the Claimant Agreement signed releases
limiting their recourse against Congoleum to what they would receive from the
Plan Trust and Congoleum has therefore estimated its liability under the
Claimant Agreement as the cost of effecting the settlement through confirmation
of a plan of reorganization.  In addition, as a result of tabulating
ballots on a previous plan, Congoleum is also aware of claims by claimants whose
claims were not determined under the Claimant Agreement but who have submitted
claims with a value of approximately $512 million based on the settlement values
applicable in a previous plan.  It is also likely that additional new
claims will be asserted in connection with solicitation of acceptances of the
Joint Plan.  Congoleum does not believe it can reasonably estimate the
liability associated with claims that may be pending.





21


Note K – Congoleum Asbestos
Liabilities and Reorganization (continued)





During
the first three months of 2008, Congoleum paid $3.6 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.  Given the terms of the proposed Joint Plan, 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 prior years.  Given
the terms of the proposed 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 will 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 Senior Notes.  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 will not receive any post-petition interest.  Congoleum
has ceased to accrue interest on its Senior Notes.





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 the GHR Settlement under 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 the GHR Settlement in April
2007.  Congoleum received $9.2 plus $1.0 million of accrued interest
in full satisfaction of the GHR Settlement in March 2008.





Note L - Comprehensive
Income (Loss)





The
following table presents total comprehensive income (loss) for the three months
ended March 31, 2008 and 2007 (in thousands):





Three
      Months Ended March 31,2008
            
            
            2007Net
      income (loss)
            
            $
            972
            
            
            $
            (741
            )Foreign
      currency translation adjustments
            
            
            (483
            )
            
            
            235Total
      comprehensive income (loss)
            
            $
            489
            
            
            $
            (506
            )





22


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.





Note N - Industry
Segments





Description
of Products and Services





The
Company has four reportable segments:  flooring products, tape
division, jewelry and a Canadian division that produces flooring and rubber
products. 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 months ended March 31, 2008 and 2007 were as follows
(in
thousands):





2008
            
            
            2007Net
      sales to external customers:Flooring
      products
            
            $
            47,697
            
            
            $
            49,315Tape
      products
            
            
            22,443
            
            
            
            24,118Jewelry
            
            
            11,747
            
            
            
            13,590Canadian
      division
            
            
            13,870
            
            
            
            13,008Total
      net sales to external customers
            
            
            95,757
            
            
            
            100,031Intersegment
      net sales:Flooring
      products
            
            
            —
            
            
            
            —Tape
      products
            
            
            —
            
            
            
            —Jewelry
            
            
            —
            
            
            
            —Canadian
      division
            
            
            1,221
            
            
            
            1,265Total
      intersegment net sales
            
            
            1,221
            
            
            
            1,265Reconciling
      items
            
            
            -
            
            
            
            -Intersegment
      net sales
            
            
            (1,221
            )
            
            
            (1,265
            )Consolidated
      net sales
            
            $
            95,757
            
            
            $
            100,031


23


Note N - Industry Segments
(continued)





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 months ended March 31, 2008 and 2007 was as
follows (in
thousands):





2008
            
            
            2007Segment
      profit (loss)Flooring
      products
            
            $
            2,608
            
            
            $
            (351
            )Tape
      products
            
            
            411
            
            
            
            (421
            )Jewelry
            
            
            (1,331
            )
            
            
            (238
            )Canadian
      division
            
            
            102
            
            
            
            87Total
      segment profit (loss)
            
            
            1,790
            
            
            
            (923
            )Reconciling
      itemsCorporate
      items
            
            
            (347
            )
            
            
            63Intercompany
      profit
            
            
            8
            
            
            
            2Consolidated
      income (loss) before incometaxes
      and other items
            
            $
            1,451
            
            
            $
            (858
            )





For the
three months ended March 31, 2008, segment profit for the Company’s Tape
products division included an insurance recovery of $1.2 million for losses
incurred during the fourth quarter of 2006 for a product recall as a result of
defective material from a supplier.  During the first quarter of 2008,
the Flooring products division (Congoleum) also recorded interest income of
approximately $1.0 million in connection with the disgorgement of a legal fees
settlement of $9.2 million.  See Note K.





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





March
      31,
              2008
            
            
            December 31,
              2007Segment
      assetsFlooring
      products
            
            $
            172,628
            
            
            $
            172,705Tape
      products
            
            
            59,531
            
            
            
            52,287Jewelry
            
            
            33,985
            
            
            
            38,046Canadian
      division
            
            
            38,958
            
            
            
            37,907Total
      segment assets
            
            
            305,102
            
            
            
            300,945Reconciling
      itemsCorporate
      items
            
            
            32,605
            
            
            
            31,523Intersegment
      accounts receivable
            
            
            (19,002
            )
            
            
            (10,417
            )Intersegment
      profit in inventory
            
            
            (118
            )
            
            
            (126
            )Intersegment
      other asset
            
            
            (117
            )
            
            
            (126
            )Consolidated
      assets
            
            $
            318,470
            
            
            $
            321,799


24


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 would be eliminated.  ABI 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
is being solicited in accordance with court-approved voting
procedures.  Various objections have been filed to the Joint Plan, and
a hearing has been scheduled for May 12, 2008 to hear oral argument on summary
judgment motions relating to certain of those objections.  A
confirmation hearing on the Joint Plan is scheduled for June 26,
2008.





There can
be no assurance that the Joint Plan or any other plan will receive the
acceptances necessary for confirmation, that the Joint Plan will not be modified
further, that the conditions to the Joint Plan or any other plan will be
satisfied or waived, that the Joint Plan or any other plan will timely receive
necessary court approvals from the Bankruptcy Court and the District Court, that
the Joint Plan or any other plan will be confirmed, that the Joint Plan or any
other plan, if confirmed, will become effective, or that Congoleum will have
sufficient funds to pay for continued litigation over any plan of reorganization
and the state court coverage litigation.  Any other plan of
reorganization that may be proposed for Congoleum may contain terms
substantially different from those contained in the Joint Plan.





25


ABI
estimates that it will spend an additional $400 thousand for legal fees in 2008,
which it has accrued, in connection with Congoleum’s reorganization
plan.  Actual costs for pursuing and implementing the Joint Plan or
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.  The proposed 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 its asbestos
liability.








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, 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.





26


Results
of Operations





ABI
and Non-Debtor Subsidiaries





Three
      Months Ended March 312008
            
            
            
            
            2007(In
      thousands of dollars)Net
      sales
            
            $
            48,060
            
            
            
            
            $
            50,716Cost
      of sales
            
            
            36,069
            
            
            
            
            
            37,062Gross
      profit
            
            
            11,991
            
            25.0
            %
            
            
            13,654
            
            26.9
            %Selling,
      general & administrative expenses
            
            
            13,257
            
            27.6
            %
            
            
            13,803
            
            27.2
            %Operating
      loss
            
            
            (1,266
            )
            
            
            
            
            (149
            )Interest
      expense, net
            
            
            (488
            )
            
            
            
            
            (535
            )Other
      income, net
            
            
            589
            
            
            
            
            
            175Loss
      before taxes and other items
            
            
            (1,165
            )
            
            
            
            
            (509
            )Benefit
      from income taxes
            
            
            (410
            )
            
            
            
            
            (122
            )Noncontrolling
      interests
            
            
            40
            
            
            
            
            
            (5
            )Net
      loss
            
            $
            (715
            )
            
            
            
            $
            (392
            )





Net sales
in the first quarter of 2008 were $48.1 million compared to $50.7 million in the
first quarter of 2007, a decrease of $2.7 million or 5.2%.  Tape
division sales decreased $1.7 million or 6.9% from year earlier levels due to
lower sales of paper, film, HVAC and electrical products in the U.S., partly
offset by increased sales in Europe.  Canadian division sales
increased $862 thousand or 6.6% from the first quarter of 2007 due to the effect
of currency translation on the division’s sales in Canada, which more than
offset lower unit volume of flooring sales.  Jewelry sales decreased
$1.8 million or 13.6% primarily as a result of lower sales to mass merchandisers
and mid-tier retailers and higher sales allowances, partly offset by increased
sales of Guess?® brand
products.





Gross
profit decreased from 26.9% for the first quarter of 2007 to 25.0% for the first
quarter of 2008.  The decrease in gross profit as a percent of sales
was due to increased sales allowances and higher merchandise costs.





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 March 31, 2008 and 2007 would have been 24.4% and 26.3%,
respectively.





27


SG&A
expenses in the first quarter of 2008 decreased by $546 thousand or 4.0%
compared to the first quarter of 2007.  The reduction in SG&A was
due to a $1.2 million insurance recovery for costs related to a product recall
in 2006.  Excluding this recovery, SG&A expenses increased because
of the effect of currency translation on expenses of the Canadian division and a
$172 thousand severance charge for a workforce reduction at the Tape
division.  As a percentage of net sales, SG&A increased from 27.2%
to 27.6% due to the sales decline.





Net
interest expense for the first quarter of 2008 was lower than the first quarter
of 2007 primarily due to a lower weighted average interest rate on the Company’s
borrowings.





The
effective tax rate was 35% in the first quarter of 2008 compared to 24% in the
first quarter of 2007.  American Biltrite’s U.S. operations and
foreign branches incurred a pretax loss of $1.2 million and $0.6 million for the
first quarter of 2008 and 2007, respectively.  The Company’s Canadian
operation had pretax income of $102 thousand and $87 thousand for the first
quarter of 2008 and 2007, respectively.  No tax provision was recorded
for AB Canada’s income as a result of the utilization of net operating loss
carryforwards.  The mix of the Company’s projected pretax income for
its U.S. operations and projected pretax income for the Canadian operations,
combined with the tax provision projected for the U.S. and Canadian operations,
resulted in a higher effective rate for 2008 compared to 2007.





American
Biltrite incurred a loss from continuing operations of $715 thousand for the
first quarter of 2008 compared to a loss of $392 thousand for the same quarter
last year.





Congoleum





Three
      Months Ended March 312008
            
            
            
            
            2007(In
      thousands of dollars)Net
      sales
            
            $
            47,697
            
            
            
            
            $
            49,315Cost
      of sales
            
            
            36,824
            
            
            
            
            
            37,316Gross
      profit
            
            
            10,873
            
            22.8
            %
            
            
            11,999
            
            24.3
            %Selling,
      general & administrative expenses
            
            
            9,132
            
            19.1
            %
            
            
            9,451
            
            19.2
            %Operating
      income
            
            
            1,741
            
            
            
            
            
            2,548Interest
      income (expense), net
            
            
            931
            
            
            
            
            
            (2,857
            )Other
      expense, net
            
            
            (64
            )
            
            
            
            
            (42
            )Income
      (loss) before taxes
            
            
            2,608
            
            
            
            
            
            (351
            )Provision
      for income taxes
            
            
            929
            
            
            
            
            
            —Net
      income (loss)
            
            $
            1,679
            
            
            
            
            $
            (351
            )





28


Net sales
for the three months ended March 31, 2008 totaled $47.7 million as compared to
$49.3 million for the three months ended March 31, 2007, down $1.6 million or
3.3%. The decrease is primarily attributable to weakness in the new housing
market coupled with continued softness in the general retail environment for
flooring products. This was partially offset by increased selling prices
instituted in the second quarter of last year and the continued growth of sales
of the DuraproductTM
line.





Gross
profit for the three months ended March 31, 2008 totaled $10.9 million, or 22.8%
of net sales, compared to $12.0 million or 24.3% of net sales for the three
months ended March 31, 2007. Gross profit dollars decreased from year earlier
levels because of lower sales and the decline in gross profit as a percentage of
sales resulted from increased raw material costs and the impact of lower
production volumes over which to spread fixed manufacturing costs, partially
offset by the price increases and lower plant costs reflecting improved
efficiencies and cost reduction programs implemented.





SG&A
expenses were $9.1 million for the three months ended March 31, 2008 compared to
$9.5 million for the three months ended March 31, 2007.  Lower
merchandising and sales support costs ($0.1 million) coupled with lower
compensation and related benefit costs ($0.2 million) were the primary drivers
for the decrease in expenses.  As a percentage of net sales, SG&A
costs were 19.1% for the three months ended March 31, 2008 compared to 19.2% for
the same period last year.





Income
from operations was $1.7 million for the three months ended March 31, 2008
compared to $2.5 million for the three months ended March 31, 2007, reflecting
the lower sales and gross margin, partially offset by reduced SG&A
expenses.





Interest
income (expense), net was $931 thousand income for the three months ended March
31, 2008 compared with $2.9 million expense for the same period one year
earlier.  Interest expense for the three months ended March 31, 2007
included $3.0 million of interest expense on Congoleum’s 8 5/8% Senior
Notes.  Based on the terms of the Joint Plan, accrued interest on the
Senior Notes was reversed in the fourth quarter of 2007 and was not accrued in
the first quarter of 2008.  In addition, interest income (expense),
net for the three months ended March 31, 2008 includes $1.0 million in interest
income received as part of a disgorgement fee settlement for legal
expenses.





The
provision for income taxes was $0.9 million for the quarter ending March 31,
2008, and the full year effective tax rate is expected to approximate the
statutory rate of 34%.





29


Liquidity
and Capital Resources





ABI
& Non-Debtor Subsidiaries





Cash and
cash equivalents decreased $1.8 million in the first three months of 2008 to
$2.0 million. Working capital at March 31, 2008 was $31.8 million, slightly
lower from December 31, 2007 ($31.9 million).  The ratio of current
assets to current liabilities at March 31, 2008 was 1.65 compared to 1.63 at
December 31, 2007.  Working capital requirements and capital
expenditures during the first quarter of 2008 exceeded cash from operating
activities and were financed with drawings under the Company’s revolving credit
arrangements.  Net cash used by operating activities was $907 thousand
for the three months ended March 31, 2008, compared to $2.6 million for the
three months ended March 31, 2007, due to lower cash requirements for
receivables and inventory, partly offset by increased settlements of payables
and accrued liabilities.





Capital
expenditures in the first three months of 2008 were $556 thousand compared to
$272 thousand for the first three months of 2007.  It is anticipated
that capital spending for the full year 2008 will be approximately $4
million.





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.





30


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.





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.


31


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.





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.





32


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, 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 the Credit Agreement.  The amendment removed the
financial covenant that required the Company not to have any consecutive
quarterly net losses from continuing operations.  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 that 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.  As of
March 31, 2008 and December 31, 2007, American Biltrite was in compliance with
the financial covenants of the Credit Agreement as amended by the March 12, 2008
amendment.  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.





33


Under the
terms of the Joint Plan, ABI’s ownership interest in Congoleum would be
eliminated.  ABI expects that its ownership interest in Congoleum
would 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.





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 2007,
Congoleum paid $13.1 million in fees and expenses related to reorganization
proceedings under Chapter 11 and the state court insurance coverage
litigation.   Congoleum expects to spend an additional $24.7
million in 2008 on these matters. At March 31, 2008, Congoleum had incurred but
not paid approximately $10.0 million in additional fees and expenses for
services rendered through that date.





34


Based on
the Joint Plan, 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 will 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 Senior Notes.  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 will not receive any post-petition
interest.  Congoleum has ceased to accrue interest on its Senior
Notes.





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 agreement under 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 agreement in
March 2008.





Unrestricted
cash and cash equivalents, including short-term investments at March 31, 2008,
were $29.6 million, an increase of $3.2 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 March 31, 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 March 31, 2008.  Congoleum expects to contribute
these funds, less any amounts withheld pursuant to reimbursement arrangements,
to the Plan Trust upon the effectiveness of the Joint Plan.  Working
capital was $13.9 million at March 31, 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 March 31, 2008 and 1.1 to 1.0 at December 31, 2007,
respectively.  Net cash provided by operations during the three months
ended March 31, 2008 was $1.6 million, as compared to net cash used in
operations of $1.8 million during the three months ended March 31, 2007. The
payment by GHR to Congoleum of the $9.2 million plus $1.0 million of accrued
interest pursuant to the settlement agreement with GHR offset cash used in
operations of $7.5 million for the three months ended March 2008.





35


Capital
expenditures for the three months ended March 31, 2008 totaled $0.5
million.  Congoleum is currently planning capital expenditures of
approximately $6.5 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) June 30,
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 (“EBITDA”).  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 March 31, 2008. Borrowings under this
facility are collateralized by inventory and receivables.  At March
31, 2008, based on the level of receivables and inventory, $27.0 million was
available under the facility, of which $2.2 million was utilized for outstanding
letters of credit and $12.6 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.





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 J 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


36


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.





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 (including 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.








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.





37


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.  The proposed plan of
reorganization for Congoleum is expected to result in elimination of the
interests of Congoleum’s equity holders, including the Company." included in
Part II, Item 1A of this Quarterly Report on Form 10-Q, are incorporated herein
by reference.








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.The proposedplan 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 is pending in the
Bankruptcy Court, which plan is referred to elsewhere in this Quarterly Report
on Form 10-Q as the "Joint Plan."  Under the terms of the Joint Plan,
ABI's ownership interest in Congoleum would be eliminated.  ABI
expects that its ownership interest in Congoleum would be eliminated under any
alternate plan or outcome in Congoleum’s Chapter 11 case.





The Joint
Plan and any other plan of reorganization for Congoleum 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 the Joint Plan
or in denying coverage under the insurance policies, the Joint Plan may not
receive necessary court approval or may not become
effective.  Further, even if the insurers are not successful in
contesting the Joint Plan 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 the Joint Plan.  In order to obtain confirmation of
the Joint Plan, Congoleum will need sufficient funds to pay for the continued
litigation with these insurers as well the bankruptcy proceedings
generally.





38


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, will be 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 include 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 becomes effective.





In
addition, in view of ABI’s relationships with Congoleum, ABI will be affected by
Congoleum's negotiations regarding, and its pursuit of, the Joint Plan or any
alternative 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.  As noted elsewhere in this report, there is
uncertainty as to the amount of coverage ABI has remaining under its primary
layer insurance coverage for asbestos related matters.  Certain
carriers party to the coverage in place agreement ABI entered into in February
1996 with ABI's applicable primary layer insurance carriers are now
insolvent.  ABI is negotiating with its first layer excess carriers to
obtain agreement that those carriers will provide coverage under the first layer
excess policies for amounts which may otherwise be attributable to the insolvent
carriers which underwrote primary layer insurance policies for ABI and which are
party to the existing coverage in place agreement.  ABI believes its
first layer excess carriers will provide coverage once the primary coverage
available from solvent carriers exhausts.  However, if ABI is unable
to reach such an agreement, ABI estimates that it could be subject to having to
fund up to $1.1 million, plus defense costs attributable to such insolvent
carriers under ABI's primary layer insurance coverage.  In addition,
certain of the excess liability insurance policies that the Company purchased
were underwritten by companies that are now insolvent, which may limit the
amount of funds available to pay for any future claims covered by these
policies.  It is also 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.  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.





39


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, in this report.





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 be
eliminated.  Pursuant to the terms of the Joint Plan, the plan trust
established upon effectiveness of the Joint Plan will own 50.1% of reorganized
Congoleum's outstanding common stock and Congoleum’s bondholders will own 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 expects will result 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 how this 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 the earlier of the effective
date of the Joint Plan or September 30, 2008.  It is not known whether
ABI, Congoleum and the other parties in interest would agree to extend the term
of these arrangements if the Joint Plan has not become effective by September
30, 2008, 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 provide for certain intercompany
arrangements continuing for a two year period ending on the second anniversary
of the effective


40


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 provides that the new agreement will 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 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.





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
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 Bank of America, National Association and Bank of America,
National Association acting through its Canada branch, each in their respective
capacities as lenders and administrative agents under that credit
agreement.  That credit agreement, as amended and restated, governs
ABI's primary source of borrowings.  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


41


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 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.





42


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 United States 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 to maintain their competitive
positions, the Company and Congoleum may need


43


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.  These
conditions could be exacerbated by contraction of the sub-prime mortgage
industry.





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.


44


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.








45


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 the
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 March 31, 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
5.  Other Information





On May 6,
2008, American Biltrite Inc. issued a press release announcing its financial
results for the three months ended March 31, 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 May 6,
2008, at American Biltrite Inc.'s 2008 annual meeting of stockholders (the "2008
Annual Meeting"), American Biltrite Inc.'s stockholders 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.





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.





46


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 at the 2008
Annual Meeting 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 2008 Annual Meeting.  The 1993 Plan Amendment also includes a
technical fix to correct an administrative error included in the "Performance
Factors."





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 hereto as Exhibit 10.5 and
incorporated herein by reference.  A copy of the 1993 Plan together
with the 1993 Plan Amendment is attached hereto as Exhibit 10.6 and incorporated
herein by reference.


47


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   III
            Amendment
      No. 3 to Amended and Restated Credit Agreement, dated as of December 14,
      2007, 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 for
      the lenders, Bank of America, National Association, acting through its
      Canada branch, both in its capacity as a Canadian lender and as Canadian
      administrative agent for the lenders, and the other lenders from time to
      time party thereto4.2   IV
            Amendment
      No. 4 to Amended and Restated Credit Agreement, dated as of December 31,
      2007, 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 for
      the lenders, Bank of America, National Association, acting through its
      Canada branch, both in its capacity as a Canadian lender and as Canadian
      administrative agent for the lenders, and the other lenders from time to
      time party thereto10.1  
      III
            Amendment
      No. 3 to Amended and Restated Credit Agreement, dated as of December 14,
      2007, 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 for
      the lenders, Bank of America, National Association, acting through its
      Canada branch, both in its capacity as a Canadian lender and as Canadian
      administrative agent for the lenders, and the other lenders from time to
      time party thereto10.2   IV
            Amendment
      No. 4 to Amended and Restated Credit Agreement, dated as of December 31,
      2007, 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 for
      the lenders, Bank of America, National Association, acting through its
      Canada branch, both in its capacity as a Canadian lender and as Canadian
      administrative agent for the lenders, and the other lenders from time to
      time party thereto10.3   IV
            Fifth
      Amendment to Personal Services Agreement, dated as of March 11, 2008, by
      and between American Biltrite Inc. and Congoleum
    Corporation10.4   IV
            Second
      Amendment to the Business Relations Agreement, dated as of March 11,2008,
      by and between American Biltrite Inc. and Congoleum
      Corporation10.5
            American
      Biltrite Inc. Amended and Restated 1999 Stock Option Plan for Non-Employee
      Directors





48





Exhibit
      No.
            Description10.6
            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, 199710.7   III
            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)10.8
            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)99.1
            Press
      release dated May 6, 200899.2   V
            Joint
      Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of the
      Futures Representative, the Debtors, the Official Asbestos Claimants'
      Committee and the Official Committee of Bondholders for Congoleum
      Corporation, et al., dated as of February 5, 2008, not including the
      exhibits thereto with the exception of Exhibit C, which is included as
      Exhibit 99(3) to the Company’s Annual Report on Form 10-K for the year
      ended December 31, 200799.3   V
            Proposed
      Disclosure Statement with respect to the Joint Plan of Reorganization
      Under Chapter 11 of the Bankruptcy Code of the Futures Representative, the
      Debtors, the Official Asbestos Claimants' Committee and the Official
      Committee of Bondholders for Congoleum Corporation, et al., dated as of
      February 5, 2008, not including the exhibits thereto with the exception of
      Exhibit A, which is included as Exhibit 99(1) to the Company’s Annual
      Report on Form 10-K for the year ended December 31,
200799.4   V
            Intercompany
      Term Sheet, which is Exhibit C to the Joint Plan of Reorganization Under
      Chapter 11 of the Bankruptcy Code of the Futures Representative, the
      Debtors, the Official Asbestos Claimants' Committee and the Official
      Committee of Bondholders for Congoleum Corporation, et al., dated as of
      February 5, 200899.5   III
            Put/Call
      Agreement, dated as of February 20, 2008, among Congoleum Corporation, the
      Initial Backstop Participants and the Trust to be formed, which is Exhibit
      I to the Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy
      Code of the Futures Representative, the Debtors, the Official Asbestos
      Claimants' Committee and the Official Committee of Bondholders for
      Congoleum Corporation, et al., dated as of February 5,
  200831.1
            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


49





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
2002





___________________________








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, 2007III
            Incorporated
      by reference to the exhibits filed with the Company’s Annual Report on
      Form 10-K for the year ended December 31, 2007IV
            Incorporated
      by reference to the exhibits filed with the Company’s Current Report on
      Form 8-K filed on March 17, 2008V
            Incorporated
      by reference to the exhibits filed with the Company’s Current Report on
      Form 8-K filed on February 11, 2008





50








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:   May
      12, 2008
            BY:
            /s/  Howard
      N. Feist IIIHoward
      N. Feist IIIVice
      President-Finance(Duly
      Authorized Officer andPrincipal
      Financial and ChiefAccounting
      Officer)


51


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   III
            Amendment
      No. 3 to Amended and Restated Credit Agreement, dated as of December 14,
      2007, 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 for
      the lenders, Bank of America, National Association, acting through its
      Canada branch, both in its capacity as a Canadian lender and as Canadian
      administrative agent for the lenders, and the other lenders from time to
      time party thereto4.2   IV
            Amendment
      No. 4 to Amended and Restated Credit Agreement, dated as of December 31,
      2007, 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 for
      the lenders, Bank of America, National Association, acting through its
      Canada branch, both in its capacity as a Canadian lender and as Canadian
      administrative agent for the lenders, and the other lenders from time to
      time party thereto10.1   III
            Amendment
      No. 3 to Amended and Restated Credit Agreement, dated as of December 14,
      2007, 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 for
      the lenders, Bank of America, National Association, acting through its
      Canada branch, both in its capacity as a Canadian lender and as Canadian
      administrative agent for the lenders, and the other lenders from time to
      time party thereto10.2   IV
            Amendment
      No. 4 to Amended and Restated Credit Agreement, dated as of December 31,
      2007, 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 for
      the lenders, Bank of America, National Association, acting through its
      Canada branch, both in its capacity as a Canadian lender and as Canadian
      administrative agent for the lenders, and the other lenders from time to
      time party thereto10.3   IV
            Fifth
      Amendment to Personal Services Agreement, dated as of March 11, 2008, by
      and between American Biltrite Inc. and Congoleum
    Corporation10.4   IV
            Second
      Amendment to the Business Relations Agreement, dated as of March 11,2008,
      by and between American Biltrite Inc. and Congoleum
      Corporation10.5
            American
      Biltrite Inc. Amended and Restated 1999 Stock Option Plan for Non-Employee
      Directors





52





Exhibit
      No.
            Description10.6
            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, 199710.7   III
            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)10.8
            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)99.1
            Press
      release dated May 6, 200899.2   V
            Joint
      Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of the
      Futures Representative, the Debtors, the Official Asbestos Claimants'
      Committee and the Official Committee of Bondholders for Congoleum
      Corporation, et al., dated as of February 5, 2008, not including the
      exhibits thereto with the exception of Exhibit C, which is included as
      Exhibit 99(3) to the Company’s Annual Report on Form 10-K for the year
      ended December 31, 200799.3   V
            Proposed
      Disclosure Statement with respect to the Joint Plan of Reorganization
      Under Chapter 11 of the Bankruptcy Code of the Futures Representative, the
      Debtors, the Official Asbestos Claimants' Committee and the Official
      Committee of Bondholders for Congoleum Corporation, et al., dated as of
      February 5, 2008, not including the exhibits thereto with the exception of
      Exhibit A, which is included as Exhibit 99(1) to the Company’s Annual
      Report on Form 10-K for the year ended December 31,
200799.4   V
            Intercompany
      Term Sheet, which is Exhibit C to the Joint Plan of Reorganization Under
      Chapter 11 of the Bankruptcy Code of the Futures Representative, the
      Debtors, the Official Asbestos Claimants' Committee and the Official
      Committee of Bondholders for Congoleum Corporation, et al., dated as of
      February 5, 200899.5   III
            Put/Call
      Agreement, dated as of February 20, 2008, among Congoleum Corporation, the
      Initial Backstop Participants and the Trust to be formed, which is Exhibit
      I to the Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy
      Code of the Futures Representative, the Debtors, the Official Asbestos
      Claimants' Committee and the Official Committee of Bondholders for
      Congoleum Corporation, et al., dated as of February 5,
  200831.1
            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
2002





___________________________








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, 2007III
            Incorporated
      by reference to the exhibits filed with the Company’s Annual Report on
      Form 10-K for the year ended December 31, 2007IV
            Incorporated
      by reference to the exhibits filed with the Company’s Current Report on
      Form 8-K filed on March 17, 2008V
            Incorporated
      by reference to the exhibits filed with the Company’s Current Report on
      Form 8-K filed on February 11, 2008





54