UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                    FORM 10-K

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

                   For the fiscal year ended December 31, 2006

                                       OR

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

            For the transition period from __________ to ___________

                         Commission File Number 1-13612

                              CONGOLEUM CORPORATION
             (Exact Name of Registrant as Specified in Its Charter)

          Delaware                                       02-0398678
-------------------------------                ---------------------------------
(State or Other Jurisdiction of                (IRS Employer Identification No.)
Incorporation or Organization)

                             3500 Quakerbridge Road
                                  P.O. Box 3127
                           Mercerville, NJ 08619-0127
              -----------------------------------------------------
              (Address of Principal Executive Offices and Zip Code)

                                 (609) 584-3000
              ----------------------------------------------------
              (Registrant's Telephone Number, Including Area Code)

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

                                                     Name of Each Exchange on
      Title of Each Class                                 Which Registered
      -------------------                                 ----------------

Class A Common Stock, par value $0.01 per share    American Stock Exchange, Inc.

Securities Registered Pursuant to Section 12(g) of the Act:  None
<PAGE>

      Indicate by check mark if the Registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. YES |_| NO |X|

      Indicate by check mark if the Registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. YES |_| NO |X|

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

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

         Indicate by check mark whether the Registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act.

   Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |X|

      Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). YES |_| NO |X|

      As of June 30, 2006, the aggregate market value of all shares of Class A
Common Stock held by non-affiliates of the Registrant was approximately $7.4
million based on the closing price of $2.11 per share on the American Stock
Exchange. For purposes of determining this amount, affiliates are defined as
directors and executive officers of the Registrant, American Biltrite Inc. and
Hillside Capital Incorporated. All of the shares of Class B Common Stock of the
Registrant are held by affiliates of the Registrant. As of March 10, 2007, an
aggregate of 3,663,390 shares of Class A Common Stock and an aggregate of
4,608,945 shares of Class B Common Stock of the Registrant were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of Congoleum Corporation's Proxy Statement for the 2007 Annual
Meeting of Stockholders to be held on May 8, 2007, which will be filed with the
Securities and Exchange Commission within 120 days after December 31, 2006, are
incorporated by reference into Part III of this Annual Report on Form 10-K.


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                                TABLE OF CONTENTS                           Page
                                -----------------                           ----
PART I
------

ITEM 1.      BUSINESS                                                         4

ITEM 1A.     RISK FACTORS                                                    11

ITEM 1B.     UNRESOLVED STAFF COMMENTS                                       18

ITEM 2.      PROPERTIES                                                      18

ITEM 3.      LEGAL PROCEEDINGS                                               19

ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS             24

PART II
-------

ITEM 5.      MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
             MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES               25

ITEM 6.      SELECTED FINANCIAL DATA                                         29

ITEM 7.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
             AND RESULTS OF OPERATIONS                                       30

ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK      43

ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                     44

ITEM 9.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
             AND FINANCIAL DISCLOSURE                                        90

ITEM 9A.     CONTROLS AND PROCEDURES                                         90

PART III
--------

ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT              90

ITEM 11.     EXECUTIVE COMPENSATION                                          90

ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
             MANAGEMENT AND RELATED STOCKHOLDER MATTERS                      90

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                  91

ITEM 14.     PRINCIPAL ACCOUNTANT FEES AND SERVICES                          91

PART IV
-------

ITEM 15.     EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                      91


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<PAGE>

                     Factors That May Affect Future Results

      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 the expectations of
Congoleum Corporation (the "Company" or "Congoleum"), as of the date of this
report, of future events, and the Company undertakes no obligation to update any
of these forward-looking statements. Although the Company 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 such
statement. 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 the Company's
actual results differing from its expectations include those factors discussed
elsewhere in this report, including in the section of this report entitled "Risk
Factors" and in the Company's other filings with the Securities and Exchange
Commission.

                                     PART I

Item 1. BUSINESS

General

      Congoleum was incorporated in Delaware in 1986, but traces its history in
the flooring business back to Nairn Linoleum Co., which began in 1886.

      Congoleum produces both sheet and tile floor covering products with a wide
variety of product features, designs and colors. Sheet flooring, in its
predominant construction, is produced by applying a vinyl gel to a flexible
felt, printing a design on the gel, applying a wear layer, heating the gel layer
sufficiently to cause it to expand into cushioned foam and, in some products,
adding a urethane coating. The Company also produces through-chip-inlaid sheet
products for both residential and commercial markets. These products are
produced by applying an adhesive coat and solid vinyl colored chips to a felt
backing and laminating the sheet under pressure with a heated drum. Tile
flooring is manufactured by creating a base stock (consisting primarily of
limestone and vinyl resin) which is less flexible than the backings for sheet
flooring, and transferring or laminating to it preprinted colors and designs
followed by a wear layer and, in some cases, a urethane coating. Commercial tile


                                        4
<PAGE>

is manufactured by including colored vinyl chips in the pigmented base stock.
For do-it-yourself tile, an adhesive is applied to the back of the tile. The
differences between products within each of the two product lines consist
primarily of content and thickness of wear layers and coatings, the use of
chemical embossing to impart a texture, the complexity of designs and the number
of colors. Congoleum also purchases sundries and accessory products for resale.

      Congoleum's products serve both the residential and commercial
hard-surface flooring markets, and are used in remodeling, manufactured housing,
new construction and commercial applications. These products, together with a
limited quantity of related products purchased for resale, are sold primarily to
wholesale distributors and major retailers in the United States and Canada.
Based upon the nature of the Company's operations, facilities and management
structure, the Company considers its business to constitute a single segment for
financial reporting purposes.

      On December 31, 2003, Congoleum filed a voluntary petition with the United
States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court")
(Case No. 03-51524) seeking relief under Chapter 11 of the United States
Bankruptcy Code (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, the Company filed its proposed plan of
reorganization and disclosure statement with the Bankruptcy Court. In November
2004, Congoleum filed a modified plan of reorganization and related documents
with the Bankruptcy Court (the "Fourth Plan") reflecting the result of further
negotiations with representatives of the Asbestos Claimants' Committee (the
"ACC"), the Future Claimants' Representative (the "FCR") and other asbestos
claimant representatives. The Bankruptcy Court approved the disclosure statement
and plan voting procedures in December 2004 and Congoleum obtained the requisite
votes of asbestos personal injury claimants necessary to seek approval of the
Fourth Plan. In April 2005, Congoleum announced that it had reached an agreement
in principle with representatives of the ACC and the FCR to make certain
modifications to its proposed plan of reorganization and related documents
governing the settlement and payment of asbestos-related claims against
Congoleum. Under the agreed-upon modifications, asbestos claimants with claims
settled under Congoleum's pre-petition settlement agreements would agree to
forbear from exercising the security interest they were granted and share on a
pari passu basis with all other present and future asbestos claimants in
insurance proceeds and other assets of the trust to be formed upon confirmation
of the plan under Section 524(g) of the Bankruptcy Code (the "Plan Trust") to
pay asbestos claims against Congoleum. In July 2005, Congoleum filed an amended
plan of reorganization (the "Sixth Plan") and related documents with the
Bankruptcy Court which reflected the result of these negotiations, as well as
other technical modifications. The Bankruptcy Court approved the disclosure
statement and voting procedures and Congoleum commenced solicitation of
acceptances of the Sixth Plan in August 2005. In September 2005, Congoleum
learned that certain asbestos claimants were unwilling to agree to forbear from
exercising their security interest as contemplated by the Sixth Plan and the
Sixth Plan was subsequently withdrawn. In November 2005, the Bankruptcy Court
denied a request to extend Congoleum's exclusive right to file a plan of
reorganization and solicit acceptances thereof. In March 2006, Congoleum filed a


                                        5
<PAGE>

new amended plan of reorganization (the "Eighth Plan"). In addition, an
insurance company, Continental Casualty Company, and its affiliate, Continental
Insurance Company (collectively, "CNA"), filed a plan of reorganization and the
Official Committee of Bondholders (the "Bondholders' Committee") (representing
holders of the Company's 8 5/8% Senior Notes due August 1, 2008 (the "Senior
Notes")) also filed a plan of reorganization. In May 2006, the Bankruptcy Court
ordered all parties in interest in Congoleum's reorganization proceedings to
participate in global mediation discussions. Several mediation sessions took
place from June through September 2006. During the initial mediation
negotiations, Congoleum reached an agreement in principle, subject to mutually
agreeable definitive documentation, with the ACC, the FCR and the Company's
controlling shareholder, American Biltrite, Inc. ("ABI"), on certain terms of an
amended plan of reorganization (the "Ninth Plan"), which Congoleum filed and
proposed jointly with the ACC in August 2006. CNA and the Bondholders' Committee
jointly filed a new, competing plan in August 2006 and each withdrew its prior
plan of reorganization. Following further mediated negotiations, Congoleum, the
ACC, the FCR, ABI and the Bondholders' Committee reached agreement on terms of a
new amended plan (the "Tenth Plan"), which Congoleum filed jointly with the ACC
in September 2006. Following the Bondholders' Committee's withdrawal of support
for CNA's plan, CNA filed an amended plan of reorganization (the "CNA Plan"). In
October 2006, Congoleum and the ACC jointly filed a revised version of the Tenth
Plan (the "Eleventh Plan") which reflected minor technical changes agreed to by
the various parties supporting Congoleum's plan. In October 2006, the Bankruptcy
Court held a hearing to consider the adequacy of the disclosure statements with
respect to the Tenth Plan and the CNA Plan and to hear arguments on respective
summary judgment motions that the Tenth Plan and the CNA Plan are not
confirmable as a matter of law. The Bankruptcy Court provisionally approved the
disclosure statements for both the Tenth Plan and the CNA Plan subject to the
Bankruptcy Court's ruling on the respective summary judgment motions. In
February 2007, the Bankruptcy Court issued two separate opinions ruling that the
Tenth Plan and the CNA Plan are not confirmable as a matter of law. Because the
Tenth Plan and Eleventh Plan are substantially identical, the Company believes
the ruling issued with respect to the Tenth Plan also applies to the Eleventh
Plan. In March 2007, Congoleum resumed global plan mediation discussions seeking
to resolve the issues raised in the Bankruptcy Court's ruling with respect to
the Tenth Plan. Congoleum has also appealed the ruling with respect to the Tenth
Plan to the United States District Court for the District of New Jersey (the
"District Court"). See Notes 1 and 17 of the Notes to Consolidated Financial
Statements, which are contained in Item 8 of this Annual Report on Form 10-K.

      The Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, and any amendments to these reports filed with or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available
free of charge through its Web site (www.congoleum.com), as soon as reasonably
practicable after being electronically filed with, or otherwise furnished to,
the Securities and Exchange Commission. The text of the Company's code of ethics
is posted on its Internet website at www.congoleum.com or may be obtained
without charge by sending a written request to Mr. Howard N. Feist III of the
Company at the Company's office at 3500 Quakerbridge Road, P.O. Box 3127,
Mercerville, NJ 08619. Amendments to, or waivers of, the code of ethics, if any,
that relate to the Chief Executive Officer, Chief Financial Officer, Chief
Accounting Officer or other persons performing such function, will also be
posted on the Web site.


                                        6
<PAGE>

      As a result of filing its bankruptcy case, the Company is required to file
periodically with the Bankruptcy Court certain financial information on an
unconsolidated basis for itself and two subsidiaries. This information includes
Statements of Financial Affairs, schedules and certain monthly operating reports
(in forms prescribed by the Federal Rules of Bankruptcy Procedure). The debtors'
informational filings with the Bankruptcy Court, including the Statements of
Financial Affairs, schedules and monthly operating reports (collectively, the
"Bankruptcy Reports"), are available to the public at the office of the Clerk of
the Bankruptcy Court, Clarkson S. Fisher U.S. Courthouse, 402 East State Street,
Trenton, NJ 08608. Certain of the Bankruptcy Reports may be viewed at
www.njb.uscourts.gov (Case No. 03-51524).

      The Company is furnishing the information set forth above for convenience
of reference only. The Company cautions that the information contained in the
Bankruptcy Reports is or will be unaudited and subject to change and not
prepared in accordance with generally accepted accounting principles or for the
purpose of providing the basis for an investment decision relating to any of the
securities of the Company. In view of the inherent complexity of the matters
that may be involved in the bankruptcy case, the Company does not undertake any
obligation to make any further public announcement with respect to any
Bankruptcy Reports that may be filed with the Bankruptcy Court or the matters
referred to therein.

Raw Materials

      The Company's business is dependent upon a continuous supply of raw
materials from third party suppliers. The principal raw materials used by the
Company in its manufacture of sheet and tile flooring are vinyl resins,
plasticizers, latex, limestone, stabilizers, cellulose paper fibers, urethane
and transfer print film. The Company purchases most of these raw materials from
multiple sources. Although the Company has generally not had difficulty in
obtaining its requirements for these materials, it has occasionally experienced
significant price increases for some of these materials. Raw material prices in
2004 and 2005 increased significantly and supplies of certain materials,
particularly vinyl resins, remained tight in the first half of 2006 due to
several factors, including the effect of hurricanes in 2005. Although the
Company has been able to obtain sufficient supplies of specialty resin and other
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 believes that suitable alternative suppliers are generally
available for substantially all of its raw material requirements, although
quantities of certain materials available from alternative suppliers may be in
limited supply and production trials may be required to qualify new materials
for use. The Company does not have readily available alternative sources of
supply for specific designs of transfer print film, which are produced utilizing
print cylinders engraved to the Company's specifications. Although no loss of
this source of supply is anticipated, replacement could take a considerable
period of time and interrupt production of some of the Company's products. In an
attempt to protect against this risk of loss of supply, the Company maintains a
raw material inventory and continually seeks to develop new sources which will
provide continuity of supply for its raw material requirements.


                                        7
<PAGE>

      In addition, the Company could incur significant increases in the costs of
its raw materials. Although the Company generally attempts to pass on increases
in the costs of its raw materials to its customers, the Company's ability to do
so is, to a large extent, dependent upon the rate and magnitude of any increase,
competitive pressures and market conditions for its products. There have been in
the past, and may be in the future, periods of time during which increases in
these costs cannot be recovered.

Patents and Trademarks

      The Company believes that the Congoleum brand name, as well as the other
trademarks it holds, is important to maintaining its competitive position.

      The Company also believes that patents and know-how play an important role
in furthering and maintaining competitive position.

Distribution

      The Company currently sells its products through approximately 13
distributors providing approximately 74 distribution points in the United States
and Canada, as well as directly to a limited number of mass market retailers.
Net sales to customers in the United States for the years ended December 31,
2006, 2005 and 2004 totaled $209.8 million, $228.8 million, and $221.3 million,
respectively, with net sales to customers outside the United States for the
years ended December 31, 2006, 2005, and 2004 totaling $9.6 million, $8.8
million, and $8.2 million, respectively.

      The Company's sales pattern is seasonal, with peaks in retail sales
typically occurring during March/April/May and September/October. See Note 21 of
the Notes to Consolidated Financial Statements for a comparison of quarterly
operating results for the years ended December 31, 2006 and 2005. Orders are
generally shipped as soon as a truckload quantity has been accumulated, and
backorders can be canceled without penalty. At December 31, 2006, the backlog of
unshipped orders was $5.2 million, compared to $6.5 million at December 31,
2005.

      The Company considers its distribution network very important to
maintaining its competitive position. Although the Company 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 sales, at least until a suitable
replacement is in place. For the year ended December 31, 2006, two customers
each accounted for over 10% of the Company's net sales. These customers were its
manufactured housing market distributor, LaSalle-Bristol Corporation, and its
retail market distributor, Mohawk Industries, Inc. Together, they accounted for
approximately 67% of the Company's net sales in 2006.


                                        8
<PAGE>

Working Capital

      The Company produces goods for inventory and sells on credit to customers.
Generally, the Company's distributors carry inventory as needed to meet local or
rapid delivery requirements. The Company's credit terms generally require
payment on invoices within 31 days, with a discount available for earlier
payment. These practices are typical within the industry.

      Congoleum cannot presently determine the amount of fees, expenses, and
trust contributions it may incur in connection with obtaining confirmation of a
plan of reorganization. The Company 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
2007 while under Chapter 11 protection. There can be no assurances that the
Company 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, the Company will need to
obtain and demonstrate the sufficiency of exit financing. The Company cannot
presently determine the terms of such financing, nor can there be any assurances
of its success obtaining it.

Product Warranties

      The Company offers a limited warranty on all of its 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, the
Company offers enhanced warranties with respect to wear, moisture discoloration
and other performance characteristics, which generally increase with the price
of such products.

Competition

      The market for the Company's products is highly competitive. Resilient
sheet and tile compete for both residential and commercial customers primarily
with carpeting, hardwood, melamine laminate and ceramic tile. In residential
applications, both tile and sheet products are used primarily in kitchens,
bathrooms, laundry rooms and foyers and, to a lesser extent, in playrooms and
basements. Ceramic tile is used primarily in kitchens, bathrooms and foyers.
Carpeting is used primarily in bedrooms, family rooms and living rooms. Hardwood
flooring and melamine laminate are used primarily in family rooms, foyers and
kitchens. Commercial grade resilient flooring faces substantial competition from
carpeting, ceramic tile, rubber tile, hardwood flooring and stone in commercial
applications. The Company believes, based upon its market research, that
purchase decisions are influenced primarily by fashion elements such as design,
color and style, durability, ease of maintenance, price and ease of
installation. Both tile and sheet resilient flooring are easy to replace for
repair and redecoration and, in the Company's view, have advantages over other
floor covering products in terms of both price and ease of installation and
maintenance.


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<PAGE>

      The Company encounters competition from three other manufacturers in North
America and, to a lesser extent, foreign manufacturers. In the resilient
category, Armstrong World Industries, Inc. has the largest market share. Some of
the Company's competitors have substantially greater financial and other
resources and access to capital than the Company.

Research and Development

      The Company's research and development efforts concentrate on new product
development, improving product durability and expanding technical expertise in
the manufacturing process. Expenditures for research and development for the
year ended December 31, 2006 were $4.2 million, compared to $4.3 million and
$4.3 million for the years ended December 31, 2005 and 2004, respectively.

Environmental Regulation

      Due to the nature of the Company's business and certain of the substances
which are or have been used, produced or discharged by the Company, the
Company's operations are subject to extensive federal, state and local laws and
regulations relating to the generation, storage, disposal, handling, emission,
transportation and discharge into the environment of hazardous substances.
Pursuant to administrative consent orders signed in 1986 and in connection with
a prior restructuring, the Company is in the process of implementing cleanup
measures at its Trenton sheet facility under New Jersey's Environmental Clean-up
Responsibility Act, as amended by the New Jersey Industrial Site Recovery Act.
The Company does not anticipate that the additional costs of these measures will
be significant. The Company also agreed to be financially responsible for any
cleanup measures required at its Trenton tile facility when that facility was
acquired in 1993. In 2006, the Company incurred capital expenditures of less
than $50 thousand for environmental compliance and control facilities.

      The Company has historically expended substantial amounts for compliance
with existing environmental laws and regulations, including those matters
described above. The Company will continue to be required to expend amounts in
the future for costs related to prior activities at its facilities and third
party sites and for ongoing costs to comply with existing environmental laws,
and those amounts may be substantial. Because environmental requirements have
grown increasingly strict, the outcome of these matters could result in
significant expenses or judgments that could have a material adverse effect on
the financial position of the Company. See Item 3 of this Annual Report on Form
10-K for certain additional information regarding environmental matters.

Employees

      At December 31, 2006, the Company employed a total of 823 employees,
compared to 833 employees at December 31, 2005.


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<PAGE>

      The Company has entered into collective bargaining agreements with hourly
employees at three of its plants and with the drivers of the trucks that provide
interplant transportation. These agreements cover approximately 500 of the
Company's employees. The Trenton tile plant has a five-year collective
bargaining agreement with United Steelworkers of America - Local 547, which
expires in May 2008. The Trenton sheet plant has a five-year collective
bargaining agreement with United Steelworkers of America - Local 107L, which
expires in January 2011. The Marcus Hook plant has a five-year collective
bargaining agreement with the United Steelworkers of America - Local 12698-01,
which expires in November 2008. The Marcus Hook plant also has a five-year
collective bargaining agreement with the Teamsters Union - Local 312, which
expires in January 2009. In 2006, hourly employees of the Finksburg plant voted
to be represented by the United Steelworkers of America, and the Company is
currently negotiating a collective bargaining agreement with this group of
employees which is expected to be voted on in April 2007. In the past five
years, there have been no strikes by employees of the Company and the Company
believes that its employee relations are satisfactory. However, there can be no
assurances that the Company will successfully negotiate an agreement with the
hourly employees of the Finksburg plant.

Item 1A. RISK FACTORS

The Company has significant asbestos liability and funding exposure, and its
most recent proposed amended plan of reorganization has been ruled unconfirmable
as a matter of law.

      As more fully set forth in Notes 1 and 17 of the Notes to Consolidated
Financial Statements, which are included in this Annual Report on Form 10-K, the
Company has significant liability and funding exposure for asbestos claims. The
Company has entered into settlement agreements with various asbestos claimants
totaling in excess of $491 million. The Bankruptcy Court issued a ruling in
February 2007 stating that these claimants cannot receive more value as a result
of their pre-petition settlements than is afforded to other, unsettled, asbestos
claimants. The Company has resumed global plan mediation discussions to resolve
this and certain other plan issues, and has also appealed the Bankruptcy Court
ruling to the District Court.

      There can be no assurance that the Company will be successful in its
appeal or in negotiating a new plan of reorganization that resolves the issues
raised in the Bankruptcy Court's ruling with respect to the Tenth Plan, that the
Company will obtain approval to solicit acceptances of a new plan of
reorganization, that the Company will receive the acceptances necessary for
confirmation of a plan of reorganization, that any proposed plan will not be
modified further, that a plan will receive necessary court approvals from the
Bankruptcy Court and the District Court, or that such approvals will be received
in a timely fashion, that a plan will be confirmed, that a plan, if confirmed,
will become effective, or that there will be sufficient funds to pay for
continued litigation over any plan of reorganization. It also is unclear whether
any other person will attempt to propose a plan or what any such plan would
provide or propose, and whether the Bankruptcy Court would approve such a plan.


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<PAGE>

      The terms of any new plan of reorganization are likely to be materially
different from the Tenth and Eleventh Plans, and could be amended or modified as
a result of further negotiations with various parties. The Company expects that
it will take until some time late in the third quarter of 2007 at the earliest
to obtain confirmation of any plan of reorganization.

      Under the terms of the Eleventh Plan, on the effective date of the
Eleventh Plan (the "Effective Date"), the Plan Trust would have provided a loan
to Congoleum, which loan was intended, when combined with cash on hand and
available drawings under the revolving credit facility, to provide Congoleum
with $18 million of total liquidity, on a pro forma basis as of December 31,
2006 (the "Plan Trust Note"). The total liquidity required by Congoleum, and
thus the amount of the Plan Trust Note, would have been as mutually agreed among
the ACC, the FCR, the representatives of holders of pre-petition secured
asbestos claims (the "Claimants' Representative") and Congoleum. The proceeds of
the Plan Trust Note would only have been used for working capital and general
corporate purposes. The Plan Trust Note would have been due and payable on
December 31, 2011, would have borne interest at 10% per annum payable
semi-annually until the maturity date, and would have contained such covenants,
warranties, and representations as agreed among Congoleum, the ACC, the FCR and
the Claimants' Representative. The principal amount of the Plan Trust Note,
which would have been subject to review and approval by the FCR and the ACC,
could not have exceeded $14 million unless both the FCR and ACC agreed. There
can be no assurance that a new amended plan will provide Congoleum a similar
liquidity source, or that Congoleum will be able to obtain such liquidity from
an alternative source.

      Some additional factors that could cause actual results to differ from the
Company's goals for resolving its asbestos liability through an amended plan of
reorganization include: (i) the future cost and timing of estimated asbestos
liabilities and payments, (ii) the availability of insurance coverage and
reimbursement from insurance companies that underwrote the applicable insurance
policies for the Company for asbestos-related claims, (iii) the costs relating
to the execution and implementation of any plan of reorganization pursued by the
Company, (iv) timely agreement with other creditors, or classes of creditors,
that exist or may emerge, (v) satisfaction of the conditions and obligations
under the Company's outstanding debt instruments, (vi) the response from time to
time of the lenders, customers, suppliers and other constituencies of the
Company and ABI to the ongoing process arising from the Company's strategy to
settle its asbestos liability, (vii) the Company's ability to maintain
debtor-in-possession financing sufficient to provide it with funding that may be
needed during the pendency of its Chapter 11 case and to obtain exit financing
sufficient to provide it with funding that may be needed for its operations
after emerging from the bankruptcy process, in each case, on reasonable terms,
(viii) timely creditor and court approval (including the results of any relevant
appeals) of any reorganization plan pursued by the Company and the court
overruling any objections to the Company's reorganization plan that may be
filed, (ix) costs of, developments in and the outcome of insurance coverage
litigation pending in New Jersey state court involving Congoleum and certain
insurers, (x) compliance with the Bankruptcy Code, including Section 524(g), and
(xi) the possible adoption of another party's plan of reorganization which may
prove to be unfeasible. In any event, if the Company is not successful in
obtaining sufficient creditor and court approval of its amended plan of
reorganization, such failure would have a material adverse effect upon its
business, results of operations and financial condition.


                                       12
<PAGE>

      In addition, federal legislation has been proposed that, if adopted, 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. Due to the uncertainties involved with the
pending legislation, the Company does not know what effects any such
legislation, if adopted, may have upon its business, results of operations or
financial condition, or upon any plan of reorganization it may decide to pursue.
To date, the Company has expended significant amounts to resolve its asbestos
liability relating to its proposed amended plan of reorganization. To the extent
any federal legislation is enacted, which does not credit the Company for
amounts paid by the Company pursuant to a plan of reorganization or requires the
Company to pay significant amounts to any national trust or otherwise, such
legislation could have a material adverse effect on the Company's business,
results of operations and financial condition. As a result of the Company's
significant liability and funding exposure for asbestos claims, there can be no
assurance that if it 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.

      For further information regarding the Company's asbestos liability,
insurance coverage and strategy to resolve its asbestos liability, please See
Notes 1 and 17 of Notes to the Consolidated Financial Statements, which are
included in this Annual Report on Form 10-K.

The Company may incur substantial liability for environmental, product and
general liability claims in addition to asbestos-related claims, and its
insurance coverage and its likely recoverable insurance proceeds may be
substantially less than the liability incurred by the Company for these claims.

      Environmental Liabilities. Due to the nature of the Company's business and
certain of the substances which are or have been used, produced or discharged by
the Company, the Company's operations are subject to extensive federal, state
and local laws and regulations relating to the generation, storage, disposal,
handling, emission, transportation and discharge into the environment of
hazardous substances. The Company has historically expended substantial amounts
for compliance with existing environmental laws or regulations, including
environmental remediation costs at both third-party sites and Company-owned
sites. The Company will continue to be required to expend amounts in the future
for costs related to prior activities at its facilities and third party sites,
and for ongoing costs to comply with existing environmental laws and such
amounts may be substantial. There is no certainty that these amounts will not
have a material adverse effect on its business, results of operations and
financial condition because, as a result of environmental requirements becoming
increasingly strict, the Company is unable 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 to modify or
curtail its operations, which could have a material adverse effect on the
Company's business, results of operations and financial condition.


                                       13
<PAGE>

      Product and General Liabilities. In the ordinary course of its business,
the Company becomes involved in lawsuits, administrative proceedings, product
liability claims (in addition to asbestos-related 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 and financial condition if the Company is unable to
successfully defend against or settle these matters, its insurance coverage is
insufficient to satisfy unfavorable judgments or settlements relating to these
matters, or the Company is unable to collect insurance proceeds relating to
these matters.

The Company is 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's business is dependent upon a continuous supply of raw
materials from third party suppliers. The principal raw materials used by the
Company in its manufacture of sheet and tile flooring are vinyl resins,
plasticizers, latex, limestone, stabilizers, cellulose paper fibers, urethane
and transfer print film. The Company purchases most of these raw materials from
multiple sources. Although the Company has historically been able to obtain its
requirements for these materials, it has occasionally experienced significant
price increases for some of these materials, and has periodically needed to find
new sources for cost, quality or sufficiency of supply. Raw material prices in
2004 and 2005 increased significantly, and supplies of certain materials,
particularly vinyl resins, remained tight in the first half of 2006 due to
several factors, including the effect of hurricanes in 2005. Although the
Company has been able to obtain sufficient supplies of specialty resins and
other 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 believes that suitable alternative suppliers are generally
available for substantially all of its raw material requirements, although
quantities of certain materials available from alternative suppliers may be in
limited supply and production trials may be required to qualify new materials
for use. The Company does not have readily available alternative sources of
supply for specific designs of transfer print film, which are produced utilizing
print cylinders engraved to the Company's specifications. Although no loss of
this source of supply is anticipated, replacement could take a considerable
period of time and interrupt production of some of the Company's products. In an
attempt to protect against this risk of loss of supply, the Company maintains a
raw material inventory and continually seeks to develop new sources which will
provide continuity of supply for its raw material requirements. However, there
is no certainty that the Company's maintenance of its raw material inventory or
its ongoing efforts to develop new sources of supply would be successful in
avoiding a material adverse effect on its business, results of operations and
financial condition if it were to realize an extended interruption in the supply
of its raw materials.


                                       14
<PAGE>

      In addition, the Company could incur significant increases in the costs of
its raw materials. Although the Company generally attempts to pass on increases
in the costs of its raw materials to its customers, the Company's ability to do
so is, to a large extent, dependent upon the rate and magnitude of any increase,
competitive pressures and market conditions for its products. There have been in
the past, and may be in the future, periods of time during which increases in
these costs cannot be recovered. During those periods of time, there could be a
material adverse effect on the Company's business, results of operations and
financial condition.

The Company operates in a highly competitive flooring industry and some of its
competitors have greater resources and broader distribution channels than the
Company.

      The market for the Company's products is highly competitive. The Company
encounters competition from three other manufacturers in North America and, to a
lesser extent, foreign manufacturers. Some of the Company's competitors have
greater financial and other resources and access to capital than the Company.
Furthermore, one of the Company's major competitors has successfully confirmed a
plan of reorganization under Chapter 11 of the Bankruptcy Code. Having shed much
of its pre-filing asbestos and other liabilities, that competitor may have a
competitive cost advantage over the Company. In addition, in order to maintain
its competitive position, the Company may need to make substantial investments
in its business, including its product development, manufacturing facilities,
distribution network and sales and marketing activities. Competitive pressures
may also result in decreased demand for the Company's products and in the loss
of the Company's market share for its products. Moreover, due to the competitive
nature of the Company's industry, the Company may be commercially restricted
from raising or even maintaining the sales prices of its products, which could
result in the Company incurring significant operating losses if its expenses
were to increase or otherwise represent an increased percentage of the Company's
sales.

The Company's business is subject to general economic conditions and conditions
specific to the remodeling and housing industries.

      The Company is 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,
the Company's business is cyclical and is affected by the economic factors that
affect the remodeling and housing industries in general and the manufactured
housing industry specifically, including the availability of credit, consumer
confidence, changes in interest rates, market demand and general economic
conditions. The Company has experienced a significant decline in sales as a
result of weakness in the housing market. The Company may experience further
sales declines resulting from this weakness, which may be compounded by
contraction in the subprime lending industry.


                                       15
<PAGE>

The Company could realize shipment delays, depletion of inventory and increased
production costs resulting from unexpected disruptions of operations at any of
the Company's facilities.

      The Company's business depends upon its ability to timely manufacture and
deliver products that meet the needs of its customers and the end users of the
Company's products. If the Company 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 and financial condition.

The Company offers limited warranties on its products which could result in the
Company incurring significant costs as a result of warranty claims.

      The Company offers a limited warranty on all of its 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, the
Company 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 were to incur a significant number of warranty
claims, the resulting warranty costs could be substantial.

The Company is heavily dependent upon its distributors to sell the Company's
products and the loss of a major distributor of the Company could have a
material adverse effect on the Company's business, results of operations and
financial condition.

      The Company currently sells its products through approximately 13
distributors providing approximately 74 distribution points in the United States
and Canada, as well as directly to a limited number of mass market retailers.
The Company considers its distribution network very important to maintaining its
competitive position. Although the Company 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 materially adverse
impact on the Company's business, results of operations and financial condition.
The Company derives a significant percentage of its sales from two of its
distributors, LaSalle-Bristol Corporation and Mohawk Industries, Inc.
LaSalle-Bristol Corporation serves as the Company's manufactured housing market
distributor, and Mohawk Industries, Inc. serves as its retail market
distributor. These two distributors accounted for 67% of the Company's net sales
for the years ended December 31, 2006 and December 31, 2005.


                                       16
<PAGE>

The American Stock Exchange has notified Congoleum that it does not meet the
minimum income and stockholders' equity requirements for continued listing of
its Class A Common Stock.

      In April 2006, Congoleum received a letter from the American Stock
Exchange (the "Amex") indicating that Congoleum is not in compliance with
Section 1003(a)(i) of the Amex Company Guide, with stockholders' equity of less
than $2,000,000 and losses from continuing operations and/or net losses in two
of its three most recent fiscal years; and Section 1003(a)(ii) of the Amex
Company Guide, with stockholders' equity of less than $4,000,000 and losses from
continuing operations and/or net losses in three of its four most recent fiscal
years. The letter also stated that the Company must submit a plan by May 2006
advising the Amex of actions it has taken or will take to achieve compliance
with the continued listing standards within eighteen months of receipt of the
letter, and that this plan must be approved by the Amex, for Congoleum to
maintain its listing. Congoleum submitted such a plan which was accepted by the
Amex, who will continue to monitor Congoleum's progress toward compliance. There
can be no assurance that Congoleum will be able to achieve such compliance, or
that the Amex will remain satisfied with Congoleum's progress toward compliance.
If Congoleum's Class A common stock is delisted on the Amex, it may have an
adverse impact on the price and liquidity of the Company's Class A common stock.

Stockholder votes are controlled by ABI; Congoleum's interests may not be the
same as ABI's interests.

      ABI owns a majority (approximately 55% as of December 31, 2006) of the
outstanding shares of the Company's common stock, representing a 69.4% voting
interest. As a result, ABI can elect all of the Company's directors and can
control the vote on all matters, including determinations such as: approval of
mergers or other business combinations, sales of all or substantially all of the
Company's assets, any matters submitted to a vote of the Company's stockholders,
issuance of any additional common stock or other equity securities, incurrence
of debt other than in the ordinary course of business, the selection and tenure
of the Company's Chief Executive Officer, payment of dividends with respect to
common stock or other equity securities, and other matters that might be
favorable to ABI. ABI's ability to prevent an unsolicited bid for Congoleum or
any other change in control could have an adverse effect on the market price for
the Company's common stock. In addition, certain officers of Congoleum are
officers of ABI and members of the family group that owns a controlling interest
in ABI.

Possible future sales of shares by ABI could adversely affect the market for
Congoleum's stock.

      ABI may sell shares of the Company's common stock in compliance with the
federal securities laws. By virtue of ABI's current control of Congoleum, ABI
could sell large amounts of shares of the Company's common stock by causing the
Company to file a registration statement that would allow them to sell shares
more easily. In addition, ABI could sell shares of the Company's common stock
without registration. Although the Company can make no prediction as to the
effect, if any, that such sales would have on the market price of the Company's
common stock, sales of substantial amounts of the Company's common stock, or the
perception that such sales could occur, could adversely affect the market price
of the Company's common stock. If ABI sells or transfers shares of the Company's
common stock as a block, another person or entity could become the Company's
controlling stockholder.


                                       17
<PAGE>

Item 1B. UNRESOLVED STAFF COMMENTS.

      Not applicable.

Item 2. PROPERTIES

      The Company owns four manufacturing facilities located in Maryland,
Pennsylvania and New Jersey and leases corporate and marketing offices in
Mercerville, New Jersey, which are described below:

     Location           Owned/Leased            Usage                Square Feet
     --------           ------------            -----                -----------

Finksburg, MD              Owned                 Felt                    107,000
Marcus Hook, PA            Owned            Sheet Flooring             1,000,000
Trenton, NJ                Owned            Sheet Flooring             1,050,000
Trenton, NJ                Owned            Tile Flooring                282,000
Mercerville, NJ            Leased         Corporate Offices               55,902

      The Finksburg facility consists primarily of a 16-foot wide flooring felt
production line.

      The Marcus Hook facility is capable of manufacturing rotogravure printed
sheet flooring in widths of up to 16 feet. Major production lines at this
facility include a 12-foot wide oven, two 16-foot wide ovens, a 12-foot wide
printing press and a 16-foot wide printing press.

      The Trenton sheet facility is capable of manufacturing rotogravure printed
and through-chip inlaid sheet products in widths up to 6 feet. Major production
lines, all six-foot wide, include an oven, a rotary laminating line and a press.
The examination, packing and warehousing of all sheet products (except products
for the manufactured housing market) occur at the Trenton plant distribution
center.

      The Trenton tile facility consists of three major production lines, which
are a four-foot wide commercial tile line, a two-foot wide residential tile line
and a one-foot wide residential tile line.

      Productive capacity and extent of utilization of the Company's facilities
are dependent on a number of factors, including the size, construction, and
quantity of product being manufactured, some of which also dictate which
production line(s) must be utilized to make a given product. The Company's major
production lines were operated an average of 71% of the hours available on a
five-day, three-shift basis in 2006 with the corresponding figure for individual
production lines ranging from 40% to 106%.


                                       18
<PAGE>

      Although many of the Company's manufacturing facilities have been
substantially depreciated for financial reporting purposes, the Company has
generally maintained and improved the productive capacity of these facilities
over time through a program of regular capital expenditures. The Company
considers its manufacturing facilities to be adequate for its present and
anticipated near-term production needs.

Item 3. LEGAL PROCEEDINGS

      Bankruptcy Proceedings and Asbestos-Related Liabilities: 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, the Company filed its proposed plan
of reorganization and disclosure statement with the Bankruptcy Court. In
November 2004, Congoleum filed the Fourth Plan reflecting the result of further
negotiations with representatives of the ACC, the FCR and other asbestos
claimant representatives. The Bankruptcy Court approved the disclosure statement
and plan voting procedures in December 2004 and Congoleum obtained the requisite
votes of asbestos personal injury claimants necessary to seek approval of the
Fourth Plan. In April 2005, Congoleum announced that it had reached an agreement
in principle with representatives of the ACC and the FCR to make certain
modifications to its proposed plan of reorganization and related documents
governing the settlement and payment of asbestos-related claims against
Congoleum. Under the agreed-upon modifications, asbestos claimants with claims
settled under Congoleum's pre-petition settlement agreements would agree to
forbear from exercising the security interest they were granted and share on a
pari passu basis with all other present and future asbestos claimants in
insurance proceeds and other assets of the Plan Trust to be formed upon
confirmation of the plan under Section 524(g) of the Bankruptcy Code to pay
asbestos claims against Congoleum. In July 2005, Congoleum filed the Sixth Plan
and related documents with the Bankruptcy Court which reflected the result of
these negotiations, as well as other technical modifications. The Bankruptcy
Court approved the disclosure statement and voting procedures and Congoleum
commenced solicitation of acceptances of the Sixth Plan in August 2005. In
September 2005, Congoleum learned that certain asbestos claimants were unwilling
to agree to forbear from exercising their security interest as contemplated by
the Sixth Plan and the Sixth Plan was subsequently withdrawn. In November 2005,
the Bankruptcy Court denied a request to extend Congoleum's exclusive right to
file a plan of reorganization and solicit acceptances thereof. In March 2006,
Congoleum filed the Eighth Plan. 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 all parties in
interest in Congoleum's reorganization proceedings to participate in global
mediation discussions. Several mediation sessions took place from June through
September 2006. During the initial mediation negotiations, Congoleum reached an
agreement in principle, subject to mutually agreeable definitive documentation,
with the ACC, the FCR and the Company's controlling shareholder, ABI, on certain
terms of the Ninth Plan, which Congoleum filed and proposed jointly with the ACC
in August 2006. CNA and the Bondholders' Committee jointly filed a new,
competing plan in August 2006 and each withdrew its prior plan of
reorganization. Following further mediated negotiations, Congoleum, the ACC, the
FCR, ABI and the Bondholders' Committee reached agreement on terms of the Tenth
Plan, which Congoleum filed jointly with the ACC in September 2006. Following


                                       19
<PAGE>

the Bondholders' Committee's withdrawal of support for CNA's plan, CNA filed the
CNA Plan. In October 2006, Congoleum and the ACC jointly filed a revised version
of the Tenth Plan, the Eleventh Plan, which reflected minor technical changes
agreed to by the various parties supporting Congoleum's plan. In October 2006,
the Bankruptcy Court held a hearing to consider the adequacy of the disclosure
statements with respect to the Tenth Plan and the CNA Plan and to hear arguments
on respective summary judgment motions that the Tenth Plan and the CNA Plan are
not confirmable as a matter of law. The Bankruptcy Court provisionally approved
the disclosure statements for both the Tenth Plan and the CNA Plan subject to
the Bankruptcy Court's ruling on the respective summary judgment motions. In
February 2007, the Bankruptcy Court issued two separate opinions ruling that the
Tenth Plan and the CNA Plan are not confirmable as a matter of law. Because the
Tenth Plan and Eleventh Plan are substantially identical, the Company believes
the ruling issued with respect to the Tenth Plan also applies to the Eleventh
Plan. In March 2007, Congoleum resumed global plan mediation discussions seeking
to resolve the issues raised in the Bankruptcy Court's ruling with respect to
the Tenth Plan. Congoleum has also appealed the ruling with respect to the Tenth
Plan to the District Court.

      There can be no assurance that the Company will be successful in its
appeal or in negotiating a new plan of reorganization that resolves the issues
raised in the Bankruptcy Court's ruling with respect to the Tenth Plan, that the
Company will obtain approval to solicit acceptances of a new plan of
reorganization, that the Company will receive the acceptances necessary for
confirmation of a plan of reorganization, that any plan proposed will not be
modified further, that a plan will receive necessary court approvals from the
Bankruptcy Court and the District Court, or that such approvals will be received
in a timely fashion, that a plan will be confirmed, that a plan, if confirmed,
will become effective, or that there will be sufficient funds to pay for
continued litigation over any plan of reorganization. It also is unclear whether
any other person will attempt to propose a plan or what any such plan would
provide or propose, and whether the Bankruptcy Court would approve such a plan.

      Congoleum is presently involved in litigation with certain insurance
carriers related to disputed insurance coverage for asbestos related
liabilities, and certain insurance carriers filed various objections to
Congoleum's previously proposed plans of reorganization and related matters and
are expected to file objections to any future plan. Certain other parties have
also filed various objections to Congoleum's previously proposed plans of
reorganization and may file objections to any future plan.

      In March 2004, the Bankruptcy Court approved the retention of Gilbert,
Heintz & Randolph LLP ("GHR") as special insurance counsel to the Company. An
insurance company appealed the retention order. In October 2005, the Court of
Appeals for the Third Circuit issued an opinion disqualifying GHR from serving
as counsel to Congoleum.


                                       20
<PAGE>

      In February 2006, the Bankruptcy Court ordered GHR to disgorge all fees
and certain expenses it was paid by Congoleum. The amount of the disgorgement is
approximately $9.6 million. In October 2006, Congoleum and GHR entered into a
settlement agreement (the "GHR Settlement") under which GHR would pay Congoleum
approximately $9.2 million in full satisfaction of the disgorgement order. The
payment would be secured by assets of GHR and would be made over time according
to a formula based on GHR's earnings. Congoleum has filed a motion seeking
Bankruptcy Court approval of the GHR Settlement which is pending. Treatment of
funds received pursuant to the GHR Settlement under a future amended plan of
reorganization may differ from the treatment accorded by any prior plans.

      In anticipation of Congoleum's commencement of the Chapter 11 cases,
Congoleum entered into a settlement agreement with various asbestos personal
injury claimants (the "Claimant Agreement"), which provides for an aggregate
settlement value of at least $466 million as well as an additional number of
individually negotiated trial listed settlements with an aggregate value of
approximately $25 million, for total settlements in excess of $491 million. As
contemplated by the Claimant Agreement, Congoleum also entered into agreements
establishing a pre-petition trust (the "Collateral Trust") to distribute funds
in accordance with the terms of the Claimant Agreement and granting the
Collateral Trust a security interest in Congoleum's rights under its applicable
insurance coverage and payments from Congoleum's insurers for asbestos claims.
In December 2005, Congoleum commenced an omnibus avoidance action and a sealed
avoidance action (collectively, the "Avoidance Actions") seeking to void the
security interest granted to the Collateral Trust and such settlements. In March
2006, Congoleum filed a motion for summary judgment in the Avoidance Actions
seeking to avoid the Claimant Agreement settlements and liens under various
bankruptcy theories, which motion was denied in June 2006 and the Avoidance
Actions remain pending.

      During 2005 and 2006, Congoleum entered into a number of settlement
agreements with excess insurance carriers over coverage for asbestos-related
claims. In May 2005, certain AIG companies agreed to pay approximately $103
million over ten years to the Plan Trust. This settlement resolves coverage
obligations of policies with a total of $114 million in liability limits for
asbestos bodily injury claims. Payment is subject to various conditions,
including without limitation, the effectiveness of a plan of reorganization that
provides AIG with certain specified relief including a channeling injunction
pursuant to Section 524(g) of the Bankruptcy Code. An insurer appealed the
approval order granted by the Bankruptcy Court to the U.S. District Court. The
District Court, however, entered an order in September 2006 that
administratively terminated the appeal. The AIG settlement provides that any
party may declare that the settlement agreement is null and void if the
Confirmation Order fails to become a final order by May 10, 2007, and AIG may
terminate the settlement agreement pursuant to this provision. In June 2005, the
Company entered into a settlement agreement with certain underwriters at
Lloyd's, London, pursuant to which the certain underwriters paid approximately
$20 million into an escrow account in exchange for a release of insurance
coverage obligations. The escrow agent will transfer the funds to the Plan Trust
once a plan of reorganization with the Section 524(g) protection specified in
the settlement agreement goes effective and the Bankruptcy Court approves the
transfer of the funds. The settlement provided that any party may declare that
the settlement is null and void if the confirmation order fails to become a
final order by June 22, 2007. In August 2005, the Company entered into a


                                       21
<PAGE>

settlement agreement with Federal Insurance Company pursuant to which Federal
will pay $4 million to the Plan Trust, subject to certain adjustments, once a
plan of reorganization with the Section 524(g) protection specified in the
settlement agreement goes effective and the Bankruptcy Court approves the
transfer of the funds. The FCR appealed the approval order granted by the
Bankruptcy Court to the District Court. The FCR, Federal and the Company have
reached an agreement to resolve the appeal pursuant to which the Federal
settlement agreement will be amended to fix the settlement amount payable by
Federal at $2.1 million and to delete from the settlement agreement the
adjustment mechanism, which operated under certain circumstances to reduce the
settlement amount, and the Bankruptcy Court has approved this treatment. In
October 2005, Congoleum entered into a settlement agreement with Mt. McKinley
Insurance Company and Everest Reinsurance Company pursuant to which Mt. McKinley
and Everest paid $21.5 million into an escrow account. The escrow agent will
transfer the funds to the Plan Trust once a plan of reorganization with the
Section 524(g) protection specified in the settlement agreement goes effective
and the Bankruptcy Court approves the transfer of the funds. An insurer and the
FCR have appealed the approval order granted by the Bankruptcy Court to the
District Court but the appeal has been administratively terminated by agreement.
In March 2006, Congoleum entered into a settlement agreement with Harper
Insurance Limited. Under the terms of this settlement, Harper will pay
approximately $1.4 million to Congoleum or the Plan Trust once certain
conditions are satisfied, including the effectiveness of a plan of
reorganization containing the Section 524(g) protection specified in the
settlement agreement. The Bankruptcy Court approved this settlement in April
2006. In April 2006, Congoleum entered into a settlement agreement with
Travelers Casualty and Surety Company and St. Paul Fire and Marine Insurance
Company (collectively, "Travelers"). Under the terms of this settlement,
Travelers will pay $25 million in two installments over thirteen months to the
Plan Trust once a plan of reorganization with the Section 524(g) protection
specified in the settlement agreement goes effective and the Bankruptcy Court
approves the transfer of the funds. The FCR sought, and was granted, limited
discovery with respect to the Travelers settlement. A hearing to consider the
Travelers settlement has been adjourned several times and is now scheduled for
April 2007. In April 2006, Congoleum also entered into a settlement agreement
with Fireman's Fund Insurance Company. Under the terms of this settlement,
Fireman's Fund will pay $1 million to the Plan Trust once a plan of
reorganization with the Section 524(g) protection specified in the settlement
agreement goes effective and the Bankruptcy Court approves the transfer of the
funds. The settlement was approved by the Bankruptcy Court in September 2006. In
August 2006, Congoleum entered into a settlement agreement with Century
Indemnity Company and its affiliates ("Century"). Under the terms of this
settlement, Century will pay $16.95 million to the Plan Trust in four
installments over a three-year period commencing 60 days after all conditions to
the agreement have been satisfied. The Bankruptcy Court approved this settlement
in September 2006. Certain insurance companies appealed the Bankruptcy Court
approval order to the District Court. Upon the entry of stipulations with the
appellants, the Century appeal was dismissed. It is possible that one or more of
the settling insurers may argue temporal, Plan-related, and other conditions to
payment have not been satisfied and therefore such insurer is relieved of
certain of its settlement obligations. If the Company is unable to confirm a
plan of reorganization with Section 524(g) protection, the settlements would
terminate.


                                       22
<PAGE>

      Environmental Liabilities: The Company is named, together with a large
number (in most cases, hundreds) of other companies, as a potentially
responsible party ("PRP") in pending proceedings under the federal Comprehensive
Environmental Response, Compensation and Liability Act, as amended ("CERCLA"),
and similar state laws. In addition, in four other instances, although not named
as a PRP, the Company has received a request for information. The pending
proceedings 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. The Company's ultimate
liability and funding obligations in connection with those sites depends on many
factors, including the volume of material contributed to the site, the number of
other PRPs and their financial viability, the remediation methods and technology
to be used and the extent to which costs may be recoverable from insurance.
However, under CERCLA and certain other laws, the Company, as a PRP, can be held
jointly and severally liable for all environmental costs associated with a site.

      The most significant exposure for which the Company 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 Environmental Protection Agency
("EPA") 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 (OU-2) has not been completed. The PRP group, of which
the Company 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 PRPs to perform the OU-2 remedy, assuming that the estimated cost
of the remedy is not more than $10 million. If the estimated cost of the OU-2
remedy is more than $10 million, the PRPs may decline to perform it or they may
elect to perform anyway. Cost estimates for the OU-1 and OU-2 work combined
(including natural resource damages) range between $22 million and $34 million,
with the Company'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 the
Company's share. 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 $0.3 million in additional costs. Congoleum expects to fund the
balance to the extent further insurance coverage is not available.

      The Company 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 authorization for
Liberty Mutual Insurance Company and the Company to make certain payments that
have been invoiced to the Company with respect to the Consent Decree and related
settlement agreements. An order authorizing and approving the Consent Decree and
related settlement agreements was issued by the Bankruptcy Court in August 2006.


                                       23
<PAGE>

      The Company also accrues remediation costs for certain of the Company's
owned facilities on an undiscounted basis. The Company 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
cleanup costs of $1.3 million, including capital outlays and future maintenance
costs for soil and groundwater remediation, are primarily based on engineering
studies. Of this amount, $0.3 million is included in current liabilities subject
to compromise and $1.0 million is included in non-current liabilities subject to
compromise.

      The Company anticipates that these matters will be resolved over a period
of years and that after application of expected insurance recoveries, funding
the costs will not have a material adverse impact on the Company'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 the financial position of the Company.

      Other: In the ordinary course of its business, the Company becomes
involved in lawsuits, administrative proceedings, product liability claims (in
addition to asbestos-related 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.

      The total balances of environmental, asbestos-related, and other
liabilities and the related insurance receivable and deemed probable of recovery
at December 31 are as follows:

<TABLE>
<CAPTION>
                                                 2006                           2005
----------------------------------------------------------------------------------------------
(in millions)                          Liability     Receivable       Liability     Receivable

<S>                                    <C>           <C>              <C>           <C>
Environmental liabilities              $  4.4        $  2.2           $  4.3        $  1.9
Asbestos product liability(1)            13.9          21.8             28.4          14.8
Other                                     1.0           0.2              1.1           0.3
----------------------------------------------------------------------------------------------
Total                                  $ 18.9        $ 24.2           $ 33.8        $ 17.0
----------------------------------------------------------------------------------------------
</TABLE>

(1)   Asbestos product liability at December 31, 2006 and 2005 reflects the
      accrued cost to settle asbestos liabilities through an amended plan of
      reorganization under Chapter 11. This liability at December 31, 2005 and
      2006 includes $8.9 million and $6.1 million, respectively, received in
      connection with an insurance settlement (recorded as restricted cash),
      which the Company is required to contribute to a trust. Stated liability
      pursuant to settlement agreements is in excess of $491 million. The
      receivable related to asbestos product liability represents amounts paid
      by the Company for which it may be entitled to reimbursement pursuant to
      the terms of the settlement agreements and related documents, although the
      most recent plan of reorganization did not provide for any such
      reimbursement. See Note 17 of the Notes to Consolidated Financial
      Statements contained in Item 8 of the Annual Report on Form 10-K.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      None.


                                       24
<PAGE>

                                     PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
         AND ISSUER PURCHASES OF EQUITY SECURITIES

      The Company's Class A common stock is listed on the American Stock
Exchange ("AMEX") under the symbol "CGM". The AMEX has notified Congoleum that
it does not meet the minimum income and stockholders' equity requirements for
continued listing of its Class A Common Stock. Congoleum submitted a plan in May
2006 advising the AMEX of actions it would take to achieve compliance with the
continued listing standards within eighteen months. The plan was accepted by the
AMEX, which continues to monitor Congoleum's progress toward compliance.

      The following table reflects the high and low stock prices (rounded to the
nearest penny) for the Company's Class A Common Stock based on American Stock
Exchange trading over the past two years:

                           Sales Prices of Common Shares:
                          2006                         High           Low
      --------------------------------------------------------------------
      First Quarter                                    $3.08        $ 1.47
      Second Quarter                                    2.36          1.94
      Third Quarter                                     2.25          1.87
      Fourth Quarter                                    2.24          1.49

                            Sales Prices of Common Shares:
                          2005                         High          Low
      --------------------------------------------------------------------
      First Quarter                                    $6.49        $ 5.15
      Second Quarter                                    5.59          3.03
      Third Quarter                                     5.10          3.71
      Fourth Quarter                                    5.45          2.30

      The Company's Class B common stock is not listed on any exchange. Holders
of Class A common stock are entitled to one vote per share on all matters
submitted to a vote of stockholders and holders of Class B common stock are
entitled to two votes per share on all matters other than certain extraordinary
matters. Each share of Class B common stock is convertible into one share of
Class A common stock under certain circumstances, including a sale or other
transfer by the holders of such shares to a person or entity other than an
affiliate of the transferor. Both classes vote together as a single class on all
matters with limited exceptions. Except with respect to voting rights and
conversion rights, the Class A common stock and the Class B common stock are
identical.


                                       25
<PAGE>

      The Company has not paid any cash dividends in 2006 or 2005 and does not
anticipate paying any cash dividends prior to confirmation of a plan of
reorganization or in the foreseeable future thereafter. The Company's current
debtor-in-possession credit facility prohibits payment of cash dividends. Any
change in the Company's dividend policy after confirmation of a plan of
reorganization will be within the discretion of the Board of Directors, subject
to restrictions contained in the Company's plan of reorganization and debt or
other agreements, and will depend, among other things, on the Company's
solvency, earnings, debt service and capital requirements, restrictions in
financing agreements, business conditions and other factors that the Board of
Directors deem relevant.

      The number of registered and beneficial holders of the Company's Class A
common stock on March 10, 2007 was approximately 1,000. The number of registered
and beneficial holders of the Company's Class B common stock on March 10, 2007
was two.

                       CUMULATIVE TOTAL SHAREHOLDER RETURN

      The graph that follows compares the cumulative total shareholder return of
the Company's Class A common stock to the cumulative returns of the American
Stock Exchange Market Value Index ("AMEX Market Index") and a MG Group Index
comprised of 40 public companies identified by Media General Financial Services
having a majority of revenues generated from the manufacture and sale of a
variety of building and construction products ("MG Group Index").

                         COMPARE CUMULATIVE TOTAL RETURN
                          AMONG CONGOLEUM CORPORATION,
                      AMEX MARKET INDEX AND MG GROUP INDEX


                        [LINE GRAPH IN PRINTED MATERIALS]


                      ASSUMES $100 INVESTED ON JAN. 1, 2002
                           ASSUMES DIVIDEND REINVESTED
                        FISCAL YEAR ENDING DEC. 31, 2006

                                       26
<PAGE>

            Measurement       Congoleum            MG Group          AMEX
               Period        Corporation            Index         Market Index
               ------        -----------            -----         ------------

              12/31/01              100.00           100.00         100.00
              12/31/02               25.45            97.07          96.01
              12/31/03               41.21           131.46         130.68
              12/31/04              334.55           162.49         149.65
              12/31/05              160.61           173.85         165.03
              12/31/06              100.61           213.25         184.77

(1)   The companies included in the MG Group Index at December 31, 2006 are:
      AAON, Inc., Amcol International Corp., American Standard COS, Ameron
      Internat. Corp., Armstrong World Ind. Inc., Carbo Ceramics Inc.,
      Continental Materials CP., Drew Industries Inc., ELKCORP, Fastenal
      Company, Goodman Global Inc., Griffon Corp., Hanson PLC ADS, Headwaters
      Inc., Imperial Chemical Industries, Imperial Industries Inc.,
      International Aluminum Corp., LSB Industries Inc., Martin Marietta
      Materials, MDU Resources Group Inc., NCI Building Systems Inc., Owens
      Corning Inc., PGT Inc., QEP Co Inc., RPM International Inc. DE, TAT
      Technol LTD, Tecumseh Products CL A, Tecumseh Products CL B, U.S. Lime &
      Minerals Inc., USG Corp., The Valspar Corporation, and Vulcan Materials
      Co.

      The information above under the caption "Cumulative Total Shareholder
Return" shall not be deemed to be soliciting material or to be filed by the
Company for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") or otherwise subject to the liability of that
Section. Such information will not be deemed to be incorporated by reference
into any filing under the Securities Act of 1933, as amended, or the Exchange
Act, except to the extent that the Company specifically incorporates it by
reference.


                                       27
<PAGE>

                      EQUITY COMPENSATION PLAN INFORMATION

      The following table sets forth information regarding the Company's equity
compensation plans as of December 31, 2006:

<TABLE>
<CAPTION>
                                                                                         Number of
                                                                                        Securities
                                               Number of            Weighted             Remaining
                                            Securities to be         Average       Available for Future
                                               Issued Upon          Exercise           Issuance Under
                                              Exercise of            Price of             Equity
                                              Outstanding          Outstanding         Compensation
                                                Options,             Options,        Plans (Excluding
                                              Warrants and          Warrants       Securities Reflected
             Plan Category                       Rights            and Rights          in Column (A))
-----------------------------------------   ----------------      ------------     --------------------
                                                  (A)                  (B)                 (C)
<S>                                               <C>              <C>                   <C>
Equity compensation plans approved by
security holders                                  637,000          $   2.03              148,800

Equity  compensation  plans not approved
by security holders                                24,000          $   2.37               26,000
                                                  -------                               --------
Total                                             661,000          $   2.04              174,800
                                                  =======                               ========
</TABLE>

      On September 21, 1995, the Company established its 1995 Stock Option Plan,
as amended (the "1995 Plan"), under which options to purchase up to 800,000
shares of the Company's Class A common stock may be issued to officers and key
employees. The 1995 Plan was approved by stockholders. Such options may be
either incentive stock options or nonqualified stock options, and the options'
exercise price must be at least equal to the fair value of the Company's Class A
common stock on the date of grant. All options granted under the 1995 Plan have
ten-year terms and vest over five years at the rate of 20% per year beginning on
the first anniversary of the date of grant.

      On July 1, 1999, the Company established its 1999 Stock Option Plan for
Non-Employee Directors, as amended (the "1999 Plan"), under which non-employee
directors may be granted non-qualified options (the "Options") to purchase up to
50,000 shares of the Company's Class A common stock. The 1999 Plan did not
require or receive stockholder approval. The Options granted under the 1999 Plan
have ten-year terms and vest six months from the grant date. The exercise price
for each Option is the fair market value on the date of the grant.

      As of December 31, 2006, an aggregate of 509,700 shares of common stock
were issuable upon the exercise of outstanding options under the 1995 Plan and
1999 Plan.


                                       28
<PAGE>

Item 6. SELECTED FINANCIAL DATA
        (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                               For the years ended December 31,
--------------------------------------------------------------------------------------------------------------------------------
                                                                2006(2)(3)        2005        2004         2003        2002(1)
                                                                ----------        ----        ----         ----        -------
<S>                                                              <C>          <C>          <C>          <C>          <C>
Consolidated Statements of Operations Data:
Net sales ....................................................   $ 219,474    $ 237,626    $ 229,493    $ 220,706    $ 237,206
Cost of sales ................................................     169,023      183,734      167,844      166,864      179,699
Selling, general and administrative expenses .................      41,172       43,503       47,925       53,206       52,778
Asbestos-related reorganization charges ......................          --       25,326        5,000        3,705       17,341
--------------------------------------------------------------------------------------------------------------------------------

Income (loss) from operations ................................       9,279      (14,937)       8,724       (3,069)     (12,612)
Interest expense, net ........................................     (10,872)      (9,973)      (9,332)      (8,843)      (8,112)
Other income, net ............................................       1,428          760        1,011        1,276        1,543
--------------------------------------------------------------------------------------------------------------------------------

(Loss) income before taxes and cumulative
  effect of accounting change ................................        (165)     (24,150)         403      (10,636)     (19,181)
Provision (benefit) for income taxes .........................        (844)      (2,575)      (2,545)      (3,874)          92
--------------------------------------------------------------------------------------------------------------------------------

Income (loss) before cumulative effect of
  accounting change ..........................................         679      (21,575)       2,948       (6,762)     (19,273)
Cumulative effect of accounting change .......................                       --           --           --      (10,523)
--------------------------------------------------------------------------------------------------------------------------------
Net income (loss) ............................................   $     679    $ (21,575)   $   2,948    $  (6,762)   $ (29,796)
--------------------------------------------------------------------------------------------------------------------------------

 Income (loss) per common share before cumulative effect
   of accounting change:
          Basic ..............................................   $    0.08    $   (2.61)   $    0.36    $   (0.82)   $   (2.33)
          Diluted ............................................        0.08        (2.61)        0.35        (0.82)       (2.33)
Cumulative effect of accounting change .......................          --           --           --           --        (1.27)
Net income (loss) per common share:
          Basic ..............................................   $    0.08    $   (2.61)   $    0.36    $   (0.82)   $   (3.60)
          Diluted ............................................        0.08        (2.61)        0.35        (0.82)       (3.60)
--------------------------------------------------------------------------------------------------------------------------------
Average shares outstanding:
          Basic ..............................................       8,272        8,262        8,260        8,260        8,260
          Diluted ............................................       8,293        8,262        8,498        8,260        8,260
--------------------------------------------------------------------------------------------------------------------------------
Consolidated Balance Sheet Data (at end of period):
Total assets .................................................   $ 184,202    $ 190,612    $ 212,882    $ 175,899    $ 203,991
Total long-term debt .........................................          --           --           --       99,773       99,724
Liabilities subject to compromise ............................     171,135      162,851      151,515           --           --
Stockholders' equity (deficit) ...............................     (46,553)     (44,960)     (20,989)     (25,777)     (16,078)
</TABLE>

(1)   The impact of the adoption of Statement of Financial Accounting Standards
      ("SFAS") No. 142, "Goodwill and Other Intangible Assets" on the Company's
      financial statements resulted in the elimination of $0.4 million of
      goodwill amortization expense, or $0.05 per share, for the twelve months
      ended December 31, 2002.
(2)   The impact of the adoption of the Statement of Financial Accounting
      Standards No. 123(R) "Share Based Payment" on the Company's financial
      statements resulted in a charge of $0.2 million.
(3)   The impact of the adoption of the Statement of Financial Accounting
      Standards No. 158 "Employers' Accounting for Defined Benefit and Other
      Postretirement plans" on the Company's financial statements resulted in a
      decrease of $3.8 million to stockholders' equity.


                                       29
<PAGE>

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

      The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto contained in Item 8 of this
Annual Report on Form 10-K.

Results of Operations

      The Company's business is cyclical and is affected by the same economic
factors that affect the remodeling and housing industries in general, including
the availability of credit, consumer confidence, changes in interest rates,
market demand and general economic conditions.

      In addition to external economic factors, the Company's results are
sensitive to sales and manufacturing volume, competitors' pricing, consumer
preferences for flooring products, raw material costs and the mix of products
sold. The manufacturing process is capital intensive and requires substantial
investment in facilities and equipment. The cost of operating these facilities
generally does not vary in direct proportion to production volume and,
consequently, operating results fluctuate disproportionately with changes in
sales volume.

      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, the
Company filed its proposed plan of reorganization and disclosure statement with
the Bankruptcy Court. In November 2004, Congoleum filed the Fourth Plan
reflecting the result of further negotiations with representatives of the ACC,
the FCR and other asbestos claimant representatives. The Bankruptcy Court
approved the disclosure statement and plan voting procedures in December 2004
and Congoleum obtained the requisite votes of asbestos personal injury claimants
necessary to seek approval of the Fourth Plan. In April 2005, Congoleum
announced that it had reached an agreement in principle with representatives of
the ACC and the FCR to make certain modifications to its proposed plan of
reorganization and related documents governing the settlement and payment of
asbestos-related claims against Congoleum. Under the agreed-upon modifications,
asbestos claimants with claims settled under Congoleum's pre-petition settlement
agreements would agree to forbear from exercising the security interest they
were granted and share on a pari passu basis with all other present and future
asbestos claimants in insurance proceeds and other assets of the Plan Trust to
be formed upon confirmation of the plan under Section 524(g) of the Bankruptcy
Code to pay asbestos claims against Congoleum. In July 2005, Congoleum filed the
Sixth Plan and related documents with the Bankruptcy Court which reflected the
result of these negotiations, as well as other technical modifications. The
Bankruptcy Court approved the disclosure statement and voting procedures and
Congoleum commenced solicitation of acceptances of the Sixth Plan in August
2005. In September 2005, Congoleum learned that certain asbestos claimants were
unwilling to agree to forbear from exercising their security interest as
contemplated by the Sixth Plan and the Sixth Plan was subsequently withdrawn. In
November 2005, the Bankruptcy Court denied a request to extend Congoleum's
exclusive right to file a plan of reorganization and solicit acceptances


                                       30
<PAGE>

thereof. In March 2006, Congoleum filed the Eighth Plan. 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 all parties in interest in Congoleum's reorganization proceedings to
participate in global mediation discussions. Several mediation sessions took
place from June through September 2006. During the initial mediation
negotiations, Congoleum reached an agreement in principle, subject to mutually
agreeable definitive documentation, with the ACC, the FCR and the Company's
controlling shareholder, ABI, on certain terms of the Ninth Plan, which
Congoleum filed and proposed jointly with the ACC in August 2006. CNA and the
Bondholders' Committee jointly filed a new, competing plan in August 2006 and
each withdrew its prior plan of reorganization. Following further mediated
negotiations, Congoleum, the ACC, the FCR, ABI and the Bondholders' Committee
reached agreement on terms of the Tenth Plan, which Congoleum filed jointly with
the ACC in September 2006. Following the Bondholders' Committee's withdrawal of
support for CNA's plan, CNA filed the CNA Plan. In October 2006, Congoleum and
the ACC jointly filed a revised version of the Tenth Plan, the Eleventh Plan,
which reflected minor technical changes agreed to by the various parties
supporting Congoleum's plan. In October 2006, the Bankruptcy Court held a
hearing to consider the adequacy of the disclosure statements with respect to
the Tenth Plan and the CNA Plan and to hear arguments on respective summary
judgment motions that the Tenth Plan and the CNA Plan are not confirmable as a
matter of law. The Bankruptcy Court provisionally approved the disclosure
statements for both the Tenth Plan and the CNA Plan subject to the Bankruptcy
Court's ruling on the respective summary judgment motions. In February 2007, the
Bankruptcy Court issued two separate opinions ruling that the Tenth Plan and the
CNA Plan are not confirmable as a matter of law. Because the Tenth Plan and
Eleventh Plan are substantially identical, the Company believes the ruling
issued with respect to the Tenth Plan also applies to the Eleventh Plan. In
March 2007, Congoleum resumed global plan mediation discussions seeking to
resolve the issues raised in the Bankruptcy Court's ruling with respect to the
Tenth Plan. Congoleum has also appealed the ruling with respect to the Tenth
Plan to the District Court.

      There can be no assurance that the Company will be successful in its
appeal or in negotiating a new plan of reorganization that resolves the issues
raised in the Bankruptcy Court's ruling with respect to the Tenth Plan, that the
Company will obtain approval to solicit acceptances of a new plan of
reorganization, that the Company will receive the acceptances necessary for
confirmation of a plan of reorganization, that any proposed plan will not be
modified further, that a plan will receive necessary court approvals from the
Bankruptcy Court and the District Court, or that such approvals will be received
in a timely fashion, that a plan will be confirmed, that a plan, if confirmed,
will become effective, or that there will be sufficient funds to pay for
continued litigation over any plan of reorganization. It also is unclear whether
any other person will attempt to propose a plan or what any such plan would
provide or propose, and whether the Bankruptcy Court would approve such a plan.

      The terms of any new plan of reorganization are likely to be materially
different from the Tenth and Eleventh Plans, and could be amended or modified as
a result of further negotiations with various parties. The Company expects that
it will take until some time late in the third quarter of 2007 at the earliest
to obtain confirmation of any plan of reorganization.


                                       31
<PAGE>

      Congoleum is presently involved in litigation with certain insurance
carriers related to disputed insurance coverage for asbestos related
liabilities, and certain insurance carriers filed various objections to
Congoleum's previously proposed plans of reorganization and related matters and
are expected to file objections to any future plan. Certain other parties have
also filed various objections to Congoleum's previously proposed plans of
reorganization and may file objections to any future plan.

      In anticipation of Congoleum's commencement of the Chapter 11 cases,
Congoleum entered into the Claimant Agreement, which provides for an aggregate
settlement value of at least $466 million as well as an additional number of
individually negotiated trial listed settlements with an aggregate value of
approximately $25 million, for total settlements in excess of $491 million. As
contemplated by the Claimant Agreement, Congoleum also entered into agreements
establishing the Collateral Trust to distribute funds in accordance with the
terms of the Claimant Agreement and granting the Collateral Trust a security
interest in Congoleum's rights under its applicable insurance coverage and
payments from Congoleum's insurers for asbestos claims. In December 2005,
Congoleum commenced the Avoidance Actions seeking to void the security interest
granted to the Collateral Trust and such settlements. In March 2006, Congoleum
filed a motion for summary judgment in the Avoidance Actions seeking to avoid
the Claimant Agreement settlements and liens under various bankruptcy theories,
which motion was denied in June 2006 and the Avoidance Actions remain pending.
Due to, among other things, the ongoing Avoidance Actions, the liability
associated with the asbestos personal injury claims against Congoleum may be
materially different than the present estimates of such items. As a result of
tabulating ballots on the Fourth Plan, the Company 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 the Sixth Plan.

      For more information regarding the Company's asbestos liability and plan
for resolving that liability, please refer to Notes 1 and 17 of the Notes to
Consolidated Financial Statements contained in Item 8 of the this Annual Report
on Form 10-K. In addition, please refer to "Risk Factors - The Company has
significant asbestos liability and funding exposure, and its most recent
proposed amended plan of reorganization has been ruled unconfirmable as a matter
of law" contained in Item 1A of this Annual Report on Form 10-K for a discussion
of certain factors that could cause actual results to differ from the Company's
goals for resolving its asbestos liability through a plan of reorganization.


                                       32
<PAGE>

Year ended December 31, 2006 as compared to year ended December 31, 2005

<TABLE>
<CAPTION>
                                                2006                 2005
                                                 (In thousands of dollars)

<S>                                           <C>         <C>     <C>          <C>
Net sales                                     $ 219,474           $ 237,626
Cost of sales                                   169,023             183,734
                                              ---------           ---------
Gross profit                                     50,451   23.0%      53,892    22.7%
Selling, general & administrative expenses       41,172   18.8%      43,503    18.3%
Asbestos-related reorganization charges              --              25,326
                                              ---------           ---------
Operating income (loss)                           9,279             (14,937)
Interest expense, net                           (10,872)             (9,973)
Other income, net                                 1,428                 760
                                              ---------           ---------
Loss before taxes                                  (165)            (24,150)
Benefit for income taxes                           (844)             (2,575)
                                              ---------           ---------

Net income (loss)                             $     679           $ (21,575)
                                              =========           =========
</TABLE>

      Net sales for the year ended December 31, 2006 totaled $219.5 million as
compared to $237.6 million for the year ended December 31, 2005, a decrease of
$18.1 million or 7.6%. The decrease in sales resulted primarily from volume
declines in residential sheet sales to both the remodel and builder segments
primarily in the fourth quarter of 2006, and lower sales to the manufactured
housing industry reflecting reduced demand versus that experienced in 2005 as a
result of hurricane related business. This was partially mitigated by the impact
of selling price increases instituted in late 2005 and in 2006 (4.3% of net
sales).

      Gross profit for the year ended December 31, 2006 totaled $50.5 million,
or 23.0% of net sales compared to $53.9 million or 22.7% of net sales. The
decline in gross margin dollars was due to lower volume. The increase in gross
margin percent as a percent of net sales reflected the impact of selling price
increases partially offset by continued increases in raw material costs which
increased costs by 1.2% of net sales, a less favorable product mix which reduced
gross margins by 1.2% of net sales, and the negative impact of lower production
volumes over which to spread fixed manufacturing overhead costs (1.0% of net
sales).

      Selling, general and administrative expenses were $41.2 million for the
year ended December 31, 2006 as compared to $43.5 million for the year ended
December 31, 2005, a decrease of $2.3 million. As a percent of net sales,
selling, general and administrative expenses were 18.8% for the year ended
December 31, 2006 as compared to 18.3% for the same period in the prior year.
The reduction in selling, general and administrative expenses reflected the
impact of lower unit sales volume on freight, merchandising and other incentive
programs ($3.0 million) offset by higher medical, pension and retiree benefits
($0.7 million).

      There were no asbestos-related charges in 2006, compared to $25.3 million
in 2005.


                                       33
<PAGE>

      Income from operations was $9.3 million for the year ended December 31,
2006 compared to a loss of $14.9 million for the same period in the prior year,
an increase of $24.2 million. This increase in operating income reflects the
charges for asbestos related claims taken in 2005, coupled with reductions in
operating expenses, partially offset by lower gross margins.

      Interest income was $0.5 million, which was $0.1 million higher than the
prior year reflecting higher interest rates. Interest expense increased from
$10.4 million in 2005 to $11.4 million in 2006, primarily reflecting the
interest accrued on the unpaid interest on its Senior Notes. Due to the Chapter
11 proceedings, the Company was precluded from making the interest payments due
February 1, 2004, August 1, 2004, February 1, 2005, August 1, 2005, February 1,
2006 and August 1, 2006 on the Senior Notes.

      In August 2006, an explosion caused extensive damage to components of a
major production line at the Company's Marcus Hook facility. By implementing a
seven-day operation on its other production line and purchasing base material
from a competitor, the Company was able to meet substantially all production
requirements. The Company's insurance carrier paid substantially all excess
costs (beyond a deductible) for replacing the damaged equipment and expenses to
replace production capacity. Fabrication and installation of replacement
equipment was completed by December 31, 2006. The line was operational by
January 2007. The cost to replace equipment and excess expenses incurred to meet
production requirements totaled $10.1 million which was reimbursed to the
Company by the insurer. The Company recognized a $1.3 million gain to recognize
the difference between insurance proceeds for the replacement of fixed assets
and their respective book value which is reported in other income.

      The Company recorded a tax benefit of $0.8 million on a loss before income
taxes of $0.2 million in 2006, resulting in net income after tax of $0.7
million. This benefit arose from the Company entering into a closing agreement
with the Internal Revenue Service in December 2006, with respect to tax returns
for years 2000 to 2003, resulting in reversing previously established reserves
for the years under audit. The Company recorded a tax benefit of $2.6 million on
a loss before taxes of $24.2 million in 2005.


                                       34
<PAGE>

Year ended December 31, 2005 as compared to year ended December 31, 2004

<TABLE>
<CAPTION>
                                                 2005                   2004
                                               ---------             ---------
                                                   (In thousands of dollars)

<S>                                            <C>          <C>      <C>          <C>
Net sales                                      $ 237,626             $ 229,493
Cost of sales                                    183,734               167,844
                                               ---------             ---------
Gross profit                                      53,892    22.7%       61,649    26.9%

Selling, general & administrative expenses        43,503    18.3%       47,925    20.9%
Asbestos-related reorganization charges           25,326                 5,000
                                               ---------             ---------
Operating income (loss)                          (14,937)                8,724
Interest expense, net                             (9,973)               (9,332)
Other income, net                                    760                 1,011
                                               ---------             ---------
(Loss) income before taxes                       (24,150)                  403
Benefit for income taxes                          (2,575)               (2,545)
                                               ---------             ---------

Net (loss) income                              $ (21,575)            $   2,948
                                               =========             =========
</TABLE>

      Net sales for the year ended December 31, 2005 totaled $237.6 million as
compared to $229.5 million for the year ended December 31, 2004, an increase of
$8.1 million or 3.5%. The increase in sales resulted primarily from the impact
of selling price increases instituted in late 2004 and during 2005 (7% of net
sales), and higher shipments to the manufactured housing industry reflecting
post-hurricane demand for both manufactured housing and RV homes. This was
partially offset by a sales decrease of do-it-yourself tile reflecting the loss
of a major mass merchandiser customer coupled with decreased demand for
residential sheet products.

      Gross profit for the year ended December 31, 2005 totaled $53.9 million,
or 22.7% of net sales, compared to $61.6 million or 26.9% of net sales for the
year ended December 31, 2004. The decrease in gross margins was driven by the
sharp increase in raw material pricing which increased costs by 8.4% of net
sales, a less favorable product mix which reduced gross margin by 2.5% of net
sales, and the negative impact of lower production volumes over which to spread
fixed manufacturing overhead costs (1.7% of net sales). This was partially
mitigated by price increases instituted during late 2004 and 2005 (7.0% of net
sales), lower warranty claims expense (0.5% of net sales) and the favorable
impact of manufacturing cost reduction programs initiated (1.0% of net sales).

      Selling, general and administrative expenses were $43.5 million for the
year ended December 31, 2005 as compared to $47.9 million for the year ended
December 31, 2004, a decrease of $4.4 million. As a percent of net sales,
selling, general and administrative expenses were 18.3% and 20.9% for the years
ended December 2005 and 2004, respectively. Selling, general and administrative
expenses were down $4.4 million (2.9% of net sales) reflecting cost savings
initiatives instituted in late 2005, including workforce reductions and related
benefits ($1.0 million), and the impact of lower unit sales volume on freight
and other incentive programs ($3.0 million).


                                       35
<PAGE>

      Asbestos-related charges in 2005 were $25.3 million, compared to $5.0
million in 2004. The Company recorded a charge of $9.9 million in the fourth
quarter of 2005 to increase its estimated recorded liability for resolving
asbestos-related claims.

      Loss from operations was $14.9 million for the year ended December 31,
2005 compared to income of $8.7 million for the same period in the prior year, a
decline of $23.6 million. This decline in operating income reflects the charges
for asbestos related claims taken in 2005, coupled with lower gross margins,
partially offset by reductions in operating expenses.

      Interest income was $0.4 million, which was $0.3 million higher than the
prior year reflecting higher cash balances and interest rates. Interest expense
increased from $9.4 million in 2004 to $10.4 million in 2005, primarily
reflecting the interest accrued on the unpaid interest on its Senior Notes. Due
to the Chapter 11 proceedings, the Company was precluded from making the
interest payments due February 1, 2004, August 1, 2004, February 1, 2005 and
August 1, 2005 on the Senior Notes.

      The Company recorded a tax benefit of $2.6 million on a loss before income
taxes of $24.2 million in 2005, and it also recorded a tax benefit of $2.5
million on income before taxes of $0.4 million in 2004. This related primarily
to anticipated tax benefits associated with certain prior year expenditures for
resolving asbestos related liabilities, which the Company carried back but were
not previously recognized.

Liquidity and Capital Resources

      The Consolidated Financial Statements of the Company 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
consolidated financial statements do not include any adjustments that might be
necessary should the Company be unable to continue as a going concern. As
described more fully in the Notes to Consolidated Financial Statements contained
in Item 8 of this Annual Report on Form 10-K, there is substantial doubt about
the Company's ability to continue as a going concern unless it obtains relief
from its substantial asbestos 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.
See Notes 1 and 17 of the Notes to the Consolidated Financial Statements, which
are contained in Item 8 of this Annual Report on Form 10-K, for a discussion of
the Company's bankruptcy proceedings. These matters continue to have a material
adverse impact on liquidity and capital resources. During 2006, the Company paid
$18.7 million in fees and expenses (net of recoveries) related to implementation
of its planned reorganization under Chapter 11 and litigation with certain
insurance companies. Furthermore, at December 31, 2006 the Company had incurred
but not paid approximately $9 million in additional fees and expenses for
services rendered through that date.


                                       36
<PAGE>

      Under plans prior to the Tenth Plan, Congoleum's assignment of insurance
recoveries to the Plan Trust was net of costs incurred by Congoleum in
connection with insurance coverage litigation, and Congoleum was entitled to
withhold from recoveries, or seek reimbursement from the Plan Trust, for
coverage litigation costs incurred after January 1, 2003 and for $1.3 million in
claims processing fees paid in connection with claims settled under the Claimant
Agreement. A receivable was recorded for these costs as they were paid. Under
the Eleventh Plan, Congoleum would have been entitled to reimbursement of only
the $1.3 million in claims processing fees and would not have collected the
balance of these receivables ($21.8 million at December 31, 2006). The
write-off, as well as forgiveness of indebtedness income pursuant to any future
plan and any other applicable charges or credits is expected to be recorded at a
future date, the net effect of which cannot be determined. Congoleum is unable
to predict whether it will be reimbursed for claims processing fees and coverage
litigation costs to the extent not already reimbursed. Congoleum cannot
presently determine the amount of fees, expenses, and trust contributions it may
incur in connection with obtaining confirmation of a plan of reorganization.

      Due to the Chapter 11 proceedings, the Company has been precluded from
making interest payments on its outstanding Senior Notes since January 1, 2004.
The amount of accrued interest that is due but has not been paid on the Senior
Notes at December 31, 2006 is approximately $33.2 million, including interest on
the unpaid interest due, of which $3.6 million was owed at the time of the
Chapter 11 filing.

      In February 2006, the Bankruptcy Court ordered GHR to disgorge all fees
and certain expenses it was paid by Congoleum. The amount of the disgorgement is
approximately $9.6 million. In October 2006, Congoleum and GHR entered into a
settlement agreement (the "GHR Settlement") under which GHR would pay Congoleum
approximately $9.2 million in full satisfaction of the disgorgement order. The
payment would be made secured by assets of GHR and would be made over time
according to a formula based on GHR's earnings. Congoleum has filed a motion
seeking Bankruptcy Court approval of the GHR Settlement which is pending.
Treatment of funds received pursuant to the GHR Settlement under a future
amended plan of reorganization may differ from the treatment accorded by any
prior plans.

      Unrestricted cash and cash equivalents, including short-term investments
at December 31, 2006, were $18.6 million, a decrease of $5.9 million from
December 31, 2005. Under the terms of its revolving credit agreement, payments
on the Company's accounts receivable are deposited in an account assigned by the
Company to its lender and the funds in that account are used by the lender to
pay down any loan balance. Funds deposited in this account but not yet applied
to the loan balance, which amounted to $3.6 million and $2.7 million at December
31, 2006 and December 31, 2005, respectively, are recorded as restricted cash.
Additionally, $6.1 million remaining from a $14.5 million settlement received in
August 2004 from an insurance carrier, which is subject to the lien of the
Collateral Trust, is included as restricted cash at December 31, 2006. The
Company expects to contribute these funds, less any amounts withheld pursuant to
reimbursement arrangements, to the Plan Trust. Working capital was $11.5 million
at December 31, 2006, up from $11.3 million one year earlier. The ratio of
current assets to current liabilities at December 31, 2006 was 1.1 to 1.0,
compared to 1.1 to 1.0 at December 31, 2005. Net cash used by operations during
the year ended December 31, 2006 was $8.2 million, as compared to net cash
provided by operations of $1.6 million in 2005.


                                       37
<PAGE>

      Capital expenditures in 2006 totaled $4.6 million, which includes $1.6
million reimbursed by the Company's property insurer for replacement of a
damaged production line. The Company is currently planning capital expenditures
of approximately $5 million in 2007 and between $5 million and $7 million in
2008, 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 (I)
the earlier of June 30, 2007 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 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 the Company to borrow from the facility. The
Company was in compliance with these covenants at December 31, 2006. Borrowings
under this facility are collateralized by inventory and receivables. At December
31, 2006, based on the level of receivables and inventory, $18.4 million was
available under the facility, of which $5.1 million was utilized for outstanding
letters of credit and $12.7 million was utilized by the revolving loan. The
Company 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 2007 while under Chapter 11
protection. There can be no assurances that the Company 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, the Company will need to obtain and
demonstrate the sufficiency of exit financing. The Company 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,
the Company 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. The Company is 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.
Among these claims, the Company is a named party in several actions associated
with waste disposal sites (more fully discussed in Note 16 to the Consolidated
Financial Statements contained in Item 8 of this Annual Report on Form 10-K).
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 owned and previously owned facilities. The
contingencies also include claims for personal injury and/or property damage.


                                       38
<PAGE>

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 liability in proportion to other potentially responsible parties, and
the extent to which costs may be recoverable from insurance. The Company has
recorded provisions in its financial statements for the estimated probable loss
associated with all known general and environmental contingencies. While the
Company 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 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 which would reasonably have such an effect. There can be no
assurances that the costs of any future government regulations could be passed
along 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 the Company.

      The Company's principal sources of capital are net cash provided by
operating activities and borrowings under its financing agreement. Congoleum
cannot presently determine the amount of fees, expenses, and trust contributions
it may incur in connection with obtaining confirmation of its plan of
reorganization. The Company 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 2007. 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.


                                       39
<PAGE>

      The following table summarizes the Company's contractual obligations, for
future minimum rental payments on its non-cancelable operating leases and future
minimum pension plans and other post-employment benefits ("OPEB") funding. The
timing and amount of any future payments of principal and interest on long term
debt, and any contributions to any Plan Trust, will depend on the terms of any
future amended plan of reorganization, so these payments are not shown in the
following table.

Payments due by Period

<TABLE>
<CAPTION>
                                                       (In thousands of dollars)
                                                                                                   2012 and
                                    Total      2007      2008      2009       2010      2011      Thereafter
                                  ---------------------------------------------------------------------------

<S>                               <C>          <C>       <C>       <C>        <C>       <C>          <C>
Operating leases                  $ 9,301      $2,710    $2,465    $2,287     $1,839        --           --

Pension plans funding (1)          22,180       6,700     3,900     3,225      3,025    $2,625       $2,705

OPEB funding (2)                    7,831         517       606       661        719       794        4,534

                                  ---------------------------------------------------------------------------
Total                             $39,312      $9,927    $6,971    $6,173     $5,583    $3,419       $7,239
                                  =========================================================================
</TABLE>

(1)   The projected pension plans funding was actuarially determined using the
      following assumptions: i) the funding provisions of the Pension Protection
      Act of 2006, ii) assets and liabilities were projected using generally
      accepted actuarial methods and there are no gains or losses for 2007 and
      later, and iii) the discount rate used to value the liabilities is the
      same as that used to value IRS Current Liability and is assumed to remain
      unchanged after 2007. The total for "2012 and Thereafter" include
      projected contributions for the years 2012 through 2014 for one of the
      Company's pension plans and through 2017 for two of the Company's pension
      plans. Contributions can be assumed to increase with inflation after 2014
      and 2017 respectively.
(2)   Funding requirements each year are assumed to approximate the expenses for
      each year See Note 11 of the Notes to Consolidated Financial Statements,
      which are contained in Item 8 of this Annual Report on Form 10-K.

Critical Accounting Policies

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

      Critical accounting policies are defined as those that entail significant
judgments and estimates, and could potentially result in materially different
results under different assumptions and conditions. The Company believes 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 below. For a discussion on the application of these and other
accounting policies, See Note 1 in the Notes to Consolidated Financial
Statements contained in Item 8 of this Annual Report on Form 10-K.


                                       40
<PAGE>

      Asbestos Liabilities - As discussed in Notes 1 and 17 in the Notes to
Consolidated Financial Statements contained in Item 8 of this Annual Report on
Form 10-K, the Company is a party to a significant number of lawsuits stemming
from its manufacture of asbestos-containing products. During 2006, the Company
paid $18.7 million in fees and expenses related to implementation of its planned
reorganization under Chapter 11 of the Bankruptcy Code and litigation with
certain insurance companies. Pursuant to terms of the Eighth Plan and related
documents, Congoleum was entitled to reimbursement for certain expenses it
incurs for claims processing costs and expenses in connection with pursuit of
insurance coverage. At December 31, 2006, Congoleum had $21.8 million recorded
as a receivable for such reimbursements. Under the Eleventh Plan, Congoleum
would be entitled to reimbursement of only the $1.3 million in claims processing
costs and would not collect the balance of these receivables ($20.5 million at
December 31, 2006). Disposition of these balances, including their write-off or
any other applicable charges or credits pursuant to any new amended plan of
reorganization, are expected to be recorded at a future date, the net effect of
which cannot be determined at this time. There can be no assurances that any
reimbursements will be received. Congoleum cannot presently determine the amount
of fees, expenses, and trust contributions it may incur in connection with
obtaining confirmation of a plan of reorganization.

      The Company expects that insurance will provide the substantial majority
of the recovery available to claimants, due to the amount of insurance coverage
it purchased and the comparatively limited resources and value of the Company
itself. The Company does not have the necessary financial resources to litigate
and/or settle asbestos claims in the ordinary course of business.

      In light of its bankruptcy filing, the Company believes the most
meaningful measure of its probable loss due to asbestos litigation is the amount
it will have to contribute to any Plan Trust plus the costs to effect the
reorganization. The Company is not yet able to determine the additional costs
that may be required to effect a new amended plan and actual amounts that will
be contributed to such Plan Trust and costs for pursuing and implementing any
plan of reorganization could be materially higher than recorded amounts and
previous estimates.

      The Company will update its estimates, if appropriate, as additional
information becomes available during the reorganization process, which could
result in potentially material adjustments to the Company's earnings in future
periods.

      Inventories - Inventories are stated at the lower of LIFO cost or market.
The LIFO (last-in, first-out) method of determining cost is used for
substantially all inventories. The Company records as a charge to cost of goods
sold any amount required to reduce the carrying value of inventories to the net
realizable sales value.

      Valuation of Deferred Tax Assets - The Company provides for valuation
reserves against its deferred tax assets in accordance with the requirements of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"). In evaluating the recovery of deferred tax assets, the
Company makes certain assumptions as to future events such as the ability to
generate future taxable income. At December 31, 2006, the Company has provided a
100% valuation allowance for its net deferred tax assets.


                                       41
<PAGE>

      Environmental Contingencies - The Company has incurred liabilities related
to environmental remediation costs at both third-party sites and Company-owned
sites. Management has recorded both liabilities and insurance receivables in its
financial statements for its estimate of costs and insurance recoveries for
future remediation activities. These estimates are based on certain assumptions
such as the extent of cleanup activities to be performed, the methods employed
in the cleanup activities, the Company's relative share in costs at sites where
other parties are involved, and the ultimate insurance coverage available. These
projects tend to be long-term in nature, and these assumptions are subject to
refinement as facts change. As such, it is possible that the Company may need to
revise its recorded liabilities and receivables for environmental costs in
future periods resulting in potentially material adjustments to the Company's
earnings in future periods.

      Pension and Other Postretirement Plans - The Company accounts for its
defined benefit pension plans in accordance with SFAS No. 87, "Employers'
Accounting for Pensions" ("SFAS No. 87"), which requires that amounts recognized
in financial statements be determined on an actuarial basis. As permitted by
SFAS No. 87, the Company uses a calculated value of the expected return on plan
assets (which is further described below). Under SFAS No. 87, the effects of the
actual performance of the pension plan's assets and changes in pension liability
discount rates on the Company's computation of pension income or expense are
amortized over future periods.

      The most significant element in determining the Company's pension income
or expense in accordance with SFAS No. 87 is the expected return on plan assets.
For 2006, the Company has assumed that the expected long-term rate of return on
plan assets will be 7.0%. The assumed long-term rate of return on assets is
applied to the value of plan assets which produces the expected return on plan
assets that is included in determining pension expense. The difference between
this expected return and the actual return on plan assets is deferred. The net
deferral of past actuarial gains or losses ($22.7 million loss and $23.4 million
loss at December 31, 2006 and 2005 respectively) will ultimately be recognized
as an adjustment to future pension expense.

      In September 2006, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and
Other Postretirement Plans" ("SFAS No. 158"), which amends SFAS No. 87,
"Employers' Accounting for Pensions", SFAS No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits" (SFAS No. 106), "Employers' Accounting for Postretirement
Benefits Other Than Pensions" ("SFAS No. 106"), and SFAS No. 132R, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" (revised 2003).
SFAS No. 158 requires companies to recognize an asset or liability for the
overfunded or underfunded status of their benefit plans in their financial
statements. SFAS No. 158 also requires the measurement date for plan assets and
liabilities to coincide with the sponsor's year end. This standard provides two
transition alternatives related to the change in measurement date provisions.
The recognition of an asset and liability related to the funded status provision
is effective for fiscal years ending after December 15, 2006, and the change in
measurement date provisions is effective for fiscal years ending after December
15, 2008. See Note 11 of the Notes to Consolidated Financial Statements, which
are contained in Item 8 of this Annual Report on Form 10-K.


                                       42
<PAGE>

      At the end of each year, the Company determines the discount rate to be
used to calculate the present value of plan liabilities. The discount rate is an
estimate of the current interest rate at which the pension liabilities could be
effectively settled at the end of the year. In estimating this rate, the Company
looks to rates of return on high-quality, fixed-income investments that receive
one of the two highest ratings given by a recognized ratings agency. At December
31, 2006, the Company determined this rate to be 6.0%.

      The Company accounts for its post-retirement benefits other than pensions
in accordance with SFAS No. 106, which requires that amounts recognized in
financial statements be determined on an actuarial basis. These amounts are
projected based on the January 1, 2004 SFAS No. 106 valuation and the 2005
year-end disclosure assumptions, including a discount rate of 6.0% and health
care cost trend rates of 9% in 2006 reducing to an ultimate rate of 5% in 2011.

Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The Company is exposed to changes in prevailing market interest rates
affecting the return on its investments but does not consider this risk exposure
to be material to its financial condition or results of operations. The Company
invests primarily in highly liquid debt instruments with strong credit ratings
and short-term (less than one year) maturities. The carrying amount of these
investments approximates fair value due to the short-term maturities. Over 90%
of the Company's outstanding long-term debt as of December 31, 2006 consisted of
indebtedness with a fixed rate of interest which is not subject to change based
upon changes in prevailing market interest rates. Under its current policies,
the Company does not use derivative financial instruments, derivative commodity
instruments or other financial instruments to manage its exposure to changes in
interest rates, foreign currency exchange rates, commodity prices or equity
prices and does not hold any instruments for trading purposes.


                                       43
<PAGE>

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Balance Sheets
(dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                          December 31,    December 31,
                                                                                              2006            2005
----------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>             <C>
ASSETS
Current assets:
  Cash and cash equivalents ..........................................................      $  18,591       $  24,511
  Restricted cash ....................................................................          9,656          11,644
  Accounts receivable, less allowances of $1,142
     as of December 31, 2006 and 2005 ................................................         17,598          17,092
  Inventories ........................................................................         34,220          34,607
  Prepaid expenses and other current assets ..........................................         25,610          20,139
      Total current assets ...........................................................        105,675         107,993
  Property, plant and equipment, net .................................................         67,757          73,207
  Other assets, net ..................................................................         10,770           9,412
----------------------------------------------------------------------------------------------------------------------
       Total assets ..................................................................      $ 184,202       $ 190,612
----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------------------------------------------------------------------------------
Current liabilities:
  Accounts payable ...................................................................      $  10,428       $  11,769
  Accrued liabilities ................................................................         22,263          23,072
  Asbestos-related liabilities .......................................................         13,950          28,369
  Revolving credit loan ..............................................................         12,715           9,404
  Accrued taxes ......................................................................            264             107
  Liabilities subject to compromise - current ........................................         34,602          23,990
----------------------------------------------------------------------------------------------------------------------
       Total current liabilities .....................................................         94,222          96,711
----------------------------------------------------------------------------------------------------------------------
Liabilities subject to compromise - long term ........................................        136,533         138,861
----------------------------------------------------------------------------------------------------------------------
       Total liabilities .............................................................        230,755         235,572
----------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Class A common stock, par value $0.01; 20,000,000 shares authorized;
    4,736,950 shares issued and 3,663,390 shares outstanding as of
    December 31, 2006 and 4,736,950 shares issued and 3,662,790 shares
    outstanding as of December 31, 2005  .............................................             47              47
Class B common stock, par value $0.01; 4,608,945 shares authorized,
    issued and outstanding at December 31, 2006 and 2005 respectively ................             46              46
Additional paid-in capital ...........................................................         49,349          49,126
Retained deficit .....................................................................        (64,726)        (65,405)
Accumulated other comprehensive loss .................................................        (23,456)        (20,961)
----------------------------------------------------------------------------------------------------------------------
                                                                                              (38,740)        (37,147)
Less Class A common stock held in treasury, at cost; 1,073,960 shares at
    December 31, 2006 and 1,074,560 shares at December 31, 2005 ......................          7,813           7,813
----------------------------------------------------------------------------------------------------------------------
     Total stockholders' equity (deficit)                                                     (46,553)        (44,960)
----------------------------------------------------------------------------------------------------------------------
     Total liabilities and stockholders' equity (deficit) ............................      $ 184,202       $ 190,612
----------------------------------------------------------------------------------------------------------------------
</TABLE>

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


                                       44
<PAGE>

Consolidated Statements of Operations
(in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                                 For the years ended
                                                                                                     December 31,
                                                                                        2006              2005                2004
                                                                                        ----              ----                ----
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                                                 <C>                <C>                <C>
Net sales .................................................................         $ 219,474          $ 237,626          $ 229,493
Cost of sales .............................................................           169,023            183,734            167,844
Selling, general and administrative expenses ..............................            41,172             43,503             47,925
Asbestos-related reorganization charges ...................................                --             25,326              5,000

------------------------------------------------------------------------------------------------------------------------------------
   Income (loss) from operations ..........................................             9,279            (14,937)             8,724
Other income (expense):
   Interest income ........................................................               515                438                114
   Interest expense .......................................................           (11,387)           (10,411)            (9,446)
   Other income ...........................................................             2,012              1,064              1,285
   Other expense ..........................................................              (584)              (304)              (274)

------------------------------------------------------------------------------------------------------------------------------------

   Income (loss) before income taxes ......................................              (165)           (24,150)               403
   Benefit from income taxes ..............................................              (844)            (2,575)            (2,545)

------------------------------------------------------------------------------------------------------------------------------------
   Net income (loss) ......................................................         $     679          $ (21,575)         $   2,948
------------------------------------------------------------------------------------------------------------------------------------

   Net income (loss) per common share
        Basic .............................................................         $    0.08          $   (2.61)         $    0.36
        Diluted ...........................................................              0.08              (2.61)              0.35
------------------------------------------------------------------------------------------------------------------------------------
   Weighted average number of common shares outstanding
        Basic .............................................................             8,272              8,262              8,260
        Diluted ...........................................................             8,293              8,262              8,498
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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


                                       45
<PAGE>

Consolidated Statements of Changes in Stockholders' Equity (Deficit)
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                              Accumulated                Total
                                Common     Stock    Additional                   Other                Stockholders'
                                 Class     Class     Paid-in      Retained   Comprehensive  Treasury     Equity       Comprehensive
                                   A         B       Capital       Deficit       Loss        Stock     (Deficit)      Income (Loss)
------------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>      <C>        <C>           <C>         <C>           <C>         <C>           <C>

Balance, December 31, 2003       $ 47     $  46      $ 49,105      $(46,778)   $(20,384)      $(7,813)   $(25,777)
Exercise of option ...........     --        --             1            --          --            --           1
Minimum pension liability
  adjustment .................     --        --            --            --       1,839            --       1,839      $  1,839
Net income ...................     --        --            --         2,948          --            --       2,948         2,948
                                                                                                                       --------
Net comprehensive income .....     --        --            --            --          --            --          --      $  4,787
                                                                                                                       ========
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2004         47        46        49,106       (43,830)    (18,545)       (7,813)    (20,989)

Exercise of option ...........     --        --            20            --          --            --          20
Minimum pension liability
  adjustment .................     --        --            --            --      (2,416)           --      (2,416)     $ (2,416)
Net loss .....................     --        --            --       (21,575)         --            --     (21,575)      (21,575)
                                                                                                                       --------
Net comprehensive loss .......     --        --            --            --          --            --          --      $(23,991)
                                                                                                                       ========
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2005         47        46        49,126       (65,405)    (20,961)       (7,813)    (44,960)

Stock based compensation
  expense ....................     --        --           223            --          --            --         223
Minimum pension liability ....     --        --            --            --       1,296            --       1,296      $  1,296
Adoption of SFAS 158 .........     --        --            --            --      (3,791)           --      (3,791)
Net income ...................     --        --            --           679          --            --         679           679
                                                                                                                       --------
Net comprehensive income .....     --        --            --            --          --            --          --      $  1,975
                                                                                                                       ========
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2006 ...   $ 47     $  46      $ 49,349      $(64,726)   $(23,456)     $ (7,813)   $(46,553)
</TABLE>

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


                                       46
<PAGE>

Consolidated Statements of Cash Flows
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                           For the years ended
                                                                               December 31,
                                                                     2006          2005          2004
                                                                     ----          ----          ----
<S>                                                                <C>          <C>          <C>
Cash flows from operating activities:
  Net income (loss) ............................................   $     679    $ (21,575)   $   2,948
  Adjustments to reconcile net income (loss) to net
     cash provided by (used in) operating  activities:
        Depreciation ...........................................      10,092       10,617       10,883
        Amortization ...........................................         386          385          545
        Gain on insurance recovery in excess of book value .....      (1,266)          --           --
        Asbestos-related charges ...............................          --       25,326        5,000
        Stock based compensation expense .......................         223           --           --
        Changes in certain assets and liabilities:
           Accounts and notes receivable .......................        (506)         529       (4,061)
           Inventories .........................................         387        5,016        5,372
           Prepaid expenses and other assets ...................        (347)      (3,160)       2,340
           Accounts payable ....................................      (1,341)       1,473        5,752
           Accrued liabilities .................................       7,003        6,393       16,142
           Asbestos-related liabilities ........................     (22,373)     (27,220)     (10,754)
           Asbestos-related expense reimbursements from
             insurance settlement ..............................       3,684        6,091           --
           Other liabilities ...................................      (4,784)      (2,315)      (3,102)
-------------------------------------------------------------------------------------------------------
             Net cash (used in) provided by operating activities      (8,163)       1,560       31,065
-------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
        Capital expenditures, net ..............................      (4,642)      (4,274)      (3,428)
        Insurance proceeds for oven line replacement ...........       1,586           --           --
        Proceeds from sale of retired assets ...................          --           --           30
-------------------------------------------------------------------------------------------------------
             Net cash used in investing activities .............      (3,056)      (4,274)      (3,398)
-------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
        Net short-term borrowings ..............................       3,311          (97)        (732)
        Net change in restricted cash ..........................       1,988       (2,408)         605
        Proceeds from exercise of options ......................          --           20            1
-------------------------------------------------------------------------------------------------------
             Net cash provided by (used in) financing activities       5,299       (2,485)        (126)
-------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents ...........      (5,920)      (5,199)      27,541
Cash and cash equivalents:
        Beginning of year ......................................      24,511       29,710        2,169
-------------------------------------------------------------------------------------------------------
        End of year ............................................   $  18,591    $  24,511    $  29,710
-------------------------------------------------------------------------------------------------------
</TABLE>

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


                                       47
<PAGE>

Notes to Consolidated Financial Statements

1. Basis of Presentation:

      The Consolidated Financial Statements of Congoleum Corporation (the
"Company" or "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 the Company be unable to
continue as a going concern. As described more fully below, there is substantial
doubt about the Company's ability to continue as a going concern unless it
obtains relief from its substantial asbestos 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 Chapter 11 of the
Bankruptcy Code. In January 2004, the Company filed its proposed plan of
reorganization and disclosure statement with the Bankruptcy Court.

      In November 2004, Congoleum filed the Fourth Plan with the Bankruptcy
Court reflecting the result of further negotiations with representatives of the
ACC, the FCR and other asbestos claimant representatives. The Bankruptcy Court
approved the disclosure statement and plan voting procedures in December 2004
and Congoleum obtained the requisite votes of asbestos personal injury claimants
necessary to seek approval of the Fourth Plan.

      In April 2005, Congoleum announced that it had reached an agreement in
principle with representatives of the ACC and the FCR to make certain
modifications to its proposed plan of reorganization and related documents
governing the settlement and payment of asbestos-related claims against
Congoleum. Under the agreed-upon modifications, asbestos claimants with claims
settled under Congoleum's pre-petition settlement agreements would agree to
forbear from exercising the security interest they were granted and share on a
pari passu basis with all other present and future asbestos claimants in
insurance proceeds and other assets of the Plan Trust.

      In July 2005, Congoleum filed the Sixth Plan and related documents with
the Bankruptcy Court which reflected the result of these negotiations, as well
as other technical modifications. The Bankruptcy Court approved the disclosure
statement and voting procedures and Congoleum commenced solicitation of
acceptances of the Sixth Plan in August 2005. In September 2005, Congoleum
learned that certain asbestos claimants were unwilling to agree to forbear from
exercising their security interest as contemplated by the Sixth Plan and
subsequently withdrew the Sixth Plan.

      In November 2005, the Bankruptcy Court denied a request to extend
Congoleum's exclusive right to file a plan of reorganization and solicit
acceptances thereof. In March 2006, Congoleum filed the Eighth Plan. 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 all parties in interest in Congoleum's reorganization
proceedings to participate in global mediation discussions. Several mediation
sessions took place from June through September 2006. During the initial
mediation negotiations, Congoleum reached an agreement in principle, subject to
mutually agreeable definitive documentation, with the ACC, the FCR and the
Company's controlling shareholder, ABI, on certain terms of the Ninth Plan,


                                       48
<PAGE>

which Congoleum filed and proposed jointly with the ACC in August 2006. CNA and
the Bondholders' Committee jointly filed a new, competing plan in August 2006
and each withdrew its prior plan of reorganization. Following further mediated
negotiations, Congoleum, the ACC, the FCR, ABI and the Bondholders' Committee
reached agreement on terms of the Tenth Plan, which Congoleum filed jointly with
the ACC in September 2006. Following the Bondholders' Committee's withdrawal of
support for CNA's plan, CNA filed the CNA Plan. In October 2006, Congoleum and
the ACC jointly filed a revised version of the Tenth Plan, the Eleventh Plan,
which reflected minor technical changes agreed to by the various parties
supporting Congoleum's plan. In October 2006, the Bankruptcy Court held a
hearing to consider the adequacy of the disclosure statements with respect to
the Tenth Plan and the CNA Plan and to hear arguments on respective summary
judgment motions that the Tenth Plan and the CNA Plan are not confirmable as a
matter of law. The Bankruptcy Court provisionally approved the disclosure
statements for both the Tenth Plan and the CNA Plan subject to the Bankruptcy
Court's ruling on the respective summary judgment motions. In February 2007, the
Bankruptcy Court issued two separate opinions ruling that the Tenth Plan and the
CNA Plan are not confirmable as a matter of law. Because the Tenth Plan and
Eleventh Plan are substantially identical, the Company believes the ruling
issued with respect to the Tenth Plan also applies to the Eleventh Plan. In
March 2007, Congoleum resumed global plan mediation discussions seeking to
resolve the issues raised in the Bankruptcy Court's ruling with respect to the
Tenth Plan to the District Court. Congoleum has also appealed the ruling with
respect to the Tenth Plan to the District Court.

      There can be no assurance that the Company will be successful in its
appeal or in negotiating a new plan of reorganization that resolves the issues
raised in the Bankruptcy Court's ruling with respect to the Tenth Plan, that the
Company will obtain approval to solicit acceptances of a new plan of
reorganization, that the Company will receive the acceptances necessary for
confirmation of a plan of reorganization, that any proposed plan will not be
modified further, that a plan will receive necessary court approvals from the
Bankruptcy Court and the District Court, or that such approvals will be received
in a timely fashion, that a plan will be confirmed, that a plan, if confirmed,
will become effective, or that there will be sufficient funds to pay for
continued litigation over any plan of reorganization. It also is unclear whether
any other person will attempt to propose a plan or what any such plan would
provide or propose, and whether the Bankruptcy Court would approve such a plan.

      For more information regarding the Company's asbestos liability and plan
for resolving that liability, please refer to Note 17 of the Notes to
Consolidated Financial Statements.

      American Institute of Certified Public Accountant 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. The Company implemented this guidance in
consolidated financial statements for periods after December 31, 2003.


                                       49
<PAGE>

      Pursuant to SOP 90-7, companies 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. Substantially all of the Company's liabilities at
December 31, 2003 have been reclassified as liabilities subject to compromise.
Obligations arising post-petition, and pre-petition obligations that are
secured, are not classified as liabilities subject to compromise.

      Additional pre-petition claims (liabilities subject to compromise) may
arise due to the rejection of executory contracts or unexpired leases, or as a
result of the allowance of contingent or disputed claims.

2. Summary of Significant Accounting Policies:

Nature of Business - Congoleum manufactures resilient sheet and tile flooring
products. These products, together with a limited quantity of related products
purchased for resale, are sold primarily to wholesale distributors and major
retailers in the United States and Canada. Based upon the nature of the
Company's operations, facilities and management structure, the Company considers
its business to constitute a single segment for financial reporting purposes.

Basis of Consolidation - The accompanying consolidated financial statements
reflect the operations, financial position and cash flows of the Company and
include the accounts of the Company and its subsidiaries after elimination of
all significant inter-company transactions in consolidation.

Use of Estimates and Critical Accounting Policies - The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Critical accounting
policies are defined as those that entail significant judgments and estimates,
and could potentially result in materially different results under different
assumptions and conditions. The Company believes that the most critical
accounting policies upon which its financial condition depends, and which
involve the most complex or subjective decisions or assessments, concern
asbestos liabilities, environmental contingencies, valuation of deferred tax
assets, and pension plan and post-retirement benefits.

       Although the Company believes it employs reasonable and appropriate
estimates and assumptions in the preparation of its financial statements and in
the application of accounting policies, if business conditions are different
than the Company has assumed they will be, or if the Company used different
estimates and assumptions, it is possible that materially different amounts
could be reported in the Company's financial statements.

Revenue Recognition - Revenue is recognized when products are shipped and title
has passed to the customer. Net sales are comprised of the total sales billed
during the period less the sales value of estimated returns and sales
incentives, which consist primarily of trade discounts and customers'
allowances. The Company defers recognition of revenue for its estimate of
potential sales returns under right-of-return agreements with its customers
until the right-of-return period lapses.


                                       50
<PAGE>

Selling, General and Administrative Expenses - Selling, general and
administrative expenses are charged to income as incurred. Expenses promoting
and selling products are classified as selling expenses and include such items
as advertising, sales commissions and travel. Advertising expense amounted to
$1.1 million, $1.6 million and $1.8 million in 2006, 2005, and 2004
respectively. General and administrative expenses include such items as
officers' salaries, office supplies, insurance and office rental. In addition,
general and administrative expenses include other operating items such as
provision for doubtful accounts, professional (accounting and legal) fees,
purchasing and environmental remediation costs.

Cash and Cash Equivalents - All highly liquid debt instruments with a maturity
of three months or less at the time of purchase are considered to be cash
equivalents.

Restricted Cash - Under the terms of its revolving credit agreement, payments on
the Company's accounts receivable are deposited in an account assigned by the
Company to its lender and the funds in that account are used by the lender to
pay down any loan balance. Restricted cash represents funds deposited in this
account but not immediately applied to the loan balance. At December 31, 2006
and 2005, cash of approximately $3.6 million and $2.7 million, respectively, was
restricted under this financing agreement. Additionally, $6.1 million remaining
from a $14.5 million settlement received in August 2004 from an insurance
carrier is included as restricted cash at December 31, 2006.

Short-Term Investments - The Company invests in highly liquid debt instruments
with strong credit ratings. Commercial paper investments with a maturity greater
than three months, but less than one year at the time of purchase, are
considered to be short-term investments. The Company maintains cash and cash
equivalents and short-term investments with certain financial institutions. The
Company performs periodic evaluations of the relative credit standing of those
financial institutions that are considered in the Company's investment strategy.

Inventories - Inventories are stated at the lower of LIFO cost or market. The
LIFO (last-in, first-out) method of determining cost is used for substantially
all inventories. The Company records as a charge to cost of goods sold any
amount required to reduce the carrying value of inventories to the net
realizable sales value.

Property, Plant, and Equipment - Property, plant, and equipment are recorded at
cost and are depreciated over their estimated useful lives (30 years for
buildings, 15 years for building improvements, production equipment and
heavy-duty vehicles, 3 to 10 years for light-duty vehicles and office
furnishings and equipment) on the straight-line method for financial reporting
and accelerated methods for income tax purposes. Costs of major additions and
betterments are capitalized; maintenance and repairs which do not improve or
extend the life of the respective assets are charged to operations as incurred.
When an asset is sold, retired or otherwise disposed of, the cost of the asset
and the related accumulated depreciation are removed from the respective
accounts and any resulting gain or loss is reflected in operations.

Debt Issue Costs - Costs incurred in connection with the issuance of debt have
been capitalized and are being amortized over the life of the related debt. Such
costs at December 31, 2006 and 2005 amounted to $0.5 million and $0.8 million,
respectively, net of accumulated amortization of $2.8 million and $2.5 million,
respectively, and are included in other non-current assets.


                                       51
<PAGE>

Environmental Remediation - The Company is subject to federal, state and local
environmental laws and regulations. The Company records a liability for
environmental remediation claims when a cleanup program or claim payment becomes
probable and the costs can be reasonably estimated. The recorded liabilities are
not discounted for delays in future payments (see Note 16).

Asbestos Liabilities and Plan of Reorganization - The Company is a defendant in
a large number of asbestos-related lawsuits and has filed a proposed plan of
reorganization under Chapter 11 of the United States Bankruptcy Code to resolve
this liability (see Note 17). Accounting for asbestos-related and reorganization
costs includes significant assumptions and estimates, and actual results could
differ materially from those estimates.

Income Taxes - The Company accounts for income taxes in accordance with SFAS No.
109, "Accounting for Income Taxes" ("SFAS No. 109"). Under SFAS No. 109,
deferred tax assets and liabilities are recognized based on temporary
differences between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. SFAS No. 109 requires current recognition
of net deferred tax assets to the extent that it is more likely than not that
such net assets will be realized. To the extent that the Company believes that
its net deferred tax assets will not be realized, a valuation allowance must be
recorded against those assets.

Allowance for Doubtful Accounts and Cash Discounts - The Company provides an
allowance for doubtful accounts and cash discounts based on estimates of
historical collection experience and a review of the current status of trade
accounts receivable, revising its estimates when circumstances dictate.

Product Warranties - The Company provides product warranties for specific
product lines and accrues for estimated future warranty cost in the period in
which the revenue is recognized. The following table sets forth activity in the
Company's warranty reserves (in millions):

                                        December 31,
                                   2006     2005     2004
                                  ------   ------   ------
            Beginning balance     $  2.1   $  2.7   $  3.1

            Accruals                 3.8      3.7      5.0

            Charges                 (3.9)    (4.3)    (5.4)
                                  ------   ------   ------

            Ending balance        $  2.0   $  2.1   $  2.7
                                  ======   ======   ======

Shipping and Handling Costs - Shipping costs for the years ended December 31,
2006, 2005, and 2004 were $0.6 million, $0.9 million, and $1.9 million,
respectively, and are included in selling, general and administrative expenses.


                                       52
<PAGE>

Earnings Per Share - SFAS No. 128, "Earnings Per Share", requires the
computation of basic and diluted earnings per share. The calculation of basic
earnings per share is based on the average number of common shares outstanding
during the period. Diluted earnings per share reflect the effect of all
potentially diluted securities which consist of outstanding common stock
options.

Long-lived Assets - The Company periodically considers whether there has been a
permanent impairment in the value of its long-lived assets, primarily property
and equipment, in accordance with Financial Accounting Standards Board ("FASB")
Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." The Company evaluates various factors, including current and projected
future operating results and the undiscounted cash flows for the
under-performing long-lived assets. The Company then compares the carrying
amount of the asset to the estimated future undiscounted cash flows expected to
result from the use of the asset. To the extent that the estimated future
undiscounted cash flows are less than the carrying amount of the asset, the
asset is written down to its estimated fair market value and an impairment loss
is recognized. The value of impaired long-lived assets is adjusted periodically
based on changes in these factors. At December 31, 2006, the Company determined,
based on its evaluation, that the carrying value of its long-lived assets was
appropriate. No adjustments to the carrying costs were made.

Share Based Payment - On December 16, 2004, the FASB issued Statement No. 123
(revised 2004), "Share-Based Payment" ("SFAS 123R"), a revision of FASB
Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS
123R supersedes Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB No. 25"), and amends SFAS No. 95,
"Statement of Cash Flows" ("SFAS No. 95"). Generally, the approach in SFAS 123R
is similar to the approach described in SFAS 123. However, SFAS 123R requires
all share-based payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their fair values at
the date of grant. Pro forma disclosure is no longer permitted.

      Effective January 1, 2006, the Company adopted SFAS 123R using the
modified prospective method as permitted under SFAS 123R. Under this transition
method, compensation cost recognized in 2006 includes: (a) compensation cost for
all share-based payments granted prior to but not yet vested as of December 31,
2005, based on the grant-date fair value estimated in accordance with the
provisions of SFAS 123, and (b) compensation cost for all share-based payments
granted subsequent to December 31, 2005, based on the grant-date fair value
estimated in accordance with the provisions of SFAS 123R. In accordance with the
modified prospective method of adoption, the Company's results of operations and
financial position for prior periods have not been restated. Prior to the
adoption of SFAS 123R, the Company accounted for stock option grants in
accordance with APB No. 25, (the intrinsic value method) and, accordingly,
recognized no compensation expense for stock option grants as the exercise price
of the grant was equal to the market price of the underlying common stock on the
date of grant.


                                       53
<PAGE>

      As a result of adopting SFAS 123R effective January 1, 2006, income before
taxes, net income and basic and diluted earnings per share for the year were
$223 thousand and $0.03 per share lower, respectively, than if the Company had
continued to account for stock-based compensation under APB Opinion No. 25 for
our stock option grants.

      At December 31, 2006, there was $47 thousand of unrecognized compensation
expense related to share-based payments, which is expected to be recognized over
a weighted-average period of 3.5 years.

      The following table details the effect on net income (loss) and earnings
(loss) per share had stock-based compensation expense been recorded for the
fiscal years 2005 and 2004 based on the fair-value method under SFAS 123:

                                                             For Year Ended
(in thousands, except per share data)                          December 31,
                                                             2005       2004
                                                           --------    -------
Net income (loss):
    As reported                                            $(21,575)   $ 2,948
    Deduct: Total stock-based employee compensation
    expense determined under fair value based method for
    all awards, net of related tax effects, pro forma           232        203
                                                           --------    -------
    As adjusted                                            $(21,807)   $ 2,745
                                                           ========    =======

Net income (loss) per share:
    As reported-basic                                      $  (2.61)   $  0.36
    Pro forma compensation expense                            (0.03)     (0.02)
                                                           --------    -------
    As adjusted-basic                                      $  (2.64)   $  0.34
                                                           ========    =======

Net income (loss) per share:
    As reported-diluted                                    $  (2.61)   $  0.35
    Pro forma compensation expense                            (0.03)     (0.02)
                                                           --------    -------
    As adjusted-diluted                                    $  (2.64)   $  0.33
                                                           ========    =======


                                       54
<PAGE>

      The fair value for these options granted was estimated at the date of
grant using a Black-Scholes option pricing model. A summary of the assumptions
used for stock option grants are as follows:

<TABLE>
<CAPTION>
                                                                For Year Ended December 31,
                                                     -------------------------------------------------
1995 Stock Option Plan                                   2006                2005              2004
                                                     -------------------------------------------------
<S>                                                   <C>                 <C>               <C>
                         Dividend yield                    0.0%                0.0%              0.0%
                         Expected volatility              92.0%               92.0%             92.0%
                         Option forfeiture rate           10.0%               10.0%             10.0%
                         Risk free interest rate           5.1%                4.9%              5.0%
                         Expected lives               7.0 years           7.0 years         7.0 years

<CAPTION>
                                                                For Year Ended December 31,
                                                     -------------------------------------------------
1999 Stock Option Plan                                   2006                2005              2004
                                                     -------------------------------------------------
<S>                                                   <C>                 <C>               <C>
                         Dividend yield                    0.0%                0.0%              0.0%
                         Expected volatility              92.0%               92.0%             92.0%
                         Option forfeiture rate           10.0%               10.0%             10.0%
                         Risk free interest rate           4.9%                5.9%              2.4%
                         Expected lives               3.0 years           3.0 years         3.0 years

<CAPTION>
                                                                For Year Ended December 31,
                                                     -------------------------------------------------
                                                          2006                2005              2004
                                                     -------------------------------------------------
<S>                                                      <C>                 <C>               <C>
Fair value of option grants under the 1995 Plan            N/A               $ 4.66            $ 1.59
Fair value of option grants under the 1999 Plan          $ 1.87              $ 2.39            $ 2.34
</TABLE>

New Accounting Standards

      In December 2004, the FASB issued Statement No. 123 (revised 2004),
"Share-Based Payment" ("SFAS 123R"), a revision of FASB Statement No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123R supersedes APB
No. 25, and amends FASB Statement No. 95, "Statement of Cash Flows". The
approach to quantifying stock-based compensation expense in SFAS 123R is similar
to SFAS 123. However, the revised statement requires all shared-based payments
to employees, including grants of employee stock options, to be recognized as an
expense in the Consolidated Statements of Operations based on their fair values
as they are earned by the employees under the vesting terms. Pro forma
disclosure of stock option expense, as is the Company's practice under SFAS 123,
is not permitted after 2005. The Company followed the "modified prospective"
method of adoption of SFAS 123R whereby earnings for prior periods were not
restated as though stock based compensation had been expensed, rather than the
"modified retrospective" method which would entail restatement of previously
published earnings. The Company adopted SFAS 123R as required on January 1,
2006.


                                       55
<PAGE>

      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 provides for the financial statement recognition, measurement,
presentation and disclosure of uncertain tax positions taken or expected to be
taken in income tax returns. The Company will adopt this Interpretation in the
first quarter of 2007. The cumulative effects, if any, of applying FIN 48 will
be recorded as an adjustment to retained earnings. The Company is currently
assessing the impact of FIN 48 on its financial position and results of
operations (see Note 12).

      In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans" ("SFAS No. 158"),
which amends SFAS No. 87, "Employers Accounting for Pensions", SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits", SFAS No. 106, "Employers Accounting
for Postretirement Benefits Other Than Pensions", and SFAS No. 132R, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" (revised 2003).
SFAS No. 158 requires companies to recognize an asset or liability for the
over-funded or under-funded status of their benefit plans in their financial
statements. SFAS No. 158 also requires the measurement date for plan assets and
liabilities to coincide with the sponsor's year end. This standard provides two
transition alternatives related to the change in measurement date provisions.
The recognition of an asset and liability related to the funded status provision
is effective for fiscal years ending after December 15, 2006, and the change in
measurement date provisions is effective for fiscal years ending after December
15, 2008. The impact from the recognition at December 31, 2006 of previously
unrecognized amounts reduced shareholders' equity by approximately $3.8 million,
net of $0 million of taxes (see Note 11).

Reclassifications - Certain amounts appearing in the prior years' financial
statements have been reclassified to conform to the current year's presentation.
In 2006, the Company netted its deferred tax assets and liabilities on the
consolidated balance sheet, which in prior periods were reported separately in
assets and liabilities (see Note 12).

3. Inventories:

      A summary of the major components of inventories is as follows (in
thousands):

                                          December 31,            December 31,
                                              2006                    2005
      ------------------------------------------------------------------------

      Finished goods                        $26,515                  $25,548
      Work-in-process                         1,912                    1,497
      Raw materials and supplies              5,793                    7,562
      ------------------------------------------------------------------------

      Total inventories                     $34,220                  $34,607
      ------------------------------------------------------------------------


                                       56
<PAGE>

      If the FIFO (first in, first out) inventory method, which approximates
replacement cost, had been used to value these inventories, they would have been
$2,700 higher at December 31, 2006 and $1,672 higher at December 31, 2005.
During 2006, 2005 and 2004 certain inventory quantities were reduced, which
resulted in liquidations of LIFO (last in, first out) inventory layers. The
effect of the liquidations was to increase cost of sales by $28 and $445 in 2006
and 2005 respectively, and decrease cost of sales by $108 in 2004. The LIFO
method is utilized in determining inventory values as it results in better
matching of costs and revenue.

4. Property, Plant, and Equipment:

      A summary of the major components of property, plant, and equipment is
      as follows (in thousands):
                                                    2006        2005
      ----------------------------------------------------------------
      Land                                       $   2,931   $  2,931
      Buildings and improvements                    47,136     46,522
      Machinery and equipment                      187,583    183,595
      Construction-in-progress                       4,111      4,072
      ----------------------------------------------------------------
                                                   241,761    237,120

      Less accumulated depreciation                174,004    163,913
      ----------------------------------------------------------------
      Total property, plant, and equipment, net   $ 67,757   $ 73,207
      ----------------------------------------------------------------

      Interest is capitalized in connection with the construction of major
facilities and equipment. The capitalized interest is recorded as part of the
asset to which it relates and is amortized over the asset's estimated useful
life. Capitalized interest costs were $0.1 million in 2006, $0.1 million in 2005
and $0.2 million in 2004.

      Capital spending included $1.3 million related to the replacement of
damaged equipment resulting from an explosion. The cost to replace this
equipment was reimbursed by the Company's insurer.

5. Liabilities Subject to Compromise:

      As a result of the Company's Chapter 11 filing (see Notes 1 and 17),
pursuant to SOP 90-7, the Company 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 the Company's
pre-petition debt is recorded at face value and is classified within liabilities
subject to compromise. In addition, the Company's accrued interest expense on
its Senior Notes is also recorded in liabilities subject to compromise.


                                       57
<PAGE>

Liabilities subject to compromise are as follows (in thousands):

                                                  December 31,     December 31,
                                                      2006            2005
-------------------------------------------------------------------------------
Current
-------
Pre-petition other payables and accrued interest    $ 34,602        $ 23,990

Non-current
-----------
Debt (at face value)                                 100,000         100,000
Pension liability                                     15,494          16,871
Other post-retirement benefit obligation               9,249           8,407
Pre-petition other liabilities                        11,790          13,583
-------------------------------------------------------------------------------
Total liabilities subject to compromise             $171,135        $162,851

      Additional pre-petition claims (liabilities subject to compromise) may
arise due to the rejection of executory contracts or unexpired leases, or as a
result of the allowance of contingent or disputed claims.

6. Accrued Liabilities:

      A summary of the significant components of accrued liabilities consists of
the following (in thousands):

                                           December 31,            December 31,
                                               2006                    2005
-------------------------------------------------------------------------------

Accrued warranty, marketing and
   sales promotion                          $18,429                 $19,129
Employee compensation and
   related benefits                           3,333                   3,674
Other                                           501                     269
-------------------------------------------------------------------------------
Total accrued liabilities                   $22,263                 $23,072
-------------------------------------------------------------------------------

      As a result of the Company's Chapter 11 bankruptcy filing and in
accordance with SOP 90-7, certain liabilities are included in liabilities
subject to compromise on the balance sheet as of December 31, 2006 (see Note 5).


                                       58
<PAGE>

7. Debt:

      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 (i)
the earlier of June 30, 2007 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 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 the Company to borrow from the facility. The
Company was in compliance with these covenants at December 31, 2006. Borrowings
under this facility are collateralized by inventory and receivables. At December
31, 2006, based on the level of receivables and inventory, $18.4 million was
available under the facility, of which $5.1 million was utilized for outstanding
letters of credit and $12.7 million was utilized by the revolving loan. The
Company 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 2007 while under Chapter 11
protection. There can be no assurances that the Company 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, the Company will need to obtain and
demonstrate the sufficiency of exit financing. The Company cannot presently
determine the terms of such financing, nor can there be any assurances of its
success obtaining it.

      On August 3, 1998, the Company issued $100 million of the Senior Notes
priced at 99.505% to yield 8.70%. The Senior Notes are redeemable at the option
of the Company, 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, the Company and the trustee under the indenture governing the
Senior Notes amended the indenture, and sufficient note holders consented, to
explicitly permit the Company to take steps in connection with preparing and
filing its prepackaged plan of reorganization under Chapter 11 of the Bankruptcy
Code. In addition, due to the Chapter 11 proceedings, the Company was precluded
from making the interest payments due February 1, 2004, August 1, 2004, February
1, 2005, August 1, 2005, February 1, 2006 and August 1, 2006 on the Senior
Notes. The amount of accrued interest that was not paid on the Senior Notes as
of December 31, 2006 is approximately $29.5 million. As of December 31, 2006,
the principal amount of the Senior Notes, net of unamortized original issue
discount, was $99.9 million. These amounts, plus $3.7 million of accrued
interest on the interest due but not paid from February 1, 2004, August 1, 2004,
February 1, 2005 August 1, 2005, February 1, 2006 and August 1, 2006 are
included in "Liabilities Subject to Compromise" (see Note 5).


                                       59
<PAGE>

8. Other Liabilities:

      As a result of the Company's Chapter 11 bankruptcy filing and in
accordance with SOP 90-7, certain liabilities are included in liabilities
subject to compromise on the balance sheet as of December 31, 2006 (see Note 5).

9. Research and Development Costs:

      Total research and development costs charged to operations amounted to
$4.2 million, $4.3 million and $4.3 million for the years ended December 31,
2006, 2005 and 2004, respectively.

10. Operating Lease Commitments and Rent Expense:

      The Company leases certain office facilities and equipment under leases
with varying terms. Certain leases contain rent escalation clauses. These rent
expenses are recognized on a straight-line basis over the respective term of the
lease.

      Future minimum lease payments of non-cancelable operating leases having
initial or remaining lease terms in excess of one year as of December 31, 2006
are as follows (in thousands):

        Years Ending:
        ----------------------------------------------------------

        2007                                               $2,710
        2008                                                2,465
        2009                                                2,287
        2010                                                1,839
        Thereafter                                             --
        ----------------------------------------------------------
        Total minimum lease payments                       $9,301
        ----------------------------------------------------------

      Rent expense was $3.2 million, $3.8 million and $4.0 million for the years
ended December 31, 2006, 2005 and 2004, respectively.

11. Pensions and Other Postretirement Plans:

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


                                       60
<PAGE>

      The following summarizes the change in the benefit obligation, the change
in plan assets, the funded status, and reconciliation to the amounts recognized
in the balance sheets for the pension benefits and other benefit plans. The
measurement date for all items set forth below is the last day of the fiscal
year presented.

<TABLE>
<CAPTION>
Obligations and Funded Status:                                           At December 31,
                                                         Pension Benefits                Other Benefits
                                                         ----------------                --------------
(in thousands)                                         2006           2005             2006           2005
--------------------------------------------------------------------------------------------------------------

<S>                                                 <C>            <C>               <C>            <C>
Change in Benefit Obligation:
Benefit obligation at beginning of  year            $  75,245      $  71,598         $   8,988      $   8,542
Service cost                                            1,327          1,280               194            183
Interest cost                                           4,485          4,373               537            520
Actuarial loss                                          3,826          2,609               420            212
Benefits paid                                          (5,062)        (4,615)             (475)          (469)
                                                    ---------      ---------         ---------      ---------
Benefit obligation at end of year                   $  79,821      $  75,245         $   9,664      $   8,988
                                                    ---------      ---------         ---------      ---------

Change in Plan Assets:
Fair value of plan assets at beginning of year      $  55,970      $  52,708         $      --      $      --
Actual return on plan assets                            6,837          2,791                --             --
Employer contribution                                   6,574          5,086                --             --
Benefits paid                                          (5,062)        (4,615)               --             --
                                                    ---------      ---------         ---------      ---------
Fair value of plan assets at end of year            $  64,319      $  55,970         $      --      $      --
                                                    ---------      ---------         ---------      ---------

Unfunded status                                       (15,502)     $ (19,275)        $  (9,664)     $  (8,988)
Unrecognized net actuarial loss                        22,711         23,413               458            118
Unrecognized prior service cost                            76           (140)               13             47
                                                    ---------      ---------         ---------      ---------
Net amount recognized                               $   7,285      $   3,998         $  (9,193)     $  (8,823)
                                                    =========      =========         =========      =========
</TABLE>


                                       61
<PAGE>

Amounts recorded in the balance sheets consist of:

<TABLE>
<CAPTION>
                                                        Pension Benefits                  Other Benefits
(in thousands)                                        2006           2005               2006           2005
-------------------------------------------------------------------------------------------------------------
<S>                                               <C>            <C>                <C>            <C>
Accrued benefit cost                              $ (15,502)     $ (17,097)         $  (9,664)     $  (8,988)
Intangible asset                                         --            134                 --             --
Accumulated other comprehensive income               22,787         20,961                471            165
                                                  ---------      ---------          ---------      ---------
Net asset (liability) recognized                  $   7,285      $   3,998          $  (9,123)     $  (8,823)
                                                  =========      =========          =========      =========
</TABLE>

      Included in accumulated other comprehensive loss at December 31, 2006 and
2005 was the tax effect of $0.2 million for the changes in minimum pension
liability recorded in prior years.

Information for pension plans with an accumulated benefit obligation in excess
of plan assets:

                                                                 December 31,
(in thousands)                                                2006         2005
--------------------------------------------------------------------------------
  Projected benefit obligation                              $79,821     $75,245
  Accumulated benefit obligation                             76,549      72,841
  Fair value of plan assets                                  64,319      55,970

Components of Net Periodic Benefit Cost:

<TABLE>
<CAPTION>
                                                           Pension Benefits                      Other Benefits
                                                  --------------------------------       ---------------------------
(in thousands)                                      2006        2005        2004          2006       2005      2004
--------------------------------------------------------------------------------------------------------------------
<S>                                               <C>          <C>         <C>            <C>        <C>        <C>
Service cost                                      $ 1,327      $ 1,280     $ 1,293        $194       $ 183      $ 170
Interest cost                                       4,485        4,373       4,263         537         520        484
Expected return on plan assets                     (3,985)      (3,713)     (3,380)         --          --         --
Recognized net actuarial loss                       1,676        1,328       1,447          80          59         49
Amortization of transition obligation                  --          (54)        (72)         --          --         --
Amortization of prior service cost                   (215)        (288)       (285)         34        (188)      (462)
                                                  -------      -------     -------        ----       -----      -----
Net periodic benefit cost                         $ 3,288      $ 2,926     $ 3,266        $845       $ 574      $ 241
                                                  =======      =======     =======        ====       =====      =====
</TABLE>

      For the Company's pension plans, the estimated net loss and prior service
cost to be amortized from accumulated other comprehensive loss during 2007 is
expected to be $1.4 million and $49 thousand, respectively. For the Company's
post-retirement benefit plans, the estimated net loss and prior service cost to
be amortized from accumulated other comprehensive loss during 2007 is expected
to be $71 thousand and $10 thousand, respectively.


                                       62
<PAGE>

Additional Information:

      Prior to the adoption of SFAS No. 158, the Company recorded an increase to
the additional minimum pension liability of $1.3 million and $2.4 million for
the years ended December 31, 2006 and 2005 respectively.

      The Company adopted SFAS No. 158 as of December 31, 2006. The impact from
recognizing the funded status of the defined benefit plans, representing the
fair value of the plan assets versus the projected benefit obligation, was a
decrease to Stockholders' Equity of $3.8 million. No tax effect was recorded for
the cumulative adjustment to equity because the Company has a full valuation
allowance recorded against its net deferred tax assets. The Company uses a
fiscal year-end date to value all plans. The following table summarized the
impact of adopting SFAS No. 158 on the Consolidated Balance Sheet at December
31, 2006:

<TABLE>
<CAPTION>
                                                                                                        Defined
                                                              Defined                                Benefit Plans
                                                              Benefit               Impact                After
                                                           Plans Before             of SFAS           Adoption of
                                                            Adoption of             No. 158             SFAS No.
(in thousands)                                             SFAS No. 158            Adoption               158
--------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                    <C>                 <C>
Benefit liability                                            (21,376)               (3,790)             (25,166)
Accumulated other comprehensive loss                          19,666                 3,790               23,456
</TABLE>

The weighted average assumptions used to determine benefit obligation as of
year-end were as follows:

<TABLE>
<CAPTION>
                                                                      Pension Benefits            Other Benefits
                                                                   ------------------------    -------------------
                                                                      2006        2005            2006       2005
------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>          <C>            <C>       <C>
Discount rate                                                         6.00%        6.00%          6.00%     6.00%
Rate of compensation increase                                         5.00%        5.00%            --        --
</TABLE>

The weighted average assumptions used to determine net periodic benefit cost
were as follows:

<TABLE>
<CAPTION>
                                                   Pension Benefits                        Other Benefits
                                           --------------------------------         ----------------------------
                                            2006         2005         2004           2006       2005       2004
----------------------------------------------------------------------------------------------------------------
<S>                                         <C>          <C>         <C>            <C>         <C>        <C>
Discount rate                               6.00%        6.25%       6.25%          6.00%       6.25%      6.25%
Expected long-term return on plan assets    7.00%        7.00%       7.00%            --          --         --
Rate of compensation increase               5.00%        5.00%       5.50%            --          --         --
</TABLE>


                                       63
<PAGE>

      In developing the overall expected long-term return on plan assets
assumption, a building block approach was used in which rates of return in
excess of inflation were considered separately for equity securities, debt
securities, and other assets. The excess returns were weighted by the
representative target allocation and added along with an appropriate rate of
inflation to develop the overall expected long-term return on plan assets
assumption. The Company believes this determination is consistent with SFAS No.
87.

Assumed healthcare cost trend rates as of year-end were as follows:

                                                         December 31,
                                                  --------------------------
                                                    2006              2005
                                                  --------          --------

Healthcare cost trend rate assumed for next year    9.0%             10.0%
Ultimate healthcare cost trend rate                 5.0%              5.0%
Year that the assumed rate reaches ultimate rate    2011              2011

      Assumed healthcare cost trend rates have a significant effect on the
amounts reported for healthcare benefits. A one-percentage point change in
assumed healthcare cost trend rates would have the following effects:

<TABLE>
<CAPTION>
                                                          1 Percentage       1 Percentage
                                                              Point              Point
(in thousands)                                               Increase           Decrease
--------------                                               --------           --------

<S>                                                           <C>                 <C>
Effect on total of service and interest cost components       $  66               $ 58
Effect on post-retirement benefit obligation                  $ 715               $649
</TABLE>

Plan Assets:

      For the pension plans, the weighted-average asset allocation at December
31, 2006 and 2005 by asset category is as follows:

                                               Plan Assets at
                                                December 31,
                                            --------------------
     Asset Category:                           2006       2005
                                            --------------------
        Equity securities                        63%        60%
        Debt securities                          36%        39%
        Other                                     1%         1%
                                            --------------------
     Total                                      100%       100%
                                            ====================


                                       64
<PAGE>

      The Company has developed an investment strategy for the pension plans.
The investment strategy is to emphasize total return; that is, the aggregate
return from capital appreciation and dividend and interest income. The primary
objective of the investment management for the plans' assets is the emphasis on
consistent growth; specifically, growth in a manner that protects the plans'
assets from excessive volatility in market value from year to year. The
investment policy takes into consideration the benefit obligations, including
timing of distributions.

      The primary objective for the plans is to provide long-term capital
appreciation through investment in equity and debt securities. The Company's
target asset allocation is consistent with the weighted - average allocation at
December 31, 2006.

      The Company selects professional money managers whose investment policies
are consistent with the Company's investment strategy and monitors their
performance against appropriate benchmarks.

Contributions:

      The Company expects to contribute $6.7 million to its pension plan and
$0.5 million to its other postretirement plan in 2007.

Estimated Future Benefit Payments:

      The following benefit payments, which reflect future service as
appropriate, are expected to be paid. The benefit payments are based on the same
assumptions used to measure the Company's benefit obligation at the end of 2006.

                                                              Other Benefits
                                           Pension            Projected Net
     (in thousands)                        Benefit            Benefit Payments
     --------------                        -------            ----------------

           2007                             $ 5,055                 $  517
           2008                               5,137                    606
           2009                               5,254                    661
           2010                               5,432                    719
           2011                               5,503                    794
           2012-2016                         30,088                  4,534

Defined Contribution Plan:

      The Company also has two 401(k) defined contribution retirement plans that
cover substantially all employees. Eligible employees may contribute up to 20%
of compensation, with partially matching Company contributions. The charge to
income relating to the Company match was $0.4 million, $0.3 million and $0.7
million for the years ended December 31, 2006, 2005 and 2004, respectively.


                                       65
<PAGE>

12.     Income Taxes:

      The Company recorded a tax benefit of $0.8 million on loss before income
taxes of $0.2 million in 2006. In 2006 the Internal Revenue Service (IRS)
completed and closed its audit of the Company's income tax returns for the years
2000 to 2003 and the Company entered into a closing agreement with the IRS in
December 2006, after which it reversed previously established reserves for the
years under audit, resulting in the tax benefit recorded in 2006. The Company
recorded a tax benefit of $2.6 million on loss before income taxes of $24.2
million in 2005 and a tax benefit of $2.5 million on income before taxes of $0.4
million in 2004. These tax benefits primarily related to the tax benefits of
carry back claims for prior year expenditures for asbestos related liabilities.

Income taxes are comprised of the following (in thousands):

                                             For the years ended December 31,
                                          -------------------------------------
                                             2006         2005          2004
-------------------------------------------------------------------------------
Current:
   Federal                                 $  (877)    $ (2,680)     $     39
   State                                        33          105           183
Deferred:
   Federal                                    (524)         417        (3,843)
   State                                       116         (526)       (1,180)
   Valuation allowance                         408          109         2,256
-------------------------------------------------------------------------------
Provision (benefit) for income taxes       $  (844)    $ (2,575)     $ (2,545)
-------------------------------------------------------------------------------

      The following is a reconciliation of the statutory federal income tax rate
to the Company's effective tax rate expressed as a percentage of income before
income taxes:

                                                For the years ended December 31,
                                                -------------------------------
                                                   2006       2005       2004
-------------------------------------------------------------------------------
Statutory federal income tax rate                  34.0%      34.0%      34.0%
State income taxes, net of federal benefit         (7.4)      (0.2)      30.0
Non-deductible, meal and entertainment expense    (78.8)        --       26.1
Change in valuation allowance                      12.7         --      267.5
Tax credits                                        28.9         --         --
Change in prior year estimates                   (259.3)        --         --
Reorganization costs                                 --      (14.3)        --
Benefit of net operating loss                        --       (9.7)    (991.2)
Adjustment to current tax reserve                  782.0        --         --
Other                                              (0.6)       0.9        1.4
-------------------------------------------------------------------------------
Effective tax rate                                511.5%      10.7%    (632.2%)
-------------------------------------------------------------------------------


                                       66
<PAGE>

      During 2006 and 2005, the Company made payments for income taxes of $64
thousand and $149 thousand. In 2005, the Company received income tax refunds of
$19 thousand, and in 2004 the Company received income tax refunds of $1.6
million.

      Deferred income taxes are recorded using enacted tax rates based upon
differences between financial statement and tax bases of assets and liabilities.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.

      The components of the deferred tax asset and liability relate to the
following temporary differences (in thousands):

                                             December 31,           December 31,
                                                 2006                  2005
                                           -------------------------------------
Deferred tax assets:
Accounts receivable                         $         121         $         121
Environmental remediation and
product-related reserves                            8,267                12,716
Postretirement benefit obligations                    531                 3,592
Tax credit and other carryovers                    16,192                 9,129
Other accruals                                      1,215                 1,251

--------------------------------------------------------------------------------
Deferred tax assets                                26,326                26,809
Valuation allowances                               (5,021)               (4,688)
--------------------------------------------------------------------------------

Net deferred tax asset                             21,305                22,121

--------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation and amortization                      (8,489)               (9,971)
Inventory                                          (1,779)               (1,626)
Other                                             (11,037)              (10,524)

--------------------------------------------------------------------------------
Total deferred tax liabilities                    (21,305)              (22,121)

--------------------------------------------------------------------------------
Net deferred tax assets                     $          --         $          --
--------------------------------------------------------------------------------

      At December 31, 2006 and 2005, the Company had available federal net
operating loss carry forwards of approximately $30.5 million and $12.7 million,
respectively, to offset future taxable income. The federal loss carry forwards
will begin to expire in 2025.

13. Supplemental Cash Flow Information:

      Cash payments for interest were $0.8 million, $0.6 million, and $0.6
million for the years ended December 31, 2006, 2005 and 2004, respectively. Net
cash refunds for income taxes were $0.0 million, $0.0 million, and $1.6 million
for the years ended December 31, 2006, 2005 and 2004, respectively.


                                       67
<PAGE>

14. Related Party Transactions:

      The Company and its controlling shareholder, American Biltrite Inc.
("ABI"), provide certain goods and services to each other pursuant to negotiated
agreements. The Company had the following transactions with ABI (in thousands):

                                               For the years ended December 31,
                                              ----------------------------------
                                               2006         2005       2004
--------------------------------------------------------------------------------
Sales made to ABI                            $    14       $    13     $    54
Sales commissions earned by ABI                  525           246         215
Raw material transfers to ABI                  1,109           866       1,521
Computer service income earned from ABI           50            52          54
Material purchases from ABI                    5,290         5,628       6,718
Management fees paid to ABI                      674           651       1,527
--------------------------------------------------------------------------------

      There were no amounts due from ABI on December 31, 2006 and December 31,
2005 respectively. Amounts as of December 31, 2006 and 2005 due to ABI totaled
$0.4 million and $0.6 million, respectively, and are included in accounts
payable and accrued expenses.

15. Major Customers:

      Substantially all the Company's sales are to select flooring distributors
and retailers located in the United States and Canada. Economic and market
conditions, as well as the individual financial condition of each customer, are
considered when establishing allowances for losses from doubtful accounts.

      Two customers, LaSalle-Bristol Corporation and Mohawk Industries, Inc.,
accounted for 27% and 40%, respectively, of the Company's net sales for the year
ended December 31, 2006, 28% and 39%, respectively, for the year ended December
31, 2005, and 26% and 44%, respectively, for the year ended December 31, 2004.
Mohawk Industries accounted for 48% and 31% of accounts receivable at December
31, 2006 and 2005, respectively, while LaSalle-Bristol Corporation accounted for
6% and 24%, respectively, of accounts receivable at December 31, 2006 and 2005.


                                       68
<PAGE>

16. Environmental and Other Liabilities

      The Company records a liability for environmental remediation claims when
a cleanup program or claim payment becomes probable and the costs can be
reasonably estimated. As assessments and cleanup programs progress, these
liabilities are adjusted based upon the progress in determining the timing and
extent of remedial actions and the related costs and damages. The recorded
liabilities, totaling $4.4 million at December 31, 2006 and $4.3 million at
December 31, 2005, are not reduced by the amount of insurance recoveries. Such
estimated insurance recoveries approximated $2.2 million at December 31, 2006
and $1.9 million at December 31, 2005, and are reflected in other non-current
assets. 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 asset for environmental
matters is collectible from a single carrier.

      The Company is named, together with a large number (in most cases,
hundreds) of other companies, as a potentially responsible party ("PRP") in
pending proceedings under the federal Comprehensive Environmental Response,
Compensation and Liability Act, as amended ("CERCLA"), and similar state laws.
In addition, in four other instances, although not named as a PRP, the Company
has received a request for information. The pending proceedings 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. The Company's ultimate liability and funding
obligations in connection with those sites depends on many factors, including
the volume of material contributed to the site, the number of other PRPs and
their financial viability, the remediation methods and technology to be used and
the extent to which costs may be recoverable from insurance. However, under
CERCLA and certain other laws, the Company, as a PRP, can be held jointly and
severally liable for all environmental costs associated with a site.

      The most significant exposure for which the Company 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 Environmental Protection Agency
("EPA") 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 (OU-2) has not been completed. The PRP group, of which
the Company 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 PRPs to perform the OU-2 remedy, assuming that the estimated cost
of the remedy is not more than $10 million. If the estimated cost of the OU-2
remedy is more than $10 million, the PRPs may decline to perform it or they may
elect to perform anyway. Cost estimates for the OU-1 and OU-2 work combined
(including natural resource damages) range between $22 million and $34 million,
with the Company'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 the
Company's share. Fifty percent (50%) of Congoleum's share of the costs is


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<PAGE>

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 $0.3 million in additional costs. Congoleum expects to fund the
balance to the extent further insurance coverage is not available.

      The Company 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 authorization for
Liberty Mutual Insurance Company and the Company to make certain payments that
have been invoiced to the Company with respect to the Consent Decree and related
settlement agreements. An order authorizing and approving the Consent Decree and
related settlement agreements was issued by the Bankruptcy Court in August 2006.

      The Company also accrues remediation costs for certain of the Company's
owned facilities on an undiscounted basis. The Company 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
cleanup costs of $1.3 million, including capital outlays and future maintenance
costs for soil and groundwater remediation, are primarily based on engineering
studies. Of this amount, $0.3 million is included in current liabilities subject
to compromise and $1.0 million is included in non-current liabilities subject to
compromise.

      The Company anticipates that these matters will be resolved over a period
of years and that after application of expected insurance recoveries, funding
the costs will not have a material adverse impact on the Company'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 the financial position of the Company.

17. Asbestos Liabilities:

      Claims Settlement and Chapter 11 Reorganization

      In early 2003, the Company announced a strategy for resolving current and
future asbestos claims liability through confirmation of a pre-packaged plan of
reorganization under Chapter 11 of the Bankruptcy Code. Later in 2003, the
Company entered into a settlement agreement with various asbestos personal
injury claimants (the "Claimant Agreement"). As contemplated by the Claimant
Agreement, the Company also entered into agreements establishing a pre-petition
trust (the "Collateral Trust") to distribute funds in accordance with the terms
of the Claimant Agreement and granting the Collateral Trust a security interest
in the Company's rights under its applicable insurance coverage and payments
from the Company's insurers for asbestos claims.


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<PAGE>

      The Claimant Agreement established a compensable disease valuation matrix
(the "Matrix") and allowed claimants who qualified to participate in the
Claimant Agreement (the "Qualifying Claimants") to settle their claims for the
Matrix value, secured in part (75%) by a security interest in the collateral
granted to the Collateral Trust. The Collateral Trust provides for distribution
of trust assets according to various requirements that give priority (subject to
aggregate distribution limits) to participating claimants who had pre-existing
unfunded settlement agreements ("Pre-Existing Settlement Agreements") with the
Company and participating claimants who qualified for payment under unfunded
settlement agreements entered into by the Company with plaintiffs that had
asbestos claims pending against the Company and which claims were scheduled for
trial after the effective date of the Claimant Agreement but prior to the
commencement of the Company's anticipated Chapter 11 reorganization case
("Trial-Listed Settlement Agreements").

      The Claimant Agreement incorporated Pre-Existing Settlement Agreements and
the settlement of certain Trial-Listed Settlement Agreement claims for a fully
secured claim against the Collateral Trust, and it settled all other claims for
a secured claim against the Collateral Trust equal to 75% of the claim value and
an unsecured claim for the remaining 25%. In December 2005, the Company
commenced the Avoidance Actions seeking to void the security interest granted to
the Collateral Trust and such settlements.

      In October 2003, the Company began soliciting acceptances for its proposed
pre-packaged plan of reorganization and the Company received the votes necessary
for acceptance of the plan in late December 2003. On December 31, 2003,
Congoleum filed a voluntary petition with the United States Bankruptcy Court for
the District of New Jersey (Case No. 03-51524) seeking relief under Chapter 11
of the Bankruptcy Code. In January 2004, the Company filed its proposed plan of
reorganization and disclosure statement with the Bankruptcy Court.

      In November 2004, Congoleum filed the Fourth Plan with the Bankruptcy
Court reflecting the result of further negotiations with representatives of the
ACC, the FCR and other asbestos claimant representatives. The Bankruptcy Court
approved the disclosure statement and plan voting procedures in December 2004
and Congoleum obtained the requisite votes of asbestos personal injury claimants
necessary to seek approval of the Fourth Plan.

      In April 2005, Congoleum announced that it had reached an agreement in
principle with representatives of the ACC and the FCR to make certain
modifications to its proposed plan of reorganization and related documents
governing the settlement and payment of asbestos-related claims against
Congoleum. Under the agreed-upon modifications, asbestos claimants with claims
settled under Congoleum's pre-petition settlement agreements would agree to
forbear from exercising the security interest they were granted and share on a
pari passu basis with all other present and future asbestos claimants in
insurance proceeds and other assets of the Plan Trust.


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<PAGE>

      In July 2005, Congoleum filed the Sixth Plan and related documents with
the Bankruptcy Court which reflected the result of these negotiations, as well
as other technical modifications. The Bankruptcy Court approved the disclosure
statement and voting procedures and Congoleum commenced solicitation of
acceptances of the Sixth Plan in August 2005. In September 2005, Congoleum
learned that certain asbestos claimants were unwilling to agree to forbear from
exercising their security interest as contemplated by the Sixth Plan and
subsequently withdrew the Sixth Plan.

      In November 2005, the Bankruptcy Court denied a request to extend
Congoleum's exclusive right to file a plan of reorganization and solicit
acceptances thereof. In March 2006, Congoleum filed the Eighth Plan. 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 all parties in interest in Congoleum's reorganization
proceedings to participate in global mediation discussions. Several mediation
sessions took place from June through September 2006. During the initial
mediation negotiations, Congoleum reached an agreement in principle, subject to
mutually agreeable definitive documentation, with the ACC, the FCR and the
Company's controlling shareholder, ABI, on certain terms of the Ninth Plan,
which Congoleum filed and proposed jointly with the ACC in August 2006. CNA and
the Bondholders' Committee jointly filed a new, competing plan in August 2006
and each withdrew its prior plan of reorganization. Following further mediated
negotiations, Congoleum, the ACC, the FCR, ABI and the Bondholders' Committee
reached agreement on terms of the Tenth Plan, which Congoleum filed jointly with
the ACC in September 2006. Following the Bondholders' Committee's withdrawal of
support for CNA's plan, CNA filed the CNA Plan. In October 2006, Congoleum and
the ACC jointly filed a revised version of the Tenth Plan, the Eleventh Plan,
which reflected minor technical changes agreed to by the various parties
supporting Congoleum's plan. In October 2006, the Bankruptcy Court held a
hearing to consider the adequacy of the disclosure statements with respect to
the Tenth Plan and the CNA Plan and to hear arguments on respective summary
judgment motions that the Tenth Plan and the CNA Plan are not confirmable as a
matter of law. The Bankruptcy Court provisionally approved the disclosure
statements for both the Tenth Plan and the CNA Plan subject to the Bankruptcy
Court's ruling on the respective summary judgment motions. In February 2007, the
Bankruptcy Court issued two separate opinions ruling that the Tenth Plan and the
CNA Plan are not confirmable as a matter of law. Because the Tenth Plan and
Eleventh Plan are substantially identical, the Company believes the ruling
issued with respect to the Tenth Plan also applies to the Eleventh Plan. In
March 2007, Congoleum resumed global plan mediation discussions seeking to
resolve the issues raised in the Bankruptcy Court's ruling with respect to the
Tenth Plan. Congoleum has also appealed the ruling with respect to the Tenth
Plan to the District Court.


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<PAGE>

      There can be no assurance that the Company will be successful in its
appeal or in negotiating a new plan of reorganization that resolves the issues
raised in the Bankruptcy Court's ruling with respect to the Tenth Plan, that the
Company will obtain approval to solicit acceptances of a new plan of
reorganization, that the Company will receive the acceptances necessary for
confirmation of a plan of reorganization, that any proposed plan will not be
modified further, that a plan will receive necessary court approvals from the
Bankruptcy Court and the District Court, or that such approvals will be received
in a timely fashion, that a plan will be confirmed, that a plan, if confirmed,
will become effective, or that there will be sufficient funds to pay for
continued litigation over a plan of reorganization. It also is unclear whether
any other person will attempt to propose a plan or what any such plan would
provide or propose, and whether the Bankruptcy Court would approve such a plan.

      Congoleum is presently involved in litigation with certain insurance
carriers related to disputed insurance coverage for asbestos related
liabilities, and certain insurance carriers filed various objections to
Congoleum's previously proposed plans of reorganization and related matters and
are expected to file objections to any future plan. Certain other parties have
also filed various objections to Congoleum's previously proposed plans of
reorganization and may file objections to any future plan.

      During 2005 and 2006, Congoleum entered into a number of settlement
agreements with excess insurance carriers over coverage for asbestos-related
claims. In May 2005, certain AIG companies agreed to pay approximately $103
million over ten years to the Plan Trust. This settlement resolves coverage
obligations of policies with a total of $114 million in liability limits for
asbestos bodily injury claims. Payment is subject to various conditions,
including without limitation, the effectiveness of a plan of reorganization that
provides AIG with certain specified relief including a channeling injunction
pursuant to Section 524(g) of the Bankruptcy Code. An insurer appealed the
approval order granted by the Bankruptcy Court to the District Court. The
District Court, however, entered an order in September 2006 that
administratively terminated the appeal. The AIG settlement provides that any
party may declare that the settlement agreement is null and void if the
Confirmation Order fails to become a final order by May 12, 2007, and AIG may
terminate the settlement agreement pursuant to this provision. In June 2005, the
Company entered into a settlement agreement with certain underwriters at
Lloyd's, London, pursuant to which the certain underwriters paid approximately
$20 million into an escrow account in exchange for a release of insurance
coverage obligations. The escrow agent will transfer the funds to the Plan Trust
once a plan of reorganization with the Section 524(g) protection specified in
the settlement agreement goes effective and the Bankruptcy Court approves the
transfer of the funds. The settlement provided that any party may declare that
the settlement was null and void if the confirmation order fails to become a
final order by June 22, 2007. In August 2005, the Company entered into a
settlement agreement with Federal Insurance Company pursuant to which Federal
will pay $4 million to the Plan Trust, subject to certain adjustments, once a
plan of reorganization with the Section 524(g) protection specified in the
settlement agreement goes effective and the Bankruptcy Court approves the
transfer of the funds. The FCR appealed the approval order granted by the
Bankruptcy Court to the District Court. The FCR, Federal and the Company have
reached an agreement to resolve the appeal pursuant to which the Federal
settlement agreement will be amended to fix the settlement amount payable by
Federal at $2.1 million and to delete from the settlement agreement the
adjustment mechanism, which operated under certain circumstances to reduce the


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<PAGE>

settlement amount, and the Bankruptcy Court has approved this treatment. In
October 2005, Congoleum entered into a settlement agreement with Mt. McKinley
Insurance Company and Everest Reinsurance Company pursuant to which Mt. McKinley
and Everest paid $21.5 million into an escrow account. The escrow agent will
transfer the funds to the Plan Trust once a plan of reorganization with the
Section 524(g) protection specified in the settlement agreement goes effective
and the Bankruptcy Court approves the transfer of the funds. An insurer and the
FCR have appealed the approval order granted by the Bankruptcy Court to the
District Court, but the appeal has been administratively terminated by
agreement. In March 2006, Congoleum entered into a settlement agreement with
Harper Insurance Limited. Under the terms of this settlement, Harper will pay
approximately $1.4 million to Congoleum or the Plan Trust once certain
conditions are satisfied, including the effectiveness of a plan of
reorganization containing the Section 524(g) protection specified in the
settlement agreement. The Bankruptcy Court approved this settlement in April
2006. In April 2006, Congoleum entered into a settlement agreement with
Travelers Casualty and Surety Company and St. Paul Fire and Marine Insurance
Company (collectively, "Travelers"). Under the terms of this settlement,
Travelers will pay $25 million in two installments over thirteen months to the
Plan Trust once a plan of reorganization with the Section 524(g) protection
specified in the settlement agreement goes effective and the Bankruptcy Court
approves the transfer of the funds. The FCR sought, and was granted, limited
discovery with respect to the Travelers settlement. A hearing to consider the
Travelers settlement has been adjourned several times and is now scheduled for
April 2007. In April 2006, Congoleum also entered into a settlement agreement
with Fireman's Fund Insurance Company. Under the terms of this settlement,
Fireman's Fund will pay $1 million to the Plan Trust once a plan of
reorganization with the Section 524(g) protection specified in the settlement
agreement goes effective and the Bankruptcy Court approves the transfer of the
funds. The settlement was approved by the Bankruptcy Court in September 2006. In
August 2006, Congoleum entered into a settlement agreement with Century
Indemnity Company and its affiliates ("Century"). Under the terms of this
settlement, Century will pay $16.95 million to the Plan Trust in four
installments over a three-year period commencing 60 days after all conditions to
the agreement have been satisfied. The Bankruptcy Court approved this settlement
in September 2006. Certain insurance companies appealed the Bankruptcy Court
approval order to the District Court. Upon the entry of stipulations with the
appellants, the Century appeal was dismissed. It is possible that one or more of
the settling insurers may argue temporal, Plan-related, and other conditions to
payment have not been satisfied and therefore such insurer is relieved of
certain of its settlement obligations. If the Company is unable to confirm a
plan of reorganization with Section 524(g) protection, the settlements would
terminate.

      The terms of any new plan of reorganization are likely to be materially
different from the Eleventh Plan, and could be amended or modified as a result
of further negotiations with various parties. The Company expects that it will
take until some time late in the third quarter of 2007 at the earliest to obtain
confirmation of any plan of reorganization.


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<PAGE>

      Under plans prior to the Tenth Plan, Congoleum's assignment of insurance
recoveries to the Plan Trust was net of costs incurred by Congoleum in
connection with insurance coverage litigation, and Congoleum was entitled to
withhold from recoveries, or seek reimbursement from the Plan Trust, for
coverage litigation costs incurred after January 1, 2003 and for $1.3 million in
claims processing fees paid in connection with claims settled under the Claimant
Agreement. A receivable was recorded for these costs as they were paid. Under
the Eleventh Plan, Congoleum would have been entitled to reimbursement of only
the $1.3 million in claims processing fees and would not have collected the
balance of these receivables ($21.8 million at December 31, 2006). The
write-off, as well as forgiveness of indebtedness income pursuant to any future
plan and any other applicable charges or credits are expected to be recorded at
a future date, the net effect of which cannot be determined. Congoleum is unable
to predict whether it will be reimbursed for claims processing fees and coverage
litigation costs to the extent not already reimbursed.

      There were no asbestos related property damage claims asserted against the
Company at the time of its bankruptcy filing. The Bankruptcy Court approved an
order establishing a bar date of May 3, 2004 for the filing of asbestos property
damage claims. The claims agent appointed in the Company's bankruptcy proceeding
advised the Company that, as of the bar date, it received 35 timely filed
asbestos property damage claims asserting liquidated damages in the amount of
approximately $0.8 million plus additional unspecified amounts. The Company
objected to certain claims on various grounds, and the Bankruptcy Court
ultimately allowed 19 claims valued at $133 thousand. It is anticipated that any
plan of reorganization will provide for payment of those claims in full from
certain insurance proceeds.

      Based on the Eighth Plan, the Company has made provision in its financial
statements for the minimum amount of the range of estimates for its contribution
to effect its plan to settle asbestos liabilities through a Plan Trust. The
Company recorded charges aggregating approximately $51.3 million in prior years,
and is not yet able to determine the amount of the additional cost that will be
required to complete any future plan of reorganization. Amounts that may be
contributed to any Plan Trust and costs for pursuing and implementing any plan
of reorganization could be materially higher than currently recorded or
previously estimated. Delays in proposing, filing or obtaining approval of a new
amended plan of reorganization, or the proposal or solicitation of additional
plans by other parties could result in a proceeding that takes longer and is
more costly than the Company has previously estimated. The Company may record
significant additional charges in connection with its reorganization
proceedings.


                                       75
<PAGE>

      Pending Asbestos Claims

      In 2003, the Company was one of many defendants in approximately 22
thousand pending lawsuits (including workers' compensation cases) involving
approximately 106 thousand individuals, alleging personal injury or death from
exposure to asbestos or asbestos-containing products. Claims involving
approximately 80 thousand individuals were settled pursuant to the Claimant
Agreement and litigation related to unsettled or new claims is presently stayed
by the Bankruptcy Code. The Company expects unsettled and future claims to be
handled in accordance with the terms of a plan of reorganization and a Plan
Trust. In December 2005, Congoleum commenced the Avoidance Actions seeking to
void the security interest granted to the Collateral Trust and such settlements.
In March 2006, Congoleum filed a motion for summary judgment in the Avoidance
Actions seeking to avoid the Claimant Agreement settlements and liens under
various bankruptcy theories, which motion was denied in June 2006 and the
Avoidance Actions remain pending.

      Nearly all asbestos-related claims that have been brought against the
Company to date allege that various diseases were caused by exposure to
asbestos-containing products, including resilient sheet vinyl and tile
manufactured by the Company (or, in the workers' compensation cases, exposure to
asbestos in the course of employment with the Company). The Company discontinued
the manufacture of asbestos-containing sheet products in 1983 and
asbestos-containing tile products in 1974. In general, governmental authorities
have determined that asbestos-containing in the sheet and tile products are
non-friable (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 non-friable. The Company has issued warnings not to remove
asbestos-containing flooring by sanding or other methods that may cause the
product to become friable.

      Status of Insurance Coverage

      During the period that Congoleum produced asbestos-containing products,
until claims for asbestos were excluded under insurance policies, the Company
purchased primary and excess insurance policies providing in excess of $1
billion of coverage for general and product liability claims. Through August
2002, substantially all asbestos-related claims and defense costs were paid
through primary insurance coverage. In August 2002, the Company received notice
that its primary insurance limits had been paid in full. The payment of limits
in full by one of the primary insurance companies was based on its contention
that limits in successive policies were not cumulative for asbestos claims and
that Congoleum was limited to only one policy limit for multiple years of
coverage. Certain excess insurance carriers claimed that the non-cumulation
provisions of the primary policies were not binding on them and that there
remained an additional $13 million in primary insurance limits plus related
defense costs before their policies were implicated. There is insurance coverage
litigation currently pending in New Jersey state court (the "State Court")
between Congoleum and its excess insurance carriers, and the guaranty funds and
associations for the State of New Jersey. The litigation was initiated in
September 2001, by one of Congoleum's excess insurers (the "Coverage Action").
In April 2003, the New Jersey Supreme Court ruled in another case involving the
same non-cumulation provisions as in the Congoleum primary policies (the
"Spaulding Case") that the non-cumulation provisions are invalid under New


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<PAGE>

Jersey law and that the primary policies provide coverage for the full amount of
their annual limits for all successive policies. Congoleum has reached a
settlement agreement (the "Liberty Settlement") with the insurance carrier whose
policies contained the non-cumulation provisions, pursuant to which the
insurance carrier will pay Congoleum $15.4 million in full satisfaction of the
applicable policy limits, of which $14.5 million has been paid to date. Pursuant
to the terms of the Security Agreement, the Company is obligated to pay any
insurance proceeds it receives under the Liberty Settlement, net of any fees and
expenses it may be entitled to deduct, to the Collateral Trust or Plan Trust.
Payment of such fees and expenses are subject to Bankruptcy Court order or
approval. As of December 31, 2002, the Company had already entered into
settlement agreements with asbestos claimants exceeding the amount of this
previously disputed primary coverage. Based on these settlements, the Company
contended that, even allowing for annual limits of all primary policies, primary
coverage was exhausted and the excess policies triggered. The excess carriers
have objected to the reasonableness of several of these settlements, and
Congoleum believes that they will continue to dispute the reasonableness of the
settlements and contend that their policies still are not implicated and will
dispute their coverage for that and other various reasons in ongoing coverage
litigation.

      The excess insurance carriers have objected to the global settlement of
the asbestos claims currently pending against Congoleum as contemplated by the
Claimant Agreement on the grounds that, among other things, the negotiations
leading to the settlement and the Claimant Agreement violate provisions in their
insurance policies, including but not limited to the carriers' right to
associate in the defense of the asbestos cases, the duty of Congoleum to
cooperate with the carriers and the right of the carriers to consent to any
settlement. The excess insurance carriers also contend the settlement terms in
the Claimant Agreement are not fair or reasonable and/or that the Claimant
Agreement was not negotiated at arm's length or in good faith. Additionally,
certain insurers have argued that Congoleum's entering into the Claimant
Agreement voids the insurance for the underlying claims in their entirety.
Certain insurers also have claimed that the Claimant Agreement voids their
entire policy obligations. Congoleum has disputed the allegations and
contentions of the excess insurance carriers. In November 2003, the Court denied
a motion for summary judgment by the excess insurance carriers that the Claimant
Agreement was not fair, reasonable or in good faith, ruling that material facts
concerning these issues were in dispute. In April 2004, the State Court denied
motions for summary judgment by the excess carriers that the Claimant Agreement
was not binding on them because Congoleum had breached the consent and
cooperation clauses of their insurance policies by, among other things, entering
into the Claimant Agreement without their consent. Congoleum has argued, among
other things, that it was entitled to enter into the Claimant Agreement and/or
the Claimant Agreement was binding on the excess insurance carriers because they
were in breach of their policies and/or had denied coverage and/or had created a
conflict with Congoleum by reserving rights to deny coverage and/or the Claimant
Agreement was fair, reasonable and in good faith and/or there was and is no
prejudice to the excess insurance carriers from the Claimant Agreement and/or
the excess insurance carriers had breached their duties of good faith and fair
dealing.


                                       77
<PAGE>

      In August 2004, the State Court entered a case management order that
divided the trial into three phases. A new judge was assigned to the case in
February 2005 and the schedule was modified as a result.

      In February 2005, the State Court ruled on a series of summary judgment
motions filed by various insurers. The State Court denied a motion for summary
judgment filed by certain insurers, holding that there were disputed issues of
fact regarding whether the Claimant Agreement and other settlement agreements
between Congoleum and the claimants had released Congoleum and the insurers from
any liability for the asbestos bodily injury claims of the claimants who signed
the Claimant Agreement and the other settlement agreements.

      The State Court also denied another motion for summary judgment filed by
various insurers who argued that they did not have to cover the liability
arising from the Claimant Agreement because they had not consented to it.

      The State Court granted summary judgment regarding Congoleum's bad faith
claims against excess insurers (other than first-layer excess insurers), holding
that the refusal of these excess insurers to cover the Claimant Agreement was at
least fairly debatable and therefore not in bad faith.

      In March 2005, the Company filed a motion in the Bankruptcy Court asking
the Bankruptcy Court to vacate its prior order lifting the automatic stay in
bankruptcy to permit the Coverage Action to proceed. The Company requested that
the Coverage Action proceedings be stayed until the Company has completed its
plan confirmation process in the Bankruptcy Court. A hearing on the Company's
motion was held in April 2005 and the motion was denied.

      The first phase of the trial began in August 2005. Three months into the
trial, in October 2005, a federal appeals court ruled that the law firm of
Gilbert Heintz & Randolph ("GHR"), which had been acting as the Company's
insurance co-counsel in the Coverage Action, had other representations which
were in conflict with its representation of Congoleum. As a result of this
ruling, with Bankruptcy Court approval, Congoleum retained the firm of Covington
& Burling to represent it as co-counsel with Dughi & Hewit in the insurance
coverage litigation and insurance settlement matters previously handled by GHR.

      In the middle of Congoleum presenting its case, in or about mid-November
2005, and in early December 2005, certain insurers filed motions for summary
judgment on the grounds, inter alia, that the decision of the United States
Court of Appeals for the Third Circuit reversing the Bankruptcy Court's order
approving the retention of the Gilbert Heinz & Randolph firm in In re Congoleum,
426 F.3d 675 (3d Cir. 2005), and/or Congoleum's filing of the Avoidance Actions
in the Bankruptcy Court, entitled them to judgment as a matter of law on the
Phase 1 issues. Congoleum opposed the motions. The motions were argued in
January 2006, and in March 2006 the State Court denied the motions for summary
judgment.


                                       78
<PAGE>

      Congoleum completed the presentation of its case in April 2006. Certain
insurers moved for a directed verdict in their favor during the first week of
May 2006. Hearings of arguments on the directed verdict motion took place in
June 2006. In July 2006 the State Court denied the motion for a directed
verdict. The trial resumed in September 2006. Defendant insurers presented their
case, for the most part, through documents and deposition designations. Post
trial briefs were submitted by the parties in November 2006. The parties have
completed Phase 1 - all evidence has been submitted to the court and the parties
have also filed all post trial briefs. The court has not decided Phase 1, and
the parties await the court's decision.

      Phase 1 is limited to deciding whether the insurers are obligated to
provide coverage under the policies at issue in this litigation for the asbestos
claims settled under the terms of the global Claimant Agreement.

      Some insurers contend that, if there is a ruling in Phase 1 that there is
no coverage for the claims submitted by asbestos claimants and settled under the
Claimant Agreement, and/or depending on the factual and legal basis for such
ruling, then the insurers will also not owe coverage for any claims of such
Claimant Agreement claimants even if Congoleum and such claimants agreed to
amend the Claimant Agreement and/or to settle their claims under other claims
payment standards, including bankruptcy Trust Distribution Procedures (TDPs).
The Company believes, however, that even if the insurers were to succeed in the
first phase of the Coverage Action, such result would not prohibit individual
claimants and Congoleum from negotiating new and/or different settlements, and /
or amending the Claimant Agreement, and then seeking payment from its insurers
for such settlements. In addition, the Company does not believe that it would be
deprived of coverage-in-place insurance for non-settled asbestos claims.
However, there can be no assurances of the outcome of these matters or their
potential effect on the Company's ability to obtain approval of a plan of
reorganization. Congoleum intends to contest any attempt by the insurers to
enlarge or expand upon a Phase 1 ruling that is adverse to Congoleum. However,
there can be no assurances of the outcome of these matters.

      The second phase of the trial will address all coverage issues, including
but not limited to whether certain trial listed settlements were fair,
reasonable and negotiated in good faith and covered by insurance as well as
trigger and allocation of asbestos losses to insurance policies. Any additional
discovery, and scheduling of pre-trial motions and trial dates for the Phase 2
will be addressed by the court after the Phase 1 trial decision.

      The third and final phase of the trial will address bad faith punitive
damages, if appropriate.

      Given the actions of its excess insurance carriers, the Company believes
it likely that it would currently have to fund any asbestos-related expenses for
defense expense and indemnity itself. However, litigation by asbestos claimants
against the Company is stayed pursuant to the Company's bankruptcy proceedings,
and should the Company obtain a channeling injunction in a plan of
reorganization, the Company would not anticipate its future expenditures for
defense and indemnity of asbestos-related claims, other than expenditures
pursuant to a plan of reorganization, will be significant.


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<PAGE>

      Accounting for Asbestos-Related Claims

      Under the terms of the Claimant Agreement, the Company's claims processing
agent processed 79,630 claims meeting the requirements of the Claimant Agreement
with a settlement value in excess of $466 million. In addition, Pre-Existing
Settlement Agreements and Trial-Listed Settlement Agreements with claims secured
by the Collateral Trust total approximately $25 million. As a result of
tabulating ballots on its Fourth Plan, the Company 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 the Sixth Plan.

      The Company's gross liability of in excess of $491 million for these
settlements and contingent liability for the additional approximately $512
million in unsettled claims is substantially in excess of the total assets of
the Company. The Company believes that it does not have the necessary financial
resources to litigate and/or fund judgments and/or settlements of the asbestos
claims in the ordinary course of business. Therefore, the Company believes the
most meaningful measure of its probable loss due to asbestos litigation is the
amount it will have to contribute to a Plan Trust plus the costs to effect its
reorganization under Chapter 11. Congoleum cannot presently determine the amount
of fees, expenses, and trust contributions it may incur in connection with
obtaining confirmation of its plan of reorganization. Required expenditures
could be materially higher than amounts recorded in the financial statements or
previous estimates.

      In February 2006, the Bankruptcy Court ordered GHR to disgorge all fees
and certain expenses it was paid by Congoleum. The amount of the disgorgement is
approximately $9.6 million. In October 2006, Congoleum and GHR entered into a
settlement agreement (the "GHR Settlement") under which GHR would pay Congoleum
approximately $9.2 million in full satisfaction of the disgorgement order. The
payment would be secured by assets of GHR and would be made over time according
to a formula based on GHR's earnings. Congoleum has filed a motion seeking
Bankruptcy Court approval of the GHR Settlement which is pending. Treatment of
funds received pursuant to the GHR Settlement under a future amended plan of
reorganization may differ from the treatment accorded by any prior plans.

      The Company recorded charges aggregating approximately $51.3 million in
prior years, and is not yet able to determine the amount of the additional cost
that will be required to complete its reorganization. Additional charges may be
required in the future should the minimum estimated cost increase. The maximum
amount of the range of possible asbestos-related losses is limited to the going
concern or liquidation value of the Company, an amount which the Company
believes is substantially less than the minimum gross liability for the known
claims against it.

      The Company has not attempted to make an estimate of its probable
insurance recoveries for financial statement purposes given the accounting for
its estimate of future asbestos-related costs. Substantially all future
insurance recoveries will be assigned to the Collateral Trust or a Plan Trust.


                                       80
<PAGE>

      Amounts Recorded in Financial Statements

      The table below provides an analysis of changes in the Company's asbestos
reserves and related receivables from December 31, 2005 to December 31, 2006:

<TABLE>
<CAPTION>
                                                                 Spending         Recoveries
                                Balance at      Addition s        Against            From           Balance at
(in thousands)                  12/31/2005     (Deletions)        Reserve         Insurance         12/31/2006
------------------------------------------------------------------------------------------------------------------

<S>                              <C>                <C>            <C>                <C>             <C>
Reserves
--------
   Current                       $  19,469          $      --      $ (11,669)         $      --       $   7,800
   Long-Term                            --                 --             --                 --              --

Receivables
-----------
   Current                         (14,793)                --        (10,704)             3,684         (21,813)
   Long-Term                            --                 --             --                 --              --

------------------------------------------------------------------------------------------------------------------

Net Asbestos Liability
(Asset)                          $   4,676          $      --      $ (22,373)         $   3,684       $ (14,013)
                                 =========          =========      =========          =========       =========

Restricted Cash
---------------
   Insurance Proceeds            $   8,901          $     932      $      --          $  (3,684)      $   6,149
                                 =========          =========      =========          =========       =========
</TABLE>

      The table below provides an analysis of changes in the Company's asbestos
reserves and insurance receivables from December 31, 2004 to December 31, 2005:

<TABLE>
<CAPTION>
                                                                                    Spending     Recoveries
                                 Balance at                           Additions      Against         From       Balance at
(in thousands)                   12/31/2004     Reclassifications    (Deletions)     Reserve      Insurance     12/31/2005
--------------------------------------------------------------------------------------------------------------------------

<S>                                <C>              <C>             <C>            <C>           <C>           <C>
Reserves
--------
   Current                         $   6,550        $   2,738       $  22,964      $ (12,783)    $      --     $  19,469
   Long-Term                           2,738           (2,738)             --             --            --            --

Receivables
-----------
   Current                            (1,509)          (7,300)          2,362        (14,437)        6,091       (14,793)
   Long-Term                          (7,300)           7,300              --             --            --            --

--------------------------------------------------------------------------------------------------------------------------

Net Asbestos Liability             $     479        $      --       $  25,326      $ (27,220)    $   6,091     $   4,676
----------------------             =========        =========       =========      =========     =========     =========

Restricted Cash
---------------
Insurance Proceeds                 $  14,530        $      --       $     462      $  (6,091)    $      --     $   8,901
                                   =========        =========       =========      =========     =========     =========
</TABLE>


                                       81
<PAGE>

18. Stock Option Plans:

      Under the Company's 1995 Stock Option Plan, as amended (the "1995 Plan"),
options to purchase up to 800,000 shares of the Company's Class A common stock
may be issued to officers and key employees. Such options may be either
incentive stock options or nonqualified stock options, and the options' exercise
price must be at least equal to the fair value of the Company's Class A common
stock on the date of grant. All options granted under the 1995 Plan have
ten-year terms and vest over five years at the rate of 20% per year beginning on
the first anniversary of the date of grant.

      On July 1, 1999, the Company established its 1999 Stock Option Plan for
Non-Employee Directors, as amended (the "1999 Plan"), under which non-employee
directors may be granted options to purchase up to 50,000 shares of the
Company's Class A common stock. Options granted under the 1999 Plan have
ten-year terms and vest six months from the grant date.

      In December 2001, the Company offered its eligible option holders an
exchange of all options then outstanding and granted to them under the 1995 Plan
or the 1999 Plan for new stock options to be granted under those plans not
earlier than six months and one day after the date the Company canceled any
options tendered to and accepted by it pursuant to the offer to exchange. On
January 4, 2002, the Company accepted and canceled 667,500 options that had been
previously granted under the 1995 Plan and 9,500 options that had been
previously granted under the 1999 Plan that were tendered to and accepted by the
Company pursuant to the offer to exchange.

      On July 11, 2002, the Company issued 665,500 options under the 1995 Plan
and 9,500 options under the 1999 Plan at an exercise price of $2.05 per share
pursuant to the exchange. The new options granted under the 1995 Plan will
generally vest annually in equal installments over a five-year period beginning
on the first anniversary of the date of grant, and the new options granted under
the 1999 Plan will generally vest fully six months from the date of grant.

      On May 10, 2004, the Company issued 38,500 options under the 1995 Plan at
an exercise price of $1.94 per share. The new options granted under the 1995
Plan will generally vest annually in equal installments over a five-year period
beginning on the first anniversary of the date of the grant.

      On March 10, 2005, the Company issued 5,000 options under the 1995 Plan at
an exercise price of $5.74 per share. The new options granted under the 1995
Plan will generally vest annually in equal installments over a five-year period
beginning on the first anniversary of the date of the grant.

      On July 1, 2004, the Company issued 2,500 options under the 1999 Plan at
an exercise price of $2.60 per share. The new options granted under the 1999
Plan will generally vest fully six months from the date of grant.

      On July 1, 2005, the Company issued 2,500 options under the 1999 Plan at
an exercise price of $3.91 per share. The new options granted under the 1999
Plan will generally vest fully six months from the date of grant.


                                       82
<PAGE>

      On December 16, 2005, the Company issued 2,000 options under the 1999 Plan
at an exercise price of $4.42 per share. The new options granted under the 1999
Plan will generally vest fully six months from the date of grant.

      On July 1, 2006, the Company issued 2,500 options under the 1999 Plan at
an exercise price of $2.11 per share. The new options granted under the 1999
Plan will generally vest fully six months from the date of grant.

      A summary of the Company's 1995 Plan activity, and related information, is
as follows:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
December 31, 2006:
---------------------------------------------------------------------------------------------------
                                                                                 Weighted average
                                                               Shares             exercise price
---------------------------------------------------------------------------------------------------
<S>                                                            <C>                       <C>
Options outstanding beginning of year                            670,500                 $    2.03
Options granted                                                       --                        --
Options exercised                                                   (600)                    (0.36)
Options forfeited                                                (32,900)                    (2.08)
                                                               ---------                 ---------

Options outstanding end of year                                  637,000                 $    2.03
---------------------------------------------------------------------------------------------------

Exercisable at end of year                                       488,200                 $    2.03
Weighted average remaining contractual life                    5.70 years
Stock options available for future issuance                      148,800
---------------------------------------------------------------------------------------------------

<CAPTION>
---------------------------------------------------------------------------------------------------
December 31, 2005:
---------------------------------------------------------------------------------------------------
                                                                                 Weighted average
                                                                 Shares           exercise price
---------------------------------------------------------------------------------------------------

<S>                                                             <C>                      <C>
Options outstanding beginning of year                            686,500                 $    1.99
Options granted                                                    5,000                      5.74
Options exercised                                                (11,200)                     1.81
Options forfeited                                                 (9,800)                     1.14
                                                               ---------                 ---------

Options outstanding end of year                                  670,500                 $    2.03
---------------------------------------------------------------------------------------------------

Exercisable at end of year                                       383,600                 $    2.03
Weighted average remaining contractual life                     6.65 years
Stock options available for future issuance                      114,400
---------------------------------------------------------------------------------------------------
</TABLE>


                                       83
<PAGE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
December 31, 2004:
-----------------------------------------------------------------------------------------------
                                                                            Weighted average
                                                            Shares           exercise price
-----------------------------------------------------------------------------------------------
<S>                                                         <C>                  <C>
Options outstanding beginning of year                       $ 652,500            $   1.99
Options granted                                                38,500                1.94
Options exercised                                                (400)               2.05
Options forfeited                                              (4,100)               2.05
                                                            ---------            --------

Options outstanding end of year                             $ 686,500            $   1.99
-----------------------------------------------------------------------------------------------

Exercisable at end of year                                    255,600            $   2.04
Weighted average remaining contractual life                 7.63 years
Stock options available for future issuance                   111,100
-----------------------------------------------------------------------------------------------
</TABLE>

      A summary of the 1999 Plan activity, and related information, is as
follows:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
December 31, 2006:
-----------------------------------------------------------------------------------------------------
                                                                 Shares            Weighted average
                                                                                     exercise price
-----------------------------------------------------------------------------------------------------
<S>                                                            <C>                        <C>
Options outstanding beginning of year                            21,500                   $   2.40
Options granted                                                   2,500                       2.11
Options exercised                                                    --                         --
Options forfeited                                                    --                         --
                                                                 ------                   --------

Options outstanding end of year                                  24,000                   $   2.37
-----------------------------------------------------------------------------------------------------

Exercisable at end of year                                       21,500                   $   2.37
Weighted average remaining contractual life                    6.65 years
Stock options available for future issuance                      26,000
-----------------------------------------------------------------------------------------------------
</TABLE>


                                       84
<PAGE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
December 31, 2005:
-----------------------------------------------------------------------------------------------------
                                                                                  Weighted average
                                                                 Shares            exercise price
-----------------------------------------------------------------------------------------------------
<S>                                                            <C>                        <C>
Options outstanding beginning of year                            17,000                   $   1.94
Options granted                                                   4,500                       4.14
Options exercised                                                    --                         --
Options forfeited                                                    --                         --
                                                                 ------                   --------

Options outstanding end of year                                  21,500                   $   2.40
-----------------------------------------------------------------------------------------------------

Exercisable at end of year                                       17,000                   $   1.94
Weighted average remaining contractual life                    6.68 years
Stock options available for future issuance                      28,500
-----------------------------------------------------------------------------------------------------

<CAPTION>
-----------------------------------------------------------------------------------------------------
December 31, 2004:
                                                                                  Weighted average
                                                                 Shares            exercise price
-----------------------------------------------------------------------------------------------------
<S>                                                            <C>                        <C>
Options outstanding beginning of year                            15,500                   $   2.17
Options granted                                                   2,500                       2.60
Options exercised                                                    --                        --
Options forfeited                                                (1,000)                      7.19
                                                                -------                   --------

Options outstanding end of year                                  17,000                   $   1.94
-----------------------------------------------------------------------------------------------------

Exercisable at end of year                                       14,500                   $   1.83
Weighted average remaining contractual life                    7.96 years
Stock options available for future issuance                      33,000
-----------------------------------------------------------------------------------------------------
</TABLE>


                                       85
<PAGE>

      Stock option information related to non-vested shares for the Congoleum
Stock Option Plans for the year ended December 31, 2006, was as follows:

<TABLE>
<CAPTION>
                                                                                     Weighted Average
                                                                                        Grant-Date
1995 Plan:                                                    Number of Shares          Fair Value
--------------------------------------------------------------------------------------------------------
<S>                                                              <C>                     <C>
Non-vested stock options at January 1, 2006                       288,400                $ 1.58
     Granted                                                           --                    --
     Forfeited                                                     (3,600)                 1.50
     Vested                                                      (136,000)                 1.62
                                                                 --------                ------

Non-vested stock options at December 31, 2006                     148,800                $ 1.55
                                                                 ========

<CAPTION>
                                                                                      Weighted Average
                                                                                         Grant-Date
1999 Plan:                                                    Number of Shares           Fair Value
--------------------------------------------------------------------------------------------------------
<S>                                                                <C>                     <C>
Non-vested stock options at January 1, 2006                         4,500                  $ 2.92
     Granted                                                        2,500                    1.68
     Forfeited                                                         --                      --
     Vested                                                        (4,500)                   2.92
                                                                   ------                  ------

Non-vested stock options at December 31, 2006                       2,500                  $ 1.68
                                                                   ======
</TABLE>


                                       86
<PAGE>

      The intrinsic value of stock options exercised during 2006 and stock
options outstanding and exercisable at December 31, 2006, under the Congoleum
Stock Option Plans were as follows:

(in thousands)                                                 Intrinsic Value
-------------------------------------------------------------------------------
Exercised during 2006                                                  $ 1
Outstanding at December 31, 2006                                        30
Exercisable at December 31, 2006                                        19

      Upon exercise of stock options, Congoleum shares are issued from treasury
stock for each option exercised.

19. Stockholders' Equity:

      Holders of shares of the Company's Class B common stock are entitled to
two votes per share on all matters submitted to a vote of stockholders other
than certain extraordinary matters. The holders of shares of the Company's Class
A common stock are entitled to one vote per share on all matters submitted to a
vote of stockholders.

      In November 1998, the Board of Directors authorized the Company to
repurchase an additional $5.0 million of the Company's common stock (Class A and
Class B shares) through the open market or through privately negotiated
transactions, bringing the total authorized common share repurchases to $15.0
million. Under the plan, Congoleum has repurchased shares of its common stock at
an aggregate cost of $14.0 million through December 31, 2006. No shares were
repurchased during 2006 or 2005. Shares of Class B stock repurchased (totaling
741,055 shares) have been retired. As of December 31, 2006, ABI owned 69.4% of
the voting interest of the Company.

20. Fair Value of Financial Instruments:

      The Company's cash and cash equivalents, short-term investments, accounts
receivable, accounts payable and long-term debt are financial instruments. With
the exception of the Company's long-term debt, the carrying value of these
financial instruments approximates their fair value at December 31, 2006 and
2005. The Company's long-term debt had a book value of $99.9 million and, based
on bid prices published by the high yield research group of a major investment
bank, a fair market value of $91.0 million at December 31, 2006. The Company's
long-term debt had a book value of $99.9 million and a fair market value of
$63.5 million at December 31, 2005.

      The fair value of the Company's long-term debt is determined based on bid
prices published by the high yield research group of a major investment bank.
The fair value of the Company's other financial instruments is determined based
on discounted cash flows. Due to the short period over which the cash flows are
expected to be realized, the carrying value of the financial instruments
approximates the net present value of cash flows and changes in interest rate
assumptions would not have a material effect on the calculation.


                                       87
<PAGE>

21.     Quarterly Financial Data (Unaudited):

         The following table summarizes unaudited quarterly financial
information (in thousands):

<TABLE>
<CAPTION>
                                                                    Year ended December 31, 2006
                                                 ----------------------------------------------------------------
                                                   First             Second           Third              Fourth
                                                  Quarter            Quarter         Quarter            Quarter(1)
-----------------------------------------------------------------------------------------------------------------

<S>                                               <C>               <C>               <C>                 <C>
Net sales                                         $57,237           $58,743           $ 57,460            $46,034

Gross profit                                       13,277            13,604             12,898             10,673

Net income (loss)                                     210               627               (424)               266

Net income (loss) per common share:
        Basic                                     $  0.03           $  0.08           $  (0.05)           $  0.02
        Diluted                                      0.03              0.08              (0.05)              0.02
-----------------------------------------------------------------------------------------------------------------

<CAPTION>
                                                                    Year ended December 31, 2005
                                              -------------------------------------------------------------------
                                                 First             Second             Third             Fourth
                                                Quarter          Quarter(2)          Quarter           Quarter(3)
-----------------------------------------------------------------------------------------------------------------

<S>                                           <C>                 <C>                 <C>               <C>
Net sales                                     $ 57,630            $ 58,108            $60,507           $ 61,381

Gross profit                                    13,661              13,770             13,237             13,224

Net income (loss)                                 (352)            (14,598)               325             (6,950)

Net income (loss) per common share:
        Basic                                 $  (0.04)           $  (1.77)           $  0.04           $  (0.84)
        Diluted                                  (0.04)              (1.77)              0.04              (0.84)
-----------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   Includes $1.3 million of insurance recoveries in excess of book value of
      assets.
(2)   The second quarter of 2005 includes $15.5 million or $1.87 per share for
      the effect of the asbestos-related charges described in Notes 1 and 17.
(3)   The fourth quarter of 2005 includes $9.9 million or $1.19 per share for
      the effect of the asbestos-related charges described in Notes 1 and 17.


                                       88
<PAGE>

             Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders
Congoleum Corporation

We have audited the accompanying consolidated balance sheets of Congoleum
Corporation (the Company) as of December 31, 2006 and 2005, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for each of the three years in the period ended December 31, 2006. Our
audits also included the financial statement schedule listed in the Index at
Item 15(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company's internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Congoleum
Corporation at December 31, 2006 and 2005, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2006, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

The accompanying financial statements have been prepared assuming that Congoleum
Corporation will continue as a going concern. As more fully described in Note 1,
"Basis of Presentation", to the consolidated financial statements, the Company
has been and continues to be named in a significant number of lawsuits stemming
primarily from the Company's manufacture of asbestos-containing products. The
Company has recorded significant charges to earnings to reflect its estimate of
costs associated with this litigation. On December 31, 2003, Congoleum filed a
voluntary petition with the United States Bankruptcy court for the District of
New Jersey (Case No. 03-51524) seeking relief under Chapter 11 of the United
States Bankruptcy Code, as a means to resolve claims asserted against it related
to the use of asbestos in its products decades ago. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1 to
the consolidated financial statements. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.

As discussed in Note 2 to the consolidated financial statements, in 2006 the
Company adopted Statement of Financial Accounting Standards ("SFAS") No.
123(Revised 2004), "Share-Based Payment" and SFAS No. 158, "Employer's
Accounting for Defined Benefit Pension and Other Postretirement Plans-An
amendment to FASB Statement Nos. 87, 88, 106 and 132(R)."

                                              /s/ Ernst & Young LLP
                                              ---------------------
                                                  Ernst & Young LLP

Boston, Massachusetts
March 21, 2007


                                       89
<PAGE>

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

      Not applicable.

Item 9A. CONTROLS AND PROCEDURES

      (a)   Evaluation of Disclosure Controls and Procedures. The Company's
            Chief Executive Officer and Chief Financial Officer have 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 Exchange Act as of the end of the period covered by this
            annual report (the "Evaluation Date"). Based on this evaluation,
            such officers have concluded that, as of the Evaluation Date, the
            Company's disclosure controls and procedures are effective in
            alerting them on a timely basis to material information relating to
            the Company required to be included in the Company's reports filed
            or submitted under the Exchange Act.

      (b)   Changes in Internal Control Over Financial Reporting. There have not
            been any significant changes in the Company's internal control over
            financial reporting during the last quarter covered by this annual
            report that have materially affected or are reasonably likely to
            materially affect the Company's internal control over financial
            reporting.

                                    PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The information called for by this Item is hereby incorporated by
reference to the Registrant's definitive Proxy Statement for its Annual Meeting
of Stockholders to be held on May 8, 2007.

Item 11. EXECUTIVE COMPENSATION

      The information called for by this Item is hereby incorporated by
reference to the Registrant's definitive Proxy Statement for its Annual Meeting
of Stockholders to be held on May 8, 2007.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT AND RELATED STOCKHOLDER MATTERS

      The information called for by this Item (except the Equity Compensation
Plan Information called for by Item 201(d) of Regulation S-K which is included
in Item 5 hereof) is hereby incorporated by reference to the Registrant's
definitive Proxy Statement for its Annual Meeting of Stockholders to be held on
May 8, 2007.


                                       90
<PAGE>

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information called for by this Item is hereby incorporated by
reference to the Registrant's definitive Proxy Statement for its Annual Meeting
of Stockholders to be held on May 8, 2007

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      The information called for by this Item is hereby incorporated by
reference to the Registrant's definitive Proxy Statement for its Annual Meeting
of Stockholders to be held on May 8, 2007.

                                     PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A)  (1)     The following financial statements of the Company are included
             in this Annual Report on Form 10-K:

<TABLE>
<CAPTION>
                                                                                    Page Numbers
<S>                                                                                       <C>
             Consolidated Balance Sheets at December 31, 2006 and 2005                    44
             Consolidated Statements of Operations for each of the three
             years ended December 31, 2006, 2005 and 2004                                 45
             Consolidated Statements of Changes in Stockholders' Equity
             (Deficit) for each of the three years ended
             December 31, 2006, 2005 and 2004                                             46
             Consolidated Statements of Cash Flows for each of the
             three years ended December 31, 2006, 2005 and 2004                           47
             Notes to Consolidated Financial Statements                                   48
             Supplementary Data -- Quarterly Financial Data (Unaudited)                   88

     (2)     The following financial statement schedule is included in this
             Annual Report on Form 10-K:

             Schedule II - Valuation and Qualifying Accounts                              96
             All other schedules are omitted because they are not required,
             are inapplicable, or the information is otherwise shown in the
             financial statements or notes thereto.
</TABLE>


                                       91
<PAGE>

(B)   These exhibits, required to be filed by Item 601 of Regulation S-K under
      the Exchange Act, are listed in the Index to Exhibits included in this
      Annual Report on Form 10-K beginning on Page 98.

      Exhibit
      Number                              Exhibits
      ------                              --------

      3.1         Amended Certificate of Incorporation of the Company.(3)
      3.2         Amended and Restated Bylaws of the Company.(3)
      4.1         Registration Rights Agreement, dated as of February 8, 1995,
                  by and between the Company and Hillside Industries,
                  Incorporated ("Hillside").(2)
      4.2         Indenture, dated as of August 3, 1998, by and between the
                  Company and First Union National Bank, as trustee.(4)
      4.2.1       First Supplemental Indenture, dated as of March 28, 2003,
                  between the Company and Wachovia Bank, National Association
                  (as successor to First Union National Bank), as trustee.(11)
      4.2.2       Second Supplemental Indenture, dated as of August 7, 2003,
                  between the Company and Wachovia Bank, National Association
                  (as successor to First Union National Bank), as trustee.(12)
      4.2.3       Instrument of Resignation, Appointment and Acceptance dated as
                  of December 14, 2005 among the Company, Wachovia Bank,
                  National Association and HSBC Bank USA, National Association,
                  as Successor Trustee.(17)
      10.1        Joint Venture Agreement, dated as of December 16, 1992, by and
                  among Resilient Holdings, Incorporated, Hillside, the Company
                  (collectively, the "Congoleum Group"), Hillside Capital
                  Incorporated ("Hillside Capital") and American Biltrite Inc.
                  ("American Biltrite").(1)
      10.2        Closing Agreement, dated as of March 11, 1993, by and among
                  the Congoleum Group, Hillside Capital and American
                  Biltrite.(1)
      10.3        Personal Services Agreement, dated as of March 11, 1993 (the
                  "Personal Services Agreement"), by and between American
                  Biltrite and the Company.(1)
      10.3.1      First Amendment, dated February 8, 1995, to Personal Services
                  Agreement, by and between American Biltrite and the
                  Company.(2)
      10.3.2      Second Amendment, dated November 15, 1996, to Personal
                  Services Agreement, by and between American Biltrite and the
                  Company.(5)
      10.3.3      Third Amendment, dated as of March 10, 1998, to Personal
                  Services Agreement, by and between American Biltrite and the
                  Company.(5)
      10.3.4      Fourth Amendment, dated as of November 7, 2002, to Personal
                  Services Agreement, by and between American Biltrite and the
                  Company.(11)
      10.4        Business Relations Agreement, dated as of March 11, 1993, by
                  and between American Biltrite and the Company.(1)
      10.4.1      First Amendment, dated August 19, 1997, to Business Relations
                  Agreement, by and between American Biltrite and the
                  Company.(5)
      10.5        Tax Sharing Agreement, dated as of November 1, 1996, between
                  American Biltrite and the Company.(5)


                                       92
<PAGE>

      10.6        Trademark Purchase Agreement, dated November 29, 1993, by and
                  between the Company and The Amtico Company LTD ("Amtico
                  Company").(2)
      10.7        First Right of Refusal, dated November 29, 1993, by and
                  between American Biltrite (Canada) Limited and Amtico
                  Company.(2)
      10.8        Undertaking Concerning Amtico Trademark, dated November 29,
                  1993, by and between American Biltrite and Amtico Company.(2)
      10.9        Form of 1995 Stock Option Plan.(2)
      10.9.1      Form of Amendment to 1995 Stock Option Plan.(6)
      10.9.2      Form of Nonqualified Stock Option Award Agreement Under the
                  Congoleum 1995 Stock Option Plan.(15)
      10.10       Congoleum Corporation 1999 Stock Option Plan for Non-Employee
                  Directors.(8)
      10.10.1     Form of Amendment to Non-qualified, Non-employee Directors
                  Stock Option Plan.(9)
      10.10.2     Form of Stock Option Agreement Under the Congoleum Corporation
                  1999 Stock Option Plan for Non-Employee Directors.(15)
      10.11       Loan and Security Agreement, dated December 10, 2001 (the
                  "Congress Financial Loan Agreement") by and between Congress
                  Financial Corp. (the "Lender") and the Company.(9)
      10.11.1     Amendment No. 1 to Loan and Security Agreement, dated
                  September 24, 2002, by and between Congress Financial
                  Corporation and Congoleum Corporation.(10)
      10.11.2     Amendment No. 2 to Loan and Security Agreement, dated as of
                  February 27, 2003, by and between Congress Financial
                  Corporation and Congoleum Corporation.(11)
      10.11.3     Ratification and Amendment Agreement dated January 7, 2004, by
                  and between the Company and Congress Financial
                  Corporation.(13)
      10.11.4     Amendment No. 1 to Ratification and Amendment Agreement and
                  Amendment No. 3 to Loan and Security Agreement (14), by and
                  between the Company and Congress Financial Corporation dated
                  as of December 14, 2004.
      10.11.5     Amendment No. 2 to Ratification and Amendment Agreement and
                  Amendment No. 4 to Loan and Security Agreement, by and between
                  the Company and Congress Financial Corporation dated as of
                  January 13, 2005.
      10.11.6     Amendment No. 3 to Ratification and Amendment Agreement and
                  Amendment No. 5 to Loan and Security Agreement, by and between
                  the Company and Congress Financial Corporation dated as of
                  June 7, 2005.
      10.11.7     Amendment No. 4 to Ratification and Amendment Agreement and
                  Amendment No. 6 to Loan and Security Agreement, by and between
                  the Company and Congress Financial Corporation dated as of
                  December 19, 2005.
      10.11.8     Amendment No. 5 to Ratification and Amendment Agreement and
                  Amendment No. 7 to Loan and Security Agreement, by and between
                  the Company and Congress Financial Corporation dated as of
                  September 27, 2006.
      10.11.9     Amendment No. 6 to Ratification and Amendment Agreement and
                  Amendment No. 8 to Loan and Security Agreement, by and between
                  the Company and Congress Financial Corporation dated as of
                  November 27,2006.


                                       93
<PAGE>

      10.12       Settlement Agreement Between the Company and Various Asbestos
                  Claimants dated April 10, 2003.(12)
      10.12.1     First Amendment to Settlement Agreement Between the Company
                  and Various Asbestos Claimants dated June 6, 2003.(12)
      10.13       Collateral Trust Agreement, dated April 16, 2003, by and
                  between the Company, Arthur J. Pergament, solely in his
                  capacity as the Collateral Trustee of the Collateral Trust,
                  and Wilmington Trust Company, solely in its capacity as
                  Delaware Trustee of the Collateral Trust.(12)
      10.13.1     First Amendment to Collateral Trust Agreement, dated June 6,
                  2003, by and between the Company, Arthur J. Pergament, solely
                  in his capacity as the Collateral Trustee of the Collateral
                  Trust, and Wilmington Trust Company, solely in its capacity as
                  Delaware Trustee of the Collateral Trust.(12)
      10.14       Security Agreement, dated April 16, 2003, by and between the
                  Company and Arthur J. Pergament, solely in his capacity as the
                  Collateral Trustee of the Collateral Trust.(12)
      10.14.1     Second Security Agreement, dated April 17, 2003, by and
                  between the Company and Arthur J. Pergament, solely in his
                  capacity as the Collateral Trustee of the Collateral
                  Trust.(12)
      10.14.2     Termination Agreement, dated June 6, 2003, by and between the
                  Company and Arthur J. Pergament, solely in his capacity as the
                  Collateral Trustee of the Collateral Trust.(12)
      10.14.3     Superseding Security Agreement, dated June 11, 2003, by and
                  between the Company and Arthur J. Pergament, solely in his
                  capacity as the Collateral Trustee of the Collateral
                  Trust.(12)
      10.15       Purchase Agreement, effective as of September 1, 2006, between
                  the Company and Armstrong World Industries, Inc.
      12.1        Statement Regarding Computation of Ratio of Earnings to Fixed
                  Charges.
      14.1        Code of Ethics.(14)
      21.1        Subsidiaries of the Company.(7)
      23.1        Consent of Independent Registered Public Accounting Firm,
                  Ernst & Young LLP.
      31.1        Rule 13a-14(a)/ 15d-14(a) Certification of Chief Executive
                  Officer.
      31.2        Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial
                  Officer
      32.1        Section 1350 Certification of the Chief Executive Officer.
      32.2        Section 1350 Certification of the Chief Financial Officer.
      99.1        Settlement Agreement and Release by and between Congoleum
                  Corporation and Liberty Mutual Insurance Company.(16)
      99.2        Settlement Agreement and Release by, between and among
                  Congoleum Corporation and certain AIG Member Companies.(16)
      99.3        Confidential Settlement Agreement and Release among Congoleum
                  Corporation, the Plan Trust and Certain Underwriters at
                  Lloyd's, London.(16)
      99.4        Amendment to the Confidential Settlement Agreement and Release
                  among Congoleum Corporation, the Plan Trust and Certain
                  Underwriters at Lloyd's, London, dated June 22, 2005.(16)
      99.5        Settlement Agreement and Release by, between and among
                  Congoleum Corporation and Federal Insurance Company.(15)


                                       94
<PAGE>

      99.6        Confidential Settlement Agreement and Release among Congoleum
                  Corporation, the Plan Trust and Mt. McKinley Insurance Company
                  and Everest Reinsurance Company.(15)
      99.7        Settlement Agreement and Release by and between Congoleum
                  Corporation and Harper Insurance Limited, formerly known as
                  Turegum Insurance Company.(18)
      99.8        Settlement and Policy Buyback Agreement and Release by and
                  among Congoleum Corporation, the Plan Trust, American Biltrite
                  Inc. and Travelers Casualty and Surety Co., formerly known as
                  The Aetna Casualty and Surety Company, and St. Paul Fire and
                  Marine Insurance Company.(18)
      99.9        Settlement Agreement, made as of April 27, 2006, by and
                  between Congoleum Corporation and Fireman's Fund Insurance
                  Company.(18)
      99.10       Settlement and Policy Buyback Agreement and Release, made as
                  of August 17, 2006, by and between Congoleum Corporation and
                  Century Insurance Company.(19)
      99.11       Eleventh Modified Joint Plan of Reorganization Under Chapter
                  11 of the Bankruptcy Code of Congoleum Corporation, et al.,
                  dated as of October 23, 2006.(19)
      99.12       Proposed Disclosure Statement with respect to the Eleventh
                  Modified Joint Plan of Reorganization Under Chapter 11 of the
                  Bankruptcy Code of Congoleum Corporation, et al., dated as of
                  October 23, 2006.(19)


                                       95
<PAGE>

SCHEDULE II
CONGOLEUM CORPORATION
VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                         Balance at      Reversed
                                        Beginning Of     to Income      Other                        Balance At
(in thousands)                             Period        Statement     Changes      Deductions(a)   end of Period
                                           ------        ---------     -------      -------------   -------------

<S>                                        <C>             <C>         <C>              <C>           <C>
Year ended December 31, 2006:              $(1,142)        $ --        $   -- (b)       $  --         $(1,142)
Allowance for doubtful
   accounts and cash discounts
Year ended December 31, 2005:              $(1,174)        $ --        $ (169)(b)       $(137)        $(1,142)
Allowance for doubtful
   accounts and cash discounts

Year ended December 31, 2004:              $(1,049)        $ --        $ (142)(b)       $  17         $(1,174)
Allowance for doubtful
   accounts and cash discounts
</TABLE>

(a)   Balances written off, net of recoveries.
(b)   Represents (provision) utilization of the allowance for doubtful accounts
      and cash discounts.


                                       96
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on the
13th day of March 2007.

                              CONGOLEUM CORPORATION

                              By: /s/ Roger S. Marcus
                                  -------------------
                                  Roger S. Marcus
                                  President, Chairman & Chief Executive Officer
                                  (Principal Executive Officer)

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

Signature                     Title                                    Date
---------                     -----                                    ----

/s/ Roger S. Marcus          President, Chairman, Chief          March 13, 2007
-------------------          Executive Officer and Director
Roger S. Marcus              (Principal Executive Officer)

/s/ Howard N. Feist III      Chief Financial Officer             March 13, 2007
-----------------------      (Principal Financial and
Howard N. Feist III          Accounting Officer)

/s/ Richard G. Marcus        Vice Chairman and Director          March 13, 2007
---------------------
Richard G. Marcus

/s/ William M. Marcus        Director                            March 13, 2007
---------------------
William M. Marcus

/s/ Mark S. Newman           Director                            March 13, 2007
------------------
Mark S. Newman

/s/ Mark N. Kaplan           Director                            March 13, 2007
------------------
Mark N. Kaplan

                             Director                            March 13, 2007
------------------
C. Barnwell Straut

/s/ Jeffrey H. Coats         Director                            March 13, 2007
--------------------
Jeffrey H. Coats

/s/ Adam H. Slutsky          Director                            March 13, 2007
-------------------
Adam H. Slutsky


                                       97
<PAGE>

INDEX TO EXHIBITS

    Exhibit
     Number                           Exhibits
     ------                           --------

      3.1         Amended Certificate of Incorporation of the Company.(3)
      3.2         Amended and Restated Bylaws of the Company.(3)
      4.1         Registration Rights Agreement, dated as of February 8, 1995,
                  by and between the Company and Hillside Industries,
                  Incorporated ("Hillside").(2)
      4.2         Indenture, dated as of August 3, 1998, by and between the
                  Company and First Union National Bank, as trustee.(4)
      4.2.1       First Supplemental Indenture, dated as of March 28, 2003,
                  between the Company and Wachovia Bank, National Association
                  (as successor to First Union National Bank), as trustee.(11)
      4.2.2       Second Supplemental Indenture, dated as of August 7, 2003,
                  between the Company and Wachovia Bank, National Association
                  (as successor to First Union National Bank), as trustee.(12)
      4.2.3       Instrument of Resignation, Appointment and Acceptance dated as
                  of December 14, 2005 among the Company, Wachovia Bank,
                  National Association and HSBC Bank USA, National Association,
                  as Successor Trustee.(17)
      10.1        Joint Venture Agreement, dated as of December 16, 1992, by and
                  among Resilient Holdings, Incorporated, Hillside, the Company
                  (collectively, the "Congoleum Group"), Hillside Capital
                  Incorporated ("Hillside Capital") and American Biltrite Inc.
                  ("American Biltrite").(1)
      10.2        Closing Agreement, dated as of March 11, 1993, by and among
                  the Congoleum Group, Hillside Capital and American
                  Biltrite.(1)
      10.3        Personal Services Agreement, dated as of March 11, 1993 (the
                  "Personal Services Agreement"), by and between American
                  Biltrite and the Company.(1)
      10.3.1      First Amendment, dated February 8, 1995, to Personal Services
                  Agreement, by and between American Biltrite and the
                  Company.(2)
      10.3.2      Second Amendment, dated November 15, 1996, to Personal
                  Services Agreement, by and between American Biltrite and the
                  Company.(5)
      10.3.3      Third Amendment, dated as of March 10, 1998, to Personal
                  Services Agreement, by and between American Biltrite and the
                  Company.(5)
      10.3.4      Fourth Amendment, dated as of November 7, 2002, to Personal
                  Services Agreement, by and between American Biltrite and the
                  Company.(11)
      10.4        Business Relations Agreement, dated as of March 11, 1993, by
                  and between American Biltrite and the Company.(1)
      10.4.1      First Amendment, dated August 19, 1997, to Business Relations
                  Agreement, by and between American Biltrite and the
                  Company.(5)
      10.5        Tax Sharing Agreement, dated as of November 1, 1996, between
                  American Biltrite and the Company.(5)
      10.6        Trademark Purchase Agreement, dated November 29, 1993, by and
                  between the Company and The Amtico Company LTD ("Amtico
                  Company").(2)


                                       98
<PAGE>

      10.7        First Right of Refusal, dated November 29, 1993, by and
                  between American Biltrite (Canada) Limited and Amtico
                  Company.(2)
      10.8        Undertaking Concerning Amtico Trademark, dated November 29,
                  1993, by and between American Biltrite and Amtico Company.(2)
      10.9        Form of 1995 Stock Option Plan.(2)
      10.9.1      Form of Amendment to 1995 Stock Option Plan.(6)
      10.9.2      Form of Nonqualified Stock Option Award Agreement Under the
                  Congoleum 1995 Stock Option Plan.(15)
      10.10       Congoleum Corporation 1999 Stock Option Plan for Non-Employee
                  Directors. (8)
      10.10.1     Form of Amendment to Non-qualified, Non-employee Directors
                  Stock Option Plan.(9)
      10.10.2     Form of Stock Option Agreement Under the Congoleum Corporation
                  1999 Stock Option Plan for Non-Employee Directors.(15)
      10.11       Loan and Security Agreement, dated December 10, 2001 (the
                  "Congress Financial Loan Agreement") by and between Congress
                  Financial Corp. (the "Lender") and the Company.(9)
      10.11.1     Amendment No. 1 to Loan and Security Agreement, dated
                  September 24, 2002, by and between Congress Financial
                  Corporation and Congoleum Corporation.(10)
      10.11.2     Amendment No. 2 to Loan and Security Agreement, dated as of
                  February 27, 2003, by and between Congress Financial
                  Corporation and Congoleum Corporation.(11)
      10.11.3     Ratification and Amendment Agreement dated January 7, 2004, by
                  and between the Company and Congress Financial
                  Corporation.(13)
      10.11.4     Amendment No. 1 to Ratification and Amendment Agreement and
                  Amendment No. 3 to Loan and Security Agreement (14), by and
                  between the Company and Congress Financial Corporation dated
                  as of December 14, 2004.
      10.11.5     Amendment No. 2 to Ratification and Amendment Agreement and
                  Amendment No. 4 to Loan and Security Agreement, by and between
                  the Company and Congress Financial Corporation dated as of
                  January 13, 2005.
      10.11.6     Amendment No. 3 to Ratification and Amendment Agreement and
                  Amendment No. 5 to Loan and Security Agreement, by and between
                  the Company and Congress Financial Corporation dated as of
                  June 7, 2005.
      10.11.7     Amendment No. 4 to Ratification and Amendment Agreement and
                  Amendment No. 6 to Loan and Security Agreement, by and between
                  the Company and Congress Financial Corporation dated as of
                  December 19, 2005.
      10.11.8     Amendment No. 5 to Ratification and Amendment Agreement and
                  Amendment No. 7 to Loan and Security Agreement, by and between
                  the Company and Congress Financial Corporation dated as of
                  September 27, 2006.
      10.11.9     Amendment No. 6 to Ratification and Amendment Agreement and
                  Amendment No. 8 to Loan and Security Agreement, by and between
                  the Company and Congress Financial Corporation dated as of
                  November 27,2006.
      10.12       Settlement Agreement Between the Company and Various Asbestos
                  Claimants dated April 10, 2003.(12)
      10.12.1     First Amendment to Settlement Agreement Between the Company
                  and Various Asbestos Claimants dated June 6, 2003.(12)


                                       99
<PAGE>

      10.13       Collateral Trust Agreement, dated April 16, 2003, by and
                  between the Company, Arthur J. Pergament, solely in his
                  capacity as the Collateral Trustee of the Collateral Trust,
                  and Wilmington Trust Company, solely in its capacity as
                  Delaware Trustee of the Collateral Trust.(12)
      10.13.1     First Amendment to Collateral Trust Agreement, dated June 6,
                  2003, by and between the Company, Arthur J. Pergament, solely
                  in his capacity as the Collateral Trustee of the Collateral
                  Trust, and Wilmington Trust Company, solely in its capacity as
                  Delaware Trustee of the Collateral Trust.(12)
      10.14       Security Agreement, dated April 16, 2003, by and between the
                  Company and Arthur J. Pergament, solely in his capacity as the
                  Collateral Trustee of the Collateral Trust.(12)
      10.14.1     Second Security Agreement, dated April 17, 2003, by and
                  between the Company and Arthur J. Pergament, solely in his
                  capacity as the Collateral Trustee of the Collateral
                  Trust.(12)
      10.14.2     Termination Agreement, dated June 6, 2003, by and between the
                  Company and Arthur J. Pergament, solely in his capacity as the
                  Collateral Trustee of the Collateral Trust.(12)
      10.14.3     Superseding Security Agreement, dated June 11, 2003, by and
                  between the Company and Arthur J. Pergament, solely in his
                  capacity as the Collateral Trustee of the Collateral
                  Trust.(12)
      10.15       Purchase Agreement, effective as of September 1, 2006, between
                  the Company and Armstrong World Industries, Inc.
      12.1        Statement Regarding Computation of Ratio of Earnings to Fixed
                  Charges.
      14.1        Code of Ethics.(14)
      21.1        Subsidiaries of the Company.(7)
      23.1        Consent of Independent Registered Public Accounting Firm,
                  Ernst & Young LLP.
      31.1        Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive
                  Officer.
      31.2        Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial
                  Officer.
      32.1        Section 1350 Certification of Chief Executive Officer.
      32.2        Section 1350 Certification of Chief Financial Officer.
      99.1        Settlement Agreement and Release by and between Congoleum
                  Corporation and Liberty Mutual Insurance Company.(16)
      99.2        Settlement Agreement and Release by, between and among
                  Congoleum Corporation and certain AIG Member Companies.(16)
      99.3        Confidential Settlement Agreement and Release among Congoleum
                  Corporation, the Plan Trust and Certain Underwriters at
                  Lloyd's, London.(16)
      99.4        Amendment to the Confidential Settlement Agreement and Release
                  among Congoleum Corporation, the Plan Trust and Certain
                  Underwriters at Lloyd's, London, dated June 22, 2005.(16)
      99.5        Settlement Agreement and Release by, between and among
                  Congoleum Corporation and Federal Insurance Company.(15)
      99.6        Confidential Settlement Agreement and Release among Congoleum
                  Corporation, the Plan Trust and Mt. McKinley Insurance Company
                  and Everest Reinsurance Company.(15)


                                      100
<PAGE>

      99.7        Settlement Agreement and Release by and between Congoleum
                  Corporation and Harper Insurance Limited, formerly known as
                  Turegum Insurance Company.(18)
      99.8        Settlement and Policy Buyback Agreement and Release by and
                  among Congoleum Corporation, the Plan Trust, American Biltrite
                  Inc. and Travelers Casualty and Surety Co., formerly known as
                  The Aetna Casualty and Surety Company, and St. Paul Fire and
                  Marine Insurance Company.(18)
      99.9        Settlement Agreement, made as of April 27, 2006, by and
                  between Congoleum Corporation and Fireman's Fund Insurance
                  Company.(18)
      99.10       Settlement and Policy Buyback Agreement and Release, made as
                  of August 17, 2006, by and between Congoleum Corporation and
                  Century Insurance Company.(19)
      99.11       Eleventh Modified Joint Plan of Reorganization Under Chapter
                  11 of the Bankruptcy Code of Congoleum Corporation, et al.,
                  dated as of October 23, 2006.(19)
      99.12       Proposed Disclosure Statement with respect to the Eleventh
                  Modified Joint Plan of Reorganization Under Chapter 11 of the
                  Bankruptcy Code of Congoleum Corporation, et al., dated as of
                  October 23, 2006.(19)

(1)   Incorporated by reference to the exhibit bearing the same description
      filed with the Company's Registration Statement on Form S-1 (File No.
      33-71836) declared effective by the Securities and Exchange Commission on
      January 25, 1994.

(2)   Incorporated by reference to the exhibit bearing the same description
      filed with the Company's Registration Statement on Form S-1 (File No.
      33-87282) declared effective by the Securities and Exchange Commission on
      February 1, 1995.

(3)   Incorporated by reference to the exhibit bearing the same description
      filed with the Company's Quarterly Report on Form 10-Q (File No.
      001-13612) for the period ended June 30, 1996.

(4)   Incorporated by reference to the exhibit bearing the same description
      filed with the Company's Quarterly Report on Form 10-Q (File No.
      001-13612) for the period ended June 30, 1998.

(5)   Incorporated by reference to the exhibit bearing the same description
      filed with the Company's Annual Report on Form 10-K (File No. 001-13612)
      for the period ended December 31, 1997.

(6)   Incorporated by reference to the exhibit bearing the same description
      filed with the Company's Annual Report on Form 10-K (File No. 001-13612)
      for the period ended December 31, 1996.

(7)   Incorporated by reference to the exhibit bearing the same description
      filed with the Company's Annual Report on Form 10-K (File No. 001-13612)
      for the period ended December 31, 1998.


                                      101
<PAGE>

(8)   Incorporated by reference to the exhibit bearing the same description
      filed with the Company's Registration Statement on Form S-8 (File No.
      333-84387) declared effective by the Securities and Exchange Commission on
      August 3, 1999.

(9)   Incorporated by reference to the exhibit bearing the same description
      filed with the Company's Annual Report on Form 10-K (File No. 001-13612)
      for the period ended December 31, 2001.

(10)  Incorporated by reference to the exhibit bearing the same description
      filed with the Company's Quarterly Report on Form 10-Q (File No.
      001-13612) for the period ended September 30, 2002.

(11)  Incorporated by reference to the exhibit bearing the same description
      filed with the Company's Annual Report on Form 10-K (File No. 001-13612)
      for the period ended December 31, 2002.

(12)  Incorporated by reference to the exhibit bearing the same description
      filed with the Company's Quarterly Report on Form 10-Q (File No.
      001-13612) for the period ended June 30, 2003.

(13)  Incorporated by reference to the exhibit bearing the same description
      filed with the Company's Annual Report on Form 10-K (File No. 001-13612)
      for the period ended December 31, 2003.

(14)  Incorporated by reference to the exhibit bearing the same description
      filed with the Company's Annual Report on Form 10-K (File No. 001-13612)
      for the period ended December 31, 2004.

(15)  Incorporated by reference to the exhibit bearing the same description
      filed with the Company's Quarterly Report on Form 10-Q (File No.
      001-13612) for the period ended September 30, 2005.

(16)  Incorporated by reference to the exhibit bearing the same description
      filed with the Company's Quarterly Report on Form 10-Q (File No.
      001-13612) for the period ended June 30, 2005.

(17)  Incorporated by reference to the exhibit bearing the same description
      filed with the Company's Annual Report on Form 10-K (File No. 001-13612)
      for the period ended December 31, 2005

(18)  Incorporated by reference to the exhibit bearing the same description
      filed with the Company's Quarterly Report on Form 10-Q (File No.
      001-13612) for the period ended March 31, 2006.


                                      102
<PAGE>

(19)  Incorporated by reference to the exhibit bearing the same description
      filed with the Company's Quarterly Report on Form 10-Q (File No.
      001-13612) for the period ended September 30, 2006


                                      103