UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

       [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                   For the fiscal year ended February 28, 1999

                                       or

             [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
          For the transition period from _____________ to _____________

                         Commission File Number 0-21161

                                Q.E.P. CO., INC.
             (Exact name of registrant as specified in its charter)

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

1081 HOLLAND DRIVE, BOCA RATON, FLORIDA                                    33487
(Address of principal executive offices)                              (Zip Code)

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

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

Title of each class                                             Name of exchange
   NONE                                                      on which registered
                                                                      NONE

           Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock, $0.001 par value
                                (Title of Class)

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 twelve 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. [ ]

The aggregate market value of voting common stock held by non-affiliates as of
May 3, 1999 is $10,231,942, computed by reference to the closing price for
such shares on the NASDAQ National Market System as of such date. The registrant
does not have any authorized or issued non-voting common equity securities.

The number of shares outstanding of each of the registrant's classes of common
stock, as of May 3, 1999 is: 2,664,894 shares of Common Stock, par value $0.001
per share.

                       DOCUMENTS INCORPORATED BY REFERENCE

Parts of the definitive Proxy Statement which the Registrant will file with the
Securities and Exchange commission in connection with the Registrant's Annual
Meeting of Stockholders to be held on July 16, 1999 are incorporated by
reference in Part III of this Form 10-K.


<PAGE>

                                     PART I

ITEM 1.  BUSINESS

GENERAL

Founded in 1979, Q.E.P. Co., Inc. (the "Company" or "QEP") manufactures, markets
and distributes a broad line of specialty tools and related products for the
home improvement market. Under brand names including QEP(TM), O'TOOL(TM) and
ROBERTS(TM), the Company markets over 4,000 specialty tools and related products
used primarily for surface preparation and installation of ceramic tile, carpet,
marble and drywall. QEP's products include trowels, floats, tile cutters, wet
saws, spacers, nippers, pliers, carpet trimmers and cutters, carpet adhesives,
seaming tape, tack strip, knives and abrasives. These products are sold to home
improvement retailers, including national and regional chains such as Home
Depot, Lowe's and Hechinger/Home Quarters/Builders Square; specialty
distributors to the hardware, construction, flooring and home improvement trades
and chain or independent hardware, tile, and carpet retailers for use by the
do-it-yourself consumer as well as the construction or remodeling professional.

The Company has experienced significant growth in net sales since fiscal 1994
which management attributes to (i) strategic acquisitions, (ii) growth
experienced by the Company's customers within the home improvement market,
particularly among national and regional home center retailers such as Home
Depot and Lowe's, (iii) the introduction of new products and the Company's
success in cross-marketing its products among its channels of distribution, (iv)
the Company's expansion of its customer base and market share through sales to
additional home improvement retailers, distributors and OEMs, and (v) growth of
the home improvement market as a whole.

On October 21, 1997, pursuant to a Stock Purchase Agreement dated as of the same
date between Q.E.P. and RCI Holdings, Inc., a Delaware corporation, (the
"Seller"), Q.E.P., purchased all of the issued and outstanding stock of Roberts
Consolidated Industries, Inc. ("Roberts Consolidated" or "Roberts") , a Delaware
corporation and wholly owned subsidiary of the Seller. Roberts is engaged in the
manufacture and sale of carpet installation products, including carpet adhesives
and installation tools. As a result of the acquisition of Roberts Consolidated,
the Company expanded its product lines, increased its distribution channels and
broadened its customer base. Roberts Consolidated sells its products primarily
to flooring distributors throughout the world. Roberts Consolidated operates
three leased manufacturing facilities: one in City of Industry, California; one
in Mexico, Missouri; and one in Bramalea, Ontario, Canada.

Additionally, effective December 31, 1997, Q.E.P. acquired all of the issued and
outstanding shares of Roberts Holland BV ("Roberts Holland") together with all
licenses and intellectual property. Roberts Holland is a company headquartered
in Rotterdam, Holland with subsidiaries in Germany, France and the United
Kingdom. Roberts Holland produces and markets flooring installation tools and
related products. This acquisition expanded the Company's manufacturing
capabilities by providing a manufacturing base in Europe. Prior to being
acquired by the Company, Roberts Consolidated and Roberts Holland were unrelated
entities.

MARKET OVERVIEW

The Company is a supplier of specialty flooring installation products and sells
to the home improvement market. According to industry information published by
the National Home Center News ("NHCN"), the United States home improvement
market generated retail sales of over $157 billion in 1996 (the most recent year
for which data is available to the Company). NHCN projects that these sales will
reach approximately $196 billion by the year 2000. Over the next three years,
home improvement sales at all dealers within the home improvement market segment
are projected to increase 25% driven by an anticipated 53% increase within the
top 10 retailers. While this data reflects the broad trend in the home
improvement market in general, the Company believes that the trends within the
specialty flooring segment are similar. Additionally, NHCN estimates that
approximately 25 million homeowners will undertake some type of home improvement
project in the next year and that globally, retail sales of the home improvement
market are in excess of $300 billion.

                                       2
<PAGE>

The Company believes that growth in the home improvement market is being driven
by several factors, including (i) aging of the United States housing stock which
requires greater repair and maintenance expenditures, (ii) increased housing
turnover of both new and existing homes, (iii) favorable demographic trends as
"baby boomers," now reaching the 36 to 55 year old age category, historically
accounting for the largest home improvement expenditures of any age group, and
(iv) changes in consumer preferences, which have caused an increase in the
median size of new homes and which have contributed to demand for remodeling and
expansion of older homes.

Within the home improvement market, distribution channels have continued to
consolidate as a result of the success of the warehouse home center format used
by large home improvement retailers. The increasing dominance of national home
improvement retailers results from their ability to offer broad product lines,
project advice and orientation, competitive pricing, aggressive promotions and
large-format stores. Estimates published by the NHCN indicate that the 10
largest retailers accounted for approximately 46.1% of all home improvement
sales in 1996. Based on data available to the Company, the primary beneficiaries
of this consolidation among home improvement retailers have been the top two or
three companies (ranked by annual sales volume). Thus, while the home
improvement market's retail sales have expanded, the market is being
increasingly dominated by the largest retailers.

The Company's two largest customers, Home Depot and Lowe's, experienced compound
annual sales growth rates of 26.7% and 21.0%, respectively, from 1997 to 1998,
according to their published financial reports and both have announced plans to
continue increasing the number of stores each operates. As consolidation
continues among home improvement retailers, the Company expects that sales of
the largest national and regional home improvement retailers will continue to
increase at greater rates than the rate of sales growth in the overall market.
The Company expects that the growth trends in the specialty flooring segment of
the home improvement market and among its customer base will directly affect the
Company's ability to generate growth in its sales and net income, its expansion
strategy and the nature of its sales and marketing initiatives.

BUSINESS STRATEGY

The Company's strategy is to enhance its position as a leading manufacturer of
specialty tools and related products by introducing new products and
cross-selling products among its channels of distribution, expanding market
share by obtaining new customers, and capitalizing on expected growth of its
largest customers and of the home improvement market as a whole. Key elements of
the Company's strategy include:

PURSUE ADDITIONAL STRATEGIC ACQUISITIONS. During the second half of fiscal 1998,
the Company completed the acquisition of Roberts Consolidated and Roberts
Holland. Through its acquisitions, the Company has broadened its product line,
increased its customer base and increased its manufacturing and marketing
capabilities. The Company intends to seek and evaluate acquisitions of both
domestic and worldwide specialty tool and adhesive manufacturers, distributors
and other companies whose products, distribution channels and brand names are
complimentary to those of the Company and which will offer further opportunities
for product cross selling, expansion of manufacturing and marketing operations
and the addition of new customers.

INCREASE SALES BY EXPANDING PRODUCT LINES AND ADDING NEW CUSTOMERS. The Company
seeks to expand its product lines by introducing new products which can be
marketed to the Company's existing customer base. Through the acquisition of
Roberts Consolidated and Roberts Holland, the Company expanded its line of
flooring installation products, thereby increasing the number of products
available to be offered to existing customers. In addition to expanding product
offerings through acquisitions, the Company intends to internally develop and
offer new products in response to customer demands. The Company believes that
broadening its product lines will make it a more attractive supplier to the
major home improvement retailers and specialty distributors, thereby increasing
the Company's sales and market penetration.

CAPITALIZE ON CROSS-SELLING OPPORTUNITIES. The Company believes that there are
significant opportunities for "cross selling" its products among its existing
markets and channels of distribution. As part of its acquisition strategy, the
Company seeks to identify acquisition candidates with complementary product
lines and to "cross sell" acquired product lines to its existing customer base
and its existing product lines to the customers of the acquired business.

                                       3

<PAGE>

EXPAND FOREIGN MARKET PRESENCE. Management believes that the international
markets provide a significant opportunity to increase sales of its products and,
through the acquisition of Roberts Holland, the Company acquired manufacturing
and warehousing facilities in Europe. In addition, the Company has implemented
foreign sales and marketing programs designed to increase the Company's presence
in South America and the Pacific Rim. Additionally, the Company intends to
pursue international sales opportunities through acquisitions, marketing
initiatives and joint ventures.

ENHANCE MANUFACTURING CAPABILITIES. The Company currently has over 568,000
square feet of manufacturing capability located throughout the United States, in
Canada and in Holland. The Company manufactures approximately 60% of its
products.

PRODUCTS

The Company manufactures and distributes a broad line of over 4,000 specialty
tools and related products. The Company's products are offered under brand names
including QEP(TM), O'TOOL(TM) and ROBERTS(TM) and are used primarily for surface
preparation and installation of ceramic tile, carpet, marble, masonry and
drywall. The following table sets forth certain information concerning the
Company's principal product groups, their markets and distribution channels.

                          TOOL OR RELATED PRODUCT GROUP
<TABLE>
<CAPTION>

                          TILE                                  CARPET
                          ----                                  ------
MARKETS
<S>                   <C>                                       <C>
Primary               Do-it-yourself                            Professional
Secondary             Professional                              Do-it-yourself

DISTRIBUTION CHANNELS

Primary               Home improvement retailers                Distributors
Secondary             Tile retailers and distributors           Home improvement retailers

PRODUCT OFFERINGS     Full line                                 Full line
</TABLE>

As a result of the acquisition of Roberts Consolidated and Roberts Holland, the
Company began manufacturing and distributing adhesives, carpet seaming tape,
tack strip and an expanded assortment of carpet installation tools. A
significant amount of these products are sold to distributors for end-use
primarily by installation and construction professionals. Prior to these
acquisitions, while a portion of Q.E.P.'s products which included floats, tile
cutters, electric saws, nippers and sanders were sold to professionals, the
Company's products were predominantly sold to home improvement retailers for use
by the "do-it-yourself" customer. Although the Company manufacturers and
distributes over 4,000 products, a majority of the Company's sales are to
customers who purchase between 20 and 150 individual stock-keeping units. As the
Company seeks to broaden its product lines, the competition for limited shelf
space available at home improvement retailers for specialty tools and related
products may limit sales of existing or newly introduced products.

The Company maintains a limited research and development program through which
it seeks to identify new product opportunities within its primary markets.
Methods by which the Company seeks to identify product opportunities include
soliciting product feedback from customers through its outside sales force and
manufacturers' representatives, review of product brochures and catalogs issued
by foreign and domestic manufacturers of specialty tools, review of product
concepts with buyers employed by its customers, and attendance at industry trade
shows and conventions at which new product concepts are introduced and
discussed. The Company also considers participation in joint ventures and
evaluation of product samples to be an important part of its effort to identify
new product opportunities. The Company maintains a product quality control
program primarily to verify the quality of its existing products and to develop
ideas for additional products or enhancements to existing products.

                                       4

<PAGE>

RELATIONSHIP WITH MAJOR CUSTOMERS

In 1983, the Company began selling products to Home Depot, which is currently
the largest home improvement retailer in the world based on annual sales volume.
In 1993, the Company added Lowe's as a customer, which is now the second largest
home improvement retailer in the world. Home Depot and Lowe's are the Company's
two largest customers accounting for 28.0% and 4.0% of the Company's fiscal 1999
net sales, respectively.

Because of the importance of home improvement retailers to its business, the
Company has, in consultation with its major customers, developed customer
service programs to ensure that the specific needs of these customers are given
a high priority with direct attention from senior officers of the Company.
Features of the Company's customer service programs for its major customers
include providing a range of in-store services, such as, assistance with
inventory, maintenance of product displays, introduction of new products,
maintaining inventories of tools and related products in multiple locations to
permit rapid shipping, delivering orders promptly, holding education classes for
retail store personnel, packaging with multilingual labels, prepaying delivery
for product shipments with minimum purchase requirements, participating in
cooperative promotions and special sales events, providing product research for
buyers, operating a customer service hotline, providing parts and repair
service, extension of advertising allowances, accepting orders electronically
and billing through electronic data interchange, bar coding for each individual
stock keeping unit, and incorporating anti-theft tags in packaging. The Company
believes that its major customers place considerable value on service and
promotional support and frequently evaluates its service and promotional
activities in an effort to serve its customers more effectively.

The Company believes that the consolidation among home improvement retailers
will continue and that the national and large regional home improvement
retailers will continue to increase their market share in the near future. While
each of Home Depot and Lowe's has announced plans to increase significantly the
number of stores each operates over the next several years, as a result of the
expansion of the Company's distribution channels through the acquisition of
Roberts Consolidated and Roberts Holland, the effect of this expansion on the
Company will not be as significant as in the past.

MANUFACTURING AND SUPPLIERS

The Company estimates that in fiscal 1999 it manufactured approximately 60% of
its product line. The Company manufactures adhesives, carpet seaming tape and
carpet installation tools at its main manufacturing facilities in Mexico,
Missouri; City of Industry, California and Rotterdam, Holland. Carpet adhesives
are produced at the facilities in City of Industry, California and Bramalea,
Ontario, Canada. The majority of the Company's manufactured ceramic tile tools
are produced in Mexico, Missouri. Plastic tile spacers and trim are manufactured
at the facility in Boca Raton, Florida as well as a full line of ceramic floats
and other miscellaneous ceramic tile tools.

The Company purchased finished products and components from approximately 240
different suppliers in fiscal 1999. Although the Company believes that multiple
sources of supply exist for nearly all of the products and components purchased
from outside suppliers and generally maintains at least two sources of supply
for each item purchased, interruptions in supply or price changes in the items
purchased by the Company could have a material adverse effect on the Company's
operations.

DISTRIBUTION, SALES AND MARKETING

The Company's specialty tools and related products are currently sold through
four distinct distribution channels: (i) the Company's sales staff; (ii)
independent manufacturing representatives; (iii) an in-house telemarketing sales
force; and (iv) outside salaried and commissioned sales representatives.
Management estimates that sales through its primary distribution channels in
fiscal 1999 were as follows: 35% to national and regional home improvement
retailers; 62% to specialty distributors and 3% to OEMs and other specialty
retailers.

The Company maintains an in-house creative art department through which it
produces and develops color product catalogs, signage, point of purchase
materials and distinctive packaging to reinforce the Company's brand images. The
Company has developed a direct mail marketing program under which approximately
4,000 product advertising flyers are mailed to customers, usually on a bimonthly
basis.

                                       5
<PAGE>

The Company's marketing and sales representatives, or its manufacturers'
representatives, conduct monthly visits to many customers' individual retail
stores. In addition, the Company provides product knowledge classes for retail
store personnel. The Company also evaluates the product mix at its customers'
locations from time to time with a view toward changing the product mix, if
necessary, to increase sales per square foot. When the Company secures a new
customer, the Company generally resets all displays and assists store personnel
in becoming familiar with the Company's product line.

COMPETITION

The Company believes that competition in the home improvement product market is
based primarily on product quality, delivery capabilities, brand name
recognition, and availability of retail shelf space. The Company believes that
its competitive strengths are the quality of its products, its wide range of
products, its delivery capabilities, and the brand recognition. The Company
faces competition largely on a product-by-product basis from numerous
manufacturing and distribution companies. The Company believes that the
diversity of its product portfolio will allow it to compete effectively with its
competitors, although some of such competitors may sell larger quantities of a
particular product than the Company.

The Company is aware of a number of competitors, many of which are foreign and
may have greater financial, marketing and other resources than the Company.
Foreign sales, including Canada, accounted for approximately 19.6% of total
sales during fiscal 1999. Sales generated by the Canadian subsidiary
approximated 7.8% of total fiscal 1999 sales. The Company is continuing to
penetrate more foreign markets and, as a result, the Company may experience
competition from foreign companies, which could adversely affect the Company's
gross margins on its foreign sales.

Certain of the Company's larger customers have in the past contacted one or more
of the Company's foreign suppliers to discuss purchasing home improvement
products directly from these suppliers. Although the Company believes that its
diversified product line, brand recognition and customer service will continue
to offer benefits not otherwise available to the Company's customers from
foreign manufacturers, the Company could experience competition from one or more
foreign manufacturers which now serve as suppliers to the Company. If one or
more of the Company's larger customers were to begin purchasing products
previously supplied by the Company directly from foreign manufacturers, the
Company's business would be adversely affected. Increased competition from these
manufacturers or others could result in lower sales, price reductions and loss
of market share, each of which would have an adverse effect on the Company's
results of operations.

ENVIRONMENTAL MATTERS

The Company is subject to federal, state and local laws, regulations and
ordinances governing activities or operations that may have adverse
environmental effects, such as discharges to air and water, handling and
disposal practices for solid, special and hazardous wastes, and imposing
liability for the cost of cleaning up, and certain damages resulting from sites
of past spills, disposal or other releases of hazardous substances (together,
"Environmental Laws"). Sanctions which may be imposed for violation of
Environmental Laws include the payment or reimbursement of investigative and
clean up costs, administrative penalties and, in certain cases, prosecution
under environmental criminal statutes. The Company's manufacturing facilities
are subject to environmental regulation by, among other agencies, the
Environmental Protection Agency, the Occupational Safety and Health
Administration, and various state authorities in the states where such
facilities are located. The activities of the Company, including its
manufacturing operations at its leased facilities, are subject to the
requirements of Environmental Laws. The Company believes that the cost of
compliance with Environmental Laws to date has not been material to the Company.
Except as described below, the Company is not currently aware of any situations
requiring remedial or other action which would involve a material expense to the
Company, or expose the Company to material liability under Environmental Laws.
As the operations of the Company involve the storage, handling, discharge and
disposal of substances which are subject to regulation under Environmental Laws,
there can be no assurance that the Company will not incur any material liability
under Environmental Laws in the future or will not be required to expend funds
in order to effect compliance with applicable Environmental Laws.


                                       6
<PAGE>

The Company has conducted testing at its facility in Bramalea, Ontario, Canada
for potential leakage of hazardous materials. As a result, the Company believes
that certain chemicals have contaminated both soil and ground water on its
property and the contamination has spread to neighboring properties. During
fiscal 1999 the Company prepared a plan to remediate the contamination over a
period of years. This plan was approved by the Canadian Ministry of Environment,
(MOE). The Company recorded a reserve for potential environmental liability at
the acquisition date, and this amount was increased during fiscal 1999 based on
an estimate for the cost of remediation.

INTELLECTUAL PROPERTY

The Company markets its specialty tools and related products under various
trademarks owned by the Company or its subsidiaries, including QEP(TM),
O'TOOL(TM) and ROBERTS(TM). The Company has devoted substantial time, effort and
expense to the development of brand name recognition and goodwill for products
sold under its trademarks, has not received any notice that its use of such
marks infringes upon the rights of others, and is not aware of any activities
which would appear to constitute infringement of any of its marks. Roberts
Consolidated has secured domestic and foreign patents relating to certain of its
carpet seaming products. Although the patents are important to the operation of
Roberts Consolidated, the Company does not believe that the loss of any one or
more of these patents would have a material adverse effect on the Company. These
patents are scheduled to expire in the years 2008 and 2013. Roberts Consolidated
also licenses its name to various foreign distributors.

EMPLOYEES

As of May 3, 1999, the Company had 384 employees, including 79 administrative
employees, 57 sales and marketing employees, 131 manufacturing employees and 117
employees engaged in packaging and shipping. Four of these employees work part
time. The Company has not experienced any work stoppages and none of the
Company's employees are represented by a union. The Company considers its
relations with the employees to be good.

ITEM 2.  PROPERTIES

The Company currently leases facilities located in the United States, Canada and
Europe which consist of an aggregate of approximately 568,000 square feet. The
following table sets forth certain information concerning facilities leased by
the Company.

<TABLE>
<CAPTION>
                                                    SQUARE          ANNUALIZED             LEASE           RENEWAL
    LOCATION                  USE                    FEET              COST             EXPIRATION         OPTION
    --------                  ---                    ----              ----             ----------         ------
<S>                     <C>                          <C>              <C>                <C>                  <C>
Boca Raton, FL          Executive offices;
                        warehouse                     77,000          $342,027           01/31/04             --

Carson, CA              Administrative; sales;
                        warehouse                     29,200           100,850           08/14/99             --

Sliedrecht, Holland     Administrative; sales;
                        manufacturing                 52,544           107,500           11/01/02             --

Sliedrecht, Holland     Warehouse                     37,532            83,333           01/01/02             --

Morfelden, Germany      Administrative;
                        warehouse                     13,300            94,219           04/01/00             --

Morfelden, Germany      Administrative; sales            300             8,478           10/01/00             --

Plaisir, France         Administrative; warehouse      1,700            27,100             Yearly             --

City of Industry,       Administrative; warehouse;
  California            manufacturing                150,820           607,353           03/31/01              Y

Mexico, Missouri        Administrative; warehouse;
                        manufacturing                155,000           305,957           03/31/03              Y

Bramalea, Ontario       Administrative; warehouse;
                        manufacturing                 51,000           129,346           05/31/03             --
</TABLE>

                                       7
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

The Company is involved in litigation from time to time in the ordinary course
of its business. In the opinion of management, no material legal proceedings are
pending to which the Company or any of its property is subject.

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

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

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

MARKET PRICE AND DIVIDEND INFORMATION

The Company's Common Stock is traded on the Nasdaq National Market System. The
following table sets forth the high and low sales price per share for the Common
Stock for each quarter during fiscal year 1998 and 1999, as reported on the
Nasdaq National Market System.

                                     FISCAL YEAR ENDED FEBRUARY 28,
                                     ------------------------------
                                 1998                            1999
                                 ----                            ----
                         HIGH             LOW            HIGH              LOW
                         ----             ---            ----              ---
First Quarter           $  9.000       $ 6.250         $ 10.625         $ 7.750
Second Quarter          $  9.500       $ 7.250         $ 10.375         $ 7.500
Third Quarter           $ 10.625       $ 8.250         $  8.000         $ 6.125
Fourth Quarter          $  9.000       $ 7.250         $  9.250         $ 7.125

On May 3, 1999, the closing price of the Common Stock on the Nasdaq National
Market System was $7.625 per share. As of that date, there were 31 holders of
record of the Common Stock and approximately 877 beneficial owners of the Common
Stock.

The Company has not paid cash dividends and does not intend for the foreseeable
future to declare or pay any cash dividends on its Common Stock and intends to
retain earnings, if any, for the future operation and expansion of the Company's
business. Any determination to declare or pay dividends will be at the
discretion of the Company's board of directors and will depend upon the
Company's future earnings, results of operations, financial condition, capital
requirements, restrictions imposed by the terms of indebtedness, considerations
imposed by applicable law and other factors deemed relevant by the board of
directors.

                                       8
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

The following table sets forth selected consolidated financial data as of and
for each of the years in the five year period ended February 28, 1999. This
information is qualified in its entirety by, and should be read in conjunction
with, the consolidated financial statements and the notes thereto which are
included elsewhere in this report.

<TABLE>
<CAPTION>
                                                                           FISCAL YEAR ENDED FEBRUARY 28 OR 29,
                                                              -------------------------------------------------------------
                                                                 1995         1996         1997         1998         1999
                                                                 ----         ----         ----         ----         ----
<S>                                                           <C>          <C>          <C>          <C>          <C>
OPERATING DATA:                                                        (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Net Sales............................................         $  19,247    $  25,272    $  33,140    $  53,691    $  98,000

Cost of goods sold...................................            12,105       15,977       20,119       35,954       68,549
                                                              ---------    ---------    ---------    ---------    ---------
Gross profit.........................................             7,142        9,295       13,021       17,737       29,451

Shipping.............................................             1,488        1,746        2,440        4,020        7,592

General and administrative...........................             2,436        3,106        4,048        5,206        8,074

Selling and marketing................................             1,800        2,512        3,569        4,843        8,253

Foreign exchange losses..............................               115          ---           11            3           17
                                                              ---------    ---------    ---------    ---------    ---------
         Total expenses..............................             5,839        7,364       10,068       14,072       23,936
                                                              ---------    ---------    ---------    ---------    ---------
Operating income.....................................             1,303        1,931        2,953        3,665        5,515

Interest expense, net................................               149          195            7          373        1,625
                                                              ---------    ---------    ---------    ---------    ---------
Income before provision for income taxes.............             1,154        1,736        2,946        3,292        3,890

Provision for income taxes...........................               429          668        1,143        1,282        1,466
                                                              ---------    ---------    ---------    ---------    ---------
Net income...........................................         $     725    $   1,068    $   1,803    $   2,010    $   2,424
                                                              =========    =========    =========    =========    =========
Basic and diluted earnings per share.................         $     .47    $     .70    $     .89    $     .75    $     .90
                                                              =========    =========    =========    =========    =========
Weighted average number of shares of common
         stock outstanding...........................             1,515        1,506        2,012        2,677        2,690
                                                                  =====        =====        =====        =====        =====
</TABLE>

<TABLE>
<CAPTION>
                                                                           FISCAL YEAR ENDED FEBRUARY 28 OR 29,
                                                              -------------------------------------------------------------
                                                                 1995         1996         1997         1998         1999
                                                                 ----         ----         ----         ----         ----
BALANCE SHEET DATA:                                                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                           <C>          <C>          <C>          <C>          <C>
Working capital......................................         $   1,948    $   2,931    $  12,695    $  14,212    $  15,021

Total assets.........................................             6,000        7,971       16,434       43,026       48,251

Total liabilities....................................             3,502        4,545        2,981       27,393       30,353

Shareholders' equity.................................             2,498        3,425       13,453       15,633       17,898
</TABLE>

                                       9
<PAGE>

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

GENERAL

The Company manufactures, markets and distributes a broad line of specialty
tools and related products for the home improvement market. The Company markets
over 4,000 products used primarily for surface preparation and installation of
ceramic tile, carpet, marble, masonry and drywall. The Company's products are
sold through home improvement retailers, specialty distributors to the hardware,
construction, flooring and home improvement trades, chain or independent
hardware, tile, carpet and painting retailers for use by the do-it-yourself
consumer as well as the construction or remodeling professional, and original
equipment manufacturers. Dollar figures set forth below are rounded to the
nearest thousand.

RESULTS OF OPERATIONS

FISCAL 1999 AS COMPARED TO FISCAL 1998

Net sales for the 12 months ended February 28, 1999 ("fiscal 1999", or the
"fiscal 1999 period") were $98,000,000 compared to $53,691,000 for 12 months
ended February 28, 1998 ("fiscal 1998", or the "fiscal 1998 period"), an
increase of $44,309,000 or 82.5%.

This increase was primarily the result of sales from the Company's newly
acquired subsidiaries, Roberts Consolidated and Roberts Holland. Although
selling prices remained relatively stable, there was an increase in volume of
sales to home center retailers and independent distributors due to an increase
in market penetration by these customers and new store openings by major home
center chain customers.

Gross profit for fiscal 1999 was $29,451,000 compared to $17,737,000 for fiscal
1998, an increase of $11,714,000 or 66.0%. As a percentage of net sales, gross
profit decreased to 30% in fiscal 1999 from 33.0% in fiscal 1998. This decrease
was a result of the acquisition of Roberts Consolidated, which has historically
had lower gross profit margins than the Company.

Shipping expenses for the fiscal 1999 period were $7,592,000 compared to
$4,020,000 for the fiscal 1998 period, an increase of $3,572,000 or 88.9%. As a
percentage of net sales, these expenses increased to 7.7% in the fiscal 1999
period from 7.5% in the fiscal 1998 period. Approximately $2,750,000 of this
increase was the result of the sales volume generated by the Roberts
Consolidated acquisition, and the balance was attributable to increased sales
volume and an increase in freight rates charged by common carriers.

General and administrative expenses for the fiscal 1999 period were $8,074,000
compared to $5,206,000 for the fiscal 1998 period, an increase of $2,868,000 or
55.1%. As a percentage of net sales, these expenses decreased to 8.2% from 9.7%
in the fiscal 1998 period reflecting the leveraging of these costs over greater
sales. The actual increase in these expenses was primarily the result of
increased costs associated with the acquisition of Roberts Consolidated together
with costs associated with the hiring of certain key management personnel.

Selling and marketing costs for the fiscal 1999 period increased to $8,253,000
from $4,843,000 in the fiscal 1998 period, an increase of $3,410,000 or 70.4%.
As a percentage of net sales, these expenses decreased to 8.4% in the fiscal
1999 period from 9.0% in the fiscal 1998 period. The percentage decrease was a
result of lower selling and marketing costs as a percentage of sales at Roberts
Consolidated. This was a result of the small sales force maintained by Roberts
Consolidated prior to the acquisition. The increase in the actual amount of
these expenses is attributable to the Roberts Consolidated acquisition, and the
balance is primarily attributable to an increase in commissions paid to sales
personnel and an increase in marketing programs.

Interest income for the fiscal 1999 period was approximately $113,000 compared
to $194,000 in fiscal 1998. Interest expense for the fiscal 1999 period was
approximately $1,738,000 compared to approximately $567,000 in fiscal 1998.
Interest income was higher in the prior period because the Company invested its
excess cash, which was primarily

                                       10
<PAGE>

available prior to the acquisition of Roberts Consolidated. Interest expense
increased as a result of the increase in borrowings associated with the
acquisition of Roberts Consolidated.

Provision for income taxes was $1,467,000 in fiscal 1999 compared to $1,282,000
in fiscal 1998, an increase of $185,000 or 14.4%. The increase is the result of
an increase in the Company's taxable income as the effective rate remained
relatively consistent at 37.7% in fiscal 1999 compared to 38.9% in fiscal 1998.
Net income for the fiscal 1999 period increased to $2,424,000 compared to
$2,010,000 in fiscal 1998, an increase of $414,000 or 20.6%. Net income as a
percentage of sales decreased to 2.5% in fiscal 1999 compared to 3.7% in fiscal
1998, reflecting a lower gross profit margin and higher shipping and interest
expenses, offset by lower general and administrative and selling and marketing
expenses as a percentage of sales as described above.

RESULTS OF OPERATIONS

FISCAL 1998 AS COMPARED TO FISCAL 1997

Net sales for fiscal 1998 were $53,691,000, compared to $33,140,000 for the
twelve months ended February 29, 1997 ("fiscal 1997" or the "fiscal 1997
period"), an increase of $20,551,000 or 62.0%. The increase is primarily the
result of the Roberts acquisition and greater sales to home center retailers,
specialty retailers and independent distributors, resulting from increased
market penetration, new store openings by major home center chain customers and
sales of new products.

Gross profit for fiscal 1998 was $17,737,000, compared to $13,021,000 for fiscal
1997, an increase of $4,716,000 or 36.2%. As a percentage of net sales, gross
profit decreased to 33.0% in fiscal 1998 from 39.3% in fiscal 1997. The decrease
in gross profit margin was primarily due to the Company's acquisition of Roberts
Consolidated which historically had lower gross profit margins than the Company.

Shipping expenses for the fiscal 1998 period were $4,020,000, compared to
$2,441,000 for the fiscal 1997 period, an increase of $1,579,000 or 64.7%. As a
percentage of net sales these expenses increased to 7.5% in the fiscal 1998
period from 7.4% in the fiscal 1997 period. The increase in these expenses is
primarily due to additional labor and freight costs required to handle increased
volume and an increase in freight rates charged by common carriers.

General and administrative expenses for the fiscal 1998 period were $5,206,000,
compared to $4,048,000 for the fiscal 1997 period, an increase of $1,158,000 or
28.6%. As a percentage of net sales these expenses decreased to 9.7% in the
fiscal 1998 period from 12.2% in the fiscal 1997 period. The percentage decrease
in these expenses was primarily due to leveraging of these costs over greater
sales volume. The actual increase is primarily the result of the acquisition of
Roberts Consolidated.

Selling and marketing costs for the fiscal 1998 period increased to $4,843,000
from $3,569,000 in the fiscal 1997 period, an increase of $1,274,000 or 35.7%.
As a percentage of net sales these expenses decreased to 9.0% in the fiscal 1998
period from 10.8% in the fiscal 1997 period. The percentage decrease in these
expenses is primarily the result of additional sales volume.

Interest expense net, increased from $7,000 in fiscal 1997 to $373,000 in fiscal
1998, an increase of $366,000. The primary reason for the increase was the
interest expense incurred for borrowings associated with the Roberts
acquisition.

Provision for income taxes was $1,282,000 in fiscal 1998 compared to $1,143,000
in the fiscal 1997 period, an increase of $139,000 or 12.2%. This increase is a
direct result of the increase in the Company's taxable income as the Company's
effective tax rate remained relatively consistent at 38.9% in fiscal 1998
compared to 38.8% in fiscal 1997.

Net income for fiscal 1998 increased to $2,010,000, compared to $1,803,000 in
fiscal 1997, an increase of $207,000 or 11.5%. Net income as a percentage of net
sales decreased to 3.7% in the fiscal 1998 period compared to 5.4% in the fiscal
1997 period for the reasons described above.

                                       11
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Working capital increased from approximately $14,212,000 at February 28, 1998 to
$15,021,000 at February 28, 1999, an increase of $809,000, primarily as a result
of the Company's increase in inventory and accounts receivable. Any cash in
excess of anticipated requirements is invested in commercial paper or overnight
repurchase agreements with a financial institution. The Company states the value
of such investments at market price and classifies them as cash equivalents in
its balance sheet.

Net cash used in operating activities during the fiscal 1999 period was $12,000
compared to a use of cash of $335,000 for the comparable fiscal 1998 period. The
decrease in cash resulting from operating activities was primarily the result of
an increase in income from operations adjusted for non-cash charges for
depreciation and amortization, offset by an increase in accounts receivable,
which was associated with an increase in sales and an increase in inventory. Net
cash used in investing activities was $1,206,000 compared to $21,735,000 for the
comparable fiscal 1998 period. The fiscal 1998 amount was primarily due to the
Roberts Consolidated acquisition whereas the fiscal 1999 amount is primarily due
to the purchase of equipment.

For the fiscal 1999 period, cash provided by financing activities was $1,414,000
which was primarily the result of an increase in short-term bank debt,
associated with the increase in accounts receivable and inventory, and
collections on notes receivable offset by repayment of long-term debt. Net cash
provided by financing activities was $17,431,000 in the fiscal 1998 period due
primarily to the increase in borrowings used to finance the Roberts Consolidated
and Roberts Holland acquisitions.

In connection with the acquisition of Roberts Consolidated, the Company issued
$7,500,000 of subordinated debentures. These debentures mature on April 1, 2001
and bear interest at 8%. They were recorded at their fair value on the date of
issuance in the amount of $6,515,000 and the discount will be amortized over the
life of the debentures. During fiscal 1998, the Company entered into a revolving
credit and term loan facility with one financial institution. The revolving
credit facility permits borrowings of up to $10,000,000 against a fixed
percentage of eligible accounts receivable and inventory as defined. Interest is
payable at LIBOR +1.25%. During fiscal 1999 the revolving credit agreement was
amended to extend the termination date from July 25, 2000 to July 25, 2003. The
credit facility is collaterized by accounts receivable, inventory, equipment and
certain real property. Under the terms of the revolving credit agreement, the
Company is required to maintain certain financial ratios and conditions. The
agreement also prohibits the Company from incurring certain additional
indebtedness, limits certain investments, advances or loans and restricts
substantial asset sales and capital expenditures. The terms of the Company's
bank credit facility also prohibits the payment of dividends except with the
lender's consent. Under the revolving credit facility, the Company had
$4,293,000 available for future borrowings at February 28, 1999, net of
$2,842,000 in certain standby letters of credit, $2,750,000 of which is
discussed below.

The Company also has a short term credit line with a European financial
institution utilized by Roberts Holland which permits borrowings of up to
$2,500,000. The borrowings are collateralized by accounts receivable, inventory,
machinery and equipment and a $2,750,000 standby letter of credit from the
Company's domestic financial institution.

On October 30, 1998, the Company entered into interest rate swap agreements with
its primary lender. The interest rate swap agreements hedge the Company's
exposure on certain floating rate obligations in the aggregate principal amount
of $5.5 million. The purpose of the interest rate swaps is to convert the
Company's floating rate interest obligations to obligations having an average
fixed rate of 4.75% per annum for an average period of 1.75 years. The fixing of
interest rates reduces in part the Company's exposure to the uncertainty of
floating interest rates. The differentials paid or received by the Company on
the interest rate swap agreements are recognized as adjustments to interest
expense in the period incurred. The Company is exposed to credit loss in the
event of nonperformance by any counterparty to the interest rate swap
agreements. The Company does not anticipate nonperformance by such lender, and
no material loss would be expected from the nonperformance of the lender.

The Company believes its existing cash balances, internally generated funds from
operations and its available bank lines of credit will provide the liquidity
necessary to satisfy the Company's working capital needs, including the growth
in inventory and accounts receivable balances, and to finance anticipated
capital expenditures for the foreseeable future.

                                       12
<PAGE>

MANAGEMENT INFORMATION SYSTEMS - YEAR 2000

The Company upgraded its domestic management information systems during fiscal
1999, which, among other things, ensured proper processing of transactions
relating to the Year 2000 and beyond. The Company continues to evaluate
appropriate courses of action including the effect of Year 2000 on replacement
of certain systems at its foreign locations. The Company does not expect the
costs associated with Year 2000 compliance of its foreign subsidiary to have a
material effect on its financial position or results of operations. All costs
for corrective actions associated with Year 2000 compliance will be funded with
cash flow generated from operations and expensed as incurred.

RISKS OF YEAR 2000 ISSUES

The Company participates in the electronic data interchange program maintained
by many of its larger customers including Home Depot, Lowe's, HomeBase and
Hechinger/Builders Square. The Company's principal customers have provided
written notification advising the Company that they are in the process of, or
have been, addressing Year 2000 compliance. Failure by any of these principal
customers to adequately address these Year 2000 issues could have a material
adverse effect on the Company.

In addition, the Company has contacted its significant suppliers and other
service providers to determine the extent to which the Company is vulnerable to
those third parties' failure to remediate their own Year 2000 issues. The
Company is currently evaluating supplier responses to date and is not yet in a
position to fully assess any third party's compliance efforts with the Year 2000
issues or the actual expected impact on the Company if any third party's Year
2000 compliance efforts fail. The Company presently expects to complete the
evaluation by October 31, 1999. However, based upon preliminary analysis, the
Company does not believe that the costs, if any, that the Company would incur as
a result of any failure of its suppliers to address their Year 2000 issues would
have a material adverse effect on its financial position or results of
operations. This assessment is based upon a preliminary inquiry into this
matter, management may determine that this assessment is incorrect and there can
be no assurance that the final assessment of this matter will not differ
significantly from the preliminary conclusions.

The costs associated with Year 2000 compliance of the Company's foreign
subsidiary and the costs associated with any Year 2000 non-compliance on the
part of third parties with which the Company does business are based on
management's best estimates, utilizing numerous assumptions of future events
including the continued availability of certain resources, the existence of
third party modification and contingency plans and other factors. However, there
can be no guarantee that those estimates will be achieved and actual results
could differ materially from those plans. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the ability to locate and correct all
relevant computer codes, the ability of, and the resources available to, third
parties on which the Company relies to address Year 2000 issues, and similar
uncertainties.

CONTINGENCY PLANS

In an attempt to mitigate the above risks, the Company , by October 31, 1999,
will develop contingency plans for its foreign locations and any unplanned
interruptions arising from the date change as well as from the failure of any
third party's compliance.

RECENTLY ISSUED ACCOUNTING STANDARDS

In 1998, Statement of Financial Accounting Standards No. 133, "Accounting of
Derivative Instruments and Hedging Activities," was issued. This standard, which
establishes new accounting and reporting standards for derivative financial
instruments, must be adopted no later than fiscal 2001. The statement requires
all derivatives to be recognized as assets or liabilities on the balance sheet
and measured at fair value. Changes in the fair value of derivatives should be
recognized in either net income or other comprehensive income, depending on the
designated purpose of the derivative. The effect of adopting the Standard is
currently being evaluated but is not expected to have a material effect on the
Company's financial position or results of operations.

                                       13
<PAGE>

FORWARD-LOOKING STATEMENTS

This Report contains forward-looking statements which are made pursuant to the
safe harbor provisions of the Securities Litigation Reform Act of 1995.
Statements as to what the Company "believes," "intends", "expects" or
"anticipates", and other similarly anticipatory expressions, are generally
forward-looking and are made only as of the date of this Report. Readers of this
Report are cautioned not to place undue reliance on such forward-looking
statements, as they are subject to risks and uncertainties which could cause
actual results to differ materially from those discussed in the forward-looking
statements and from historical results of operations. Among the risks and
uncertainties which could cause such a difference are those relating to the
Company's dependence upon certain key personnel and the ability to manage its
growth, the Company's ability to properly integrate the operations of Roberts
Consolidated and Roberts Holland, the Company's ability to complete its year
2000 issues and the risks of economic and market factors affecting the Company
or its customers.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

On October 30, 1998, the Company entered into interest rate swap agreements with
its primary lender. The interest rate swap agreements hedge the Company's
exposure on certain floating rate obligations in the aggregate principal amount
of $5.5 million. The purpose of the interest rate swaps is to convert the
Company's floating rate interest obligations to obligations having an average
fixed rate of 4.75% per annum for an average period of 1.75 years. The fixing of
interest rates reduces in part the Company's exposure to the uncertainty of
floating interest rates. The differentials paid or received by the Company on
the interest rate swap agreements are recognized as adjustments to interest
expense in the period incurred. For the year ended February 28, 1999, no
adjustment to interest expense was incurred as a result of the interest rate
swap agreements. The Company is exposed to credit loss in the event of
nonperformance by any counterparty to the interest rate swap agreements. The
Company does not anticipate nonperformance by such lender, and no material loss
would be expected from the nonperformance of the lender.

The Company averaged approximately $6,000,000 of debt not covered by the
interest rate swap agreement during fiscal 1999. If interest rates would have
increased by 10%, the effect on the Company would have been an increase in
interest expense of approximately $35,000.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA

The response to this item is submitted in a separate section of this Report.

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

None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information required by this item regarding directors and officers is
incorporated by reference from the definitive Proxy Statement to be filed by the
Company for the Annual Meeting of Stockholders to be held July 16, 1999.

ITEM 11.  EXECUTIVE COMPENSATION

Information required by this item regarding compensation of officers and
directors is incorporated by reference from the definitive Proxy Statement to be
filed by the Company for the Annual Meeting of Stockholders to be held July 16,
1999.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information required by this item is incorporated by reference from the
definitive Proxy Statement to be filed by the Company for the Annual Meeting of
Stockholders to be held July 16, 1999.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by this item is incorporated by reference from the
definitive Proxy Statement to be filed by the Company for the Annual Meeting of
Stockholders to be held July 16, 1999.

                                       14
<PAGE>

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

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

         1. and 2. The financial statements filed as part of this report are
         listed separately in the index to Financial Statements beginning on
         page F-1 of this report.

         3. For Exhibits see Item 14 (c), below. Exhibit Nos. 10.1 and 10.1.1
         consist of management contracts or compensatory plans or arrangements
         required to be filed as exhibits to this report.

(b)      A Form 8-K/A was filed on December 31, 1997 including (under Item 7 of
         Form 8-K) financial statements required in connection with the
         Company's acquisition of Roberts Consolidated Industries, Inc. A list
         of the financial statements included in the Form 8-K/A was included in
         the Company's Quarterly Report on Form 10-Q filed on January 14, 1998
         and is incorporated herein by reference.

(c)      List of Exhibits:

EXHIBIT
NO.      DESCRIPTION
-------
 2.1     Form of Agreement and Plan of Merger regarding the change in
         incorporation of the Company from a New York Corporation to a Delaware
         Corporation*

 2.1.1   Stock Purchase Agreement dated October 21, 1997 between the Company and
         RCI Holdings, Inc.****

 3.1.1   Certificate of Incorporation of the Company*

 3.1.2   Bylaws of the Company**

 3.3     Form of Indemnification Agreement executed by Officers and Directors of
         the Company*

 4.1     Form of specimen certificate for Common Stock of the Company*

 4.1.1   Form of Warrant issued by the Company to the representative of the
         underwriters of the Company's initial public offering*

 9       Voting Trust Agreement, dated August 3, 1996, by and between Lewis
         Gould and Susan J. Gould*

10.1     Employment Agreement, dated August 3, 1996, by and between Lewis Gould
         and the Company*

10.1.1   Q.E.P. Co., Inc. Omnibus Stock Plan of 1996**

10.2.6   Lease Agreement, dated September 17, 1996, by and among the Company and
         Lawrence Z. Crockett, as Trustee of the Lawrence Z. Crockett Trust
         dated March 31, 1994 and Marilyn M. Crockett, as Trustee of the Marilyn
         M. Crockett Trust dated March 31, 1994, including amendment thereto
         dated January 22, 1997**

10.2.7   Industrial Lease, dated August 1, 1996, by and between JMB/Pennsylvania
         Advisors - IV, L.P., and the Company**

10.3.1.1 Revolving Loan and Security Agreement and Assignment of Leases, dated
         October 13, 1995, by and between Shawmut Bank Connecticut, N.A., a
         national banking association, and the Company, including Promissory
         Note dated October 13, 1995, Limited Guaranty of Lewis Gould dated
         October 13, 1995, and form of Guaranty executed by the Company's
         subsidiaries*

                                       15
<PAGE>

10.3.2   First Amendatory Agreement to Revolving Loan and Security Agreement,
         dated as of July 25, 1997, by and among Q.E.P. Co., Inc. and its
         subsidiaries and Fleet National Bank (f/k/a Shawmut Bank Connecticut,
         N.A.), including Amended and Restated Revolving promissory Note dated
         July 25, 1997 and Release of Limited Guaranty of Lewis Gould, dated
         July 25, 1997.***

10.3.3   Amended and Restated Loan Agreement by and among Q.E.P. Co., Inc.,
         Q.E.P.-O'Tool, Inc., Marion Tool Corporation, Westpoint Foundry, Inc.,
         Roberts Consolidated Industries, Inc., Roberts Holding International,
         Inc., and Roberts Company Canada Limited and Fleet National Bank dated
         as of October 21, 1997.*****

10.3.3A  First Amendatory Agreement to the Amended and Restated Loan Agreement
         by and among Q.E.P. Co., Inc., Q.E.P.-O'Tool, Inc., Marion Tool
         Corporation, Westpoint Foundry, Inc., Roberts Consolidated Industries,
         Inc., Roberts Holding International, Inc., and Roberts Company Canada
         Limited and Fleet National Bank dated as of October 21, 1997.+

10.3.4   Stock Purchase Agreement effective January 1, 1998 between Q.E.P.
         Holding B.V. and Roberts Beheer B.V.******

10.3.5   Purchase and Sale Agreement effective as of December 31, 1997 between
         Roberts Beheer B.V., Q.E.P. Co., Inc. and Roberts Consolidated
         Industries, Inc.******

21       Subsidiaries of the Company******

27       Financial Data Schedule (SEC use only)+

99.1     Form of Warrant issued to the following persons in the following
         amounts: RCI Holdings, Inc. (100,000) and Marlborough Capital Fund,
         Ltd. (100,000) ****

99.2     Form of 8% Convertible Subordinated Debenture issued to the following
         persons in the following amounts: RCI Holdings, Inc. ($1,911,673.30),
         Marlborough Capital Fund, Ltd. ($5,088.326.70), and IBJ Schroeder as
         Escrow Agent ($500,000).****

99.3     Escrow Agreement dated October 21, 1997 among the Company, RCI
         Holdings, Inc., and IBJ Schroeder.****

----------
+        Filed herewith

*        Incorporated by reference to Exhibit of the same number filed with the
         Company's Registration Statement on Form S-1 (Reg. No. 333-07477).

**       Incorporated by reference to Exhibit of the same number filed with the
         Company's Annual Report on Form 10-K filed on May 28, 1997.

***      Incorporated by reference to Exhibit of the same number filed with the
         Company's Quarterly Report on Form 10-Q filed on October 14, 1997.

****     Incorporated by reference to Exhibit of the same number filed with the
         Company's Report on Form 8-K filed on November 3, 1997 (except that
         Exhibit 2.1.1 above was numbered 2.1 in the Form 8-K).

*****    Incorporated by reference to Exhibit of the same number filed with the
         Company's Quarterly Report on Form 10-Q filed on January 14, 1998.

******   Incorporated herein by reference to Exhibit of the same number filed
         with the Company's Annual Report on Form 10-K filed on May 28, 1998.

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

                                       16
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Boca Raton,
Florida, State of Florida, on May 27, 1999.

                                             Q.E.P. CO., INC.

                                             By:      /s/ LEWIS GOULD
                                                      --------------------------
                                                      Lewis Gould
                                                      Chairman and Chief
                                                      Executive Officer

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

<TABLE>
<S>                             <C>                                         <C>
/s/ LEWIS GOULD                 Chairman, Chief Executive Officer           May 27, 1999
---------------------------     and Director (Principal Executive Officer)
Lewis Gould

/s/ MARC APPLEBAUM              Senior Vice President and Chief Financial   May 27, 1999
---------------------------     Officer (Principal Financial and Accounting
Marc Applebaum                  Officer)

/s/ MERVYN FOGEL                Director                                    May 27, 1999
---------------------------
Mervyn Fogel

/s/ WILLIAM P. KILLIAN          Director                                    May 27, 1999
---------------------------
William P. Killian

/s/ EMIL VOGEL                  Director                                    May 27, 1999
---------------------------
Emil Vogel

/s/ CHRISTIAN NAST              Director                                    May 27, 1999
---------------------------
Christian Nast

/s/ LEONARD GOULD               Director                                    May 27, 1999
---------------------------
Leonard Gould
</TABLE>

                                       17
<PAGE>

                                 C O N T E N T S

PAGE

Report of Independent Certified Public Accountants               F-2

Financial Statements

     Consolidated Balance Sheets                                 F-3

     Consolidated Statements of Income                           F-4

     Consolidated Statement of Shareholders' Equity              F-5

     Consolidated Statements of Cash Flows                       F-6

     Notes to Consolidated Financial Statements          F-7  to F-21

     Schedule II - Valuation and Qualifying Accounts             F-22

                                       F-1
<PAGE>

                              REPORT OF INDEPENDENT
                          CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
Q.E.P. Co., Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Q.E.P. Co., Inc.
and Subsidiaries (the "Company") as of February 28, 1999 and 1998, and the
related consolidated statements of income, shareholder's equity, and cash flows
for each of the three years in the period ended February 28, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Q.E.P. Co., Inc.
and Subsidiaries as of February 28, 1999 and 1998, and the consolidated results
of their operations and their consolidated cash flows for each of the three
years in the period ended February 28, 1999, in conformity with generally
accepted accounting principles.

We have also audited Schedule II of QEP Co. Inc. and Subsidiaries for each of
the three years in the period ended February 28, 1999. In our opinion, this
schedule presents fairly, in all material respects, the information required to
be set forth therein.

/s/ Grant Thornton LLP

Fort Lauderdale, Florida
April 23, 1999


                                       F-2
<PAGE>

<TABLE>
<CAPTION>
                        Q.E.P. CO., INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                                                            FEBRUARY 28,            FEBRUARY 28,
                   ASSETS                                                           1998                    1999
                                                                                    ----                    ----
<S>                                                                         <C>                     <C>
CURRENT ASSETS
     Cash and cash equivalents                                              $    239,984            $    290,066
     Accounts receivable, less allowance for doubtful accounts of
         approximately $480,000 and $382,000 as of February 28, 1998
         and 1999                                                             12,791,483              15,223,097
     Notes receivable                                                            688,272                 678,743
     Inventories                                                              11,487,463              14,329,205
     Prepaid expenses                                                          1,365,027               1,096,541
     Deferred income taxes                                                     1,029,038                 684,391
                                                                            ------------            ------------
              Total current assets                                            27,601,267              32,302,043

PROPERTY AND EQUIPMENT, net                                                    2,696,386               3,543,079

DEFERRED INCOME TAXES                                                          1,125,845               1,121,194
INTANGIBLE ASSETS, net                                                         8,033,978               8,767,019
NOTES RECEIVABLE                                                               2,567,271               1,843,364
OTHER ASSETS                                                                   1,001,141                 674,453
                                                                            ------------            ------------

TOTAL ASSETS                                                                $ 43,025,888            $ 48,251,152
                                                                            ============            ============

     LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
     Lines of credit                                                        $  4,246,452            $  6,084,209
     Current maturities of long term debt                                      1,142,319               1,218,253
     Accounts payable                                                          4,902,485               6,297,204
     Accrued liabilities                                                       2,958,717               3,681,368
     Deferred income taxes                                                       139,078                     ---
                                                                            ------------            ------------
              Total current liabilities                                       13,389,051              17,281,034

NOTES PAYABLE                                                                  6,788,219               5,643,945

SUBORDINATED LONG TERM DEBT                                                    6,611,098               6,899,390

DEFERRED INCOME TAXES                                                            604,445                 528,387

COMMITMENTS AND CONTINGENCIES                                                        --                      --

SHAREHOLDERS' EQUITY
     Preferred stock, 2,500,000 shares authorized,
         $1.00 par value; 336,660 shares issued and
         outstanding at February 28, 1998 and 1999                               336,660                 336,660
     Common stock; 10,000,000 shares authorized,
         $.001 par value; 2,654,894 shares issued and
         outstanding at February 28, 1998 and 1999                                 2,655                   2,655
     Additional paid-in capital                                                8,746,876               8,746,876
     Retained earnings                                                         6,736,712               9,147,105
     Cost of stock held in treasury                                              (57,900)                (57,900)
     Accumulated other comprehensive income                                     (131,928)               (277,000)
                                                                            ------------            ------------
                                                                              15,633,075              17,898,396
                                                                            ------------            ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                  $ 43,025,888            $ 48,251,152
                                                                            ============            ============
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                       F-3
<PAGE>

<TABLE>
<CAPTION>
                        Q.E.P. CO., INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

                                                                   YEAR ENDED
                                                ------------------------------------------------
                                                FEBRUARY 28,      FEBRUARY 28,      FEBRUARY 28,
                                                    1997              1998              1999
                                                ------------      ------------      ------------
<S>                                             <C>               <C>               <C>
Net sales                                       $ 33,140,273      $ 53,691,186      $ 97,999,969
Cost of goods sold                                20,118,824        35,954,506        68,548,599
                                                ------------      ------------      ------------
         Gross profit                             13,021,449        17,736,680        29,451,370
                                                ------------      ------------      ------------
Costs and expenses:
   Shipping                                        2,440,535         4,020,376         7,592,357
   General and administrative                      4,048,358         5,206,392         8,073,811
   Selling and marketing                           3,568,908         4,842,637         8,253,277
   Other expenses, net                                11,080             2,442            16,424
                                                ------------      ------------      ------------
                                                  10,068,881        14,071,847        23,935,869
                                                ------------      ------------      ------------
Operating income                                   2,952,568         3,664,833         5,515,501

Interest income                                      129,393           193,889           112,793
Interest expense                                    (136,643)         (567,022)       (1,737,959)
                                                ------------      ------------      ------------
Income before provision
for income taxes                                   2,945,318         3,291,700         3,890,335

Provision for income taxes                         1,142,577         1,282,053         1,466,771
                                                ------------      ------------      ------------
Net income                                      $  1,802,741      $  2,009,647      $  2,423,564
                                                ============      ============      ============
Basic and diluted earnings per common share     $        .89      $        .75      $        .90
                                                ============      ============      ============
Weighted average number of
shares outstanding                                 2,011,521         2,677,184         2,690,042
                                                ============      ============      ============
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                       F-4
<PAGE>

<TABLE>
<CAPTION>
                        Q.E.P. CO. INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY


                                              PREFERRED STOCK              COMMON STOCK
                                           ---------------------     ------------------------        PAID-IN       RETAINED
                                            SHARES       AMOUNT       SHARES           AMOUNT        CAPITAL       EARNINGS
                                            ------       ------       ------           ------     -----------      --------
<S>                                        <C>         <C>           <C>              <C>
Balance at March 1, 1996                    503,047    $ 503,047     1,500,000        $ 1,500     $    30,762    $ 2,947,916

Net income and comprehensive income                                                                                1,802,741

Conversion of preferred stock
       to common stock                     (166,387)    (166,387)        4,894              5         166,382

Proceeds from initial public offering                                1,150,000          1,150       8,236,575

Dividends                                                                                             (12,714)
                                           --------    ---------     ---------        -------     -----------    -----------
Balance at February 28, 1997                336,660      336,660     2,654,894          2,655       8,433,719      4,737,943

Net income                                                                                          2,009,647

Other comprehensive income:

       Foreign currency translation
          adjustment


Issuance of warrants                                                                                  206,000

Employee stock options                                                                                107,157

Dividends                                                                                                            (12,714)
                                           --------    ---------     ---------        -------     -----------    -----------
Balance at February 28, 1998                336,660      336,660     2,654,894          2,655       8,746,876      6,736,712

Net income                                                                                                         2,423,564

Other comprehensive income:

       Foreign currency translation
          adjustment

Dividends                                                                                                            (13,171)
                                           --------    ---------     ---------        -------     -----------    -----------
Balance at February 28, 1999                336,660    $ 336,660     2,654,894        $ 2,655     $ 8,746,876    $ 9,147,105
                                           ========    =========     =========        =======     ===========    ===========

<CAPTION>

                                           ACCUMULATED
                                              OTHER                           OTHER
                                          COMPREHENSIVE    TREASURY       COMPREHENSIVE
                                             INCOME          STOCK           INCOME
                                             ------       ----------         ------
<S>
Balance at March 1, 1996                   $      --      $ (57,900)

Net income and comprehensive income                                        $1,802,741
                                                                           ==========
Conversion of preferred stock
       to common stock

Proceeds from initial public offering

Dividends
                                           ----------      --------
Balance at February 28, 1997                      --        (57,900)

Net income                                                                  2,009,647

Other comprehensive income:

       Foreign currency translation
          adjustment                         (131,928)                       (131,928)
                                                                           ----------
                                                                           $1,877,719
                                                                           ==========
Issuance of warrants

Employee stock options

Dividends
                                           ----------      --------
Balance at February 28, 1998                 (131,928)      (57,900)

Net income                                                                  2,423,564

Other comprehensive income:

       Foreign currency translation
          adjustment                         (145,072)                       (145,072)
                                                                           ----------
                                                                           $2,278,492
                                           ----------      --------        ==========
Balance at February 28, 1999               $ (277,000)     $(57,900)
                                           ==========      ========
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                       F-5
<PAGE>

<TABLE>
<CAPTION>
                        Q.E.P. CO., INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                              YEAR ENDED

                                                           FEBRUARY 28,      FEBRUARY 28,      FEBRUARY 28,
                                                               1997              1998              1999
                                                           ------------      ------------      ------------
<S>                                                        <C>               <C>               <C>
Cash flows from operating activities:
     Net income                                            $  1,802,741      $  2,009,647      $  2,423,564

     Adjustments to reconcile net income to net cash
         used in operating activities:
         Depreciation and amortization                           77,228           356,534           835,044
         Amortization of costs in excess of
              assets acquired                                   (30,000)           78,030           180,718
         Amortization of discount on long term debt                --              96,098           312,520
         Bad debt expense                                          --                --             163,505
         Deferred income taxes                                 (164,000)          564,000           134,162
         Gain on sale of property and equipment                    --             (20,000)          (91,571)
         Stock option compensation                                 --             107,157              --
         Changes in assets and liabilities, net of
           acquisitions:
              Accounts receivable                            (1,836,507)       (1,558,897)       (3,111,028)
              Inventories                                    (1,557,719)          320,456        (2,882,201)
              Prepaid expenses                                  (75,135)         (841,529)          244,258
              Other assets                                       29,016           152,311           316,391
              Accounts payable and accrued liabilities        1,149,519        (1,599,039)        1,462,136
                                                           ------------      ------------      ------------
              Net cash used in operating activities            (604,857)         (335,232)          (12,502)
                                                           ------------      ------------      ------------
Cash flows from investing activities:
     Capital expenditures                                      (214,165)         (771,914)       (1,287,197)
     Acquisitions, net of cash acquired                            --         (20,982,692)             --
     Proceeds from sale of property & equipment                    --              20,000            80,734
                                                           ------------      ------------      ------------
     Net cash used in investing activities                     (214,165)      (21,734,606)       (1,206,463)
                                                           ------------      ------------      ------------
Cash flows from financing activities:
     Proceeds from initial public offering                    8,237,725              --                --
     Net (repayments) borrowings under
         lines of credit                                     (2,447,887)        3,316,159         1,837,757
     Borrowings of long term debt                                32,664        14,515,000              --
     Repayments of long term debt                                  --            (389,467)       (1,211,516)
     Payments on notes receivable                                  --             109,805           801,049
     Cash overdraft                                            (268,773)             --                --
     Dividends                                                  (12,714)          (10,878)          (13,171)
                                                           ------------      ------------      ------------
         Net cash provided by financing activities            5,541,015        17,540,619         1,414,119
                                                           ------------      ------------      ------------
Cumulative currency translation adjustment                         --            (131,928)         (145,072)
     NET INCREASE (DECREASE) IN CASH                          4,721,993        (4,661,147)           50,082

Cash and cash equivalents at beginning of year                  179,138         4,901,131           239,984
                                                           ------------      ------------      ------------
Cash and cash equivalents at end of year                   $  4,901,131      $    239,984      $    290,066
                                                           ============      ============      ============
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                       F-6
<PAGE>

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - DESCRIPTION OF BUSINESS

Q.E.P. Co., Inc. operates in one segment. Through this segment the Company is a
leading manufacturer, marketer and distributor of a broad line of specialty
tools and flooring related products. Under brand names Q.E.P., Roberts and
O'Tool, Q.E.P. markets approximately 4,000 specialty tools and related products
used primarily for the preparation and installation of ceramic tile, carpet and
marble. The Company sells its products to large home improvement retail centers,
as well as traditional distribution outlets in 50 states and more than 49
countries worldwide.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     1.  PRINCIPLES OF CONSOLIDATION

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

     2.  INITIAL PUBLIC OFFERING

         On September 17, 1996, the Company completed its initial public
         offering of 1,000,000 shares of its common stock, par value $.001 per
         share ("Common Stock"), at an initial offering price of $8.50 per share
         and 120,000 warrants to purchase Common Stock at an exercise price of
         $10.20 per share with an offering price of $.001 per warrant (the
         "Offering"). On November 6, 1996, the underwriters exercised their
         overallotment rights and purchased an additional 150,000 shares of
         Common Stock of the Company at a price of $8.50 per share. The net
         proceeds from the Offering and the exercise of the overallotment option
         were approximately $8,238,000.

     3.  CASH EQUIVALENTS

         The Company considers all highly liquid debt instruments purchased with
         an original maturity of three months or less to be cash equivalents.

     4.  INVENTORIES

         Inventories are stated at the lower of average cost or market.

     5.  PROPERTY AND EQUIPMENT

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

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

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

                                       F-7

<PAGE>

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

     6.  INTANGIBLE ASSETS

         Intangible assets (predominately goodwill which represents the cost in
         excess of net assets of businesses acquired) are recorded and amortized
         over periods ranging from five to thirty five years using the
         straight-line method. The Company periodically evaluates the carrying
         amount of goodwill to recognize and measure the possible impairment of
         these assets. Based on the recoverability from cash flow methods
         (including evaluating the probability that estimated undiscounted cash
         flows from related operations will be less than the carrying amount of
         goodwill and other long lived assets), the Company believes there is no
         impairment to goodwill.

     7.  INCOME TAXES

         Deferred income taxes are recorded to reflect the tax consequences on
         future years of differences between the tax basis of assets and
         liabilities and their financial reporting amounts at each year-end.

     8.  LEASES

         Leases which meet certain criteria are classified as capital leases.
         For such leases, assets and obligations are recorded initially at the
         fair market values of the leased assets. The capitalized leases are
         amortized using the straight-line method over the assets' estimated
         economic lives. Interest expense relating to the lease liabilities is
         recorded to effect a constant rate of interest over the terms of the
         obligations. Leases not meeting capitalization criteria are classified
         as operating leases and related rentals are charged to expense as
         incurred.

    9.   STOCK-BASED COMPENSATION

         The Company grants stock options for a fixed number of shares to
         employees and directors with an exercise price equal to at least 85% of
         the fair market value of the shares at the date of grant. The Company
         has adopted the disclosure-only provision of SFAS No. 123, "Accounting
         for Stock-Based Compensation," which permits the Company to account for
         stock option grants in accordance with APB Opinion No. 25, "Accounting
         for Stock Issued to Employees." Under APB 25, compensation expense is
         recorded when the exercise price of the Company's employee stock option
         is less than the market price of the underlying stock at the date of
         grant.

    10.  EARNINGS PER SHARE

         Basic earnings per share are computed based on weighted average shares
         outstanding during the period. Diluted earnings per share is computed
         using the weighted average number of common and dilutive common stock
         equivalent shares outstanding during the period. Dilutive common stock
         equivalent shares consist of stock options and warrant common stock
         equivalent shares which are not utilized when the effect is
         antidilutive.

    11.  COMPREHENSIVE INCOME

         The Company has adopted Financial Accounting Standards No. 130,
         "Reporting Comprehensive Income." Statement No. 130 establishes new
         rules for the reporting and display of comprehensive income and its
         components. Statement No. 130 requires foreign currency translation
         adjustments, which prior to adoption were

                                       F-8
<PAGE>

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         reported separately in shareholders' equity, to be included in other
         comprehensive income. The components of comprehensive income and the
         effect on earnings for the year ended February 28, 1999 are detailed in
         the Company's accompanying Consolidated Statement of Shareholder's
         Equity.

    12.  POST EMPLOYMENT BENEFITS

         The Company has a policy which provides service benefits to its
         salaried employees. The Company records a liability for post employment
         benefits in accordance with Statement of Financial Accounting Standards
         No. 112, "Employers Accounting for Post employment Benefits". Since the
         Company cannot reasonably estimate post employment benefits, including
         severance benefits, on an ongoing basis, these costs are recorded only
         when the probability of payment and the amount of such payment can be
         reasonably determined.

    13.  INTEREST RATE SWAP

         The interest rate swap agreement, (the "Swap") involves the exchange of
         fixed and floating interest rate payment obligations over various terms
         without the exchange of the underlying notional principle amount. The
         differential to be paid or received is recognized as an adjustment to
         interest expense in the period incurred.

    14.  FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

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

         Interest rate swap: The fair value of the interest rate swap used for
         hedging purposes, in the approximate amount of $57,000, is the amount
         the Company would receive upon termination of these agreements as of
         the balance sheet date taking into account current interest rates.

    15.  FOREIGN CURRENCIES

         The financial statements of subsidiaries outside the United States are
         generally measured using the local currency as the functional currency.
         Assets and liabilities recorded in foreign currencies on the books of
         foreign subsidiaries are translated at the exchange rate on the balance
         sheet date. Translation adjustments resulting from this process are
         charged or credited to equity. Revenues, costs, and expenses are
         translated at average rates of exchange prevailing during the year.
         Gains and losses on foreign currency transactions are included in
         operating expenses.

   16.   REVENUE RECOGNITION

         Sales are recognized when merchandise is shipped and such revenue is
         recorded net of estimated sales returns, discounts and allowances.

                                       F-9
<PAGE>

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   17.   ADVERTISING COST

         Advertising costs are expensed in the period incurred except those
         costs which result in tangible assets, such as catalogs, which are
         treated as prepaid supplies and charged to operations as consumed.

   18.   USE OF ESTIMATES

         In preparing financial statements in conformity with generally accepted
         accounting principles, management is required to make certain estimates
         and assumptions that affect the reported amounts of assets and
         liabilities and disclosure of contingent assets and liabilities at the
         date of the financial statements and revenues and expenses during the
         reporting period. Actual results could differ from those estimates.

         The Company estimates an allowance for doubtful accounts based on the
         creditworthiness of its customers as well as general economic
         conditions. Consequently, an adverse change in those conditions could
         affect the Company's estimate.

   19.   RECLASSIFICATIONS

         Certain amounts in 1998 have been reclassified to conform with the 1999
         presentation.

NOTE C - ACQUISITIONS

On October 21, 1997, pursuant to a Stock Purchase Agreement dated as of the same
date between the Company and RCI Holdings, Inc., a Delaware corporation (the
"Seller"), the Company acquired all of the issued and outstanding stock of
Roberts Consolidated Industries, Inc. ("Roberts"). The purchase price was
$12,350,000 in cash, the issuance to the Seller and its Designees of 8%
Subordinated Debentures due 2001 in an aggregate amount of $7,500,000 and the
issuance to the Seller and its Designees of warrants to purchase 200,000 shares
of Common Stock of the Company at a purchase price of $10 per share. The cash
portion of the purchase price was funded in part through a new term loan and the
Company's existing revolving credit facilities.

Effective December 31, 1997, the Company acquired all of the issued and
outstanding shares of Roberts Holland B.V. together with all licenses and
intellectual property. The purchase price of this transaction was approximately
$1,563,000 and the assumption of approximately $1,500,000 in debt.

These transactions have been accounted for as purchases and accordingly the
operating results since the date of acquisition have been included in the
accompanying financial statements. The purchase price was allocated based on the
estimated fair values of assets acquired and liabilities assumed. The excess of
the aggregate purchase price over the fair market value of net assets acquired
of approximately $7,800,000 is being amortized on a straight-line basis over 35
years. Accumulated amortization at February 28, 1999 was approximately $147,733.
During fiscal 1999, the Company continued to gather certain information required
to complete the allocation of the purchase price of the acquisitions. In
February 1999, the Company completed its allocation of the purchase price of the
acquisitions and adjusted various assets and liabilities to their fair value at
the date of acquisition. The result of this allocation was to increase goodwill
by approximately $957,000 in fiscal 1999.

The following unaudited pro forma consolidation shows the results of operations
assuming the above purchases occurred on March 1, 1996. The unaudited pro forma
results for the years ended February 28, 1997 and 1998, are not necessarily
indicative of what actually would have occurred if the acquisition had been in
effect for the entire period presented. In addition, they are not intended to be
a projection of future results.

                                      F-10
<PAGE>

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                        1997                    1998
                                        ----                    ----

Net Sales                          $ 91,725,569            $ 92,079,532
Net Income                         $  2,147,907            $  1,297,186
Earnings per Share                 $       1.06            $        .48

NOTE D - EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income, after deducting
preferred stock dividends accumulated during the period, by the weighted average
number of shares of common stock outstanding during each period. For the three
years ended February 28, 1999, the weighted average number of basic shares of
common stock outstanding amounted to 2,654,894. For the three years ended
February 28, 1999 the weighted average number of diluted shares of common stock
outstanding amounted to 2,011,521 in 1997, 2,677,184 in 1998 and 2,690,042 in
1999.

NOTE E - SEGMENT INFORMATION

Effective in 1999, the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". This statement introduced a new model
for segment reporting called the "management approach". The management approach
is based on the way the chief operating decision-maker organizes segments within
a company for making operating decisions and assessing performance. The Company
operates in one business segment -- flooring-related products, based on the
similarity of products, production processes, customers and expected long-term
performance. The Company manufactures and distributes flooring-related products
to the residential new construction, do-it-yourself and professional remodeling
and renovation markets and home centers.

Information attributable to the Company's geographic areas is as follows:

<TABLE>
<CAPTION>
                                     NORTH/LATIN        EUROPE        INTER-COMPANY     CONSOLIDATED
                                     AMERICA (A)                      ELIMINATIONS         TOTAL
                                    ------------     ------------     -------------     ------------
              1999
              ----
<S>                                 <C>              <C>              <C>               <C>
Sales                               $ 88,015,969     $  9,984,000     $       --        $ 97,999,969
Transfers between areas                3,591,489             --         (3,591,489)             --
                                    ------------     ------------     ------------      ------------
Total Sales                         $ 91,607,458     $  9,984,000       (3,591,489)     $ 97,999,969
                                    ============     ============     ============      ============
Identifiable Assets at Year End     $ 86,882,821     $  5,686,698     $(44,318,367)     $ 48,251,152
                                    ============     ============     ============      ============

              1998
              ----
Sales                               $ 51,633,686     $  2,057,500             --        $ 53,691,186
Transfers between areas                1,234,677             --         (1,234,677)             --
                                    ------------     ------------     ------------      ------------
Total Sales                         $ 52,868,363     $  2,057,500     $ (1,234,677)     $ 53,691,186
                                    ============     ============     ============      ============
Identifiable Assets at Year End     $ 66,144,419     $  4,787,857     $(27,906,388)     $ 43,025,888
                                    ============     ============     ============      ============

              1997
              ----
Sales                               $ 33,140,273             --               --        $ 33,140,273
Transfers between areas
                                    ------------     ------------     ------------      ------------
Total Sales                         $ 33,140,273             --               --        $ 33,140,273
                                    ============     ============     ============      ============
Identifiable Assets at Year End     $ 16,433,987                                        $ 16,433,987
                                    ============                                        ============

<FN>
(a)      Includes Canada.
</FN>
</TABLE>

                                      F-11
<PAGE>

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE F - NOTE RECEIVABLE

Concurrent with the acquisition of Roberts, the Company sold certain production
equipment (at their stated value) to an unrelated third party for a note in the
amount of $3,750,000. Such note is collateralized by the equipment. At the time
of issuance, the note was recorded at its net present value of $3,250,000
utilizing its effective interest rate of approximately 9% and is payable through
a reduction in purchase price of goods sold to the Company under a supply
agreement. The Company estimates the note will be repaid in 2003.

NOTE G - INVENTORIES

     Inventories consisted of the following:

<TABLE>
<CAPTION>
                                                        FEBRUARY 28,    FEBRUARY 28,
                                                            1998            1999
                                                        ------------    ------------
<S>                                                     <C>             <C>
Raw materials and work-in-progress                      $ 3,896,608     $ 3,881,685
Finished goods                                            7,590,855      10,447,520
                                                        -----------     -----------
                                                        $11,487,463     $14,329,205
                                                        ===========     ===========
</TABLE>

NOTE H - PROPERTY AND EQUIPMENT

     Property and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                        FEBRUARY 28,    FEBRUARY 28,
                                                            1998            1999
                                                        ------------    ------------
<S>                                                     <C>             <C>
Land                                                    $     7,509             --
Machinery and warehouse equipment                         1,417,384     $ 1,360,453
Office furniture, equipment and computer equipment        1,438,098       2,822,503
Building and leasehold improvements                         528,578         766,379
                                                        -----------     -----------
                                                          3,391,569       4,949,335

Less accumulated depreciation and amortization             (695,183)     (1,406,256)
                                                        -----------     -----------
                                                        $ 2,696,386     $ 3,543,079
                                                        ===========     ===========
</TABLE>

NOTE I - DEBT

Total debt consists of the following:

<TABLE>
<CAPTION>
                                                        FEBRUARY 28,    FEBRUARY 28,
                                                            1998            1999
                                                        ------------    ------------
<S>                                                     <C>             <C>
Payable to banks under revolving credit facilities      $ 4,246,452     $ 6,084,209
Payable to a bank under a term loan credit facility       7,714,285       6,571,429
Subordinated debentures due April 1, 2001                 7,500,000       7,500,000
Other debt, including capital leases                        216,253         290,759
                                                        -----------     -----------
                                                         19,676,990      20,446,407
Less current installments                                 5,388,771       7,302,462
                                                        -----------     -----------
                                                         14,288,219      13,143,945
Less unamortized discount                                   888,902         600,610
                                                        -----------     -----------
Long Term                                               $13,399,317     $12,543,335
                                                        ===========     ===========
</TABLE>

                                      F-12
<PAGE>

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company has a revolving credit and term loan facility with one financial
institution. The revolving credit facility permits borrowings of up to
$10,000,000 against a fixed percentage of eligible accounts receivable and
inventory, as defined. Interest is payable at LIBOR plus 1.25% (6.25% at
February 28, 1999). In March 1999, the revolving credit agreement was amended so
as to terminate on July 25, 2003. The credit facility is collateralized by
accounts receivable, inventory, equipment and certain real property. Under the
terms of the Agreement, the Company is required to maintain certain financial
ratios and conditions. The Agreement also prohibits the Company from incurring
certain additional indebtedness, limits certain investments, advances or loans
and restricts substantial asset sales and capital expenditures. The terms of the
Company's bank credit facility prohibit the payment of dividends, except with
the lender's consent. Letters of credit are issued by the Company during the
ordinary course of business through major domestic banks as required by certain
vendor agreements under the revolving credit facility. The Company had
approximately $92,000 as of February 28, 1998 and 1999, respectively, of
outstanding letters of credit. During fiscal 1998 the Company also issued a
standby letter of credit in favor of a European financial institution in the
amount of $2,750,000 to collateralize the Company's European facility. At
February 28, 1999, the Company had $4,293,000 available for future borrowing.

The Company also has a short term credit line with a European financial
institution utilized by its European subsidiary which permits borrowings of up
to $2,500,000. At February 28, 1999, borrowings under this agreement totaled
$2,418,793. The unused portion of this line was $81,207 at February 28, 1999.
This credit line bears interest at 5.00%. The borrowings are collateralized by
accounts receivable, inventory, machinery and equipment, and the standby letter
of credit.

The Company's European subsidiary has also entered into a factoring agreement
with a financial institution whereby the Company is advanced a percentage
against the accounts receivable. At February 28, 1999 and 1998, the balance is
$800,416 and $708,154, respectively.

The term loan is payable in equal quarterly installments over a seven year
period. The loan is collateralized by substantially all of the assets of the
Company. The interest rate varies based on conditions, as defined in the
agreement and was approximately 7.0% at February 28, 1999. The balance of the
term loan at February 28, 1999 and 1998 was $6,571,429 and $7,714,285,
respectively.

In connection with the acquisition of Roberts, the Company issued $7,500,000 of
subordinated debentures. These debentures mature on April 1, 2001 and bear
interest at 8%. These notes were recorded at their fair value at the date of
issuance in the amount of $6,515,000 and the discount will be amortized over the
life of the debenture. At February 28,

                                      F-13
<PAGE>

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1999 and 1998 the amortized balance of this obligation was $6,899,390 and
$6,611,098 respectively.

On October 30, 1998, the Company entered into interest rate swap agreements with
its primary lender. The interest rate swap agreements hedge the Company's
exposure on certain floating rate obligations in the aggregate principal amount
of $5.5 million. The purpose of the interest rate swaps is to convert the
Company's floating rate interest obligations to obligations having an average
fixed rate of 4.75% per annum for an average period of 1.75 years. The fixing of
interest rates reduces in part the Company's exposure to the uncertainty of
floating interest rates. The differentials paid or received by the Company on
the interest rate swap agreements are recognized as adjustments to interest
expense in the period incurred. For the year ended February 28, 1999, no
adjustment to interest expense was incurred as a result of the interest rate
swap agreements. The Company is exposed to credit loss in the event of
nonperformance by any counterparty to the interest rate swap agreements. The
Company does not anticipate nonperformance by such lender, and no material loss
would be expected from the nonperformance of the lender.

Interest paid for all debt was approximately, $137,000, $267,000, and $1,391,000
in fiscal 1997, 1998 and 1999, respectively.

The aggregate maturities of all debt maturing during each of the next five years
as of February 28, is as follows:

             2000                                    $ 1,218,253
             2001                                      1,342,657
             2002                                      8,654,330
             2003                                      1,146,957
             2004 and thereafter                       2,000,001
                                                     -----------
             Total                                   $14,362,198
                                                     ===========
             Current                                 $ 1,218,253
             Long Term                                12,543,335

             Unamortized Discount                        600,610
                                                     -----------
             TOTAL                                   $14,362,198
                                                     ===========

NOTE J - ACCRUED LIABILITIES

     Accrued liabilities consisted of the following:

                                           FEBRUARY 28,   FEBRUARY 28,
                                               1998            1999
                                           ------------   ------------
Accrued payroll and employee benefits       $  633,846     $  797,008
Accrued liabilities                          1,802,008      1,928,116
Accrued volume and advertising discount        222,419        411,988
Accrued interest                               300,444        265,489
Accrued income taxes                               --         278,767
                                            ----------     ----------
                                            $2,958,717     $3,681,368
                                            ==========     ==========

NOTE K - COMMITMENTS AND CONTINGENCIES

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

                                      F-14
<PAGE>

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

estimated.

The Company is periodically involved in litigation relating to claims arising
out of its operations in the normal course of business. The Company is not
currently engaged in any legal proceedings that are expected, individually or in
the aggregate, to have a material adverse effect on the Company.

     1.  FUTURE MINIMUM OBLIGATIONS

         The Company conducts its operations from various leased facilities.
         Future minimum payments under non-cancelable operating leases consist
         of the following in fiscal years ending after February 28, 1999:

                      2000                       $  1,842,867
                      2001                          1,807,441
                      2002                          1,183,824
                      2003                          1,051,079
                      2004 and thereafter             488,856
                                                 ------------
                      Total                      $  6,374,070
                                                 ============

         Total rent expense under non-cancelable operating leases approximated
         $701,000, $856,000 and $1,868,000 in fiscal 1997, 1998 and 1999,
         respectively. The increase in fiscal 1999 is primarily the result of
         the Roberts acquisitions.

     2.  ROBERTS CONSOLIDATED INDUSTRIES

         The Company is subject to federal, state and local laws, regulations
         and ordinances governing activities or operations that may have adverse
         environmental effects, such as discharges to air and water, handling
         and disposal practices for solid, special and hazardous wastes, and
         imposing liability for the cost of cleaning up, and certain damages
         resulting from sites of past spills, disposal or other releases of
         hazardous substances (together, "Environmental Laws"). Sanctions which
         may be imposed for violation of Environmental Laws include the payment
         or reimbursement of investigative and clean up costs, administrative
         penalties and, in certain cases, prosecution under environmental
         criminal statutes. The Company's manufacturing facilities are subject
         to environmental regulation by, among other agencies, the Environmental
         Protection Agency, the Occupational Safety and Health Administration,
         and various state authorities in the states where such facilities are
         located. The activities of the Company, including its manufacturing
         operations at its leased facilities, are subject to the requirements of
         Environmental Laws. The Company believes that the cost of compliance
         with Environmental Laws to date has not been material to the Company.
         Except as described below, the Company is not currently aware of any
         situations requiring remedial or other action which would involve a
         material expense to the Company, or expose the Company to material
         liability under Environmental Laws. As the operations of the Company
         involve the storage, handling, discharge and disposal of substances
         which are subject to regulation under Environmental Laws, there can be
         no assurance that the Company will not incur any material liability
         under Environmental Laws in the future or will not be required to
         expend funds in order to effect compliance with applicable
         Environmental Laws.

         The Company has conducted testing at its facility in Bramalea, Ontario,
         Canada for potential leakage of hazardous materials. The Company
         believes that certain chemicals have contaminated both soil and
         groundwater. At the date of acquisition the Company recorded a reserve
         for potential environmental liabilities associated with the Roberts
         companies and during fiscal 1999, the Company, as a result of
         additional testing and evaluation, increased its reserve based on a
         revised estimate to clean up the site. This additional amount was added
         to goodwill.

     3.  YEAR 2000

         The Year 2000 issue relates to limitations in computer systems and
         applications that may prevent proper recognition of the Year 2000. The
         potential effect of the Year 2000 issue on the Company and its business
         partners will not be fully determinable until the Year 2000 and
         thereafter. If Year 2000 modifications are not properly completed
         either by the Company or entities with which the Company conducts
         business, the Company's revenues and financial condition could be
         adversely impacted.

NOTE L - PENSION AND RETIREMENT PLANS

PROFIT SHARING AND 401(K) PLAN

The Company and its subsidiaries offers a 401(k) benefit plan which provides for
voluntary contributions by employees subject to a maximum annual contribution.
The Company may, at the discretion of the Board of Directors, make contributions
to the plans. For the years ended February 28, 1997, 1998 and 1999, the Company
contributed $155,000 and $105,500 and $92,700 respectively.

Subsequent to the acquisition of Roberts Consolidated Industries, Inc., the
Company terminated the Roberts Salaried Employees Defined Benefit Pension Plan.
As of May 31, 1998, the projected benefit obligation was estimated to be
$2,452,000 and the plan assets were approximately $2,947,000. The Company
initially recorded an asset in excess of projected benefit of approximately
$700,000. During fiscal 1999, the Company had an actuarial valuation prepared
which adjusted this amount and goodwill by approximately $226,000. There is no
pension expense for the year ended February 28, 1999 associated with the defined
benefit pension plans.

                                      F-15
<PAGE>

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE M - INCOME TAXES

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

                                YEAR ENDED FEBRUARY 28,
                             -----------------------------
                             1997        1998         1999
                             ----        ----         ----
United States              $2,945,318  $3,396,564  $4,699,161
Foreign                             -    (104,864)   (808,826)
                           ----------  ----------  ----------
Total                      $2,945,318  $3,291,700  $3,890,335
                           ==========  ==========  ==========

The components of the provision for income taxes are as follows:

                                           YEAR ENDED FEBRUARY 28,
                               --------------------------------------------
                                   1997             1998            1999
                                   ----             ----            ----
Current:
         Federal               $ 1,120,682      $   608,053     $ 1,132,178
         State                     185,895           94,000         200,431
         Foreign                      --             16,000            --
                               -----------      -----------     -----------
                                 1,306,577          718,053       1,332,609
                               -----------      -----------     -----------
Deferred:
         Federal                  (144,000)         525,000         217,144
         State                     (20,000)          39,000           7,047
         Foreign                      --               --           (90,029)
                               -----------      -----------     -----------
                                  (164,000)         564,000     $   134,162
                               -----------      -----------     -----------
Total income tax provision     $ 1,142,577      $ 1,282,053     $ 1,466,771
                               ===========      ===========     ===========

The tax effects of temporary differences which give rise to deferred tax assets
are as follows:

                                                    FEBRUARY 28,    FEBRUARY 28,
                                                        1998            1999
                                                    ------------    ------------
Provision for doubtful accounts                     $   159,000     $   135,072
Accrued expenses                                        375,000         381,721
Fixed assets                                           (730,000)       (518,127)
Inventory                                                77,000         160,322
Net operating loss and tax credit carryforwards       1,530,000       1,118,210
                                                    -----------     -----------
Net deferred tax asset                              $ 1,411,000     $ 1,277,198
                                                    ===========     ===========

The Company has approximately $2,600,000 in net operating loss carryforwards
which expire in the years 2011 through 2018. The $2,600,000 net operating loss
carryforward related to Roberts, which is subject to separate IRC Section 382
and Separate Return Limitation Year (SRLY) Limitations. The Section 382
limitation limits the Company's utilization of its net operating losses to an
annual amount after an ownership change. The SRLY limitations permit an offset
to the current consolidated taxable income only to the extent of taxable income
attributed to the member with the SRLY loss.

                                      F-16
<PAGE>

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company has net operating losses in various foreign countries of
approximately $900,000, $200,000 of these losses expire in 2006 and the
remainder have no limitations in their expiration.

The following is a reconciliation of the statutory federal income tax rate to
the effective rate reported in the financial statements:

<TABLE>
<CAPTION>
                                                                            YEAR ENDED FEBRUARY 28,
                                              ------------------------------------------------------------------------------------
                                                            1997                         1998                           1999
                                                            ----                         ----                           ----
                                                    AMOUNT       %               AMOUNT         %              AMOUNT           %
                                                    ------       -               ------         -              ------           -
<S>                                           <C>              <C>           <C>              <C>           <C>               <C>
Provision for federal income taxes
         at the statutory rate                $  1,001,597     34.0          $  1,119,000     34.0          $ 1,322,714       34.0

State and local income taxes -
         net of federal income tax benefit         122,691      4.2                88,000      2.7              133,990        3.4

Other                                               18,289       .6                75,053      2.2               10,067        0.3
                                              ------------     ----          ------------     ----          -----------       ----
Actual provision                              $  1,142,577     38.8%         $  1,282,053     38.9%         $ 1,466,771       37.7%
                                              ============     ====          ============     ====          ===========       ====
</TABLE>

Cash paid for income taxes was $998,664, $1,541,906, and $614,808 in fiscal
1997, 1998 and 1999 respectively.

NOTE N - SIGNIFICANT CUSTOMER AND VENDOR INFORMATION

     1.  SIGNIFICANT CUSTOMER INFORMATION

         The Company sells products to a large number of customers which are
         primarily in the United States. The Company performs ongoing credit
         evaluations of its customers' financial condition and, generally,
         requires no collateral from its customers. The Company's customer base
         includes a high concentration of home center chains with two such
         customers accounting for a total of 61%, 43% and 32% of sales in fiscal
         1997, 1998 and 1999, respectively. One customer represented 50%, 43%
         and 28%, and the other customer represented 11%, 6% and 4%, of sales in
         fiscal 1997, 1998 and 1999, respectively. These same two customers
         represented 22% and 4% of accounts receivable at February 28, 1998 and
         28.2% and 5.1% at February 28, 1999, respectively.

                                      F-17
<PAGE>

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         Although the Company is directly affected by the well-being of the home
         center industry, management does not believe significant credit risk
         exists at February 28, 1999.

     2.  SIGNIFICANT VENDOR INFORMATION

         The Company purchased 10% and 9% for the year ended February 28, 1997
         of total purchases through two vendors. There were no significant
         purchases from any one vendor for the years ended February 28, 1998 and
         1999.

NOTE O - SHAREHOLDERS' EQUITY - PREFERRED STOCK

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

SERIES A

500,000 of the Company's 2,500,000 authorized shares of preferred stock, $1 par
value per share, shall be designated as Series A Preferred Stock. The holders of
each share of Series A Preferred Stock shall be entitled to receive, before any
dividends shall be declared or paid on or set aside for the Company's common
stock, out of funds legally available for that purpose, cumulative dividends in
cash at the rate of $.035 per share per annum through September 30, 2000,
payable in semiannual installments, accruing from the date of issuance of the
shares. Commencing October 1, 2000, the rate of dividends will equal the prime
interest rate on the first day of the month in which the dividends are payable,
less 1-1/4%. The Company may redeem any or all of the shares of Series A
Preferred Stock outstanding at a price per share of $1.07 plus an amount equal
to any accrued but unpaid dividends thereon during the first year following the
issuance of such shares and such price shall be reduced by one percent (1%) each
year thereafter until $1.00 per share is reached. The Series A Preferred Stock
has no voting rights. During fiscal 1995, the Company issued 425,547 shares of
Series A preferred stock in connection with a business acquisition. In fiscal
1997, 106,387 of these shares were converted to 3,129 shares of common stock. At
February 28, 1999, there were 319,160 shares of Series A Preferred Stock issued
and outstanding. There were $12,103, $10,878, and $10,171 dividends declared and
paid during the fiscal years 1997, 1998, and 1999, respectively.

SERIES B

1,000,000 of the Company's 2,500,000 authorized shares of preferred stock, $1
par value per share, shall be designated as Series B Preferred Stock. The holder
of each share of Series B Preferred Stock shall be entitled to receive, out of
the surplus of the Company, a non-cumulative dividend at the rate of $.05 per
share per annum, payable annually before any dividend shall be set apart for or
paid on the common shares for such years. The Series B Preferred Stock has no
voting rights. The Company may redeem any or all of the shares of Series B
Preferred Stock then outstanding at a price per share of $1.00. In 1996, the
Company bought back 65,000 shares at a price of $1.00 per share. In fiscal 1997,
the remaining preferred stock were converted to 1,765 shares of common stock.

SERIES C

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

                                      F-18
<PAGE>

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1999, the fiscal 1997 and 1998 dividends of approximately $1,200 and $1,800,
respectively were paid. In fiscal year 1999, dividends of approximately $600
were declared and were unpaid at February 28, 1999.

TREASURY STOCK

Total common shares purchased in fiscal year 1996 and held in treasury were
15,152 shares for an aggregate cost $57,900.

NOTE P - STOCK OPTION PLAN

The Company has adopted a stock option plan (the "Plan") for employees,
consultants and directors of the Company. Stock options granted pursuant to the
Plan shall be authorized by the Board of Directors. The aggregate number of
shares which may be issued under the Plan shall not exceed 400,000 shares of
common stock. Stock options are granted at prices not less than 85% of the fair
market value on the date of the grant. For the year ended February 28, 1997, the
Company granted 104,300 stock options with an exercise price less than the fair
market value on the date of the grant. The Company charged $107,000 to
compensation expense for these options. Option terms, vesting and exercise
periods vary, except that the term of an option may not exceed ten years.

The Company continues to account for options issued under the intrinsic value
method of APB 25. Had compensation cost been determined based on the fair value
at the grant date for stock option awards consistent with the provisions of SFAS
No. 123, the Company's net income and diluted earnings per share for the
year ended February 28, 1997, 1998 and 1999 would have been as follows:

                                (in thousands, except per share data)
                               1997              1998             1999
                               ----              ----             ----
Net income
    As reported             $  1,803          $  2,010         $  2,423
    Pro forma                  1,501             1,954            2,281

Net income per share
    As reported             $   0.89          $   0.75         $   0.90
    Pro forma               $   0.74          $   0.73         $   0.85

The weighted average fair value at date of grant for options granted during
1997, 1998 and 1999 was $1.94, $2.95 and $2.61 per option respectively. The fair
value of each option at date of grant was estimated using the Black-Scholes
option pricing model with the following weighted average assumptions for grants.

                                      1997              1998             1999
                                      ----              ----             ----

Expected stock price volatility       23.9%             35.4%            32.0%
Expected lives of options
     Directors and officers         3 years           3 years          3 years
     Employees                      3 years           3 years          3 years
Risk-free interest rate                5.9%              6.3%             6.2%
Expected dividend yield                  0%                0%               0%

                                      F-19
<PAGE>

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                     WEIGHTED
                                                                      AVERAGE
                                                                     EXERCISE
                                                    SHARES              PRICE
                                                   -------           --------
Options outstanding at March 1, 1996                     0

Exercised                                                0
Granted                                            175,550               7.38
Cancelled or forfeited                                (600)              7.23
                                                   -------
Options outstanding at February 28, 1997           174,950

Exercised                                                0
Granted                                            119,200               7.27
Cancelled or forfeited                             (18,550)              7.10
                                                   --------
Options outstanding at February 28, 1998           275,600

Exercised                                                0
Granted                                            108,600               8.73
Cancelled or forfeited                             (23,000)              7.00
                                                   -------
Options outstanding at February 28, 1999           361,200
                                                   =======
Options currently exercisable                      254,550               7.32
                                                   =======

     The following table summarizes information about stock options outstanding
as of February 28, 1999:

<TABLE>
<CAPTION>
                                              WEIGHTED
                                               AVERAGE         WEIGHTED                             WEIGHTED
                                              REMAINING         AVERAGE                              AVERAGE
     RANGE OF               NUMBER           CONTRACTUAL       EXERCISE           NUMBER            EXERCISE
 EXERCISE PRICES          OUTSTANDING           LIFE             PRICE          EXERCISABLE           PRICE
 ---------------          -----------           ----             -----          -----------           -----
<S>                         <C>                 <C>               <C>             <C>                 <C>
  6.375 - 9.000             361,200             4.73              7.74            254,550             $7.32
</TABLE>

NOTE Q - NONCASH INVESTING AND FINANCING ACTIVITIES

On October 21, 1997, the Company purchased Roberts Consolidated Industries, Inc.
In connection with the acquisition, liabilities were assumed as follows:

Fair value of assets acquired                             $23,984,683
Cash paid                                                  19,503,853
                                                          -----------
Liabilities assumed                                       $ 4,480,830
                                                          ===========
Issuance of warrants to purchase common stock             $   206,000
                                                          ============

On December 31, 1997 the Company purchased Roberts Holland, B.V. In connection
with the acquisition, liabilities were assumed as follows:

Fair value of assets acquired                             $ 4,895,799
Cash paid                                                   1,647,000
                                                          -----------
Liabilities assumed                                       $ 3,248,799
                                                          ===========

                                      F-20
<PAGE>

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE R - NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, Financial Accounting Standard No. 133 "Accounting of Derivative
Instruments and Hedging Activities" was issued. This standard establishes new
accounting and reporting standards requiring that every derivative financial
instrument be recorded in the balance sheet as either assets or liabilities and
measured at fair value. SFAS 133 requires that changes in the derivative's fair
value should be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges allow a
derivitive's gains and losses to offset related results on the hedge item in the
income statement and requires that a company must formally document, designate
and assess the effectiveness of transactions that receive hedge accurately.

SFAS 133 is effective for fiscal years beginning after June 15, 1999.

The effect of adopting the Standard is currently being evaluated but is not
expected to have a material effect on the Company's financial position or
results of operations.

                                      F-21
<PAGE>

<TABLE>
<CAPTION>
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

         COLUMN A                             COLUMN B                  COLUMN C                 COLUMN D          COLUMN E
         --------                             --------                  --------                 --------          --------

                                                                        ADDITIONS
                                                              ---------------------------
                                             BALANCE AT       CHARGED TO       CHARGED TO                         BALANCE AT
                                              BEGINNING        COSTS AND          OTHER         DEDUCTIONS            END
         DESCRIPTION                          OF PERIOD        EXPENSES         ACCOUNTS            (A)            OF PERIOD
         -----------                         ----------       ----------       ----------       ----------        ----------
<S>                                           <C>               <C>           <C>                <C>               <C>
Year ended February 28, 1997
   Deducted from asset accounts
     Allowance for doubtful accounts           $54,500          $58,755                --         $52,155           $61,100

Year ended February 28, 1998
   Deducted from asset accounts
     Allowance for doubtful accounts           $61,100          $34,458       (b)  $442,735       $58,293          $480,000

Year ended February 29, 1999
   Deducted from asset accounts
     Allowance for doubtful accounts          $480,000          $65,133                --        $163,505          $381,628

<FN>
(a)  Accounts written off as uncollectable, net of recoveries.

(b)  Reserve associated with Roberts Consolidated Industries, Inc. at the date
     of acquisition
</FN>
</TABLE>

                                      F-22
<PAGE>

                                 EXHIBIT INDEX

EXHIBIT                           DESCRIPTION
-------                           -----------
10.3.3A  First Amendatory Agreement to the Amended and Restated Loan Agreement
         by and among Q.E.P. Co., Inc., Q.E.P.-O'Tool, Inc., Marion Tool
         Corporation, Westpoint Foundry, Inc., Roberts Consolidated Industries,
         Inc., Roberts Holding International, Inc., and Roberts Company Canada
         Limited and Fleet National Bank dated as of October 21, 1997.

27       Financial Data Schedule (SEC use only)