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 29, 2000

                                       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, 2000 is $11,093,014, 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, 2000 is: 2,687,294 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 14, 2000 are incorporated by
reference in Part III of this Form 10-K.


                                       1
<PAGE>


                                     PART I

Item 1.  Business

General

Founded in 1979, Q.E.P. Co., Inc. (the "Company" or "Q.E.P.") manufactures,
markets and distributes a broad line of specialty tools and flooring related
products for the home improvement market. Under brand names including
Q.E.P./trademark/, O'TOOL/trademark/ and ROBERTS/trademark/, the Company markets
over 4,000 specialty tools and flooring related products used primarily for
surface preparation and installation of ceramic tile, carpet and marble.
Q.E.P.'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 and Lowe's,
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.

Further, the Company made several strategic acquisitions during the year ended
February 29, 2000, as part of its strategic plan to enhance its leadership in
the worldwide flooring market. On June 17, 2000, the Company acquired Neon
Australia Pty, Ltd., a leading Australian manufacturer of flooring tapes and
metals for the carpet industry. On July 20, 1999, the Company acquired
Novafonte, Limitada, a distributor, manufacturer and installer of ceramic tile
and ceramic tile accessories located in Santiago, Chile. On July 22, 1999, the
Company acquired an additional Australian flooring company, Accessories
Marketing Pty, Ltd., the largest distributor of tools and installation products
for all types of flooring in the Australian marketplace. On September 21, 1999,
the Company acquired Boiardi Products Corp. of Little Falls, NJ. Boiardi is a
manufacturer of a full line of thin-set mortars, grouts, self-leveling concrete
toppings and crack-suppressing waterproof membranes used in the flooring
industry. On September 30, 1999, the Company acquired Trade Mates Pty, Ltd. of
Australia, a distributor of ceramic tile tools in the Australian marketplace. On
December 6, 1999, the Company acquired Zocalis, SRL, an Argentinean company
located in Buenos Aires. Zocalis is a manufacturer of ceramic borders and trim.
Collectively, these acquisitions are referred to as the "Fiscal 2000
acquisitions" elsewhere herein.

On March 9, 2000, the Company acquired Southern Tile Agencies Ltd. Pty located
in Australia and Stone Mountain Manufacturing of Georgia. Southern Tile is a
manufacturer of quality accessories used for the installation of ceramic tile
and Stone Mountain is a prime manufacturer of dry set powders and grouts also
used for ceramic tile installation.


                                       2
<PAGE>

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 retail home
improvement market generated retail sales of over $200 billion in 1999 with home
centers accounting for approximately $128 billion. NHCN projects that flooring
products accounted for approximately 7% of sales in 1999. Estimates are that by
2004, the floor covering industry will have grown into a $62 billion business,
up from $40 billion in 1998. Additionally, it is projected that by 2006,
Americans will spend 58% more per capita on floor coverings than they do at the
present time.

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 37 to 56 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 $70.3 million of all home
improvement sales in 1999. 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 25.2% and 19.1%, respectively, from 1998 to 1999,
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 and
distributor 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. Through its acquisitions, detailed
elsewhere herein, the Company has broadened its product lines, 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 and innovative products
which can be marketed to the Company's existing customer base. Through


                                       3
<PAGE>

its acquisitions, the Company has expanded its customer base, the number of
products available and its line of flooring installation products. In addition
to expanding product offerings through acquisitions, the Company intends to
internally develop and offer 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.

Expand Foreign Market Presence. Management believes that the international
markets provide a significant opportunity to increase sales of its products.
Through the acquisition of Roberts Holland, Novafonte Limitada, Neon Australia,
Accessories Marketing, Trade Mates and Zocalis, the Company acquired additional
manufacturing, warehousing and distribution facilities in Europe, Australia,
Chile and Argentina. During fiscal 2000, the Company began selling to home
centers and major ceramic retailers in Europe, Australia and South America. 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. Currently, the Company intends to pursue international sales opportunities
through acquisitions, marketing initiatives and joint ventures.

Enhance Manufacturing Capabilities. The Company currently has over 558,000
square feet of manufacturing capability located throughout the United States,
Canada, Holland, Australia and South America. The Company estimates that in
fiscal 2000, it manufactured approximately 50% of its product line.

Products

The Company manufactures, markets and distributes a broad line of over 4,000
specialty tools and flooring related products. The Company's products are
offered under brand names including Q.E.P./trademark/, O'TOOL/trademark/ and
ROBERTS/trademark/ and are used primarily for surface preparation and
installation of ceramic tile, carpet and marble.

The Company manufactures and distributes adhesives, grouts, mortars, carpet
seaming tape, tack strip and an assortment of carpet installation tools as well
as floats, tile cutters, trowels, electric saws, nippers and other products to
the ceramic tile industry. These products are sold to both distributors and do
it yourself customers. Although the Company manufactures 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.


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


                                       4
<PAGE>

accounting for 34.7% and 4.4% of the Company's fiscal 2000 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, Roberts Holland and the Fiscal 2000 acquisitions, 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 2000 it manufactured approximately 50% of
its product lines. 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. Grouts are manufactured at the
Company's New Jersey, Georgia and Chilean facilities. In Australia, the Company
manufactures flooring tapes and accessories used for the installation of ceramic
tile. Such tile accessories are also manufactured in Chile. Ceramic trim is
manufactured in Argentina.

The Company purchased finished products and components from approximately 250
different suppliers in fiscal 2000. 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 2000 were as follows: 42% to national and regional home improvement
retailers; 55% 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 enhance sales per square foot at the
retail level and 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.

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


                                       5
<PAGE>

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 flooring product
market is based primarily on product quality, delivery capabilities, brand name
recognition, availability of retail shelf space and price. 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. The
Company's foreign sales, including Canada, accounted for approximately 21.3% of
total sales during fiscal year 2000. Sales generated by the Company's Canadian
subsidiary were 10.6%, its Holland subsidiary 7.8%, its Australian subsidiary
1.9% and its South American subsidiaries 1.0% of total fiscal 2000 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.
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. 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 and this plan was subsequently approved by the Canadian Ministry
of Environment (MOE). The Company recorded a reserve for potential
environmental liability on the closing date of the Roberts acquisition of
approximately $325,000 and this amount was increased during fiscal 1999 by
$275,000 to $600,000 based on an estimate for the cost of remediation. To date,
the Company has spent approximately $325,000 and


                                       6
<PAGE>

anticipates spending additional amounts on ongoing monitoring of wells and other
environmental activity at the approximate rate of $50,000 per year for five to
ten years.

Intellectual Property

The Company markets its specialty tools and related products under various
trademarks owned by the Company or its subsidiaries, including
Q.E.P./trademark/, O'TOOL/trademark/ and ROBERTS/trademark/. 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, 2000, the Company had 440 employees, including 69 administrative
employees, 88 sales and marketing employees, 192 manufacturing employees and 91
employees responsible for shipping activities. Thirteen of these employees work
part time and 119 are employed by the Company's international subsidiaries,
including 7 part-time employees. 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.


                                       7
<PAGE>

Item 2.  Properties

The Company currently leases facilities located in the United States, Canada,
Europe, South America and Australia, which consist of an aggregate of
approximately 558,000 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,             Executive offices;
  Florida               warehouse                 77,000              $355,909                01/31/04                       --

Sliedrecht.             Administrative; sales;
  Holland               manufacturing             52,544               102,787                 11/01/02                      --

Sliedrecht, Holland     Warehouse                 37,532                63,259                 01/01/02                      --

Morfelden, Germany      Administrative; sales        300                 7,575                 10/01/00                      --

Plaisir, France         Administrative;
                        warehouse                  1,700                23,847                   Yearly                      --

City of Industry,       Administrative;
  California            warehouse;
                        manufacturing            150,820               631,647                 03/31/01                       Y

Mexico, Missouri        Administrative;
                        warehouse;
                        manufacturing            155,000               311,945                 03/31/03                       Y

Bramalea, Ontario       Administrative;
                        warehouse;
                        manufacturing             51,000               125,238                 05/31/03                      --

Buenos Aires,           Administrative;
Argentina               warehouse;
                        manufacturing              4,293                37,200                 03/29/02                      --

Moorabin,               Administrative;
Australia               warehouse                  5,097                47,158                 06/30/01                       Y

Dandenong,              Manufacturing                981                 9,372                 06/30/00                       Y
Australia

Hornsby,                Administrative;
Australia               warehouse                    705                18,420                 06/30/00                       Y

Santiago,               Administrative;
Chile                   warehouse;
                        manufacturing              3,840                40,800                 07/01/01                       Y

Little Falls, NJ        Administrative;
                        warehouse;
                        manufacturing             17,000                54,000                 12/31/02                       N
</TABLE>

The Company believes that its existing facilities are adequate to meet its
current needs and that additional facilities can be leased to meet future needs.


                                        8
<PAGE>

Item 3.  Legal Proceedings

The Company is involved in litigation from time to time in the 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 2000 and 1999, as reported on the
Nasdaq National Market System.
<TABLE>
<CAPTION>
                                                                         Fiscal Year Ended February 28 or 29,
                                                                         ------------------------------------
                                                                        2000                               1999
                                                                        ----                               ----
                                                                High                Low             High               Low
                                                                ----                ---             ----               ---
<S>                                                           <C>                 <C>              <C>               <C>
                  First Quarter                               $   8.500           $ 7.250         $ 10.625           $ 7.750
                  Second Quarter                              $   8.438           $ 7.250         $ 10.375           $ 7.500
                  Third Quarter                               $   8.250           $ 6.875         $  8.000           $ 6.125
                  Fourth Quarter                              $   8.688           $ 6.875         $  9.250           $ 7.125
</TABLE>

On May 3, 2000, the closing price of the Common Stock on the Nasdaq National
Market System was $8.125 per share. As of that date, there were 27 holders of
record of the Common Stock and approximately 600 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.


                                        9
<PAGE>

Item 6.  Selected Financial Data

The selected consolidated financial data set forth below as of and for the years
ended February 28 or 29, 1996, 1997, 1998, 1999 and 2000 have been derived from
the audited consolidated financial statements of the Company. The audited
financial statements for the years ended February 28, 1996 and 1997 are not
included in this filing. The selected consolidated financial data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" (Item 7 of this report) and the audited consolidated
financial statements and related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
                                                                             FISCAL YEAR ENDED FEBRUARY 28 OR 29,
                                                                             ------------------------------------
                                                                2000             1999            1998            1997         1996
                                                              --------          -------         -------         -------      -------
OPERATING DATA:                                                            (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                           <C>               <C>             <C>             <C>           <C>
Net Sales                                                     $113,571          $98,000         $53,691         $33,140      $25,272
Cost of goods sold                                              79,037           68,549          35,954          20,119       15,977
                                                              --------          -------         -------         -------      -------
Gross profit                                                    34,534           29,451          17,737          13,021        9,295
Shipping                                                         8,987            7,592           4,020           2,440        1,746
General and administrative                                       9,373            8,074           5,206           4,048        3,106
Selling and marketing                                            9,494            8,253           4,843           3,569        2,512
Foreign exchange losses                                              7               17               3              11          ---
                                                              --------          -------         -------         -------      -------
Operating income                                                 6,673            5,515           3,665           2,953        1,931
Interest expense, net                                            1,700            1,625             373               7          195
                                                              --------          -------         -------         -------      -------
Income before provision for income taxes and                     4,973            3,890           3,292           2,946        1,736
   extraordinary item
Provision for income taxes                                       1,951            1,466           1,282           1,143          668
                                                              --------          -------         -------         -------      -------
Net income before extraordinary item                             3,022            2,424           2,010           1,803        1,068
Extraordinary item, gain on early extinguishment of
   debt                                                            181               --              --              --           --
                                                              --------          -------         -------         -------      -------
Net income                                                    $  3,203          $ 2,424         $ 2,010         $ 1,803      $ 1,068
                                                              ========          =======         =======         =======      =======
Basic and diluted net income per common  share  before
   extraordinary item                                         $   1.12             $.90            $.75         $   .89      $   .70
Extraordinary item                                                 .07               --              --              --           --
                                                              --------          -------         -------         -------      -------
Basic and diluted earnings per share                          $   1.19          $   .90         $   .75         $   .89      $   .70
                                                              ========          =======         =======         =======      =======
Weighted average number of shares of common stock
   outstanding                                                   2,692            2,690           2,677           2,012        1,506
                                                              ========          =======         =======         =======      =======

<CAPTION>
                                                                             FISCAL YEAR ENDED FEBRUARY 28 OR 29,
                                                                             ------------------------------------
                                                                2000             1999            1998            1997         1996
                                                              --------          -------         -------         -------      -------
BALANCE SHEET DATA:                                                                     (IN THOUSANDS)
<S>                                                           <C>               <C>             <C>             <C>           <C>
Working capital                                               $ 13,511          $ 15,021        $ 14,212        $ 12,695      $2,931
Total assets                                                    57,715            48,251          43,026          16,434       7,970
Long term obligations                                           11,588            12,543          13,399              --          --
Total liabilities                                               36,532            30,353          27,393           2,981       4,545
Shareholders' equity                                            21,183            17,898          15,633          13,453       3,425
</TABLE>

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 flooring related products for the home improvement market. The Company
markets over 4,000 specialty tools and related products used primarily for
surface preparation and installation of ceramic tile, carpet and marble. The
Company's products are sold through home

                                       10
<PAGE>

improvement retailers, specialty distributors to the hardware, construction,
flooring and home improvement trades, chain or independent hardware, tile and
carpet 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 2000 as compared to Fiscal 1999

Net sales for the twelve months ended February 29, 2000 ("fiscal 2000", or the
"fiscal 2000 period") were $113,571,000 compared to $98,000,000 for the twelve
months ended February 28, 1999 ("fiscal 1999", or the "fiscal 1999 period"), an
increase of $15,571,000 or 15.9%. Although selling prices remained relatively
stable, there was an increase in the volume of sales to substantially all of the
Company's customer groups, especially home centers, which was primarily the
result of an increase in the number of new store openings and an expansion by
the home centers of certain product lines offered by the Company. Approximately
$3,950,000 of the increase in net sales was the result of the Fiscal 2000
acquisitions.

Gross profit for fiscal 2000 was $34,534,000 compared to $29,451,000 for fiscal
1999, an increase of $5,083,000 or 17.3%. As a percentage of net sales, gross
profit increased slightly to 30.4% in fiscal 2000 from 30.0% in fiscal 1999,
primarily due to a change in product mix towards higher margin products and
slightly higher gross margins earned by the Company's Fiscal 2000 acquisitions.

Shipping expenses for the fiscal 2000 period were $8,987,000 compared to
$7,592,000 for the fiscal 1999 period, an increase of $1,395,000 or 18.4%. As a
percentage of net sales, these expenses increased to 7.9% in the fiscal 2000
period from 7.7% in the fiscal 1999 period, primarily as a result of an increase
in freight rates charged by common carriers and expenses incurred for the
repositioning of inventory related to the increased sales volume. The actual
increase was substantially attributable to the increased sales volume and the
approximate $225,000 expended by the Fiscal 2000 acquisitions.

General and administrative expenses for the fiscal 2000 period were $9,373,000
compared to $8,074,000 for the fiscal 1999 period, an increase of $1,299,000 or
16.1%. As a percentage of net sales, these expenses increased slightly to 8.3%
in the fiscal 2000 period from 8.2% in the fiscal 1999 period. This increase was
primarily due to the Fiscal 2000 acquisitions, which have a higher percentage of
expense relative to sales than the Company. The actual increase was primarily
the result of employee related costs and expenses and the Fiscal 2000
acquisitions accounted for approximately $610,000 of such increase.

Selling and marketing costs for the fiscal 2000 period increased to $9,494,000
from $8,253,000 in the fiscal 1999 period, an increase of $1,241,000 or 15.0%.
As a percentage of net sales, these expenses remained stable at 8.4% in the
fiscal 2000 and fiscal 1999 periods. The increase in the actual amount of these
expenses is attributable to the increase in commissions paid to sales personnel
and marketing allowances to home center customers resulting principally from the
increased sales volume. Approximately $270,000 of the increase is attributable
to the Fiscal 2000 acquisitions.

Interest income for the fiscal 2000 period was approximately $133,000 compared
to $113,000 in fiscal 1999. Interest expense for the fiscal 2000 period was
approximately $1,834,000 compared to approximately $1,738,000 in fiscal 1999.
Interest expense increased as a result of the increase in borrowings associated
with the Fiscal 2000 acquisitions and working capital needs.

During the third quarter of the fiscal 2000 period, the Company repurchased
approximately $1,229,000 of its 8% Subordinated Debentures issued in 1997 and
scheduled to mature in April 2001. The transaction resulted in an extraordinary
gain from the early extinguishment of debt of approximately $181,000.

Provision for income taxes was $1,951,000 in fiscal 2000 compared to $1,466,000
in fiscal 1999, an increase of $485,000 or 33.1%. The increase is the result of
an increase in the Company's taxable income and a slight increase in its
estimated effective tax rate to 37.8% in fiscal 2000 compared to 37.7% in fiscal
1999. The estimated tax rate is based upon the most recent effective tax rates
available and is slightly higher in the fiscal 2000 period due to an increase in
non-deductible expenses associated with the Company's Fiscal 2000 acquisitions.


                                       11
<PAGE>

Net income for the fiscal 2000 period increased to $3,203,000 compared to
$2,424,000 in fiscal 1999, an increase of $779,000 or 32.1%. Net income as a
percentage of sales increased to 2.8% in fiscal 2000 compared to 2.5% in fiscal
1999, reflecting a slightly higher gross profit margin and the extraordinary
income item of $181,000 offset by higher shipping and general and administrative
expenses as a percentage of sales as described above. Exclusive of the
extraordinary item, net income increased $598,000 to $3,022,000 (24.7%) and net
income as a percentage of sales increased to approximately 2.7%.

Results of Operations

Fiscal 1999 as compared to Fiscal 1998

Net sales for the twelve months ended February 28, 1999 ("fiscal 1999", or the
"fiscal 1999 period") were $98,000,000 compared to $53,691,000 for the twelve
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 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


                                       12
<PAGE>

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.

Liquidity and Capital Resources

Working capital decreased to approximately $13,511,000 at February 29, 2000 from
approximately $15,021,000 at February 28, 1999, a decrease of $1,510,000,
primarily as a result of the Company's buyback of long term subordinated debt of
approximately $1,229,000 and funds expended for the Fiscal 2000 acquisitions.
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 provided by operating activities during the fiscal 2000 period was
$2,536,000 compared to a use of cash of $13,000 for the comparable fiscal 1999
period. The increase in cash 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 inventory which was
utilized to support the increase in sales. Net cash used in investing activities
was $4,221,000 compared to $1,206,000 for the comparable fiscal 1999 period. The
increase was substantially attributable to the Fiscal 2000 acquisitions.

For the fiscal 2000 period, cash provided by financing activities was
$2,329,000, which was primarily the result of an increase in short-term bank
debt associated with the Fiscal 2000 acquisitions and collections on notes
receivable offset by repayment and purchases of long-term debt. Net cash
provided by financing activities was $1,414,000 in the fiscal 1999 period due
primarily to the increase in short term debt associated with the increase in
accounts receivable and inventory and collections on notes receivable.

The Company has a revolving credit and term loan facility agreement with a
United States financial institution. This agreement provides for borrowings of
up to $10,000,000 for domestic purposes and borrowings of up to $5,000,000 for
the Company's foreign subsidiaries. These facilities permit borrowings against a
fixed percentage of eligible accounts receivable and inventory. Interest is
payable at LIBOR (5.88% at February 29, 2000) plus 1.25% or an alternative
currency rate plus 1.25%. The domestic revolving credit agreement terminates in
July 2003. The foreign facility terminates in June 2001. The credit facility is
collateralized by accounts receivable, inventory and equipment. Under the terms
of the credit agreement, the Company is required to maintain certain financial
ratios and conditions. The credit 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 credit facility also prohibits the payment of dividends,
except with the lender's consent. At February 29, 2000, the Company had
$2,590,000 available for future borrowings under the domestic credit facility,
net of $160,000 in outstanding letters of credit, and $1,864,000 available for
future borrowings under its foreign credit facility. The Company's Chilean
subsidiary has revolving credit facility agreements with a financial institution
which permits borrowings of up to $105,000 with interest at 18% per year. One
facility in the total amount of $95,000 is secured by a standby letter of credit
given by the Company. Such facilities expire on May 31, 2000 and October 31,
2000, respectively. At February 29, 2000, the Chilean subsidiary had
approximately $49,000 available for future borrowings under the credit
facilities. In connection with the acquisition of Roberts Consolidated
Industries, Inc., 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 the
third quarter of fiscal 2000, the Company repurchased approximately $1,229,000
of its debentures at a discount resulting in an extraordinary gain from early
extinguishment of debt of approximately $181,000. At February 29, 2000 and
February 28, 1999, the remaining amortized balance of this obligation was
$5,891,000 and $6,899,000, respectively. In connection with the Fiscal 2000
acquisitions, the Company issued four notes to the respective sellers. Two of
the notes, aggregating approximately $1,260,000, are payable within one year and
are non-interest bearing. The third note, having an original principal balance
of $900,000, is payable in equal installments over a three year period with
interest at the Company's prevailing borrowing rate. The fourth note, in the
principal amount of $825,000, is payable in three installments of $312,500 in
December 2000 and 2001 and $200,000 in December 2003 with interest fixed at
$12,500, $12,500 and $25,000, respectively.

On October 30, 1998, the Company entered into two 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 $5,500,000. The purpose of the interest rate swaps is to convert the
Company's floating rate interest


                                       13
<PAGE>

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 29, 2000, the Company reduced interest
expense by approximately $27,000 as a result of the interest rate swap
agreements. The Company is exposed to credit loss in the event of nonperformance
by any counter-party to the interest rate swap agreements. The Company does not
anticipate nonperformance by such lender, and no material loss would be expected
from the non-performance of the lender. The first interest rate swap agreement
in the amount of $1,500,000 expired on December 23, 1999. The second interest
rate swap agreement in the amount of $4,000,000 expires in December 2000.

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 will be adequate to finance
anticipated capital expenditures for the next twelve months.

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 2002. 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.


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 similar anticipatory expressions, are generally
forward-looking and are made only as of the date of this report. Additionally,
the report is 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 the assumptions upon which
the Company bases its assessments of its future working capital and capital
expenditure requirements could prove to be different than expected and those
relating to the Company's ability to satisfy its working capital needs and to
finance its anticipated capital expenditures, the Company's anticipation of the
performance by the lender under the interest rate swap agreements and its
assessment of the effect of any non-performance by the lender under the interest
rate swap agreements, the Company's dependence upon a limited number of
customers for a substantial portion of its sales, the Company's reliance upon
suppliers and sales agents for the purchase of finished products which are then
resold by it, the level of demand for the Company's products among existing and
potential new customers, the Company's ability to successfully manage and
integrate the business and operations of acquired entities, the Company's
dependence upon certain key personnel and its ability to successfully integrate
new management personnel into the company, its ability to manage its growth, the
risk of economic and market factors affecting the Company or its customers and
other risks and uncertainties described elsewhere herein.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

On October 30, 1998, the Company entered into two 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 $5,500,000. 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 29, 2000, the
Company reduced interest expense by approximately $27,000 as a result of the
interest rate swap agreements. The Company is exposed to credit loss in the
event of nonperformance by any counter party to the interest rate swap
agreements. The Company does not anticipate nonperformance by such lender, and


                                       14
<PAGE>

no material loss would be expected from the nonperformance of the lender. The
first interest rate swap agreement in the amount of $1,500,000 expired on
December 23, 1999. The second interest rate swap agreement in the amount of
$4,000,000 expires in December 2000.

The Company averaged approximately $9,949,000 of variable rate debt not covered
by the interest rate swap agreement during fiscal 2000. If interest rates would
have increased by 10%, the effect on the Company would have been an increase in
interest expense of approximately $71,000.

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 14, 2000.

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 14,
2000.

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 14, 2000.

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 14, 2000.


                                       15
<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)  Reports on Form 8-K

          None

     (c)  List of Exhibits:

Exhibit    Description
-------    -----------
No.
---
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*


                                       16
<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.****

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

*        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.

*******  Incorporated herein by reference to Exhibit of the same number filed
         with the Company's Annual Report on Form 10-K filed on May 27, 1999.

(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.


<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 25, 2000.

                                        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>
<CAPTION>
<S>                                   <C>                                         <C>
/S/ LEWIS GOULD                       Chairman, Chief Executive Officer           May 25, 2000
------------------------------        and Director (Principal Executive Officer)
Lewis Gould

/S/ MARC APPLEBAUM                    Senior Vice President and Chief Financial   May 25, 2000
                                      Officer (Principal Financial and Accounting
------------------------------        Officer)
Marc Applebaum


------------------------------
Mervyn Fogel

/S/ ROBERT FEUERZEIG                  Director                                    May 25, 2000
------------------------------
Robert Feuerzeig

/S/ EMIL VOGEL                        Director                                    May 25, 2000
------------------------------
Emil Vogel

/S/ CHRISTIAN NAST                    Director                                    May 25, 2000
------------------------------
Christian Nast

/S/ LEONARD GOULD                     Director                                    May 25, 2000
------------------------------
Leonard Gould


------------------------------
David Malizia
</TABLE>


<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-22

Schedule II - Valuation and Qualifying Accounts                            S-1










                                       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.
(a Delaware corporation) and Subsidiaries as of February 29, 2000 and February
28, 1999, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended February
29, 2000. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. 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 29, 2000 and February 28, 1999, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended February 29, 2000 in conformity with
accounting principles generally accepted in the United States.

We have also audited Schedule II of Q.E.P. Co., Inc. and Subsidiaries for each
of the three years in the period ended February 29, 2000. In our opinion, this
schedule presents fairly, in all material respects, the information required to
be set forth therein.


Grant Thornton LLP

Miami, Florida
April 21, 2000










                                       F-2
<PAGE>
                        Q.E.P. CO., INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                               ASSETS                                       February 29, 2000      February 28, 1999
                                                                            -----------------      -----------------
<S>                                                                            <C>                    <C>
CURRENT ASSETS
   Cash and cash equivalents                                                   $    829,063           $    290,066
   Accounts  receivable, less allowance for doubtful accounts of
     approximately  $741,000 and $382,000 as of February 29, 2000 and
     February 28, 1999, respectively                                             16,176,540             15,223,097
   Notes receivable                                                               1,681,210                678,743
   Inventories                                                                   17,588,885             15,156,137
   Prepaid expenses                                                                 972,992                269,609
   Deferred income taxes                                                            752,630                684,391
                                                                               ------------           ------------
     Total current assets                                                        38,001,320             32,302,043

Property and equipment, net                                                       4,329,695              3,543,079
Deferred income taxes                                                             1,271,445              1,121,194
Intangible assets, net                                                           13,251,699              8,767,019
Notes receivable                                                                     42,339              1,843,364
Other assets                                                                        818,215                674,453
                                                                               ------------           ------------

Total assets                                                                   $ 57,714,713           $ 48,251,152
                                                                               ============           ============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
   Lines of credit                                                             $ 10,414,746           $  6,084,209
   Current maturities of long term debt                                           1,470,092              1,218,253
   Acquisition notes payable                                                      1,872,500                     --
   Accounts payable                                                               6,452,570              6,297,204
   Accrued liabilities                                                            4,280,901              3,681,368
                                                                               ------------           ------------
     Total current liabilities                                                   24,490,809             17,281,034

Notes payable                                                                     4,584,076              5,643,945
Acquisition notes payable                                                         1,112,500                     --
Subordinated long term debt                                                       5,891,126              6,899,390
Deferred income taxes                                                               453,286                528,387

Commitments and Contingencies

SHAREHOLDERS' EQUITY
   Preferred  stock, 2,500,000 shares authorized, $1.00 par value;                  336,660                336,660
     336,660 shares issued and outstanding at February 29, 2000 and
     February 28, 1999
   Common  stock; 10,000,000 shares authorized, $.001 par  value;                     2,685                  2,655
     2,684,894 and 2,654,894 shares issued and outstanding at
     February 29, 2000 and February 28, 1999, respectively
Additional paid-in capital                                                        8,946,061              8,746,876
Retained earnings                                                                12,338,285              9,147,105
Cost of stock held in treasury                                                      (57,900)               (57,900)
Accumulated other comprehensive income                                             (382,875)              (277,000)
                                                                               ------------           ------------
                                                                                 21,182,916             17,898,396
                                                                               ------------           ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                     $ 57,714,713           $ 48,251,152
                                                                               ============           ============
</TABLE>

The accompanying notes are an integral part of these statements

                                       F-3
<PAGE>
                        Q.E.P. CO., INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                                                           Year ended
                                                                  -------------------------------------------------------------
                                                                   February 29,           February 28,            February 28,
                                                                      2000                    1999                    1998
                                                                  -------------           -------------           -------------
<S>                                                               <C>                     <C>                     <C>
Net sales                                                         $ 113,571,475           $  97,999,969           $  53,691,186
Cost of goods sold                                                   79,036,635              68,548,599              35,954,506
                                                                  -------------           -------------           -------------

         Gross profit                                                34,534,840              29,451,370              17,736,680
                                                                  -------------           -------------           -------------
Costs and expenses:
   Shipping                                                           8,987,252               7,592,357               4,020,376
   General and administrative                                         9,393,494               8,073,811               5,206,392
   Selling and marketing                                              9,494,325               8,253,277               4,842,637
   Other (income) expense, net                                          (13,458)                 16,424                   2,442
                                                                  -------------           -------------           -------------

                                                                     27,861,613              23,935,869              14,071,847
                                                                  -------------           -------------           -------------

Operating income                                                      6,673,227               5,515,501               3,664,833

Interest income                                                         133,287                 112,793                 193,889
Interest expense                                                     (1,833,675)             (1,737,959)               (567,022)
                                                                  -------------           -------------           -------------

Income before provision
   for income taxes and extraordinary item                            4,972,839               3,890,335               3,291,700

Provision for income taxes                                            1,951,447               1,466,771               1,282,053
                                                                  -------------           -------------           -------------

Net income before extraordinary item                                  3,021,392               2,423,564               2,009,647
Extraordinary item, gain on early extinguishment of debt                181,559                      --                      --
                                                                  -------------           -------------           -------------
Net income                                                        $   3,202,951           $   2,423,564           $   2,009,647
                                                                  =============           =============           =============

Basic and diluted earnings per common share:

Income before extraordinary item                                  $        1.12           $        0.90           $        0.75
Extraordinary item                                                          .07                      --                      --
                                                                  -------------           -------------           -------------
Net income                                                        $        1.19           $        0.90           $        0.75
                                                                  =============           =============           =============
</TABLE>

The accompanying notes are an integral part of these statements.

                                       F-4

<PAGE>

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

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>

                                               Preferred stock              Common stock
                                            ---------------------      --------------------         Paid-in
                                             Shares       Amount       Shares          Amount       capital
                                             ------       ------       ------          ------     -----------
<S>                                         <C>        <C>           <C>              <C>        <C>
Balance at March 1, 1997                    336,660    $ 336,660     2,654,894        $ 2,655    $ 8,433,719

Net income

Other comprehensive income:
   Foreign currency translation adjustment



Issuance of warrants                                                                                 206,000
Employee stock options                                                                               107,157
Dividends
                                           ---------    ---------   -----------         -------   -----------
Balance at February 28, 1998                336,660      336,660     2,654,894           2,655     8,746,876

Net income

Other comprehensive income:
   Foreign currency translation adjustment



Dividends
                                           ---------    ---------   -----------         -------   -----------
Balance at February 28, 1999                336,660      336,660     2,654,894           2,655     8,746,876

Net income

Other comprehensive income:
   Foreign currency translation adjustment



Exercise of stock options                                               30,000              30       199,185
Dividends
                                           ---------    ---------   -----------         -------   -----------
Balance at February 29, 2000                336,660     $336,660     2,684,894          $2,685    $8,946,061
                                           =========    =========   ===========         =======   ===========
<CAPTION>
                                                             Accumulated
                                                                Other                             Other
                                             Retained       Comprehensive        Treasury     Comprehensive
                                             earnings          Income              stock         Income
                                              --------      -------------       ----------      ---------
<S>                                         <C>                 <C>              <C>           <C>
Balance at March 1, 1997                   $ 4,737,943                 --         ($57,900)

Net income                                   2,009,647                                          $2,009,647

Other comprehensive income:
   Foreign currency translation adjustment                       (131,928)                        (131,928)
                                                                                                ----------
                                                                                                $1,877,719
                                                                                                ==========
Issuance of warrants
Employee stock options
Dividends                                      (12,714)
                                           ------------         ----------        ---------
Balance at February 28, 1998                 6,736,712           (131,928)         (57,900)

Net income                                   2,423,564                                           2,423,564

Other comprehensive income:
   Foreign currency translation adjustment                       (145,072)                        (145,072)
                                                                                               -----------
                                                                                               $ 2,278,492
                                                                                               ===========
Dividends                                      (13,171)
                                           ------------         ----------        ---------
Balance at February 28, 1999                 9,147,105           (277,000)         (57,900)

Net income                                   3,202,951                                           3,202,951

Other comprehensive income:
   Foreign currency translation adjustment                       (105,875)                        (105,875)
                                                                                               -----------
                                                                                               $ 3,097,076
                                                                                               ===========
Exercise of stock options
Dividends                                       (11,771)
                                           ------------         ----------        ---------
Balance at February 29, 2000                $12,338,285         $(382,875)        $(57,900)
                                           ============         ==========        =========
</TABLE>

The accompanying notes are an integral part of these statements.

                                       F-5


<PAGE>
                        Q.E.P. CO., INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                             Year Ended
                                                                     ----------------------------------------------------------
                                                                     February 29,           February 28,           February 28,
                                                                         2000                   1999                   1998
                                                                     ------------           ------------           ------------
<S>                                                                  <C>                    <C>                    <C>
Cash flows from operating activities:
Net income                                                           $  3,202,951           $  2,423,564           $  2,009,647

Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
   Depreciation and amortization                                          949,155                835,044                356,534
   Amortization of costs in excess of assets acquired                     368,134                180,718                 78,030
   Amortization of discount on long term debt                             267,112                312,520                 96,098
   Bad debt expense                                                       277,734                163,505                     --
   Gain on early extinguishments of debt                                 (181,559)                    --                     --
   Deferred income taxes                                                    5,502                134,162                564,000
   Gain on sale of property and equipment                                      --                (91,571)               (20,000)
   Stock option compensation                                                   --                     --                107,157
Changes in assets and liabilities, net of acquisitions:
   Accounts receivable                                                      9,369             (3,111,028)            (1,558,897)
   Inventories                                                         (1,186,665)            (2,882,201)               320,456
   Prepaid expenses                                                      (543,250)               244,258               (841,529)
   Other assets                                                           707,821                316,391                152,311
   Accounts payable and accrued liabilities                            (1,339,946)             1,462,136             (1,599,039)
                                                                     ------------           ------------           ------------
Net cash provided by (used in) operating activities                     2,536,358                (12,502)              (335,232)
                                                                     ------------           ------------           ------------
Cash flows from investing activities
   Capital expenditures                                                  (719,880)            (1,287,197)              (771,914)
   Purchase of trademarks                                                (833,050)                    --                     --
   Acquisitions, net of cash acquired                                  (2,668,000)                    --            (20,982,692)
   Proceeds from sale of property & equipment                                  --                 80,734                 20,000
                                                                     ------------           ------------           ------------
Net cash used in investing activities                                  (4,220,930)            (1,206,463)           (21,734,606)
                                                                     ------------           ------------           ------------
Cash flows from financing activities:
   Net borrowings under lines of credit                                 4,330,537              1,837,757              3,316,159
   Borrowings of long term debt                                                --                     --             14,515,000
   Repayments of long term debt                                        (1,515,397)            (1,211,516)              (389,467)
   Repayments of acquisition debt                                        (377,851)                    --                     --
   Purchase of subordinated debt                                       (1,093,817)                    --                     --
   Proceeds from exercise of stock options                                199,185                     --                     --
   Payments on notes receivable                                           798,558                801,049                109,805
   Dividends                                                              (11,771)               (13,171)               (10,878)
                                                                     ------------           ------------           ------------
Net cash provided by financing activities                               2,329,444              1,414,119             17,540,619
                                                                     ------------           ------------           ------------

Cumulative currency translation adjustment                               (105,875)              (145,072)              (131,928)
Net increase (decrease) in cash                                           538,997                 50,082             (4,661,147)

Cash and cash equivalents at beginning of year                            290,066                239,984              4,901,131
                                                                     ------------           ------------           ------------

Cash and cash equivalents at end of year                             $    829,063           $    290,066           $    239,984
                                                                     ============           ============           ============
</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. is a leading manufacturer, marketer and distributor of a broad
line of specialty tools and flooring related products for the home improvement
market. Under brand names Q.E.P./trademark/, O'TOOL/trademark/and
ROBERTS/trademark/the Company markets over 4,000 specialty tools and related
products used primarily for the surface 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.  Warrants

         In connection with its initial public offering and an acquisition, the
         Company has issued a total of 320,000 warrants to purchase common
         stock. The exercise price associated with the warrants is $10.00 per
         share for 200,000 warrants and $10.20 per share for 120,000 warrants.
         Such warrants expire on September 17, 2001 and October 21, 2002,
         respectively.

     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. At each balance sheet date, the Company evaluates
         the reliability of goodwill based on expectations of non-discounted
         cash flows. If the sum of the non-discounted cash flows is less than
         the carrying amount of all assets, including intangible assets, the
         Company recognizes an impairment loss. The Company believes no material
         impairment to goodwill exists at February 29, 2000.

     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 is 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 records comprehensive income in accordance with Financial
         Accounting Standards No. 130, "Reporting Comprehensive Income."
         Statement No. 130 requires foreign currency translation adjustments to
         be included in other comprehensive income.

                                      F-8
<PAGE>
                        Q.E.P. CO., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         The components of comprehensive income and the effect on earnings for
         the year ended February 29, 2000 are detailed in the Company's
         accompanying Consolidated Statement of Shareholders' 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 $69,100, 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.   Research and Development

         Research and development costs are charged to expense in the period
         incurred.

   19.   Use of Estimates

         In preparing financial statements in conformity with accounting
         principles generally accepted in the United States, 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.

   20.   Certain amounts in 1999 have been reclassified to conform with the 2000
         presentation.

NOTE C - ACQUISITIONS
Acquisitions are accounted for as purchases and, accordingly, have been included
in the Company's consolidated results of operations since the acquisition date.
The purchase price is allocated based on the estimated fair values of assets
acquired and liabilities assumed. Purchase price allocations are subject to
refinement until all pertinent information regarding the acquisitions is
obtained.

On October 21, 1997, 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. 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 29, 2000 was approximately $383,685.
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.

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.

During fiscal 2000, the Company made six strategic acquisitions ("the Fiscal
2000 Acquisitions"). The purchase price for all of these acquisitions, the
majority of which were international companies, was approximately $6,000,000.
The excess of aggregate purchase price over the fair market value of net assets
acquired of approximately $3,500,000 is being amortized on a straight line basis
over 20 years.

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

                                      F-10


<PAGE>
                        Q.E.P. CO., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                1998
                                                ----
Net Sales                                  $ 92,079,532
Net Income                                 $  1,297,186
Earnings per Share                             $ .48

The Fiscal 2000 Acquisitions' unaudited pro forma consolidation showing the
results of operations assuming the above purchases occurred on March 1, 1999 are
not material and are not included herein.

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. The weighted
average number of basic shares of common stock outstanding amounted to 2,654,894
in each of the two years ended February 28, 1999 and 2,676,561 for the year
ended February 29, 2000. For the three years ended February 29, 2000 the
weighted average number of diluted shares of common stock outstanding amounted
to 2,691,734 in 2000, 2,690,042 in 1999 and 2,677,184 in 1998.

NOTE E - SEGMENT INFORMATION

The Company operates in one business segment -- flooring-related products
because of the similarity of economic conditions, 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:

                                      F-11
<PAGE>
                        Q.E.P. CO., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
                                      United         Canada/
                                     States of        Latin                                        Inter-company    Consolidated
                                     America         America        Australia                      Eliminations        Total
                                   ------------    ------------    -----------    ------------     ------------     ------------
<S>                                <C>             <C>             <C>            <C>              <C>              <C>
              2000
              ----
Sales                              $ 89,366,768    $ 13,104,460    $ 2,192,192    $  8,908,055     $         --     $113,571,475
Transfers between areas                 947,927              --             --              --         (947,927)              --
                                   ------------    ------------    -----------    ------------     ------------     ------------
Total Sales                        $ 90,314,695    $ 13,104,460    $ 2,192,192    $  8,908,055     $   (947,927)    $113,571,475
                                   ============    ============    ===========    ============     ============     ============
Identifiable Assets at Year End    $ 80,376,892    $  6,266,823    $ 1,936,412    $  5,191,435     $(36,056,849)    $ 57,714,713
                                   ============    ============    ===========    ============     ============     ============

              1999
              ----
Sales                              $ 78,657,091    $  9,358,878    $        --    $  9,984,000     $         --     $ 97,999,969
Transfers between areas               3,591,489              --                             --       (3,591,489)              --
                                   ------------    ------------    -----------    ------------     ------------     ------------
Total Sales                        $ 82,248,580    $  9,358,878    $        --    $  9,984,000       (3,591,489)    $ 97,999,969
                                   ============    ============    ===========    ============     ============     ============

Identifiable Assets at Year End    $ 75,398,820    $  7,688,000    $        --    $  5,075,698     $(39,911,366)    $ 48,251,152
                                   ============    ============    ===========    ============     ============     ============

              1998
              ----
Sales                              $ 48,486,802    $  3,146,884    $        --    $  2,057,500               --     $ 53,691,186
Transfers between areas               1,234,677              --                             --       (1,234,677)              --
                                   ------------    ------------    -----------    ------------     ------------     ------------
Total Sales                        $ 49,721,479    $  3,146,884    $        --    $  2,057,500     $ (1,234,677)    $ 53,691,186
                                   ============    ============    ===========    ============     ============     ============

Identifiable Assets at Year End    $ 62,652,170    $  3,492,249    $        --    $  4,787,857     $(27,906,388)    $ 43,025,888
                                   ============    ============    ===========    ============     ============     ============
</TABLE>







                                      F-12
<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. At February 29, 2000, the amount of the receivable was approximately
$1,639,000 and this amount has been classified as a current asset. See Note S.

NOTE G - INVENTORIES

     Inventories consisted of the following:
<TABLE>
<CAPTION>
                                                                     February 29,           February 28,
                                                                         2000                   1999
                                                                     ------------           ------------
<S>                                                                  <C>                    <C>
      Raw materials and work-in-process                              $  4,576,530           $  3,881,685
      Finished goods                                                   13,012,355             11,274,452
                                                                     ------------           ------------
                                                                     $ 17,588,885           $ 15,156,137
                                                                     ============           ============
</TABLE>
NOTE H - PROPERTY AND EQUIPMENT

     Property and equipment consisted of the following:
<TABLE>
<CAPTION>
                                                                     February 29,           February 28,
                                                                         2000                   1999
                                                                     ------------           ------------
<S>                                                                  <C>                    <C>
         Machinery and warehouse equipment                           $  2,715,958           $  1,360,453
         Office furniture, equipment and computer equipment             3,307,566              2,822,503
         Building and leasehold improvements                            1,017,607                766,379
                                                                     ------------           ------------

                                                                        7,041,131              4,949,335

         Less accumulated depreciation and amortization                (2,711,436)            (1,406,256)
                                                                     ------------           ------------

                                                                     $  4,329,695           $  3,543,079
                                                                     ============           ============
</TABLE>
NOTE I - DEBT

Total debt consists of the following:
<TABLE>
<CAPTION>

                                                                     February 29,           February 28,
                                                                         2000                   1999
                                                                     ------------           ------------
<S>                                                                  <C>                    <C>
(A) Payable to banks under revolving credit facilities               $ 10,414,746           $  6,084,209
(B) Subordinated debentures due April 1, 2001                           6,137,297              7,500,000
(C) Payable to a bank under a term loan credit facility                 5,428,571              6,571,429
(D) Acquisition notes payable                                           2,985,000                     --
    Other debt, including capital leases                                  625,597                290,769
                                                                     ------------           ------------
                                                                       25,591,211             20,446,407
Less current installments                                              13,757,338              7,302,462
                                                                     ------------           ------------
                                                                       11,833,873             13,143,945
Less unamortized discount                                                 246,171                600,610
                                                                     ------------           ------------
Long Term                                                            $ 11,587,702           $ 12,543,335
                                                                     ============           ============
</TABLE>

                                      F-13
<PAGE>
                        Q.E.P. CO., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE I - DEBT (continued)
(A)      The Company has a revolving credit and term loan facility agreement
         with a United States financial institution. This agreement provides for
         borrowings of up to $10,000,000 for domestic purposes and borrowings of
         up to $5,000,000 for the Company's foreign subsidiaries. These
         facilities permit borrowings against a fixed percentage of eligible
         accounts receivable and inventory. Interest is payable at LIBOR (5.88%
         at February 29, 2000) plus 1.25% or an alternative currency rate plus
         1.25%. The domestic revolving credit agreement terminates in July 2003.
         The foreign facility terminates in June 2001. The credit facility is
         collateralized by accounts receivable, inventory and equipment. Under
         the terms of the credit agreement, the Company is required to maintain
         certain financial ratios and conditions. The credit 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 credit
         facility also prohibits the payment of dividends, except with the
         lender's consent. At February 29, 2000, the Company had $2,590,000
         available for future borrowings under the domestic credit facility, net
         of $160,000 in outstanding letters of credit, and $1,864,000 available
         for future borrowings under its foreign credit facility. The Company's
         Chilean subsidiary has revolving credit facility agreements with a
         financial institution which permits borrowings of up to $105,000 with
         interest at 18% per year. The facilities are secured by a standby
         letter of credit given by the Company. Such facilities expire on May
         31, 2000 and October 31, 2000, respectively. At February 29, 2000, the
         Chilean subsidiary had approximately $49,000 available for future
         borrowings under the credit facility.

(B)      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%. 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 the third
         quarter of fiscal 2000, the Company repurchased approximately
         $1,229,000 of such debentures at a discount resulting in an
         extraordinary gain from early extinguishment of debt of approximately
         $181,000. At February 29, 2000 and February 28, 1999, the remaining
         amortized balance of this obligation was $5,891,000 and $6,899,000,
         respectively.

(C)      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 7.1% at February 29,
         2000. The balance of the term loan at February 29, 2000 and February
         28, 1999 was $5,428,571 and $6,571,429, respectively.

(D)      In connection with the Fiscal 2000 acquisitions, the Company issued
         four notes to the respective sellers. Two of the notes, aggregating
         approximately $1,260,000, are payable within one year and are
         non-interest bearing. The third note, having an original principal
         balance of $900,000, is payable in equal installments over a three year
         period with interest at the Company's prevailing borrowing rate. The
         fourth note, in the principal amount of $825,000, is payable in three
         installments of $312,500 in December 2000 and 2001 and $200,000 in
         December 2003 with interest fixed at $12,500, $12,500 and $25,000,
         respectively.

On October 30, 1998, the Company entered into two 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 $5,500,000. 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 29, 2000, the
Company reduced interest expense by approximately $27,000 as a result of the
interest rate swap agreements. The Company is exposed to credit loss in the
event of nonperformance by any counter-party to the interest rate swap
agreements. The Company does not anticipate nonperformance by such lender, and
no material loss would be expected from the non-performance of the lender. The
first interest rate swap agreement in the amount of $1,500,000 expired on
December 23, 1999. The second interest rate swap agreement in the amount of
$4,000,000 expires in December 2000.

                                      F-14
<PAGE>
                        Q.E.P. CO., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE I - DEBT (continued)

Interest paid for all debt was approximately, $1,486,000, $1,391,000 and
$267,000 in fiscal 2000, 1999 and 1998, respectively.

The aggregate maturities of all debt maturing during each of the next five years
as of February 29, 2000 is as follows:

               2001                                   $ 13,757,338
               2002                                      8,191,014
               2003                                      1,442,856
               2004                                      1,342,856
               2005                                        857,147
                                                      ------------

               Total                                  $ 25,591,211
                                                      ============

               Current                                $ 13,757,338
               Long Term                                11,587,702

               Unamortized Discount                        246,171
                                                      ------------

               TOTAL                                  $ 25,591,211
                                                      ============

NOTE J - ACCRUED LIABILITIES
<TABLE>
<CAPTION>
          Accrued liabilities consisted of the following:          February 29,        February 28,
                                                                      2000                1999
                                                                   ----------          ----------
<S>                                                                <C>                 <C>
              Accrued payroll and employee benefits                $1,720,789          $1,248,276
              Accrued volume and advertising discount                 675,930             440,535
              Accrued interest                                        258,495             265,489
              Accrued income taxes                                    199,548             278,767
              Accrued liabilities--other                            1,426,139           1,448,301
                                                                   ----------          ----------
                                                                   $4,280,901          $3,681,368
                                                                   ==========          ==========
</TABLE>
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 estimated.

The Company is involved in litigation from time to time in the 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.

    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 29, 2000:

                      2001                    $ 1,920,000
                      2002                      1,201,000
                      2003                        954,000
                      2004                        464,000
                      2005                         21,000
                                               ----------
                      Total                   $ 4,560,000
                                              ===========

                                      F-15
<PAGE>
                        Q.E.P. CO., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         Total rent expense under non-cancelable operating leases approximated
         $1,891,000, $1,868,000 and $856,000 in fiscal 2000, 1999 and 1998,
         respectively.

     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.
         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. 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 and this plan was
         subsequently approved by the Canadian Ministry of Environment (MOE).
         The Company recorded a reserve for potential environmental liability at
         the acquisition date of Roberts of approximately $325,000 and this
         amount was increased during fiscal 1999 by $275,000 to $600,000 based
         on an estimate for the cost of remediation. To date, the Company has
         spent approximately $325,000 and anticipates spending the remainder on
         ongoing monitoring of wells and other environmental activity at the
         approximate rate of $50,000 per year for the next five to ten years.

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 plan. For the three years ended February 29, 2000, the Company
contributed $68,300, $92,700 and $105,500, respectively.

Subsequent to the acquisition of Roberts, 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
29, 2000 associated with the defined benefit pension plans.

                                      F-16
<PAGE>
                        Q.E.P. CO., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE M - INCOME TAXES

Income (loss) before provision for income taxes and extraordinary item consisted
of the following:
<TABLE>
<CAPTION>
                                                                Year Ended February 28 or 29,
                                                  ------------------------------------------------------
                                                      2000                  1999                 1998
                                                  -----------           -----------          -----------
<S>                                               <C>                   <C>                  <C>
         United States                            $ 4,607,045           $ 4,699,161          $ 3,396,564
         Foreign                                      365,794              (808,826)            (104,864)
                                                  -----------           -----------          -----------
         Total                                    $ 4,972,839           $ 3,890,335          $ 3,291,700
                                                  ===========           ===========          ===========
</TABLE>

The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
                                                                Year Ended February 28 or 29,
                                                  -------------------------------------------------------
                                                      2000                  1999                 1998
                                                  -----------           -----------           -----------
<S>                                               <C>                   <C>                  <C>
         Current:
           Federal                                $ 1,529,932           $ 1,132,178           $   608,053
           State                                      261,602               200,431                94,000
           Foreign                                    154,411                    --                16,000
                                                  -----------           -----------           -----------
                                                    1,945,945             1,332,609               718,053
                                                  -----------           -----------           -----------
         Deferred:
           Federal                                    143,823               217,144               525,000
           State                                      (11,210)                7,047                39,000
           Foreign                                   (127,111)              (90,029)
                                                  -----------           -----------           -----------
                                                        5,502               134,162               564,000
                                                  -----------           -----------           -----------
           Total income tax provision             $ 1,951,447           $ 1,466,771           $ 1,282,053
                                                  ===========           ===========           ===========
</TABLE>
The tax effects of temporary differences which give rise to deferred tax assets
are as follows:
<TABLE>
<CAPTION>
                                                                        February 29,          February 28,
                                                                            2000                 1999
                                                                        -----------           -----------
<S>                                                                     <C>                  <C>
         Provision for doubtful accounts                                $   201,599           $   135,072
         Accrued expenses                                                   346,503               391,981
         Fixed assets                                                      (453,286)             (528,387)
         Inventory                                                          245,136               160,322
         Net operating loss - U.S.                                          898,803               913,150
         Foreign credit carryforwards and net operating loss                332,034               205,060
                                                                        -----------           -----------

         Net deferred tax asset                                         $ 1,570,789           $ 1,277,198
                                                                        ===========           ===========
</TABLE>



                                      F-17
<PAGE>
                        Q.E.P. CO., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company has approximately $2,480,000 in net operating loss carryforwards
which expire in the years 2011 through 2018. $1,560,000 of the net operating
loss carryforward relates to Roberts, and $920,000 of the net operating loss
carryforward relates to the Company's Fiscal 2000 acquisitions. The tax effect
of the net operating loss carryforward acquired in fiscal 2000 increased the
deferred tax asset balance by $355,000. Both of these net operating loss
carryforwards are 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.

The Company has net operating losses in various foreign countries of
approximately $1,075,000. $200,000 of these losses expire in 2006 and the
remainder have no limitation on 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 or 29,
                                               ---------------------------------------------------------------------
                                                          2000                   1999                     1998
                                                          ----                   ----                     ----
                                                 Amount         %         Amount        %         Amount          %
                                                 ------         -         ------        -         ------          -
<S>                                            <C>            <C>       <C>            <C>      <C>             <C>
Provision for federal income taxes
         at the statutory rate                 $1,752,214     34.0      $1,322,714     34.0     $1,119,000      34.0

State and local income taxes -
         net of federal income tax benefit        176,252      3.4         133,990      3.4         88,000       2.7

Other                                              22,981       .4          10,067      0.3         75,053       2.2
                                               ----------     ----      ----------     ----      ----------     ----

Actual provision                               $1,951,447     37.8%     $1,466,771     37.7%    $1,282,053      38.9%
                                               ==========     ====      ==========     ====      ==========     ====
</TABLE>

Cash paid for income taxes was $2,030,666, $614,808, and $1,541,906 in fiscal
2000, 1999 and 1998, 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 one such
         customer accounting for a total of 35%, 28% and 43%, of sales in fiscal
         2000, 1999 and 1998, respectively. This same customer represented 29%
         of accounts receivable at February 29, 2000 and 28.2% at February 28,
         1999. 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 29, 2000.

     2.   Significant Vendor Information

         The Company purchased approximately 19% and 10% of purchases for the
         year ended February 29, 2000 through two vendors. There were no
         significant purchases from any one vendor for the years ended February
         28, 1998 and 1999.

                                      F-18
<PAGE>
                        Q.E.P. CO., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE O - SHAREHOLDERS' EQUITY

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 29, 2000 and February 28, 1999, there were 319,160 shares of Series A
Preferred Stock issued and outstanding. There were $11,171, $10,171, and $10,878
dividends declared and paid during the fiscal years 2000, 1999, and 1998,
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.

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 2000, the fiscal 1999 dividends of
approximately $600 were paid. In fiscal year 2000, dividends of approximately
$600 were declared and were unpaid at February 29, 2000.

Treasury Stock

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

                                      F-19
<PAGE>
                        Q.E.P. CO., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 1998, 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. All other options granted have been at
fair market value. 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 29, 2000, 1999 and 1998 would have been as follows:

                                          (in thousands, except per share data)
                                        2000               1999           1998
                                        ----               ----           ----
     Net income
         As reported                  $  3,202          $  2,423       $  2,010
         Pro forma                       3,064             2,281          1,954

     Net income per share
         As reported                  $   1.19          $   0.90        $  0.75
         Pro forma                    $   1.14          $   0.85        $  0.73



                                      F-20
<PAGE>
                        Q.E.P. CO., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The weighted average fair value at date of grant for options granted during
2000, 1999 and 1998 was $4.25, $2.61 and $2.95 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.

                                                  2000       1999         1998
                                                  ----       ----         ----
         Expected stock price volatility          35.1%       32.0%       35.4%
         Expected lives of options
              Directors and officers            3 years     3 years     3 years
              Employees                         3 years     3 years     3 years
         Risk-free interest rate                   5.4%        6.2%        6.3%
         Expected dividend yield                     0%          0%          0%

                                                               Weighted average
                                                     Shares     exercise price
                                                      ------    --------------

         Options outstanding at March 1, 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

         Exercised                                   (30,000)      $ 6.69
         Granted                                      85,600       $ 8.00
         Cancelled or forfeited                      (99,000)      $ 8.29
                                                     --------

         Options outstanding at February 29, 2000    317,800
                                                     =======

         Options currently exercisable               205,700       $ 7.31
                                                     =======


                                      F-21
<PAGE>
                        Q.E.P. CO., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The following table summarizes information about stock options outstanding
as of February 29, 2000:
<TABLE>
<CAPTION>
                                                     Weighted average
                Range of               Number            remaining        Weighted average          Number       Weighted average
            exercise prices         outstanding       contractual life     exercise price         exercisable      exercise price
            ---------------         -----------       ----------------     --------------         -----------      --------------
<S>        <C>                      <C>                   <C>                   <C>                <C>                <C>
           $6.375 - $9.000          317,800               4.51                  $ 7.65             205,700            $ 7.31
</TABLE>

NOTE Q - NONCASH INVESTING AND FINANCING ACTIVITIES

During fiscal 2000, the Company made six strategic acquisitions. In connection
with the acquisitions, liabilities were assumed as follows:

            Fair value of assets acquired                         $  4,263,048
            Cash paid                                                2,668,000
                                                                  ------------
            Liabilities assumed                                   $  1,595,048
                                                                  ============
            Issuance of notes to related sellers                  $  2,985,000
                                                                  ============

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
                                                                  ============

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, 2000.

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.

NOTE S - SUBSEQUENT EVENT

Subsequent to its fiscal year end, the Company entered into an agreement to
license the distribution rights of tackless carpet strip to U.S. flooring
products distributors. Under the terms of the agreement, the Company will
receive $2,750,000 at a predetermined rate based on cartons of tackless strip
sold. The Company is guaranteed a minimum of $400,000 per year. In addition, the
Company will continue to sell tackless carpet strip to the Home Center and
international markets. This agreement is with an unrelated third party which
previously bought certain production equipment from Roberts. In accordance with
the agreement, any amount due the Company in connection with the note for the
previous sale of the equipment will be paid to the Company on or before December
31, 2000. Accordingly, the balance of the note has been classified as a current
asset. See Note F. During fiscal 2000 the Company sold approximately $13,500,000
of tackless carpet strip to U.S. flooring products distributors.

                                      F-22
<PAGE>
                        Q.E.P. CO., INC. AND SUBSIDIARIES

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

Year ended February 29, 2000
   Deducted from asset accounts
     Allowance for doubtful accounts      $ 381,628        $ 277,734         (c)  191,466     $ 110,290         $ 740,538
</TABLE>

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

(b)  Reserve associated with Roberts Consolidated Industries, Inc. at the date
     of acquisition.

(c)  Reserve associated with the Fiscal 2000 acquisitions at the date of
     acquisition.




                                      S-1
<PAGE>

                                 Exhibit Index
                                 -------------


Exhibit                 Description
-------                 -----------

  27               Financial Data Schedule