----

----

| Delaware                                                       |   | 75-1277589                           |
|----------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization) |   | (I.R.S. Employer Identification No.) |

|   | Yes  x |   | No o |   |
|--------|------------------|--------|-----------|--------|

|   | Yes  o |   | No o |   |
|--------|------------------|--------|-----------|--------|

| Large accelerated filer  o                                             | Accelerated filer  o |
|----------------------------------------------------------------------------------|--------------------------------|
| Non-accelerated filer o  (Do not check if a smaller reporting company) | Smaller reporting company x    |

|   | Yes  o |   | No x |   |
|--------|------------------|--------|-----------|--------|

| Class                      |   | Outstanding at October 31, 2010 |
|----------------------------|--------|---------------------------------|
| Common Stock, $1 Par Value |   | 7,951,176 Shares                |

----

INDEX

|    |                  |                                                                                | Page    |
|---------|-----------------------|-------------------------------------------------------------------------------------|---------|
| PART I  | FINANCIAL INFORMATION |                                                                                |
|    |                  |                                                                                |    |
|    | Item 1.               | Financial Statements:                                                               |    |
|    |                  |                                                                                |    |
|    |                  | Condensed Consolidated Balance Sheets                                               |    |
|    |                  | October 1, 2010 (unaudited) and December 31, 2009                                   | 3,4     |
|    |                  |                                                                                |    |
|    |                  | Condensed Consolidated Statements of Operations                                     |    |
|    |                  | For the Three and Nine Months Ended October 1, 2010 and October 2, 2009 (unaudited) |  5 |
|    |                  |                                                                                |    |
|    |                  | Condensed Consolidated Statements of Cash Flows                                     |    |
|    |                  | For the Nine Months Ended October 1, 2010 and October 2, 2009 (unaudited)           | 6       |
|    |                  |                                                                                |    |
|    |                  | Notes to Condensed Consolidated Financial Statements (unaudited)                    | 7       |
|    |                  |                                                                                |    |
|    | Item 2.               | Management's Discussion and Analysis of Financial Condition and                     |    |
|    |                  | Results of Operations                                                               | 18      |
|    |                  |                                                                                |    |
|    | Item 4.               | Controls and Procedures                                                             | 22      |
|    |                  |                                                                                |    |
|    |                  |                                                                                |    |
| PART II | OTHER INFORMATION     | 23                                                                                  |
|    |                  |                                                                                |    |
|    | Item 1.               | Legal Proceedings                                                                   | 23      |
|    |                  |                                                                                |    |
|    | Item 1A.              | Risk Factors                                                                        | 23      |
|    |                  |                                                                                |    |
|    | Item 2.               | Unregistered Sales of Equity Securities and Use of Proceeds                         | 23      |
|    |                  |                                                                                |    |
|    | Item 3.               | Defaults Upon Senior Securities                                                     | 23      |
|    |                  |                                                                                |    |
|    | Item 4.               | (REMOVED AND RESERVED)                                                              | 23      |
|    |                  |                                                                                |    |
|    | Item 5.               | Other Information                                                                   | 23      |
|    |                  |                                                                                |    |
|    | Item 6.               | Exhibits                                                                            | 23      |
|    |                  |                                                                                |    |
|    | Signatures            |                                                                                | 24      |

----

index

PART I  FINANCIAL INFORMATION

Item 1.  Financial Statements

KATY INDUSTRIES, INC. AND SUBSIDIARIES

|                                                      |   | October 1, |    |   | December 31, |   |
|-----------------------------------------------------------|--------|------------|---------|--------|--------------|--------|
|                                                      |   | 2010       |    |   | 2009         |   |
| CURRENT ASSETS:                                           |   |       |    |   |         |   |
|                                                      |   |       |    |   |         |   |
| Cash                                                      |   | $          | 608     |   |         | $      | 747 |   |
| Accounts receivable, net                                  |   |       | 15,868  |   |         |   | 12,831 |   |
| Inventories, net                                          |   |       | 16,683  |   |         |   | 16,195 |   |
| Other current assets                                      |   |       | 1,720   |   |         |   | 1,144 |   |
|                                                      |   |       |    |   |         |   |   |   |
| Total current assets                                      |   |       | 34,879  |   |         |   | 30,917 |   |
|                                                      |   |       |    |   |         |   |   |   |
|                                                      |   |       |    |   |         |   |   |   |
| OTHER ASSETS:                                             |   |       |    |   |         |   |   |   |
|                                                      |   |       |    |   |         |   |   |   |
| Goodwill                                                  |   |       | 665     |   |         |   | 665 |   |
| Intangibles, net                                          |   |       | 3,632   |   |         |   | 4,010 |   |
| Other                                                     |   |       | 3,087   |   |         |   | 2,830 |   |
|                                                      |   |       |    |   |         |   |   |   |
| Total other assets                                        |   |       | 7,384   |   |         |   | 7,505 |   |
|                                                      |   |       |    |   |         |   |   |   |
|                                                      |   |       |    |   |         |   |   |   |
| PROPERTY AND EQUIPMENT                                    |   |       |    |   |         |   |   |   |
| Land and improvements                                     |   |       | 336     |   |         |   | 336 |   |
| Buildings and improvements                                |   |       | 9,753   |   |         |   | 9,514 |   |
| Machinery and equipment                                   |   |       | 91,494  |   |         |   | 91,585 |   |
|                                                      |   |       |    |   |         |   |   |   |
|                                                      |   |       | 101,583 |   |         |   | 101,435 |   |
| Less - Accumulated depreciation                           |   |       | (77,594 | )      |         |   | (73,417 | ) |
|                                                      |   |       |    |   |         |   |   |   |
| Property and equipment, net                               |   |       | 23,989  |   |         |   | 28,018 |   |
|                                                      |   |       |    |   |         |   |   |   |
| Total assets                                              |   | $          | 66,252  |   |         | $      | 66,440 |   |
|                                                      |   |       |    |   |         |   |   |   |
| See Notes to Condensed Consolidated Financial Statements. |   |       |    |   |         |   |   |   |

----

index

|                                                        |   | October 1, |     |   | December 31, |   |
|-------------------------------------------------------------|--------|------------|----------|--------|--------------|--------|
|                                                        |   | 2010       |     |   | 2009         |   |
| CURRENT LIABILITIES:                                        |   |       |     |   |         |   |
|                                                        |   |       |     |   |         |   |
| Accounts payable                                            |   | $          | 11,701   |   |         | $      | 10,476 |   |
| Book overdraft                                              |   |       | 367      |   |         |   | 1,285 |   |
| Accrued compensation                                        |   |       | 2,348    |   |         |   | 2,614 |   |
| Accrued expenses                                            |   |       | 11,724   |   |         |   | 14,252 |   |
| Current maturities of long-term debt                        |   |       | 1,138    |   |         |   | 6,899 |   |
| Revolving credit agreement                                  |   |       | 14,993   |   |         |   | 8,856 |   |
|                                                        |   |       |     |   |         |   |   |   |
| Total current liabilities                                   |   |       | 42,271   |   |         |   | 44,382 |   |
|                                                        |   |       |     |   |         |   |   |   |
| LONG-TERM DEBT, less current maturities                     |   |       | 6,644    |   |         |   | - |   |
|                                                        |   |       |     |   |         |   |   |   |
| OTHER LIABILITIES                                           |   |       | 6,030    |   |         |   | 8,739 |   |
|                                                        |   |       |     |   |         |   |   |   |
| Total liabilities                                           |   |       | 54,945   |   |         |   | 53,121 |   |
|                                                        |   |       |     |   |         |   |   |   |
| COMMITMENTS AND CONTINGENCIES (Note 9)                      |   |       |     |   |         |   |   |   |
|                                                        |   |       |     |   |         |   |   |   |
| STOCKHOLDERS’ EQUITY                                  |   |       |     |   |         |   |   |   |
| 15% Convertible preferred stock, $100 par value; authorized |   |       |     |   |         |   |   |   |
| 1,200,000 shares; issued and outstanding 1,131,551 shares;  |   |       |     |   |         |   |   |   |
| liquidation value $113,155                                  |   |       | 108,256  |   |         |   | 108,256 |   |
| Common stock, $1 par value; authorized 35,000,000 shares;   |   |       |     |   |         |   |   |   |
| issued 9,822,304 shares                                     |   |       | 9,822    |   |         |   | 9,822 |   |
| Additional paid-in capital                                  |   |       | 27,419   |   |         |   | 27,246 |   |
| Accumulated other comprehensive loss                        |   |       | (2,000   | )      |         |   | (2,053 | ) |
| Accumulated deficit                                         |   |       | (110,753 | )      |         |   | (108,515 | ) |
| Treasury stock, at cost, 1,871,128 shares                   |   |       | (21,437  | )      |         |   | (21,437 | ) |
|                                                        |   |       |     |   |         |   |   |   |
| Total stockholders' equity                                  |   |       | 11,307   |   |         |   | 13,319 |   |
|                                                        |   |       |     |   |         |   |   |   |
| Total liabilities and stockholders' equity                  |   | $          | 66,252   |   |         | $      | 66,440 |   |
|                                                        |   |       |     |   |         |   |   |   |
| See Notes to Condensed Consolidated Financial Statements.   |   |       |     |   |         |   |   |   |

----

index

KATY INDUSTRIES, INC. AND SUBSIDIARIES

|                                                      |   | Three Months Ended |   |   | Nine Months Ended |   |
|-----------------------------------------------------------|--------|--------------------|--------|--------|-------------------|--------|
|                                                      |   | October 1,         |   |   | October 2,        |   |   | October 1, |   |   | October 2, |   |
|                                                      |   | 2010               |   |   | 2009              |   |   | 2010 |   |   | 2009 |   |
|                                                      |   |               |   |   |              |   |   |   |   |   |   |   |
| Net sales                                                 |   | $                  | 37,584 |   |              | $      | 37,612 |   |   | $ | 110,057 |   |   | $ | 110,380 |   |
| Cost of goods sold                                        |   |               | 33,864 |   |              |   | 32,501 |   |   |   | 96,768 |   |   |   | 93,944 |   |
| Gross profit                                              |   |               | 3,720  |   |              |   | 5,111 |   |   |   | 13,289 |   |   |   | 16,436 |   |
| Selling, general and administrative expenses              |   |               | 4,453  |   |              |   | 5,695 |   |   |   | 16,427 |   |   |   | 19,818 |   |
| Severance, restructuring and related charges              |   |               | 747    |   |              |   | - |   |   |   | 1,002 |   |   |   | - |   |
| (Gain) loss on sale or disposal of assets                 |   |               | (189   | )      |              |   | 49 |   |   |   | (189 | ) |   |   | 61 |   |
| Operating loss                                            |   |               | (1,291 | )      |              |   | (633 | ) |   |   | (3,951 | ) |   |   | (3,443 | ) |
| Interest expense                                          |   |               | (389   | )      |              |   | (281 | ) |   |   | (1,254 | ) |   |   | (873 | ) |
| Other, net                                                |   |               | 106    |   |              |   | 118 |   |   |   | 2,466 |   |   |   | 123 |   |
|                                                      |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Loss before income tax (provision) benefit                |   |               | (1,574 | )      |              |   | (796 | ) |   |   | (2,739 | ) |   |   | (4,193 | ) |
| Income tax (provision) benefit                            |   |               | (11    | )      |              |   | (14 | ) |   |   | 501 |   |   |   | 421 |   |
|                                                      |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                  |   | $                  | (1,585 | )      |              | $      | (810 | ) |   | $ | (2,238 | ) |   | $ | (3,772 | ) |
|                                                      |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
|                                                      |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Net loss per share of common stock - Basic and diluted:   |   | $                  | (0.20  | )      |              | $      | (0.10 | ) |   | $ | (0.28 | ) |   | $ | (0.47 | ) |
|                                                      |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average common shares outstanding:               |   |               |   |   |              |   |   |   |   |   |   |   |   |
| Basic and diluted                                         |   |               | 7,951  |   |              |   | 7,951 |   |   |   | 7,951 |   |   |   | 7,951 |   |
|                                                      |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| See Notes to Condensed Consolidated Financial Statements. |   |               |   |   |              |   |   |   |   |

----

index

KATY INDUSTRIES, INC. AND SUBSIDIARIES

|                                                      |   | October 1, |   |   | October 2, |   |
|-----------------------------------------------------------|--------|------------|--------|--------|------------|--------|
|                                                      |   | 2010       |   |   | 2009       |   |
| Cash flows from operating activities:                     |   |       |   |   |       |   |
| Net loss                                                  |   | $          | (2,238 | )      |       | $      | (3,772 | ) |
| Depreciation                                              |   |       | 4,636  |   |       |   | 4,691 |   |
| Amortization of intangible assets                         |   |       | 406    |   |       |   | 372 |   |
| Write-off and amortization of debt issuance costs         |   |       | 411    |   |       |   | 287 |   |
| Stock-based compensation                                  |   |       | (110   | )      |       |   | 372 |   |
| (Gain) loss on sale or disposal of assets                 |   |       | (189   | )      |       |   | 61 |   |
| Gain on settlement of existing obligation                 |   |       | (2,100 | )      |       |   | - |   |
|                                                      |   |       | 816    |   |       |   | 2,011 |   |
| Changes in operating assets and liabilities:              |   |       |   |   |       |   |   |   |
| Accounts receivable                                       |   |       | (3,022 | )      |       |   | (1,626 | ) |
| Inventories                                               |   |       | (455   | )      |       |   | 3,745 |   |
| Other assets                                              |   |       | (440   | )      |       |   | 1,103 |   |
| Accounts payable                                          |   |       | 1,213  |   |       |   | (731 | ) |
| Accrued expenses                                          |   |       | (506   | )      |       |   | 670 |   |
| Other                                                     |   |       | (2,625 | )      |       |   | (1,635 | ) |
|                                                      |   |       | (5,835 | )      |       |   | 1,526 |   |
|                                                      |   |       |   |   |       |   |   |   |
| Net cash (used in) provided by operating activities       |   |       | (5,019 | )      |       |   | 3,537 |   |
|                                                      |   |       |   |   |       |   |   |   |
| Cash flows from investing activities:                     |   |       |   |   |       |   |   |   |
| Capital expenditures                                      |   |       | (773   | )      |       |   | (1,537 | ) |
| Proceeds from sale of assets                              |   |       | 128    |   |       |   | 2 |   |
| Net cash used in investing activities                     |   |       | (645   | )      |       |   | (1,535 | ) |
|                                                      |   |       |   |   |       |   |   |   |
| Cash flows from financing activities:                     |   |       |   |   |       |   |   |   |
| Net borrowings on revolving loans                         |   |       | 6,114  |   |       |   | 659 |   |
| Decrease in book overdraft                                |   |       | (918   | )      |       |   | (1,200 | ) |
| Proceeds from term loans                                  |   |       | 8,182  |   |       |   | - |   |
| Repayments of term loans                                  |   |       | (7,299 | )      |       |   | (1,131 | ) |
| Direct costs associated with debt facilities              |   |       | (597   | )      |       |   | - |   |
| Net cash provided by (used in) financing activities       |   |       | 5,482  |   |       |   | (1,672 | ) |
|                                                      |   |       |   |   |       |   |   |   |
| Effect of exchange rate changes on cash                   |   |       | 43     |   |       |   | (118 | ) |
| Net (decrease) increase in cash                           |   |       | (139   | )      |       |   | 212 |   |
| Cash, beginning of period                                 |   |       | 747    |   |       |   | 683 |   |
| Cash, end of period                                       |   | $          | 608    |   |       | $      | 895 |   |
|                                                      |   |       |   |   |       |   |   |   |
| See Notes to Condensed Consolidated Financial Statements. |   |       |   |   |       |   |   |   |

----

index

KATY INDUSTRIES, INC. AND SUBSIDIARIES

|               |   | October 1, |   |   | December 31, |   |
|--------------------|--------|------------|--------|--------|--------------|--------|
|               |   | 2010       |   |   | 2009         |   |
|               |   |       |   |   |         |   |
| Raw materials      |   | $          | 9,145  |   |         | $      | 10,240 |   |
| Finished goods     |   |       | 13,117 |   |         |   | 10,744 |   |
| Inventory reserves |   |       | (1,391 | )      |         |   | (1,315 | ) |
| LIFO reserve       |   |       | (4,188 | )      |         |   | (3,474 | ) |
|               |   | $          | 16,683 |   |         | $      | 16,195 |   |
|               |   |       |   |   |         |   |   |   |

----

index

|                                      |   | Three Months Ended |   |   | Nine Months Ended |   |
|-------------------------------------------|--------|--------------------|--------|--------|-------------------|--------|
|                                      |   | October 1,         |   |   | October 2,        |   |   | October 1, |   |   | October 2, |   |
|                                      |   | 2010               |   |   | 2009              |   |   | 2010 |   |   | 2009 |   |
|                                      |   |               |   |   |              |   |   |   |   |   |   |   |
| Stock option expense                      |   | $                  | 42     |   |              | $      | 98 |   |   | $ | 173 |   |   | $ | 372 |   |
| Stock appreciation right (income) expense |   |               | (177   | )      |              |   | 8 |   |   |   | (283 | ) |   |   | - |   |
|                                      |   | $                  | (135   | )      |              | $      | 106 |   |   | $ | (110 | ) |   | $ | 372 |   |
|                                      |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |

|                    | October 1,            |   | October 2,      |
|-------------------------|-----------------------|--------|-----------------|
|                    | 2010                  |   | 2009            |
|                    |                  |   |            |
| Expected term (years)   | 0.1 - 6.0             |   | 0.1 - 4.8       |
| Volatility              |  139.5% - 207.8% |   | 131.7% - 206.6% |
| Risk-free interest rate | 0.2% - 1.6%           |   | 0.1% - 2.1%     |

|                                        |   | Three Months Ended |   |   | Nine Months Ended |   |
|---------------------------------------------|--------|--------------------|--------|--------|-------------------|--------|
|                                        |   | October 1,         |   |   | October 2,        |   |   | October 1, |   |   | October 2, |   |
|                                        |   | 2010               |   |   | 2009              |   |   | 2010 |   |   | 2009 |   |
|                                        |   |               |   |   |              |   |   |   |   |   |   |   |
| Net loss                                    |   | $                  | (1,585 | )      |              | $      | (810 | ) |   | $ | (2,238 | ) |   | $ | (3,772 | ) |
| Foreign currency translation (losses) gains |   |               | (7     | )      |              |   | 20 |   |   |   | 53 |   |   |   | 68 |   |
| Comprehensive loss                          |   | $                  | (1,592 | )      |              | $      | (790 | ) |   | $ | (2,185 | ) |   | $ | (3,704 | ) |
|                                        |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |

----

index

|                 |   | October 1, |   |   | December 31, |   |
|----------------------|--------|------------|--------|--------|--------------|--------|
|                 |   | 2010       |   |   | 2009         |   |
|                 |   | Gross      |   |   | Accumulated  |   |   | Net Carrying |   |   | Gross |   |   | Accumulated |   |   | Net Carrying |   |
|                 |   | Amount     |   |   | Amortization |   |   | Amount |   |   | Amount |   |   | Amortization |   |   | Amount |   |
|  Patents        |   | $          | 1,230  |   |         | $      | (1,028 | ) |   | $ | 202 |   |   | $ | 1,202 |   |   | $ | (952 | ) |   | $ | 250 |   |
|  Customer lists |   |       | 10,231 |   |         |   | (8,725 | ) |   |   | 1,506 |   |   |   | 10,231 |   |   |   | (8,582 | ) |   |   | 1,649 |   |
|  Tradenames     |   |       | 5,054  |   |         |   | (3,130 | ) |   |   | 1,924 |   |   |   | 5,054 |   |   |   | (2,943 | ) |   |   | 2,111 |   |
|  Total          |   | $          | 16,515 |   |         | $      | (12,883 | ) |   | $ | 3,632 |   |   | $ | 16,487 |   |   | $ | (12,477 | ) |   | $ | 4,010 |   |
|                 |   |       |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| 2010 (remainder) |   | $      | 135    |   |
|------------------|--------|--------|--------|--------|
| 2011             |   |   | 517    |   |
| 2012             |   |   | 492    |   |
| 2013             |   |   | 471    |   |
| 2014             |   |   | 454    |   |
| Thereafter       |   |   | 1,563  |   |
|             |   | $      | 3,632  |   |
|             |   |   |   |   |

----

index

|                                                                           |   | October 1, |    |   | December 31, |   |
|--------------------------------------------------------------------------------|--------|------------|---------|--------|--------------|--------|
|                                                                           |   | 2010       |    |   | 2009         |   |
|                                                                           |   |       |    |   |         |   |
| Term loan payable under the PNC Credit Agreement and the Bank of America       |   |       |    |
| Credit Agreement, respectively, interest based on                              |   |       |    |   |         |   |
| Eurodollar and Base Rates (6.51% - 8.50%)                                      |   | $          | 7,782   |   |         | $      | 6,899 |   |
| Revolving loans payable under the PNC Credit Agreement and the Bank of America |   |
| Credit Agreement, respectively, interest based on                              |   |       |    |   |         |   |   |   |
| Eurodollar and Base Rates (3.51% - 5.50%)                                      |   |       | 14,993  |   |         |   | 8,856 |   |
| Total debt                                                                     |   |       | 22,775  |   |         |   | 15,755 |   |
| Less revolving loans, classified as current                                    |   |       | (14,993 | )      |         |   | (8,856 | ) |
| Less current maturities                                                        |   |       | (1,138  | )      |         |   | (6,899 | ) |
| Long-term debt                                                                 |   | $          | 6,644   |   |         | $      | - |   |
|                                                                           |   |       |    |   |         |   |   |   |

| 2010 (remainder) |   | $      | 200    |   |
|------------------|--------|--------|--------|--------|
| 2011             |   |   | 1,275  |   |
| 2012             |   |   | 1,425  |   |
| 2013             |   |   | 4,882  |   |
|             |   | $      | 7,782  |   |
|             |   |   |   |   |

----

index

----

index

|                                     |   | Pension Benefits   |   |
|------------------------------------------|--------|--------------------|--------|
|                                     |   | Three Months Ended |   |   | Nine Months Ended |   |
|                                     |   | October 1,         |   |   | October 2, |   |   | October 1, |   |   | October 2, |   |
|                                     |   | 2010               |   |   | 2009 |   |   | 2010 |   |   | 2009 |   |
| Components of net periodic benefit cost: |   |               |   |   |   |   |   |   |   |   |   |   |
| Interest cost                            |   | $                  | 18     |   |   | $ | 19 |   |   | $ | 55 |   |   | $ | 57 |   |
| Expected return on plan assets           |   |               | (16    | ) |   |   | (14 | ) |   |   | (47 | ) |   |   | (40 | ) |
| Amortization of net loss                 |   |               | 11     |   |   |   | 12 |   |   |   | 33 |   |   |   | 34 |   |
| Net periodic benefit cost                |   | $                  | 13     |   |   | $ | 17 |   |   | $ | 41 |   |   | $ | 51 |   |
|                                     |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                                     |   | Other Benefits     |   |
|------------------------------------------|--------|--------------------|--------|
|                                     |   | Three Months Ended |   |   | Nine Months Ended |   |
|                                     |   | October 1,         |   |   | October 2, |   |   | October 1, |   |   | October 2, |   |
|                                     |   | 2010               |   |   | 2009 |   |   | 2010 |   |   | 2009 |   |
| Components of net periodic benefit cost: |   |               |   |   |   |   |   |   |   |   |   |   |
| Interest cost                            |   | $                  | 12     |   |   | $ | 33 |   |   | $ | 77 |   |   | $ | 104 |   |
| Reversal of amortization of net loss     |   |               | (16    | ) |   |   | - |   |   |   | - |   |   |   | - |   |
| Net periodic benefit (income) cost       |   | $                  | (4     | ) |   | $ | 33 |   |   | $ | 77 |   |   | $ | 104 |   |
|                                     |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

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index

|                                      |   |    |      |   |     |   | Weighted    |   |           |   |
|-------------------------------------------|--------|---------|-----------|--------|----------|--------|-------------|--------|----------------|--------|
|                                      |   |    |      |   | Weighted |   | Average     |   | Aggregate      |   |
|                                      |   |    |      |   | Average  |   | Remaining   |   | Intrinsic      |   |
|                                      |   |    |      |   | Exercise |   | Contractual |   | Value          |   |
|                                      |   | Options |      |   | Price    |   | Life        |   | (in thousands) |   |
|                                      |   |    |      |   |     |   |        |   |           |   |
| Outstanding at December 31, 2009          |   |    | 1,501,000 |   |     | $      | 1.97        |   |           |   |   |   |
|                                      |   |    |      |   |     |   |        |   |           |   |   |   |
| Granted                                   |   |    | -         |   |     | $      | -           |   |           |   |   |   |
| Exercised                                 |   |    | -         |   |     | $      | -           |   |           |   |   |   |
| Expired                                   |   |    | (14,000   | )      |     | $      | 9.93        |   |           |   |   |   |
| Cancelled                                 |   |    | -         |   |     | $      | -           |   |           |   |   |   |
|                                      |   |    |      |   |     |   |        |   |           |   |   |   |
| Outstanding at October 1, 2010            |   |    | 1,487,000 |   |     | $      | 1.90        |   | 6.12 years     |   | $ | 1 |   |
|                                      |   |    |      |   |     |   |        |   |           |   |   |   |   |
| Vested and Exercisable at October 1, 2010 |   |    | 987,001   |   |     | $      | 2.27        |   | 5.23 years     |   | $ | - |   |
|                                      |   |    |      |   |     |   |        |   |           |   |   |   |   |

|                            |   |    |     |   | Weighted   |   |
|---------------------------------|--------|---------|----------|--------|------------|--------|
|                            |   |    |     |   | Average    |   |
|                            |   |    |     |   | Grant Date |   |
|                            |   | Options |     |   | Fair Value |   |
|                            |   |    |     |   |       |   |
| Non-Vested at December 31, 2009 |   |    | 791,666  |   |       | $      | 0.89 |   |
|                            |   |    |     |   |       |   |   |   |
| Granted                         |   |    | -        |   |       | $      | - |   |
| Vested                          |   |    | (291,667 | )      |       | $      | 0.86 |   |
| Cancelled                       |   |    | -        |   |       | $      | - |   |
|                            |   |    |     |   |       |   |   |   |
| Non-Vested at October 1, 2010   |   |    | 499,999  |   |       | $      | 0.90 |   |
|                            |   |    |     |   |       |   |   |   |

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index

|                                 |   |   |    |   | Weighted   |   |
|--------------------------------------|--------|--------|---------|--------|------------|--------|
|                                 |   |   |    |   | Average    |   |
|                                 |   | SARs   |    |   | Fair Value |   |
|                                 |   |   |    |   |       |   |
| Non-Vested at December 31, 2009      |   |   | 32,000  |   |       | $      | 1.54 |   |
|                                 |   |   |    |   |       |   |   |   |
| Granted                              |   |   | 66,000  |   |       | $      | 0.77 |   |
| Vested                               |   |   | (6,000  | )      |       | $      | 0.89 |   |
| Cancelled                            |   |   | -       |   |       | $      | - |   |
|                                 |   |   |    |   |       |   |   |   |
| Non-Vested at October 1, 2010        |   |   | 92,000  |   |       | $      | 0.80 |   |
|                                 |   |   |    |   |       |   |   |   |
| Total Outstanding at October 1, 2010 |   |   | 561,267 |   |       | $      | 0.55 |   |
|                                 |   |   |    |   |       |   |   |   |

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|                          |   | October 1, 2010    |   |
|-------------------------------|--------|--------------------|--------|
|                          |   | Three Months Ended |   |   | Nine Months Ended |   |
|                          |   |               |   |   |   |   |
| Contract termination costs    |   | $                  | 633    |   |   | $ | 633 |   |
| One-time termination benefits |   |               | -      |   |   |   | 207 |   |
| Other                         |   |               | 114    |   |   |   | 162 |   |
|                          |   | $                  | 747    |   |   | $ | 1,002 |   |
|                          |   |               |   |   |   |   |   |   |

|                                           |   |   |   |   | One-time    |   |   | Contract    |   |   |   |   |
|------------------------------------------------|--------|--------|--------|--------|-------------|--------|--------|-------------|--------|--------|--------|--------|
|                                           |   |   |   |   | Termination |   |   | Termination |   |   |   |   |
|                                           |   | Total  |   |   | Benefits    |   |   | Costs       |   |   | Other  |   |
| Restructuring liabilities at December 31, 2009 |   | $      | -      |   |        | $      | -      |        |   | $      | -      |   |   | $ | - |   |
| Additions                                      |   |   | 1,002  |   |        |   | 207    |        |   |   | 633    |   |   |   | 162 |   |
| Payments                                       |   |   | (578   | )      |        |   | (36    | )           |   |   | (380   | )      |   |   | (162 | ) |
| Restructuring liabilities at October 1, 2010   |   | $      | 424    |   |        | $      | 171    |        |   | $      | 253    |   |   | $ | - |   |
|                                           |   |   |   |   |        |   |   |        |   |   |   |   |   |   |   |   |

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index

|                                           |   | Contract    |   |
|------------------------------------------------|--------|-------------|--------|
|                                           |   | Termination |   |
|                                           |   | Costs       |   |
| Restructuring liabilities at December 31, 2009 |   | $           | 415    |   |
| Additions                                      |   |        | -      |   |
| Payments                                       |   |        | (66    | ) |
| Other                                          |   |        | 96     |   |
| Restructuring liabilities at October 1, 2010   |   | $           | 445    |   |
|                                           |   |        |   |   |

| 2010 (remainder) |   | $      | 497    |   |
|------------------|--------|--------|--------|--------|
| 2011             |   |   | 372    |   |
|             |   | $      | 869    |   |
|             |   |   |   |   |

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Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

| -   | Increases in the cost of, or in some cases continuation of, the current price levels of thermoplastic resins, paper board packaging, latex binders and other raw materials. |
|---------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| -   | Our inability to reduce product costs, including manufacturing, sourcing, freight, and other product costs. |
|---------------|-------------------------------------------------------------------------------------------------------------|

| -   | Our inability to protect our intellectual property rights adequately. |
|---------------|-----------------------------------------------------------------------|

| -   | Our inability to expand our customer base and increase corresponding revenues. |
|---------------|--------------------------------------------------------------------------------|

| -   | Our inability to achieve product price increases, especially as they relate to potentially higher raw material costs. |
|---------------|-----------------------------------------------------------------------------------------------------------------------|

| -   | Unfavorable economic or business conditions, as well as our exposure to the credit risks of our customers and distributors, which may reduce our sales or make it difficult to collect accounts receivable. |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| -   | Competition from foreign and domestic competitors. |
|---------------|----------------------------------------------------|

| -   | The potential impact of rising interest rates on our debt outstanding under the PNC Credit Agreement. |
|---------------|-------------------------------------------------------------------------------------------------------|

| -   | Our inability to meet covenants associated with the PNC Credit Agreement. |
|---------------|---------------------------------------------------------------------------|

| -   | Our inability to access funds under our current loan agreements or refinance our loan agreements given the current instability in the credit markets. |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

| -   | Our failure to identify, and promptly and effectively remediate, any material weaknesses or significant deficiencies in our internal control over financial reporting. |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| -   | The potential impact of rising costs for insurance for properties and various forms of liabilities. |
|---------------|-----------------------------------------------------------------------------------------------------|

| -   | The potential impact of changes in foreign currency exchange rates related to our Canadian operations. |
|---------------|--------------------------------------------------------------------------------------------------------|

| -   | Labor issues, including union activities that require an increase in production costs or lead to a strike, thus impairing production and decreasing sales, and labor relations issues at entities involved in our supply chain, including both suppliers and those involved in transportation and shipping. |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| -   | Changes in significant laws and government regulations affecting environmental compliance and income taxes. |
|---------------|-------------------------------------------------------------------------------------------------------------|

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Item 4.  CONTROLS AND PROCEDURES

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PART II - OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS

Item 1A.  RISK FACTORS

Item 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Item 3.  DEFAULTS UPON SENIOR SECURITIES

Item 4.  (REMOVED AND RESERVED)

Item 5.  OTHER INFORMATION

Item 6.  EXHIBITS

| ExhibitNumber |  Exhibit Title                                                                                                                      |   |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------|--------|
|          |                                                                                                                                     |   |
| 31.1          | CEO Certification pursuant to Securities Exchange Act Rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | *      |
| 31.2          | CFO Certification pursuant to Securities Exchange Act Rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | *      |
| 32.1          | CEO Certification required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.              | *#     |
| 32.2          | CFO Certification required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.              | *#     |

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Signatures

----