----

----

| 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 July 31, 2009 |
|----------------------------|--------|------------------------------|
| Common Stock, $1 Par Value |   | 7,951,176 Shares             |

----

INDEX

|    |                  |                                                                          | Page    |
|---------|-----------------------|-------------------------------------------------------------------------------|---------|
| PART I  | FINANCIAL INFORMATION |                                                                          |
|    |                  |                                                                          |    |
|    | Item 1.               | Financial Statements:                                                         |    |
|    |                  |                                                                          |    |
|    |                  | Condensed Consolidated Balance Sheets                                         |    |
|    |                  | July 3, 2009 (unaudited) and December 31, 2008                                | 3,4     |
|    |                  |                                                                          |    |
|    |                  | Condensed Consolidated Statements of Operations                               |    |
|    |                  | For the Three and Six Months Ended July 3, 2009 and June 30, 2008 (unaudited) |  5 |
|    |                  |                                                                          |    |
|    |                  | Condensed Consolidated Statements of Cash Flows                               |    |
|    |                  | For the Six Months Ended July 3, 2009 and June 30, 2008 (unaudited)           | 6       |
|    |                  |                                                                          |    |
|    |                  | Notes to Condensed Consolidated Financial Statements (unaudited)              | 7       |
|    |                  |                                                                          |    |
|    | Item 2.               | Management's Discussion and Analysis of Financial Condition and               |    |
|    |                  | Results of Operations                                                         | 19      |
|    |                  |                                                                          |    |
|    | Item 4T.              | Controls and Procedures                                                       | 23      |
|    |                  |                                                                          |    |
|    |                  |                                                                          |    |
| PART II | OTHER INFORMATION     | 24                                                                            |
|    |                  |                                                                          |    |
|    | Item 1.               | Legal Proceedings                                                             | 24      |
|    |                  |                                                                          |    |
|    | Item 1A.              | Risk Factors                                                                  | 24      |
|    |                  |                                                                          |    |
|    | Item 2.               | Unregistered Sales of Equity Securities and Use of Proceeds                   | 24      |
|    |                  |                                                                          |    |
|    | Item 3.               | Defaults Upon Senior Securities                                               | 24      |
|    |                  |                                                                          |    |
|    | Item 4.               | Submission of Matters to a Vote of Security Holders                           | 24      |
|    |                  |                                                                          |    |
|    | Item 5.               | Other Information                                                             | 24      |
|    |                  |                                                                          |    |
|    | Item 6.               | Exhibits                                                                      | 25      |
|    |                  |                                                                          |    |
|    | Signatures            |                                                                          | 26      |

----

index

PART I  FINANCIAL INFORMATION

Item 1.  Financial Statements

KATY INDUSTRIES, INC. AND SUBSIDIARIES

|                                                      |   | July 3, |    |   | December 31, |   |
|-----------------------------------------------------------|--------|---------|---------|--------|--------------|--------|
|                                                      |   | 2009    |    |   | 2008         |   |
| CURRENT ASSETS:                                           |   |    |    |   |         |   |
|                                                      |   |    |    |   |         |   |
| Cash                                                      |   | $       | 870     |   |         | $      | 683 |   |
| Accounts receivable, net                                  |   |    | 16,981  |   |         |   | 13,773 |   |
| Inventories, net                                          |   |    | 16,395  |   |         |   | 19,911 |   |
| Other current assets                                      |   |    | 1,259   |   |         |   | 3,516 |   |
|                                                      |   |    |    |   |         |   |   |   |
| Total current assets                                      |   |    | 35,505  |   |         |   | 37,883 |   |
|                                                      |   |    |    |   |         |   |   |   |
|                                                      |   |    |    |   |         |   |   |   |
| OTHER ASSETS:                                             |   |    |    |   |         |   |   |   |
|                                                      |   |    |    |   |         |   |   |   |
| Goodwill                                                  |   |    | 665     |   |         |   | 665 |   |
| Intangibles, net                                          |   |    | 4,235   |   |         |   | 4,455 |   |
| Other                                                     |   |    | 2,753   |   |         |   | 1,809 |   |
|                                                      |   |    |    |   |         |   |   |   |
| Total other assets                                        |   |    | 7,653   |   |         |   | 6,929 |   |
|                                                      |   |    |    |   |         |   |   |   |
|                                                      |   |    |    |   |         |   |   |   |
| PROPERTY AND EQUIPMENT                                    |   |    |    |   |         |   |   |   |
| Land and improvements                                     |   |    | 336     |   |         |   | 336 |   |
| Buildings and improvements                                |   |    | 8,691   |   |         |   | 8,686 |   |
| Machinery and equipment                                   |   |    | 93,151  |   |         |   | 92,693 |   |
|                                                      |   |    |    |   |         |   |   |   |
|                                                      |   |    | 102,178 |   |         |   | 101,715 |   |
| Less - Accumulated depreciation                           |   |    | (72,405 | )      |         |   | (69,232 | ) |
|                                                      |   |    |    |   |         |   |   |   |
| Property and equipment, net                               |   |    | 29,773  |   |         |   | 32,483 |   |
|                                                      |   |    |    |   |         |   |   |   |
| Total assets                                              |   | $       | 72,931  |   |         | $      | 77,295 |   |
|                                                      |   |    |    |   |         |   |   |   |
| See Notes to Condensed Consolidated Financial Statements. |   |    |    |   |         |   |   |   |

----

index

|                                                        |   | July 3, |     |   | December 31, |   |
|-------------------------------------------------------------|--------|---------|----------|--------|--------------|--------|
|                                                        |   | 2009    |     |   | 2008         |   |
| CURRENT LIABILITIES:                                        |   |    |     |   |         |   |
|                                                        |   |    |     |   |         |   |
| Accounts payable                                            |   | $       | 12,143   |   |         | $      | 10,283 |   |
| Book overdraft                                              |   |    | 839      |   |         |   | 2,289 |   |
| Accrued compensation                                        |   |    | 3,708    |   |         |   | 3,015 |   |
| Accrued expenses                                            |   |    | 13,826   |   |         |   | 14,266 |   |
| Current maturities of long-term debt                        |   |    | 1,500    |   |         |   | 1,500 |   |
| Revolving credit agreement                                  |   |    | 9,225    |   |         |   | 9,118 |   |
|                                                        |   |    |     |   |         |   |   |   |
| Total current liabilities                                   |   |    | 41,241   |   |         |   | 40,471 |   |
|                                                        |   |    |     |   |         |   |   |   |
| LONG-TERM DEBT, less current maturities                     |   |    | 6,178    |   |         |   | 6,928 |   |
|                                                        |   |    |     |   |         |   |   |   |
| OTHER LIABILITIES                                           |   |    | 8,859    |   |         |   | 10,603 |   |
|                                                        |   |    |     |   |         |   |   |   |
| Total liabilities                                           |   |    | 56,278   |   |         |   | 58,002 |   |
|                                                        |   |    |     |   |         |   |   |   |
| COMMITMENTS AND CONTINGENCIES (Note 8)                      |   |    |     |   |         |   |   |   |
|                                                        |   |    |     |   |         |   |   |   |
| 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                                  |   |    | 27,064   |   |         |   | 27,248 |   |
| Accumulated other comprehensive loss                        |   |    | (1,694   | )      |         |   | (1,742 | ) |
| Accumulated deficit                                         |   |    | (105,359 | )      |         |   | (102,397 | ) |
| Treasury stock, at cost, 1,871,128 shares                   |   |    | (21,436  | )      |         |   | (21,894 | ) |
|                                                        |   |    |     |   |         |   |   |   |
| Total stockholders' equity                                  |   |    | 16,653   |   |         |   | 19,293 |   |
|                                                        |   |    |     |   |         |   |   |   |
| Total liabilities and stockholders' equity                  |   | $       | 72,931   |   |         | $      | 77,295 |   |
|                                                        |   |    |     |   |         |   |   |   |
| See Notes to Condensed Consolidated Financial Statements.   |   |    |     |   |         |   |   |   |

----

index

KATY INDUSTRIES, INC. AND SUBSIDIARIES

|                                                         |   | Three Months Ended |   |   | Six Months Ended |   |
|--------------------------------------------------------------|--------|--------------------|--------|--------|------------------|--------|
|                                                         |   | July 3,            |   |   | June 30,         |   |   | July 3, |   |   | June 30, |   |
|                                                         |   | 2009               |   |   | 2008             |   |   | 2009 |   |   | 2008 |   |
|                                                         |   |               |   |   |             |   |   |   |   |   |   |   |
| Net sales                                                    |   | $                  | 37,676 |   |             | $      | 45,134 |   |   | $ | 72,768 |   |   | $ | 86,825 |   |
| Cost of goods sold                                           |   |               | 31,488 |   |             |   | 42,668 |   |   |   | 61,443 |   |   |   | 80,531 |   |
| Gross profit                                                 |   |               | 6,188  |   |             |   | 2,466 |   |   |   | 11,325 |   |   |   | 6,294 |   |
| Selling, general and administrative expenses                 |   |               | 6,959  |   |             |   | 8,030 |   |   |   | 14,123 |   |   |   | 14,767 |   |
| Severance, restructuring and related charges                 |   |               | -      |   |             |   | (548 | ) |   |   | - |   |   |   | (410 | ) |
| Loss on sale or disposal of assets                           |   |               | 12     |   |             |   | 201 |   |   |   | 12 |   |   |   | 734 |   |
| Operating loss                                               |   |               | (783   | )      |             |   | (5,217 | ) |   |   | (2,810 | ) |   |   | (8,797 | ) |
| Interest expense                                             |   |               | (283   | )      |             |   | (420 | ) |   |   | (592 | ) |   |   | (903 | ) |
| Other, net                                                   |   |               | 78     |   |             |   | 30 |   |   |   | 5 |   |   |   | 16 |   |
|                                                         |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Loss from continuing operations before income tax benefit    |   |               | (988   | )      |             |   | (5,607 | ) |   |   | (3,397 | ) |   |   | (9,684 | ) |
| Income tax benefit from continuing operations                |   |               | 441    |   |             |   | 805 |   |   |   | 435 |   |   |   | 1,157 |   |
|                                                         |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Loss from continuing operations                              |   |               | (547   | )      |             |   | (4,802 | ) |   |   | (2,962 | ) |   |   | (8,527 | ) |
| Loss from operations of discontinued businesses (net of tax) |   |               | -      |   |             |   | (415 | ) |   |   | - |   |   |   | (667 | ) |
| Gain on sale of discontinued businesses (net of tax)         |   |               | -      |   |             |   | 1,002 |   |   |   | - |   |   |   | 1,545 |   |
|                                                         |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                     |   | $                  | (547   | )      |             | $      | (4,215 | ) |   | $ | (2,962 | ) |   | $ | (7,649 | ) |
|                                                         |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Loss per share of common stock - Basic and diluted:          |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Continuing operations                                        |   | $                  | (0.07  | )      |             | $      | (0.60 | ) |   | $ | (0.37 | ) |   | $ | (1.07 | ) |
| Discontinued operations                                      |   |               | -      |   |             |   | 0.07 |   |   |   | - |   |   |   | 0.11 |   |
| Net loss                                                     |   | $                  | (0.07  | )      |             | $      | (0.53 | ) |   | $ | (0.37 | ) |   | $ | (0.96 | ) |
|                                                         |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| 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

|                                                      |   | July 3, |   |   | June 30, |   |
|-----------------------------------------------------------|--------|---------|--------|--------|----------|--------|
|                                                      |   | 2009    |   |   | 2008     |   |
| Cash flows from operating activities:                     |   |    |   |   |     |   |
| Net loss                                                  |   | $       | (2,962 | )      |     | $      | (7,649 | ) |
| Income from discontinued operations                       |   |    | -      |   |     |   | (878 | ) |
| Loss from continuing operations                           |   |    | (2,962 | )      |     |   | (8,527 | ) |
| Depreciation                                              |   |    | 3,161  |   |     |   | 3,852 |   |
| Amortization of intangible assets                         |   |    | 238    |   |     |   | 242 |   |
| Amortization of debt issuance costs                       |   |    | 191    |   |     |   | 191 |   |
| Stock-based compensation                                  |   |    | 266    |   |     |   | (210 | ) |
| Loss on sale or disposal of assets                        |   |    | 12     |   |     |   | 734 |   |
|                                                      |   |    | 906    |   |     |   | (3,718 | ) |
| Changes in operating assets and liabilities:              |   |    |   |   |     |   |   |   |
| Accounts receivable                                       |   |    | (3,148 | )      |     |   | (3,693 | ) |
| Inventories                                               |   |    | 3,632  |   |     |   | 603 |   |
| Other assets                                              |   |    | 1,035  |   |     |   | 487 |   |
| Accounts payable                                          |   |    | 1,812  |   |     |   | 1,342 |   |
| Accrued expenses                                          |   |    | 232    |   |     |   | (337 | ) |
| Other                                                     |   |    | (1,689 | )      |     |   | (1,539 | ) |
|                                                      |   |    | 1,874  |   |     |   | (3,137 | ) |
|                                                      |   |    |   |   |     |   |   |   |
| Net cash provided by (used in) continuing operations      |   |    | 2,780  |   |     |   | (6,855 | ) |
| Net cash used in discontinued operations                  |   |    | -      |   |     |   | (654 | ) |
| Net cash provided by (used in) operating activities       |   |    | 2,780  |   |     |   | (7,509 | ) |
|                                                      |   |    |   |   |     |   |   |   |
| Cash flows from investing activities:                     |   |    |   |   |     |   |   |   |
| Capital expenditures                                      |   |    | (420   | )      |     |   | (2,934 | ) |
| Proceeds from sale of assets                              |   |    | 2      |   |     |   | 49 |   |
|                                                      |   |    |   |   |     |   |   |   |
| Net cash used in continuing operations                    |   |    | (418   | )      |     |   | (2,885 | ) |
| Net cash provided by discontinued operations              |   |    | -      |   |     |   | 8,685 |   |
| Net cash (used in) provided by investing activities       |   |    | (418   | )      |     |   | 5,800 |   |
|                                                      |   |    |   |   |     |   |   |   |
| Cash flows from financing activities:                     |   |    |   |   |     |   |   |   |
| Net borrowings on revolving loans                         |   |    | 47     |   |     |   | 2,624 |   |
| Decrease in book overdraft                                |   |    | (1,450 | )      |     |   | (544 | ) |
| Repayments of term loans                                  |   |    | (750   | )      |     |   | (1,171 | ) |
|                                                      |   |    |   |   |     |   |   |   |
| Net cash (used in) provided by financing activities       |   |    | (2,153 | )      |     |   | 909 |   |
|                                                      |   |    |   |   |     |   |   |   |
| Effect of exchange rate changes on cash                   |   |    | (22    | )      |     |   | (48 | ) |
| Net increase (decrease) in cash                           |   |    | 187    |   |     |   | (848 | ) |
| Cash, beginning of period                                 |   |    | 683    |   |     |   | 2,015 |   |
| Cash, end of period                                       |   | $       | 870    |   |     | $      | 1,167 |   |
|                                                      |   |    |   |   |     |   |   |   |
| See Notes to Condensed Consolidated Financial Statements. |   |    |   |   |     |   |   |   |

----

index

KATY INDUSTRIES, INC. AND SUBSIDIARIES

|               |   | July 3, |   |   | December 31, |   |
|--------------------|--------|---------|--------|--------|--------------|--------|
|               |   | 2009    |   |   | 2008         |   |
|               |   |    |   |   |         |   |
| Raw materials      |   | $       | 9,321  |   |         | $      | 12,764 |   |
| Work in process    |   |    | 12     |   |         |   | 718 |   |
| Finished goods     |   |    | 11,501 |   |         |   | 12,054 |   |
| Inventory reserves |   |    | (1,462 | )      |         |   | (1,345 | ) |
| LIFO reserve       |   |    | (2,977 | )      |         |   | (4,280 | ) |
|               |   | $       | 16,395 |   |         | $      | 19,911 |   |
|               |   |    |   |   |         |   |   |   |

----

index

|                                      |   | Three Months Ended |   |   | Six Months Ended |   |
|-------------------------------------------|--------|--------------------|--------|--------|------------------|--------|
|                                      |   | July 3,            |   |   | June 30,         |   |   | July 3, |   |   | June 30, |   |
|                                      |   | 2009               |   |   | 2008             |   |   | 2009 |   |   | 2008 |   |
|                                      |   |               |   |   |             |   |   |   |   |   |   |   |
| Stock option expense (income)             |   | $                  | 113    |   |             | $      | (295 | ) |   | $ | 274 |   |   | $ | (258 | ) |
| Stock appreciation right expense (income) |   |               | 146    |   |             |   | 212 |   |   |   | (8 | ) |   |   | 48 |   |
|                                      |   | $                  | 259    |   |             | $      | (83 | ) |   | $ | 266 |   |   | $ | (210 | ) |
|                                      |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |

|                    | July 3,               |   | June 30,      |
|-------------------------|-----------------------|--------|---------------|
|                    | 2009                  |   | 2008          |
|                    |                  |   |          |
| Expected term (years)   | 5.5 - 6.5             |   | 5.6 - 6.6     |
| Volatility              |  109.9% - 117.4% |   | 82.2% - 85.9% |
| Risk-free interest rate | 2.0% - 2.3%           |   | 3.1% - 3.3%   |

|                    | July 3,         |   | June 30,       |
|-------------------------|-----------------|--------|----------------|
|                    | 2009            |   | 2008           |
|                    |            |   |           |
| Expected term (years)   | 0.1 - 5.0       |   | 2.9 - 4.5      |
| Volatility              | 126.4% - 183.7% |   | 93.4% - 112.1% |
| Risk-free interest rate | 0.2% - 2.4%     |   | 2.9% - 3.3%    |

----

index

|                                        |   | Three Months Ended |   |   | Six Months Ended |   |
|---------------------------------------------|--------|--------------------|--------|--------|------------------|--------|
|                                        |   | July 3,            |   |   | June 30,         |   |   | July 3, |   |   | June 30, |   |
|                                        |   | 2009               |   |   | 2008             |   |   | 2009 |   |   | 2008 |   |
|                                        |   |               |   |   |             |   |   |   |   |   |   |   |
| Net loss                                    |   | $                  | (547   | )      |             | $      | (4,215 | ) |   | $ | (2,962 | ) |   | $ | (7,649 | ) |
| Foreign currency translation gains (losses) |   |               | 82     |   |             |   | 33 |   |   |   | 48 |   |   |   | (132 | ) |
| Comprehensive loss                          |   | $                  | (465   | )      |             | $      | (4,182 | ) |   | $ | (2,914 | ) |   | $ | (7,781 | ) |
|                                        |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |

----

index

|                 |   | July 3, |   |   | December 31, |   |
|----------------------|--------|---------|--------|--------|--------------|--------|
|                 |   | 2009    |   |   | 2008         |   |
|                 |   | Gross   |   |   | Accumulated  |   |   | Net Carrying |   |   | Gross |   |   | Accumulated |   |   | Net Carrying |   |
|                 |   | Amount  |   |   | Amortization |   |   | Amount |   |   | Amount |   |   | Amortization |   |   | Amount |   |
|  Patents        |   | $       | 1,136  |   |         | $      | (874 | ) |   | $ | 262 |   |   | $ | 1,118 |   |   | $ | (832 | ) |   | $ | 286 |   |
|  Customer lists |   |    | 10,231 |   |         |   | (8,490 | ) |   |   | 1,741 |   |   |   | 10,231 |   |   |   | (8,406 | ) |   |   | 1,825 |   |
|  Tradenames     |   |    | 5,054  |   |         |   | (2,822 | ) |   |   | 2,232 |   |   |   | 5,054 |   |   |   | (2,710 | ) |   |   | 2,344 |   |
|  Total          |   | $       | 16,421 |   |         | $      | (12,186 | ) |   | $ | 4,235 |   |   | $ | 16,403 |   |   | $ | (11,948 | ) |   | $ | 4,455 |   |
|                 |   |    |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| 2009 (remainder) |   | $      | 238    |   |
|------------------|--------|--------|--------|--------|
| 2010             |   |   | 511    |   |
| 2011             |   |   | 484    |   |
| 2012             |   |   | 459    |   |
| 2013             |   |   | 438    |   |
| Thereafter       |   |   | 2,105  |   |
|             |   | $      | 4,235  |   |
|             |   |   |   |   |

----

index

|                                                                   |   | July 3, |   |   | December 31, |   |
|------------------------------------------------------------------------|--------|---------|--------|--------|--------------|--------|
|                                                                   |   | 2009    |   |   | 2008         |   |
| Term loan payable under the Bank of America Credit Agreement, interest |   |    |   |
| based on LIBOR and Prime Rates (3.13% - 4.25%), due through 2010       |   | $       | 7,678  |   |         | $      | 8,428 |   |
| Revolving loans payable under the Bank of America Credit Agreement,    |   |    |   |   |
| interest based on LIBOR and Prime Rates (2.88% - 4.75%)                |   |    | 9,225  |   |         |   | 9,118 |   |
| Total debt                                                             |   |    | 16,903 |   |         |   | 17,546 |   |
| Less revolving loans, classified as current (see below)                |   |    | (9,225 | )      |         |   | (9,118 | ) |
| Less current maturities                                                |   |    | (1,500 | )      |         |   | (1,500 | ) |
| Long-term debt                                                         |   | $       | 6,178  |   |         | $      | 6,928 |   |
|                                                                   |   |    |   |   |         |   |   |   |

| 2009 (remainder) |   | $      | 750    |   |
|------------------|--------|--------|--------|--------|
| 2010             |   |   | 6,928  |   |
|             |   | $      | 7,678  |   |
|             |   |   |   |   |

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index

|                                     |   | Pension Benefits   |   |
|------------------------------------------|--------|--------------------|--------|
|                                     |   | Three Months Ended |   |   | Six Months Ended |   |
|                                     |   | July 3,            |   |   | June 30, |   |   | July 3, |   |   | June 30, |   |
|                                     |   | 2009               |   |   | 2008 |   |   | 2009 |   |   | 2008 |   |
| Components of net periodic benefit cost: |   |               |   |   |   |   |   |   |   |   |   |   |
| Service cost                             |   | $                  | -      |   |   | $ | 4 |   |   | $ | - |   |   | $ | 7 |   |
| Interest cost                            |   |               | 19     |   |   |   | 24 |   |   |   | 38 |   |   |   | 47 |   |
| Expected return on plan assets           |   |               | (13    | ) |   |   | (26 | ) |   |   | (26 | ) |   |   | (51 | ) |
| Amortization of net loss                 |   |               | 11     |   |   |   | 11 |   |   |   | 22 |   |   |   | 22 |   |
| Net periodic benefit cost                |   | $                  | 17     |   |   | $ | 13 |   |   | $ | 34 |   |   | $ | 25 |   |
|                                     |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                                     |   | Other Benefits     |   |
|------------------------------------------|--------|--------------------|--------|
|                                     |   | Three Months Ended |   |   | Six Months Ended |   |
|                                     |   | July 3,            |   |   | June 30, |   |   | July 3, |   |   | June 30, |   |
|                                     |   | 2009               |   |   | 2008 |   |   | 2009 |   |   | 2008 |   |
| Components of net periodic benefit cost: |   |               |   |   |   |   |   |   |   |   |   |   |
| Interest cost                            |   | $                  | 35     |   |   | $ | 38 |   |   | $ | 71 |   |   | $ | 75 |   |
| Amortization of net loss                 |   |               | -      |   |   |   | 8 |   |   |   | - |   |   |   | 16 |   |
| Net periodic benefit cost                |   | $                  | 35     |   |   | $ | 46 |   |   | $ | 71 |   |   | $ | 91 |   |
|                                     |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

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index

|                                   |   |    |      |   |     |   | Weighted    |   |           |   |
|----------------------------------------|--------|---------|-----------|--------|----------|--------|-------------|--------|----------------|--------|
|                                   |   |    |      |   | Weighted |   | Average     |   | Aggregate      |   |
|                                   |   |    |      |   | Average  |   | Remaining   |   | Intrinsic      |   |
|                                   |   |    |      |   | Exercise |   | Contractual |   | Value          |   |
|                                   |   | Options |      |   | Price    |   | Life        |   | (in thousands) |   |
|                                   |   |    |      |   |     |   |        |   |           |   |
| Outstanding at December 31, 2008       |   |    | 1,624,600 |   |     | $      | 2.41        |   |           |   |   |   |
|                                   |   |    |      |   |     |   |        |   |           |   |   |   |
| Granted                                |   |    | 125,000   |   |     | $      | 1.00        |   |           |   |   |   |
| Exercised                              |   |    | -         |   |     | $      | -           |   |           |   |   |   |
| Expired                                |   |    | (20,300   | )      |     | $      | 17.09       |   |           |   |   |   |
| Cancelled                              |   |    | (181,500  | )      |     | $      | 2.55        |   |           |   |   |   |
|                                   |   |    |      |   |     |   |        |   |           |   |   |   |
| Outstanding at July 3, 2009            |   |    | 1,547,800 |   |     | $      | 2.08        |   | 7.14 years     |   | $ | 238 |   |
|                                   |   |    |      |   |     |   |        |   |           |   |   |   |   |
| Vested and Exercisable at July 3, 2009 |   |    | 672,800   |   |     | $      | 3.29        |   | 4.59 years     |   | $ | 45 |   |
|                                   |   |    |      |   |     |   |        |   |           |   |   |   |   |

|                              |   |   |    |   | Weighted   |   |
|-----------------------------------|--------|--------|---------|--------|------------|--------|
|                              |   |   |    |   | Average    |   |
|                              |   | SARs   |    |   | Fair Value |   |
|                              |   |   |    |   |       |   |
| Non-Vested at December 31, 2008   |   |   | 6,666   |   |       | $      | 0.80 |   |
|                              |   |   |    |   |       |   |   |   |
| Granted                           |   |   | 6,000   |   |       | $      | 1.21 |   |
| Vested                            |   |   | (12,666 | )      |       | $      | 0.65 |   |
| Cancelled                         |   |   | -       |   |       | $      | - |   |
|                              |   |   |    |   |       |   |   |   |
| Non-Vested at July 3, 2009        |   |   | -       |   |       | $      | - |   |
|                              |   |   |    |   |       |   |   |   |
| Total Outstanding at July 3, 2009 |   |   | 516,717 |   |       | $      | 0.84 |   |
|                              |   |   |    |   |       |   |   |   |

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index

|                                                        |   |   |    |   |                                         | Three months ended |       |   | Six months ended |         |
|-------------------------------------------------------------|--------|--------|---------|--------|----------------------------------------------|--------------------|------------|--------|------------------|--------------|
|                                                        |   |   |    |   |                                         | July 3,            |       |   | June 30,         |         |   | July 3, |   |   | June 30, |   |
|                                                        |   |   |    |   |                                         | 2009               |       |   | 2008             |         |   | 2009 |   |   | 2008 |   |
| Maintenance Products Group                                  |   |   |    |   |                                         |               |       |   |             |         |   |   |   |   |   |   |
|      Net external sales            |   |   |    |   |                                         | $                  | 37,676     |   |             | $            | 45,134 |   |   | $ | 72,768 |   |   | $ | 86,825 |   |
|      Operating income (loss)       |   |   |    |   |                                         |               | 1,266      |   |             |         | (2,380 | ) |   |   | 1,555 |   |   |   | (3,255 | ) |
|      Operating margin (deficit)    |   |   |    |   |                                         |               | 3.4        | %      |             |         | (5.3 | %) |   |   | 2.1 | % |   |   | (3.7 | %) |
|      Depreciation and amortization |   |   |    |   |                                         |               | 1,725      |   |             |         | 2,243 |   |   |   | 3,363 |   |   |   | 4,041 |   |
|      Capital expenditures          |   |   |    |   |                                         |               | 234        |   |             |         | 1,897 |   |   |   | 420 |   |   |   | 2,934 |   |
|                                                        |   |   |    |   |                                         |               |       |   |             |         |   |   |   |   |   |   |   |   |   |   |
| Total                                                       |   |   |    |   |                                         |               |       |   |             |         |   |   |   |   |   |   |   |   |   |   |
| Net external sales                                          |   |   | -       |   | Segment                                      |               | $          | 37,676 |             |         | $ | 45,134 |   |   | $ | 72,768 |   |   | $ | 86,825 |   |
|                                                        |   |   |    |   | Total                                        |               | $          | 37,676 |             |         | $ | 45,134 |   |   | $ | 72,768 |   |   | $ | 86,825 |   |
|                                                        |   |   |    |   |                                         |               |       |   |             |         |   |   |   |   |   |   |   |   |   |   |   |
| Operating income (loss)                                     |   |   | -       |   | Segment                                      |               | $          | 1,266  |             |         | $ | (2,380 | ) |   | $ | 1,555 |   |   | $ | (3,255 | ) |
|                                                        |   |   | -       |   | Unallocated corporate                        |               |       | (2,037 | )                |         |   | (3,184 | ) |   |   | (4,353 | ) |   |   | (5,218 | ) |
|                                                        |   |   |  - |   | Severance, restructuring and related charges |               |       | -      |             |         |   | 548 |   |   |   | - |   |   |   | 410 |   |
|                                                        |   |   |  - |   | Loss on sale or disposal of assets           |               |       | (12    | )                |         |   | (201 | ) |   |   | (12 | ) |   |   | (734 | ) |
|                                                        |   |   |    |   | Total                                        |               | $          | (783   | )                |         | $ | (5,217 | ) |   | $ | (2,810 | ) |   | $ | (8,797 | ) |
|                                                        |   |   |    |   |                                         |               |       |   |             |         |   |   |   |   |   |   |   |   |   |   |   |
|                                                        |   |   |    |   |                                         |               |       |   |             |         |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization                               |   |   | -       |   | Segment                                      |               | $          | 1,725  |             |         | $ | 2,243 |   |   | $ | 3,363 |   |   | $ | 4,041 |   |
|                                                        |   |   | -       |   | Unallocated corporate                        |               |       | 18     |             |         |   | 28 |   |   |   | 36 |   |   |   | 53 |   |
|                                                        |   |   |    |   | Total                                        |               | $          | 1,743  |             |         | $ | 2,271 |   |   | $ | 3,399 |   |   | $ | 4,094 |   |
|                                                        |   |   |    |   |                                         |               |       |   |             |         |   |   |   |   |   |   |   |   |   |   |   |
| Capital expenditures                                        |   |   | -       |   | Segment                                      |               | $          | 234    |             |         | $ | 1,897 |   |   | $ | 420 |   |   | $ | 2,934 |   |
|                                                        |   |   |    |   | Total                                        |               | $          | 234    |             |         | $ | 1,897 |   |   | $ | 420 |   |   | $ | 2,934 |   |
|                                                        |   |   |    |   |                                         |               |       |   |             |         |   |   |   |   |   |   |   |   |   |   |   |
|                                                        |   |   |    |   |                                         |               | July 3,    |   |             | December 31, |   |   |   |   |   |   |   |   |   |
|                                                        |   |   |    |   |                                         |               |  2009 |   |             |  2008   |   |   |   |   |   |   |   |   |   |
| Total assets                                                |   |   | -       |   | Segment                                      |               | $          | 69,515 |             |         | $ | 73,304 |   |   |   |   |   |   |   |   |   |
|                                                        |   |   | -       |   | Other [a]                                    |               |       | 1,200  |             |         |   | 1,200 |   |   |   |   |   |   |   |   |   |
|                                                        |   |   | -       |   | Unallocated corporate                        |               |       | 2,216  |             |         |   | 2,791 |   |   |   |   |   |   |   |   |   |
|                                                        |   |   |    |   | Total                                        |               | $          | 72,931 |             |         | $ | 77,295 |   |   |   |   |   |   |   |   |   |
|                                                        |   |   |    |   |                                         |               |       |   |             |         |   |   |   |   |   |   |   |   |   |   |   |

----

index

|                                           |   | Contract    |   |
|------------------------------------------------|--------|-------------|--------|
|                                           |   | Termination |   |
|                                           |   | Costs       |   |
| Restructuring liabilities at December 31, 2008 |   | $           | 569    |   |
| Additions                                      |   |        | -      |   |
| Payments                                       |   |        | (48    | ) |
| Restructuring liabilities at July 3, 2009      |   | $           | 521    |   |
|                                           |   |        |   |   |

|             |   | Maintenance |   |
|------------------|--------|-------------|--------|
|             |   | Products    |   |
|             |   | Group       |   |
| 2009 (remainder) |   |        | 140    |   |
| 2010             |   |        | 186    |   |
| 2011             |   |        | 195    |   |
|             |   | $           | 521    |   |
|             |   |        |   |   |

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index

|                                            |   | Three Months        |   |   | Six Months |   |
|-------------------------------------------------|--------|---------------------|--------|--------|------------|--------|
|                                            |   | Ended June 30, 2008 |   |
|                                            |   |                |   |   |       |   |
| Net sales                                       |   | $                   | -      |   |       | $      | - |   |
| Pre-tax operating loss                          |   | $                   | (99    | )      |       | $      | (229 | ) |
| Pre-tax gain on sale of discontinued operations |   | $                   | 1,002  |   |       | $      | 1,545 |   |
|                                            |   |                |   |   |       |   |   |   |

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, and other raw materials. |
|---------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| -   | Our inability to reduce administrative costs through consolidation of functions and systems improvements. |
|---------------|-----------------------------------------------------------------------------------------------------------|

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

| -   | Our inability to reduce our raw materials costs. |
|---------------|--------------------------------------------------|

| -   | 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. |
|---------------|-----------------------------------------------------------------------------------------------------------------------|

| -   | Competition from foreign competitors. |
|---------------|---------------------------------------|

| -   | The potential impact of higher interest rates on our debt outstanding under the Bank of America Credit Agreement. |
|---------------|-------------------------------------------------------------------------------------------------------------------|

| -   | Our inability to meet covenants associated with the Bank of America Credit Agreement. |
|---------------|---------------------------------------------------------------------------------------|

| -   | Our inability to access funds under our current 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 controls over financial reporting. |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

----

index

| -   | 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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index

----

index

----

index

Item 4T.  CONTROLS AND PROCEDURES

----

index

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.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

| CLASS I DIRECTORS:      |      |           |
|-------------------------|-----------|----------------|
| Name                    | Votes For | Votes Withheld |
| Christopher W. Anderson | 6,297,429 | 1,458,120      |
| William F. Andrews      | 6,283,040 | 1,472,509      |
| Samuel P. Frieder       | 6,293,961 | 1,461,588      |
| Christopher Lacovara    | 6,295,861 | 1,459,688      |
| Shant Mardirossian      | 6,309,111 | 1,446,438      |

| Votes For | Votes Against | Votes Abstained |
|-----------|---------------|-----------------|
| 7,644,744 | 109,702       | 1,103           |

Item 5.  OTHER INFORMATION

----

index

Item 6.  EXHIBITS

| ExhibitNumber |  Exhibit Title                                                                                                                      |                  |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------|----------------------------|
|          |                                                                                                                                     |                       |
| 10.1          | Vice President, Operations Employment Offer Letter dated as of March 31, 2009 between Robert D. Redmond and the Company.                 |      * |
| 10.2          | Katy Industries, Inc. 2009 Vice President, Operations’ Plan.                                                                       |      * |
| 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.              | *#                         |

----

index

Signatures

----