Global and financial markets have recently been experiencing substantial disruption. Economic conditions in the United States have been challenging, including in the industries in which the Company and Congoleum conduct business. The downturn in the housing industry has resulted in reduced demand for the Company's and Congoleum's products. The slowdown in manufacturing, including in the automotive and industrial sectors, has resulted in reduced demand for the Tape division's products. In addition, the decline in consumer and retailer, especially mid-tier retailer, spending has resulted in reduced demand for K&M's products. Forecasts generally call for a slowing economy or an economic recession in the United States, including in the industries in which the Company and Congoleum conduct business. The Company expects the current and forecasted economic conditions to continue to negatively impact the Company's and Congoleum's businesses and operations and that the extent of that impact will depend on the duration and depth of the economic slowdown or recession.

In addition, raw material and energy costs have increased sharply over the past year, which has negatively impacted the Company's and Congoleum's businesses and operating results. Although raw material and energy costs have recently declined, it is not known whether raw material and energy prices will remain lower or will revert to increasing price levels. In light of the current and forecasted economic conditions in the United States and the industries in which the Company and Congoleum conduct business, the Company and Congoleum may be unable to pass increased raw material and energy costs on to their respective customers.

Although the Company and Congoleum intend to implement reductions in their expenses, there can be no assurance that they will be able to reduce their respective expenses, that any reductions they may implement will have any meaningful positive impact on their businesses, results of operations or financial condition, or that they will be able to sustain any expense reductions that they may implement.

American Biltrite's consolidated financial statements include its majority-owned subsidiary, Congoleum. However, under the terms of the Joint Plan, ABI's ownership interest in Congoleum would have been eliminated and would be eliminated under the terms of the New Plan. ABI expects its ownership interest in Congoleum to be eliminated under any alternate plan or outcome in Congoleum's Chapter 11 case. On December 31, 2003, Congoleum filed a voluntary petition with the Bankruptcy Court seeking relief under Chapter 11 of the Bankruptcy Code as a means to resolve claims asserted against it related to the use of asbestos in its products decades ago. During 2003, Congoleum had obtained the requisite votes of asbestos personal injury claimants necessary to seek approval of a proposed, pre-packaged Chapter 11 plan of reorganization. In January 2004, Congoleum filed its proposed joint plan of reorganization and disclosure statement with the Bankruptcy Court. From that filing through 2007, several subsequent plans were negotiated with representatives of the ACC, the FCR and other asbestos claimant representatives. In addition, an insurance company, CNA, filed a plan of reorganization and the Bondholders' Committee also filed a plan of reorganization. In May 2006, the Bankruptcy Court ordered the principal parties in interest in Congoleum's reorganization proceedings to participate in global mediation discussions. Numerous mediation

sessions took place during 2006, culminating in two competing plans, one which Congoleum filed jointly with the ACC in September 2006 and the other filed by CNA, both of which the Bankruptcy Court subsequently ruled were not confirmable as a matter of law. In March 2007, Congoleum resumed global plan mediation discussions with the various parties seeking to resolve the issues raised in the Bankruptcy Court's ruling with respect to the Tenth Plan. In July 2007, the FCR filed a plan of reorganization and proposed disclosure statement. After extensive further mediation sessions, on February 5, 2008, the FCR, the ACC, the Bondholders' Committee and Congoleum jointly filed the Joint Plan. The Bankruptcy Court approved the disclosure statement for the Joint Plan in February 2008, and the Joint Plan was solicited in accordance with court-approved voting procedures. Various objections to the Joint Plan were filed, and on May 12, 2008 the Bankruptcy Court heard oral argument on summary judgment motions relating to certain of those objections. On June 6, 2008, the Bankruptcy Court issued a ruling that the Joint Plan was not legally confirmable, and issued an Order to Show Cause why the case should not be converted or dismissed pursuant to 11 U.S.C. § 1112. Following a further hearing on June 26, 2008, the Bankruptcy Court issued an opinion that vacated the Order to Show Cause and instructed the parties to submit a confirmable plan by the end of calendar year 2008. Following further negotiations, the Bondholders' Committee, the ACC, the FCR, representatives of holders of pre-petition settlements and Congoleum reached an agreement in principle which the Company understands that Congoleum believes addresses the issues raised by the Bankruptcy Court in the ruling on the Joint Plan and in the court's prior decisions. A term sheet describing the proposed material terms of a contemplated new plan of reorganization (the "New Plan") and a settlement of avoidance litigation with respect to pre-petition claim settlements (the "Litigation Settlement") was entered into by those parties and was filed with the Bankruptcy Court on August 14, 2008. Certain insurers and a large bondholder have filed objections to the Litigation Settlement and/or reserved their rights to object to confirmation of the New Plan. The Bankruptcy Court approved the Litigation Settlement following a hearing on October 20, 2008, but the court reserved certain issues, including whether any plan of reorganization embodying the settlement meets the standards required for confirmation of a plan of reorganization.

There can be no assurance that the New Plan or any subsequent plan of reorganization, if proposed, will receive the acceptances necessary for confirmation, that any plan will not be modified further, that any other plan will receive necessary court approvals from the Bankruptcy Court and the District Court, or that such approvals will be received in a timely fashion, that any plan will be confirmed, that any plan, if confirmed, will become effective, or that Congoleum will continue to have sufficient funds to pay for continued proceedings with respect to any plan of reorganization and the state court insurance coverage litigation. It also is unclear whether any other person might successfully propose a plan that gets confirmed or what any such plan, if confirmed, would ultimately provide, and whether the Bankruptcy Court would approve such a plan. Any plan of reorganization pursued by Congoleum will be subject to numerous conditions, approvals and other requirements, including Bankruptcy Court and District Court approvals, and there can be no assurance that such conditions, approvals and other requirements will be satisfied or obtained.

ABI estimates that it will spend $325 thousand for legal fees in 2008, which it has accrued, in connection with Congoleum's reorganization plan. Actual costs for pursuing and implementing any plan of reorganization could be materially higher, and Congoleum and the Company may record significant additional charges should the applicable minimum estimated cost increase.

Due to Congoleum's reorganization and separate capital structure, as well as the anticipated elimination of ABI's ownership interest in Congoleum, the Company believes that presenting the results of operations of ABI and its non-debtor subsidiaries separately from those of Congoleum is the most meaningful way to discuss and analyze its financial condition and results of operations.

Please refer to "Risk Factors - The Company and its majority-owned subsidiary Congoleum have significant asbestos liability and funding exposure, and the Company's and Congoleum's strategies for resolving this exposure may not be successful. Any plan of reorganization for Congoleum is expected to result in elimination of the interests of Congoleum's equity holders, including the Company" and "Elimination of the Company's equity interests in Congoleum could have a material adverse impact on the business relationships between ABI and Congoleum, and ABI's business, operations and financial condition" included in Part II, Item 1A of this Quarterly Report on Form 10-Q for a discussion of certain factors that could cause actual results to differ from the Company's and Congoleum's goals for resolving their asbestos liabilities.

Application of Critical Accounting Policies and Estimates

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

Critical accounting policies are defined as those that reflect significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. The Company believes that its most critical accounting policies, upon which its financial condition depends and which involve the most complex or subjective decisions or assessments, are those described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2007, filed with the Securities and Exchange Commission.

There have been no material changes in what the Company considers to be its critical accounting policies or the applicability of the disclosure the Company provided regarding those policies in that Form 10-K.

Results of Operations

ABI and Non-Debtor Subsidiaries

                        Three Months Ended September 30                Nine Months Ended September 30
                           2008                   2007                   2008                   2007
                                                        (In thousands)

Net sales          $   51,266               $ 53,815              $ 153,399              $ 162,548
Cost of sales          37,942                 40,000                114,811                119,694
Gross profit           13,324      26.0 %     13,815     25.7 %      38,588     25.2 %      42,854     26.4 %
Selling, general
& administrative
expenses               13,501      26.3 %     13,796     25.6 %      41,096     26.8 %      42,611     26.2 %
Operating
(loss) income            (177 )                   19                 (2,508 )                  243

Interest
expense, net             (302 )                 (502 )               (1,253 )               (1,597 )
Other (expense)
income, net              (208 )                  250                    992                    981
Loss before
taxes and other
items                    (687 )                 (233 )               (2,769 )                 (373 )
Benefit from
income taxes             (446 )                  192                   (446 )                  126
Noncontrolling
interests                 (17 )                  (79 )                   50                   (104 )
Loss from
continuing
operations               (258 )                 (504 )               (2,273 )                 (603 )
Discontinued
operation                   -                      -                  1,025                      -

Net (loss)
income             $     (258 )             $   (504 )            $  (1,248 )            $    (603 )

Net sales in the third quarter of 2008 were $51.3 million compared to $53.8 million in the third quarter of 2007, a decrease of $2.5 million or 4.7%. This sales decrease was due to lower sales at the Tape division and K&M, partly offset by higher sales at the Canadian division. Tape division sales decreased $2.1 million or 8.6% from the third quarter of 2007 primarily due to lower sales of pre-mask and application tapes and HVAC tapes used in construction applications. K&M's sales declined $1.4 million or 9% due to weak demand for costume jewelry, particularly at mid-tier retailers. Canadian division sales improved from the third quarter of 2007 on improved sales of industrial products.

Net sales for the first nine months of 2008 decreased $9.1 million (5.6%) to $153.4 million from $162.5 million for the first nine months of 2007. This decrease was primarily due to lower jewelry sales as a result of weak retail conditions and lower sales of paper, HVAC and film products at the Tape division.

Gross profit increased from 25.7% of net sales for the third quarter of 2007 to 26.0% for the third quarter of 2008. The increase in gross profit as a percent of sales was primarily due to significant margin improvements at the Canadian division as a result of pricing increases, cost reductions, and sales mix improvements, which more than offset gross margin percentage decreases at the Tape Division resulting from raw material cost increases and at K&M due to higher allowances.

Gross profit for the nine months ended September 30, 2008 was 25.2% compared to 26.4% for the first nine months of 2007. For the 2008 nine month period, the Canadian division realized margin improvements, for the reasons cited above. These improvements were exceeded by the decline in margins at Tape and K&M, which declines occurred for the same reasons Tape and K&M realized margin declines in the third quarter.

The Company includes the cost of purchasing and finished goods inspection in selling, general and administrative ("SG&A") expenses. Some companies also record such costs in operating expenses while others record them in cost of goods sold. Consequently, the Company's gross profit margins may not be comparable to other companies. Had the Company recorded these expenses in cost of sales, the gross profit margins for the quarter ended September 30, 2008 and 2007 would have been 25.3% and 25.2%, respectively. The gross profit margins for the nine months ended September 30, 2008 and 2007 would have been 24.5% and 26.0%, respectively.

SG&A expenses in the third quarter of 2008 decreased by $293 thousand or 2.1% compared to the third quarter of 2007. This decrease was due to lower costs at K&M as a result of expense reduction initiatives, partly offset by higher expenses at the Canadian and Tape division due to inflation and the effect of translation. As a percentage of net sales, SG&A increased from 25.6% for the third quarter of 2007 to 26.3% for the third quarter of 2008. SG&A expenses for the nine months ended September 30, 2008 were $41.1 million (26.8% of net sales) versus $42.6 million (26.2% of net sales) for the first nine months of 2007, a decrease of $1.5 million, due to expense reductions at K&M and the Tape division, partly offset by the effect of currency translation on Canadian division expenses.

Net interest expense for the third quarter and first nine months of 2008 was lower compared to the same periods in 2007 due to lower average borrowings.

For the nine months ended September 30, 2008, the Company recorded a tax benefit it expects to recover from carrying back current year losses against a prior year's taxable income. The Company also recorded a benefit of approximately $200 thousand for a change in valuation allowance against foreign tax credits.

The loss from continuing operations in the third quarter of 2008 was $258 thousand compared to a loss of $504 thousand in the corresponding prior year period. For the nine months ended September 30, 2008, the loss from continuing operations was $2.3 million compared to a loss of $603 thousand for the same period last year.

In April 2006, the Company entered into an agreement to sell a building and land owned by Janus, a discontinued operation. The gain on the sale was deferred and then recognized in May 2008 subsequent to the receipt of an environmental certification on the land sold and receipt of payment of the $4 million principal amount of the note previously issued by the buyer as part of the consideration for that sale. The gain of approximately $1 million was recorded as a gain from a discontinued operation during the second quarter of 2008.

Congoleum

                        Three Months Ended September 30                Nine Months Ended September 30
                           2008                   2007                   2008                   2007
                                                        (In thousands)

Net sales          $    46,085              $ 53,588              $ 140,948              $ 160,444
Cost of sales           37,765                39,365                111,866                120,478
Gross profit             8,320     18.1 %     14,223     26.5 %      29,082     20.6 %      39,966     24.9 %
Selling, general
& administrative
expenses                 7,768     16.9 %      9,829     18.3 %      26,138     18.5 %      29,243     18.2 %
Asbestos-related
reorganization
charges                 11,491                     -                 11,491                      -
Operating (loss)
income                 (10,939 )               4,394                 (8,547 )               10,723
Interest income
(expense), net               6                (2,961 )                1,001                 (8,765 )
Other expense,
net                       (377 )                (213 )                 (791 )                 (247 )
(Loss) income
before taxes           (11,310 )               1,220                 (8,337 )                1,711
(Benefit from)
provision for
income taxes            (1,185 )                  20                   (103 )                   27

Net (loss)
income             $   (10,125 )            $  1,200              $  (8,234 )            $   1,684

Net sales for the three months ended September 30, 2008 were $46.1 million as compared to $53.6 million for the three months ended September 30, 2007, a decrease of $7.5 million or 14% of net sales. The major factors driving the decrease in sales were weak builder product sales reflecting ongoing weakness in the new construction housing market, lower sales in the residential remodeling product category and sharp declines in manufactured housing product volume reflecting weak recreational vehicle and manufactured housing shipments, partially offset by selling price increases instituted.

Net sales for the nine months ended September 30, 2008 total $140.9 million as compared to $160.4 million for the nine months ended September 30, 2007, a decrease of $19.5 million or 12.2%. The decrease in sales is largely attributable to the same factors impacting the third quarter comparisons.

Gross profit for the three months ended September 30, 2008 totaled $8.3 million, or 18% of net sales, compared to $14.2 million, or 26.5% of net sales, for the same period last year. The decrease in gross margin dollars primarily reflects lower sales, with the decrease in margin percent a result of sharply higher raw material costs coupled with unabsorbed overhead expense related to lower production volumes.

Gross profit for the nine months ended September 30, 2008 totaled $29.1 million, or 20.6% of net sales, compared to $40.0 million, or 24.9% of net sales, for the same period last year. Lower sales dollars accounted for most of the decline in gross margin dollars, with higher raw material costs and unabsorbed overhead expense related to lower production volumes driving the reduction in gross margin percentage.

SG&A expenses were $7.8 million for the three months ended September 30, 2008 as compared to $9.8 million for the three months ended September 30, 2007, a decrease of $2.0 million. Lower compensation and benefits expense reflecting workforce reductions accounted for most of the decline. Congoleum booked an $11.5 million charge in the quarter for projected expenses related to completing its most recent reorganization plan.

SG&A expenses were $26.1 million for the nine months ended September 30, 2008 compared to $29.2 million for the nine months ended September 30, 2007, a decrease of $3.1 million. Lower compensation and benefits expense related to workforce reductions coupled with other cost reduction programs accounted for most of the decrease.

Loss from operations totaled $10.9 million for the three months ended September 30, 2008 compared to income of $4.4 million for three months ended September 30, 2007, reflecting lower gross margin dollars coupled with the asbestos-related reorganization charge. Loss from operations was $8.5 million for the nine months ended September 30, 2008 compared to income of $10.7 million for the nine months ended September 30, 2007, reflecting lower gross margin dollars as a result of lower sales and the asbestos-related reorganization charges.

Congoleum reported a tax benefit from income taxes of $103 thousand for the nine months ending September 30, 2008. The full year effective tax rate is expected to approximate 1.24%. Congoleum recorded a minimal provision for the nine months ended September 30, 2007.

Liquidity and Capital Resources

ABI & Non-Debtor Subsidiaries

Cash and cash equivalents decreased $983 thousand in the nine months ended September 30, 2008 to $2.9 million. Working capital at September 30, 2008 was $32.8 million compared to $31.9 million at December 31, 2007. The ratio of current assets to current liabilities at September 30, 2008 was 1.72 compared to 1.63 at December 31, 2007. Cash from operating activities for the nine months ended September 30, 2008 exceeded requirements for working capital and capital expenditures, and the excess, together with the $4.0 million in proceeds from the Janus note receivable, were used to reduce short term borrowings. Net cash provided by operating activities was $754 thousand for the nine months ended September 30, 2008, compared to cash provided by operating activities of $50 thousand for the nine months ended September 30, 2007, which increase was primarily due to lower investment in accounts receivable.

Capital expenditures in the first nine months of 2008 were $1.0 million compared to $1.3 million for the first nine months of 2007. It is anticipated that capital spending for the full year 2008 will be approximately $2.5 million.

The Company has recorded provisions which it believes are adequate for environmental remediation, including provisions for testing and potential remediation of conditions at its own facilities, and non-asbestos product-related liabilities. While the Company believes its estimate of the future amount of these environmental liabilities is reasonable, that most of such amounts will be paid over a period of five to ten years and that the Company expects to have sufficient resources to fund such amounts, the actual timing and amount of such payments may differ significantly from the Company's assumptions. Although the effect of future government regulation could have a significant effect on the Company's costs, the Company is not aware of any pending legislation or regulation relating to these matters that would have a material adverse effect on its consolidated results of operations or financial position. There can be no assurances that any such costs could be passed along to its customers.

American Biltrite Inc.'s primary source of borrowings are the revolving credit facility (the "Revolver") and the term loan ("Term Loan") it has with Bank of America, National Association ("BofA"), and BofA acting through its Canada branch (the "Canadian Lender") pursuant to an amended and restated credit agreement (the "Credit Agreement"). The Credit Agreement provides American Biltrite Inc. and its subsidiary K&M with (i) a $30.0 million commitment under the Revolver with a $12.0 million borrowing sublimit (the "Canadian Revolver") for American Biltrite Inc.'s subsidiary AB Canada and (ii) the $10.0 million Term Loan. The Credit Agreement also provides for domestic and Canadian letter of credit facilities with availability of up to $5.0 million and $1.5 million, respectively, subject to availability under the Revolver and the Canadian Revolver, respectively.

On September 25, 2006, American Biltrite Inc., K&M and AB Canada entered into an amendment and restatement to the Credit Agreement with BofA and the Canadian Lender. Pursuant to the amendment and restatement, the Term Loan was added to the Credit Agreement and the amount of the Revolver was increased by $10.0 million to its current $30.0 million amount. In addition, the availability for domestic letters of credit issued under the Credit Agreement was increased from $4.0 million to $5.0 million. In connection with that amendment and restatement, American Biltrite Inc. used approximately $17.0 million of new borrowings from the proceeds of the Term Loan, which was fully drawn, and under the Revolver to fully prepay $16.0 million of aggregate outstanding principal amount of the Company's senior notes, all of which were held by The Prudential Insurance Company of America, together with approximately $1.0 million in interest and yield maintenance fees in connection with those notes and prepayment. A charge of approximately $860 thousand for early extinguishment of debt was recorded in connection with this prepayment, which was included in other expense.

The amount of borrowings available from time to time for American Biltrite Inc. and K&M under the Revolver may not exceed the lesser of (a) $30.0 million less the then outstanding amount of borrowings by AB Canada under the Canadian Revolver less any outstanding borrowings under the domestic letter of credit facility and (b) the applicable borrowing base. The formula used for determining the domestic borrowing base is based upon inventory, receivables and fixed assets of the Company and certain of its subsidiaries (not including, among others, AB Canada and Congoleum), reduced by amounts outstanding under the Term Loan.

The amount of borrowings available from time to time for AB Canada under the Canadian Revolver is limited to the lesser of (a) $12 million less any outstanding borrowings under the Canadian letter of credit facility, (b) AB Canada's borrowing base amount, which is based upon AB Canada's accounts receivable, inventory and fixed assets, and (c) $30.0 million less the amount of domestic borrowings outstanding under the Revolver on behalf of the Company and K&M. AB Canada may borrow amounts under the Canadian Revolver in United States or Canadian dollar denominations; however, solely for purposes of determining amounts outstanding and borrowing availability under the Revolver, all Canadian dollar denominated amounts will be converted into United States dollars in the manner provided in the Credit Agreement.

Interest is payable quarterly on the Term Loan and Revolver borrowings by . . .