WAXMAN INDUSTRIES INC, 10-K405, 1999-09-24

WAXMAN INDUSTRIES INC
10-K405, 1999-09-24
HARDWARE & PLUMBING & HEATING EQUIPMENT & SUPPLIES

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

FOR THE FISCAL YEAR ENDED JUNE 30, 1999

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-5888

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WAXMAN INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
DELAWARE 34-0899894
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)

24460 AURORA ROAD, 44146
BEDFORD HEIGHTS, OHIO (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
(440) 439-1830
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)

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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE

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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety (90) days.
Yes X No
--- ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---

Aggregate market value of voting stock held by non-affiliates of the
registrant based on the closing price at which such stock was sold on the
Over-The-Counter Bulletin Board on September 20, 1999: $5,093,083

NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF SEPTEMBER 20, 1999:
COMMON STOCK 9,914,939
CLASS B COMMON STOCK 2,142,358
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DOCUMENTS INCORPORATED BY REFERENCE

Registrant intends to file with the Securities and Exchange Commission a
definitive Proxy Statement pursuant to Regulation 14A of the Securities Exchange
Act of 1934 within 120 days of the close of its fiscal year ended June 30, 1999,
portions of which document shall be deemed to be incorporated by reference in
Part I and Part III of this Annual Report on Form 10-K from the date such
document is filed.

The Company consists of Waxman Industries, Inc. and subsidiaries in which
Waxman Industries, Inc. directly or indirectly has a majority voting interest.
In fiscal 1997, the Company began accounting for Barnett Inc. ("Barnett") under
the equity method of accounting due to the reduction of the Company's ownership
of Barnett to 44.5% in the fiscal 1997 fourth quarter. Prior to that time, the
Company consolidated Barnett's results, with a minority interest charge for the
portion of Barnett not owned by the Company. The Barnett Form 10-K for the year
ended June 30, 1999 is incorporated by reference into Item 8 of this Annual
Report on Form 10-K.

CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Annual Report on Form 10-K contains certain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 that are based on the beliefs of the Company and its management. When
used in this document, the words "anticipate," "believe," "continue,"
"estimate," "expect," "intend," "may," "should," and similar expressions are
intended to identify forward-looking statements. Such statements reflect the
current view of the Company with respect to future events and are subject to
certain risks, uncertainties and assumptions, including, but not limited to, the
risk that the Company may not be able to implement its deleveraging strategy in
the intended manner, risks associated with currently unforeseen competitive
pressures and risks affecting the Company's industry, such as decreased consumer
spending, customer concentration issues and the effects of general economic
conditions. In addition, the Company's business, operations and financial
condition are subject to the risks, uncertainties and assumptions which are
described in the Company's reports and statements filed from time to time with
the Securities and Exchange Commission, including this Report. Should one or
more of those risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described herein.

PART I
ITEM 1. BUSINESS

GENERAL

The Company believes it is one of the leading suppliers of specialty
plumbing, hardware and other products to the repair and remodeling market in the
United States. The Company distributes its products to approximately 1,400
customers, including a wide variety of large national and regional retailers,
independent retail customers and wholesalers. The Company's consolidated net
sales were $99.1 million in fiscal 1999.

The Company conducts its business primarily through its wholly-owned
subsidiaries, Waxman Consumer Products Group Inc. ("Consumer Products"), WOC
Inc. ("WOC") and TWI, International, Inc. ("TWI"). WOC is comprised of Medal
Distributing, a supplier of hardware products and, until its sale effective
January 1, 1999, U.S. Lock ("U.S. Lock"), a distributor of a full line of
security hardware products. TWI includes the Company's foreign operations,
including manufacturing, packaging and sourcing operations in China and Taiwan,
and an operation in Mexico that threads galvanized, black, brass, and chrome
pipe and imports malleable fittings. Consumer Products, WOC and Barnett utilize
the Company's and non-affiliated foreign sourcing suppliers.

At June 30, 1999, the Company owned 44.3% of Barnett, a direct marketer and
distributor of an extensive line of plumbing, electrical, hardware, and security
hardware products to approximately 73,400 active customers throughout the United
States. Barnett offers approximately 20,300 name brand and private label
products through its industry-recognized Barnett(R) and U.S. Lock(R) catalogs
and telesales operations. Barnett markets its products through six distinct,
comprehensive catalogs that target professional contractors,

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independent hardware stores, maintenance managers, security hardware installers,
liquid propane gas dealers, and locksmiths. In January 1999, the Company
completed the sale of U.S. Lock to Barnett. Barnett's net sales for fiscal 1999
were $241.4 million. In fiscal 1999, the Company recognized $6.7 million in
equity income from this investment.

In April 1996, the Company completed an initial public offering of the
common stock of Barnett (the "Barnett Common Stock"), reducing its interest in
the former wholly-owned subsidiary to 49.9% of the outstanding Barnett Common
Stock and, together with certain convertible non-voting preferred stock owned by
the Company, approximately a 54% economic interest. In April 1997, the Company
completed a secondary offering of 1.3 million shares of Barnett Common Stock,
reducing its voting and economic interests to 44.5% and, accordingly, began to
account for its interest in Barnett under the equity method of accounting. In
July 1997, as a result of the sale of a substantial portion of the business of
LeRan Gas Products, one of WOC's operations, to Barnett, the Company received
cash and an additional 24,730 shares of Barnett Common Stock, which increased
the Company's ownership to the current level of 7,186,530 shares. The Barnett
Common Stock trades on the Nasdaq National Market under the symbol "BNTT".

CONSUMER PRODUCTS

Consumer Products markets and distributes approximately 6,300 products to a
wide variety of retailers, primarily do-it-yourself ("D-I-Y") warehouse home
centers, home improvement centers, mass merchandisers and hardware stores.
Consumer Products' customers include large national retailers such as Kmart,
Wal-Mart and Sears, as well as several large regional D-I-Y retailers. According
to rankings of the largest D-I-Y retailers published in National Home Center
News, an industry trade publication, Consumer Products' customers include 12 of
the 25 largest D-I-Y retailers and three of the top five mass merchandisers in
the United States. Consumer Products works closely with its customers to develop
comprehensive marketing and merchandising programs designed to improve their
profitability, efficiently manage shelf space, reduce inventory levels and
maximize floor stock turnover. Consumer Products also offers certain of its
customers the option of private label programs and direct import programs.
Consumer Products' net sales for fiscal 1999 were $47.7 million, excluding
direct import sales.

In recent years, the rapid growth of large mass merchandisers and D-I-Y
retailers has contributed to a significant consolidation of the United States
retail industry and the formation of large, dominant, product specific and
multi-category retailers. These retailers demand suppliers who can offer a broad
range of quality products and can provide strong marketing and merchandising
support. Due to the consolidation in the D-I-Y retail industry, a substantial
portion of Consumer Products' net sales are generated by a small number of
customers. In January 1999, Consumer Products entered into a three year supply
agreement with Kmart, which expanded the sales program to include additional
product categories. In July 1997, Kmart agreed to sell its Builders Square chain
to Leonard Green & Partners, a merchant-banking firm. Leonard Green also
acquired another home improvement retailer, Hechinger Co., and combined the two
companies to form the nation's third largest home improvement chain. In August
1998, Consumer Products was informed that the Hechinger/Builders Square
operations were consolidating their supplier relationships and Consumer Products
would retain only the bulk plumbing business, beginning in January 1999. In
fiscal 1998, Builders Square accounted for $11.7 million, or 21.1% and 11.0% of
Consumer Products' and the Company's net sales, respectively. Due to the loss of
this revenue base, Consumer Products implemented plans to reduce its cost
structure to be more in line with its revenue base. The combined operations of
Hechinger/Builders Square, accounted for approximately $3.7 million, or 7.8% and
3.8% of Consumer Products and the Company's net sales in fiscal 1999,
respectively. Hechinger/Builders Square filed for Chapter 11 bankruptcy
protection in June 1999, and for Chapter 7 liquidation in September 1999.
Consumer Products' accounts receivable from Hechinger/Builders Square was $0.3
million at the time of the bankruptcy filing. In the event Consumer Products
were to lose any additional large retail accounts as a customer or one of its
largest accounts were to significantly curtail its purchases from Consumer
Products, there would be material short-term adverse effects until the Company
could further modify Consumer Products' cost structure to be more in line with
its anticipated revenue base. Consumer Products would likely incur significant
charges if a materially adverse change in its customer relationships were to
occur.

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In furtherance of its continuing efforts to improve Consumer Products'
prospects, during fiscal 1997, the Company began to augment certain existing
product lines, streamline its packaged plumbing product lines, enhance the
appearance and appeal of its existing plumbing product packaging and undertook
certain customer retention and development programs. The Company believes the
redesign effort has helped and should continue to help in its effort to retain
existing business and to diversify its customer base by attracting new business.
In order to minimize the financial impact on Consumer Products, the rollout of
the package redesign program will continue into fiscal 2000.

In the past several years, certain retailers have begun to develop direct
import programs to improve their profitability. Those retailers generally select
certain product categories and import full containers of such products to their
domestic distribution centers. Consumer Products has responded to this trend by
working with the Company's foreign sourcing operations to provide the products,
while Consumer Products provides certain of the value added services discussed
below, such as account management, selling and marketing support and customer
service. Due to the sharing of responsibilities in servicing the domestic retail
account, profits are shared by Consumer Products and the foreign operation. The
direct shipment arrangement generally results in lower gross profit margins for
the Company, but also lower selling, general and administrative costs.

Consumer Products' marketing strategy includes offering mass merchandisers
and D-I-Y retailers a comprehensive merchandising program, which includes
design, layout and setup of selling areas. Sales and service personnel assist
the retailer in determining the proper product mix in addition to designing
category layouts to effectively display products and optimally utilize available
floor and shelf space. Consumer Products supplies point-of-purchase displays for
both bulk and packaged products, including color-coded product category signs
and color-coordinated bin labels to help identify products and backup tags to
identify products that require reordering. Consumer Products also offers certain
of its customers the option of private label programs for their plumbing and
floor care products. In-house design, assembly and packaging capabilities enable
Consumer Products to react quickly and effectively to service its customers'
changing needs. In addition, Consumer Products' products are packaged and
designed for ease of use, with "how to" instructions to simplify installation,
even for the uninitiated D-I-Y consumer.

Consumer Products' sales and service representatives visit stores regularly
to take reorders and recommend program improvements. These representatives also
provide reports to Consumer Products, enabling it to stay abreast of changing
consumer demand and identify developing trends. In order to support its
customers' "just-in-time" requirements, Consumer Products has sophisticated EDI
capabilities, enabling customers to reduce inventory levels and increase return
on investment. During fiscal 1998, Consumer Products completed the modifications
of all of its information systems to be Year 2000 compliant. Consumer Products
operates and distributes its products through two strategically located
distribution facilities near Columbus, Ohio and Dallas, Texas. In fiscal 1999,
Consumer Products completed the move of its distribution warehouse from Bedford
Heights, Ohio, to a more modern and efficient center in Groveport, Ohio, a
suburb of Columbus. The charges incurred by the Company in connection with this
move amounted to approximately $2.1 million, including the write-off of specific
tangible assets at its Bedford Heights warehouse. The cost savings of the new
facility are expected to offset these charges in less than two years. The
Company's non-warehouse functions continue to be performed in Bedford Heights.

PRODUCTS

The following is a discussion of Consumer Products' principal product
groups:

Plumbing Products. Consumer Products' plumbing repair products include
toilet repair, sink and faucet repair, water supply repair, drain repair, shower
and bath repair, hose and pipe repair, and connection repair. Consumer Products
also offers proprietary lines of faucets under the trade name Premier(R), as
well as a line of shower and bath accessories under the proprietary trade name
Spray Sensations(R). Consumer Products' product line also includes a full line
of valves and fittings, rubber products and tubular products such as traps and
elbows. Many of Consumer Products' plumbing products are sold under the
proprietary trade names Plumbcraft(R), PlumbKing(R) and KF(R). In addition,
Consumer Products offers certain of its customers the option

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of private label programs. In August 1999, Consumer Products introduced a new
product, the Soap 'n Spray(TM) all-in-one sink sprayer, which should be an
attractive product offering for the bed and bath industry in addition to many of
the large D-I-Y retailers and mass merchandisers served by the Company.

Floor Protective Hardware Products. Consumer Products' floor protective
hardware products include casters, doorstops and other floor, furniture and wall
protective items. Consumer Products markets a complete line of floor protective
hardware products under the proprietary trade name KF(R) and also under private
labels. In the last several years, the Floor Protective Program has been
expanded to include a new line of surface protection products, which are being
distributed under the proprietary trade name SoftTouch(TM).

WOC OPERATIONS

WOC currently has one operating division, Medal Distributing, a supplier of
hardware products to approximately 700 independent retailers. Until its January
1, 1999 sale, U.S. Lock, a full line supplier of security hardware products, was
also included in the operations of WOC. In late fiscal 1997 and early fiscal
1998, two other WOC divisions were sold, including the Madison Equipment
division ("Madison"), a supplier of electrical products, which was sold in April
1997, and substantially all of the business of the LeRan Gas Products division
("LeRan"), a supplier of copper tubing, brass fittings and other related
products, which was sold to Barnett on July 1, 1997. WOC's net sales amounted to
$18.2 million in fiscal 1999, including $13.4 million for U.S. Lock, until its
January 1, 1999 sale.

MEDAL DISTRIBUTING

Medal Distributing, which was acquired by the Company in 1980, is a
regional distributor of hardware products to independent hardware stores and
small independent retailers. Medal Distributing distributes its products
primarily through outside sales representatives and through a catalog and
monthly circulars. The operations for Medal Distributing are located in Sharon,
Pennsylvania, serving customers within a 250 mile radius. At June 30, 1999,
Medal Distributing marketed approximately 13,500 products to its 700 customers.
The continued expansion of certain national, large, multi-category retailers has
continued to impact the smaller, independent retail operations served by Medal
Distributing. Medal Distributing is working closely with its outside sales
representatives and the small independent retailers to adjust to the expansion
of the large national retailers.

FOREIGN OPERATIONS

Through TWI, the Company conducts its foreign operations in Mexico, China
and Taiwan, which support Consumer Products, WOC and Barnett. Over the past
several years, certain retailers have begun to source a portion of their product
requirements through direct import programs. TWI and Consumer Products have
responded by participating with some retailers in direct import programs, with
the added benefit of domestic account management. For the years ended June 30,
1999 and 1998, products purchased from the foreign operations accounted for
approximately 19.6% and 24.0%, respectively, of the total product purchases made
by the Company. For fiscal 1999, the operations owned by TWI had net sales of
$46.3 million, of which $19.9 million were to Barnett and $13.1 million were
intercompany transactions, which eliminate in consolidation. Although a
significant portion of the Company's non-retail sales are to Barnett, the
Company has made significant progress in recent years in its effort to develop
the non-retail customer base served by its foreign operations.

TWI, through its subsidiaries, operates the Taiwan and Mainland China
facilities, which source, manufacture, assemble and package plumbing products.
In addition, facilities in Mainland China manufacture and package floor
protective hardware products. The Company believes that these facilities give it
competitive advantages in terms of cost and flexibility in sourcing. Both labor
and physical plant costs are significantly below those in the United States.

Western American Manufacturing, Inc. ("WAMI"), a manufacturer of
galvanized, black, brass, and chrome pipe nipples in Tijuana, Mexico, provides
the Company vertical integration in the manufacture and distribution of pipe
nipples. Pipe nipples are lengths of pipe, which range from 1/2 of an inch to 10
feet long,

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threaded at each end. In order to take advantage of lower labor costs, the
Company has relocated certain of its packaging operations to WAMI. In fiscal
1998, WAMI formed a sales organization, WAMI Sales, Inc. ("WAMI Sales"), to
distribute its products to industrial supply and wholesale operations.

Substantially all of the other products purchased by the Company are
manufactured by third parties. The Company estimates that it purchases products
and materials from approximately 600 suppliers and is not dependent on any
single unaffiliated supplier for a material portion of its requirements.

The following table sets forth the approximate percentage of net sales
attributable to the Company's principal product groups.

<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Plumbing.................................................... 68% 63% 71%
Electrical.................................................. 1% 1% 1%
Hardware.................................................... 31% 36% 28%
--- --- ---
Total net sales............................................. 100% 100% 100%
=== === ===
</TABLE>

IMPORT RESTRICTIONS AND CUSTOMS ISSUES

Under current United States government regulations, some products
manufactured offshore are subject to import restrictions. The Company currently
imports goods from China and Taiwan. The Company also imports United States
goods assembled in Mexico under the preferential import regulations commonly
known as '9802', formerly item '807'. The '9802' arrangement permits an importer
who purchases raw materials in the United States and then ships the raw
materials to an offshore factory for assembly, to reimport the goods without
quota restriction and to pay a duty only on the value added in the offshore
factory.

When the Company chooses to directly import goods purchased outside of the
United States, the Company may be subject to import quota restrictions,
depending on the country of origin of assembly. These restrictions may limit the
amount of goods from a particular country that may be imported into the United
States. If the Company cannot obtain the necessary quota, the Company will not
be able to import the goods into the United States. Export visas for the goods
purchased offshore by the Company are readily available.

The above arrangements, both '9802' and quota restrictions, were superseded
by more favorable regulations with respect to Mexico under the North American
Free Trade Agreement ("NAFTA") and may be limited by revision or canceled at any
time by the United States government. As a result of the passage of NAFTA,
importation from Mexico is more competitive relative to importation from other
exporting countries. The Company does not believe that its relative competitive
position is adversely affected by NAFTA. As indicated above, many of the
Company's imported goods are of Chinese origin. Favorable tariff rates under the
tariff hearings for China are dependent upon review of most favored nations
status (MFN) which has currently been extended, but there is no guarantee this
will continue to be the case in the future.

EQUITY INVESTMENT -- BARNETT AFFILIATE

Barnett is a direct marketer and distributor of an extensive line of
plumbing, electrical, hardware and security hardware products to approximately
73,400 active customers throughout the United States. Barnett offers and
promotes approximately 20,300 name brand and private label products through its
industry-recognized Barnett(R) catalogs and telesales operations. Barnett
markets its products through six distinct, comprehensive catalogs that target
professional contractors, independent hardware stores, maintenance managers,
liquid propane gas dealers and locksmiths. Barnett's staff of over 145
knowledgeable telesales, customer service and technical support personnel work
together to serve customers by assisting in product selection and offering
technical advice. To provide rapid delivery and a strong local presence, Barnett
has established a network of 40 distribution centers strategically located in 34
major metropolitan areas throughout the United States and Puerto Rico. Through
these local distribution centers, approximately 70% of Barnett's orders are
shipped directly to the customer on the same day the order is received. The
remaining 30% of the orders are picked up by the customer at one of Barnett's
local distribution centers. Barnett's

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strategy of being a low-cost, competitively priced supplier is facilitated by
its volume of purchases and the offshore sourcing of a significant portion of
its private label products. Products are purchased from over 650 domestic and
foreign suppliers, including TWI.

Barnett was a wholly-owned subsidiary of the Company until the completion
of an initial public offering in April 1996 (the "Barnett Initial Public
Offering"). In such offering, 7,207,200 shares, representing approximately 55.1%
of the Barnett Common Stock, were sold in the aggregate by Barnett and the
Company at an initial public offering price per share of $14.00, resulting in
aggregate net proceeds of $92.6 million. In April 1997, a secondary offering of
1,300,000 shares of Barnett Common Stock (the "Barnett Secondary Offering", and
together with the Barnett Initial Public Offering, the "Barnett Public
Offerings") was completed and the Company converted its remaining convertible
non-voting preferred stock of Barnett to Barnett Common Stock. The Company
received a per share price of $17.50, before the underwriters' discount,
resulting in $21.6 million of net proceeds. In July 1997, as a result of the
sale of a substantial portion of the business of LeRan Gas Products, one of
WOC's operations, to Barnett, the Company received cash and an additional 24,730
shares of Barnett Common Stock. In January 1999, the Company sold substantially
all of the assets and certain liabilities of U.S. Lock, a division of WOC, to
Barnett. At June 30, 1999, the Company owned 44.3% of the outstanding shares of
Barnett Common Stock. Management intends to utilize its interest in Barnett in
its debt reduction efforts. The Barnett Common Stock trades on the Nasdaq
National Market under the symbol "BNTT".

COMPETITION

The Company faces significant competition within each of its product lines,
although it has no competitor offering the range of products in all of the
product lines that the Company offers. The Company believes that its buying
power, extensive inventory, emphasis on customer service and merchandising
programs have contributed to its ability to compete successfully in its various
markets. The Company faces significant competition from smaller companies which
specialize in particular types of products and larger companies which
manufacture their own products and have greater financial resources than the
Company. The Company believes that competition in sales to retailers is
primarily based on price, product quality and selection, as well as customer
service, which includes speed of responses for packaging, delivery and
merchandising for retailers.

EMPLOYEES

As of June 30, 1999, the Company employed 733 persons, 147 of whom were
clerical and administrative personnel, 57 of whom were sales service
representatives and 529 of whom were either production or warehouse personnel.
Eleven of the Company's employees are represented by collective bargaining
units. The Company considers its relations with its employees, including those
represented by collective bargaining units, to be satisfactory.

TRADEMARKS

Several of the trademarks and trade names used by the Company are
considered to have significant value in its business. See "Business -- Consumer
Products -- Products".

ENVIRONMENTAL REGULATIONS

The Company is subject to certain federal, state and local environmental
laws and regulations. The Company believes that it is in material compliance
with such laws and regulations applicable to it. To the extent any subsidiaries
of the Company are not in compliance with such laws and regulations, the
Company, as well as such subsidiaries, may be liable for such non-compliance.
However, in any event, the Company is not aware of any such liabilities that
could have a material adverse effect on it or any of its subsidiaries.

SEASONALITY

The Company's sales are generally consistent throughout its fiscal year,
although the third fiscal quarter is generally weaker in sales than the other
quarters.
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ITEM 2. DESCRIPTION OF PROPERTIES

The following table sets forth, as of June 30, 1999, certain information
with respect to the Company's principal physical properties:

<TABLE>
<CAPTION>
LEASE
APPROXIMATE EXPIRATION
LOCATION SQUARE FEET PURPOSE DATE
-------- ----------- ------- --------------
<S> <C> <C> <C>
24460 Aurora Road 21,000 Corporate Office Owned
Bedford Hts., OH
24455 Aurora Road 26,000 Consumer Products Corporate 6/30/02
Bedford Hts., OH (1) Office
902 Avenue T. 108,000 Consumer Products 5/31/00
Grand Prairie, TX (2) Office and Distribution Center
5920 Green Pointe Dr. 114,000 Consumer Products 11/1/08
Groveport, OH Office and Distribution Center
330 Vine Street 80,000 Medal Distributing 2/28/01
Sharon, PA Office and Distribution Center
No. 10, 7th Road 55,000 TWI Owned
Industrial Park Office, Packaging
Taichung, Taiwan and Distribution Center
Republic of China
TWI/CWI Owned
Dan Keng Village 45,000 Office, Packaging,
Fu Ming County Manufacturing
Shenzhen, P.R. China and Distribution Center
113, 9 Sur Y 6 Oriente St., CD 41,000 WAMI / WAMI Sales 6/15/00
Industrial Mesa De Otay Office and Manufacturing
Tijuana, Mexico Center
16002, 9 Sur St., CD 37,000 WAMI 3/31/00
Industrial Mesa De Otay Packaging Center
Tijuana, Mexico
9430 Cabot Drive 13,000 WAMI Sales 1/31/00
San Diego, California Office and Distribution Center
20052, 6 Oriente St., CD 12,000 WAMI month-to-month
Industrial Mesa De Otay Manufacturing Center lease
Tijuana, Mexico
</TABLE>

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(1) Aurora Investment Co., a partnership owned by Melvin Waxman, Chairman of the
Board and Co-Chief Executive Officer of the Company, and Armond Waxman,
President and Co-Chief Executive Officer of the Company, together with
certain other members of their families, is the owner and lessor of this
property. In November 1998, Consumer Products completed the move of its
warehouse to Groveport, Ohio, but continues to lease 9,000 square feet of
office space and 17,000 square feet of warehouse space in Bedford Hts.,
Ohio. The remaining 97,000 square feet of warehouse space in this facility
has been subleased to Handl-it, Inc. (see below for information regarding
affiliated ownership) for the duration of the lease term. Rent expense under
this lease was $326,716 in fiscal 1999, $314,150 in fiscal 1998 and $314,150
in fiscal 1997. The Company received rental income from Handl-it, Inc. of
$95,324 in fiscal 1999 for subleasing the warehouse in Bedford Hts., Ohio
for a portion of the year.

(2) The Company has the option to renew the lease for three additional five-year
terms.

Handl-it Inc., a corporation owned by John S. Peters, a consultant to the
Company, together with certain other members of his family, Melvin Waxman and
Armond Waxman provides Consumer Products with certain outside warehousing
services under month-to-month rental arrangements from time to time. Con-

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sumer Products may enter into month-to-month leases in the future, depending on
its business requirements at the time. Rent expense under these lease
arrangements was $10,000, $30,000 and $137,000 for fiscal 1999, 1998 and 1997,
respectively. Consumer Products Group also paid Handl-it Inc. approximately
$55,000 for the cost of transportation of products in fiscal 1999. Effective
July 1, 1999, WAMI Sales replaced an internally operated warehouse facility in
Cleveland, Ohio with an arrangement with Handl-it Inc. to provide all
warehousing, labor and shipping functions for a fee equal to 7.5% of monthly
sales from the location.

The Company believes that its facilities are suitable for its operations
and provide the Company with adequate productive capacity and that the related
party leases and rental arrangements are on terms comparable to those that would
be available from unaffiliated third parties.

ITEM 3. LEGAL PROCEEDINGS

The Company is subject to various legal proceedings and claims that arise
in the ordinary course of business. In the opinion of management, the amount of
any ultimate liability with respect to these actions will not materially affect
the financial position or operations of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

The following is a list of the executive officers of the Company and a
brief description of their business experience. Each executive officer will hold
office until his successor is chosen and qualified.

Mr. Melvin Waxman, age 65, was elected Co-Chairman of the Board in June
1995. Upon consummation of the Barnett Initial Public Offering in April 1996,
Mr. Waxman became Chairman of the Board of the Company. Mr. Waxman was elected
Co-Chief Executive Officer of the Company in May 1988. Mr. Waxman has been a
Chief Executive Officer of the Company for over 20 years and has been a director
of the Company since 1962. Mr. Waxman has been Chairman of the Board of the
Company since August 1976. Mr. Waxman is the Chairman of the Board of Barnett.
Melvin Waxman and Armond Waxman are brothers.

Mr. Armond Waxman, age 60, was elected Co-Chairman of the Board in June
1995. Upon consummation of the Barnett Initial Public Offering in April 1996,
Mr. Waxman became President of the Company. Mr. Waxman was elected Co-Chief
Executive Officer of the Company in May 1988. Mr. Waxman has been the President
and Treasurer of the Company since August 1976. Mr. Waxman has been a director
of the Company since 1962 and was Chief Operating Officer of the Company from
August 1976 to May 1988. Mr. Waxman is the Vice Chairman of the Board of
Barnett. Armond Waxman and Melvin Waxman are brothers.

Mr. Laurence Waxman, age 42, has been Senior Vice President of the Company
since November 1993 and is also President of Consumer Products, a position he
has held since 1988. Mr. Waxman joined the Company in 1981. Mr. Waxman has been
a director of the Company since July 1996. Mr. Laurence Waxman is the son of
Melvin Waxman.

Mr. Mark Wester, age 44, a certified public accountant, joined the Company
in October 1996 as Corporate Controller and in January 1997 became the Vice
President-Finance. Upon completion of the Barnett Secondary Offering in April
1997, Mr. Wester became the Chief Financial Officer of the Company. Mr. Wester
provided consulting services to the Company from May 1996 through September
1996. From March 1992 to April 1996, Mr. Wester was a limited partner with a
privately owned telecommunications company, Capital Communications Cooperative
and the Chief Financial Officer of Progressive Communications Technologies. From
1978 to 1992, Mr. Wester was employed by The Fairchild Corporation (formerly,
Banner Industries, Inc.), where he held several positions during his tenure,
including Vice President and Corporate Controller.

9
<PAGE> 10

PART II

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

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is quoted on the Over-The-Counter Bulletin Board
("OTCBB") under the symbol "WAXX". Prior to March 22, 1999, the Company's stock
was listed on the New York Stock Exchange ("NYSE") under the symbol "WAX". The
Company's Class B Common Stock does not trade in the public market due to
restricted transferability. However, the Class B Common Stock may be converted
into Common Stock on a share-for-share basis at any time.

The following table sets forth the high and low closing quotations as
reported by the OTCBB and NYSE for fiscal 1999 and 1998.

<TABLE>
<CAPTION>
1999 1998
-------------- --------------
HIGH LOW HIGH LOW
----- ----- ----- -----
<S> <C> <C> <C> <C>
First Quarter.................. $3.63 $1.06 $5.19 $3.63
Second Quarter................. 1.81 0.69 4.38 3.13
Third Quarter.................. 1.25 0.25 4.44 3.13
Fourth Quarter................. 0.50 0.31 4.06 2.94
</TABLE>

HOLDERS OF RECORD

As of August 27, 1999, there were 675 holders of record of the Company's
Common Stock and 118 holders of record of the Company's Class B Common Stock.

DIVIDENDS

The Company declared no dividends in fiscal 1999 or 1998. Restrictions
contained in the Company's debt instruments currently prohibit the declaration
and payment of cash dividends.

10
<PAGE> 11

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
--------------------------------------------------------
1999(7) 1998 1997 1996(8) 1995(8)
-------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales..................................... $ 99,116 $105,662 $119,006 $235,067 $232,304
Cost of sales................................. 69,264 69,429 84,574 160,556 152,368
-------- -------- -------- -------- --------
Gross profit.................................. 29,852 36,233 34,432 74,511 79,936
Selling, general and administrative
expenses.................................... 31,635 30,290 34,996 70,628 62,023
Restructuring, procurement and non-recurring
charges(1).................................. 4,515 24 1,522 19,507 3,237
-------- -------- -------- -------- --------
Operating income (loss)....................... (6,298) 5,919 (2,086) (15,624) 14,676
Gain on sale of Barnett stock, net(2)......... -- -- 16,693 65,917 --
Gain on sale of U.S. Lock, net(3)............. 10,298 -- -- -- --
Equity earnings of Barnett.................... 6,744 6,341 5,843 -- --
Interest expense, net......................... 17,192 16,031 16,477 24,264 26,411
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes, minority interest,
discontinued operation, extraordinary loss
and cumulative effect of change in
accounting.................................. (6,448) (3,771) 3,973 26,029 (11,735)
Provision for income taxes.................... 1,029 537 401 2,395 338
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before minority interest, discontinued
operation, extraordinary loss and cumulative
effect of change in accounting.............. (7,477) (4,308) 3,572 23,634 (12,073)
Minority interest in consolidated affiliate... -- -- -- 975 --
Discontinued operation(4):
Reversal of loss (and loss) on disposal..... -- -- -- 11,000 (11,000)
-------- -------- -------- -------- --------
Income (loss) before extraordinary loss and
cumulative effect of change in accounting... (7,477) (4,308) 3,572 33,659 (23,073)
Extraordinary loss(5)......................... -- 192 -- 6,251 --
Cumulative effect of change in
accounting(6)............................... -- -- -- 8,213 --
-------- -------- -------- -------- --------
Net income (loss)............................. $ (7,477) $ (4,500) $ 3,572 $ 19,195 $(23,073)
======== ======== ======== ======== ========
Average number of shares outstanding.......... 12,057 12,026 11,919 11,759 11,712
======== ======== ======== ======== ========

Basic earnings (loss) per share:
From continuing operations before minority
interest, discontinued operations,
extraordinary loss and cumulative effect
of change in accounting................... $ (.62) $ (.35) $ .30 $ 2.01 $ (1.03)
Minority interest in consolidated
affiliate................................. -- -- -- (.08) --
Discontinued operations:
Reversal of loss (and loss) on disposal..... -- -- -- .93 (.94)
Extraordinary loss............................ -- (.02) -- (.53) --
Cumulative effect of change in accounting..... -- -- -- (.70) --
-------- -------- -------- -------- --------
Net income (loss) per share................... $ (.62) $ (.37) $ .30 $ 1.63 $ (1.97)
======== ======== ======== ======== ========
Diluted earnings (loss) per share:
From continuing operations before minority
interest, discontinued operations,
extraordinary loss and cumulative effect
of change in accounting................... $ (.62) $ (.35) $ .26 $ 1.74 $ (1.03)
Minority interest in consolidated
affiliate................................. -- -- -- (.07) --
</TABLE>

11
<PAGE> 12

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

(1) In fiscal 1999, the Company recorded a $2.1 million non-recurring charge
associated with the move of one of Consumer Products' warehouses and a
business procurement charge of $2.5 million. In the first quarter of fiscal
1998, the Company recorded an estimated non-recurring charge of $133 for
warehouse closure costs and other expenses associated with the sale of LeRan
Gas Products. In the fourth quarter of fiscal 1998, the estimated loss was
adjusted to the actual loss of $24. In the fourth quarter of fiscal 1997,
the Company sold Madison Equipment Company and recorded a loss on sale of
$0.7 million. In fiscal 1997, Consumer Products also recorded a business
procurement charge of $0.8 million. During fiscal 1996, the Company recorded
a $19.5 million restructuring and asset impairment loss, which included a
$7.4 million restructuring charge primarily attributable to strategic
initiatives at Consumer Products and a $12.1 million asset impairment charge
primarily attributable to U.S. Lock in accordance with SFAS 121. During
fiscal 1995, the Company incurred $2.8 million in warehouse closure costs as
Consumer Products' distribution network was downsized from four locations to
three. In fiscal 1995, Consumer Products also recorded a business
procurement charge of $0.5 million. See Note 1 to the Consolidated Financial
Statements for further discussion of the fiscal 1999 and 1997 business
procurement charges and Note 4 for further discussion of the fiscal 1998 and
1997 charges.

(2) Reflects the gains on the Barnett Public Offerings as further described in
Note 2 to the Consolidated Financial Statements.

(3) Reflects the gain on the sale of U.S. Lock as further described in Note 4 to
the Consolidated Financial Statements.

(4) Fiscal 1996 amount represents the reversal of the fiscal 1995 estimated loss
on the disposal of Consumer Products.

(5) Represents the write-off of deferred financing costs resulting from the
repayment and refinancing of debt in fiscal 1998 and 1996, as further
described in Notes 2 and 5 to the Consolidated Financial Statements.

(6) See Note 1 to the Consolidated Financial Statements for a discussion of
procurement charges. Effective July 1, 1995, the Company changed its method
of accounting for procurement costs to its current method as described in
Note 1 to the Consolidated Financial Statements, resulting in the cumulative
effect of a change in accounting for procurement costs of $8.2 million,
before tax benefit, in fiscal 1996.

(7) The results of U.S. Lock were consolidated by the Company until its sale,
which was effective January 1, 1999. As a result of the sale, fiscal 1999
only includes six months of U.S. Lock's results while the previous fiscal
years include results for twelve months. See Note 4 to the Consolidated
Financial Statements for further discussion of the sale of U.S. Lock.

(8) The results of Barnett were consolidated by the Company until the Barnett
Secondary Offering in 1997. As a result of the Barnett Secondary Offering,
fiscal years subsequent to fiscal 1996 do not consolidate the results of
Barnett.

12
<PAGE> 13

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

GENERAL

The Company operates in two business segments -- the distribution of
specialty plumbing and hardware products to retailers and the distribution of
plumbing products to non-retail businesses. Distribution of plumbing and
hardware products to retailers is conducted through domestic operations, as well
as through direct import programs from the foreign sourcing, manufacturing and
packaging operations. In fiscal 1999, approximately 40.4% and 47.1% of the
Company's foreign operations' sales were to the Company's domestic wholly-owned
operations and Barnett, respectively, which are considered non-retail sales.
Intercompany sales are eliminated in consolidation.

DEBT RESTRUCTURING EFFORTS

Over the past several years, the Company has endeavored to reduce its high
level of debt through the monetization of assets and to improve the efficiencies
of its continuing businesses. As a result, the Company has undertaken various
initiatives to raise cash, improve its cash flow and reduce its debt obligations
and/or improve its financial flexibility during that period. The Company
believes that operating cash flow, together with borrowings under its working
capital credit facilities, and the monetization, from time to time, of a portion
of the Barnett Common Stock or other selected assets, will be sufficient for at
least the next 18 months to fund its working capital requirements. However,
ultimately, the Company will not be able to continue to make all of the interest
and principal payments under its debt obligations without a significant
appreciation in, and monetization of, the value of the shares of common stock of
Barnett owned by the Company and/or a restructuring of such debt instruments.

HISTORICAL OVERVIEW

A historic overview of some of the Company's other recent strategic
developments is summarized below.

The Company owns 7,186,530 shares, or 44.3%, of the Barnett Common Stock at
June 30, 1999, which are accounted for under the equity method of accounting. In
April 1996, the Company completed the Barnett Initial Public Offering, receiving
net proceeds of $92.6 million, after the underwriters' discount, and recorded a
$65.9 million pre-tax gain. In April 1997, the Company completed the Barnett
Secondary Offering, receiving net proceeds of $21.6 million, after the
underwriters' discount, and recorded a $16.7 million pre-tax gain. In April
1997, the Company converted the remaining convertible non-voting preferred stock
of Barnett it owned to Barnett Common Stock. In July 1997, the Company received
24,730 shares of Barnett as a result of the sale of the gas products business of
LeRan Gas Products to Barnett (see Note 4). In January 1999, the Company
completed the sale of U.S. Lock to Barnett (see Note 4).

13
<PAGE> 14

$1.5 million in additional cost of sales and SG&A expenses, respectively, in
total at its remaining operations, primarily related to inventory adjustments
and charges for valuation reserves, professional services and the increase in
value of certain stock appreciation rights granted to certain key executives.

The Company also recorded a loss of $0.7 million on the disposal of Madison
in the fourth quarter of fiscal 1997. In April 1997, Madison, a supplier of
electrical products, was sold for $2.0 million, and in July 1997, substantially
all of the business of the LeRan Gas Products division ("LeRan"), a supplier of
copper tubing, brass fittings and other related products was sold to Barnett for
$3.2 million in cash and 24,730 shares of Barnett Common Stock, with a value of
$0.6 million at the time of the transaction.

In May 1997, the Company commenced an offer to repurchase (the "Purchase
Offer"), at par, $12.0 million of Waxman USA's 11 1/8% Senior Notes due 2001
(the "Senior Notes"). In July 1997, the Purchase Offer expired with $2.5 million
principal amount of Senior Notes tendered. Upon the expiration of the Purchase
Offer, the Company called for the redemption of $9.5 million principal amount of
Senior Notes that had not been tendered in the Purchase Offer and completed the
redemption of these notes in August 1997.

In the first quarter of fiscal 1999, Consumer Products recorded a
non-recurring charge of $1.35 million related to the relocation of its Bedford
Heights, Ohio warehouse to Groveport, Ohio. Included in the charge are severance
benefits for personnel and the loss on the write-off of tangible assets at the
Bedford Heights warehouse. In the third and fourth quarters of fiscal 1999,
Consumer Products recorded additional non-recurring charges of $0.45 million and
$0.27 million, respectively, for additional costs involved in the relocation of
the Bedford Heights warehouse, the recruiting and training of personnel at the
Groveport warehouse and the future shortfall on subleasing the warehouse in
Bedford Heights. The Company believes that the relocation to a more modern and
efficient facility has enabled Consumer Products to provide more sophisticated
distribution services to its customers and help it remain competitive through
annual cost savings.

In December 1998, the Company announced it had entered into an agreement to
sell certain of the assets and liabilities of U.S. Lock, a division of WOC, to
Barnett for approximately $33.0 million in cash, less certain adjustments. The
sale of U.S. Lock was completed effective January 1, 1999. The proceeds were
used by the Company to reduce the portion of the BankAmerica Business Credit
Agreement collateralized by U.S. Lock's assets and to reinvest in the Company's
remaining businesses.

In June 1999, the remaining $0.9 million of the Company's 13 3/4% Senior
Subordinated Notes matured and were paid by the Company. Also in June 1999, the
Company entered into a loan and security agreement with Congress Financial
Corporation (the "Loan and Security Agreement") to replace the Credit Agreement
with BankAmerica Business Credit, Inc. that was to expire on July 15, 1999. The
Loan and Security Agreement provides for, among other things, revolving credit
advances of up to $20.0 million.

RESULTS OF OPERATIONS

The following table sets forth certain items reflected in the Company's
consolidated statements of operations as a percentage of net sales:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 69.9% 65.7% 71.1%
Gross profit................................................ 30.1% 34.3% 28.9%
Selling, general and administrative expenses................ 31.9% 28.7% 29.4%
Non-recurring and procurement charges....................... 4.6% -- 1.3%
Operating income (loss)..................................... (6.4%) 5.6% (1.8%)
Gain on sale of Barnett stock, net.......................... -- -- 14.0%
Gain on sale of U.S. Lock, net.............................. 10.4% -- --
Equity earnings of Barnett.................................. 6.8% 6.0% 4.9%
</TABLE>

14
<PAGE> 15

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Interest expense, net....................................... 17.3% 15.2% 13.8%
Income (loss) before income taxes and extraordinary loss.... (6.5%) (3.6%) 3.3%
Provision for income taxes.................................. 1.0% 0.5% 0.3%
Income (loss) before extraordinary loss..................... (7.5%) (4.1%) 3.0%
Extraordinary loss.......................................... -- (0.2%) --
Net income (loss)........................................... (7.5%) (4.3%) 3.0%
</TABLE>

YEAR ENDED JUNE 30, 1999 VS. YEAR ENDED JUNE 30, 1998

NET SALES

Net sales of the Company's wholly-owned operations for fiscal 1999 totaled
$99.1 million, a decrease of $6.6 million from the $105.7 million for the
comparable period in fiscal 1998. Excluding U.S. Lock, which was sold effective
January 1, 1999, net sales for fiscal 1999 amounted to $85.8 million, an
increase of $2.9 million, or 3.4 percent, over the $82.9 million for the
comparable period last year. Due to the sale of U.S. Lock effective January 1,
1999, the fiscal 1999 results include only six months of U.S. Lock's net sales,
or $13.4 million, as compared to $22.8 million for fiscal 1998. Net sales to
retailers amounted to $58.0 million for the twelve months ended June 30, 1999, a
decrease of $3.9 million as compared to the same period last year. Sales to
Hechinger/Builders Square decreased by $8.0 million to $3.7 million in fiscal
1999, as compared to $11.7 million in the same period last year, offsetting the
increase in sales to other retailers. As previously disclosed by the Company, as
a part of Hechinger/Builders Square consolidating their operations and supplier
relationships, Consumer Products would retain only the bulk plumbing business
beginning in January 1999. In June 1999, Hechinger/Builders Square filed for
Chapter 11 bankruptcy protection, and for Chapter 7 liquidation in September
1999. During the fiscal 1999 third quarter, the Company entered into a
three-year agreement with Kmart, which the Company anticipates will result in
additional annual net sales of $4 to $5 million. A portion of these sales, which
include showerheads, faucets, floor care, and packaged plumbing, will be shipped
under the direct import program from the Company's Asian operations. The direct
import sales result in a lower gross margin but also have lower selling, general
and administrative ("SG&A") expenses.

The trend in the retail market is to develop direct relationships with
foreign supply sources, including foreign sourcing operations similar to those
owned by the Company. The Company will utilize its foreign sourcing operations
to obtain new business when our domestic operation would be unable or less
likely to compete, and therefore, has emphasized developing business outside of
the intercompany and affiliated company arrangements for the foreign sourcing
operations. This effort is expected to be of increasing importance in future
results as more retailers emphasize direct import relationships. The Company
believes sales from its foreign sourcing operations will continue to increase to
both Barnett, due to its growth, and through direct sales to non-affiliated
operations.

Non-retail net sales amounted to $41.1 million for fiscal 1999, a decrease
of $2.7 million for the same period in fiscal 1998. Excluding the results of
U.S. Lock, non-retail net sales increased by $6.7 million in fiscal 1999, as
compared to the same period last year, due primarily to an increase in sales to
Barnett.

GROSS PROFIT

The gross profit margin for fiscal 1999 decreased to 30.1% from 34.3% for
fiscal 1998. The reduction in the gross profit margin is attributable to a
higher proportion of sales from the lower gross margin direct import sales
program and competitive pricing pressures at our Mexican pipe nipple operation.
Gross profit decreased to $29.9 million for fiscal 1999, as compared to $36.2
million for fiscal 1998. Excluding U.S. Lock for both periods, the gross profit
for fiscal 1999 would have been $25.5 million, as compared to $28.6 million in
the same period last year. The decrease in gross profit dollars is attributable
to the reduction in sales to

15
<PAGE> 16

Hechinger/Builders Square, competitive pricing issues associated with the
Mexican pipe nipple operation and the sales increase for the lower margin direct
import program.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

SG&A expenses increased from $30.3 million for fiscal 1998 to $31.6 million
for fiscal 1999. As a percentage of net sales, SG&A expenses increased from
28.7% for fiscal 1998 to 31.9% for fiscal 1999. The increase in expenses was
primarily due to foreign exchange transaction losses of $0.4 million in fiscal
1999, as compared to $1.0 million in foreign exchange transaction income being
reported for fiscal 1998.

NON-RECURRING AND PROCUREMENT CHARGES

In the fiscal 1999 first quarter, Consumer Products recorded a
non-recurring charge of $1.35 million related to the relocation of its Bedford
Heights, Ohio warehouse to Groveport, Ohio. Included in the charge were
severance benefits for personnel and the loss on the write-off of tangible
assets at the Bedford Heights warehouse. In the third and fourth quarters of
fiscal 1999, Consumer Products recorded additional non-recurring charges of
$0.45 million and $0.27 million, respectively, for additional costs involved in
the relocation of the Bedford Heights warehouse, the recruiting and training of
personnel at the Groveport warehouse and the future shortfall on subleasing the
warehouse in Bedford Heights. The Company believes that the relocation to a more
modern and efficient facility has enabled Consumer Products to provide more
sophisticated distribution services to its customers and has helped it remain
competitive through annual cost savings.

In addition to the non-recurring charge for the relocation of the
warehouse, the Company's operations also recorded a business procurement charge
of $2.5 million in fiscal 1999.

GAIN ON SALE OF U.S. LOCK

Effective January 1, 1999, the Company sold U.S. Lock, to Barnett, for
$33.0 million in cash, before certain adjustments and expenses. The sale of U.S.
Lock resulted in a net pretax gain of $18.3 million, with approximately $10.2
million being recognized in the fiscal 1999 third quarter. The remaining $8.1
million was originally reported as a deferred gain in the Company's consolidated
balance sheet due to the Company's continued ownership of 44.3% of Barnett, the
acquirer of U.S. Lock. The Company is recognizing the deferred gain as the
goodwill generated by the purchase of U.S. Lock is amortized by Barnett, or as
the Company reduces its ownership interest in Barnett. In the fiscal 1999 fourth
quarter, the Company recognized $0.1 million of this deferred gain, which is
included in the gain on sale of U.S. Lock in the accompanying consolidated
statements of operations.

EQUITY EARNINGS OF BARNETT

The Company recorded equity earnings from its 44.3% ownership interest in
Barnett of $6.7 million for fiscal 1999, as compared to $6.3 million in fiscal
1998.

INTEREST EXPENSE

For fiscal 1999, interest expense totaled $17.2 million, an increase of
$1.2 million from the $16.0 million in fiscal 1998. The increase is primarily
due to higher average borrowings under the Credit Agreement for a portion of the
fiscal year and an increase in the accretion of interest on the Deferred Coupon
Notes. Interest expense for the Deferred Coupon Notes amounted to $11.2 million
in fiscal 1999, as compared to $9.9 million for fiscal 1998. As of June 1, 1999,
the Deferred Coupon Notes were fully accreted and interest expense after that
date is classified as accrued interest, with the first cash interest payment due
on December 1, 1999. Average borrowings for fiscal 1999 amounted to $141.3
million, with a weighted average interest rate of 11.6%, as compared to $125.8
million in fiscal 1998, with a weighted average interest rate of 12.0%.

16
<PAGE> 17

PROVISION FOR INCOME TAXES

The provision for income taxes amounted to $1.0 million and $0.5 million
for fiscal 1999 and 1998, respectively. The fiscal 1999 provision primarily
represents the federal alternative minimum tax and state taxes due on the gain
on the sale of U.S. Lock, as well as various state and foreign taxes of the
Company's wholly-owned operations. The fiscal 1998 income tax provision
primarily represents various state and foreign taxes of the Company's
wholly-owned operations. The difference between the effective and statutory tax
rates is primarily due to domestic losses not benefited.

NET LOSS

The Company's net loss for fiscal 1999 amounted to $7.5 million, or $0.62
per basic and diluted share, as compared to the loss of $4.5 million, or $0.37
per basic and diluted share, in fiscal 1998. The fiscal 1999 results include the
$10.2 million gain on the sale of U.S. Lock, a non-recurring charge of $2.1
million for the relocation of Consumer Products' distribution center from
Bedford Hts., Ohio to Groveport, Ohio, as well as a $2.5 million charge for
business procurement costs. Included in the fiscal 1998 results is an
extraordinary charge of $0.2 million, or $0.02 per basic and diluted share, from
the write-off of deferred financing costs.

YEAR ENDED JUNE 30, 1998 VS. YEAR ENDED JUNE 30, 1997

NET SALES

Net sales of the Company's wholly-owned operations for fiscal 1998 of
$105.7 million increased by $5.5 million or 5.5% in comparison to fiscal 1997,
excluding the disposed operations of Madison Equipment and LeRan Gas Products.
The increase in fiscal 1998 net sales is attributable to an increase of 21.5% at
U.S. Lock and 22.4% at the Company's foreign sourcing and manufacturing
operations. Increases from these operations were partially offset by a 3.4%
decrease at Consumer Products. Net sales for fiscal 1997, including $18.8
million in sales from the disposed operations, amounted to $119.0 million.
Madison was sold in April 1997, while substantially all of LeRan's gas products
business was sold to Barnett on July 1, 1997. LeRan's malleable fitting business
was transferred to WAMI's sales division as a result of this sale. Retail and
non-retail sales in fiscal 1998 amounted to $61.9 million and 43.8 million,
respectively, as compared to $63.8 million and $55.2 million for fiscal 1997.

The growth at U.S. Lock is the result of an increase in the size of its
professional telesales staff, additional sales from its monthly promotional
flyer program, an increase in new products and the success of its Rx "Dealer
Only"(TM) restricted keyway program. In the fourth quarter of fiscal 1998, U.S.
Lock also moved a distribution center from Sacramento to Ontario, California,
near Los Angeles, which is expected to be a stronger market for its products. In
addition, U.S. Lock's fiscal 1998 net sales increase benefited from a full year
of operations of its fifth warehouse, which was opened in Charlotte, North
Carolina in March 1997. The increase in sales at the Company's foreign sourcing
operations is primarily the result of an increase in sales to Barnett. However,
the foreign operation supplying pipe nipples to Barnett experienced a reduction
in sales for the second half of the fiscal year due to the loss of one of
Barnett's pipe nipple customers. Until those pipe nipple sales are replaced by
sales to other customers, the Company expects its WAMI operation to have
approximately $1.5 million less in annual sales. Sales for the Company's
Consumer Products operation decreased $3.0 million in fiscal 1998, primarily due
to the closing of select stores by Hechinger/Builders Square, the inclusion of
$1.1 million in fiscal 1997 sales to Ernst, which was lost as a customer due to
its bankruptcy and a reduction in purchases by Kmart due to its inventory
management program. In August 1998, Consumer Products was informed that it would
only retain the bulk plumbing portion of its business with Hechinger/Builders
Square.

GROSS PROFIT

Gross profit for the Company's wholly-owned operations amounted to $36.2
million in fiscal 1998, an increase of $1.8 million over the $34.4 million for
fiscal 1997. The gross profit margin for the wholly-owned operations increased
to 34.3% in fiscal 1998 from 28.9% for the wholly-owned operations in fiscal
1997. The relatively low gross profit margin in fiscal 1997 was due to $4.3
million of charges, including $4.2 million at

17
<PAGE> 18

Consumer Products, related to the decision to augment certain existing product
lines, streamline its packaged plumbing product line, enhance and redesign its
existing plumbing product packaging, undertake certain customer retention and
development programs and establish inventory reserves which were necessary, in
part, for the reduction in the buying patterns of Builders Square and Kmart. In
addition, the gross profit margin in fiscal 1997 was lower due to the inclusion
of LeRan and Madison, which were lower margin businesses. Excluding the disposed
operations, gross profit margin for fiscal 1997 would have been 29.7%.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

SG&A expenses of the wholly-owned operations decreased by $4.7 million, or
13.4%, to $30.3 million in fiscal 1998 from $35.0 million in fiscal 1997. The
fiscal 1997 SG&A expenses included $3.9 million of SG&A expenses from the
disposed operations and $2.6 million of year end adjustments. As a percentage of
net sales, SG&A expenses were 28.7% in fiscal 1998 compared to 29.4% for the
wholly-owned operations in fiscal 1997. The fiscal 1997 percentage, excluding
the disposed operations, would have been 31.0%.

NON-RECURRING AND PROCUREMENT CHARGES

In the fiscal 1997 fourth quarter, the Company sold Madison Equipment
Company and recorded a loss on sale of $0.7 million. In fiscal 1997, Consumer
Products recorded a business procurement charge of $0.8 million.

INTEREST EXPENSE

Interest expense decreased slightly to $16.0 million for fiscal 1998 from
$16.5 million in the prior year. Average borrowings decreased to $125.8 million
in fiscal 1998 from $130.2 million in fiscal 1997; however, the weighted average
interest rate increased from 11.9% to 12.0% during the same period. The decrease
in average borrowings is due to the repayment of indebtedness with a portion of
the net proceeds from the Barnett Secondary Offering, which caused an
improvement for most of the fiscal 1998 period. The weighted average interest
rate increased due to the retirement of a portion of the Senior Notes, which
have a lower interest rate than the average rate of the remaining debt.

OPERATING INCOME AND INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES

Operating income for fiscal 1998 improved to $5.9 million, from the loss of
$2.1 million in fiscal 1997. Fiscal 1997 results included approximately $7.2
million in year-end adjustments, described in Note 3 to the Consolidated
Financial Statements. Excluding the year-end adjustments in fiscal 1997,
operating income improved by 15.7% in fiscal 1998 over the prior year. Consumer
Products, U.S. Lock and the foreign sourcing operations contributed to the
improvement. The continued growth of U.S. Lock and consistent contribution to
operating income, resulted in an improvement in the operating income of the
Company. The Company's foreign sourcing operations benefited from the growth of
Barnett, which accounted for nearly all of their external sales during the
period. An additional factor in the improvement of the foreign sourcing
operations was the foreign currency devaluation. Since the foreign operations
contract their sales in U.S. dollars, they benefited by using less dollars to
purchase goods and pay for labor in local currencies.

Pre-tax results decreased from income of $4.0 million in fiscal 1997 to a
loss of $3.8 million in fiscal 1998, primarily due to the net pre-tax gain of
$16.7 million from the Barnett Secondary Offering completed in April 1997.
Excluding the $16.7 million gain on the sale of Barnett Common Stock and the
$7.2 million in year end adjustments in fiscal 1997, the comparable pre-tax loss
would have been $5.5 million for fiscal 1997. The pre-tax results for fiscal
1998 and 1997 included $6.3 million and $5.8 million of equity income from the
Company's investment in Barnett, respectively.

INCOME TAXES

The provision for income taxes was $0.5 million in fiscal 1998 as compared
to $0.4 million in fiscal 1997. In fiscal 1998, the tax provision represents
foreign and state taxes. The fiscal 1997 provision includes an alternative
minimum tax on the gain from the Barnett Secondary Offering and foreign and
state taxes.
18
<PAGE> 19

Differences between the effective tax rate and the statutory rate are primarily
the result of domestic losses not benefited in fiscal 1998, state and foreign
taxes, goodwill amortization, which is not deductible for tax purposes and the
utilization of loss carryforwards in fiscal 1997.

LIQUIDITY AND CAPITAL RESOURCES

Over the past several years, the Company has endeavored to reduce its high
level of debt through the monetization of assets and to improve the efficiencies
of its continuing businesses. As a result, the Company has undertaken various
initiatives to raise cash, improve its cash flow and reduce its debt obligations
and/or improve its financial flexibility during that period. The Company
believes that operating cash flow, together with borrowings under its working
capital credit facilities, and the monetization, from time to time, of a portion
of the Barnett Common Stock, will be sufficient for at least the next 18 months
to fund its working capital requirements. However, ultimately, the Company will
not be able to continue to make all of the interest and principal payments under
its debt obligations without a significant appreciation in, and monetization of,
the value of the shares of common stock of Barnett owned by the Company and/or a
restructuring of such debt instruments. The Company continues its efforts to
complete a financial restructuring plan, which includes the sale of its
investment in Barnett and a restructuring and/or elimination of its debt.
Pending the completion of a comprehensive financial restructuring, the Company
may also pursue the sale, from time to time, of a portion of its shares of
Barnett or other selected assets to provide it with additional liquidity and
financial flexibility.

As stated previously, the Company's business strategy includes the
reduction of its interest expense and its leverage by the sale of selected
assets and/or the refinancing or reduction of its remaining indebtedness
whenever possible. To that end, the Company completed the sale of U.S. Lock for
approximately $33.0 million in January 1999. The Company believes its operating
cash flow, its borrowing availability under the Loan and Security Agreement and
proceeds from sales of selected assets will be sufficient to fund its current
liquidity and working capital requirements, capital expenditures and the first
few semi-annual interest payments on the Deferred Coupon Notes. The first
semi-annual cash interest payment of approximately $6 million under the Deferred
Coupon Notes is due on December 1, 1999. Without the completion of a financial
restructuring plan as described above, the Company currently believes that,
while it will be able to pay its near-term debt maturities and cash interest
requirements, it will not be able to continue to make all of the interest and
principal payments under its debt obligations without a significant appreciation
in, and monetization of, the value of the Barnett Common Stock and/or a
restructuring of such debt instruments.

In August 1999, Barnett announced that it was considering the repurchase of
its shares owned by the Company. The Company has had discussions with Barnett's
management regarding a share repurchase and continues to evaluate opportunities
to monetize all or a portion of its investment in Barnett, including as part of
a comprehensive plan to eliminate a significant portion of its debt. The Company
has also had discussions with certain of its bondholders regarding potential
debt reduction/restructuring transactions. At this time, the Company does not
have an agreement to monetize its investment in Barnett or reduce its high level
of debt. However, the Company continues to pursue a debt restructuring and/or
debt elimination plan. As discussed above, the Company may also pursue the sale,
from time to time, of a portion of its shares of Barnett or other selected
assets to provide it with additional liquidity and financial flexibility. There
can be no assurance that the Company will be able to consummate such financial
restructuring or any of the other aforementioned transactions.

In June 1999, the Company entered into the Loan and Security Agreement with
Congress Financial Corporation to replace the Credit Agreement with BankAmerica
Business Credit, Inc. that was to expire on July 15, 1999. The Loan and Security
Agreement is between Consumer Products, WOC, WAMI and WAMI Sales, as borrowers
(the "Borrowers"), with the Company, Waxman USA Inc. ("Waxman USA") and TWI as
guarantors. The Loan and Security Agreement provides for, among other things,
revolving credit advances of up to $20.0 million. As of June 30, 1999, the
Company had $0.4 million in borrowings under the revolving credit line of the
facility and had approximately $14.4 million available under such facility. The
Loan and Security Agreement expires on September 1, 2001, but may be extended
under certain conditions.

19
<PAGE> 20

The Loan and Security Agreement provides for revolving credit advances of
(a) up to 85.0% of the amount of eligible accounts receivable, (b) up to the
lesser of (i) $10.0 million or (ii) 60% of the amount of eligible raw and
finished goods inventory and (c) up to the lesser of (i) $5.0 million or (ii)
70% of the fair market value of 500,000 shares of Barnett Inc. common stock.
Revolving credit advances bear interest at a rate equal to (a) First Union
National Bank's prime rate plus 0.5% or (b) LIBOR plus 2.50%. The Loan and
Security Agreement includes a letter of credit subfacility of $10.0 million,
with none outstanding at June 30, 1999. Borrowings under the Loan and Security
Agreement are secured by the accounts receivable, inventories, certain general
intangibles, and unencumbered fixed assets of Waxman Industries, Inc., Consumer
Products, TWI, International Inc. and WOC, and a pledge of 65% of the stock of
various foreign subsidiaries. In addition, up to $5.0 million of indebtedness
under the Loan and Security Agreement is also secured by a pledge of 500,000
shares of Barnett Common Stock owned by the Company (constituting approximately
3.1% of all outstanding Barnett Common Stock). The Loan and Security Agreement
requires the Borrowers to maintain cash collateral accounts into which all
available funds are deposited and applied to service the facility on a daily
basis. The Loan and Security Agreement prevents dividends and distributions by
the Borrowers except in certain limited instances including, so long as there is
no default or event of default and the Borrowers are in compliance with certain
financial covenants, the payment of interest on the Senior Notes and the
Company's 12 3/4% Senior Secured Deferred Coupon Notes due 2004 (the "Deferred
Coupon Notes"), and contains customary negative, affirmative and financial
covenants and conditions. The Company was in compliance with all loan covenants
at June 30, 1999. The Loan and Security Agreement also contains a material
adverse condition clause which allows Congress Financial Corporation to
terminate the Agreement under certain circumstances. The Loan and Security
Agreement expires September 1, 2001, but may be extended under certain
circumstances.

Since the consummation of the Barnett Initial Public Offering, the cash
flow generated by Barnett is no longer available to the Company. The Company
relies primarily on Consumer Products and, prior to January 1, 1999, U.S. Lock
for cash flow. The sale of U.S. Lock further increases the Company's dependence
on Consumer Products' business. Consumer Products' customers include D-I-Y
warehouse home centers, home improvement centers, mass merchandisers and
hardware stores. Consumer Products may be adversely affected by prolonged
economic downturns or significant declines in consumer spending. There can be no
assurance that any such prolonged economic downturn or significant decline in
consumer spending will not have a material adverse impact on the Consumer
Products' business and its ability to generate cash flow. Furthermore, Consumer
Products has a high proportion of its sales with a concentrated number of
customers. One of Consumer Products' largest customers, Kmart, accounted for
approximately 20.8% and 18.2% of net sales for Consumer Products in fiscal 1999
and 1998, respectively. In July 1997, Kmart agreed to sell its Builders Square
chain to Leonard Green & Partners, a merchant-banking firm. Leonard Green also
acquired another home improvement retailer, Hechinger Co., and has combined the
two companies to form the nation's third largest home improvement chain. In
August 1998, Consumer Products was informed that the Hechinger/Builders Square
operations were consolidating their supplier relationships and Consumer Products
would retain only the bulk plumbing business, beginning in January 1999. In
fiscal 1998, Builders Square accounted for $11.7 million, or 21.1% and 11.0% of
Consumer Products' and the Company's net sales, respectively. The combined
operations of Hechinger/Builders Square, accounted for approximately $3.7
million, or 7.8% and 3.8% of Consumer Products and the Company's net sales in
fiscal 1999, respectively. Hechinger/Builders Square filed for Chapter 11
bankruptcy protection in June 1999, and for Chapter 7 liquidation in September
1999. Consumer Products' accounts receivable from Hechinger/Builders Square was
$0.3 million at the time of the bankruptcy filing. In the event Consumer
Products were to lose any additional large retail accounts as a customer or one
of its largest accounts were to significantly curtail its purchases from
Consumer Products, there would be material short-term adverse effects until the
Company could further modify Consumer Products' cost structure to be more in
line with its anticipated revenue base. Consumer Products would likely incur
significant charges if additional materially adverse changes in its customer
relationships were to occur.

The Company paid $0.5 million in income taxes in fiscal 1999. At June 30,
1999, the Company had $48.0 million of available domestic net operating loss
carryforwards for income tax purposes, which expire 2009 through 2013, and $41.3
million of original issue discount, as of June 30, 1999, that has been expensed
on

20
<PAGE> 21

the Company's financial statements and will become deductible for tax purposes
when the interest on the Deferred Coupon Notes is paid. In the event the Company
completes a financial restructuring plan, which includes the sale of its
investment in Barnett and, recognizes a gain from that sale, the Company will be
able to use the net operating loss carryforwards to offset income taxes that
will be payable.

The Company has total future lease commitments for various facilities and
other leases totaling $3.0 million, of which $1.3 million is due in fiscal 2000.
The Company does not have any other commitments to make substantial capital
expenditures. The fiscal 2000 capital expenditure plan includes expenditures to
improve the efficiencies of the Company's operations, to provide new data
technology and certain expansion plans for the Company's foreign operations.
Except as noted below, all operations have completed their Year 2000 compliance.
In August 1998, WAMI's PC-based Year 2000 software upgrade was provided by the
software manufacturer at no cost and has been installed and tested. As part of a
periodic replacement of hardware, WAMI will replace certain PC's for
approximately $10,000 to upgrade its remaining hardware to be Year 2000
compliant. WAMI's software and hardware has been reviewed by an external
information technology professional for Year 2000 compliance. Medal Distributing
has an IBM System 36, which was upgraded, with software modifications being made
to be Year 2000 compliant. The modifications were completed in July 1999,
totaling approximately $10,000. Based on information from hardware and software
vendors, the PC-based information systems at TWI will require minor
modifications to be Year 2000 compliant. These modifications are expected to be
completed in the fall of 1999 and financed through working capital with minimal
cost. The expected expenditures include approximately $13,000 for hardware,
$10,000 for software and $10,000 in labor to make the Year 2000 modifications.
CWI's modifications and timetable are similar to those of TWI, with the costs
expected to be approximately $11,000 for hardware, $14,000 for software and
$2,000 in labor to make the Year 2000 modifications.

The Company has reviewed its non-information technology systems and
believes that the systems are Year 2000 compliant.

DISCUSSION OF CASH FLOWS

Net cash used for operations was $8.7 million in fiscal 1999. A decrease in
the Company's trade and other receivables and inventories and an increase in
accounts payable provided sources of funds. The most significant items affecting
net cash used for operations were the $10.3 million net gain on the sale of U.S.
Lock, $10.2 million of non-cash interest and $6.7 million in equity earnings of
Barnett. Excluding these items, the net cash used in operations was $1.9
million. Cash flow provided by investments totaled $25.7 million, attributable
to the net cash generated from the sale of U.S. Lock. Cash used for financing
activities amounted to $15.7 million, primarily due to the reduction in net
borrowings under the Company's credit facilities.

At June 30, 1999, the Company had working capital of $21.9 million and a
current ratio of 2.4 to 1.

YEAR 2000

The Company utilizes management information systems and software technology
that may be affected by Year 2000 issues throughout its businesses. The Company
continues to implement plans at certain of its operations to ensure those
systems continue to meet its internal and external requirements. A summary of
the progress made by each of the Company's operations is provided below.

During fiscal 1998, the Company's largest division, Consumer Products,
completed a version upgrade of its J.D. Edwards software, which was Year 2000
compliant. In addition, Consumer Products made certain modifications to it
systems and completed the testing of its information systems in fiscal 1998 to
insure that it is Year 2000 compliant. Consumer Products utilizes IBM AS400
hardware, NT servers and personal computers that are also Year 2000 compliant.
The specific cost of upgrading the hardware and software in fiscal 1998 was
approximately $0.8 million; however, the majority of this cost was part of a
process of developing Consumer Products' capabilities to serve its customers and
to operate its business, with Year 2000 compliance being an additional benefit.

21
<PAGE> 22

The Company's corporate office completed the development of its accounting
package in March 1999, using Consumer Products' hardware and software. The
accounting package was develop by internal personnel with MIS support at no
additional cost, using the standard reporting format developed for Consumer
Products.

In August 1998, WAMI's PC-based Year 2000 software upgrade was provided by
the software manufacturer at no cost and has been installed and tested. As part
of a periodic replacement of hardware, WAMI will replace certain PC's for
approximately $10,000 to upgrade its remaining hardware to be Year 2000
compliant. WAMI's software and hardware has been reviewed by an external
information technology professional for Year 2000 compliance.

Medal Distributing has an IBM System 36, which was upgraded, with software
modifications being made to be Year 2000 compliant. The modifications were
completed in July 1999, at a cost of approximately $10,000.

Based on information from hardware and software vendors, the PC-based
information systems at TWI will require minor modifications to be Year 2000
compliant. These modifications, which are in progress, are expected to be
completed by September 30, 1999 and financed through working capital with
minimal cost. The expected expenditures include approximately $13,000 for
hardware, $10,000 for software and $10,000 in labor to make the Year 2000
modifications. CWI's modifications and timetable are similar to those of TWI,
with the costs expected to be approximately $11,000 for hardware, $14,000 for
software and $2,000 in labor to make the Year 2000 modifications.

The Company has reviewed its non-information technology systems and
believes that the systems are Year 2000 compliant.

The Company's operations have developed questionnaires and contacted key
suppliers and customers regarding their Year 2000 compliance to determine any
impact on its operations. In general, the suppliers and customers have developed
or are in the process of developing plans to address Year 2000 issues. The
Company will continue to monitor and evaluate the progress of its suppliers and
customers on this critical matter and develop alternate suppliers as required.

Based on the progress the Company has made in addressing its Year 2000
issues and the Company's plan and timeline to complete its compliance program,
the Company does not foresee significant risks associated with its Year 2000
compliance at this time. As the Company's plan is to address its significant
Year 2000 issues prior to being affected by them, it has not developed a
comprehensive contingency plan. However, if the Company identifies significant
risks related to its Year 2000 compliance or its progress deviates from the
anticipated timeline, the Company will develop contingency plans as deemed
necessary at that time.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The U.S. dollar is the functional currency for a significant portion of the
Company's consolidated operations. However, certain transactions of the Company
are completed in foreign currencies. In addition, for certain of the Company's
foreign operations, the functional currency is the local currency. As a result,
the Company is exposed to currency transaction and translation risks, which
primarily result from fluctuations of the foreign currencies in which the
Company deals as compared to the U.S. dollar over time.

Gains and losses that result from foreign currency transactions are
included in the Company's consolidated statements of operations on a current
basis and affect the Company's reported net income (loss). The cumulative
foreign currency translation effects for the Company's foreign operations that
utilize the local currency as their functional currency are included as a
separate component of stockholders' equity in the Company's consolidated balance
sheets and are considered in determining comprehensive income as reported in the
Company's consolidated statements of operations.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(BEGINS ON FOLLOWING PAGE)

22
<PAGE> 23

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors of Waxman Industries, Inc.:

We have audited the accompanying consolidated balance sheets of Waxman
Industries, Inc. (a Delaware corporation) and Subsidiaries (the Company) as of
June 30, 1999 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Waxman Industries, Inc. and
Subsidiaries as of June 30, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1999, in conformity with generally accepted accounting principles.

Arthur Andersen LLP

Cleveland, Ohio,
September 20, 1999.

23
<PAGE> 24

WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

JUNE 30, 1999 AND 1998

(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,322 $ 72
Trade receivables, net.................................... 10,686 15,503
Other receivables......................................... 4,350 4,026
Inventories............................................... 19,052 26,162
Prepaid expenses.......................................... 2,333 2,186
-------- --------
Total current assets.............................. 37,743 47,949
-------- --------
INVESTMENT IN BARNETT....................................... 36,385 29,641
-------- --------

PROPERTY AND EQUIPMENT:
Land...................................................... 575 1,379
Buildings................................................. 4,462 7,397
Equipment................................................. 13,369 13,541
-------- --------
18,406 22,317

Less accumulated depreciation and amortization.............. (7,238) (9,346)
-------- --------

Property and equipment, net................................. 11,168 12,971
-------- --------

COST OF BUSINESSES IN EXCESS OF NET ASSETS ACQUIRED, NET.... 7,920 8,189

UNAMORTIZED DEBT ISSUANCE COSTS, NET........................ 3,052 3,524

DEFERRED TAX ASSET.......................................... 540 --

OTHER ASSETS................................................ 3,402 3,469
-------- --------
$100,210 $105,743
======== ========
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

24
<PAGE> 25

WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

JUNE 30, 1999 AND 1998

(IN THOUSANDS, EXCEPT PER SHARE DATA)

LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 937 $ 16,343
Accounts payable.......................................... 7,308 7,741
Accrued liabilities....................................... 3,923 6,500
Accrued income taxes payable.............................. 1,314 250
Accrued interest.......................................... 2,316 1,339
-------- --------
Total current liabilities......................... 15,798 32,173
-------- --------
OTHER LONG-TERM DEBT, NET OF CURRENT PORTION................ 1,057 1,091

SENIOR SECURED DEFERRED COUPON NOTES, NET................... 91,568 81,368

SENIOR NOTES................................................ 35,855 35,855

DEFERRED GAIN ON SALE OF U.S. LOCK.......................... 8,018 --

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value per share:
authorized and unissued 2,000 shares...................... -- --
Common stock, $0.01 par value per share:
22,000 shares authorized; 9,914 and 9,908 shares issued
and outstanding, respectively............................. 98 98
Class B common stock, $.01 par value per share:
6,000 shares authorized; 2,143 and 2,148 shares issued and
outstanding, respectively................................. 21 21
Paid-in capital............................................. 21,732 21,731
Retained deficit............................................ (72,908) (65,431)
-------- --------
(51,057) (43,581)
Cumulative currency translation adjustment................ (1,029) (1,163)
-------- --------
Total stockholders' equity (deficit).............. (52,086) (44,744)
-------- --------
$100,210 $105,743
======== ========
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

25
<PAGE> 26

WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-------------------------------
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
Net sales..................................... $99,116 $105,662 $119,006
Cost of sales................................. 69,264 69,429 84,574
------- -------- --------
Gross profit.................................. 29,852 36,233 34,432
Selling, general and administrative expenses.. 31,635 30,290 34,996
Non-recurring and procurement charges......... 4,515 24 1,522
------- -------- --------
Operating income (loss)....................... (6,298) 5,919 (2,086)
Gain on sale of Barnett stock, net............ -- -- 16,693
Gain on sale of U.S. Lock, net................ 10,298 -- --
Equity earnings of Barnett.................... 6,744 6,341 5,843
Interest expense, net......................... 17,192 16,031 16,477
------- -------- --------
Income (loss) before income taxes and
extraordinary loss....................... (6,448) (3,771) 3,973
Provision for income taxes.................... 1,029 537 401
------- -------- --------
Income (loss) before extraordinary loss....... (7,477) (4,308) 3,572
Extraordinary loss............................ -- 192 --
------- -------- --------
Net income (loss)............................. $(7,477) $ (4,500) $ 3,572
======= ======== ========
Other comprehensive income (loss):
Foreign currency translation adjustment....... 134 (822) (53)
------- -------- --------
Comprehensive (loss) income................... $(7,343) $ (5,322) $ 3,519
======= ======== ========
</TABLE>

26
<PAGE> 27

WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
---------------------------
1999 1998 1997
------ ------ -------
<S> <C> <C> <C>
Basic earnings (loss) per share:
From income (loss) before extraordinary loss................ $(0.62) $(0.35) $ 0.30
Extraordinary loss.......................................... -- (0.02) --
------ ------ -------
Net income (loss)........................................... $(0.62) $(0.37) $ 0.30
====== ====== =======
Diluted earnings (loss) per share:
From income (loss) before extraordinary loss................ $(0.62) $(0.35) $ 0.26
Extraordinary loss.......................................... -- (0.02) --
------ ------ -------
Net income (loss)........................................... $(0.62) $(0.37) $ 0.26
====== ====== =======
Average number of common shares outstanding................. 12,057 12,026 11,919
====== ====== =======
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

27
<PAGE> 28
'
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
CUMULATIVE
CLASS B CURRENCY TOTAL
COMMON COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT ADJUSTMENT EQUITY
------- ------- ------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance June 30, 1996.......... $ 96 $ 22 $21,419 $(64,503) $ (288) $(43,254)
Net income................... 3,572 3,572
Conversions of Class B common
stock..................... 1 1
Exercise of stock options,
warrants and convertible
notes..................... 228 228
Currency translation
adjustment................ (53) (53)
------- ------- ------- -------- -------- --------
Balance June 30, 1997.......... 97 22 21,647 (60,931) (341) (39,506)
Net loss..................... (4,500) (4,500)
Conversions of Class B common
stock..................... 1 (1) --
Exercise of stock options,
warrants and convertible
notes..................... 84 84
Currency translation
adjustment................ (822) (822)
------- ------- ------- -------- -------- --------
Balance June 30, 1998.......... 98 21 21,731 (65,431) (1,163) (44,744)
Net loss..................... (7,477) (7,477)
Exercise of stock options,
warrants and convertible
notes..................... 1 1
Currency translation
adjustment................ 134 134
------- ------- ------- -------- -------- --------
Balance June 30, 1999.......... $ 98 $ 21 $21,732 $(72,908) $ (1,029) $(52,086)
======= ======= ======= ======== ======== ========
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

28
<PAGE> 29

WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
---------------------------------
1999 1998 1997
-------- -------- ---------
<S> <C> <C> <C>
Cash From (Used For):
Operations:
Net income (loss)...................................... $ (7,477) $ (4,500) $ 3,572
Adjustments to reconcile net income (loss) to net cash
used for operations:
Extraordinary loss..................................... -- 192 --
Non-recurring charges.................................. -- -- 746
Gain on sale of Barnett stock.......................... -- -- (16,693)
Gain on sale of U.S. Lock.............................. (10,298) -- --
Non-cash interest...................................... 10,200 9,883 8,762
Other non-cash charges................................. -- -- 4,123
Equity earnings of Barnett............................. (6,744) (6,341) (5,843)
Depreciation and amortization.......................... 2,555 2,957 2,714
Deferred income taxes.................................. (540) -- --
Bad debt provision..................................... 274 282 565
Changes in assets and liabilities:
Trade and other receivables......................... 1,659 (2,687) (554)
Inventories......................................... 1,455 (1,751) 1,835
Prepaid expenses and other.......................... (204) (10) (3,307)
Accounts payable.................................... 1,157 (674) (3,813)
Accrued liabilities................................. 189 (2,977) 564
Net change in operating assets and liabilities of
U.S. Lock......................................... (1,109) -- --
Other, net.......................................... 134 (822) (53)
-------- -------- ---------
Net cash used for operations........................ (8,749) (6,448) (7,382)
-------- -------- ---------
Investments:
Capital expenditures, net.............................. (2,741) (3,441) (2,339)
Change in other assets................................. 212 (480) (704)
Net proceeds from sales of businesses.................. 28,249 3,203 23,613
-------- -------- ---------
Net cash provided by (used for) investments......... 25,720 (718) 20,570
-------- -------- ---------
Financing:
Borrowings under credit agreements..................... 56,327 105,043 116,028
Payments under credit agreements....................... (70,872) (95,526) (122,012)
Debt issuance costs.................................... (282) -- (256)
Retirement of Senior Notes............................. -- (12,000) --
Retirement of Senior Subordinated Notes................ (895) -- --
Issuance of common stock............................... 1 84 229
-------- -------- ---------
Net cash used for financing......................... (15,721) (2,399) (6,011)
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents..... 1,250 (9,565) 7,177
Balance, beginning of year............................... 72 9,637 2,460
-------- -------- ---------
Balance, end of year..................................... $ 1,322 $ 72 $ 9,637
======== ======== =========
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
29
<PAGE> 30

WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. BASIS OF CONSOLIDATION AND DESCRIPTION OF THE COMPANY

The accompanying consolidated financial statements include the accounts of
Waxman Industries, Inc. ("Waxman Industries") and its wholly-owned subsidiaries
(collectively, the "Company"). As of June 30, 1999, the Company owned 44.3% of
the common stock of Barnett Inc. ("Barnett Common Stock"), a direct marketer and
distributor of plumbing, electrical and hardware products, and accounts for
Barnett Inc. ("Barnett") under the equity method of accounting. Certain
reclassifications have been made to the prior year statements in order to
conform to the current year presentation. All significant intercompany
transactions and balances are eliminated in consolidation.

The Company is a supplier of specialty plumbing, hardware and other
products to the repair and remodeling market in the United States. The Company
distributes its products to approximately 1,400 customers, including a wide
variety of large national and regional retailers, independent retail customers
and wholesalers. The Company conducts its business primarily through its
wholly-owned subsidiaries, Waxman Consumer Products Group Inc. ("Consumer
Products"), WOC Inc. ("WOC") and TWI, International, Inc. ("TWI"). WOC is
comprised of Medal Distributing, a supplier of hardware products and, included
the operations of U.S. Lock, a distributor of a full line of security hardware
products, prior to its January 1, 1999 sale. TWI includes the Company's foreign
operations, including manufacturing, packaging and sourcing operations in China
and Taiwan, and an operation in Mexico that threads galvanized, black, brass,
and chrome pipe and imports malleable fittings. Consumer Products, WOC and
Barnett utilize the Company's and non-affiliated foreign sourcing suppliers.

B. CASH AND CASH EQUIVALENTS

In accordance with the terms of the Loan and Security Agreement (as defined
in Note 5), all restricted cash balances have been excluded from cash and have
been applied against outstanding borrowings under the Loan and Security
Agreement. Cash balances include certain unrestricted operating accounts and
accounts of foreign operations. The Company considers all highly liquid
temporary cash investments with original maturities of less than three months to
be cash equivalents. Cash investments are valued at cost plus accrued interest,
which approximates market value.

C. TRADE RECEIVABLES

Trade receivables are presented net of allowances for doubtful accounts of
$1.0 million and $1.1 million at June 30, 1999 and 1998, respectively. Bad debt
expense totaled $0.3 million in fiscal 1999, $0.3 million in fiscal 1998, and
$0.6 million in fiscal 1997.

The Company sells plumbing, hardware and other products throughout the
United States to do-it-yourself ("D-I-Y") retailers, mass merchandisers, smaller
independent retailers and wholesalers. The Company performs ongoing credit
evaluations of its customers' financial conditions. As a percentage of the
Company's net sales, the largest customer of Consumer Products, Kmart, accounted
for 10.0%, 9.5% and 8.0% in fiscal 1999, 1998 and 1997, respectively. As a
percentage of Consumer Products' net sales, Kmart accounted for 20.8%, 18.2% and
16.5%, for the same periods, respectively. During the same periods, the
Company's ten largest customers accounted for approximately 39.6%, 42.7% and
36.5% of net sales and approximately 55.7% and 42.3% of accounts receivable at
June 30, 1999 and 1998, respectively.

D. INVENTORIES

At June 30, 1999 and 1998, inventories, consisting primarily of finished
goods, are carried at the lower of first-in, first-out (FIFO) cost or market.
The Company regularly evaluates its inventory carrying value, with

30
<PAGE> 31

appropriate consideration given to any excess, slow-moving and/or nonsalable
inventories. In fiscal 1999, 1998 and 1997, the Company recorded charges of $0.6
million, $0.5 million and $2.1 million, respectively, in connection with its
evaluation of its inventory carrying value.

E. PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. For financial reporting
purposes, buildings and equipment are depreciated on a straight-line basis over
the estimated useful lives of the related assets. Depreciable lives are 15 to 40
years for buildings and 3 to 15 years for equipment. Leasehold improvements are
amortized on a straight-line basis over the term of the lease or the useful life
of the asset, whichever is shorter. For income tax purposes, accelerated methods
of depreciation are used. Depreciation expense totaled $1.6 million in fiscal
1999, $1.6 million in fiscal 1998 and $1.6 million in fiscal 1997.

F. COST OF BUSINESSES IN EXCESS OF NET ASSETS ACQUIRED

Cost of businesses in excess of net assets acquired is being amortized
primarily over 40 years using the straight-line method. Management has evaluated
its accounting for goodwill in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to Be Disposed Of," on an originating entity basis
considering future undiscounted operating cash flows and believes that the net
asset is realizable and the amortization period is appropriate. Management
continues to evaluate the realizability of this asset. Goodwill amortization
expense totaled $0.3 million in fiscal 1999, $0.3 million in fiscal 1998 and
$0.3 million in fiscal 1997. Accumulated amortization totaled $15.1 million and
$14.8 million at June 30, 1999 and 1998, respectively.

G. UNAMORTIZED DEBT ISSUANCE COSTS

Unamortized debt issuance costs relate to the Company's long-term and
short-term debt (See Note 5) and are amortized over the life of the related
debt. Amortization expense totaled $0.8 million in fiscal 1999, $0.8 million in
fiscal 1998 and $0.8 million in fiscal 1997, and is included in interest expense
in the accompanying consolidated statements of operations. The Company incurred
an extraordinary charge in fiscal 1998 related to the accelerated amortization
of unamortized debt issuance costs. (See Note 2).

H. ISSUANCES OF STOCK BY A SUBSIDIARY

The Company recognizes gains on issuances of stock by a subsidiary in its
consolidated statements of operations in amounts proportionate to its ownership
percentage of the subsidiary. In fiscal 1997, a portion of the gain the Company
recognized on the sale of Barnett stock was attributable to the gain recognized
on the issuance of stock by Barnett. (See Note 2).

I. PROCUREMENT COSTS

Procurement costs represent the amount paid by the Company in connection
with a customer's agreement to purchase products from the Company for a specific
period. The amount includes the consideration paid to the new or existing
customer (i) for the right to supply such customer for a specified period, (ii)
to assist such customer in reorganizing its store aisles and displays in order
to accommodate the Company's products and (iii) to purchase competitor's
merchandise that the customer has on hand when it changes suppliers, less the
salvage value received by the Company. The Company expenses these costs in the
fiscal year incurred. Procurement costs for (i) above totaled $2.0 million in
fiscal 1999 and $0.5 million in fiscal 1997. Procurement costs related to (ii)
above totaled $0.5 million in fiscal 1999 and $0.3 million in fiscal 1997. The
Company did not incur these types of procurement costs in fiscal 1998. These
types of procurement costs are included as procurement charges in the
accompanying consolidated statements of operations. Procurement costs for (iii)
above totaled $1.1 million, $1.1 million and $2.0 million in fiscal 1999, 1998
and 1997, respectively, and are included as a contra-sales amount in net sales
in the accompanying consolidated statements of operations.

31
<PAGE> 32

J. FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS

All balance sheet accounts of foreign subsidiaries are translated at the
exchange rate as of the end of the fiscal year. Income statement items are
translated at the average currency exchange rates during the fiscal year. The
resulting translation adjustment is recorded as a component of stockholders'
equity and comprehensive income. Foreign currency transaction gains or losses
are included in the consolidated statements of operations as incurred.

K. FINANCIAL STATEMENT ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.

L. EARNINGS PER SHARE

In February 1997, The Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings per Share" to be effective for financial statements
issued for periods ending after December 15, 1997. Under SFAS No. 128, primary
earnings per share have been replaced by "basic earnings per share", which
represents net income divided by the weighted average number of common shares
outstanding. Diluted earnings per share continues to utilize the weighted
average number of common stock and common stock equivalents, which include stock
options and warrants. Since the Company is in a loss position in fiscal 1999 and
1998, the impact of these options and warrants is anti-dilutive, therefore the
Company has disclosed basic earnings per share as basic and diluted for these
years.

The number of common shares used to calculate basic and diluted earnings
per share are as follows (in thousands):

<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Basic................................................... 12,057 12,026 11,919
Diluted................................................. 12,057 12,026 13,855
</TABLE>

A reconciliation of basic shares to diluted shares is as follows:

<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Basic................................................... 12,057 12,026 11,919
Dilutive effect of:
Stock options......................................... -- -- 502
Warrants.............................................. -- -- 1,434
------ ------ ------
Diluted................................................. 12,057 12,026 13,855
</TABLE>

2. BARNETT PUBLIC OFFERINGS AND EXTRAORDINARY CHARGE

In fiscal 1997, the Company completed a secondary offering of 1.3 million
shares of the Barnett Common Stock at a per share price of $17.50, before the
underwriters' discount (the "Barnett Secondary Offering"). Barnett participated
in the Barnett Secondary Offering and sold 425,000 of its own shares. The
Company received net proceeds, after the underwriters' discount, of $21.6
million and recorded a $16.7 million pre-tax gain. The Company converted the
remaining convertible non-voting preferred stock of Barnett it owned to Barnett
Common Stock. In July 1997, as a result of the sale of a substantial portion of
the business of LeRan Gas Products, one of WOC's operations, to Barnett, the
Company received cash and an additional 24,730 shares of Barnett Common Stock.
As a result of these transactions, at June 30, 1999, the Company owned 7,186,530
shares, or 44.3%, of the outstanding shares of Barnett Common Stock. This
investment is accounted for under the equity method of accounting.

32
<PAGE> 33

Prior to the Barnett Secondary Offering, the Company owned approximately
49.9% of the Barnett Common Stock and, including convertible non-voting
preferred stock of Barnett, a 54% economic interest in the capital stock of
Barnett. The Company's ownership in Barnett was reduced to this level in fiscal
1996 when the Company consummated an initial public offering of the Barnett
Common Stock.

Net proceeds received by the Company from the Barnett Secondary Offering
were used primarily to repay outstanding indebtedness. As a result, the Company
recorded an extraordinary charge of approximately $0.2 million in fiscal 1998,
relating to the accelerated amortization of the related unamortized debt
discount and debt issuance costs attributed to indebtedness repaid from the net
proceeds of the Barnett Secondary Offering (See Note 5).

The following table presents summary financial data for Barnett at June 30,
1999 and 1998 and for the years ended June 30 1999, 1998 and 1997 (in thousands
of dollars):

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Statement of income data:
Net sales....................................... $241,374 $199,578 $160,068
Gross profit.................................... 80,191 67,443 54,692
Net income...................................... 15,215 14,277 12,035
Balance sheet data:
Current assets.................................. $ 94,941 $ 72,054 $ 61,271
Non-current assets.............................. 54,245 23,730 15,744
Current liabilities............................. 24,615 19,623 16,404
Non-current liabilities......................... 33,000 -- --
</TABLE>

The Barnett Form 10-K for the year ended June 30, 1999 is herein
incorporated by reference.

3. MANAGEMENT'S REVIEW OF WHOLLY-OWNED OPERATIONS

Since fiscal 1994, the Company's strategic effort has been to reduce its
high level of debt through the monetization of assets and to improve the
efficiencies from its continuing businesses. As a result, the Company has
undertaken various initiatives to raise cash, improve its cash flow and reduce
its debt obligations or improve its financial flexibility during that period.
Accordingly, management performed strategic reviews of its business operations
in past fiscal years that resulted in the Company recording significant charges
as follows.

FISCAL 1997 --

In fiscal 1997, the Company recorded charges totaling $7.2 million,
including adjustments to cost of sales of $4.3 million, selling, general and
administrative ("SG&A") expenses of $2.6 million and $0.3 million to sales
allowances. The largest portion of the adjustments were made at Consumer
Products, with charges of $4.2 million, $1.1 million and $0.3 million to cost of
sales, SG&A expenses and sales, respectively, related to the decision to augment
certain existing product lines, streamline its packaged plumbing product line,
enhance and redesign its existing plumbing product packaging, undertake certain
customer retention and development programs, and establish inventory reserves
which were necessary, in part, for the reduction in the buying patterns of
Builders Square and Kmart. In addition, the Company recorded $0.1 million and
$1.5 million in additional cost of sales and SG&A expenses, respectively, in
total at its remaining operations, primarily related to inventory adjustments
and charges for valuation reserves, professional services and the increase in
value of certain stock appreciation rights granted to certain key executives.
The Company also recorded a loss of $0.7 million on the disposal of Madison in
the fourth quarter of fiscal 1997 (described in Note 4).

33
<PAGE> 34

4. SALE OF DIVISIONS

A. SALE OF U.S. LOCK

In January 1999, the Company sold certain of the assets and liabilities of
U.S. Lock, a division of WOC, to Barnett, for approximately $33.0 million in
cash, less certain post closing adjustments. A portion of the proceeds from the
sale of U.S. Lock was used to repay the BankAmerica Business Credit working
capital loan collateralized by the accounts receivable and inventory of U.S.
Lock and to pay expenses associated with the transaction, with the remaining
funds being reinvested in the Company's businesses.

The sale of U.S. Lock resulted in an estimated net pretax gain of $18.3
million, of which approximately $8.1 million was originally reported as a
deferred gain for financial statement purposes due to the Company's continued
ownership of 44.3% of Barnett, the acquirer of U.S. Lock. The Company is
recognizing the deferred gain as the goodwill generated by the purchase of U.S.
Lock is amortized by Barnett, or as the Company reduces its ownership interest
in Barnett. In the fourth quarter of fiscal 1999, the Company recognized $0.1
million of this deferred gain, which is included in the gain on sale of U.S.
Lock in the accompanying consolidated statements of operations. The Company
utilized a portion of its net operating loss carryforwards to offset a portion
of the tax on the net gain from the sale of U.S. Lock.

The Company consolidated U.S. Lock's financial information in its results
through December 31, 1998. Therefore, there is no impact on the Company's net
sales or earnings from U.S. Lock's operating results subsequent to December 31,
1998. The impact of not consolidating U.S. Lock's results would have reduced the
consolidated net sales and resulted in a larger net loss (lower net income for
fiscal 1997) for the Company as follows:

<TABLE>
<CAPTION>
FISCAL 1999 FISCAL 1998 FISCAL 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales................................... $13,361 $22,762 $18,738
Net (loss) income........................... $ 1,000 $ 1,683 $ 1,115
Basic income per share...................... $ 0.08 $ 0.14 $ 0.09
Diluted income per share.................... $ 0.08 $ 0.14 $ 0.08
</TABLE>

B. SALE OF LERAN GAS PRODUCTS

Effective July 1, 1997, the Company sold the gas products business of
LeRan, to Barnett, for $3.2 million in cash and 24,730 shares of Barnett Common
Stock, with a value of $0.6 million at the time of the transaction. For fiscal
1997 and 1996, LeRan reported approximately $13.8 million and $16.3 million in
net sales and operating income of approximately $0.4 million and $28,000,
respectively. In the first quarter of fiscal 1998, the Company recorded an
estimated loss on the sale of LeRan of $133,000, including certain costs
associated with disposing of assets not included in the transaction and the sale
and closing of certain warehouses. The estimated loss was adjusted in the fourth
quarter of fiscal 1998 to an actual loss of $24,000. The net proceeds were
reinvested in the continuing businesses of the Company, thereby effectively
reducing borrowings under the Credit Agreement (as defined in Note 5).

C. SALE OF MADISON EQUIPMENT COMPANY

In April 1997, the Company sold Madison Equipment Company ("Madison"), a
division of WOC, for $2.0 million in cash. The loss of $0.7 million from the
sale of Madison is included as a non-recurring charge in the accompanying
consolidated statements of operations. Madison's net sales, which are included
in the 1997 fiscal year, amounted to $5.0 million and operating income amounted
to $0.2 million. The net proceeds were reinvested in the continuing businesses
of the Company, thereby effectively reducing borrowings under the Credit
Agreement (as defined in Note 5).

34
<PAGE> 35

5. DEBT

A. LONG-TERM DEBT

Total other long-term debt consists of the following (in thousands of
dollars):

<TABLE>
<CAPTION>
JUNE 30,
------------------
1999 1998
------ --------
<S> <C> <C>
Bank Agreement.............................................. $ 444 $ 9,804
Bank Term Loans............................................. -- 5,000
Senior Subordinated Notes................................... -- 895
Capital leases maturing through 2002, bearing interest at
rates ranging from 7.75% to 11.8%, secured by the leased
equipment................................................. 924 1,095
Other notes, maturing through 2007, bearing interest at
rates ranging from 7.1% to 9.0%, secured by the land,
building and equipment of TWI............................. 626 640
------ --------
1,994 17,434
Less: current portion....................................... (937) (16,343)
------ --------
Long-term debt, net of current portion................. $1,057 $ 1,091
====== ========
</TABLE>

On June 17, 1999, the Company entered into the Loan and Security Agreement
with Congress Financial Corporation to replace the Credit Agreement with
BankAmerica Business Credit, Inc. that was to expire on July 15, 1999. The Loan
and Security Agreement is between Consumer Products, WOC, WAMI and WAMI Sales,
as borrowers (the "Borrowers"), with the Company, Waxman USA Inc. ("Waxman USA")
and TWI as guarantors (the "Loan and Security Agreement"). The Loan and Security
Agreement provides for, among other things, revolving credit advances of up to
$20.0 million. As of June 30, 1999, the Company had $0.4 million in borrowings
under the revolving credit line of the credit facility and had approximately
$14.4 million available under such facility.

The Loan and Security Agreement provides for revolving credit advances of
(a) up to 85.0% of the amount of eligible accounts receivable, (b) up to the
lesser of (i) $10.0 million or (ii) 60% of the amount of eligible raw and
finished goods inventory and (c) up to the lesser of (i) $5.0 million or (ii)
70% of the fair market value of 500,000 shares of Barnett Common Stock.
Revolving credit advances bear interest at a rate equal to (a) First Union
National Bank's prime rate plus 0.5% or (b) LIBOR plus 2.50%. The Company is
required to pay a commitment fee of 0.375% per annum on the unused commitment.
The Loan and Security Agreement includes a letter of credit subfacility of $10.0
million, with none outstanding at June 30, 1999. Borrowings under the Loan and
Security Agreement are secured by the accounts receivable, inventories, certain
general intangibles, and unencumbered fixed assets of Waxman Industries, Inc.,
Consumer Products, TWI, International Inc. and WOC, and a pledge of 65% of the
stock of various foreign subsidiaries. In addition, up to $5.0 million of the
Loan and Security Agreement is also secured by a pledge of 500,000 shares of
Barnett Common Stock owned by the Company (constituting approximately 3.1% of
all outstanding Barnett Common Stock). The Loan and Security Agreement requires
the Borrowers to maintain cash collateral accounts into which all available
funds are deposited and applied to service the facility on a daily basis. The
Loan and Security Agreement prevents dividends and distributions by the
Borrowers and Guarantors except in certain limited instances including, so long
as there is no default or event of default and the Borrowers are in compliance
with certain financial covenants, the payment of interest on the Senior
Subordinated Notes and Deferred Coupon Notes of the Company, and contains
customary negative, affirmative and financial covenants and conditions such as
minimum net worth covenant. The Company was in compliance with all loan
covenants at June 30, 1999. As a result of the inclusion of a material adverse
effect clause as an event of default and the requirement to maintain cash
collateral accounts, the borrowings under the Loan and Security Agreement have
been classified as a current liability. The material adverse condition clause
allows Congress Financial Corporation to terminate the Agreement under certain
circumstances. The Loan and Security Agreement expires September 1, 2001, but
may be extended under certain circumstances.

35
<PAGE> 36

Prior to entering into the Loan and Security Agreement, Consumer Products
and WOC participated in a credit facility provided by BankAmerica Business
Credit, Inc. (the "Credit Agreement"), which began in June 1996. The Credit
Agreement provided for, among other things, revolving credit advances of up to
$30.0 million and term loans of up to $5.0 million.

B. SENIOR SECURED DEFERRED COUPON NOTES

On May 20, 1994, the Company exchanged $50 million principal amount of its
Senior Subordinated Notes (as defined below) for $50 million initial accreted
value of 12 3/4% Senior Secured Deferred Coupon Notes due 2004 (the "Deferred
Coupon Notes") along with detachable warrants to purchase 2.95 million shares of
the Company's common stock. The Deferred Coupon Notes were fully accreted at
June 1, 1999, and began accruing cash interest at a rate of 12 3/4% which is
payable on December 1,1999 and semi-annually thereafter. The Deferred Coupon
Notes are redeemable, in whole or in part, at the option of the Company, after
June 1, 1999 at 106.375% of accreted value, which decreases annually to 100% at
the maturity date. The Deferred Coupon Notes are secured by a pledge of the
capital stock of Waxman USA. The Deferred Coupon Notes rank senior in right of
payment to all existing and future subordinated indebtedness of the Company and
rank pari passu in right of payment with all other existing or future
unsubordinated indebtedness of the Company. The Deferred Coupon Notes contain
certain covenants which, among other things, limit the ability of the Company
and its subsidiaries to incur additional indebtedness, transfer or sell assets,
pay dividends, make certain restricted payments or investments, create liens or
enter into sale lease-back transactions, transactions with affiliates and
mergers. The Company was in compliance with all covenants at June 30, 1999.

In the event of a change of control, as defined in the Deferred Coupon Note
Indenture, the Company is obligated to make an offer to purchase all outstanding
Deferred Coupon Notes at 101% of the principal amount thereof plus accrued and
unpaid interest, if any. The Company is obligated in certain circumstances to
make an offer to purchase Deferred Coupon Notes at a redemption price plus
unpaid interest, if any, with the net cash proceeds of certain sales or other
dispositions of assets, to the extent such proceeds are not reinvested in the
Company's businesses in a one year period.

The warrants are exercisable through June 1, 2004, at a price of $2.45 per
share. A portion of the initial accreted value of the Deferred Coupon Notes was
allocated to the warrants and as a result, paid-in capital increased by $2.5
million. The related $2.5 million reduction in the recorded initial accreted
value of the Deferred Coupon Notes is being amortized as interest expense over
the life of the Deferred Coupon Notes.

C. SENIOR NOTES

On April 3, 1996, the Company, through its wholly-owned subsidiary, Waxman
USA, consummated an offer to exchange $48.8 million principal amount of its
11 1/8% Senior Notes due September 1, 2001 ("Senior Notes") for a like amount of
the Company's outstanding 13 3/4% Senior Subordinated Notes due June 1, 1999
("Senior Subordinated Notes"), and in connection therewith solicited consents to
certain amendments to the indenture pursuant to which the Senior Subordinated
Notes were issued. Approximately $43.0 million of Senior Subordinated Notes were
exchanged in fiscal 1996. In fiscal 1997, the Company initiated a similar
exchange offer and exchanged an additional $4.8 million of Senior Subordinated
Notes, bringing the total amount exchanged to $47.9 million.

In May 1997, the Company commenced an offer to purchase $12.0 million
principal amount of Senior Notes at par (the "Purchase Offer"). The offer
expired on July 2, 1997, with $2.5 million of the notes being purchased. On July
3, 1997, the Company called for the redemption of $9.5 million of Senior Notes
that had not been tendered in the Purchase Offer, and on August 4, 1997, the
Company completed the note redemption. The Company used a portion of the net
proceeds from the Barnett Secondary Offering to purchase the Senior Notes. The
Company recorded an extraordinary charge of $0.2 million in the first quarter of
fiscal 1998 related to the write-off of unamortized deferred financing costs
associated with the purchase and redemption of these Senior Notes.

The Senior Notes are general unsecured obligations of Waxman USA ranking
pari passu in right of payment to any future indebtedness of Waxman USA that is
not subordinated in right of payment to the

36
<PAGE> 37

Senior Notes and senior in right of payment to any future indebtedness of Waxman
USA that is subordinated in right of payment to the Senior Notes. The Senior
Notes are structurally subordinated to the Loan and Security Agreement and any
refinancing thereof. The indenture under which the Senior Notes were issued (the
"Senior Note Indenture") contains certain covenants that, among other things,
limit the ability of Waxman USA and its subsidiaries to incur additional
indebtedness, transfer or sell assets, pay dividends, make certain other
restricted payments or investments, create liens or enter into sale lease-back
transactions, transactions with affiliates and mergers. Waxman USA was in
compliance with all covenants at June 30, 1999.

In the event of a change of control, as defined in the Senior Note
Indenture, the Company is obligated to make an offer to purchase all outstanding
Senior Notes at 101% of the principal amount thereof plus accrued and unpaid
interest, if any. The Company is obligated in certain circumstances to make an
offer to purchase Senior Notes at a redemption price plus unpaid interest, if
any, with the net cash proceeds of certain sales or other dispositions of
assets, to the extent such proceeds are not reinvested in the Company's
businesses in a one year period.

D. SENIOR SUBORDINATED NOTES

In June 1989, the Company issued $100 million principal amount of Senior
Subordinated Notes. During 1994, the Company exchanged $50 million principal
amount of the Senior Subordinated Notes for a like amount of Deferred Coupon
Notes. As discussed above, the Company issued Senior Notes in exchange for $43.0
million principal amount of Senior Subordinated Notes in fiscal 1996 and an
additional $4.8 million in fiscal 1997. On June 1, 1999, approximately $0.9
million of Senior Subordinated Notes matured, representing the remaining amount
of the Senior Subordinated Notes, and were repaid.

E. MISCELLANEOUS

The Company made cash interest payments of $6.2 million in fiscal 1999,
$5.8 million in fiscal 1998 and $6.5 million in fiscal 1997. Interest income was
$0.2 million in fiscal 1999 and $0.1 million in fiscal 1998 and 1997. The
Company also has a significant amount of non-cash interest, accrued interest and
interest cost from the amortization of deferred financing costs, which makes up
the balance of the interest expense presented in the accompanying consolidated
statements of operations.

Management believes the carrying value of its bank loan approximates its
fair value as it bears interest based upon the banks' prime lending rates. At
June 30, 1999, the market price for the Deferred Coupon Notes is approximately
$46.4 million, which is approximately 50% below the carrying value of the debt.
The fair value, determined using quoted market prices for the Senior Notes,
approximates their carrying amount.

6. INCOME TAXES

The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 utilizes the asset and
liability method, where deferred tax assets and liabilities are recognized for
the future tax consequences attributable to net operating loss carryforwards and
to differences between the financial statement carrying amounts of assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which these temporary differences are expected to be recovered or
settled.

The components of income (loss) from continuing operations before income
taxes and extraordinary loss are as follows (in thousands of dollars):

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
----------------------------
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
Domestic......................................... $(7,209) $(5,297) $2,569
Foreign.......................................... 761 1,526 1,404
------- ------- ------
Total.......................................... $(6,448) $(3,771) $3,973
======= ======= ======
</TABLE>

37
<PAGE> 38

The components of the provision for income taxes are (in thousands of
dollars):

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
----------------------------
1999 1998 1997
-------- ------ ------
<S> <C> <C> <C>
Currently payable:
U.S. Federal.......................................... $ 171 $ -- $210
Foreign, state and other.............................. 1,398 537 191
------ ---- ----
Total current....................................... 1,569 537 401
Deferred: State....................................... (540) -- --
------ ---- ----
Total provision..................................... $1,029 $537 $401
====== ==== ====
</TABLE>

Barnett is not included in the Company's consolidated tax return.

The following table reconciles the U.S. statutory rate to the Company's
effective tax rate:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
U.S. statutory rate................................... 35.0% 35.0% 35.0%
Domestic losses not benefited......................... -- (43.9) --
State taxes, net...................................... (6.0) (4.0) 2.1
Goodwill amortization................................. (1.5) (1.1) 3.1
Foreign tax items..................................... 0.1 6.2 1.0
Change in valuation allowance......................... (22.0) -- (38.3)
Nondeductible compensation............................ (14.7) -- --
Original issue discount............................... (3.8) (5.8) 4.8
Other, net............................................ (3.1) (0.6) 2.4
----- ----- -----
Effective tax rate.................................. (16.0%) (14.2%) 10.1%
===== ===== =====
</TABLE>

The deferred tax assets and liabilities as of June 30, 1999 and 1998 are as
follows (in thousands of dollars):

<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Net operating loss carryforwards.......................... $16,801 $18,433
Original issue discount................................... 14,459 11,113
Deferred gain on sale of U.S. Lock........................ 3,346 --
Accrued expenses.......................................... 1,129 1,206
Inventories............................................... 709 1,270
Accounts receivable....................................... 333 389
Alternative minimum tax credit............................ 990 895
Other..................................................... 848 372
------- -------
Deferred tax asset...................................... 38,615 33,678
------- -------
Investment in subsidiaries................................ (12,185) (9,825)
Property.................................................. (1,139) (494)
Other assets.............................................. (3) (27)
------- -------
Deferred tax liabilities................................ (13,327) (10,346)
------- -------
Net deferred tax asset.................................. 25,288 23,332
Valuation allowance..................................... (24,748) (23,332)
------- -------
$ 540 $ --
======= =======
</TABLE>

At June 30, 1999, the Company has $48.0 million of available domestic net
operating loss carryforwards for income tax purposes, which expire 2009 through
2013. The Company also has alternative minimum tax

38
<PAGE> 39

carryforwards of approximately $1.0 million at June 30, 1999, which are
available to reduce future regular income taxes over an indefinite period.

At June 30, 1999, the Company's net deferred tax assets are substantially
offset by a valuation allowance, except for the deferred tax asset related to
state taxes currently payable on the deferred gain on the sale of U.S. Lock.
SFAS No. 109 requires the Company to assess the realizability of its deferred
tax assets based on whether it is more likely than not that the Company will
realize the benefit from these deferred tax assets in the future. If the Company
determines the more likely than not criteria is not met, SFAS No. 109 requires
the deferred tax assets be reduced by a valuation allowance. In assessing the
realizability of its net deferred tax asset as of June 30, 1999, the Company
considered factors such as (i) its historical and projected taxable losses and
its inability to utilize its net operating loss carryforwards, which comprise a
significant portion of the net deferred tax; (ii) the benefit of the deferred
tax asset related to the original issue discount will not be realized unless the
interest accreted on the Senior Secured Deferred Coupon Notes is paid; (iii) the
Company continues to own a 44.3% interest in Barnett, as well as other operating
assets, which, upon disposition, could potentially generate future taxable
income but the taxable income generated, if any, would be dependent upon the
disposition terms; (iv) the Company has not yet been able to complete a
financial restructuring plan that may ultimately result in the realization of a
portion or all of the Company's net deferred tax asset and thus, the ultimate
impact cannot be objectively anticipated or verified.

Based on the Company's consideration of the above factors, the Company
believed it was appropriate to maintain a valuation allowance on its net
deferred tax asset, except for on the deferred tax asset related to state taxes
currently payable on the deferred gain on the sale of U.S. Lock. As a result, as
of June 30, 1999, the Company has substantially offset its net deferred tax
asset with a valuation allowance. The Company will continue to assess the
valuation allowance and to the extent it is determined that such allowance is no
longer required, the tax benefit of the remaining net deferred tax assets will
be recognized in the future.

The Company made income tax payments of $0.5 million in fiscal 1999, $0.3
million in fiscal 1998 and $1.3 million in fiscal 1997. Refunds received totaled
$1,300 in fiscal 1999, $39,000 in fiscal 1998, and $47,000 in fiscal 1997.

7. LEASE COMMITMENTS

The Company leases certain warehouse and office facilities and equipment
under operating lease agreements, which expire at various dates through 2008.

Future minimum rental payments are as follows (in thousands of dollars) :

<TABLE>
<S> <C>
2000................................................. $1,348
2001................................................. 662
2002................................................. 340
2003................................................. 137
2004................................................. 106
Thereafter........................................... 440
------
$3,033
</TABLE>

Total rent expense charged to operations was $1.6 million in fiscal 1999,
$2.5 million in fiscal 1998 and $1.7 million in fiscal 1997. Consumer Products
leases certain warehouse space from related parties. Related parties rent
expense totaled $0.3 million in fiscal 1999, $0.3 million in fiscal 1998 and
$0.5 million in fiscal 1997. Those related party relationships consist of the
following:

- Aurora Investment Co., a partnership owned by Melvin Waxman,
Chairman of the Board and Co-Chief Executive Officer of the Company,
and Armond Waxman, President and Co-Chief Executive Officer of the
Company, together with certain other members of their families, is
the owner and lessor of the building used by Consumer Products for
its executive offices, administrative functions and, until the move
of the warehouse to Groveport, Ohio, one of its

39
<PAGE> 40

distribution facilities. The warehouse portion of this facility has
been subleased to Handl-it, Inc. (see below for information
regarding affiliated ownership) for the duration of the lease term.
Rent expense under this lease was $326,716 in fiscal 1999, $314,150
in fiscal 1998 and $314,150 in fiscal 1997. The Company received
rental income from Handl-it, Inc. of $95,324 in fiscal 1999 for
subleasing the warehouse in Bedford Hts., Ohio for a portion of the
year.

- Handle-it Inc., a corporation owned by John S. Peters, a consultant
to the Company, together with certain other members of his family,
Melvin Waxman and Armond Waxman, provides Consumer Products with
certain outside warehousing services under month-to-month rental
arrangements from time to time. Consumer Products may enter into
month-to-month leases in the future, depending on its business
requirements at the time. Rent expense under these lease
arrangements was $10,000, $30,000 and $137,000 for fiscal 1999, 1998
and 1997, respectively. Consumer Products Group also paid Handl-it
Inc. approximately $55,000 for the cost of transportation of
products in fiscal 1999.

- Effective July 1, 1999, WAMI Sales replaced an internally operated
warehouse facility in Cleveland, Ohio with an arrangement with
Handl-it Inc. to provide all warehousing, labor and shipping
functions for a fee equal to 7.5% of monthly sales from this
location.

8. PROFIT SHARING AND 401(K) PLAN

The eligible employees of the Company and certain subsidiaries of the
Company participate in a trusteed, profit sharing and 401(k) retirement plan.
Contributions are discretionary and are determined by the Company's Board of
Directors. There were no profit sharing contributions in fiscal 1999, 1998 or
1997; however, the Company contributed a 50% match of up to the first 4% of
salary deferral by employees, which amounted to $0.1 million in fiscal 1999,
1998 and 1997. The Company currently offers no other retirement, post-retirement
or post-employment benefits.

9. RELATED-PARTY TRANSACTIONS

The Company's wholly-owned subsidiaries engage in business transactions
with Barnett. Products sold to Barnett for resale totaled $19.9 million in
fiscal 1999, $16.2 million in fiscal 1998 and $13.7 million in fiscal 1997.
There were no purchases from Barnett in fiscal 1999 or 1998 and $0.1 million in
fiscal 1997.

The Company and Barnett provide to and receive from each other certain
selling, general and administrative services and reimburse each other for
out-of-pocket disbursements related to those services. The Company and Barnett
entered into an Intercorporate Agreement (the "New Intercorporate Agreement")
under which the Company provides certain managerial, administrative and
financial services to Barnett and is paid by Barnett for the allocable cost of
the salaries and expenses of the Company's employees while they are rendering
such services. Barnett also reimburses the Company for actual out-of-pocket
disbursements to third parties by the Company required for the provision of such
services by the Company. In addition to the services provided by the Company to
Barnett pursuant to the New Intercorporate Agreement, Barnett also provided
certain services to U.S. Lock, LeRan and Madison, until their sale. These
services included the utilization of Barnett's management information systems,
financial accounting, order processing and billing and collection services. The
Company paid Barnett the allocable cost of the salaries and expenses of
Barnett's employees while they were performing such services. The Company also
reimbursed Barnett for all actual out-of-pocket disbursements to third parties
by Barnett required for the provision of such services. The net effect of these
charges is not material. The arrangements provided in the New Intercorporate
Agreement may be modified and additional arrangements may be entered into
pursuant to a written agreement between the Company and Barnett.

All amounts incurred by the Company on behalf of Barnett, have been
reimbursed by Barnett. All amounts incurred by Barnett on behalf of the Company,
have been reimbursed by the Company and are reflected in selling, general and
administrative expenses in the accompanying statements of operations.

40
<PAGE> 41

The Company leases certain facilities and has other related party
relationships as more fully disclosed in Note 7.

10. CAPITAL STOCK

Each share of the Company's common stock (the "Common Stock") entitles its
holder to one vote, while each share of Class B common stock entitles its holder
to ten votes. Cash dividends on the Class B common stock may not exceed those on
the Common Stock. Due to restricted transferability, there is no trading market
for the Class B common stock. However, the Class B common stock may be
converted, at the stockholder's option, into Common Stock on a share-for-share
basis at any time, without cost to the stockholder.

The Company is authorized to issue two million shares of preferred stock in
series, with terms fixed by resolution of the Board of Directors. No preferred
shares have been issued as of June 30, 1999.

11. STOCK OPTION PLANS, RESTRICTED SHARE PLANS AND STOCK APPRECIATION RIGHTS

The Company has two plans under which stock options may be granted. The
Company applies APB Opinion No. 25 and related Interpretations in accounting for
these stock options. Accordingly, no compensation costs have been recognized for
these stock based compensation awards. Pro forma net income and earnings per
share for the fiscal years ended June 30th, assuming compensation costs for the
Company had been determined consistent with SFAS No. 123, "Accounting for
Stock-Based Compensation", would have been (in thousands of dollars, except per
share data):

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
Net income (loss) as reported.................... $(7,477) $(4,500) $3,572
Pro forma net income (loss)...................... $(7,865) $(4,849) $3,455
Basic earnings (loss) per share as reported...... $ (0.62) $ (0.37) $ 0.30
Pro forma basic earnings (loss) per share........ $ (0.65) $ (0.40) $ 0.29
Diluted earnings (loss) per share as reported.... $ (0.62) $ (0.37) $ 0.26
Pro forma diluted earnings (loss) per share...... $ (0.65) $ (0.40) $ 0.25
</TABLE>

Pro forma disclosure for companies using APB Opinion No. 25 requires
calculating compensation cost for the effects of all awards granted in the first
fiscal year beginning after December 15, 1994. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions used for grants made since July 1, 1995: no
dividends; expected volatility of 88.5%; average risk-free interest rate of
6.0%; and expected life of 8.9 to 10 years. Because the cost of calculating
compensation under SFAS No. 123 has not been applied to options granted before
July 1, 1995, the resulting pro forma expense may not be representative of the
actual expense that may be incurred in the future.

The 1992 Non-Qualified and Incentive Stock Option Plan, as amended (the
"1992 Stock Option Plan"), authorizes the issuance of an aggregate of 1.8
million shares of Common Stock in the form of stock options to officers and key
employees of the Company or its subsidiaries. Under the terms of the 1992 Stock
Option Plan, all options granted are at an option price not less than the market
value at the date of grant and may be exercised for a period not exceeding 10
years from the date of grant. As of June 30, 1999, 58 persons held such options.

In fiscal 1994, the Board of Directors of the Company adopted the 1994
Non-Employee Directors Stock Option Plan pursuant to which each current
non-employee director of the Company was granted an option to purchase an
aggregate of 20 shares of the Company's Common Stock at an exercise price of
$2.25 per share and each future non-employee director of the Company would be
granted, on the date such person becomes a non-employee director of the Company,
an option to purchase an aggregate of 20 shares of Common Stock at an exercise
price equal to the fair market value of the Company's Common Stock at the date
of grant. In addition, during fiscal 1994, the Company granted a consultant to
the Company an option to purchase an aggregate of 10 shares of Common Stock at
an exercise price of $2.25 per share. During fiscal 1999, options to

41
<PAGE> 42

purchase 20 shares expired as a result of the retirement of one non-employee
director. As of June 30, 1999, 3 persons held such options.

Changes in stock options outstanding for the 1992 Stock Option Plan and the
1994 Non-Employee Directors Stock Option Plan are as follows (in thousands,
except per share prices):

<TABLE>
<CAPTION>
1992 PLAN 1994 PLAN
SHARES OPTION PRICE SHARES OPTION PRICE
STOCK OPTIONS OUTSTANDING PER SHARE OUTSTANDING PER SHARE
------------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Balance as of June 30, 1996...... 1,354 $ 1.00-$2.25 70 $2.25
Granted.......................... 146 $3.375-$5.625 -- --
Exercised........................ (40) $ 1.00-$2.25 -- --
Expired or terminated............ (97) $ 1.00-$3.375 -- --
----- ----
Balance as of June 30, 1997...... 1,363 $ 1.00-$5.625 70 $2.25
Granted.......................... 270 $ 3.50-$4.0625 -- --
Exercised........................ (53) $ 1.00-$2.25 -- --
Expired or terminated............ (45) $ 1.00-$5.625 -- --
----- ----
Balance as of June 30, 1998...... 1,535 $ 1.00-$5.625 70 $2.25
Granted.......................... 75 $ 0.56-$3.375 -- --
Exercised........................ (1) $ 1.00 -- --
Expired or terminated............ (96) $ 1.00-$4.25 (20) $2.25
----- ----
Balance as of June 30, 1999...... 1,513 $ 1.00-$5.625 50 $2.25
</TABLE>

As of June 30, 1999, options for 1,148,275 shares were exercisable under
the 1992 Stock Option Plan and 50,000 were exercisable under the 1994
Non-Employee Directors Stock Option Plan.

In fiscal 1996, the Board of Directors adopted the 1996 Non-Employee
Directors Restricted Share Plan (the "1996 Plan"). The 1996 Plan is designed to
increase the proprietary and vested interest of the non-employee directors of
the Company in the growth, development and financial success of the Company. The
1996 Plan calls for 5,000 restricted shares of the Common Stock to be granted to
each non-employee director for each five years of service as a director. The
restricted shares vest on the last day of the second consecutive year during
which the individual serves as a director after the date of the award. Prior to
being vested, the shares bear a restricted legend and are held by the Company's
corporate secretary. In fiscal 1998, the Company awarded 5,000 restricted shares
and recorded compensation cost of approximately $20,000. There were no awards
made in fiscal 1999.

Also in fiscal 1996, the Stock Option Committee granted Stock Appreciation
Rights ("SAR") for 200,000 shares to each of the Co-Chief Executive Officers of
the Company at a base price of $3 3/8, and in September 1996, an SAR for 100,000
shares to the President of Consumer Products at a base price of $3 3/8. Each SAR
expires ten years from the date of grant and vests in whole, three years after
the date of grant. Upon exercise, the grantee is entitled to an amount equal to
the excess of the fair value per share of the Common Stock on the date of
exercise over the base price of the SAR. Each SAR is exercisable, at the
election of the grantee, for either cash or Common Stock. The SAR ceases to be
exercisable on the date of the termination of the employment of the grantee with
the Company, except due to death, disability or other than "for cause". In
fiscal 1997, the Company expensed $0.3 million related to the value of the
compensation due to the SAR's. Due to the market price of the Company's common
stock at June 30, 1998, in comparison to the prior year, no expense was recorded
relating to the value of the SAR's in fiscal 1998. In fiscal 1999, the Company
recorded into income the reversal of the charge taken in fiscal 1997 for the
SAR's due to the market price of the Company's stock being below the exercise
price of the SAR's.

42
<PAGE> 43

12. CONTINGENCIES

13. SEGMENT INFORMATION

The Company's businesses distribute specialty plumbing products,
galvanized, black, brass and chrome pipe nipples, imported malleable fittings
and other products. Since the foreign sourcing and manufacturing operations sell
a significant portion of their products through the Company's wholly-owned
operations, which primarily sell to retailers, and to Barnett, a distributor,
the Company has classified its business segments into retail and non-retail
categories. Products are sold to (i) retail operations, including large national
and regional retailers, D-I-Y home centers and smaller independent retailers in
the United States, and (ii) non-retail operations, including wholesale and
industrial supply distributors in the United States. Sales outside of the United
States are not significant. Until the January 1, 1999 sale of U.S. Lock, the
Company also distributed security hardware to non-retail operations, including
security hardware installers and locksmiths. Set forth below is certain
financial data relating to the Company's business segments (in thousands of
dollars).

<TABLE>
<CAPTION>
CORPORATE AND
RETAIL NON-RETAIL OTHER ELIMINATION TOTAL
------- ---------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Reported net sales:
Fiscal 1999................. $69,084 $43,150 -- $(13,118) $ 99,116
Fiscal 1998................. 77,000 45,355 -- (16,693) 105,662
Fiscal 1997................. 78,058 56,234 -- (15,286) 119,006
Operating income (loss):
Fiscal 1999................. $(2,800) $ 400 $ (3,898) -- $ (6,298)
Fiscal 1998................. 3,789 5,759 (3,629) -- 5,919
Fiscal 1997................. (3,308) 5,614 (4,392) -- (2,086)
Identifiable assets:
June 30, 1999............... $45,017 $15,866 $ 39,327 -- $100,210
June 30, 1998............... 46,109 23,041 36,593 -- 105,743
</TABLE>

The Company's foreign operations manufacture, assemble, source and package
products that are distributed by the Company's wholly-owned operations, Barnett,
retailers and other non-retail customers. Net sales for those foreign operations
amounted to $46.3 million, $39.2 million and $33.7 million for the fiscal years
ended June 30, 1999, 1998 and 1997, respectively. Of these amounts,
approximately $13.1 million, $16.7 million and $15.3 million were intercompany
sales for the fiscal year ended June 30, 1999, 1998 and 1997, respectively.
Identifiable assets for the foreign operations were $18.7 million and $18.0
million at June 30, 1999 and 1998.

43
<PAGE> 44

SUPPLEMENTARY FINANCIAL INFORMATION

QUARTERLY RESULTS OF OPERATIONS:

Presented below is a summary of the unaudited quarterly results of
operations for the fiscal years ended June 30, 1999 and 1998 (in thousands,
except per share amounts).

<TABLE>
<CAPTION>
FISCAL 1999 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales.......................................... $28,229 $29,198 $22,186 $19,503
Gross profit....................................... 9,088 8,661 6,247 5,856
Non-recurring and procurement charges.............. 1,350 -- 2,900 265
Operating income (loss)............................ (509) 218 (3,328) (2,679)
Gain on sale of U.S. Lock, net..................... -- -- 10,196 102
Income (loss) before provision for income taxes.... (3,292) (2,400) 4,374 (5,130)
Net income (loss).................................. $(3,478) $(2,454) $ 3,475 $(5,020)
Basic earnings (loss) per share:
Net income (loss)................................ $ (0.29) $ (0.20) $ 0.29 $ (0.42)
Diluted earnings (loss) per share:
Net income (loss)................................ $ (0.29) $ (0.20) $ 0.29 $ (0.42)
</TABLE>

<TABLE>
<CAPTION>
FISCAL 1998 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales.......................................... $28,157 $26,808 $24,444 $26,253
Gross profit....................................... 9,501 9,364 8,544 8,824
Non-recurring and procurement charges (income)..... 133 -- -- (109)
Operating income................................... 2,005 1,872 1,024 1,018
Loss before provision for income taxes and
extraordinary loss............................... (383) (323) (1,610) (1,455)
Extraordinary loss................................. 192 -- -- --
Net loss........................................... $ (819) $ (635) $(1,840) $(1,206)
Basic loss per share:
Loss before extraordinary loss................... $ (0.05) $ (0.05) $ (0.15) $ (0.10)
Extraordinary loss............................... (0.02) -- -- --
Net loss......................................... $ (0.07) $ (0.05) $ (0.15) $ (0.10)
Diluted loss per share:
Net loss......................................... $ (0.05) $ (0.05) $ (0.15) $ (0.10)
Extraordinary loss............................... (0.02) -- -- --
Net loss......................................... $ (0.07) $ (0.05) $ (0.15) $ (0.10)
</TABLE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable

PART III

Part III, except for certain information relating to Executive Officers
included in Part I, Item 4A, is omitted inasmuch as the Company intends to file
with the Securities and Exchange Commission within 120 days of the close of its
fiscal year ended June 30, 1999 a definitive proxy statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934.

44
<PAGE> 45

PART IV

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

<TABLE>
<S> <C>
(a)(1) The following consolidated financial statements are included
in Part II, Item 8:
Report of Independent Public Accountants.
Balance Sheets -- June 30, 1999 and 1998.
Statements of Operations -- For the Years Ended June 30,
1999, 1998 and 1997.
Statements of Stockholders' Equity -- For the Years Ended
June 30, 1999, 1998 and 1997.
Statements of Cash Flows -- For the Years Ended June 30,
1999, 1998 and 1997.
Notes to Financial Statements For the Years Ended June 30,
1999, 1998 and 1997.
Supplementary Financial Information.
(a)(2) All schedules have been omitted because the required
information is not present or not present in amounts
sufficient to require submission of the schedule, or because
the information required is included in the consolidated
financial statements including notes thereto.
(a)(3) EXHIBITS
3.1* Certificate of Incorporation of the Company dated October
27, 1989 (Exhibit 3(a) to the Company's Form S-8 filed
December 4, 1989, File No. 0-5888, incorporated herein by
reference).
3.2* By-laws of the Company. (Exhibit 3.2 to Annual Report on
Form 10-K for the year ended June 30, 1990, File No. 0-5888,
incorporated herein by reference.)
4.1* Indenture dated as of June 1, 1989 (the "Ameritrust
Indenture") between the Company and Ameritrust Company
National Association (Exhibit 4.1 to Annual Report on Form
10-K for the year ended June 30, 1989, File No. 0-5888,
incorporated herein by reference).
4.2* Form of the Company's 13 3/4% Senior Subordinated Note due
June 1, 1999 (Exhibit 4.2 to Annual Report on Form 10-K for
the year ended June 30, 1989, File No. 0-5888, incorporated
herein by reference).
4.3* First Supplemental Indenture to the Ameritrust Indenture
dated November 29, 1989. (Exhibit 4.2 to Annual Report on
Form 10-K for the year ended June 30, 1990, File No. 0-5888,
incorporated herein by reference.)
4.4* Second Supplemental Indenture to the Ameritrust Indenture
dated November 23, 1993 (Exhibit 4.3 to Waxman Industries,
Inc.'s Form S-2 filed July 8, 1994, incorporated herein by
reference).
4.5* Third Supplemental Indenture to the Ameritrust Indenture
dated May 20, 1994 (Exhibit 4.4 to Waxman Industries, Inc.'s
Form S-2 filed July 8, 1994 incorporated herein by
reference).
4.6* Indenture, dated as of May 20, 1994, by and between Waxman
Industries, Inc. and The Huntington National Bank, as
Trustee, with respect to the Deferred Coupon Notes,
including the form of Deferred Coupon Notes (Exhibit 4.1 to
Waxman Industries, Inc.'s Form S-4 filed June 20, 1994,
incorporated herein by reference).
4.7* Warrant Agreement, dated as of May 20, 1994, by and between
Waxman Industries, Inc. and The Huntington National Bank, as
Warrant Agent (Exhibit 4.2 to Waxman Industries, Inc.'s Form
S-4 filed June 20, 1994, incorporated herein by reference).
4.8* Warrant Certificate (Exhibit 4.3 to Waxman Industries,
Inc.'s Form S-4 filed June 20, 1994, incorporated herein by
reference).
4.9* Securities Purchase Agreement for Notes and Warrants dated
as of September 17, 1991, among the Company and each of the
Purchasers referred to therein. (Exhibit 4.4 to Annual
Report on Form 10-K for the year ended June 30, 1991, File
No. 0-5888, incorporated herein by reference).
</TABLE>

45
<PAGE> 46
<TABLE>
<S> <C>
4.10* Loan and Security Agreement dated as of June 17, 1999 by and
among Congress Financial Corporation, as Lender, and Waxman
Consumer Products Group Inc., WOC Inc., Western American
Manufacturing, Inc. and WAMI Sales, Inc. ,as Borrowers, and
Waxman Industries, Inc. , Waxman USA Inc. and TWI,
International, Inc. , as Guarantors (Exhibit x.x to Waxman
Industries, Inc.'s Report on Form 8-K filed June 17, 1999,
incorporated herein by reference).
4.11* Reserved
4.20* Reserved.
4.23* Reserved.
4.27* First Supplemental Indenture dated as of January 19, 1996 by
and between Waxman Industries, Inc. and The Huntington
National Bank, as Trustee (Exhibit 4.2 to Waxman Industries,
Inc.'s Amendment No. 8 to Registration Statement on Form S-2
filed April 15, 1996 Registration No. 33-54211, incorporated
herein by reference).
4.28* Indenture dated as of April 3, 1996 by and between Waxman
USA Inc. and the United States Trust Company of New York, as
Trustee, with respect to the 11 1/8% Senior Notes due 2001
of Waxman USA Inc., including the form of Senior Notes
(Exhibit 10.14 to Waxman Industries, Inc.'s Amendment No. 8
to Registration Statement on Form S-2 filed April 15, 1996,
Registration No. 33-54211, incorporated herein by
reference).
4.29* Registration Rights Agreement dated as of April 3, 1996 by
and between Waxman USA Inc. and the United States Trust
Company of New York (Exhibit 10.15 to Waxman Industries,
Inc.'s Amendment No. 8 to Registration Statement on Form S-2
filed April 15, 1996, Registration No. 33-54211,
incorporated herein by reference).
4.32* Standstill Agreement dated March 28, 1996 between Waxman
Industries, Inc. and Barnett Inc. (Exhibit No. 10.13 to
Waxman Industries, Inc.'s Amendment No. 8 to Registration
Statement on Form S-2 filed April 15, 1996, Registration No.
33-54211, incorporated by reference).
4.33* Loan and Security Agreement dated as of June 28, 1996 among
the Financial Institutions named therein and BankAmerica
Business Credit, Inc., as the Agent, Waxman Consumer
Products Group Inc. and WOC Inc., including certain exhibits
thereto (Exhibit No. 4.33 to Annual Report on Form 10-K for
the year ended June 30, 1996, File No. 0-05888, incorporated
herein by reference).
10.1* Lease between the Company as Lessee and Aurora Investment
Co. as Lessor dated June 30, 1992 (Exhibit 10.1 to Annual
Report on Form 10-K for the year ended June 30, 1992, File
No. 0-5888, incorporated herein by reference).
10.2* Policy Statement (revised as of June 1, 1980) regarding the
Company's Profit Incentive Plan (Exhibit 10(c)-1 to Annual
Report on Form 10-K for the year ended June 30, 1984, File
No. 0-5888, incorporated herein by reference).
10.4* Form of Stock Option Agreement between the Company and its
Directors. (Exhibit 10.5 to Annual Report on Form 10-K for
the year ended June 30, 1991, File No. 0-5888, incorporated
herein by reference).
10.6* Tax Sharing Agreement dated May 20, 1994 among Waxman
Industries, Waxman USA, Barnett Inc., Waxman Consumer
Products Group Inc., WOC Inc. and Western American
Manufacturing, Inc. (Exhibit 10.6 to Waxman Industries,
Inc.'s Form S-4 filed June 20, 1994, incorporated herein by
reference).
10.7* 1992 Non-Qualified and Incentive Stock Option Plan of Waxman
Industries, Inc., adopted as of July 1, 1992 (Exhibit 10.7
to Annual Report of Form 10-K for the year ended June 30,
1993, File No. 0-5888, incorporated herein by reference).
10.8* Intercorporate Agreement dated May 20, 1994 among Waxman
Industries, Waxman USA, Barnett Inc., Waxman Consumer
Products Group Inc., WOC Inc. and Western American
Manufacturing, Inc. (Exhibit 10.7 to Waxman Industries,
Inc.'s Form S-4).
</TABLE>

46
<PAGE> 47
<TABLE>
<S> <C>
10.9* Employee Stock Purchase Plan of Waxman Industries, Inc.,
adopted on September 1, 1992 (Exhibit 10.8 to Annual Report
on Form 10-K for the year ended June 30, 1993, File No.
0-5888, incorporated herein by reference).
10.10* Employment Agreement dated November 1, 1994 between Waxman
Consumer Products Group Inc. and Laurence Waxman (Exhibit
10.5 to Waxman Industries, Inc.'s Amendment No. 4 to
Registration Statement on Form S-2 filed October 10, 1995,
Registration No. 33-54211, incorporated herein by
reference).
10.11* Intercorporate Agreement dated March 28, 1996 among Waxman
Industries, Inc., Waxman USA Inc., Barnett Inc., Waxman
Consumer Products Group Inc., WOC Inc. and TWI,
International, Inc. (Exhibit 10.8 to Waxman Industries,
Inc.'s Amendment No. 8 to Registration Statement on Form S-2
filed April 15, 1996, Registration No. 33-54211,
incorporated herein by reference).
10.12* Waxman Industries, Inc. 1996 Non-Employee Directors'
Restricted Share Plan (Exhibit A to Waxman Industries, Inc.
1996 Proxy Statement, File No. 001-10273, incorporated
herein by reference).
10.13* SAR Agreement, dated as of March 29, 1996, between Waxman
Industries, Inc. and Armond Waxman (Exhibit 10.18 to Waxman
Industries, Inc. Form S-2 filed January 18, 1997,
incorporated herein by reference).
10.14* SAR Agreement, dated as of March 29, 1996, between Waxman
Industries, Inc. and Melvin Waxman (Exhibit 10.19 to Waxman
Industries, Inc. Form S-2 filed January 18, 1997,
incorporated herein by reference).
10.25* SAR Agreement, dated as of September 27, 1996, between
Waxman Industries, Inc. and Laurence Waxman (Exhibit 10.20
to Waxman Industries, Inc. Form S-2 filed January 18, 1997,
incorporated herein by reference).
18.2* Letter Regarding Change in Accounting Principles (Exhibit
18.2 to Annual Report on Form 10-K for the year ended June
30, 1996, File No. 001-10273, incorporated herein by
reference).
21.1* Subsidiaries. (Exhibit 21.1 to Waxman Industries, Inc.'s
Form S-4 filed June 20, 1994, incorporated herein by
reference).
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.
</TABLE>

- ---------------
* Incorporated herein by reference as indicated.

(b) Reports on Form 8-K

The Registrant filed a report on Form 8-K on June 17, 1999, incorporating by
reference the June 17, 1999 press release by the Registrant regarding the
completion of a $20 million bank credit facility with Congress Financial
Corporation.

47
<PAGE> 48

SIGNATURES

Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

WAXMAN INDUSTRIES, INC.

By: /s/ ARMOND WAXMAN
------------------------------------
Armond Waxman
President, Co-Chief Executive
Officer
and Director
September 21, 1999

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

/s/ MELVIN WAXMAN Chairman of the Board, Co-Chief September 21, 1999
- --------------------------------------- Executive Officer and Director
Melvin Waxman

/s/ ARMOND WAXMAN President, Co-Chief Executive Officer September 21, 1999
- --------------------------------------- and Director
Armond Waxman

/s/ MARK W. WESTER Chief Financial Officer and Vice September 21, 1999
- --------------------------------------- President -- Finance (principal
Mark W. Wester accounting officer)

/s/ WILLIAM R. PRAY Director September 21, 1999
- ---------------------------------------
William R. Pray

/s/ JUDY ROBINS Director September 21, 1999
- ---------------------------------------
Judy Robins

/s/ IRVING Z. FRIEDMAN Director September 21, 1999
- ---------------------------------------
Irving Z. Friedman

/s/ LAURENCE S. WAXMAN Director September 21, 1999
- ---------------------------------------
Laurence S. Waxman
</TABLE>

<PAGE> 1

Exhibit 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of
our report on the Consolidated Financial Statements of Waxman Industries, Inc.
and Subsidiaries for the year ended June 30, 1999, included in this Form 10-K,
into the Company's previously filed Form S-8 Registration Statement No.
33-57477.

/s/ Arthur Andersen LLP

Cleveland, Ohio,
September 22, 1999.

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 1,322
<SECURITIES> 0
<RECEIVABLES> 11,638
<ALLOWANCES> (952)
<INVENTORY> 19,052
<CURRENT-ASSETS> 37,743
<PP&E> 18,406
<DEPRECIATION> (7,238)
<TOTAL-ASSETS> 100,210
<CURRENT-LIABILITIES> 15,798
<BONDS> 128,480
0
0
<COMMON> 119
<OTHER-SE> (52,086)
<TOTAL-LIABILITY-AND-EQUITY> 100,210
<SALES> 99,116
<TOTAL-REVENUES> 99,116
<CGS> 69,264
<TOTAL-COSTS> 31,635
<OTHER-EXPENSES> 4,515
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,192
<INCOME-PRETAX> (6,448)
<INCOME-TAX> 1,029
<INCOME-CONTINUING> (7,477)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,477)
<EPS-BASIC> (.62)
<EPS-DILUTED> (.62)

</TABLE>