WAXMAN INDUSTRIES INC, 10-K405, 2000-08-29

WAXMAN INDUSTRIES INC
10-K405, 2000-08-29
HARDWARE & PLUMBING & HEATING EQUIPMENT & SUPPLIES

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM 10-K

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

FOR THE FISCAL YEAR ENDED JUNE 30, 2000

[ ]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
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(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
------------------------

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

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 August 21, 2000: $2,058,776

Number of shares of Common Stock outstanding as of August 21, 2000:

<TABLE>
<CAPTION>
<S> <C>
<S> <C>
Common Stock 9,976,112
Class B Common Stock 2,142,358
</TABLE>

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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, 2000,
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.
At June 30, 2000, the Company owned 44.2% of the common stock of Barnett Inc.
(the "Barnett Common Stock"), a direct marketer and distributor of plumbing,
electrical, hardware, and security hardware products, and accounts for Barnett
Inc. ("Barnett") under the equity method of accounting. The Barnett Form 10-K
for the year ended June 30, 2000 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 $81.4 million in fiscal 2000.

The Company conducts its business primarily through its wholly-owned
subsidiaries, Waxman Consumer Products Group Inc. ("Consumer Products"), WOC
Inc. ("WOC"), which was renamed Medal of Pennsylvania Inc. ("Medal") effective
July 1, 2000, and TWI, International, Inc. ("TWI"). WOC is comprised of Medal, 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, WAMI
Sales Inc., an operation that distributes galvanized, black, brass and chrome
pipe nipples and malleable fittings to wholesale trade distributors. TWI also
included an operation in Mexico that threads galvanized, black, brass, and
chrome pipe until its sale effective March 31, 2000. Consumer Products, WOC and
Barnett utilize the Company's and non-affiliated foreign sourcing suppliers.

At June 30, 2000, the Company owned 44.2% of Barnett, a direct marketer and
distributor of an extensive line of plumbing, electrical, hardware, and security
hardware products to approximately 71,500 active customers throughout the United
States. Barnett offers approximately 21,300 name brand and private label
products through its industry-recognized Barnett(R) and U.S. Lock(R) catalogs
and telesales operations. Barnett

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markets its products through six distinct, comprehensive catalogs that target
professional contractors, 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 2000 were $281.5 million. In fiscal 2000, the Company
recognized $6.5 million in equity income from this investment. See Management's
Discussion and Analysis "Debt Restructuring Effort" section and Note 14 of the
notes to consolidated financial statements in this Annual Report on Form 10-K
for a discussion of the Company's agreement to sell its interest in Barnett.

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 in Barnett 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 5,500 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 7 of
the 25 largest D-I-Y retailers and four 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 2000 were $42.1 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 September 1999, the combined Hechinger / Builders Square
operations filed for Chapter 7 liquidation. Those operations accounted for $3.7
million, or 7.8% and 3.8% of Consumer Products' and the Company's revenue,
respectively, in fiscal 1999. Due to the loss of this revenue base, Consumer
Products reduced its cost structure to be more in line with its revenue base,
but was unable to absorb all of the expenses due to this revenue loss. Consumer
Products' accounts receivable from Hechinger / Builders Square was $0.3 million
at the time of the bankruptcy filing, which has been fully reserved. 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.

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
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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 continued and was completed in fiscal 2000, with a
charge of $1.3 million being recorded.

In fiscal 1999, Consumer Products moved its distribution center from
Bedford Heights, Ohio to a more modern and efficient center in Groveport, Ohio,
a suburb of Columbus. In the fourth quarter of fiscal 2000, Consumer Products
closed its warehouse in Grand Prairie, Texas, and now operates from one national
distribution center near Columbus, Ohio. Consumer Products also closed its
packaging facility in Tijuana, Mexico. The items previously packaged in Mexico
are now packaged at the Company's overseas operations and, to a lesser extent,
with domestic packagers. The closure of these facilities resulted in a charge of
$0.6 million, but Consumer products expects to benefit from significant cost
savings as a result of this consolidation.

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 value added services, such as account
management, selling and marketing support and customer service. Due to the
sharing of responsibilities in servicing the domestic retail accounts, 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' 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.

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), a line
of shower and bath accessories under the proprietary trade name Spray
Sensations(R), as well as a newly designed all-in-one sink sprayer under the
name Soap 'n Spray(TM). 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) and PlumbKing(R). In addition, Consumer
Products offers certain of its customers the option of private label programs.

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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).

OTHER DOMESTIC OPERATIONS

MEDAL

WOC name was changed to Medal of Pennsylvania Inc. ("Medal") effective July
1, 2000, to reflect the remaining operation in this former group of divisions.
Medal is a supplier of hardware and plumbing products to approximately 600
independent retailers. The former WOC operations included U.S. Lock, a full line
supplier of security hardware products, until its January 1, 1999 sale, and the
operations of 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. Medal's net sales amounted to $4.7 million in fiscal 2000.

Medal, which was acquired by the Company in 1980, is a regional distributor
of hardware and plumbing products to independent hardware stores and small
independent retailers. Medal distributes its products primarily through outside
sales representatives and through a catalog and monthly circulars. The
operations for Medal are located in Sharon, Pennsylvania, serving customers
within a 250 mile radius. At June 30, 2000, Medal marketed approximately 11,800
products to its 600 customers. The continued expansion of certain national,
multi-category retailers has continued to impact the smaller, independent retail
operations served by Medal. Medal is working closely with its outside sales
representatives and the smaller independent and regional retailers to adjust to
the expansion of the large national retailers.

WAMI SALES

WAMI Sales Inc. ("WAMI Sales") was started by the Company in July 1997, to
distribute pipe nipples that were manufactured in Tijuana, Mexico by Western
American Manufacturing, an operation that was sold effective March 31, 2000.
WAMI Sales distributes pipe nipples, fittings and other products to industrial
supply and wholesale operations throughout the United States, and to a lesser
extent, Canada. It distributes approximately 1,500 products to approximately 600
customers through its own sales force and through outside sales representative
organizations. As a result of the sale of Western American Manufacturing, this
operation will begin reporting as a wholly-owned operation of Waxman USA Inc, a
wholly-owned, direct subsidiary of the Company effective July 1, 2000. WAMI
Sales has developed relationships with foreign suppliers, including producers
from Asia and with the acquirer of Western American Manufacturing, to supply the
products it distributes.

FOREIGN OPERATIONS

Through TWI, the Company conducts its foreign operations in China and
Taiwan, which support Consumer Products, Medal 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,
2000 and 1999, products purchased from the foreign operations accounted for
approximately 16.8% and 19.6%, respectively, of the total product purchases made
by the Company. For fiscal 2000, the operations owned by TWI had net sales of
$40.2 million, of which $18.8 million were to Barnett and $10.2 million were
intercompany transactions, which are eliminated 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. Effective March
31, 2000, the Company sold nearly all of the assets and certain liabilities of
Western American Manufacturing Inc., a company that manufactured galvanized,
black, brass, and chrome pipe nipples in Tijuana, Mexico. In June 2000, the
Company closed one of its facilities in China that manufactured faucet
components, resulting in a restructuring charge of $1.2 million to write down
assets to

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their fair value and provide for two months of costs to close the facility. The
Company will continue to distribute faucets that have been assembled by the
Company, with components being manufactured by outside suppliers.

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.

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>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Plumbing.................................................. 79% 68% 63%
Electrical................................................ 0% 1% 1%
Hardware.................................................. 21% 31% 36%
--- --- ---
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. During a portion of fiscal 2000, the
Company also imported 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 re-import 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, which was granted most favored
nations status in the spring of 2000. 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
71,500 active customers throughout the United States. Barnett offers and
promotes approximately 21,300 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 140
knowledgeable telesales,

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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 43 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 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, 2000, the Company owned 44.2% of the outstanding shares of
Barnett Common Stock. The Barnett Common Stock trades on the Nasdaq National
Market under the symbol "BNTT". See Management's Discussion and Analysis "Debt
Restructuring Effort" section and Note 14 of the notes to consolidated financial
statements in this Annual Report on Form 10-K for a discussion of the Company's
agreement to sell its interest in Barnett.

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, 2000, the Company employed 543 persons, 135 of whom were
clerical and administrative personnel, 54 of whom were sales and service
representatives and 354 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

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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.

ITEM 2. DESCRIPTION OF PROPERTIES

The following table sets forth, as of June 30, 2000, certain information
with respect to the Company's principal physical properties:

<TABLE>
<CAPTION>
LEASE
APPROXIMATE EXPIRATION
LOCATION SQUARE FEET PURPOSE DATE
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<S> <C> <C> <C>
24460 Aurora Road
Bedford Hts., OH............... 21,000 Corporate Office Owned
24455 Aurora Road
Bedford Hts., OH (1)........... 26,000 Consumer Products 6/30/02
Corporate Office
5920 Green Pointe Dr.
Groveport, OH.................. 114,000 Consumer Products 11/1/08
Office and Distribution Center
330 Vine Street
Sharon, PA..................... 80,000 Medal 2/28/01
Office and Distribution Center
No. 10, 7th Road
Industrial Park
Taichung, Taiwan
Republic of China.............. 55,000 TWI Owned
Office, Packaging and
Distribution Center
Dan Keng Village
Fu Ming County
Shenzhen, P.R. China........... 45,000 CWI Owned
Office, Packaging, Manufacturing
and Distribution Center
9430 Cabot Drive
San Diego, California.......... 13,000 WAMI Sales 1/31/02
Office and Distribution Center
</TABLE>

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

(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 2000, $326,716 in fiscal 1999 and $314,150
in fiscal 1998. The Company received rental income from Handl-it, Inc. for
subleasing the

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warehouse in Bedford Hts., Ohio of $290,970 in fiscal 2000 and $95,324 in
fiscal 1999 for a portion of the year.

Handl-it Inc., a corporation owned by John S. Peters, a director of and
consultant to the Company, together with certain other members of his family,
Melvin Waxman and Armond Waxman, provides Consumer Products and WAMI Sales 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 and $30,000 for fiscal 1999 and 1998,
respectively. Consumer Products Group also paid Handl-it Inc. approximately
$40,000 and $55,000 for the cost of transportation of products in fiscal 2000
and 1999, respectively. 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 a percentage of monthly sales plus other direct costs from this
operation. The charge amounted to $74,000 in fiscal 2000.

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 66, 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 61, 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 43, 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.

9
<PAGE> 10

Mr. Mark Wester, age 45, 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.

10
<PAGE> 11

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 2000 and 1999.

<TABLE>
<CAPTION>
2000 1999
-------------- --------------
HIGH LOW HIGH LOW
----- ----- ----- -----
<S> <C> <C> <C> <C>
First Quarter.................. $0.88 $0.28 $3.63 $1.06
Second Quarter................. 0.72 0.37 1.81 0.69
Third Quarter.................. 0.48 0.35 1.25 0.25
Fourth Quarter................. 0.38 0.23 0.50 0.31
</TABLE>

HOLDERS OF RECORD

As of August 21, 2000, there were 634 holders of record of the Company's
Common Stock and 116 holders of record of the Company's Class B Common Stock.

DIVIDENDS

The Company declared no dividends in fiscal 2000 or 1999. Restrictions
contained in the Company's debt instruments currently prohibit the declaration
and payment of cash dividends.

11
<PAGE> 12

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
--------------------------------------------------------
2000(8) 1999(9) 1998 1997 1996(10)
-------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................................... $ 81,360 $ 99,116 $105,662 $119,006 $235,067
Cost of sales (1)............................ 59,259 69,264 69,429 84,574 160,556
-------- -------- -------- -------- --------
Gross profit................................. 22,101 29,852 36,233 34,432 74,511
Selling, general and administrative
expenses................................... 27,094 31,635 30,290 34,996 70,628
Restructuring, impairment and procurement
charges (1)................................ 10,370 4,515 24 1,522 19,507
-------- -------- -------- -------- --------
Operating income (loss)...................... (15,363) (6,298) 5,919 (2,086) (15,624)
Gain on sale of Barnett stock, net (2)....... -- -- -- 16,693 65,917
Gain on sale of U.S. Lock, net (3)........... -- 10,298 -- -- --
Loss on sale of WAMI, net (1)(4)............. (2,024) -- -- -- --
Equity earnings of Barnett................... 6,511 6,744 6,341 5,843 --
Amortization of deferred U.S. Lock gain...... 202 -- -- -- --
Interest expense, net........................ 18,201 17,192 16,031 16,477 24,264
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes, minority interest,
discontinued operation, extraordinary loss
and cumulative effect of change in
accounting................................. (28,875) (6,448) (3,771) 3,973 26,029
Provision (benefit) for income taxes......... (27) 1,029 537 401 2,395
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before minority interest, discontinued
operation, extraordinary loss and
cumulative effect of change in
accounting................................. (28,848) (7,477) (4,308) 3,572 23,634
Minority interest in consolidated
affiliate.................................. -- -- -- -- 975
Discontinued operation: (5)
Reversal of loss on disposal............... -- -- -- -- 11,000
-------- -------- -------- -------- --------
Income (loss) before extraordinary loss and
cumulative effect of change in
accounting................................. (28,848) (7,477) (4,308) 3,572 33,659
Extraordinary loss (6)....................... -- -- 192 -- 6,251
Cumulative effect of change in accounting
(7)........................................ -- -- -- -- 8,213
-------- -------- -------- -------- --------
Net income (loss)............................ $(28,848) $ (7,477) $ (4,500) $ 3,572 $ 19,195
======== ======== ======== ======== ========
Average number of shares outstanding......... 12,066 12,057 12,026 11,919 11,759
======== ======== ======== ======== ========
Basic earnings (loss) per share:
From continuing operations before minority
interest, Discontinued operations,
extraordinary loss and cumulative effect
of change in accounting.................. $ (2.39) $ (.62) $ (.35) $ .30 $ 2.01
Minority interest in consolidated
affiliate................................ -- -- -- -- (.08)
Discontinued operations:
Reversal of loss on disposal............... -- -- -- -- .93
Extraordinary loss........................... -- -- (.02) -- (.53)
Cumulative effect of change in accounting.... -- -- -- -- (.70)
-------- -------- -------- -------- --------
Net income (loss) per share.................. $ (2.39) $ (.62) $ (.37) $ .30 $ 1.63
======== ======== ======== ======== ========
</TABLE>

12
<PAGE> 13

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

(1) In the fiscal 2000 second quarter, the Company recorded a $1.3 million
restructuring charge related to the consolidation of its packaged plumbing
products under the Plumbcraft(R) brand name. In the fiscal 2000 fourth
quarter, the Company recorded a $0.6 million restructuring charge related
to (i) the closure of its Grand Prairie, Texas distribution center, which
was consolidated into Consumer Products' distribution center near Columbus,
Ohio, and (ii) the closure of a packaging operation in Tijuana, Mexico that
was transferred to the Company's operations in Taiwan and China. In the
fiscal 2000 fourth quarter, Consumer Products also wrote off $1.7 million
in packaging material and other inventory associated with these closings,
which are recorded in cost of sales. The Company incurred a business
procurement charge of $150,000 in the first quarter and $500,000 in the
third quarter of fiscal 2000. In the fourth quarter of fiscal 2000, the
Company also recorded an asset impairment charge of $6.7 million related to
the write-off of goodwill as required by SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and Assets to Be Disposed Of", for two
product lines that were acquired by Consumer Products in December 1986 and
May 1988. Also included is a $1.2 million charge from the closure of
Premier Faucet Corporation in June 2000. In addition, the closure of the
faucet operation resulted in a reduction in sales of $0.4 million and
additional charges to cost of sales of $0.5 million for the realizability
of receivables and inventory. In fiscal 1999, the Company recorded a $2.1
million restructuring 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
restructuring charge of $133,000 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 $24,000. 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. 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) Reflects the $2.0 million loss on the March 31, 2000 sale of significantly
all of the assets and certain liabilities of Western American Manufacturing
Inc.

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

(6) 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.

(7) 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

13
<PAGE> 14

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.

(8) The results of Western American Manufacturing Inc. were consolidated by the
Company until its sale, which was effective March 31, 2000. As a result of
the sale, fiscal 2000 only includes nine months of WAMI'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
WAMI.

(9) 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.

(10) 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.

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 2000, approximately 25.5% and 52.0% 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 EFFORT

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. Excluding certain
of its interest payments, the Company believes that operating cash flow,
together with borrowings under its working capital credit facilities, will be
sufficient to fund its working capital requirements. However, the Company will
not be able to continue to make all of the interest and principal payments under
its debt obligations without the monetization of the value of the shares of
common stock of Barnett owned by the Company and/or a restructuring of such debt
instruments.

On December 13, 1999, the Company and an ad hoc committee (the "Committee")
representing the holders of approximately 87% of the $92.8 million outstanding
principal amount of the 12 3/4% Senior Secured Deferred Coupon Notes due 2004
(the "Deferred Coupon Notes") and approximately 65% of the 11 1/8% Senior Notes
due 2001 (the "Senior Notes") of Waxman USA Inc. entered into an agreement (the
"Debt Reduction Agreement") that provides, subject to certain conditions
(including Bankruptcy Court approval), for the process that would lead to the
full satisfaction of the Deferred Coupon Notes and the Senior Notes as part of a
comprehensive financial restructuring of the Company. On July 10, 2000, the
Company announced that it has reached agreements with the Committee, among
others, for the monetization of its ownership of Barnett Inc. common stock and
the financial restructuring of Waxman Industries. These agreements include the
Company's agreement to vote in favor of the acquisition of Barnett Inc. by
Wilmar Industries Inc. for $13.15 per share (the "Barnett Merger"). The
completion of the acquisition is subject to the successful financing by Wilmar
of the Barnett stock purchase.

The key provisions of Waxman's comprehensive financial restructuring plan
include:

- On July 10, 2000, Barnett agreed to a merger with Wilmar Industries,
Inc. at a cash price of $13.15 per share, which is expected to be
completed around September 30, 2000.

14
<PAGE> 15

- The Company has agreed to vote in favor of the merger and sell in
the Barnett Merger, all of the 7,186,530 shares of Barnett common
stock owned by Waxman USA Inc., a direct, wholly-owned subsidiary of
the Company, less any shares sold to Barnett as noted below.

- The Company would apply the proceeds of any sale of the Barnett
Common Stock owned by Waxman USA in the following order:

- approximately $1.35 million for state and federal taxes
associated with the sale of the Barnett shares

- approximately $10 million to reduce borrowings under its working
capital credit facility, which were used to fund approximately $6
million in interest paid to the Deferred Coupon Note holders on
December 1, 1999, $2 million in interest paid to the Senior Note
holders on March 1, 2000, and $2 million in other costs
associated with the financial restructuring transaction

- approximately $35.9 million, plus accrued interest, to repay in
full the Senior Notes, and

- the remaining net proceeds to a dedicated account to be used for
the full satisfaction of the Deferred Coupon Notes, including
accrued interest

Following the anticipated sale of the Company's interest in Barnett, the
Company and the Committee will file a jointly sponsored, prepackaged plan of
reorganization with the United States Bankruptcy Court (the "Joint Plan") to
effectuate the terms of the Debt Reduction Agreement. Under the Joint Plan, the
holders of the Deferred Coupon Notes will be the only impaired class of
creditors; none of the Company's operating subsidiaries or operating divisions
will be included in the filing and they will continue to pay their trade
creditors, employees and other liabilities under normal conditions.

The Company, with the consent of the Ad Hoc Committee, has not paid its
Deferred Coupon Note interest payment of $6.0 million that was due on June 1,
2000. This interest payment will be paid with a portion of the proceeds received
from the Barnett Merger. The Ad Hoc Committee has provided instructions to the
Trustee for the Deferred Coupon Notes not to take any action with respect to the
failure to pay the June interest payment, pending the anticipated completion of
the Barnett Merger. In the event the Barnett Merger is not completed by
September 1, 2000, the date the interest payment is due on the Senior Notes, the
Company has agreed to sell shares representing $2 million in value to Barnett to
allow the Company to make the payment due at such time.

Based on discussions with the Company's current working capital lender,
Congress Financial Corporation, the Company believes that debtor in possession
financing will not be necessary, and Congress will continue to provide financing
during and after the financial reorganization. In the event the financial
reorganization is not consummated, 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 to fund its working capital
requirements. However, 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.

In furtherance of its effort to enhance its liquidity position, the Company
sold substantially all of the assets and certain liabilities of Western American
Manufacturing Inc. effective March 31, 2000 for $1.8 million, excluding trade
receivables, trade payables and certain other obligations, which were retained
by the Company.

The Company believes that the completion of the transactions set forth in
the Debt Reduction Agreement will result in a stronger company. In addition to
the reduced debt levels of the Company, the Company's balance sheet will be
strengthened significantly as a result of the anticipated net after tax gain on
the sale of Barnett Common Stock, the discount on the redemption of the Deferred
Coupon Notes, net of the write off of the unamortized debt issuance costs, the
realization for accounting purposes of the deferred gain on the sale of U.S.
Lock, and the utilization of the Company's net operating loss carryforwards.
Furthermore,
15
<PAGE> 16

the elimination of the indebtedness from the Senior Notes and Deferred Coupon
Notes will reduce the Company's annual interest expense by approximately $16
million.

Although the Company has entered into the Debt Reduction Agreement, and has
an agreement that would monetize its investment in Barnett, there can be no
certainty that the above transactions will be completed. Accordingly, the
accompanying condensed consolidated financial statements have been prepared
assuming the Company will continue as a going concern and, as such, adjustments
to the financial statements, if any, that may be required for presentation on
another basis have not been considered. (See Report of Independent Public
Accountants and Footnote 14.)

HISTORICAL OVERVIEW

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

The Company owns 7,186,530 shares, or 44.2%, of the Barnett Common Stock at
June 30, 2000, 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).

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
restructuring 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 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.
16
<PAGE> 17

In December 1999, the Company agreed to a process with the Committee, that
would lead to the full satisfaction of the Deferred Coupon Notes and the Senior
Notes as part of a comprehensive financial restructuring of the Company. On July
10, 2000, the Company announced that it has reached agreements with the
Committee, among others, for the monetization of its ownership of Barnett Inc.
common stock and the financial restructuring of Waxman Industries. These
agreements include the Company's agreement to vote in favor of the acquisition
of Barnett Inc. by Wilmar Industries Inc. for $13.15 per share. (See "Debt
Restructuring Effort".)

Effective March 31, 2000, the Company sold nearly all of the assets and
certain liabilities of Western American Manufacturing Inc., a company that
manufactured galvanized, black, brass, and chrome pipe nipples in Tijuana,
Mexico, for $1.8 million in cash.

In the fourth quarter of fiscal 2000, Consumer Products consolidated
certain operations to improve its efficiencies, including the closure of
Consumer Product's Grand Prairie distribution center and packaging operations in
Tijuana, Mexico. Distribution operations for Consumer Products will be conducted
from a national distribution center near Columbus, Ohio, while the packaging
operations will be conducted at the Company's operations in China and Taiwan.

In June 2000, the Company closed its Premier Faucet Corporation facility in
China that manufactured faucets and faucet components, resulting in a
restructuring charge of $1.2 million to write down assets to their fair value
and provide for costs to close the facility. The closure of this operation also
resulted in an additional loss in gross profit of $0.9 million due to the
reduction in sales of $0.4 million and additional charges to cost of sales of
$0.5 million for the realizability of receivables and inventory. The Company
will continue to distribute faucets that have been assembled by the Company,
with components manufactured by outside suppliers.

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,
--------------------------
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 72.8% 69.9% 65.7%
Gross profit................................................ 27.2% 30.1% 34.3%
Selling, general and administrative Expenses................ 33.3% 31.9% 28.7%
Restructuring, impairment and procurement charges........... 12.8% 4.6% --
Operating income (loss)..................................... (18.9%) (6.4%) 5.6%
Gain on sale of U.S. Lock, net.............................. -- 10.4% --
Loss on sale of WAMI, net................................... 2.5% -- --
Equity earnings of Barnett.................................. 8.0% 6.8% 6.0%
Amortization of deferred U.S. Lock gain..................... 0.3% -- --
Interest expense, net....................................... 22.4% 17.3% 15.2%
Loss before income taxes and extraordinary loss............. (35.5%) (6.5%) (3.6%)
Provision (benefit) for income taxes........................ 0.0% 1.0% 0.5%
Loss before extraordinary loss.............................. (35.5%) (7.5%) (4.1%)
Extraordinary loss.......................................... -- -- (0.2%)
Net loss.................................................... (35.5%) (7.5%) (4.3%)
</TABLE>

17
<PAGE> 18

YEAR ENDED JUNE 30, 2000 VS. YEAR ENDED JUNE 30, 1999

NET SALES

Net sales of the Company's comparable continuing businesses for fiscal 2000
amounted to $77.8 million as compared to $81.9 million for fiscal 1999, a
decrease of $4.1 million. The loss of the Hechinger / Builders Square business
accounted for $3.4 million of the decrease in comparable net sales. Excluded
from those results are net sales of U.S. Lock, which was sold effective January
1, 1999, WAMI Manufacturing Inc., which was sold effective March 31, 2000 and
Premier Faucet Corporation, which was closed in June 2000. Reported net sales of
the Company's wholly-owned operations, including those operations sold, totaled
$81.4 million for fiscal 2000, as compared to $99.1 million for the same period
in the prior fiscal year.

GROSS PROFIT

The gross profit for the comparable continuing businesses for fiscal 2000
decreased to $22.4 million, as compared to $25.4 million for fiscal 1999.
Including results from U.S. Lock and WAMI while they were owned by the Company,
the gross profit amounted to $22.1 million and $29.9 million for fiscal 2000 and
1999, respectively. Gross profit for fiscal 2000 was lower due to a $1.7 million
fourth quarter charge in cost of sales at Consumer Products to write-off
packaging material and other inventory associated with the move of its packaging
facility to Asia, and the consolidation of its Grand Prairie, Texas facility
into its National Distribution Center in Groveport, Ohio. In addition, the June
2000 closure of Premier Faucet Corporation resulted in a reduction in gross
profit of $0.9 million due to the reduction in sales of $0.4 million and
additional charges to cost of sales of $0.5 million for the realizability of
receivables and inventory. For fiscal 2000, the gross profit margin for the
continuing businesses decreased to 28.8% from 31.0% for fiscal 1999, principally
due to the adjustments mentioned above.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative ("SG&A") expenses, excluding U.S. Lock,
WAMI and Premier Faucet, amounted to $25.7 million and $27.0 million for fiscal
2000 and 1999, respectively. Including the operations while they were operated
as part of the Company, SG&A expenses amounted to $27.1 million for fiscal 2000
and $31.6 million for fiscal 1999. As a percentage of net sales, SG&A expenses
for the continuing businesses increased from 33.0% in fiscal 1999 to 33.1% in
fiscal 2000, primarily due to the decrease in net sales and the relatively fixed
nature of certain SG&A expenses and the decrease in sales of the continuing
businesses.

RESTRUCTURING, IMPAIRMENT AND PROCUREMENT CHARGES

Consumer Products recorded restructuring, impairment and procurement
charges for fiscal 2000 of $10.4 million, including procurement costs of $0.65
million related to customer agreements to purchase product for a period of time,
$1.3 million for the consolidation of its packaged plumbing products under the
Plumbcraft(R) brand name, $0.6 million for the completion of its plan to create
a National Distribution Center and consolidate its Grand Prarie, Texas warehouse
into the Groveport, Ohio facility and the move of the packaging operations from
Tijuana, Mexico to the Company's operations in China, which should reduce
certain packaging costs. In the fourth quarter of fiscal 2000, Consumer Products
also recorded an asset impairment charge of $6.7 million related to the
write-off of goodwill as required by SFAS No. 121 "Accounting for the Impairment
of Long-Lived Assets and Assets to Be Disposed Of", for two product lines that
were acquired by Consumer Products in December 1986 and May 1988. In addition,
in June 2000 the Company closed its Premier Faucet Corporation facility in China
that manufactured faucets and faucet components, resulting in a restructuring
charge of $1.2 million to write down assets to their fair value and provide for
costs to close the facility. The closure of this operation also resulted in an
additional loss in gross profit of $0.9 million due to the reduction in sales of
$0.4 million and additional charges to cost of sales of $0.5 million for the
realizability of receivables and inventory. The Company will continue to
distribute faucets that have been assembled by the Company, with components
manufactured by outside suppliers.

18
<PAGE> 19

In the fiscal 1999 first quarter, Consumer Products recorded a
restructuring 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 restructuring 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 restructuring charge for the relocation of the
warehouse, the Company's operations also recorded a business procurement charge
of $2.5 million in fiscal 1999.

EQUITY EARNINGS OF BARNETT

The Company recorded equity earnings from its 44.2% ownership interest in
Barnett of $6.5 million for fiscal 2000, as compared to $6.7 million in fiscal
1999. See "Debt Restructuring Effort" section and Note 14 of the Notes to
Consolidated Financial Statements in this Annual Report on Form 10-K for a
discussion of the Company's agreement to sell its interest in Barnett.

(LOSS) GAIN ON SALES OPERATIONS AND AMORTIZATION OF DEFERRED GAIN ON SALE OF
U.S. LOCK

In April 2000, the Company completed an agreement to sell substantially all
of the assets and certain liabilities of WAMI to Niples Del Norte, S.A. de C.V.
for approximately $1.8 million in cash. The WAMI Sale was effective March 31,
2000, resulting in a net pretax loss of $2.0 million in the quarter ended March
31, 2000, which included a write-off of approximately $1.0 million of goodwill.

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 44.2% 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, and will fully
recognize the remaining balance upon the sale of its ownership interest in
Barnett. In fiscal 2000, the Company recognized $202,000 of this deferred gain.

INTEREST EXPENSE

Interest expense for fiscal 2000 totaled $18.2 million, an increase of $1.0
million from the $17.2 million in fiscal 1999. The increase is primarily due to
an increase in borrowings under the Company's bank credit agreement, an increase
in the borrowing rate on that facility during the fiscal year and an increase in
the interest on the Deferred Coupon Notes. Average borrowings for fiscal 2000
amounted to $140.8 million, with a weighted average interest rate of 12.3%, as
compared to $141.3 million for fiscal 1999, with a weighted average interest
rate of 11.6%. The average borrowings are slightly lower due to the proceeds
received from the sale of U.S. Lock effective January 1, 1999, while the
weighted average interest rate increased due to the increased proportion of debt
with a higher interest rate and due to increases in the federal fund rates that
influence the rate charged by lending institutions for working capital loans.

19
<PAGE> 20

PROVISION (BENEFIT) FOR INCOME TAXES

In fiscal 2000, the Company recognized a state tax benefit due to a refund
from a prior year payment, which offset various state and foreign taxes and
resulted in a net tax benefit of $27,000. The provisions for income taxes
amounted to $1.0 million for fiscal 1999. The Company's tax provision for fiscal
1999 represents the provision for the alternative minimum tax due on the U.S.
Lock Sale and for various state and foreign taxes. The difference between the
effective and statutory tax rates is primarily due to domestic operating losses
not benefited and non-deductible goodwill amortization.

NET LOSS

The Company's fiscal 2000 net loss amounted to $28.8 million, or $2.39 per
basic and diluted share, as compared to the net loss of $7.5 million, or $0.62
per basic and diluted share, in fiscal 1999. The fiscal 2000 results were
affected by $10.4 million of restructuring, impairment and procurement charges,
$1.7 million in costs for the consolidation of the KF(R) packaged plumbing line
and $2.0 million from the sale of WAMI.

The fiscal 1999 results included a non-recurring charge of $2.1 million for
the relocation of the Consumer Products' warehouse from Bedford Hts., Ohio to
Groveport, Ohio, a $2.45 million charge for business procurement costs and the
$10.2 million gain on the sale of U.S. Lock.

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, 2000, 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 $4.0 to $5.0 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.

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<PAGE> 21

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 the 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 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.

RESTRUCTURING AND PROCUREMENT CHARGES

In addition to the restructuring 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. See "Debt Restructuring Effort".

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

21
<PAGE> 22

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%.

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.

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 by improving 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. These efforts recently resulted in the Company reaching an agreement
with an ad hoc committee representing the holders of approximately 87% of its
Deferred Coupon Notes and approximately 65% of its Senior Notes. See Note 14 and
"Management's Discussion and Analysis -- Debt Restructuring Effort" in this Form
10-K for a discussion of the Company's agreement to sell its interest in Barnett
as part of a comprehensive financial reorganization.

The Company, with the consent of the Ad Hoc Committee, has not paid its
Deferred Coupon Note interest payment of $6.0 million that was due on June 1,
2000. This interest payment will be paid with a portion of the proceeds received
from the Barnett Merger. The Ad Hoc Committee has provided instructions to the
Trustee for the Deferred Coupon Notes not to take any action with respect to the
failure to pay the June interest payment, pending the anticipated completion of
the Barnett Merger. In the event the Barnett Merger is not completed by
September 1, 2000, the Company has agreed to sell shares representing $2 million
in value to Barnett to allow the Company to pay the interest due at that time on
its Senior Notes.

Excluding the cash requirements for these interest payments, the Company
believes that operating cash flow, together with borrowings under its working
capital credit facilities, will be sufficient to fund its working capital
requirements until the expected completion of the debt reduction effort
contemplated by the Debt Reduction Agreement. In the event the financial
reorganization is not completed, 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 to fund its working capital. However,
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.

22
<PAGE> 23

million, excluding trade receivables, trade payables and certain other
obligations, which were retained by the Company. Cash from this transaction was
not received until April 2000.

The financial reorganization does not involve any of the Company's
operating subsidiaries, which have their own bank credit facility. These
operating companies will continue to pay all of their trade creditors, employees
and other liabilities under normal trade conditions. The Company believes that
the Joint Plan should proceed quickly through the judicial process because it
has the overwhelming support of the Deferred Coupon Note holders, the only
impaired class of creditors. The Company expects to complete the Joint Plan
during the fall of 2000.

In June 1999, the Company entered into the Loan and Security Agreement with
Congress Financial Corporation ("Congress Financial") to replace the Credit
Agreement with BankAmerica Business Credit, Inc. which 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. In March 2000, the Company and
Congress Financial Corporation amended the loan agreement to, among other
changes, increase the facility by up to $3.0 million, utilizing inventory and
accounts receivable that were already collateralized under the original
agreement. The Loan and Security Agreement provides for, among other things,
revolving credit advances of up to $22.0 million. As of June 30, 2000, the
Company had $18.9 million in borrowings under the revolving credit line of the
facility and had approximately $1.1 million available under such facility. The
Loan and Security Agreement expires on September 1, 2001, but may be extended
under certain conditions. In April 2000, the Loan and Security Agreement was
further amended to allow the sale of substantially all of the assets of WAMI. In
July 2000, the Loan and Security Agreement, among other modifications, was
amended to allow the sale of all of the Barnett shares, including those
collateralized by Congress Financial, as part of the Barnett Merger, extend the
increase in the facility to accommodate the pending sale of the Barnett Common
Stock and permit the default due to the non-payment of the Deferred Coupon Note
interest.

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. In
December 1999, the Loan and Security Agreement was amended to provide Congress
Financial an additional 500,000 shares of Barnett Inc. common stock (which,
together with the initial 500,000 shares, constitutes approximately 6.2% of all
outstanding stock of Barnett Common Stock), as collateral and allowing the
Company to borrow up to the lesser of i) $10,000,000 or ii) 70% of the fair
value of the 1,000,000 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, 2000. 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 Medal of Pennsylvania, Inc., and a pledge of 65% of the stock of
various foreign subsidiaries. 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 Deferred Coupon
Notes, and contains customary negative, affirmative and financial covenants and
conditions. The Company was in compliance with or has obtained a waiver for all
loan covenants at June 30, 2000. The Loan and Security Agreement also contains a
material adverse condition clause which allows Congress Financial Corporation to
terminate the Agreement 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
23
<PAGE> 24

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% of net sales for Consumer Products in
fiscal 1999. 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. The combined
operations of Hechinger / Builders Square accounted for approximately $3.7
million, or 7.8% of Consumer Products and 3.8% of the Company's net sales in
fiscal 1999. 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 material adverse changes in its customer relationships
were to occur.

The Company paid $0.8 million in income taxes in fiscal 2000. At June 30,
2000, the Company had $66.7 million of available domestic net operating loss
carryforwards for income tax purposes, which expire 2009 through 2013, and $40.0
million of original issue discount, as of June 30, 2000, that has been expensed
on 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 reorganization, 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 $3.4 million, of which approximately $0.7 million is due
in fiscal 2001. The Company does not have any other commitments to make
substantial capital expenditures. The fiscal 2001 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.

At June 30, 2000, the Company had current liabilities in excess of current
assets of $4.8 million and a current ratio of .87 to 1.

DISCUSSION OF CASH FLOWS

Net cash used for operations was $17.2 million in fiscal 2000. A decrease
in the Company's trade and other receivables, inventories and accounts payable
was offset by an increase in accrued liabilities. The net loss of $28.8 million
included certain non-cash items including $9.8 million reported as a
restructuring and impairment charge, $1.9 million in other non-cash
restructuring charges that were included in sales and cost of sales and $2.0
million in losses recorded on the sale of WAMI. Also affecting net cash used for
operations was $6.5 million of equity earnings of Barnett. The most significant
cash requirements during fiscal 2000 included $11.3 million in cash interest
payments. Cash flow used by investments totaled $2.3 million, attributable to
the net cash generated from the sale of WAMI, less capital expenditures of $1.8
million and $2.1 million of costs incurred for the Company's financial
restructuring effort. Cash used by financing activities amounted to $19.0
million, primarily due to the net borrowings under the Company's credit
facilities.

YEAR 2000

The Company utilizes management information systems, software technology
and non-information technology systems that were Year 2000 compliant, prior to
December 31, 1999. The Company continues to

24
<PAGE> 25

monitor its operations, as well as its customers and suppliers to ensure its
systems continue to meet its internal and external requirements. The Company
does not believe that it has been or will be negatively impacted by the Year
2000.

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)

25
<PAGE> 26

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, 2000 and 1999, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 2000. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Waxman Industries, Inc. and
Subsidiaries as of June 30, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
2000, in conformity with accounting principles generally accepted in the United
States.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
suffered recurring losses from operations, has not paid its interest payment on
its Deferred Coupon Notes, has a net stockholders' deficit and plans to file a
pre-negotiated consensual joint plan of reorganization under Chapter 11 of the
U.S. Bankruptcy Code. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are described in Note 14 to the consolidated financial
statements. The consolidated financial statements do not include any adjustments
that might result should the Company be unable to continue as a going concern.

Arthur Andersen LLP

Cleveland, Ohio,
August 28, 2000.

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<PAGE> 27

WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

JUNE 30, 2000 AND 1999

(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
2000 1999
------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 811 $ 1,322
Trade receivables, net.................................... 12,068 10,686
Other receivables......................................... 3,656 4,350
Inventories............................................... 15,351 19,052
Prepaid expenses.......................................... 1,853 2,333
------- --------
Total current assets.............................. 33,739 37,743
------- --------
INVESTMENT IN BARNETT....................................... 42,896 36,385
------- --------

PROPERTY AND EQUIPMENT:
Land...................................................... 585 575
Buildings................................................. 4,545 4,462
Equipment................................................. 11,061 13,369
------- --------
16,191 18,406

Less accumulated depreciation and amortization.............. (7,137) (7,238)
------- --------

Property and equipment, net................................. 9,054 11,168
------- --------

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

UNAMORTIZED DEBT ISSUANCE COSTS, NET........................ 2,444 3,052

DEFERRED TAX ASSET.......................................... 367 540

OTHER ASSETS................................................ 5,746 3,402
------- --------
$94,246 $100,210
======= ========
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
27
<PAGE> 28

WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

JUNE 30, 2000 AND 1999

(IN THOUSANDS, EXCEPT PER SHARE DATA)

LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
2000 1999
--------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 20,366 $ 937
Accounts payable.......................................... 6,512 7,308
Accrued liabilities....................................... 3,018 3,923
Accrued income taxes payable.............................. 394 1,314
Accrued interest.......................................... 8,231 2,316
--------- --------
Total current liabilities......................... 38,521 15,798
--------- --------
OTHER LONG-TERM DEBT, NET OF CURRENT PORTION................ 780 1,057

SENIOR SECURED DEFERRED COUPON NOTES, NET................... 91,818 91,568

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

DEFERRED GAIN ON SALE OF U.S. LOCK.......................... 7,815 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; 9,976 and 9,914 shares issued
and outstanding, respectively............................. 99 98
Class B common stock, $.01 par value per share:
6,000 shares authorized; 2,142 and 2,143 shares issued and
outstanding, respectively................................. 21 21
Paid-in capital............................................. 21,752 21,732
Retained deficit............................................ (101,756) (72,908)
--------- --------
(79,884) (51,057)
Accumulated other comprehensive loss...................... (659) (1,029)
--------- --------
Total stockholders' deficit....................... (80,543) (52,086)
--------- --------
$ 94,246 $100,210
========= ========
</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 OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-------------------------------
2000 1999 1998
-------- ------- --------
<S> <C> <C> <C>
Net sales.................................................. $ 81,360 $99,116 $105,662
Cost of sales.............................................. 59,259 69,264 69,429
-------- ------- --------
Gross profit............................................... 22,101 29,852 36,233
Selling, general and administrative expenses............... 27,094 31,635 30,290
Restructuring, impairment and procurement charges (Notes 1
and 3)................................................... 10,370 4,515 24
-------- ------- --------
Operating income (loss).................................... (15,363) (6,298) 5,919
Gain on sale of U.S. Lock, net (Note 4).................... -- 10,298 --
Loss on sale of WAMI, net (Note 4)......................... (2,024) -- --
Equity earnings of Barnett................................. 6,511 6,744 6,341
Amortization of deferred U.S. Lock gain.................... 202 -- --
Interest expense, net of interest income................... 18,201 17,192 16,031
-------- ------- --------
Loss before income taxes and extraordinary loss............ (28,875) (6,448) (3,771)
Provision (benefit) for income taxes....................... (27) 1,029 537
-------- ------- --------
Loss before extraordinary loss............................. (28,848) (7,477) (4,308)
Extraordinary loss......................................... -- -- 192
-------- ------- --------
Net loss................................................... $(28,848) $(7,477) $ (4,500)
======== ======= ========
Other comprehensive income (loss):
Foreign currency translation adjustment.................... 370 134 (822)
-------- ------- --------
Comprehensive loss......................................... $(28,478) $(7,343) $ (5,322)
======== ======= ========
</TABLE>

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

WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Basic loss per share:
Loss before extraordinary loss.............................. $(2.39) $(0.62) $(0.35)
Extraordinary loss.......................................... -- -- (0.02)
------ ------ ------
Net loss.................................................... $(2.39) $(0.62) $(0.37)
====== ====== ======
Diluted loss per share:
Loss before extraordinary loss.............................. $(2.39) $(0.62) $(0.35)
Extraordinary loss.......................................... -- -- (0.02)
------ ------ ------
Net loss.................................................... $(2.39) $(0.62) $(0.37)
====== ====== ======
Weighted average number of common shares outstanding........ 12,066 12,057 12,026
====== ====== ======
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
30
<PAGE> 31

WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
ACCUMULATED
OTHER
CLASS B COMPREHENSIVE TOTAL
COMMON COMMON PAID-IN RETAINED INCOME STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT (LOSS) EQUITY
------- ------- ------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
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)
Net loss................. (28,848) (28,848)
Employee Stock Purchase
Plan purchases........ 1 20 21
Currency translation
adjustment............ 370 370
------- ------- ------- --------- -------- --------
Balance June 30, 2000...... $ 99 $ 21 $21,752 $(101,756) $ (659) $(80,543)
======= ======= ======= ========= ======== ========
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
31
<PAGE> 32

WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Cash From (Used For):
Operations:
Net loss................................................ $(28,848) $ (7,477) $ (4,500)
Adjustments to reconcile net income (loss) to net cash
used for operations:
Extraordinary loss...................................... -- -- 192
Non-cash restructuring and impairment charges........... 11,677 -- --
Loss on sale of WAMI.................................... 2,024 -- --
Gain on sale of U.S. Lock............................... -- (10,298) --
Non-cash interest....................................... 250 10,200 9,883
Amortization of deferred U.S. Lock gain................. (203) -- --
Equity earnings of Barnett.............................. (6,511) (6,744) (6,341)
Depreciation and amortization........................... 2,767 2,555 2,957
Deferred income taxes................................... 173 (540) --
Bad debt provision...................................... 242 274 282
Changes in assets and liabilities:
Trade and other receivables.......................... (1,364) 1,659 (2,687)
Inventories.......................................... (842) 1,455 (1,751)
Prepaid expenses and other........................... (239) (204) (10)
Accounts payable..................................... (791) 1,157 (674)
Accrued liabilities.................................. 4,022 189 (2,977)
Net change in operating assets and liabilities of
U.S. Lock.......................................... 185 (1,109) --
Other, net........................................... 249 134 (822)
-------- -------- --------
Net cash used for operations......................... (17,209) (8,749) (6,448)
-------- -------- --------
Investments:
Capital expenditures, net............................... (1,794) (2,741) (3,441)
Change in other assets.................................. (2,344) 212 (480)
Net proceeds from sales of businesses................... 1,800 28,249 3,203
-------- -------- --------
Net cash provided by (used for) investments.......... (2,338) 25,720 (718)
-------- -------- --------
Financing:
Borrowings under credit agreements...................... 76,869 56,327 105,043
Payments under credit agreements........................ (57,717) (70,872) (95,526)
Debt issuance costs..................................... (137) (282) --
Retirement of Senior Notes.............................. -- -- (12,000)
Retirement of Senior Subordinated Notes................. -- (895) --
Issuance of common stock................................ 21 1 84
-------- -------- --------
Net cash provided by (used for) financing............ 19,036 (15,721) (2,399)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents...... (511) 1,250 (9,565)
Balance, beginning of year................................ 1,322 72 9,637
-------- -------- --------
Balance, end of year...................................... $ 811 $ 1,322 $ 72
======== ======== ========
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
32
<PAGE> 33

WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998

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, 2000, the Company owned 44.2% 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. See Management's
Discussion and Analysis "Debt Restructuring Effort" section and Note 14 of the
notes to consolidated financial statements in this Annual Report on Form 10-K
for a discussion of the Company's agreement to sell its interest in Barnett.
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"), Medal of Pennsylvania, Inc. ("Medal" and formerly WOC Inc.) and TWI,
International, Inc. ("TWI"). Medal 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, until
the March 31, 2000 sale of Western American Manufacturing Inc., an operation in
Mexico that threaded galvanized, black, brass, and chrome pipe and imports
malleable fittings. Consumer Products, Medal 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
discussed 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
$0.9 million and $1.0 million at June 30, 2000 and 1999, respectively. Bad debt
expense totaled $0.2 million in fiscal 2000, $0.3 million in fiscal 1999, and
$0.3 million in fiscal 1998.

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 11.0%, 10.0% and 9.5% in fiscal 2000, 1999 and 1998, respectively. As a
percentage of Consumer Products' net sales, Kmart accounted for 21.2%, 20.8% and
18.2%, for the same periods, respectively. During the same periods, the
Company's ten largest customers accounted for approximately 41.5%, 39.6% and
42.7% of net sales and approximately 51.3% and 55.7% of accounts receivable at
June 30, 2000 and 1999, respectively.

33
<PAGE> 34

D. INVENTORIES

At June 30, 2000 and 1999, 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 appropriate
consideration given to any excess, slow-moving and/or nonsalable inventories. In
fiscal 2000, 1999 and 1998, the Company recorded charges of $0.1 million, $0.6
million and $0.5 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 in each of the last three fiscal
years ended June 30, 2000, 1999 and 1998 totaled $1.6 million, $1.6 million and
$1.6 million, respectively.

F. COST OF BUSINESSES IN EXCESS OF NET ASSETS ACQUIRED

In the fourth quarter of fiscal 2000, management evaluated its 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 the inconsistency of the Company's earnings. Based on
the lack of operating cash flow from operations to support future growth, the
inconsistency of the Company's and Consumer Products' earnings, the
competitiveness of the industry in supplying customers in the D-I-Y retail
market and the cash flow expectations of the business, as compared to the
contribution of those product lines, along with management's plans associated
with the Company's comprehensive financial restructuring plan, the Company wrote
off $6.7 million of goodwill at its Consumer Products operation, which relates
to two product lines acquired in December 1986 and May 1988. In prior years, the
cost of businesses in excess of net assets acquired was being amortized
primarily over 40 years using the straight-line method. Goodwill amortization
expense totaled $0.3 million in fiscal 2000, $0.3 million in fiscal 1999 and
$0.3 million in fiscal 1998. Accumulated amortization totaled $15.1 million at
June 30, 1999.

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 2000, $0.8 million in
fiscal 1999 and $0.8 million in fiscal 1998, 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.

I. PROCUREMENT CHARGES

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 $0.65 million in
fiscal 2000 and $2.0 million in fiscal 1999. The Company did not incur
procurement costs related to (ii) above in fiscal 2000 or fiscal 1998,
34
<PAGE> 35

but incurred $0.5 million in fiscal 1999 for this type of cost. These types of
procurement costs are included as procurement charges in the accompanying
consolidated statements of operations. Procurement costs for (iii) above totaled
$1.5 million, $1.1 million and $1.1 million in fiscal 2000, 1999 and 1998,
respectively, and are included as a contra-sales amount in net sales in the
accompanying consolidated statements of operations.

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 loss. 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 accounting
principles generally accepted in the United States 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 2000,
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>
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Basic.................................................... 12,066 12,057 12,026
Diluted.................................................. 12,066 12,057 12,026
</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, 2000, the Company owned 7,186,530
shares, or 44.2%, of the outstanding shares of Barnett Common Stock. This
investment is accounted for under the equity method of accounting. See
Management's Discussion and Analysis "Debt Restructuring Effort" section and
Note 14 of the notes to consolidated financial statements in this Annual Report
on Form 10-K for a discussion of the Company's agreement to sell its interest in
Barnett.

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

35
<PAGE> 36

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,
2000 and 1999 and for the years ended June 30, 2000, 1999 and 1998 (in thousands
of dollars):

<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Statement of income data:
Net sales........................................ $281,471 $241,374 $199,578
Gross profit..................................... 92,198 80,191 67,443
Net income....................................... 14,672 15,215 14,277
Balance sheet data:
Current assets................................... $113,601 $ 94,941 $ 72,054
Non-current assets............................... 56,401 54,245 23,730
Current liabilities.............................. 30,418 24,615 19,623
Non-current liabilities.......................... 33,000 33,000 --
</TABLE>

The Barnett Form 10-K for the year ended June 30, 2000 is herein
incorporated by reference.

3. MANAGEMENT'S REVIEW OF OPERATIONS -- RESTRUCTURING AND IMPAIRMENT CHARGES

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 2000 --

Product line consolidation: In the second quarter of fiscal 2000, Consumer
Products recorded a restructuring charge of $1.3 million related to the
consolidation of its packaged plumbing products under the Plumbcraft(R) brand
name. The Company believes the Plumbcraft(R) packaging, which was recently
re-designed, and the consolidation of brands will result in cost savings by
reducing the amount of inventory needed to support the business and creating
workforce efficiencies.

Distribution and packaging operations consolidation: In the fourth quarter
of fiscal 2000, Consumer Products recorded a $0.6 million restructuring charge
to consolidate its Grand Prairie, Texas warehouse into its national distribution
center in Groveport, Ohio, and to move its packaging operations from Tijuana,
Mexico to the Company's operations in China. The facilities were closed at a
time when leases expired, therefore, there are no future leases costs for the
closed facilities. The warehouse closure costs included costs associated with
the incremental employee salaries and benefits associated with closing the
warehouse of $0.2 million and other miscellaneous moving and closing costs of
$0.4 million. All but $0.1 million of these costs were paid in fiscal 2000.
Consumer Products also wrote off $1.7 million in packaging material and other
inventory associated with these closings, which are recorded in cost of sales.

Asset impairment: In the fourth quarter of fiscal 2000, Consumer Products
recorded an asset impairment charge of $6.7 million related to a write-off of
goodwill as required by SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and Assets to Be Disposed Of", for two product lines that were
acquired by Consumer Products in December 1986 and May 1988. This charge has
been reported as a separate component in operating expenses and reflects the
lack of operating cash flow from operations to support future growth, the
inconsistency of the Company's and Consumer Products' earnings, the
competitiveness of the

36
<PAGE> 37

industry in supplying customers in the D-I-Y retail market and the cash flow
expectations of the business, as compared to the contribution of those product
lines, along with management's plans associated with the Company's comprehensive
financial restructuring plan.

Closure of operations: During the fourth quarter of fiscal 2000, TWI closed
its Premier Faucet Corporation, one of its facilities in China that manufactured
faucets and faucet components. The closure resulted in a charge of $1.2 million
to write down fixed assets and other long term assets to their fair value and
provide for miscellaneous costs to close the facility. In addition, the
operation recorded a charge of $0.5 million to write down inventory and other
assets, which is recorded in cost of sales and $0.4 million to write down
accounts receivable, which was charged to sales. The loss from this operation in
fiscal 2000 and 1999 amounted to $2.0 million and $0.6 million, respectively

FISCAL 1999 --

Warehouse move: In the first quarter of fiscal 1999, Consumer Products
recorded a restructuring 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. 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 the third and
fourth quarters of fiscal 1999, Consumer Products recorded an additional
non-recurring charge of $0.45 million and $0.27 million, respectively, for
additional costs involved with the move, the training of personnel and the
future shortfall on subleasing the warehouse in Bedford Heights.

4. SALE AND CLOSURE OF BUSINESSES

A. SALE OF WESTERN AMERICAN MANUFACTURING INC.

In April 2000, the Company completed an agreement to sell substantially all
of the assets and certain liabilities of Western American Manufacturing Inc., a
division of TWI, to a Mexican company, Niples Del Norte, S.A. de C.V. for
approximately $1.8 million in cash (the "WAMI Sale"). The WAMI Sale was
effective March 31, 2000, resulting in a net pretax loss of $2.0 million on the
net assets sold in the quarter ended March 31, 2000, including approximately
$1.0 million for the write-off of goodwill.

The Company consolidated WAMI's financial information in its results
through March 31, 2000. The impact of not consolidating WAMI's results would
have reduced the consolidated net sales and reduced the net loss for the Company
as follows:

<TABLE>
<CAPTION>
FISCAL 2000 FISCAL 1999
----------- -----------
<S> <C> <C>
Net sales................................................... $2,923 $3,542
Net loss.................................................... $ (273) $ (743)
Basic loss per share........................................ $(0.02) $(0.06)
Diluted loss per share...................................... $(0.02) $(0.06)
</TABLE>

B. 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 44.2% 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

37
<PAGE> 38

reduces its ownership interest in Barnett. In fiscal 2000 and the fourth quarter
of fiscal 1999, the Company recognized $0.2 million and $0.1 million of this
deferred gain, respectively. 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 increased the net loss for the Company as follows:

<TABLE>
<CAPTION>
FISCAL 2000 FISCAL 1999
----------- -----------
<S> <C> <C>
Net sales................................................... -- $13,361
Net (loss) income........................................... -- $ 1,000
Basic income per share...................................... -- $ 0.08
Diluted income per share.................................... -- $ 0.08
</TABLE>

C. 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 discussed in Note 5).

5. DEBT

A. LONG-TERM DEBT

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

<TABLE>
<CAPTION>
JUNE 30,
-----------------
2000 1999
------- ------
<S> <C> <C>
Bank Agreement.............................................. $18,948 $ 444
Capital leases maturing through 2002, bearing interest at
rates ranging from 7.75% to 11.8%, secured by the leased
equipment................................................. 356 924
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............................. 1,842 626
------- ------
21,146 1,994
Less: current portion....................................... (20,366) (937)
------- ------
Long-term debt, net of current portion................. $ 780 $1,057
======= ======
</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, Medal, 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"). In March 2000, the
Company and Congress Financial Corporation amended the Loan and Security
Agreement to, among other changes, increase the facility by up to $3.0 million,
utilizing inventory and accounts receivable that were already collateralized
under the original agreement. The Loan and Security Agreement provides for,
among other things, revolving credit advances of up to $22.0 million. As of June
30, 2000, the Company had $18.9 million in borrowings under the revolving

38
<PAGE> 39

credit line of the facility and had approximately $1.1 million available under
such facility. The Loan and Security Agreement expires on September 1, 2001, but
may be extended under certain conditions. In April 2000, the Loan and Security
Agreement was further amended to allow the sale of substantially all of the
assets of WAMI, and in July 2000 to allow the sale of all of the Barnett Common
Stock as contemplated by the Barnett Merger.

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. In
December 1999, the Loan and Security Agreement was amended to provide Congress
Financial an additional 500,000 shares of Barnett Inc. common stock (which,
together with the initial 500,000 shares, constitutes approximately 6.2% of all
outstanding stock of Barnett Common Stock), as collateral and allowing the
Company to borrow up to the lesser of i) $10,000,000 or ii) 70% of the fair
value of the 1,000,000 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, 2000. 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.
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 Deferred Coupon Notes, and contains customary
negative, affirmative and financial covenants and conditions. The Company was in
compliance with or has obtained a waiver for all loan covenants at June 30,
2000. The Loan and Security Agreement also contains a material adverse condition
clause which allows Congress Financial Corporation to terminate the Agreement
under certain circumstances.

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
became 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.

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
39
<PAGE> 40

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.

On December 13, 1999, the Company and an ad hoc committee (the "Committee")
representing the holders of approximately 87% of the $92.8 million outstanding
principal amount of the Deferred Coupon Notes and approximately 65% of the
11 1/8% Senior Notes due 2001 (the "Senior Notes") of Waxman USA Inc. entered
into an agreement (the "Debt Reduction Agreement") that provides, subject to
certain conditions (including Bankruptcy Court approval), for the process that
would lead to the full satisfaction of the Deferred Coupon Notes and the Senior
Notes as part of a comprehensive financial restructuring of the Company. On July
10, 2000, the Company announced that it has reached agreements with the
Committee, among others, for the monetization of its ownership of Barnett Inc.
common stock and the financial restructuring of Waxman Industries. These
agreements include the Company's agreement to vote in favor of the acquisition
of Barnett Inc. by Wilmar Industries Inc. for $13.15 per share (the "Barnett
Merger") (See Note 14).

At June 30, 2000, with the consent of the Ad Hoc Committee, the Company was
not in compliance with its covenants due to the non-payment of $6.0 million of
interest due on June 1, 2000 to the Deferred Coupon Notes. This interest payment
will be paid with a portion of the proceeds received from the Barnett Merger.
The Ad Hoc Committee has provided instructions to the Trustee for the Deferred
Coupon Notes not to take any action with respect to the failure to pay the June
interest payment, pending the anticipated plan to complete the Debt
Restructuring Agreement.

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 $4.9 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. See Note 14
regarding the Company's plans to redeem the remaining Senior Notes as part of
its financial restructuring plan.

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 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

40
<PAGE> 41

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, 2000.

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 $4.9 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 $11.3 million in fiscal 2000,
$6.2 million in fiscal 1999 and $5.8 million in fiscal 1998. The Company did not
make its June 1, 2000 interest payment to the Deferred Coupon Note Holders. This
interest payment will be paid with a portion of the proceeds received from the
Barnett Merger. The Ad Hoc Committee has provided instructions to the Trustee
for the Deferred Coupon Notes not to take any action with respect to the failure
to pay the June interest payment, pending the anticipated completion of the
Barnett Merger. The Company did not have interest income in fiscal 2000, but
reported interest income of $0.2 million in fiscal 1999 and $0.1 million in
fiscal 1998. 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, 2000, the market price for the Deferred Coupon Notes is approximately
$35.3 million, which is approximately 62% 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,
------------------------------
2000 1999 1998
-------- ------- -------
<S> <C> <C> <C>
Domestic..................................... $(26,683) $(7,209) $(5,297)
Foreign...................................... (2,192) 761 1,526
-------- ------- -------
Total................................... $(28,875) $(6,448) $(3,771)
======== ======= =======
</TABLE>

41
<PAGE> 42

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

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Currently payable:
U.S. Federal............................... $ -- $ 171 $ --
Foreign, state and other................... (200) 1,398 537
-------- -------- --------
Total current............................ (200) 1,569 537
Deferred: State............................ 173 (540) --
-------- -------- --------
Total provision.......................... $ (27) $ 1,029 $ 537
======== ======== ========
</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,
--------------------------
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
U.S. statutory rate................................. 35.0% 35.0% 35.0%
Domestic losses not benefited....................... (21.5) -- (43.9)
State taxes, net.................................... 0.4 (6.0) (4.0)
Goodwill amortization............................... (9.6) (1.5) (1.1)
Foreign tax items................................... (3.1) 0.1 6.2
Change in valuation allowance....................... -- (22.0) --
Nondeductible compensation.......................... -- (14.7) --
Original issue discount............................. (0.9) (3.8) (5.8)
Other, net.......................................... (0.2) (3.1) (0.6)
----- ----- -----
Effective tax rate................................ 0.1% (16.0%) (14.2%)
===== ===== =====
</TABLE>

The deferred tax assets and liabilities as of June 30, 2000 and 1999 are as
follows (in thousands of dollars):

<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Net operating loss carryforwards......................... $23,329 $16,801
Original issue discount.................................. 16,806 14,459
Deferred gain on sale of U.S. Lock....................... 3,103 3,346
Accrued expenses......................................... 175 1,129
Inventories.............................................. 732 709
Accounts receivable...................................... 284 333
Alternative minimum tax credit........................... 1,003 990
Other.................................................... 1,392 848
------- -------
Deferred tax asset..................................... 46,824 38,615
------- -------
Investment in subsidiaries............................... (14,464) (12,185)
Property................................................. (888) (1,139)
Other assets............................................. -- (3)
------- -------
Deferred tax liabilities............................... (15,352) (13,327)
------- -------
Net deferred tax asset................................. 31,472 25,288
Valuation allowance.................................... (31,105) (24,748)
------- -------
$ 367 $ 540
======= =======
</TABLE>

At June 30, 2000, the Company has $66.7 million of available domestic net
operating loss carryforwards for income tax purposes, which expire 2009 through
2020. The Company also has alternative minimum tax

42
<PAGE> 43

carryforwards of approximately $1.0 million at June 30, 2000, which are
available to reduce future regular income taxes over an indefinite period.

At June 30, 2000, the Company's net deferred tax assets are substantially
offset by a valuation allowance, except for the deferred tax asset related to
state taxes paid 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, 2000, 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 asset; (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 44.2% 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
paid on the deferred gain on the sale of U.S. Lock. As a result, as of June 30,
2000, 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 $1.2 million in fiscal 2000, $0.5
million in fiscal 1999 and $0.3 million in fiscal 1998. Refunds received totaled
$445,000 in fiscal 2000, $1,300 in fiscal 1999, and $39,000 in fiscal 1998.

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>
2001.............................................. $ 675
2002.............................................. 567
2003.............................................. 359
2004.............................................. 355
2005.............................................. 346
Thereafter........................................ 1,132
------
$3,434
</TABLE>

Total rent expense charged to operations was $1.5 million in fiscal 2000,
$1.6 million in fiscal 1999 and $2.5 million in fiscal 1998. Consumer Products
leases certain warehouse space from related parties. Related parties rent
expense totaled $0.3 million in fiscal 2000, $0.3 million in fiscal 1999 and
$0.3 million in fiscal 1998. 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 distribution facilities. The warehouse
portion
43
<PAGE> 44

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 2000, $326,716
in fiscal 1999 and $314,150 in fiscal 1998. The Company received rental
income from Handl-it, Inc. of $290,970 in fiscal 2000 and $95,324 for a
portion of fiscal 1999 for subleasing the warehouse in Bedford Hts.,
Ohio.

- Handl-it Inc., a corporation owned by John S. Peters, a director and
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. There was no rent paid by Consumer Products to
Handl-it in fiscal 2000, however, rent expense under these lease
arrangements was $10,000 and $30,000 for fiscal 1999 and 1998,
respectively. Consumer Products Group also paid Handl-it Inc.
approximately $40,000 and $55,000 for the cost of transportation of
products in fiscal 2000 and 1999, respectively.

- 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
of $74,000, equal to a percentage of monthly sales plus other direct
expenses from this operation.

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 2000, 1999 or
1998; 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 2000,
1999 and 1998. 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 $18.8 million in
fiscal 2000, $19.9 million in fiscal 1999 and $16.2 million in fiscal 1998.
There were no purchases from Barnett in fiscal 2000, 1999 or 1998.

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 and LeRan, 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.

44
<PAGE> 45

The Company purchases certain products, which it can not manufacture with
its existing operation, from WDI International, Inc., a company owned in part by
certain members of the Waxman family and other non-affiliated individuals. In
fiscal 2000 and 1999, purchases from WDI International amounted to $3.7 million
and $1.3 million, respectively. The Company believes that the prices it receives
are on terms comparable to those that would be available from unaffiliated third
parties.

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, 2000.

11. STOCK OPTION PLANS, RESTRICTED SHARE PLANS, STOCK APPRECIATION RIGHTS AND
EMPLOYEE STOCK PURCHASE PLAN

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 30, 2000, 1999 and 1998 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>
2000 1999 1998
-------- ------- -------
<S> <C> <C> <C>
Net loss as reported......................... $(28.848) $(7,477) $(4,500)
Pro forma net loss........................... $(29,102) $(7,865) $(4,849)
Basic loss per share as reported............. $ (2.39) $ (0.62) $ (0.37)
Pro forma basic loss per share............... $ (2.41) $ (0.65) $ (0.40)
Diluted loss per share as reported........... $ (2.39) $ (0.62) $ (0.37)
Pro forma diluted loss per share............. $ (2.41) $ (0.65) $ (0.40)
</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 98.3%; 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, 2000, 51 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

45
<PAGE> 46

purchase an aggregate of 20,000 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 20,000 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 10,000 shares of Common Stock at an exercise price of $2.25 per
share. During fiscal 1999, options to purchase 20,000 shares expired as a result
of the retirement of one non-employee director. As of June 30, 2000, 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, 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
Granted........................ 93 $0.41 -- --
Exercised...................... -- -- -- --
Expired or terminated.......... (177) $0.41 - $4.06 -- $2.25
----- ------
Balance as of June 30, 2000.... 1,429 $1.00 - $5.625 50 $2.25
</TABLE>

As of June 30, 2000, options for 1,199,375 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 or fiscal 2000.

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". 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

46
<PAGE> 47

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. There was no expense recorded for the value of this
plan in fiscal 2000.

The Company also allows employees to defer a portion of their salary to
participate in an Employee Stock Purchase Plan (the "ESPP"). The ESPP allows
employees to make an election to purchase shares at the lower of 85 percent of
the closing market price of the Company's stock on the first or last day of the
calendar year. In fiscal 2000, 61,173 shares were purchased by employees, while
there were no purchases in fiscal 1999 or 1998.

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 2000............. $ 59,708 $32,900 -- $(10,248) $ 81,360
Fiscal 1999............. 69,084 43,150 -- (13,118) 99,116
Fiscal 1998............. 77,000 45,355 -- (16,693) 105,662
Operating income (loss):
Fiscal 2000............. $(11,732) $ (703) $(2,928) -- $(15,363)
Fiscal 1999............. (2,800) 400 (3,898) -- (6,298)
Fiscal 1998............. 3,789 5,759 (3,629) -- 5,919
Identifiable assets:
June 30, 2000........... $ 31,517 $13,125 $49,604 -- $ 94,246
June 30, 1999........... 45,017 15,866 39,327 -- 100,210
</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 $40.2 million, $46.3 million and $39.2 million for the fiscal years
ended June 30, 2000, 1999 and 1998, respectively. Of these amounts,
approximately $10.2 million, $13.1 million and $16.7 million were intercompany
sales for the fiscal years ended June 30, 2000, 1999 and 1998, respectively.
Identifiable assets for the foreign operations were $14.6 million and $18.7
million at June 30, 2000 and 1999, respectively.

47
<PAGE> 48

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, 2000 and 1999 (in thousands,
except per share amounts).

<TABLE>
<CAPTION>
FISCAL 2000 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales......................................... $22,837 $19,702 $19,822 $ 18,999
Gross profit...................................... 7,185 5,891 6,175 2,850
Restructuring, impairment and procurement
charges......................................... 150 1,300 500 8,420
Operating income (loss)........................... 262 (2,192) (1,065) (12,368)
Loss on sale of WAMI, net......................... -- -- (1,966) (58)
Loss before provision (benefit) for income
taxes........................................... (2,401) (4,598) (5,923) (15,953)
Net loss.......................................... $(2,634) $(4,692) $(5,991) $(15,531)
Basic loss per share:
Net loss........................................ $ (0.22) $ (0.39) $ (0.49) $ (1.28)
Diluted loss per share:
Net loss........................................ $ (0.22) $ (0.39) $ (0.49) $ (1.28)
</TABLE>

<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
Restructuring 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>

Results for the fourth quarter for fiscal 2000 were affected by certain
adjustments, including an increase in cost of sales at Consumer Products of $1.7
million to write off packaging material and other inventory associated with the
closing of its warehouse in Texas and packaging center in Mexico. In addition,
adjustments resulting from the closure of the Company's faucet component
manufacturing operation in China, resulted in a charge of $0.5 million to write
down inventory and other assets, which is recorded in cost of sales and $0.4
million to write down accounts receivable, which was charged to sales. The
Company also recorded restructuring and impairment charges in the fourth
quarter, including an asset impairment charge of $6.7 million by Consumer
Products to write off goodwill and a $0.6 million restructuring charge to
consolidate its Grand Prairie, Texas warehouse into its national distribution
center in Groveport, Ohio, and to move its packaging operations from Tijuana,
Mexico to the Company's operations in China. The Company also recorded a $1.2
million loss on the closure of the faucet operation in China.

14. SUBSEQUENT EVENT - FINANCIAL RESTRUCTURING AND AGREEMENT TO SELL BARNETT
STOCK

48
<PAGE> 49

that it has reached agreements with the Committee, among others, for the
monetization of its ownership of Barnett Inc. common stock and the financial
restructuring of Waxman Industries. These agreements include the Company's
agreement to vote in favor of the acquisition of Barnett by Wilmar Industries
Inc. for $13.15 per share (the "Barnett Merger"). The completion of the
acquisition is subject to the successful financing by Wilmar of the Barnett
stock purchase.

The key provisions of Waxman's comprehensive financial restructuring plan
include:

- On July 10, 2000, Barnett agreed to a merger with Wilmar Industries, Inc.
at a cash price of $13.15 per share, which is expected to be completed
around September 30, 2000.

- The Company has agreed to vote in favor of the merger and sell in the
Barnett Merger all of the 7,186,530 shares of Barnett common stock owned
by Waxman USA Inc., a direct, wholly-owned subsidiary of the Company,
less any shares sold to Barnett as noted below.

- The Company would apply the proceeds of any sale of the Barnett Common
Stock owned by Waxman USA in the following order:

- approximately $1.35 million for state and federal taxes associated
with the sale of the Barnett shares

- approximately $10 million to reduce borrowings under its working
capital credit facility, which were used to fund approximately $6
million in interest paid to the Deferred Coupon Note holders on
December 1, 1999, $2 million in interest paid to the Senior Note
holders on March 1, 2000, and $2 million in other costs associated
with the financial restructuring transaction

- approximately $35.9 million, plus accrued interest, to repay in full
the Senior Notes, and

- the remaining net proceeds to a dedicated account to be used for the
full satisfaction of the Deferred Coupon Notes, including accrued
interest

The Company, with the consent of the Ad Hoc Committee, has not paid its
Deferred Coupon Note interest payment of $6.0 million that was due on June 1,
2000. This interest payment will be paid with a portion of the proceeds received
from the Barnett Merger. The Ad Hoc Committee has provided instructions to the
Trustee for the Deferred Coupon Notes not to take any action with respect to the
failure to pay the June interest payment, pending the anticipated completion of
the Barnett Merger. In the event the Barnett Merger is not completed by
September 1, 2000, the Company has agreed to sell shares representing $2 million
in value to Barnett to allow it to pay the interest due on its Senior Notes at
such time.

The Company filed with the Securities and Exchange Commission a Report on
Form 8-K on July 17, 2000 and a Form 14C Information Statement on August 10,
2000, providing information regarding the agreements and vote taken by the
majority stockholders of the Company approving the actions taken by the Company
in connection with the Barnett Merger.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTING AND FINANCIAL DISCLOSURE
NOT APPLICABLE.

49
<PAGE> 50

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, 2000 a definitive proxy statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934.

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, 2000 and 1999
Statements of Operations--For the Years Ended June 30, 2000,
1999 and 1998
Statements of Stockholders' Equity--For the Years Ended June
30, 2000, 1999 and 1998.
Statements of Cash Flows--For the Years Ended June 30, 2000,
1999 and 1998.
Notes to Financial Statements For the Years Ended June 30,
2000, 1999 and 1998.
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.)
4.6* Indenture, dated as of May 20, 1994 (the "Deferred Coupon
Notes Indenture"), 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).
4.10 Loan and Security Agreement, dated as of June 17, 1999 (the
"Loan and Security Agreement"), 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.
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).
</TABLE>

50
<PAGE> 51
<TABLE>
<S> <C>
4.28* Indenture, dated as of April 3, 1996 (the "Senior Notes
Indenture"), 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).
4.34* Second Supplemental Indenture to the Deferred Coupon Notes
Indenture dated December 1, 1999.
4.35 Third Supplemental Indenture to the Deferred Coupon Notes
Indenture dated February 22, 2000.
4.36 First Supplemental Indenture to the Senior Notes Indenture
dated December 1, 1999.
4.37* Agreement, dated as of December 8, 1999, by and the Company,
Waxman USA, each of the holders of the Company's 12 3/4%
Senior Secured Deferred Coupon Notes due 2004 party thereto
and each of the holders of Waxman USA's 11 1/8% Senior Notes
due 2001 party thereto (together, the "Consenting
Noteholders") (Exhibit 10.1 to Current Report on Form 8-K
filed December 14, 1999, File No. 001-10273, incorporated
herein by reference).
4.38* Amendment, Consent and Waiver, dated as of July 9, 2000, by
and among the Company, Waxman USA and the Consenting
Noteholders (Exhibit 10.5 to Current Report on Form 8-K
filed July 17, 2000, File No. 0-5888, incorporated herein by
reference).
4.39 Amendment No. 1 to Loan and Security Agreement dated as of
December 8, 1999.
4.40 Amendment No. 2 to Loan and Security Agreement dated as of
March 29, 2000
4.41 Amendment No. 3 to Loan and Security Agreement dated as of
May 1, 2000.
4.42 Amendment No. 4 to Loan and Security Agreement dated as of
July 10, 2000.
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>

51
<PAGE> 52
<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).
10.26* Merger Agreement, dated as of July 10, 2000, by and among
Wilmar Industries, Inc. ("Wilmar"), BW Acquisition, Inc.
("BW Acquisition") and Barnett Inc. ("Barnett") (Exhibit
10.1 to Current Report on Form 8-K filed July 17, 2000, File
No. 0-5888, incorporated herein by reference).
10.27* Stockholder Agreement, dated as of July 10, 2000, by and
among the Company, Waxman USA, Wilmar and BW Acquisition
(Exhibit 10.2 to Current Report on Form 8-K filed July 17,
2000, File No. 0-5888, incorporated herein by reference).
10.28* Voting Trust Agreement, dated as of July 10, 2000, by and
among Waxman USA, Wilmar, BW Acquisition, Barnett and
American Stock Transfer & Trust Company. (Exhibit 10.3 to
Current Report on Form 8-K filed July 17, 2000, File No.
0-5888, incorporated herein by reference).
10.29* Agreement, dated as of July 7, 2000, by and between Waxman
USA and Barnett (Exhibit 10.4 to Current Report on Form 8-K
filed July 17, 2000, File No. 0-5888, 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

None

52
<PAGE> 53

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
August 28, 2000

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 August 28, 2000
--------------------------------------- Executive Officer and Director
Melvin Waxman

/s/ ARMOND WAXMAN President, Co-Chief Executive Officer August 28, 2000
--------------------------------------- and Director
Armond Waxman

/s/ MARK W. WESTER Chief Financial Officer and Vice August 28, 2000
--------------------------------------- President -- Finance (principal
Mark W. Wester accounting officer)

/s/ JUDY ROBINS Director August 28, 2000
---------------------------------------
Judy Robins

/s/ IRVING Z. FRIEDMAN Director August 28, 2000
---------------------------------------
Irving Z. Friedman

/s/ LAURENCE S. WAXMAN Director August 28, 2000
---------------------------------------
Laurence S. Waxman

/s/ JOHN S. PETERS Director August 28, 2000
---------------------------------------
John S. Peters
</TABLE>