##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



FORM 10-Q



---



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the Quarterly Period Ended June 26, 2004



or



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



Commission file number 0-17237



---



HOME PRODUCTS INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)



---



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 36-4147027                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                         |  |           
|---------------------------------------- |  | ----------
|4501 West 47th Street Chicago, Illinois  |  | 60632     
|(Address of principal executive offices) |  | (Zip Code)



Registrants
telephone number including area code (773) 890-1010.



---



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 90
days.    Yes  x    No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange
Act Rule 12b-2 of the Exchange Act).    Yes ̈No  x



Common shares, par value $0.01, outstanding as
of August 2, 2004  7,878,902



---



---

##### Table of Contents

HOME PRODUCTS INTERNATIONAL, INC.



INDEX



|          |  |                       |  |                                                                                       |  |            
|--------- |  | --------------------- |  | ------------------------------------------------------------------------------------- |  | -----------
|          |  |                       |  |                                                                                       |  | Page Number
|          |  |                      
|Part I.   |  | Financial Information |  |                                                                                      
|          |  |                       | 
|          |  | Item1.                |  | Financial Statements                                                                  |  |            
|          |  |                       | 
|          |  |                       |  | Condensed Consolidated Balance Sheets                                                 |  | 3          
|          |  |                       | 
|          |  |                       |  | Condensed Consolidated Statements of Operations                                       |  | 4          
|          |  |                       | 
|          |  |                       |  | Condensed Consolidated Statements of Cash Flows                                       |  | 5          
|          |  |                       | 
|          |  |                       |  | Notes to Condensed Consolidated Financial Statements                                  |  | 6          
|          |  |                       | 
|          |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 13         
|          |  |                       | 
|          |  | Item 3.               |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 25         
|          |  |                       | 
|          |  | Item 4.               |  | Controls and Procedures                                                               |  | 25         
|          |  |                      
|Part II.  |  | Other Information     |  |                                                                                      
|          |  |                      
|          |  | Items 2, 3 and 5      |  | n/a                                                                                  
|          |  |                       | 
|          |  | Item 1.               |  | Legal Proceedings                                                                     |  | 26         
|          |  |                       | 
|          |  | Item 4.               |  | Submission of Matters to Vote of Security Holders                                     |  | 27         
|          |  |                       | 
|          |  | Item 6.               |  | Exhibits and Reports on Form 8-K                                                      |  | 27         
|          |  |                       | 
|Signature |  |                       |  |                                                                                       |  | 29         



2



---

##### Table of Contents

PART I. FINANCIAL INFORMATION



Item 1. Financial Statements



HOME PRODUCTS INTERNATIONAL, INC.



Condensed Consolidated Balance Sheets

(Amounts in thousands, except share and per share amounts)

(Unaudited)



|                                                                                                                                                       |  |              |         |   |                   |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ------- | - | ----------------- | - | ------- | -
|                                                                                                                                                       |  | June 26,2004 |         |   | December 27, 2003 |  
|Assets                                                                                                                                                 |  |              |         |   |                   |   |         |  
|Current assets:                                                                                                                                        |  |              |         |   |                   |   |         |  
|Cash and cash equivalents                                                                                                                              |  | $            | 411     |   |                   | $ | 797     |  
|Accounts receivable, net                                                                                                                               |  |              | 42,661  |   |                   |   | 47,963  |  
|Inventories                                                                                                                                            |  |              | 32,879  |   |                   |   | 17,903  |  
|Prepaid expenses and other current assets                                                                                                              |  |              | 2,784   |   |                   |   | 2,421   |  
|                                                                                                                                                       |  |              |         |   |                   |   |         |  
|Total current assets                                                                                                                                   |  |              | 78,735  |   |                   |   | 69,084  |  
|                                                                                                                                                       |  |              |         |   |                   |   |         |  
|Property, plant and equipment - at cost                                                                                                                |  |              | 95,371  |   |                   |   | 91,647  |  
|Less accumulated depreciation                                                                                                                          |  |              | (62,909 | ) |                   |   | (58,835 | )
|                                                                                                                                                       |  |              |         |   |                   |   |         |  
|Property, plant and equipment, net                                                                                                                     |  |              | 32,462  |   |                   |   | 32,812  |  
|                                                                                                                                                       |  |              |         |   |                   |   |         |  
|Other intangibles, net                                                                                                                                 |  |              | 360     |   |                   |   | 608     |  
|Goodwill, net                                                                                                                                          |  |              | 73,178  |   |                   |   | 73,752  |  
|Other non-current assets                                                                                                                               |  |              | 1,983   |   |                   |   | 4,019   |  
|                                                                                                                                                       |  |              |         |   |                   |   |         |  
|Total assets                                                                                                                                           |  | $            | 186,718 |   |                   | $ | 180,275 |  
|                                                                                                                                                       |  |              |         |   |                   |   |         |  
|Liabilities and Stockholders Equity                                                                                                                   |  |              |         |   |                   |   |         |  
|Current liabilities:                                                                                                                                   |  |              |         |   |                   |   |         |  
|Revolving line of credit and other current debt                                                                                                        |  | $            | 11,679  |   |                   | $ | 9,969   |  
|Accounts payable                                                                                                                                       |  |              | 28,113  |   |                   |   | 21,425  |  
|Accrued liabilities                                                                                                                                    |  |              | 16,395  |   |                   |   | 17,976  |  
|                                                                                                                                                       |  |              |         |   |                   |   |         |  
|Total current liabilities                                                                                                                              |  |              | 56,187  |   |                   |   | 49,370  |  
|                                                                                                                                                       |  |              |         |   |                   |   |         |  
|Long-term obligations - net of current debt                                                                                                            |  |              | 120,517 |   |                   |   | 120,578 |  
|Other liabilities                                                                                                                                      |  |              | 4,460   |   |                   |   | 3,986   |  
|                                                                                                                                                       |  |              |         |   |                   |   |         |  
|Total liabilities                                                                                                                                      |  |              | 181,164 |   |                   |   | 173,934 |  
|                                                                                                                                                       |  |              |         |   |                   |   |         |  
|Stockholders equity:                                                                                                                                  |  |              |         |   |                   |   |         |  
|Preferred Stock - authorized, 500,000 shares, $.01 par value; - None issued                                                                            |  |              |        |   |                   |   |        |  
|Common Stock - authorized 15,000,000 shares, $.01 par value; 8,696,058 shares issued at June 26, 2004 and 8,687,828 shares issued at December
27, 2003 |  |              | 87      |   |                   |   | 87      |  
|Additional paid-in capital                                                                                                                             |  |              | 50,085  |   |                   |   | 50,077  |  
|Accumulated deficit                                                                                                                                    |  |              | (38,067 | ) |                   |   | (37,295 | )
|Common stock held in treasury - at cost; 822,394 shares at June 26, 2004 and December 27, 2003                                                         |  |              | (6,528  | ) |                   |   | (6,528  | )
|Accumulated other comprehensive loss                                                                                                                   |  |              | (23     | ) |                   |   |        |  
|                                                                                                                                                       |  |              |         |   |                   |   |         |  
|Total stockholders equity                                                                                                                             |  |              | 5,554   |   |                   |   | 6,341   |  
|                                                                                                                                                       |  |              |         |   |                   |   |         |  
|Total liabilities and stockholders equity                                                                                                             |  | $            | 186,718 |   |                   | $ | 180,275 |  
|                                                                                                                                                       |  |              |         |   |                   |   |         |  



The accompanying notes
are an integral part of the condensed consolidated financial statements.



3



---

##### Table of Contents

HOME PRODUCTS INTERNATIONAL, INC.



Condensed Consolidated Statements of Operations

(Amounts in thousands, except share and per share amounts)

(Unaudited)



|                                                   |  |                      |           |   |                        |   |           |               |  |   |              |   |  |   |           |  
|-------------------------------------------------- |  | -------------------- | --------- | - | ---------------------- | - | --------- | ------------- |  | - | ------------ | - |  | - | --------- | -
|                                                   |  | Thirteen weeks ended |           |   | Twenty-six weeks ended |  
|                                                   |  | June 26, 2004        |           |   | June 28,2003           |   |           | June 26, 2004 |  |   | June 28,2003 |  
|Net sales                                          |  | $                    | 64,206    |   |                        | $ | 54,049    |               |  | $ | 117,396      |   |  | $ | 103,178   |  
|Cost of goods sold                                 |  |                      | 53,537    |   |                        |   | 46,425    |               |  |   | 96,870       |   |  |   | 86,884    |  
|                                                   |  |                      |           |   |                        |   |           |               |  |   |              |   |  |   |           |  
|Gross profit                                       |  |                      | 10,669    |   |                        |   | 7,624     |               |  |   | 20,526       |   |  |   | 16,294    |  
|                                                   |  |                      |           |  
|Operating expenses:                                |  |                      |           |   |                        |   |           |               |  |   |              |   |  |   |           |  
|Selling and marketing                              |  |                      | 3,811     |   |                        |   | 4,085     |               |  |   | 7,487        |   |  |   | 8,405     |  
|General and administrative                         |  |                      | 4,049     |   |                        |   | 3,297     |               |  |   | 7,042        |   |  |   | 7,209     |  
|Amortization of intangible assets                  |  |                      | 124       |   |                        |   | 126       |               |  |   | 248          |   |  |   | 252       |  
|                                                   |  |                      |           |   |                        |   |           |               |  |   |              |   |  |   |           |  
|Operating profit                                   |  |                      | 2,685     |   |                        |   | 116       |               |  |   | 5,749        |   |  |   | 428       |  
|                                                   |  |                      |           |   |                        |   |           |               |  |   |              |   |  |   |           |  
|Non-operating income (expense):                    |  |                      |           |   |                        |   |           |               |  |   |              |   |  |   |           |  
|Interest income                                    |  |                      | 1         |   |                        |   | 15        |               |  |   | 4            |   |  |   | 62        |  
|Interest expense                                   |  |                      | (3,274    | ) |                        |   | (3,451    | )             |  |   | (6,529       | ) |  |   | (6,928    | )
|Other income, net                                  |  |                      | 29        |   |                        |   | 11        |               |  |   | 21           |   |  |   | 7         |  
|                                                   |  |                      |           |   |                        |   |           |               |  |   |              |   |  |   |           |  
|Net non-operating expense                          |  |                      | (3,244    | ) |                        |   | (3,425    | )             |  |   | (6,504       | ) |  |   | (6,859    | )
|                                                   |  |                      |           |   |                        |   |           |               |  |   |              |   |  |   |           |  
|Loss before income taxes                           |  |                      | (559      | ) |                        |   | (3,309    | )             |  |   | (755         | ) |  |   | (6,431    | )
|                                                   |  |                      |           |  
|Income tax expense                                 |  |                      | 10        |   |                        |   | 20        |               |  |   | 17           |   |  |   | 44        |  
|                                                   |  |                      |           |   |                        |   |           |               |  |   |              |   |  |   |           |  
|Net loss                                           |  | $                    | (569      | ) |                        | $ | (3,329    | )             |  | $ | (772         | ) |  | $ | (6,475    | )
|                                                   |  |                      |           |   |                        |   |           |               |  |   |              |   |  |   |           |  
|Net loss per common share:                         |  |                      |           |   |                        |   |           |               |  |   |              |   |  |   |           |  
|Basic                                              |  | $                    | (0.07     | ) |                        | $ | (0.42     | )             |  | $ | (0.10        | ) |  | $ | (0.82     | )
|                                                   |  |                      |           |   |                        |   |           |               |  |   |              |   |  |   |           |  
|Diluted                                            |  | $                    | (0.07     | ) |                        | $ | (0.42     | )             |  | $ | (0.10        | ) |  | $ | (0.82     | )
|                                                   |  |                      |           |   |                        |   |           |               |  |   |              |   |  |   |           |  
|Weighted average common shares outstanding-basic   |  |                      | 7,986,614 |   |                        |   | 7,936,215 |               |  |   | 7,986,585    |   |  |   | 7,935,349 |  
|                                                   |  |                      |           |   |                        |   |           |               |  |   |              |   |  |   |           |  
|Weighted average common shares outstanding-diluted |  |                      | 7,986,614 |   |                        |   | 7,936,215 |               |  |   | 7,986,585    |   |  |   | 7,935,349 |  
|                                                   |  |                      |           |   |                        |   |           |               |  |   |              |   |  |   |           |  



The accompanying notes
are an integral part of the condensed consolidated financial statements.



4



---

##### Table of Contents

HOME PRODUCTS INTERNATIONAL, INC.



Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)



|                                                                                        |  |                        |         |   |              |   |        |  
|--------------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ------------ | - | ------ | -
|                                                                                        |  | Twenty-six weeks ended |        
|                                                                                        |  | June 26,2004           |         |   | June 28,2003 |  
|Operating activities:                                                                   |  |                        |         |   |              |   |        |  
|Net loss                                                                                |  | $                      | (772    | ) |              | $ | (6,475 | )
|Adjustments to reconcile net loss to net cash provided by operating activities:         |  |                        |         |   |              |   |        |  
|Depreciation and amortization                                                           |  |                        | 4,369   |   |              |   | 4,498  |  
|Amortization of restricted stock compensation                                           |  |                        |        |   |              |   | 113    |  
|Noncash gain on insurance settlement                                                    |  |                        | (150    | ) |              |   |       |  
|Loss on the abandonment of assets                                                       |  |                        | 6       |   |              |   | 3      |  
|Other, net                                                                              |  |                        | 812     |   |              |   | 462    |  
|Changes in current assets and liabilities:                                              |  |                        |         |   |              |   |        |  
|Decrease in accounts receivable                                                         |  |                        | 5,919   |   |              |   | 12,769 |  
|Increase in inventories                                                                 |  |                        | (14,976 | ) |              |   | (2,530 | )
|Decrease in prepaid expenses and other current assets                                   |  |                        | 695     |   |              |   | 360    |  
|Increase in accounts payable                                                            |  |                        | 6,688   |   |              |   | 1,202  |  
|Decrease in accrued liabilities                                                         |  |                        | (1,007  | ) |              |   | (7,282 | )
|                                                                                        |  |                        |         |   |              |   |        |  
|Net cash provided by operating activities                                               |  |                        | 1,584   |   |              |   | 3,120  |  
|                                                                                        |  |                        |         |   |              |   |        |  
|Investing activities:                                                                   |  |                        |         |   |              |   |        |  
|Capital expenditures, net                                                               |  |                        | (3,627  | ) |              |   | (3,582 | )
|                                                                                        |  |                        |         |   |              |   |        |  
|Net cash used in investing activities                                                   |  |                        | (3,627  | ) |              |   | (3,582 | )
|                                                                                        |  |                        |         |   |              |   |        |  
|Financing activities:                                                                   |  |                        |         |   |              |   |        |  
|Net borrowings under loan and security agreement                                        |  |                        | 1,710   |   |              |   |       |  
|Payments of capital lease obligation                                                    |  |                        | (61     | ) |              |   | (45    | )
|Exercise of stock options, issuance of common stock under stock purchase plan and other |  |                        | 8       |   |              |   | 28     |  
|                                                                                        |  |                        |         |   |              |   |        |  
|Net cash provided by (used in) financing activities                                     |  |                        | 1,657   |   |              |   | (17    | )
|                                                                                        |  |                        |         |   |              |   |        |  
|Net decrease in cash and cash equivalents                                               |  |                        | (386    | ) |              |   | (479   | )
|Cash and cash equivalents at beginning of period                                        |  |                        | 797     |   |              |   | 3,974  |  
|                                                                                        |  |                        |         |   |              |   |        |  
|Cash and cash equivalents at end of period                                              |  | $                      | 411     |   |              | $ | 3,495  |  
|                                                                                        |  |                        |         |   |              |   |        |  
|Supplemental disclosures                                                                |  |                        |         |   |              |   |        |  
|Cash paid in the period:                                                                |  |                        |         |   |              |   |        |  
|Interest                                                                                |  | $                      | 6,207   |   |              | $ | 6,633  |  
|                                                                                        |  |                        |         |   |              |   |        |  
|Income taxes                                                                            |  | $                      | 23      |   |              | $ | 54     |  
|                                                                                        |  |                        |         |   |              |   |        |  



The accompanying notes
are an integral part of the condensed consolidated financial statements.



5



---

##### Table of Contents

HOME PRODUCTS INTERNATIONAL, INC.



Notes to Condensed Consolidated Financial Statements

(Dollar amounts in thousands, except per share amounts)

(Unaudited)



Note 1. General Information



Home Products International, Inc. (the Company), based in Chicago, is a leading designer, manufacturer and marketer of a broad range of
value-priced, quality consumer houseware products. The Companys products are marketed principally through mass-market trade channels in the United States and internationally.



The condensed consolidated financial statements for the thirteen and twenty-six weeks ended June 26, 2004 and June 28, 2003,
include, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows as of June 26, 2004 and for all periods presented.



Certain information and note disclosures normally included in
financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto incorporated by reference in the Companys Form 10-K for the year ended December 27, 2003. The results of operations for the thirteen and twenty-six weeks ended June 26, 2004 are not
necessarily indicative of the operating results to be expected for the full year.



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



Note 2. Stock-Based Compensation Plans



Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation encourages companies to adopt a fair value approach to valuing stock-based compensation that would require compensation cost to be recognized based upon the fair value of the stock-based instrument
issued. As permitted by SFAS No. 123, the Company follows the provisions of Accounting Principles Board (APB) Opinion No. 25 Accounting for Stock Based Compensation and the related interpretations in accounting for stock
option awards under the stock option plans. Under APB Opinion No. 25, compensation expense is recognized if the market price on the date of grant exceeds the exercise price. All options granted by the Company have been granted at the market price of
stock on the date of grant and therefore the Company recognizes no compensation expense.



To provide more prominent and frequent disclosures about the effects of stock-based compensation as required under SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure,
the following table summarizes the pro forma effect of stock-based compensation on net loss and loss per share if the optional expense recognition provisions of SFAS No. 123 had been adopted. No tax benefits were attributed to the stock based
employee compensation expense during the thirteen and twenty-six weeks ended June 26, 2004 due to the Companys loss carryforward position.



The fair value of these stock options was estimated at the date of grant using a Black-Scholes option pricing model. Changes in assumptions can materially
affect the fair value estimate, and therefore the existing valuation model may not provide a reliable single measure of the fair value of the Companys stock options.



6



---

##### Table of Contents

|                                                                                                     |  |                     |       |   |                       |   |        |              |  |   |              |   |  |   |        |  
|---------------------------------------------------------------------------------------------------- |  | ------------------- | ----- | - | --------------------- | - | ------ | ------------ |  | - | ------------ | - |  | - | ------ | -
|                                                                                                     |  | Thirteen weeksended |       |   | Twenty-six weeksended |  
|                                                                                                     |  | June 26,2004        |       |   | June 28,2003          |   |        | June 26,2004 |  |   | June 28,2003 |  
|Net loss as reported                                                                                 |  | $                   | (569  | ) |                       | $ | (3,329 | )            |  | $ | (772         | ) |  | $ | (6,475 | )
|Less: total stock-based compensation expense determined under fair value based method for all awards |  |                     | (31   | ) |                       |   | (49    | )            |  |   | (62          | ) |  |   | (95    | )
|                                                                                                     |  |                     |       |   |                       |   |        |              |  |   |              |   |  |   |        |  
|Pro forma net loss                                                                                   |  | $                   | (600  | ) |                       | $ | (3,378 | )            |  | $ | (834         | ) |  | $ | (6,570 | )
|                                                                                                     |  |                     |       |   |                       |   |        |              |  |   |              |   |  |   |        |  
|Basic loss per common share  as reported                                                            |  | $                   | (0.07 | ) |                       | $ | (0.42  | )            |  | $ | (0.10        | ) |  | $ | (0.82  | )
|                                                                                                     |  |                     |       |   |                       |   |        |              |  |   |              |   |  |   |        |  
|Basic loss per common share  pro forma                                                              |  | $                   | (0.08 | ) |                       | $ | (0.43  | )            |  | $ | (0.10        | ) |  | $ | (0.83  | )
|                                                                                                     |  |                     |       |   |                       |   |        |              |  |   |              |   |  |   |        |  
|Diluted loss per common share  as reported                                                          |  | $                   | (0.07 | ) |                       | $ | (0.42  | )            |  | $ | (0.10        | ) |  | $ | (0.82  | )
|                                                                                                     |  |                     |       |   |                       |   |        |              |  |   |              |   |  |   |        |  
|Diluted loss per common share  pro forma                                                            |  | $                   | (0.08 | ) |                       | $ | (0.43  | )            |  | $ | (0.10        | ) |  | $ | (0.83  | )
|                                                                                                     |  |                     |       |   |                       |   |        |              |  |   |              |   |  |   |        |  



No stock options were
granted during the thirteen and twenty-six weeks ended June 26, 2004 and June 28, 2003.



Note 3. Net Loss Per Share



The following
information presents net loss per share basic and diluted:



|                                                       |  |                      |           |   |                        |   |           |              |  |   |              |   |  |   |           |  
|------------------------------------------------------ |  | -------------------- | --------- | - | ---------------------- | - | --------- | ------------ |  | - | ------------ | - |  | - | --------- | -
|                                                       |  | Thirteen weeks ended |           |   | Twenty-six weeks ended |  
|                                                       |  | June 26,2004         |           |   | June 28,2003           |   |           | June 26,2004 |  |   | June 28,2003 |  
|Net loss                                               |  | $                    | (569      | ) |                        | $ | (3,329    | )            |  | $ | (772         | ) |  | $ | (6,475    | )
|                                                       |  |                      |           |   |                        |   |           |              |  |   |              |   |  |   |           |  
|Weighted average shares outstanding - basic            |  |                      | 7,986,614 |   |                        |   | 7,936,215 |              |  |   | 7,986,585    |   |  |   | 7,935,349 |  
|Impact of stock options, warrants and restricted stock |  |                      |          |   |                        |   |          |              |  |   |             |   |  |   |          |  
|                                                       |  |                      |           |   |                        |   |           |              |  |   |              |   |  |   |           |  
|Weighted average shares outstanding - diluted          |  |                      | 7,986,614 |   |                        |   | 7,936,215 |              |  |   | 7,986,585    |   |  |   | 7,935,349 |  
|                                                       |  |                      |           |   |                        |   |           |              |  |   |              |   |  |   |           |  
|Net loss per share - basic                             |  | $                    | (0.07     | ) |                        | $ | (0.42     | )            |  | $ | (0.10        | ) |  | $ | (0.82     | )
|                                                       |  |                      |           |   |                        |   |           |              |  |   |              |   |  |   |           |  
|Net loss per share - diluted                           |  | $                    | (0.07     | ) |                        | $ | (0.42     | )            |  | $ | (0.10        | ) |  | $ | (0.82     | )
|                                                       |  |                      |           |   |                        |   |           |              |  |   |              |   |  |   |           |  



Net loss per share -
basic is computed based on the weighted average number of outstanding common shares. Net loss per share - diluted normally includes the weighted average effect of dilutive options, warrants and restricted stock on the weighted average shares
outstanding. Because the inclusion of these common stock equivalents would have been antidilutive, the weighted average shares outstanding  diluted for the thirteen and twenty-six weeks ended June 26, 2004 exclude the effect of approximately
943,420 and 963,420, respectively, options and warrants. Because the inclusion of these common stock equivalents would have been antidilutive the weighted average shares outstanding  diluted for the thirteen and twenty-six weeks ended June 28,
2003 exclude the effect of approximately 1,454,720 options, warrants and restricted stock.



7



---

##### Table of Contents

Note 4. Other Comprehensive Loss



The following table summarizes other comprehensive loss for the periods presented:



|                                         |  |                     |      |   |                       |   |        |              |  |   |              |   |  |   |        |  
|---------------------------------------- |  | ------------------- | ---- | - | --------------------- | - | ------ | ------------ |  | - | ------------ | - |  | - | ------ | -
|                                         |  | Thirteen weeksended |      |   | Twenty-six weeksended |  
|                                         |  | June 26,2004        |      |   | June 28,2003          |   |        | June 26,2004 |  |   | June 28,2003 |  
|Net loss                                 |  | $                   | (569 | ) |                       | $ | (3,329 | )            |  | $ | (772         | ) |  | $ | (6,475 | )
|                                         |  |                     |      |   |                       |   |        |              |  |   |              |   |  |   |        |  
|Other comprehensive loss:                |  |                     |      |   |                       |   |        |              |  |   |              |   |  |   |        |  
|Foreign currency translation adjustments |  |                     | (9   | ) |                       |   |       |              |  |   | (23          | ) |  |   |       |  
|                                         |  |                     |      |   |                       |   |        |              |  |   |              |   |  |   |        |  
|Total comprehensive loss                 |  | $                   | (578 | ) |                       | $ | (3,329 | )            |  | $ | (795         | ) |  | $ | (6,475 | )
|                                         |  |                     |      |   |                       |   |        |              |  |   |              |   |  |   |        |  



The following is a
summary of accumulated other comprehensive loss balances:



|                                     |  |              |     |   |                  |   |  
|------------------------------------ |  | ------------ | --- | - | ---------------- | - | -
|                                     |  | June 26,2004 |     |   | December 27,2003
|Foreign currency translation losses  |  | $            | (23 | ) |                  | $ | 
|                                     |  |              |     |   |                  |   |  
|Accumulated other comprehensive loss |  | $            | (23 | ) |                  | $ | 
|                                     |  |              |     |   |                  |   |  



Note 5. Goodwill and Patents and
Non-Compete Agreements



Goodwill relates to the excess of
purchase price over the fair value of tangible assets acquired. Goodwill is tested at least annually for impairment or more often if an event or circumstance indicates that an impairment loss has been incurred.



The change in the carrying amount of goodwill for the twenty-six weeks ended
June 26, 2004 is as follows:



|                                |  |       |        |  
|------------------------------- |  | ----- | ------ | -
|                                |  | Total |       
|Balance at December 27, 2003    |  | $     | 73,752 |  
|Resolution of tax contingencies |  |       | (574   | )
|                                |  |       |        |  
|Balance at June 26, 2004        |  | $     | 73,178 |  
|                                |  |       |        |  



During the second
quarter of 2004, the carrying amount of goodwill was decreased by $574 as a result of the resolution of tax contingencies arising in connection with prior year acquisitions. The resolution was a result of the closing of certain tax years.



Patents and non-compete agreements are amortized over their
useful lives, and are evaluated annually to determine whether events and circumstances warrant a revision to the remaining period of amortization.



8



---

##### Table of Contents

Patents and non-compete agreements consist of the following:



|                             |  |                     |  |                     |       |                          |   |        |                   |  |   |    
|---------------------------- |  | ------------------- |  | ------------------- | ----- | ------------------------ | - | ------ | ----------------- |  | - | ---
|                             |  |                     |  | June 26, 2004      
|                             |  | Average Life (Yrs.) |  | GrossCarryingAmount |       | Accumulated Amortization |   |        | NetCarryingAmount
|Amortized intangible assets: |  |                     |  |                     |       |                          |   |        |                   |  |   |    
|Patents                      |  | 7 to 14             |  | $                   | 1,008 |                          | $ | (855   | )                 |  | $ | 153
|Non-compete agreements       |  | 10                  |  |                     | 2,928 |                          |   | (2,721 | )                 |  |   | 207
|                             |  |                     |  |                     |       |                          |   |        |                   |  |   |    
|Total                        |  |                     |  | $                   | 3,936 |                          | $ | (3,576 | )                 |  | $ | 360
|                             |  |                     |  |                     |       |                          |   |        |                   |  |   |    



|                             |  |                     |  |                     |       |                          |   |        |                   |  |   |    
|---------------------------- |  | ------------------- |  | ------------------- | ----- | ------------------------ | - | ------ | ----------------- |  | - | ---
|                             |  |                     |  | December 27, 2003  
|                             |  | Average Life (Yrs.) |  | GrossCarryingAmount |       | Accumulated Amortization |   |        | NetCarryingAmount
|Amortized intangible assets: |  |                     |  |                     |       |                          |   |        |                   |  |   |    
|Patents                      |  | 7 to 14             |  | $                   | 1,008 |                          | $ | (807   | )                 |  | $ | 201
|Non-compete agreements       |  | 10                  |  |                     | 2,928 |                          |   | (2,521 | )                 |  |   | 407
|                             |  |                     |  |                     |       |                          |   |        |                   |  |   |    
|Total                        |  |                     |  | $                   | 3,936 |                          | $ | (3,328 | )                 |  | $ | 608
|                             |  |                     |  |                     |       |                          |   |        |                   |  |   |    



Aggregate amortization
expense for the thirteen weeks ended June 26, 2004 and June 28, 2003 was $124 and $126, respectively. Aggregate amortization expense for the twenty-six weeks ended June 26, 2004 and June 28, 2003 was $248 and $252, respectively.



Estimated patents and non-compete agreements amortization expense for the
remaining two quarters of fiscal 2004 and fiscal 2005 based on patents and non-compete agreements at June 26, 2004 is as follows:



|                    |  |                                |    
|------------------- |  | ------------------------------ | ---
|Fiscal Year Expense |  | Estimated Amortization Expense
|2004                |  | $                              | 248
|2005                |  | $                              | 112



Note 6. Inventories



The components of the Companys inventory consist of direct labor,
direct materials and the applicable portion of overhead required to manufacture the goods.



|                |  |              |        |                  |   |       
|--------------- |  | ------------ | ------ | ---------------- | - | ------
|                |  | June 26,2004 |        | December 27,2003
|Finished goods  |  | $            | 24,778 |                  | $ | 13,562
|Work-in-process |  |              | 1,537  |                  |   | 849   
|Raw materials   |  |              | 6,564  |                  |   | 3,492 
|                |  |              |        |                  |   |       
|                |  | $            | 32,879 |                  | $ | 17,903
|                |  |              |        |                  |   |       



9



---

##### Table of Contents

Note 7. Eagan Shutdown



On July 29, 2003, the Company announced its intention to close its Eagan, Minnesota manufacturing and warehouse facility in January 2004 (Eagan
Shutdown). This facility was exited on January 31, 2004. The Eagan, Minnesota facility was closed as part of an effort to reduce operating costs and utilize capacity in the Companys other injection molding plants. The Company terminated
approximately 130 hourly and salaried employees as part of the Eagan Shutdown. During the thirteen and twenty-six weeks ended June 26, 2004, the Company incurred $76 and $682, respectively, of Eagan Shutdown charges. These charges relate to costs
associated with the Eagan, Minnesota plant closure, costs associated with the relocation of equipment and inventory and employee related fringe benefits. The second quarter of 2004 includes a change in management estimates of $98 related to employee
separation costs. Eagan Shutdown charges for the thirteen and twenty-six weeks ended June 26, 2004 are included in cost of goods sold.



The following tables reflect the changes in the accrual during the thirteen and twenty-six weeks ended June 26, 2004 associated with the Eagan Shutdown.
This accrual is included in accrued liabilities on the Companys condensed consolidated balance sheets.



|                             |  |                                    |     |                    |   |     |                 |  |   |                               |   |  |   |   
|---------------------------- |  | ---------------------------------- | --- | ------------------ | - | --- | --------------- |  | - | ----------------------------- | - |  | - | --
|                             |  | Thirteen weeks ended June 26, 2004
|Description                  |  | Accrualbalance atMarch 27,2004     |     | Charged toEarnings |   |     | CashUtilization |  |   | Accrualbalance atJune 26,2004
|Employee separations         |  | $                                  | 183 |                    | $ | (98 | )               |  | $ | (71                           | ) |  | $ | 14
|Other                        |  |                                    |    |                    |   | 174 |                 |  |   | (174                          | ) |  |   |  
|                             |  |                                    |     |                    |   |     |                 |  |   |                               |   |  |   |   
|Total Eagan Shutdown charges |  | $                                  | 183 |                    | $ | 76  |                 |  | $ | (245                          | ) |  | $ | 14
|                             |  |                                    |     |                    |   |     |                 |  |   |                               |   |  |   |   



|                             |  |                                      |     |                    |   |     |                 |  |   |                               |   |  |   |   
|---------------------------- |  | ------------------------------------ | --- | ------------------ | - | --- | --------------- |  | - | ----------------------------- | - |  | - | --
|                             |  | Twenty-six weeks ended June 26, 2004
|Description                  |  | Accrualbalance atDecember 27,2003    |     | Charged toEarnings |   |     | CashUtilization |  |   | Accrualbalance atJune 26,2004
|Employee separations         |  | $                                    | 428 |                    | $ | (98 | )               |  | $ | (316                          | ) |  | $ | 14
|Other                        |  |                                      |    |                    |   | 780 |                 |  |   | (780                          | ) |  |   |  
|                             |  |                                      |     |                    |   |     |                 |  |   |                               |   |  |   |   
|Total Eagan Shutdown charges |  | $                                    | 428 |                    | $ | 682 |                 |  | $ | (1,096                        | ) |  | $ | 14
|                             |  |                                      |     |                    |   |     |                 |  |   |                               |   |  |   |   



Note 8. Special, Restructuring and
Other Charges Update



During 2000 and 2001, the Company
implemented a restructuring plan to reduce fixed costs and better position the Company for sustained profitability. The restructuring plan entailed the closure of the Leominster, Massachusetts manufacturing and warehouse facilities, reconfiguration
of remaining manufacturing facilities, a reduction in headcount and a realignment of the selling process. The restructuring charges were accounted for under Emerging Issues Task Force (EITF) Issue No. 94-3. The Company identified a total
of 124 hourly and salaried Leominster employees to be terminated in accordance with the 2001 restructuring initiatives. All planned restructuring initiatives were completed in 2001.



On a quarterly basis, the Company reviews remaining accrual balances related to these actions and adjusts them to its best
estimate of remaining cost.



Restructuring accruals were
determined based on estimates prepared at the time the restructuring actions were approved by management and also reflect any subsequent changes in management estimates. Restructuring accruals of $239, as of June 26, 2004, are considered adequate.
The following table reflects changes in the accruals during the twenty-six weeks ended June 26, 2004.



10



---

##### Table of Contents

|                                     |  |                                   |     |                               |   |     |                               |  |   |    
|------------------------------------ |  | --------------------------------- | --- | ----------------------------- | - | --- | ----------------------------- |  | - | ---
|                                     |  | AccrualBalance atDecember 27,2003 |     | Cash Amounts Utilized in 2004 |   |     | AccrualBalance atJune 26,2004
|Leased plant and facilities          |  | $                                 | 10  |                               | $ |    |                               |  | $ | 10 
|Obsolete and duplicate leased assets |  |                                   | 213 |                               |   | (34 | )                             |  |   | 179
|Employee related costs               |  |                                   | 50  |                               |   |    |                               |  |   | 50 
|                                     |  |                                   |     |                               |   |     |                               |  |   |    
|                                     |  | $                                 | 273 |                               | $ | (34 | )                             |  | $ | 239
|                                     |  |                                   |     |                               |   |     |                               |  |   |    



As of June 26, 2004,
obsolete and duplicate leased assets accruals of $179 are related to future minimum lease payments on machinery and equipment no longer used in the Companys manufacturing process and employee related accruals of $50 are primarily related to
employee severance and benefits.



Note 9. Income Taxes



The Company uses the asset and liability method of SFAS No. 109 in
accounting for income taxes. Under this method deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases, tax credits and operating loss carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.



As
discussed in Note 12 to the consolidated financial statements in the Companys 2003 Form 10-K, the Company has a valuation allowance against the full amount of its net deferred tax assets. The Company expects to provide a full valuation
allowance on future tax benefits until an appropriate level of profitability is sustained.



Note 10. Recent Development



On June 2, 2004, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with JRT Acquisition, Inc. (JRT), a privately held company whose sole stockholder is James R. Tennant, the Chief
Executive Officer of the Company, and which was created solely for the purpose of effectuating the Merger Agreement and the transactions contemplated thereby (the Merger). Pursuant to the provisions of the Merger Agreement, JRT will
merge with and into the Company, with the Company continuing as the surviving corporation. The Merger Agreement provides that, at the closing of the Merger, each holder of the Companys common stock will be entitled to receive $1.50 in cash,
without interest and less any applicable withholding taxes, for each outstanding share of the Companys common stock that he or she owns. A special meeting of stockholders will be held for the purpose of obtaining the requisite stockholder
approval. The Merger is subject to customary conditions and requires the approval of holders of a majority of the shares of the Companys common stock outstanding as of the record date and the approval of holders of a majority of the shares of
the Companys common stock present or represented by proxy at the special meeting and voting either for or against the Merger Agreement and the Merger, excluding shares held by JRT, equityholders of JRT, James R. Tennant
and any of their affiliates. Upon completion of the Merger, the Company will be a privately held company, wholly owned by the stockholders of JRT, and its common stock will cease to be quoted on NASDAQ and registered under the Securities Exchange
Act of 1934. On July 6, 2004, the Company filed a Preliminary Proxy Statement on Schedule 14A, and the Company, JRT and Mr. Tennant filed a Schedule 13E-3 in connection with the proposed Merger.



Note 11. Contingencies



The Company is party to various claims, legal actions and complaints including product liability litigation, arising in the
ordinary course of business. In the opinion of management, all such matters are adequately covered by insurance or will not have a material adverse effect on the Companys consolidated financial position, results of operations or liquidity.



11



---

##### Table of Contents

On June 3, 2004, a complaint was filed in the Court of Chancery for the State of Delaware against the
Company, our board of directors and JRT. The complaint purports to be filed by a stockholder and alleges that in entering into the Merger Agreement, our board of directors breached their fiduciary duties of loyalty, due care and good faith. The
complaint, which includes a request for a declaration that the action be maintained as a class action, seeks, among other relief, injunctive relief enjoining the Merger from being consummated. The Company and our board of directors believe the
complaint is without merit and intend to vigorously contest this lawsuit.



On June 4, 2004, a complaint was filed in the Chancery Division of the Circuit Court of Cook County, Illinois against the Company and our directors. The complaint purports to be filed by a stockholder and alleges that
in entering into the Merger Agreement, our board of directors breached their fiduciary duties of loyalty, due care, independence, good faith and fair dealing. The complaint, which includes a request for a declaration that the action be maintained as
a class action, seeks, among other relief, injunctive relief enjoining the Merger from being consummated. The Company and our board of directors believe the complaint is without merit and intend to vigorously contest this lawsuit.



If class certification is granted in either of the aforementioned legal
actions, it is possible that the outcome could have a material adverse effect on the operating results, financial position and cash flows of the Company. There is not sufficient information to estimate the Companys exposure at this time.



Note 12. Segment of an Enterprise



The Company consists of a single operating segment that designs,
manufactures and markets quality consumer housewares products. This segmentation is based on the financial information presented to the chief operating decision maker. The following table sets forth the net sales by product category within the
Companys single operating segment.



Product Category Information
 Net Sales



|                   |  |                      |        |                        |   |              |  |              |         |  |   |        
|------------------ |  | -------------------- | ------ | ---------------------- | - | ------------ |  | ------------ | ------- |  | - | -------
|                   |  | Thirteen weeks ended |        | Twenty-six weeks ended
|                   |  | June 26,2004         |        | June 28,2003           |   | June 26,2004 |  | June 28,2003
|General storage    |  | $                    | 28,578 |                        | $ | 21,457       |  | $            | 50,181  |  | $ | 41,627 
|Laundry management |  |                      | 20,500 |                        |   | 19,818       |  |              | 38,528  |  |   | 36,439 
|Closet storage     |  |                      | 9,328  |                        |   | 6,818        |  |              | 17,762  |  |   | 13,451 
|Bathware           |  |                      | 3,085  |                        |   | 3,585        |  |              | 5,932   |  |   | 7,296  
|Kitchen storage    |  |                      | 2,715  |                        |   | 2,371        |  |              | 4,993   |  |   | 4,365  
|                   |  |                      |        |                        |   |              |  |              |         |  |   |        
|Total net sales    |  | $                    | 64,206 |                        | $ | 54,049       |  | $            | 117,396 |  | $ | 103,178
|                   |  |                      |        |                        |   |              |  |              |         |  |   |        



Major Customers



The Company is dependent upon a few customers for a large portion of its
consolidated net sales. The table below sets forth the customers that each account for more than 10% of consolidated net sales. The loss of one of these customers could have a material adverse effect on the Company. No other customer accounted for
more than 10% of consolidated net sales during the thirteen and twenty-six weeks ended June 26, 2004 and June 28, 2003.



12



---

##### Table of Contents

|         |  |                      |   |  |                       |   |  |              |   |  |              |  
|-------- |  | -------------------- | - |  | --------------------- | - |  | ------------ | - |  | ------------ | -
|         |  | Thirteen weeks ended |   |  | Twenty-six weeksended |  
|         |  | June 26,2004         |   |  | June 28,2003          |   |  | June 26,2004 |   |  | June 28,2003 |  
|         |  | Net Sales%           |   |  | Net Sales%            |   |  | Net Sales%   |   |  | Net Sales%   |  
|Wal-Mart |  | 29.6                 | % |  | 29.9                  | % |  | 31.5         | % |  | 30.0         | %
|Kmart    |  | 28.2                 | % |  | 28.0                  | % |  | 26.5         | % |  | 30.4         | %
|Target   |  | 15.3                 | % |  | 12.7                  | % |  | 15.5         | % |  | 11.0         | %
|         |  |                      |   |  |                       |   |  |              |   |  |              |  
|Total    |  | 73.1                 | % |  | 70.6                  | % |  | 73.5         | % |  | 71.4         | %
|         |  |                      |   |  |                       |   |  |              |   |  |              |  



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations



This commentary should be read in conjunction with the Companys consolidated financial statements and related notes and managements
discussion and analysis of financial condition and results of operations contained in the Companys Form 10-K for the year ended December 27, 2003.



Overview



The Company designs, manufactures and markets a broad range of quality houseware products. The following are key factors in understanding the
Companys performance:



| |  | Customer base
| | - | -------------



| |  | Cost of raw materials
| | - | ---------------------



| |  | Product mix
| | - | -----------



| |  | Molding machine utilization
| | - | ---------------------------



| |  | Financial liquidity
| | - | -------------------



| | Customer base
|- | -------------



The Companys business is highly concentrated among mass merchandisers, including discount stores, home centers and other category
specific retailers. Sales to our top three customers, Kmart, Wal-Mart and Target, were 74% of net sales in the twenty-six weeks ended June 26, 2004, 73% of net sales in fiscal year 2003 and 74% of net sales in fiscal year 2002. Our products
generally have few unique or patented features and are sold at entry level price points. As such, the Companys financial success is highly dependent on profitably meeting certain price points as demanded by customers. The competitive
atmosphere generally results in the erosion of selling prices for commodity products. Further, the Company has historically had little success at recovering raw material cost increases through higher selling prices.



The size of the mass merchandisers gives them strong
bargaining power with suppliers. They encourage high levels of competition among suppliers, demand that manufacturers supply innovative new products, require suppliers to match or beat quoted prices received from other potential suppliers, demand
reduced lead times and that product be warehoused until the customer desires delivery. These customers also actively engage in the direct import of generic products from multiple sources.



The high concentration of sales to mass merchandisers also
makes the Companys results dependent upon the operating results and financial viability of its key customers. The Companys operating results in recent years have been impacted by developments at Kmart, the Companys largest customer
in fiscal year 2003. Since emerging from bankruptcy in May 2003, Kmart has improved its financial performance and has operated within its financial covenants. However, Kmart continues to experience declines in same store sales and has announced
further reductions in store count. Kmart has paid all of its current obligations to the Company on time and we do not believe that Kmarts current situation will negatively impact the Company in the near term.



13



---

##### Table of Contents

| | Cost of raw materials
|- | ---------------------



The Companys primary raw materials are plastic resin and steel. Changing prices for such raw materials can cause the Companys
results of operations to fluctuate significantly. The cost of raw materials is impacted by several factors outside the control of the Company including supply and demand characteristics, oil and natural gas prices and the overall state of the
economy. Generally, as the cost of raw materials rises it results in immediate declines in profitability since we usually are unable to recover the cost increase by passing it through to customers. Conversely, when raw material costs decline, our
margins generally are favorably impacted in the short-term though competitive factors may force a decrease in selling prices that erodes some of the improved profitability. During the first twenty-six weeks of 2004, the cost of plastic resin
increased approximately 10% and steel prices increased approximately 37% as compared to the first twenty-six weeks of 2003. The increase in raw material costs added approximately $4.9 million to cost of goods sold that was not recovered from
customers. Current resin costs are such that several of our products cannot be sold at a profit. Management expects the cost of both plastic resin and steel to increase further during the remainder of 2004.



| | Product mix
|- | -----------



The Company sells a variety of household items. For various reasons, some items provide a better return than others. As the mix of items
sold changes, profitability and cash flow are affected. During the first twenty-six weeks of 2004, sales of closet and general storage items increased as compared to the first twenty-six weeks of 2003. Since these product categories are among the
lowest profit items, overall profitability was negatively impacted by product mix in the first twenty-six weeks of 2004. During the remainder of 2004, we expect that mix will continue to have an unfavorable impact on the Companys earnings.
However, certain unprofitable products will be discontinued if selling price increases are not accepted in the marketplace. The costs related to discontinuing a product are relatively minor and relate primarily to the non-cash write-off of related
tooling.



| | Molding machine utilization
|- | ---------------------------



The Company has four injection molding facilities with a variety of injection molding machine sizes. Customer ordering patterns and mix of
product manufactured impacts utilization of these machines. When demand exceeds our capacity, we must place production at third party facilities that are more costly than internal manufacturing. In addition, the mix of product sold impacts
profitability since low margin items take the same amount of production time as higher margin items. In January 2004, we closed our most expensive molding facility and relocated the machines to lower cost operations. The Companys future
profitability is dependent on selling to our optimum capacity and product mix so that constrained capacity is devoted to products with higher margins. We have no plans for expansion or reduction of our molding capacity until we can profitably
operate the facilities we currently own.



| | Financial liquidity
|- | -------------------



Seasonal working capital needs are provided by the Companys $50 million asset based line of credit. Ability to borrow is a function
of our eligible asset based availability and our outstanding borrowings. During the first twenty-six weeks of 2004, our cash flow was negative and by the end of the second quarter there were $11.5 million of borrowings outstanding under the line of
credit. At June 26, 2004, our unused available line of credit was $36.9 million. A significant decline in eligible asset base or cash flow could result in constrained funds for operations. The Company has historically experienced negative cash flow
in the second half of its fiscal years. This is due to seasonal cash needs as well as the semi annual payments of interest on subordinated debt. However, management believes it has sufficient borrowing capability for at least the next 12 months.



14



---

##### Table of Contents

See Capital Resources and Liquidity below for additional discussion of the Companys
cash flows and financing situation.



Recent Development



On June 2, 2004, the Company entered into an Agreement and Plan of Merger
(the Merger Agreement) with JRT Acquisition, Inc. (JRT), a privately held company whose sole stockholder is James R. Tennant, the Chief Executive Officer of the Company, and which was created solely for the purpose of
effectuating the Merger Agreement and the transactions contemplated thereby (the Merger). Pursuant to the provisions of the Merger Agreement, JRT will merge with and into the Company, with the Company continuing as the surviving
corporation. The Merger Agreement provides that, at the closing of the Merger, each holder of the Companys common stock will be entitled to receive $1.50 in cash, without interest and less any applicable withholding taxes, for each outstanding
share of the Companys common stock that he or she owns. A special meeting of stockholders will be held for the purpose of obtaining the requisite stockholder approval. The Merger is subject to customary conditions and requires the approval of
holders of a majority of the shares of the Companys common stock outstanding as of the record date and the approval of holders of a majority of the shares of the Companys common stock present or represented by proxy at the special
meeting and voting either for or against the Merger Agreement and the Merger, excluding shares held by JRT, equityholders of JRT, James R. Tennant and any of their affiliates. Upon completion of the Merger, the Company will
be a privately held company, wholly owned by the stockholders of JRT, and its common stock will cease to be quoted on NASDAQ and registered under the Securities Exchange Act of 1934. On July 6, 2004, the Company filed a Preliminary Proxy Statement
on Schedule 14A, and the Company, JRT and Mr. Tennant filed a Schedule 13E-3 in connection with the proposed Merger.



Critical Accounting Estimates



The estimates and assumptions involved in the application of generally accepted accounting principles (GAAP) have an impact on the
Companys reported financial condition and operating performance. The Company identified the critical accounting estimates as those that involve high levels of subjectivity and judgment to account for uncertain or difficult to predict matters
that could have a material impact on financial condition or operating performance.



A summary of the critical accounting estimates is as follows:



| | Allowances for retailer deductions and trade programs
|- | -----------------------------------------------------



Allowances for retailer deductions and customer programs are recognized when sales are recorded. Allowances are based on various market
data, historical trends and information from customers. Although the best information reasonably available to the Company is used to establish the allowances, such information is often based on estimates of retailer recovery rates and future sales
to retailers. Retailer programs are often based on annual sales levels in total and by product category. Different recovery rates apply depending on the annual sales levels achieved. As such, judgments are required on an interim basis of the
expected full year sales level by customer and product category. Because of the judgment involved, interim estimates can vary significantly from the full year actual determination of program costs. Only at year-end can an accurate assessment of the
current years costs be made. Retailers recover the program costs through deductions against future amounts owed to the Company. It is not unusual for retailers to have a different judgment of the amounts earned than does the Company.
Accordingly, the Company maintains allowances for any differences that may arise. Resolution of such differences can sometimes take up to several years depending on the particular program. Allowances are reviewed quarterly and are adjusted based on
current estimates of retailer recovery and future sales. Due to changes in estimates, changes in retailer activity and the length of time required for many programs to run their course, it is possible for allowance activity to materially impact
operating performance and financial condition in any given period. In the first twenty-six weeks of 2004, the allowances for retailer deductions and trade programs as a percentage of gross sales were 5.1% compared to 7.2% in the first twenty-six
weeks of 2003. The change in percentage is a function of the assortment of trade programs, the level of retailer deductions and the sales levels achieved by customers. Due to changes in estimates during the year, interim results can vary from the
full year result.



15



---

##### Table of Contents

| | Allowance for doubtful accounts
|- | -------------------------------



The Company evaluates the collectibility of its accounts receivable based upon an analysis of historical trends, aging of accounts
receivable, write-off experience and credit evaluations of selected high risk customers. In the event of a specific customer bankruptcy or reorganization, specific allowances are established to write down accounts receivable to the level of
anticipated recovery. The Company may consult with third-party purchasers of bankruptcy receivables when establishing specific allowances. The determination of specific allowances involves management judgments about the expected financial viability
of its customers. Changes in specific allowances for doubtful accounts would only be material to financial condition and operating performance to the extent any change involved one of the Companys 10 largest customers. The 10 largest customers
accounted for approximately 84% of net sales in the first twenty-six weeks of 2004 and 79% of accounts receivable at June 26, 2004. No material changes in allowances for doubtful accounts involving any of our 10 largest customers was recorded in the
thirteen weeks ended June 26, 2004.



| | Inventory valuation
|- | -------------------



The Company values inventory at cost (not in excess of market) determined by the first-in, first-out (FIFO) method. Inventory costs are
based on standard costs, adjusted for actual manufacturing and raw material purchase price variances. The Company includes material, labor and manufacturing overhead in the cost of inventories. Management regularly reviews inventory for salability
and has established allowances to record inventory at the lower of cost or market. The allowances are based on management judgments regarding future selling prices and costs of disposal. Such judgments are impacted by economic conditions, condition
of the inventory and age of the inventory. Such judgments involve high degrees of uncertainty and subjectivity. Accordingly, changes in the estimates can have a material impact on reported results or financial condition. In the first twenty-six
weeks of 2004, problem inventories were lower than in the first twenty-six weeks of 2003. Accordingly, charges to reduce inventory carrying values were $0.4 million lower in the first twenty-six weeks of 2004 than in the first twenty-six weeks of
2003.



| | Valuation of deferred income tax assets
|- | ---------------------------------------



The Company regularly evaluates its ability to recover the reported amount of its deferred tax assets. The evaluation considers several
factors, including our estimate of the likelihood that we will generate sufficient taxable income in future years in which temporary differences reverse. This evaluation is based primarily on our historical earnings, projected operating results,
applicable net operating loss carryforward expiration dates and identified actions under the control of the Company in realizing the associated carryforward benefits.



The Company has $32.1 million of deferred tax assets, as of December 27, 2003, resulting from net operating
loss carryforwards, and other deductible temporary differences, which may reduce taxable income in future periods to the extent the Company generates profits. Because the value of the deferred tax assets are fully reserved, changes in estimates of
future operating performance could result in a reduction of the valuation allowances and a corresponding decrease in income tax expense. The changes in the valuation allowances in any future interim period or fiscal year could be material.



| | Restructuring reserves
|- | ----------------------



In 2000 and 2001, the Company recorded restructuring charges for certain costs associated with plant closures and business reorganization
activities upon approval by management with the appropriate level of authority in accordance with Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Costs to Exit an Activity (Including Certain Costs
Incurred in a Restructuring). Such costs were recorded as a liability and included lease termination costs,



16



---

##### Table of Contents

employee severance and certain employee termination benefits. These costs were neither associated with
nor do they benefit continuing business activities. Inherent in the determination of these costs were assessments related to the most likely expected outcome of the significant actions to accomplish the restructuring. The Company reviews the status
of restructuring activities on an ongoing basis and, if appropriate, records changes based on such activities. At June 26, 2004, remaining accruals related to the 2000 and 2001 restructuring charges are less than $0.3 million.



| | Valuation of Long-Lived and Intangible Assets
|- | ---------------------------------------------



The Company assesses the recoverability of long-lived assets whenever it determines that events or changes in circumstances indicate that
their carrying amount may not be recoverable. In accordance with GAAP, indefinite lived intangible assets are subject to annual impairment tests. The Companys assessments and impairment testing are primarily based upon management estimates of
future cash flows associated with these assets. Should the Companys operating results, or estimated future results, deteriorate, we may determine that some portion of our long-lived tangible or intangible assets are impaired. Such
determination could result in non-cash charges that could materially affect the Companys consolidated financial position or results of operations for that period. At June 26, 2004, intangible assets were $73.5 million and long-lived assets
(property, plant and equipment) were $32.5 million.



Thirteen weeks ended
June 26, 2004 compared to the thirteen weeks ended June 28, 2003



In the discussion and analysis that follows, all references to 2004 are for the thirteen week period ended June 26, 2004 and all references to 2003 are for the thirteen week period ended June 28, 2003.



The following discussion and analysis compares the actual results for the
second quarter of 2004 to the actual results for the second quarter of 2003 with reference to the following (in thousands, except net loss per share; unaudited):



|                                             |  |                      |        |   |               |       |    |  |   |        |   |  |       |   
|-------------------------------------------- |  | -------------------- | ------ | - | ------------- | ----- | -- |  | - | ------ | - |  | ----- | --
|                                             |  | Thirteen weeks ended |       
|                                             |  | June 26, 2004        |        |   | June 28, 2003 |      
|Net sales                                    |  | $                    | 64,206 |   |               | 100.0 | %  |  | $ | 54,049 |   |  | 100.0 | % 
|Cost of goods sold                           |  |                      | 53,537 |   |               | 83.4  | %  |  |   | 46,425 |   |  | 85.9  | % 
|                                             |  |                      |        |   |               |       |    |  |   |        |   |  |       |   
|Gross profit                                 |  |                      | 10,669 |   |               | 16.6  | %  |  |   | 7,624  |   |  | 14.1  | % 
|                                             |  |                      |        |  
|Selling, general and administrative expenses |  |                      | 7,860  |   |               | 12.2  | %  |  |   | 7,382  |   |  | 13.7  | % 
|Amortization of intangible assets            |  |                      | 124    |   |               | 0.2   | %  |  |   | 126    |   |  | 0.2   | % 
|                                             |  |                      |        |   |               |       |    |  |   |        |   |  |       |   
|Operating profit                             |  |                      | 2,685  |   |               | 4.2   | %  |  |   | 116    |   |  | 0.2   | % 
|                                             |  |                      |        |  
|Interest expense                             |  |                      | (3,274 | ) |               | (5.1  | )% |  |   | (3,451 | ) |  | (6.4  | )%
|Other income, net                            |  |                      | 30     |   |               | (0.0  | )% |  |   | 26     |   |  | 0.0   | % 
|                                             |  |                      |        |   |               |       |    |  |   |        |   |  |       |   
|Loss before income taxes                     |  |                      | (559   | ) |               | (0.9  | )% |  |   | (3,309 | ) |  | (6.2  | )%
|Income tax expense                           |  |                      | 10     |   |               | 0.0   | %  |  |   | 20     |   |  | 0.0   | % 
|                                             |  |                      |        |   |               |       |    |  |   |        |   |  |       |   
|Net loss                                     |  | $                    | (569   | ) |               | (0.9  | )% |  | $ | (3,329 | ) |  | (6.2  | )%
|                                             |  |                      |        |   |               |       |    |  |   |        |   |  |       |   
|Net loss per share  basic                   |  | $                    | (0.07  | ) |               |       |    |  | $ | (0.42  | ) |  |       |   
|                                             |  |                      |        |  
|Net loss per share  diluted                 |  | $                    | (0.07  | ) |               |       |    |  | $ | (0.42  | ) |  |       |   
|                                             |  |                      |        |  
|Weighted average common shares outstanding:  |  |                      |        |   |               |       |    |  |   |        |   |  |       |   
|Basic                                        |  |                      | 7,987  |   |               |       |    |  |   | 7,936  |   |  |       |   
|Diluted                                      |  |                      | 7,987  |   |               |       |    |  |   | 7,936  |   |  |       |   



17



---

##### Table of Contents

Net sales. Net sales of $64.2 million in the second quarter of 2004 were up 19% as
compared to net sales of $54 million in the second quarter of 2003. Sales were up due to increased unit sales across all product lines, except bath, to our largest customers. Sales to the top three customers were 73% of net sales as compared to 71%
in the prior period. Changes in estimates related to retailer recovery of deductions and customer programs resulted in a reduction of sales allowances between periods. Such program and deduction expenses, which are recorded as a reduction of gross
sales, were 4.5% of gross sales in 2004 and 7.3% of gross sales in 2003.



Gross profit. The Companys gross profit in the second quarter of 2004 was $10.7 million as compared to $7.6 million in the second quarter of 2003 and gross profit margins increased to 16.6% of net
sales from 14.1% a year ago. Gross profit and gross profit margins were influenced by a number of factors, including:



| |  | Increased sales volume resulted in additional gross profit of $2.2 million.
| | - | ---------------------------------------------------------------------------



| |  | Factories produced more units resulting in additional overhead absorption. The higher running rates, together with reduced spending, improved gross profit by $2.4 million.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The decline in program and deduction expenses improved gross profit by $1.8 million.
| | - | ------------------------------------------------------------------------------------



| |  | Operational savings of $0.8 million resulted from the January 2004 closing of the Eagan manufacturing facility. Closing related costs of $0.1 million were $0.1 million less than in
2003.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Raw material increases of $3.7 million resulted in a 575 basis point decline in margins.
| | - | ----------------------------------------------------------------------------------------



| |  | Increased inventory allowances, product mix and other costs caused a 150 basis point decline in margins.
| | - | --------------------------------------------------------------------------------------------------------



| |  | Settlement of insurance claims related to a fire in our Mexican manufacturing facility resulted in a gain of $0.5 million.
| | - | --------------------------------------------------------------------------------------------------------------------------



Selling, general and administrative expenses. SG&A expenses
increased to $7.9 million in the second quarter of 2004 from $7.4 million in 2003. As a percentage of net sales, SG&A expenses decreased to 12.2% in 2004 from 13.7% in 2003. SG&A expenses were unfavorably impacted by $0.5 million of expenses
related to activities of the special committee of the Board of Directors. The special committee was formed to consider a proposal letter for the acquisition of all of the Companys outstanding shares as described above under Recent
Developments. Costs incurred related to fees paid to financial advisors, attorneys and the committee members. Other increased costs of $0.4 million were due to higher legal costs associated with the antidumping action and additional employee
related costs including fringes and incentives. SG&A expenses were favorably impact by a number of items including $0.1 million in lower product design consulting costs and a $0.2 million reduction in distribution and logistics costs primarily
due to the closure of the Eagan, Minnesota facility.



Interest expense. Interest expense of $3.3 million in 2004 was down $0.2 million from the prior year period. A change in the mix of debt to lower cost revolving credit borrowings caused the decrease in interest expense.



Income tax expense. Income tax expense was not
material in either period due to the Companys significant tax loss carryforwards. The recorded tax provision relates to state and foreign taxes.



Net loss. The second quarter net loss of $0.6 million was significantly improved as compared to last years second quarter loss of $3.3
million. Higher sales, improved factory performance and the insurance gain are the primarily reasons for the improvement in performance. The loss per diluted share was $(0.07) as compared to $(0.42) in the second quarter of 2003.



The diluted weighted average number of shares outstanding during the quarter
increased to 7,986,614 in 2004 from 7,936,215 a year ago. Dilutive options and warrants are not included in the computation of diluted weighted average shares outstanding because the assumed exercise of such equivalents would have reduced the loss
per share.



18



---

##### Table of Contents

Twenty-six weeks ended June 26, 2004 compared to the twenty-six weeks ended June 28, 2003



In the discussion and analysis that follows, all references to 2004 are
for the twenty-six week period ended June 26, 2004 and all references to 2003 are for the twenty-six week period ended June 28, 2003.



The following discussion and analysis compares the actual results for first twenty-six weeks of 2004 to the actual results for the first twenty-six weeks
of 2003 with reference to the following (in thousands, except net loss per share; unaudited):



|                                             |  |                        |         |   |               |       |    |  |   |         |   |  |       |   
|-------------------------------------------- |  | ---------------------- | ------- | - | ------------- | ----- | -- |  | - | ------- | - |  | ----- | --
|                                             |  | Twenty-six weeks ended |        
|                                             |  | June 26, 2004          |         |   | June 28, 2003 |      
|Net sales                                    |  | $                      | 117,396 |   |               | 100.0 | %  |  | $ | 103,178 |   |  | 100.0 | % 
|Cost of goods sold                           |  |                        | 96,870  |   |               | 82.5  | %  |  |   | 86,884  |   |  | 84.2  | % 
|                                             |  |                        |         |   |               |       |    |  |   |         |   |  |       |   
|Gross profit                                 |  |                        | 20,526  |   |               | 17.5  | %  |  |   | 16,294  |   |  | 15.8  | % 
|                                             |  |                        |         |  
|Selling, general and administrative expenses |  |                        | 14,529  |   |               | 12.4  | %  |  |   | 15,614  |   |  | 15.1  | % 
|Amortization of intangible assets            |  |                        | 248     |   |               | 0.2   | %  |  |   | 252     |   |  | 0.2   | % 
|                                             |  |                        |         |   |               |       |    |  |   |         |   |  |       |   
|Operating profit                             |  |                        | 5,749   |   |               | 4.9   | %  |  |   | 428     |   |  | 0.5   | % 
|                                             |  |                        |         |  
|Interest expense                             |  |                        | (6,529  | ) |               | (5.6  | )% |  |   | (6,928  | ) |  | (6.7  | )%
|Other income, net                            |  |                        | 25      |   |               | 0.0   | %  |  |   | 69      |   |  | 0.1   | % 
|                                             |  |                        |         |   |               |       |    |  |   |         |   |  |       |   
|Loss before income taxes                     |  |                        | (755    | ) |               | (0.7  | )% |  |   | (6,431  | ) |  | (6.1  | )%
|                                             |  |                        |         |  
|Income tax expense                           |  |                        | 17      |   |               | 0.0   | %  |  |   | 44      |   |  | 0.0   | % 
|                                             |  |                        |         |   |               |       |    |  |   |         |   |  |       |   
|Net loss                                     |  | $                      | (772    | ) |               | (0.7  | )% |  | $ | (6,475  | ) |  | (6.1  | )%
|                                             |  |                        |         |   |               |       |    |  |   |         |   |  |       |   
|Net loss per share - basic                   |  | $                      | (0.10   | ) |               |       |    |  | $ | (0.82   | ) |  |       |   
|                                             |  |                        |         |  
|Net loss per share - diluted                 |  | $                      | (0.10   | ) |               |       |    |  | $ | (0.82   | ) |  |       |   
|                                             |  |                        |         |  
|Weighted average common shares outstanding:  |  |                        |         |   |               |       |    |  |   |         |   |  |       |   
|Basic                                        |  |                        | 7,987   |   |               |       |    |  |   | 7,935   |   |  |       |   
|Diluted                                      |  |                        | 7,987   |   |               |       |    |  |   | 7,935   |   |  |       |   



Net
sales. 2004 net sales of $117.4 million were up 14% as compared to net sales in 2003 of $103.2 million. Sales were up due to increased unit sales across all product lines, except bath, to our largest customers. Sales to the top three
customers were 74% of net sales as compared to 71% in the prior period. Changes in estimates related to retailer recovery of deductions and customer programs resulted in a reduction of sales allowances between periods. Such program and deduction
expenses, which are recorded as a reduction of gross sales, were 5.1% of gross sales in 2004 and 7.2% of gross sales in 2003.



19



---

##### Table of Contents

Gross profit. The Companys gross profit in the first twenty-six weeks of 2004 was
$20.5 million as compared to $16.3 million in 2003 and gross profit margins increased to 17.5% of net sales from 15.8% a year ago. Gross profit and gross profit margins were influenced by a number of factors, including:



| |  | Increased sales volume resulted in additional gross profit of $2.0 million.
| | - | ---------------------------------------------------------------------------



| |  | Factories produced more units resulting in additional overhead absorption. The higher running rates, together with reduced spending, improved profit by $3.4 million.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The decline in program and deduction expenses improved gross profit by $2.4 million.
| | - | ------------------------------------------------------------------------------------



| |  | Operational savings of $1.2 million resulted from the January 2004 closing of the Eagan manufacturing facility. Closing related costs of $0.7 million were $0.4 million more than in
2003.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Raw material increases of $4.9 million resulted in a 420 basis point decline in margins.
| | - | ----------------------------------------------------------------------------------------



| |  | Settlement of insurance claims related to a fire in our Mexican manufacturing facility resulted in a gain of $0.5 million.
| | - | --------------------------------------------------------------------------------------------------------------------------



Selling, general and administrative expenses. SG&A expenses
decreased to $14.5 million in 2004 from $15.6 million in 2003. As a percentage of net sales, SG&A expenses decreased to 12.4% in 2004 from 15.1% in 2003. SG&A expenses were favorably impacted by a $0.5 million bad debt recovery, the non
recurrence of a $0.7 million first quarter 2003 premium associated with accounts receivable insurance, $0.5 million of warehouse savings from the closing of the Eagan facility and general cost cutting measures across all expense departments. 2004
SG&A also includes $0.8 million of expenses related to activities of the special committee of the Board of Directors. The special committee was formed to consider a proposal letter for the acquisition of all of the Companys outstanding
shares as described above under Recent Developments. Costs incurred related to fees paid to financial advisors, attorneys and the committee members.



Interest expense. Interest expense of $6.5 million in 2004 was down $0.4 million from the prior year period. A change in the mix of debt
to lower cost revolving credit borrowings caused the decrease in interest expense.



Income tax expense. Income tax expense was not material in either period due to the Companys significant tax loss carryforwards. The recorded tax provision relates to state and foreign taxes.



Net loss. The net loss for the first twenty-six
weeks of 2004 was $0.8 million. The loss was significantly lower than the $6.5 million loss reported in the comparable 2003 period. Higher sales, improved factory performance, lower operating expenses and the insurance gain are the primarily reasons
for the improvement in performance. The loss per diluted share was $(0.10) as compared to $(0.82) in the first twenty-six weeks of 2003.



The diluted weighted average number of shares outstanding for the six-month period increased to 7,986,585 from 7,935,349 a year ago. Dilutive options and
warrants are not included in the computation of diluted weighted average shares outstanding because the assumed exercise of such equivalents would have reduced the loss per share.



Capital Resources and Liquidity



The Companys primary sources of liquidity and capital resources include cash provided from operations and borrowings under the Companys asset
based $50 million Loan and Security Agreement (the Loan Agreement).



The Company generates cash by the profitable sale of its products. Disbursements of cash for materials and services generally occur during the manufacturing and purchasing process, which is usually 30-90 days prior to
sale. Collection of receivables generally occurs approximately 45-60 days after shipment. For certain large promotional items that typically ship in the fourth quarter, we begin building inventory in the second and third quarters. The inventory for
these promotional items typically is not turned to cash until the first quarter of the following year. The timing of cash flows is further impacted by the semi-annual interest payments on the high-yield bonds. Interest payments of about $6.0 million
occur in May and November. As a result of the operational seasonality and the timing of the interest payments, the Company normally has positive cash flow in the first quarter and negative cash flow for the balance of the year. In the first
twenty-six weeks of 2004, the Company had negative cash flow (which the Company defines as the net change in cash and debt) of $2.0 million.



20



---

##### Table of Contents

Collection of receivables is highly dependent on the financial strength of the Companys top three
customers: Kmart, Wal-Mart, and Target. These three customers accounted for 74% of the Companys net sales in the first twenty-six weeks of 2004. To the extent that any of them fall into financial distress and fail to timely pay amounts due, it
would have an adverse impact on ongoing operations.



During the
first twenty-six weeks of 2004, the Companys cash and cash equivalents decreased to $0.4 million at June 26, 2004 from $0.8 million at December 27, 2003. Borrowings under the Loan Agreement increased $1.7 million during the twenty-six week
period. The decrease in cash and increase in borrowings since December 27, 2003 is due primarily to seasonal increases of working capital.



Working capital (excluding cash and short term debt) at June 26, 2004 was $33.8 million, up $4.9 million from December 27, 2003. Receivables decreased
$5.9 million due to lower sales in the second quarter as compared to the fourth quarter of 2003. Inventories increased $15.0 million due to seasonal builds for later shipment and higher raw material costs. Accounts payable and accrued liabilities
increased $5.7 million due primarily to increased inventory purchases.



Capital spending for the first twenty-six weeks of 2004 was $3.6 million, unchanged from the comparable period of 2003. Capital spending was primarily related to new product tooling and normal replacement of equipment.



The Loan Agreement covenants require the Company to maintain excess
availability at all times of at least $9.2 million. At June 26, 2004, the eligible asset base was $62.6 million. Thus, we could borrow up to $50 million under the Loan Agreement. At June 26, 2004, there were $11.5 million of borrowings under the
Loan Agreement and outstanding letters of credit totaled $1.6 million. Accordingly, we still had availability under the Loan Agreement of $36.9 million. There is expected to be sufficient financing capability to fund operations for at least the next
twelve months.



The Company was in compliance with all Loan
Agreement covenants as of June 26, 2004.



The Companys
Loan Agreement contains one financial covenant pertaining to a minimum cash interest coverage ratio. The cash interest coverage ratio must be no lower that 0.8 at the end of June 2004 at which point the ratio begins a quarterly increase until it
reaches 1.25 in June 2005. At June 26, 2004, the Companys cash interest coverage ratio was 1.81. The earnings component of the covenant is the trailing twelve-month earnings before interest, taxes, depreciation and amortization. Certain costs
related to factory realignments and special committee costs are also excluded. For the twelve months ended June 26, 2004, the earnings component of the covenant was $22.9 million. For a definition of cash interest coverage ratio as it is used in the
Loan Agreement, refer to the Companys Current Report on Form 8-K filed on September 24, 2003.



There are no required debt principal repayments until May 2008. Under the Indenture dated May 14, 1998 related to the Companys 9 5/8% Senior
Subordinated Notes due 2008 (the Indenture), the senior subordinated bondholders, in certain circumstances, have the right to require the Company to repurchase their notes upon a Change of Control as such term is defined in
the Indenture. The repurchase rights will not be triggered, however, by an acquisition of a majority of our outstanding voting stock by a permitted holder, defined in the Indenture as (i) directors and officers of the Company on
the Issue Date [of the notes] and (ii) Chase Venture Capital Associates, L.P. and any Affiliates thereof. Because Mr. Tennant would beneficially own a majority of the outstanding voting stock of the Company, as the surviving corporation,
following the consummation of the proposed Merger, and because Mr. Tennant is a permitted holder, consummation of the proposed Merger is not expected to trigger the repurchase rights of the noteholders.



The terms of the Indenture provide for certain restrictions and limitations
on the ability of the Company to take certain actions, including incurring indebtedness, the layering of indebtedness, the making of restricted payments such as dividends or distributions with respect to the Company common



21



---

##### Table of Contents

stock, the purchase or redemption of the Company common stock, and the sale of assets or subsidiary stock. Upon the
effectiveness of, and as a result of, the proposed Merger, the Company, as the surviving corporation, would be in violation of various covenants under the Indenture, as currently in effect, including those limiting our ability to incur additional
indebtedness, repurchase shares of our common stock and undertake certain transactions with our affiliates. The Company and JRT have negotiated with the trustee under the Indenture an amended and restated Indenture, and expect to obtain requisite
approval to the amended and restated Indenture from a single investor beneficially owning a majority in aggregate principal amount of the notes, whom we refer to as the majority note investor. However, the majority note investor may
decline to provide its consent to the proposed amended and restated Indenture in its sole discretion. More detailed information regarding the proposed amended and restated Indenture is set forth in the proxy statement filed by the Company in
connection with the proposed Merger.



The following is a table
providing the aggregate annual contractual obligations of the Company including debt, capital lease obligations, future minimum rental commitments under operating leases and purchase obligations at June 26, 2004 and the effect such obligations are
expected to have on our liquidity and cash flows in the future periods indicated.



|                                                  |  |                                       |         |                 |   |           |  |           |       |               |   |         |  |   |      
|------------------------------------------------- |  | ------------------------------------- | ------- | --------------- | - | --------- |  | --------- | ----- | ------------- | - | ------- |  | - | -----
|                                                  |  | Payments Due by Period (in thousands)
|Contractual Obligations                           |  | Total                                 |         | 1 year and less |   | 1-3 years |  | 3-5 years |       | After 5 years
|Revolving line of credit                          |  | $                                     | 11,521  |                 | $ | 11,521    |  | $         |      |               | $ |        |  | $ |     
|Long-term debt                                    |  |                                       | 116,050 |                 |   |          |  |           |      |               |   | 116,050 |  |   |     
|Capital lease obligations                         |  |                                       | 4,625   |                 |   | 33        |  |           | 192   |               |   | 269     |  |   | 4,131
|Minimum rental commitments under operating leases |  |                                       | 19,751  |                 |   | 5,148     |  |           | 8,312 |               |   | 5,180   |  |   | 1,111
|Purchase obligations (estimated) (1)              |  |                                       | 20,408  |                 |   | 20,408    |  |           |      |               |   |        |  |   |     
|                                                  |  |                                       |         |                 |   |           |  |           |       |               |   |         |  |   |      
|Total contractual cash obligations                |  | $                                     | 172,355 |                 | $ | 37,110    |  | $         | 8,504 |               | $ | 121,499 |  | $ | 5,242
|                                                  |  |                                       |         |                 |   |           |  |           |       |               |   |         |  |   |      

---

|(1) | The Company has entered into a commitment to purchase certain minimum annual volumes of plastic resin at formula-based prices. The agreement expires in December 2004. Future related
minimum commitments to purchase plastic resin, assuming June 2004 price levels, are $20.4 million. The purchase commitment pricing is not tied to fixed rates; therefore, the Companys results of operations or financial position could be
affected by significant changes in the market cost of plastic resin. See Item 3, Quantitative and Qualitative Disclosures About Market Risk for further details.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                          |  |                                                         |       |                 |   |           |  |           |   |               |   |   |  |   |  
|------------------------- |  | ------------------------------------------------------- | ----- | --------------- | - | --------- |  | --------- | - | ------------- | - | - |  | - | -
|                          |  | Financing commitments expiring by period (in thousands)
|                          |  | Total                                                   |       | 1 year and less |   | 1-3 years |  | 3-5 years |   | After 5 years
|Standby letters of credit |  | $                                                       | 1,600 |                 | $ | 1,600     |  | $         |  |               | $ |  |  | $ | 
|                          |  |                                                         |       |                 |   |           |  |           |   |               |   |   |  |   |  



Business Risks and
Management Outlook



| |  | The Companys largest customer in 2003 was Kmart. The Companys net sales to Kmart were $77 million in 2003 and $74 million in 2002, even though Kmart
reduced its store count by 18% during 2003. After emerging from bankruptcy in May 2003, Kmart has improved its financial performance and has operated within its financial covenants. However, Kmart continues to experience declines in
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



22



---

##### Table of Contents

| | same store sales and has further reduced its store count during 2004. Kmart has paid all of its current obligations to the Company on time and we do not
believe that Kmarts current situation will negatively impact the Company in the near term. Given the size of the Companys sales to Kmart, future results may be either favorably or unfavorably impacted by any number of factors related to
the retailer. Kmart recently announced two transactions involving the sale of up to 74 stores, or approximately 5% of Kmarts store base. Should Kmart continue to decline in size or again enter into bankruptcy, the negative impact on sales and
cash flow could have an adverse impact on the Company.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Historically, plastic resin has represented approximately 20% to 25% of the Companys cost of goods sold. In 2003, the percentage increased to 30% due to higher plastic resin
costs and usage. Plastic resin costs are impacted by several factors outside the control of the Company including supply and demand characteristics, oil and natural gas prices and the overall health of the economy. Any of these factors could
potentially have a positive or negative impact on plastic resin prices and the Companys profitability. Resin costs in 2003 were approximately 17% per pound higher than our five-year historic averages and 20% per pound over 2002. Resin costs
have continued to increase in 2004 and we expect that costs in the remainder of 2004 will exceed costs incurred in 2003 during the comparable period. While we will make every effort to recover the higher cost of plastic resin, there is no assurance
that future resin cost increases can be passed on to customers.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On January 31, 2004, the Company closed its Eagan, Minnesota manufacturing and warehouse facility. This closure was done to reduce operating costs and utilize capacity in the
Companys other injection molding plants. The Company expects to realize annual cash savings as a result of the plant closing and currently estimates that the cash savings in the first year will be approximately $2.5 million (excluding plant
closing costs).
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Company currently manufactures the majority of its laundry products in the U.S. and Mexico. Management believes that the Companys current manufacturing structure provides
increased flexibility to meet customer needs. All of the Companys major laundry competitors rely heavily on foreign sourced products. Such products are produced in several countries, including a significant portion from China. Over the past
few years, these foreign sourced competitive products were introduced at selling prices below ours. This has caused our profit margins and market share to decline. We have initiated many cost cutting and other steps to protect our market share and
profit margins. We are also aggressively pursuing the increased importation of certain laundry products. We will continue to analyze the competitiveness of our North American based laundry manufacturing operations. In addition, the Company filed an
action with the U.S. International Trade Commission (ITC) and the U.S. Department of Commerce (Department of Commerce) on June 30, 2003 seeking relief from a surge in the importation of unfairly priced Chinese ironing boards.
On July 15, 2004, the ITC unanimously determined that the U.S. ironing board industry was facing material injury as a result of the importation of unfairly priced ironing boards from China. The ITCs action resulted in the issuance of an
antidumping duty order by the Secretary of Commerce in early August, followed by the collection of antidumping duties on Chinese imports. The ITCs decision follows a June 16, 2004 determination by the Department of Commerce that ironing boards
imported from China are sold in the United States at less than fair value. On August 6, 2004, the Department of Commerce assigned revised dumping margins ranging from 9.47 percent to 157.68 percent. While antidumping duties will be collected in
amounts equal to these dumping margins, the duties may be subject to administrative and judicial review. Additionally, the decisions of the ITC and Department of Commerce may also be subject to judicial review. There can be no assurance as to the
timing or outcome of any of these reviews, should they occur, including whether or not the antidumping duty order or the assigned duty rates will ultimately survive review and appeal. The Company will continue to vigorously pursue this matter, which
will require it to devote financial and other resources, including management time and legal expenses.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Companys three largest customers all have unique aspects that require additional packaging, handling and technical support. Distribution systems are
constantly evolving as retailers search for additional costs to remove from the distribution system. A coming technology is radio frequency identification (RFID) which attaches a computer chip to each product. This chip gives off a radio
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



23



---

##### Table of Contents

| | signal that can be tracked by the retailer for inventory and sale purposes. RFID has the potential to replace current bar code technology. Wal-Mart has
indicated that vendors should prepare for a conversion to RFID technology over the next two years. The cost to transition to RFID is unknown but is expected to be significant. It is likely that retailers will expect vendors to fund the RFID changes,
which conversion costs may be significant. The transition to RFID is expected to occur in the next two to three years.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | As a result of operating losses and restructuring write-offs in prior years, the Company has significant tax loss carryforwards. These carryforwards may be used to reduce taxable
income in future periods. The Company had tax loss carryforwards of $51 million which expire in years 2010 through 2023 (amount includes carryforwards of $9 million subject to annual limitation) as of December 27, 2003. The tax loss carryforwards
are expected to increase in 2004. However, there is no assurance that future income will be sufficient to utilize these tax loss carryforwards. Our ability to use these operating loss carryforwards to offset any future taxable income depends on a
variety of factors, including possible limitations on usage under Internal Revenue Code Section 382.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Company is highly leveraged with total debt representing over two times our net tangible assets. Although $116 million of the Companys outstanding debt at June 26, 2004 is
at fixed rates, any deterioration in our business could lead to additional borrowings at adjustable rates. Thus a deterioration of our business combined with a significant change in interest rates could materially impact earnings and cash flow.
Furthermore, the financial and operating covenants related to the Companys debt agreements place some restrictions on operations. During all of 2003 and to date in 2004, the Company operated within its financial and operating covenants and
expects to continue to operate within the covenants during the remainder of 2004.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Companys Loan Agreement takes into account seasonal fluctuations and changes to the Companys collateral base. Because the financing is asset based, availability of
funds to borrow is dependent on the quality of the Companys asset base, primarily its receivables and inventory. Should the lender determine that such assets do not meet the banks credit tests, availability can be restricted. Given the
Companys retail customer base, it is possible that certain customers could be excluded from the asset base thus reducing credit availability.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In an environment where customers largely control selling prices and vendors largely control raw material costs, sustained profitability and cash flow is a challenging goal. We will
continue to focus on controlling our costs of production and holding operating expenses to below industry levels. We also intend to continue to develop new products and categories, as management believes that such items have a slightly better
opportunity for reasonable profit margins. Given the declining profitability of certain products and the increasing cost of raw materials, we have announced selective price increases. The success of these price increases is predicated on the
competitive market place. If such price increases are not successfully implemented, certain products will be discontinued.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Given the Companys line of credit availability, management may from time-to-time look at opportunities to buy its high-yield bonds. A buyback might be done if such
transactions are accretive to shareholders through either a reduction of interest expense or a buyback of bonds at a discount.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Management believes that acquisitions provide an opportunity to meaningfully grow the Companys sales and profits. We expect to consider acquisition opportunities that are
synergistic to existing operations.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | There can be no assurance as to the timing or consummation of the proposed Merger (described above under -Recent Developments), as to the terms, timing or consummation
of any amended and restated Indenture, or as to the effect, if any, of the proposed Merger on the Companys business. Further, there can be no assurance that defending against the lawsuits described in Item 3 (Legal Proceedings) relating to the
proposed Merger or any similar lawsuits brought in the future, whether they are with or without merit or are determined in our favor, will not result in substantial costs and the diversion of managements attention and resources. If class
certification is granted in either of the pending legal actions, it is reasonably possible that the outcome could have a material adverse effect on the operating results, financial position and cash flows of the Company.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



24



---

##### Table of Contents

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk



The Companys primary market risk is impacted by changes in interest rates and price volatility of certain commodity based raw materials.



Interest Rate Risk. The Companys revolving credit agreement is
LIBOR-based and is subject to interest rate movements. During the thirteen and twenty-six weeks ended June 26, 2004, the Company did not experience any material changes in interest rate risk that would affect the disclosures presented in the
Companys Annual Report on Form 10-K for the fifty-two week period ended December 27, 2003.



Commodity Risk. The Company is subject to price fluctuations in commodity based raw materials such as plastic resin, steel and griege fabric. Changes in
the cost of these materials may have a significant impact on the Companys operating results. The cost of these items is affected by many factors outside of the Companys control and changes to the current trends are possible. See
Business Risks and Management Outlook above.



The
Company has entered into a commitment to purchase certain minimum annual volumes of plastic resin at formula-based prices. The agreement expires in December 2004. Future related minimum commitments to purchase plastic resin, assuming June 2004 price
levels, are approximately $20 million. In the event there is a major change in economic conditions affecting the Companys overall annual plastic resin volume requirements, the Company and the vendor will mutually agree on how to mitigate the
effects on both parties. Mitigating actions include deferral of product delivery within the agreement term, agreement term extension and/or elimination of excess quantities without liability.



Item 4. Controls and Procedures



The Companys management, with the participation of the Companys Chief Executive Officer and Chief Financial Officer, has reviewed and evaluated the effectiveness of the Companys disclosure controls and procedures (as
defined in Rules 13a-15(e) under the Exchange Act) as of the end of the fiscal period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the
end of such period, the Companys disclosure controls and procedures are effective in reporting information required to be disclosed by the Company in the reports its files or submits under the Exchange Act within the time periods specified in
the Commissions rules and forms.



There have been no
changes (including corrective actions with regard to significant deficiencies or material weakness) in the Companys internal controls over financial reporting during the second quarter of 2004 that have materially affected, or are reasonably
likely to materially affect, the Companys internal controls over financial reporting.



Forward Looking Statements



This quarterly report on Form 10-Q, including the Managements Discussion and Analysis of Financial Condition and Results of Operations, Business Risks and Management Outlook and Quantitative and
Qualitative Disclosures about Market Risk sections, contain forward-looking statements within the meaning of the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally
may be identified by the use of terminology such as may, will, could, should, potential, continue, expect, intend, plan,
estimate, anticipate, believe, or similar phrases or the negatives of such terms. Such statements are based on managements current expectations and are subject to risks, uncertainties and assumptions,
including those identified below and in the foregoing Business Risks, as well as other matters not yet known to the Company or not currently considered material by the Company, which could cause actual results to differ materially from
those described in the forward-looking statements. Such factors and uncertainties include, but are not limited to:



| |  | general economic conditions and conditions in the retail environment
| | - | --------------------------------------------------------------------



25



---

##### Table of Contents

| |  | the Companys dependence on a few large customers
| | - | -------------------------------------------------



| |  | price fluctuations in the raw materials used by the Company, particularly plastic resin and steel
| | - | -------------------------------------------------------------------------------------------------



| |  | competitive conditions in the Companys markets
| | - | -----------------------------------------------



| |  | the impact of the level of the Companys indebtedness
| | - | -----------------------------------------------------



| |  | restrictive covenants contained in the Companys various debt documents
| | - | -----------------------------------------------------------------------



| |  | the seasonal nature of the Companys business
| | - | ---------------------------------------------



| |  | fluctuations in the stock market
| | - | --------------------------------



| |  | the extent to which the Company is able to retain and attract key personnel
| | - | ---------------------------------------------------------------------------



| |  | relationships with retailers
| | - | ----------------------------



| |  | the impact of federal, state and local environmental requirements (including the impact of current or future environmental claims against the Company)
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | our ability to develop and introduce new products and product modifications necessary to remain competitive
| | - | -----------------------------------------------------------------------------------------------------------



| |  | risks associated with the proposed Merger such as the risk that the Merger may not be completed or litigation in connection with the Merger
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| |  | other factors discussed in Business Risks and Management Outlook above
| | - | ------------------------------------------------------------------------



Given these risks and uncertainties, investors are cautioned not to place undue reliance on such forward-looking statements.
Forward-looking statements do not guarantee future performance. The Companys operating results may fluctuate, especially when measured on a quarterly basis. The Company undertakes no obligation to republish revised forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are also urged to carefully review and consider the various disclosures made by the Company in this report and in the
Companys periodic reports on Forms 10-K, 10-Q and 8-K, the preliminary proxy statement filed on July 6, 2004 and other filings with the Securities and Exchange Commission. Such reports attempt to advise interested parties of the factors that
affect the Companys business.



PART II. OTHER INFORMATION



Items
2, 3 and 5 and of this Part II are either inapplicable or are answered in the negative and are omitted pursuant to the instructions to Part II.



Item 1. Legal Proceedings



On
June 3, 2004, a complaint was filed in the Court of Chancery for the State of Delaware against the Company, our board of directors and JRT. The complaint purports to be filed by a stockholder and alleges that in entering into the Merger Agreement,
our board of directors breached their fiduciary duties of loyalty, due care and good faith. The complaint, which includes a request for a declaration that the action be maintained as a class action, seeks, among other relief, injunctive relief
enjoining the Merger from being consummated. The Company and our board of directors believe the complaint is without merit and intend to vigorously contest this lawsuit.



On June 4, 2004, a complaint was filed in the Chancery Division of the Circuit Court of Cook County, Illinois against the
Company and our directors. The complaint purports to be filed by a stockholder and alleges that in entering into the Merger Agreement, our board of directors breached their fiduciary duties of loyalty, due care, independence, good faith and fair
dealing. The complaint, which includes a request for a declaration that the action be maintained as a class action, seeks, among other relief, injunctive relief enjoining the Merger from being consummated. The Company and our board of directors
believe the complaint is without merit and intend to vigorously contest this lawsuit.



26



---

##### Table of Contents

If class certification is granted in either of the aforementioned legal actions, it is reasonably
possible that the outcome could have a material adverse effect on the operating results, financial position and cash flows of the Company. There is not sufficient information to estimate the Companys exposure at this time.



The Company filed an action with the U.S. International Trade Commission and
the U.S. Department of Commerce on June 30, 2003 seeking relief from a surge in the importation of unfairly priced Chinese ironing boards. On July 15, 2004, the ITC unanimously determined that the U.S. ironing board industry was facing material
injury as a result of the importation of unfairly priced ironing boards from China. The ITCs action resulted in the issuance of an antidumping duty order by the Secretary of Commerce in early August, followed by the collection of antidumping
duties on Chinese imports. The ITCs decision follows a June 16, 2004 determination by the Department of Commerce that ironing boards imported from China are sold in the United States at less than fair value. On August 6, 2004, the Department
of Commerce assigned revised dumping margins ranging from 9.47 percent to 157.68 percent. While antidumping duties will be collected in amounts equal to these dumping margins, the duties may be subject to administrative and judicial review.
Additionally, the decisions of the ITC and Department of Commerce may also be subject to judicial review. There can be no assurance as to the timing or outcome of any of these reviews, should they occur, including whether or not the antidumping duty
order or the assigned duty rates will ultimately survive review and appeal. The Company will continue to vigorously pursue this matter, which will require it to devote financial and other resources, including management time and legal expenses.



Item 4. Submission of Matters to a Vote of Security Holders



On June 2, 2004, the 2004 Annual Meeting of Stockholders of the Company was held. The following is a brief description of the matters voted upon at the meeting and tabulation of the voting.



Proposal No. 1. The election of the following directors, who will serve until the next annual
meeting of stockholders, or until their successors are elected and qualified, or their earlier death or resignation:



|                    |  |                |  |               
|------------------- |  | -------------- |  | --------------
|Nominee             |  | Votes in Favor |  | Votes Withheld
|Charles R. Campbell |  | 6,788,776      |  | 898,548       
|Daniel B. Shure     |  | 6,877,137      |  | 810,187       
|Joel D. Spungin     |  | 6,795,276      |  | 892,048       
|James R. Tennant    |  | 6,881,937      |  | 805,387       



Item 6. Exhibits and Reports on Form 8-K



| | (a) | Exhibits
| | --- | --------



|     |  |                                                                                                                                                                                                                                                     
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.11 |  | Agreement and Plan of Merger by and between Home Products International, Inc. and JRT Acquisition, Inc., dated as of June 2, 2004 (Incorporated by reference to Exhibit 99.1 to Current Report
on Form 8-K filed by the registrant on June 3, 2004).
|     | 
|4.4  |  | Voting Agreement, by and between Home Products International, Inc. and James R. Tennant, dated as of June 2, 2004 (Incorporated by reference to Exhibit 99.2 to Current Report on Form 8-K
filed by the registrant on June 3, 2004).                
|     | 
|31.1 |  | Certification by James R. Tennant, Chief Executive Officer and Chairman of the Board, required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.                                                                          



27



---

##### Table of Contents

|     |  |                                                                                                                                                                              
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|31.2 |  | Certification of James E. Winslow, Executive Vice President and Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
|     | 
|32.1 |  | Certification by James R. Tennant, Chief Executive Officer and Chairman of the Board pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.           
|     | 
|32.2 |  | Certification of James E. Winslow, Executive Vice President and Chief Financial Officer, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.       



(b) Current reports on
Form 8-K.



Registrant furnished a Current Report on Form 8-K
dated April 28, 2004 to disclose that the Registrant issued a press release disclosing its financial results for its first quarter of 2004.



Registrant filed a Current Report on Form 8-K dated June 3, 2004 to disclose that the Registrant issued a press release disclosing on June 2, 2004, the
Company, and JRT Acquisition, Inc., a Delaware corporation (JRT Acquisition), entered into an Agreement and Plan of Merger, pursuant to which JRT Acquisition, an entity formed by James R. Tennant, the Companys Chairman and Chief
Executive Officer, will merge with and into the Company.



Registrant furnished a Current Report on Form 8-K dated June 7, 2004 to disclose that the Registrant issued a press release relating to its 9.625% senior subordinated notes due in 2008.



Registrant furnished a Current Report on Form 8-K dated June 10, 2004 to
disclose that the Company issued a press release relating to a lawsuit that was filed against it and its board of directors.



Registrant furnished a Current Report on Form 8-K dated June 18, 2004 to disclose that the Company issued a press release relating to a lawsuit that was
filed against it and its board of directors.



28



---

##### Table of Contents

SIGNATURE



Pursuant to the
requirements 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.



Home Products International, Inc.By:

/s/ James E. WinslowJames E. WinslowExecutive Vice President andChief Financial Officer




Dated: August
10, 2004



29