<PAGE>   1


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

                               FOR THE FISCAL YEAR ENDED JUNE 30, 2000
                                                         -------------
                                                OR
_____             TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                  THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
                  TRANSITION PERIOD FROM             TO

                         COMMISSION FILE NUMBER 333-3689

                                 WAXMAN USA INC.
                                 ---------------

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


        DELAWARE                                      34-1761514
------------------------                 ---------------------------------------
(STATE OF INCORPORATION)                 (I.R.S. EMPLOYER IDENTIFICATION NUMBER)

        24460 AURORA ROAD,
        BEDFORD HEIGHTS, OHIO                            44146
        ---------------------                            -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)               (ZIP CODE)

                                 (440) 439-1830
                                 --------------
               (REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                      NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                                      NONE

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety (90) days.

                                Yes   X      No
                                    -----       -----

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

         Registrant meets the conditions set forth in General Instruction (I)
(1) (a) and (b) of Form 10-K and is therefore filing this form in reduced
disclosure format.

         Number of shares of Common Stock outstanding as of September 1, 2000:

                               Common Stock                       100



<PAGE>   2



     DOCUMENTS INCORPORATED BY REFERENCE

         Registrant has omitted information required by Items 4, 10, 11, 12, and
13 of Form 10-K because Registrant meets the conditions set forth in General
Instruction (I) (1)(a) and (b) of Form 10-K and is, therefore, filing this
Report in reduced disclosure format. However, the information that has been
omitted from this Report is included in the periodic reports of Waxman
Industries, Inc., the parent of Registrant, filed in accordance with the
Securities Exchange Act of 1934.

         Waxman USA Inc. (the "Company") is a direct wholly-owned subsidiary of
Waxman Industries, Inc. ("Waxman Industries"). The Company consists of Waxman
USA Inc. and subsidiaries in which Waxman USA Inc. directly or indirectly has a
majority voting interest. The Company accounts for its 44.2% ownership in
Barnett Inc. ("Barnett") under the equity method of accounting. The Barnett Form
10-K for the year ended June 30, 2000 is incorporated by reference into Item 8
of this Annual Report on Form 10-K.

CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

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

                                     PART I

ITEM 1.   BUSINESS

        GENERAL

        The Company is a direct wholly-owned subsidiary of Waxman Industries,
Inc. ("Waxman Industries"). The common stock of Waxman Industries is quoted on
the Over-The-Counter Bulletin Board ("OTCBB") under the symbol "WAXX." The
Company believes it is one of the leading suppliers of specialty plumbing,
hardware and other products to the repair and remodeling market in the United
States. The Company distributes its products to approximately 1,400 customers,
including a wide variety of large national and regional retailers, independent
retail customers and wholesalers. The Company's consolidated net sales were
$81.4 million in fiscal 2000.

        The Company conducts its business primarily through its wholly-owned
subsidiaries, Waxman Consumer Products Group Inc. ("Consumer Products"), WOC
Inc. ("WOC"), which was renamed Medal of Pennsylvania Inc. ("Medal") effective
July 1, 2000 and TWI, International, Inc. ("TWI"). WOC is comprised of Medal
Distributing, a supplier of hardware products and, until its sale effective
January 1, 1999, U.S. Lock ("U.S. Lock"), a distributor of a full line of
security hardware products. TWI includes the Company's foreign operations,
including manufacturing, packaging and sourcing operations in China and Taiwan,
and, WAMI Sales Inc., an operation that distributes galvanized, black, brass,
and chrome pipe nipples and malleable fittings to wholesale trade distributors.
TWI also included an operation in Mexico that threaded galvanized, black, brass,
and chrome pipe until its sale effective March 31, 2000. Consumer Products, WOC
and Barnett utilize the Company's and non-affiliated foreign sourcing suppliers.

        At June 30, 2000, the Company owned 44.2% of Barnett, a direct marketer
and distributor of an extensive line of plumbing, electrical, hardware, and
security hardware products to approximately 71,500 active customers throughout
the United States. Barnett offers approximately 21,300 name brand and private
label products through its industry-recognized Barnett(R) and U.S. Lock(R)
catalogs and telesales operations. Barnett markets its products through six
distinct, comprehensive catalogs that target professional contractors,
independent hardware stores, maintenance managers, security hardware installers,
liquid propane gas dealers, and locksmiths. In January 1999, the Company
completed the sale of U.S. Lock to Barnett. Barnett's net sales for fiscal 2000
were $281.5 million. In fiscal 2000, the Company recognized $6.5 million in
equity income from this investment. See Management's Discussion and Analysis
"Debt Restructuring Effort" section and Note 12 of the notes to consolidated
financial statements in this Annual Report on Form 10-K for a discussion of the
Company's agreement to sell its interest in Barnett.

         In April 1996, the Company completed an initial public offering of the
common stock of Barnett (the "Barnett Common Stock"), reducing its interest in
the former wholly-owned subsidiary to 49.9% of the outstanding Barnett Common
Stock and, together with certain convertible non-voting preferred stock owned by
the Company, approximately a 54% economic interest. In April 1997,


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the Company completed a secondary offering of 1.3 million shares of Barnett
Common Stock, reducing its voting and economic interests to 44.5% and,
accordingly, began to account for its interest in Barnett under the equity
method of accounting. In July 1997, as a result of the sale of a substantial
portion of the business of LeRan Gas Products, one of WOC's operations, to
Barnett, the Company received cash and an additional 24,730 shares of Barnett
Common Stock, which increased the Company's ownership to the current level of
7,186,530 shares. The Barnett Common Stock trades on the Nasdaq National Market
under the symbol "BNTT".


CONSUMER PRODUCTS

         Consumer Products markets and distributes approximately 5,500 products
to a wide variety of retailers, primarily do-it-yourself ("D-I-Y") warehouse
home centers, home improvement centers, mass merchandisers and hardware stores.
Consumer Products' customers include large national retailers such as Kmart,
Wal-Mart and Sears, as well as several large regional D-I-Y retailers. According
to rankings of the largest D-I-Y retailers published in National Home Center
News, an industry trade publication, Consumer Products' customers include 7 of
the 25 largest D-I-Y retailers and four of the top five mass merchandisers in
the United States. Consumer Products works closely with its customers to develop
comprehensive marketing and merchandising programs designed to improve their
profitability, efficiently manage shelf space, reduce inventory levels and
maximize floor stock turnover. Consumer Products also offers certain of its
customers the option of private label programs and direct import programs.
Consumer Products' net sales for fiscal 2000 were $42.1 million, excluding
direct import sales.

         In recent years, the rapid growth of large mass merchandisers and D-I-Y
retailers has contributed to a significant consolidation of the United States
retail industry and the formation of large, dominant, product specific and
multi-category retailers. These retailers demand suppliers who can offer a broad
range of quality products and can provide strong marketing and merchandising
support. Due to the consolidation in the D-I-Y retail industry, a substantial
portion of Consumer Products' net sales are generated by a small number of
customers. In January 1999, Consumer Products entered into a three-year supply
agreement with Kmart, which expanded the sales program to include additional
product categories. In September 1999, the combined Hechinger / Builders Square
operations filed for Chapter 7 liquidation. Those operations accounted for $3.7
million, or 7.8% and 3.8% of Consumer Products' and the Company's revenue,
respectively, in fiscal 1999. Due to the loss of this revenue base, Consumer
Products reduced its cost structure to be more in line with its revenue base,
but was unable to absorb all of the expenses due to this revenue loss. Consumer
Products' accounts receivable from Hechinger / Builders Square was $0.3 million
at the time of the bankruptcy filing, which has been fully reserved. In the
event Consumer Products were to lose any additional large retail accounts as a
customer or one of its largest accounts were to significantly curtail its
purchases from Consumer Products, there would be material short-term adverse
effects until the Company could further modify Consumer Products' cost structure
to be more in line with its anticipated revenue base. Consumer Products would
likely incur significant charges if a materially adverse change in its customer
relationships were to occur.

         In furtherance of its continuing efforts to improve Consumer Products'
prospects, during fiscal 1997, the Company began to augment certain existing
product lines, streamline its packaged plumbing product lines, enhance the
appearance and appeal of its existing plumbing product packaging and undertook
certain customer retention and development programs. The Company believes the
redesign effort has helped and should continue to help in its effort to retain
existing business and to diversify its customer base by attracting new business.
In order to minimize the financial impact on Consumer Products, the rollout of
the package redesign program continued and was completed in fiscal 2000, with a
charge of $1.3 million being recorded.

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

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

         Consumer Products' marketing strategy includes offering mass
merchandisers and D-I-Y retailers a comprehensive merchandising program, which
includes design, layout and setup of selling areas. Sales and service personnel
assist the retailer in determining the proper product mix in addition to
designing category layouts to effectively display products and optimally utilize
available floor and shelf space. Consumer Products supplies point-of-purchase
displays for both bulk and packaged products, including color-coded product
category signs and color-coordinated bin labels to help identify products and
backup tags to identify products that



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require reordering. Consumer Products also offers certain of its customers the
option of private label programs for their plumbing and floor care products.
In-house design, assembly and packaging capabilities enable Consumer Products to
react quickly and effectively to service its customers' changing needs. In
addition, Consumer Products' products are packaged and designed for ease of use,
with "how to" instructions to simplify installation, even for the uninitiated
D-I-Y consumer.

         Consumer Products' service representatives visit stores regularly to
take reorders and recommend program improvements. These representatives also
provide reports to Consumer Products, enabling it to stay abreast of changing
consumer demand and identify developing trends. In order to support its
customers' "just-in-time" requirements, Consumer Products has sophisticated EDI
capabilities, enabling customers to reduce inventory levels and increase return
on investment. During fiscal 1998, Consumer Products completed the modifications
of all of its information systems to be Year 2000 compliant.

PRODUCTS

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

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

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


OTHER DOMESTIC OPERATIONS

         Medal

         WOC's name was changed to Medal of Pennsylvania Inc. ("Medal")
effective July 1, 2000, to reflect the remaining operation in this former group
of divisions. Medal is a supplier of hardware and plumbing products to
approximately 600 independent retailers. The former WOC operations included U.S.
Lock, a full line supplier of security hardware products, until its January 1,
1999 sale, and the operations of LeRan Gas Products division ("LeRan"), a
supplier of copper tubing, brass fittings and other related products, which was
sold to Barnett on July 1, 1997. Medal's net sales amounted to $4.7 million in
fiscal 2000.

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

         WAMI Sales

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

FOREIGN OPERATIONS



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         Through TWI, the Company conducts its foreign operations in China and
Taiwan, which support Consumer Products, Medal and Barnett. Over the past
several years, certain retailers have begun to source a portion of their product
requirements through direct import programs. TWI and Consumer Products have
responded by participating with some retailers in direct import programs, with
the added benefit of domestic account management. For the years ended June 30,
2000 and 1999, products purchased from the foreign operations accounted for
approximately 16.8% and 19.6%, respectively, of the total product purchases made
by the Company. For fiscal 2000, the operations owned by TWI had net sales of
$40.2 million, of which $18.8 million were to Barnett and $10.2 million were
intercompany transactions, which are eliminated in consolidation. Although a
significant portion of the Company's non-retail sales are to Barnett, the
Company has made significant progress in recent years in its effort to develop
the non-retail customer base served by its foreign operations. Effective March
31, 2000, the Company sold nearly all of the assets and certain liabilities of
Western American Manufacturing, Inc., a company that manufactured galvanized,
black, brass, and chrome pipe nipples in Tijuana, Mexico. In June 2000, the
Company closed one of its facilities in China that manufactured faucet
components, resulting in a restructuring charge of $1.2 million to write down
assets to their fair value and provide for two months of costs to close the
facility. The Company will continue to distribute faucets that have been
assembled by the Company, with components being manufactured by outside
suppliers.

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

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

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

<TABLE>
<CAPTION>
                                                   2000           1999               1998
                                                  -----           ----              -----

<S>                                                 <C>              <C>              <C>
              Plumbing                              79%              68%              63%
              Electrical                             0%              1%                1%
              Hardware                              21%              31%              36%
                                                  -----           -----             -----
              Total net sales                      100%            100%              100%
                                                  =====           =====             =====
</TABLE>

IMPORT RESTRICTIONS AND CUSTOMS ISSUES

         Under current United States government regulations, some products
manufactured offshore are subject to import restrictions. The Company currently
imports goods from China and Taiwan. During a portion of fiscal 2000, the
Company also imported United States goods assembled in Mexico under the
preferential import regulations commonly known as '9802', formerly item `807'.
The '9802' arrangement permits an importer who purchases raw materials in the
United States and then ships the raw materials to an offshore factory for
assembly, to re-import the goods without quota restriction and to pay a duty
only on the value added in the offshore factory.

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

         The above arrangements, both '9802' and quota restrictions, were
superseded by more favorable regulations with respect to Mexico under the North
American Free Trade Agreement ("NAFTA") and may be limited by revision or
canceled at any time by the United States government. As a result of the passage
of NAFTA, importation from Mexico is more competitive relative to importation
from other exporting countries. The Company does not believe that its relative
competitive position is adversely affected by NAFTA. As indicated above, many of
the Company's imported goods are of Chinese origin, which was granted most
favored nation status in the spring of 2000. There is no guarantee this will
continue to be the case in the future.

EQUITY INVESTMENT - BARNETT AFFILIATE

         Barnett is a direct marketer and distributor of an extensive line of
plumbing, electrical, hardware and security hardware products to approximately
71,500 active customers throughout the United States. Barnett offers and
promotes approximately 21,300 name brand and private label products through its
industry-recognized Barnett(R) catalogs and telesales operations. Barnett
markets its products through six distinct, comprehensive catalogs that target
professional contractors, independent hardware stores, maintenance managers,
liquid propane gas dealers and locksmiths. Barnett's staff of over 140
knowledgeable telesales, customer service and



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technical support personnel work together to serve customers by assisting in
product selection and offering technical advice. To provide rapid delivery and a
strong local presence, Barnett has established a network of 43 distribution
centers strategically located in 34 major metropolitan areas throughout the
United States and Puerto Rico. Through these local distribution centers,
approximately 70% of Barnett's orders are shipped directly to the customer on
the same day the order is received. The remaining 30% of the orders are picked
up by the customer at one of Barnett's local distribution centers. Barnett's
strategy of being a low-cost, competitively priced supplier is facilitated by
its volume of purchases and the offshore sourcing of a significant portion of
its private label products. Products are purchased from over 650 domestic and
foreign suppliers, including TWI.

         Barnett was a wholly-owned subsidiary of the Company until the
completion of an initial public offering in April 1996 (the "Barnett Initial
Public Offering"). In such offering, 7,207,200 shares, representing
approximately 55.1% of the Barnett Common Stock, were sold in the aggregate by
Barnett and the Company at an initial public offering price per share of $14.00,
resulting in aggregate net proceeds of $92.6 million. In April 1997, a secondary
offering of 1,300,000 shares of Barnett Common Stock (the "Barnett Secondary
Offering", and together with the Barnett Initial Public Offering, the "Barnett
Public Offerings") was completed and the Company converted its remaining
convertible non-voting preferred stock of Barnett to Barnett Common Stock. The
Company received a per share price of $17.50, before the underwriters' discount,
resulting in $21.6 million of net proceeds. In July 1997, as a result of the
sale of a substantial portion of the business of LeRan Gas Products, one of
WOC's operations, to Barnett, the Company received cash and an additional 24,730
shares of Barnett Common Stock. In January 1999, the Company sold substantially
all of the assets and certain liabilities of U.S. Lock, a division of WOC, to
Barnett. At June 30, 2000, the Company owned 44.2% of the outstanding shares of
Barnett Common Stock. The Barnett Common Stock trades on the Nasdaq National
Market under the symbol "BNTT". See Management's Discussion and Analysis "Debt
Restructuring Effort" section and Note 12 of the notes to consolidated financial
statements in this Annual Report on Form 10-K for a discussion of the Company's
agreement to sell its interest in Barnett.


COMPETITION

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

EMPLOYEES

         As of June 30, 2000, the Company employed 543 persons, 135 of whom were
clerical and administrative personnel, 54 of whom were sales and service
representatives and 354 of whom were either production or warehouse personnel.
Eleven of the Company's employees are represented by a collective bargaining
unit. The Company considers its relations with its employees, including those
represented by collective bargaining units, to be satisfactory.

TRADEMARKS

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

ENVIRONMENTAL REGULATIONS

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

SEASONALITY

         The Company's sales are generally consistent throughout its fiscal
year, although the third fiscal quarter is generally weaker


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in sales than the other quarters.



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ITEM 2. DESCRIPTION OF PROPERTIES

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

<TABLE>
<CAPTION>
                                                                                                        LEASE
                                 APPROXIMATE                                                         EXPIRATION
    LOCATION                     SQUARE FEET                PURPOSE                                     DATE
--------------                  -------------              ---------                              ---------------
<S>                             <C>                   <C>                                            <C>
24455 Aurora Road                   26,000            Consumer Products Corporate                      6/30/02
  Bedford Hts., OH (1)                                Office

5920 Green Pointe Dr.              114,000            Consumer Products                                11/1/08
  Groveport, OH                                       Office and Distribution Center

330 Vine Street                     80,000            Medal                                            2/28/01
  Sharon, PA                                          Office and Distribution Center

No. 10, 7th Road                    55,000            TWI                                                Owned
  Industrial Park                                     Office, Packaging
  Taichung, Taiwan                                    and Distribution Center
  Republic of China

Dan Keng Village                    45,000            CWI
  Fu Ming County                                      Office, Packaging, Manufacturing                   Owned
  Shenzhen, P.R. China                                and Distribution Center

9430 Cabot Drive                    13,000            WAMI Sales                                       1/31/02
  San Diego, California                               Office and Distribution Center
</TABLE>


(1)      Aurora Investment Co., a partnership owned by Melvin Waxman, Chairman
         of the Board and Co-Chief Executive Officer of the Company, and Armond
         Waxman, President and Co-Chief Executive Officer of the Company,
         together with certain other members of their families, is the owner and
         lessor of this property. In November 1998, Consumer Products completed
         the move of its warehouse to Groveport, Ohio, but continues to lease
         9,000 square feet of office space and 17,000 square feet of warehouse
         space in Bedford Hts., Ohio. The remaining 97,000 square feet of
         warehouse space in this facility has been subleased to Handl-it, Inc.
         (see below for information regarding affiliated ownership) for the
         duration of the lease term. Rent expense under this lease was $326,716
         in fiscal 2000, $326,716 in fiscal 1999 and $314,150 in fiscal 1998.
         The Company received rental income from Handl-it, Inc. for subleasing
         the warehouse in Bedford Hts., Ohio of $290,970 in fiscal 2000 and
         $95,324 in fiscal 1999 for a portion of the year.

         Handl-it Inc., a corporation owned by John S. Peters, a director of and
consultant to the Company, together with certain other members of his family,
Melvin Waxman and Armond Waxman, provides Consumer Products and WAMI Sales with
certain outside warehousing services under month-to-month rental arrangements
from time to time. Consumer Products may enter into month-to-month leases in the
future, depending on its business requirements at the time. Rent expense under
these lease arrangements was $10,000 and $30,000 for fiscal 1999 and 1998,
respectively. Consumer Products Group also paid Handl-it Inc. approximately
$40,000 and $55,000 for the cost of transportation of products in fiscal 2000
and 1999, respectively. Effective July 1, 1999, WAMI Sales replaced an
internally operated warehouse facility in Cleveland, Ohio with an arrangement
with Handl-it Inc. to provide all warehousing, labor and shipping functions for
a fee equal to a percentage of monthly sales plus other direct costs from this
operation. The charge amounted to $74,000 in fiscal 2000.

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


ITEM 3.     LEGAL PROCEEDINGS

         The Company is subject to various legal proceedings and claims that
arise in the ordinary course of business. In the opinion



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of management, the amount of any ultimate liability with respect to these
actions will not materially affect the financial position or operations of the
Company.

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

         Omitted pursuant to General Instructions (I)(2)(c) of Form 10-K.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

         Omitted pursuant to General Instructions (I)(2)(c) of Form 10-K.


                                     PART II

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

         There is no established public trading market for the common stock of
the Company. All of the issued and outstanding common stock of the Company is
owned by Waxman Industries. The Company declared no dividends in fiscal 2000 or
1999. Restrictions contained in the Company's debt instruments currently
prohibit the declaration and payment of cash dividends.


                                       9
<PAGE>   10


ITEM 6.   SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
                                                                             FISCAL YEAR ENDED JUNE 30,
                                                                             --------------------------


INCOME STATEMENT DATA:
(AMOUNTS IN THOUSANDS)                                       2000(8)         1999(9)         1998        1997         1996(10)
                                                            ---------       ---------       ---------   ---------    ---------
<S>                                                         <C>             <C>             <C>         <C>          <C>
Net sales                                                   $  81,360       $  99,116       $ 105,662   $ 119,006    $ 235,067
Cost of sales (1)                                              59,259          69,264          69,429      84,574      160,556
                                                            ---------       ---------       ---------   ---------    ---------
Gross profit                                                   22,101          29,852          36,233      34,432       74,511
Selling, general and administrative expenses                   24,166          27,737          26,661      30,604       66,433
Corporate charge                                                1,934           2,638           3,306       3,872        4,195
Restructuring, impairment and procurement charges(1)           10,370           4,515              24       1,522       19,507
                                                            ---------       ---------       ---------   ---------    ---------
       Operating  income (loss)                               (14,369)         (5,038)          6,242      (1,566)     (15,624)
Gain on sale of Barnett stock, net (2)                           --              --              --        16,693       65,917
Gain on sale of U.S. Lock, net (3)                               --             9,958            --          --           --
Loss on sale of WAMI, net (1) (4)                              (2,024)           --              --          --           --
Equity earnings of Barnett                                      6,511           6,744           6,341       5,843         --
Amortization of deferred U.S. Lock gain                           196            --              --          --           --
Interest expense, net                                           5,612           5,464           5,614       7,144       16,263
                                                            ---------       ---------       ---------   ---------    ---------
Income (loss) from continuing operations before income
taxes, minority interest, discontinued operation,
extraordinary  loss and cumulative  effect of change in
accounting                                                    (15,298)          6,200           6,969      13,826       34,030
Provision  (benefit) for income taxes                          (1,765)          3,412           2,659       4,671       17,019
                                                            ---------       ---------       ---------   ---------    ---------
Income (loss) from continuing operations before minority
interest, discontinued operation,
Extraordinary loss and cumulative effect of change in
accounting                                                    (13,533)          2,788           4,310       9,155       17,011
Minority interest in consolidated affiliate                      --              --              --          --            975
Discontinued operation: (5)
  Reversal of loss on disposal, net of tax                       --              --              --          --          6,600
                                                            ---------       ---------       ---------   ---------    ---------
Income (loss) before  extraordinary  loss and  cumulative
effect of  change in accounting                               (13,533)          2,788           4,310       9,155       22,636
Extraordinary loss, net of tax benefit (6)                       --              --               115        --          3,750
Cumulative  effect of change  in  accounting,  net of tax
benefit (7)                                                      --              --              --          --          4,928
                                                            ---------       ---------       ---------   ---------    ---------
Net income (loss)                                           ($ 13,533)      $   2,788       $   4,195   $   9,155    $  13,958
                                                            =========       =========       =========   =========    =========


BALANCE SHEET DATA:
Working capital                                             $   3,323       $  24,326       $  17,598   $  31,764    $  52,456
Total assets                                                   85,573          93,574          96,732      97,944      133,063
Total long-term debt                                           36,635          36,788          36,697      49,509       50,357
Stockholder's equity                                           11,275          35,758          29,814      23,929       11,817
</TABLE>


(1)  In the fiscal 2000 second quarter, the Company recorded a $1.3 million
     restructuring charge related to the consolidation of its packaged plumbing
     products under the Plumbcraft(R) brand name. In the fiscal 2000 fourth
     quarter, the Company recorded a $0.6 million restructuring charge related
     to (i) the closure of its Grand Prairie, Texas distribution center, which
     was consolidated into Consumer Products' distribution center near Columbus,
     Ohio, and (ii) the closure of a packaging operation in Tijuana, Mexico that
     was transferred to the Company's operations in Taiwan and China. In the
     fiscal 2000 fourth quarter, Consumer Products also wrote off $1.7 million
     in packaging material and other inventory associated with these closings,
     which are recorded in cost of sales. The Company incurred a business
     procurement charge of $150,000 in the first quarter and $500,000 in the
     third quarter of fiscal 2000. In the fourth quarter of fiscal 2000, the
     Company also recorded an asset impairment charge of $6.7 million related to
     the write-off of goodwill as required by SFAS No. 121 "Accounting for the
     Impairment of Long-Lived Assets and Assets to Be Disposed Of", for two
     product lines that were acquired by Consumer Products in December 1986 and
     May 1988. Also included is a $1.2 million charge from the closure of
     Premier Faucet Corporation in June 2000. In addition, the closure of the
     faucet operation resulted in a reduction in sales of $0.4 million and
     additional charges to cost of sales of $0.5 million for the realizability
     of receivables and inventory. In fiscal 1999, the Company recorded a $2.1
     million restructuring charge associated with the move of one of Consumer
     Products' warehouses and a business procurement charge of $2.5 million. In
     the first quarter of fiscal 1998, the Company recorded an estimated
     restructuring charge of $133,000 for warehouse closure costs and other
     expenses associated with the sale of LeRan Gas Products. In the fourth
     quarter of fiscal 1998, the estimated loss was adjusted to the actual loss
     of $24,000. In the fourth quarter of fiscal 1997, the Company sold Madison
     Equipment Company and recorded a loss on sale of $0.7 million. In fiscal
     1997, Consumer Products also recorded a business procurement charge of $0.8
     million. During fiscal 1996, the Company recorded a $19.5 million
     restructuring and asset impairment loss, which included a $7.4 million
     restructuring charge primarily attributable to strategic initiatives at
     Consumer Products and a $12.1 million asset



                                       10
<PAGE>   11

     impairment charge primarily attributable to U.S. Lock in accordance with
     SFAS 121. See Note 1 to the Consolidated Financial Statements for further
     discussion of the fiscal 2000 and 1998 business procurement charges and
     Note 4 for further discussion of the fiscal 1998 charges.

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

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

(4)  Reflects the $2.0 million loss on the March 31, 2000 sale of significantly
     all of the assets and certain liabilities of Western American Manufacturing
     Inc.

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

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

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

(8)  The results of Western American Manufacturing Inc. were consolidated by the
     Company until its sale, which was effective March 31, 2000. As a result of
     the sale, fiscal 2000 only includes nine months of WAMI's results while the
     previous fiscal years include results for twelve months. See Note 4 to the
     Consolidated Financial Statements for further discussion of the sale of
     WAMI.

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

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


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

GENERAL

         The Company operates in two business segments -- the distribution of
specialty plumbing and hardware products to retailers and the distribution of
plumbing products to non-retail businesses. Distribution of plumbing and
hardware products to retailers is conducted through domestic operations, as well
as through direct import programs from the foreign sourcing, manufacturing and
packaging operations. In fiscal 2000, approximately 25.5% and 52.0% of the
Company's foreign operations' sales were to the Company's domestic wholly-owned
operations and Barnett, respectively, which are considered non-retail sales.
Intercompany sales are eliminated in consolidation.

DEBT RESTRUCTURING EFFORTS

         Over the past several years, the Company and Waxman Industries have
endeavored to reduce their high level of debt through the monetization of assets
and to improve the efficiencies of its continuing businesses. As a result, the
Company and Waxman Industries have undertaken various initiatives to raise cash,
improve cash flow and reduce debt obligations and / or improve financial
flexibility during that period. Excluding certain interest payments, the Company
believes that operating cash flow, together with borrowings under its working
capital credit facilities, will be sufficient to fund its working capital
requirements. However, the Company and Waxman Industries will not be able to
continue to make all of the interest and principal payments under their debt
obligations without the monetization of the value of the shares of common stock
of Barnett owned by the Company and/or a restructuring of such debt instruments.

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

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

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



                                       11
<PAGE>   12

            expected to be completed around September 30, 2000.

         -  The Company has agreed to vote in favor of the merger and sell in
            the Barnett Merger, all of the 7,186,530 shares of Barnett common
            stock, less any shares sold to Barnett as noted below.

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

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

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

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

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

         Following the anticipated sale of the Company's interest in Barnett,
Waxman Industries and the Committee will file a jointly sponsored, prepackaged
plan of reorganization with the United States Bankruptcy Court (the "Joint
Plan") to effectuate the terms of the Debt Reduction Agreement. Under the Joint
Plan, the holders of the Deferred Coupon Notes will be the only impaired class
of creditors; neither Waxman USA, or any of the Company's operating subsidiaries
or operating divisions will be included in the filing and they will continue to
pay their trade creditors, employees and other liabilities under normal
conditions.

         Waxman Industries, with the consent of the Ad Hoc Committee, has not
paid its Deferred Coupon Note interest payment of $6.0 million that was due on
June 1, 2000. This interest payment will be paid with a portion of the proceeds
received from the Barnett Merger. The Ad Hoc Committee has provided instructions
to the Trustee for the Deferred Coupon Notes not to take any action with respect
to the failure to pay the June interest payment, pending the anticipated
completion of the Barnett Merger. The Barnett Merger was not completed by
September 1, 2000. The Company sold 160,723 shares representing $2 million in
value to Barnett and paid the interest due on its Senior Notes.

         Based on discussions with the Company's current working capital lender,
Congress Financial Corporation, the Company believes that debtor in possession
financing will not be necessary, and Congress will continue to provide financing
during and after the financial reorganization of Waxman Industries. In the event
the financial reorganization is not consummated, the Company believes that
operating cash flow, together with borrowings under its working capital credit
facilities and the monetization, from time to time, of a portion of the Barnett
Common Stock or other selected assets, will be sufficient to fund its working
capital requirements. However, the Company and Waxman Industries will not be
able to continue to make all of their interest and principal payments under its
debt obligations without a significant appreciation in, and monetization of, the
value of the shares of common stock of Barnett owned by the Company and/or a
restructuring of such debt instruments.

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

         The Company believes that the completion of the transactions set forth
in the Debt Reduction Agreement will result in a stronger company. In addition
to the reduced debt levels of the Company, the Company's balance sheet will be
strengthened significantly as a result of the anticipated net after tax gain on
the sale of Barnett Common Stock, net of the write off of the unamortized debt
issuance costs and the realization for accounting purposes of the deferred gain
on the sale of U.S. Lock. Furthermore, the elimination of the indebtedness from
the Senior Notes and the reduction in the indebtedness to Congress Financial
Corporation will reduce the Company's annual interest expense by approximately
$5 million.

         Although Waxman Industries has entered into the Debt Reduction
Agreement, and has an agreement that would monetize the Company's investment in
Barnett, there can be no certainty that the above transactions will be
completed. Accordingly, the accompanying consolidated financial statements have
been prepared assuming the Company will continue as a going concern and, as
such, adjustments to the financial statements, if any, that may be required for
presentation on another basis have not been considered. (See Report of
Independent Public Accountants and Footnote 12.)


HISTORICAL OVERVIEW

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



                                       12
<PAGE>   13

         The Company owns 7,186,530 shares, or 44.2%, of the Barnett Common
Stock at June 30, 2000, which are accounted for under the equity method of
accounting. In April 1996, the Company completed the Barnett Initial Public
Offering, receiving net proceeds of $92.6 million, after the underwriters'
discount, and recorded a $65.9 million pre-tax gain. In April 1997, the Company
completed the Barnett Secondary Offering, receiving net proceeds of $21.6
million, after the underwriters' discount, and recorded a $16.7 million pre-tax
gain. In April 1997, the Company converted the remaining convertible non-voting
preferred stock of Barnett it owned to Barnett Common Stock. In July 1997, the
Company received 24,730 shares of Barnett as a result of the sale of the gas
products business of LeRan Gas Products to Barnett (see Note 4). In January
1999, the Company completed the sale of U.S. Lock to Barnett (see Note 4).

         In July 1997, substantially all of the business of the LeRan Gas
Products division ("LeRan"), a supplier of copper tubing, brass fittings and
other related products was sold to Barnett for $3.2 million in cash and 24,730
shares of Barnett Common Stock, with a value of $0.6 million at the time of the
transaction.

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

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

         In December 1998, the Company announced it had entered into an
agreement to sell certain of the assets and liabilities of U.S. Lock, a division
of WOC, to Barnett for approximately $29.9 million in cash, less certain
adjustments. The sale of U.S. Lock was completed effective January 1, 1999. The
proceeds were used by the Company to reduce the portion of the BankAmerica
Business Credit Agreement collateralized by U.S. Lock's assets and to reinvest
in the Company's remaining businesses.

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

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

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

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

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


RESULTS OF OPERATIONS

                                       13
<PAGE>   14

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


<TABLE>
<CAPTION>
                                                                                   FISCAL YEAR ENDED JUNE 30,
                                                                                   --------------------------


                                                                                  2000          1999          1998
                                                                                  ----          ----          ----
<S>                                                                               <C>           <C>           <C>
Net sales                                                                         100.0%        100.0%        100.0%

Cost of sales                                                                      72.8%         69.9%         65.7%

Gross profit                                                                       27.2%         30.1%         34.3%

Selling, general and administrative expenses                                       29.7%         28.0%         25.3%

Corporate charge                                                                    2.4%          2.7%          3.1%

Restructuring, impairment and  procurement charges                                 12.8%          4.6%            --

Operating income (loss)                                                          (17.7%)        (5.1%)          5.9%

Gain on sale of U.S. Lock, net                                                        --         10.0%            --

Loss on sale of WAMI, net                                                         (2.4%)            --            --

Equity earnings of Barnett                                                          8.0%          6.8%          6.0%

Amortization of deferred U.S. Lock gain                                             0.2%            --            --

Interest expense, net                                                               6.9%          5.5%          5.3%

Income (loss) before income taxes and
 extraordinary loss                                                              (18.8%)          6.2%          6.6%

(Benefit) provision for income taxes                                              (2.2%)          3.4%          2.5%

Income (loss) before extraordinary loss                                          (16.6%)          2.8%          4.1%

Extraordinary loss                                                                    --            --          0.1%

Net income (loss)                                                                (16.6%)          2.8%          4.0%
</TABLE>

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

Net Sales

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

GROSS PROFIT

         The gross profit for the comparable continuing businesses for fiscal
2000 decreased to $22.4 million, as compared to $25.4 million for fiscal 1999.
Including results from U.S. Lock and WAMI while they were owned by the Company,
the gross profit



                                       14
<PAGE>   15

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

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general and administrative ("SG&A") expenses, excluding U.S.
Lock, WAMI and Premier Faucet, amounted to $22.8 million and $23.1 million for
fiscal 2000 and 1999, respectively. Including the operations while they were
operated as part of the Company, SG&A expenses amounted to $24.2 million for
fiscal 2000 and $27.7 million for fiscal 1999. As a percentage of net sales,
SG&A expenses for the continuing businesses increased from 28.3% in fiscal 1999
to 29.3% in fiscal 2000, primarily due to the decrease in net sales and the
relatively fixed nature of certain SG&A expenses.

CORPORATE CHARGE

        Corporate charge decreased to $1.9 million, or 2.4% of net sales for the
wholly-owned operations in fiscal 1999, compared to $2.6 million, or 2.7% of net
sales for the wholly-owned operations in fiscal 1999. Corporate charges are
allocations to the Company of expenses that Waxman Industries incurs to support
its corporate activities.

RESTRUCTURING, IMPAIRMENT AND PROCUREMENT CHARGES

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

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

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

EQUITY EARNINGS OF BARNETT

         The Company recorded equity earnings from its 44.2% ownership interest
in Barnett of $6.5 million for fiscal 2000, as compared to $6.7 million in
fiscal 1999. See "Debt Restructuring Effort" section and Note 12 of the Notes to
Consolidated Financial Statements in this Annual Report on Form 10-K for a
discussion of the Company's agreement to sell its interest in Barnett.

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

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

         Effective January 1, 1999, the Company sold U.S. Lock to Barnett for
$29.9 million in cash, before certain adjustments and expenses. The sale of U.S.
Lock resulted in a net pretax gain of $17.7 million, with approximately $9.9
million being recognized in the fiscal 1999 third quarter. The remaining $7.8
million was originally reported as a deferred gain in the Company's consolidated
balance sheet due to the Company's continued ownership of 44.2% of Barnett, the
acquirer of U.S. Lock. The Company is recognizing the



                                       15
<PAGE>   16

deferred gain as the goodwill generated by the purchase of U.S. Lock is
amortized by Barnett, and will fully recognize the remaining balance upon the
sale of its ownership interest in Barnett. In fiscal 2000, the Company
recognized $196,000 of this deferred gain.

INTEREST EXPENSE

         Interest expense for fiscal 2000 totaled $5.6 million, an increase of
$0.1 million from the $5.5 million in fiscal 1999. The increase is primarily due
to an increase in borrowings under the Company's bank credit agreement and an
increase in the borrowing rate on that facility during the fiscal year. Average
borrowings for fiscal 2000 amounted to $48.4 million, with a weighted average
interest rate of 10.9%, as compared to $53.3 million for fiscal 1999, with a
weighted average interest rate of 9.7%. The average borrowings are slightly
lower due to the proceeds received from the sale of U.S. Lock effective January
1, 1999, while the weighted average interest rate increased due to increases in
the federal fund rates that influence the rate charged by lending institutions
for working capital loans.

PROVISION (BENEFIT) FOR INCOME TAXES

         The benefit for income taxes was $1.8 million in fiscal 2000 as
compared to a provision of $3.4 million in fiscal 1999. The effective tax rate
in fiscal 2000 was 11.5% as compared to 55.0% in fiscal 1999. Differences
between the effective tax rate and the statutory rate in fiscal 2000 are
primarily the result of a $7.9 million nondeductible write off of goodwill as
well as state and foreign taxes. Differences between effective tax rate and the
statutory tax rate in fiscal 1999 are primarily the result of nondeductible
compensation, state and foreign taxes and goodwill amortization, which is not
deductible for tax purposes.

NET LOSS

         The Company's fiscal 2000 net loss amounted to $13.5 million, as
compared to net income of $2.8 million, in fiscal 1999. The fiscal 2000 results
were affected by $10.4 million of restructuring, impairment and procurement
charges, $1.7 million in costs for the consolidation of the KF(R) packaged
plumbing line and $2.0 million from the sale of WAMI.

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


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

NET SALES


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

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



                                       16
<PAGE>   17

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


GROSS PROFIT


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

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES


         SG&A expenses increased from $26.7 million for fiscal 1998 to $27.7
million for fiscal 1999. As a percentage of net sales, SG&A expenses increased
from 25.3% for fiscal 1998 to 28.0% for fiscal 1999. The increase in expenses
was primarily due to foreign exchange transaction losses of $0.4 million in
fiscal 1999, as compared to $1.0 million in foreign exchange transaction income
being reported for fiscal 1998.

CORPORATE CHARGE

        Corporate charge decreased to $2.6 million, or 2.7% of net sales for the
wholly-owned operations in fiscal 1999, compared to $3.3 million, or 3.1% of net
sales for the wholly-owned operations in fiscal 1998. Corporate charges are
allocations to the Company of expenses that Waxman Industries incurs to support
its corporate activities.


NON-RECURRING AND PROCUREMENT CHARGES


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

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

GAIN ON SALE OF U.S. LOCK

         Effective January 1, 1999, the Company sold U.S. Lock, to Barnett, for
$29.9 million in cash, before certain adjustments and expenses. The sale of U.S.
Lock resulted in a net pretax gain of $17.7 million, with approximately $10.0
million being recognized in the fiscal 1999 third quarter. The remaining $7.8
million was originally reported as a deferred gain in the Company's consolidated
balance sheet due to the Company's continued ownership of 44.3% of Barnett, the
acquirer of U.S. Lock. The Company is recognizing the deferred gain as the
goodwill generated by the purchase of U.S. Lock is amortized by Barnett, or as
the Company reduces its ownership interest in Barnett. In the fiscal 1999 fourth
quarter, the Company recognized $0.1 million of this deferred gain, which is
included in the gain on sale of U.S. Lock in the accompanying consolidated
statements of operations.

EQUITY EARNINGS OF BARNETT


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



                                       17
<PAGE>   18

INTEREST EXPENSE


         For fiscal 1999, interest expense totaled $5.5 million, a decrease of
$0.1 million from the $5.6 million in fiscal 1998. The decrease is due to
interest income earned on the proceeds from the sale of U.S. Lock to Barnett.
Average borrowings for fiscal 1999 amounted to $53.3 million, with a weighted
average interest rate of 9.7%, as compared to $49.1 million in fiscal 1998, with
a weighted average interest rate of 10.7%.

PROVISION FOR INCOME TAXES


         The provision for income taxes was $3.4 million in fiscal 1999 as
compared to $2.7 million in fiscal 1998. The effective tax rate in fiscal 1999
was 55.0% as compared to 38.2% in fiscal 1998. Differences between the effective
tax rate and the statutory rate in fiscal 1999 are primarily the result of
nondeductible compensation, state and foreign taxes and goodwill amortization,
which is not deductible for tax purposes. Differences between the effective tax
rate and the statutory rate in fiscal 1998 are primarily the result of state and
foreign taxes and goodwill amortization, which is not deductible for tax
purposes.

NET INCOME


         The Company's net income for fiscal 1999 amounted to $2.8 million, as
compared to net income of $4.2 million in fiscal 1998. The fiscal 1999 results
include the $10.0 million gain on the sale of U.S. Lock, a non-recurring charge
of $2.1 million for the relocation of Consumer Products' distribution center
from Bedford Hts., Ohio to Groveport, Ohio, as well as a $2.5 million charge for
business procurement costs. Included in the fiscal 1998 results is an
extraordinary charge of $0.1 million, net of applicable tax benefit of $0.1
million, from the write-off of deferred financing costs.

LIQUIDITY AND CAPITAL RESOURCES

         Over the past several years, the Company and Waxman Industries have
endeavored to reduce their high level of debt through the monetization of assets
and by improving the efficiencies of their continuing businesses. As a result,
the Company and Waxman Industries have undertaken various initiatives to raise
cash, improve cash flow and reduce debt obligations and / or improve financial
flexibility during that period. These efforts recently resulted in Waxman
Industries reaching an agreement with an ad hoc committee representing the
holders of approximately 87% of Waxman Industries' Deferred Coupon Notes and
approximately 65% of the Company's Senior Notes. See Note 12 and "Management's
Discussion and Analysis - Debt Restructuring Effort" in this Form 10-K for a
discussion of the Company's agreement to sell its interest in Barnett as part of
a comprehensive financial reorganization of Waxman Industries.

         Waxman Industries, with the consent of the Ad Hoc Committee, has not
paid its Deferred Coupon Note interest payment of $6.0 million that was due on
June 1, 2000. This interest payment will be paid with a portion of the proceeds
received from the Barnett Merger. The Ad Hoc Committee has provided instructions
to the Trustee for the Deferred Coupon Notes not to take any action with respect
to the failure to pay the June interest payment, pending the anticipated
completion of the Barnett Merger. The Barnett Merger was not completed by
September 1, 2000. The Company sold 163,723 shares representing $2 million in
value to Barnett and paid the interest due at that time on its Senior Notes.

         Excluding the cash requirements for these interest payments, the
Company believes that operating cash flow, together with borrowings under its
working capital credit facilities, will be sufficient to fund its working
capital requirements until the expected completion of the debt reduction effort
contemplated by the Debt Reduction Agreement. In the event the financial
reorganization is not completed by Waxman Industries, the Company believes that
operating cash flow, together with borrowings under its working capital credit
facilities and the monetization, from time to time, of a portion of the Barnett
Common Stock or other selected assets, will be sufficient to fund its working
capital requirements. However, the Company and Waxman Industries will not be
able to continue to make all of the interest and principal payments under their
debt obligations without a significant appreciation in, and monetization of, the
value of the shares of common stock of Barnett owned by the Company and/or a
restructuring of such debt instruments.

         In furtherance of its effort to enhance its liquidity position, the
Company sold substantially all of the assets and certain liabilities of Western
American Manufacturing, Inc. effective March 31, 2000 for $1.8 million,
excluding trade receivables, trade payables and certain other obligations, which
were retained by the Company. Cash from this transaction was not received until
April 2000.

         The financial reorganization of Waxman Industries does not involve the
Company or any of the Company's operating subsidiaries, which have their own
bank credit facility. These operating companies will continue to pay all of
their trade creditors, employees and other liabilities under normal trade
conditions. Waxman Industries believes that the Joint Plan should proceed
quickly



                                       18
<PAGE>   19

through the judicial process because it has the overwhelming support of the
Deferred Coupon Note holders, the only impaired class of creditors. Waxman
Industries expects to complete the Joint Plan during the fall of 2000.

         In June 1999, the Company entered into the Loan and Security Agreement
with Congress Financial Corporation ("Congress Financial") to replace the Credit
Agreement with BankAmerica Business Credit, Inc. which was to expire on July 15,
1999. The Loan and Security Agreement is between Consumer Products, Medal, WAMI
and WAMI Sales, as borrowers (the "Borrowers"), with Waxman Industries, the
Company and TWI as guarantors. In March 2000, Waxman Industries and Congress
Financial Corporation amended the loan agreement to, among other changes,
increase the facility by up to $3.0 million, utilizing inventory and accounts
receivable that were already collateralized under the original agreement. The
Loan and Security Agreement provides for, among other things, revolving credit
advances of up to $22.0 million. As of June 30, 2000, the Company had $18.9
million in borrowings under the revolving credit line of the facility and had
approximately $1.1 million available under such facility. The Loan and Security
Agreement expires on September 1, 2001, but may be extended under certain
conditions. In April 2000, the Loan and Security Agreement was further amended
to allow the sale of substantially all of the assets of WAMI. In July 2000, the
Loan and Security Agreement, among other modifications, was amended to allow the
sale of all of the Barnett shares, including those collateralized by Congress
Financial, as part of the Barnett Merger, extend the increase in the facility to
accommodate the pending sale of the Barnett Common Stock and permit the default
due to the non-payment of the Deferred Coupon Note interest.

         The Loan and Security Agreement provides for revolving credit advances
of (a) up to 85.0% of the amount of eligible accounts receivable, (b) up to the
lesser of (i) $10.0 million or (ii) 60% of the amount of eligible raw and
finished goods inventory and (c) up to the lesser of (i) $5.0 million or (ii)
70% of the fair market value of 500,000 shares of Barnett Inc. common stock. In
December 1999, the Loan and Security Agreement was amended to provide Congress
Financial an additional 500,000 shares of Barnett Inc. common stock (which,
together with the initial 500,000 shares, constitutes approximately 6.2% of all
outstanding stock of Barnett Common Stock), as collateral and allowing the
Company to borrow up to the lesser of i) $10,000,000 or ii) 70% of the fair
value of the 1,000,000 shares of Barnett Inc. common stock. Revolving credit
advances bear interest at a rate equal to (a) First Union National Bank's prime
rate plus 0.5% or (b) LIBOR plus 2.50%. The Loan and Security Agreement includes
a letter of credit subfacility of $10.0 million, with none outstanding at June
30, 2000. Borrowings under the Loan and Security Agreement are secured by the
accounts receivable, inventories, certain general intangibles, and unencumbered
fixed assets of Waxman Industries, Consumer Products, TWI, International Inc.
and Medal of Pennsylvania, Inc., and a pledge of 65% of the stock of various
foreign subsidiaries. The Loan and Security Agreement requires the Borrowers to
maintain cash collateral accounts into which all available funds are deposited
and applied to service the facility on a daily basis. The Loan and Security
Agreement prevents dividends and distributions by the Borrowers except in
certain limited instances including, so long as there is no default or event of
default and the Borrowers are in compliance with certain financial covenants,
the payment of interest on the Senior Notes and Waxman Industries' Deferred
Coupon Notes, and contains customary negative, affirmative and financial
covenants and conditions. The Company was in compliance with or has obtained a
waiver for all loan covenants at June 30, 2000. The Loan and Security Agreement
also contains a material adverse condition clause which allows Congress
Financial Corporation to terminate the Agreement under certain circumstances.

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

         The Company paid $1.1 million in income taxes in fiscal 2000. The
Company paid $0.5 million in state and foreign income taxes in fiscal 1999. The
Company paid no federal taxes for the year ended June 30, 1999 due to Waxman
Industries' net operating loss for the year. In the event that Waxman Industries
completes a financial reorganization, which includes the sale of the Company's
investment in Barnett and recognizes a gain from that sale, Waxman Industries
will be able to use its net operating loss carryforwards to



                                       19
<PAGE>   20

offset income taxes that would otherwise be payable.

         The Company has total future lease commitments for various facilities
and other leases totaling $3.4 million, of which approximately $0.7 million is
due in fiscal 2001. The Company does not have any other commitments to make
substantial capital expenditures. The fiscal 2001 capital expenditure plan
includes expenditures to improve the efficiencies of the Company's operations,
to provide new data technology and certain expansion plans for the Company's
foreign operations.


DISCUSSION OF CASH FLOWS

         Net cash used for operations was $8.6 million in fiscal 2000. The net
loss of $13.5 million included certain non-cash items including $9.8 million
reported as a restructuring and impairment charge, $1.9 million in other
non-cash restructuring charges that were included in sales and cost of sales and
$2.0 million in losses recorded on the sale of WAMI. Also affecting net cash
used for operations was $6.5 million of equity earnings of Barnett. The most
significant cash requirements during fiscal 2000 included $5.3 million in cash
interest payments. Cash flow provided by investments totaled $0.1 million,
attributable to the net cash generated from the sale of WAMI, less capital
expenditures of $1.8 million. Cash provided by financing activities amounted to
$7.9 million, primarily due to the net borrowings under the Company's credit
facilities.

         At June 30, 2000, the Company had working capital of $3.3 million and a
current ratio of 1.1 to 1.


YEAR 2000

         The Company utilizes management information systems, software
technology and non-information technology systems that were Year 2000 compliant,
prior to December 31, 1999. The Company continues to monitor its operations, as
well as its customers and suppliers to ensure its systems continue to meet its
internal and external requirements. The Company does not believe that it has
been or will be negatively impacted by the Year 2000.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                           (Begins on Following Page)


                                       20
<PAGE>   21




                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS





To the Stockholder and Board of Directors of Waxman USA Inc.:


We have audited the accompanying consolidated balance sheets of Waxman USA Inc.
(a Delaware corporation) and Subsidiaries (the Company) as of June 30, 2000 and
1999, and the related consolidated statements of operations, stockholder's
equity and cash flows for each of the three years in the period ended June 30,
2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

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

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has suffered
recurring losses from operations, and the Company's Parent has not paid its
interest payment on its Deferred Coupon Notes, has a net stockholders' deficit
and plans to file a pre-negotiated consensual joint plan of reorganization under
Chapter 11 of the U.S. Bankruptcy Code. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are described in Note 12 to the consolidated
financial statements. The consolidated financial statements do not include any
adjustments that might result should the Company be unable to continue as a
going concern.




                                                         Arthur Andersen LLP
Cleveland, Ohio,
August 28, 2000.



                                       21
<PAGE>   22





                        WAXMAN USA INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             JUNE 30, 2000 AND 1999
                                 (IN THOUSANDS)

                                     ASSETS




                                               2000        1999
                                             --------    --------

CURRENT ASSETS:
  Cash and cash equivalents                  $    866    $  1,376
  Trade receivables, net                       12,068      10,686
  Other receivables                             3,441       4,212
  Inventories                                  15,351      19,052
  Prepaid expenses                              1,703       2,276
                                             --------    --------
      Total current assets                     33,429      37,602
                                             --------    --------

INVESTMENT IN BARNETT                          42,896      36,385
                                             --------    --------

PROPERTY AND EQUIPMENT:
  Land                                            439         430
  Buildings                                     3,087       3,004
  Equipment                                    10,336      12,675
                                             --------    --------
                                               13,862      16,109
Less accumulated
depreciation and amortization                  (5,787)     (5,998)
                                             --------    --------

Property and equipment, net                     8,075      10,111
                                             --------    --------

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

UNAMORTIZED DEBT ISSUANCE COSTS, NET              430         565

DEFERRED TAX ASSET                                367         540

OTHER ASSETS                                      376         451
                                             --------    --------

                                             $ 85,573    $ 93,574
                                             ========    ========







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




                                       22
<PAGE>   23




                        WAXMAN USA INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             JUNE 30, 2000 AND 1999
                                 (IN THOUSANDS)

                      LIABILITIES AND STOCKHOLDER'S EQUITY


                                                     2000        1999
                                                   --------    --------

CURRENT LIABILITIES:
  Current portion of long-term debt                $ 20,366    $    812
  Accounts payable                                    5,760       6,837
  Accrued liabilities                                 2,256       2,982
  Accrued income taxes payable                          394       1,314
  Accrued interest                                    1,330       1,330
                                                   --------    --------
      Total current liabilities                      30,106      13,275
                                                   --------    --------

OTHER LONG-TERM DEBT, NET OF CURRENT PORTION            780         933


SENIOR NOTES                                         35,855      35,855

DEFERRED GAIN ON SALE OF U.S. LOCK                    7,557       7,753

COMMITMENTS AND CONTINGENCIES

STOCKHOLDER'S EQUITY:
Preferred stock, $0.10 par value per share:
  authorized and unissued 1,000 shares                 --          --

Common stock, $0.01 par value per share:
  9,000 shares authorized; 100 shares issued and
  outstanding                                          --          --
Paid-in capital                                      21,462      21,462
Retained earnings                                    10,161      23,694
Advances to Waxman Industries, Inc.                 (19,689)     (8,369)
                                                   --------    --------

                                                     11,934      36,787
  Cumulative currency translation adjustment           (659)     (1,029)
                                                   --------    --------

      Total stockholder's equity                     11,275      35,758
                                                   --------    --------

                                                   $ 85,573    $ 93,574
                                                   ========    ========



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



                                       23
<PAGE>   24


                        WAXMAN USA INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                           FISCAL YEAR ENDED JUNE 30,
                                                           --------------------------

                                                         2000         1999         1998
                                                      ---------    ---------    ---------
<S>                                                   <C>          <C>          <C>
Net sales                                             $  81,360    $  99,116    $ 105,662
Cost of sales                                            59,259       69,264       69,429
                                                      ---------    ---------    ---------
Gross profit                                             22,101       29,852       36,233
Selling, general and administrative expenses             24,166       27,737       26,661
Corporate charge                                          1,934        2,638        3,306
Restructuring, impairment and procurement
charges(Notes 1 and 3)                                   10,370        4,515           24
                                                      ---------    ---------    ---------
Operating (loss) income                                 (14,369)      (5,038)       6,242
Gain on sale of U.S. Lock, net (Note 4)                    --          9,958         --
Loss on sale of WAMI, net  (Note 4)                      (2,024)        --           --
Equity earnings of Barnett                                6,511        6,744        6,341
Amortization of deferred U.S. Lock gain                     196         --           --
Interest expense, net                                     5,612        5,464        5,614
                                                      ---------    ---------    ---------
(Loss) income before income taxes and
extraordinary loss                                      (15,298)       6,200        6,969
(Benefit) provision for income taxes                     (1,765)       3,412        2,659
                                                      ---------    ---------    ---------
(Loss) income before extraordinary loss                 (13,533)       2,788        4,310

Extraordinary loss, net of tax benefit                     --           --            115
                                                      ---------    ---------    ---------

Net (loss) income                                     $ (13,533)   $   2,788    $   4,195
                                                      =========    =========    =========

Other comprehensive income (loss):
Foreign currency translation adjustment                     370          134         (822)
                                                      ---------    ---------    ---------
Comprehensive (loss) income                           $ (13,163)   $   2,922    $   3,373
                                                      =========    =========    =========
</TABLE>

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


                                       24
<PAGE>   25


                        WAXMAN USA INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                         Accumulated
                                                                                        Advances            Other         Total
                                     Preferred      Common     Paid-in      Retained    to Waxman       Comprehensive  Stockholder's
                                       Stock        Stock      Capital      Earnings    Industries      Income (Loss)    Equity
                                       -----        -----      -------      --------    ----------      -------------    ------

<S>                                    <C>         <C>        <C>          <C>          <C>                 <C>          <C>
Balance June 30, 1997                  $   --      $ --      $21,462       $16,711      $(13,903)           $(341)       $23,929

     Net income                                                              4,195                                         4,195
     Advances from parent, net                                                              2,512                          2,512
         Currency translation
           adjustment                                                                                        (822)          (822)
                                        -----       -----   --------       -------      ---------           ------       -------
Balance June 30, 1998                      --          --     21,462        20,906       (11,391)          (1,163)        29,814

     Net income                                                              2,788                                         2,788
     Advances from parent, net                                                              3,022                          3,022
         Currency translation
           adjustment                                                                                         134            134
                                        -----       -----   --------       -------      ---------           ------       -------
Balance June 30, 1999                      --          --     21,462        23,694        (8,369)          (1,029)        35,758

    Net loss                                                               (13,533)                                      (13,533)
    Advances to parent, net                                                              (11,320)                        (11,320)
    Currency translation adjustment                                                                           370            370
                                        -----       -----   --------       -------      ---------           ------       -------
Balance June 30, 2000                   $  --       $  --   $ 21,462       $10,161      $(19,689)           $(659)       $11,275
                                        =====       =====   ========       =======      =========           ======       =======
</TABLE>



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




                                       25
<PAGE>   26

                        WAXMAN USA INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                         FISCAL YEAR ENDED JUNE 30,
                                                                         --------------------------

Cash From (Used For):                                                  2000        1999        1998
                                                                     --------    --------    --------
<S>                                                                  <C>         <C>         <C>
Operations:
   Net income (loss)                                                 $(13,533)   $  2,788    $  4,195
   Adjustments to reconcile net income (loss) to net cash used for
operations:
   Extraordinary loss                                                    --          --           115
   Non-cash restructuring and impairment charges                       11,677        --          --
   Loss on sale of WAMI                                                 2,024        --          --
   Gain on sale of U.S. Lock                                             --        (9,958)       --
   Amortization of deferred U.S. Lock gain                               (196)
   Equity earnings of Barnett                                          (6,511)     (6,744)     (6,341)
   Depreciation and amortization                                        2,127       1,925       2,266
   Deferred income taxes                                                  173        (540)       --
   Bad debt provision                                                     242         274         282
   Changes in assets and liabilities:
           Trade and other receivables                                 (1,287)      2,065      (2,721)
           Inventories                                                   (842)      1,455      (1,751)
           Prepaid expenses and other                                     (90)       (546)        (34)
           Accounts payable                                            (1,072)      1,227        (620)
           Accrued liabilities                                         (1,714)       (823)     (3,631)
           Net change in operating assets and liabilities of
           operations sold                                                185      (1,096)       --
           Other, net                                                     249         134        (822)
                                                                     --------    --------    --------
                Net cash used for operations                           (8,568)     (9,839)     (9,062)
                                                                     --------    --------    --------
Investments:
   Capital expenditures, net                                           (1,761)     (2,691)     (3,124)
   Change in other assets                                                  75         165          64
   Net proceeds from sales of businesses                                1,800      25,972       3,203
                                                                     --------    --------    --------
                Net cash provided by investments                          114      23,446         143
                                                                     --------    --------    --------
</TABLE>


                                       26
<PAGE>   27



<TABLE>
<CAPTION>
<S>                                                       <C>          <C>         <C>
Financing:
   Borrowings under credit agreements                     76,869       56,734      104,794
   Payments under credit agreements                      (57,468)     (70,883)     (95,640)
   Debt issuance costs                                      (137)        (282)        --
   Retirement of Senior Notes                               --           --        (12,000)
   Retirement of Senior Subordinated Notes                  --           (895)        --
   Advances (to) from Waxman Industries, Inc., net       (11,320)       3,022        2,512
                                                       ---------    ---------    ---------
         Net cash provided by (used for) financing         7,944      (12,304)        (334)
                                                       ---------    ---------    ---------
Net increase (decrease) in cash and cash equivalents        (510)       1,303       (9,253)
Balance, beginning of year                                 1,376           73        9,326
                                                       ---------    ---------    ---------
Balance, end of year                                   $     866    $   1,376    $      73
                                                       =========    =========    =========
</TABLE>




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


                                       27
<PAGE>   28


                        WAXMAN USA INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         A. BASIS OF CONSOLIDATION AND DESCRIPTION OF THE COMPANY

               The accompanying consolidated financial statements include the
accounts of Waxman USA Inc. ("Waxman USA") and its wholly-owned subsidiaries
(collectively, the "Company"). As of June 30, 2000, the Company owned 44.2% of
the common stock of Barnett Inc. ("Barnett Common Stock"), a direct marketer and
distributor of plumbing, electrical and hardware products, and accounts for
Barnett Inc. ("Barnett") under the equity method of accounting. See Management's
Discussion and Analysis "Debt Restructuring Effort" section and Note 12 for a
discussion of the Company's agreement to sell its interest in Barnett. Certain
reclassifications have been made to the prior year statements in order to
conform to the current year presentation. All significant intercompany
transactions and balances are eliminated in consolidation.

        The Company is a wholly-owned subsidiary of Waxman Industries, Inc.
("Waxman Industries") and is a supplier of specialty plumbing, hardware and
other products to the repair and remodeling market in the United States. The
Company distributes its products to approximately 1,400 customers, including a
wide variety of large national and regional retailers, independent retail
customers and wholesalers. The Company conducts its business primarily through
its wholly-owned subsidiaries, Waxman Consumer Products Group Inc. ("Consumer
Products"), Medal of Pennsylvania, Inc. ("Medal" and formerly WOC Inc. ("WOC"))
and TWI, International, Inc. ("TWI"). Medal is comprised of Medal Distributing,
a supplier of hardware products and, included the operations of U.S. Lock, a
distributor of a full line of security hardware products, prior to its January
1, 1999 sale. TWI includes the Company's foreign operations, including
manufacturing, packaging and sourcing operations in China and Taiwan, and, until
the March 31, 2000 sale of Western American Manufacturing Inc., an operation in
Mexico that threaded galvanized, black, brass, and chrome pipe and imported
malleable fittings. Consumer Products, Medal and Barnett utilize the Company's
and non-affiliated foreign sourcing suppliers.

         B. CASH AND CASH EQUIVALENTS

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

         C. TRADE RECEIVABLES

         Trade receivables are presented net of allowances for doubtful accounts
of $0.9 million and $1.0 million at June 30, 2000 and 1999, respectively. Bad
debt expense totaled $0.2 million in fiscal 2000, $0.3 million in fiscal 1999,
and $0.3 million in fiscal 1998.

         The Company sells plumbing, hardware and other products throughout the
United States to do-it-yourself ("D-I-Y") retailers, mass merchandisers, smaller
independent retailers and wholesalers. The Company performs ongoing credit
evaluations of its customers' financial conditions. As a percentage of the
Company's net sales, the largest customer of Consumer Products, Kmart, accounted
for 11.0%, 10.0% and 9.5% in fiscal 2000, 1999 and 1998, respectively. As a
percentage of Consumer Products' net sales, Kmart accounted for 21.2%, 20.8% and
18.2%, for the same periods, respectively. During the same periods, the
Company's ten largest customers accounted for approximately 41.5%, 39.6% and
42.7% of net sales and approximately 51.3% and 55.7% of accounts receivable at
June 30, 2000 and 1999, respectively.

         D. INVENTORIES

         At June 30, 2000 and 1999, inventories, consisting primarily of
finished goods, are carried at the lower of first-in, first-out (FIFO) cost or
market. The Company regularly evaluates its inventory carrying value, with
appropriate consideration given to any excess, slow-moving and/or nonsalable
inventories. In fiscal 2000, 1999 and 1998, the Company recorded charges of $0.1
million, $0.6 million and $0.5 million, respectively, in connection with its
evaluation of its inventory carrying value.

         E. PROPERTY AND EQUIPMENT

                                       28
<PAGE>   29

         Property and equipment are stated at cost. For financial reporting
purposes, buildings and equipment are depreciated on a straight-line basis over
the estimated useful lives of the related assets. Depreciable lives are 15 to 40
years for buildings and 3 to 15 years for equipment. Leasehold improvements are
amortized on a straight-line basis over the term of the lease or the useful life
of the asset, whichever is shorter. For income tax purposes, accelerated methods
of depreciation are used. Depreciation expense in each of the last three fiscal
years ended June 30, 2000, 1999 and 1998 totaled $1.5 million, $1.4 million and
$1.4 million, respectively.

         F. COST OF BUSINESSES IN EXCESS OF NET ASSETS ACQUIRED

         In the fourth quarter of fiscal 2000, management evaluated its goodwill
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of," on an originating entity basis considering future undiscounted
operating cash flows and the inconsistency of the Company's earnings. Based on
the lack of operating cash flow from operations to support future growth, the
inconsistency of the Company's and Consumer Products' earnings, the
competitiveness of the industry in supplying customers in the D-I-Y retail
market and the cash flow expectations of the business, as compared to the
contribution of those product lines, along with management's plans associated
with Waxman Industries' comprehensive financial restructuring plan, the Company
wrote off $6.7 million of goodwill at its Consumer Products operation, which
relates to two product lines acquired in December 1986 and May 1988. In prior
years, the cost of businesses in excess of net assets acquired was being
amortized primarily over 40 years using the straight-line method. Goodwill
amortization expense totaled $0.3 million in fiscal 2000, 1999 and 1998.
Accumulated amortization totaled $15.1 million at June 30, 1999.

         G. UNAMORTIZED DEBT ISSUANCE COSTS

         Unamortized debt issuance costs relate to the Company's long-term and
short-term debt (See Note 5) and are amortized over the life of the related
debt. Amortization expense totaled $0.3 million in fiscal 2000, 1999 and 1998,
and is included in interest expense in the accompanying consolidated statements
of operations. The Company incurred an extraordinary charge in fiscal 1998
related to the accelerated amortization of unamortized debt issuance costs. (See
Note 2).

         H. ISSUANCES OF STOCK BY A SUBSIDIARY

         The Company recognizes gains on issuances of stock by a subsidiary in
its consolidated statements of operations in amounts proportionate to its
ownership percentage of the subsidiary.

         I. PROCUREMENT COSTS

         Procurement costs represent the amount paid by the Company in
connection with a customer's agreement to purchase products from the Company for
a specific period. The amount includes the consideration paid to the new or
existing customer (i) for the right to supply such customer for a specified
period, (ii) to assist such customer in reorganizing its store aisles and
displays in order to accommodate the Company's products and (iii) to purchase
competitor's merchandise that the customer has on hand when it changes
suppliers, less the salvage value received by the Company. The Company expenses
these costs in the fiscal year incurred. Procurement costs for (i) above totaled
$0.65 million in fiscal 2000 and $2.0 million in fiscal 1999. The Company did
not incur procurement costs related to (ii) above in fiscal 2000 or fiscal 1998,
but incurred $0.5 million in fiscal 1999 for this type of cost. These types of
procurement costs are included as procurement charges in the accompanying
consolidated statements of operations. Procurement costs for (iii) above totaled
$1.5 million, $1.1 million and $1.1 million in fiscal 2000, 1999 and 1998,
respectively, and are included as a contra-sales amount in net sales in the
accompanying consolidated statements of operations.

         J. FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS

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

         K. FINANCIAL STATEMENT ESTIMATES

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



                                       29
<PAGE>   30

         L. EARNINGS PER SHARE

         Earnings per share data is not presented and is not meaningful, as the
Company is a wholly-owned subsidiary of Waxman Industries.



2. BARNETT PUBLIC OFFERINGS AND EXTRAORDINARY CHARGE

         In fiscal 1997, the Company completed a secondary offering of 1.3
million shares of the Barnett Common Stock at a per share price of $17.50,
before the underwriters' discount (the "Barnett Secondary Offering"). Barnett
participated in the Barnett Secondary Offering and sold 425,000 of its own
shares. The Company received net proceeds, after the underwriters' discount, of
$21.6 million and recorded a $16.7 million pre-tax gain. The Company converted
the remaining convertible non-voting preferred stock of Barnett it owned to
Barnett Common Stock. In July 1997, as a result of the sale of a substantial
portion of the business of LeRan Gas Products, one of WOC's operations, to
Barnett, the Company received cash and an additional 24,730 shares of Barnett
Common Stock. As a result of these transactions, at June 30, 2000, the Company
owned 7,186,530 shares, or 44.2%, of the outstanding shares of Barnett Common
Stock. This investment is accounted for under the equity method of accounting.
See Management's Discussion and Analysis "Debt Restructuring Effort" section and
Note 12 for a discussion of the Company's agreement to sell its interest in
Barnett.

         Prior to the Barnett Secondary Offering, the Company owned
approximately 49.9% of the Barnett Common Stock and, including convertible
non-voting preferred stock of Barnett, a 54% economic interest in the capital
stock of Barnett. The Company's ownership in Barnett was reduced to this level
in fiscal 1996 when the Company consummated an initial public offering of the
Barnett Common Stock. Net proceeds received by the Company from the Barnett
Secondary Offering were used primarily to repay outstanding indebtedness. As a
result, the Company recorded an extraordinary charge of approximately $0.2
million in fiscal 1998, relating to the accelerated amortization of the related
unamortized debt discount and debt issuance costs attributed to indebtedness
repaid from the net proceeds of the Barnett Secondary Offering (See Note 5).

         The following table presents summary financial data for Barnett at June
30, 2000, 1999 and 1998 and for the years ended June 30, 2000, 1999 and 1998 (in
thousands of dollars):

Statement of income data:       2000       1999       1998
                            --------   --------   --------
Net sales                   $281,471   $241,374   $199,578
Gross profit                  92,198     80,191     67,443
Net income                    14,672     15,215     14,277

Balance sheet data:
Current assets              $113,601   $ 94,941   $ 72,054
Non-current assets            56,401     54,245     23,730
Current liabilities           30,418     24,615     19,623
Non-current liabilities       33,000     33,000       --

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

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

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

FISCAL 2000 --

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



                                       30
<PAGE>   31

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

         ASSET IMPAIRMENT: In the fourth quarter of fiscal 2000, Consumer
Products recorded an asset impairment charge of $6.7 million related to a
write-off of goodwill as required by SFAS No. 121 "Accounting for the Impairment
of Long-Lived Assets and Assets to Be Disposed Of", for two product lines that
were acquired by Consumer Products in December 1986 and May 1988. This charge
has been reported as a separate component in operating expenses and reflects the
lack of operating cash flow from operations to support future growth, the
inconsistency of the Company's and Consumer Products' earnings, the
competitiveness of the industry in supplying customers in the D-I-Y retail
market and the cash flow expectations of the business, as compared to the
contribution of those product lines, along with management's plans associated
with the Waxman Industries comprehensive financial restructuring plan.

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

FISCAL 1999 -

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


4. SALE OF DIVISIONS

         A. SALE OF WESTERN AMERICAN MANUFACTURING, INC.

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

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

                                                 Fiscal 2000         Fiscal 1999
                                                 -----------         -----------
          Net sales                               $  2,923            $3,542
          Net loss                                $ (  273)           $( 743)

         B. SALE OF U.S. LOCK



                                       31
<PAGE>   32

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

         The sale of U.S. Lock resulted in an estimated net pretax gain of $17.7
million, of which approximately $7.8 million was originally reported as a
deferred gain for financial statement purposes due to the Company's continued
ownership of 44.2% of Barnett, the acquirer of U.S. Lock. The Company is
recognizing the deferred gain as the goodwill generated by the purchase of U.S.
Lock is amortized by Barnett, or as the Company reduces its ownership interest
in Barnett. In fiscal 2000 and the fourth quarter of fiscal 1999, the Company
recognized $0.2 million and $0.1 million of this deferred gain, respectively.
The Company utilized a portion of its net operating loss carryforwards to offset
a portion of the tax on the net gain from the sale of U.S. Lock.

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



                                            Fiscal 2000            Fiscal 1999
                                            -----------            -----------
          Net sales                              --                  $13,361
          Net income                             --                  $ 1,000


         C. SALE OF LERAN GAS PRODUCTS

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

5. DEBT

         A. LONG-TERM DEBT

         Total other long-term debt consists of the following (in thousands of
dollars):
<TABLE>
<CAPTION>
                                                                                  June 30,
                                                                                  --------

                                                                               2000        1999
                                                                             --------    --------
<S>                                                                          <C>         <C>
Bank Agreement                                                               $ 18,948    $    444

Capital leases maturing through 2002, bearing interest at rates ranging
from 7.75% to 11.8%, secured by the leased equipment                              356         675

Other notes, maturing through 2007, bearing interest at rates ranging from
7.1 % to 9.0%, secured by the land, building and equipment of TWI               1,842         626
                                                                             --------    --------
                                                                               21,146       1,745
Less:  current portion                                                        (20,366)       (812)
                                                                             --------    --------
         Long-term debt, net of current portion                              $    780    $    933
                                                                             ========    ========
</TABLE>

                                       32
<PAGE>   33


         On June 17, 1999, the Company entered into the Loan and Security
Agreement with Congress Financial Corporation to replace the Credit Agreement
with BankAmerica Business Credit, Inc. that was to expire on July 15, 1999. The
Loan and Security Agreement is between Consumer Products, Medal, WAMI and WAMI
Sales, as borrowers (the "Borrowers"), with the Company, Waxman Industries, Inc.
("Waxman Industries") and TWI as guarantors (the "Loan and Security Agreement").
In March 2000, the Company and Congress Financial Corporation amended the Loan
and Security Agreement to, among other changes, increase the facility by up to
$3.0 million, utilizing inventory and accounts receivable that were already
collateralized under the original agreement. The Loan and Security Agreement
provides for, among other things, revolving credit advances of up to $22.0
million. As of June 30, 2000, the Company had $18.9 million in borrowings under
the revolving credit line of the facility and had approximately $1.1 million
available under such facility. The Loan and Security Agreement expires on
September 1, 2001, but may be extended under certain conditions. In April 2000,
the Loan and Security Agreement was further amended to allow the sale of
substantially all of the assets of WAMI, and in July 2000 to allow the sale of
all of the Barnett Common Stock as contemplated by the Barnett Merger.

         The Loan and Security Agreement provides for revolving credit advances
of (a) up to 85.0% of the amount of eligible accounts receivable, (b) up to the
lesser of (i) $10.0 million or (ii) 60% of the amount of eligible raw and
finished goods inventory and (c) up to the lesser of (i) $5.0 million or (ii)
70% of the fair market value of 500,000 shares of Barnett Inc. common stock. In
December 1999, the Loan and Security Agreement was amended to provide Congress
Financial an additional 500,000 shares of Barnett Inc. common stock (which,
together with the initial 500,000 shares, constitutes approximately 6.2% of all
outstanding stock of Barnett Common Stock), as collateral and allowing the
Company to borrow up to the lesser of i) $10,000,000 or ii) 70% of the fair
value of the 1,000,000 shares of Barnett Inc. common stock. Revolving credit
advances bear interest at a rate equal to (a) First Union National Bank's prime
rate plus 0.5% or (b) LIBOR plus 2.50%. The Loan and Security Agreement includes
a letter of credit subfacility of $10.0 million, with none outstanding at June
30, 2000. Borrowings under the Loan and Security Agreement are secured by the
accounts receivable, inventories, certain general intangibles, and unencumbered
fixed assets of Waxman Industries, Consumer Products, TWI, International Inc.
and WOC, and a pledge of 65% of the stock of various foreign subsidiaries. The
Loan and Security Agreement requires the Borrowers to maintain cash collateral
accounts into which all available funds are deposited and applied to service the
facility on a daily basis. The Loan and Security Agreement prevents dividends
and distributions by the Borrowers except in certain limited instances
including, so long as there is no default or event of default and the Borrowers
are in compliance with certain financial covenants, the payment of interest on
the Senior Notes and Waxman Industries' Deferred Coupon Notes, and contains
customary negative, affirmative and financial covenants and conditions. The
Company was in compliance with or has obtained a waiver for all loan covenants
at June 30, 2000. The Loan and Security Agreement also contains a material
adverse condition clause which allows Congress Financial Corporation to
terminate the Agreement under certain circumstances.

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

         B. SENIOR NOTES

         On April 3, 1996, the Company consummated an offer to exchange $48.8
million principal amount of its 11 1/8% Senior Notes due September 1, 2001
("Senior Notes") for a like amount of the Company's outstanding 13 3/4% Senior
Subordinated Notes due June 1, 1999 ("Senior Subordinated Notes"), and in
connection therewith solicited consents to certain amendments to the indenture
pursuant to which the Senior Subordinated Notes were issued. Approximately $43.0
million of Senior Subordinated Notes were exchanged in fiscal 1996. In fiscal
1997, the Company initiated a similar exchange offer and exchanged an additional
$4.9 million of Senior Subordinated Notes, bringing the total amount exchanged
to $47.9 million.

         In May 1997, the Company commenced an offer to purchase $12.0 million
principal amount of Senior Notes at par (the "Purchase Offer"). The offer
expired on July 2, 1997, with $2.5 million of the notes being purchased. On July
3, 1997, the Company called for the redemption of $9.5 million of Senior Notes
that had not been tendered in the Purchase Offer, and on August 4, 1997, the
Company completed the note redemption. The Company used a portion of the net
proceeds from the Barnett Secondary Offering to purchase the Senior Notes. The
Company recorded an extraordinary charge of $0.1 million, net of applicable tax
benefit of $0.1 million, in the first quarter of fiscal 1998 related to the
write-off of unamortized deferred financing costs associated with the purchase
and redemption of these Senior Notes. See Note 12 regarding the Company's plans
to redeem the remaining Senior Notes as part of Waxman Industries financial
restructuring plan.



                                       33
<PAGE>   34

         The Senior Notes are general unsecured obligations of the Company
ranking pari passu in right of payment to any future indebtedness of the Company
that is not subordinated in right of payment to the Senior Notes and senior in
right of payment to any future indebtedness of the Company that is subordinated
in right of payment to the Senior Notes. The Senior Notes are structurally
subordinated to the Loan and Security Agreement and any refinancing thereof. The
indenture under which the Senior Notes were issued (the "Senior Note Indenture")
contains certain covenants that, among other things, limit the ability of the
Company and its subsidiaries to incur additional indebtedness, transfer or sell
assets, pay dividends, make certain other restricted payments or investments,
create liens or enter into sale lease-back transactions, transactions with
affiliates and mergers. The Company was in compliance with all covenants at June
30, 2000.

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

         C. SENIOR SUBORDINATED NOTES

         In June 1989, the Company issued $100 million principal amount of
Senior Subordinated Notes. During 1994, the Company exchanged $50 million
principal amount of the Senior Subordinated Notes for a like amount of Waxman
Industries' Deferred Coupon Notes. As discussed above, the Company issued Senior
Notes in exchange for $43.0 million principal amount of Senior Subordinated
Notes in fiscal 1996 and an additional $4.9 million in fiscal 1997. On June 1,
1999, approximately $0.9 million of Senior Subordinated Notes matured,
representing the remaining amount of the Senior Subordinated Notes, and were
repaid.

         D. MISCELLANEOUS


         The Company made cash interest payments of $5.3 million in fiscal 2000,
$6.2 million in fiscal 1999 and $5.8 million in fiscal 1998. The Company did not
have interest income in fiscal 2000, but reported interest income was $0.2
million in fiscal 1999 and $0.1 million in fiscal 1998. The Company also has
accrued interest and interest cost from the amortization of deferred financing
costs, which makes up the balance of the interest expense presented in the
accompanying consolidated statements of operations.

         Management believes the carrying value of its bank loan approximates
its fair value as it bears interest based upon the bank's prime lending rate.
The fair value, determined using quoted market prices for the Senior Notes,
approximates their carrying amount.

6. INCOME TAXES

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

         The Company participates in the consolidated tax group of which Waxman
Industries is the common parent. Commencing July 1, 1994, the Company began
participating in a tax sharing agreement with Waxman Industries. Under this
agreement, the Company's federal tax liability is equal to the lesser of (i) the
federal tax liability calculated on a stand-alone basis or (ii) Waxman
Industries' federal tax liability. Waxman Industries has approximately $66.7
million of available domestic net operating loss carryforwards for income tax
purposes at June 30, 2000, which expire 2009 through 2020. Barnett is not a
member of the consolidated tax group. The Company's liability for taxes at June
30, 2000 and June 30, 1999 includes various state and foreign taxes. The Company
files separate income tax returns in certain states based on the results of
operations within the applicable states.

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



                                       34
<PAGE>   35

             Fiscal Year Ended June 30,
             --------------------------

             2000        1999       1998
           --------    --------   --------
Domestic   $(13,106)   $  5,439   $  5,443
Foreign      (2,192)        761      1,526
           --------    --------   --------
Total      $(15,298)   $  6,200   $  6,969
           ========    ========   ========



         The components of the provision for income taxes, calculated on a
stand-alone basis are (in thousands of dollars):

                                   Fiscal Year Ended June 30,
                                   --------------------------

                                  2000       1999       1998
                                 -------    -------    -------
U.S. Federal                     $(1,727)   $ 2,554    $ 2,146
Foreign, state and other            (211)     1,398        513
                                 -------    -------    -------
     Total current                (1,938)     3,952      2,659
Deferred state                       173       (540)      --
                                 -------    -------    -------
     Total (benefit) provision   $(1,765)   $ 3,412    $ 2,659
                                 =======    =======    =======

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

                                  Fiscal Year Ended June 30,
                                  --------------------------

                                  2000       1999       1998
                                 ------     ------     ------
U.S. statutory rate                35.0%      35.0%      35.0%
State and foreign taxes, net       (5.2)       6.2        2.2
Nondeductible compensation           --       13.1         --
Goodwill amortization             (18.1)       1.5        0.6
Other, net                         (0.2)      (0.8)       0.4
                                 ------     ------     ------
     Effective tax rate            11.5%      55.0%      38.2%
                                 ======     ======     ======

         The Company's deferred tax assets and liabilities relate primarily to
its basis in Barnett stock, depreciation of the Company's property and
equipment, income taxes paid on the deferred gain on the sale of U.S. Lock, and
certain reserves and accruals.

         Deferred taxes and amounts payable to Waxman Industries are included in
Advances to Waxman Industries, Inc. in the accompanying consolidated balance
sheets. The deferred tax asset at June 30, 2000 relates to state taxes paid on
the deferred gain on the sale of U.S. Lock.

         The Company made income tax payments of $1.1 million in fiscal 2000,
$0.5 million in fiscal 1999 and $0.3 million in fiscal 1998. Refunds received
totaled $0.4 million in fiscal 2000.

7. LEASE COMMITMENTS

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



                                       35
<PAGE>   36

        Future minimum rental payments are as follows (in thousands of dollars):
         2001                                      $665
         2002                                       557
         2003                                       359
         2004                                       355
         2005                                       346
         Thereafter                               1,132
                                                 ------
                                                 $3,414
                                                 ======

         Total rent expense charged to operations was $1.4 in fiscal 2000, $1.4
million in fiscal 1999 and $2.6 million in fiscal 1998. Consumer Products leases
certain warehouse space from related parties. Related parties' rent expense
totaled $0.3 million in fiscal 2000, 1999 and 1998. Those related party
relationships consist of the following:


         -  Aurora Investment Co., a partnership owned by Melvin Waxman,
            Chairman of the Board and Co-Chief Executive Officer of the Company,
            and Armond Waxman, President and Co-Chief Executive Officer of the
            Company, together with certain other members of their families, is
            the owner and lessor of the building used by Consumer Products for
            its executive offices, administrative functions and, until the move
            of the warehouse to Groveport, Ohio, one of its distribution
            facilities. The warehouse portion of this facility has been
            subleased to Handl-it, Inc. (see below for information regarding
            affiliated ownership) for the duration of the lease term. Rent
            expense under this lease was $326,716 in fiscal 2000, $326,716 in
            fiscal 1999 and $314,150 in fiscal 1998. The Company received rental
            income from Handl-it, Inc. of $290,970 in fiscal 2000 and $95,324
            for a portion of fiscal 1999 for subleasing the warehouse in Bedford
            Hts., Ohio.

         -  Handl-it Inc., a corporation owned by John S. Peters, a director and
            consultant to the Company, together with certain other members of
            his family, Melvin Waxman and Armond Waxman, provides Consumer
            Products with certain outside warehousing services under
            month-to-month rental arrangements from time to time. Consumer
            Products may enter into month-to-month leases in the future,
            depending on its business requirements at the time. There was no
            rent paid by Consumer Products to Handl-it in fiscal 2000, however,
            rent expense under these lease arrangements was $10,000 and $30,000
            for fiscal 1999 and 1998, respectively. Consumer Products Group also
            paid Handl-it Inc. approximately $40,000 and $55,000 for the cost of
            transportation of products in fiscal 2000 and 1999, respectively.

         -  Effective July 1, 1999, WAMI Sales replaced an internally operated
            warehouse facility in Cleveland, Ohio with an arrangement with
            Handl-it Inc. to provide all warehousing, labor and shipping
            functions for a fee of $74,000, equal to a percentage of monthly
            sales plus other direct expenses from this operation.

8. PROFIT SHARING AND 401(k) PLAN

         The eligible employees of certain subsidiaries of the Company
participate in Waxman Industries' trusteed, profit sharing and 401(k) retirement
plan. Contributions are discretionary and are determined by Waxman Industries'
Board of Directors. There were no profit sharing contributions in fiscal 2000,
1999 or 1998; however, the Company contributed a 50% match of up to the first 4%
of salary deferral by employees, which amounted to $0.1 million in fiscal 2000,
1999 and 1998. The Company currently offers no other retirement, post-retirement
or post-employment benefits.


9. RELATED-PARTY TRANSACTIONS

         The Company engages in certain business transactions with Waxman
Industries and affiliates. Except as disclosed for leases above, sales to and
purchases from Waxman Industries' and affiliates in fiscal 2000, 1999 and 1998
were immaterial.

         Management fees charged to the Company by Waxman Industries are
presented in the accompanying consolidated statements of operations as the
corporate charge. In accordance with the Intercorporate Agreement, the
management fees charged to the Company are the lesser of (a) 4% of net sales or
(b) the actual cost of providing services to the Company and its wholly-owned
subsidiaries.



                                       36
<PAGE>   37

         The Company's wholly-owned subsidiaries engage in business transactions
with Barnett. Products sold to Barnett for resale totaled $18.8 million in
fiscal 2000, $19.9 million in fiscal 1999 and $16.2 million in fiscal 1998.
There were no purchases from Barnett in fiscal 2000, 1999 or 1998.

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

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

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

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

10. CONTINGENCIES

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

11. SEGMENT INFORMATION

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


<TABLE>
<CAPTION>
                             Retail    Non-Retail      Other      Elimination     Total
                             ------    ----------      -----      -----------     -----

<S>                        <C>          <C>                       <C>          <C>
Reported net sales:
Fiscal 2000                $  58,708    $  32,900         --      $ (10,248)   $  81,360
Fiscal 1999                   69,084       43,150         --        (13,118)      99,116
Fiscal 1998                   77,000       45,355         --        (16,693)     105,662

Operating (loss) income:
Fiscal 2000                $ (11,732)   $    (703)   $  (1,934)        --      $ (14,369)
Fiscal 1999                   (2,800)         400       (2,638)        --         (5,038)
Fiscal 1998                    3,789        5,759       (3,306)        --          6,242
</TABLE>

                                       37
<PAGE>   38


<TABLE>
<CAPTION>
<S>                        <C>          <C>                       <C>          <C>
Identifiable assets:
June 30, 2000              $  31,517    $  13,125    $  40,931         --      $  85,573
June 30, 1999                 45,017       15,866       32,691         --         93,574
</TABLE>


         The Company's foreign operations manufacture, assemble, source and
package products that are distributed by the Company's wholly-owned operations,
Barnett, retailers and other non-retail customers. Net sales for those foreign
operations amounted to $40.2 million, $46.3 million and $39.2 million for the
fiscal years ended June 30, 2000, 1999 and 1998, respectively. Of these amounts,
approximately $10.2 million, $13.1 million and $16.7 million were intercompany
sales for the fiscal years ended June 30, 2000, 1999 and 1998, respectively.
Identifiable assets for the foreign operations were $14.6 million and $18.7
million at June 30, 2000 and 1999, respectively.




                       SUPPLEMENTARY FINANCIAL INFORMATION

         Quarterly Results of Operations:

         Presented below is a summary of the unaudited quarterly results of
operations for the fiscal years ended June 30, 2000 and 1999 (in thousands).

<TABLE>
<CAPTION>
FISCAL 2000                                         1ST QTR.   2ND QTR.    3RD QTR.    4TH QTR.
-----------                                         --------   --------    --------    --------
<S>                                                 <C>        <C>         <C>         <C>
Net sales                                           $ 22,837   $ 19,702    $ 19,822    $ 18,999
Gross profit                                           7,185      5,891       6,175       2,850
Restructuring, impairment and procurement charges        150      1,300         500       8,420
Operating income (loss)                                  622     (1,796)       (842)    (12,353)
Loss on sale of WAMI, net                               --         --        (1,966)        (58)
Income (loss) before provision for income taxes        1,108     (1,055)     (2,554)    (12,797)
Net income (loss)                                   $    725   $   (732)   $ (1,743)   $(11,783)
</TABLE>



<TABLE>
<CAPTION>
FISCAL 1999                                         1ST QTR.    2ND QTR.   3RD QTR.    4TH QTR.
-----------                                         --------    --------   --------    --------
<S>                                                 <C>         <C>        <C>         <C>
Net sales                                           $ 28,229    $ 29,198   $ 22,186    $ 19,503
Gross profit                                           9,088       8,661      6,247       5,856
Restructuring, impairment and procurement charges      1,350        --        2,900         265
Operating income (loss)                                 (453)        356     (3,066)     (1,875)
Gain on sale of U.S. Lock, net                          --          --        9,860          98
Income (loss) before provision for income taxes         (426)        613      7,149      (1,136)
Net income (loss)                                   $   (264)   $    380   $  4,252    $ (1,580)
</TABLE>



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


12. SUBSEQUENT EVENT - WAXMAN INDUSTRIES FINANCIAL RESTRUCTURING AND AGREEMENT
TO SELL BARNETT STOCK



                                       38
<PAGE>   39

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

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

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

         -  The Company has agreed to vote in favor of the merger and sell in
            the Barnett Merger all of the 7,186,530 shares of Barnett common
            stock, less any shares sold to Barnett as noted below.

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

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

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

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

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

         Following the anticipated sale of the Company's interest in Barnett,
Waxman Industries and the Committee will file a jointly sponsored, prepackaged
plan of reorganization with the United States Bankruptcy Court (the "Joint
Plan") to effectuate the terms of the Debt Reduction Agreement. Under the Joint
Plan, the holders of the Deferred Coupon Notes will be the only impaired class
of creditors; neither the Company or any of the Company's operating subsidiaries
or operating divisions will be included in the filing and they will continue to
pay their trade creditors, employees and other liabilities under normal
conditions.

         Waxman Industries, with the consent of the Ad Hoc Committee, has not
paid its Deferred Coupon Note interest payment of $6.0 million that was due on
June 1, 2000. This interest payment will be paid with a portion of the proceeds
received from the Barnett Merger. The Ad Hoc Committee has provided instructions
to the Trustee for the Deferred Coupon Notes not to take any action with respect
to the failure to pay the June interest payment, pending the anticipated
completion of the Barnett Merger. The Barnett Merger was not completed by
September 1, 2000, the Company sold 160,723 shares representing $2 million in
value to Barnett and paid the interest due on its Senior Notes.

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



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTING AND FINANCIAL DISCLOSURE

                  Not Applicable.


                                    PART III

         Items 10, 11, 12 and 13 omitted pursuant to General Instruction (I)
(2)(c) of Form 10-K.



                                       39
<PAGE>   40

                                     PART IV

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


(a)  (1)      The following consolidated financial statements are included in
              Part II, Item 8:

                      Report of Independent Public Accountants

                      Balance Sheets--June 30, 2000 and 1999

                      Statements of Operations--For the Years Ended June 30,
                      2000, 1999 and 1998

                      Statements of Stockholders' Equity--For the Years Ended
                      June 30, 2000, 1999 and 1998.

                      Statements of Cash Flows--For the Years Ended June 30,
                      2000, 1999 and 1998.

                      Notes to Financial Statements For the Years Ended June 30,
                      2000, 1999 and 1998.

                      Supplementary Financial Information

     (a)      (2)     All schedules have been omitted because the required
                      information is not present or not present in amounts
                      sufficient to require submission of the schedule, or
                      because the information required is included in the
                      consolidated financial statements including notes thereto.

     (a)      (3)     Exhibits

     3.1*             Certificate of Incorporation of Waxman USA Inc. (Exhibit
                      3.1 to the Waxman USA Inc.'s Registration Statement on
                      Form S-4, Registration Number 333-3689, incorporated
                      herein by reference).

     3.2*             By-laws of Waxman USA Inc. (Exhibit 3.2 to the Waxman USA
                      Inc.'s Registration Statement on Form S-4, Registration
                      Number 333-3689, incorporated herein by reference).

     4.1*             Indenture dated as of April 3, 1996 by and between Waxman
                      USA Inc. and the United States Trust Company of New York,
                      as Trustee, with respect to the 11 1/8% Senior Notes due
                      2001 of Waxman USA Inc., including the form of Senior
                      Notes (Exhibit 10.14 to Waxman Industries, Inc.'s
                      Amendment No. 8 to Registration Statement on Form S-2
                      filed April 15, 1996, Registration No. 33-54211,
                      incorporated herein by reference).

     4.2*             Form of the Company's 13 3/4% Senior Subordinated Note due
                      June 1, 1999 (Exhibit 4.2 to Annual Report on Form 10-K
                      for the year ended June 30, 1989, File No. 0-5888,
                      incorporated herein by reference).

     4.3*             Amended and Restated Credit Agreement dated as of April 3,
                      1996 among Waxman USA Inc., Waxman Consumer Products Group
                      Inc. and WOC Inc., the Lenders and Issuers party thereto
                      and Citibank, N.A., as Agent (Exhibit 10.12 to Waxman
                      Industries, Inc.'s Amendment No. 8 to Registration
                      Statement on Form S-2 filed April 15, 1996, Registration
                      No. 33-54211, incorporated herein by reference).

     10.1*            Tax Sharing Agreement dated May 20, 1994 among Waxman
                      Industries, Waxman USA, Barnett Inc., Waxman Consumer
                      Products Group Inc., WOC Inc. and Western American
                      Manufacturing, Inc. (Exhibit 10.6 to Waxman Industries,
                      Inc.'s Form S-4 filed June 20, 1994, incorporated herein
                      by reference).

     10.2*            Intercorporate Agreement dated May 20, 1994 among Waxman
                      Industries, Waxman USA, Barnett Inc., Waxman Consumer
                      Products Group Inc., WOC Inc. and Western American
                      Manufacturing, Inc. (Exhibit 10.7 to Waxman Industries,
                      Inc.'s Form S-4).

                                       40
<PAGE>   41

     10.3*            Intercorporate Agreement dated March 28, 1996 among Waxman
                      Industries, Inc., Waxman USA Inc., Barnett Inc., Waxman
                      Consumer Products Group Inc., WOC Inc. and TWI,
                      International, Inc. (Exhibit 10.8 to Waxman Industries,
                      Inc.'s Amendment No. 8 to Registration Statement on Form
                      S-2 filed April 15, 1996, Registration No. 33-54211,
                      incorporated herein by reference).

     10.4*            Credit Agreement dated as of May 20, 1994 among Waxman
                      USA, Inc., Barnett Inc., Waxman Consumer Products Group
                      Inc. and WOC Inc., the Lenders and Issuers party thereto
                      and Citicorp USA, Inc., as Agent and certain exhibits
                      thereto (Exhibit 10.8 to Waxman Industries, Inc.'s Form
                      S-4 filed June 20, 1994, incorporated herein by
                      reference).

     10.5*            Term Loan Credit Agreement dated as of May 20, 1994 among
                      Waxman USA, Inc., Barnett Inc., Waxman Consumer Products
                      Group, Inc. and WOC Inc., the Lenders and Issuers party
                      thereto and Citibank, N.A., as Agent (Exhibit 10.9 to
                      Waxman Industries, Inc.'s Form S-4 filed June 20, 1994,
                      incorporated herein by reference.).

     10.6*            Amendment No. 2 to the Term  Loan Agreement and Amendment
                      No. 1 to the Revolving Credit Agreement among Waxman USA
                      Inc., Barnett Inc., Waxman Consumer Products Group Inc.
                      and WOC Inc., the Lenders and Issuers party thereto and
                      Citibank, N.A., as Agent (Exhibit 10.11 to Waxman
                      Industries, Inc.'s Amendment No. 4 to Registration
                      Statement on Form S-2 filed October 10, 1995, Registration
                      No. 33-54211, incorporated herein by reference).

     10.7*            Loan and Security Agreement dated as of June 28, 1996
                      among the Financial Institutions named therein and
                      BankAmerica Business Credit, Inc., as the Agent, Waxman
                      Consumer Products Group Inc. and WOC Inc., including
                      certain exhibits thereto (Exhibit No. 4.33 to Waxman
                      Industries, Inc. Annual Report on Form 10-K for the year
                      ended June 30, 1996, File No. 0-05888, incorporated herein
                      by reference).

     10.8*            Employment Agreement dated November 1, 1994 between Waxman
                      Consumer Products Group Inc. and Laurence Waxman (Exhibit
                      10.5 to Waxman Industries, Inc.'s Amendment No. 4 to
                      Registration Statement on Form S-2 filed October 10, 1995,
                      Registration No. 33-54211, incorporated herein by
                      reference).

     10.9*            Loan and Security Agreement dated as of June 17, 1999 by
                      and among Congress Financial Corporation, as Lender, and
                      Waxman Consumer Products Group Inc., WOC Inc., Western
                      American Manufacturing, Inc. and WAMI Sales, Inc. ,as
                      Borrowers, and Waxman Industries, Inc. , Waxman USA Inc.
                      and TWI, International, Inc. , as Guarantors (Exhibit 99.1
                      to Waxman Industries, Inc.'s Report on Form 8-K filed June
                      17, 1999, incorporated herein by reference). 12.1*
                      Statement re: computation of ratios (Exhibit 12.1 to
                      Waxman USA Inc.'s Registration Statement on Form S-4,
                      Registration No. 333-3689, incorporated herein by
                      reference).

     21.1*            Subsidiaries. (Exhibit 21.1 to Waxman USA Inc.'s
                      Registration Statement on Form S-4, Registration No.
                      333-3689, incorporated herein by reference).

     23.1             Consent of Arthur Andersen LLP

     27.1             Financial Data Schedule

* Incorporated herein by reference as indicated.




     (a)      (2)     All schedules have been omitted because the required
                      information is not present or not present in amounts
                      sufficient to require submission of the schedule, or
                      because the information required is included in the
                      consolidated financial statements including notes thereto.

     (a)      (3)     Exhibits

     (b)      REPORTS ON FORM 8-K

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



                                       41
<PAGE>   42


                                   SIGNATURES

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

                                                  WAXMAN USA, INC.
                                                  ----------------


September 11, 2000                      By:      /s/  Armond Waxman
                                                 ------------------------
                                                 Armond Waxman
                                                 President,
                                                 Co-Chief Executive Officer
                                                 and Director

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


September 11, 2000                               /s/  Melvin Waxman
                                                 -------------------------
                                                 Melvin Waxman
                                                 Chairman of the Board,
                                                 Co-Chief Executive Officer
                                                 and Director


September 11, 2000                               /s/  Armond Waxman
                                                 -----------------------
                                                 Armond Waxman
                                                 President,
                                                 Co-Chief Executive Officer
                                                 and Director


September 11, 2000                               /s/  Mark W. Wester
                                                 -----------------------
                                                 Mark W. Wester
                                                 Chief Financial Officer
                                                 and Vice-President - Finance
                                                 (principal accounting officer)


September 11, 2000                               /s/  John S. Peters
                                                 ----------------------------
                                                 John S. Peters, Director


September 11, 2000                               /s/  Judy Robins
                                                 -----------------------------
                                                 Judy Robins, Director


September 11, 2000                               /s/  Irving Z. Friedman
                                                 -----------------------------
                                                 Irving Z. Friedman, Director


September 11, 2000                               /s/  Laurence S. Waxman
                                                 --------------------------
                                                 Laurence S. Waxman, Director


                                       42