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                                  UNITED STATES
                       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, 1997
                                              --------------
                                       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 0-21728

                                  BARNETT INC.
                                  ------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                      DELAWARE                              59-1380437
                      --------                              ----------
          (STATE OR OTHER JURISDICTION OF                (I.R.S. EMPLOYER
           INCORPORATION OR ORGANIZATION)               IDENTIFICATION NO.)

  3333 LENOX AVENUE, JACKSONVILLE, FLORIDA                    32254
  (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                  (ZIP CODE)

      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:   (904) 384-6530

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

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

                          Common Stock, $.01 par value
                          ----------------------------
                              (TITLE OF EACH CLASS)

         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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  X
                            -----

         Aggregate market value of voting stock held by non-affiliates of the
Registrant based on the closing price at which such stock was sold on the NASDAQ
National Market on September 24, 1997: $182,119,899

         Number of shares of Common Stock outstanding as of September 24, 1997:
16,171,437

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                       DOCUMENTS INCORPORATED BY REFERENCE

The Registrant's Proxy Statement in connection with its 1997 Annual Meeting of
Stockholders is incorporated by reference in Part III of this Annual Report on
Form 10-K from the date such document is filed.

                                       PART I

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, as well as
assumptions made by and information currently available to the Company and its
management. When used in this document, the words "anticipate," "believe,"
"continue," "estimate," "expect," "intend," "may," "should" and similar
expressions are intended to identify forward-looking statements. Such statements
reflect the current view of the Company with respect to future events and are
subject to certain risks, uncertainties and assumptions, including, but not
limited to, the risk that the Company may not be able to implement its growth
strategy in the intended manner, risks associated with currently unforeseen
competitive pressures and risks affecting the Company's industry such as
increased distribution costs 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 these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from these described herein as anticipated,
believed, estimated, expected or intended.

ITEM 1. BUSINESS

         On April 3, 1996, Barnett Inc.(the "Company") consummated an initial
public offering(the "Initial Public Offering") whereby 7,207,000 shares of
common stock, $.01 par value (the "Common Stock"), of the Company, representing
approximately 55.1% of the outstanding shares of Common Stock, were sold by the
Company and its former parent, Waxman USA Inc ("Waxman USA"). On April 18, 1997,
the Company consummated a secondary offering whereby 1,725,000 shares of Common
Stock were sold by it and Waxman USA.

OVERVIEW

         The Company is a direct marketer and distributor of an extensive line
of plumbing, electrical and hardware products to approximately 51,000 active
customers throughout the United States. The Company offers approximately 10,200
name brand and private label products through its industry-recognized Barnett(R)
catalogs and telesales operations. The Company markets its products through
three distinct, comprehensive catalogs that target professional contractors,
independent hardware stores and maintenance managers. The Company's staff of
over 95 knowledgeable telesales, customer service and technical support
personnel work together to serve customers by assisting in product selection and
offering technical advice. To provide rapid delivery and a strong local
presence, the Company has established a network of 30 distribution centers
strategically located in 30 major metropolitan areas throughout the United
States. Through these local distribution centers, approximately 70% of the
Company's orders are shipped 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 the Company's local distribution centers. The Company's strategy of being a
low-cost, competitively priced supplier is facilitated by its volume of
purchases and offshore sourcing of a significant portion of its private label
products. Products are purchased from over 400 domestic and foreign suppliers.

         The Company believes that its distinctive business model has enabled it
to become a high-volume, cost-efficient direct marketer of competitively priced
plumbing, electrical and hardware products. The Company's approximately 800-page
catalogs offer an extensive selection of products in an easy to use format
enabling customers to consolidate purchases with a single vendor. The Company
provides an updated version of

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its catalogs to its customers an average of three times a year. To attract new
customers and offer special promotions to existing customers, the Company
supplements its catalogs with monthly promotional flyers. The Company mailed
approximately 4.3 million promotional flyers during fiscal 1997 compared to
approximately 2.2 million promotional flyers during fiscal 1996. The Company's
experienced and knowledgeable inbound telesales staff, located at the Company's
centralized headquarters in Jacksonville, Florida, uses the Company's
proprietary information systems to take customer orders as well as offer
technical advice. The Company's highly trained outbound telesales staff
maintains frequent customer contact, makes telesales presentations, encourages
additional purchases and solicits new customers. Targeted customer accounts are
typically assigned an outbound telesalesperson in order to enhance customer
relationships and improve customer satisfaction. The Company's high in-stock
position and extensive network of local distribution centers enable it to
fulfill approximately 94% of the items included in each customer order and
provide rapid delivery. As a result of its emphasis on customer service, the
Company's customer retention rate (i.e., customers who place orders in the
following year) has grown from approximately 74.0% during each of the three
years from fiscal 1992 through fiscal 1995 to approximately 83.8% in both fiscal
1996 and 1997.

         The Company has actively pursued increased sales of its private label
products sourced primarily from foreign suppliers. During the fiscal year ended
June 30, 1997, approximately 27.6% of the Company's net sales were attributable
to sales of private label products. Many of the Company's private label products
provide the customer with lower cost, high quality alternatives to brand name
products, as well as providing the Company with higher profit margins. The
Company's private label products are sold under brand names such as Premier(R),
ProPlus(R), Barnett(R), Legend(TM), Electracraft(R) and Lumina(TM).

INDUSTRY OVERVIEW

         The Company competes in a large and highly fragmented industry. The
Company broadly defines its industry as the sale of plumbing, electrical and
hardware products primarily to plumbing and electrical repair and remodeling
contractors, maintenance managers and independent hardware stores. Plumbing and
electrical contractors are primarily responsible for making repairs on a daily
basis and generally do not have time to shop with multiple vendors. Plumbing and
electrical contractors, therefore, value extensive product selection, convenient
ordering, reliable, rapid delivery and other value-added services. In addition,
such contractors typically operate with limited working capital, making
competitive pricing important. Plumbing, electrical and hardware contractors
have traditionally purchased supplies through a variety of distribution channels
including:

         Local or Regional Broad-Line Suppliers. There are numerous broad-line
suppliers offering product categories similar to those found in the Company's
catalogs. Most of these suppliers are local or regional in scope. Although these
competitors typically use a direct sales force, often supported by a
manufacturer's catalog, they are smaller and therefore tend to offer brand name
products only, and fewer services than offered by the Company. However, many of
these suppliers offer a greater breadth of products than the Company.

         Specialty Suppliers. Specialty suppliers focus on a single product
category, such as plumbing or electrical supplies, and often offer a greater
number of products within their product categories. Specialty suppliers are
typically local or regional in scope and cannot provide the one-stop shopping
sought by many of the Company's customers.

         Industrial Suppliers. There are a few industrial suppliers that include
a limited selection of plumbing, electrical and hardware products in their
merchandise mix but do not focus on the Company's target markets.

         Mail Order Distributors. There are several mail order catalog
distributors that offer a broad selection of repair and maintenance products,
have multiple distribution centers and offer rapid delivery services. However,
these companies generally do not have a significant telesales staff or the
Company's geographic scope and typically focus on fewer customer segments.

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BUSINESS STRENGTHS

         The Company's strategy is to continue to be a high-volume, cost
efficient direct marketer of competitively priced plumbing, electrical and
hardware products, providing superior customer service. The Company believes
that the following business strengths are the key elements of this strategy:

         Direct Marketing Sales Approach. The Company displays and promotes its
products through three comprehensive professional contractor, hardware and
maintenance catalogs targeted, respectively, to such major customer groups as
professional plumbing and electrical repair and remodeling contractors, hardware
stores and maintenance managers. The Company mailed its first catalog in 1958
and currently mails its principal catalog to the 51,000 active customers on its
proprietary mailing list. These mailings are supplemented with direct mail
promotional flyers to existing and potential customers on a monthly basis.
Typical catalogs mailed by the Company contain over 10,200 items and are
approximately 800 pages in length. The Company's objective is to leverage its
direct sales experience to sell a broader array of products to a larger number
of customers. The Company's comprehensive catalogs provide its customers with
the opportunity to purchase a substantial portion of their plumbing, electrical
and hardware supplies from a single vendor.

         Sophisticated Data Based Telesales. During fiscal 1997, approximately
75.7% of the Company's net sales were generated through the Company's 95
outbound and inbound telesalespersons. Outbound telesalespersons are assigned
account management responsibilities for existing customers with an emphasis on
customer service, new product introductions and new product lines. Inbound
telesalespersons are trained to quickly process orders from existing customers.
All telesalespersons are highly knowledgeable and are required to go through
extensive product and sales training before they begin to work with customers.
The Company's proprietary telesales software provides the telesales staff with
detailed customer profiles and information about products, pricing, promotions
and competition. This data enables the Company to segment its customer base,
analyze mailing effectiveness on a weekly basis, closely track and manage
inventory on a real-time basis and quickly react to, and capitalize on, business
opportunities.

         National Network of Distribution Centers. To provide more rapid
delivery and a strong local presence, the Company has established a network of
30 distribution centers strategically located in 30 major metropolitan areas
throughout the United States. The distribution centers enable the Company to be
closer to many of its customers for faster product delivery and to generate
incremental over-the-counter sales. The Company's experience indicates that many
of its customers prefer to purchase from local suppliers and often choose to
pick up their orders in person. Approximately 30% of the Company's orders are
picked up by the customer at one of the Company's local distribution centers.

         Superior Customer Service. As a result of its large in-stock inventory,
the Company is typically able to fulfill approximately 94% of the items included
in each customer order, and, in almost all cases, ships the order within the
same day of receipt of the order. In addition, as a result of its large number
of distribution centers, the Company is able to provide its customers with more
rapid delivery to markets within the continental United States. In an effort to
maximize sales and increase customer retention, the Company has structured its
telesales staff to create regular contact between the Company's telesales
personnel and each active customer. The Company's customer retention rate (i.e.,
customers who place orders in the following year) has grown from an average of
74% during fiscal 1992 through fiscal 1995 to approximately 83.8% in each of the
fiscal years ended 1996 and 1997.

         Competitive Pricing and Private Label Products. Due to the Company's
size, volume of purchases, substantial vendor base and offshore sourcing
capabilities, the Company is frequently able to obtain purchase terms that the
Company believes are more favorable than those available to its competition.
This enables the Company to offer prices that are generally lower than those
available from its competitors. Many of the

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Company's private label products provide the customer with lower-cost, high
quality alternatives to name brand products, as well as providing the Company
with higher profit margins. During fiscal 1997, approximately 27.6% of the
Company's net sales were attributable to sales of private label products.

         Centralized Management Information Systems. The Company's proprietary
integrated centralized management information systems provide the Company with
real-time information for managing telesales, distribution, customer service,
inventory control and financial controls. The management information systems
also enable the Company to effectively coordinate its purchasing, marketing,
outbound telesales, order entry, shipping and billing. The current system has
enabled the Company to enhance its levels of customer service and increase the
productivity and profitability of its telesales operations, as well as enabling
management to make well informed business decisions. The system can be easily
and cost-effectively upgraded as the Company grows.

GROWTH STRATEGY

Key elements of the Company's growth strategy include:

         Expand product offerings. The Company currently markets approximately
10,200 plumbing, electrical and hardware products. The Company plans to increase
its net new product offerings by 1,500 to 2,000 items per year over the next
three years, which will deepen the Company's existing product lines and
establish new product categories. A significant portion of these product
additions will be private label products. The Company believes that the
introduction of new product lines will expand the Company's total potential
target market. To that end, effective July 1, 1997, the Company acquired
substantially all of the assets of LeRan Gas Products, an operating unit of
Waxman Industries, Inc., the Company's former indirect parent ("Waxman
Industries"). LeRan Gas Products is a leading business-to-business direct
marketer of approximately 3,400 products to the liquid propane gas industry.
Examples of new product lines recently introduced include, in addition to liquid
propane gas products, packaged plumbing products and janitorial supplies.

         Increase penetration of existing target markets through telesales. The
Company has over 600,000 prospective domestic customers in its current target
markets, only approximately 51,000 of which are active customers. The Company
believes that increasing the number of its outbound telesales employees is the
most cost effective method to access these potential customers and intends to
add 20 to 25 telesalespersons annually over the next several years. To that end,
the Company's telesales staff has increased from 47 to 95 persons over the last
three years, with the majority of the increase being attributable to the
addition of outbound telesalespersons.

         Increase geographic coverage. Over the next few years, the Company
plans to add two to four new distribution centers in major metropolitan areas
and has identified 10 to 12 potential locations. The Company opened new
distribution centers in Kansas City, Kansas in November 1996 and in Milwaukee,
Wisconsin in July 1997. The addition of new distribution centers in new
geographic areas, as well as in geographic areas in which the Company has
existing distribution centers, has increased, and is expected to continue to
increase, the Company's overall level of business. New distribution centers
enhance marketing efforts, heighten the Company's name recognition, generate new
over-the-counter business and allow for faster product delivery.

         Add new target customer segments. The Company's current targeted
customer segments are contractors, independent hardware stores and maintenance
managers. The Company believes that due, in part, to the continuing expansion of
its product offerings in conjunction with its expanded promotional flyer
campaigns, it has the opportunity to market its products to new segments of
customers currently under serviced, such as school systems, hospitals and
healthcare facilities, heating, ventilation, air conditioning and refrigeration
("HVAC/R") contractors, lighting showrooms and hotel/motel operators.

         Expand export business. The Company believes that many opportunities
for direct marketing to the Company's existing target markets exist in foreign
locations including

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South America, the Caribbean and Europe. Although the Company does not intend to
commit material resources to international expansion during the next few years,
the Company has begun to, and intends to continue to, access these markets
through its existing telesales operations and increased mailings of its
promotional flyers. The Company believes that customers in these international
areas are receptive to mail order purchasing and that its potential customers
would be attracted to the breadth of the Company's product lines and its
competitive pricing.

MARKETING AND DISTRIBUTION

         The Company markets its products nationwide to existing and potential
customers through regular catalog and promotional mailings, supported by a
telesales operation. Products are shipped from a network of 30 distribution
centers allowing for shipment to and pick up by customers generally the same day
the order is received. The outbound telesales operation is utilized to make
telephonic sales presentations to existing and potential customers that have
received written promotional materials. The Company's inbound telesalespersons
provide customer assistance and take customer orders. The Company's outbound and
inbound telesales operations are centralized in Jacksonville, Florida.

  Catalogs

         The Company's three approximately 800-page catalogs containing 10,200
plumbing, electrical and hardware products are mailed to its approximately
51,000 active customers. These catalogs are supplemented by monthly promotional
flyers, 4.3 million of which were mailed in fiscal 1997. The Company's targeted
customers include professional contractors, independent hardware stores and
maintenance managers. The Company has been distributing its principal catalog
since 1958 and believes that the Barnett(R) name has achieved a very high degree
of recognition among the Company's customers and suppliers.

         The Company makes its initial contact with potential customers
primarily through promotional flyers. The Company obtains the names of
prospective customers through the rental of mailing lists from outside marketing
information services and other sources. Sophisticated proprietary information
systems are used to analyze the results of individual catalog and promotional
flyer mailings. The information derived from these mailings, as well as
information obtained from the Company's telesales operations, is used to create
and/or supplement individual customer profiles and to target future mailings.
The Company updates its mailing lists frequently to delete inactive customers.

         The Company's in-house art department produces the design and layout
for its catalogs and promotional mailings. The catalogs are indexed and
illustrated, provide simplified pricing and highlight new product offerings.

  Telesales

         During fiscal 1997, approximately 75.7% of the Company's net sales were
generated through the Company's telesales operation. The Company's telesales
operation has been designed to make ordering its products as convenient and
efficient as possible thereby enabling the Company to provide superior customer
service. The Company offers its customers a nationwide toll-free telephone
number that currently is staffed by approximately 95 telesales, customer service
and technical support personnel who utilize the Company's proprietary, on-line
order processing system. This sophisticated software provides the telesales
staff with detailed customer profiles and information about products, pricing,
promotions and competition. This data enables the Company to segment its
customer base, analyze mailing effectiveness on a weekly basis, closely track
and manage inventory on a real-time basis and quickly react to and capitalize on
market opportunities.

         The Company divides its telesales staff into outbound and inbound
groups. The Company's experience indicates that customer loyalty is bolstered by
the ability of the telesales staff to develop an ongoing personal relationship
with their customers. The Company's highly trained outbound telesales staff
maintains frequent customer contact,

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makes telesales presentations and encourages additional purchases. Inbound
telesalespersons are trained to quickly process orders from existing customers,
provide technical support, expedite and process new customer applications as
well as handle all customer service. They endeavor to increase sales by
informing customers of price breaks for larger orders, companion items and
replacement items with higher margins. Outbound telesales persons are also
utilized to make telephonic sales presentations to both potential and existing
customers. Also, for several months prior to the opening of new distribution
centers, the Company utilizes its telesales operation to generate awareness of
the Company, its product offerings and the upcoming opening of new distribution
centers located near the target customers.

         The Company conducts a customized, in-depth six week training course
for new telesales employees. Training includes the use of role playing and
videotape analysis. Upon satisfactory completion of their training, new
telesales personnel are provided with a dedicated experienced telesales employee
who serves as a "coach" for the next year. In order to better assure high
telesales service levels, telesales supervisors regularly monitor telesales
calls.

         The Company's current focus has been on expanding its telesales staff.
The Company plans to expand its telesales operations by 20 to 25
telesalespersons annually over the next several years. The Company has over
600,000 prospective customers within its current industry segments and believes
that by increasing the number of telesalespersons it will be able to access
these potential customers in a cost effective manner.

  Distribution Center Network

         The Company has established a network of 30 local distribution centers
strategically located in 30 major metropolitan areas throughout the United
States. This network enables the Company to provide rapid and complete product
delivery and provides a strong local presence.

         The Company's distribution centers range in size from approximately
12,000 square feet to 60,000 square feet. Distribution centers are typically
maintained under operating leases in commercial or industrial centers.
Distribution centers primarily consist of warehouse and shipping facilities, but
also include "city sales counters," typically occupying approximately 900 square
feet, where customers can pick up orders or browse through a limited selection
of promotional items. The Company is often able to generate incremental sales
from customers who pick up their orders. The Company has initiated a program to
enlarge product displays in the counter area to better promote the breadth of
its product lines and to increase impulse purchases.

         The factors considered in site selection include the number of
prospective customers in the local target area, the existing sales volume in
such area and the availability and cost of warehouse space, as well as other
demographic information. The Company has substantial expertise in distribution
center site selection, negotiating leases, reconfiguring space to suit its
needs, and stocking and opening new distribution centers. The average investment
required to open a distribution center is approximately $900,000, including
approximately $600,000 for inventory.

PRODUCTS

         The Company markets an extensive line of approximately 10,200 plumbing,
electrical and hardware products, many of which are sold under its proprietary
trade names and trademarks. This extensive line of products allows the Company
to serve as a single source supplier for many of its customers. Many of these
products are higher margin products bearing the Company's proprietary trade
names and trademarks. In addition, proprietary products are often the customers
higher margin product offerings.

         The Company tracks sales of new products the first year they are
offered and new products that fail to meet specified sales criteria are
discontinued. The Company believes that its customers respond favorably to the
introduction of new product lines in areas that allow the customers to realize
additional cost savings and to utilize the Company's catalogs as a means of
one-stop shopping for many of their needs.

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         The Company's strategy is to significantly increase the number of
product offerings, particularly its higher margin product offerings. Private
label products offer customers high quality, lower-cost alternatives to the
brand name products the Company sells. The Company's catalogs and monthly
promotional flyers emphasize the comparative value of the Company's private
label products. During fiscal 1997, approximately 27.6% of the Company's net
sales were generated by the sale of the Company's private label products. The
Company's products are generally covered by a one year warranty, and returns,
which require prior authorization from the Company, have historically been
immaterial in amount.

         The following is a discussion of the Company's principal product
groups:

         Plumbing Products. The Company sells branded products of leading
plumbing supply manufacturers including Delta(R), Moen(R) and Price Pfister(R).
The Company's private label plumbing products are also sold under its
Barnett(R), Premier(R) and ProPlus(R) trademarks. In fiscal 1997, plumbing
products accounted for 73.0% of net sales.

         Electrical Products. The Company sells branded products of leading
electrical supply manufacturers including Philips(R), Westinghouse(R),
Honeywell(R) and General Electric(R). Certain of the Company's private label
electrical products are sold under its own proprietary trademarks including
Barnett(R), Premier(R), Electracraft(R) and Lumina(R). In fiscal 1997,
electrical products accounted for 14.9% of net sales.

         Hardware Products. The Company sells hardware products of leading
hardware product manufacturers including Kwikset(R) security hardware products
and Milwaukee(R) power tools. Certain of the Company's hardware products are
also sold under its own proprietary Legend(TM) trademark. In fiscal 1997,
hardware products accounted for 8.8% of net sales.

         HVAC/R Products. The Company began selling a limited number of brand
name HVAC/R products in July 1996 and intends to continue expanding this product
line. In fiscal 1997, HVAC/R products accounted for 3.3% of net sales.

SOURCING

         The products sold by the Company are purchased from approximately 370
domestic and 40 foreign suppliers. Domestically manufactured products are
shipped directly to the Company's 30 distribution centers. Products manufactured
abroad are initially shipped to the Company's 5 regional distribution centers
and subsequently redistributed to each of the remaining local distribution
centers. The Company is not dependent upon any single supplier for any of its
requirements. Due to the volume of the Company's purchases and its utilization
of over 400 vendors, it is able to obtain purchase terms it believes to be more
favorable than those available to most local suppliers of plumbing, electrical
and hardware products. Approximately 74% of the Company's purchases for the year
ended June 30, 1997 were from domestic manufacturers and 26% were from foreign
manufacturers, primarily located in Asia. During fiscal 1997, the Company
purchased approximately 13% of its products through Waxman Industries entities,
both domestic and foreign. Although the Company intends to continue to purchase
products through Waxman Industries entities in the future, the Company is not
committed to purchase any products from Waxman Industries.

MANAGEMENT INFORMATION SYSTEMS

         The Company has integrated all of its operating units into its
state-of-the-art management information system. This system encompasses all of
the Company's major business functions and was designed to enable the Company to
receive and process orders, manage inventory, verify credit and payment history,
invoice customers, receive payments and manage the Company's proprietary mail
order customer lists. In addition, all of the Company's local distribution
centers are linked to the Company's computer system to provide real-time access
to all necessary information, including inventory availability, order tracking,
and customer creditworthiness. The system can be easily and cost-effectively
upgraded as the Company grows. The Company has adopted procedures to

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protect the data in its computer systems and to provide for recovery in the
event of equipment failures. All data systems are backed up to tape daily with
backup tapes stored off-site. End of month tapes, tape archives and production
software kept on-site are stored in a fire-proof safe. Additionally, the Company
maintains a geographically remote "hot site" computer system that is able to
communicate with all of the Company's distribution centers in the event of a
failure of the Company's primary system.

         The Company's customers can place orders directly via mail, facsimile,
telephone or through an EDI transmission. Utilizing EDI, the Company's customers
can send electronic purchase orders directly to the Company's order entry
systems. The Company makes this ordering process simple for its customers by
providing well-developed computer media containing the Company's product
information including item number, product description, price, package quantity
and UPC codes to be loaded directly into the customer's purchasing system. The
Company automatically edits and processes EDI orders and sends the majority of
EDI orders received directly to shipping. The few EDI orders that need editing
are sent immediately to a sales representative for review. Through EDI, the
Company can provide faster order turnaround, thereby further fostering customer
satisfaction.

         The Barnett Ordering Service System or BOSS(TM) is the Company's
proprietary software ordering program, which is provided free to all Company
customers and allows customers to browse through the Company's electronic
catalog to create and transmit orders. BOSS(TM) is simple, easy to use and
provides customers with their purchasing history to assist the customer in
projecting future supply requirements.

COMPETITION

         The market in which the Company competes is highly fragmented
consisting of many regional and local distributors of plumbing, electrical and
hardware products. The Company believes that competition is primarily based on
price, product quality and selection, as well as service, which includes rapid
order turnaround. The Company believes that its operating strategy positions it
to be an effective competitor in its markets. The Company's major competitors
include local and regional broad line suppliers, specialty suppliers, industrial
suppliers, direct mail distributors and warehouse home centers.

SEASONALITY

         The Company's sales are generally consistent throughout the year.

ENVIRONMENTAL REGULATIONS

         The Company's facilities are subject to certain federal, state and
local environmental laws and regulations. The Company believes that it is in
compliance with all environmental laws and regulations applicable to it.

EMPLOYEES

         As of June 30, 1997, the Company employed 564 individuals, 144 of whom
were clerical and administrative personnel, 120 of whom were telesales and sales
representatives and 300 of whom were either production or warehouse personnel.
The Company's employees are not unionized. The Company considers its relations
with its employees to be good.

ITEM 2.  PROPERTIES

       The Company's headquarters and largest distribution center are located at
3333 Lenox Avenue, Jacksonville, Florida. The building in which the headquarters
are located is leased by the Company through October 31, 2003, and contains
approximately 47,000 square feet of warehouse space and 19,000 square feet of
offices. The Company's telesales center, also located in Jacksonville, Florida,
contains approximately 15,000 square feet and is leased by the Company through
August 31, 1999. The Company is in the process of building a new 38,000 square
foot telesales center in Jacksonville, Florida.

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This new telesales center will enable the company to continue expanding its
telesales staff, as well as consolidate existing leased spaces.

       The Company's 30 distribution centers utilize leased space ranging from
12,000 to 60,000 square feet and are all located in the United States. The
leases expire at various dates from September 1997 to April 2007. The Company
believes that its distribution facilities are adequate for its current needs and
does not anticipate that it will have any problem leasing additional space when
needed. The Company shares three of its facilities with U.S. Lock, an operating
division of WOC Inc.("WOC"), which is a wholly owned subsidiary of Waxman
Industries. U.S. Lock is charged for the portion of the rent relating to the
space occupied by it.

ITEM 3.   LEGAL PROCEEDINGS

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

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

       No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1997.

ITEM 4A.  EXECUTIVE OFFICERS OF THE REGISTRANT

        The following sets forth the names, ages, positions and offices with the
Company held by the present executive officers of the Company.
<TABLE>
<CAPTION>

         NAME                  AGE        POSITION AND OFFICE PRESENTLY HELD
         ----                  ---        ----------------------------------

<S>                            <C>        <C>                                      
William R. Pray                50         President, Chief Executive Officer and
                                          Director

Andrea M. Luiga                40         Vice President--Finance, Chief Financial
                                          Officer

Alfred C. Poindexter           45         Vice President--Operations
Andrew S. Fournie              43         Vice President--Marketing
Melvin Waxman                  63         Chairman of the Board and Director
Armond Waxman                  58         Vice-Chairman of the Board and Director
</TABLE>

         Mr. William R. Pray was elected President, Chief Executive Officer and
a Director of the Company in February 1993. Mr. Pray was elected President and
Chief Operating Officer of Waxman Industries in June 1995, and resigned these
positions in April 1996, upon consummation of the Initial Public Offering. From
February 1991 to February 1993, Mr. Pray was Senior Vice President--President of
Waxman Industries' U.S. Operations, after serving as President of the Mail
Order/Telesales Group (which included the Company) since 1989. He joined the
Company in 1978 as Regional Sales Manager, became Vice President of Sales and
Marketing in 1984 and was promoted to President in 1987. Mr. Pray is a Director
of Waxman Industries.

         Ms. Andrea M. Luiga was elected Vice President--Finance, Chief
Financial Officer of the Company in February 1993. Ms. Luiga was elected Vice
President and Chief Financial Officer of Waxman Industries in August 1995, and
resigned these positions in April 1996 upon consummation of the Initial Public
Offering. From September 1991 to February 1993, Ms. Luiga was Vice
President--Group Controller of the Mail Order Group of Waxman Industries (which
included the Company) after serving as Group Controller of the Mail Order Group
since October 1989. Ms. Luiga joined the Company in March 1988 as Controller.

         Mr. Alfred C. Poindexter was elected Vice President--Operations of the
Company in February 1993. From September 1988 to February 1993, Mr. Poindexter
served as Vice

                                        9


<PAGE>   11



President--Operations of the Company after serving as Director of Operations of
the Company since 1987. He joined the Company in 1983 as Purchasing Manager.

         Mr. Andrew S. Fournie was elected Vice President--Marketing of the
Company in February 1993. Mr. Fournie served as Vice President--Marketing of the
Company since January 1988. He joined the Company in 1985 as Product Development
Manager.

         Mr. Melvin Waxman was elected Chairman of the Board and Director of the
Company in December 1995. Mr. Waxman was elected Co-Chief Executive Officer of
Waxman Industries in May 1988, Co-Chairman of the Board of Waxman Industries in
June 1995 and Chairman of the Board of Waxman Industries in April 1996. Mr.
Waxman has been the Chief Executive Officer of Waxman Industries for over 20
years and has been a director of Waxman Industries since 1962. Mr. Waxman has
been either Chairman or Co-Chairman of the Board of Waxman Industries since
August 1976. Mr. Waxman has been a director of the Company since its acquisition
by Waxman Industries in 1984. Mr. Waxman was a director of Ideal Plumbing Group
Inc., a Canadian subsidiary of Waxman Industries, that was involuntarily
liquidated in 1994. Mr. Waxman is the brother of Armond Waxman.

         Mr. Armond Waxman was elected Vice-Chairman of the Board and Director
in December 1995. Mr. Waxman was elected Co-Chief Executive Officer of Waxman
Industries in May 1988 and was Co-Chairman of the Board of Waxman Industries
from June 1995 until April 1996. Mr. Waxman had been the President of Waxman
Industries from August 1976 until June 1995, and was re-appointed to the
position in April 1996. Mr. Waxman has been a director of Waxman Industries
since 1962 and was Chief Operating Officer of Waxman Industries from August 1976
to May 1988. Mr. Waxman has been a director of the Company since its acquisition
by Waxman Industries in 1984. Mr. Waxman was a director of Ideal Plumbing Group
Inc., a Canadian subsidiary of Waxman Industries, that was involuntarily
liquidated in 1994. Mr. Waxman is the brother of Melvin Waxman.

                                       10


<PAGE>   12



                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED
         SECURITY HOLDER MATTERS

PRICE RANGE OF COMMON STOCK

         The Company's common stock is traded on the NASDAQ National Market
under the symbol "BNTT". The following table sets forth the high and low sales
prices for the Common Stock for each quarter during the past fiscal year and the
two quarters of the prior fiscal year since the Company's Initial Public
Offering, as reported by NASDAQ.

<TABLE>
<CAPTION>
                                          High              Low
                                          ----              ---
<S>                                     <C>               <C>    
Fiscal 1997
   First Quarter                        $ 27.75           $ 19.00
   Second Quarter                         27.25             21.00
   Third Quarter                          27.00             19.75
   Fourth Quarter                         27.00             17.50

Fiscal 1996
   Third Quarter (from March 29, 1996)    23.25             19.00
   Fourth Quarter                         29.50             22.25
</TABLE>


HOLDERS OF RECORD

       As of September 24, 1997, there were approximately 233 holders of record
of the Common Stock.

DIVIDENDS

       The Company presently retains all of its earnings to finance the
expansion of its business and does not anticipate paying cash dividends on its
Common Stock in the foreseeable future. Any determination to pay cash dividends
in the future will be at the discretion of the Board of Directors after taking
into account various factors, including the Company's financial condition,
results of operations, current and anticipated cash needs and plans for
expansion. In addition, the Company's current credit facility limits the amount
of cash dividends payable on the Common Stock in any one year to the Company's
net income for such year.

                                       11


<PAGE>   13



ITEM 6.  SELECTED FINANCIAL DATA

The following selected financial information for the fiscal years 1993 through
1997 has been derived from the financial statements of the Company for such
years, which have been audited by Arthur Andersen LLP, independent certified
public accountants, whose report is included elsewhere herein. All such
information is qualified by reference to the Financial Statements included
elsewhere herein.
<TABLE>
<CAPTION>

                                                FISCAL YEARS ENDED JUNE 30, 
                                                -----------------------------
                                    (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS )

                                           1993(1)          1994             1995            1996           1997
                                           --------         -----            ----            ----           ----
INCOME STATEMENT DATA:

<S>                                      <C>             <C>            <C>             <C>            <C>      
Net sales (2)                            $ 82,875        $ 95,225       $ 109,107       $ 127,395      $ 160,068
Cost of Sales                              54,841          62,623          71,815          84,748        105,376
                                           ------          ------          ------          ------        -------
Gross profit                               28,034          32,602          37,292          42,647         54,692

Selling, general and
 administrative expenses                   19,022          21,048          23,772          26,877         35,068

Corporate charge (4)                        1,673           1,918           1,862           1,342            --
                                            -----           -----           -----           -----         ------

Operating income                            7,339           9,636          11,658          14,428         19,624
Interest expense (4)                        1,449           1,518           2,139           1,921             59
                                            -----           -----           -----           -----         ------
Income before income taxes,
 cumulative effect of
 accounting change and
 extraordinary item                         5,890           8,118           9,519          12,507         19,565
Provision for income taxes                  2,200           2,900           3,500           4,625          7,530
                                            -----           -----           -----           -----          -----
Income before cumulative
 effect of accounting change
 and extraordinary item                     3,690           5,218           6,019           7,882         12,035
Cumulative effect of change
 in accounting for distribution
 center start-up and catalog
 development costs, net of
 tax benefit (1)                              621             --              --              --             --
Extraordinary loss on early
 retirement of debt, net of
 tax benefit(3)                               --              --              --              724            --
                                           ------          ------          ------          ------        -------
Net income                               $  3,069         $ 5,218         $ 6,019         $ 7,158       $ 12,035
                                         ========         =======         =======         =======       ========

Weighted average shares
  outstanding                                                                              12,914         16,016
Primary and Fully Diluted
 Earnings per share:
Before extraordinary item                                                                   $0.61          $0.75
Extraordinary item                                                                          (0.06)           --
                                                                                            -----           ----

Total                                                                                      $ 0.55          $0.75
                                                                                           ======         ======

Unaudited pro forma information:
Pro forma net income (4)                                  $ 7,154         $ 8,392         $ 9,841
Proforma earnings per share                               $  0.45         $  0.53         $  0.62
Proforma weighted average shares
outstanding                                                15,929          15,929          15,929

</TABLE>








                                       12


<PAGE>   14

<TABLE>
<CAPTION>



                                                      FISCAL YEARS ENDED JUNE 30, 
                                                      -----------------------------
                                         (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                      1993         1994        1995        1996         1997
                                      ----         -----       -----       ----        -----
BALANCE SHEET DATA:

<S>                                <C>          <C>         <C>         <C>         <C>     
Working capital                    $ 25,515     $ 31,253    $ 29,171    $ 30,744    $ 44,867
Total assets                         45,043       50,885      52,413      58,300      77,015
Total long-term debt
 excluding push-down bank debt            0       16,215      18,126           0           0
Push-down bank debt(5)               23,000        6,785       4,874           0           0
Stockholders' equity                 12,068       19,131      17,428      41,324      60,611
<FN>

(1)      During 1993, the Company accelerated its amortization of certain
         distribution center start-up and catalog development costs. The effect
         of this change in 1993 was to decrease operating income by $1,200. In
         1993, net income was decreased by $1,400 due to the foregoing decrease
         in operating income, as well as the cumulative effect of this change on
         prior years of $621 (net of applicable income tax of $415). The
         cumulative effect has been reported separately in the Company's
         statement of income.

(2)      Prior to July 1, 1995, the Company recorded shipments delivered
         directly to the customer from certain suppliers as contributed margin
         (net reduction of cost of goods sold). Beginning on July 1, 1995, the
         Company began to record these shipments as net sales resulting in an
         increase in net sales of $2,979 for the fiscal year ended June 30,
         1996.

 (3)     The Company incurred a one-time, non-cash extraordinary charge of $724
         (net of applicable tax benefit of $426) which was a result of the
         write-off of unamortized debt issuance costs incurred in connection
         with the Company prepaying its borrowings under a secured revolving
         credit facility, which indebtedness included push-down bank
         indebtedness from Waxman USA as discussed in Note 3 to the Financial
         Statements. This charge was recorded in the quarter ended June 30,
         1996.

 (4)     Unaudited pro forma net income reflects the elimination of interest
         expense resulting from the application of net proceeds from the Initial
         Public Offering as discussed in Note 2 to the Financial Statements, and
         the elimination of corporate charge, as discussed in Note 10 to the
         Financial Statements, net of additional costs incurred as a public
         company.

 (5)     Pursuant to certain Securities and Exchange Commission rules, the
         Company's historic financial statements for periods prior to the
         Initial Public Offering have been adjusted to reflect the push-down of
         certain bank indebtedness from Waxman USA that was secured by the
         accounts receivable, inventory, certain general intangibles and
         unencumbered fixed assets of the Company, WOC and Waxman Consumer
         Products Group Inc. ("Consumer Products"), a wholly owned indirect
         subsidiary of Waxman Industries. The push-down bank debt was retired
         upon the consummation of the Initial Public Offering and the
         application of the net proceeds therefrom as described in Note 2 to the
         Financial Statements.
</TABLE>

                                       13


<PAGE>   15



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

OVERVIEW

         The Company, and Waxman USA as a selling shareholder, successfully
completed the Initial Public Offering on April 3, 1996 resulting in net proceeds
of approximately $47.7 million to the Company. The proceeds were used to repay
approximately $23.0 million of outstanding indebtedness borrowed by it under a
secured credit facility (the "Operating Companies Revolving Credit Facility"),
among Citicorp USA, as agent, the Company, Consumer Products and WOC, to pay a
$22.0 million dividend evidenced by a note payable to Waxman USA, and to fund
approximately $2.7 million in working capital. On April 18, 1997, the Company
and Waxman USA completed a secondary stock offering resulting in net proceeds of
approximately $6.7 million to the Company. The proceeds were used by the Company
to repay indebtedness under the revolving credit facility and for general
corporate purposes. See Note 2 to the Financial Statements for a further
discussion of the Initial Public Offering and the secondary stock offering.

         The financial statements have been adjusted to reflect push-down
adjustments from Waxman USA. See Note 5 to the Financial Statements for a
further discussion of the push-down adjustments. The push-down bank indebtedness
consisted of $4.9 million for the year ended June 30, 1995, and creates the
appearance of greater indebtedness than was actually borrowed directly by the
Company. Related interest expense and debt issue costs have also been pushed
down having the effect of creating higher interest expense than was actually
paid by the Company during those periods. Interest expense, including
amortization of debt issue costs, totaled $0.1 million, $1.9 million and $2.1
million for the years ended June 30, 1997, 1996 and 1995, respectively.

         The Company's net income for fiscal 1996 includes the effect of a
one-time, non-cash extraordinary charge of $0.7 million (net of applicable tax
benefit of $0.4 million), or $.06 per share, which was incurred as a result of
the write-off of unamortized debt issuance costs incurred in connection with the
Company prepaying its borrowings under the Operating Companies Revolving Credit
Facility, which indebtedness included push-down bank indebtedness from Waxman
USA. The Company recorded this charge in the quarter ended June 30, 1996.

         Management fees charged to the Company by Waxman Industries are
included as "corporate charge" in the Financial Statements. Since July 1, 1994,
in accordance with the prior Intercorporate Agreement among the Company, Waxman
Industries and certain of its subsidiaries (the "Intercorporate Agreement"), the
management fees charged to the Company were the lesser of 2% of net sales or the
cost of providing services to the Company. In connection with the Initial Public
Offering, the prior Intercorporate Agreement was, with respect to the Company,
replaced by a new Intercorporate Agreement (the "New Intercorporate Agreement")
under which Waxman Industries provides certain managerial, administrative and
financial services to the Company, for which the Company pays Waxman Industries
the allocable costs of the salaries and expenses of Waxman Industries' employees
rendering such services. The Company also reimburses Waxman Industries for
actual out-of-pocket disbursements to third parties by Waxman Industries
required for the provision of such services. Subsequent to March 31, 1996, such
payments to Waxman Industries are included in the Financial Statements as a
component of selling, general and administrative expenses. Pursuant to the New
Intercorporate Agreement, the Company will continue to provide certain services
to the operating divisions of WOC. Waxman Industries will pay to the Company the
allocable costs of the salaries and expenses of the Company's employees
rendering such services. Waxman Industries will also reimburse the Company for
all actual out-of-pocket disbursements to third parties by the Company required
for the provision of such services.

                                       14


<PAGE>   16



RESULTS OF OPERATIONS

The following table shows the percentage relationship to net sales of items
derived from the Statements of Income.
<TABLE>
<CAPTION>

                                                                      Percentage of
                                                                        Net Sales
                                                               Fiscal years ended June 30,

                                                      1997                  1996                 1995
                                                      ----                  ----                 ----
<S>                                                  <C>                   <C>                  <C>   
Net sales                                            100.0%                100.0%               100.0%
Cost of sales                                         65.8                  66.5                 65.8
                                                     ------                ------               ------
   Gross Profit                                       34.2                  33.5                 34.2

Selling, general and
  administrative expense                              21.9                  21.1                 21.8

Corporate Charge                                       --                    1.1                  1.7
                                                     ------                ------               ------

   Operating income                                   12.3                  11.3                 10.7
Interest expense                                       0.1                   1.5                  2.0

Income before income
  taxes and extraordinary item                        12.2                   9.8                  8.7
Provision for income taxes                             4.7                   3.6                  3.2
                                                     ------                ------               ------

Income before extraordinary
  item                                                 7.5                   6.2                  5.5
Extraordinary item - net of
 income tax                                            --                    0.6                  --
                                                     ------                ------               ------


Net Income                                             7.5%                  5.6%                 5.5%
                                                     ======                ======               ======
</TABLE>



FISCAL 1997 VERSUS FISCAL 1996

  NET SALES

    The Company's net sales for fiscal 1997 totaled $160.1 million compared with
$127.4 million in fiscal 1996, an increase of 25.6%. Approximately 78.6% of the
increase in the Company's net sales was derived from the Company's telesales
operations, primarily resulting from increased sales by existing
telesalespersons and the addition of 10 telesalespersons compared to the prior
year. The remainder of the net sales increase was attributable to the outside
sales force and the Company's export division. Contributing to the overall
increase in net sales was a net increase of 1,720 in the total number of
products offered by the Company over the past twelve months which contributed
approximately $15.3 million to the net sales increase during the year.
Additionally, as a result of an expanded promotional flyer campaign, the number
of active customers increased to 51,000 from 42,000 in the prior year, and these
new customers contributed approximately $16.9 million to the net sales increase
during the year.

    As noted above, contributing to the Company's net sales increase was a 69.8%
increase in export sales representing a net sales increase of approximately $2.9
million for the year. This increase in international sales, which currently
represents approximately 6% of net sales, was primarily attributable to the
Company's establishment of a small, dedicated international telesales staff to
complement the Company's international promotional flyer mailings. Additionally,
the Company opened its twenty-ninth distribution center in Kansas City, Kansas
on

                                       15


<PAGE>   17



November 1, 1996 which achieved a 47.1% sales increase over the base business
transferred to it.

  GROSS PROFIT

     Gross profit increased 28.2% to $54.7 million in fiscal 1997 from $42.6
million in fiscal 1996. Gross profit margins increased to 34.2% in fiscal 1997
compared to 33.5% in fiscal 1996 as a result of favorable vendor programs
implemented during the current year.

  SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

     Selling, general and administrative ("SG&A") expenses increased by $8.2
million, or 30.5%, to $35.1 million for fiscal 1997 from $26.9 million for
fiscal 1996. The increase was primarily due to increased variable selling
expenses associated with the increase in the number of telesalespersons
mentioned above, together with the expansion of the marketing staff and
increased promotional flyer mailings. Also contributing to increased variable
selling expenses were increased freight and delivery costs resulting from the
Company's determination to reduce its customers' prepaid freight minimums and
the establishment of a same day shipping policy. In addition to expenses
incurred as a result of becoming an independent public company, the Company
instituted new, and enhanced existing, employee benefit programs to allow it to
become more competitive in its compensation and benefit programs. SG&A expenses
represented 21.9% of net sales in fiscal 1997 compared to 21.1% of net sales in
fiscal 1996.

  CORPORATE CHARGE

     Corporate charges were allocations of expenses to the Company by the
Company's former parent to support its corporate activities. These allocations
are no longer charged to the Company. As of March 31, 1996, Waxman USA and the
Company entered into the New Intercorporate Agreement for services pursuant to
which charges allocated to the Company only include those expenses incurred by
Waxman Industries with respect to the Company. These expenses are included as a
component of SG&A expenses beginning April 1, 1996 and are not material. See
Note 10 to the Financial Statements.

  PROVISION FOR INCOME TAXES

     The provision for income taxes increased $2.9 million or 62.8% to $7.5
million for fiscal 1997 from $4.6 million for fiscal 1996. The provision for
income taxes as a percentage of income before provision for income taxes
represents approximately 38.5% for fiscal 1997 and approximately 37% for fiscal
1996.

  EXTRAORDINARY CHARGE

     The June 30, 1996 year end results included the effect of a one-time,
non-cash extraordinary charge of $0.7 million (net of applicable tax benefit of
$0.4 million), or $.06 per share, which was a result of the write-off of
unamortized debt issuance costs incurred in connection with the Company
prepaying its borrowings under the Operating Companies Revolving Credit Facility
with proceeds of its Initial Public Offering, which indebtedness included push-
down debt from the Company's former parent company.

FISCAL 1996 VERSUS FISCAL 1995

  NET SALES

     The Company's net sales for fiscal 1996 totaled $127.4 million compared
with $109.1 million in fiscal 1995, an increase of 16.8%. Approximately 78.1% of
the increase in the Company's net sales was attributable to the Company's
telesales operations, primarily resulting from increased sales by existing
telesalespersons and the addition of 25 telesalespersons compared to the prior
year. The remaining portion of the net sales increase was attributable to the
outside sales force and the Company's key account programs. Also contributing to
the overall increase in net sales was a net increase of 400 in the total number
of products offered by the Company, which generated approximately $6.6 million
of the net sales increase, as well as an increase of active customers to 42,000
from 38,000 which accounted for approximately $4.6 million of the net sales
increase during the year.

                                       16


<PAGE>   18



     Approximately $3.0 million of the Company's net sales increase was
attributable to the Company's inclusion of direct sales in net sales commencing
July 1, 1995. While these products are shipped directly to the customer from the
original equipment manufacturer, the Company provides services to the customer
and supplier including marketing, technical assistance and credit and collection
activities. Prior to July 1, 1995, direct sales were included in the financial
statements as a net reduction to cost of goods sold. The Company intensified its
focus on its direct sales programs during fiscal 1996 and consequently, direct
sales for fiscal 1996 increased 66.5% over the corresponding prior year.

  GROSS PROFIT

     Gross profit margins decreased to 33.5% in fiscal 1996 compared to 34.2% in
fiscal 1995 as a result of the increased revenues of the above mentioned direct
ship programs. Restating the prior year to include revenues from the direct
sales programs, gross profit margins remained basically unchanged between years.

  SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

     SG&A expenses increased by $3.1 million, or 13.1%, to $26.9 million for
fiscal 1996 from $23.8 million for fiscal 1995. The increase was primarily due
to increased fixed costs, comprised mostly of occupancy costs and depreciation
relating to the expansion of several distribution centers in both the current
and prior years. Higher variable selling expenses associated with the increase
in the number of telesalespersons mentioned above, together with an expansion of
the marketing staff, also contributed to the increase in SG&A expenses. As a
percentage of net sales, fiscal 1996 SG&A expenses were 21.1% of net sales as
compared to 21.8% for the prior fiscal year. This was primarily the result of
the inclusion of direct sales in net sales commencing July 1, 1995 and the
leveraging of fixed costs, primarily administrative expenses, over a larger
sales base.

  CORPORATE CHARGE

     Management fees charged to the Company by Waxman Industries are included in
"corporate charge" in the Company's financial statements. Corporate charges were
allocations of expenses to the Company that Waxman Industries incurred to
support its corporate activities. Corporate charges decreased 27.9% to $1.3
million for fiscal 1996 from $1.9 million for fiscal 1995. These fees were
eliminated in the fourth quarter of fiscal 1996 and subsequent expenses under
the New Intercorporate Agreement are included in the Financial Statements as a
component of SG&A expenses. See Note 10 to the Financial Statements.

  INTEREST EXPENSE

     Interest expense decreased to $1.9 million for fiscal 1996 from $2.1
million for fiscal 1995, a decrease of 10.2%. This was a result of the Company
using a portion of the net proceeds of the Initial Public Offering to retire the
borrowings under the Operating Companies Revolving Credit Facility and, as a
result, eliminating the related interest expense.

  PROVISION FOR INCOME TAXES

     The provision for income taxes increased $1.1 million or 32.1% to $4.6
million for fiscal year 1996 from $3.5 million for fiscal 1995. The provision
for income taxes for both periods represented approximately 37% of income before
provision for income taxes.

  EXTRAORDINARY CHARGE

     The June 30, 1996 year end results included the effect of a one-time,
non-cash extraordinary charge of $0.7 million (net of applicable tax benefit of
$0.4 million), or $.06 per share, which was incurred as a result of the
write-off of unamortized debt issuance costs incurred in connection with the
Company prepaying its borrowings under the Operating Companies Revolving Credit
Facility with proceeds of its Initial Public Offering, which indebtedness
included push-down debt from the Company's former parent company.

                                       17


<PAGE>   19



LIQUIDITY AND CAPITAL RESOURCES

         At June 30, 1997, the Company had working capital of $44.9 million and
a current ratio of 3.7 to 1.

         Net cash provided by operating activities totaled $1.8 million for the
year ended June 30, 1997 compared to $8.8 million for the year ended June 30,
1996.

         Net cash used in investing activities totaled $6.3 million for the year
ended June 30, 1997 compared to $2.0 million for the year ended June 30, 1996.
These investments related primarily to capital expenditures for improved
management information systems and expansion and/or relocation of several of the
Company's distribution centers to accommodate new product offerings.

         Net cash provided by financing activities was $7.3 million for the year
ended June 30, 1997 compared to net cash used for financing activities of $6.3
million for the year ended June 30, 1996. Net cash provided by financing
activities in fiscal 1997 represents cash received in connection with the
secondary stock offering on April 18, 1997. Net cash used for financing
activities in fiscal 1996 primarily represent advances to Waxman Industries to
satisfy its debt service obligations.

         In connection with the Initial Public Offering, the Company entered
into a revolving credit agreement with First Union National Bank of Florida for
an unsecured three-year credit facility providing for borrowings of up to $15.0
million including a letter of credit subfacility of $4.0 million. Borrowings
under this facility bear interest, at the Company's option, at the prime rate
minus 75 basis points or LIBOR plus 100 basis points. The credit facility
provides funds for working capital and general corporate purposes. At June 30,
1997, there were no borrowings under the credit agreement and there were $3.2
million of letters of credit outstanding. The credit facility contains customary
affirmative and negative covenants, including certain covenants requiring the
Company to maintain debt to net worth, interest coverage and current ratios, as
well as a minimum net worth test. The credit facility also restricts the amount
of dividends payable by the Company. The Company was in compliance with all
covenants at June 30, 1997.

         Generally, cash flow from operations has been sufficient to fund the
Company's growth. The Company believes that funds generated from operations,
together with funds available under the credit facility discussed above, will be
sufficient to fund the Company's current operational needs and growth strategy.
The Company has budgeted capital expenditures in fiscal 1998 of approximately
$12.0 million, which the Company expects to fund out of cash flow from
operations. These capital expenditures are primarily for (i) construction of a
new corporate facility, (ii) expansion and reprofiling of several of the
Company's existing distribution centers and (iii) enhancements to management
information systems.

         The Company does not believe inflation has had a material impact on
earnings during the past several years. Although substantial increases in
product costs, labor, and other operating expenses could adversely affect the
operations of the Company and the home repair and remodeling supply market,
management believes it can recover such increases by increasing prices.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The Financial Statements are listed in Item 14(a) and are included herein.

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

       None



                                       18


<PAGE>   20



                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information called for by Items 10, 11, 12 and 13 will be contained
in the Company's definitive proxy statement which the Company intends to file
within 120 days after the end of the Company's fiscal year ended June 30, 1997
and such information is incorporated herein by reference. Certain information
concerning the executive officers of the Company is set forth in Part I under
the caption "Executive Officers of the Registrant."




                                       19


<PAGE>   21



                                     PART IV

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

(a)      Financial Statements

         The following financial statements and schedules of the Company are
included as Part II, Item 8 of this Form 10-K:

(1)      Financial Statements                                        Page
         --------------------                                        ----
----------------------------------------------------------------------------
     Report of Independent Certified                                  F-1
     Public Accountants
----------------------------------------------------------------------------
     Balance Sheets - June 30, 1997 and                           F-2 to F-3
     June 30, 1996
----------------------------------------------------------------------------
     Statements of Income for the years                               F-4
     ended June 30, 1997, 1996 and 1995
----------------------------------------------------------------------------
     Statements of Stockholders' Equity
     for the years ended June 30, 1997,
     1996 and 1995                                                    F-5
----------------------------------------------------------------------------
     Statements of Cash Flows for the
     years ended June 30, 1997, 1996 and
     1995                                                             F-6
----------------------------------------------------------------------------
     Notes to Financial Statements                                F-7 to F-14
----------------------------------------------------------------------------
(2)      Supplementary Financial Information                         F-15
         -----------------------------------
----------------------------------------------------------------------------

         All schedules have been omitted because they are inapplicable or not
required, or the information is included in the Financial Statements or notes
thereto.

(b)      Exhibits:

Exhibit
Number                              Exhibits
------                              --------

3.1(1)        Certificate of Incorporation of Barnett Inc.
3.2(2)        Amended and Restated Certificate of Incorporation of Barnett Inc.
3.3(1)        By-laws of Barnett Inc.
3.4(2)        Amended and Restated By-laws of Barnett Inc.
10.1(1)       Tax Sharing Agreement dated May 20, 1994 among Barnett Inc.,
              Waxman USA Inc., Waxman Industries, Inc., each member of the
              Waxman Group (as defined therein) and each member of the Waxman
              USA Group (as defined therein).
10.2          [Reserved]
10.3(4)       Intercorporate Agreement dated March 28, 1996 among Barnett Inc.,
              Waxman Industries Inc., Waxman Consumer Products Group Inc., WOC
              Inc. and TWI, International, Inc.
10.4(4)       Registration Rights Agreement dated March 28, 1996 by and between
              Barnett Inc. and Waxman Industries, Inc.
10.5(1)       Trademark License Agreement dated May 20, 1994 by and between
              Barnett Inc. and Waxman Consumer Products Group Inc.
10.6(1)       Employment Agreement dated June 18, 1990 between Barnett Inc. and
              William R. Pray.
10.7(3)       Amended and Restated Employment Agreement dated March 8, 1996
              between Barnett Inc. and William R. Pray.
10.8(2)       Omnibus Incentive Plan of Barnett Inc.
10.9(2)       Stock Purchase Plan of Barnett Inc.



                                       20


<PAGE>   22



10.10(4)      Revolving Credit Agreement dated April 3, 1996 between Barnett
              Inc. and First Union National Bank of Florida.
10.11(5)      1996 Stock Option Plan for Non-Employee Directors of Barnett Inc.
10.12(4)      Standstill Agreement dated March 28, 1996, between Waxman
              Industries, Inc., and Barnett Inc.
10.13(6)      Barnett Inc. Profit Sharing and 401(K) Retirement Plan.
27.1          Financial Data Schedule

-------
1        Incorporated by reference to the exhibit of the same number contained
         in the Company's Registration Statement on Form S-1 (the "Registration
         Statement"), Registration No. 333-829, filed with Securities and
         Exchange Commission (the "SEC") on February 1, 1996.

2        Incorporated by reference to the exhibit of the same number contained
         in Amendment No. 1 to the Company's Registration Statement,
         Registration No. 333-829, filed with SEC on March 5, 1996.

3        Incorporated by reference to the exhibit of the same number contained
         in Amendment No. 3 to the Company's Registration Statement,
         Registration No. 333-829, filed with the SEC on March 25, 1996.

4        Incorporated by reference to the exhibit of the same number contained
         in the Company's Annual Report on Form 10-K for the year ended June 30,
         1996.

5        Incorporated by reference to the exhibit of the same number contained
         in the Company's Registration Statement on Form S-1, Registration No.
         333-22453, filed with the SEC on February 27, 1997.

6        Incorporated by reference to Exhibit 4.1 contained in the Company's
         Registration Statement on Form S-8, Registration No. 333-30485, filed
         with the SEC on June 30, 1997.

(c)      Reports on Form 8-K

         None.



                                       21


<PAGE>   23




                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 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.

                                  BARNETT INC.

                                         By  /s/   WILLIAM  R.  PRAY
                                         ----------------------------
                                                William R. Pray
Dated:  September 24, 1997               President and Chief Executive Officer

         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.
<TABLE>
<CAPTION>

                 NAME                                  TITLE                                          DATE
                 ----                                  -----                                          ----

<S>                                  <C>                                                        <C> 
 /s/ WILLIAM  R.  PRAY               President, Chief Executive Officer and Director            September 24, 1997
------------------------                     (Principal Executive Officer)
     William R. Pray                           

/s/  ANDREA M.  LUIGA                Vice President - Finance and Chief Financial               September 24, 1997
-----------------------              Officer (Principal Financial and Accounting
     Andrea M. Luiga                 Officer)

/s/  MELVIN WAXMAN                   Chairman of the Board and Director                         September 24, 1997
---------------------
     Melvin Waxman

/s/  ARMOND WAXMAN                    Vice-Chairman of the Board and Director                    September 24, 1997
------------------
     Armond Waxman

/s/  SHELDON ADELMAN                  Director                                                   September 24, 1997
-----------------------
     Sheldon Adelman

 /s/ MORRY WEISS                      Director                                                   September 24, 1997
-----------------------
     Morry Weiss

</TABLE>




                                       22


<PAGE>   24









               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Stockholders of Barnett Inc.:

         We have audited the accompanying balance sheets of Barnett Inc. (a
Delaware Corporation), as of June 30, 1997 and 1996, and the related statements
of income, stockholders' equity and cash flows for each of the three years in
the period ended June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
June 30, 1997 and 1996, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1997, in conformity with
generally accepted accounting principles.

                                                           Arthur Andersen LLP


Jacksonville, Florida
August 5, 1997.



                                      F- 1


<PAGE>   25



                                  BARNETT INC.

                                 BALANCE SHEETS

                             JUNE 30, 1997 AND 1996
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

                                     ASSETS
<TABLE>
<CAPTION>

                                                              June 30,
                                                              --------
                                                       1997               1996
                                                       ----               ----
<S>                                                 <C>                <C>   
Current Assets:
   Cash                                              $4,429             $1,707
   Accounts receivable, net                          21,734             17,577
   Inventories                                       33,772             27,362
   Prepaid expenses                                   1,336              1,074
                                                    -------            -------
         Total current assets                        61,271             47,720
                                                    -------            -------
Property and Equipment:
   Machinery and equipment                           11,222              8,778
   Furniture and fixtures                             2,450              1,841
   Leasehold improvements                             4,961              3,999
   Construction in progress                             444                ---
                                                    -------            -------
                                                     19,077             14,618
Less accumulated depreciation
   and amortization                                  (8,692)            (8,301)
                                                    -------            -------
                                                     10,385              6,317
                                                    -------            -------
Cost of Business in Excess of Net
   Assets Acquired, net                               3,452              3,580
Deferred Tax Assets, net                                351                500
Other Assets                                          1,556                183
                                                    -------            -------
                                                    $77,015            $58,300
                                                    =======            =======

</TABLE>









         The accompanying notes to financial statements are an integral part of
these balance sheets.

                                      F- 2


<PAGE>   26


                                       
                                 BARNETT INC.
                                       
                                BALANCE SHEETS
                                       
                            JUNE 30, 1997 AND 1996
                                       
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                       
                     LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

                                                                      June 30,
                                                                      --------
                                                                 1997           1996
                                                                 ----           ----
<S>                                                            <C>            <C>    
Current Liabilities:
   Accounts payable                                            $13,557        $14,131
   Accrued liabilities                                           2,366          1,780
   Accrued income taxes                                            481          1,065
                                                                ------         ------
         Total current liabilities                              16,404         16,976
                                                                ------         ------

Commitments and Contingencies (Notes 7,9,10,11
and 12)

Stockholders' Equity:
   Serial preferred stock; $0.10 par
     value, authorized 10,000 shares,
     0 and 1,271 issued and outstanding at
     June 30, 1997 and 1996, respectively                          ---            127

   Common stock, $ 0.01 par value, 
     40,000 shares authorized, 16,142 and 
     14,398 issued and outstanding at
     June 30, 1997 and 1996, respectively                          160            143
   Paid-in capital                                              46,471         39,109
   Retained earnings                                            13,980          1,945
                                                               -------        -------
                                                                60,611         41,324
                                                               -------        -------
                                                               $77,015        $58,300
                                                               =======        =======

</TABLE>







         The accompanying notes to financial statements are an integral part of
these balance sheets.



                                      F- 3


<PAGE>   27
<TABLE>
<CAPTION>
                                  BARNETT INC.

                              STATEMENTS OF INCOME

                FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995

                     (IN THOUSANDS, EXCEPT PER SHARE DATA)






 

                                                   1997       1996         1995
                                                   ----       ----         ----
<S>                                           <C>         <C>          <C>      
Net sales                                     $ 160,068   $ 127,395    $ 109,107
Cost of sales                                   105,376      84,748       71,815
                                              ---------   ---------    ---------
   Gross profit                                  54,692      42,647       37,292
Selling, general and administrative
  expenses                                       35,068      26,877       23,772
Corporate charge                                   --         1,342        1,862
                                              ---------   ---------    ---------
Operating income                                 19,624      14,428       11,658
Interest expense                                     59       1,921        2,139
                                              ---------   ---------    ---------
   Income before provision for
     income taxes and extraordinary item         19,565      12,507        9,519
Provision for income taxes                        7,530       4,625        3,500
                                              ---------   ---------    ---------
   Income before extraordinary item              12,035       7,882        6,019
Extraordinary item - loss on early
retirement of debt (net of income tax
benefit of $ 426)                                  --           724         --
                                              ---------   ---------    ---------

Net income                                    $  12,035   $   7,158    $   6,019
                                              =========   =========    =========

Primary and fully diluted
earnings per share:
Before extraordinary item                     $    0.75   $    0.61
Extraordinary item                                  --        (0.06)
                                              ---------   ---------

Total                                         $    0.75   $    0.55
                                              =========   =========

Weighted average shares outstanding              16,016      12,914

Pro forma adjustments for Initial

Public Offering (Unaudited):

Income before income taxes                                                      
and extraordinary charge                                  $  12,507    $   9,519
Add: Corporate charge                                         1,342        1,862
     Interest expense                                         1,921        2,139
Less:Public company costs                                       150          200
                                                          ---------    ---------
Pro forma pretax income                                      15,620       13,320
Income taxes                                                  5,779        4,928
                                                          ---------    ---------
Pro forma net income                                      $   9,841    $   8,392
                                                          =========    =========
Pro forma earnings per share
(before extraordinary item)                               $    0.62    $    0.53
Assumed shares outstanding                                   15,929       15,929


</TABLE>












     The accompanying notes to financial statements are an integral part of
these financial statements.

                                      F- 4


<PAGE>   28
<TABLE>
<CAPTION>



                                                              BARNETT INC.

                                                   STATEMENTS OF STOCKHOLDERS' EQUITY

                                             FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
                                                             (IN THOUSANDS)

                                                                                                                      TOTAL
                                       SERIAL                                                       ADVANCES TO       STOCK-
                                     PREFERRED         COMMON          PAID-IN        RETAINED         WAXMAN        HOLDERS'
                                       STOCK            STOCK          CAPITAL        EARNINGS       INDUSTRIES       EQUITY
                                       -----            -----          -------        --------       ----------       ------


<S>                                   <C>             <C>             <C>            <C>             <C>            <C>     
Balance, June 30, 1994                $    259        $     93        $  8,068       $ 12,594        ($ 1,883)      $ 19,131
Net income                                                                              6,019                          6,019
Capital contribution
   from Waxman
   Industries, net                                                                      1,441                          1,441
Net advances to Waxman
   Industries                                                                                         (9,163)         (9,163)
                                      --------        --------        --------       --------       --------        --------
Balance, June 30, 1995                     259              93           8,068         20,054        (11,046)         17,428
Net income                                                                              7,158                          7,158
Capital contribution from
   Waxman Industries, net                                                               3,572                          3,572
Dividend to Waxman USA                                                                (22,000)                       (22,000)
Net advances to Waxman
   Industries                                                                                        (12,587)        (12,587)
Elimination of advances to
   Waxman Industries                                                   (16,794)        (6,839)        23,633            --
Net proceeds from issuance
   of common stock                                          37          47,716                                        47,753
Conversion of 1,320 shares
   of preferred stock to
   common stock                           (132)             13             119                                          --
                                      --------        --------        --------       --------       --------        --------
Balance, June 30, 1996                     127             143          39,109          1,945           --            41,324
Net income                                                                             12,035                         12,035
Net proceeds from issuance
   of common stock                                           4           6,649                                         6,653
Conversion of 1,271 shares
   of preferred stock to
   common stock                           (127)             13             114                                          --
Common stock issued for:
   Exercise of options                                    --               184                                           184
   Employee stock plans                                   --               415                                           415
                                      --------        --------        --------       --------       --------        --------

Balance, June 30, 1997                $      0        $    160        $ 46,471       $ 13,980           --          $ 60,611
                                      ========        ========        ========       ========       ========        ========

</TABLE>







    The accompanying notes to financial statements are an integral part of these
financial statements.



                                      F- 5


<PAGE>   29
<TABLE>
<CAPTION>



  BARNETT INC.
                                                 STATEMENTS OF CASH FLOWS

                                      FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
                                                     (IN THOUSANDS)

                                                              1997                 1996                1995
                                                              ----                 ----                ----
<S>                                                       <C>                  <C>                  <C>      
CASH PROVIDED BY ( USED FOR )
OPERATIONS:
   Net income                                             $  12,035            $   7,158            $   6,019
   Adjustments to reconcile net income
    to net cash provided by operations:
       Depreciation and amortization                          2,406                2,053                2,177
       Extraordinary charge                                    --                  1,150                 --
       Deferred taxes                                           149                 (500)                --
   Changes in assets and liabilities:
       Accounts receivable, net                              (4,157)              (3,096)                (973)
       Inventories                                           (6,410)              (2,847)                 559
       Prepaid expenses                                        (262)                 (69)                (414)
       Changes in other assets                               (1,373)                 (15)                 (90)
       Accounts payable                                        (574)               3,366                2,972
       Accrued liabilities                                        2                1,625                  259
                                                          ---------            ---------            ---------

        Net cash provided by operations                       1,816                8,825               10,509
                                                          ---------            ---------            ---------

INVESTMENTS:
    Capital expenditures, net                                (6,346)              (2,011)              (2,334)
                                                          ---------            ---------            ---------

         Net cash used for investments                       (6,346)              (2,011)              (2,334)
                                                          ---------            ---------            ---------

FINANCING:
    Net proceeds from issuance of Common Stock                7,252               47,753                 --
    Borrowings under credit agreement                        30,592               97,682              115,678
    Payments under credit agreement                         (30,592)            (115,808)            (113,767)
    Push-down debt                                             --                 (4,874)              (1,911)
    Debt issue costs                                           --                   --                   (132)
    Advances from Waxman Industries                            --                (12,587)              (9,163)
    Capital contribution from Waxman Industries                --                  3,572                1,441
    Dividend to Waxman Industries                              --                (22,000)                --
                                                          ---------            ---------            ---------

          Net cash provided by (used for)
             financing                                        7,252               (6,262)              (7,854)
                                                          ---------            ---------            ---------

Net increase in cash                                          2,722                  552                  321
Balance, beginning of period                                  1,707                1,155                  834
                                                          ---------            ---------            ---------
Balance, end of period                                    $   4,429            $   1,707            $   1,155
                                                          =========            =========            =========

</TABLE>






      The accompanying notes to financial statements are an integral part of
these financial statements.




                                      F- 6


<PAGE>   30



                                  BARNETT INC.

                          NOTES TO FINANCIAL STATEMENTS

                FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS

         A.  Business

         Barnett Inc. (the "Company"), operates in a single business segment --
         the distribution of plumbing, electrical and hardware products,
         utilizing mail order catalogs and a telesales program. Certain prior
         year amounts have been reclassified to conform with the fiscal 1997
         presentation.

         B.  Accounts Receivable

         Accounts receivable are presented net of allowances for doubtful
         accounts of $864 and $722 for June 30, 1997 and 1996, respectively. Bad
         debt expense totaled $621 in fiscal 1997, $375 in fiscal 1996 and $330
         in fiscal 1995.

         C.  Inventories

         At June 30, 1997 and 1996, inventories are stated 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 and/or slow-moving inventories.

         D.  Property and Equipment

         Property and equipment are stated at cost. For financial reporting
         purposes, machinery and equipment and furniture and fixtures are
         depreciated on a straight-line basis over their estimated useful lives
         of 5 to 7 years. Leasehold improvements are amortized over the life of
         the improvement or remaining period of the lease, whichever is shorter.
         Expenditures for maintenance and repairs are charged against income as
         incurred. Betterments which increase the value or materially extend the
         life of the assets are capitalized and amortized over the period which
         the life is extended. For income tax purposes, accelerated methods are
         used. Depreciation expense totaled $2,278 in fiscal 1997, $1,726 in
         fiscal 1996 and $1,379 in fiscal 1995.

         E.  Cost of Business in Excess of Net Assets Acquired

         Cost of business in excess of net assets acquired is being amortized
         over 40 years, using the straight-line method. Management has evaluated
         its accounting for goodwill, considering such factors as historical
         profitability and future undiscounted operating cash flows, and
         believes that the asset is realizable and the amortization period is
         appropriate. Goodwill amortization expense totaled $128 in fiscal 1997,
         fiscal 1996 and fiscal 1995. The accumulated amortization of goodwill
         at June 30, 1997 and 1996 was $1,540 and $1,412, respectively.

         F.  Unamortized Debt Issue Costs

         Unamortized debt issue costs relate to the long-term and push-down debt
         and are amortized over the life of the related debt. The remaining
         unamortized debt issue costs of $1,150 were written off as an
         extraordinary charge in the fourth quarter of fiscal 1996 as a result
         of the prepayment of the indebtedness with a portion of the proceeds of
         the Initial Public Offering. See Notes 3 and 5.

         G.  Deferred Advertising

         Costs of producing and distributing sales catalogs and promotional
         flyers are capitalized and charged to expense in the periods in which
         the related sales occur.



                                      F- 7


<PAGE>   31



         H. Revenue Recognition

         The Company records sales as orders are shipped to or picked up by the
         customer.

         I.  Earnings Per Share

         The computation of both primary and fully diluted earnings per share is
         based on the weighted average number of outstanding shares of common
         stock during the period plus common stock equivalents consisting of
         certain shares subject to stock options. The earnings per share
         calculations additionally assume the conversion of outstanding
         convertible preferred stock.

         Unaudited pro forma earnings per share presents the historical data
         adjusted for the sale of 3,760 shares of common stock to the public
         pursuant to the Initial Public Offering as discussed in Note 2. For pro
         forma purposes, the assumed weighted average shares outstanding totals
         15,929.

         J.  Financial Statement Estimates

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities 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.

         K.  Impact of New Accounting Standards

         In February 1997, the Financial Accounting Standards Board issued
         Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
         per Share" which, when adopted, will replace the current methodology
         for calculating and presenting earnings per share. Under SFAS No. 128,
         primary earnings per share will be replaced with a presentation of
         basic earnings per share and fully diluted earnings per share will be
         replaced with diluted earnings per share. Basic earnings per share
         excludes dilution and is computed by dividing income available to
         common stockholders by the weighted average number of common shares
         outstanding for the period. Diluted earnings per share is computed
         similarly to fully diluted earnings per share. The statement will be
         effective beginning in the Company's second quarter ended December 31,
         1997, and accordingly, the financial statements for such quarter will
         include a restatement of historical earnings per share to conform to
         the requirements of SFAS No. 128. Management does not expect that the
         presentation required by SFAS No. 128 to materially differ from the
         current presentation of earnings per share.

2.       SALE OF COMMON STOCK

         On April 3, 1996, the Company consummated an initial public offering
         (the "Initial Public Offering"), whereby approximately 7,207 shares,
         representing approximately 55.1% of the Company's common stock, were
         sold by the Company and its former parent, Waxman USA Inc. ("Waxman"),
         at an initial public offering price of $14.00 per share. The Company
         sold 3,760 shares resulting in net proceeds to the Company of
         approximately $47.7 million. The Company used approximately $23.0
         million to repay all of the outstanding indebtedness borrowed by it
         under a secured credit facility, $22.0 million to pay a dividend to
         Waxman and the remaining $2.7 million was used for working capital.
         The proceeds from the sale of approximately 3,447 shares of Common
         Stock by Waxman were not received by the Company. As a result of
         Waxman's conversion of non-voting preferred stock of the Company,
         Waxman owned 49.9% of the Company's common stock and approximately a
         54% economic interest in the Company as of June 30, 1996.

         In April 1997, the Company consummated a secondary public offering
         pursuant to which 425 and 1,300 shares were sold by the Company and
         Waxman, respectively, resulting in net proceeds of approximately $6.7
         million to the Company. The Company used approximately $3.1 million to
         repay borrowings under its credit facility and the remainder for
         working capital. Subsequent to the secondary public offering, Waxman
         converted the remainder of the convertible non-voting preferred stock
         of the Company to common stock. As a result of the secondary offering
         and the subsequent conversion of preferred stock, Waxman owned 44.5% of
         the Company's common stock as of June 30, 1997.




                                      F- 8


<PAGE>   32



3.       EXTRAORDINARY ITEM

         The Company incurred a one-time, non-cash extraordinary charge of $0.7
         million (net of applicable tax benefit of $0.4 million) which was a
         result of the write-off of unamortized debt issuance costs incurred in
         connection with the Company prepaying its borrowings under a secured
         revolving credit facility, including the push-down bank indebtedness
         from Waxman as discussed in Note 5. This charge was recorded in the
         quarter ended June 30, 1996.

4.       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
         an asset and liability approach and deferred taxes are determined based
         on the estimated future tax effects of differences between the
         financial and tax bases of assets and liabilities given the provisions
         of the enacted tax laws.

         Commencing July 1, 1994, the Company began participating in a tax
         sharing agreement with Waxman Industries, Inc. ("Waxman Industries").
         Under this agreement, the Company's federal tax liability was equal to
         the lesser of the federal tax liability calculated on a stand alone
         basis or Waxman Industries' federal tax liability. As Waxman Industries
         had $75.0 million of available domestic net operating loss carry
         forwards at June 30, 1995 for income tax purposes the Company had no
         liability for federal taxes at June 30, 1995. The Company files
         separate income tax returns in certain states based on the result of
         operations within the applicable states. As a result of the Initial
         Public Offering, as explained in Note 2, the Company is no longer
         included in Waxman Industries' consolidated tax return. Therefore,
         Waxman Industries' remaining net operating loss carry forwards are not
         available to offset the Company's taxable income after April 3, 1996,
         the consummation date of the Initial Public Offering.

         The components of the provision for income taxes, calculated on a
         stand-alone basis for the periods prior to the Initial Public Offering,
         are as follows:
<TABLE>
<CAPTION>

                                        FISCAL YEAR ENDED JUNE 30,
                                     1997          1996         1995
                                     ----          ----         ----
         Current:

<S>                                <C>          <C>          <C>    
         U.S. Federal              $ 6,697      $ 3,952      $ 3,346
         State                         684          658          180
                                   -------      -------      -------
                                     7,381        4,610        3,526
         Deferred                      149           15          (26)
                                   -------      -------      -------
                                   $ 7,530      $ 4,625      $ 3,500
                                   =======      =======      =======
</TABLE>


         Deferred income taxes reflect the impact of temporary differences
         between the amounts of assets and liabilities for financial reporting
         purposes and such amounts as measured by tax laws. The deferred tax
         assets and liabilities are as follows:
<TABLE>
<CAPTION>

                                                       June 30,
                                                       --------
                                                 1997           1996
                                                 ----           ----
<S>                                            <C>            <C>    
         Inventories                           $   590        $   470
         Accounts receivable                       446            393
         Accrued benefits                          129             11
         Other                                     132              0
                                               -------        -------
         Deferred tax assets                     1,297            874


         Property                                 (403)          (374)
         Deferred costs                           (543)             0
                                               -------        -------
                                               $   351        $   500
                                               =======        =======
</TABLE>





                                      F- 9


<PAGE>   33

<TABLE>
<CAPTION>




         The following table reconciles the U.S. statutory rate applied to
         pretax income to the Company's provision for income taxes:

                                              FISCAL YEAR ENDED JUNE 30,

                                              1997         1996         1995
                                              ----         ----         ----
<S>                                         <C>          <C>          <C>    
         U.S. Statutory rate applied
           to pretax income                 $ 6,848      $ 4,252      $ 3,332
         State taxes, net                       650          434          117
         Goodwill amortization                   44           45           45
         Other                                  (12)        (106)           6
                                            -------      -------      -------
         Provision for income taxes         $ 7,530      $ 4,625      $ 3,500
                                            =======      =======      =======
</TABLE>

         All deferred tax accounts are considered to be realizable due to
         assumed future taxable income, thus, no valuation allowance has been
         recorded against the deferred tax assets.

         The Company made federal income tax payments of $7,250, $0 and $0 in
         fiscal 1997, 1996 and 1995, respectively, and state income tax payments
         of $719, $372 and $483 in fiscal 1997, 1996 and 1995, respectively.

5.       LONG TERM DEBT

         In April 1996, the Company entered into a revolving credit agreement
         with First Union National Bank of Florida ("First Union") for an
         unsecured three-year credit facility providing borrowings of up to
         $15.0 million, including a letter of credit subfacility of $4.0
         million. Borrowings under this facility bear interest, at the Company's
         option, at the prime rate minus 75 basis points or LIBOR plus 100 basis
         points. The Company is required to pay a commitment fee of 0.1% per
         annum on the unused commitment. The credit agreement contains customary
         affirmative and negative covenants, including certain covenants
         requiring the Company to maintain debt to net worth, interest coverage
         and current ratios, as well as a minimum net worth test. The Company
         was in compliance with all covenants at June 30, 1997. At June 30,
         1997, there were no borrowings under the credit agreement and there
         were $3.2 million of letters of credit outstanding.

         As discussed in Note 2, the Company and Waxman consummated an Initial
         Public Offering on April 3, 1996. In accordance with certain Securities
         and Exchange Commission rules, the financial statements have been
         adjusted to reflect push-down adjustments from Waxman, comprising
         certain bank indebtedness ("push-down debt") which was repaid by the
         Company with the net proceeds of the Initial Public Offering and which
         was secured by the inventories, accounts receivable, general
         intangibles and other unencumbered assets of the Company. Related
         interest expense and debt issue costs were also pushed down. The 
         push-down adjustments were made for all periods presented in the 
         Financial Statements prior to the Initial Public Offering.

         The Company made interest payments of $116 in fiscal 1997, $1,525 in
         fiscal 1996 and $1,654 in fiscal 1995.

6.       STOCKHOLDERS' EQUITY

         In connection with the Initial Public Offering, as explained in Note 2,
         the Company (i) filed an Amended and Restated Certificate of
         Incorporation which increased the authorized number of shares of common
         stock to 40,000, (ii)effected a 238,180 for 1 stock split and (iii)
         authorized 10,000 shares of preferred stock and issued to Waxman 2,591
         shares of Series A Preferred Stock in exchange for 2,591 shares of
         common stock held by Waxman. These changes have been retroactively
         reflected in the accompanying balance sheets. Additionally, the Company
         declared a dividend to Waxman evidenced by a $22.0 million note payable
         to Waxman, which was paid with a portion of the proceeds of the Initial
         Public Offering.



                                      F- 10


<PAGE>   34



         In connection with the consummation of the Initial Public Offering, as
         explained in Note 2, all advances from Waxman were eliminated and
         charged against retained earnings. The elimination of advances in
         excess of retained earnings was charged to paid-in capital.

         Each share of Series A Preferred Stock, which was owned by Waxman,
         generally was not entitled to vote; had a liquidation preference of
         $1.00 per share and was convertible into one share of Common Stock,
         subject to certain limitations, at the option of Waxman. On June 24,
         1996, Waxman converted 1,320 shares of its Series A Preferred Stock of
         the Company into a like number of shares of common stock of the
         Company. Waxman owned 49.9% of the Company's outstanding common stock
         at June 30, 1996.

         In April 1997, the Company consummated a secondary public offering
         pursuant to which 425 and 1,300 shares were sold by the Company and
         Waxman, respectively. Subsequent to the secondary public offering,
         Waxman converted the remaining 1,271 shares of the Company's Series A
         Preferred Stock into a like number of shares of common stock. As a
         result of the secondary offering and the subsequent conversion of the
         preferred stock, Waxman owned 44.5% of the Company's common stock as of
         June 30, 1997.

7.       LEASE COMMITMENTS

         The Company leases its distribution centers and office facilities as
         well as certain equipment under operating lease agreements, which
         expire at various dates through 2007 with, in some cases, options to
         extend the terms of the leases.

         Future minimum payments, by year and in the aggregate, consist of the
         following at June 30, 1997:
<TABLE>
<CAPTION>

             <S>                                            <C>    
              1998                                          $ 2,512
              1999                                            2,291
              2000                                            1,827
              2001                                            1,450
              2002                                            1,168
              Thereafter                                      1,496
                                                            -------
              Total future minimum lease payments           $10,744
                                                            =======
</TABLE>


         Total rent expense charged to operations was $2,503 in fiscal 1997,
         $2,217 in fiscal 1996 and $2,036 in fiscal 1995.

8.       BENEFIT PLANS

         During fiscal 1997, the Company established a 401(k) retirement plan
         for employees. Prior to the establishment of the Company's 401(k) plan,
         the Company participated in the Waxman Industries profit sharing and
         401(k) plan. Employees are able to contribute up to 15% of pretax
         compensation and control the investment options for their entire
         account. Employees vest in Company contributions ratably over 5 years
         of service.

         Company contributions to the 401(k) plan are discretionary and may be
         changed each year as determined by the Board of Directors. In fiscal
         1997, 1996 and 1995, the Company contributed $110, $ 0 and $80,
         respectively, in matching contributions to the 401(k) plan and the
         Waxman Plan, respectively. The Board of Directors has approved a 50%
         match of up to 4% of employee contributions for fiscal 1998.

         The Company offers no other post-retirement or post-employment benefits
         to its employees.

9.       EMPLOYEE STOCK PLANS

         In connection with the Initial Public Offering discussed in Note 2, the
         Board of Directors of the Company adopted and approved the 1996 Omnibus
         Incentive Plan (the "Omnibus Plan") and the 1996 Employee Stock
         Purchase Plan ("ESPP") under which an aggregate of 1,500 shares of
         common stock may be subject to awards. Under the Omnibus Plan, awards
         may be granted for no consideration and consist of stock options and
         other stock based awards. The Omnibus Plan was

                          


                                      F- 11


<PAGE>   35



         designed to provide an incentive to the officers and other key
         employees of the Company by making available to them an opportunity to
         acquire a proprietary interest in the Company.

         In fiscal 1997 and 1996, the Company granted options to employees which
         vest over four years and are exercisable for a ten year period. The
         exercise price of all outstanding options at June 30, 1997 range from 
         $14.00 to $ 27.25 per share.
<TABLE>
<CAPTION>

                                                  1997                           1996
                                                  ----                           ----
                                                      Weighted                       Weighted
                                         Shares       Average            Shares       Average
                                         (000's)   Exercise Price        (000's)   Exercise Price
                                         -------   --------------        -------   --------------
<S>                                       <C>          <C>               <C>           <C> 
         Outstanding at beginning
         of year                          507.5        $14.04              --             --

         Granted                          303.5        $21.43            507.5         $14.04

         Exercised                         13.0        $14.04              --            --

         Canceled / Expired                18.0        $14.04              --            --

         Outstanding at end of            780.0        $16.91            507.5         $14.04
         year

         Exercisable at end of            109.9        $14.04              --            --
         year
</TABLE>


         During fiscal 1997 and fiscal 1996, the weighted average fair value of
         options granted was $9.84 and $6.51, respectively.

         The Company has chosen to continue to account for its options under the
         provisions of Accounting Principles Board ("APB") Statement No. 25
         "Accounting for Stock Issued to Employees" and thus has adopted the
         disclosure-only provisions of SFAS No. 123, "Accounting for Stock-
         Based Compensation." Accordingly, no compensation cost has been
         recognized for the stock option plans. Had compensation cost for the
         options granted in fiscal 1997 and fiscal 1996 been determined based on
         fair value at the grant date for awards in fiscal 1997 and fiscal 1996,
         consistent with the provisions of SFAS No. 123, the Company's net
         income per share would have been reduced to the pro forma amounts
         indicated below:
<TABLE>
<CAPTION>

                                                   1997           1996
                                                   ----           ----
         <S>                                   <C>            <C>   
         Net Income-as reported                $   12,035     $   7,158

         Net Income-pro forma                  $   10,783     $   6,981

         Net Income per share-as
         reported                              $     0.75     $    0.55

         Net Income per share- pro
         forma                                 $     0.67     $    0.54
</TABLE>


         The assumptions regarding the stock options issued to executives in
         fiscal 1997 and fiscal 1996 are that the options vest equally over four
         years. The fair value of each option grant is estimated on the date of
         grant using the Black-Scholes option-pricing model with the following
         assumptions. In fiscal 1997: dividend yield of 0.0%; expected
         volatility of 42.0%; risk free interest rate of 6.31%; turnover rate of
         10% for employees and 0% for executives and expected life of options of
         5 years. In fiscal 1996: dividend yield of 0.0%; expected volatility of
         42.0%; risk free interest rate of 6.31%; turnover rate of 10% for
         employees and 0% for executives and expected life of options of 5
         years.

         The ESPP enables employees of the Company to subscribe for shares of
         common stock on annual offering dates at a purchase price which is 85%
         of the fair market value of the shares on the first day  of the annual
         period. Employee contributions to the ESPP were $415 for  fiscal 1997. 
         Pursuant to the ESPP, 35 shares were issued to employees during 
         fiscal 1997.




                                      F- 12


<PAGE>   36



10.      RELATED PARTY TRANSACTIONS

         The Company engages in business transactions with Waxman Industries and
         its subsidiaries. Products purchased for resale from Waxman Industries
         and its subsidiaries totaled $13,702 in fiscal 1997, $12,183 in fiscal
         1996 and $11,318 in fiscal 1995. Sales to these entities totaled $140
         in fiscal 1997, $172 in fiscal 1996 and $195 in fiscal 1995.

         Management fees charged to the Company by Waxman Industries are
         included in "corporate charge" in the financial statements. Corporate
         charges are allocations of expenses to the Company that Waxman
         Industries incurs to support its corporate activities. These fees were
         eliminated in the fourth quarter of fiscal 1996.

         The Company and Waxman Industries 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. In connection with the Initial Public Offering, the Company
         and Waxman Industries, among others, entered into a New Intercorporate
         Agreement. Pursuant to the New Intercorporate Agreement, Waxman
         Industries provides certain managerial, administrative and financial
         services to the Company and the Company pays Waxman Industries the
         allocable cost of the salaries and expenses of Waxman Industries'
         employees while they are rendering such services. The Company also
         reimburses Waxman Industries for actual out-of-pocket disbursements to
         third parties by Waxman Industries required for the provision of such
         services by Waxman Industries. In addition to the services provided by
         Waxman Industries to the Company pursuant to the New Intercorporate
         Agreement, the Company also continues to provide certain services to
         the operating divisions of WOC Inc., including LeRan Gas Products
         (substantially all of the business of which was acquired by the Company
         effective July 1, 1997), U.S. Lock and Madison Equipment Company. These
         services include the utilization of the Company's management
         information systems, financial accounting, order processing and billing
         and collection services. Waxman Industries pays to the Company the
         allocable cost of the salaries and expenses of the Company's employees
         while they are performing such services. Waxman Industries also
         reimburses the Company for all actual out-of-pocket disbursements to
         third parties by the Company 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 Waxman Industries.

         All amounts incurred by the Company on behalf of Waxman Industries have
         been reimbursed by Waxman Industries. All amounts incurred by Waxman
         Industries on behalf of the Company have been reimbursed by the Company
         and are reflected in selling, general and administrative expense in the
         accompanying statements of income. In management's opinion, the
         Company's selling, general and administrative expenses include all
         costs of an independent stand-alone company.

         The following is a reconciliation of the activity contributed to
         capital related to the push-down bank debt described in Note 5:
<TABLE>
<CAPTION>

                                                        FISCAL YEAR ENDED JUNE 30
                                                     1997           1996        1995
                                                  -------------------------------------
         <S>                                        <C>            <C>        <C>    
         Push-down interest expense,
         including amortization of
          debt issue costs                          $ --           $ 355      $   464
         Change in push-down bank debt                --           3,791        1,911
         Income taxes                                 --            (391)        (493)
         Change in push-down interest
          accrual                                     --              15           21
         Change in push-down of
         unamortized debt issue costs                 --            (198)        (462)
                                                    -------        ------      -------
         Capital contribution from
         Waxman Industries, net                     $ --          $3,572       $1,441
                                                    ========      =======     ========
</TABLE>

11.      COMMITMENTS AND 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 financial position, liquidity or
         results of operations. During the fourth quarter of fiscal 1997, the
         Company entered into a




                                      F- 13





<PAGE>   37



         contract with a local design-build firm to construct a 38,000 square
         foot facility in Jacksonville, Florida to house its telesales
         operations. The amount of this contract is approximately $3.8 million
         which the Company plans to finance from internal funds.

12.      SUBSEQUENT EVENT

         On July 1, 1997, the Company acquired substantially all of the assets
         of LeRan Gas Products, an operating unit of Waxman Industries. The
         acquisition price was $3.8 million, of which $3.2 million was paid in
         cash and the remainder was paid by the issuance to Waxman of 25 shares
         of the common stock of the Company. The operations related to these
         assets are not material to the Company's financial statements.




                                      F- 14


<PAGE>   38



                 SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)

Quarterly Results of Operations:

         The following is a summary of the unaudited quarterly results of
operations for the fiscal years ended June 30, 1997 and 1996 (in thousands,
except per share amounts)
<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------
                                                       Net Income
----------------------------------------------------------------------------------------------------------
                                                 Before           Earnings                       Earnings
                     Net         Gross        Extraordinary         per             Net            Per
                    Sales        Profit           Item             share          Income          share
                    -----        ------           ----             -----          ------          -----

1997
----
<S>                <C>           <C>            <C>               <C>             <C>             <C>  
Fourth             $42,956       $14,764        $3,230            $0.20           $3,230          $0.20
Third               40,750        13,938         3,102             0.20            3,102           0.20
Second              39,871        13,626         3,006             0.19            3,006           0.19
First               36,491        12,364         2,697             0.17            2,697           0.17

1996
----
Fourth             $33,996       $11,538        $2,670            $0.17           $1,945          $0.12
Third               32,884        10,852         1,838             0.15            1,838           0.15
Second              31,089        10,654         1,988             --              1,988           --
First               29,426         9,603         1,386             --              1,387           --
</TABLE>








                                      F- 15