<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

(MARK ONE)        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, 1996
         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 0-5888

                             WAXMAN INDUSTRIES, INC.

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

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

                                 (216) 439-1830
               (REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)

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

                                                      (NAME OF EACH
         (TITLE OF EACH CLASS                  EXCHANGE ON WHICH REGISTERED)
     Common Stock, $.01 par value                 New York Stock Exchange
                                                  Chicago Stock Exchange

           Securities registered pursuant to Section 12(b) of the Act:
                                      NONE

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

                                 Yes _X_ No ___

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

         Aggregate market value of voting stock held by non-affiliates of the
registrant based on the closing price at which such stock was sold on the New
York Stock Exchange on October 11, 1996: $26,907,849

         Number of shares of Common Stock outstanding as of October 11, 1996:

                             Common Stock 9,700,453
                         Class B Common Stock 2,153,196
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                       DOCUMENTS INCORPORATED BY REFERENCE

         Registrant intends to file with the Securities and Exchange Commission
a definitive Proxy Statement pursuant to Regulation 14A of the Securities
Exchange Act of 1934 within 120 days of the close of its fiscal year ended June
30, 1996, portions of which document shall be deemed to be incorporated by
reference in Part I and Part III of this Annual Report on Form 10-K (the "Annual
Report") from the date such document is filed.

         The Company consists of Waxman Industries, Inc. and subsidiaries and
affiliates in which Waxman Industries, Inc. directly or indirectly has a
majority voting and/or economic interest.

CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements in this Annual Report under the caption "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," as
well as oral statements that may be made by the Company or by officers,
directors or employees of the Company acting on the Company's behalf, that are
not historical fact constitute "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
involve risks and uncertainties, including, but not limited to, the risk that
the Company may not be able to implement its deleveraging strategy in the
intended manner, risks associated with currently unforeseen competitive
pressures and risks affecting the Company's industry such as decreased consumer
spending and the effects of general economic conditions. In addition, the
Company's business, operations and financial condition are subject to the risks
which are described in the Company's reports and statements filed from time to
time with the Securities and Exchange Commission, including this Annual Report.

                                     PART I

ITEM 1.   BUSINESS

GENERAL

         The Company believes it is one of the leading suppliers of plumbing
products to the repair and remodeling market in the United States. The Company
distributes plumbing, hardware and electrical products to approximately 55,000
customers in the United States, including plumbing and electrical repair and
remodeling contractors and independent retailers. The Company's consolidated net
sales were $235.1 million in fiscal 1996.

         The Company conducts its business primarily through its wholly-owned
subsidiary, Waxman Consumer Products Group Inc. ("Consumer Products"), and
through Barnett Inc. ("Barnett"), of which the Company owns approximately 49.9%
of the outstanding common stock, and, through the ownership of certain
convertible non-voting preferred stock, approximately a 54% economic interest.
The Company also owns several smaller operations.

         Consumer Products markets and distributes approximately 7,000 products
to a wide variety of retailers, primarily do-it-yourself ("D-I-Y") warehouse
home centers, home improvement centers, mass merchandisers, hardware stores and
lumberyards. Consumer Products' customers include large national retailers such
as Kmart, Builders Square and Wal-Mart. Consumer Products' net sales for fiscal
1996 were $61.7 million. In connection with the strategic reevaluation and
reorientation of Consumer Products in fiscal 1996, Consumer Products decided to
exit from the distribution of electrical products to further focus its strategic
direction. The Company believes that the reorientation of Consumer Products'
strategic focus will initially result in a decrease in net sales but will
strengthen and improve the Consumer Products business in the long-term.

         Barnett is a direct marketer and distributor of an extensive line of
plumbing, electrical and hardware products to approximately 42,000 active
customers throughout the United States. Barnett offers approximately 8,500 name
brand and private label products through its industry recognized Barnett(R)
catalogs and telesales operations. Barnett markets its products through three
distinct, comprehensive catalogs that target professional contractors,
independent hardware stores and maintenance managers. Barnett's net sales for
fiscal 1996 were $127.4 million.

         The Company has several smaller operations which are conducted through 
its other wholly-owned subsidiaries, WOC Inc. ("WOC") and TWI International,
Inc. ("TWI"). WOC includes four operations, the largest of which are U.S. Lock
division ("U.S. Lock") a distributor of a full line of security hardware
products, and LeRan Gas Products ("LeRan") - a supplier of copper tubing, brass
fittings and other related products. WOC's other operations also include its
Madison Equipment division, a supplier of electrical products, and its Medal
Distributing division, a supplier of hardware products. TWI includes foreign
sourcing operations in Mexico, China and Taiwan which support Consumer
Products, Barnett and WOC. Net sales from these smaller operations were $46.0
million in fiscal 1996.


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RECENT DEVELOPMENTS

         During fiscal 1994, the Company restructured its domestic operations
such that the Company is now a holding company whose only material assets are
the capital stock of its subsidiaries (the "Corporate Restructuring"). As part
of the Corporate Restructuring, the Company formed (a) Waxman USA Inc. ("Waxman
USA") as a holding company for the subsidiaries that comprise and support the
Company's domestic operations, (b) Consumer Products, a wholly-owned subsidiary
of Waxman USA, to own and operate Consumer Products Group division, and (c) WOC,
a wholly-owned subsidiary of Waxman USA, to own and operate Waxman USA's
domestic subsidiaries, other than Barnett and Consumer Products. On May 20,
1994, the Company completed the Corporate Restructuring by (i) contributing the
capital stock of Barnett to Waxman USA, (ii) contributing the assets and
liabilities of the Consumer Products Group division to Consumer Products, (iii)
contributing the assets and liabilities of its Madison Equipment division to
WOC, (iv) contributing the assets and liabilities of its Medal Distributing
division to WOC, (v) merging U.S. Lock and LeRan, each a wholly-owned subsidiary
of the Company, into WOC, (vi) contributing the capital stock of TWI to Waxman
USA and (vii) contributing the capital stock of Western American Manufacturing,
Inc. ("WAMI") to TWI. The "Operating Companies" consist of Barnett, Consumer
Products and WOC. This restructuring was accounted for based upon each entity's
historical carrying amounts with no impact on the accompanying Consolidated
Financial Statements.

         In August 1995, the Company announced that it had decided to sell its
Consumer Products business and entered into a letter of intent, which
subsequently expired, which contemplated the sale of the Consumer Products
business, together with certain supporting operations and certain home center
accounts now serviced by Barnett, to a group consisting of HIG Capital
Management of Miami, Florida along with certain members of Consumer Products'
existing management team for an aggregate cash purchase price of $50 million
plus other consideration which would have given the Company approximately a 25%
economic interest in Consumer Products on a going forward basis. Since the
consummation of the Barnett Public Offering, as described below, the Company has
ceased its efforts to sell Consumer Products and instead retains and continues
to operate Consumer Products and, for fiscal 1996 has reported its results as a
continuing operation. Prior period consolidated financial statements have been
reclassified to conform with the current period presentation. See the
description of Consumer Products below and in Note 3 to the Consolidated
Financial Statements for a discussion of substantial charges recorded in fiscal
1996 with respect to, among other things, the strategic review and reorientation
of Consumer Products. Also see Note 13 to the Consolidated Financial Statements
for a discussion regarding the restatement of certain prior years' financial
data to reflect the correction of an intercompany inventory reconciling item
between Consumer Products and WAMI.

         On February 1, 1996, Barnett filed a registration statement with the
Securities and Exchange Commission with respect to an initial public offering
(the "Barnett Public Offering") of its common stock (the "Barnett Common
Stock"). On March 28, 1996, the registration statement with respect to the
Barnett Public Offering was declared effective and on April 3, 1996, the Barnett
Public Offering was consummated. In such offering, 7,207,200 shares,
representing approximately 55.1% of the Barnett Common Stock, were sold in the
aggregate by Barnett and Waxman USA at an initial public offering price per
share of $14.00, resulting in aggregate net proceeds of $92.6 million. As a
result of Waxman USA's conversion of a portion of the convertible non-voting
preferred stock of Barnett, which is owned solely by Waxman USA, to Barnett
Common Stock during the fourth quarter of fiscal 1996, Waxman USA beneficially
owns approximately 49.9% of the Barnett Common Stock and, together with the
non-voting preferred stock of Barnett owned by Waxman USA, approximately a 54%
economic interest in the capital stock of Barnett.

CONSUMER PRODUCTS

         Consumer Products markets and distributes approximately 7,000 products
to a wide variety of retailers, primarily D-I-Y warehouse home centers, home
improvement centers, mass merchandisers, hardware stores and lumberyards.
Consumer Products' customers include large national retailers such as Kmart,
Builders Square and Wal-Mart as well as several large regional D-I-Y retailers.
According to rankings of the largest D-I-Y retailers published in National Home
Center News, an industry trade publication, Consumer Products' customers include
15 of the 25 largest D-I-Y retailers in the United States. Consumer Products
works closely with its customers to develop comprehensive marketing and
merchandising programs designed to improve their profitability, efficiently
manage shelf space, reduce inventory levels and maximize floor stock turnover.
Consumer Products also offers certain of its customers the option of private
label programs.

         In recent years, the rapid growth of large mass merchandisers and D-I-Y
retailers has contributed to a significant consolidation of the United States
retail industry and the formation of large, dominant, product specific and
multi-category retailers. These retailers demand suppliers who can offer a broad
range of quality products and can provide strong marketing and merchandising
support. Due to the consolidation in the D-I-Y retail industry, a substantial
portion of Consumer Products' net sales are generated by a small number of
customers. Furthermore, Consumer Products' largest customer, Kmart and its
subsidiary Builders Square, accounted for approximately 42.3% and 43.6% of
Consumer Products' total net sales in fiscal 1996 and fiscal 1995, respectively.
Kmart has recently advised the Company that it is reviewing its plumbing and
hardware supply arrangements, including its relationship with Consumer Products,
and will make a decision regarding which vendors it will utilize by December
1996. Although Consumer Products has had a long relationship with Kmart, there
can be no assurance that this relationship will continue or as to the terms of
any relationship that does continue. In the event Consumer Products were to
either lose Kmart as a customer or Kmart were to significantly curtail its
purchases from Consumer Products, there would be material short-term adverse
effects until the Company could modify Consumer Products' cost structure to be

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more in line with its reduced revenue base. As discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Company has reevaluated and reorientated the strategic direction of Consumer
Products, taking into account the extremely competitive retail environment in
which Consumer Products operates and the unsuccessful attempt to sell Consumer
Products at an acceptable price. As a result of this reevaluation and
reorientation, the Company incurred substantial charges in the fiscal 1996
third and fourth quarters relating to, among other things, the reduction in the
number of Consumer Products' product offerings, the elimination of Consumer
Products' home electrical product line, the downsizing of its distribution
network from three to two locations and the reduction of the carrying value of
day to day assets and liabilities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note 3 to the Consolidated    
Financial Statements." In furtherance of its efforts to improve Consumer
Products' prospects, the Company has also decided to augment certain of
Consumer Products' existing product lines and enhance the appearance and value
of existing packaging of products.

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

         Consumer Products' sales and service representatives visit stores
regularly to take reorders and recommend program improvements. These
representatives also file reports with Consumer Products, enabling it to stay
abreast of changing consumer demand and identify developing trends. In order to
support its customers' "just-in-time" requirements, Consumer Products has
significantly improved its EDI capabilities, so as to reduce the customer's
inventory levels and increase returns on investment.

         Consumer Products operates and distributes its products through two
strategically located distribution facilities in Cleveland, Ohio and Grand
Prairie, Texas.

PRODUCTS

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

         Plumbing Products. Consumer Products' plumbing products include valves
and fittings, rubber products, repair kits and tubular products such as traps
and elbows. Many of Consumer Products' plumbing products are sold under the
proprietary trade names Plumbcraft(R), PlumbKing(R) and KF(R). In addition,
Consumer Products offers certain of its customers the option of private label
programs. Consumer Products also offers proprietary lines of faucets under the
trade name Premier(R), as well as a line of shower and bath accessories under
the proprietary trade name Spray Sensations(TM).

         Floor Protective Hardware Products. Consumer Products' floor protective
hardware products include casters, doorstops and other floor, furniture and wall
protective items. Consumer Products markets a complete line of floor protective
hardware products under the proprietary trade name KF(R) and also under private
labels.

BARNETT

         Barnett, in which the Company indirectly owns 49.9% of the outstanding
common stock and, through the ownership of certain convertible non-voting
preferred stock, approximately a 54% economic interest, is a direct marketer and
distributor of an extensive line of plumbing, electrical and hardware products
to approximately 42,000 active customers throughout the United States. Barnett
offers and promotes approximately 8,500 name brand and private label products
through its industry recognized Barnett(R) catalogs and telesales operations.
Barnett markets its products through three distinct, comprehensive catalogs that
target professional contractors, independent hardware stores and maintenance
managers. Barnett's staff of over 85 knowledgeable telesales, customer service
and technical support personnel work together to serve customers by assisting in
product selection and offering technical advice. To provide rapid delivery and a
strong local presence, Barnett has established a network of 28 distribution
centers strategically located in 28 major metropolitan areas throughout the
United States. Through these local distribution centers, approximately 70% of
Barnett's orders are shipped directly to the customer, and in almost all cases,
within the same day of receipt of the order. The remaining 30% of the orders are
picked up by the customers at one of Barnett's local distribution centers.
Barnett's strategy of being a low-cost, competitively priced supplier is
facilitated by its volume of purchases and the offshore sourcing of a
significant portion of its private label products. Products are purchased from
over 400 domestic and foreign suppliers.


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         Barnett 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. Barnett's approximately 600-page
catalogs offer an extensive selection of products in an easy to use format
enabling customers to consolidate purchases with a single vendor. Barnett
provides an updated version of its catalogs to its customers on average four
times a year. To attract new customers and offer special promotions to existing
customers, Barnett supplements its catalogs with monthly promotional flyers.
Barnett's experienced and knowledgeable inbound telesales staff, located at
Barnett's centralized headquarters in Jacksonville, Florida, uses Barnett's
proprietary information systems to take customer orders as well as offer
technical advice. Barnett's highly trained outbound telesales staff maintains
frequent customer contact, makes telesales presentations and encourages
additional purchases. Targeted customer accounts are typically assigned an
outbound telesalesperson in order to enhance customer relationships and improve
customer satisfaction. Barnett'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.

MARKETING AND DISTRIBUTION

         Barnett markets its products nationwide, principally through regular
catalog and promotional mailings to existing and potential customers, supported
by a telesales operation, and products are shipped from a network of 28
distribution centers allowing for shipment to and pick-up by customers generally
within one day of the receipt of an order. The outbound telesales operation is
utilized to make telephonic sales presentations to potential customers that have
received written promotional materials and to existing customers. Barnett's
inbound telesalespersons provide customer assistance and take orders. Barnett's
outbound and inbound telesales operations are centralized in Jacksonville,
Florida.

Catalogs

         Barnett's three approximately 600-page catalogs containing 8,500
plumbing, electrical and hardware products are mailed to its 42,000 active
customers. These quarterly catalogs are supplemented by monthly promotional
flyers, 2.2 million of which were mailed in fiscal 1996. Barnett's targeted
customers include professional contractors, independent hardware stores and
maintenance managers. Barnett has been distributing its principal catalog since
1958 and believes that the Barnett(R) name has achieved a very high degree of
recognition among its customers and suppliers.

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

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

Telesales

         During fiscal 1996, approximately 75.7% of Barnett's net sales were
generated through Barnett's telesales operation. Barnett's telesales operation
has been designed to make ordering its products as convenient and efficient as
possible thereby enabling Barnett to provide superior customer service. Barnett
offers its customers a nationwide toll-free telephone number that is currently
staffed by 85 telesales, customer service and technical support personnel who
utilize Barnett'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 Barnett 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.

         Barnett divides its telesales staff into outbound and inbound groups.
Barnett's experience indicates that customer loyalty is bolstered by the ability
of the telesales staff to develop an ongoing personal relationship with their
customers. Barnett's highly trained outbound telesales staff maintains frequent
customer contact, makes telesales presentations and encourages additional
purchases. Inbound telesalespersons are trained to quickly process orders from
existing customers. They increase sales by informing customers of price breaks
for larger orders, companion items and replacement items with higher margins.
Outbound telesalespersons 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, Barnett utilizes its telesales
operation to generate awareness of Barnett, its product offerings and the
upcoming opening of new distribution centers located near the target customers.

         Barnett 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


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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.

         Barnett's current focus has been on expanding its telesales staff.
Barnett plans to expand its telesales operations by 20 to 25 telesalespersons
annually over the next several years. Barnett 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 Centers

         Barnett has established a network of 28 local distribution centers
strategically located in 28 major metropolitan areas throughout the United
States. This network enables Barnett to provide rapid and complete product
delivery and provides a strong local presence.

         Barnett's distribution centers range in size from approximately 12,000
square feet to 34,000 square feet and average approximately 20,000 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 600 square feet, where customers can pick up
orders or browse through a limited selection of promotional items. Barnett is
often able to generate incremental sales from customers who pick up their
orders. Barnett has initiated a program to enlarge product displays in the
counter area to better promote the breadth of its product lines.

         Many of Barnett's customers do not keep high inventory levels and tend
to place orders rather frequently. Barnett's experience indicates that customers
prefer to order from local suppliers and that many local tradespeople prefer to
pick up their orders in person rather than to have them delivered. Therefore,
Barnett intends to continue the expansion of its distribution center network in
order to position itself closer to potential new customers. During fiscal 1996,
approximately 30% of Barnett's orders were picked up by its customers.

         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. Barnett 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 $600,000, including
approximately $300,000 for inventory.

PRODUCTS

         Barnett markets an extensive line of over 8,500 plumbing, electrical
and hardware products, many of which are sold under its proprietary trade names
and trademarks. This extensive line of products allows Barnett to serve as a
single source supplier for many of its customers. Many of these products are
higher margin products bearing Barnett's proprietary trade names and trademarks.
In addition, proprietary products are often the customers' higher margin product
offerings.

         Barnett tracks sales of new products the first year they are offered
and new products that fail to meet specified sales criteria are discontinued. To
help manage the risk of new product introductions, substantially all new
domestically sourced products are governed by a "12 point agreement" which
allows Barnett to return all slow and non-moving merchandise to its vendor
within the first six months of its offering, without any cost to Barnett.
Barnett 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 Barnett's catalogs as a means of one-stop shopping for
many of their needs.

         Barnett's strategy is to significantly increase the number of product
offerings, as well as its higher margin product offerings. Barnett's catalogs
and monthly promotional flyers emphasize the comparative value of Barnett's
private label products. During fiscal 1996, approximately 27.6% of Barnett's net
sales were generated by the sale of Barnett's private label products.

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

         Plumbing Products. Barnett sells branded products of leading plumbing
supply manufacturers, including Delta(R), Moen(R) and Price Pfister(R).
Barnett's private label plumbing products are also sold under its Barnett(R),
Premier(R) and ProPlus(TM) trademarks. In fiscal 1996, plumbing products
accounted for 76.6% of Barnett's net sales.

         Electrical Products. Barnett sells branded products of leading
electrical supply manufacturers, including Philips(R), Westinghouse(R),
Honeywell(R) and General Electric(R). Certain of Barnett's private label
electrical products are sold under its own proprietary trademarks, including
Barnett(R) and Premier(R). In fiscal 1996, electrical products accounted for
15.2% of Barnett's net sales.


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         Hardware Products. Barnett sells hardware products of leading hardware
product manufacturers, including Kwikset(R) security hardware products and
Milwaukee(R) power tools. Certain of Barnett's hardware products are also sold
under its own proprietary Legend(TM) trademark. In fiscal 1996, hardware
products accounted for 8.2% of Barnett's net sales.

OTHER OPERATIONS

         The Company has several other operations, which are conducted through
WOC and TWI. The most significant of these operations are U.S. Lock, a supplier
of security hardware products, and LeRan, a supplier of copper tubing and
specialty plumbing products. U. S. Lock and LeRan, as well as Madison Equipment
and Medal Distributing, are operated as separate divisions of WOC. TWI includes
the foreign sourcing operations in Mexico, China and Taiwan which support
Consumer Products, Barnett and WOC. As a result of management's strategic review
of its wholly-owned operations, certain operating and asset impairment charges
were recorded in fiscal 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." In addition, in connection with
management's strategic review of its other wholly-owned operations and as a
result of certain business factors affecting those other operations, including
increased competition from multi-category retailers and competitive pricing from
overseas competitors, the effect of which was exacerbated by excess capacity at
the Company's foreign facilities, the Company recorded additional substantial
charges in the fiscal 1996 fourth quarter operating results primarily for a
reduction in the carrying value of day to day operating assets and liabilities.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 3 to the Consolidated Financial Statements.

         U.S. Lock

         U.S. Lock, which was acquired by the Company in 1988, carries a full
line of security hardware products, including locksets, door closers and
locksmith tools. Many of these products are sold under the U.S. Lock(R) and
Legend(TM) trademarks. U.S. Lock markets and distributes its products primarily
to locksmiths through a telemarketing sales team. U.S. Lock's telemarketing
effort is supplemented with a catalog, that is mailed annually to 5,900 existing
customers, and promotional flyers. Since its acquisition by the Company, U.S.
Lock has increased its number of warehouses from one to four, three of which are
shared with Barnett. Shared facilities allow the Company to realize additional
efficiencies by consolidating space requirements and reducing personnel costs.
In connection with the Company's strategic reevaluation of its operating units,
an asset impairment charge of $12.1 million was recorded at U.S. Lock in fiscal
1996. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 3 to the Consolidated Financial Statements.

         LeRan

         LeRan, which was acquired by the Company in 1985, is a supplier of
copper tubing and fittings, brass valves and fittings, malleable fittings and
related products. Its customers include liquid petroleum gas dealers,
lumberyards, plumbing and mechanical contractors and D-I-Y retailers. LeRan
markets its products primarily through salespeople and outside service
representative organizations. These efforts are supported by a catalog, which is
mailed semiannually to 5,600 existing customers, monthly promotional flyers and
a telemarketing program. LeRan currently services its customers from four
regional warehouses, one of which is shared with Barnett.

         Other

         WOC's other operations also include its Madison Equipment division, a
supplier of electrical products, and its Medal Distributing division, a supplier
of hardware products.

DISCONTINUED OPERATIONS - IDEAL

         Effective March 31, 1994, the Company adopted a plan to dispose of its
Canadian subsidiary, Ideal Plumbing Group, Inc. ("Ideal"). Ideal is reported as
a discontinued operation.

         On May 5, 1994, Ideal's Canadian banks filed an involuntary bankruptcy
petition against Ideal citing defaults under the bank credit agreements
(borrowings under these agreements were non-recourse to Waxman Industries,
Inc.). On May 30, 1994, Ideal was declared bankrupt by the Canadian courts and,
as a result, the Company's ownership and control of Ideal effectively ceased on
such date. The Company has no liability to the creditors of Ideal as a result of
Ideal's bankruptcy.

PURCHASING

         For the year ended June 30, 1996, products purchased overseas,
primarily from Taiwan, China and Mexico, accounted for approximately 27.0% of
the total product purchases made by the Company.


                                        7
<PAGE>   8
         TWI, through its subsidiaries, operates the Taiwan and Mainland China
facilities, which assemble and package plumbing and electrical products. In
addition, the facility in Mainland China manufactures and packages plastic floor
protective hardware. The Company believes that these facilities give it
competitive advantages, in terms of cost and flexibility in sourcing. Both labor
and physical plant costs are significantly below those in the United States.

         During fiscal 1991, the Company purchased WAMI, a small manufacturer of
plumbing pipe nipples in Tijuana, Mexico. Pipe nipples are lengths of pipe from
1/2 of an inch to 6 feet long, threaded at each end. As a result of this
acquisition, the Company is vertically integrated in the manufacture and
distribution of pipe nipples. Since the acquisition, in order to take advantage
of lower labor costs, the Company has relocated certain of its United States
packaging operations to WAMI.

         Substantially all of the other products purchased by the Company are
manufactured for it by third parties. The Company estimates that it purchases
products and materials from over approximately 1,200 suppliers and is not
dependent on any single unaffiliated supplier for any of its requirements.

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

<TABLE>
<CAPTION>
                                1996       1995       1994       1993       1992
                                ----       ----       ----       ----       ----
<S>                             <C>        <C>        <C>        <C>        <C> 
Plumbing                         71%        72%        73%        74%        73%
Electrical                       12%        11%        11%        10%         9%
Hardware                         17%        17%        16%        16%        18%
                                ---        ---        ---        ---        ---
Total Net Sales                 100%       100%       100%       100%       100%
                                ===        ===        ===        ===        ===
</TABLE>

IMPORT RESTRICTIONS

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

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

         The above arrangements, both '807' and quota restrictions, may be
superseded by more favorable regulations with respect to Mexico under the North
American Free Trade Agreement ("NAFTA"), or may be limited by revision or
canceled at any time by the United States government. The Company does not
believe that its relative competitive position will be adversely affected by
NAFTA. As a result of the passage of NAFTA, importation from Mexico will become
more competitive in the near future relative to importation from other exporting
countries.

COMPETITION

         The Company faces significant competition from different competitors
within each of its product lines, although it has no competitor offering the
range of products in all of the product lines that the Company offers. The
Company believes that its buying power, extensive inventory, emphasis on
customer service and merchandising programs have contributed to its ability to
compete successfully in its various markets. In the areas of electrical and
hardware supplies, the Company faces significant competition from smaller
companies which specialize in particular types of products and larger companies
which manufacture their own products and have greater financial resources than
the Company. Barnett's business competes principally with local distributors of
plumbing, electrical and hardware products. The Company believes that
competition in sales to both mail order customers and retailers is primarily
based on price, product quality and selection, as well as customer service,
which includes speed of responses for mail order customers and packaging and
merchandising for retailers.

EMPLOYEES

         As of June 30, 1996, the Company employed 1,246 persons, 270 of whom
were clerical and administrative personnel, 190 of whom were sales service
representatives and 786 of whom were either production or warehouse personnel.
Included in the above numbers are 448 employees of Barnett. Ninety of the
Company's employees are represented by collective bargaining units. The Company
considers its relations with its employees, including those represented by its
collective bargaining units, to be satisfactory.


                                        8
<PAGE>   9
TRADEMARKS

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

ENVIRONMENTAL REGULATIONS

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

SEASONALITY

         The Company's sales are generally consistent throughout its fiscal
year.


                                        9
<PAGE>   10
ITEM 2. DESCRIPTION OF PROPERTIES

         The following table sets forth, as of June 30, 1996, certain
information with respect to the Company's principal physical properties:

                                                                        LEASE
                        APPROXIMATE                                   EXPIRATION
LOCATION                SQUARE FEET             PURPOSE                 DATE
--------                -----------             -------               ----------
24460 Aurora Road          21,000    Corporate Office                   Owned
  Bedford Hts., OH

24455 Aurora Road         125,000    Consumer Products Corporate        6/30/02
  Bedford Hts., OH (1)               Office and Distribution Center

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

902 Avenue T.              77,000    Consumer Products                  5/31/00
  Grand Prairie, TX (2)              Office and Distribution Center

3333 Lenox Avenue          60,000    Barnett Corporate                  10/31/03
  Jacksonville, FL                   Office and Distribution Center

300 Jay Street             56,000    LeRan                              Owned
 Coldwater, MI                       Office and Distribution Center

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

77 Rodeo Drive             46,000    US Lock                            Owned
 Brentwood, NY                       Office and Distribution Center

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

(1)      Aurora Investment Co., a partnership owned by Melvin and Armond Waxman,
         together with certain other members of their families, is the owner and
         lessor of this property. Consumer Products has the option to renew the
         lease for a five-year term at the market rate at the time of renewal.
         Rent expense under this lease was $314,200 in fiscal 1996 and 1995.

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

         In addition to the properties shown in the table, the Company operates
9 distribution centers ranging in size from 10,000 to 71,000 square feet. In
addition, Barnett leases 27 distribution centers.

         Handl-it Inc., a corporation owned by John S. Peters, the Senior Vice
President - Operations of the Company, together with certain other members of
his family, provides Consumer Products with certain outside warehousing services
under several lease arrangements which expire during or prior to December 1996.
Consumer Products may renew these leases as they expire depending on its
requirements at the time. Rent expense under these lease arrangements was
$232,000 for fiscal 1996 and $294,000 for fiscal 1995.

         The Company believes that its facilities are suitable for its
operations and provide the Company with adequate productive capacity and that
the related party leases are on terms not materially less favorable than those
that would be available from unaffiliated third parties.


                                       10
<PAGE>   11
ITEM 3.     LEGAL PROCEEDINGS

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


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

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


ITEM 4A.  EXECUTIVE OFFICERS OF THE REGISTRANT

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

         Mr. Melvin Waxman, age 62, was elected Co-Chairman of the Board in June
1995. Upon consummation of the Barnett Public Offering in April 1996, Mr. Waxman
became Chairman of the Board and Co-Chief Executive Officer of the Company. Mr.
Waxman was elected Co-Chief Executive Officer of the Company in May 1988. Mr.
Waxman has been a Chief Executive Officer of the Company for over 20 years and
has been a director of the Company since 1962. Mr. Waxman has been Chairman of
the Board of the Company since August 1976. Mr. Waxman is the Co-Chairman of the
Board of Barnett. Melvin Waxman and Armond Waxman are brothers.

         Mr. Armond Waxman, age 57, was elected Co-Chairman of the Board in June
1995. Upon consummation of the Barnett Public Offering in April 1996, Mr. Waxman
became President and Co-Chief Executive Officer of the Company. Mr. Waxman was
elected Co-Chief Executive Officer of the Company in May 1988. Mr. Waxman was
the President and Treasurer of the Company since August 1976. Mr. Waxman has
been a director of the Company since 1962 and was Chief Operating Officer of the
Company from August 1976 to May 1988. Mr. Waxman is the Co-Chairman of the Board
of Barnett. Armond Waxman and Melvin Waxman are brothers.

         Mr. John Peters, age 47, has been Senior Vice President--Operations of
the Company since April 1988, after serving as Vice President--Operations of the
Company since February 1985. Prior to that, Mr. Peters had been Vice
President--Personnel/Administration of the Company since February 1979.

         Mr. Laurence Waxman, age 39, has been Senior Vice President of the
Company since November 1993 and is also President of Consumer Products, a
position he has held since 1988. Mr. Waxman joined the Company in 1981. Mr.
Laurence Waxman is the son of Melvin Waxman. Mr. Waxman was appointed to the
board of directors of the Company on July 1, 1996.

         Mr. Michael Vantusko, age 39, a certified public accountant, joined the
Company in October 1995 as Vice President-Finance. From February 1994 to October
1995 he served as the Chief Financial Officer of OverDrive Systems, Inc., an
emerging software developer of electronic books. From 1979 to 1993 he was
employed by The Fairchild Corporation (formerly Banner Industries, Inc.) where
he held several positions during his tenure including Chief Financial Officer of
Fairchild's largest wholly-owned operating division and Vice-President of
Fairchild. Upon the consummation of the Barnett Public Offering in April 1996,
Mr. Vantusko became the Chief Financial Officer of the Company.


                                       11
<PAGE>   12
                                     PART II

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


PRICE RANGE OF COMMON STOCK

         The Company's Common Stock is listed on the New York Stock Exchange
("NYSE") under the symbol "WAX". The Company's Class B Common Stock does not
trade in the public market due to restricted transferability. However, the Class
B Common Stock may be converted into Common Stock on a share-for-share basis at
any time.

         The following table sets forth the high and low closing quotations as
reported by the NYSE for fiscal 1996, 1995, 1994, 1993 and 1992.

<TABLE>
<CAPTION>
                       1996              1995              1994              1993              1992
                       ----              ----              ----              ----              ----
                   High     Low      High     Low      High     Low      High     Low      High     Low
                  -----    -----    -----    -----    -----    -----    -----    -----    -----    -----
<S>               <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>  
First Quarter     $1.38    $1.00    $2.13    $1.75    $3.88    $2.25    $4.63    $3.38    $5.25    $3.75
Second Quarter     1.38      .63     1.88     1.13     2.50     1.50     4.13     3.38     5.38     4.25
Third Quarter      3.13      .81     1.38      .75     3.25     2.25     5.25     3.75     8.38     4.88
Fourth Quarter     5.63     2.88     1.63     1.13     2.38     1.88     5.38     3.38     7.00     4.00
</TABLE>

HOLDERS OF RECORD

         On October 11, 1996, there were approximately 860 holders of record of
the Company's Common Stock and 132 holders of record of the Company's Class B
Common Stock.

DIVIDENDS

         The Company declared no dividends in fiscal 1996, 1995 or 1994. In
fiscal 1993 and 1992, the Company paid dividends of $.08 per share and $.12 per
share, respectively, on each class of common stock. Restrictions contained in
the Company's debt instruments currently prohibit the declaration and payment of
any cash dividends.


                                       12
<PAGE>   13
ITEM 6.   SELECTED FINANCIAL DATA

         The selected historical consolidated financial data for the fiscal
years ended June 30, 1996, 1995, 1994, 1993 and 1992 and as of June 30, 1996,
1995, 1994, 1993 and 1992 are derived from the audited Consolidated Financial
Statements included elsewhere herein. The selected consolidated financial data
presented below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the audited
Consolidated Financial Statements and the notes thereto included elsewhere in
this Annual Report. During fiscal 1996, the Company identified an intercompany
inventory reconciling item between Consumer Products and WAMI and has restated
prior year financial statements to reflect the correction of this item. The
restated financial data included in this Annual Report shall be deemed to amend
and restate the financial data included in prior years' periodic reports of the
Company.

<TABLE>
<CAPTION>
                                                                  FISCAL YEARS ENDED JUNE 30,
                                                                  ---------------------------
                                                  1996          1995          1994          1993          1992
                                               ---------     ---------     ---------     ---------     ---------
                                                            RESTATED(1)   RESTATED(1)   RESTATED(1)   RESTATED(1)

                                                       (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                            <C>           <C>           <C>           <C>           <C>      
INCOME STATEMENT DATA (2):

Net sales                                      $ 235,067     $ 232,304     $ 215,112     $ 204,778     $ 197,738
Cost of sales                                    160,556       152,368       141,011       138,144       127,315
                                               ---------     ---------     ---------     ---------     ---------
Gross profit                                      74,511        79,936        74,101        66,634        70,423
Selling, general and administrative
expenses                                          70,628        62,481        56,888        56,081        51,824
Restructuring and other non-recurring
charges                                           19,507         2,779            --         6,762         3,900
                                               ---------     ---------     ---------     ---------     ---------
Operating (loss) income(3)                       (15,624)       14,676        17,213         3,791        14,699
Gain on sale of Barnett stock(4)                  65,917            --            --            --            --
Interest expense, net                             24,264        26,411        21,334        20,365        20,025
                                               ---------     ---------     ---------     ---------     ---------
Income (loss) from continuing operations
before  income taxes, minority interest,
discontinued operations, extraordinary
loss and cumulative effect of change in
accounting                                        26,029       (11,735)       (4,121)      (16,574)       (5,326)
Provision (benefit) for income taxes               2,395           338           351           216          (768)
                                               ---------     ---------     ---------     ---------     ---------
Income (loss) from continuing operations
before minority interest, discontinued
operations, extraordinary loss and
cumulative effect of change in accounting         23,634       (12,073)       (4,472)      (16,790)       (4,558)
Minority interest in consolidated affiliate          975            --            --            --            --
Discontinued operations:
  (Loss) income from discontinued
operations                                            --            --        (3,249)      (11,240)        1,146
  Reversal of loss and (loss) on disposal         11,000       (11,000)      (38,343)           --            --
                                               ---------     ---------     ---------     ---------     ---------
Income (loss) before extraordinary loss
and cumulative effect of  change in
accounting                                        33,659       (23,073)      (46,064)      (28,030)       (3,412)
Extraordinary loss(5)                              6,251            --         6,824            --         1,186
Cumulative effect of change in
accounting(6)                                      8,213            --            --         2,110            --
                                               ---------     ---------     ---------     ---------     ---------
Net income (loss)                              $  19,195     $ (23,073)    $ (52,888)    $ (30,140)    $  (4,598)
                                               =========     =========     =========     =========     =========
Average number of shares outstanding              11,756        11,712        11,674        11,662         9,794
                                               =========     =========     =========     =========     =========
</TABLE>


                                       13
<PAGE>   14
<TABLE>
<S>                                              <C>          <C>          <C>          <C>          <C>      
Primary earnings (loss) per share:
  From continuing operations before
  minority interest, discontinued operations,
   extraordinary loss and cumulative effect
   of change in accounting                       $   2.00     $  (1.03)    $   (.39)    $  (1.44)    $   (.46)
  Minority interest in consolidated affiliate        (.08)          --           --           --           --
  Discontinued operations:
    (Loss) income from discontinued
operations                                             --           --         (.28)        (.96)         .11
    Reversal of loss and (loss) on disposal           .93         (.94)       (3.28)          --           --
  Extraordinary loss                                 (.53)          --         (.58)          --         (.12)
  Cumulative effect of change in accounting          (.69)          --           --         (.18)          --
                                                 --------     --------     --------     --------     --------
  Net income (loss) per share                    $   1.63     $  (1.97)    $  (4.53)    $  (2.58)    $   (.47)
                                                 ========     ========     ========     ========     ========
Fully diluted earnings (loss) per share:
  From continuing operations before
    minority interest, discontinued
operations,
    extraordinary loss and  cumulative effect
    of change in accounting                      $   1.73     $  (1.03)    $   (.39)    $  (1.44)    $   (.46)
  Minority interest in consolidated affiliate        (.07)          --           --           --           --
  Discontinued operations:
    (Loss) income from discontinued
operations                                             --           --         (.28)        (.96)         .11
    Reversal of loss and (loss) on disposal           .81         (.94)       (3.28)          --           --
  Extraordinary loss                                 (.46)          --         (.58)          --         (.12)
  Cumulative effect of change in accounting          (.60)          --           --         (.18)          --
                                                 --------     --------     --------     --------     --------

  Net income (loss) per share                    $   1.41     $  (1.97)    $  (4.53)    $  (2.58)    $   (.47)
                                                 ========     ========     ========     ========     ========
Cash dividends per share:
  Common stock                                   $     --     $     --     $     --     $    .08     $    .12
  Class B common stock                           $     --     $     --     $     --     $    .08     $    .12

BALANCE SHEET DATA(2):
Working capital                                  $ 50,716     $ 24,534     $ 39,020     $116,430     $127,036
Total assets                                      142,637      169,744      180,743      197,225      228,631
Total long-term debt                              112,336      143,770      137,295      161,910      148,893
Stockholders' equity                              (43,254)     (62,697)     (40,009)       6,196       40,427
</TABLE>


                                       14
<PAGE>   15
ITEM 6.   SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                   FISCAL YEARS ENDED JUNE 30,

                                                      1991         1990        1989        1988        1987
                                                   ---------     --------    --------    --------    --------
                                                  RESTATED(1)
                                                         (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                <C>           <C>         <C>         <C>         <C>     
INCOME STATEMENT DATA (2):
Net sales                                          $ 186,327     $186,315    $194,585    $152,400    $117,149
Cost of sales                                        121,597      120,977     128,038     102,414      78,908
                                                   ---------     --------    --------    --------    --------
Gross profit                                          64,730       65,338      66,547      49,986      38,241
Selling, general and administrative expenses          50,263       49,452      48,479      36,492      27,051
Restructuring and other non-recurring                                                                         
charges                                                   --           --          --          --          -- 
                                                   ---------     --------    --------    --------    --------
Operating (loss) income(3)                            14,467       15,886      18,068      13,494      11,190
Gain on sale of Barnett stock(4)                          --           --          --          --          --
Interest expense, net                                 17,462       15,814       8,136       3,841       3,727
                                                   ---------     --------    --------    --------    --------
Income (loss) from continuing operations before
  income taxes, minority interest, discontinued
  operations, extraordinary loss and cumulative
  effect of change in accounting                      (2,995)          72       9,932       9,653       7,463
Provision (benefit) for income taxes                    (680)          27       3,794       3,044       3,673
                                                   ---------     --------    --------    --------    --------
Income (loss) from continuing operations before
minority interest, discontinued operations,
extraordinary loss and cumulative effect of           (2,315)          45       6,138       6,609       3,790
change in accounting
Minority interest in consolidated affiliate               --           --          --          --          --
Discontinued operations:
  (Loss) income from discontinued operations           4,343        6,743       1,183          --          --
  Reversal of loss and (loss) on disposal                 --           --          --          --          --
                                                   ---------     --------    --------    --------    --------
Income (loss) before extraordinary
  loss and cumulative effect of
  change in accounting                                 2,028        6,788       7,321       6,609       3,790
Extraordinary loss(5)                                     --          320          --         666       1,590
Cumulative effect of
  change in accounting(6)                                 --           --          --          --          --
                                                   ---------     --------    --------    --------    --------
Net income (loss)                                  $   2,028     $  6,468    $  7,321    $  5,943    $  2,200
                                                   =========     ========    ========    ========    ========
Average number of shares outstanding                   9,570        9,659       9,204       9,316       9,470
                                                   =========     ========    ========    ========    ========
</TABLE>


                                       15
<PAGE>   16
<TABLE>
<S>                                                   <C>          <C>          <C>          <C>          <C>    
Primary earnings (loss) per share:
  From continuing operations before minority
  interest, discontinued operations, extraordinary
  loss and cumulative effect of change in
  accounting                                          $   (.24)    $    .01     $    .67     $    .71     $   .40
  Minority interest in consolidated affiliate               --           --           --           --          --
  Discontinued operations:
    (Loss) income from discontinued operations             .45          .69          .13           --          --
    Reversal of loss and (loss) on disposal                 --           --           --           --          --
  Extraordinary loss                                        --         (.03)          --         (.07)       (.17)
    Cumulative effect of change in accounting               --           --           --           --          --
                                                      --------     --------     --------     --------     -------
    Net income (loss) per share                       $    .21     $    .67     $     80     $    .64     $   .23
                                                      ========     ========     ========     ========     =======
Fully diluted earnings (loss) per share:
  From continuing operations before minority
  interest, discontinued operations, extraordinary
  loss and cumulative effect of change in
  accounting                                          $   (.24)    $    .01     $    .59     $    .64     $   .40
  Minority interest in consolidated affiliate               --           --           --           --          --
  Discontinued operations:
    (Loss) income from discontinued operations             .45          .65          .11           --          --
    Reversal of loss and (loss) on disposal                 --           --           --           --          --
  Extraordinary loss                                        --         (.03)          --         (.06)       (.17)
  Cumulative effect of change in accounting                 --           --           --           --          --
                                                      --------     --------     --------     --------     -------
  Net income (loss) per share                         $    .21     $    .63     $    .70     $    .58     $   .23
                                                      ========     ========     ========     ========      ======
Cash dividends per share:
  Common stock                                        $    .12     $    .12     $    .10     $    .07     $   .05
  Class B common stock                                $    .12     $    .11     $    .08     $    .05     $   .02

BALANCE SHEET DATA(2):
Working capital                                       $133,454     $136,989     $117,777     $ 54,983     $47,890
Total assets                                           236,237      249,892      235,485      113,313      95,509
Total long-term debt                                   156,431      176,523      178,976       58,513      48,530
Stockholders' equity                                    37,866       39,242       26,934       20,921      17,046
</TABLE>

(1)      During fiscal 1996, the Company identified an intercompany inventory
         reconciling item between Consumer Products and WAMI and has restated
         prior year financial statements to reflect the correction of this item.
         The effect of this restatement was as follows:

<TABLE>
<CAPTION>
                                         As Previously
Total Stockholders' Equity:                 Reported             As Restated
--------------------------               -------------          -----------
<S>                                          <C>                   <C>    
at June 30, 1991                             $38,066               $37,866
at June 30, 1992                              40,827                40,427
at June 30, 1993                               7,496                 6,196
at June 30, 1994                             (37,709)              (40,009)
at June 30, 1995                             (60,397)              (62,697)
</TABLE>


                                       16
<PAGE>   17
<TABLE>
<S>                                          <C>                   <C>    

Operating Income:
Fiscal 1991                                  $14,667               $14,467
Fiscal 1992                                   14,899                14,699
Fiscal 1993                                    4,691                 3,791
Fiscal 1994                                   18,213                17,213

Net income (loss):
Fiscal 1991                                   $2,228                $2,028
Fiscal 1992                                   (4,398)               (4,598)
Fiscal 1993                                  (29,240)              (30,140)
Fiscal 1994                                  (51,888)              (52,888)
</TABLE>

         Corresponding changes have been made to the consolidated balance sheets
         to reduce inventories.

(2)      This information reflects the acquisitions of WAMI in November 1990,
         U.S. Lock in July 1988, the plumbing and floor care businesses of The
         Stanley Works in May 1988, Madison Equipment Company in March 1988, H.
         Belanger Plumbing Accessories, Ltd. ("Belanger") in July 1987 and
         Keystone Franklin, Inc. in December 1986. Belanger was sold in October
         1993. Discontinued operations data relates to Ideal, which was acquired
         in May 1989 and accounted for as a purchase. All per share amounts have
         been adjusted to reflect a three-for-two stock split effective July 1,
         1988, as well as the distribution of one share of a new Class B 
         Common Stock for each share of common stock held, effectively a 
         two-for-one stock split, effective December 29, 1986.

(3)      During fiscal 1996, the Company recorded a $19.5 million restructuring
         and asset impairment loss, which included a $7.4 million restructuring
         charge primarily attributable to strategic initiatives at Consumer
         Products and a $12.1 asset impairment charge attributable to
         the Company's U.S. Lock division in accordance with SFAS 121 and a
         $14.8 charge related to the reduction of carrying value of certain 
         assets and liabilities. During fiscal 1995, the Company incurred $2.8
         million in warehouse closure costs as Consumer Products' distribution
         network was downsized from four locations to three. During fiscal 1993,
         the Company recorded a $6.8 million restructuring charge which included
         $4.6 million representing the estimated loss to be incurred upon the
         proposed disposal of three businesses, $1.6 million representing costs
         incurred to consolidate administrative functions and transfer two of
         Consumer Products' domestic packaging facilities to Mexico and $0.6
         million related to the Company's decision to not proceed with the
         securities offering of Barnett in fiscal 1993. The fiscal 1992
         restructuring charge consisted of a $3.9 million capital loss realized
         upon the sale of the Company's portfolio of debt securities. See Note 3
         to the Consolidated Financial Statements for further discussion.

(4)      Reflects the gain on the Barnett Public Offering as further described
         in Note 2 to the Consolidated Financial Statements.

(5)      Represents deferred financing costs written off due to the repayment
         and refinancing of debt in fiscal 1996 and 1994 as further described in
         Notes 2 and 5 to the Consolidated Financial Statements. The fiscal
         1992, as described in Note 5 to the Consolidated Financial Statements,
         and 1990 extraordinary charges relate to the repurchase of certain debt
         securities. The fiscal 1988 and 1987 extraordinary charges relate to
         accelerated amortization and market premium costs related to certain
         notes.

(6)      See Note 4 to the Consolidated Financial Statements for a discussion
         regarding the cumulative effect of change in accounting for procurement
         costs of $8.2 million in fiscal 1996 and for certain distribution
         center start-up and catalog development costs of $2.1 million in fiscal
         1993.


                                       17
<PAGE>   18
ITEM  7           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS

GENERAL

         The Company operates in a single business segment -- the distribution
of plumbing, electrical and hardware products. The Company's business is
conducted primarily through Consumer Products and Barnett.

         In August 1995, the Company announced that it had decided to sell its
Consumer Products business and entered into a letter of intent, which
subsequently expired, which contemplated the sale of the Consumer Products
business, together with certain supporting operations and certain home center
accounts now serviced by Barnett, to a group consisting of HIG Capital
Management of Miami, Florida along with certain members of Consumer Products'
existing management team for an aggregate cash purchase price of $50 million
plus other consideration which would have given the Company approximately a 25%
economic interest in Consumer Products on a going forward basis. Since the
consummation of the Barnett Public Offering, the Company has ceased its efforts
to sell Consumer Products and instead retains and continues to operate Consumer
Products and, for fiscal 1996, reported its results as a continuing operation.
Prior period consolidated financial statements have been reclassified to conform
with the current period presentation.

         On February 1, 1996, Barnett filed a registration statement with the
Securities and Exchange Commission with respect to the Barnett Public Offering.
On March 28, 1996, the registration statement with respect to the Barnett Public
Offering was declared effective and on April 3, 1996, the Barnett Public
Offering was consummated. In such offering, 7,207,200 shares, representing
approximately 55.1% of the Barnett Common Stock, were sold in the aggregate by
Barnett and the Company at an initial public offering price per share of $14.00
resulting in aggregate net proceeds of $92.6 million. As of October 11, 1996, as
a result of Waxman USA's conversion of a portion of the convertible non-voting
preferred stock of Barnett, which is owned solely by Waxman USA, to common stock
during the fourth quarter, the Company indirectly owns approximately 49.9% of
the Barnett Common Stock and, together with its remaining convertible 
non-voting preferred stock, approximately a 54% economic interest in the
capital stock of Barnett. See Note 2 to the Consolidated Financial Statements
for a discussion of certain restrictions on the ability of the Company to
convert such preferred stock.

         The Company recorded a $65.9 million pre-tax gain from the sale of
Barnett Common Stock in fiscal 1996.

         In connection with the Barnett Public Offering and as part of the
Company's efforts to decrease its leverage and increase its financial
flexibility, the Company consummated a private exchange offer (the "Private
Exchange Offer") pursuant to which it exchanged $43,026,000 principal amount of
Waxman USA's 11 1/8% Senior Notes due 2001 (the "Senior Notes") for a like
principal amount of the Company's 13 3/4% Senior Subordinated Notes due 1999
(the "Senior Subordinated Notes") and in connection therewith solicited consents
to certain amendments to the indenture pursuant to which the Senior Subordinated
Notes were issued. Generally, the amendments to the Senior Subordinated Note
indenture eliminated virtually all of the restrictive covenants and events of
default previously contained in such indenture. The Private Exchange Offer
decreased the Company's cash interest burden and extended the maturity of the
Senior Subordinated Notes exchanged in the Private Exchange Offer until June 1,
2001.

         In connection with the likely completion of the Barnett Public Offering
and consequent retention of the Consumer Products business, the Company embarked
upon a strategic review of Consumer Products and its other wholly-owned
operations, taking into account the difficulties encountered during the sale
process of Consumer Products, as well as the recent weaknesses in the industry
in which the Company competes. As a result of management's review and refocus of
Consumer Products as a continuing operation and consistent with its strategic
direction, an $11.9 million charge, primarily for a reduction in the carrying
value of day to day operating assets and liabilities, has been recorded by
Consumer Products in operating results, which represented an increase of $6.9
million to cost of goods sold and $5.0 million to selling, general and
administrative expenses. Such charges, comprised of $7.7 million and $4.2
million recorded in the fiscal 1996 third and fourth quarters, respectively,
included $5.1 million for the impairment and write-down of inventory, $2.7
million for certain accounts receivable balances, $2.0 million representing a
portion of the costs of developing a management information system, $0.5 million
of abandoned product development costs and $1.6 million for various liabilities.

         The traditional customers of certain of WOC's operations, smaller
retail establishments, have been adversely affected by the movement by large
national retailers to expand in more rural locations and to compete with such
smaller retail establishments. In addition, the market has been increasingly
impacted by the availability of lower cost foreign sourcing to both domestic and
foreign competitors. In connection with management's strategic review of its
other wholly-owned operations and as a result of business factors affecting
these other operations, including increased competition from multi-category
retailers and competitive pricing from overseas competitors, the effect of which
was exacerbated by excess manufacturing capacity at the Company's foreign
facilities, the Company recorded an additional charge of $2.9 million in the
fiscal 1996 fourth quarter operating results primarily for a reduction in the
carrying value of day to day operating assets and liabilities. Such charge
included $1.7 million to reduce the carrying value of inventory and other assets
at WOC and TWI, $0.4 million of accelerated depreciation as a result of a change
in estimated useful lives of certain property and equipment and $0.8 million for
various liabilities.


                                       18
<PAGE>   19
         In addition, during the fourth quarter of fiscal 1996, the Company
recorded a $19.5 million pre-tax restructuring and asset impairment charge.
Below is a summary of the components comprising such charge:

<TABLE>
<CAPTION>
                                                                   (in millions)
<S>                                                                    <C>   
         Exiting product lines                                         $  4.1
         Warehouse closure costs                                          1.3
         Reduction of excess capacity                                     1.1
         Other                                                            0.9
         Asset impairment                                                12.1
                                                                       ------
                  Total                                                $ 19.5
</TABLE>

         Exiting product lines: In furtherance of its efforts to strengthen the
         Consumer Products business, the Company has decided to eliminate
         Consumer Products' electrical product line and reduce the number of
         individual products offered in its plumbing and floor care product
         lines. These actions will enable Consumer Products to reduce fixed
         costs as well as optimize and focus its product offerings to its major
         retail customers. Consumer Products is currently winding down the
         servicing of the electrical product line as well as reducing the number
         of products offered in its plumbing and floor care product lines and
         does not expect to incur cash outlays for these reductions. The $4.1
         million charge is primarily for the write-down of related inventory of
         which $1.8 million has been disposed of as of June 30, 1996.

         Warehouse closure costs: During the fourth quarter of 1996, the Company
         downsized Consumer Products' distribution network from three locations
         to two and, as a result, incurred warehouse closure costs of $1.3
         million. The remaining accrual at June 30, 1996 is $0.8 million. The
         warehouse closure costs include costs associated with the remaining
         noncancellable term of an operating lease of $0.3 million, incremental
         employee salaries and benefits associated with closing the warehouse of
         $0.5 million, loss on fixed assets of $0.2 million and other
         miscellaneous expenses associated with the closing of $0.3 million.

         Reduction of excess capacity: With the discontinuance and downsizing of
         Consumer Products' product lines, the foreign operations which support
         Consumer Products identified excess capacity in both buildings and
         equipment. As such, a $1.1 million charge was recorded to reduce the
         net book value of buildings by $0.8 million and equipment by $0.3
         million.

         Other: In connection with the strategic review, a division of WOC
         discontinued certain product offerings which resulted primarily in a
         write-down of inventory and excess equipment.

         Asset Impairment: The asset impairment charge of $12.1 million relates
         to the Company's U.S. Lock division. Due to the continued decline in
         the locksmith industry brought about by the competitive nature of the
         D-I-Y retail market, as required by SFAS No. 121 "Accounting for the
         Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
         Of," the Company expensed $9.8 million of goodwill and $2.3 million of
         property and equipment, as the carrying value for the division exceeded
         its fair value. Fair value was determined based on a multiple of cash
         flows.

         Effective July 1, 1995, the Company changed its method of accounting
for procurement costs. Procurement costs represent the amount paid in connection
with a customer's commitment to purchase products from the Company for a
specified period. The amount capitalized is the consideration paid by the
Company to the new or existing customer (x) for the right to supply such
customer for a specified period and (y) to purchase competitor's merchandise
that the customer has on hand when it changes suppliers, less the salvage value
received by the Company. The Company believes that amortization in the fiscal
year incurred for such costs is consistent with the Company's strategic review
of Consumer Products and is preferable due to the uncertainty of today's
competitive retail environment. Previously, the Company amortized these costs
over the period deemed to be benefited. The cumulative effect of this change on
prior years of $8.2 million, without tax benefit, is reported separately in the
fiscal 1996 consolidated statement of operations. The additional effect of the
change in fiscal 1996 was to decrease the operating loss by $2.1 million.

         The Company recorded an extraordinary charge of approximately $6.3
million in fiscal 1996 related to a premium paid on the retirement of the Senior
Secured Notes and the accelerated amortization of the related unamortized debt
discount and debt issuance costs attributed to indebtedness repaid from the net
proceeds of the Barnett Public Offering and the Senior Notes and a new credit
facility entered into by Consumer Products and WOC with BankAmerica Business
Credit, Inc. (the " New Credit Agreement").

         Effective March 31, 1994, the Company adopted a plan to dispose of its
Canadian subsidiary, Ideal. On May 5, 1994, Ideal's Canadian bank filed an
involuntary bankruptcy petition against Ideal citing defaults under the bank
credit agreements (borrowings under these agreements were non-recourse to Waxman
Industries). On May 30, 1994, Ideal was declared bankrupt by the Canadian court
and, as a result, the Company's ownership and control of Ideal effectively
ceased on such date. For financial reporting purposes, Ideal is reported as a
discontinued operation.


                                       19
<PAGE>   20
RESTATEMENT OF PRIOR YEAR FINANCIAL STATEMENTS

         During fiscal 1996, the Company identified an intercompany inventory
reconciling item between Consumer Products and WAMI and has restated prior year
financial statements to reflect the correction of this item. See Note 13 to the
Consolidated Financial Statements for a further discussion of this item.

RESULTS OF OPERATIONS

         The following table sets forth certain items reflected in the Company's
Consolidated Statements of Operations as a percentage of net sales:

<TABLE>
<CAPTION>
                                                               Percentage of Net Sales

                                                             Fiscal Year Ended June 30,
                                                  1996       1995       1994       1993       1992
                                                  ----       ----       ----       ----       ----
                                                                      restated   restated   restated
                                                                      --------   --------   --------
<S>                                              <C>        <C>        <C>        <C>        <C>   
Net sales                                        100.0%     100.0%     100.0%     100.0%     100.0%

Cost of sales                                     68.3%      65.6%      65.6%      67.5%      64.4%

Gross profit                                      31.7%      34.4%      34.4%      32.5%      35.6%

Selling, general and administrative
  expenses                                        30.0%      26.9%      26.4%      27.4%      26.2%

Restructuring and other non-recurring
  charges                                          8.3%       1.2%        --        3.3%       2.0%
  
Operating (loss) income                           (6.6%)      6.3%       8.0%       1.8%       7.4%

Gain on sale of Barnett stock                     28.0%        --         --         --         --

Interest expense, net                             10.3%      11.4%       9.9%       9.9%      10.1%

Income (loss) from continuing
  operations before income taxes,
  minority interest, discontinued
  operations, extraordinary loss
  and cumulative effect of change
  in accounting                                   11.1%      (5.1%)     (1.9%)     (8.1%)     (2.7%)

Provision (benefit) for income taxes               1.0%       0.1%       0.2%       0.1%      (0.4%)

Income (loss) from continuing operations
before minority interest, discontinued
operations, extraordinary loss and
cumulative effect of change in accounting         10.1%      (5.2%)     (2.1%)     (8.2%)     (2.3%)

Minority interest in consolidated affiliate         0.4%       --         --         --         --

Income (loss) from discontinued operations           --        --       (1.5%)     (5.5%)      0.6%
</TABLE>


                                       20
<PAGE>   21
<TABLE>
<CAPTION>
                                                1996    1995      1994      1993     1992
                                                ----    ----     -----      ----     ----
                                                                restated  restated restated
                                                                --------  -------- --------
<S>                                             <C>     <C>      <C>       <C>       <C>   
Reversal of loss and (loss) on disposal of
business                                         4.6%   (4.7%)   (17.8%)      --       --

Income(loss) before extraordinary loss and
cumulative effect of change in accounting       14.3%   (9.9%)   (21.4%)   (13.7%)   (1.7%)

Extraordinary loss                               2.6%     --       3.2%       --      0.6%

Cumulative effect of change in accounting        3.5%     --        --       1.0       --

Net income (loss)                                8.2%   (9.9%)   (24.6%)   (14.7%)   (2.3%)
</TABLE>

YEAR ENDED JUNE 30, 1996 VS. YEAR ENDED JUNE 30, 1995

NET SALES

         The Company's net sales increased $2.8 million, or 1.2%, to $235.1
million in fiscal 1996 from $232.3 million in the prior year.

         Barnett's net sales increased $18.3 million, or 16.8%, to $127.4
million in fiscal 1996 from $109.1 million in the prior year. Approximately
78.1% of the increase in Barnett's net sales is attributable to the telesales
operations, primarily resulting from increased sales by existing
telesalespersons and the addition of 25 telesalespersons compared to the prior
year. Contributing to the overall increase in net sales was a net increase of
400 in the total number of products offered by Barnett, which generated
approximately $6.6 million of the net sales increase, as well as an increase in
active customers to 42,000 from 38,000 which accounted for approximately $4.6
million of the net sales increase during fiscal 1996.

         Approximately $3.0 million of Barnett's net sales increase is
attributable to Barnett'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, Barnett takes title to the products sold and
provides services to the customer and supplier including marketing, technical
assistance and credit and collection activities. Prior to July 1, 1995, direct
sales were immaterial and were included in the financial statements as a net
reduction to cost of goods sold. Barnett has intensified its focus on its direct
sales program during the current year and consequently, direct sales for fiscal
1996 increased 66.5% over the corresponding prior year.

         Consumer Products' net sales decreased $10.3 million, or 14.2%, to
$61.7 million in fiscal 1996 from $72.0 million in the prior year. The decrease
in Consumer Products' net sales is primarily due to the weakening retail
environment, the loss of two customers and the prior year's net sales being
positively impacted by the expansion of Consumer Products' business with several
of its large customers. Such expansion included initial opening orders of $2.5
million in fiscal 1995.

         WOC's and TWI's net sales decreased $5.2 million, or 10.3%, to $46.0
million in fiscal 1996 from $51.2 million in the prior year. The decrease in net
sales at WOC is primarily the result of lower selling prices caused by
fluctuations in copper prices and the discontinuance of certain low-margin
accounts. The decrease in net sales at TWI is primarily the result of lower
volume on external sales as additional emphasis was placed on supplying
intercompany shipments.

GROSS PROFIT

         Consolidated gross profit margin decreased to 31.7% of net sales in
fiscal 1996 from 34.4% of net sales in the prior year. The decrease is primarily
attributable to the Consumer Products business as a result of additional cost of
goods sold charges of $6.9 million, recorded in the current year related to
management's strategic review and is primarily comprised of certain inventory
carrying costs which are included in the $11.9 million charge described above.
Also affecting the gross profit margin decreases for Consumer Products was a
strong sales mix from the expansion of the business in fiscal 1995 and to a
lesser extent, increased supplier costs in the current year. Barnett's gross
profit decreased to 33.5% for fiscal 1996 from 34.2% for fiscal 1995 as a result
of the increased revenues from the above mentioned direct ship programs.
Excluding the effect of the direct shipments, Barnett's gross profit margin
remained basically unchanged between years. The Company's other operations also
experienced small decreases in gross profit margin partially offset by continued
improved margins at a Mexican subsidiary.


                                       21
<PAGE>   22
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general and administrative (SG&A) expenses increased by $8.1
million, or 13.0%, to $70.6 million for fiscal 1996 from $62.5 million for the
prior year. As a percentage of net sales, these expenses represented 30.0% in
fiscal 1996 compared to 26.9% in fiscal 1995. The increase in SG&A expenses is
primarily the result of the current period charges attributed to management's
strategic review of its wholly-owned operations which were recorded at the
Consumer Products business of $5.0 million and $2.9 million at the Company's
other wholly-owned operations. SG&A expenses also increased at Consumer Products
as a result of recording additional bad debt expense primarily as a result of
the weakening retail environment, which the Company expected would make
collection of certain accounts receivable balances questionable with certain
customers undertaking Chapter 11 proceedings. SG&A expenses as a percentage of
net sales decreased at Barnett and increased at WOC as a result of changes in
sales volumes.

INTEREST EXPENSE

         Interest expense decreased to $24.3 million for fiscal 1996 from $26.4
million in the prior year. Average borrowings decreased from $198.7 million to
$185.8 million between years and the weighted average interest rate decreased
from 13.3% to 13.1% during the same period. The decrease in average borrowings
is due to the repayment of indebtedness from the net proceeds of the Barnett
Public Offering in the fourth quarter of fiscal 1996.

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

         Pre-tax results increased to income of $26.0 million in fiscal 1996
from a loss of $11.7 million in fiscal 1995 due to the gain on sale of Barnett
Common Stock offset by the restructuring and asset impairment charges. Pre-tax
results include foreign operations' loss of $1.3 million in fiscal 1996 and $0.4
million in fiscal 1995. The decrease in foreign operations' results between
years is primarily the result of a $1.1 million restructuring charge in fiscal
1996 for the write-down of buildings and equipment due to excess capacity.

INCOME TAXES

         The provision for income taxes was $2.4 million in fiscal 1996 as
compared to $0.3 million in fiscal 1995. The effective tax rate in fiscal 1996
was 9.2%. The fiscal 1996 provision consisted primarily of Barnett's federal and
state taxes for the period of April 3 through June 30, 1996 and foreign taxes
and the alternative minimum tax. Differences between the effective tax rate and
the statutory rate are primarily the result of the utilization of loss
carryforwards, state and foreign taxes and goodwill amortization which is not
deductible for tax purposes.

REVERSAL OF LOSS ON DISPOSAL

         Upon consummation of the Barnett Public Offering, the Company ceased
its efforts to sell Consumer Products. The $11.0 million loss recorded in fiscal
1995 was reversed in fiscal 1996.

YEAR ENDED JUNE 30, 1995 VS. YEAR ENDED JUNE 30, 1994

NET SALES

         The Company's net sales increased $17.2 million, or 8.0%, to $232.3
million in fiscal 1995 from $215.1 million in fiscal 1994. Excluding the results
of Belanger, which was sold by the Company in October 1993, net sales increased
8.8%.

         Barnett's net sales increased $13.9 million, or 14.6%, to $109.1
million in fiscal 1995 from $95.2 million in fiscal 1994. Approximately 91.8% of
the increase in Barnett's net sales is attributable to the telesales operations,
primarily resulting from increased sales by existing telesalespersons and the
addition of 13 telesalespersons in fiscal 1995. Contributing to the overall
increase in net sales was a net increase of 200 in the total number of products
offered by Barnett which generated approximately $6.9 million of additional net
sales and an increase of active customers to 38,000 from 36,000 which accounted
for approximately $3.8 million of the net sales increase. The increased net
sales can also be partially attributed to Barnett's other successful marketing
programs, including the introduction of a new catalog in January fiscal 1995
directed to its hardware store customers, coupled with new merchandising
strategies which offer comprehensive customer services.

         Consumer Products' net sales increased $1.3 million, or 1.8%, to $72.0
million in fiscal 1995 from $70.7 million in fiscal 1994. The increase in
Consumer Products' net sales was primarily the result of the expansion of
Consumer Products' business with several of its large customers. The opening
orders for this additional business, which totaled approximately $2.5 million,
were shipped during the first fiscal quarter. This increase was offset due to
the consolidation of two regional do-it-yourself retailers which resulted in the
loss of a customer.


                                       22
<PAGE>   23
         The Company's net sales from other operations increased $2.0 million,
or 4.2%, to $51.2 million in fiscal 1995 from $49.2 million in fiscal 1994. This
increase is primarily the result of changes in volume and higher sales prices
associated with copper products.

GROSS PROFIT

         Gross profit increased from $74.1 million in fiscal 1994 to $79.9
million in fiscal 1995. Gross profit margin remained at 34.4% for fiscal 1994
and fiscal 1995. Barnett's gross profit margin was favorably affected by the
increased sales of private label products, which generally carry a higher gross
profit margin, and which increased to 26.6% of Barnett's net sales during fiscal
1995 compared to 26.4% of Barnett's net sales in the prior year period. The
favorable effect of increased sales of private label products was offset by
increased costs of branded products.

SG&A EXPENSES

         SG&A expenses increased by $5.6 million, or 9.8%, to $62.5 million for
fiscal 1995 from $56.9 million for the prior year period. Excluding the impact
of the sale of Belanger, SG&A expenses increased 10.8%. The increase in SG&A
expenses as a percentage of net sales was 26.9% in fiscal 1995 compared to 26.4%
in fiscal 1994 was principally due to increased selling and occupancy costs,
which were partially offset by the leveraging of fixed costs, primarily
administrative expenses, over a larger sales base. SG&A expenses also increased
due to Barnett's August 1995 relocation of its telesales operations to a new
9,000 square foot "call center" and the expansion or relocation of several of
Barnett's distribution centers.

RESTRUCTURING AND OTHER NON-RECURRING CHARGES

         During the fiscal 1995 fourth quarter, the Company downsized Consumer
Products' distribution network from four locations to three and as a result
incurred warehouse closure costs of $2.8 million. During fiscal 1994, the
Company was unable to come to terms with a buyer for its LeRan/Madison
operations which were held for sale as of June 30, 1993. The Company evaluated
the carrying value of the assets previously held for sale and concluded that no
further writedown was required in excess of the $2.0 million reserve previously
established. Therefore, the reversal of the accrued loss on disposal in the
second quarter of 1994 was offset by the writedown of assets to net realizable
value and the accrual for relocation of the administrative offices.

INTEREST EXPENSE

         Interest expense increased to $26.4 million for fiscal 1995 from $21.3
million in the prior year period. Average borrowings increased from $172.2
million to $198.7 million between periods and the weighted average interest rate
increased from 12.4% to 13.3% during the same period. The increase in average
borrowings outstanding was due to increased working capital needs, as well as
the impact of additional debt incurred to fund expenses related to the Corporate
Restructuring.

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

         Pre-tax results decreased to a loss of $11.7 million in fiscal 1995
from a loss of $4.1 million in fiscal 1994 due to the restructuring charge of
$2.8 million discussed above and higher interest expense. Pre-tax results
include foreign operations' loss of $0.4 million in fiscal 1995 and income of
$1.0 million in fiscal 1994. This decrease in the foreign operations' results
between years is primarily the result of a non-recurring gain on the sale of
property in fiscal 1994.

INCOME TAXES

         The provision for income taxes was $0.3 million for fiscal 1995
compared to $0.4 million in the prior year and represents state and foreign
taxes. In accordance with the provisions of SFAS 109, the Company was unable to
benefit losses in both fiscal fiscal 1995 and fiscal 1994.

LOSS ON DISPOSAL

         The Company recognized a loss on disposal of Consumer Products of $11.0
million in the fiscal 1995 fourth quarter. As discussed above, as a result of
the consummation of the Barnett Public Offering on April 3, 1996, the Company
ceased its efforts to sell the Consumer Products business. Therefore, the loss
on disposal of $11.0 million recorded as of June 30, 1995 was reversed in fiscal
1996.

         The Company also recorded a loss from discontinued operations of $3.2
million, as well as a loss on the disposal of Ideal of approximately $38.3
million in fiscal 1994.


                                       23
<PAGE>   24
FISCAL 1994 VERSUS FISCAL 1993

NET SALES

         The Company's net sales for fiscal 1994 totaled $215.1 million compared
with $204.8 million in fiscal 1993, an increase of 5.0%. The Company's net sales
were adversely affected by the sale of Belanger in October 1993. Belanger's net
sales for fiscal 1994 totaled $1.5 million compared with $6.3 million in fiscal
1993. Net sales increased 7.6% after excluding the impact of Belanger. The net
sales increase is primarily the result of the continued growth of Barnett.
Barnett's net sales increased $12.3 million, or 14.9%, from $82.9 million in
fiscal 1993 to $95.2 million in fiscal 1994. Sales of new products accounted for
$7.2 million of the increase. The remainder of Barnett's increase was the result
of opening additional distribution centers during fiscal 1994, increasing the
total number of distribution centers to 28. Also contributing to the overall
increase in net sales from continuing operations was increased net sales from
Consumer Products. Consumer Products net sales increased $3.2 million, or 4.8%,
from $67.5 million in fiscal 1993 to $70.7 million in fiscal 1994. The increase
in Consumer Products' net sales is primarily the result of the sale of
additional existing product lines to several of its existing customers.
Management believes that the change in the continuing operation's net sales is
primarily the result of changes in volume.

GROSS PROFIT

         The Company's gross profit increased from 32.5% in fiscal 1993 to 34.4%
in fiscal 1994. The increase in the Company's gross margin is primarily a result
of improved margins at Barnett. Barnett's gross margin has been favorably
impacted by increased sales of higher margin proprietary branded products. Also
contributing to the increase in gross margins were improved gross margins at
Consumer Products. Consumer Products' margin increased as a result of
proportionately higher sales of higher margin packaged products during the
latter part of fiscal 1994. Overall, the Company's gross margins were favorably
impacted by an increase in the percentage of products purchased from foreign
sources. Such products typically generate higher gross margins than products
purchased domestically. The sale of Belanger had no significant effect on gross
margin. The fiscal 1994 and 1993 cost of sales for Consumer Products have been
restated to reflect the correction of an intercompany inventory reconciling
item. The result was to increase cost of sales by $1.0 million and $0.9 million
in fiscal 1994 and 1993, respectively, and reduce the gross profit margin by
0.5% in both years. Excluding the impact of Belanger, gross margin would have
been 32.9% in fiscal 1993 as compared to 34.6% in fiscal 1994.

SG&A EXPENSES

         The Company's operating expenses increased 1.4% for fiscal 1994
from $56.1 million in fiscal 1993 to $56.9 million in fiscal 1994. As discussed
below, prior year operating expenses included approximately $1.2 million of
additional amortization expense relating to an accounting change. Excluding the
impact of this additional amortization, as well as the sale of Belanger,
operating expenses increased 6.9% from $52.7 million in fiscal 1993 to $56.4
million in fiscal 1994. This increase was due primarily to higher operating
expenses at Barnett. Barnett's operating expenses increased approximately $2.8
million. The majority of the increases in Barnett's operating expenses related
to increased warehouse and selling and advertising costs. The increase in
warehouse and selling and advertising costs were $0.7 million and $1.1 million,
respectively. These increases primarily related to the opening of new
distribution centers and increased promotional activity during fiscal 1994.
Consumer Products' operating expenses increased approximately $0.5 million, or
2.9% between years.

RESTRUCTURING AND OTHER NON-RECURRING CHARGES

         As discussed below, the Company recorded a $6.8 million restructuring
charge during fiscal 1993.

OPERATING INCOME

         The Company's operating income totaled $17.2 million or 8.0% of net
sales in fiscal 1994 compared to $3.8 million or 1.8% of net sales in fiscal
1993. The restatement to reflect the correction of an intercompany inventory
reconciling item, as described in the gross profit discussion, decreased
operating income by $1.0 million and $0.9 million in fiscal 1994 and 1993,
respectively. Fiscal 1993 operating income included a $6.8 million restructuring
charge, as well as $1.2 million of additional amortization expense relating to
an accounting change, as discussed below and in Notes 3 and 4 to the
Consolidated Financial Statements. The impact of the sale of Belanger on
operating income was not significant.

INTEREST EXPENSE

         The Company's interest expense totaled $21.3 million in fiscal 1994
compared to $20.4 million in fiscal 1993. Average borrowings increased from
$159.1 million in fiscal 1993 to $172.2 million in fiscal 1994. The increase in
average borrowings outstanding is due to increased working capital needs and the
Company's May 1994 debt restructuring. The weighted average interest rate
decreased from 12.9%


                                       24
<PAGE>   25
in fiscal 1993 to 12.4% in fiscal 1994. The decrease in the weighted average
interest rate results from proportionally higher borrowings under the Company's
revolving credit facilities during fiscal 1994. Revolving credit facility
borrowings bear lower interest rates than the Company's other indebtedness. 

INCOME TAXES

         In accordance with provisions of SFAS 109, the Company is unable to
benefit losses in the current year. The Company has $59.6 million of available
domestic net operating loss carryforwards which expire through 2009, the benefit
of which has been reduced 100% by a valuation allowance. This includes amounts
relating to the disposition of Ideal.

         The provision for income taxes for both fiscal years 1993 and 1994
represents state and foreign taxes.

LOSS FROM CONTINUING OPERATIONS

         The Company's loss from continuing operations totaled $4.5 million in
fiscal 1994 compared to $16.8 million in fiscal 1993.

DISCONTINUED OPERATIONS

         The Company's net loss from discontinued operations totaled $3.2
million in fiscal 1994 compared to $11.2 million in fiscal 1993. The Company
also recognized a loss on the disposal of Ideal of approximately $38.3 million
in the fiscal 1994 third quarter.

EXTRAORDINARY CHARGE

         The Company recognized a $6.8 million extraordinary charge, without tax
benefit, in fiscal 1994. Approximately $6.6 million of the extraordinary charge
relates to the refinancing of the $50 million of Senior Subordinated Notes as
well as borrowings under the domestic bank credit facilities. The extraordinary
charge included the fees paid upon the exchange of the Senior Subordinated Notes
along with the accelerated amortization of unamortized debt discount and
issuance costs. The remainder of the extraordinary charge, $0.2 million which
primarily represents the accelerated amortization of unamortized debt discount
and issuance costs, results from the Company's repurchase pursuant to a
mandatory repurchase obligation of $1.9 million of its 9.5% Convertible
Subordinated Debentures due 2007 (the "Convertible Debentures"). 

NET LOSS

         The Company's net loss for fiscal 1994 totaled $52.9 million compared
with a net loss of $30.1 million in fiscal 1993. The fiscal 1994 and 1993 net
loss includes the effect of the restatement for the correction of an
intercompany inventory reconciling item which increased the loss by $1.0 million
and $0.9 million, respectively. The fiscal 1993 net loss also includes a $2.1
million charge for the cumulative effect of a change in accounting for
distribution center start-up and catalog development costs, which was made
during the fourth quarter of fiscal 1993 and was applied retroactively to July
1, 1992.

FISCAL 1993 VERSUS FISCAL 1992

NET SALES

         The Company's net sales for fiscal 1993 totaled $204.8 million compared
with $197.7 million in fiscal 1992, an increase of 3.6 %. Barnett's net sales
increased 14.9 % from $72.1 million in fiscal 1992 to $82.9 million in fiscal
1993. New product introductions accounted for $5.6 million of this increase. In
addition, the new catalog of maintenance products introduced in January 1992
generated approximately $2.2 million in incremental sales. The remainder of
Barnett's increase was the result of the opening of additional distribution
centers, as well as the growth of Barnett's existing customer base. Barnett
opened three additional distribution centers during fiscal 1993, increasing the
total number of distribution centers to 26. The increase from Barnett was offset
in part by lower net sales from Consumer Products. Consumer Products' net sales
totaled $67.5 million in fiscal 1993 compared with $70.0 million in fiscal 1992,
a decrease of 3.6%. Management believes that the change in the domestic
operations' net sales is primarily the result of changes in volume.

GROSS PROFIT

         The Company's gross margin was 32.5% in fiscal 1993, compared with
35.6% in fiscal 1992. Barnett's gross margin declined approximately one-half of
one percentage point and Consumer Products' gross margin declined approximately
four percentage points. The majority of Consumer Product's decline in margin is
attributable to proportionately lower sales of higher margin packaged products
as well as


                                       25
<PAGE>   26
competitive pressures within its markets relating to the pricing of new
business. Consumer Products' margins continued to decline during the first part
of fiscal 1994, however, it improved during the latter part of that year. Also
impacting fiscal 1993 and 1992 results is the increase in cost of sales of $0.9
million and $0.2 million, respectively, to correct an intercompany inventory
reconciling item. The result was to reduce gross profit by 0.5% and 0.1% in
fiscal 1993 and 1992, respectively.

SG&A EXPENSES

         The Company's operating expenses totaled $56.1 million, or 27.4% of
net sales, in fiscal 1993 compared with $51.8 million, or 26.2% of net sales,
in fiscal 1992, an increase of $4.3 million, or 8.2%. Approximately $1.2
million of this increase relates to accelerated amortization of certain
distribution start-up and catalog development costs during fiscal 1993 to
conform with prevailing industry practice. This change was made during the
fourth quarter and was applied retroactively to July 1, 1992. The effect of
this change on fiscal 1993 results was to increase amortization expense by $1.2
million. This increase is primarily the result of the introduction of a new
catalog, and in management's opinion, was not indicative of the expected impact
of accelerated amortization on future operating results. The cumulative effect
of this change on prior years totaled $2.1 million, without tax benefit, and is 
reported separately in the statement of operations as a change in accounting.
Excluding the impact of this item, operating expenses were up 6.7% primarily
due to increases at Barnett. Barnett's operating expenses (excluding the
accelerated amortization) increased approximately $2.1 million, or 13.4%, which
is less than Barnett's 14.9% increase in net sales between the years.
Approximately $1.3 million of Barnett's increase in operating expenses is
related to the opening of new distribution centers. Consumer Products'
operating expenses increased approximately $0.4 million between years.

RESTRUCTURING AND OTHER NON-RECURRING CHARGES

         In fiscal 1993, the Company recorded $6.8 million of restructuring and
other nonrecurring charges. In fiscal 1992, the Company recorded $3.9 million of
restructuring and other nonrecurring charges which represented a capital loss
realized from the sale of the Company's portfolio of debt securities.

         The fiscal 1993 restructuring charge consisted of $4.6 million related
to the expected losses in connection with the disposal of three small operating
units. The decision to dispose of the three entities was based in part on the
Company's strategy to refocus and build on its core businesses in the U.S.
(i.e., Consumer Products and Barnett). The Company completed the sale of one of
these operating units in October 1993. The Company was unable to come to terms
with the prospective buyer of the other two entities and the consummation of a
sale of these businesses is not expected to occur in the foreseeable future, if
at all. The remainder of the restructuring charge included $1.6 million of costs
incurred to consolidate administrative functions and transfer two of Consumer
Products' domestic packaging facilities to Mexico. These costs principally
consist of lease and severance termination costs of $0.5 million, relocation
costs, including payroll and freight costs of $0.5 million, and a write-off of
fixed assets of $0.1 million. The relocation to Mexico was done in order to take
advantage of that country's lower labor costs which are expected to benefit the
Company annually through increased margins. No additional cash disbursements
relating to the $1.6 million restructuring charge were incurred. The remaining
$0.6 million related to the Company's decision not to proceed with the
securities offering of Barnett in fiscal 1993.

OPERATING INCOME

         The Company's operating income totaled $3.8 million in fiscal 1993
compared with $14.7 million in fiscal 1992, a decrease of 74.2%. Fiscal 1993
results were negatively impacted by the $6.8 million restructuring charge, the
correction of an intercompany inventory reconciling item of $0.9 million, and
the $1.2 million of accelerated amortization, all described above. The remainder
of the decrease was primarily attributable to a $3.4 million decline in Consumer
Products' gross profit.

INTEREST EXPENSE

         The Company's net interest expense totaled $20.4 million for fiscal
1993 compared with $20.0 million for fiscal 1992, an increase of 1.7%. Average
borrowings outstanding totaled $159.1 million in fiscal 1993, as compared with
$159.7 million in fiscal 1992. The weighted average interest rate for fiscal
1993 was 12.9% compared with 13.2% for the prior year.

LOSS FROM CONTINUING OPERATIONS

         The Company's fiscal 1993 loss from continuing operations totaled $16.8
million compared with a loss of $4.6 million in fiscal 1992.

DISCONTINUED OPERATIONS

         The Company's fiscal 1993 net loss from discontinued operations totaled
$11.2 million compared with net income of $1.1 million in fiscal 1992.


                                       26
<PAGE>   27
NET INCOME (LOSS)

         The Company's fiscal 1993 net loss totaled $30.1 million and included a
$2.1 million charge for the cumulative effect of the change in accounting
discussed above. The net loss for fiscal 1992 was $4.6 million and included a
$1.2 million extraordinary charge for the early repayment of debt. The fiscal
1993 and 1992 net loss includes the effect of the restatement for the correction
of an intercompany inventory reconciling item which increased the net loss by
$0.9 million and $0.2 million, respectively. The Company was not able to benefit
any of its fiscal 1993 losses for tax purposes.

LIQUIDITY AND CAPITAL RESOURCES

         On February 1, 1996, Barnett filed a registration statement with the
Securities and Exchange Commission with respect to an initial public offering of
its common stock. On March 28, 1996, the registration statement with respect to
the Barnett Public Offering was declared effective and on April 3, 1996, the
Barnett Public Offering was consummated. In such offering, 7,207,200 shares,
representing approximately 55.1% of the Barnett Common Stock, were sold in the
aggregate by Barnett and the Company at an initial public offering price per
share of $14.00, resulting in aggregate net proceeds of $92.6 million. As a
result of the Company's conversion of a portion of the convertible non-voting
preferred stock of Barnett, which is owned solely by Waxman USA, to Barnett
Common Stock during the fiscal 1996 fourth quarter, as of June 30, 1996, the
Company owned approximately 49.9% of the Barnett Common Stock and, together with
the convertible non-voting preferred stock, approximately a 54% economic
interest in the capital stock of Barnett.

         Of the $47.7 million of net proceeds received by Barnett in the Barnett
Public Offering, Barnett used (i) $23.0 million to repay all of the outstanding
indebtedness borrowed by it under the secured credit facility (the "Operating
Companies Revolving Credit Facility"), among Citicorp USA, Inc. as agent,
Barnett, Consumer Products and WOC, (ii) $22.0 million to pay a dividend
evidenced by a note payable to Waxman USA, and (iii) $2.7 million for working
capital. The $44.9 million of net proceeds received by Waxman USA from the
Barnett Public Offering, together with payment from Barnett of the $22.0 million
note payable described above, were, or will be, applied primarily to repay debt
including (i) all of the $39.2 million principal amount of the Company's Senior
Secured Notes plus accrued interest and redemption premium of approximately $1.7
million, thereby eliminating the mandatory sinking fund requirements relating to
the Senior Secured Notes which were scheduled to commence in September 1996, and
(ii) $5.0 million of the $10.0 million outstanding indebtedness and accrued
interest under the secured term loan (the "Term Loan") among Citibank, N.A., as
agent, Barnett, Consumer Products and WOC. The remaining net proceeds received
by Waxman USA (approximately $21.0 million) are intended to be used to (i)
reduce additional outstanding indebtedness borrowed by Consumer Products or WOC
under the New Credit Agreement and/or (ii) retire the Company's 12 3/4% Senior
Deferred Coupon Notes due 2004 (the "Deferred Coupon Notes") and/or Senior Notes
and/or (iii) reinvest in Consumer Products' and/or WOC's businesses.

         The Company's business strategy includes reducing its leverage by the
sale of selected assets and refinancing its remaining indebtedness whenever
possible. These selected assets may include the shares of Barnett Common Stock
owned by the Company, the value and liquidity of which appears to have been
greatly enhanced as a result of the Barnett Public Offering. In addition, the
Company believes that the Barnett Public Offering will be beneficial to the
growth and earnings potential of Barnett. In connection with the Barnett Public
Offering and pursuant to the requirements of certain debt agreements, if the
Company does not utilize the proceeds from the Barnett Public Offering pursuant
to the terms described above, the Company will be required to repay its
outstanding obligations under the New Credit Agreement.

         On April 3, 1996, the Company, through its wholly-owned subsidiary
Waxman USA, consummated the offer to exchange $48.75 million principal amount of
Senior Notes for a like amount of the outstanding Senior Subordinated Notes and,
in connection therewith, solicited consents to certain amendments to the
indenture pursuant to which the Senior Subordinated Notes were issued.
Approximately $43.03 million of Senior Subordinated Notes were exchanged. The
Senior Notes were not registered under the Act, and may not be offered or sold
in the United States absent registration or an applicable exemption from such
registration requirements. The amendments to the Senior Subordinated Note
indenture eliminated virtually all of the restrictive covenants and events of
defaults previously contained in such indenture. The Private Exchange Offer
decreased the Company's cash interest burden and extended the maturity of the
Senior Subordinated Notes exchanged until June 1, 2001.

         In connection with the Barnett Public Offering, the Company entered
into an amendment and restatement of the Operating Companies Credit Facility
(the "Restated Credit Agreement") to provide for, among other things, the
Restated Term Loans and a release of Barnett from such lending arrangements. On
June 28, 1996, the Company refinanced the Restated Credit Agreement with the New
Credit Agreement provided by BankAmerica Business Credit, Inc. The New Credit
Agreement provides for, among other things, an approximate three year secured
credit facility providing for revolving credit advances of up to $30.0 million
and New Term Loans of up to $5.0 million.

         The New Credit Agreement provides for a revolving credit advances of
(a) up to 85.0% of the amount of eligible accounts receivable and (b) up to the
lesser of (i) $16.0 million or (ii) 60% of the amount of eligible raw and
finished goods inventory. Revolving credit advances bear interest at a rate
equal to (a) Bank of America's reference rate plus 1.0% or (b) LIBOR plus 2.75%.
The New Credit Agreement includes a letter of credit subfacility of $2.0
million. New Term Loans bear interest at a rate per annum equal to .25% over the
interest rate applicable to revolving credit advances under the New Credit
Agreement. Borrowings under the New Credit Agreement are secured by the accounts

                                       27
<PAGE>   28
receivable, inventory, certain general intangibles and unencumbered fixed assets
of Consumer Products and WOC (the "Borrowers"). In addition, New Term Loans are
also secured by a pledge of 500,000 shares of Barnett Common Stock owned by the
Company (constituting approximately 3.5% of all outstanding Barnett Common
Stock). The New Credit Agreement requires the Borrowers to maintain cash
collateral accounts into which all available funds are deposited and applied to
service the facility on a daily basis. The New Credit Agreement prevents
dividends and distributions by the Borrowers except in certain limited instances
including, so long as there is no default or event of default, and the Borrowers
are in compliance with certain financial covenants, the payment of interest on
the Senior Subordinated Notes and Deferred Coupon Notes, and contains customary
negative, affirmative and financial covenants and conditions. The Company was in
compliance with all loan covenants at June 30, 1996.

         The New Credit Agreement contains events of default which include the
following: (i) any Borrower shall fail to make any payment of principal or
interest or any other amount due under the agreements related to the New Credit
Agreement or fail to perform any covenant (after the expiration of any
applicable grace period) thereunder, or any representation or warranty made in
connection therewith shall prove to have been incorrect in any material respect
when made or deemed made; (ii) any Borrower shall fail to pay any indebtedness
having a principal amount of $250,000 or more; or any other event shall occur or
condition shall exist under any agreement or instrument relating to any such
indebtedness, if the effect of such event or condition is to accelerate, or to
permit the acceleration of (after the expiration of any applicable grace
period), the maturity of such indebtedness; or any such indebtedness shall
become or be declared to be due and payable, or required to be repaid (other
than by a regularly scheduled required prepayment), or the Borrowers shall be
required to repurchase or offer to repurchase such indebtedness, prior to the
stated maturity thereof; (iii) certain events of bankruptcy with respect to the
Borrowers; (iv) there shall occur any Change of Control (as defined in the New
Credit Agreement); and (v) there shall occur an event which would have a
Material Adverse Effect (as defined in the New Credit Agreement). As a result of
the foregoing Material Adverse Effect clause and the requirement to maintain
cash collateral accounts, the borrowings under the New Credit Agreement and New
Term Loans have been classified as a current liability.

         As of June 30, 1996, availability under the New Credit Agreement
totaled approximately $16.2 million.

         Since the consummation of the Barnett Public Offering, the cash flow
generated by such operations is no longer available to the Company. The Company
relies primarily on Consumer Products for cash flow. Consumer Products'
customers include D-I-Y warehouse home centers, home improvement centers, mass
merchandisers, hardware stores and lumberyards. Consumer Products may be
adversely affected by prolonged economic downturns or significant declines in
consumer spending. There can be no assurance that any such prolonged economic
downturn or significant decline in consumer spending will not have a material
adverse impact on the Consumer Products' business and its ability to generate
cash flow. Furthermore, Consumer Products' largest customers, Kmart and its
subsidiary, Builders Square, accounted for approximately 42.3% and 43.6% of
Consumer Products' total net sales in fiscal 1996 and fiscal 1995, respectively.
The Company has been advised by Kmart that it is in the process of conducting a
review of its supply arrangements with its suppliers of plumbing and hardware
products, including Consumer Products, and will make a decision regarding which
vendors it will utilize by the end of December 1996. Although the Company has
had a long relationship with Kmart, there can be no assurance that this
relationship will continue or as to the terms of any relationship that does
continue. In the event Consumer Products were to either lose Kmart as a customer
or Kmart were to significantly curtail its purchases from Consumer Products,
there would be material short-term adverse effects until the Company could
modify Consumer Products' cost structure to be more in line with its reduced
revenue base.

         The Company has a tax liability for the year ended June 30, 1996 as a
result of the gain from the Barnett Public Offering. The gain was substantially
offset by net operating loss carryforwards, thus reducing the tax liability at
June 30, 1996 to the alternative minimum tax amount. Also as a result of the
Barnett Public Offering, Barnett is no longer included in the Company's
consolidated tax return. Therefore, the Company's remaining net operating loss
carryforwards are not available to offset Barnett's taxable income after April
3, 1996, the consummation date of the Barnett Public Offering.

         The Company does not have any commitments to make substantial capital
expenditures.

         The Company believes that the funds generated from operations along
with the funds available under the New Credit Agreement will be sufficient to
satisfy the Company's liquidity requirements until June 1, 1999 (the date that
the $5.7 million principal payment is due on the Senior Subordinated Notes) or,
if the Company is able to refinance the Senior Subordinated Notes, December 1,
1999 (the date that the cash interest becomes payable by the Company under the
Deferred Coupon Notes). There can be no assurance that the Company will be able
to pay cash interest on the Deferred Coupon Notes commencing in December 1999 or
that the Company will be able to refinance the Senior Subordinated Notes or the
Deferred Coupon Notes.

DISCUSSION OF CASH FLOWS

         Net cash provided by operations was $5.2 million in fiscal 1996 due
mainly to an increase in current liabilities partially offset by increases in
accounts receivable at Barnett. Cash flow provided by investments totaled $85.9 
million and included net proceeds from the sale of Barnett Common Stock
totaling $92.6 million. Capital expenditures totaled $5.2 million. Cash flow
used for financing totaled $90.7 million. Net

                                       28
<PAGE>   29
repayments under the Company's credit facilities and Term Loan totaled $49.4
million as well as additional debt repayments of $40.2 million for the 
retirement of the Senior Secured Notes.

         At June 30, 1996, the Company had working capital of $50.7 million and
a current ratio of 2.0 to 1.

ITEM 8.             CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                           (Begins on Following Page)


                                       29
<PAGE>   30
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS






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


         We have audited the accompanying consolidated balance sheets of Waxman
Industries, Inc. (a Delaware corporation) and subsidiaries (the "Company") as of
June 30, 1996, 1995, 1994, 1993 and 1992, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
five years in the period ended June 30, 1996. As explained in Note 13, certain
financial statements as of and for the years ended prior to June 30, 1996 have
been restated. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Waxman Industries,
Inc. and subsidiaries as of June 30, 1996, 1995, 1994, 1993 and 1992, and the
results of their operations and their cash flows for each of the five years in
the period ended June 30, 1996, in conformity with generally accepted accounting
principles.

         As explained in Notes 3 and 4 to the financial statements, in fiscal
1996, the Company changed its method of accounting for long-lived assets and
procurement costs and, in fiscal 1993, the Company changed its method of
accounting for distribution center start-up and catalog development costs.








Cleveland, Ohio,                                             Arthur Andersen LLP
October 7, 1996.


                                       30
<PAGE>   31
                    WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                    JUNE 30, 1996, 1995, 1994, 1993 AND 1992
                                 (IN THOUSANDS)

                                     ASSETS

<TABLE>
<CAPTION>
                                           1996          1995          1994          1993          1992
                                        ---------     ---------     ---------     ---------     ---------
                                                       RESTATED      RESTATED      RESTATED      RESTATED
                                                      ---------     ---------     ---------     ---------
<S>                                     <C>           <C>           <C>           <C>           <C>      
CURRENT ASSETS:
  Cash                                  $   2,460     $   2,106     $   2,026     $     406     $     194
  Accounts receivable, net                 37,226        34,989        37,216        36,272        36,235
  Inventories                              59,883        71,162        78,669        71,642        79,925
  Net assets (liabilities) of
  discontinued operations                      --            --          (421)       29,156        42,183
  Net assets held for sale                     --            --            --         3,086            --
  Prepaid expenses                          4,096         4,948         4,987         4,987         7,810
                                        ---------     ---------     ---------     ---------     ---------
      Total current assets                103,665       113,205       122,477       145,549       166,347
                                        ---------     ---------     ---------     ---------     ---------
PROPERTY AND EQUIPMENT:
  Land                                      1,393         1,520         1,461         1,420         1,441
  Buildings                                11,842        13,573        12,421        11,213        10,808
  Equipment                                23,090        20,652        20,655        18,824        19,848
                                        ---------     ---------     ---------     ---------     ---------
                                           36,325        35,745        34,537        31,457        32,097
Less accumulated depreciation and
amortization                              (18,597)      (16,364)      (17,163)      (14,784)      (13,321)
                                        ---------     ---------     ---------     ---------     ---------
Property and equipment, net                17,728        19,381        17,374        16,673        18,776
                                        ---------     ---------     ---------     ---------     ---------
COST OF BUSINESSES IN EXCESS OF NET
ASSETS ACQUIRED, NET                       13,318        24,010        24,774        25,498        28,199

UNAMORTIZED DEBT ISSUANCE COSTS, NET        5,008         9,875        10,284         3,935            --

OTHER ASSETS                                2,918         3,273         5,834         5,570        15,309
                                        ---------     ---------     ---------     ---------     ---------
                                        $ 142,637     $ 169,744     $ 180,743     $ 197,225     $ 228,631
                                        =========     =========     =========     =========     =========
</TABLE>

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


                                       31
<PAGE>   32
                    WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                    JUNE 30, 1996, 1995, 1994, 1993 AND 1992
                      (in thousands except per share data)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                     1996          1995          1994          1993          1992
                                                  ---------     ---------     ---------     ---------     ---------
                                                                 restated      restated      restated      restated
                                                                ---------     ---------     ---------     ---------
<S>                                               <C>           <C>           <C>           <C>           <C>      
CURRENT LIABILITIES:
  Current portion of long-term debt               $  10,972     $  59,844     $  56,523     $   2,493     $   2,107
  Accounts payable                                   28,607        21,892        20,427        19,934        28,912
  Accrued liabilities                                 9,892         4,780         4,406         4,083         5,692
  Accrued income taxes payable                        2,037            --            --            --            --
  Accrued interest                                    1,441         2,155         2,101         2,609         2,600
                                                  ---------     ---------     ---------     ---------     ---------
      Total current liabilities                      52,949        88,671        83,457        29,119        39,311
                                                  ---------     ---------     ---------     ---------     ---------
LONG-TERM DEBT, NET OF CURRENT PORTION                  863         1,204         1,684        22,567         9,662

SENIOR SECURED DEFERRED COUPON NOTES                 62,723        54,875        48,031            --            --
SENIOR NOTES                                         43,026            --            --            --            --
SENIOR SUBORDINATED NOTES                             5,724        48,750        48,750        98,750        98,750
SENIOR SECURED NOTES                                     --        38,786        38,675        38,563        38,451
CONVERTIBLE SUBORDINATED NOTES                           --           155           155         2,030         2,030

COMMITMENTS AND CONTINGENCIES

MINORITY INTEREST IN CONSOLIDATED AFFILIATE          20,606            --            --            --            --

STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value per share:
authorized and unissued 2,000 shares                     --            --            --            --            --
Common stock, $0.01 par value per share:
22,000 shares authorized: 9,693, 9,495, 9,490,
9,424 and 9,411 shares issued, respectively              96            95            95            94            94
Class B common stock, $.01 par value per
share: 2,153, 2,217, 2,222, 2,238 and 2,251
shares issued, respectively                              22            23            23            23            23
Paid-in capital                                      21,419        21,098        21,098        18,467        18,467
Retained deficit                                    (64,503)      (83,698)      (60,625)       (7,737)       23,335
                                                  ---------     ---------     ---------     ---------     ---------
                                                    (42,966)      (62,482)      (39,409)       10,847        41,919
  Cumulative currency translation adjustment           (288)         (215)         (600)       (4,651)       (1,492)
                                                  ---------     ---------     ---------     ---------     ---------
      Total stockholders' equity                    (43,254)      (62,697)      (40,009)        6,196        40,427
                                                  ---------     ---------     ---------     ---------     ---------
                                                  $ 142,637     $ 169,744     $ 180,743     $ 197,225     $ 228,631
                                                  =========     =========     =========     =========     =========
</TABLE>

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


                                       32
<PAGE>   33
                    WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands except per share data)

<TABLE>
<CAPTION>
                                                                     FISCAL YEAR ENDED JUNE 30,
                                                                     --------------------------
                                                    1996          1995          1994          1993          1992
                                                 ---------     ---------     ---------     ---------     ---------
                                                                              restated      restated      restated
                                                                             ---------     ---------     ---------
<S>                                              <C>           <C>           <C>           <C>           <C>      
Net sales                                        $ 235,067     $ 232,304     $ 215,112     $ 204,778     $ 197,738
Cost of sales                                      160,556       152,368       141,011       138,144       127,315
                                                 ---------     ---------     ---------     ---------     ---------
Gross profit                                        74,511        79,936        74,101        66,634        70,423
Selling, general and administrative expenses        70,628        62,481        56,888        56,081        51,824
Restructuring and other non-recurring charges       19,507         2,779            --         6,762         3,900
                                                 ---------     ---------     ---------     ---------     ---------
Operating (loss) income                            (15,624)       14,676        17,213         3,791        14,699
Gain on sale of Barnett stock                       65,917            --            --            --            --
Interest expense, net of interest income
of $157, $0, $14, $5 and $978, respectively         24,264        26,411        21,334        20,365        20,025
                                                 ---------     ---------     ---------     ---------     ---------
Income (loss) from continuing operations
before income taxes, minority interest,
discontinued operations, extraordinary
loss and cumulative effect of change in
accounting                                          26,029       (11,735)       (4,121)      (16,574)       (5,326)
Provision (benefit) for income taxes                 2,395           338           351           216          (768)
                                                 ---------     ---------     ---------     ---------     ---------
Income (loss) from continuing operations
before minority interest, discontinued
operations, extraordinary loss and cumulative
effect of change in accounting                      23,634       (12,073)       (4,472)      (16,790)       (4,558)
Minority interest in consolidated affiliate            975            --            --            --            --
Discontinued operations:
  Income (loss) from discontinued operations            --            --        (3,249)      (11,240)        1,146
  Reversal of loss and (loss) on disposal of
  business                                          11,000       (11,000)      (38,343)           --            --
                                                 ---------     ---------     ---------     ---------     ---------
Income (loss) before extraordinary loss and
cumulative effect of change in accounting           33,659       (23,073)      (46,064)      (28,030)       (3,412)
Extraordinary loss                                   6,251            --         6,824            --         1,186
Cumulative effect of change in accounting            8,213            --            --         2,110            --
                                                 ---------     ---------     ---------     ---------     ---------
Net income (loss)                                $  19,195     $ (23,073)    $ (52,888)    $ (30,140)    $  (4,598)
                                                 =========     =========     =========     =========     =========
</TABLE>


                                       33
<PAGE>   34
<TABLE>
<CAPTION>
                                                    1996             1995           1994        1993         1992
                                                     ----             ----           ----        ----         ----
                                                                                 restated    restated     restated
                                                                                 --------    --------     --------
<S>                                                     <C>        <C>           <C>          <C>         <C> 
Primary earnings (loss) per share:                                                                   
From continuing operations before minority
interest, discontinued operations, extraordinary
loss and cumulative effect of change in accounting     $  2.00     $  (1.03)    $   (.39)    $  (1.44)    $  (.46)
  Minority interest in consolidated  affiliate            (.08)                       --           --          --
  Discontinued operations:
    Income(loss) from discontinued operations               --           --         (.28)        (.96)        .11
    Reversal of loss and (loss) on disposal of
    business                                               .93         (.94)       (3.28)          --          --
  Extraordinary loss                                      (.53)          --         (.58)          --        (.12)
  Cumulative effect of change in  accounting              (.69)          --           --         (.18)         --
                                                       -------     --------     --------     --------     -------
                                                       $  1.63     $  (1.97)    $  (4.53)    $  (2.58)    $  (.47)
                                                       =======     ========     ========     ========     =======
Fully diluted earnings (loss) per share:
From continuing operations before minority
interest, discontinued operations, extraordinary
loss and cumulative of change in accounting            $  1.73     $  (1.03)    $   (.39)    $  (1.44)    $  (.46)
 Minority interest in consolidated affiliate              (.07)       --              --           --          --
 Discontinued operations:
    Income (loss) from discontinued operations             --           --          (.28)        (.96)        .11
    Reversal of loss and (loss) on disposal
     of business                                           .81         (.94)       (3.28)          --          --
 Extraordinary loss                                       (.46)          --         (.58)          --        (.12)
 Cumulative effect of change in  accounting               (.60)          --           --         (.18)         --
                                                       -------     --------     --------     --------     -------
                                                       $  1.41     $  (1.97)    $  (4.53)    $  (2.58)    $  (.47)
                                                       =======     ========     ========     ========     =======

Pro forma effect assuming the changes in
accounting principle are applied retroactively:
   Income (loss) before extraordinary loss             $33,659     $(25,331)    $(42,243)    $(30,339)    $(5,139)
   Net income (loss)                                    27,408      (25,331)     (52,067)     (30,339)     (6,325)
Primary earnings (loss) per share:
   Income (loss) before extraordinary loss             $  2.85     $  (2.16)    $  (3.88)    $  (2.60)    $ (0.52)
   Net income (loss)                                   $  2.32     $  (2.16)    $  (4.46)    $  (2.60)    $ (0.65)
Fully diluted earnings (loss) per share:
   Income (loss) before extraordinary loss             $  2.47     $  (2.16)    $  (3.88)    $  (2.60)    $ (0.52)
   Net income (loss)                                   $  2.01     $  (2.16)    $  (4.46)    $  (2.60)    $ (0.65)

Average Number of Common Shares
Outstanding                                             11,756       11,712       11,674       11,662       9,794
                                                       =======     ========     ========     ========     =======
</TABLE>


                                                                          


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

  
                                       34
<PAGE>   35
                    WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                        Cumulative                
                                                              Class B                                    Currency        Total     
                                              Common          Common          Paid-in      Retained     Translation   Stockholders' 
                                              Stock           Stock           Capital      Deficit       Adjustment       Equity  
                                              -----           -----           -------      --------     -----------   -------------
<S>                                          <C>              <C>            <C>            <C>             <C>          <C>
Balance June 30, 1991, as restated           $     72        $     23        $  7,684       $ 29,134        $    953     $ 37,866
   Net loss                                                                                   (4,598)                      (4,598)
   Cash dividends:
   $.12 per common share and                                                                                                      
   Class B share                                                                              (1,201)                      (1,201)
   Issuance of common stock                        22                           9,763                                       9,785
   Stock options exercised                                                         20                                          20
   Stock warrants issued                                                        1,000                                       1,000
   Currency translation adjustment                                                                            (2,445)      (2,445)
                                             --------        --------        --------       --------        --------     --------
Balance June 30, 1992, as restated           $     94        $     23        $ 18,467       $ 23,335        $ (1,492)    $ 40,427
   Net loss                                                                                  (30,140)                     (30,140)
   Cash dividends:
   $.08 per common share and
   Class B share                                                                                (932)                        (932)
   Currency translation adjustment                                                                            (3,159)      (3,159)
                                             --------        --------        --------       --------        --------     --------  
Balance June 30, 1993, as restated           $     94        $     23        $ 18,467       $ (7,737)       $ (4,651)    $  6,196
   Net loss                                                                                  (52,888)                     (52,888)
   Elimination of currency translation                                                                                           
   adjustment relating to discontinued
   operation (Ideal)                                                                                           6,419        6,419
   Contribution to Profit Sharing Plan              1                             131                                         132
   Stock warrants issued                                                        2,500                                       2,500
   Currency translation adjustment                                                                            (2,368)      (2,368)
                                             --------        --------        --------       --------        --------     --------
Balance June 30, 1994, as restated                 95              23          21,098        (60,625)           (600)     (40,009)
   Net loss                                                                                  (23,073)                     (23,073)
   Currency translation adjustment                                                                               385          385
                                             --------        --------        --------       --------        --------     --------
Balance June 30, 1995, as restated                 95              23          21,098        (83,698)           (215)     (62,697)
   Net income                                                                                 19,195                       19,195
   Conversions of Class B common                                                                                              
   stock                                            1              (1)                                                        --
   Exercise of stock options, warrants                                                                                           
   and convertible notes                                                          321                                         321
   Currency translation adjustment                                                                               (73)         (73)
                                             --------        --------        --------       --------        --------     --------
Balance June 30, 1996                        $     96        $     22        $ 21,419       $(64,503)       $   (288)    $(43,254)
                                             ========        ========        ========       ========        ========     ========
</TABLE>

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



  
                                       35
<PAGE>   36
                    WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                             Fiscal Year Ended June 30,
                                                                             --------------------------
                                                             1996            1995            1994            1993           1992
                                                             ----            ----            ----            ----           ----
                                                                             restated        restated        restated       restated
                                                                             --------        --------       ---------       --------
Cash From (Used For):                      
<S>                                                        <C>             <C>             <C>             <C>             <C>
Operations:
    Net income (loss)                                      $ 19,195        $(23,073)       $(52,888)       $(30,140)       $ (4,598)

    Adjustments to reconcile net income (loss) to net
    cash provided by (used
    for) operations:
    Cumulative effect of change in accounting                 8,213              --              --           2,110              --
    Extraordinary loss                                        6,251              --           6,824              --           1,186
    Restructuring and asset impairment loss                  19,507           2,779              --           6,762           3,900
    Gain on sale of Barnett stock                           (65,917)             --              --              --              --
    Non-cash interest                                         7,523           6,648             531              --              --
    Other non-cash charges                                    7,096              --              --              --              --
    (Reversal of loss) and loss on disposal of              (11,000)         11,000              --              --              --
    Consumer Products
    Minority interest in consolidated affiliate                 975              --              --              --              --
    Depreciation and amortization                             8,606           9,078           7,478           8,932           6,525
    Deferred income taxes                                      (500)             --              --              --
    Bad debt provision                                        4,325             692             617             695             562
    Changes in assets and liabilities:
         Accounts receivable, net                            (5,271)           (100)         (1,561)         (2,361)         (2,403)
         Inventories                                           (187)            597          (9,109)            982         (15,464)
         Prepaid expenses                                       852            (161)             --           2,276          (2,285)
         Accounts payable                                     2,960          (1,674)            493          (8,337)         11,050
         Accrued liabilities                                  2,597          (1,187)           (185)         (1,691)           (878)
         Other, net                                             (74)            385           4,054          (3,159)         (2,444)
         Change in net assets of discontinued operations         --            (421)         29,577          13,027           6,646
                                                           --------        --------        --------        --------        --------
         Net cash provided by (used for) operations           5,151           4,563         (14,169)        (10,904)          1,797
                                                           ========        ========        ========        ========        ========
Investments:
    Capital expenditures, net                                (5,224)         (5,092)         (3,437)         (1,336)         (3,193)
    Change in other assets                                   (1,523)           (787)         (1,166)         (1,826)         (5,922)
    Net proceeds from sale of business                       92,636              --           3,006              --           4,386
                                                           --------        --------        --------        --------        --------
    Net cash provided by (used for) investments              85,889          (5,879)         (1,597)         (3,162)         (4,729)
                                                           ========        ========        ========        ========        ========
</TABLE>



  
                                       36
<PAGE>   37
<TABLE>
<S>                                                           <C>              <C>          <C>             <C>             <C>
Financing:
    Borrowings under credit agreements                          209,182          241,953        78,822       100,370         37,493
    Payments under credit agreements                           (249,551)        (238,113)      (60,675)      (85,160)       (31,608)
    Borrowings under term loan                                    5,000               --        15,000            --        (60,000)
    Repayments under term loan                                  (14,000)          (1,000)           --            --         48,500
    Repurchase of debt                                               --               --        (1,875)           --        (12,878)
    Debt issuance costs                                          (1,488)          (1,444)      (13,886)           --             --
    Retirement of Senior Secured Notes                          (39,150)              --            --            --             --
    Premium on early retirement of Senior Secured Notes          (1,000)              --            --            --             --
    Dividends paid                                                   --               --            --          (932)        (1,201)
    Issuance of common stock                                        321               --            --            --          9,805
                                                              ---------        ---------     ---------     ---------      ---------
    Net cash (used for) provided by financing                   (90,686)           1,396        17,386        14,278         (9,889)
                                                              ---------        ---------     ---------     ---------      ---------
Net increase (decrease) in cash                                     354               80         1,620           212        (12,821)
Balance, beginning of period                                      2,106            2,026           406           194         13,015
                                                              ---------        ---------     ---------     ---------      ---------
Balance, end of period                                        $   2,460        $   2,106     $   2,026     $     406      $     194
                                                              =========        =========     =========     =========      =========
</TABLE>



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


  
                                       37
<PAGE>   38
                    WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE YEARS ENDED JUNE 30, 1996, 1995, 1994, 1993 AND 1992
                      (IN THOUSANDS EXCEPT PER SHARE DATA)

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         A.       BASIS OF CONSOLIDATION AND REORGANIZATION

         The accompanying consolidated financial statements include the accounts
of Waxman Industries, Inc., its wholly-owned subsidiaries and its affiliate
Barnett Inc. (collectively, the "Company"). The Company owns approximately 49.9%
of the voting capital stock of Barnett Inc. ("Barnett") and, together with
non-voting preferred stock of Barnett owned by the Company, approximately 54% of
the capital stock of Barnett (See Note 2 for a description of certain
limitations on the Company's ability to convert such preferred stock.).  The
portion of Barnett not owned by the Company is reflected as minority interest in
the accompanying consolidated balance sheets. All significant intercompany
transactions and balances are eliminated in consolidation.

         During 1994, the Company restructured its domestic operations such that
the Company is now a holding company whose only material assets are the capital
stock of its subsidiaries (the "Corporate Restructuring"). As part of the
Corporate Restructuring, the Company formed (a) Waxman USA Inc. ("Waxman USA")
as a holding company for the subsidiaries that comprise and support the
Company's domestic operations, (b) Waxman Consumer Products Group Inc.
("Consumer Products"), a wholly-owned subsidiary of Waxman USA, to own and
operate the Company's Consumer Products Group division, and (c) WOC Inc.
("WOC"), a wholly-owned subsidiary of Waxman USA, to own and operate Waxman
USA's domestic subsidiaries, other than Barnett and Consumer Products. On May
20, 1994, the Company completed the Corporate Restructuring by (i) contributing
the capital stock of Barnett to Waxman USA, (ii) contributing the assets and
liabilities of the Consumer Products Group division to Consumer Products, (iii)
contributing the assets and liabilities of the Madison Equipment division to
WOC, (iv) contributing the assets and liabilities of the Medal Distributing
division to WOC, (v) merging U.S. Lock Corporation and LeRan Copper & Brass,
Inc., each a wholly-owned subsidiary of the Company, into WOC, (vi) contributing
the capital stock of TWI International, Inc. ("TWI") to Waxman USA and (vii)
contributing the capital stock of Western American Manufacturing, Inc. ("WAMI")
to TWI. This restructuring was accounted for based upon each entity's historical
carrying amounts with no impact on the accompanying consolidated financial
statements.

         The Company operates in a single business segment - the distribution of
plumbing, electrical and hardware products. Substantially all of the Company's
sales are derived in the United States.

         B.       RESTRICTED CASH BALANCES

         In accordance with the terms of the New Credit Agreement (as defined in
Note 5), all restricted cash balances have been excluded from cash and have been
applied against outstanding borrowings under the New Credit Agreement. Cash
balances represent certain unrestricted operating accounts and accounts of
foreign operations.

         C.       ACCOUNTS RECEIVABLE

         Accounts receivable are presented net of allowances for doubtful
accounts of $2,219, $1,422, $1,353, $1,352 and $1,112 at June 30, 1996, 1995,
1994, 1993 and 1992, respectively. Bad debt expense totaled $4,325 in 1996,
including $2.7 million of expense that was included in the $14.8 million charge
from the Company's strategic review and reorientation of its operations, $692 in
1995, $617 in 1994, $695 in 1993 and $562 in 1992.

         The Company sells plumbing, electrical and hardware products throughout
the United States to D-I-Y retailers, mass merchandisers, smaller independent
retailers and plumbing, electrical repair and remodeling contractors. The
Company performs ongoing credit evaluations of its customers' financial
condition. Consumer Products' largest customers, Kmart and its subsidiary,
Builders Square, accounted for 11% of the Company's net sales in 1996, 14% in
1995, 13% in 1994, 12% in 1993 and 11% in 1992 and, as a percentage of Consumer
Product's net sales, 42.3%, 43.6%, 35.9%, 35.6% and 30.6% for 1996, 1995, 1994,
1993 and 1992, respectively. During the same periods, the Company's ten largest
customers accounted for approximately 23% of net sales in 1996, 24% in 1995, 25%
in 1994, 23% in 1993 and 22% in 1992, and approximately 26%, 25%, 28%, 26% and
25% of accounts receivable at June 30, 1996, 1995, 1994, 1993 and 1992,
respectively.


  
                                       38
<PAGE>   39
         The Company has been advised by Kmart that it is in the process of
conducting a review of its supply arrangements with its suppliers of plumbing
and hardware products, including Consumer Products, and will make a decision
regarding which vendors it will utilize by the end of December 1996. Although
the Company has had a long relationship with Kmart, there can be no assurance
that this relationship will continue or as to the terms of any relationship that
does continue.

         D.       INVENTORIES

         At June 30, 1996, 1995, 1994, 1993 and 1992, inventories, consisting
primarily of finished goods, are carried at the lower of first-in, first-out
(FIFO) cost or market. The Company regularly evaluates its inventory carrying
value, with appropriate consideration given to any excess, slow-moving and/or
nonsalable inventories. The Company recorded a $4.9 million charge in 1996 in
connection with the evaluation of its inventory carrying value during the review
of the strategic direction of its operating units (see Note 3).

         E.       PROPERTY AND EQUIPMENT

         Property and equipment are stated at cost. For financial reporting
purposes, buildings and equipment are depreciated on a straight-line basis over
the estimated useful lives of the related assets. Depreciable lives are 15 to 40
years for buildings and 3 to 15 years for equipment. Leasehold improvements are
amortized on a straight-line basis over the term of the lease or the useful life
of the asset, whichever is shorter. For income tax purposes, accelerated methods
are used. Depreciation expense totaled $3,438 in 1996, $2,814 in 1995, $2,738 in
1994, $2,690 in 1993 and $2,665 in 1992.

         F.       COST OF BUSINESSES IN EXCESS OF NET ASSETS ACQUIRED

         Cost of businesses in excess of net assets acquired is being amortized
primarily over 40 years using the straight-line method. Management has evaluated
its accounting for goodwill in accordance with SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," on
an originating entity basis considering future undiscounted operating cash flows
and believes that the net asset is realizable and the amortization period is
appropriate. During 1996, the Company determined that $9.8 million of goodwill
was impaired at its U.S. Lock division (See Note 3B). Management continues to
reevaluate the realizability of these assets. Goodwill amortization expense
totaled $718 in 1996, $764 in 1995, $724 in 1994, $725 in 1993 and $756 in 1992.
Accumulated amortization totaled $15,772, $5,233, $4,469, $3,745 and $2,989 at
June 30, 1996, 1995, 1994, 1993 and 1992, respectively.

         G.       UNAMORTIZED DEBT ISSUANCE COSTS

         Unamortized debt issuance costs relate to the Company's long-term and
short-term debt (see Note 5) and are amortized over the life of the related
debt. Amortization expense totaled $1.8 million in 1996, $2.2 million in 1995,
$0.8 million in 1994, $0.8 million in 1993 and $0.8 million in 1992, and is
included in interest expense. The Company incurred extraordinary charges in
1996, 1994 and 1992 related to the accelerated amortization of unamortized debt
issuance costs. (See Notes 2 and 5).

         H.       FOREIGN CURRENCY TRANSLATION

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

         I.       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.

         J.       IMPACT OF NEW ACCOUNTING STANDARDS

         The Financial Accounting Standards Board has issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of,". The Company adopted SFAS No. 121 and recorded a charge in 1996
for the impairment of long-lived assets at its U.S. Lock division (See Note 3B).
In the event that facts and circumstances in the

  
                                       39
<PAGE>   40
future indicate that other long-lived assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the estimated
future undiscounted cash flows associated with the asset would be compared to
the asset's carrying amount to determine if a write-down to fair value is
required.

         In November 1995, the FASB also issued SFAS No. 123, "Accounting for
Stock-Based Compensation," which establishes new accounting standards for the
measurement and recognition of stock-based awards. SFAS No. 123 permits entities
to continue to use the traditional accounting for stock-based awards prescribed
by APB Opinion No 25, "Accounting for Stock Issued to Employees," however, under
this option, the Company will be required to disclose the pro forma effect of
stock-based awards on net income and earnings per share as if SFAS No. 123 had
been adopted. SFAS No. 123 is effective in 1997. The Company intends to continue
using the provisions of APB Opinion No. 25 in accounting for stock-based awards.

         K.       EARNINGS PER SHARE

         Primary earnings per share are calculated by dividing net income by the
weighted average number of common stock and common stock equivalents arising
from stock options. Fully diluted earnings per share are calculated by dividing
net income by the weighted average number of common stock and common stock
equivalents arising from stock options and warrants as if they had been
converted at the beginning of the year.

         The number of common shares used to calculate primary and fully diluted
earnings per share are as follows:

<TABLE>
<CAPTION>
                         1996                1995                1994              1993               1992
                         ----                ----                ----              ----               ----
<S>                     <C>                 <C>                 <C>               <C>               <C>

Primary                  11,793              11,712              11,674            11,662             9,794
Fully diluted            13,653              11,712              11,674            11,662             9,794
</TABLE>


         L.       BASIS OF PRESENTATION

         Certain prior year financial statement items have been reclassified to
conform to the current year's presentation.

2.       BARNETT PUBLIC OFFERING AND EXTRAORDINARY CHARGES

         On February 1, 1996, Barnett filed a registration statement with the
Securities and Exchange Commission with respect to an initial public offering
(the "Barnett Public Offering") of its common stock (the "Barnett Common
Stock"). On March 28, 1996, the registration statement with respect to the
Barnett Public Offering was declared effective and on April 3, 1996, the Barnett
Public Offering was consummated. In such offering, 7,207.2 shares, representing
approximately 55.1% of the Barnett Common Stock, were sold in the aggregate by
Barnett and Waxman USA at an initial public offering price per share of $14.00.
As a result of the Company's conversion of a portion of the convertible
non-voting preferred stock of Barnett, which is owned solely by the Company, to
Barnett Common Stock during the fourth quarter, as of June 30, 1996, the Company
owns approximately 49.9% of the Barnett Common Stock and owns approximately a
54% economic interest in the capital stock of Barnett. In connection with the
Barnett Public Offering, the Company entered into a standstill agreement with
Barnett, pursuant to which the Company agreed not to acquire any securities of
Barnett which would result in the ownership by the Company or its subsidiaries
of a majority of the Barnett Common Stock. The standstill agreement between the
Company and Barnett may only be amended, modified or terminated with the
approval of a majority of the independent directors of each of the Company and
Barnett. In addition, pursuant to the Certificate of Designations establishing
the non-voting convertible preferred stock, the non-voting convertible preferred
stock may only be converted to the extent that the aggregate number of shares of
Barnett Common Stock issuable upon conversion of the non-voting convertible
preferred stock, when added to the number of shares of Barnett Common Stock then
held by such holder, would not cause the Company's direct or indirect ownership
of Barnett Common Stock to equal or exceed a majority of the outstanding shares
of Barnett Common Stock. Since the consummation of the Barnett Public Offering,
the cash flow generated by such operation is no longer available to the Company
other than the amounts paid to the Company pursuant to the New Intercorporate
Agreement (discussed in Note 9) or the pro rata amounts, if any, distributed by
Barnett in the form of a common stock dividend.

         The Company recorded a $65.9 million pre-tax gain from the sale of
Barnett Common Stock.

         Of the $47.7 million of net proceeds received by Barnett in the Barnett
Public Offering, Barnett used (i) $23.0 million to repay all of the outstanding
indebtedness borrowed by it under the secured credit facility (the "Operating
Companies Revolving Credit Facility") among Citicorp USA, Inc. as agent, and
Barnett, Consumer Products and WOC, (ii) $22.0 million to pay a dividend
evidenced by a note payable to Waxman USA and (iii) $2.7 million for working
capital. The $44.9 million of net

  
                                       40
<PAGE>   41
proceeds received by Waxman USA from the Barnett Public Offering, together with
payment from Barnett of the $22.0 million note payable described above, were
applied primarily to repay debt including (i) all of the $39.2 million principal
amount the Company's 12 1/4% Senior Secured Notes due 1998 and Floating Rate
Senior Secured Notes due 1998 (collectively, the "Senior Secured Notes") plus
accrued interest and redemption premium of approximately $1.7 million, thereby
eliminating the mandatory sinking fund requirements relating to the Senior
Secured Notes which were scheduled to commence in September 1996, and (ii) $5.0
million of the $10.0 million outstanding indebtedness and accrued interest under
the secured term loan (the "Term Loan") among Citibank, N.A., as agent, and
Barnett, Consumer Products and WOC. The remaining net proceeds received by
Waxman USA (approximately $21.0 million) are intended to be used to (i) reduce
additional outstanding indebtedness borrowed by Consumer Products or WOC under
the New Credit Agreement, described in Note 5, and/or (ii) retire the Company's
12 3/4% Senior Secured Deferred Coupon Notes due 2004 (the "Deferred Coupon
Notes") and/or the Company's 11-1/8% Senior Notes due 2001 (the "Senior Notes")
and/or (iii) reinvest in Consumer Products' and/or WOC's businesses.

         The Company recorded an extraordinary charge of approximately $6.3
million in 1996, net of a tax benefit of $0.4 million recorded at Barnett,
related to a premium paid on the retirement of the Senior Secured Notes and the
accelerated amortization of the related unamortized debt discount and debt
issuance costs attributed to indebtedness repaid from the net proceeds of the
Barnett Public Offering and Senior Notes and New Credit Agreement, as discussed
in Note 5.

3.       MANAGEMENT'S REVIEW OF WHOLLY-OWNED OPERATIONS

         A.       DISCONTINUED OPERATIONS - CONSUMER PRODUCTS

         In August 1995, the Company announced its decision to sell the Consumer
Products business and entered into a letter of intent, which subsequently
expired, to sell the business for $50 million in cash plus a remaining economic
interest in the business sold. Consumer Products was reported as a discontinued
operation as of June 30, 1995 and an estimated loss on disposal of $11.0 million
was recorded, representing the difference between the net book value of the
assets to be sold at June 30, 1995 and the expected net proceeds from the sale.

         Net assets related to Consumer Products at June 30, 1995 consisted of
working capital of $49,644, net property and equipment of $5,278, other assets
of $10,332 and bank debt of $2,689, before allowance for the estimated loss on
disposal. Consumer Products' net sales were $71,971 and operating income was
$3,045 in 1995. The 1995 operating income was negatively impacted by the
restructuring charge of $2,779 discussed below.

         Upon consummation of the Barnett Public Offering, described in Note 2,
the Company has ceased its efforts to sell Consumer Products and instead retains
and continues to operate Consumer Products. Prior periods have been restated to
conform to the current period presentation of Consumer Products as a continuing
operation and the $11.0 million loss on disposal recorded at June 30, 1995 has
been reversed in fiscal 1996.

         B.       STRATEGIC REVIEW OF OPERATIONS - FISCAL 1996

         In connection with the likely completion of the Barnett Public Offering
and the consequent retention of the Consumer Products business, the Company
embarked upon a strategic review of Consumer Products and its other wholly-owned
operations, taking into account the difficulties encountered during the sale
process of Consumer Products, as well as the recent weaknesses in the industry
in which the Company competes. As a result of management's review and refocus on
Consumer Products as a continuing operation and consistent with its strategic
direction, an $11.9 million charge, primarily for a reduction in the carrying
value of day to day operating assets and liabilities, has been recorded by
Consumer Products in operating results, which represented an increase of $6.9
million to cost of goods sold and $5.0 million to selling, general and
administrative expenses. Such charge included $5.1 million for the impairment
and write-down of inventory, $2.7 million for certain accounts receivable
balances, $2.0 million representing a portion of the costs of developing a
management information system, $0.5 million of abandoned product development
costs, and $1.6 million for various liabilities.

         The traditional customers of WOC's operations, smaller retail
establishments, have been adversely affected by the movement of large national
retailers to expand in more rural locations and to compete with smaller retail
establishments. In addition, the market has been increasingly impacted by lower
cost foreign sourcing to both domestic and foreign competitors. In connection
with management's strategic review of its other wholly-owned operations and as a
result of certain business factors affecting these other operations including
competition from multi-category retailers and competitive pricing from overseas
competitors, the effects of which were exacerbated by excess manufacturing
capacity at the Company's foreign facilities. The Company recorded an additional
charge of $2.9 million in the 1996 fourth quarter operating results primarily
for a reduction in the carrying value of day to day operating assets and
liabilities. Such charge included $1.7 million to reduce the carrying value

  
                                       41
<PAGE>   42
of inventory and other assets at WOC and TWI, $0.4 million of accelerated
depreciation as a result of a change in the estimated useful lives of certain
property and equipment and $0.8 million for various liabilities.

         In addition, during the fourth quarter of 1996, the Company recorded a
$19.5 million pre-tax restructuring and asset impairment charge. Below is a
summary of the components of the charge:

<TABLE>
<CAPTION>
                                                     (in millions)
<S>                                                      <C>

         Exiting product lines                          $ 4.1
         Warehouse closure costs                          1.3
         Reduction of excess capacity                     1.1
         Other                                            0.9
         Asset impairment                                12.1
                                                        -----
                  Total                                 $19.5
                                                        =====
</TABLE>


         Exiting product lines: In furtherance of its efforts to strengthen the
         Consumer Products business, the Company has decided to eliminate its
         electrical product line and reduce the number of individual products
         offered in its plumbing and floor care product lines. These actions
         will enable Consumer Products to reduce fixed costs as well as optimize
         and focus its product offerings to its major retail customers. The
         Company is currently winding down the servicing of the electrical
         product line as well as reducing the number of products offered in its
         plumbing and floor care product lines and does not expect to incur cash
         outlays for these reductions. The $4.1 million charge is primarily for
         the write-down of related inventory of which $1.8 million has been
         disposed of as of June 30, 1996.

         Warehouse closure costs: During the fourth quarter of 1996, the Company
         downsized Consumer Products' distribution network from three locations
         to two, and as a result, incurred warehouse closure costs of $1.3
         million. The remaining accrual at June 30, 1996 is $0.8 million. The
         warehouse closure costs include costs associated with the remaining
         noncancellable term of an operating lease of $0.3 million, incremental
         employee salaries and benefits associated with closing the warehouse of
         $0.5 million, loss on fixed assets of $0.2 million and other
         miscellaneous expenses associated with the closing of $0.3 million.

         Reduction of excess capacity: With the discontinuance and downsizing of
         Consumer Products' product lines, the foreign operations which support
         Consumer Products identified excess capacity in both buildings and
         equipment. As such, a $1.1 million charge was recorded to reduce the
         net book value of buildings by $0.8 million and equipment by $0.3
         million.

         Other: In connection with the strategic review, a division of WOC
         discontinued certain product offerings which resulted primarily in a
         write-down of inventory and excess equipment.

         Asset impairment: The asset impairment charge of $12.1 million relates
         to the Company's U.S. Lock division. Due to the continued decline in
         the locksmith industry brought about by the competitive nature of the
         do-it-yourself retail market, as required by SFAS No. 121 "Accounting
         for the Impairment of Long Lived Assets and Assets to Be Disposed Of,"
         the Company expensed $9.8 of goodwill and $2.3 million of property and
         equipment, as the carrying value for the division exceeded its fair
         value. Fair value was determined based on a multiple of cash flows.

         C.       RESTRUCTURING AND NON-RECURRING CHARGES - FISCAL 1995

         During the fourth quarter of 1995, the Company downsized Consumer
Products' distribution network from four locations to three and as a result
incurred warehouse closure costs of $2.8 million. The remaining accrual for such
closure at June 30, 1996 is $0.4 million. The warehouse closure costs included
costs associated with the remaining noncancellable term of an operating lease of
$0.8 million, salaries and benefits incurred after operations ceased associated
with closing the warehouse of $0.5 million, loss on fixed assets of $0.3 million
and disposal of inventory associated with exiting a product line of $1.2
million.

         D.       DISCONTINUED OPERATIONS - IDEAL - FISCAL 1994

         Effective March 31, 1994, the Company adopted a plan to dispose of its
Canadian subsidiary, Ideal Plumbing Group, Inc. ("Ideal"). Ideal is reported as
a discontinued operation.


  
                                       42
<PAGE>   43
         On May 5, 1994, Ideal's Canadian bank filed an involuntary bankruptcy
petition against Ideal citing defaults under the bank credit agreements
(borrowings under these agreements were non-recourse to the Company). The
Canadian court appointed a trustee to liquidate the assets of Ideal. The Company
has no liability to the creditors of Ideal as result of Ideal's bankruptcy.

         The loss on disposal, which was recorded by the Company in its
consolidated financial statements as of March 31, 1994, totaled $38.3 million,
without tax benefit, and represented a complete write-off of the Company's
investment in Ideal. The loss included the loss on disposal, a provision for
anticipated operating losses until disposal and provisions for other estimated
costs to be incurred in connection with the disposal, as well as a $6.4 million
foreign currency exchange, loss which resulted from the elimination of the
currency translation adjustments relating to Ideal. In accordance with SFAS No.
109. "Accounting for Income Taxes", any tax benefits relating to the loss on
disposal have been reduced 100% by a valuation allowance.

         Net assets of the discontinued operation at June 30, 1993 consisted of
working capital of $29,879, net plant, property and equipment of $15,171, other
assets of $40,561 and bank debt of $56,455 without any allowance for the
estimated loss on disposal.

         Summary operating results of the discontinued operation for the periods
presented are as follows:

<TABLE>
<CAPTION>
                                                                                1994             1993             1992
                                                                               ------           ------           -----
<S>                                                                           <C>            <C>              <C>

         Net sales.................................................           $87,265         $153,875         $181,305
         Costs and expenses........................................            90,262          164,684          178,540
                                                                               ------          -------          -------
         Income (loss) before income taxes.........................            (2,997)         (10,809)           2,765
         Income taxes..............................................               252              431            1,619
                                                                              -------         --------         --------
                  Net income (loss)................................           $(3,249)        $(11,240)        $  1,146
                                                                              =======         ========         ========
</TABLE>



         E.       STRATEGIC REVIEW OF OPERATIONS - FISCAL 1993 AND FISCAL 1994

         During 1993, as a result of certain actions taken as part of its
strategy to refocus and build its existing core businesses in the U.S., the
Company recorded a $6,762 restructuring charge. The restructuring charge
included an estimate of the loss to be incurred upon the sale of three
businesses, including anticipated operating results through the projected
disposal dates, and the write-off of intangible assets. Below is a summary of
the components comprising the restructuring charges as of June 30, 1993:

<TABLE>
<S>                                                 <C>
Estimated loss on disposal of businesses..........  $4,600
Relocation and consolidation costs................   1,544
Other.............................................     618
                                                    ------
                                                    $6,762
                                                    ======
</TABLE>


         The disposal of businesses included three operating entities for which
the Company had entered into letters of intent with prospective buyers.

         During October 1993, the Company completed the sale of one of its
Canadian operations, H. Belanger Plumbing Accessories, Ltd. (Belanger). The
Company sold all of the capital stock of Belanger for approximately U.S. $3
million in cash and a U.S. $0.3 million promissory note. The promissory note was
repaid in full in 1995. The loss on the sale of Belanger was approximately $2.6
million.

         The Company was unable to come to terms with the prospective buyer of
the other two entities. The Company evaluated the net realizable value of the
assets previously held for sale in accordance with its normal ongoing policy
regarding impairment and concluded that no further writedown of the net carrying
value of the assets was required in excess of the reserve previously
established. Therefore, the reversal of the accrued loss on disposal in the
second quarter of 1994 was offset by the writedown of assets to net realizable
value and the accrual for relocation of the administrative offices. There was no
accrual remaining at June 30, 1996.

  
                                       43
<PAGE>   44
         F.       FISCAL 1992 NON-RECURRING CHARGE

         During 1992, the Company recorded a $3.9 million non-recurring charge
which represented a capital loss realized upon the sale of the Company's
portfolio of debt securities.

4.       CHANGES IN ACCOUNTING

         A.       PROCUREMENT COSTS

         Effective July 1, 1995, the Company changed its method of accounting
for procurement costs. Procurement costs represent the amount paid in connection
with a customer's commitment to purchase products from the Company for a
specified period. The amount capitalized is the consideration paid by the
Company to the new or existing customer (i) for the right to supply such
customer for a specified period and (ii) to purchase competitor's merchandise
that the customer has on hand when it changes suppliers, less the salvage value
received by the Company. The Company believes that amortization in the fiscal
year incurred for such costs is consistent with the Company's strategic review
of Consumer Products and is preferable due to the uncertainty of today's
competitive retail environment. Previously, the Company amortized these costs
over the period deemed to be benefited. The cumulative effect of this change on
prior years of $8.2 million, without tax benefit, or $(0.69) and $(0.60) primary
and fully diluted earnings per share, respectively, is reported separately in
the 1996 consolidated statement of operation. The additional effect of the
change in 1996 was to decrease the operating loss by $2.1 million. Amortization
expense for procurement costs totaled $2.2 million in 1996, $2.8 million in
1995, $2.3 million in 1994, $2.1 million in 1993 and $1.1 million in 1992. Under
the old accounting method, at each balance sheet date, the Company reviewed the
remaining capitalized balance of procurement costs by customer to ensure
realizability of the asset based upon expected future sales and net profit
margin.

         B.       DISTRIBUTION CENTER START-UP AND CATALOG DEVELOPMENT COSTS

         Effective July 1, 1992, the Company accelerated its amortization of
certain distribution center start-up and catalog development costs. The Company
had historically amortized such costs over a period not to exceed five years
which, in management's opinion, represented the period over which economic
benefits were received. The acceleration of amortization was made to conform
with prevailing industry practice. By accelerating amortization, certain costs
associated with the opening of new distribution center operations are amortized
over a period of twelve months commencing the month in which the distribution
center opens. Costs associated with the development and introduction of new
catalogs are amortized over the life of the catalog, not to exceed a period of
one year.

         The cumulative effect of this change on prior years totaled $2,110 or
$.18 per share, and is reported separately in the 1993 consolidated statement of
operation, without tax benefit. The additional effect of the change in 1993 was
to increase both the loss from continuing operations before extraordinary charge
and cumulative effect of accounting change and the net loss by $1,191.


  
                                       44
<PAGE>   45
5.       DEBT

         A.       LONG-TERM DEBT

         Total long-term debt consisted of the following:

<TABLE>
<CAPTION>
                                                                                          June 30,
                                                                      1996         1995          1994         1993         1992
                                                                      ----         ----          ----         ----         ----
<S>                                                                 <C>          <C>           <C>           <C>          <C>  
Barnett Credit Agreement                                               $--          $--           $--          $--          $--
New Credit Agreement                                                 4,915           --            --           --           --
New Term Loans                                                       5,000           --            --           --           --
Operating Companies Revolving Credit Facility,
repaid in fiscal 1996                                                   --       43,710        39,379           --           --
Term Loan, repaid in fiscal 1996                                        --       14,000        15,000           --           --
Domestic Bank Credit Facility, repaid in fiscal 1994                    --           --            --       20,400        5,000
Other notes, maturing through 2007, bearing interest
from 7.4% to 10%, secured by real property                           1,920        3,338         3,828        4,660        6,769
                                                                     -----        -----         -----        -----        -----
                                                                    11,835       61,048        58,207       25,060       11,769
Less:  current portion                                              10,972       59,844        56,523        2,493        2,107
                                                                    ------       ------        ------        -----        -----
         Long-term debt, net of current portion                     $  863      $ 1,204       $ 1,684      $22,567      $ 9,662
                                                                    ======      =======       =======      =======      =======
</TABLE>

         In connection with the Barnett Public Offering, Barnett entered into a
revolving credit agreement with a bank 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 (the "Barnett Credit Agreement"). Borrowings
under the Barnett Credit Agreement bear interest, at Barnett's option, at the
prime rate minus 75 basis points or LIBOR plus 100 basis points. Barnett is
required to pay a commitment fee of 0.1% per annum on the unused commitment. The
Barnett Credit Agreement provides funds for working capital and general
corporate purposes. At June 30, 1996, Barnett had $3.5 million of outstanding
letters of credit. The Barnett Credit Agreement contains customary affirmative
and negative covenants, including certain covenants requiring Barnett to
maintain debt to net worth, interest coverage and current ratios, as well as a
minimum net worth test. Barnett was in compliance with all covenants at June 30,
1996.

         On June 28, 1996, Consumer Products and WOC (the "Borrowers") entered
into a new credit facility (the "New Credit Agreement") provided by BankAmerica
Business Credit, Inc. The New Credit Agreement provides for, among other things,
revolving credit advances of up to $30.0 million and term loans of up to $5.0
million ("New Term Loans"). The New Credit Agreement and New Term Loans expire
May 31, 1999.

         The New Credit Agreement provides for revolving credit advances of (a)
up to 85% of the amount of eligible accounts receivable and (b) up to the lesser
of (i) $16.0 million or (ii) 60% of the amount of eligible raw and finished
goods inventory. Revolving credit advances bear interest at a rate equal to (a)
Bank of America's reference rate plus 1.0% or (b) LIBOR plus 2.75%. The weighted
average interest rate on borrowings outstanding under the New Credit Agreement
and Operating Companies Revolving Credit Facility was 9.58% in fiscal 1996. The
Company is required to pay a commitment fee of 0.5% per annum on the unused
commitment. The New Credit Agreement includes a letter of credit subfacility of
$2.0 million, of which $1.3 million was outstanding at June 30, 1996. New Term
Loans bear interest at a rate per annum equal to .25% over the interest rate
applicable to revolving credit advances under the New Credit Agreement.
Borrowings under the New Credit Agreement are secured by the accounts
receivable, inventory, certain general intangibles and unencumbered fixed assets
of the Borrowers. In addition, New Term Loans are also

                                       45
<PAGE>   46
secured by a pledge of 500,000 shares of Barnett Common Stock owned by the
Company (constituting approximately 3.5% of all outstanding Barnett Common
Stock). The New Credit Agreement requires the Borrowers to maintain cash
collateral accounts into which all available funds are deposited and applied to
service the facility on a daily basis. The New Credit Agreement prevents
dividends and distributions by the Borrowers except in certain limited instances
including, so long as there is no default or event of default, and the Borrowers
are in compliance with certain financial covenants, the payment of interest on
the Senior Subordinated Notes and Deferred Coupon Notes of the Company, and
contains customary negative, affirmative and financial covenants and conditions
such as minimum EBITDA and minimum tangible net worth. The Company was in
compliance with all loan covenants at June 30, 1996.

         The New Credit Agreement contains events of default including the
following: (i) any Borrower shall fail to make any payment of principal or
interest or any other amount due under the agreements related to the New Credit
Agreement or fail to perform any covenant (after the expiration of any
applicable grace period) thereunder, or any representation or warranty made in
connection therewith shall prove to have been incorrect in any material respect
when made or deemed made; (ii) any Borrower shall fail to pay any indebtedness
having a principal amount of $250,000 or more; or any other event shall occur or
condition shall exist under any agreement or instrument relating to any such
indebtedness, if the effect of such event or condition is to accelerate, or to
permit the acceleration of (after the expiration of any applicable grace
period), the maturity of such indebtedness; or any such indebtedness shall
become or be declared to be due and payable, or required to be repaid (other
than by a regularly scheduled required prepayment), or the Borrowers shall be
required to repurchase or offer to repurchase such indebtedness, prior to the
stated maturity thereof; (iii) certain events of bankruptcy with respect to the
Borrowers; (iv) there shall occur any Change of Control (as defined in the New
Credit Agreement); and (v) there shall occur an event which would have a
Material Adverse Effect (as defined in the New Credit Agreement). As a result of
the Material Adverse Effect clause and the requirement to maintain cash
collateral accounts, the borrowings under the New Credit Agreement and New Term
Loans have been classified as a current liability.

         As of June 30, 1996, availability under the New Credit Agreement
totaled approximately $16.2 million.

         During September 1991, the Company repaid its $60 million domestic term
loan using the proceeds of the sale of its Senior Secured Notes along with $10
million of cash on hand. Concurrently, the Company entered into a three-year
secured revolving credit agreement with a U.S. bank to provide for working
capital needs (the "Domestic Bank Credit Facility"). On May 20, 1994, the
Operating Companies entered into the Operating Companies Revolving Credit
Facility and Term Loan. The initial borrowings under the Operating Companies
Revolving Credit Facility and Term Loan were used to repay the Domestic Bank
Credit Facility as well as fees and expenses associated with the issuance of the
Company's Deferred Coupon Notes. As a result of the material adverse effect
clause and the requirement to maintain cash collateral accounts, the borrowings
under the Operating Companies Revolving Credit Facility and Term Loan have been
classified as a current liability. In connection with the Barnett Public
Offering, the Company entered into an amendment and restatement of the Operating
Companies Revolving Credit Facility and Term Loan ("Restated Credit Agreement").
The initial borrowings under the New Credit Agreement along with proceeds from
the New Term Loans were used to repay the borrowings under the Restated Credit
Agreement.

         B.       SENIOR SECURED DEFERRED COUPON NOTES

         On May 20, 1994, the Company exchanged $50 million of its 13 3/4%
Senior Subordinated Notes due June 1, 1999 (the "Senior Subordinated Notes") for
$50 million initial accreted value of 12 3/4% Senior Secured Deferred Coupon
Notes due 2004 (the "Deferred Coupon Notes") along with detachable warrants to
purchase 2.95 million shares of the Company's common stock. The Deferred Coupon
Notes have no cash interest requirements until December 1999. Thereafter,
interest on the Deferred Coupon Notes will accrue at a rate of 12 3/4% and will
be payable in cash semi-annually on June 1 and December 1. The Deferred Coupon
Notes are redeemable, in whole or in part, at the option of the Company, after
June 1, 1999 at 106.375% of accreted value, which decreases annually to 100% at
the maturity date. The Deferred Coupon Notes are secured by a pledge of the
capital stock of Waxman USA. Substantially all of the assets of Waxman USA are
pledged under the New Credit Agreement. The Deferred Coupon Notes rank senior in
right of payment to all existing and future subordinated indebtedness of the
Company and rank pari passu in

                                       46
<PAGE>   47
right of payment with all other existing or future unsubordinated indebtedness
of the Company. The Deferred Coupon Notes contain certain covenants which,
among other things, limit the ability of the Company and its subsidiaries to
incur additional indebtedness, transfer or sell assets, pay dividends, make
certain other restricted payments or investments, create liens or enter into    
sale lease-back transactions, transactions with affiliates and mergers.  The
Company was in compliance with all covenants at June 30, 1996.

        In the event of a Change of Control, as defined in the Deferred Coupon
Note Indenture, the Company is obligated to make an offer to purchase all
outstanding Deferred Coupon Notes at 101% of the principal amount thereof plus
accrued and unpaid interest, if any.  The Company is obligated in certain
circumstances to make an offer to purchase Deferred Coupon Notes at a
redemption price plus unpaid interest, if any, with the net cash proceeds of
certain sales or other dispositions of assets.

         The Company recorded an extraordinary charge of approximately $6.8
million in 1994 which related primarily to the refinancing of the $50 million
Senior Subordinated Notes as well as borrowings under the domestic bank credit
facilities. The charge included fees along with the accelerated amortization of
debt discount and issuance costs.

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

         C.       SENIOR NOTES

         On April 3, 1996, the Company, through its wholly-owned subsidiary
Waxman USA, consummated an offer to exchange $48.75 million principal amount of
its 11-1/8% Senior Notes due September 1, 2001 (the "Senior Notes") for a like
amount of the Company's outstanding Senior Subordinated Notes, and in connection
therewith solicited consents to certain amendments to the indenture pursuant to
which the Senior Subordinated Notes were issued. Approximately $43.0 million
principal amount of Senior Subordinated Notes were exchanged.

         The Senior Notes are general unsecured obligations of the Company
ranking pari passu in right of payment to any future indebtedness of Waxman USA
that is not subordinated in right of payment to the Senior Notes and senior in
right of payment to any future indebtedness of Waxman USA that is subordinated
in right of payment to the Senior Notes. The Senior Notes are structurally
subordinated to the New Credit Agreement and any refinancing thereof. The
indenture under which the Senior Notes were issued (the "Senior Note Indenture")
contains certain covenants that, among other things, limit the ability of the
Company and its subsidiaries to incur additional indebtedness, transfer or sell
assets, pay dividends, make certain other restricted payments or investments,
create liens or enter into sale lease-back transactions, transactions with
affiliates and mergers. The Company was in compliance with all covenants at June
30, 1996.

         In the event of a Change of Control, as defined in the Senior Note
Indenture, the Company is obligated to make an offer to purchase all outstanding
Senior Notes at 101% of the principal amount thereof plus accrued and unpaid
interest, if any. The Company is obligated in certain circumstances to make an
offer to purchase Senior Notes at a redemption price plus unpaid interest, if
any, with the net cash proceeds of certain sales or other dispositions of
assets.

         The Senior Notes have not been registered under the Securities Act of
1933, as amended, and may not be offered or sold in the United States absent
registration or an applicable exemption from such registration.

         D.       SENIOR SUBORDINATED NOTES

         In June 1989, the Company issued $100 million principal amount of
Senior Subordinated Notes. During 1994, the Company exchanged $50 million
principal amount of the Senior Subordinated Notes for a like amount of Deferred
Coupon Notes. As discussed above, the Company issued approximately $43.0 million
principal amount Senior Notes in exchange for a like amount of Senior
Subordinated Notes in fiscal 1996. The remaining $5.7 million of Senior
Subordinated Notes are due on June 1, 1999. The Senior Subordinated Notes are
redeemable, in whole or in part, at the option of the Company, at a price of
101.719% of the principal amount thereof until June 1, 1997 when the redemption
price is equal to the principal amount of the notes. As a result of the exchange
offer discussed above, the remaining holders of the Senior Subordinated Notes
are no longer entitled to the benefits of restrictive covenants and virtually
all events of default have been eliminated.

                                       47
<PAGE>   48
         E.        SENIOR SECURED NOTES

         In September 1991, the Company completed a private placement of $50
million of 7-year Senior Secured Notes, including detachable warrants to
purchase 1.0 million shares of the Company's common stock. At the time of
issuance, the Senior Secured Notes included $42.5 million of 12 1/4% fixed rate
notes and $7.5 million of floating rate notes with interest at 300 basis points
over the 90 day LIBOR rate. The Senior Secured Notes were redeemable in whole or
in part, at the option of the Company, after September 1, 1995 at a price of
102.45% for the fixed rate notes and 103% for the floating rate notes. Annual
mandatory redemption payments of $14.45 million for the fixed rate notes, and
$2.55 million for the floating rate notes were to be due on each of September 1,
1996 and September 1, 1997. As discussed in Note 2, the Company retired the
Senior Secured Notes with a portion of the net proceeds from the Barnett Public
Offering. The Company incurred an extraordinary charge upon the early retirement
of these notes which primarily represented the acceleration of unamortized debt
issuance costs and the premium paid. The warrants expired by their terms in
September 1996. The Senior Secured Notes, which were guaranteed by Waxman USA
and secured by a pledge of all of the outstanding stock of Barnett, Consumer
Products and WOC, were senior in right of payment to all subordinated
indebtedness and pari passu with all other senior indebtedness of the Company.
During June 1992, the Company repurchased $10.9 million principal amount of the
fixed rate notes in open market purchases.

         F.       CONVERTIBLE SUBORDINATED DEBENTURES

         In March 1987, the Company issued $25 million principal amount of      
Convertible Subordinated Debentures due March 15, 2007 (the "Convertible
Debentures").  During 1990, the Company called for redemption $12.5 million
principal amount of Convertible Debentures. Subsequently, $6.5 million
principal amount was converted into 683 shares of common stock and the
remaining $6.0 million principal amount was redeemed at the redemption price of
105% of the principal amount of the bonds redeemed.

         During 1990 and 1992, the Company also purchased $9.7 million and $0.8
million principal amount respectively, of the Convertible Debentures in open
market purchases at prices which approximated the par value of the Convertible
Debentures.

         In June 1994, the Company purchased $1.8 million of the Convertible
Debentures pursuant to a mandatory repurchase obligation. In May 1996, the
bondholders converted the remaining $0.2 million principal amount of Convertible
Debentures into 45 shares of common stock prior to the Company effecting a
mandatory repurchase of the bonds.

         G.       MISCELLANEOUS

         During 1992, the Company repurchased certain debt securities in open
market purchases. As a result, the Company incurred an extraordinary charge
which totaled $1,186 (net of applicable tax benefit of $611) and included the
market premium paid, along with the accelerated amortization of unamortized debt
discount and issuance costs.

         The Company made interest payments of $15,618 in 1996, $17,627 in 1995,
$20,523 in 1994, $19,540 in 1993 and $18,858 in 1992.

         Management believes the carrying values of its bank loans approximate
their fair values as they bear interest based upon the banks' prime lending
rates. No quoted market prices are available for the Senior Notes as the debt is
not publicly traded. However, since such notes were issued in April 1996, the
Company believes the fair value is not materially different from the carrying
value. The fair values, determined using quoted market prices, for the Deferred
Coupon Notes and Senior Subordinated Notes approximated their carrying amounts.

                                       48
<PAGE>   49
6.       INCOME TAXES

         The Company accounts for income taxes in accordance with the provision
of SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109, adopted by the
Company in the first quarter of 1994, requires the Company to recognize income
tax benefits for loss carryforwards which have not previously been recorded. The
tax benefits recognized must be reduced by a valuation allowance in certain
circumstances. Upon the adoption of SFAS No. 109, the benefit of the Company's
net operating loss carryforwards was reduced 100% by a valuation allowance.

         The components of income (loss) from continuing operations before
income taxes, minority interest, discontinued operations extraordinary loss and
cumulative effect of change in accounting are as follows:

<TABLE>
<CAPTION>
                                                             Fiscal Year Ended June 30,
                                                             --------------------------
                                             1996            1995           1994           1993           1992
                                             ----            ----           ----           ----           ----
<S>                                        <C>            <C>            <C>            <C>            <C>       
Domestic                                   $ 27,279       $ (11,353)     $  (5,127)     $ (14,342)     $  (6,379)
Foreign                                      (1,250)        (   382)         1,006         (2,232)         1,053
                                           --------       ---------      ---------        -------      ---------
Total                                       $26,029       $ (11,735)     $  (4,121)     $ (16,574)       $(5,326)
                                           ========       =========      ==========     ==========     =========
</TABLE>

         The components of the provision (benefit) for income taxes are:

<TABLE>
<CAPTION>
                                                             Fiscal Year Ended June 30,
                                                             --------------------------
                                                1996             1995           1994          1993         1992
                                                ----             ----           ----          ----         ----
<S>                                          <C>            <C>             <C>                <C>       <C>     
Currently payable:
U.S. Federal                                 $ 1,673               --             --            --       $(2,404)
Foreign and other                              1,222              338            351           216           572
                                             -------        ---------       --------           ---       -------
     Total current                             2,895              338            351           216        (1,832)
Deferred:  Federal                              (500)              --             --            --         1,064
                                             -------        ---------       --------           ---       -------
     Total provision (benefit)               $ 2,395        $     338       $    351           216          (768)
                                             =======        =========       ========           ===       =======
</TABLE>

         For periods subsequent to the Barnett Public Offering in April 1996,
Barnett will no longer be included in the Company's consolidated tax return.

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

<TABLE>
<CAPTION>
                                                                        Fiscal Year Ended June 30,
                                                                        --------------------------
                                                              1996         1995          1994          1993          1992
                                                              ----         ----          ----          ----          ----
<S>                                                         <C>          <C>           <C>           <C>           <C>
U.S. statutory rate                                          35.0%        35.0%         34.0%         34.0%         34.0%
Domestic losses not benefited                                   --       (32.2)        (39.3)        (24.3)            --
Capital losses not benefited                                    --          --            --         (10.0)        (18.7)
Utilization of loss carryforwards                           (50.7)          --            --            --            --
State taxes, net                                              3.3         (1.7)         (3.9)         (0.8)         (2.4)
Goodwill amortization                                        19.0         (4.2)         (6.7)         (1.6)         (4.6)
Foreign tax items                                             1.3           --           5.8            --            --
Alternative minimum tax                                       3.3           --            --            --            --
Change in valuation allowance                                (2.5)          --            --            --            --
Effect of prior year purchase
accounting adjustments                                         --           --             -            --           2.8
Other, net                                                    0.5          0.2           1.6           1.4           3.3
                                                           -------     --------     ---------     ---------      -------
     Effective tax rate                                       9.2%        (2.9)%        (8.5)%        (1.3)%        14.4%
                                                              ====       ======        ======        ======      =======
</TABLE>

                                       49
<PAGE>   50
         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>
                                                                       Fiscal Year Ended June 30,
                                                             --------------------------------------------
                                                             1996                 1995               1994
                                                             ----                 ----               ----
<S>                                                        <C>               <C>                <C>      
Net operating loss carryforwards                           $ 19,020          $  26,266          $  20,263
Original issue discount                                       5,295              2,597                 --
Accrued expenses                                              2,345                146              2,272
Inventories                                                   2,326              1,479              1,143
Accounts receivable                                             648                474                426
Alternative minimum tax credit                                  232                 --                 --
Other                                                           869                322                665
                                                           --------          ---------          ---------
     Deferred tax assets                                     30,735             31,284             24,769
                                                           --------          ---------          ---------
Investment in subsidiaries                                   (6,911)                --                 --
Property                                                       (813)            (1,273)            (1,055)
Other assets                                                   (129)            (2,995)            (1,585)
                                                           --------          ---------          ----------
Deferred tax liabilities                                     (7,853)            (4,268)            (2,640)
                                                           --------          ---------          ----------
                                                             22,882             27,016             22,129
    Valuation allowance                                     (22,382)           (27,016)           (22,129)
                                                           --------          ---------          ----------
                                                           $    500          $     --           $     --
                                                           ========          =========          ==========
</TABLE>

         At June 30, 1996, the Company had $54,344 of available domestic net
operating loss carryforwards for income tax purposes which expire 2008 through
2011. The Company also has alternative minimum tax carryforwards of
approximately $663 at June 30, 1996 which are available to reduce future regular
income taxes over an indefinite period. These carryforwards are not available to
offset the taxable income of Barnett.

         At June 30, 1996, the net deferred tax asset of $500 relates to
Barnett. Based on Barnett's history of operating earnings and its expectations
for the future, management has determined that Barnett's operating income will
more likely than not be sufficient to recognize fully the net deferred asset.
The remainder of the net deferred tax asset is fully offset by a valuation
allowance. The net deferred tax asset at June 30, 1995 and 1994 is fully offset
by a valuation allowance. The Company will continue to evaluate the valuation
allowance and to the extent it is determined that such allowance is no longer
required, the tax benefit of the remaining net deferred tax assets will be
recognized in the future.

         For financial reporting purposes, previously recorded deferred income
tax liabilities were reduced in 1993 by the tax benefit of the 1992 net
operating loss which could not be carried back to prior years. In 1992 and 1993,
the Company was able to carryback domestic net operating losses to prior years
which resulted in refunds of previously paid taxes. The Company made income tax
payments of $750 in 1996, $604 in 1995, $556 in 1994, $926 in 1993 and $1,358 in
1992. Refunds received totaled $15 in 1996, $68 in 1995, $435 in 1994 and $2,462
in 1993.

7.       LEASE COMMITMENTS

         The Company leases certain warehouse and office facilities and
equipment under operating lease agreements, which expire at various dates
through 2003.

                                       50
<PAGE>   51
         Future minimum rental payments are as follows:

<TABLE>
<CAPTION>
          Fiscal Year Ended June 30,
          --------------------------
        <S>                <C>   
        1997                $4,001
        1998                 3,410
        1999                 2,764
        2000                 1,956
        2001                 1,044
        Thereafter           1,376
                           -------
                           $14,551
                           ======= 
</TABLE>
        
         Total rent expense charged to operations was $4,204 in 1996, $4,958 in
1995, $3,951 in 1994, $3,758 in 1993 and $3,398 in 1992.

         Consumer Products leases certain warehouse space from related parties.
Related parties rent expense totaled $546 in 1996, $588 in 1995 and $471 in
1994.

8.       PROFIT SHARING PLAN AND 401(k) PLAN

         The eligible employees of certain subsidiaries of the Company
participate in a trusteed, profit sharing and 401(k) retirement plan.
Contributions are discretionary and are determined by the Company's Board of
Directors. There was no profit sharing contribution in 1996, 1995 or 1994. The
charges to operations for Company contributions totaled $132 in 1993 and $123 in
1992. The Company currently offers no other post-retirement or post-employment
benefits.

9.       RELATED-PARTY TRANSACTIONS WITH BARNETT

         The Company's wholly-owned subsidiaries engage in business transactions
with Barnett. Products sold for resale totaled $12,183 in 1996, $11,318 in 1995
and $8,303 in 1994. Purchases from Barnett totaled $172 in 1996, $195 in 1995
and $229 in 1994.  All intercompany transactions are eliminated in 
consolidation.

         The Company and Barnett provide to and receive from each other certain
selling, general and administrative services and reimburse each other for
out-of-pocket disbursements related to those services. In connection with the
Barnett Public Offering, the Company and Barnett, among others, entered into a
New Intercorporate Agreement. Pursuant to the New Intercorporate Agreement, the
Company provides certain managerial, administrative and financial services to
Barnett and is paid by Barnett for the allocable cost of the salaries and
expenses of the Company employees while they are rendering such services.
Barnett also reimburses the Company for actual out-of-pocket disbursements to
third parties by the Company required for the provision of such services by the
Company. In addition to the services provided by the Company to Barnett pursuant
to the New Intercorporate Agreement, Barnett also continues to provide certain
services to the operating divisions of WOC, including LeRan Copper and Brass,
U.S. Lock and Madison Equipment Company. These services include the utilization
of Barnett's management information systems, financial accounting, order
processing and billing and collection services. The Company pays Barnett the
allocable cost of the salaries and expenses of Barnett's employees while they
are performing such services. The Company also reimburses Barnett 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 Barnett.

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

                                       51
<PAGE>   52
10.      CAPITAL STOCK

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

         The Company is authorized to issue 2 million shares of preferred stock
in series, with terms fixed by resolution of the Board of Directors. No
preferred shares have been issued as of June 30, 1996.

         During 1996, debt holders converted $145 of convertible notes into 45
shares of the Company's common stock. Also, holders of the Senior Secured
Warrants, as described in Note 5.E, exercised 3 warrants into the Company's
common stock. These conversions resulted in an increase of $159 to paid-in
capital.

         In March 1994, the Company contributed 50 shares of its common stock to
the profit sharing retirement plan in lieu of a cash contribution. The total
fair market value of the common stock at the date of contribution was
approximately $132.

         In May 1992, the Company completed a public offering of 2,199 shares of
common stock at a price of $5.00 per share. The net proceeds from the offering,
after deducting all associated costs, were $9,785.

11.      EMPLOYEE STOCK OPTION AND RESTRICTED SHARE PLANS

         The Company has three plans under which stock options may be granted.
The 1992 Non-Qualified and Incentive Stock Option Plan (the "1992 Stock Option
Plan") approved by the Company's stockholders effective July 1, 1992, replaced
the then existing stock option plan (the "1982 Plan") which terminated by its
terms on April 30, 1992. The 1992 Stock Option Plan, as amended, authorizes the
issuance of an aggregate of 1.5 million shares of common stock as incentive
stock options to officers and key employees of the Company or its subsidiaries.
Under the terms of the 1992 Stock Option Plan, all options granted are at an
option price not less than the market value at the date of grant and may be
exercised for a period not exceeding 10 years from the date of grant. As of June
30, 1996, 90 persons held such options.

Changes in stock options outstanding for the 1992 Stock Option Plan were as
follows:

<TABLE>
<CAPTION>
                               Shares      Option Price
       Stock Options        Outstanding     Per Share
       -------------        -----------     ---------
<S>                           <C>          <C>
       Balance as of
         June 30, 1992           --                 --
       Granted                1,045        $4.25-$5.00
       Exercised                 --                 --
       Expired or
         terminated             (55)       $      5.00
                                 --
       Balance as of
         June 30, 1993          990        $4.75-$5.00
       Granted                1,250        $2.25-$3.88
       Exercised                 --                 --
       Expired or
         terminated          (1,046)       $2.38-$5.00
                              -----
</TABLE>

                                       52
<PAGE>   53
<TABLE>
<CAPTION>
<S>                            <C>         <C>
       Balance as of
         June 30, 1994        1,194        $2.25
       Granted                   33        $1.375
       Exercised                 --           --
       Expired or
         terminated             (46)       $2.25
                              -----       
       Balance as of
         June 30, 1995        1,181        $1.375-$2.25
       Granted                  385        $1.00-$1.125
       Exercised                (61)       $2.25
       Expired or
         terminated            (151)       $1.00-$2.25
                                ---
       Balance as of
       June 30, 1996          1,354        $1.00-$2.25
                              =====
</TABLE>

         As of June 30, 1996, options for 458 shares were exercisable.

         In 1994, the Board of Directors of the Company adopted the 1994
Non-Employee Directors Stock Option Plan pursuant to which each current
non-employee director of the Company was granted an option to purchase an
aggregate of 20 shares of the Company's common stock at an exercise price of
$2.25 per share and each future non-employee director of the Company would be
granted, on the date such person becomes a non-employee director of the Company,
an option to purchase an aggregate of 20 shares of common stock at an exercise
price equal to the fair market value of the Company's common stock at the date
of grant. In addition, during 1994, the Company granted a consultant to the
Company an option to purchase an aggregate of 10 shares of common stock at an
exercise price of $2.25 per share. At June 30, 1996, options to purchase a total
of 70 shares were outstanding under the 1994 Non-Employee Directors Stock Option
Plan of which 35 were exercisable. At June 30, 1995, there were options for 70
shares outstanding of which 18 were exercisable.

         In 1996, the Board of Directors adopted the 1996 Non-Employee Directors
Restricted Share Plan (the "1996 Plan"), which is subject to any requisite
stockholder approval. The 1996 Plan is designed to increase the proprietary and
vested interest of the non-employee directors of the Company in the growth,
development and financial success of the Company. The 1996 Plan provides for 5
restricted shares of the Company's common stock to be granted to each
non-employee director for each 5 years of service as a director. The restricted
shares vest on the last day of the second consecutive year during which the
individual serves as a director after the date of the award. Prior to being
vested, the shares bear a restricted legend and are held by the Company's
corporate secretary. In 1996, the Company awarded 35 restricted shares, subject
to requisite stockholder approval.

         In 1996, the Stock Option Committee of the Board of Directors granted,
subject to any requisite stockholder approval, to each of Messrs. Armond and
Melvin Waxman a stock appreciation right ("SAR") with respect to 200,000 shares
of the Company's common stock at a base price of $3.375 per share, the fair
market value of the common stock on the date of such grant. Each SAR expires ten
years from the date of grant and vests in whole three years after the date of
grant. Upon the exercise of the SAR, the grantee is entitled to be paid an
amount equal to the excess of the fair market value per share of Common Stock on
the date of exercise over the base price of such SAR for each share with respect
to which such SAR is exercised. The grantee may elect to receive cash, shares of
common stock, or a combination thereof upon exercise of the SAR.

         The 1982 Plan, which terminated by its terms on April 30, 1992, had
options to purchase 447 shares of common stock outstanding at June 30, 1991.
During 1992, options to purchase a total of 557 shares of common stock were
issued, options to purchase a total of 267 shares of common stock with exercise
prices of $4.50 to $8.19 were

                                       53
<PAGE>   54
cancelled and options to purchase a total of 4 shares of common stock were
exercised at a price of $5.33 per share. At June 30, 1992, options to purchase a
total of 733 shares of common stock were outstanding at option prices ranging
from $4.75 to $7.29 per share. During 1993, options to purchase a total of 462
shares of common stock with exercise prices of $4.75 to $7.29 per share were
cancelled, with the remaining shares being cancelled in fiscal 1993.

12.      CONTINGENCIES

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

13.      RESTATEMENT OF PRIOR YEAR FINANCIAL STATEMENTS

         During 1996, the Company identified an intercompany inventory
reconciling item between Consumer Products and WAMI and has restated prior year
financial statements to reflect the correction of this item.

         The effect of this restatement was as follows:

<TABLE>
<CAPTION>
                                         As Previously Reported              As Restated
                                         ----------------------              -----------


<S>                                             <C>                            <C>    
Total Stockholders Equity:
at June 30, 1992                                $40,827                        $40,427
at June 30, 1993                                  7,496                          6,196
at June 30, 1994                                (37,709)                       (40,009)
at June 30, 1995                                (60,397)                       (62,697)


Operating Income:
Fiscal 1992                                     $14,899                        $14,699
Fiscal 1993                                       4,691                          3,791
Fiscal 1994                                      18,213                         17,213


Net income (loss):
Fiscal 1992                                     $(4,398)                       $(4,598)
Fiscal 1993                                     (29,240)                       (30,140)
Fiscal 1994                                     (51,888)                       (52,888)

</TABLE>

         Corresponding changes have been made to the consolidated balance sheets
to reduce inventories.

                                       54
<PAGE>   55
         SUPPLEMENTARY FINANCIAL INFORMATION

         Quarterly Results of Operations:

         The following is a summary of the unaudited quarterly results of
operations for the fiscal years ended June 30, 1996, 1995, 1994, 1993 and 1992
(in thousands, except per share amounts):

<TABLE>
<CAPTION>
Fiscal 1996 (restated)(1)                                      1st Qtr.          2nd Qtr.         3rd Qtr.         4th Qtr.
-------------------------                                      --------          --------         --------         --------
<S>                                                          <C>                <C>                <C>             <C>    
Net Sales                                                      $57,589           $59,345           $58,543          $59,590
Gross Profit(2)(3)                                              19,577            20,230            15,731           18,973
Operating Income (loss)(4)(5)                                    4,817             5,211            (2,468)         (23,184)
Income (loss) from continuing operations
before extraordinary charge and change in
accounting(6)                                                   (1,978)           (1,507)           (9,184)          36,303
Reversal of loss on disposal                                       --                --             11,000              --
Income (loss) before extraordinary charge
and change in accounting                                        (1,978)           (1,507)            1,816           36,328
Extraordinary charge                                               --                --                --             6,251
Cumulative effect of change in accounting                        8,213               --                --               --
Net income (loss)                                             ($10,191)          ($1,507)           $1,816          $29,077
Primary earnings per share:
Loss from continuing operations before
extraordinary charge and change in
accounting                                                      ($0.17)           ($0.13)            $0.15            $2.58
Extraordinary charge                                               --                --                --            ($0.46)
Cumulative effect of change in accounting                       ($0.70)              --                --               --
Net Income (loss)                                               ($0.87)           ($0.13)            $0.15            $2.12
Fully diluted earnings per share:
Loss from continuing operations before
extraordinary charge and change in
accounting                                                      ($0.17)           ($0.13)            $0.14            $2.58
Extraordinary charge                                               --                --                --            ($0.46)
Cumulative effect of change in accounting                       ($0.70)              --                --               --
Net income (loss)                                               ($0.87)            (0.13)            $0.14            $2.12
</TABLE>

(1)      In the first, second and third quarters, losses of $(1,917), $(1,057)
and $(1,735) or $(0.16), $(0.09) and $(0.15) per share, respectively, had been
previously reported for net loss per share.  The first and second quarter of 
1996 have been restated from the previously reported results to reflect the 
treatment of Consumer Products as a continuing operation.  Refer to 2 and 3
below for the discussion of items effecting previously reported third quarter
results.
 
                                       55
<PAGE>   56
(2)      Due to the identification and correction of an intercompany inventory
reconciling item between Consumer Products and WAMI, a $2.3 million charge,
originally recorded in the third quarter of 1996 has been reversed and charged
to 1994 for $1.0 million, 1993 for $0.9 million, 1992 for $0.2 million and 1991
for $0.2 million.

(3)      Upon completion of the strategic review, a $1.0 million charge
attributed to inventory obsolescence originally recorded in the 1996 third
quarter has been reversed and charged to the 1996 fourth quarter. The strategic
review resulted in charges to cost of sales of $4.2 million and $2.7 million in
the third and fourth quarters of 1996, respectively, as further discussed in
Note 3 to the Consolidated Financial Statements.

(4)      The Company's operating results for each of the first three quarters of
1996 have been revised by $250,000 to reflect amortization expense for
procurement costs calculated in accordance with the new accounting policy, as
discussed in Note 4 to the Consolidated Financial Statements.

(5)      Includes restructuring and other non-recurring charges of $19.5 million
in the 1996 fourth quarter. The strategic review resulted in total charges to
operating income of $7.7 million and $7.1 million in the 1996 third and fourth
quarters, respectively, as further discussed in Note 3 to the Consolidated
Financial Statements.

(6)      Includes the pre-tax gain on the sale of Barnett Common Stock of $65.9 
million in the 1996 fourth quarter.

                                       56
<PAGE>   57
<TABLE>
<CAPTION>
Fiscal 1995                                                                    1st Qtr.    2nd Qtr.     3rd Qtr.      4th Qtr.
-----------                                                                    --------    --------     --------      --------
<S>                                                                             <C>        <C>          <C>          <C>     
Net sales                                                                       $59,444    $58,951      $58,767      $ 55,142
Gross profit                                                                     20,887     20,582       20,281        18,186
Operating income (loss)                                                           5,639      5,484        4,719        (1,166)
Loss from continuing operations before loss on disposal of discontinued
operations                                                                        (552)      (983)      (1,869)        (8,669)
Loss on disposal of discontinued operations                                          -          -            -        (11,000)
Net income (loss)                                                                $(552)     $(983)     $(1,869)      $(19,669)

Primary and fully diluted earnings per share:                                    
Loss from continuing operations                                                  $(.05)     $(.08)       $(.16)         $(.74)
  Loss on disposal of discontinued operations                                        -          -            -           (.94)
  Net income (loss)                                                              $(.05)     $(.08)       $(.16)        $(1.68)
</TABLE>

                                       57
<PAGE>   58
<TABLE>
<CAPTION>

Fiscal 1994 (restated)(7)                                 1st Qtr.          2nd Qtr.         3rd Qtr.         4th Qtr.
-------------------------                                 --------          --------         --------         --------
<S>                                                        <C>               <C>              <C>              <C>    
Net Sales                                                  $54,701           $53,233          $52,311          $54,867
Gross Profit                                                18,500            18,514           18,301           18,786
Operating Income                                             4,509             4,874            4,163            3,667
Loss from continuing operations before
 extraordinary charge                                        (607)             (292)           (1,191)          (2,382)
Income (loss) from discontinued operation                     886               115            (4,250)              --
Loss on disposal                                               --                --           (38,343)              --
Extraordinary charge                                           --                --            (6,625)            (199)
Net income (loss)                                            $279             $(177)         $(50,409)         $(2,581)
Primary and fully diluted earnings per share:
Income (loss) from continuing operations
 before extraordinary charge                               $(0.05)           $(0.03)           $(0.10)          $(0.21)
Income (loss) from discontinued operations                   0.07              0.01             (0.36)              --
Loss on disposal                                               --                --             (3.28)              --
Extraordinary charge                                           --                --             (0.56)           (0.02)
Net income (loss)                                           $0.02            ($0.02)           $(4.30)          $(0.23)
</TABLE>


(7)      As a result of the restatement for the correction of an intercompany
inventory reconciling item, cost of sales in 1994 increased by $250 in each
quarter, without tax benefit, which is reflected in the table above. The Company
previously reported net income (loss) of $529, $73, $(50,159) and $(2,331), or
net income (loss) per share of $.05, $.01, $(4.29) and $(.20) for the first,
second, third and fourth quarters of 1994, respectively.

                                       58
<PAGE>   59
<TABLE>
<CAPTION>
Fiscal 1993 (restated)(8)                                 1st Qtr.          2nd Qtr.         3rd Qtr.         4th Qtr.
-------------------------                                 --------          --------         --------         --------
<S>                                                       <C>                <C>             <C>             <C>      
Net Sales                                                  $54,405           $50,969          $48,583          $50,821
Gross Profit                                                18,147            16,902           16,373           15,212
Operating Income (loss)                                      4,253             3,935            3,505          (7,902)
Loss from continuing operations before
 change in accounting                                        (413)             (597)          (1,110)         (14,670)
Income (loss) from discontinued operation                      785              733             (218)         (12,540)
Cumulative effect of change in accounting                  (2,110)               --               --               --
Net income (loss)                                         $(1,738)             $136          $(1,328)        $(27,210)
Primary and fully diluted earnings per share:
Loss from continuing operations before
 change in accounting                                      $(0.04)           $(0.05)          $(0.09)          $(1.26)
Income (loss) from discontinued operations                   0.07              0.06            (0.02)           (1.07)
Cumulative effect of change in accounting                   (0.18)               --               --               --
Net income (loss)                                          $(0.15)            $0.01           $(0.11)          $(2.33)
</TABLE>

(8)      As a result of the restatement for the correction of an intercompany
inventory reconciling item, cost of sales in 1993 increased by $50 in each
of the first and second quarters and $400 in each of the third and fourth
quarters, without tax benefit, which is reflected in the table above. The 
Company previously reported net income (loss) of $(1,688), $186, $(928) and 
$(26,810), or net income (loss) per share of $(.14), $.02, $(.08) and $(2.30) 
for the first, second, third and fourth quarters of 1993, respectively.

                                       59
<PAGE>   60
<TABLE>
<CAPTION>
          Fiscal 1992 (restated)(9)                       1st Qtr.          2nd Qtr.         3rd Qtr.         4th Qtr.
          -------------------------                       --------          --------         --------         --------
<S>                                                        <C>               <C>              <C>              <C>    
Net Sales                                                  $48,670           $47,268          $47,628          $54,172
Gross Profit                                                16,930            16,534           17,129           19,830
Operating Income                                             3,739             4,238            5,324            1,398
Income (loss) from continuing operations
 before extraordinary charge                                 (185)              (232)             134          (4,275)
Income (loss) from discontinued operation                      760               652               77            (343)
Extraordinary charge                                            --                --               --          (1,186)
Net income (loss)                                             $575              $420             $211         $(5,804)
Primary earnings per share:
Income (loss) from continuing operations
 before extraordinary charge                               $(0.02)            $(0.02)           $0.01          $(0.40)
Income (loss) from discontinued operations                   0.08               0.07             0.01           (0.03)
Extraordinary charge                                           --                 --               --           (0.11)
Net income (loss)                                           $0.06              $0.05            $0.02          $(0.55)
Fully Diluted earnings per share:
Income (loss) from continuing operations
 before extraordinary charge                               $(0.02)            $(0.02)          $(0.01)         $(0.41)
Income (loss) from discontinued operations                   0.08               0.07             0.01           (0.03)
Extraordinary charge                                           --                 --               --           (0.11)
Net income (loss)                                           $0.06              $0.05            $0.00          $(0.55)
</TABLE>

(9)      As a result of the restatement for the correction of an intercompany
inventory reconciling item, cost of sales in 1992 increased by $50 in each
quarter, without tax benefit, which is reflected in the table above. The Company
previously reported net income (loss) of $625, $470, $261 and $(5,754), or net
income (loss) per primary share of $.07, $.05, $.03 and $(.54) for the first, 
second, third and fourth quarters of 1992, respectively.

                                       60
<PAGE>   61
                                    PART III

         Part III, except for certain information relating to Executive Officers
included in Part I, Item 4A, is omitted inasmuch as the Company intends to file
with the Securities and Exchange Commission within 120 days of the close of its
fiscal year ended June 30, 1996 a definitive proxy statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934.

                                     PART IV

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

<TABLE>
<CAPTION>
<S>      <C>      <C>      <C>
         (a)      (1)      The following consolidated financial statements are included in Part II, Item 8:

                           Report of Independent Public Accountants.

                           Balance Sheets--June 30, 1996, 1995, 1994, 1993 and 1992.

                           Statements of Operations--For the Years Ended June 30, 1996, 1995, 1994, 1993 and 1992.

                           Statements of Stockholders' Equity--For the Years
                           Ended June 30, 1996, 1995, 1994, 1993 and 1992.

                           Statements of Cash Flows--For the Years Ended June 30, 1996, 1995, 1994, 1993 and 1992.

                           Notes to Financial Statements For the Years Ended June 30, 1996, 1995, 1994, 1993 and 1992.

                           Supplementary Financial Information

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

         (a)      (3)      Exhibits

         3.1*        Certificate of Incorporation of the Company dated October
                     27, 1989 (Exhibit 3(a) to the Company's Form S-8 filed
                     December 4, 1989, File No. 0-5888, incorporated herein by
                     reference).

         3.2*        By-laws of the Company. (Exhibit 3.2 to Annual Report on
                     Form 10-K for the year ended June 30, 1990, File No.
                     0-5888, incorporated herein by reference.)

         4.1*        Indenture dated as of June 1, 1989 (the "Ameritrust
                     Indenture") between the Company and Ameritrust Company
                     National Association (Exhibit 4.1 to Annual Report on Form
                     10-K for the year ended June 30, 1989, File No. 0-5888,
                     incorporated herein by reference).

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

         4.3*        First Supplemental Indenture to the Ameritrust Indenture
                     dated November 29, 1989. (Exhibit 4.2 to Annual Report on
                     Form 10-K for the year ended June 30, 1990, File No.
                     0-5888, incorporated herein by reference.)

         4.4*        Second Supplemental Indenture to the Ameritrust Indenture
                     dated November 23, 1993 (Exhibit 4.3 to Waxman Industries,
                     Inc.'s Form S-2 filed July 8, 1994, incorporated herein by
                     reference).
</TABLE>

                                       61
<PAGE>   62
<TABLE>
<CAPTION>
<S>      <C>         <C>
         4.5*        Third Supplemental Indenture to the Ameritrust Indenture
                     dated May 20, 1994 (Exhibit 4.4 to Waxman Industries,
                     Inc.'s Form S-2 filed July 8, 1994 incorporated herein by
                     reference).

         4.6*        Indenture, dated as of May 20, 1994, by and between Waxman
                     Industries, Inc. and The Huntington National Bank, as
                     Trustee, with respect to the Deferred Coupon Notes,
                     including the form of Deferred Coupon Notes (Exhibit 4.1 to
                     Waxman Industries, Inc.'s Form S-4 filed June 20, 1994,
                     incorporated herein by reference).

         4.7*        Warrant Agreement, dated as of May 20, 1994, by and between
                     Waxman Industries, Inc. and The Huntington National Bank,
                     as Warrant Agent (Exhibit 4.2 to Waxman Industries, Inc.'s
                     Form S-4 filed June 20, 1994, incorporated herein by
                     reference).

         4.8*        Warrant Certificate (Exhibit 4.3 to Waxman Industries,
                     Inc.'s Form S-4 filed June 20, 1994, incorporated herein by
                     reference).

         4.9*        Securities Purchase Agreement for Notes and Warrants dated
                     as of September 17, 1991, among the Company and each of the
                     Purchasers referred to therein. (Exhibit 4.4 to Annual
                     Report on Form 10-K for the year ended June 30, 1991, File
                     No. 0-5888, incorporated herein by reference).

         4.10*       Indenture dated as of September 1, 1991, (the "U.S. Trust
                     Indenture") between the Company and United States Trust
                     Company of New York. (Exhibit 4.5 to Annual Report on Form
                     10-K for the year ended June 30, 1991, File No. 0-5888,
                     incorporated herein by reference).

         4.11*       Form of the Company's Floating Rate Senior Secured Notes
                     due September 1, 1998. (Exhibit 4.6 to Annual Report on
                     Form 10-K for the year ended June 30, 1991, File No.
                     0-5888, incorporated herein by reference).

         4.12*       Form of the Company's 12.25% Fixed Rate Senior Secured
                     Notes due September 1, 1998. (Exhibit 4.7 to Annual Report
                     on Form 10-K for the year ended June 30, 1991, File No.
                     0-5888, incorporated herein by reference).

         4.13*       First Supplemental Indenture to the U.S. Trust Indenture
                     dated November 15, 1993 (Exhibit 4.8 to Waxman Industries,
                     Inc.'s Form S-2 filed July 8, 1994, incorporated herein by
                     reference).

         4.14*       Second Supplemental Indenture to the U.S. Trust Indenture
                     dated March 25, 1994 (Exhibit 4.9 to Waxman Industries,
                     Inc.'s Form S-2 filed July 8, 1994, incorporated herein by
                     reference).

         4.15*       Third Supplemental Indenture to the U.S. Trust Indenture
                     dated May 20, 1994 (Exhibit 4.10 to Waxman Industries,
                     Inc's Form S-2 filed July 8, 1994, incorporated herein by
                     reference).

         4.16*       Warrant Agreement dated as of September 17, 1991, between
                     the Company and United States Trust Company of New York.
                     (Exhibit 4.8 to Annual Report on Form 10-K for the year
                     ended June 30, 1991, File No. 0-5888, incorporated herein
                     by reference).

         4.17*       Form of the Company's Common Stock Purchase Warrant
                     Certificate. (Exhibit 4.9 to Annual Report on Form 10-K for
                     the year ended June 30, 1991, File No. 0-5888, incorporated
                     herein by reference).

         4.18*       Registration Rights Agreement for Senior Notes, Warrants
                     and Warrant Shares dated as of September 17, 1991, among
                     the Company and each of the Purchasers signatory thereto.
                     (Exhibit 4.10 to Annual Report on Form 10-K for the year
                     ended June 30, 1991, File No. 0-5888, incorporated herein
                     by reference).

         4.19*       Pledge Agreement dated as of September 17, 1991, among the
                     Company, United States Trust Company of New York and each
                     of the Purchasers signatory thereto. (Exhibit 4.11 to
                     Annual Report on Form 10-K for the year ended June 30,
                     1991, File No. 0-5888, incorporated herein by reference).
</TABLE>

                                       62
<PAGE>   63
<TABLE>
<CAPTION>
<S>      <C>         <C>
         4.20*       Operating Credit Agreement dated as of April 20, 1989
                     between Bank of Montreal and Waxman Acquisition, Inc.
                     (Exhibit 10.9 to Annual Report on Form 10-K for the year
                     ended June 30, 1989, File No. 0-5888, incorporated herein
                     by reference).

         4.21*       Amending Agreement of Operating Credit Agreement dated as
                     of July 1, 1990 between Bank of Montreal and Ideal Plumbing
                     Group Inc. (Exhibit 4.10 to Annual Report on Form 10-K for
                     the year ended June 30, 1990, File No. 0-5888, incorporated
                     herein by reference).

         4.22*       Amended and Restated Operating Credit Agreement dated as of
                     July 22, 1991 between Bank of Montreal and Ideal Plumbing
                     Group Inc. (Exhibit 4.15 to Annual Report on Form 10-K for
                     the year ended June 30, 1991, File No. 0-5888, incorporated
                     herein by reference).

         4.23*       Amended and Restated Credit Agreement dated as of April 1,
                     1993 between Waxman Industries, Inc. and the Banks Named
                     Therein and National City Bank as Agent (Exhibit 4.15 to
                     Annual Report on Form 10-K for the year ended June 30,
                     1993, File No. 0-5888, incorporated herein by reference).

         4.24*       Amendment dated as of October 1, 1993 to Amended and
                     Restated Credit Agreement dated as of April 1, 1993 between
                     Waxman Industries, Inc. and the Banks Named Therein and
                     National City Bank as Agent (Exhibit 4.16 to Annual Report
                     on Form 10-K for the year ended June 30, 1993, File No.
                     0-5888, incorporated herein by reference).

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

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

         4.27*       First Supplemental Indenture dated as of January 19, 1996
                     by and between Waxman Industries, Inc. and The Huntington
                     National Bank, as Trustee (Exhibit 4.2 to Waxman
                     Industries, Inc.'s Amendment No. 8 to Registration
                     Statement on Form S-2 filed April 15, 1996 Registration No.
                     33-54211, incorporated herein by reference).

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

         4.29*       Registration Rights Agreement dated as of April 3, 1996 by
                     and between Waxman USA Inc. and the United States Trust
                     Company of New York (Exhibit 10.15 to Waxman Industries,
                     Inc.'s Amendment No. 8 to Registration Statement on Form
                     S-2 filed April 15, 1996, Registration No. 33-54211,
                     incorporated herein by reference).

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

         4.31*       Amendment No. 2 to the Term Loan Agreement and Amendment
                     No. 1 to the Revolving Credit Agreement among Waxman USA
                     Inc., Barnett Inc., Waxman Consumer Products Group Inc. and
                     WOC Inc., the Lenders and Issuers party thereto and
                     Citibank, N.A., as Agent (Exhibit 10.11 to
</TABLE>

                                       63
<PAGE>   64
<TABLE>
<CAPTION>
<S>      <C>         <C>
                     Waxman Industries, Inc.'s Amendment No. 4 to Registration
                     Statement on Form S-2 filed October 10, 1995, Registration
                     No. 33-54211, incorporated herein by reference).

         4.32*       Standstill Agreement dated March 28, 1996 between Waxman
                     Industries, Inc. and Barnett Inc. (Exhibit No. 10.13 to
                     Waxman Industries, Inc.'s Amendment No. 8 to Registration
                     Statement on Form S-2 filed April 15, 1996, Registration
                     No. 33-54211, incorporated by reference).

         4.33        Loan and Security Agreement dated as of June 28, 1996 among
                     the Financial Institutions named therein and BankAmerica
                     Business Credit, Inc., as the Agent, Waxman Consumer
                     Products Group Inc. and WOC Inc., including certain
                     exhibits thereto.

         10.1*       Lease between the Company as Lessee and Aurora Investment
                     Co. as Lessor dated June 30, 1992 (Exhibit 10.1 to Annual
                     Report on Form 10-K for the year ended June 30, 1992, File
                     No. 0-5888, incorporated herein by reference).

         10.2*       Policy Statement (revised as of June 1, 1980) regarding the
                     Company's Profit Incentive Plan (Exhibit 10(c)-1 to Annual
                     Report on Form 10-K for the year ended June 30, 1984, File
                     No. 0-5888, incorporated herein by reference).

         10.3*       Employment Contract dated June 18, 1990 between the Company
                     and William R. Pray. (Exhibit 10.4 to Annual Report on Form
                     10-K for the year ended June 30, 1991, File No. 0-5888,
                     incorporated herein by reference).

         10.4*       Form of Stock Option Agreement between the Company and its
                     Directors. (Exhibit 10.5 to Annual Report on Form 10-K for
                     the year ended June 30, 1991, File No. 0-5888, incorporated
                     herein by reference).

         10.5*       Employment Contract dated January 1, 1992 between the
                     Company and John S. Peters (Exhibit 10.6 to Annual Report
                     on Form 10-K for the year ended June 30, 1992, File No.
                     0-5888, incorporated herein by reference).

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

         10.7*       1992 Non-Qualified and Incentive Stock Option Plan of
                     Waxman Industries, Inc., adopted as of July 1, 1992
                     (Exhibit 10.7 to Annual Report of Form 10-K for the year
                     ended June 30, 1993, File No. 0- 5888, incorporated herein
                     by reference).

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

         10.9*       Employee Stock Purchase Plan of Waxman Industries, Inc.,
                     adopted on September 1, 1992 (Exhibit 10.8 to Annual Report
                     on Form10-K for the year ended June 30, 1993, File No.
                     0-5888, incorporated herein by reference).

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

         10.11*      Intercorporate Agreement dated March 28, 1996 among Waxman
                     Industries, Inc., Waxman USA Inc., Barnett Inc., Waxman
                     Consumer Products Group Inc., WOC Inc. and TWI,
                     International, Inc.
</TABLE>

                                       64
<PAGE>   65
<TABLE>
<CAPTION>
<S>      <C>         <C>
                     (Exhibit 10.8 to Waxman Industries, Inc.'s Amendment No. 8
                     to Registration Statement on Form S-2 filed April 15, 1996,
                     Registration No. 33-54211, incorporated herein by
                     reference).

         18.1*       Letter Regarding Change in Accounting Principles (Exhibit
                     18.1 to Annual Report on Form 10-K for the year ended June
                     30, 1993, File No. 0-5888, incorporated herein by
                     reference).

         18.2        Letter Regarding Change in Accounting Principles.

         21.1*       Subsidiaries. (Exhibit 21.1 to Waxman Industries, Inc.'s
                     Form S-4 filed June 20, 1994, incorporated herein by
                     reference).

         23.1        Consent of Arthur Andersen LLP.

         27.1        Financial Data Schedule

*     Incorporated herein by reference as indicated.

         (b)         REPORTS ON FORM 8-K

                     Report filed April 12, 1996
</TABLE>

                                       65
<PAGE>   66
                                   SIGNATURES

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

                                              WAXMAN INDUSTRIES, INC.

October 11, 1996                            By: /s/ Armond Waxman
                                                ______________________
                                                 Armond Waxman
                                                 President,
                                                 Co-Chief Executive Officer
                                                 and Director

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

October 11, 1996                                  /s/ Melvin Waxman
                                                 ______________________
                                                  Melvin Waxman
                                                  Chairman of the Board,
                                                  Co-Chief Executive Officer
                                                  and Director

October 11, 1996                                  /s/ Armond Waxman
                                                  _______________________
                                                  Armond Waxman
                                                  President,
                                                  Co-Chief Executive Officer
                                                  and Director

October 11, 1996                                  /s/ Michael J. Vantusko
                                                  ________________________
                                                  Michael J. Vantusko
                                                  Chief Financial Officer
                                                  (principal accounting officer)

October 11, 1996                                  /s/ William R. Pray
                                                  _________________________
                                                  William R. Pray, Director

October 11, 1996                                  /s/ Samuel J. Krasney
                                                  _________________________
                                                  Samuel J. Krasney, Director

October 11, 1996                                  /s/ Judy Robins
                                                  _________________________
                                                  Judy Robins, Director

October 11, 1996                                  /s/ Irving Z. Friedman
                                                  _________________________
                                                  Irving Z. Friedman, Director

October 11, 1996                                  /s/ Laurence S. Waxman
                                                  _________________________
                                                  Laurence S. Waxman, Director

                                       66