##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


Form 10-K

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

For The Fiscal Year Ended June 30, 2003
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(State of Incorporation)                                                 |  | 34-0899894(I.R.S. Employer Identification Number)
|                                                                                 |  |                                                  
|24460 Aurora Road,
Bedford Heights, Ohio(Address of Principal Executive Offices) |  | 44146(Zip Code)                                  

(440) 439-1830

(Registrants Telephone Number Including Area Code)


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

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value

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]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).

|                
|----------------
|Yes [  ]  No [X]

State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was last sold, or the average bid and asked price of such common
equity, as of the last business day of the registrants most recently completed
second fiscal quarter. $4,603,000

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [X]



| |                                                                    
| | -------------------------------------------------------------------
| | Number of shares of Common Stock outstanding as of August 20, 2003:

|Common Stock         |  |  | 1,003,990 | 
|-------------------- |  |  | --------- | 
|Class B Common Stock |  |  | 214,189   | 

1



---

TABLE OF CONTENTS



|                                                                                |                                                                                                                    |  |  |  |  |  |  | 
|------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------ |  |  |  |  |  |  | 
|DOCUMENTS INCORPORATED BY REFERENCE                                            
|CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
|PART I                                                                         
|                                                                                | ITEM 1. BUSINESS                                                                                                  
|                                                                                | ITEM 2. DESCRIPTION OF PROPERTIES                                                                                 
|                                                                                | ITEM 3. LEGAL PROCEEDINGS                                                                                         
|                                                                                | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                       
|                                                                                | ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT                                                                     
|PART II                                                                        
|                                                                                | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                                     
|                                                                                | ITEM 6. SELECTED FINANCIAL DATA                                                                                   
|                                                                                | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION                      AND RESULTS OF OPERATIONS
|                                                                                | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                               
|                                                                                | ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                  
|AUDIT COMMITTEE REPORT                                                         
|REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                       
|INDEPENDENT AUDITORS REPORT                                                   
|CONSOLIDATED BALANCE SHEETS                                                    
|CONSOLIDATED STATEMENTS OF OPERATIONS                                          
|CONSOLIDATED STATEMENTS OF OPERATIONS                                          
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY                                
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                     
|SUPPLEMENTARY FINANCIAL INFORMATION                                            
|                                                                                | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTING AND FINANCIAL DISCLOSURE                                     
|                                                                                | ITEM 9A. CONTROLS AND PROCEDURES                                                                                  
|PART III                                                                       
|PART IV                                                                        
|                                                                                | ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K                                        
|SIGNATURES                                                                     
|Exhibit Index                                                                  
|EX-3.1.2 Amendment to Certificate of Incorporation                             
|EX-3.1.3 Amendment to Certificate of Incorporation                             
|EX-3.1.4 Amendment to Certificate of Incorporation                             
|EX-4.11 2nd Amend. to Revolving Credit Agreement                               
|EX-23.1 Consent of Meaden & Moore, Ltd.                                        
|EX-23.2 Consent of En Wise CPAs                                                
|EX-23.3 Consent of Chien Chyuan & Co.                                          
|EX-23.4 Consent of T.N. Soong & Deloitte & Touche                              
|EX-31.1 Certification:Co-Chief Executive Officer                               
|EX-31.2 Certification:Co-Chief Executive Officer                               
|EX-31.3 Certification:Chief Financial Officer                                  
|EX-32.1 Certification Pursuant to 18 U.S.C.                                    



---



##### Table of Contents






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, 2003, portions of which document shall be deemed to be incorporated by
reference in Part I and Part III of this Annual Report on Form 10-K from the
date such document is filed.

The Company consists of Waxman Industries, Inc. and subsidiaries in which
Waxman Industries, Inc. directly or indirectly has a majority voting interest.
Until its sale on September 29, 2000, the Company owned 44.2% of the common
stock of Barnett Inc. (the Barnett Common Stock), a direct marketer and
distributor of plumbing, electrical, hardware, and security hardware products,
and accounted for Barnett Inc. (Barnett) under the equity method of
accounting.




CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

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




PART I




ITEM 1. BUSINESS

General

The Company believes it is one of the leading suppliers of specialty
plumbing, floor and surface protection and other hardware products to the
repair and remodeling market in the United States. The Company also distributes
its products in non-U.S. countries through its operations based in Asia,
primarily to wholesale distributors, industrial and original equipment
manufacturer (O.E.M.) customers. The Company distributes its products to
approximately 700 customers, including a wide variety of large national and
regional retailers, independent retail customers and wholesalers. The Companys
consolidated net sales were $67.1 million in fiscal 2003.

The Company conducts its business primarily through its wholly-owned
subsidiaries, Waxman Consumer Products Group Inc. (Consumer Products), WAMI
Sales, Inc. (WAMI Sales) and TWI, International, Inc. Consumer Products, the
Companys largest operation, is a supplier of specialty plumbing, floor and
surface protection and other hardware products to a wide variety of large
retailers. WAMI Sales distributes galvanized, black, chrome and brass pipe
nipples and fittings to industrial and wholesale distributors. TWI,
International, Inc. includes TWI International Taiwan Inc. and its sales
operation, TWI Industrial, Inc. (collectively, TWI), located primarily in
Taiwan, and CWI International China, Ltd. (CWI), located in Mainland China.
TWI and CWI manufacture, package, source and assemble products purchased by
Consumer Products and non-affiliated businesses. Approximately 36% of Consumer
Products purchases are from TWI or CWI. The Companys non-intercompany sales
are classified into two segments; (i) retail sales, which are made to the
Companys base of retail store customers and (ii) industrial sales, which are
made to industrial supply distributors, O.E.M.s and other wholesale trade
businesses.

Until March 31, 2001, the Company also supplied plumbing and hardware
products to hardware stores and smaller independent retailers through Medal of
Pennsylvania, Inc. (Medal, formerly known as WOC Inc. (WOC)), when
substantially all of the assets and certain liabilities of this business were
sold (see Note 5). Until its sale on September 29, 2000, the Company owned
44.2% of Barnett, a direct marketer and distributor of an extensive line of
plumbing, electrical, hardware and security hardware products. The Company
recorded equity earnings from this investment of $1.4 million for the first
fiscal quarter ended September 30, 2000. The Company did not report equity
earnings thereafter, due to the sale of its ownership interest in Barnett. See
the Business  Comprehensive Financial Restructuring Plan section, the
Managements Discussion and Analysis  Significant
Developments - Prior
Strategic and Restructuring Developments section and Notes 2 and 3 of the
Notes to

2



---



##### Table of Contents



Consolidated Financial Statements in this Form 10-K for information regarding
the sale of the Companys interest in Barnett.

Forward-Looking Statements

Statements that are not historical facts, including statements about our
confidence in our prospects and strategies and our expectations about growth of
existing markets and our ability to expand into new markets and to attract new
sources of financing, are forward-looking statements that involve risk and
uncertainties. In addition to statements which are forward-looking by reason of
context, the words anticipate, believe, continue, design, estimate,
expect, intend, goal, may, objective, optimistic, should, will,
and other similar expressions identify forward-looking statements. In light of
the risks and uncertainties inherent in all future projections, the inclusion
of forward-looking statements should not be regarded as a representation by us
or any other person that our objectives or plans will be achieved. Many factors
could cause our actual results to differ materially and adversely from those in
the forward-looking statements, including the following:



| |  |  | the continuity of business relationships with major customers and a
high concentration of business with several customers                                                                                                                                                                                                                          
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the competitive nature of other suppliers in our business and pricing
pressure from retailers and other customers                                                                                                                                                                                                                                  
|
| |  |  | the limited ability to push pricing pressure from customers through
to our vendors or absorb these pressures within our own operations                                                                                                                                                                                                             
|
| |  |  | the ability of the Company to expand into new markets, attract new
customers and develop new products, including access to sufficient
working capital to fund such actions                                                                                                                                                                         
|
| |  |  | any large or unusual cash outlay that would strain our relatively
modest positive operating cash flow and available financing                                                                                                                                                                                                                      
|
| |  |  | the effect of competition by businesses developing sourcing or
manufacturing operations in Asia and other low cost markets                                                                                                                                                                                                                         
|
| |  |  | our ability to continue to meet the terms of our debt and bank credit
facilities which include certain financial covenants and other
restrictions                                                                                                                                                                                                  
|
| |  |  | a continuation of the economic slowdown in the domestic retail
economy and / or financial failure, closure or sale of one of our larger
customers                                                                                                                                                                                                  
|
| |  |  | the effect on our international operations of unexpected changes in
regulatory requirements, export restrictions, currency controls, tariffs
and other trade barriers, difficulties in staffing and managing foreign
operations, political and economic instability, fluctuations in currency
exchange rates and potential adverse tax consequences
|
| |  |  | a significant amount of product is purchased from our own operations
in Asia, which could cause temporary supply problems if the ability for
those operations to provide product were impaired                                                                                                                                                     
|
| |  |  | the effect of any interruption in supply of material, including any
work slowdowns such as the one caused by the Longshoremans strike
earlier this fiscal year                                                                                                                                                                                    

You must consider these risks and others that are detailed in this Form 10-K in
deciding whether to invest and in assessing any existing investment in the
Company.

Comprehensive Financial Restructuring Plan

In fiscal 2001, the Company completed its comprehensive financial
restructuring plan (See Note 3 of the Notes to Consolidated Financial
Statements in this Form 10-K), disposing of 7,186,530 shares of Barnett Common
Stock and using the $94.5 million in proceeds as follows:



| | - |  | paid or reserved for payment approximately $1.35 million for state
and federal taxes associated with the sale of the Barnett shares.                                                                                                                   
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | - |  | reduced its borrowings under its working capital credit facility by
approximately $10.0 million.                                                                                                                                                       
|
| | - |  | retired all of its approximately $35.9 million principal amount of
11 1/8% Senior Notes due 2001 (the Senior Notes) of Waxman USA Inc.,
a direct wholly-owned subsidiary of the Company, plus accrued interest.                                      
|
| | - |  | paid approximately $6.0 million in semi-annual interest due on
June 1, 2000 to the holders of the Companys 12 3/4% Senior Secured
Deferred Coupon Notes due 2004 (the Deferred Coupon Notes).                                                       
|
| | - |  | funded a dedicated account with the remaining gross proceeds of
approximately $39.0 million, which was used for the full
satisfaction of the Deferred Coupon Notes, including accrued interest, upon
confirmation of the Joint Plan (as defined below).

The sale of the Barnett Common Stock and payments outlined above were made
subsequent to the Company and an ad hoc committee representing a controlling
portion of the Deferred Coupon Notes and Senior Notes developing a jointly
sponsored,
prepackaged plan of reorganization in advance of its filing with the United
States Bankruptcy Court (the Joint Plan). The Joint

3



---



##### Table of Contents



Plan received the
approval of the holders of approximately 97% of the Deferred Coupon Notes.
Under the Joint Plan, the holders of the Deferred Coupon Notes were the only
impaired class of creditors; none of the Companys operating subsidiaries or
operating divisions were included in the filing and they paid their trade
creditors, employees and other liabilities under normal conditions. On October
2, 2000, the Company filed a petition for reorganization under Chapter 11 of
the U.S. Bankruptcy Code in the United States Court for the District of
Delaware. On November 14, 2000, the Companys Joint Plan was approved by the
Court and on March 14, 2001, the Court closed the Chapter 11 case, and the
Company emerged from bankruptcy.

Consumer Products

Consumer Products actively markets and distributes approximately 2,900
products to a wide variety of retailers, primarily mass merchandisers,
do-it-yourself (D-I-Y) warehouse home centers and home improvement centers.
Consumer Products customers include large national retailers such as Wal-Mart,
Lowes, Kmart and Sears, as well as several regional D-I-Y retailers such as
Meijers, Fred Meyers and Menards. Consumer Products works closely with its
customers to develop comprehensive marketing and merchandising programs
designed to improve their profitability, efficiently manage shelf space, reduce
inventory levels and maximize floor stock turnover. Consumer Products also
offers certain of its customers the option of private label programs and direct
import programs. Consumer Products net sales for fiscal 2003 were $36.3
million, excluding direct import sales.

In recent years, the rapid growth of large mass merchandisers and D-I-Y
retailers has contributed to a significant consolidation of the United States
retail industry and the formation of large, dominant, product specific and
multi-category retailers. These retailers demand suppliers who can offer a
broad range of quality products and can provide strong marketing and
merchandising support. Due to the consolidation in the retail industry, a
substantial portion of Consumer Products net sales are generated by a small
number of customers. Sales to Consumer Products larger customers for fiscal
2003, 2002 and 2001, respectively, were as follows; Wal-Mart accounted for
34.0%, 29.0% and 25.0%; Lowes accounted for 20.9%, 16.1% and 8.4%; and Kmart
accounted for 3.7%, 13.6% and 11.3%. The retail industry consolidation has
resulted in the cessation of business for a number of weaker organizations over
the past several years, including some companies served by Consumer Products.
In January 2002, Kmart filed for Chapter 11 bankruptcy protection. The Company
had adequate reserves to account for any loss on its accounts receivable at the
time of Kmarts Chapter 11 filing. The Company continued to provide Kmart with
approximately $1.2 million in floor and surface protection products in fiscal
2003. The Company is working to expand its sales to Kmart to include some
products in plumbing repair, a program that ended in June 2002.

During fiscal 2003, the Company replaced a majority of the net sales
reduction due to the loss of the Kmart plumbing repair revenue base. It has
also reduced its cost structure, where possible, for the loss of this program,
but believes that it may not be appropriate to diminish its infrastructure
beyond a level that best supports all of its retail customers and the
additional business being developed. The Company expects that programs with
other retailers will continue to offset the loss of the Kmart business. In the
event Consumer Products were to further lose any of its larger retail accounts
as a customer or one of its larger accounts were to significantly curtail its
purchases from Consumer Products, there would be material short-term adverse
effects until the Company could further modify Consumer Products cost
structure to be more in line with its anticipated revenue base. Consumer
Products would likely incur significant charges if a materially adverse change
in its customer relationships were to occur.

Consumer Products utilizes a modern and efficient national distribution
center in Groveport, Ohio, a suburb of Columbus, where it uses radio frequency
technology to manage its inventory systems in a virtually paperless
environment. The Company believes that this system is important in meeting its
customers requirements and in maintaining a cost efficient environment that
allows it to remain competitive.

Consumer Products marketing strategy includes offering mass merchandisers
and D-I-Y retailers a comprehensive merchandising program, which includes
design, layout and setup of selling areas. Sales and service personnel assist
the retailer in determining the proper product mix in addition to designing
category layouts to effectively display products and optimally utilize
available floor and shelf space. Consumer Products supplies point-of-purchase
displays for both bulk and packaged products, including color-coded product
category signs and color-coordinated bin labels to help identify products and
backup tags to identify products that require reordering. Consumer Products
also offers certain of its customers the option of private label programs for
their plumbing and floor care products. In-house design, assembly and packaging
capabilities enable Consumer Products to react quickly and effectively to
service its customers changing needs. 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. In addition, Consumer
Products has sophisticated EDI capabilities, enabling customers to minimize
inventory levels and increase return on investment.

In the past several years, certain retailers have begun to develop direct
import programs to improve their profitability. Those retailers generally
select certain product categories and import full containers of such products
to their domestic

4



---



##### Table of Contents



distribution centers. Consumer Products has responded to this
trend by working with the Companys foreign sourcing operations to provide the
products, while Consumer Products provides certain value added services, such
as account management, selling and marketing support and customer service. Due
to the sharing of responsibilities in servicing the domestic retail accounts,
profits are shared by Consumer Products and the foreign operation. The direct
shipment arrangement generally results in lower gross profit margins for the
Company, but also results in lower selling, general and administrative costs.

Products

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

Plumbing Products.Consumer Products plumbing repair products include
toilet repair, sink and faucet repair, water supply repair, drain repair,
shower and bath repair, hose and pipe repair, and connection repair. Consumer
Products also offers proprietary lines of faucets under the trade name
AquaLife® and a line of shower and bath accessories under the proprietary trade
names Spray Sensations®, Body Moods® and distinctives. Consumer Products
product line also includes a full line of valves and fittings, rubber products
and tubular products such as traps and elbows. Many of Consumer Products
plumbing products are sold under the proprietary trade name Plumbcraft®. In
addition, Consumer Products offers certain of its customers the option of
private label programs.

Floor and Surface Protective Hardware Products.Consumer Products floor
and surface protective hardware products include casters, doorstops, and other
floor, furniture, felt and rubber surface protective and wall protective items.
Consumer Products markets a complete line of floor and surface protective
hardware products under the proprietary trade names SoftTouch®, SuperSliders®
and EZSliders and also under private labels.

New Product and Packaging Introductions.In recent years, as the
consolidation in the United States retail industry has accelerated, decreasing
the number of potential customers in the Companys traditional market, the
Company has placed an emphasis on new product development, product line
extensions and the redesign of existing products and packaging concepts to
allow it to diversify its product offerings to its existing customers and to
enable it to penetrate new customer categories. Consumer Products has several
new product and new packaging initiatives planned.

In the shower category, Consumer Products has repackaged and re-named its
shower product line with eye catching graphics targeted to the female consumer.
In addition, new shower products with the features and functions desired most
by consumers have been added. Consumer Products has also developed a new line
of luxury shower products targeted for placement in home stores and with mass
merchandisers. This line has product features with designer packaging that will
command premium yet affordable pricing.

EZ Mount, a unique self adhering, non marking, reusable product that
sticks on any surface, was launched in the fall of 2002. This exciting new
product line with dozens of decorating, mounting and communications uses, has
specifically been targeted for office supply stores, mass merchandisers, home
center stores and specialty toy stores.

EZ Caster is a unique self stick caster that requires no tools for
installation and has a locking mechanism that is designed to fit a number of
surfaces and will not scratch hardwood or vinyl floors. EZ Caster is targeted
for placement in office supply stores, mass merchandisers, and other D-I-Y
retailers. The Company expects to test the product in selected retailers over
the next 12 to 18 months.

Other Domestic Operations

WAMI Sales

WAMI Sales distributes pipe nipples, fittings and other products to
industrial supply and wholesale operations throughout the United States and, to
a lesser extent, Canada. It distributes approximately 2,000 products to
approximately 560 customers through its own sales force and through outside
sales representative organizations. WAMI Sales utilizes foreign suppliers,
principally from Asia, to supply the products it distributes. WAMI Sales net
sales amounted to $3.2 million in fiscal 2003.

Medal

Prior to its sale effective March 31, 2001, Medal was a supplier of
hardware and plumbing products to approximately 600 independent hardware stores
and small independent retailers within a 250 mile radius of its facility in
Sharon, Pennsylvania. Medal was formerly a division of WOC Inc., which also
included U.S. Lock, a full line supplier of security hardware products,

5



---



##### Table of Contents



until
its sale on January 1, 1999. In fiscal 2001, WOC was renamed Medal of
Pennsylvania, Inc. to reflect its only remaining operation. Medals net sales
amounted to $3.4 million for the nine-month period it operated in fiscal 2001.

Foreign Operations

The Company conducts its foreign operations through TWI, International,
Inc. including TWI in Taiwan and CWI in Mainland China. TWI and CWI
manufacture, package, source and assemble product purchased by Consumer
Products and non-affiliated businesses. These businesses were initially
established to support Consumer Products and other operations of the Company,
but have developed their own base of customers, which now represent
approximately 41.1% of the Companys consolidated net sales. TWI and Consumer
Products have also responded to the increasing interest by certain retailers in
direct import programs, with the added benefit of domestic account management.
For the years ended June 30, 2003, 2002 and 2001, products purchased from the
foreign operations accounted for approximately 17.4%, 15.9% and 15.1%,
respectively, of the total product purchases made by the Company. For fiscal
2003, the combined foreign operations had net sales of $35.4 million, of which
$7.8 million were intercompany transactions, which are eliminated in
consolidation. In fiscal 2003, 2002 and 2001, approximately $10.6 million,
$13.1 million and $16.6 million, respectively, of the Companys industrial
sales were to Barnett. However, the Company has made significant progress in
recent years in its effort to develop the industrial customer base served by
its foreign operations.

The Company believes that these foreign facilities provide a competitive
advantage in terms of cost and flexibility in sourcing. Both labor and physical
plant costs are significantly below those in the United States. Substantially
all of the other products purchased by the Company are manufactured by
unrelated third parties. The Company estimates that it purchases products and
materials from approximately 340 suppliers and is not dependent on any single
unaffiliated supplier for a material portion of its requirements.

Principal Product Groups

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

|                |  |      |     |      |  |      |     |   |  |  |     |  
|--------------- |  | ---- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|                |  | 2003 |     | 2002 |  | 2001
|                |  |      |     |      |  |     
|Plumbing        |  |      | 70  | %    |  |      | 72  | % |  |  | 77  | %
|Hardware        |  |      | 30  | %    |  |      | 28  | % |  |  | 23  | %
|                |  |      |     |      |  |      |     |   |  |  |     |  
|Total net sales |  |      | 100 | %    |  |      | 100 | % |  |  | 100 | %
|                |  |      |     |      |  |      |     |   |  |  |     |  

Import Restrictions and Customs Issues

Under current United States government regulations, some products
manufactured offshore are subject to import restrictions. The Company
currently imports goods from China and Taiwan. When the Company chooses to
directly import goods purchased outside of the United States, the Company may
be subject to import quota restrictions, depending on the country of origin of
assembly. If the Company cannot obtain the necessary quota, the Company will
not be able to import the goods into the United States. These restrictions may
limit the amount of goods from a particular country that may be imported into
the United States or increase the cost of goods being imported into this
country. In fiscal 2002, the United States imposed a 15% tariff on many
imported products made of steel, including products imported by WAMI Sales.
This tariff has increased the cost structure of this business. Export visas for
the goods purchased offshore by the Company are readily available. As indicated
above, many of the Companys imported goods are of Chinese origin, which was
granted most favored nation status in the spring of 2000. There is no guarantee
this will continue to be the case in the future.

In the fiscal 2003 fourth quarter, the United States Commerce Department
issued a preliminary report on anti-dumping duties that they recommend be
imposed on malleable fittings from specific suppliers in Asia. A final report
is expected to be issued in October or November 2003. The Company purchases
some of its malleable fittings from one of the suppliers listed in the report,
which could raise cost of these products by the recommended increase from a 6%
duty to a 13.5% duty. The range of anti-dumping duty increases sought by the
Commerce Department is different for each supplier, but ranges from a low of
13.5% to 144%. It is not possible to evaluate the impact of this potential
action until the ruling and amounts are final and the Company evaluates the
opportunity to minimize the impact of this price increase by passing along all
or a portion of the potential price increase to customers.

Equity Investment - Barnett Affiliate

Until September 29, 2000, the Company held an equity interest in Barnett,
a direct marketer and distributor of an extensive line of plumbing, electrical,
hardware and security hardware products to professional contractors,
independent hardware stores,

6



---



##### Table of Contents



maintenance managers, liquid propane gas dealers
and locksmiths throughout the United States. The Company owned 100% of Barnett
prior to an initial public offering in April 1996. A secondary offering in
April 1997 reduced the Companys ownership interest to approximately 44.4% of
the Barnett Common Stock. In July 2000, the Company announced that it had
reached an agreement to monetize its Barnett Common Stock for $13.15 per share
as part of the purchase of all of Barnetts outstanding shares by Wilmar
Industries, Inc. (the Barnett Merger). In September 2000, the remaining
7,186,530 shares of Barnett Common Stock were used to raise $94.5 million in
proceeds as part of the Companys comprehensive financial restructuring plan.
The Companys equity investment in Barnett amounted to $44.3 million
immediately prior to the sale, including equity earnings recognized by the
Company in the quarter ended September 30, 2000 of $1.4 million. The Company
reported a net gain on the sale of Barnett of $47.5 million, after the
write-off of $2.7 million in transaction related costs and other costs
associated with the comprehensive financial restructuring of the Company. In
addition, the Company recognized $7.8 million in deferred gain on the sale of
U.S. Lock in fiscal 2001, which was being recognized as Barnett amortized the
goodwill associated with its purchase of U.S. Lock.

Competition

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

Employees

As of June 30, 2003, the Company employed 437 persons, 131 of whom were
clerical and administrative personnel, 83 of whom were sales and service
representatives and 223 of whom were either production or warehouse personnel.
None of the Companys employees are represented by collective bargaining units.
The Company considers its relations with its employees to be satisfactory.

Trademarks

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

Environmental Regulations

The Company is subject to certain federal, state and local environmental
laws and regulations. The Company believes that it is in material compliance
with such laws and regulations applicable to it. To the extent any subsidiaries
of the Company are not in compliance with such laws and regulations, the
Company, as well as such subsidiaries, may be liable for such non-compliance.

The Company and two of its indirect subsidiaries were threatened with
litigation by two separate California public interest groups alleging unlawful
discharge of chemicals under Californias Safe Drinking Water & Toxic
Enforcement Act of 1986 (Proposition 65). Both public interest groups
ultimately sued the Company and two of its indirect subsidiaries in different
lawsuits. The Company successfully settled one action for an immaterial amount
in late June 2003. The Company continues to evaluate the merits of the
allegations in the second action and is contesting and vigorously defending
itself in that matter. Any potential liability related to this litigation
cannot be assessed at this time, as the Company is in the early stages of the
proceedings.

Seasonality

The Companys sales are generally consistent throughout its fiscal year,
although the third fiscal quarter is generally weaker in sales than the other
quarters.

7



---



##### Table of Contents






ITEM 2. DESCRIPTION OF PROPERTIES

The following table sets forth, as of the most current date, 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       |  |             | 46,000  |         |  | Consumer Products Corporate      |  |       | 6/30/07  | 
|Bedford Hts., OH (1)    |  |             |         |         |  | Office and Distribution Center   |  |       |          | 
|                        |  |             |         |         |  |                                  |  |       |          | 
|5920 Green Pointe Dr.   |  |             | 142,000 |         |  | Consumer Products                |  |       | 10/31/08 | 
|Groveport, OH           |  |             |         |         |  | Office and Distribution Center   |  |       |          | 
|                        |  |             |         |         |  |                                  |  |       |          | 
|No. 10, 7th Road        |  |             | 55,000  |         |  | TWI                              |  |       | Owned    | 
|Industrial Park         |  |             |         |         |  | Office, Packaging                |  |       |          | 
|Taichung, Taiwan        |  |             |         |         |  | and Distribution Center          |  |       |          | 
|Republic of China (2)   |  |             |         |         |  |                                  |  |       |          | 
|                        |  |             |         |         |  |                                  |  |       |          | 
|Dan Keng Village        |  |             | 73,000  |         |  | CWI                              |  |       | Owned    | 
|Fu Ming County          |  |             |         |         |  | Office, Packaging, Manufacturing |  |       |          | 
|Shenzhen, P.R. China    |  |             |         |         |  | and Distribution Center          |  |       |          | 
|                        |  |             |         |         |  |                                  |  |       |          | 
|1948 Hays Lane, Suite B |  |             | 15,000  |         |  | WAMI Sales                       |  |       | 3/31/06  | 
|Woodland, California    |  |             |         |         |  | Office and Distribution Center   |  |       |          | 
|                        |  |             |         |         |  |                                  |  |       |          | 
|4647 Leston Avenue      |  |             | 12,000  |         |  | WAMI Sales                       |  |       | 6/30/04  | 
|Dallas, Texas           |  |             |         |         |  | Office and Distribution Center   |  |       |          | 



|(1) |  | Aurora Investment Co., a partnership owned by Melvin Waxman,
Chairman of the Board and Co-Chief Executive Officer of the
Company, and Armond Waxman, President and Co-Chief Executive
Officer of the Company, together with certain other members of
their families, is the owner and lessor of this property.
Effective July 1, 2002, Consumer Products entered into a new five
year lease with Aurora Investment for the 9,000 square feet of
office space and the 20,000 square feet of warehouse space they
utilize. Consumer Products also subleases 17,000 square feet of
warehouse space in the same facility from Handl-it. Until June 30,
2002, when Consumer Products leased the entire facility, Handl-it
sublet 97,000 square feet of warehouse space from Consumer
Products (see below for information regarding affiliated
ownership). Rent expense under this lease was $167,157 in fiscal
2003 and $326,716 in fiscal 2002 and 2001. The sublease to
Handl-it began in 2000, after Consumer Products moved its
distribution center to Groveport, Ohio and continued until the
lease terminated on June 30, 2002.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | In August 2003, TWI executed an agreement to sell this facility
and it is expected that the transaction will close within 90 days.
TWI has signed a 4 year lease that will be effective upon the
closing of the building sale to lease approximately 33,000 square
feet of office and warehouse space in this facility, of which
approximately 11,000 square feet of warehouse space will be
subleased to a joint venture operation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

Handl-it Inc., a corporation owned by John S. Peters, a director of and
consultant to the Company, together with another member of his family, and
Melvin Waxman and Armond Waxman, subleased warehouse space from Consumer
Products through June 30, 2002. The Company charged Handl-it Inc. $191,079 and
$290,496 in fiscal 2002 and 2001, respectively, for subleasing the warehouse in
Bedford Hts., Ohio. The sublease by Handl-it allowed Consumer Products to move
to a more efficient national distribution center in Groveport, Ohio. Handl-it
owes Consumer Products $78,131 at June 30, 2003 for unpaid rent in fiscal 2002
on this space, and is making payments on an interest bearing note (see Note 10,
Related Party Transactions of the Notes to the Consolidated Financial
Statements in this Form 10-K) which will be fully repaid by October 2004.
Consumer Products began subleasing warehouse space from Handl-it in fiscal 2003
for which it paid $61,200. In fiscal 2001, Handl-it
provided Consumer Products with certain outside transportation services, for
which Consumer Products paid Handl-it Inc. approximately $27,000. For a portion
of fiscal 2001, WAMI Sales utilized Handl-it to provide all warehousing, labor
and shipping functions in Cleveland,

8



---



##### Table of Contents



Ohio, and paid Handl-it a fee of $67,000,
an amount equal to a percentage of monthly sales plus other direct costs from
this operation. Consumer Products also utilizes Con-Pak Inc., a third party
packaging operation that was acquired by Handl-it in 1999, in instances where
the packaging cannot be performed by the Companys operations in Asia. Consumer
Products had been using Con-Pak prior to it being acquired by Handl-it, and has
paid Con-Pak $227,807, $377,599 and $234,368 for these services in fiscal 2003,
2002 and 2001, respectively.

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




ITEM 3. LEGAL PROCEEDINGS

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

As further described in Note 14 of the Notes to the Consolidated Financial
Statements in this Form 10-K, the Company and two of its indirect subsidiaries
were threatened with litigation by two separate California public interest
groups alleging unlawful discharge of chemicals under Californias Safe
Drinking Water & Toxic Enforcement Act of 1986 (Proposition 65). Both public
interest groups ultimately sued the Company and two of its indirect
subsidiaries in different lawsuits. The Company successfully settled one
action for an immaterial amount in late June 2003. The Company continues to
evaluate the merits of the allegations in the second action and is contesting
and vigorously defending itself in that matter. Any potential liability
related to this litigation cannot be assessed at this time, as the Company is
in the early stages of the proceedings.




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

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




ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

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

Mr. Melvin Waxman, age 69, has been the Chairman of the Board since August
1976, other than from June 1995 until April 1996, when he was Co-Chairman of
the Board. Mr. Waxman was the Chief Executive Officer from 1962 until May 1988,
when he became the Co-Chief Executive Officer of the Company. Mr. Waxman has
been a director of the Company since 1962. Melvin Waxman and Armond Waxman are
brothers.

Mr. Armond Waxman, age 64, is the Co-Chief Executive Officer, President
and Treasurer of the Company. Mr. Waxman became the Co-Chief Executive Officer
in May 1988, and has been the President and Treasurer of the Company since
August 1976, other than from August 1976 to May 1988, when he was the Chief
Operating Officer of the Company. Mr. Waxman has been a director of the Company
since 1962. Armond Waxman and Melvin Waxman are brothers.

Mr. Laurence Waxman, age 46, is the Executive Vice President of the
Company since 2003 and is also President of Consumer Products, a position he
has held since 1988. Mr. Waxman had been the Senior Vice President of the
Company since November 1993 and joined the Company in 1981. Mr. Waxman has been
a director of the Company since July 1996. Mr. Laurence Waxman is the son of
Melvin Waxman.

Mr. Mark Wester, age 48, is a Senior Vice President and Chief Financial
Officer of the Company and an inactive certified public accountant. Mr. Wester
joined the Company in October 1996 as Corporate Controller and in January 1997
became the Vice President-Finance. In April 1997, Mr. Wester became the Chief
Financial Officer of the Company, and in May 2002, he became a Senior Vice
President and Chief Financial Officer. Mr. Wester provided consulting services
to the Company from May 1996 through September 1996. From March 1992 to April
1996, Mr. Wester was a limited partner with a privately owned
telecommunications company, Capital Communications Cooperative, and the
Chief Financial Officer of Progressive Communications Technologies. From 1978
to 1992, Mr. Wester was employed by The Fairchild Corporation (formerly, Banner
Industries, Inc.), where he held several positions during his tenure, including
Vice President and Corporate Controller.

9



---



##### Table of Contents






PART II




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

Price Range of Common Stock

The Companys Common Stock is quoted on the Over-The-Counter Bulletin
Board (OTCBB). On February 20, 2001, the Company effected a 1 for 10 reverse
stock split (the Reverse Stock Split) for the Companys Common Stock, which
trades under the symbol WAXM.BB and Class B Common Stock. The Companys Class
B Common Stock does not trade in the public market due to restricted
transferability. However, the Class B Common Stock may be converted into Common
Stock on a share-for-share basis at any time.

The following table sets forth the high and low closing quotations as
reported by the OTCBB for fiscal 2003 and 2002.

|               |  |      |      |      |  |      |      |     |  |   |      |  |  |   |      | 
|-------------- |  | ---- | ---- | ---- |  | ---- | ---- | --- |  | - | ---- |  |  | - | ---- | 
|               |  | 2003 |      | 2002
|               |  |      |      |     
|               |  | High |      | Low  |  | High |      | Low
|               |  |      |      |      |  |      |      |    
|First Quarter  |  | $    | 6.25 |      |  | $    | 4.00 |     |  | $ | 2.35 |  |  | $ | 1.55 | 
|Second Quarter |  |      | 5.60 |      |  |      | 3.90 |     |  |   | 3.46 |  |  |   | 1.70 | 
|Third Quarter  |  |      | 5.55 |      |  |      | 3.30 |     |  |   | 5.00 |  |  |   | 3.25 | 
|Fourth Quarter |  |      | 4.80 |      |  |      | 3.00 |     |  |   | 6.25 |  |  |   | 4.40 | 

Holders of Record

As of August 20, 2003, there were 551 holders of record of the Companys
Common Stock and 95 holders of record of the Companys Class B Common Stock.

Dividends

The Company declared no dividends in fiscal 2003 or 2002. Restrictions
contained in the Companys debt instruments currently prohibit the declaration
and payment of cash dividends.

10



---



##### Table of Contents






ITEM 6. SELECTED FINANCIAL DATA

|                                                                          |                                            |      |                         |      |  |          |        |           |  |           |         |       |  |      |         |        |   |         |         |       |   |        |  
|------------------------------------------------------------------------- | ------------------------------------------ | ---- | ----------------------- | ---- |  | -------- | ------ | --------- |  | --------- | ------- | ----- |  | ---- | ------- | ------ | - | ------- | ------- | ----- | - | ------ | -
|Income
Statement Data:                                                    |                                            |      |                         |      |  |          |        |           |  |           |         |       |  |      |         |        |   |         |         |      
|(Amounts in thousands, except per share amounts)                          |                                            | 2003 |                         | 2002 |  | 2001 (9) |        | 2000 (10) |  | 1999 (11)
|                                                                          |                                            |      |                         |      |  |          |        |           |  |          
|Net sales (1)                                                             |                                            | $    | 67,142                  |      |  | $        | 70,425 |           |  | $         | 71,370  |       |  | $    | 80,710  |        |   | $       | 96,616  |      
|Cost of sales (2)                                                         |                                            |      | 44,689                  |      |  |          | 47,253 |           |  |           | 49,890  |       |  |      | 59,259  |        |   |         | 69,264  |      
|                                                                          |                                            |      |                         |      |  |          |        |           |  |           |         |       |  |      |         |        |   |         |         |      
|Gross profit                                                              |                                            |      | 22,453                  |      |  |          | 23,172 |           |  |           | 21,480  |       |  |      | 21,451  |        |   |         | 27,352  |      
|Selling, general and administrative expenses                              |                                            |      | 21,958                  |      |  |          | 21,629 |           |  |           | 21,877  |       |  |      | 27,101  |        |   |         | 31,676  |      
|Restructuring and impairment charges (3)                                  |                                            |      |                        |      |  |          |       |           |  |           | 350     |       |  |      | 9,720   |        |   |         | 2,015   |      
|                                                                          |                                            |      |                         |      |  |          |        |           |  |           |         |       |  |      |         |        |   |         |         |      
|                                                                          |                                            |      | Operating income (loss) |      |  | 495      |        |           |  | 1,543     |         |       |  | (747 | )       |        |   | (15,370 | )       |       |   | (6,339 | )
|Gain on sale of Barnett stock, net (4)                                    |                                            |      |                        |      |  |          |       |           |  |           | 47,473  |       |  |      |        |        |   |         |        |      
|Loss on the sale of Medal, net (5)                                        |                                            |      |                        |      |  |          |       |           |  |           | (1,105  | )     |  |      |        |        |   |         |        |      
|Loss on sale of WAMI, net (3) (5)                                         |                                            |      |                        |      |  |          |       |           |  |           |        |       |  |      | (2,024  | )      |   |         |        |      
|Gain on sale of U.S. Lock, net (5)                                        |                                            |      |                        |      |  |          |       |           |  |           |        |       |  |      |        |        |   |         | 10,298  |      
|Equity earnings of Barnett                                                |                                            |      |                        |      |  |          |       |           |  |           | 1,370   |       |  |      | 6,511   |        |   |         | 6,744   |      
|Amortization of deferred U.S. Lock gain (6)                               |                                            |      |                        |      |  |          |       |           |  |           | 7,815   |       |  |      | 202     |        |   |         |        |      
|Other Income (7)                                                          |                                            |      | 210                     |      |  |          | 94     |           |  |           | 114     |       |  |      | 7       |        |   |         | 41      |      
|Interest expense, net                                                     |                                            |      | 531                     |      |  |          | 723    |           |  |           | 5,414   |       |  |      | 18,201  |        |   |         | 17,192  |      
|                                                                          |                                            |      |                         |      |  |          |        |           |  |           |         |       |  |      |         |        |   |         |         |      
|Income (loss) from operations before income
taxes and extraordinary items |                                            |      | 174                     |      |  |          | 914    |           |  |           | 49,506  |       |  |      | (28,875 | )      |   |         | (6,448  | )    
|(Benefit) provision for income taxes                                      |                                            |      | (247                    | )    |  |          | (671   | )         |  |           | 1,680   |       |  |      | (27     | )      |   |         | 1,029   |      
|                                                                          |                                            |      |                         |      |  |          |        |           |  |           |         |       |  |      |         |        |   |         |         |      
|Income (loss) from operations before
extraordinary items                  |                                            |      | 421                     |      |  |          | 1,585  |           |  |           | 47,826  |       |  |      | (28,848 | )      |   |         | (7,477  | )    
|Extraordinary items (8)                                                   |                                            |      |                        |      |  |          |       |           |  |           | 52,222  |       |  |      |        |        |   |         |        |      
|                                                                          |                                            |      |                         |      |  |          |        |           |  |           |         |       |  |      |         |        |   |         |         |      
|Net income (loss)                                                         |                                            | $    | 421                     |      |  | $        | 1,585  |           |  | $         | 100,048 |       |  | $    | (28,848 | )      |   | $       | (7,477  | )    
|                                                                          |                                            |      |                         |      |  |          |        |           |  |           |         |       |  |      |         |        |   |         |         |      
|Average number of shares outstanding                                      |                                            |      | 1,218                   |      |  |          | 1,215  |           |  |           | 1,212   |       |  |      | 1,207   |        |   |         | 1,206   |      
|                                                                          |                                            |      |                         |      |  |          |        |           |  |           |         |       |  |      |         |        |   |         |         |      
|Basic earnings (loss) per share:                                          |                                            |      |                         |      |  |          |        |           |  |           |         |       |  |      |         |        |   |         |         |      
|                                                                          | From operations before extraordinary items |      | $                       | 0.35 |  |          | $      | 1.30      |  |           | $       | 39.46 |  |      | $       | (23.91 | ) |         | $       | (6.20 | )
|                                                                          | Extraordinary items                        |      |                         |     |  |          |        |          |  |           |         | 43.09 |  |      |         |       |   |         |         |      |  
|                                                                          |                                            |      |                         |      |  |          |        |           |  |           |         |       |  |      |         |        |   |         |         |      
|                                                                          | Net income (loss) per share                |      | $                       | 0.35 |  |          | $      | 1.30      |  |           | $       | 82.55 |  |      | $       | (23.91 | ) |         | $       | (6.20 | )
|                                                                          |                                            |      |                         |      |  |          |        |           |  |           |         |       |  |      |         |        |   |         |         |      
|Diluted earnings (loss) per share:                                        |                                            |      |                         |      |  |          |        |           |  |           |         |       |  |      |         |        |   |         |         |      
|                                                                          | From operations before extraordinary items |      | $                       | 0.35 |  |          | $      | 1.30      |  |           | $       | 39.46 |  |      | $       | (23.91 | ) |         | $       | (6.20 | )
|                                                                          | Extraordinary items                        |      |                         |     |  |          |        |          |  |           |         | 43.09 |  |      |         |       |   |         |         |      |  
|                                                                          |                                            |      |                         |      |  |          |        |           |  |           |         |       |  |      |         |        |   |         |         |      
|                                                                          | Net income (loss) per share                |      | $                       | 0.35 |  |          | $      | 1.30      |  |           | $       | 82.55 |  |      | $       | (23.91 | ) |         | $       | (6.20 | )
|                                                                          |                                            |      |                         |      |  |          |        |           |  |           |         |       |  |      |         |        |   |         |         |      
|Cash dividends per share:                                                 |                                            |      |                         |      |  |          |        |           |  |           |         |       |  |      |         |        |   |         |         |      
|                                                                          | Common stock                               |      | $                       |     |  |          | $      |          |  |           | $       |      |  |      | $       |       |   |         | $       |      |  
|                                                                          | Class B common stock                       |      | $                       |     |  |          | $      |          |  |           | $       |      |  |      | $       |       |   |         | $       |      |  
|Balance Sheet Data:                                                       |                                            |      |                         |      |  |          |        |           |  |           |         |       |  |      |         |        |   |         |         |      
|Working capital                                                           |                                            | $    | 9,057                   |      |  | $        | 8,767  |           |  | $         | 7,209   |       |  | $    | (5,725  | )      |   | $       | 21,945  |      
|Total assets                                                              |                                            |      | 39,169                  |      |  |          | 40,296 |           |  |           | 40,832  |       |  |      | 94,218  |        |   |         | 100,210 |      
|Total long-term debt                                                      |                                            |      | 896                     |      |  |          | 950    |           |  |           | 532     |       |  |      | 128,453 |        |   |         | 128,480 |      
|Stockholders equity (deficit)                                            |                                            |      | 21,040                  |      |  |          | 20,786 |           |  |           | 19,032  |       |  |      | (80,543 | )      |   |         | (52,086 | )    



|(1) |  | Prior to fiscal 2002, the Company recorded business procurement
charges for inventory repurchases as a contra sale, while reporting
other business procurement costs, such as slotting fees and the cost of
reorganizing a customers store aisles and displays in order to
accommodate the Companys products, as a separate operating expense
category. Beginning in fiscal 2002, the Company adopted a new Financial
Accounting Standards Board standard, EITF Issue No. 00-25, and began to
record all of these charges as a reduction in net sales. As a result,
net sales for fiscal 2001, 2000 and 1999 were reduced by $2.15 million,
$0.65 million and $2.5 million, respectively, for charges not
previously recorded as a contra sale, but there was no impact on
operating income.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | In the fiscal 2000 fourth quarter, Consumer Products incurred higher
cost of sales for the write off of $1.7 million in packaging material
and other inventory associated with the closure of (i) a distribution
facility in Grand Prairie, Texas, which was consolidated into Consumer
Products national distribution center near Columbus, Ohio and (ii) a
packaging operation in Tijuana, Mexico that transferred operations to
the Companys operations in Taiwan and China. The Company also reported
a reduction in sales of $0.4 million and additional charges to cost of
sales of $0.5 million for the realizability of receivables and
inventory in the fiscal 2000 fourth quarter for the closure of its
Premier Faucet Company.                                                  

11



---



##### Table of Contents



|(3)  |  | In the fiscal 2001 first quarter, the Company recorded a $0.35 million
charge associated with additional restructuring costs for warehouses
closed by Consumer Products in prior years. In the fiscal 2000 second
quarter, the Company recorded a $1.3 million restructuring charge
related to the consolidation of its packaged plumbing products under
the Plumbcraft® brand name. In the fiscal 2000 fourth quarter, the
Company recorded a $0.6 million restructuring charge related to (i) the
closure of its Grand Prairie, Texas distribution center, which was
consolidated into Consumer Products distribution center near Columbus,
Ohio, and (ii) the closure of a packaging operation in Tijuana, Mexico
that was transferred to the Companys operations in Taiwan and China.
In the fourth quarter of fiscal 2000, the Company also recorded an
asset impairment charge of $6.7 million related to the write-off of
goodwill as required by SFAS No. 121 Accounting for the Impairment of
Long-Lived Assets and Assets to Be Disposed Of, for two product lines
that were acquired by Consumer Products in December 1986 and May 1988.
Also included in restructuring costs is a $1.2 million charge from the
closure of Premier Faucet Corporation in June 2000. In fiscal 1999, the
Company recorded a $2.1 million restructuring charge associated with
the move of one of Consumer Products warehouses.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(4)  |  | In September 2000, the Company sold its remaining 7,186,530 shares of
Barnett common stock as part of its comprehensive debt restructuring,
recognizing a net gain of $47.5 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    
|(5)  |  | The sale of significantly all of the assets and certain liabilities of
these operations are detailed in Note 5 to the Consolidated Financial
Statements, including the $1.1 million loss on the March 31, 2001 sale
of Medal, the $2.0 million loss on the March 31, 2000 sale of Western
American Manufacturing, Inc. (WAMI) and the $10.3 million gain on the
January 1, 1999 sale of U.S. Lock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    
|(6)  |  | The Company deferred $8.1 million of the gain on the sale of U.S. Lock
in fiscal 1999 due to its continued ownership interest in Barnett. The
gain was being amortized as Barnett wrote-off the goodwill associated
with the U.S. Lock purchase. In fiscal 2001, the Company recognized the
remaining $7.8 million in deferred gain on the U.S. Lock sale due to
the disposal of its remaining interest in Barnett. See Notes 2 and 3 to
the Consolidated Financial Statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    
|(7)  |  | In fiscal 2003, the Company reclassified dividend distributions
received as other income for all years presented. The dividends were
received from joint venture operations that are accounted for using the
cost method of accounting to other income. Previously, this amount was
included in selling, general and administrative expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    
|(8)  |  | Fiscal 2001 amounts reflect the extraordinary gain on the defeasance
of debt at a discount, net of the write-off of deferred financing costs
(see Note 6 to the Consolidated Financial Statements).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|(9)  |  | The results of Medal were consolidated by the Company until its sale,
which was effective March 31, 2001. As a result of the sale, fiscal
2001 includes results for Medal for nine months, while the previous
fiscal years include results for twelve months. See Note 5 to the
Consolidated Financial Statements for further discussion of the sale of
Medal. Fiscal 2001 also includes equity earnings for Barnett through
September 2000, when the remaining Barnett stock was sold. Prior
periods presented include equity earnings from Barnett for the full
fiscal year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    
|(10) |  | The results of WAMI were consolidated by the Company until its sale,
which was effective March 31, 2000. As a result of the sale, fiscal
2000 only includes nine months of WAMIs results while the previous
fiscal year includes results for twelve months. See Note 5 to the
Consolidated Financial Statements for further discussion of the sale of
WAMI.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    
|(11) |  | The results of U.S. Lock were consolidated by the Company until its
sale, which was effective January 1, 1999. As a result of the sale,
fiscal 1999 includes only six months of U.S. Locks results while the
previous fiscal years include results for twelve months.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

12



---



##### Table of Contents






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

General

The Company operates in two business segments  the distribution of
specialty plumbing and hardware products to retailers and the distribution of
plumbing and other products to non-retail businesses. Distribution of
plumbing and hardware products to retailers is primarily conducted through
domestic operations, but is also conducted through direct import programs
from the foreign sourcing, manufacturing and packaging operations. In fiscal
2003, approximately 22.0% of the Companys foreign operations sales were to
the Companys domestic wholly-owned operations, which are eliminated in
consolidation.

Significant Developments

Customer Developments

On January 22, 2002, Kmart filed for Chapter 11 bankruptcy protection. The
Company had adequate reserves to account for the loss of its outstanding
account receivable that was not covered by credit insurance at the time of
Kmarts Chapter 11 filing. In connection with the Chapter 11 filing, Kmart
reviewed its vendor relationships, including the financial commitments required
of suppliers. The Company also assessed the issues associated with maintaining
certain of its supply arrangements with Kmart, including the cost of retaining
and supporting these programs and the cash flow implications of such programs,
the risk/reward profile of each of such programs and the potential
opportunities with other customers.

During fiscal 2003, the Company continued to provide floor and surface
protection products to Kmart, but no longer provided plumbing repair products,
as it did in fiscal 2002 and earlier years. Fiscal 2003 net sales to Kmart
amounted to $1.4 million, or 2.0 percent and 3.7 percent of the Companys and
Consumer Products net sales, respectively, as compared to net sales of $6.3
million, or approximately 8.9 percent and 13.6 percent in fiscal 2002,
respectively. During fiscal 2003, the Company was able to replace a majority of
the net sales reduction due to the loss of the Kmart plumbing repair revenue
base, but still incurred a shortfall in its revenue. It also reduced its cost
structure, where possible, for the loss of this program, but believes that it
was not appropriate to diminish its infrastructure beyond a position that best
supports all of its retail customers and the additional business being
developed. Although the Company is seeking ways to expand its business with
Kmart, there can be no assurances as to whether the Company will continue to
supply Kmart with the floor and surface protection product line, the level, if
any, of future purchases or the terms and conditions applicable to any future
supply relationship.

The Company expects that programs with other retailers will continue to
offset the loss of this business. In the event Consumer Products were to
further lose any of its larger retail accounts as a customer or one of its
larger accounts were to significantly curtail its purchases from Consumer
Products, there would be material short-term adverse effects until the Company
could further modify Consumer Products cost structure to be more in line with
its anticipated revenue base. Consumer Products would likely incur significant
charges if a materially adverse change in its customer relationships were to
occur.

Prior Strategic and Restructuring Developments

In fiscal 2001, the Company completed its comprehensive financial
restructuring plan (See Note 3 of the Notes to Consolidated Financial
Statements in this Form 10-K), disposing of 7,186,530 shares of Barnett
Common Stock and using the $94.5 million in proceeds as follows:



| |  |  | paid or reserved for payment approximately $1.35 million
for state and federal taxes associated with the sale of the
Barnett shares.                                                                                                                   
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | reduced its borrowings under its working capital credit facility by approximately $10 million.                                                                                                                                                         
|
| |  |  | retired all of its approximately $35.9 million principal amount of Senior Notes plus accrued interest.                                                                                                                                                 
|
| |  |  | paid approximately $6.0 million in semi-annual interest
due on June 1, 2000 to the holders of its Deferred Coupon Notes.                                                                                                                               
|
| |  |  | funded a dedicated account with the remaining gross
proceeds of approximately $39.0 million, which was used for the
full satisfaction of the Deferred Coupon Notes, including accrued
interest, upon confirmation of the Joint Plan (as defined below).

The sale of the Barnett Common Stock and payments outlined above were
made subsequent to the Company and an ad hoc committee representing a
controlling portion of the Deferred Coupon Notes and Senior Notes developing
a jointly sponsored, prepackaged plan of reorganization in advance of its
filing with the United States Bankruptcy Court (the Joint Plan). The Joint
Plan received the approval of the holders of approximately 97% of the
Deferred Coupon Notes. Under the Joint Plan, the holders of the Deferred
Coupon Notes were the only impaired class of creditors; none of the Companys
operating subsidiaries or operating divisions were included in the filing and
they paid their trade creditors, employees and other liabilities under normal
conditions. On

13



---



##### Table of Contents



October 2, 2000, the Company filed a petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code in the United States Court for the
District of Delaware. On November 14, 2000, the Companys Joint Plan was
approved by the Court and on March 14, 2001, the Court closed the Chapter 11
case, and the Company emerged from bankruptcy.

A historic overview of other strategic and restructuring developments
includes:

Effective March 31, 2001, the Company sold nearly all of the assets and
certain liabilities of Medal, which sold a wide range of products to small
independent hardware stores and other independent retailers in a 250-mile
radius of Sharon, Pennsylvania. Over the past several years, Medals customer
base and operating results had deteriorated due to competitive pressures.

In September 2000, the Company sold its remaining 7,186,530 shares of
Barnett Common Stock for $94.5 million, resulting in a net pre-tax gain of
$47.5 million. Barnett was a wholly-owned subsidiary until April 1996, when
the Company completed an initial public offering of Barnett (see Note 2 for
additional information related to Barnett stock transactions). The sale of
the Barnett Common Stock enabled the Company to complete its comprehensive
financial restructuring.

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

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

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

The Company continues to evaluate its operations, including various
options to further streamline its operations, reduce expenses and improve
margins, while distributing high quality products at a fair value to retailers.
The Company intends to examine means to further develop an international
customer base to further utilize the capabilities of the Asian sourcing,
manufacturing and packaging operations.

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:

|                                                          |  |                            |       |      |  |      |       |    |  |  |       |   
|--------------------------------------------------------- |  | -------------------------- | ----- | ---- |  | ---- | ----- | -- |  |  | ----- | --
|                                                          |  | Fiscal Year Ended June 30,
|                                                          |  |                           
|                                                          |  | 2003                       |       | 2002 |  | 2001
|                                                          |  |                            |       |      |  |     
|Net sales                                                 |  |                            | 100.0 | %    |  |      | 100.0 | %  |  |  | 100.0 | % 
|Cost of sales                                             |  |                            | 66.6  | %    |  |      | 67.1  | %  |  |  | 69.9  | % 
|                                                          |  |                            |       |      |  |      |       |    |  |  |       |   
|Gross profit                                              |  |                            | 33.4  | %    |  |      | 32.9  | %  |  |  | 30.1  | % 
|Selling, general and administrative expenses              |  |                            | 32.7  | %    |  |      | 30.7  | %  |  |  | 30.7  | % 
|Restructuring and impairment charges                      |  |                            |      |      |  |      |      |    |  |  | 0.5   | % 
|                                                          |  |                            |       |      |  |      |       |    |  |  |       |   
|Operating income (loss)                                   |  |                            | 0.7   | %    |  |      | 2.2   | %  |  |  | (1.1  | %)
|Gain on sale of Barnett, net                              |  |                            |      |      |  |      |      |    |  |  | 66.5  | % 
|Loss on sale of Medal, net                                |  |                            |      |      |  |      |      |    |  |  | (1.5  | %)
|Equity earnings of Barnett                                |  |                            |      |      |  |      |      |    |  |  | 1.9   | % 
|Amortization of deferred U.S. Lock gain                   |  |                            |      |      |  |      |      |    |  |  | 10.9  | % 
|Other Income                                              |  |                            | 0.3   | %    |  |      | 0.1   | %  |  |  | 0.2   | % 
|Interest expense, net                                     |  |                            | 0.8   | %    |  |      | 1.0   | %  |  |  | 7.5   | % 
|                                                          |  |                            |       |      |  |      |       |    |  |  |       |   
|Income (loss) before income taxes and
extraordinary items |  |                            | 0.2   | %    |  |      | 1.3   | %  |  |  | 69.4  | % 
|(Benefit) provision for income taxes                      |  |                            | (0.4  | %)   |  |      | (1.0  | %) |  |  | 2.4   | % 
|                                                          |  |                            |       |      |  |      |       |    |  |  |       |   
|Income (loss) before extraordinary items                  |  |                            | 0.6   | %    |  |      | 2.3   | %  |  |  | 67.0  | % 
|Extraordinary items                                       |  |                            |      |      |  |      |      |    |  |  | 73.2  | % 
|                                                          |  |                            |       |      |  |      |       |    |  |  |       |   
|Net income (loss)                                         |  |                            | 0.6   | %    |  |      | 2.3   | %  |  |  | 140.2 | % 
|                                                          |  |                            |       |      |  |      |       |    |  |  |       |   

14



---



##### Table of Contents



Year Ended June 30, 2003 vs. June 30, 2002

Net Sales

Net sales for fiscal 2003 totaled $67.1 million, a decrease of $3.3
million as compared to $70.4 million for fiscal 2002. The decrease in net sales
was due primarily to a large reduction in net sales to Kmart in fiscal 2003,
which totaled $1.4 million in fiscal 2003 as compared to $6.3 million in fiscal
2002. Sales to Kmart in fiscal 2003 included only floor and surface protection
products, which were further affected by a decrease in the number of Kmart
stores served. Excluding the reduction in sales to Kmart, the Company posted an
increase of $1.6 million in net sales in fiscal 2003 over the prior year.

Net sales to retailers amounted to $48.7 million and $52.6 million for
fiscal 2003 and 2002, respectively. A net increase of $1.0 million in sales to
other retailers offset a significant portion of the $4.9 million decrease in
sales to Kmart. In order to reduce the dependence on the retail industry, the
Company has been developing an industrial sales program, which includes sales
to wholesalers and other industrial and OEM customers. Industrial sales
increased to $26.3 million for fiscal 2003 as compared to $25.6 million for
fiscal 2002. The industrial sales program principally sells to customers in the
United States, but also included $2.5 million in foreign sales in fiscal 2003.

Gross Profit

Gross profit and gross margins for fiscal 2003 and 2002 amounted to $22.5
million, or 33.4%, and $23.2 million, or 32.9%, respectively. The reduction in
gross profit is attributed to the reduction in sales, while the improvement in
the gross margin percentage is due to a favorable mix of products, with a
higher percentage of sales consisting of certain specialty products with higher
margins.

Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) expenses amounted to $22.0
million and $21.6 million for fiscal 2003 and 2002, respectively. SG&A expenses
as a percentage of net sales increased to 32.7% for fiscal 2003 from 30.7% in
the prior year. SG&A expenses have increased, in part, due to the effort to
expand the industrial sales program. The increases in expenses, coupled with
the decrease in net sales, resulted in the increase in expenses expressed as a
percentage of net sales. Included in SG&A expenses were foreign exchange gains
of $0.2 million in fiscal 2003, due to the weakness of the US Dollar, as
compared to a loss of $0.2 million in fiscal 2002.

Other Income

In fiscal 2003 and 2002, the Company reported other income of $0.2 million
and $0.1 million, respectively. Other income represents dividend distributions
that were received from joint venture operations in Asia that are accounted for
under the cost method of accounting. The Company has reclassified these
distributions, which were netted against SG&A expenses in prior years.

Interest Expense

Net interest expense for fiscal 2003 amounted to $0.5 million, as compared
to $0.7 million in fiscal 2002. Average borrowings for fiscal 2003 were $7.8
million, with a weighted average interest rate of 5.6%, as compared to $9.4
million in fiscal 2002, with a weighted average interest rate of 6.2%.
Interest expense is lower due to lower rates and debt levels from the reduction
in debt in fiscal 2002.

Income Tax Benefits

The Companys tax benefit amounted to $0.2 million for fiscal 2003 as
compared to a tax benefit of $0.7 million for fiscal 2002. The tax benefit for
fiscal 2003 represents the reversal of a tax reserve for a state tax assessment
for several years that were favorably resolved during the fiscal 2003 third and
fourth quarters and a tax benefit due to a change in tax law that will result
in a $0.1 million refund. These tax benefits were partially offset by various
state and foreign taxes. For fiscal 2003, the difference between the effective
and statutory rates is primarily due to the favorable settlement of the state
tax matters, the aforementioned change in tax law and a lower tax rate on
foreign earnings as compared to the domestic statutory tax rate. For fiscal
2002, a tax benefit of approximately $0.8 million, as a result of a change in
tax law enacted in March 2002 relating to the carryforward of the Companys
alternative minimum tax net operating losses to fiscal 2001, was partially
offset by various state and foreign taxes. The difference in the fiscal 2002
effective and statutory tax rates is primarily due to the aforementioned change
in the tax law and a lower tax rate on foreign earnings as compared to the
domestic statutory tax rate.

15



---



##### Table of Contents



Net Income

The Company reported net income of $0.4 million, or $0.35 per basic and
diluted share, for fiscal 2003, including the tax benefit from the favorable
settlement of the state tax assessment and effect of the tax law change
described above. Net income for fiscal 2003 was also affected by the decrease
in net sales, coupled with the increase in SG&A expenses to support the growth
of the industrial sales program. In fiscal 2002, the Company reported net
income of $1.6 million, or $1.30 per basic and diluted share, which included a
$0.8 million tax benefit discussed above.

Year Ended June 30, 2002 vs. June 30, 2001

Net Sales

Net sales for the continuing operations for fiscal 2002 totaled $70.4
million, an increase of $2.4 million as compared to $68.0 million for the same
continuing operations in fiscal 2001. Fiscal 2001 net sales, including Medal,
an operation sold on March 31, 2001, would have been $71.4 million. Net sales
for continuing operations were stronger earlier in fiscal 2002 due to the
expansion of product offerings at certain retailers, an increase in the number
of retail stores served of other retailers and other promotion programs, and
stronger sales by the foreign operations.

The Company adopted a new financial accounting standard in the fiscal 2002
first quarter ended September 30, 2001, resulting in $2.4 million in slotting
fees and other business procurement charges being recorded as a contra-sale for
fiscal 2002. Net sales for the comparable period in fiscal 2001 have been
restated, resulting in $3.1 million being recorded as a contra sale, including
$0.9 million of additional business procurement costs originally reported in
operating expenses.

Net sales to retailers amounted to $52.6 million and $54.8 million for
fiscal 2002 and 2001, respectively. The fiscal 2001 net sales to retailers
included $3.4 million of sales from Medal, which was sold in fiscal 2001.
Excluding Medals net sales, sales to retailers improved in fiscal 2002 due to
strong sales to certain other retailers, primarily WalMart and Lowes, which
offset lower sales to Kmart. Non-retail sales amounted to $25.6 million and
$24.2 million for fiscal 2002 and 2001, respectively.

Gross Profit

Gross profit in fiscal 2002 was $23.2 million, with a gross profit margin
of 32.9%, as compared to the prior year gross profit of $20.7 million and a
gross profit margin of 30.4% for businesses continuing in fiscal 2002.
Including Medal through March 31, 2001, the date it was sold, gross profit for
fiscal 2001 would have been $21.5 million and gross profit margin would have
been 30.1%. The increase in the gross profit and gross profit margin was
primarily attributable to the improved sales to retailers from our domestic
operations, which typically have higher profit margins than sales from our
foreign operations. In addition, the mix of products sold domestically
contributed to the improvement. While domestic retail sales have higher gross
margins than direct import sales and other industrial sales from our foreign
operations, they also have higher SG&A expenses due to the level of additional
support and services provided to customers. The gross profit margin for fiscal
2002 also improved due to the exclusion of sales for Medal, which historically
reported lower profit margins.

Selling, General and Administrative Expenses

SG&A expenses for continuing businesses amounted to $21.6 million and
$20.7 million for fiscal 2002 and 2001, respectively. SG&A expenses as a
percentage of net sales were approximately the same at 30.6% for fiscal 2002
and fiscal 2001. SG&A expenses for fiscal 2001, including Medal, were $21.9
million, or 30.7% of sales. Included in fiscal 2002 SG&A expenses was $0.2
million in fees paid to Congress Financial Corporation when the Company
terminated the bank facility prior to its expiration and replaced it with a new
bank facility from PNC Bank. Also affecting fiscal 2002 SG&A expenses are
foreign exchange losses from the Companys foreign operations of $0.2 million
as compared to a gain of $0.4 million in fiscal 2001 due to the weakness in the
US Dollar. The $0.6 million change in SG&A expenses from the foreign exchange
loss accounts for a significant portion of the increase in expense between
years.

Restructuring Charges

There were no restructuring charges in fiscal 2002. In fiscal 2001,
Consumer Products recorded $350,000 in restructuring charges for costs
associated with its closed warehouse facilities.

16



---



##### Table of Contents



Equity Earnings of Barnett

The Company recorded equity earnings from its ownership interest in
Barnett of $1.4 million for the quarter ended September 30, 2000. As detailed
in Notes 2 and 3 of the Consolidated Financial Statements in this Form 10K, the
Company sold its equity investment in Barnett on September 29, 2000 as part of
its comprehensive financial restructuring.

Gain on Sale of Equity Investment, Amortization of Deferred Gain on Sale of U.S. Lock and Loss on Sale of an Operation

In fiscal 2001, the Company sold its 7,186,530 shares of Barnett Common
Stock for $13.15 per share in connection with the Barnett Merger, receiving
gross proceeds from the sale of $94.5 million. The Companys equity investment
in Barnett amounted to $44.3 million immediately prior to the sale. The Company
reported a net gain on the sale of Barnett of $47.5 million, after the
write-off of $2.7 million in transaction related costs associated with the
Barnett sale and other costs associated with the comprehensive financial
restructuring of the Company.

Effective January 1, 1999, the Company sold U.S. Lock to Barnett for $33.0
million in cash, before certain adjustments and expenses. The sale of U.S. Lock
resulted in a net pretax gain of $18.3 million, with approximately $10.2
million being recognized in the fiscal 1999 third quarter. The remaining
deferred gain was carried on the Companys consolidated balance sheet and was
amortized as Barnett amortized the goodwill associated with the U.S. Lock
acquisition. As a result of the sale of its remaining interest in Barnett, the
Company recognized the remaining $7.8 million of unamortized deferred gain in
the quarter ended September 30, 2000.

Effective March 31, 2001, the Company sold substantially all of the assets
and certain liabilities of Medal to Medal USA Inc. for approximately $0.8
million in cash and the assumption of certain liabilities. The sale of Medal
resulted in a net pretax loss of $1.1 million in the quarter ended March 31,
2001.

Other Income

In fiscal 2002 and 2001, the Company reported other income of $0.1 million
for each year. Other income represents dividend distributions that were
received from joint venture operations in Asia that are accounted for under the
cost method of accounting.

Interest Expense

In fiscal 2002, net interest expense totaled $0.7 million, as compared to
$5.4 million in fiscal 2001. Average borrowings for fiscal 2002 amounted to
$9.4 million, with a weighted average interest rate of 6.2%, as compared to
fiscal 2001 average borrowings of $44.9 million at a weighted average interest
rate of 11.9%. The Company benefited from the reduction in the prime lending
rate over the past 18 months, as well as the reduction in the working capital
borrowings, which resulted in lower interest expense for fiscal 2002. In
addition, the Company completed its comprehensive financial restructuring in
fiscal 2001 and eliminated the Companys Senior Notes and Deferred Coupon
Notes, thereby significantly reducing the Companys average borrowings for
fiscal 2002.

Provision for Income Taxes

In fiscal 2002, the Companys recorded a net tax benefit of $0.7 million,
which includes a tax benefit of approximately $0.8 million, partially offset by
a provision for various state and foreign taxes. The tax benefit was the result
of a change in tax law in March 2002, allowing the Company to utilize its net
operating loss carryforward to fully offset its alternative minimum taxable
income for fiscal 2001. The difference between the effective and statutory tax
rates in fiscal 2002 was primarily due to the aforementioned change in the tax
law and a lower tax rate on foreign earnings compared to the domestic statutory
tax rate.

The provision for income taxes amounted to $1.7 million for fiscal 2001.
The Companys tax provision for fiscal 2001 provided for federal taxes based on
the alternative minimum tax method and for state and various foreign taxes.
The Company utilized its net operating loss carryforwards to offset its federal
tax due based on the regular method of computing tax liability and taxes on the
debt defeasance income were not provided due to favorable tax treatment allowed
in a bankruptcy.

Extraordinary Charge

The Company did not have any extraordinary items in fiscal 2002. In fiscal
2001, the Company reported net extraordinary income of $52.2 million from the
retirement of the Companys Deferred Coupon Notes, net of the write-off of $1.9
million of deferred loan costs associated with the Deferred Coupon Notes and
costs incurred as part of the restructuring process of $2.4 million. In the
quarter ended September 30, 2000, the Company recorded an extraordinary loss of
$57,000, net of a tax benefit of $38,000, to write-off deferred loan costs
associated with the retirement of the Senior Notes.

17



---



##### Table of Contents



Net Income

The Company reported net income of $1.6 million, or $1.30 per basic and
diluted share, in fiscal 2002. In fiscal 2001, the Company reported significant
transaction related gains and reported net income of $100.0 million, or $82.55
per basic and diluted share. The fiscal 2001 results include the $47.5 million
net gain on the sale of the Barnett Common Stock, the $52.2 million
extraordinary gain, or $43.09 per share, from the defeasance of debt at a
discount, the recognition of $7.8 million of deferred gain from the sale of
U.S. Lock and the loss of $1.1 million on the sale of Medal.

Liquidity and Capital Resources

In February 2002, the Company refinanced the Loan and Security Agreement
with Congress Financial Corporation, which was scheduled to expire on June
18, 2002 and replaced it with a working capital and term loan facility from
PNC Bank, NA. The PNC Revolving Credit, Term Loan and Security Agreement
(PNC Bank Facility) is between Waxman Industries, Inc., Consumer Products,
WAMI Sales and Waxman USA, as borrowers (the Borrowers). The PNC Bank
Facility provides, among other things, for revolving credit advances of up to
$15.0 million. The Term Loan facility provided an initial loan on the
Companys corporate office building of $1,155,000, to be amortized over 7
years. At June 30, 2003, the balance due under the Term Loan facility was
$935,000 and the Company had $7.5 million in borrowings under the revolving
credit line of the facility and approximately $3.2 million available under
such facility.

The PNC Bank Facility provides for revolving credit advances of (a) up to
85.0% of the amount of eligible accounts receivable and (b) up to the lesser of
(i) $7.5 million or (ii) 60% of the amount of eligible raw and finished goods
inventory. Revolving credit advances bear interest at a rate equal to the
higher of (a) the PNC Bank, NA base prime rate plus 0.5% or (b) Federal Funds
Rate plus 1.0%. The Term Loan advance bears interest at a rate equal to the
higher of (a) the PNC Bank, NA base prime rate plus 1.0% or (b) Federal Funds
Rate plus 1.5%. The PNC Bank Facility includes a letter of credit subfacility
of $1.0 million, with none outstanding at June 30, 2003. Borrowings under the
PNC Revolving Credit Loan are secured by the accounts receivable, inventories,
certain general intangibles, and unencumbered fixed assets of Waxman
Industries, Inc., Consumer Products, WAMI Sales, and a pledge of 65% of the
stock of various foreign subsidiaries. The PNC Bank Facility 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 PNC
Bank Facility prevents dividends and distributions by the Borrowers, including
the repurchase of stock, except in certain limited instances.

The financial covenants contain customary negative, affirmative and
financial covenants and conditions that require the Company to maintain a
certain fixed charge coverage ratio and tangible net worth and not exceed a
certain amount of capital expenditures in any given period. The ratios and
dollar amounts of such financial covenants vary during the term of the PNC Bank
Facility and are contained in the agreement governing the PNC Bank Facility,
which appears as Exhibit 10.1 to the Current Report on Form 8-K filed by the
Company on February 27, 2002 and is incorporated herein by reference as Exhibit
4.10 to this Form 10-K. The customary negative covenants contained in the PNC
Bank Facility include restrictions, subject to important enumerated exceptions,
on the Companys ability to effect a merger, consolidation, acquisition or sale
of its assets, create liens, enter into guarantees, acquire interests in other
entities, make loans to other entities, incur indebtedness, and engage in
transactions with affiliates. The Company was in compliance with all loan
covenants at June 30, 2003. In August 2003, PNC and the Company retroactively
amended the fixed charge covenant to utilize financial results for measuring
its fixed charge coverage ratio beginning April 1, 2003. The PNC Bank Facility
also contains a material adverse condition clause, which allows PNC to
terminate the agreement under certain circumstances.

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 and hardware stores. Consumer Products may be
adversely affected by prolonged economic downturns or significant declines in
consumer spending. There can be no assurance that any such prolonged economic
downturn or significant decline in consumer spending will not have a material
adverse impact on Consumer Products business and its ability to generate cash
flow. Furthermore, Consumer Products has a high proportion of its sales with a
concentrated number of customers. Sales to Consumer Products larger customers
for fiscal 2003, 2002 and 2001, respectively, were as follows; Wal-Mart
accounted for 34.0%, 29.0% and 25.0%; Lowes accounted for 20.9%, 16.1% and
8.4%; and Kmart accounted for 3.7%, 13.6% and 11.3%.

Net sales to Kmart in fiscal 2003 by the Companys Consumer Products
operation were lower by approximately $4.9 million with the loss of the Kmart
plumbing repair business and lower sales to Kmart in the floor and surface
protection program because of Kmarts closure of stores and the impact of
Kmarts bankruptcy in fiscal 2003. A majority of the monthly sales loss had
been offset by additional sales to other retailers by the end of fiscal 2003,
however, the sales reduction had an impact on liquidity during fiscal 2003 and
will continue to impact liquidity until all of the lost revenue is replaced.
The Company has reduced its cost structure, where possible, for the reductions
in the Kmart business, but believes that it may not be appropriate to diminish
its infrastructure beyond a position that best serves all of its retail
customers and the additional business being developed. The Company expects that
programs with other retailers will continue to offset the loss of this
business. In the event Consumer Products were to further lose any of its larger
retail accounts as a customer or one of its larger accounts were to
significantly curtail its purchases from Consumer Products, there

18



---



##### Table of Contents



would be material short-term adverse effects until the Company could
further modify Consumer Products cost structure to be more in line with its
anticipated revenue base. Consumer Products would likely incur significant
charges if a materially adverse change in its customer relationships were to
occur.

The Company paid $0.4 million and $0.2 million in income taxes in fiscal
2003 and 2002, respectively. At June 30, 2003, the Company had $18.5 million of
available domestic net operating loss carryforwards for income tax purposes,
which will expire in 2010 through 2023.

The Company has total future lease commitments for various facilities and
other leases totaling $3.8 million, of which approximately $0.9 million relates
to fiscal 2004. The Company does not have any other commitments to make
substantial capital expenditures. The fiscal 2004 capital expenditure plan
includes expenditures to expand the manufacturing and production capabilities
for the Companys foreign operations, to improve the efficiencies of the
Companys operations and to further develop the technology for the Companys
domestic and foreign operations.

At June 30, 2003, the Company had working capital of $9.1 million and a
current ratio of 1.5 to 1.

Discussion of Cash Flows

Net cash provided by operations was $1.8 million for fiscal 2003,
principally due to the decrease in inventories and receivables and the income
generated during the period, which was offset by the decrease in accounts
payable and accrued liabilities. Cash flow used for investments, which
represented capital expenditures, totaled $1.5 million. Cash flow used for
financing activities totaled approximately $0.2 million, comprised primarily of
reductions in the term loan and capital leases, which was partially offset by
the addition of a new capital lease.




ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The U.S. dollar is the functional currency for a significant portion of
the Companys operations. Intra-company transactions between Waxman Industries,
Inc. and its Asian operations, TWI and CWI, are effected in U.S. dollars. The
functional currency of the Companys foreign operations is their local
currency. Specifically, the functional currencies relating to TWI and CWI are
the New Taiwan dollar (N.T. Dollar) and the Chinese Renminbi, respectively. As
a result, the Company is exposed to currency translation risks, which primarily
result from fluctuations of the foreign currencies in which the Companys
foreign subsidiaries deal as compared to the U.S. dollar over time, which is a
non-cash and non profit or loss item. The foreign currency transaction risks
arise from certain receivables and payables being denominated in a currency
other than the functional currency. The majority of TWIs transaction risk
relates to it selling goods in U.S. dollars and the exchange rate changing in
the 30 day to 60 day period that it takes to settle the receivable. TWI
purchases very little goods that are not in NT Dollars. CWI has nearly no
transaction risk because the Chinese Renminbi is fixed relative to the U.S.
dollar. The Company does not enter into foreign currency exchange rate risk
sensitive instruments, and the Company does not hedge the above-referenced
transactions.

Gains and losses that result from foreign currency transactions are
included in the Companys consolidated statements of operations on a current
basis and affect the Companys reported net income (loss). Gains or losses
created by the translation of the foreign company balance sheets are reported
as cumulative foreign currency translation adjustments, and are included as a
separate component of stockholders equity in the Companys consolidated
balance sheets and are also reported in comprehensive income in the Companys
consolidated statements of operations.

19



---



##### Table of Contents






ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

MANAGEMENTS REPORT

The management of Waxman Industries, Inc. has the responsibility for
preparing the accompanying financial statements and for their integrity and
objectivity. The statements were prepared in accordance with generally
accepted accounting principles. The financial statements include amounts that
are based on managements best estimates and judgments. Management also
prepared the other information in the annual report and is responsible for its
accuracy and consistency with the financial statements.

The Companys financial statements have been audited by Meaden & Moore
Ltd. and EnWise CPAs & Company, independent auditors (the Auditors).
Management has made available to the Auditors all of the Corporations
financial records and related data, as well as the minutes of shareholders
and directors meetings. Furthermore, management believes that all
representations made to the Auditors during its audit were valid and
appropriate.

The Company maintains a system of internal accounting controls designed
to provide reasonable assurance that the books and records properly reflect
the transactions of the Company, and that assets are safeguarded against
unauthorized acquisition, use or disposition. The design, monitoring and
revision of internal accounting controls involve, among other things,
managements judgments with respect to the relative cost and the expected
benefits of specific control measures. The Companys management reviews and
evaluates internal accounting and operating controls. The Companys
management and the Audit Committee of the Board of Directors also coordinates
with the Auditors on the audit of the Companys financial statements. The
Auditors also discusses the internal control procedures with management and
communicates with the Audit Committee regarding their understanding and
adequacy of internal control procedures.

Melvin Waxman, Co-Chief Executive Officer and Chairman of the Board

Armond Waxman, Co-Chief Executive Officer and President

Mark Wester, Senior Vice President and Chief Financial Officer




AUDIT COMMITTEE REPORT

The Audit Committee of the Board of Directors is composed of directors
who are not employees of the Company and are independent, meets with
management no less than quarterly and the independent auditors to ensure
that each is carrying out its responsibilities. The Audit Committee consists
of Irving Friedman (chairman) and Mark Reichenbaum. The Audit Committee has
reviewed the integrity of the Companys financial reporting process and
systems of internal controls regarding finance, accounting and legal
compliance; and monitored the independence of the Companys independent
auditors. The independent auditors have full and free access to the Audit
Committee.

The Audit Committee has also reviewed and discussed the audited and
consolidated financial statements presented in this Annual Report on Form
10-K for the fiscal year ended June 30, 2003 with the Companys management.
The Audit Committee has discussed with the independent auditors the matters
required to be discussed by the Statement on Auditing Standards 61. The
Audit Committee received written disclosures and a letter from the
independent accountants required by Independence Standards Board Standard
No. 1 (Independence Discussions with Audit Committee) and the Audit
Committee has discussed the Independence of Meaden & Moore Ltd. with that
firm.

Based on the Audit Committees review and discussions noted above, the
Audit Committee recommended to the Board of Directors that the Companys
audited consolidated financial statements be included in the Companys
Annual Report on Form 10-K for the fiscal year ended June 30, 2003 for
filing with the Securities and Exchange Commission.

MEMBERS OF THE COMMITTEE:

Irving Friedman, Director and Chairman of the Audit Committee

Mark Reichenbaum, Director

20



---



##### Table of Contents






REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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

We have audited the accompanying consolidated balance sheet of Waxman
Industries, Inc. (a Delaware corporation) and Subsidiaries (the Company) as of
June 30, 2003 and 2002, and the related consolidated statement of operations,
stockholders equity and cash flows for the years ended June 30, 2003, 2002 and
2001. 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 did not audit the
financial statements of TWI, International Taiwan, Inc. and CWI International
China, Ltd. two wholly owned subsidiaries for 2003 or 2002, which statements
reflect total assets of $13,578,000 and $13,895,000 as of June 30, 2003 and
2002, respectively, and total revenues of $23,223,000 and $26,832,000,
respectively, for the years then ended. Those statements were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar as
it relates to the amounts included for TWI, International Taiwan and CWI
International China, Ltd., is based solely on the report of the other auditors.

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

In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Waxman Industries, Inc. and
Subsidiaries as of June 30, 2003 and 2002, and the results of their operations
and their cash flows for the three years ended June 30, 2003, in conformity
with accounting principles generally accepted in the United States.

Meaden & Moore, Ltd.
Cleveland, Ohio,
August 6, 2003.

INDEPENDENT AUDITORS REPORT

To TWI International Taiwan Inc.:

We have audited the consolidated balance sheet of TWI International Taiwan Inc.
and its subsidiaries (the Consolidated Company) as of June 30, 2003 and the
related consolidated statements of income, changes in stockholders equity and
cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Consolidated Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of TWI
International Taiwan Inc and its subsidiaries as of June 30, 2003 and the
consolidated results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the
Republic of China.

EnWise CPAs & Co.
Taichung, Taiwan
July 23, 2003

21



---



##### Table of Contents






INDEPENDENT AUDITORS REPORT

The Board of Directors and Stockholders
CWI International China Inc.

We have audited the accompanying balance sheets of CWI International China Inc.
- Shenzhen as of June 30, 2002 and 2001, and the related statements of income
and unappropriated earnings and cash flow for the years then ended. These
statements are the responsibility of the Corporations management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit 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
statements presentation. We believe that our audit provides 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 CWI International China Inc.
-Shenzhen as of June 30, 2002 and 2001, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.

Our examination also comprehended the translations of the RMB dollar financial
statements into U. S. dollars on the basis stated in Note 2 to the financial
statements solely for the convenience of readers, and in our opinion, such
translations have been made in conformity with such basis.

Chien Chyuan & Co.,
Certified Public Accountants
Taichung, Taiwan
August 5, 2002

22



---



##### Table of Contents



INDEPENDENT AUDITORS REPORT

The Board of Directors and Stockholders
TWI International Taiwan Inc.

We have audited the accompanying balance sheet of TWI International Taiwan Inc.
as of June 30, 2002 and the related statements of income, changes in
stockholders equity and cash flows for the year then ended. These financial
statements (not presented separately herein) are the responsibility of the
Corporations management. Our responsibility is to express an opinion on these
financial statements based on our audit.

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

Accounting principles generally accepted in the Republic of China require that
investments in shares of stock wherein the Corporation exercises significant
influence on their operating and financial policy decisions be accounted for
using the equity method. As more fully explained in Note 6 to the financial
statements (not presented separately herein), the investment in CWI
International, Inc. - Shenzhen, a wholly owned subsidiary, has been accounted
for using the cost method with the result that the carrying value of the
investments was understated by NT$80,714,270 as of June 30, 2002, and income
before income tax for the year then ended was understated by NT$84,114,033.

In our opinion, except for the effects of accounting for the investment in CWI
International, Inc. - Shenzen using the cost method as discussed in the
preceding paragraph, the financial statements (not presented separately herein)
refer to above present fairly, in all material respects, the financial position
of TWI International Taiwan Inc. as of June 30, 2002 and the result of its
operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the Republic of China.

T N Soong & Co
An Associate Member Firm of Deloitte Touche Tohmatsu
   Effective April 22, 2002
(Formerly a Member Firm of Andersen Worldwide, SC) Taipei, Taiwan
The Republic of China
July 23, 2002

23



---



##### Table of Contents



WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES




CONSOLIDATED BALANCE SHEETS
June 30, 2003 and 2002
(in thousands)


ASSETS

|                                                                   |                           |                      |        |        |        |      |        |        |        | 
|------------------------------------------------------------------ | ------------------------- | -------------------- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | 
|                                                                   |                           |                      |        | 2003   |        | 2002
|                                                                   |                           |                      |        |        |        |     
|Current Assets:                                                    |                           |                      |        |        |        |      |        |       
|                                                                   | Cash and cash equivalents |                      | $      | 1,507  |        |      | $      | 1,420  |       
|                                                                   | Trade receivables, net    |                      |        | 12,129 |        |      |        | 11,529 |       
|                                                                   | Other receivables         |                      |        | 1,236  |        |      |        | 1,979  |       
|                                                                   | Inventories               |                      |        | 10,119 |        |      |        | 10,497 |       
|                                                                   | Prepaid expenses          |                      |        | 1,299  |        |      |        | 1,902  |       
|                                                                   |                           |                      |        |        |        |      |        |       
|                                                                   |                           | Total current assets |        |        | 26,290 |      |        |        | 27,327 | 
|                                                                   |                           |                      |        |        |        |      |        |       
|Property and Equipment:                                            |                           |                      |        |        |        |      |        |       
|                                                                   | Land                      |                      |        | 542    |        |      |        | 554    |       
|                                                                   | Buildings                 |                      |        | 4,645  |        |      |        | 4,662  |       
|                                                                   | Equipment                 |                      |        | 12,043 |        |      |        | 11,427 |       
|                                                                   |                           |                      |        |        |        |      |        |       
|                                                                   |                           |                      | 17,230 |        |        |      | 16,643 |       
|Less accumulated depreciation and amortization                     |                           |                      | (9,080 | )      |        |      | (8,302 | )     
|                                                                   |                           |                      |        |        |        |      |        |       
|Property and equipment, net                                        |                           |                      | 8,150  |        |        |      | 8,341  |       
|                                                                   |                           |                      |        |        |        |      |        |       
|Receivables from Premiums Paid on Officers Life
Insurance Policies |                           |                      | 3,405  |        |        |      | 3,265  |       
|Unamortized Debt Issuance Costs, Net                               |                           |                      | 209    |        |        |      | 315    |       
|Notes Receivable from Related Parties                              |                           |                      | 476    |        |        |      | 574    |       
|Other Assets                                                       |                           |                      | 639    |        |        |      | 474    |       
|                                                                   |                           |                      |        |        |        |      |        |       
|                                                                   |                           | $                    | 39,169 |        |        | $    | 40,296 |       
|                                                                   |                           |                      |        |        |        |      |        |       

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

24



---



##### Table of Contents



WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2003 and 2002
(in thousands, except per share data)

LIABILITIES AND STOCKHOLDERS EQUITY

|                                                                                                                                                                      |                                   |                                      |                            |       |        |        |        |       |      |        | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------- | ------------------------------------ | -------------------------- | ----- | ------ | ------ | ------ | ----- | ---- | ------ | 
|                                                                                                                                                                      |                                   |                                      |                            |       | 2003   |        | 2002  
|                                                                                                                                                                      |                                   |                                      |                            |       |        |        |       
|Current Liabilities:                                                                                                                                                  |                                   |                                      |                            |       |        |        |        |      
|                                                                                                                                                                      | Short-term borrowings             |                                      | $                          | 7,529 |        |        | $      | 7,596 |     
|                                                                                                                                                                      | Current portion of long term debt |                                      |                            | 195   |        |        |        | 235   |     
|                                                                                                                                                                      | Accounts payable                  |                                      |                            | 5,904 |        |        |        | 6,754 |     
|                                                                                                                                                                      | Accrued liabilities               |                                      |                            | 3,605 |        |        |        | 3,975 |     
|                                                                                                                                                                      |                                   |                                      |                            |       |        |        |        |      
|                                                                                                                                                                      |                                   |                                      | Total current liabilities  |       |        | 17,233 |        |       |      | 18,560 | 
|                                                                                                                                                                      |                                   |                                      |                            |       |        |        |        |      
|Term Debt  Long-Term Portion                                                                                                                                         |                                   |                                      | 770                        |       |        |        | 935    |      
|                                                                                                                                                                     
|Other Long-Term Debt, Net of Current Portion                                                                                                                          |                                   |                                      | 126                        |       |        |        | 15     |      
|                                                                                                                                                                     
|Commitments and Contingencies                                                                                                                                         |                                   |                                      |                            |       |        |        |        |      
|                                                                                                                                                                     
|Stockholders Equity:                                                                                                                                                 |                                   |                                      |                            |       |        |        |        |      
|Preferred
stock, $0.01 par value per share: 200 and 2,000
shares authorized at June 30, 2003 and 2002, respectively and none issued                                   |                                   |                                      |                           |       |        |        |       |      
|Common
stock, $0.01 par value per share: 8,000 and 22,000 shares authorized
at June 30, 2003 and 2002, respectively; 1,003 shares issued and
outstanding in each year |                                   |                                      | 99                         |       |        |        | 99     |      
|Class B common stock, $.01 par value per
share: 1,500 and 6,000 shares authorized at June 30, 2003 and 2002,
respectively; 214 issued and
outstanding in each year    |                                   |                                      | 21                         |       |        |        | 21     |      
|Paid-in capital                                                                                                                                                       |                                   |                                      | 21,760                     |       |        |        | 21,760 |      
|Retained equity (deficit)                                                                                                                                             |                                   |                                      | 298                        |       |        |        | (123   | )    
|                                                                                                                                                                      |                                   |                                      |                            |       |        |        |        |      
|                                                                                                                                                                      |                                   |                                      | 22,178                     |       |        |        | 21,757 |      
|                                                                                                                                                                      |                                   | Accumulated other comprehensive loss |                            |       | (1,138 | )      |        |       | (971 | )     
|                                                                                                                                                                      |                                   |                                      |                            |       |        |        |        |      
|                                                                                                                                                                      |                                   |                                      | Total stockholders equity |       |        | 21,040 |        |       |      | 20,786 | 
|                                                                                                                                                                      |                                   |                                      |                            |       |        |        |        |      
|                                                                                                                                                                      |                                   | $                                    | 39,169                     |       |        | $      | 40,296 |      
|                                                                                                                                                                      |                                   |                                      |                            |       |        |        |        |      

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

25



---



##### Table of Contents



WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)


|                                                                         |  |                            |        |      |  |      |        |   |  |   |         |  
|------------------------------------------------------------------------ |  | -------------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------- | -
|                                                                         |  | Fiscal Year Ended June 30,
|                                                                         |  |                           
|                                                                         |  | 2003                       |        | 2002 |  | 2001
|                                                                         |  |                            |        |      |  |     
|Net sales                                                                |  | $                          | 67,142 |      |  | $    | 70,425 |   |  | $ | 71,370  |  
|Cost of sales                                                            |  |                            | 44,689 |      |  |      | 47,253 |   |  |   | 49,890  |  
|                                                                         |  |                            |        |      |  |      |        |   |  |   |         |  
|Gross profit                                                             |  |                            | 22,453 |      |  |      | 23,172 |   |  |   | 21,480  |  
|Selling, general and administrative expenses                             |  |                            | 21,958 |      |  |      | 21,629 |   |  |   | 21,877  |  
|Restructuring and impairment charges (Note 4)                            |  |                            |       |      |  |      |       |   |  |   | 350     |  
|                                                                         |  |                            |        |      |  |      |        |   |  |   |         |  
|Operating income (loss)                                                  |  |                            | 495    |      |  |      | 1,543  |   |  |   | (747    | )
|Gain on sale of Barnett, net (Note 2)                                    |  |                            |       |      |  |      |       |   |  |   | 47,473  |  
|Loss on sale of Medal, net (Note 5)                                      |  |                            |       |      |  |      |       |   |  |   | (1,105  | )
|Equity earnings of Barnett                                               |  |                            |       |      |  |      |       |   |  |   | 1,370   |  
|Amortization of deferred U.S. Lock gain                                  |  |                            |       |      |  |      |       |   |  |   | 7,815   |  
|Other Income (Note 1, O)                                                 |  |                            | 210    |      |  |      | 94     |   |  |   | 114     |  
|Interest expense                                                         |  |                            | 531    |      |  |      | 723    |   |  |   | 5,414   |  
|                                                                         |  |                            |        |      |  |      |        |   |  |   |         |  
|Income before extraordinary item and income
taxes and extraordinary gain |  |                            | 174    |      |  |      | 914    |   |  |   | 49,506  |  
|(Benefit) provision for income taxes                                     |  |                            | (247   | )    |  |      | (671   | ) |  |   | 1,680   |  
|                                                                         |  |                            |        |      |  |      |        |   |  |   |         |  
|Income before extraordinary gain                                         |  |                            | 421    |      |  |      | 1,585  |   |  |   | 47,826  |  
|Extraordinary gain                                                       |  |                            |       |      |  |      |       |   |  |   | 52,222  |  
|                                                                         |  |                            |        |      |  |      |        |   |  |   |         |  
|Net income                                                               |  | $                          | 421    |      |  | $    | 1,585  |   |  | $ | 100,048 |  
|                                                                         |  |                            |        |      |  |      |        |   |  |   |         |  
|Other comprehensive income (loss):                                       |  |                            |        |      |  |      |        |   |  |   |         |  
|Foreign currency translation adjustment                                  |  |                            | (167   | )    |  |      | 161    |   |  |   | (473    | )
|                                                                         |  |                            |        |      |  |      |        |   |  |   |         |  
|Comprehensive income                                                     |  | $                          | 254    |      |  | $    | 1,746  |   |  | $ | 99,575  |  
|                                                                         |  |                            |        |      |  |      |        |   |  |   |         |  

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

26



---



##### Table of Contents



WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)


|                                                     |  |                            |       |      |  |      |       |  |  |   |       | 
|---------------------------------------------------- |  | -------------------------- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                                                     |  | Fiscal Year Ended June 30,
|                                                     |  |                           
|                                                     |  | 2003                       |       | 2002 |  | 2001
|                                                     |  |                            |       |      |  |     
|Basic income per share:                              |  |                            |       |      |  |      |       |  |  |   |       | 
|Income before extraordinary gain                     |  | $                          | 0.35  |      |  | $    | 1.30  |  |  | $ | 39.46 | 
|Extraordinary gain                                   |  |                            |      |      |  |      |      |  |  |   | 43.09 | 
|                                                     |  |                            |       |      |  |      |       |  |  |   |       | 
|Net income                                           |  | $                          | 0.35  |      |  | $    | 1.30  |  |  | $ | 82.55 | 
|                                                     |  |                            |       |      |  |      |       |  |  |   |       | 
|Diluted income per share:                            |  |                            |       |      |  |      |       |  |  |   |       | 
|Income before extraordinary gain                     |  | $                          | 0.35  |      |  | $    | 1.30  |  |  | $ | 39.46 | 
|Extraordinary gain                                   |  |                            |      |      |  |      |      |  |  |   | 43.09 | 
|                                                     |  |                            |       |      |  |      |       |  |  |   |       | 
|Net income                                           |  | $                          | 0.35  |      |  | $    | 1.30  |  |  | $ | 82.55 | 
|                                                     |  |                            |       |      |  |      |       |  |  |   |       | 
|Weighted average number of common
shares outstanding |  |                            | 1,218 |      |  |      | 1,215 |  |  |   | 1,212 | 
|                                                     |  |                            |       |      |  |      |       |  |  |   |       | 

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

27



---



##### Table of Contents



WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
For the Fiscal Years Ending June 30, 2003, 2002 and 2001
(in thousands)


|                      |                                        |   |        |   |        |   |         |   |           |   |               |   |           |   |          |         |               |   |             |      |       |   |         |         |  
|--------------------- | -------------------------------------- | - | ------ | - | ------ | - | ------- | - | --------- | - | ------------- | - | --------- | - | -------- | ------- | ------------- | - | ----------- | ---- | ----- | - | ------- | ------- | -
|                      |                                        |   |        |   |        |   |         |   |           |   |               |   |           |   |          |         |               |   | Accumulated |      | Total
|                      |                                        |   |        |   |        |   | Class B |   |           |   |               |   | Retained  |   | Other    |         | Stockholders
|                      |                                        |   | Common |   | Common |   | Paid-in |   | Equity    |   | Comprehensive |   | (Deficit)
|                      |                                        |   | Stock  |   | Stock  |   | Capital |   | (Deficit) |   | Income (Loss) |   | Equity   
|                      |                                        |   |        |   |        |   |         |   |           |   |               |   |          
|Balance June 30, 2000 |                                        | $ | 99     |   |        | $ | 21      |   |           | $ | 21,752        |   |           | $ | (101,756 | )       |               | $ | (659        | )    |       | $ | (80,543 | )      
|                      | Net income                             |   |        |  |        |   |         |  |           |   |               |  |           |   |          | 100,048 |               |   |             |     |       |   |         | 100,048 |  
|                      | Currency translation adjustment        |   |        |  |        |   |         |  |           |   |               |  |           |   |          |        |               |   |             | (473 | )     |   |         | (473    | )
|                      |                                        |   |        |   |        |   |         |   |           |   |               |   |           |   |          |         |               |   |             |      |       |   |         |        
|Balance June 30, 2001 |                                        |   | 99     |   |        |   | 21      |   |           |   | 21,752        |   |           |   | (1,708   | )       |               |   | (1,132      | )    |       |   | 19,032  |        
|                      | Net income                             |   |        |  |        |   |         |  |           |   |               |  |           |   |          | 1,585   |               |   |             |     |       |   |         | 1,585   |  
|                      | Employee Stock Purchase Plan
purchases |   |        |  |        |   |         |  |           |   |               | 8 |           |   |          |        |               |   |             |     |       |   |         | 8       |  
|                      | Currency translation adjustment        |   |        |  |        |   |         |  |           |   |               |  |           |   |          |        |               |   |             | 161  |       |   |         | 161     |  
|                      |                                        |   |        |   |        |   |         |   |           |   |               |   |           |   |          |         |               |   |             |      |       |   |         |        
|Balance June 30, 2002 |                                        |   | 99     |   |        |   | 21      |   |           |   | 21,760        |   |           |   | (123     | )       |               |   | (971        | )    |       |   | 20,786  |        
|                      | Net income                             |   |        |  |        |   |         |  |           |   |               |  |           |   |          | 421     |               |   |             |     |       |   |         | 421     |  
|                      | Currency translation adjustment        |   |        |  |        |   |         |  |           |   |               |  |           |   |          |        |               |   |             | (167 | )     |   |         | (167    | )
|                      |                                        |   |        |   |        |   |         |   |           |   |               |   |           |   |          |         |               |   |             |      |       |   |         |        
|Balance June 30, 2003 |                                        | $ | 99     |   |        | $ | 21      |   |           | $ | 21,760        |   |           | $ | 298      |         |               | $ | (1,138      | )    |       | $ | 21,040  |        
|                      |                                        |   |        |   |        |   |         |   |           |   |               |   |           |   |          |         |               |   |             |      |       |   |         |        

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

28



---



##### Table of Contents



WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)


|                             |                                                                                    |                                       |                                             |                             |        |                            |      |       |        |        |       |         |        |         |        |  
|---------------------------- | ---------------------------------------------------------------------------------- | ------------------------------------- | ------------------------------------------- | --------------------------- | ------ | -------------------------- | ---- | ----- | ------ | ------ | ----- | ------- | ------ | ------- | ------ | -
|                             |                                                                                    |                                       |                                             |                             |        | Fiscal Year Ended June 30,
|                             |                                                                                    |                                       |                                             |                             |        |                           
|                             |                                                                                    |                                       |                                             |                             |        | 2003                       |      | 2002  |        | 2001  
|                             |                                                                                    |                                       |                                             |                             |        |                            |      |       |        |       
|Cash Provided By (Used For): |                                                                                    |                                       |                                             |                             |        |                            |      |       |        |        |       |        
|Operations:                  |                                                                                    |                                       |                                             |                             |        |                            |      |       |        |        |       |        
|                             | Net income                                                                         |                                       | $                                           | 421                         |        |                            | $    | 1,585 |        |        | $     | 100,048 |       
|                             | Adjustments to reconcile net income to net cash provided
by (used for) operations: |                                       |                                             |                             |        |                            |      |       |        |        |       |         |       
|                             | Extraordinary item  debt defeasance                                               |                                       |                                             |                            |        |                            |      |      |        |        |       | (52,222 | )     
|                             | Non-cash restructuring and impairment charges                                      |                                       |                                             |                            |        |                            |      |      |        |        |       | 1,050   |       
|                             | Gain on sale of Barnett stock, net                                                 |                                       |                                             |                            |        |                            |      |      |        |        |       | (47,473 | )     
|                             | Loss on sale of Medal                                                              |                                       |                                             |                            |        |                            |      |      |        |        |       | 1,105   |       
|                             | Loss on retirement of fixed assets                                                 |                                       |                                             | 134                         |        |                            |      |      |        |        |       |        |       
|                             | Amortization of financing costs                                                    |                                       |                                             | 130                         |        |                            |      | 182   |        |        |       | 83      |       
|                             | Amortization of deferred U.S. Lock gain                                            |                                       |                                             |                            |        |                            |      |      |        |        |       | (7,815  | )     
|                             | Equity earnings of Barnett                                                         |                                       |                                             |                            |        |                            |      |      |        |        |       | (1,370  | )     
|                             | Depreciation and amortization                                                      |                                       |                                             | 1,539                       |        |                            |      | 1,346 |        |        |       | 2,314   |       
|                             | Deferred income taxes                                                              |                                       |                                             |                            |        |                            |      |      |        |        |       | 367     |       
|                             | Bad debt provision                                                                 |                                       |                                             | 90                          |        |                            |      | 371   |        |        |       | 215     |       
|                             | Changes in assets and liabilities:                                                 |                                       |                                             |                             |        |                            |      |       |        |        |       |         |       
|                             |                                                                                    |                                       |                                             | Trade and other receivables |        |                            | 53   |       |        |        | 113   |         |        |         | 1,307  |  
|                             |                                                                                    |                                       |                                             | Inventories                 |        |                            | 378  |       |        |        | 1,398 |         |        |         | 1,860  |  
|                             |                                                                                    |                                       |                                             | Prepaid expenses and other  |        |                            | 396  |       |        |        | (52   | )       |        |         | (1,922 | )
|                             |                                                                                    |                                       |                                             | Accounts payable            |        |                            | (850 | )     |        |        | (178  | )       |        |         | 749    |  
|                             |                                                                                    |                                       |                                             | Accrued liabilities         |        |                            | (370 | )     |        |        | (316  | )       |        |         | (8,484 | )
|                             |                                                                                    |                                       |                                             | Other, net                  |        |                            | (116 | )     |        |        | 161   |         |        |         | (473   | )
|                             |                                                                                    |                                       |                                             |                             |        |                            |      |       |        |        |       |        
|                             |                                                                                    |                                       | Net cash provided by (used for) operations  |                             |        | 1,805                      |      |       |        | 4,610  |       |         |        | (10,661 | )     
|                             |                                                                                    |                                       |                                             |                             |        |                            |      |       |        |        |       |        
|Investments:                 |                                                                                    |                                       |                                             |                             |        |                            |      |       |        |        |       |        
|                             |                                                                                    | Capital expenditures, net             |                                             |                             | (1,533 | )                          |      |       | (1,399 | )      |       |         | (1,229 | )      
|                             |                                                                                    | Change in other assets                |                                             |                             |       |                            |      |       | (388   | )      |       |         | 2,764  |        
|                             |                                                                                    | Net proceeds from sales of businesses |                                             |                             |       |                            |      |       |       |        |       |         | 94,503 |        
|                             |                                                                                    |                                       |                                             |                             |        |                            |      |       |        |        |       |        
|                             |                                                                                    |                                       | Net cash (used for) provided by investments |                             |        | (1,533                     | )    |       |        | (1,787 | )     |         |        | 96,038  |       
|                             |                                                                                    |                                       |                                             |                             |        |                            |      |       |        |        |       |        

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

29



---



##### Table of Contents



|                                                     |                                            |                             |       |      |      |      |       |        |        |   |     |         |         |  
|---------------------------------------------------- | ------------------------------------------ | --------------------------- | ----- | ---- | ---- | ---- | ----- | ------ | ------ | - | --- | ------- | ------- | -
|                                                     |                                            |                             |       | 2003 |      | 2002 |       | 2001  
|                                                     |                                            |                             |       |      |      |      |       |       
|Financing:                                           |                                            |                             |       |      |      |      |       |        |        |   |     |        
|                                                     | Net change in short-term borrowings        |                             |       | (67  | )    |      |       | (2,274 | )      |   |     | (10,016 | )      
|                                                     | Proceeds from long-term debt               |                             |       | 141  |      |      |       | 1,155  |        |   |     |        |        
|                                                     | Repayment of long-term debt                |                             |       | (235 | )    |      |       | (677   | )      |   |     | (248    | )      
|                                                     | Debt issuance costs                        |                             |       | (24  | )    |      |       | (355   | )      |   |     |        |        
|                                                     | Retirement
of 11 1/8% Senior Secured Notes |                             |       |     |      |      |       |       |        |   |     | (35,855 | )      
|                                                     | Retirement
of 12 3⁄4% Deferred Coupon Notes  |                             |       |     |      |      |       |       |        |   |     | (39,329 | )      
|                                                     | Issuance of common stock                   |                             |       |     |      |      |       | 8      |        |   |     |        |        
|                                                     |                                            |                             |       |      |      |      |       |        |        |   |     |        
|                                                     |                                            | Net cash used for financing |       |      | (185 | )    |       |        | (2,143 | ) |     |         | (85,448 | )
|                                                     |                                            |                             |       |      |      |      |       |        |        |   |     |        
|Net increase (decrease) in cash and cash equivalents |                                            |                             | 87    |      |      |      | 680   |        |        |   | (71 | )      
|Balance, beginning of year                           |                                            |                             | 1,420 |      |      |      | 740   |        |        |   | 811 |        
|                                                     |                                            |                             |       |      |      |      |       |        |        |   |     |        
|Balance, end of year                                 |                                            | $                           | 1,507 |      |      | $    | 1,420 |        |        | $ | 740 |        
|                                                     |                                            |                             |       |      |      |      |       |        |        |   |     |        

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

30



---



##### Table of Contents



WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2003, 2002 AND 2001




|1. |  | Summary of Significant Accounting Policies
|-- |  | ------------------------------------------



| | A. |  | Basis of Consolidation and Description of the Company
| | -- |  | -----------------------------------------------------

The accompanying consolidated financial statements include the accounts of
Waxman Industries, Inc. (Waxman Industries) and its wholly-owned subsidiaries
(collectively, the Company). All significant intercompany transactions and
balances are eliminated in consolidation. Certain reclassifications have been
made to the prior year statements in order to conform to the current year
presentation. Until September 29, 2000, the Company owned 44.2% of the common
stock of Barnett Inc. (Barnett Common Stock), a direct marketer and
distributor of plumbing, electrical and hardware products, and accounted for
Barnett Inc. (Barnett) under the equity method of accounting. See
Managements Discussion and Analysis Significant
Developments - Comprehensive
Financial Restructuring section and Note 2 in these Notes to Consolidated
Financial Statements in this Form 10-K for information regarding the sale of
the Companys interest in Barnett.

The Company is a supplier of specialty plumbing, floor and surface
protection and other hardware products to the repair and remodeling market in
the United States. The Company distributes its products to a wide variety of
large national and regional retailers, independent retail customers and
wholesalers. The Company conducts its business primarily through its
wholly-owned subsidiaries, Waxman Consumer Products Group Inc. (Consumer
Products), WAMI Sales, Inc. (WAMI Sales) and TWI, International, Inc. (TWI
International). Consumer Products, the Companys largest operation, is a
supplier of specialty plumbing, floor and surface protection and other hardware
products to a wide variety of large retailers. WAMI Sales distributes
galvanized, black, chrome and brass pipe nipples and fittings to industrial and
wholesale distributors. TWI International includes TWI International Taiwan
Inc. and its sales operation, TWI Industrial Inc. (collectively, TWI),
located primarily in Taiwan, and CWI International China, Ltd. (CWI), located
in China. TWI and CWI manufacture, package, source and assemble product
purchased by Consumer Products and non-affiliated businesses. Until March 31,
2001, the Company also supplied plumbing and hardware products to hardware
stores and smaller independent retailers through Medal of Pennsylvania, Inc.
(Medal), formerly known as WOC Inc. (WOC), when substantially all of the
assets, subject to certain liabilities, of this business were sold (see Note
5). Until the sale of Western American Manufacturing Inc. (WAMI) effective
March 31, 2000, TWI also included a manufacturing operation in Mexico that
threaded galvanized, black, brass, and chrome pipe and imported malleable
fittings. Consumer Products utilizes the Companys and non-affiliated foreign
sourcing suppliers.



| | B. |  | Accounting Estimates
| | -- |  | --------------------

The consolidated financial statements of the Company are prepared in
conformity with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires management
of the Company 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 period presented.
Actual amounts could differ from these estimates and different amounts could be
reported using different assumptions and estimates.



| | C. |  | Cash and Cash Equivalents
| | -- |  | -------------------------

In accordance with the terms of the PNC Revolving Credit, Term Loan and
Security Agreement (PNC Bank Facility) and , prior thereto, the Congress
Financial Loan and Security Agreement (as discussed in Note 7), all restricted
cash balances have been excluded from cash and have been applied against
outstanding borrowings. Cash balances include certain unrestricted operating
accounts and accounts of foreign operations. The Company considers all highly
liquid temporary cash investments with original maturities of less than three
months to be cash equivalents. Cash investments are valued at cost plus accrued
interest, which approximates market value.



| | D. |  | Trade Receivables
| | -- |  | -----------------

Trade receivables are presented net of allowances for doubtful accounts of
$0.4 million and $0.6 million at June 30, 2003 and 2002, respectively. Net bad
debt expense totaled $0.1 million in fiscal 2003, $0.4 million in fiscal 2002
and $0.2 million in fiscal 2001.

31



---



##### Table of Contents



The Company sells specialty plumbing, floor and surface protection and
other hardware products throughout the United States to do-it-yourself
(D-I-Y) retailers, mass merchandisers, smaller independent retailers and
wholesalers. The Company performs ongoing credit evaluations of its customers
financial conditions. The Companys largest customers are retailers. As a
percentage of the Companys net sales, the largest customers accounted for the
following percentages in fiscal 2003, 2002 and 2001, respectively: Wal-Mart,
accounted for 18.4%, 16.3% and 12.8%, Lowes accounted for 18.4%, 15.7% and
9.6% and Barnett accounted for 15.7%, 18.6% and 23.2%. During the same periods,
the Companys ten largest customers accounted for approximately 69.2%, 75.3%
and 73.0% of net sales and approximately 66.6% and 53.3% of accounts receivable
at June 30, 2003 and 2002, respectively.



| | E. |  | Inventories
| | -- |  | -----------

At June 30, 2003 and 2002, inventories, consisting primarily of finished
goods, are carried at the lower of first-in, first-out (FIFO) cost or market.
The Company regularly evaluates its inventory carrying value, with appropriate
consideration given to any excess, slow-moving and/or nonsalable inventories.
In fiscal 2003, 2002 and 2001, the Company recorded charges of $0.2 million,
$0.1 million and $0.6 million, respectively, in connection with its evaluation
of its inventory carrying value.



| | F. |  | Property and Equipment
| | -- |  | ----------------------

Property and equipment are stated at cost. For financial reporting
purposes, buildings and equipment are depreciated on a straight-line basis over
the estimated useful lives of the related assets. Depreciable lives are 15 to
40 years for buildings and 3 to 15 years for equipment. Leasehold improvements
are amortized on a straight-line basis over the term of the lease or the useful
life of the asset, whichever is shorter. For income tax purposes, accelerated
methods of depreciation are used. Depreciation expense in each of the last
three fiscal years ended June 30, 2003, 2002 and 2001 totaled $1.5 million,
$1.3 million and $1.4 million, respectively. Repairs and maintenance are
expensed as incurred.



| | G. |  | Unamortized Debt Issuance Costs
| | -- |  | -------------------------------

Unamortized debt issuance costs relate to the Companys long-term and
short-term debt (See Note 7) and are amortized over the life of the related
debt. Amortization expense totaled $0.1 million in fiscal 2003, $0.3 million in
fiscal 2002 and $0.4 million in fiscal 2001, and is included in interest
expense in the accompanying consolidated statements of operations. The Company
incurred an extraordinary charge in fiscal 2001 related to the accelerated
amortization of unamortized debt issuance costs (See Note 6).



| | H. |  | Split Dollar Life Insurance Policies
| | -- |  | ------------------------------------

Split-dollar life insurance policies are maintained for the following
officers and directors: (1) Three policies for Melvin Waxman providing for
total death benefits of $8,535,000, (2) two policies for Armond Waxman
providing for total death benefits of $12,000,000, (3) one policy for Laurence
Waxman providing for death benefits of $1,274,000 and (4) one policy for John
Peters providing for death benefits of $1,250,000. In the event of the death
of any of the above-referenced insureds, the Company will be repaid for the
aggregate premiums paid by the Company for such policies from the insurance
proceeds paid to the split-dollar life insurance trusts which own such
policies. During fiscal 2003, the Company made payments of $140,871, but
suspended payments for the split dollar policies in March 2003, pending further
information regarding the impact the Sarbanes-Oxley Act of 2002 will have on
split dollar policies for executive officers.



| | I. |  | Procurement Charges
| | -- |  | -------------------

The Financial Accounting Standards Board (FASB) has reviewed the
industry practices regarding the accounting for up-front slotting fees
charged by retailers for the right to shelf space and issued EITF Issue No.
00-25 related to these types of charges. The FASB has concluded that charges of
this nature should be reported as a reduction in revenue beginning in annual or
interim periods after December 15, 2001, with financial statements for prior
periods being reclassified to comply with this requirement. The Company adopted
this standard in the quarter ended September 30, 2001.

Prior to the adoption of this standard, the Company reported and expensed
these costs in the period paid or incurred. The Company reported certain types
of business procurement costs as a separate category in its operating costs.
These business procurement costs included costs incurred in connection with a
customers agreement to purchase products from the Company for a specific
period, including the consideration paid to the new or existing customer (i)
for the right to supply such customer for a specified period and (ii) to assist
such customer in reorganizing its store aisles and displays in

32



---



##### Table of Contents



order to accommodate the Companys products. The Company classified a
third type of business procurement cost as a contra sale in prior years. This
type was associated with the purchase of a competitors merchandise that the
customer has on hand when it changes suppliers, less the salvage value received
by the Company. Beginning in fiscal 2002, the Company began recording all of
these business procurement costs as a reduction in sales.

J.     Foreign Currency Translation and Transactions

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



| | K. |  | Revenue Recognition
| | -- |  | -------------------

Revenue is recognized as risk and title to the product transfers to the
customer, which usually occurs at the time shipment is made. In December 1999,
the Securities and Exchange Commission (the SEC) issued Staff Accounting
Bulletin (SAB) 101, Revenue Recognition in Financial Statements, which
summarizes the SECs views in applying generally accepted accounting principles
to revenue recognition. The Company has determined that SAB 101s revenue
recognition guidelines are consistent with the Companys existing revenue
recognition policies; therefore, SAB 101 did not have a material impact on the
Companys consolidated financial statements.



| | L. |  | Shipping and Handling Fees
| | -- |  | --------------------------

In May 2000, the Emerging Issues Task Force (EITF) of the FASB reached a
consensus with respect to EITF Issue 00-10, Accounting for Shipping and
Handling Fees and Costs. EITF 00-10 recognizes the inconsistencies in practice
of the recording of shipping and handling costs incurred by most companies that
sell goods. The Company has historically recorded freight and any directly
related associated cost of transporting finished product to customers as a
component of its selling, general and administrative expenses. Included in
SG&A expenses are $2.6 million, $2.2 million and $2.9 million in shipping and
handling costs for fiscal 2003, 2002 and 2001, respectively.



| | M. |  | Earnings per Share
| | -- |  | ------------------

In February 1997, The FASB issued SFAS No. 128, Earnings per Share to be
effective for financial statements issued for periods ending after December 15,
1997. Under SFAS No. 128, primary earnings per share have been replaced by
basic earnings per share, which represents net income divided by the weighted
average number of common shares outstanding. Diluted earnings per share
utilizes the weighted average number of common stock and common stock
equivalents, which include stock options and warrants. In fiscal 2002, the
Company cancelled all outstanding stock options, and the warrants were
anti-dilutive due to the stock price being below the strike price of the
warrants. For fiscal 2001, the impact of the options and warrants is
anti-dilutive as the price of the Companys stock was below the exercise prices
of those instruments. In fiscal 2000, the Company was in a loss position and
the impact of the options and warrants was anti-dilutive, therefore the Company
has disclosed basic earnings per share as basic and diluted for these years.

As further described in Note 12, the Companys shareholders voted in favor
of a 1 for 10 reverse stock split, which became effective on February 20, 2001.
Accordingly, the share information presented below and on the face of the
income statement has been restated to reflect the reverse stock split.

The number of common shares used to calculate basic and diluted earnings
per share are as follows (in thousands):

|        |  |      |       |      |  |      |       |  |  |  |       | 
|------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|        |  | 2003 |       | 2002 |  | 2001
|        |  |      |       |      |  |     
|Basic   |  |      | 1,218 |      |  |      | 1,215 |  |  |  | 1,212 | 
|Diluted |  |      | 1,218 |      |  |      | 1,215 |  |  |  | 1,212 | 



| | N. |  | Stock-Based Compensation
| | -- |  | ------------------------

The Company utilizes the intrinsic value-based method of accounting
prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees
(APB 25) to measure compensation costs for its stock-based compensation plan
and had adopted the disclosure-only provisions of Statement of Financial
Standards No. 123  Accounting for Stock-Based Compensation (FAS 123). FAS
123 was amended in December 2002, with enhanced annual and interim disclosure
requirements that were issued in Financial Accounting Standard No. 148 
Accounting

33



---



##### Table of Contents



for Stock-Based Compensation  Transition and Disclosure (FAS 148).
Compensation costs for fixed price awards are measured by the excess, if any,
of the fair market price of the underlying stock over the amount the individual
is required to pay, which is established on the grant date. See Note 13 for a
further description of the assumptions used for preparing the pro forma
disclosures as prescribed by FAS 148.



| | O. |  | Joint Venture Investments
| | -- |  | -------------------------

The Company, through TWI, has invested in four joint venture operations in
Asia. TWI includes this investment in other assets on the balance sheet and is
accounting for these joint ventures using the cost method of accounting because
it does not exercise significant influence over the operating and financial
policy decisions of these entities. Accordingly, the Company has recognized the
distributions received from those entities as dividend income, which amounted
to $0.2 million, $0.1 million and $0.1 million in fiscal 2003, 2002 and 2001,
respectively. In fiscal 2003, dividend distributions, which had been netted
against SG&A expenses in prior periods, were reclassified to other income. The
investment in those entities at June 30, 2003 and 2002 was as follows:

|                                      |  |         |      |      |  |      |         |  |  |  |         | 
|------------------------------------- |  | ------- | ---- | ---- |  | ---- | ------- |  |  |  | ------- | 
|Company                               |  | % Owned |      | 2003 |  | 2002
|                                      |  |         |      |      |  |     
|Dynaflow Industries Corporation       |  |         | 38.5 | %    |  | $    | 73,000  |  |  |  | 75,000  | 
|Tsang Roug Industrial (Shenzhen) Ltd. |  |         | 28.0 | %    |  |      | 156,000 |  |  |  | 161,000 | 
|Quan Ri Chang (Shenzhen) Ltd.         |  |         | 28.1 | %    |  |      | 260,000 |  |  |  | 89,000  | 
|Everbrite Technology Inc.             |  |         | 7.5  | %    |  |      | 64,000  |  |  |  | 66,000  | 



|2. |  | Barnett
|-- |  | -------

In April 1996, the Company completed an initial public offering of the
Barnett Common Stock, reducing its interest in the former wholly-owned
subsidiary to 49.9% of the outstanding Barnett Common Stock and, together with
certain convertible non-voting preferred stock owned by the Company,
approximately a 54% economic interest. In April 1997, the Company completed a
secondary offering of 1.3 million shares of Barnett Common Stock, reducing its
voting and economic interests to 44.5% and, accordingly, began to account for
its interest in Barnett under the equity method of accounting. In July 2000,
the Company announced that it had reached an agreement to monetize the
remaining 7,186,530 shares of Barnett Common Stock for $13.15 per share as part
of the purchase of all of Barnetts outstanding shares in connection with the
Barnett Merger. In September 2000, the Barnett Merger was approved by Barnetts
shareholders and the Company sold its remaining shares of Barnett Common Stock.

The gross proceeds from the sale of the 7,186,530 shares of Barnett Common
Stock amounted to $94.5 million. The Companys equity investment in Barnett
amounted to $44.3 million immediately prior to the sale, including equity
earnings recognized by the Company in the quarter ended September 30, 2000 of
$1.4 million. The Company reported a net gain on the sale of Barnett of $47.5
million, after the write-off of $2.7 million in transaction related costs
associated with the Barnett Merger and other costs associated with the
comprehensive financial restructuring of the Company. In addition, the Company
recognized $7.8 million in deferred gain on the sale of U.S. Lock in the
quarter ended September 30, 2000, which was being recognized as Barnett
amortized the goodwill associated with its purchase of U.S. Lock.



|3. |  | Comprehensive Financial Restructuring Plan / Confirmation of Chapter 11 Filing
|-- |  | ------------------------------------------------------------------------------

Over a several year period concluding in fiscal 2001, the Company
endeavored to reduce its high level of debt through the monetization of
assets and to improve the efficiencies of its continuing businesses. As a
result, the Company undertook various initiatives to raise cash, improve its
cash flow and reduce its debt obligations and / or improve its financial
flexibility during that period. However, the Company believed that it would
have been unable to continue to make all of the interest and principal
payments under its debt obligations without the development of a
comprehensive financial restructuring plan, which would include the
monetization of the value of the shares of the Barnett Common Stock owned by
the Company. The key developments in the comprehensive financial
restructuring were as follows:



| |  |  | On December 13, 1999, the Company and an ad hoc committee (the
Committee), representing the holders of approximately 87.6% of the
$92.8 million outstanding principal amount of Waxman Industries 12
3⁄4% Senior Secured Deferred Coupon Notes due 2004 (the Deferred
Coupon Notes) and approximately 65% of the 11 1/8% Senior Notes due
2001 (the Senior Notes) of Waxman USA Inc., a direct wholly-owned
subsidiary of the Company, entered into an agreement (the Debt
Reduction Agreement) that provided, subject to certain conditions
(including Bankruptcy Court approval), for the process that would
lead to the full
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

34



---



##### Table of Contents





| |   |  | satisfaction of the Deferred Coupon Notes and the Senior Notes as part
of a comprehensive financial restructuring of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | On July 10, 2000, the Company announced that it had reached
agreements with the Committee, among others, for the monetization of
its Barnett Common Stock and the financial restructuring of Waxman
Industries. These agreements included the Companys agreement to vote
its 7,186,530 shares of Barnett Common Stock owned by Waxman USA Inc.
in favor of the acquisition of Barnett by Wilmar Industries, Inc. for
$13.15 per share.                                                                                                                                           
|
| |  |  | On August 28, 2000, the Company and the Committee commenced the
solicitation for the approval of the Deferred Coupon Note holders for
the jointly sponsored, prepackaged plan of reorganization in advance
of its filing with the United States Bankruptcy Court (the Joint
Plan). Under the Joint Plan, the holders of the Deferred Coupon
Notes were the only impaired class of creditors; none of the
Companys operating subsidiaries or divisions were included in the
filing and they paid their trade creditors, employees and other
liabilities under normal conditions.
|
| |  |  | On September 1, 2000, the Company sold to Barnett 160,723
shares of Barnett Common Stock to fund the interest due on the
Companys Senior Notes.                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  |  | On September 27, 2000, the Barnett shareholders approved the
Barnett Merger.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  |  | On September 28, 2000, the holders of approximately 97% of the
Deferred Coupon Notes voted in favor of accepting the Joint Plan,
with the remaining holders not voting.                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  |  | On September 29, 2000, the Company received gross proceeds from
the sale of the remaining Barnett Common Stock, which together with
the shares sold to Barnett on September 1, 2000, amounted to $94.5
million. The Company utilized the proceeds from the sale of the
Barnett Common Stock in the following order:                                                                                                                                                                                                                                                               
|

| |  |  |  | paid or reserved for payment approximately $1.35
million for state and federal taxes associated with the sale
of the Barnett shares.                                                                                                
| |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  |  | reduced its borrowings under its working capital
credit facility by approximately $10 million.                                                                                                                                      
|
| |  |  |  | retired all of its approximately $35.9 million
principal amount of Senior Notes, plus accrued interest.                                                                                                                             
|
| |  |  |  | paid approximately $6.0 million in semi-annual
interest due on June 1, 2000 to its Deferred Coupon Note
holders.                                                                                                                    
|
| |  |  |  | funded a dedicated account with the remaining
gross proceeds of approximately $39.0 million, which was used
for the full satisfaction of the Deferred Coupon Notes,
including accrued interest, upon confirmation of the Joint
Plan.

| |  |  | On October 2, 2000, the Company, excluding Waxman USA Inc.
and all of its direct and indirect operating subsidiaries, filed a
petition for reorganization under Chapter 11 of the U.S. Bankruptcy
Code in the United States Court for the District of Delaware. The
petition sought confirmation by the court of the Joint Plan to
settle, at a discount, all amounts due on the Companys Deferred
Coupon Notes. Under the Joint Plan, the only impaired creditors
were the Deferred Coupon Note holders.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | On November 14, 2000, the Companys Joint Plan was approved
by the Court                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  |  | On November 16, 2000, the Companys Joint Plan became
effective, and the Company paid its obligation to the Deferred
Coupon Note holders.                                                                                                                                                                                                                                                                                                                                                                 
|
| |  |  | On March 14, 2001, the Court closed the Chapter 11 case, and
the Company emerged from bankruptcy.                                                                                                                                                                                                                                                                                                                                                                                                         

Included in accrued liabilities at June 30, 2003 and 2002 are accrued
restructuring charges in the amount of $1.0 million.



|4. |  | Managements Review of Operations  Restructuring and Impairment Charges
|-- |  | ------------------------------------------------------------------------

Included in the results for the fiscal 2001 are $0.35 million in
additional costs and restructuring charges recorded by Consumer Products during
the quarter ended September 30, 2000 which were associated with certain of its
distribution and packaging warehouses closed in prior years.



|5. |  | Disposal of Businesses
|-- |  | ----------------------

In fiscal 2001, the Company sold substantially all of the assets and
certain liabilities of Medal of Pennsylvania, Inc. (Medal) to a newly formed
corporation, Medal USA, Inc. for approximately $0.8 million in cash and the
assumption of certain liabilities (the Medal Sale). The Medal Sale was
effective March 31, 2001, resulting in a net pretax loss of $1.1 million in the
quarter ended March 31, 2001.

35



---



##### Table of Contents



The Company consolidated Medals financial information in its results
through March 31, 2001. The impact of not consolidating Medals results would
have been to reduce consolidated net sales and improve the Companys net income
(loss) as follows (in thousands, except per share data):

|                                 |  |             |       |  
|-------------------------------- |  | ----------- | ----- | -
|                                 |  | Fiscal 2001
|                                 |  |            
|Net sales                        |  | $           | 3,407 |  
|Net loss                         |  | $           | (151  | )
|Basic and diluted loss per share |  | $           | (0.12 | )



|6. |  | Extraordinary Items
|-- |  | -------------------

In September 2000, the Company retired Waxman USAs Senior Notes,
utilizing a portion of the proceeds from the Barnett Merger. As a result, the
Company wrote off $57,000, net of taxes of $38,000, of deferred loan costs
associated with these notes.

In November 2000, the Company reported net extraordinary income of $52.2
million, which included a gain of $56.5 million from the retirement of the
Companys $92.8 million of Deferred Coupon Notes at a discount, the write-off
of $1.9 million of unamortized debt issuance costs associated with the Deferred
Coupon Notes and $2.4 million of expenses associated with the debt
restructuring. The Company did not provide a tax provision on the extraordinary
gain due to the tax treatment of debt defeasance income in a bankruptcy.



|7. |  | Debt
|-- |  | ----



| | A. |  | Long-Term Debt
| | -- |  | --------------

Total long-term debt consists of the following at June 30, 2003 and 2002
(in thousands of dollars):

|                                                                                                                    |  |      |        |      |  |   |        |  
|------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|                                                                                                                    |  | 2003 |        | 2002
|                                                                                                                    |  |      |        |     
|Bank Agreement                                                                                                      |  | $    | 7,529  |      |  | $ | 7,298  |  
|Term Loan maturing in 2005, bearing interest at prime plus 1%, secured by the Companys
corporate land and building |  |      | 935    |      |  |   | 1,100  |  
|Capital leases maturing in 2003 to 2008, bearing interest at 6.13% to 17.3%, secured by
leased equipment            |  |      | 156    |      |  |   | 85     |  
|Other debt, maturing in 2002, bearing interest at 5.7%, secured by TWIs land and building                          |  |      |       |      |  |   | 298    |  
|                                                                                                                    |  |      |        |      |  |   |        |  
|                                                                                                                    |  |      | 8,620  |      |  |   | 8,781  |  
|Less: current portion                                                                                               |  |      | (7,724 | )    |  |   | (7,831 | )
|                                                                                                                    |  |      |        |      |  |   |        |  
|Long-term debt, net of current portion                                                                              |  | $    | 896    |      |  | $ | 950    |  
|                                                                                                                    |  |      |        |      |  |   |        |  

The PNC Revolving Credit, Term Loan and Security Agreement (PNC Bank
Facility), which began in February 2002, is between Waxman Industries, Inc.,
Consumer Products, WAMI Sales and Waxman USA as borrowers (the Borrowers).
The PNC Bank Facility provides, among other things, for revolving credit
advances of up to $15.0 million. The Term Loan facility provided an initial
loan on the Companys corporate office building of $1,155,000, with payments
being amortized over 7 years, although the facility would be subject to a
balloon payment if the PNC Bank Facility terminates and is not extended. At
June 30, 2003, the balance due under the Term Loan facility was $935,000 and
the Company had $7.5 million in borrowings under the revolving credit line of
the facility and approximately $3.2 million available under such facility.

The PNC Bank Facility provides for revolving credit advances of (a) up to
85.0% of the amount of eligible accounts receivable and (b) up to the lesser of
(i) $7.5 million or (ii) 60% of the amount of eligible raw and finished goods
inventory. Revolving credit advances bear interest at a rate equal to the
higher of (a) the PNC Bank, NA base prime rate plus 0.5% or (b) Federal Funds
Rate plus 1.0%. The Term Loan advance bears interest at a rate equal to the
higher of (a) the PNC Bank, NA base prime rate plus 1.0% or (b) Federal Funds
Rate plus 1.5%. The PNC Bank Facility includes a letter of credit subfacility
of $1.0 million, with none outstanding at June 30, 2003. Borrowings under the
PNC Revolving Credit Loan are secured by the accounts receivable, inventories,
certain general intangibles, and

36



---



##### Table of Contents



unencumbered fixed assets of Waxman Industries, Inc., Consumer Products, WAMI
Sales, and a pledge of 65% of the stock of various foreign subsidiaries. The
PNC Bank Facility 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 PNC Bank Facility prevents dividends and
distributions by the Borrowers, including the repurchase of stock, except in
certain limited instances.

The financial covenants contain customary negative, affirmative and
financial covenants and conditions that require the Company to maintain a
certain fixed charge coverage ratio and tangible net worth and not exceed a
certain amount of capital expenditures in any given period. The ratios and
dollar amounts of such financial covenants vary during the term of the PNC Bank
Facility and are contained in the agreement governing the PNC Bank Facility,
which appears as Exhibit 10.1 to the Current Report on Form 8-K filed by the
Company on February 27, 2002 and is incorporated herein by reference as Exhibit
4.10 to this Form 10-K. The customary negative covenants contained in the PNC
Bank Facility include restrictions, subject to important enumerated exceptions,
on the Companys ability to effect a merger, consolidation, acquisition or sale
of its assets, create liens, enter into guarantees, acquire interests in other
entities, make loans to other entities, incur indebtedness, and engage in
transactions with affiliates. The Company was in compliance with all loan
covenants at June 30, 2003. In August 2003, PNC and the Company retroactively
amended the fixed charge covenant to utilize financial results for measuring
its fixed charge coverage ratio beginning April 1, 2003. The PNC Bank Facility
also contains a material adverse condition clause, which allows PNC Bank, NA to
terminate the agreement under certain circumstances. The PNC Bank Facility
replaced a Loan and Security Agreement with Congress Financial Corporation,
which was scheduled to expire on June 18, 2002.



| | B. |  | Senior Secured Deferred Coupon Notes
| | -- |  | ------------------------------------

In November 2000, the Companys Joint Plan became effective and the
Company paid its Deferred Coupon Note obligation to the Deferred Coupon Note
holders (see Note 3). The Deferred Coupon Notes were issued in May 1994, when
the Company exchanged $50 million principal amount of its 13 3/4% Senior
Subordinated Notes due June 1, 1999 (Senior Subordinated Notes) for Deferred
Coupon Notes having an initial accreted value of $50 million, along with
detachable warrants to purchase 295,000 post-split shares of the Companys
common stock. The Deferred Coupon Notes were fully accreted at June 1, 1999,
and began accruing cash interest at a rate of 12 3/4% which became payable on
December 1, 1999 and semi-annually thereafter.

The warrants are exercisable through June 1, 2004. As a result of the
Companys reverse stock split in February 2001, the original 2.95 million
warrants exercisable at $2.45 per share became 295,000 warrants exercisable at
$24.50 per share. A portion of the initial accreted value of the Deferred
Coupon Notes had been 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 was being
amortized as interest expense over the life of the Deferred Coupon Notes, and
was accelerated with the settlement of the Deferred Coupon Notes in connection
with the effectuation of the Joint Plan (see Note 3).



| | C. |  | Senior Notes
| | -- |  | ------------

On September 29, 2001, the Company redeemed its remaining $35.9 million of
Senior Notes as part of its Debt Reduction Agreement and comprehensive
financial restructuring, paying the principal and interest in full.



| | D. |  | Capital Leases
| | -- |  | --------------

The Company has certain obligations under capital leases which are
included in the debt balances in the Long-Term Debt table provided in Note 7A.
The obligations under capital leases have fixed interest rates of 6.13% to
6.93% and are collateralized by property, plant and equipment. Property under
capitalized leases consists of the following:

|                               |  |      |     |      |  |   |     | 
|------------------------------ |  | ---- | --- | ---- |  | - | --- | 
|                               |  | 2003 |     | 2002
|                               |  |      |     |     
|Machinery and equipment        |  | $    | 176 |      |  | $ | 447 | 
|Less: Accumulated depreciation |  |      | 9   |      |  |   | 281 | 
|                               |  |      |     |      |  |   |     | 
|                               |  | $    | 167 |      |  | $ | 166 | 
|                               |  |      |     |      |  |   |     | 

37



---



##### Table of Contents



The future minimum rentals for property under capital leases are as
follows:

|                                                |  |   |     | 
|----------------------------------------------- |  | - | --- | 
|2004                                            |  | $ | 39  | 
|2005                                            |  |   | 38  | 
|2006                                            |  |   | 38  | 
|2007                                            |  |   | 33  | 
|2008                                            |  |   | 33  | 
|                                                |  |   |     | 
|Total minimum lease obligation                  |  |   | 181 | 
|Less interest                                   |  |   | 25  | 
|                                                |  |   |     | 
|Present value of total minimum lease obligation |  | $ | 156 | 
|                                                |  |   |     | 



| | E. |  | Term Debt
| | -- |  | ---------

The PNC Bank Facility provides for a Term Loan facility on the Companys
corporate office building. The initial loan amount was $1,155,000. The Term
Loan facility provided an initial loan on the Companys corporate office
building of $1,155,000, with payments being amortized over 7 years, although
the facility would be subject to a balloon payment if the PNC Bank Facility is
terminated and not extended. The Term Loan bears an interest rate of prime plus
1.0%. Monthly principal payments of $13,750 plus interest are made. The Company
made $55,000 in principal payments in fiscal 2002, and principal payments of
$165,000 will be made in each fiscal year beginning with fiscal 2003 through
fiscal 2008, with $110,000 being made in fiscal 2009.



| | F. |  | Miscellaneous
| | -- |  | -------------

The Company made cash interest payments of $0.4 million, $0.6 million and
$9.3 million in fiscal 2003, 2002 and 2001, respectively. The Company reported
interest income of $0.1 million in fiscal 2003 and $0.3 million in fiscal 2001,
but did not have interest income in fiscal 2002.

Management believes the carrying value of its bank loan approximates its
fair value as it bears interest based upon the banks prime lending rates.



| | 8. |  | Income Taxes
| | -- |  | ------------

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

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

|         |  |                            |        |      |  |      |     |   |  |   |        | 
|-------- |  | -------------------------- | ------ | ---- |  | ---- | --- | - |  | - | ------ | 
|         |  | Fiscal Year Ended June 30,
|         |  |                           
|         |  | 2003                       |        | 2002 |  | 2001
|         |  |                            |        |      |  |     
|Domestic |  | $                          | (1,617 | )    |  | $    | (80 | ) |  | $ | 47,895 | 
|Foreign  |  |                            | 1,791  |      |  |      | 994 |   |  |   | 1,611  | 
|         |  |                            |        |      |  |      |     |   |  |   |        | 
|Total    |  | $                          | 174    |      |  | $    | 914 |   |  | $ | 49,506 | 
|         |  |                            |        |      |  |      |     |   |  |   |        | 

38



---



##### Table of Contents



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

|                                 |                           |      |                            |      |   |      |      |      |   |   |     |       | 
|-------------------------------- | ------------------------- | ---- | -------------------------- | ---- | - | ---- | ---- | ---- | - | - | --- | ----- | 
|                                 |                           |      | Fiscal Year Ended June 30,
|                                 |                           |      |                           
|                                 |                           | 2003 |                            | 2002 |   | 2001
|                                 |                           |      |                            |      |   |     
|Currently (recoverable) payable:
|Federal                          |                           | $    | (166                       | )    |   | $    | (773 | )    |   | $ | 740 |      
|Foreign                          |                           |      | 451                        |      |   |      | 229  |      |   |   | 256 |      
|State                            |                           |      | (532                       | )    |   |      | (127 | )    |   |   | 317 |      
|                                 |                           |      |                            |      |   |      |      |      |   |   |     |      
|                                 | Total current             |      |                            | (247 | ) |      |      | (671 | ) |   |     | 1,313 | 
|Deferred: State                  |                           |      |                           |      |   |      |     |      |   |   | 367 |      
|                                 |                           |      |                            |      |   |      |      |      |   |   |     |      
|                                 | Total (benefit) provision |      | $                          | (247 | ) |      | $    | (671 | ) |   | $   | 1,680 | 
|                                 |                           |      |                            |      |   |      |      |      |   |   |     |      

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

|                              |                    |  |        |        |      |  |       |       |    |  |       |     |  
|----------------------------- | ------------------ |  | ------ | ------ | ---- |  | ----- | ----- | -- |  | ----- | --- | -
|                              |                    |  | 2003   |        | 2002 |  | 2001 
|                              |                    |  |        |        |      |  |      
|U.S. statutory rate           |                    |  | 35.0   | %      |      |  | 35.0  | %     |    |  | 35.0  | %  
|Domestic losses not benefited |                    |  | 192.3  |        |      |  |      |       |    |  |      |    
|State taxes, net              |                    |  | (198.4 | )      |      |  | 1.8   |       |    |  | 0.8   |    
|Foreign tax items             |                    |  | (101.1 | )      |      |  | (13.0 | )     |    |  | (0.6  | )  
|Change in valuation allowance |                    |  |       |        |      |  |      |       |    |  | (32.0 | )  
|Change in tax law             |                    |  | (78.3  | )      |      |  | (84.6 | )     |    |  |      |    
|Other, net                    |                    |  | 8.8    |        |      |  | (12.6 | )     |    |  | 0.2   |    
|                              |                    |  |        |        |      |  |       |       |    |  |       |    
|                              | Effective tax rate |  |        | (141.7 | )%   |  |       | (73.4 | )% |  |       | 3.4 | %
|                              |                    |  |        |        |      |  |       |       |    |  |       |    

The deferred tax assets and liabilities as of June 30, 2003 and 2002 are
as follows (in thousands of dollars):

|                                 |  |                          |       |      |        |      |       |   |        |  
|-------------------------------- |  | ------------------------ | ----- | ---- | ------ | ---- | ----- | - | ------ | -
|                                 |  |                          |       | 2003 |        | 2002
|                                 |  |                          |       |      |        |     
|Net operating loss carryforwards |  | $                        | 6,458 |      |        | $    | 6,082 |  
|Accrued expenses                 |  |                          | 76    |      |        |      | 97    |  
|Inventories                      |  |                          | 337   |      |        |      | 409   |  
|Accounts receivable              |  |                          | 153   |      |        |      | 188   |  
|Procurement costs                |  |                          | 961   |      |        |      | 910   |  
|Alternative minimum tax credit   |  |                          | 591   |      |        |      | 718   |  
|Other                            |  |                          | 463   |      |        |      | 472   |  
|                                 |  |                          |       |      |        |      |       |  
|                                 |  | Deferred tax asset       |       |      | 9,039  |      |       |   | 8,876  |  
|                                 |  |                          |       |      |        |      |       |  
|Property                         |  |                          | (803  | )    |        |      | (941  | )
|                                 |  |                          |       |      |        |      |       |  
|                                 |  | Deferred tax liabilities |       |      | (803   | )    |       |   | (941   | )
|                                 |  |                          |       |      |        |      |       |  
|                                 |  | Net deferred tax asset   |       |      | 8,236  |      |       |   | 7,935  |  
|                                 |  | Valuation allowance      |       |      | (8,236 | )    |       |   | (7,935 | )
|                                 |  |                          |       |      |        |      |       |  
|                                 |  | $                        |      |      |        | $    |      |  
|                                 |  |                          |       |      |        |      |       |  

SFAS No. 109 requires the Company to assess the realizability of its
deferred tax assets based on whether it is more likely than not that the
Company will realize the benefit from these deferred tax assets in the future.
If the Company determines the more likely than not criteria is not met, SFAS
No. 109 requires the deferred tax assets be reduced by a valuation allowance.
In assessing the realizability of its net deferred tax asset, the Company
considered its historic performance and the uncertainty of it being able to
generate enough domestic taxable income to utilize these

39



---



##### Table of Contents



assets. At June 30, 2003 and 2002, the Companys net deferred tax assets were
fully offset by a valuation allowance, and the Company continues to believe
that the Companys net deferred tax assets should continue to be offset by a
valuation allowance. The Company will continue to analyze the trends in the
operating results of its domestic operations to assess the realizability of its
deferred tax asset in fiscal 2004. At June 30, 2003, the Company had $18.5
million of available domestic net operating loss carryforwards for income tax
purposes, which will expire in 2010 through 2023.

In fiscal 2003, the Company recorded a net tax benefit of $0.2 million,
which represents the reversal of a $0.6 million tax reserve for a state tax
assessment that was favorably resolved during the year, $0.1 million for a
change in tax law related to the carryback of alternative net operating losses
to prior years, partially offset by a provision for various state and foreign
taxes. In fiscal 2002, the Company recorded a net tax benefit of $0.7 million,
which represents a tax benefit of $0.8 million for a change in tax law related
to the carryforward of an alternative minimum tax net operating loss to fiscal
2001, a benefit of $0.1 million for the reversal of tax reserves related to the
2001 financial restructuring and a provision for various state and foreign
taxes.

Undistributed earnings of the Companys foreign operations were
approximately $5.1 million as of June 30, 2003. These earnings are considered
to be indefinitely reinvested and accordingly, no U.S. federal or state taxes
have been provided.

The Company made no federal income tax payments in fiscal 2003 and 2002,
but made payments of $0.8 for fiscal 2001. The Companys foreign operations
made payments of $0.4 million in fiscal 2003, as compared to $0.1 million in
both fiscal 2002 and fiscal 2001. The Company paid approximately $48,000,
$114,000 and $330,000 in state taxes for fiscal 2003, 2002 and 2001,
respectively. Refunds received totaled $891,000 in fiscal 2003, $28,000 in
fiscal 2002 and $6,000 in fiscal 2001.



|9. |  | Lease Commitments
|-- |  | -----------------

The Company leases certain warehouse and office facilities and equipment
under operating lease agreements, which expire at various dates through 2009.
The future minimum rental payments are as follows (in thousands of dollars):

|           |  |   |       | 
|---------- |  | - | ----- | 
|2004       |  | $ | 935   | 
|2005       |  |   | 878   | 
|2006       |  |   | 742   | 
|2007       |  |   | 677   | 
|2008       |  |   | 454   | 
|Thereafter |  |   | 152   | 
|           |  |   |       | 
|           |  | $ | 3,838 | 
|           |  |   |       | 

Total rent expense charged to operations was $1.0 million, $0.9 million
and $0.8 million in fiscal 2003, 2002 and 2001, respectively. Consumer
Products leases certain warehouse space from related parties. Related
parties rent expense totaled $0.2 million in fiscal 2003 and $0.3 million in
each of fiscal 2002 and fiscal 2001. Those related party relationships
consist of the following:



| |  |  | Aurora Investment Co., a partnership owned by Melvin Waxman,
Chairman of the Board and Co-Chief Executive Officer of the
Company, and Armond Waxman, President and Co-Chief Executive
Officer of the Company, together with certain other members of
their families, is the owner and lessor of the building used by
Consumer Products for its executive offices, administrative
functions and, until the move of the warehouse to Groveport, Ohio,
one of its distribution facilities. Rent expense and related
occupancy expenses under this lease was $167,157 in fiscal 2003 and
$326,712 in fiscal 2002 and 2001. In fiscal 2002 and 2001, 97,000
square feet of the warehouse portion of this facility was subleased
to Handl-it Inc. (see Note 10 for information regarding related
party ownership of Handl-it). On July 1, 2002, Consumer Products
renewed the lease for the 9,000 square feet of office space and
20,000 square feet of warehouse space that it uses, and began
subleasing an additional 17,000 square feet of space from Handl-it,
for which it paid $61,200 in fiscal 2003. Handl-it began leasing
the portion of the warehouse it used directly from Aurora
Investments Co.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

40



---



##### Table of Contents





| |  |  | Handl-it Inc., a corporation owned by John S. Peters, a
director and consultant to the Company, together with another
member of his family, Melvin Waxman and Armond Waxman, sublet
warehouse space from Consumer Products through June 30, 2002. The
Company reported rental income from Handl-it Inc. of $191,079 and
$290,496 in fiscal 2002 and 2000, respectively, for subleasing the
warehouse in Bedford Hts., Ohio. In fiscal 2003, Consumer Products
paid $61,200 to Handl-it for subleasing a portion of the warehouse
space leased by Handl-it and used by Consumer Products. See Note 10
for additional information regarding this related party
transaction.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | From July 1, 1999 through April 2001, WAMI Sales utilized
Handl-it Inc. to provide all warehousing, labor and shipping
functions in Cleveland, Ohio for a fee equal to a percentage of
monthly sales plus other direct expenses from this operation. The
charge amounted to $67,000 in fiscal 2001 and $74,000 in fiscal
2000. The Company believes these terms are comparable to those that
would be available from unaffiliated third parties.                                                                                                                                                                                                                         



|10. |  | Related-Party Transactions
|--- |  | --------------------------

The Company purchases certain products, which it can not manufacture with
its existing operations, from WDI International, Inc., a company owned in part
by certain members of the Waxman family and other non-affiliated individuals.
In fiscal 2003, 2002 and 2001, purchases from WDI International amounted to
$1.1 million, $1.6 million and $1.7 million, respectively. The Company believes
that the prices it receives are on terms comparable to those that would be
available from unaffiliated third parties.

The Company leases certain facilities from Aurora Investment Co., a
partnership owned by members of the Waxman family (see Note 9 for additional
information regarding this arrangement). Aurora Investments Co. originally
developed the Bedford Heights, Ohio facility, with 9,000 square feet of office
space and 114,000 square feet of warehouse space, entirely for Consumer
Products. The lease of the entire facility expired on June 30, 2002, and
Consumer Products entered into a new 5 year lease with Aurora Investments for
9,000 square feet of office space and 20,000 square feet of warehouse. Rent
expense under this lease was $167,157 in fiscal 2003, as compared to $326,712
in each of fiscal 2002 and 2001, when Consumer Products leased the entire
facility. Consumer Products also subleases 17,000 square feet of space at this
Bedford Heights facility from Handl-it for $61,200 per year. In fiscal 2002 and
2001, when Consumer Products was leasing the entire facility, it sublet 97,000
square feet of the warehouse to Handl-it Inc. (see below for information
regarding affiliated ownership of Handl-it Inc.).

At June 30, 2003 and 2002, the Company had the following receivables from
related parties (in thousands):

|                          |       |      |     |      |  |   |     |     | 
|------------------------- | ----- | ---- | --- | ---- |  | - | --- | --- | 
|Related Party             |       | 2003 |     | 2002
|                          |       |      |     |     
|Melvin Waxman, Co-CEO     |       | $    | 50  |      |  | $ | 60  |    
|Armond Waxman, Co-CEO     |       |      | 125 |      |  |   | 135 |    
|Waxman Development        |       |      | 84  |      |  |   | 84  |    
|Aurora Investments Co.    |       |      | 85  |      |  |   | 97  |    
|Handl-it Inc.             |       |      | 78  |      |  |   | 134 |    
|All other related parties |       |      | 54  |      |  |   | 64  |    
|                          |       |      |     |      |  |   |     |    
|                          | Total |      | $   | 476  |  |   | $   | 574 | 
|                          |       |      |     |      |  |   |     |    

All of the related party and officer notes receivable are documented by a
promissory note and began to bear interest in July 2002 at the minimum rates
established by the Internal Revenue Service to avoid imputed interest
attribution. Principal payments of $10,000 were made by each officer beginning
in fiscal 2003, as well as quarterly interest payments. The receivable from
Waxman Development relates to a real estate development venture initially
formed to build facilities for Barnett, a former affiliate, and other
operations. The Barnett stock owned by the Company was disposed of in September
2000. Aurora Investments has been paying interest, while Waxman Development
began paying interest in fiscal 2003. Principal payments on the Aurora
Investments and Waxman Development notes begin in fiscal 2007 and are payable
over a ten year period.

Handl-it Inc., a corporation owned by John S. Peters, a director and
consultant to the Company, together with another member of his family, and
Melvin Waxman and Armond Waxman, sublet warehouse space in Bedford Hts., Ohio
from Consumer Products through June 30, 2002. In order to facilitate Consumer
Products move to a more efficient warehouse that was also logistically
beneficial in serving their customer base, Handl-it agreed to sublease 97,000
square feet of office space, which it would attempt to utilize for the
warehousing needs of its customers. Due to the prolonged economic downturn in
this area, Handl-it was unable to fully utilize the warehouse, and negotiated
an adjustment with Consumer Products to offset its revenue shortfall for this
warehouse. Accordingly, in fiscal 2002, Consumer Products

41



---



##### Table of Contents



reduced its rental charge to Handl-it by approximately $99,000, and received
concessions of $26,000 over the next 26 months from Aurora Investments. The
Company charged Handl-it Inc. $191,079 in fiscal 2002 (after the rent
adjustment) and $290,496 in fiscal 2001 for subleasing the warehouse space. At
June 30, 2003 and 2002, Handl-it owed Consumer Products $78,000 and $134,000 in
unpaid rent, respectively, which is evidenced by a promissory note, which bears
interest at a rate of 5.25% per annum. Effective July 1, 2002, Consumer
Products entered into a lease with Aurora Investments for the 9,000 square feet
of office space it utilizes and 20,000 square feet of warehouse space, and also
entered into an agreement to sublease 17,000 square feet of space from Handl-it
at a monthly charge of $5,100. Consumer Products offset the receivable from
Handl-it by the future monthly rental payments that would otherwise be paid to
Handl-it, and will continue to do so until the receivable has been fully
repaid. Consumer Products also utilizes Con-Pak Inc., a third party packaging
operation acquired by Handl-it in 1999, in certain instances where the
packaging can not be performed by the Companys operations in Asia. Con-Pak,
Inc. received $227,807, $377,599 and $234,368 for these services in fiscal
2003, 2002 and 2001, respectively. Consumer Products also paid Handl-it Inc.
approximately $27,000 for the cost of transportation of products in fiscal
2001. Handl-it is also compensated for the consulting services provided to the
Company by Mr. Peters, which amounted to approximately $43,000, $123,000 and
$81,000 in fiscal 2003, 2002 and 2001, respectively.

Melvin Waxman and Armond Waxman are directors and co-owners of Handl-it,
and each received director fees of $6,000 and $8,000 and consulting income of
$18,000 and $20,000 from Handl-it in the twelve months ended June 30, 2003 and
2002, respectively.



|11. |  | Retirement Plans
|--- |  | ----------------

The eligible employees of the Companys corporate office and certain
domestic subsidiaries of the Company participate in a trusteed, profit
sharing and 401(k) retirement plan. Contributions are discretionary and are
determined by the Companys Board of Directors. There were no profit sharing
contributions in fiscal 2003, 2002 or 2001. Beginning July 1, 2002 the
Company modified its 401(k) retirement plan to meet the Department of Labors
Safe Harbor Match provisions. Accordingly, the Company increased its match to
100% of the first 3% and 50% for the next 2% of deferral by employees, which
amounted to $173,000 in fiscal 2003. Under the new provisions, all
contributions are 100% vested. In fiscal 2002 and 2001 the Company
contributed a 50% match of up to the first 4% of salary deferral by
employees, which amounted to $0.1 million in each year. The Companys
domestic operations currently offer no other retirement, post-retirement or
post-employment benefits.

The Companys operation in Taiwan has a retirement plan covering all
regular employees, which provides for payment of benefits based on length of
service and basic pay at the time of retirement, making a monthly contribution
of 2% of salary and wages to the retirement fund. In fiscal 2003, this
operation adopted its method for employee benefit plan based on the Statement
of Financial Accounting Standards No. 87 (SFAS 87), and recognized net
periodic pension cost, related assets and liabilities based on actuarial
assumptions as required by SFAS 87. Contributions approximated $50,000 in
fiscal 2003 and $20,000 in fiscal 2002 and 2001. In fiscal 2002 and 2001, the
Company expensed the contributions made. An employees retirement committee
administrates the retirement fund and amounts contributed are deposited in the
name of this committee in the Central Trust of China.

The
funded status of the plan and accrued pension cost reconciliation follows (in thousands):

|                                       |                                               |      |      |      |  |   |      |     |  | 
|-------------------------------------- | --------------------------------------------- | ---- | ---- | ---- |  | - | ---- | --- |  | 
|                                       |                                               | 2003 |      | 2002
|                                       |                                               |      |      |     
|Benefit obligations:                   |                                               |      |      |      |  |   |      |    
|                                       | - Non-vested accumulated benefit obligation   |      | $    | 436  |  |   | $    | 456 | 
|                                       | - Additional benefit based on future salaries |      |      | 49   |  |   |      | 200 | 
|                                       |                                               |      |      |      |  |   |      |    
|                                       | Projected benefit obligation                  |      |      | 485  |  |   |      | 656 | 
|Fair value of plan assets              |                                               |      | (215 | )    |  |   | (335 | )  
|                                       |                                               |      |      |      |  |   |      |    
|Funded status                          |                                               |      | (270 | )    |  |   | (321 | )  
|Unrecognized net transition obligation |                                               |      | 305  |      |  |   | 323  |    
|Unrecognized pension cost              |                                               |      | (90  | )    |  |   |     |    
|Additional pension liability           |                                               |      | (166 | )    |  |   | (123 | )  
|                                       |                                               |      |      |      |  |   |      |    
|Accrued pension cost                   |                                               | $    | (221 | )    |  | $ | (121 | )  
|Less: Intangible asset                 |                                               |      | 166  |      |  |   | 123  |    
|                                       |                                               |      |      |      |  |   |      |    
|Net pension asset (liability)          |                                               | $    | (55  | )    |  |   | 2    |    
|                                       |                                               |      |      |      |  |   |      |    
|Vested benefit                         |                                               | $    |     |      |  | $ |     |    

42



---



##### Table of Contents



|                                                       |                                                    |      |     |      |   |  |   |     |   | 
|------------------------------------------------------ | -------------------------------------------------- | ---- | --- | ---- | - |  | - | --- | - | 
|                                                       |                                                    |      |     |      |   |  |   |    
|                                                       |                                                    | 2003 |     | 2002
|                                                       |                                                    |      |     |     
|Actuarial assumptions:                                 |                                                    |      |     |      |   |  |   |    
|                                                       | - Discount rate used in determining present values |      |     | 3.5  | % |  |   | 4.0 | %
|                                                       | - Future salary increase rate                      |      |     | 2.0  | % |  |   | 2.5 | %
|                                                       | - Expected rate of return on pension assets        |      |     | 3.5  | % |  |   | 4.0 | %
|Net Periodic Pension Cost:                             |                                                    |      |     |      |   |  |   |    
|Service cost                                           |                                                    | $    | 73  |      |   |  |   |    
|Interest cost                                          |                                                    |      | 24  |      |   |  |   |    
|Expected return on plan assets                         |                                                    |      | (8  | )    |   |  |   |    
|Amortization of net unrecognized transition obligation |                                                    |      | 17  |      |   |  |   |    
|                                                       |                                                    |      |     |      |   |  |   |     |  
|Net periodic pension cost                              |                                                    | $    | 106 |      |   |  |   |    
|                                                       |                                                    |      |     |      |   |  |   |     |  
|Summary of changes in pension fund                     |                                                    |      |     |      |   |  |   |    
|                                                       | - Contribution                                     |      | $   | 49   |   |  | $ | 19  |  
|                                                       | - Payment of benefits                              |      | $   | 178  |   |  | $ | 0   |  



|12. |  | Capital Stock and Reverse Stock Split
|--- |  | -------------------------------------

Each share of the Companys common stock (the Common Stock) entitles its
holder to one vote, while each share of Class B common stock entitles its
holder to ten votes. Cash dividends on the Class B common stock may not exceed
those on the Common Stock. Due to restricted transferability, there is no
trading market for the Class B common stock. However, the Class B common stock
may be converted, at the stockholders option, into Common Stock on a
share-for-share basis at any time, without cost to the stockholder. No
preferred shares have been issued as of June 30, 2003.

The Companys Certificate Of Incorporation originally authorized the
issuance of 22,000,000 shares of Common Stock, 6,000,000 shares of Class B
Common Stock and 2,000,000 shares of Preferred Stock. The Company determined
that it was not likely to need more than 8,000,000 authorized shares of Common
Stock, 1,500,000 shares of Class B Common Stock and 200,000 shares of Preferred
Stock for issuance in the future, and the Companys Board of Directors approved
an amendment to the Certificate of Incorporation of the Corporation to reduce
the number of the Companys authorized shares in August 2001. The reduction in
authorized shares was approved by stockholders at the December 3, 2002 Annual
Meeting of Stockholders.

In February 2001, the stockholders of the Company approved a 1-for-10
reverse stock split, thereby reducing the outstanding number of shares of the
Company (the Reverse Stock Split). As a result of the Reverse Stock Split,
every ten shares of the Companys common stock and class B common stock were
converted into one share of common stock and class B common stock,
respectively. Each stockholders percentage share of total voting rights in the
Company was the same as it was prior to the Reverse Stock Split, except for the
de minimus effect of certain stockholders receiving an additional share of
Common Stock or Class B Common Stock in lieu of fractional shares. The number
of additional shares issued in lieu of fractional shares increased the number
of post-split shares by 154 for the Common Stock and 49 for the Class B Common
Stock. There was no change in the number of stockholders as a result of the
Stock Split. In addition, the number of shares purchasable upon exercise of the
warrants issued to the holders of the Companys former Deferred Coupon Notes
(the Warrants) were adjusted. The pre-split Warrants representing the rights
of the holders to purchase an aggregate of 2,950,000 Warrant Shares at $2.45
per share became, on a post-split basis, the right to purchase an aggregate of
295,000 Warrant Shares at $24.50 per share.

The Companys Common Stock is quoted on the Over-The-Counter Bulletin
Board (OTCBB). The Nasdaq, which originally planned to terminate the OTCBB
exchange, has instead ceased its effort to establish a new Bulletin Board
Exchange with improved order processing and automatic trading features.
Accordingly, the Company intends to maintain its listing on the OTCBB at this
time.



|13. |  | Stock Based Compensation Plans
|--- |  | ------------------------------

In December 2002, the FASB released FAS 148 to encourage more companies to
adopt the fair value method of accounting for stock based compensation plans
and amends the disclosure requirements of FAS 123 to require more prominent
disclosure in both annual and interim financial statements. Although FAS 148
does not require companies to

43



---



##### Table of Contents



adopt the fair value method, the new rules are effective beginning in the first
quarter of 2003 for those companies that follow the disclosure only
provisions of FAS 123.

The Company has adopted the disclosure only provisions of FAS 123, and has
elected to follow APB 25 and related interpretations in accounting for its
stock options. Compensation cost for stock based awards is measured by the
excess, if any, of the fair market value price at the grant date of the
underlying stock over the amount the individual is required to pay for
exercising the stock based award. Compensation cost for fixed based awards is
measured at the grant date, and the Company uses the Black-Scholes option
pricing model to determine the fair value estimates for disclosure purposes.
The Black-Scholes option pricing model requires the use of subjective
assumptions which can materially affect the value estimates. Therefore, the
model does not necessarily provide a reliable single measure of the fair value
of the Companys stock options.

At the December 2002 Annual Meeting of Stockholders, stockholders approved
a new stock incentive plan (the 2002 Stock Incentive Plan) that reserves
250,000 shares of Common Stock to replace various stock based awards that were
voluntarily terminated in January 2002. In July 2002, 176,655 stock options
were granted at an exercise price of $5.91, all of which were outstanding at
June 30, 2003. The stock options are fully vested, and none have been exercised
or cancelled. In performing the computation of the fair value of each option
grant, which is estimated on the date of grant using the Black-Scholes option
pricing model, the following assumptions were used for these grants: no
dividends; expected volatility of 87.7%; average risk-free interest rate of
6.0%; and expected life of 10 years.

No option based employee compensation has been recognized in reported net
income and all of the options granted had an exercise price equal to the market
price of the underlying common stock on the date of grant. As the options
granted were fully vested, for pro forma purposes, the estimated fair value of
the options was expensed in the fiscal 2003 first quarter, when the options
were granted. The Companys pro forma information follows (in thousands except
for earnings per share and per share data).

|                                                                                                                                                                 |  |             |       |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ----- | -
|Pro forma net income and earnings per share                                                                                                                      |  | Fiscal 2003
|                                                                                                                                                                 |  |            
|Net income (loss) as reported                                                                                                                                    |  | $           | 421   |  
|Deduct: Total stock-based compensation expense determined
under fair value based method for all awards granted since
January 1, 1995, net of related tax effects |  |             | (475  | )
|                                                                                                                                                                 |  |             |       |  
|Pro forma net (loss) income                                                                                                                                      |  | $           | (54   | )
|Basic and diluted income per share as reported                                                                                                                   |  | $           | 0.35  |  
|Pro forma basic and diluted (loss) income per share                                                                                                              |  | $           | (0.04 | )

Pro forma net income and earnings per share for fiscal 2002 and 2001 are
not presented as all stock based compensation plans previously adopted by the
Company were terminated in January 2002 and the current options outstanding
were not granted until fiscal 2003. At the time the options were voluntarily
terminated, the Company cancelled 130,155 options held by 33 persons at an
average price of $21.75. Also terminated were 5,000 options held by 3 directors
of the Company at an average price of $22.50 and stock appreciation rights for
3 executives for 50,000 shares, granted at a base price of $33.75.

Until its expiration on December 31, 2001, the Company also allowed
employees to defer a portion of their salary to participate in an Employee
Stock Purchase Plan (the ESPP). The ESPP allowed employees to make an
election to purchase shares at the lower of 85 percent of the closing market
price of the Companys stock on the first or last day of the calendar year. In
fiscal 2002, 6,129 shares were purchased by employees, while there were no
purchases in fiscal 2003 or fiscal 2001.



|14. |  | Contingencies
|--- |  | -------------

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

The Company and two of its indirect subsidiaries were threatened with
litigation by two separate California public interest groups alleging unlawful
discharge of chemicals under Californias Safe Drinking Water & Toxic
Enforcement Act
44Table of Contentsof 1986 (Proposition 65). Both public interest groups ultimately sued
the Company and two of its indirect subsidiaries in different lawsuits. The
Company successfully settled one action for an immaterial amount in late June
2003. The Company continues to evaluate the merits of the allegations in the
second action and is contesting and vigorously defending itself in that matter.
Any potential liability related to this litigation cannot be assessed at this
time, as the Company is in the early stages of the proceedings.15.
    
    Segment InformationThe Companys businesses distribute specialty plumbing products, floor and
surface protection products, galvanized, black, brass and chrome pipe nipples,
imported malleable fittings and other products. Products are sold to primarily
to two customer categories, including (i) retail operations, which includes
national and regional retailers, D-I-Y home centers and smaller independent
retailers primarily located in the United States, and (ii) industrial
operations, including wholesale and industrial supply distributors which are
primarily located in the United States. There were no retail sales outside of
the United States, and sales to foreign countries accounted for less than 5
percent of total sales. Set forth below is certain financial data relating to
the Companys business segments (in thousands of dollars).

|                         |  |        |        |            |  |       |        |             |  |               |        |   |  |   |        |   |  |   |        |  
|------------------------ |  | ------ | ------ | ---------- |  | ----- | ------ | ----------- |  | ------------- | ------ | - |  | - | ------ | - |  | - | ------ | -
|                         |  |        |        |            |  |       |        |             |  | Corporate and |        |   |  |   |        |   |  |  
|                         |  | Retail |        | Industrial |  | Other |        | Elimination |  | Total        
|                         |  |        |        |            |  |       |        |             |  |              
|Reported net sales:      |  |        |        |            |  |       |        |             |  |               |        |   |  |   |        |   |  |   |        |  
|Fiscal 2003              |  | $      | 48,691 |            |  | $     | 26,255 |             |  |               |       |   |  | $ | (7,804 | ) |  | $ | 67,142 |  
|Fiscal 2002              |  |        | 52,643 |            |  |       | 25,638 |             |  |               |       |   |  |   | (7,856 | ) |  |   | 70,425 |  
|Fiscal 2001              |  |        | 54,759 |            |  |       | 24,177 |             |  |               |       |   |  |   | (7,566 | ) |  |   | 71,370 |  
|Operating income (loss): |  |        |        |            |  |       |        |             |  |               |        |   |  |   |        |   |  |   |        |  
|Fiscal 2003              |  | $      | 2,617  |            |  | $     | 608    |             |  | $             | (2,729 | ) |  |   |       |   |  | $ | 496    |  
|Fiscal 2002              |  |        | 4,039  |            |  |       | 494    |             |  |               | (2,990 | ) |  |   |       |   |  |   | 1,543  |  
|Fiscal 2001              |  |        | 1,459  |            |  |       | 514    |             |  |               | (2,720 | ) |  |   |       |   |  |   | (747   | )
|Identifiable assets:     |  |        |        |            |  |       |        |             |  |               |        |   |  |   |        |   |  |   |        |  
|June 30, 2003            |  | $      | 24,189 |            |  | $     | 9,886  |             |  | $             | 5,094  |   |  |   |       |   |  | $ | 39,169 |  
|June 30, 2002            |  |        | 24,474 |            |  |       | 9,892  |             |  |               | 5,930  |   |  |   |       |   |  |   | 40,296 |  

The Companys foreign operations manufacture, assemble, source and package
products that are distributed by the Companys wholly-owned operations,
retailers and industrial customers. Net sales for those foreign operations
amounted to $35.4 million, $35.3 million and $34.5 million for the fiscal years
ended June 30, 2003, 2002 and 2001, respectively. Of these amounts,
approximately $7.8 million, $7.9 million and $7.6 million were intercompany
sales for the fiscal years ended June 30, 2003, 2002 and 2001, respectively.
Identifiable assets for the foreign operations was $13.5 million and $13.5
million at June 30, 2003 and 2002, respectively.



|16. |  | Subsequent Event  Sale of Building
|--- |  | -----------------------------------

On August 8, 2003, the Company executed an agreement to sell accepted an
offer to sell the land and building in Taichung, Taiwan, used for the offices
and warehouse of TWI, for approximately $2.0 million. The transaction is
subject to bank financing and certain other conditions, and is expected to
close within 90 days. At June 30, 2003, the net book value of this asset was
approximately $1.0 million. TWI has agreed to lease approximately 33,000 square
feet of the 55,000 square feet space for four years, and has signed a lease
with the prospective purchaser which it believes reflects market rates, and
will become effective upon a sale of the facility. The Company will sublease
approximately 11,000 square foot of that space to one of its joint venture
operations.

45



---



##### Table of Contents






SUPPLEMENTARY FINANCIAL INFORMATION

Quarterly Results of Operations:

Presented below is a summary of the unaudited quarterly results of
operations for the fiscal years ended June 30, 2003 and 2002 (in thousands,
except per share amounts).

|                                                   |            |          |        |          |  |          |        |          |   |   |        |      |  |   |        |      | 
|-------------------------------------------------- | ---------- | -------- | ------ | -------- |  | -------- | ------ | -------- | - | - | ------ | ---- |  | - | ------ | ---- | 
|Fiscal 2003                                        |            | 1st Qtr. |        | 2nd Qtr. |  | 3rd Qtr. |        | 4th Qtr.
|                                                   |            |          |        |          |  |          |        |         
|Net sales                                          |            | $        | 18,208 |          |  | $        | 16,016 |          |   | $ | 15,217 |      |  | $ | 17,701 |     
|Gross profit                                       |            |          | 5,925  |          |  |          | 5,385  |          |   |   | 5,143  |      |  |   | 6,000  |     
|Operating income (loss)                            |            |          | 579    |          |  |          | 48     |          |   |   | (425   | )    |  |   | 293    |     
|Other income                                       |            |          | 3      |          |  |          |       |          |   |   | 178    |      |  |   | 29     |     
|Income before provision (benefit) for income taxes |            |          | 109    |          |  |          | 160    |          |   |   | (375   | )    |  |   | 280    |     
|Net income (loss)                                  |            | $        | 349    |          |  | $        | (254   | )        |   | $ | 101    |      |  | $ | 225    |     
|Basic loss per share:                              |            |          |        |          |  |          |        |          |   |   |        |      |  |   |        |     
|                                                   | Net income |          | $      | 0.29     |  |          | $      | (0.21    | ) |   | $      | 0.08 |  |   | $      | 0.19 | 
|Diluted loss per share:                            |            |          |        |          |  |          |        |          |   |   |        |      |  |   |        |     
|                                                   | Net income |          | $      | 0.29     |  |          | $      | (0.21    | ) |   | $      | 0.08 |  |   | $      | 0.19 | 

|                                                   |            |          |        |          |  |          |        |          |  |   |        |      |  |   |        |       |  
|-------------------------------------------------- | ---------- | -------- | ------ | -------- |  | -------- | ------ | -------- |  | - | ------ | ---- |  | - | ------ | ----- | -
|Fiscal 2002                                        |            | 1st Qtr. |        | 2nd Qtr. |  | 3rd Qtr. |        | 4th Qtr.
|                                                   |            |          |        |          |  |          |        |         
|Net sales                                          |            | $        | 18,733 |          |  | $        | 18,116 |          |  | $ | 15,552 |      |  | $ | 18,024 |      
|Gross profit                                       |            |          | 6,055  |          |  |          | 5,606  |          |  |   | 5,445  |      |  |   | 6,066  |      
|Operating income (loss)                            |            |          | 896    |          |  |          | 656    |          |  |   | 72     |      |  |   | (81    | )    
|Other income                                       |            |          |       |          |  |          |       |          |  |   | 94     |      |  |   |       |      
|Income before provision (benefit) for income taxes |            |          | 658    |          |  |          | 472    |          |  |   | 24     |      |  |   | (240   | )    
|Net income (loss)                                  |            | $        | 584    |          |  | $        | 384    |          |  | $ | 673    |      |  | $ | (56    | )    
|Basic loss per share:                              |            |          |        |          |  |          |        |          |  |   |        |      |  |   |        |      
|                                                   | Net income |          | $      | 0.48     |  |          | $      | 0.32     |  |   | $      | 0.55 |  |   | $      | (0.05 | )
|Diluted loss per share:                            |            |          |        |          |  |          |        |          |  |   |        |      |  |   |        |      
|                                                   | Net income |          | $      | 0.48     |  |          | $      | 0.32     |  |   | $      | 0.55 |  |   | $      | (0.05 | )

In fiscal 2003, the Companys third quarter tax provision was favorably
impacted by a ruling on a state tax matter for fiscal 1999, for which the
Company reported a $0.55 million tax benefit. In the fiscal 2003 fourth
quarter, the Company recorded a tax benefit for a favorable ruling on a state
matter for fiscal 2000 and 2001 and for a change in tax law. In fiscal 2003,
the Company reclassified dividend distributions it received from joint venture
operations in Asia for all periods presented. Dividend distributions were
previously netted in SG&A expenses. The effect of this reclassification did not
change pre-tax earnings or net income, but did reduce operating income.

In fiscal 2002, the Company adopted a FASB Emerging Issues Task Force
pronouncement and began to record all business procurement charges as an offset
to sales, with prior period results being restated. There was no impact on
operating income or net income since the Company previously reported business
procurement costs as a contra sale or an operating expense in prior years. Net
income for the fiscal 2002 third quarter was affected by a $0.8 million tax
benefit for a change in the tax law. Operating income for the fiscal 2002 third
quarter was affected by $246,000 in SG&A expenses associated with the write-off
of costs and early termination of the bank facility with Congress Financial
Corporation. In the fiscal 2002 fourth quarter, the Company reported foreign
exchange losses due to the weakening U.S. Dollar of approximately $228,000, as
compared to exchange gains of $317,000 in the same period last year.




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

Not applicable




ITEM 9A.    CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the Companys
reports filed pursuant to the Securities Exchange Act of 1934, as amended (the
Exchange Act) is recorded, processed, summarized and reported within the
time periods specified in the

46



---



##### Table of Contents



Securities and Exchange Commissions rules and forms, and that such
information is accumulated and communicated to the Companys management,
including its Co-Chief Executive Officers and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.

During the fiscal 2003 first quarter, the Company formed a Disclosure
Committee that consists of certain key management personnel of the Companys
operations. The Disclosure Committee provides support for management and the
Audit Committee and has developed a sub-certification form to be completed by
key management personnel at the Companys subsidiaries, reporting on financial
information, internal control procedures and disclosure matters. The
Disclosure Committee has also developed a standard Internal Control
Questionnaire which has been completed by and continues to be updated
regularly by management personnel at each of the Companys subsidiaries.

Each fiscal quarter the Company carries out an evaluation, under the
supervision and with the participation of the Companys management, including
its Co-Chief Executive Officers and Chief Financial Officer, of the
effectiveness of the design and operation of the Companys disclosure controls
and procedures pursuant to Exchange Act Rule 13a-15. Based upon the foregoing,
the Companys Co-Chief Executive Officers and Chief Financial Officer
concluded that, as of June 30, 2003, the Companys disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company required to be included in the Companys Exchange Act
reports.




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, 2003 a definitive proxy statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934.

47



---



##### Table of Contents






PART IV




ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

| |        |     |                                                                                                                                                                                                                                                                                                                                                                     
| | ------ | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a)    | (1) | The following consolidated financial statements are included in Part II, Item 8:                                                                                                                                                                                                                                                                                    
| |        |     |                                                                                                                                                                                                                                                                                                                                                                     
| |        |     | Report of Independent Public Accountants                                                                                                                                                                                                                                                                                                                            
| |        |     |                                                                                                                                                                                                                                                                                                                                                                     
| |        |     | Balance SheetsJune 30, 2003 and 2002                                                                                                                                                                                                                                                                                                                               
| |        |     |                                                                                                                                                                                                                                                                                                                                                                     
| |        |     | Statements of OperationsFor the Years Ended June 30, 2003, 2002 and 2001                                                                                                                                                                                                                                                                                           
| |        |     |                                                                                                                                                                                                                                                                                                                                                                     
| |        |     | Statements of Stockholders EquityFor the Years Ended June 30, 2003, 2002 and 2001                                                                                                                                                                                                                                                                                 
| |        |     |                                                                                                                                                                                                                                                                                                                                                                     
| |        |     | Statements of Cash FlowsFor the Years Ended June 30, 2003, 2002 and 2001                                                                                                                                                                                                                                                                                           
| |        |     |                                                                                                                                                                                                                                                                                                                                                                     
| |        |     | Notes to Financial Statements For the Years Ended June 30, 2003, 2002 and 2001                                                                                                                                                                                                                                                                                      
| |        |     |                                                                                                                                                                                                                                                                                                                                                                     
| |        |     | Supplementary Financial Information                                                                                                                                                                                                                                                                                                                                 
| |        |     |                                                                                                                                                                                                                                                                                                                                                                     
| | (a)    | (2) | All schedules have been omitted because the required information is not present or not present in amounts
sufficient to require submission of the schedule, or because the information required is included in the
consolidated financial statements including notes thereto.                                                                                       
| |        |     |                                                                                                                                                                                                                                                                                                                                                                     
| | (a)    | (3) | Exhibits                                                                                                                                                                                                                                                                                                                                                            
| |        |     |                                                                                                                                                                                                                                                                                                                                                                     
| | 3.1.1* |     | 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).                                                                                                                                                                              
| |        |     |                                                                                                                                                                                                                                                                                                                                                                     
| | 3.1.2  |     | Certificate of Amendment to Certificate of Incorporation of the
Company dated November 30, 2000.                                                                                                                                                                                                                                                                    
| |        |     |                                                                                                                                                                                                                                                                                                                                                                     
| | 3.1.3  |     | Certificate of Amendment to Certificate of Incorporation of the
Company dated February 6, 2001.                                                                                                                                                                                                                                                                     
| |        |     |                                                                                                                                                                                                                                                                                                                                                                     
| | 3.1.4  |     | Certificate of Amendment to Certificate of Incorporation of the
Company dated December 3, 2002.                                                                                                                                                                                                                                                                     
| |        |     |                                                                                                                                                                                                                                                                                                                                                                     
| | 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).                                                                                                                                                                                                             
| |        |     |                                                                                                                                                                                                                                                                                                                                                                     
| | 4.7*   |     | 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*  |     | Revolving Credit, Term Loan and Security Agreement, dated as of
February 13, 2002, by and among PNC Bank, National Association, as
Lender and as Agent, and Waxman Industries, Inc., Waxman Consumer
Products Group Inc., Waxman USA Inc. and WAMI Sales, Inc., as Borrowers
(Exhibit 10.1 on Report 8-K filed February 27, 2002, incorporated herein
by reference).
| |        |     |                                                                                                                                                                                                                                                                                                                                                                     
| | 4.11   |     | Second Amendment Agreement dated August 20, 2003 to the Revolving
Credit, Term Loan and Security Agreement by and among PNC Bank, National
Association, as Lender and as Agent, and                                                                                                                                                                                 

48



---



##### Table of Contents



| |        |  |                                                                                                                                                                                                                                                                                                                                                              
| | ------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |        |  | Waxman Industries, Inc., Waxman Consumer Products Group Inc.,
Waxman USA Inc. and WAMI Sales, Inc., as Borrowers.                                                                                                                                                                                                                                            
| |        |  |                                                                                                                                                                                                                                                                                                                                                              
| | 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).                                                                                                                             
| |        |  |                                                                                                                                                                                                                                                                                                                                                              
| | 10.6*  |  | Tax Sharing Agreement dated May 20, 1994 among Waxman Industries,
Waxman USA, 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*  |  | Waxman Industries, Inc. 2002 Stock Incentive Plan, adopted as of
December 6, 2001 (Exhibit 8 to Schedule to Tender Offer Statement filed
on December 7, 2001, incorporated herein by reference).                                                                                                                                                             
| |        |  |                                                                                                                                                                                                                                                                                                                                                              
| | 10.8*  |  | Intercorporate Agreement dated May 20, 1994 among Waxman Industries,
Waxman USA, Waxman Consumer Products Group Inc., WOC Inc. and Western
American Manufacturing, Inc. (Exhibit 10.7 to Waxman Industries, Inc.s
Form S-4).                                                                                                                                
| |        |  |                                                                                                                                                                                                                                                                                                                                                              
| | 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., Waxman Consumer Products Group Inc., WOC Inc. and
TWI, International, Inc. (Exhibit 10.8 to Waxman Industries, Inc.s
Amendment No. 8 to Registration Statement on Form S-2 filed April 15,
1996, Registration No. 33-54211, incorporated herein by reference).
| |        |  |                                                                                                                                                                                                                                                                                                                                                              
| | 10.26* |  | Merger Agreement, dated as of July 10, 2000, by and among Wilmar
Industries, Inc. (Wilmar), BW Acquisition, Inc. (BW Acquisition)
and Barnett Inc. (Barnett) (Exhibit 10.1 to Current Report on Form
8-K filed July 17, 2000, File No. 0-5888, incorporated herein by
reference).                                                                      
| |        |  |                                                                                                                                                                                                                                                                                                                                                              
| | 10.27* |  | Stockholder Agreement, dated as of July 10, 2000, by and among the
Company, Waxman USA, Wilmar and BW Acquisition (Exhibit 10.2 to
Current Report on Form 8-K filed July 17, 2000, File No. 0-5888,
incorporated herein by reference).                                                                                                                       
| |        |  |                                                                                                                                                                                                                                                                                                                                                              
| | 10.28* |  | Voting Trust Agreement, dated as of July 10, 2000, by and among
Waxman USA, Wilmar, BW Acquisition, Barnett and American Stock
Transfer & Trust Company. (Exhibit 10.3 to Current Report on Form
8-K filed July 17, 2000, File No. 0-5888, incorporated herein by
reference).                                                                                
| |        |  |                                                                                                                                                                                                                                                                                                                                                              
| | 10.29* |  | Agreement, dated as of July 7, 2000, by and between Waxman USA and
Barnett (Exhibit 10.4 to Current Report on Form 8-K filed July 17,
2000, File No. 0-5888, incorporated herein by reference).                                                                                                                                                              
| |        |  |                                                                                                                                                                                                                                                                                                                                                              
| | 14.1*  |  | Code of Business Conduct and Ethics (incorporated herein by
reference to the Registrants web site located at
http://www.waxmanind.com).                                                                                                                                                                                                                     
| |        |  |                                                                                                                                                                                                                                                                                                                                                              
| | 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 Meaden & Moore, Ltd.                                                                                                                                                                                                                                                                                                                              
| |        |  |                                                                                                                                                                                                                                                                                                                                                              
| | 23.2   |  | Consent of EnWise CPAs                                                                                                                                                                                                                                                                                                                                      
| |        |  |                                                                                                                                                                                                                                                                                                                                                              
| | 23.3   |  | Consent of Chien Chyuan & Co.                                                                                                                                                                                                                                                                                                                                

49



---



##### Table of Contents



| |      |  |                                                                                                                              
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------
| | 23.4 |  | Consent of T.N. Soong and Deloitte and Touche (Taiwan)                                                                       
| |      |  |                                                                                                                              
| | 31.1 |  | Certification of Co-Chief Executive Officer Pursuant to Rule
13a-14(a) Promulgated Under the Securities Exchange Act of 1934.
| |      |  |                                                                                                                              
| | 31.2 |  | Certification of Co-Chief Executive Officer Pursuant to Rule
13a-14(a) Promulgated Under the Securities Exchange Act of 1934.
| |      |  |                                                                                                                              
| | 31.3 |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)
Promulgated Under the Securities Exchange Act of 1934    
| |      |  |                                                                                                                              
| | 32.1 |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002       

*     Incorporated herein by reference as indicated.



| | (b) |  | Reports on Form 8-K
| | --- |  | -------------------

The Registrant filed a report on Form 8-K on May 5, 2003, incorporating by
reference the May 5, 2003 press release by the Company, announcing its fiscal
2003 third quarter and year to date earnings and condensed income statements
for the periods ended March 31, 2003 and 2002 and condensed balance sheets
for June 30, 2002 and March 31, 2003.

50



---



##### Table of Contents






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.

|                |  |     |  |                           
|--------------- |  | --- |  | --------------------------
|August 28, 2003 |  | 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.

|                |  |                                                  
|--------------- |  | -------------------------------------------------
|August 28, 2003 |  | /s/ Melvin Waxman                                
|                |  |                                                  
|                |  | Melvin Waxman                                    
|                |  | Chairman of the Board, Co-Chief Executive Officer
|                |  | and Director                                     

|                |  |                                      
|--------------- |  | -------------------------------------
|August 28, 2003 |  | /s/ Armond Waxman                    
|                |  |                                      
|                |  | Armond Waxman                        
|                |  | President, Co-Chief Executive Officer
|                |  | and Director                         

|                |  |                                                  
|--------------- |  | -------------------------------------------------
|August 28, 2003 |  | /s/ Mark W. Wester                               
|                |  |                                                  
|                |  | Mark W. Wester                                   
|                |  | Chief Financial Officer and Senior Vice President
|                |  | (principal accounting officer)                   

|                |  |                      
|--------------- |  | ---------------------
|August 28, 2003 |  | /s/ Judy Robins      
|                |  |                      
|                |  | Judy Robins, Director

|                |  |                             
|--------------- |  | ----------------------------
|August 28, 2003 |  | /s/ Irving Z. Friedman      
|                |  |                             
|                |  | Irving Z. Friedman, Director

|                |  |                             
|--------------- |  | ----------------------------
|August 28, 2003 |  | /s/ Laurence S. Waxman      
|                |  |                             
|                |  | Laurence S. Waxman, Director

|                |  |                         
|--------------- |  | ------------------------
|August 28, 2003 |  | /s/ John S. Peters      
|                |  |                         
|                |  | John S. Peters, Director

|                |  |                           
|--------------- |  | --------------------------
|August 28, 2003 |  | /s/ Mark Reichenbaum      
|                |  |                           
|                |  | Mark Reichenbaum, Director

|                |  |                      
|--------------- |  | ---------------------
|August 28, 2003 |  | /s/ Todd Waxman      
|                |  |                      
|                |  | Todd Waxman, Director

51



---



##### Table of Contents






Exhibit Index

|      |  |                                                                                                                                                                                                                                                                                                      
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1.2 |  | Certificate of Amendment to Certificate of Incorporation of the Company
dated November 30, 2000.                                                                                                                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                      
|3.1.3 |  | Certificate of Amendment to Certificate of Incorporation of the Company
dated February 6, 2001.                                                                                                                                                                                                      
|      |  |                                                                                                                                                                                                                                                                                                      
|3.1.4 |  | Certificate of Amendment to Certificate of Incorporation of the Company
dated December 3, 2002.                                                                                                                                                                                                      
|      |  |                                                                                                                                                                                                                                                                                                      
|4.11  |  | Second Amendment Agreement dated August 20, 2003 to the Revolving Credit,
Term Loan and Security Agreement by and among PNC Bank, National
Association, as Lender and as Agent, and Waxman Industries, Inc., Waxman
Consumer Products Group Inc., Waxman USA Inc. and WAMI Sales, Inc., as
Borrowers.
|      |  |                                                                                                                                                                                                                                                                                                      
|23.1  |  | Consent of Meaden & Moore, Ltd.                                                                                                                                                                                                                                                                      
|      |  |                                                                                                                                                                                                                                                                                                      
|23.2  |  | Consent of EnWise CPAs                                                                                                                                                                                                                                                                              
|      |  |                                                                                                                                                                                                                                                                                                      
|23.3  |  | Consent of Chien Chyuan & Co.                                                                                                                                                                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                      
|23.4  |  | Consent of T.N. Soong and Deloitte and Touche (Taiwan)                                                                                                                                                                                                                                               
|      |  |                                                                                                                                                                                                                                                                                                      
|31.1  |  | Certification of Co-Chief Executive Officer Pursuant to Rule 13a-14(a)
Promulgated Under the Securities Exchange Act of 1934.                                                                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                      
|31.2  |  | Certification of Co-Chief Executive Officer Pursuant to Rule 13a-14(a)
Promulgated Under the Securities Exchange Act of 1934.                                                                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                      
|31.3  |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)
Promulgated Under the Securities Exchange Act of 1934                                                                                                                                                                            
|      |  |                                                                                                                                                                                                                                                                                                      
|32.1  |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                               

52