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SECURITIES AND EXCHANGE COMMISSION

Form 10-K

For The Fiscal Year Ended June 30, 2003
or

Commission File Number 0-5888

WAXMAN INDUSTRIES, INC.

(Exact Name of Registrant as Specified in its Charter)

(440) 439-1830

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.

     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).

     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:

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DOCUMENTS INCORPORATED BY REFERENCE

     Registrant intends to file with the Securities and Exchange Commission a definitive Proxy Statement pursuant to Regulation 14A of the Securities Exchange Act of 1934 within 120 days of the close of its fiscal year ended June 30, 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

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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

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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

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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,

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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.

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,

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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.

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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:

(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,

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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.

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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.

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.

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ITEM 6. SELECTED FINANCIAL DATA

(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.

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(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.

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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

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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:

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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.

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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.

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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.

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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

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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.

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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

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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

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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

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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

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WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES

ASSETS

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

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

LIABILITIES AND STOCKHOLDERS’ EQUITY

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

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WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES

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

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WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES

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

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WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES