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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

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

FOR THE FISCAL YEAR ENDED JUNE 30, 1996
OR
- ---- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-21728

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

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

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

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

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

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

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

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety (90) days. Yes X No
--- ---

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

Aggregate market value of voting stock held by non-affiliates of the
Registrant based on the closing price at which such stock was sold on the NASDAQ
National Market on September 24, 1996: $152,181,875

Number of shares of Common Stock outstanding as of September 24, 1996:
14,398,000

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DOCUMENTS INCORPORATED BY REFERENCE

The Registrant's Proxy Statement in connection with its 1996 Annual Meeting of
Stockholders is incorporated by reference in Part III of this Annual Report on
Form 10-K from the date such document is filed.

PART I

CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements in this Annual Report on Form 10-K under the caption "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", as well as oral statements that may be made by the Company or by
officers, directors or employees of the Company acting on the Company's behalf,
that are not historical fact constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements involve risks and uncertainties, including, but not limited to, the
risk that the Company may not be able to implement its growth strategy in the
intended manner, risks associated with currently unforeseen competitive
pressures and risks affecting the Company's industry such as increased
distribution costs and the effects of general economic conditions. In addition,
the Company's business, operations and financial condition are subject to the
risks which are described in the Company's reports and statements filed from
time to time with the Securities and Exchange Commission, including this Report.

ITEM 1. BUSINESS

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

OVERVIEW

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

The Company believes that its distinctive business model has enabled it
to become a high-volume, cost-efficient direct marketer of competitively priced
plumbing,

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electrical and hardware products. The Company's approximately 600-page catalogs
offer an extensive selection of products in an easy to use format enabling
customers to consolidate purchases with a single vendor. The Company provides an
updated version of its catalogs to its customers on average four times a year.
To attract new customers and offer special promotions to existing customers, the
Company supplements its catalogs with monthly promotional flyers. The Company's
experienced and knowledgeable inbound telesales staff, located at the Company's
centralized headquarters in Jacksonville, Florida, uses the Company's
proprietary information systems to take customer orders as well as offer
technical advice. The Company's highly trained outbound telesales staff
maintains frequent customer contact, makes telesales presentations, encourages
additional purchases and solicits new customers. Targeted customer accounts are
typically assigned an outbound telesalesperson in order to enhance customer
relationships and improve customer satisfaction. The Company's high in-stock
position and extensive network of local distribution centers enable it to
fulfill approximately 94% of the items included in each customer order and
provide rapid delivery.

The Company has actively pursued increased sales of its private label
products sourced primarily from foreign suppliers. During the fiscal year ended
June 30, 1996, approximately 27.6% of the Company's net sales were attributable
to sales of private label products. Many of the Company's private label products
provide the customer with lower cost, high quality alternatives to brand name
products, as well as providing the Company with higher profit margins. The
Company's private label products are sold under brand names such as Premier(R),
ProPlus(TM), Barnett(R) and Legend(TM).

INDUSTRY OVERVIEW

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

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

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

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

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

BUSINESS STRENGTHS

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

Direct Marketing Sales Approach. The Company displays and promotes its
products through three comprehensive professional contractor, hardware and
maintenance catalogs targeted, respectively, to such major customer groups as
professional plumbing and electrical repair and remodeling contractors, hardware
stores and maintenance managers. The Company mailed its first catalog in 1958
and currently mails its principal catalog to the 42,000 active customers on its
proprietary mailing list. These mailings are supplemented with direct mail
promotional flyers to existing and potential customers on a monthly basis.
Typical catalogs mailed by the Company contain over 8,500 items and are
approximately 600 pages in length. The Company's objective is to leverage its
direct sales experience to sell a broader array of products to a larger number
of customers. The Company's comprehensive catalogs provide its customers with
the opportunity to purchase a substantial portion of their plumbing, electrical
and hardware supplies from a single vendor.

Sophisticated Data Based Telesales. During fiscal 1996, approximately
75.7% of the Company's net sales were generated through the Company's 85
outbound and inbound telesalespersons. Outbound telesalespersons are assigned
account management responsibilities for existing customers with an emphasis on
customer service, new product introductions and new product lines. Inbound
telesalespersons are trained to quickly process orders from existing customers.
All telesalespersons are highly knowledgeable and are required to go through
extensive product and sales training before they begin to work with customers.
The Company's proprietary telesales software provides the telesales staff with
detailed customer profiles and information about products, pricing, promotions
and competition. This data enables the Company to segment its customer base,
analyze mailing effectiveness on a weekly basis, closely track and manage
inventory on a real-time basis and quickly react to and capitalize on business
opportunities.

National Network of Distribution Centers. To provide more rapid
delivery and a strong local presence, the Company has established a network of
28 distribution centers strategically located in 28 major metropolitan areas
throughout the United States. The distribution centers enable the Company to be
closer to many of its customers for faster product delivery and to generate
incremental over-the-counter sales. The Company's experience indicates that many
of its customers prefer to purchase from local suppliers and often choose to
pick up their orders in person. Approximately 30% of the Company's orders are
picked up by the customer at one of the Company's local distribution centers.

Superior Customer Service. As a result of its large in-stock inventory,
the Company is typically able to fulfill approximately 94% of the items included
in each customer order, and, in almost all cases, ships the order within the
same day of receipt of the order. In addition, as a result of its large number
of distribution centers, the Company is able to provide its customers with more
rapid delivery to markets in the continental United States. In an effort to
maximize sales and increase customer retention, the Company has structured its
telesales staff to create regular contact

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between the Company's telesales personnel and each active customer. The
Company's customer retention rate (i.e., customers who place orders in the
following year) has grown from an average of 74% during fiscal 1992 through
fiscal 1995 to approximately 85% in fiscal 1996.

Competitive Pricing and Private Label Products. Due to the Company's
size, volume of purchases, substantial vendor base and offshore sourcing
capabilities, the Company is frequently able to obtain purchase terms that the
Company believes are more favorable than those available to its competition.
This enables the Company to offer prices that are generally lower than those
available from its competitors. Many of the Company's private label products
provide the customer with lower-cost, high quality alternatives to name brand
products, as well as providing the Company with higher profit margins. During
fiscal 1996, approximately 27.6% of the Company's net sales were attributable to
sales of private label products.

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

GROWTH STRATEGY

Since the Company was acquired in 1984, its annual net sales have grown
from $32.8 million to $127.4 million, its products have increased from
approximately 2,000 to 8,500 and the number of active accounts serviced by the
Company has increased from approximately 6,000 to approximately 42,000. The
Company has shown consistent annual net sales and operating income growth since
its acquisition even though in the last several years, the Company's ability to
fully implement its growth strategy has been significantly constrained due to
the limited availability of working capital resulting from the highly leveraged
capital structure of Waxman Industries, Inc. ("Waxman Industries"), the
Company's former indirect parent. Despite these constraints, from fiscal 1992 to
fiscal 1996, the Company's net sales have grown at a compound annual growth rate
of approximately 15%. As a consequence of the Initial Public Offering, the
Company has significantly more working capital, which the Company believes will
enable it to implement its growth strategy. Key elements of the Company's growth
strategy include:

Increase penetration of existing target markets through telesales. The
Company has over 600,000 prospective domestic customers in its current target
markets, only 42,000 of which are active customers. The Company believes that
increasing the number of its outbound telesales employees is the most cost
effective method to access these potential customers and intends to add 20 to 25
telesalespersons annually over the next several years. To that end, the
Company's telesales staff has increased from 29 to 85 persons over the last
three years, most of which increase was attributable to the addition of outbound
telesalespersons. In addition, the Company believes that many opportunities for
direct marketing to the Company's existing target markets exist in foreign
locations including South America and Europe. Although the Company does not
intend to commit material capital resources to international expansion during
the next few years, it does plan to access these markets during such period
through its existing telesales operations. The Company believes that customers
in these international areas are receptive to mail order purchasing and that its
potential customers would be attracted to the breadth of the Company's product
lines and its competitive pricing.

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

Add new target customer segments. The Company's current targeted
customer segments are contractors, independent hardware stores, and maintenance
managers. The Company believes that it has the opportunity to market its
products to new segments of customers currently underserviced, such as school
systems, hospitals and healthcare facilities, HVAC contractors, lighting
showrooms and hotel/motel operators, primarily through new specialized targeted
catalogs. This strategy has been successfully implemented with the introduction
in January 1993 of the Company's specialized Maintenance USA(TM) catalog of
maintenance products that is directed primarily to property managers at
apartment complexes. Since the introduction of the maintenance catalog, the
Company has added approximately 9,100 new maintenance accounts.

Expand product offerings. The Company currently markets approximately
8,500 plumbing, electrical and hardware products. The Company plans to increase
its net new product offerings by 1,000 to 1,300 items per year over the next
three years, which will deepen the Company's existing product lines and
establish new product categories. A significant portion of these product
additions will be private label products. The Company believes that the
introduction of new product lines will expand the Company's total potential
target market. Examples of new product lines introduced in the July 1996
catalogs include lighting fixtures, HVAC parts and commercial faucets.

MARKETING AND DISTRIBUTION

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

Catalogs

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

The Company makes its initial contact with potential customers
primarily through promotional flyers. The Company obtains the names of
prospective customers through the rental of mailing lists from outside marketing
information services and other sources. The Company uses sophisticated
proprietary information systems to analyze the results of individual catalog and
promotional flyer mailings and uses the information derived from

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these mailings, as well as information obtained from the Company's telesales
operations, to create and/or supplement individual customer profiles and to
target future mailings. The Company updates its mailing lists frequently to
delete inactive customers.

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

Telesales

During fiscal 1996, approximately 75.7% of the Company's net sales were
generated through the Company's telesales operation. The Company's telesales
operation has been designed to make ordering its products as convenient and
efficient as possible thereby enabling the Company to provide superior customer
service. The Company offers its customers a nationwide toll-free telephone
number that currently is staffed by 85 telesales, customer service and technical
support personnel who utilize the Company's proprietary, on-line order
processing system. This sophisticated software provides the telesales staff with
detailed customer profiles and information about products, pricing, promotions
and competition. This data enables the Company to segment its customer base,
analyze mailing effectiveness on a weekly basis, closely track and manage
inventory on a real time basis and quickly react to and capitalize on market
opportunities.

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

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

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

Distribution Center Network

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

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The Company's distribution centers range in size from approximately
12,000 square feet to 34,000 square feet and average approximately 20,000 square
feet. Distribution centers are typically maintained under operating leases in
commercial or industrial centers. Distribution centers primarily consist of
warehouse and shipping facilities, but also include "city sales counters,"
typically occupying approximately 600 square feet, where customers can pick up
orders or browse through a limited selection of promotional items. The Company
is often able to generate incremental sales from customers who pick up their
orders. The Company has initiated a program to enlarge product displays in the
counter area to better promote the breadth of its product lines.

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

The factors considered in site selection include the number of
prospective customers in the local target area, the existing sales volume in
such area and the availability and cost of warehouse space, as well as other
demographic information. The Company has substantial expertise in distribution
center site selection, negotiating leases, reconfiguring space to suit its
needs, and stocking and opening new distribution centers. The average investment
required to open a distribution center is approximately $600,000, including
approximately $300,000 for inventory.

PRODUCTS

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

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

The Company's strategy is to significantly increase the number of
product offerings, as well as its higher margin product offerings. Private label
products offer customers high quality, lower-cost alternatives to the brand name
products the Company sells. The Company's catalogs and monthly promotional
flyers emphasize the comparative value of the Company's private label products.
During fiscal 1996, approximately 27.6% of the Company's net sales were
generated by the sale of the Company's private label products. The Company's
products are generally covered by a one year warranty, and returns (which
require prior authorization from the Company) have historically been immaterial
in amount.

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

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

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

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

SOURCING

The products sold by the Company are purchased from approximately 370
domestic and 30 foreign suppliers. Domestically manufactured products are
shipped directly to the Company's 28 distribution centers. Products manufactured
abroad are initially shipped to the Company's 5 regional distribution centers
and subsequently redistributed to each of the remaining local distribution
centers. The Company is not dependent on any single supplier for any of its
requirements. Due to the volume of the Company's purchases and its utilization
of over 400 vendors, it is able to obtain purchase terms it believes to be more
favorable than those available to most local suppliers of plumbing, electrical
and hardware products. Approximately 74% of the Company's purchases for the year
ended June 30, 1996 were from domestic manufacturers and 26% were from foreign
manufacturers, primarily located in Asia. During fiscal 1996, the Company
purchased approximately 13% of its products through Waxman Industries entities,
both domestic and foreign. Although the Company intends to continue to purchase
products through Waxman Industries entities in the future, the Company is not
committed to purchase any products from Waxman Industries.

MANAGEMENT INFORMATION SYSTEMS

The Company has integrated all of its operating units into its
state-of-the-art management information system. This system encompasses all of
the Company's major business functions and was designed to enable the Company to
receive and process orders, manage inventory, verify credit and payment history,
invoice customers, receive payments and manage the Company's proprietary mail
order customer lists. In addition, all of the Company's local distribution
centers are linked to the Company's computer system to permit them access to all
necessary information, including inventory availability, order tracking, and
customer credit rating on a real-time basis. The system can be easily and
cost-effectively upgraded as the Company grows. The Company has adopted
procedures to protect the data in its computer systems and to provide for
recovery in the event of equipment failures. All data systems are backed up to
tape daily with backup tapes stored off-site. End of month tapes, tape archives
and production software kept on-site are stored in a fire-proof safe.

The Company's customers can place orders directly via mail, facsimile,
telephone or through an EDI transmission. Utilizing EDI, the Company's customers
can send electronic purchase orders directly to the Company's order entry
systems. The Company makes this ordering process simple for its customer by
providing well-developed computer

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media containing the Company's product information including item number,
product description, price, package quantity and UPC codes to be loaded directly
into the customer's purchasing system. The Company automatically edits and
processes EDI orders and sends the majority of EDI orders received directly to
shipping. The few EDI orders that need editing are sent immediately to a sales
representative for review. Through EDI, the Company can provide faster order
turnaround, thereby further fostering customer satisfaction.

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

COMPETITION

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

SEASONALITY

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

ENVIRONMENTAL REGULATIONS

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

EMPLOYEES

As of June 30, 1996, the Company employed 448 individuals, 103 of whom
were clerical and administrative personnel, 105 of whom were telesales and sales
representatives and 240 of whom were either production or warehouse personnel.
The Company's employees are not unionized. The Company considers its relations
with its employees to be good.

ITEM 2. PROPERTIES

The Company's headquarters and largest distribution center are located at
3333 Lenox Avenue, Jacksonville, Florida. The building in which the headquarters
are located is leased by the Company through October 31, 2003, and contains
approximately 34,000 square feet of warehouse space and 26,000 square feet of
offices. The Company's telesales center, also located in Jacksonville, Florida,
contains approximately 10,000 square feet and is leased by the Company through
August 31, 1999.

The Company's 28 distribution centers utilize leased space ranging from
12,000 to 34,000 square feet and are all located in the United States. The
leases expire at various dates from December 1996 to October 2003. The Company
believes that its

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facilities are adequate for its current needs and does not anticipate that it
will have any problem leasing additional space when needed. The Company shares
three of its facilities with U.S. Lock, an operating division of WOC
Inc. ("WOC"), which is a wholly owned subsidiary of Waxman Industries. U.S. Lock
is charged for the portion of the rent relating to the space occupied by it. The
Company also shares one facility with LeRan Copper and Brass ("LeRan"), an
operating division of WOC. Because LeRan does not occupy a distinct portion of
such facility, it is charged rent based upon a percent of the net sales
generated by it from such facility.

ITEM 3. LEGAL PROCEEDINGS

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

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

No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1996.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

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

NAME AGE POSITION AND OFFICE PRESENTLY HELD
---- --- ----------------------------------
William R. Pray 49 President, Chief Executive Officer and
Director
Andrea M. Luiga 39 Vice President--Finance, Chief Financial
Officer
Alfred C. Poindexter 44 Vice President--Operations
Andrew S. Fournie 42 Vice President--Purchasing and Marketing
Melvin Waxman 62 Chairman of the Board and Director
Armond Waxman 57 Vice-Chairman of the Board and Director

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

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

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12
Mr. Alfred C. Poindexter was elected Vice President--Operations of the
Company in February 1993. From September 1988 to February 1993, Mr. Poindexter
served as Vice President--Operations of the Company after serving as Director of
Operations of the Company since 1987. He joined the Company in 1983 as
Purchasing Manager.

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

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

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

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PART II

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

PRICE RANGE OF COMMON STOCK

On March 29, 1996 (the date the Company's registration statement with
respect to its Initial Public Offering was declared effective), the Common Stock
commenced trading on the NASDAQ National Market under the symbol "BNTT". Prior
to March 29, 1996, there was no established public trading market for the Common
Stock.

The following table sets forth the high and low sales prices for the
Common Stock for each quarter during the past fiscal year and since the Common
Stock commenced trading on the NASDAQ National Market, as reported by NASDAQ.

High Low
---- ---

Fiscal 1996
Third Quarter ( March 29, 1996) $23.25 $ 19.00
Fourth Quarter 29.50 22.25

HOLDERS OF RECORD

As of September 24, 1996, there were approximately 16 holders of record
of the Common Stock.

DIVIDENDS

Since the Initial Public Offering, no cash dividends have been declared
on the Common Stock. The Company anticipates that in the foreseeable future it
will retain its earnings for the operation and expansion of its business and
that it will not pay cash dividends. In addition, the Company's current credit
facility limits the amount of cash dividends payable on the Common Stock in any
one year to the Company's net income for such year.

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ITEM 6. SELECTED FINANCIAL DATA

The following selected financial information for the fiscal years 1993 through
1996 has been derived from the financial statements of the Company for such
years, which have been audited by Arthur Andersen LLP, independent certified
public accountants, whose report is included elsewhere herein. The selected
historical financial data for the year ended June 30, 1992 has been derived from
the internal unaudited financial statements of the Company. All such information
is qualified by reference to the Financial Statements included elsewhere herein.

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

1992 1993 (1) 1994 1995 1996
----- -------- ---- ---- ----

INCOME STATEMENT DATA:
Net sales(2) $ 72,106 $ 82,875 $ 95,225 $109,107 $127,395
Cost of Sales 47,327 54,841 62,623 71,815 84,748
-------- -------- -------- -------- --------
Gross profit 24,779 28,034 32,602 37,292 42,647
Selling, general and
administrative expenses 15,690 19,022 21,048 23,772 26,877
Corporate charge 1,378 1,673 1,918 1,862 1,342
-------- -------- -------- -------- --------
Operating income 7,711 7,339 9,636 11,658 14,428
Interest expense 1,794 1,449 1,518 2,139 1,921
-------- -------- -------- -------- --------
Income before income taxes,
cumulative effect of
accounting change and
extraordinary item 5,917 5,890 8,118 9,519 12,507
Provision for income taxes 2,400 2,200 2,900 3,500 4,625
-------- -------- -------- -------- --------
Income before cumulative
effect of accounting change
and extraordinary item 3,517 3,690 5,218 6,019 7,882
Cumulative effect of change
in accounting for distribution
center start-up and catalog
development costs, net of
tax benefit -- 621 -- -- --
Extraordinary loss on early
retirement of debt, net of
tax benefit(3) -- -- -- -- 724
-------- -------- -------- -------- --------
Net income $ 3,517 $ 3,069 $ 5,218 $ 6,019 $ 7,158
======== ======== ======== ======== ========

Weighted average shares
outstanding 12,914
Primary and Fully Diluted
Earnings per share:
Before extraordinary item $0.61
Extraordinary item (0.06)
-----
Total $ 0.55
======

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

13
15

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

1992 1993 1994 1995 1996
---- ----- ----- ---- -----

Balance Sheet Data:
Working capital $19,733 25,515 31,253 29,171 30,744
Total assets 42,889 45,043 50,885 52,413 58,300
Total long-term debt
excluding push-down bank debt 0 0 16,215 18,126 0
Push-down bank debt(5) 23,000 23,000 6,785 4,874 0
Stockholders' equity 7,854 12,068 19,131 17,428 41,324

(1) During 1993, the Company accelerated its amortization of certain
distribution center start-up and catalog development costs. The effect
of this change in 1993 was to decrease operating income by $1.2
million. In 1993, net income was decreased by $1.4 million due to the
foregoing decrease in operating income, as well as cumulative effect of
this change on prior years of $621,000 (net of applicable income tax of
$415,000). The cumulative effect has been reported separately in the
Company's statement of income.

(2) Prior to July 1, 1995, the Company recorded shipments delivered
directly to the customer from certain suppliers as contributed margin
(net reduction of cost of goods sold). Beginning on July 1, 1995, the
Company began to record these shipments as net sales resulting in an
increase in net sales of $2,979,000 for the fiscal year ended June 30,
1996.

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

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

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

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

OVERVIEW

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

The Company's ability to fully effectuate its growth strategy was
significantly constrained during the past three years as a result of Waxman
Industries' highly leveraged capital structure. As a consequence of these
liquidity constraints, the Company pursued its growth strategy by utilizing the
limited working capital available to it to support and expand its telesales
operations.

The financial statements have been adjusted to reflect push-down
adjustments from Waxman USA. See Note 5 to the Financial Statements for a
further discussion of the push-down adjustments. The push-down bank indebtedness
consisted of $4.9 million and $6.8 million for the years ended June 30, 1995 and
1994, respectively, and creates the appearance of greater indebtedness than was
actually borrowed directly by the Company. Related interest expense and debt
issue costs have also been pushed down having the effect of creating higher
interest expense than was actually paid by the Company during those periods.
Interest expense, including amortization of debt issue costs totaled $1.9
million, $2.1 million and $1.5 million for the years ended June 30, 1996, 1995
and 1994, respectively.

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

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

Pursuant to the New Intercorporate Agreement, the Company will continue to
provide certain services to the operating divisions of WOC. Waxman Industries
will pay to the Company the allocable costs of the salaries and expenses of the
Company's employees rendering such services. Waxman Industries will also
reimburse the Company for all actual out-of-pocket disbursements to

15
17
third parties by the Company required for the provision of such services. For a
full-year period, the Company expects that the net effect of the payments to be
made and/or received pursuant to the New Intercorporate Agreement and the
additional expenses of being an independent public company to be an incremental
$200,000 of expenses.

RESULTS OF OPERATIONS

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

Percentage of
Net Sales
Fiscal years ended June 30,
1996 1995 1994
---------------------------

Net sales 100.0% 100.0% 100.0%
Cost of sales 66.5 65.8 65.8
----- ----- -----
Gross Profit 33.5 34.2 34.2

Selling, general and
administrative expense 21.1 21.8 22.1

Corporate Charge 1.1 1.7 2.0
----- ----- -----

Operating income 11.3 10.7 10.1
Interest expense 1.5 2.0 1.6
----- ----- -----

Income before income taxes
and extraordinary item 9.8 8.7 8.5
Provision for income taxes 3.6 3.2 3.0
----- ----- -----

Income before extraordinary
item 6.2 5.5 5.5

Extraordinary item - net of
income tax 0.6 -- --
----- ----- -----

Net income 5.6% 5.5% 5.5%
===== ===== =====

FISCAL 1996 VERSUS FISCAL 1995

NET SALES

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

Approximately $3.0 million of the Company's net sales increase is
attributable to the Company's inclusion of direct sales in net sales commencing
July 1, 1995. While these products are shipped directly to the customer from the
original equipment manufacturer, the Company provides services to the customer
and supplier including marketing, technical

16
18
assistance and credit and collection activities. Prior to July 1, 1995, direct
sales were included in the financial statements as a net reduction to cost of
goods sold. The Company has intensified its focus on its direct sales programs
during the current year and consequently, direct sales for fiscal 1996 increased
66.5% over the corresponding prior year.

GROSS PROFIT

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

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

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

CORPORATE CHARGE

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

INTEREST EXPENSE

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

PROVISION FOR INCOME TAXES

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

EXTRAORDINARY CHARGE

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

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FISCAL 1995 VERSUS FISCAL 1994

NET SALES

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

GROSS PROFIT

Gross profit increased by $4.7 million, or 14.4%, to $37.3 million for
fiscal 1995, from $32.6 million for fiscal 1994, while the gross profit margin
remained constant at 34.2%. The Company's gross profit margin was favorably
effected by the increased sales of private label products, which generally carry
a higher gross profit margin, and which increased to 26.6% of net sales in
fiscal 1995 compared to 26.4% in the prior fiscal year. The favorable effect of
increased sales of private label products was offset by increased costs of
branded products.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

SG&A expenses increased by $2.7 million, or 12.9%, to $23.8 million for
fiscal 1995 from $21.0 million for fiscal 1994. The decrease in SG&A expenses as
a percentage of net sales to 21.8% in fiscal 1995 compared to 22.1% in fiscal
1994 was principally due to no distribution center start-up costs as compared to
fiscal 1994 when two new distribution centers were opened, and the leveraging of
fixed costs, primarily administrative expenses, over a larger sales base. These
factors more than offset increases in selling and occupancy costs. Contributing
to the expense increase were the Company's August 1995 relocation of its
telesales operations into a new 10,000 square foot "call center" and the
expansion or relocation of several of the Company's distribution centers.

CORPORATE CHARGE

Corporate charges remained constant at $1.9 million for both fiscal
1994 and fiscal 1995 and decreased by 2.9% as a percentage of net sales in
fiscal 1995 as compared to fiscal 1994. Corporate charges are allocations of
expenses to the Company that Waxman Industries incurs to support its corporate
activities. These allocations are no longer charged to the Company as of the
consummation of the Initial Public Offering. At the time that the Initial Public
Offering became effective, Waxman Industries and the Company entered into a New
Intercorporate Agreement for services. See Note 10 to the Financial Statements.

INTEREST EXPENSE

Interest expense increased to $2.1 million in fiscal 1995 from $1.5
million in fiscal 1994, an increase of 40.9% as a result of an increased
weighted average interest rate of 9.3% in fiscal 1995 from 6.6% in fiscal 1994
on the Company's outstanding indebtedness under the Operating Companies
Revolving Credit Facility and push-down bank debt. The increase in the

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20
weighted average interest rate was primarily due to the increased amortization
of debt issue costs and other financing fees in fiscal 1994 compared to the
prior year.

PROVISION FOR INCOME TAXES

The provision for income taxes increased $600,000 or 20.7% to $3.5
million for fiscal 1995 from $2.9 million for fiscal 1994. This increase is
primarily related to the increase in income before provision for income taxes
and an increase in the Company's effective tax rate to 36.8% in fiscal 1995 from
35.7% in fiscal 1994.

LIQUIDITY AND CAPITAL RESOURCES

Prior to the Initial Public Offering, the Company declared a dividend
to Waxman USA evidenced by a $22.0 million note payable that required mandatory
prepayment in the event of the Company's sale of its equity securities. The
Company used its portion of net proceeds from the Initial Public offering
(approximately $47.7 million) (i) to repay its borrowings (approximately $23.0
million) under the Operating Companies Revolving Credit Facility, (ii) to pay
the $22.0 million note payable to Waxman USA and (iii) for working capital,
approximately $2.7 million.

At June 30, 1996, the Company had working capital of $30.7 million and
a current ratio of 2.8 to 1.

Net cash provided by operating activities totaled $8.8 million for the
year ended June 30,1996 compared to $10.6 million for the year ended June 30,
1995.

Net cash used in investing activities totaled $2.0 million during the
year ended June 30, 1996 compared to $2.4 million for the year ended June 30,
1995. These investments related primarily to capital expenditures for improved
management information systems and expansion and/or relocation of several of the
Company's distribution centers to accommodate new product offerings.

Net cash used in financing activities was $6.3 million for the year
ended June 30, 1996 compared to $7.9 million for the year ended June 30, 1995.
These amounts primarily represent advances to Waxman Industries to satisfy its
debt service obligations.

In connection with the Initial Public Offering, the Company entered
into a revolving credit agreement with First Union National Bank of Florida for
an unsecured three-year credit facility providing for borrowings of up to $15.0
million including a letter of credit subfacility of $4.0 million. Borrowings
under this facility bear interest, at the Company's option, at the prime rate
minus 75 basis points or LIBOR plus 100 basis points. The credit facility
provides funds for working capital and general corporate purposes. At June 30,
1996, there were no borrowings under the credit agreement and there were $3.5
million of letters of credit outstanding. The credit facility contains customary
affirmative and negative covenants, including certain covenants requiring the
Company to maintain debt to net worth, interest coverage and current ratios, as
well as a minimum net worth test. The credit facility also restricts the amount
of dividends payable by the Company. The Company was in compliance with all
covenants at June 30, 1996.

Historically, cash flow from operations has been sufficient to fund the
Company's growth. The Company believes that funds generated from operations,
together with funds available under the credit facility discussed above, will be
sufficient to fund the Company's current operational needs and growth strategy.
The Company has budgeted capital expenditures in fiscal 1997 of approximately
$6.0 million, which the Company expects to fund out of cash from operations.
These capital expenditures are primarily for (i) expansion and reprofiling of
several of the Company's existing distribution centers and (ii) enhancements to
management information systems.

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

Not applicable

PART III

ITEMS 10, 11, 12 AND 13

Except for the information included in Item 4A of this Form 10-K, the
information required for by Items 10, 11, 12 and 13 of this Form 10-K is
incorporated herein by reference to those portions of the Company's 1996 Proxy
Statement which contain such information.

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PART IV

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

(a) Financial Statements

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

- --------------------------------------------------------------------------------
(1) Financial Statements Page
-------------------- ----
- --------------------------------------------------------------------------------
Report of Independent Accountants F-1
- --------------------------------------------------------------------------------
Financial Statements
- --------------------------------------------------------------------------------
Balance Sheets - June 30, 1996 and F-2
June 30, 1995
- --------------------------------------------------------------------------------
Statements of Income for the years F-4
ended June 30, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
Statements of Stockholders' Equity F-5
for the years ended June 30, 1996,
1995 and 1994
- --------------------------------------------------------------------------------
Statements of Cash Flows for the F-6
years ended June 30, 1996, 1995 and
1994
- --------------------------------------------------------------------------------
Notes to Financial Statements F-7 to F-13
- --------------------------------------------------------------------------------
(2) Supplementary Financial F-14
Information
- --------------------------------------------------------------------------------

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

(b) Exhibits:

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

3.1* Certificate of Incorporation of Barnett Inc.

3.2+ Amended and Restated Certificate of Incorporation of Barnett
Inc.

3.3* By-laws of Barnett Inc.

3.4+ Amended and Restated By-Laws of Barnett Inc.

4.1* Credit Agreement dated May 20, 1994 among Waxman USA Inc.,
Barnett Inc., Waxman Consumer Products Group Inc. and WOC Inc.,
the Lenders and Issuers party thereto and Citicorp USA, Inc.,
as Agent, and certain exhibits thereto.

4.2* Term Loan Credit Agreement dated May 20, 1994 among Waxman USA
Inc., Barnett Inc., Waxman Consumer Products Group Inc. and WOC
Inc., the Lenders and Issuers party thereto and Citibank, N.A.,
as Agent.

4.3* Amendment No. 2 to the Term Loan Agreement and Amendment No. 1
to the Revolving Credit Agreement among Waxman USA Inc.,
Barnett Inc., Waxman Consumer Products Group Inc. and WOC Inc.,
the Lenders and Issuers party thereto, Citibank, N.A., and
Citicorp USA, Inc., as Agents.

10.1* Tax Sharing Agreement dated May 20, 1994 among Barnett Inc.,
Waxman USA Inc., Waxman Industries, Inc., each member of the
Waxman Group (as defined therein) and each member of the Waxman
USA Group (as defined therein).

10.2* Intercorporate Agreement dated May 20, 1994 by and among
Barnett Inc., Waxman Industries Inc., Waxman USA Inc., Waxman
Consumer Products Group Inc. and WOC Inc.

10.3 Intercorporate Agreement dated March 28, 1996 among Barnett
Inc., Waxman Industries Inc., Waxman Consumer Products Group
Inc., WOC Inc. and TWI, International, Inc.

10.4 Registration Rights Agreement dated March 28, 1996 by and
between Barnett Inc. and Waxman Industries, Inc.

10.5* Trademark License Agreement dated May 20, 1994 by and between
Barnett Inc. and Waxman Consumer Products Group Inc.

10.6* Employment Agreement dated June 18, 1990 between Barnett Inc.
and William R. Pray.

10.7** Amended and Restated Employment Agreement dated March 8, 1996
between Barnett Inc. and William R. Pray.

10.8+ Omnibus Incentive Plan of Barnett Inc.

10.9+ Stock Purchase Plan of Barnett Inc.

10.10 Revolving Credit Agreement dated April 3, 1996 between Barnett
Inc. and First Union National Bank of Florida.

10.11 [Reserved]

10.12 Standstill Agreement dated March 28, 1996, between Waxman
Industries, Inc., and Barnett Inc.

27.1 Financial Data Schedule

- -------
* Incorporated by referenced to the exhibit of the same number contained
in the Company's Registration Statement on Form S-1 (the "Registration
Statement"), filed with Securities and Exchange Commission (the "SEC")
on February 1, 1996.

+ Incorporated by referenced to the exhibit of the same number contained
in Amendment No. 1 to the Company's Registration Statement filed with
SEC on March 5, 1996.

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

None
21
23
SIGNATURES

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

BARNETT INC.

By /s/ William R. Pray
------------------------------------------
William R. Pray
Dated: September 27, 1996 President and Chief Executive Officer

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

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

/s/ William R. Pray President, Chief Executive Officer and Director September 27, 1996
- --------------------------------- (Principal Executive Officer)
William R. Pray

/s/ Andrea M. Luiga Vice President - Finance and Chief Financial September 27, 1996
- --------------------------------- Officer (Principal Financial and Accounting
Andrea M. Luiga Officer)

/s/ Melvin Waxman Chairman of the Board and Director September 27, 1996
- ---------------------------------
Melvin Waxman

/s/ Armond Waxman Vice-Chairman of the Board and Director September 27, 1996
- ---------------------------------
Armond Waxman

/s/ Sheldon Adelman Director September 27, 1996
- ---------------------------------
Sheldon Adelman

/s/ Morry Weiss Director September 27, 1996
- ---------------------------------
Morry Weiss

22
24

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

3.1* Certificate of Incorporation of Barnett Inc.

3.2+ Amended and Restated Certificate of Incorporation of Barnett
Inc.

3.3* By-laws of Barnett Inc.

3.4+ Amended and Restated By-Laws of Barnett Inc.

10.2* Intercorporate Agreement dated May 20, 1994 by and among
Barnett Inc., Waxman Industries Inc., Waxman USA Inc., Waxman
Consumer Products Group Inc. and WOC Inc.

10.3 Intercorporate Agreement dated March 28, 1996 among Barnett
Inc., Waxman Industries Inc., Waxman Consumer Products Group
Inc., WOC Inc. and TWI, International, Inc.

10.4 Registration Rights Agreement dated March 28, 1996 by and
between Barnett Inc. and Waxman Industries, Inc.

10.5* Trademark License Agreement dated May 20, 1994 by and between
Barnett Inc. and Waxman Consumer Products Group Inc.

10.6* Employment Agreement dated June 18, 1990 between Barnett Inc.
and William R. Pray.

10.7** Amended and Restated Employment Agreement dated March 8, 1996
between Barnett Inc. and William R. Pray.

10.8+ Omnibus Incentive Plan of Barnett Inc.

10.9+ Stock Purchase Plan of Barnett Inc.

10.10 Revolving Credit Agreement dated April 3, 1996 between Barnett
Inc. and First Union National Bank of Florida.

10.11 [Reserved]

10.12 Standstill Agreement dated March 28, 1996, between Waxman
Industries, Inc., and Barnett Inc.

27.1 Financial Data Schedule

+ Incorporated by referenced to the exhibit of the same number contained
in Amendment No. 1 to the Company's Registration Statement filed with
SEC on March 5, 1996.

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

23
25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of Barnett Inc.:

We have audited the accompanying balance sheets of Barnett Inc. (the
"Company"), as of June 30, 1996 and 1995, and the related statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
June 30, 1996 and 1995, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1996, in conformity with
generally accepted accounting principles.

Arthur Andersen LLP

Cleveland, Ohio,
August 2, 1996.

F - 1
26
BARNETT INC.

BALANCE SHEETS

JUNE 30, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)

ASSETS

JUNE 30,
--------
1996 1995
--------- ------

ASSETS
Current Assets:
Cash $ 1,707 $ 1,155
Accounts receivable, net 17,577 14,481
Inventories 27,362 24,515
Prepaid expenses 1,074 1,005
------- -------
Total current assets 47,720 41,156
------- -------
Property and Equipment:
Machinery and equipment 8,778 7,271
Furniture and fixtures 1,841 1,447
Leasehold improvements 3,999 3,889
------- -------
14,618 12,607
Less accumulated depreciation
and amortization (8,301) (6,575)
------- -------
6,317 6,032
------- -------
Cost of Business in Excess of Net
Assets Acquired, net 3,580 3,708
Unamortized Debt Issue Costs -- 1,348
Deferred Tax Assets, net 500 --
Other Assets 183 169
------- -------
$58,300 $52,413
======= =======

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

F - 2
27
BARNETT INC.

BALANCE SHEETS

JUNE 30, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)

LIABILITIES AND STOCKHOLDERS' EQUITY

JUNE 30,
--------
1996 1995
---- ----

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 14,131 $ 10,765
Accrued liabilities 1,780 1,220
Accrued income taxes 1,065 --
-------- --------
Total current liabilities 16,976 11,985
-------- --------
Long-Term Debt -- 18,126
Push-Down Bank Debt -- 4,874

Commitments and Contingencies

Stockholders' Equity:
Serial preferred stock; $0.10 par
value, Authorized 10,000 shares,
1,271 and 2,591 issued and
outstanding at June 30, 1996
and 1995, respectively 127 259

Common stock, $0.01 par value,
40,000 shares authorized; 14,398
and 9,318 issued and outstanding
at June 30, 1996 and 1995, respectively 143 93
Paid-in capital 39,109 8,068
Retained earnings 1,945 20,054
Advances to Waxman Industries -- (11,046)
-------- --------
41,324 17,428
-------- --------
$ 58,300 $ 52,413
======== ========

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

F - 3
28
BARNETT INC.

STATEMENTS OF INCOME

FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)

1996 1995 1994
---- ---- ----

Net sales $ 127,395 $ 109,107 $ 95,225
Cost of sales 84,748 71,815 62,623
--------- --------- ---------
Gross profit 42,647 37,292 32,602
Selling, general and administrative
expenses 26,877 23,772 21,048
Corporate charge 1,342 1,862 1,918
--------- --------- ---------
Operating income 14,428 11,658 9,636
Interest expense 1,921 2,139 1,518
--------- --------- ---------
Income before provision for income
taxes and extraordinary item 12,507 9,519 8,118
Provision for income taxes 4,625 3,500 2,900
--------- --------- ---------
Income before extraordinary item 7,882 6,019 5,218

Extraordinary item- loss on early
retirement of debt (net of income tax
benefit of $426) 724 -- --
--------- --------- ---------

Net income $ 7,158 $ 6,019 $ 5,218
========= ========= =========

Primary and fully diluted
earnings per share:
Before extraordinary item $ 0.61
Extraordinary item (.06)
---------
Total $ 0.55

Weighted average shares outstanding 12,914

Pro forma adjustments for Initial
Public Offering (Unaudited):
Income before income taxes
and extraordinary item $ 12,507 $ 9,519 $ 8,118
Add: Corporate charge 1,342 1,862 1,918
Interest expense 1,921 2,139 1,518
Less: Public company costs 150 200 200
--------- --------- ---------

Pro forma pretax income 15,620 13,320 11,354

Income taxes 5,779 4,928 4,200
--------- --------- ---------

Pro forma net income $ 9,841 $ 8,392 $ 7,154
========= ========= =========

Pro forma earnings per share $ 0.62 $ 0.53 $ 0.45

Assumed shares outstanding 15,929 15,929 15,929

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

F - 4
29
BARNETT INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS)

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

Balance, June 30, 1993 $ 259 $ 93 $ 8,068 $ 2,431 $ 1,217 $ 12,068
Net income 5,218 5,218
Capital contribution from
Waxman Industries, net 18,410 18,410
Dividend to Waxman
Industries (13,465) (13,465)
Net advances to Waxman
Industries (3,100) (3,100)
-------- -------- -------- -------- -------- --------
Balance, June 30, 1994 259 93 8,068 12,594 (1,883) 19,131
Net income 6,019 6,019
Capital contribution
from Waxman
Industries, net 1,441 1,441
Net advances to Waxman
Industries (9,163) (9,163)
-------- -------- -------- -------- -------- --------
Balance, June 30, 1995 259 93 8,068 20,054 (11,046) 17,428
Net income 7,158 7,158
Capital contribution from
Waxman Industries, net 3,572 3,572
Dividend to Waxman
USA
Net advances to Waxman
Industries (12,587) (12,587)
Elimination of advances to
Waxman Industries (16,794) (6,839) 23,633 --
Net proceeds from issuance
of common stock 37 47,716 47,753
Conversion of 1,320 shares
of preferred stock to
common stock (132) 13 119 --
-------- -------- -------- -------- -------- --------

Balance June 30, 1996 $ 127 $ 143 $ 39,109 $ 1,945 $ -- $ 41,324
======== ======== ======== ======== ======== ========

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

F - 5
30
BARNETT INC.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS)

1996 1995 1994
---- ---- ----

CASH FROM (USED FOR):
OPERATIONS:
Net income $ 7,158 $ 6,019 $ 5,218
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 2,053 2,177 1,787
Extraordinary item 1,150 -- --
Deferred tax assets (500) -- --
Changes in assets and liabilities:
Accounts receivable, net (3,096) (973) (639)
Inventories (2,847) 559 (3,125)
Prepaid expenses (69) (414) 81
Accounts payable 3,366 2,972 (843)
Accrued liabilities 1,625 259 (378)
--------- --------- ---------

Net cash provided by operations 8,840 10,599 2,101
--------- --------- ---------

INVESTMENTS:
Capital expenditures, net (2,011) (2,334) (1,625)
Changes in other assets (15) (90) 340
--------- --------- ---------

Net cash used for investments (2,026) (2,424) (1,285)
--------- --------- ---------

FINANCING:
Net proceeds from sale of Common Stock 47,753 -- --
Borrowings under credit agreement 97,682 115,678 19,821
Payments under credit agreement (115,808) (113,767) (3,606)
Push-down debt (4,874) (1,911) (16,215)
Debt issue costs -- (132) (1,827)
Advances to Waxman Industries (12,587) (9,163) (3,100)
Capital contribution from
Waxman Industries, net 3,572 1,441 18,410
Dividend to Waxman Industries (22,000) -- (13,465)
--------- --------- ---------

Net cash provided by (used for)
financing (6,262) (7,854) 18
--------- --------- ---------

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

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

F - 6
31
BARNETT INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Business

Barnett Inc.( the "Company"), operates in a single business segment --
the distribution of plumbing, electrical and hardware products,
utilizing mail order catalogs and a telesales program. Certain fiscal
1995 and 1994 amounts have been reclassified to conform with the fiscal
1996 presentation, including the proforma effects of the Company's
initial public offering (the "Initial Public Offering") consummated on
April 3, 1996 discussed in Note 2 below.

B. Accounts Receivable

Accounts receivable are presented net of allowances for doubtful
accounts of $722 and $1,121 for June 30, 1996 and 1995, respectively.
Bad debt expense totaled $375 in 1996, $330 in 1995 and $588 in 1994.

C. Inventories

At June 30, 1996 and 1995, inventories are stated at the lower of
first-in, first-out (FIFO) cost or market. The Company regularly
evaluates its inventory carrying value, with appropriate consideration
given to any excess and or slow-moving inventories.

D. Property and Equipment

Property and equipment is stated at cost. For financial reporting
purposes, machinery and equipment and furniture and fixtures are
depreciated on a straight-line basis over their estimated useful lives
of 5 to 7 years. Leasehold improvements are amortized over the life of
the improvement or remaining period of the lease, whichever is shorter.
Expenditures for maintenance and repairs are charged against income as
incurred. Betterments which increase the value or materially extend the
life of the assets are capitalized. For income tax purposes,
accelerated methods are used. Depreciation expense totaled $1,726 in
fiscal 1996, $1,379 in fiscal 1995 and $1,130 in fiscal 1994.

E. Cost of Business in Excess of Net Assets Acquired

Cost of business in excess of net assets acquired is being amortized
over 40 years, using the straight-line method. Management has evaluated
its accounting for goodwill, considering such factors as historical
profitability and future undiscounted operating cash flows, and
believes that the asset is realizable and the amortization period is
appropriate. Goodwill amortization expense totaled $127 in fiscal 1996,
fiscal 1995 and fiscal 1994. The accumulated amortization of goodwill
at June 30, 1996 and 1995 was $3,708 and $3,580, respectively.

F. Unamortized Debt Issue Costs

Unamortized debt issue costs relate to the long-term and push-down debt
and are amortized over the life of the related debt. The remaining
unamortized debt issue costs of $1,150 were written off as an
extraordinary charge in the fourth quarter

F - 7
32
of fiscal 1996 as a result of the prepayment of the indebtedness with a
portion of the proceeds of the Initial Public Offering. See Notes 3 and
5.

G. Revenue Recognition

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

H. Earnings Per Share

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

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

I. Financial Statement Estimates

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

J. Impact of New Accounting Standards

The Financial Accounting Standards Board has issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of". Management does not anticipate the adoption
of SFAS No. 121 to have a material impact on the financial statements.
Management expects to adopt SFAS No. 121 during the first quarter of
fiscal 1997.

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

2. SALE OF COMMON STOCK

On April 3, 1996 the Company consummated an initial public offering
whereby 7,207.2 shares, representing approximately 55.1% of the
Company's common stock, were sold by the Company and its former parent,
Waxman USA Inc., ("Waxman"), at an initial public offering price of
$14.00 per share. The Company sold 3,760 shares resulting in net
proceeds to the Company of approximately $47.7 million. The Company
used approximately $23.0 million to repay all of the outstanding
indebtedness borrowed by it under a secured credit facility, $22.0
million to pay a dividend to Waxman and the remaining $2.7 million was
used for working capital. The proceeds from the sale of 3,447.2 shares
of Common Stock by Waxman were not received by the Company. As a result
of Waxman's conversion of Non-Voting Preferred Stock of the Company,
Waxman owns 49.9% of the Company's common stock and approximately a 54%
economic interest in the Company as of June 30, 1996.

3. EXTRAORDINARY ITEM

The Company incurred a one-time, non-cash extraordinary charge of $0.7
million (net of applicable tax benefit of $0.4 million) which was a
result of the write-off of unamortized debt issuance costs incurred in
connection with the Company prepaying its borrowings under a secured
revolving credit facility, which

F - 8
33
indebtedness included push-down bank indebtedness from Waxman as
discussed in Note 5. This charge was recorded in the quarter ended June
30, 1996.

4. INCOME TAXES

The Company accounts for income taxes in accordance with the provisions
of SFAS No. 109, "Accounting for Income Taxes". SFAS No. 109 utilizes
an asset and liability approach and deferred taxes are determined based
on the estimated future tax effects of differences between the
financial and tax bases of assets and liabilities given the provisions
of the enacted tax laws.

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

The components of the provision for income taxes, calculated on a
stand-alone basis, are as follows:

FISCAL YEAR ENDED JUNE 30,
--------------------------
1996 1995 1994
---- ---- ----

Current:
U.S. Federal $ 3,952 $ 3,346 $ 2,992
State 658 180 160
------- ------- -------
4,610 3,526 3,152
Deferred 15 (26) (252)
------- ------- -------
$ 4,625 $ 3,500 $ 2,900
======= ======= =======

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

JUNE 30,
--------
1996 1995
---- ----

Inventories $ 470 $ 433
Accounts receivable 393 385
Other 11 15
----- -----
Deferred tax assets 874 833
Property (374) (318)
----- -----
$ 500 $ 515
===== =====

At June 30, 1995, deferred taxes and amounts payable to Waxman are
included in Advances to Waxman Industries in the accompanying balance sheets.

F - 9
34
The following table reconciles the U.S. statutory rate applied to
pretax income to the Company's provision for income taxes:

FISCAL YEAR ENDED JUNE 30,
--------------------------
1996 1995 1994
---- ---- ----

U.S. Statutory Rate applied
to pretax income $ 4,252 $ 3,332 $ 2,760
State taxes, net 434 117 106
Goodwill amortization 45 45 44
Other (106) 6 (10)
------- ------- -------
Provision for income taxes $ 4,625 $ 3,500 $ 2,900
======= ======= =======

The Company made state income tax payments of $372 in fiscal year 1996,
$483 in fiscal year 1995 and $277 in fiscal year 1994.

5. LONG TERM DEBT

In April 1996 the Company entered into a revolving credit agreement
with First Union National Bank of Florida ("First Union") for an
unsecured three-year credit facility providing borrowings of up to
$15.0 million, including a letter of credit subfacility of $4.0
million. Borrowings under this facility bear interest, at the Company's
option, at the prime rate minus 75 basis points or LIBOR plus 100 basis
points. The Company is required to pay a commitment fee of 0.1% per
annum on the unused commitment. The credit agreement contains customary
affirmative and negative covenants, including certain covenants
requiring the Company to maintain debt to net worth, interest coverage
and current ratios, as well as a minimum net worth test. The Company
was in compliance with all covenants at June 30, 1996. At June 30, 1996
there were no borrowings under the credit agreement and there were $3.5
million of letters of credit outstanding.

At June 30, 1995 borrowings under a secured credit facility totaled
$18.1 million. This debt was retired in connection with the Initial
Public Offering, as explained in Note 2.

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

The Company made interest payments of $1,525 in fiscal 1996, $1,654 in
fiscal 1995 and $126 in fiscal 1994.

6. STOCKHOLDERS' EQUITY

In connection with the Initial Public Offering, as explained in Note 2,
the Company (i) filed an Amended and Restated Certificate of
Incorporation which increased the authorized number of shares of common
stock to 40,000, (ii) effected a 238,180 for 1 stock split and (iii)
authorized 10,000 shares of preferred stock

F - 10
35
and issued to Waxman 2,591 shares of Series A Preferred Stock in
exchange for 2,591 shares of common stock held by Waxman. These changes
have been retroactively reflected in the accompanying balance sheets.
Additionally, the Company declared a dividend to Waxman evidenced by a
$22.0 million note payable to Waxman, which was paid with the proceeds
of the Initial Public Offering.

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

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

7. LEASE COMMITMENTS

The Company leases its warehouse and office facilities as well as
certain equipment under operating lease agreements, which expire at
various dates through 2003 with, in some cases, options to extend the
terms of the leases.

Future minimum payments, by year and in the aggregate, consist of the
following at June 30, 1996:

1997 $1,903
1998 1,603
1999 1,342
2000 930
2001 598
Thereafter 1,033
------

Total future minimum lease payments $7,409
------

Total rent expense charged to operations was $ 2,217 in fiscal 1996,
$ 2,036 in fiscal 1995 and $ 1,722 in fiscal 1994.

8. PROFIT SHARING PLAN

The Company participates in Waxman Industries' trusteed, profit sharing
and 401(k) retirement plan for employees. Employees are able to
contribute up to 15% of pretax compensation and control the investment
options for their entire account. Employees vest in Company
contributions ratably over 5 years of service.

Company contributions to both the profit sharing and 401(k) plan are
discretionary and may be changed each year as determined by the Board
of Directors. There were no profit sharing contributions made in 1996,
1995 or 1994. In fiscal years 1996 and 1995, the Company contributed $0
and $80, respectively, in matching contributions to the 401(k) plan
which began in 1995. The Board of Directors has approved a 50% match of
up to 4% of employee contributions for fiscal 1997.

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

F - 11
36
9. EMPLOYEE STOCK OPTION PLAN

In connection with the Initial Public Offering discussed in Note 2, the
Board Of Directors of the Company adopted and approved the 1996 Omnibus
Incentive Plan (the "Omnibus Plan") which provides for compensatory
awards representing or corresponding to up to 1,500 shares of Common
Stock. Awards may be granted for no consideration and consist of stock
options and other stock based awards. The Omnibus Plan was designed to
provide an incentive to the officers and other key employees of the
Company by making available to them an opportunity to acquire a
proprietary interest in the Company. At June 30, 1996, there were 507.5
stock options outstanding at an exercise price of $ 14.00 per share
which expire in 2006. No options were exercisable as of June 30, 1996.

10. RELATED PARTY TRANSACTIONS

The Company engages in business transactions with Waxman Industries and
its subsidiaries. Products purchased for resale from Waxman Industries
and its subsidiaries totaled $12,183 in fiscal 1996, $11,318 in fiscal
1995 and $8,303 in fiscal 1994. Sales to these entities totaled $172 in
fiscal 1996, $195 in fiscal 1995 and $229 in fiscal 1994.

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

The Company and Waxman Industries provide to and receive from each
other certain selling, general and administrative services and
reimburse each other for out-of-pocket disbursements related to those
services. In connection with the Initial Public Offering, the Company
and Waxman Industries, among others, entered into a New Intercorporate
Agreement. Pursuant to the New Intercorporate Agreement, Waxman
Industries provides certain managerial, administrative and financial
services to the Company and the Company pays Waxman Industries the
allocable cost of the salaries and expenses of Waxman Industries'
employees while they are rendering such services. The Company also
reimburses Waxman Industries for actual out of pocket disbursements to
third parties by Waxman Industries required for the provision of such
services by Waxman Industries. In addition to the services provided by
Waxman Industries to the Company pursuant to the New Intercorporate
Agreement, the Company also continues to provide certain services to
the operating divisions of WOC Inc., including LeRan Copper & Brass,
U.S. Lock and Madison Equipment Company. These services include the
utilization of the Company's management information systems, financial
accounting, order processing and billing and collection services.
Waxman Industries pays to the Company the allocable cost of the
salaries and expenses of the Company's employees while they are
performing such services. Waxman Industries also reimburses the Company
for all actual out-of-pocket disbursements to third parties by the
Company required for the provision of such services. The net effect of
these charges is not material. The arrangements provided in the New
Intercorporate Agreement may be modified and additional arrangements
may be entered into pursuant to a written agreement between the Company
and Waxman Industries.

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

F - 12
37
The following is a reconciliation of the activity contributed to
capital related to the push-down bank debt described in Note 5:

FISCAL YEAR ENDED JUNE 30
1996 1995 1994
-------------------------------
Push-down interest expense,
including amortization of

debt issue costs $ 355 $ 464 $ 1,385
Change in push-down bank debt 3,791 1,911 16,215
Income taxes (391) (493) (901)
Change in push-down interest
accrual 15 21 107
Change in push-down of
unamortized debt issue costs (198) (462) 1,604
------ ------ -------
Capital contribution from
Waxman Industries, net $3,572 $1,441 $18,410
====== ====== =======

11. CONTINGENCIES

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

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38
SUPPLEMENTARY FINANCIAL INFORMATION

Quarterly Results of Operations:

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

Net Income
Before Earnings Earnings
Net Gross Extraordinary Per Net Per
Sales Profit Item Share Income Share
-------------------------------------------------------------------------------------
(in thousands, except per share)

1996
FOURTH $ 33,996 $ 11,538 $ 2,670 $ 0.17 $ 1,945 $ 0.12
THIRD 32,884 10,852 1,838 0.15 1,838 0.15
SECOND 31,089 10,654 1,988 1,988
FIRST 29,426 9,603 1,386 1,387
- ---------------------------------------------------------------------------------------
TOTAL $127,395 $ 42,647 $ 7,882 $ 0.61 $ 7,158 $ 0.55
- ---------------------------------------------------------------------------------------
1995
Fourth $ 28,016 $ 9,667 $ 1,415 $ 1,415
Third 28,852 9,853 1,519 1,519
Second 26,791 9,164 1,634 1,634
First 25,448 8,608 1,451 1,451
- ---------------------------------------------------------------------------------------
Total $109,107 $ 37,292 $ 6,019 $ 6,019
- ---------------------------------------------------------------------------------------

F - 14