UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

OR

Commission File Number 0-5888

WAXMAN INDUSTRIES, INC.

(440) 439-1830

Not Applicable

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

Yes   [   ]      No [X]

1,004,080 shares of Common Stock, $.01 par value, and 214,099 shares of Class B Common Stock, $.01 par value, were outstanding as of April 30, 2004.

WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three and Nine Months Ended March 31, 2004 and 2003
(In Thousands, Except Per Share Data)

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

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WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2004 and June 30, 2003

(In Thousands)

ASSETS

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

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WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2004 and June 30, 2003

(In Thousands)

LIABILITIES AND STOCKHOLDERS’ EQUITY

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

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WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

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WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2004

Note 1 – Significant Accounting Policies

Basis of Presentation

     The condensed consolidated financial statements include the accounts of Waxman Industries, Inc. (“Waxman”) and its wholly-owned subsidiaries (collectively, the “Company”). All significant intercompany transactions and balances are eliminated in consolidation. Certain reclassifications have been made to the prior year statements in order to conform to the current year presentation.

     The condensed consolidated statements of operations for the three and nine months ended March 31, 2004 and 2003, the condensed balance sheet as of March 31, 2004 and the condensed statements of cash flows for the nine months ended March 31, 2004 and 2003 have been prepared by the Company without audit, while the condensed balance sheet as of June 30, 2003 was derived from audited financial statements. In the opinion of management, these financial statements include all adjustments, all of which are normal and recurring in nature, necessary to present fairly the financial position, results of operations and cash flows of the Company as of March 31, 2004 and for all periods presented. Certain information and footnote disclosures normally included in audited financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. The Company believes that the disclosures included herein are adequate and provide a fair presentation of interim period results. Interim financial statements are not necessarily indicative of financial position or operating results for an entire year or other interim periods. It is suggested that these condensed interim financial statements be read in conjunction with the audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K and the Company’s Form 10-KA for the fiscal year ended June 30, 2003.

Accounting Estimate

     The consolidated financial statements of the Company are prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period presented. Actual amounts could differ from these estimates and different amounts could be reported using different assumptions and estimates.

Revenue Recognition

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

Stock-Based Compensation

     The Company utilizes the intrinsic value-based method of accounting prescribed by APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), to measure compensation costs for its stock-based compensation plan and had adopted the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123 — “Accounting for Stock-Based Compensation” (“FAS 123”). FAS 123 was amended in December 2002, with enhanced annual and interim disclosure requirements that were issued in Financial Accounting Standard No. 148 – “Accounting for Stock-Based Compensation – Transition and Disclosure” (“FAS 148”). Compensation costs for fixed price awards are measured by the excess, if any, of the fair market price of the

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underlying stock over the amount the individual is required to pay, which is established on the grant date. See Note 8 for a further description of the assumptions used for preparing the pro forma disclosures as prescribed by FAS 148.

Shipping and Handling Fees

     In May 2000, the Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board (“FASB”) reached a consensus with respect to EITF Issue 00-10, “Accounting for Shipping and Handling Fees and Costs.” EITF 00-10 recognizes the inconsistencies in practice of the recording of shipping and handling costs incurred by most companies that sell goods. The Company has historically recorded freight and any directly related associated cost of transporting finished product to customers as a component of its selling, general and administrative (“SG&A”) expenses. Included in SG&A expense are approximately $687,000 and $2,044,000 in shipping and handling costs for the three and nine months ended March 31, 2004, respectively, and approximately $648,000 and $1,919,000 for the three and nine months ended March 31, 2003, respectively.

Split Dollar Life Insurance Policies

     Split-dollar life insurance policies are maintained for the following officers and directors: (1) three policies for Melvin Waxman providing for total death benefits of $8,535,000; (2) two policies for Armond Waxman providing for total death benefits of $12,000,000; and (3) one policy for Laurence Waxman providing for a death benefit of $1,274,000. The policy for John Peters that provided for a death benefit of $1,250,000 was terminated in December 2003. The Company received approximately $164,000 in cash from the cash value of the policy for John Peters in January 2004. The difference between the cash value received and the premiums paid for the policy, of approximately $24,000, was expensed in the quarter ended December 31, 2003. In the event of the death of any of the above-referenced insureds, the Company will be repaid for the aggregate premiums paid by the Company for such policies from the insurance proceeds paid to the split-dollar life insurance trusts which own such policies. During fiscal 2003, the Company made payments of $140,871, but suspended payments for the split dollar policies in March 2003, pending further information regarding the impact the Sarbanes-Oxley Act of 2002 will have on split dollar policies for executive officers.

Note 2 – Business

     The Company’s common stock is quoted on the Over-The-Counter Bulletin Board (“OTCBB”) under the symbol “WAXM.” The Company is a supplier of specialty plumbing, floor and surface protection and other industrial products to the consumer and industrial markets. The Company distributes its products to approximately 700 customers, including a wide variety of large national and regional retailers, independent retail customers and wholesalers.

     The Company conducts its business through its wholly-owned subsidiaries, Waxman Consumer Products Group Inc. (“Consumer Products”), WAMI Sales, Inc. (“WAMI Sales”) and TWI, International, Inc. (“TWI”). Consumer Products, the Company’s largest operation, is a supplier of specialty plumbing, floor and surface protection and other hardware products to a wide variety of large retailers. WAMI Sales distributes galvanized, black, chrome and brass pipe nipples and fittings to industrial and wholesale distributors. TWI includes the Company’s foreign operations, including manufacturing, packaging and sourcing operations in China and Taiwan. Consumer Products and WAMI Sales utilize the Company’s and non-affiliated foreign suppliers.

Note 3 – Income Taxes

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

     SFAS No. 109 requires the Company to assess the realizability of its deferred tax assets based on whether it is more likely than not that the Company will realize the benefit from these deferred tax assets in the future. If

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the Company determines the more likely than not criteria is not met, SFAS No. 109 requires the deferred tax assets be reduced by a valuation allowance. In assessing the realizability of its net deferred tax asset, the Company considered its historic performance and the uncertainty of it being able to generate enough domestic taxable income to utilize these assets. At June 30, 2003 and 2002, the Company’s net deferred tax assets were fully offset by a valuation allowance, and the Company believes that the Company’s net deferred tax assets should continue to be offset by a valuation allowance. The Company will continue to analyze the trends in the operating results of its domestic operations to assess the realizability of its deferred tax asset in fiscal 2004. At June 30, 2003, the Company had $18.2 million of available domestic net operating loss carryforwards for income tax purposes, which will expire in 2010 through 2023.

     In the fiscal 2004 third quarter and nine month periods, the Company recorded a tax provision of $0.03 million and $0.2 million, respectively, which is primarily comprised of a provision for various state and foreign taxes, and a small provision for U.S. federal alternative minimum taxes. In the same quarter and nine month periods last year, the Company reported a tax benefit of $0.5 million and $0.2 million, respectively, which represents the reversal of a $0.55 million tax reserve for a state tax assessment that was favorably resolved during the quarter, partially offset by various state and foreign taxes.

Note 4 – Sale of Building

     In October 2003, the Company finalized the sale of the land and building in Taichung, Taiwan, used for the offices and warehouse of TWI, for approximately $2.0 million. During the quarter ended September 30, 2003, the Company received a deposit of $1.8 million on the sale, with the final $0.2 million being paid in October 2003 when the sale was completed. The net book value of these assets was approximately $1.0 million and the Company recognized a gain of approximately $0.7 million in October 2003. Since the facility will be partially occupied by TWI, the Company will defer approximately $0.3 million of the gain on the sale of this facility, which will be amortized over the term of the lease. TWI has signed a four-year lease for approximately 33,000 square feet of the 55,000 square feet of space in this facility, which it believes reflects market rates. The Company is subleasing approximately 11,000 square feet of that space to one of its joint venture operations.

Note 5 – Supplemental Cash Flow Information

     Cash interest payments for the three and nine months ended March 31, 2004 amounted to $0.1 million and $0.3 million, respectively. Cash interest payments for the three and nine months ended March 31, 2003 amounted to $0.1 million and $0.3 million, respectively. The Company made no federal income tax payments in the three and nine months ended March 31, 2004 and 2003; however, the Company received a federal tax refund of $0.8 million in the quarter ended September 30, 2002 relating to the change in tax law that allowed the Company to file an amended return for an earlier fiscal year to use an alternative minimum tax net operating loss carryforward. In the fiscal 2004 three and nine month periods ended March 31, 2004, the Company paid approximately $5,000 and $15,000 in state taxes and $149,000 and $370,000 in foreign taxes, respectively. In the fiscal 2003 three and nine month periods ended March 31, 2003, the Company paid approximately $13,000 and $41,000 in state taxes and $11,000 and $183,000 in foreign taxes, respectively.

Note 6 – Earnings Per Share

     Basic earnings per share represents net income divided by the weighted average number of common shares outstanding. Diluted earnings per share utilizes the weighted average number of common stock and common stock equivalents, which include stock options and warrants. For the quarter and nine month periods ended March 31, 2004 and 2003, the impact of the options and warrants was not dilutive.

     The number of common shares used to calculate basic and diluted earnings per share, along with a reconciliation of such shares, is as follows (in thousands):

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Note 7 – Segment Information

     The Company’s businesses distribute specialty plumbing products, floor and surface protection products, galvanized, black, brass and chrome pipe nipples, imported malleable fittings, and other products. Products are sold primarily to two customer categories, including (i) retail operations, which includes national and regional retailers, D-I-Y home centers and smaller independent retailers in the United States, and (ii) industrial operations, including wholesale and industrial supply distributors which are primarily located in the United States. There were no retail sales outside of the United States, and sales to foreign countries accounted for less than 5 percent of total sales. Set forth below is certain financial data relating to the Company’s business segments (in thousands of dollars).

     The Company’s foreign operations manufacture, assemble, source and package products that are distributed by the Company’s wholly-owned operations, retailers and industrial customers. Net sales for those foreign operations amounted to $8.4 million and $25.8 million for the fiscal 2004 third quarter and nine month periods, and $7.7 million and $26.0 million for the fiscal 2003 third quarter and nine month periods, respectively. Of these amounts, intercompany sales amounted to approximately $2.6 million and $7.5 million for the fiscal 2004 third quarter and nine month periods, and $1.8 million and $5.7 million for the fiscal 2003 third quarter and nine month periods, respectively. Identifiable assets for the foreign operations were $13.8 million and $13.5 million at March 31, 2004 and June 30, 2003, respectively.

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Note 8 – Stock-Based Compensation

     In December 2002, the FASB released FAS 148 to encourage more companies to adopt the fair value method of accounting for stock based compensation plans and amends the disclosure requirements of FAS 123 to require more prominent disclosure in both annual and interim financial statements. Although FAS 148 does not require companies to adopt the fair value method, the new rules are effective beginning in the first quarter of 2003 for those companies that follow the “disclosure only” provisions of FAS 123.

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

     At the December 2002 Annual Meeting of Stockholders, stockholders approved a new stock incentive plan (the “2002 Stock Incentive Plan”) that reserves 250,000 shares of Common Stock to replace various stock based awards that were voluntarily terminated in January 2002. In July 2002, 176,655 stock options were granted at an exercise price of $5.91, all of which were outstanding at March 31, 2004. The stock options are fully vested, and none have been exercised or cancelled. In performing the computation of the fair value of each option grant, which is estimated on the date of grant using the Black-Scholes option pricing model, the following assumptions were used for these grants: no dividends; expected volatility of 87.7%; average risk-free interest rate of 6.0%; and expected life of 10 years.

     There were no stock option grants in the fiscal 2004 third quarter or nine months ended March 31, 2004, therefore, pro forma income and earnings per share for the fiscal quarter ended March 31, 2004 are not presented. All of the currently outstanding stock options were granted in the quarter ended September 30, 2002. No option based employee compensation was recognized in reported net income and all of the options granted had an exercise price equal to the market price of the underlying common stock on the date of grant. As the options granted were fully vested, for pro forma purposes, the estimated fair value of the options was expensed in the fiscal 2003 first quarter, when the options were granted. The Company’s pro forma information follows (in thousands except for earnings per share and per share data).

Note 9 – Authorized Shares

     The Company’s Certificate of Incorporation originally authorized the issuance of 22,000,000 shares of Common Stock, 6,000,000 shares of Class B Common Stock and 2,000,000 shares of Preferred Stock. In February 2001, the stockholders of the Company approved a 1-for-10 reverse stock split, thereby reducing the outstanding number of shares of the Company. At that time, the number of authorized shares was not reduced.

     The Company determined that it was not likely to need more than 8,000,000 authorized shares of Common Stock, 1,500,000 shares of Class B Common Stock and 200,000 shares of Preferred Stock for issuance in

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the future. Accordingly, at a meeting of the Company’s Board of Directors on August 27, 2002, it approved an amendment to the Certificate of Incorporation of the Corporation to reduce the number of the Company’s authorized shares of common stock, Class B common stock, and preferred stock, and to place the proposed amendment on the ballot to be considered at the annual meeting of the stockholders on December 3, 2002. The reduction in authorized shares was approved at the December 3, 2002 Annual Meeting of Stockholders.

Note 10 – Related Party Transaction

     In December 2003, Melvin and Armond Waxman and members of their families purchased the Groveport, Ohio facility leased by Consumer Products and other non-related tenants. This facility, which is Consumer Products’ national distribution center, was purchased by the Waxman family to ensure the long term availability of this facility and to allow for adequate space in the future to meet the Company’s needs. In conjunction with this transaction, Consumer Products revised the lease agreement, which was to expire in October 2008, and entered into a new ten year lease agreement expiring in 2013. The new lease agreement includes a favorable cap on the lease rate in the last five year period and, if space becomes available, provides Consumer Products with the right to lease up to 42,000 square feet of additional space. The independent members of the Board of Directors obtained fair market real estate rate information prior to approving this transaction. Other related party transaction information can be found in the Company’s Annual Report on Form 10-K for the year ended June 30, 2003.

Note 11 – Proposed Reverse Stock Split, Repurchase of Fractional Shares under One and Forward Stock Split

          On May 13, 2004, the Company filed its definitive Schedule 13E-3 and Proxy Statement in connection with the annual meeting of the stockholders of the Company to be held on June 22, 2004. At such meeting, the stockholders of the Company will vote upon, among other things, an amendment to the Company’s Certificate of Incorporation, which, if approved, would result in a 1-for-100 reverse stock split of the Company’s Common Stock and Class B Common Stock and the cancellation of post-split shares under one share with those holders receiving the right to receive payment of cash, at a rate of $7.63 per each pre-split share of Common Stock or Class B Common Stock held just prior to the reverse stock split. Immediately subsequent to the completion of the reverse stock split and fractional share cancellation, the Company intends to effect, subject to the receipt of stockholder approval, a 100-for-1 forward stock split of its shares to increase the number of outstanding shares to approximately pre-reverse split levels. The per share price payable to cashed-out stockholders in the reverse split represents a 39% premium to the closing stock price on January 23, 2004 (the trading day immediately prior to the initial announcement of the proposed transaction), and premiums of 34%, 73% and 110%, respectively, to the 30-day, one year and three year trailing averages.

     The reverse split is subject to various conditions, including approval by the Company’s primary lenders and its stockholders. It is anticipated that shares controlled directly or indirectly by the Company’s directors will be voted in favor of the transaction. These shares collectively account for at least 67.3% of the total votes entitled to be cast.

     The transaction was unanimously recommended by a Special Committee of outside independent directors and approved by the Company’s Board of Directors. Stout Risius Ross, Inc. served as financial advisor to the Special Committee and provided its fairness opinion to the Special Committee.

     If stockholders approve the reverse split, the Company expects to have fewer than 300 shareholders of record and would become a non-reporting company. Accordingly, the Company’s common stock would no longer be traded on the Over The Counter Bulletin Board, the registration of the common stock under the Securities Exchange Act of 1934 would terminate, and the Company would cease filing reports with the SEC. The Company’s Board of Directors has retained the absolute authority to reject (and not implement) this plan (even after approval thereof) if it subsequently determines that the proposed actions for any reason are not in the best interest of the Company.

     The announcement of the proposed reverse split transaction described above is not a solicitation of a proxy. The Company has filed its definitive proxy materials and other necessary filings with the SEC for the annual meeting of the stockholders to vote on the proposed transaction. The definitive proxy materials contain

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important information regarding the transaction, including, among other things, the recommendation of the Company’s Board of Directors and the Special Committee regarding the transaction. Stockholders of the Company are advised to read the definitive proxy materials, including the proxy statement, before making any decisions regarding the transaction. Copies of the definitive proxy materials, and any amendments or supplements thereto, are available without charge at the SEC’s website at www.sec.gov or from the Secretary of the Company when they are mailed to stockholders.

The Company and certain officers and directors of the Company may be deemed to be participants in the solicitation of proxies from the stockholders of Waxman Industries, Inc. in favor of the proposed reverse split. The executive officers and directors of the Company who are expected to be participants in the solicitation of proxies in connection with the proposed reverse split, along with a description of the interests of those executive officers and directors in the Company is set forth in the definitive proxy materials relating to the Company’s annual meeting of stockholders.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

Recent Developments

     On May 13, 2004, the Company filed its definitive Schedule 13E-3 and Proxy Statement in connection with the annual meeting of the stockholders of the Company to be held on June 22, 2004. At such meeting, the stockholders of the Company will vote upon, among other things, an amendment to the Company’s Certificate of Incorporation, which, if approved, would result in a 1-for-100 reverse stock split of the Company’s Common Stock and Class B Common Stock and the cancellation of post-split shares under one share with those holders receiving the right to receive payment of cash, at a rate of $7.63 per each pre-split share of Common Stock or Class B Common Stock held just prior to the reverse stock split. Immediately subsequent to the completion of the reverse stock split and fractional share cancellation, the Company intends to effect, subject to the receipt of stockholder approval, a 100-for-1 forward stock split of its shares to increase the number of outstanding shares to approximately pre-reverse split levels. The per share price payable to cashed-out stockholders in the reverse split represents a 39% premium to the closing stock price on January 23, 2004 (the trading day immediately prior to the initial announcement of the proposed transaction), and premiums of 34%, 73% and 110%, respectively, to the 30-day, one year and three year trailing averages.

     The reverse split is subject to various conditions, including approval by the Company’s primary lenders and its stockholders. It is anticipated that shares controlled directly or indirectly by the Company’s directors will be voted in favor of the transaction. These shares collectively account for at least 67.3% of the total votes entitled to be cast.

     The transaction was unanimously recommended by a Special Committee of outside independent directors and approved by the Company’s Board of Directors. Stout Risius Ross, Inc. served as financial advisor to the Special Committee and provided its fairness opinion to the Special Committee.

     If stockholders approve the reverse split, the Company expects to have fewer than 300 shareholders of record and would become a non-reporting company. Accordingly, the Company’s common stock would no longer be traded on the Over The Counter Bulletin Board, the registration of the common stock under the Securities Exchange Act of 1934 would terminate, and the Company would cease filing reports with the SEC. The Company’s Board of Directors has retained the absolute authority to reject (and not implement) this plan (even after approval thereof) if it subsequently determines that the proposed actions for any reason are not in the best interest of the Company.

     The announcement of the proposed reverse split transaction described above is not a solicitation of a proxy. The Company has filed its definitive proxy materials and other necessary filings with the SEC for the annual meeting of the stockholders to vote on the proposed transaction. The definitive proxy materials contain important information regarding the transaction, including, among other things, the recommendation of the Company’s Board of Directors and the Special Committee regarding the transaction. Stockholders of the Company

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are advised to read the definitive proxy materials, including the proxy statement, before making any decisions regarding the transaction. Copies of the definitive proxy materials, and any amendments or supplements thereto, are available without charge at the SEC’s website at www.sec.gov or from the Secretary of the Company when they are mailed to stockholders.

The Company and certain officers and directors of the Company may be deemed to be participants in the solicitation of proxies from the stockholders of Waxman Industries, Inc. in favor of the proposed reverse split. The executive officers and directors of the Company who are expected to be participants in the solicitation of proxies in connection with the proposed reverse split, along with a description of the interests of those executive officers and directors in the Company is set forth in the definitive proxy materials relating to the Company’s annual meeting of stockholders.

Forward-Looking Statements

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

•		the increasing cost associated with being a public company, including external and internal costs to comply with the Sarbanes-Oxley Act of 2002, additional costs to be incurred to comply with the internal audit control requirements of Section 404 – internal control requirements, and all of the other public reporting requirements
•		the continuity of business relationships with major customers and a high concentration of business with several customers
•		the competitive nature of other suppliers in our business and pricing pressure from retailers and other customers
•		the limited ability to push pricing pressure from customers through to our vendors or absorb these pressures within our own operations
•		the ability of the Company to expand into new markets, attract new customers and develop new products, including access to sufficient working capital to fund such actions
•		any large or unusual cash outlay that would strain our relatively modest positive operating cash flow and available financing
•		the effect of competition by businesses developing sourcing or manufacturing operations in Asia and other low cost markets
•		our ability to continue to meet the terms of our debt and bank credit facilities which include certain financial covenants and other restrictions
•		a continuation of the economic slowdown in the domestic retail economy and / or financial failure, closure or sale of one of our larger customers
•		the effect on our international operations of unexpected changes in regulatory requirements, export restrictions, currency controls, tariffs and other trade barriers, difficulties in staffing and managing foreign operations, political and economic instability, fluctuations in currency exchange rates and potential adverse tax consequences
•		a significant amount of product is purchased from our own operations in Asia, which could cause temporary supply problems if the ability for those operations to provide products was impaired
•		the effect of any interruption in supply of material, including any work slowdowns such as the one caused by the Longshoreman’s strike in the fiscal year 2003.

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

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A. Results of Operations

For the Three Months Ended March 31, 2004 and 2003

Net Sales

     Net sales for the fiscal 2004 third quarter ended March 31, 2004 totaled $17.2 million, an increase of $2.0 million as compared to $15.2 million for the same period in the prior fiscal year. Net sales to retailers amounted to $14.2 million and $11.3 million for the quarters ended March 31, 2004 and 2003, respectively. The Company’s sales to industrial customers amounted to $5.6 million for the quarter ended March 31, 2004, as compared to $5.8 million for the same quarter last year.

Gross Profit

     Gross profit and gross margins for the fiscal 2004 and 2003 third quarters were $6.5 million, or 37.7%, and $5.1 million, or 33.8%, respectively. Gross profit and gross margin improved due to higher sales volume and a greater portion of the sales being to retailers, which typically have higher margins, but additional selling, general and administrative costs.

Selling, General and Administrative Expenses

     Selling, general and administrative expenses (“SG&A expenses”) increased to $6.3 million in the fiscal 2004 third quarter as compared to $5.6 million in the same period in the prior year. The increase in SG&A expenses in the fiscal 2004 third quarter is attributed to the Company’s effort to expand its industrial sales segment, $0.2 million of additional costs relating to the Company’s effort to effect a “going private” transaction by reducing its registered shareholders to less than 300, and foreign transaction losses of $0.08 million in the fiscal 2004 third quarter as compared to $0.01 million in the same period in the prior year. The Company expects its industrial sales segment will continue to grow, and will ultimately offset the increase in SG&A expenses associated with operating this segment of the business. The ratio of SG&A expenses to net sales decreased to 36.4% for the fiscal 2004 third quarter from 36.6% in the comparable period last year due to the growth, which more than offset the increase in expenses.

Other Income

     Other income for the quarters ended March 31, 2004 and 2003, amounting to $0.02 million and $0.2 million, primarily consisted of dividends received from joint venture operations in Asia that are accounted for under the cost method of accounting and equity earnings of unconsolidated joint ventures accounted for under the equity method of accounting. The Company reclassified dividend distributions, which were netted against SG&A expenses in prior years.

Interest Expense

     For the quarters ended March 31, 2004 and 2003, net interest expense totaled $0.1 million. Average borrowings for the current year’s quarter amounted to $5.5 million, with a weighted average interest rate of 4.9%, as compared to $7.6 million in the same prior year quarter, with a weighted average interest rate of 4.8%.

Provision for Income Taxes

     The Company reported a net tax provision of $0.03 million for the quarter ended March 31, 2004, which represents various state and foreign taxes and a small provision for U.S. Federal alternative minimum taxes. In the same quarter last year, the net tax benefit of $0.48 million which represents the reversal of a $0.55 million tax reserve for a state tax assessment that was favorably resolved during the quarter, partially offset by various state and foreign taxes. The differences between the effective and statutory rates are primarily due to the effect of current losses of the domestic U.S. operations not being benefited and foreign tax rates being lower than U.S. tax rates.

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Net Income

     The Company reported net income of $0.1 million, or $0.09 per basic and diluted share, for the quarter ended March 31, 2004, as compared to net income of $0.1 million, or $0.08 per basic and diluted share, for the prior fiscal year third quarter.

For the Nine Months Ended March 31, 2004 and 2003

Net Sales

     Net sales for the fiscal 2004 nine month period ended March 31, 2004 totaled $51.9 million, an increase of $2.5 million, as compared to $49.4 million for the same period in the prior fiscal year. Net sales to retailers amounted to $41.5 million and $35.1 million for the nine month periods ended March 31, 2004 and 2003, respectively. The Company’s sales to most industrial customers also improved, with the exception of sales to Barnett which decreased by over $4.0 million and offset the increases to the other industrial and retail customers mentioned above. As a result of the large decrease in sales to Barnett, industrial sales amounted to $17.9 million for the nine month period ended March 31, 2004, as compared to $20.1 million for the same period last year. The Company expects the sales to Barnett, which have been declining over the past several years, to continue to decrease.

Gross Profit

     Gross profit and gross margins for the fiscal 2004 and 2003 nine month periods were $19.0 million, or 36.6%, and $16.5 million, or 33.3%, respectively. Gross profit and gross margin improved due to higher sales volume, including a higher portion of consolidated sakes being to retail customers, which generally have higher margins, but higher selling, general and administrative expenses, as well as decreased sales to customers with lower margins, such as Barnett.

Selling, General and Administrative Expenses

     SG&A expenses increased to $17.8 million in the fiscal 2004 nine month period as compared to $16.3 million in the same period in the prior year. The increase in SG&A expenses in the fiscal 2004 nine month period is attributed to the Company’s effort to expand its industrial sales segment and approximately $0.2 million in costs associated with the Company’s effort to effect a “going private” transaction. Also contributing to the increase in SG&A expenses were foreign transaction losses of $0.2 million in the fiscal 2004 nine month period as compared to foreign transaction gains of $0.2 million in the same period in the prior year. Sales for the industrial segment are expected to increase over time and will ultimately offset the increase in SG&A expenses associated with operating this segment of the business. The ratio of SG&A expenses to net sales increased to 34.4% for the fiscal 2004 nine month period from 32.9% in the comparable period last year, due to the costs incurred for the going private transaction, higher costs for the development of the industrial sales program and the difference between the comparable periods in foreign exchange transaction losses and gains.

Other Income

     Other income for the nine month period ended March 31, 2004 was primarily the result of a $0.7 million gain on the sale of a building in Taiwan and a small amount of income from dividend distributions that were received from joint venture operations in Asia that are accounted for under the cost method of accounting and equity earnings that were recorded for joint venture operations accounted for under the equity method of accounting. In the nine months ended March 31, 2003, the Company received $0.2 million in dividends from these operations. The Company has reclassified these distributions to other income which, until the fiscal 2003 year end statements, were previously netted against SG&A expenses.

Interest Expense

     For the nine month periods ended March 31, 2004 and 2003, net interest expense totaled $0.4 million. Average borrowings for the current year’s nine month period amounted to $7.0 million, with a weighted average

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interest rate of 4.8%, as compared to $7.8 million in the same prior year period, with a weighted average interest rate of 5.15%.

Provision for Income Taxes

     The Company reported a net tax provision of $0.2 million for the nine month period ended March 31, 2004, which represents various state and foreign taxes, and a small provision for U.S. federal alternative minimum taxes. For the nine months ended March 31, 2003, the net tax benefit of $0.2 million which represents the reversal of a $0.55 million tax reserve for a state tax assessment that was favorably resolved during the quarter, partially offset by various state and foreign taxes. The differences between the effective and statutory rates are primarily due to the effect of current losses of the domestic U.S. operations not being benefited and foreign tax rates being lower than U.S. tax rates.

Net Income

     The Company reported net income of $1.3 million, or $1.10 per basic and diluted share, for the nine month period ended March 31, 2004, as compared to net income $0.2 million, or $0.16 per basic and diluted share, for the same prior year period.

B. Liquidity and Capital Resources

     In February 2002, the Company refinanced the Loan and Security Agreement with Congress Financial Corporation, which was scheduled to expire on June 18, 2002 and replaced it with a working capital and term loan facility from PNC Bank, NA. The PNC Revolving Credit, Term Loan and Security Agreement (“PNC Bank Facility”) is between Waxman Industries, Inc., Consumer Products, WAMI Sales and Waxman USA, as borrowers (the “Borrowers”). The PNC Bank Facility provides, among other things, for revolving credit advances of up to $15.0 million. The Term Loan facility provided an initial loan on the Company’s corporate office building of $1,155,000, to be amortized over 7 years. As of March 31, 2004, the balance due under the Term Loan facility was $811,250 and the Company had $4.2 million in borrowings under the revolving credit line of the facility and approximately $5.7 million of availability under such facility.

     The PNC Bank Facility provides for revolving credit advances of (a) up to 85.0% of the amount of eligible accounts receivable and (b) up to the lesser of (i) $7.5 million or (ii) 60% of the amount of eligible raw and finished goods inventory. Revolving credit advances bear interest at a rate equal to the higher of (a) the PNC Bank, NA base prime rate plus 0.5% or (b) Federal Funds Rate plus 1.0%. The Term Loan advance bears interest at a rate equal to the higher of (a) the PNC Bank, NA base prime rate plus 1.0% or (b) Federal Funds Rate plus 1.5%. The PNC Bank Facility includes a letter of credit subfacility of $1.0 million, with none outstanding at March 31, 2004. Borrowings under the PNC Revolving Credit Loan are secured by the accounts receivable, inventories, certain general intangibles, and unencumbered fixed assets of Waxman Industries, Inc., Consumer Products, WAMI Sales, and a pledge of 65% of the stock of various foreign subsidiaries. The PNC Bank Facility requires the Borrowers to maintain cash collateral accounts into which all available funds are deposited and applied to service the facility on a daily basis. The PNC Bank Facility prevents dividends and distributions by the Borrowers, including the repurchase of stock, except in certain limited instances. The Company is discussing an extension of the term of the PNC Bank Facility and certain modifications in connection therewith.

     The financial covenants contain customary negative, affirmative and financial covenants and conditions that require the Company to maintain a certain fixed charge coverage ratio and tangible net worth and not exceed a certain amount of capital expenditures in any given period. The ratios and dollar amounts of such financial covenants vary during the term of the PNC Bank Facility and are contained in the agreement governing the PNC Bank Facility, which appears as Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on February 27, 2002. The customary negative covenants contained in the PNC Bank Facility include restrictions, subject to important enumerated exceptions, on the Company’s ability to effect a merger, consolidation, acquisition or sale of its assets, create liens, enter into guarantees, acquire interests in other entities, make loans to other entities, incur indebtedness, and engage in transactions with affiliates. In August 2003, PNC and the Company retroactively amended the fixed charge covenant to utilize financial results for measuring its fixed charge coverage ratio

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beginning April 1, 2003. The Company was in compliance with all loan covenants at March 31, 2004. The PNC Bank Facility also contains a material adverse condition clause, which allows PNC to terminate the agreement under certain circumstances.

     The Company relies primarily on Consumer Products for cash flow. Consumer Products’ customers include D-I-Y warehouse home centers, home improvement centers, mass merchandisers and hardware stores. Consumer Products may be adversely affected by prolonged economic downturns or significant declines in consumer spending. There can be no assurance that any such prolonged economic downturn or significant decline in consumer spending will not have a material adverse impact on Consumer Products’ business and its ability to generate cash flow. Furthermore, Consumer Products has a high proportion of its sales with a concentrated number of customers. Sales to Consumer Products’ larger customers for the nine month periods of fiscal 2004 and 2003, respectively, were as follows: Wal-Mart accounted for 34.0% and 24.8% and Lowe’s accounted for 22.8% and 14.4%.

     The Company paid $385,000 and $224,000 in state and foreign income taxes in the nine month periods in fiscal 2004 and 2003, respectively. For regular federal tax purposes, the Company’s net operating loss carryforwards were sufficient to offset any regular federal tax liability. The Company received a tax refund of $0.8 million in September 2002. At June 30, 2003, the Company had $18.2 million of available domestic net operating loss carryforwards for income tax purposes, which will expire in 2010 through 2023.

     The Company has total future lease commitments for various facilities and other leases totaling $5.7 million, of which approximately $1.0 million is due in fiscal 2004, of which approximately $0.75 million has been paid in the fiscal 2004 nine month period. The Company does not have any commitments to make capital expenditures, but expects its expenditures for fiscal 2004 to approximate the level in fiscal 2003. The capital expenditure plan includes expenditures to improve the efficiencies of the Company’s operations, to provide new data technology and certain expansion plans for the Company’s foreign operations.

     The Company expects that the costs associated with being a public company will increase significantly over the next several years. These additional costs relate to, among other things, external and internal costs to comply with the Sarbanes-Oxley Act of 2002, including additional costs to be incurred to comply with Section 404 of the Sarbanes-Oxley Act and all of the other public reporting requirements. The Company has obtained estimates of certain costs and the impact that compliance with the new requirements will have on the Company’s liquidity and financial and operating flexibility. As discussed in Note 11, the Company intends to pursue a reverse stock split transaction, with a repurchase of fractional shares, which if completed, will eliminate the need to incur these additional costs.

     At March 31, 2004, the Company had working capital of $11.8 million and a current ratio of 1.8 to 1.

Discussion of Cash Flows

     Net cash provided by operations amounted to $3.8 million for the nine months ended March 31, 2004, principally due to the decrease in trade receivables and inventory, which was partially offset by the gain on the sale of the TWI building. Cash flow provided by investments totaled $1.3 million for the cash received from the sale of the TWI building, which was partially offset by capital expenditures. Cash flow used for financing activities totaled approximately $3.5 million, primarily used to reduce borrowings under the PNC Bank Facility.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     The U.S. dollar is the functional currency for a significant portion of the Company’s operations. Intra-company transactions between Waxman Industries, Inc. and its Asian operations, TWI and CWI, are effected in U.S. dollars. The functional currency of the Company’s foreign operations is their local currency. Specifically, the functional currencies relating to TWI and CWI are the New Taiwan dollar (N.T. Dollar) and the Chinese Renminbi, respectively. As a result, the Company is exposed to currency translation risks, which primarily result from fluctuations of the foreign currencies in which the Company’s foreign subsidiaries deal as compared to the U.S. dollar over time, which is a non-cash and non-profit or loss item. The foreign currency transaction risks arise from certain receivables and payables being denominated in a currency other than the functional currency. The

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majority of TWI’s transaction risk relates to it selling goods in U.S. dollars and the exchange rate changing in the 30 day to 60 day period that it takes to settle the receivable. TWI purchases very little goods that are not in NT Dollars. CWI has nearly no transaction risk because the Chinese Renminbi is fixed relative to the U.S. dollar. The Company does not enter into foreign currency exchange rate risk sensitive instruments, and the Company does not hedge the above-referenced transactions.

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

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

     The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Co-Chief Executive Officers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

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

     Within 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including its Co-Chief Executive Officers and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon the foregoing, the Company’s Co-Chief Executive Officers and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company’s Exchange Act reports.

Changes in Internal Controls

     There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation.

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PART II. OTHER INFORMATION

Item 5. Other Information

Not applicable

Item 6. Exhibits and Reports on Form 8-K

     a) Exhibits

     b) Reports on Form 8-K

     The Registrant filed a report on Form 8-K on February 2, 2004, incorporating by reference the February 2, 2004 press release by the Company, announcing its fiscal 2004 second quarter and year to date earnings and condensed income statements for the periods ended December 31, 2003 and 2002 and condensed balance sheets for December 31, 2003 and June 30, 2003.

All other items in Part II are either inapplicable to the Company during the quarter ended March 31, 2004 or the answer is negative or a response has been previously reported and an additional report of the information need not be made, pursuant to the instructions to Part II.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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Exhibit Index

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