Moore-Handley, Inc.
A National Hardware Distributor

To Our Shareholders:

In last year's letter we wrote, "We have continued to strengthen the senior management team and are beginning to implement productivity and cost savings incentives throughout much of the company. As a result, despite the tough business economy we are experiencing early in 2001, we believe the year will be profitable and show continued improvement in expense control and our quality of service."

As the accompanying 10-K report details, this turned out to be an accurate prediction. Retail business remained soft for much of the year, as did our sales to retailers, and our top line ended up slightly behind 2000. Despite this, improved cost controls and slightly better margins resulted in net income of 44 cents per share, a positive swing of $1.26 from the preceding year's loss of 82 cents per share.

We expect continuing improvement in the current year, as we continue to execute our business plan. That plan consists of three elements:

1. Using electronic controls to reduce errors and improve productivity in our logistic functions. We have described the development of this complex program in previous reports. It has had dramatic results in reducing error rates, in allowing for individual incentive pay, and in increasing productivity. The program is ongoing, and we expect it to result in continuing improvements in the accuracy and cost of the way we do business.

2. Global sourcing to provide our customers with high-quality product lines they can sell at prices comparable to the "big boxes". These product lines carry our registered "Hardware House" trademark and are furnished as complete merchandising programs including point of purchase displays and advertising aids. We now have introduced Hardware House product lines in locks, hand tools, long-handled tools, faucets, bath hardware, lawn and garden watering products, builders' hardware, lighting, and paint sundries. More introductions are planned for each of our three marts this year, and we expect this segment to be an increasingly important part of our (and our customers') business.

3. Taking our business national. Until a few years ago, Moore-Handley was mainly a mid-South distributor with some customers elsewhere in the Southeast. We have been testing means of serving customers outside this historic trading area, and results from these tests lead us to believe we can be competitive in any market east of the Rockies. We are now beginning a systematic effort to attain market penetration in this broad region beyond our historic trade area, while continuing to serve our core customers.

We will report our progress in each of these areas as the year goes on.

/s/ WILLIAM RILEY
/s/ MICHAEL J. GAINES

WILLIAM RILEY
Chairman and Chief President
MICHAEL J. GAINES
Chief Executive Officer Operating Officer