<PAGE>


===============================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 2001
                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from _____ to _____

                         Commission File Number 2-30905

                               HMI INDUSTRIES INC.
             (Exact name of registrant as specified in its charter)

          DELAWARE                                      36-1202810
-------------------------------              ---------------------------------
(State or other jurisdiction of              (IRS Employer Identification No.)
Incorporation or organization)

6000 Lombardo Center, Suite 500, Seven Hills, Ohio             44131
--------------------------------------------------     -----------------------
(Address of principal executive offices)                    (Zip Code)

Registrant's telephone number, including area code:  (216) 986-8008

Securities registered pursuant to Section 12(b) of the Act: None
----------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:

                                 Title of Class
                                 ---------------
                      Common Stock, $1 par value per share

Indicate by check mark whether 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, and (2) has been subject to such filing requirements
for the past ninety (90) days.
Yes [X]   No [ ]

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

The aggregate market value of voting stock held by non-affiliates of registrant,
computed by reference to the closing price on the OTC Bulletin Board on
November 30, 2001 was approximately $3,586,014.

           Class                                         November 30, 2001
-------------------------------------             -----------------------------
Common stock, $1 par value per share                       6,707,832

The following documents are incorporated by reference in this Form 10-K.

Portions of the Proxy Statement for the 2002 Annual Meeting, incorporated into
Part III (Items 10, 11, 12 and 13).

Index to Exhibits is found on pages 45-46.    This report consists of 47 pages.
===============================================================================


<PAGE>

<TABLE>
<CAPTION>

TABLE OF CONTENTS
-----------------

<S>                                                                                                          <C>
PART I............................................................................................................2

   ITEM 1.  BUSINESS..............................................................................................2
   ITEM 2.  PROPERTIES............................................................................................9
   ITEM 3.  LEGAL PROCEEDINGS.....................................................................................9
   ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................................................9

PART II...........................................................................................................9

   ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.............................9
   ITEM 6.  SELECTED FINANCIAL DATA..............................................................................12
   ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................13
   ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........................................19
   ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..........................................................20
   ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.................20

PART III.........................................................................................................20

   ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT......................................................20
   ITEM 11.  EXECUTIVE COMPENSATION..............................................................................20
   ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................................20
   ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................................20

PART IV..........................................................................................................20

   ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.....................................20

SIGNATURES.......................................................................................................22


INDEX TO FINANCIAL STATEMENTS....................................................................................23


INDEX TO EXHIBITS................................................................................................45
</TABLE>




                                       1
<PAGE>



PART I.
(DOLLARS IN THOUSANDS)

ITEM 1.  BUSINESS

GENERAL DEVELOPMENT OF THE BUSINESS
Our Company, HMI Industries Inc., is a worldwide, direct selling company engaged
in the manufacture and sale of high filtration portable surface cleaners,
portable room air cleaners and central vacuum cleaning systems. Our high
filtration portable surface cleaner and portable room air cleaner are sold under
the trade names Filter Queen(R), Princess(R), Majestic(R), Empress(R) and
Defender(R) (portable room air cleaner only) and our central vacuum cleaning
system is sold under the trade names Vacu-Queen(R) and Majestic II(R).

Although we were known as Health-Mor Inc. until 1995, when our name was changed
to HMI Industries Inc., we continue to distribute our products under the
Health-Mor brand name. HMI was reorganized in 1968 in Delaware, succeeding an
Illinois corporation formed originally in 1928. In order to more fully automate
our assembly and distribution, in January 2000 we moved all production areas to
a newer and more efficient facility, in Strongsville, Ohio. Also in January
2000, our sales, marketing and executive personnel relocated to our new
corporate world headquarters at 6000 Lombardo Center, Seven Hills, Ohio.

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Our continuing operations consist of a single operating segment. See Note 1 of
the Notes to the Consolidated Financial Statements for further information.

NARRATIVE DESCRIPTION OF BUSINESS
Consumers have become increasingly aware of the potential health concerns posed
by indoor air quality. We regard ourself as a leader in the management of indoor
air quality by offering a complete solution that keeps indoor air cleaner and
safer to breathe. We believe that people with and without respiratory problems
will notice the benefits of cleaner indoor air that can be derived from using
our products.

According to the U.S. Environmental Protection Agency, most people spend as much
as 90% of their time indoors and over half of that time in their own homes. The
EPA has suggested that air levels of many pollutants inside one's own home may
be two to five times, and sometimes 100 times, higher than outdoor levels. In
addition, studies by the EPA consistently rank indoor air pollution among the
top five environmental risks to public health. According to the April 2000 issue
of Town and Country Magazine... "Fifty million Americans, about one in five, now
suffer from allergies..." In 2000, The American College of Allergy, Asthma &
Immunology (ACAAI) reported that "Between 14 and 15 million Americans have
asthma; 4.8 million are under the age of 18." Furthermore, the Asthma and
Allergy Foundation of America states that: "The environmental triggers most
likely to cause asthma attacks in children have become increasingly well
defined. House dust mites, cockroaches, mold and animal dander have been
identified as the principal allergens that trigger asthma symptoms." The
American Lung Association has also stated that controlling the home environment
is a very important part of asthma and allergy care.


                                       2
<PAGE>


     PRODUCTS AND DISTRIBUTION

Our principle products include a high filtration portable surface cleaner that
is marketed as a healthier alternative to the typical vacuum cleaner, and a
portable room air cleaner that helps to remove particles, gases and odors from
the air. The two products are sold together as a complete Filter Queen Indoor
Air Quality System(TM) in some parts of the world. In other areas, primarily
Asia and Europe, the two products are sold separately.

Filter Queen uses a patented multifiltration system consisting of Cellupure(R),
MEDIPure(R), and Enviropure(R) filter cones and cartridges. The Filter Queen
Indoor Air Quality System(TM) is designed and proven to remove airborne
particles and allergens such as dust, smoke, pollen, mold spores, animal dander,
dust mites and harmful fibers that may lead to allergic reactions. Independent
tests confirm that the Filter Queen Indoor Air Quality System(TM), when used
with the above named filters and cartridges, removes 99.98% of particles at .01
micron, which is better than HEPA (high efficiency particulate arrestance
technologies), the industry standard.

We also sell a residential built-in vacuum system. Our central vacuum system is
quieter than competing models because the power unit is installed in a location
separated from the living area and is made of ABS plastic to further insulate
the noise it produces. Built-in vacuum systems are typically installed in either
the garage, basement, or a closet. Plastic piping runs through the walls of the
home from the unit to various inlets, which have been strategically placed
throughout the home. When a vacuum hose end is placed into an inlet, the
built-in vacuum system's power unit is activated. A built-in system offers the
convenience of carrying only a power nozzle and hose. Built-in vacuum systems
are extremely popular in Canada and in some parts of Europe.

Our built-in vacuum system is sold in homes through direct sales and in retail
outlets. In Canada, the system is marketed side-by-side with our high filtration
portable surface cleaner. We sell two models of our built-in vacuum system. In
Canada, one model is sold through the existing direct sales channel under the
brand name Filter Queen(R). Our other model, the Vacu-Queen(R), is sold in
Canada and the United States through retail vacuum specialty stores. We sell our
central vacuum system in Europe under the Vacu-Queen(R) brand name and under
private label through direct sales channels.

We believe that we offer a superior warranty in the U.S. for our high filtration
portable surface cleaner compared with all other U.S. manufacturers and sellers
of vacuum cleaners. We warrant our surface cleaner for a two-year period from
the date of purchase and offer a lifetime service benefit for the replacement of
the surface cleaner's motor at a price not to exceed $99 USD. Outside the U.S.,
we offer a two-year warranty for our high filtration portable surface cleaner.
In fiscal 2002, we anticipate that we will offer a five-year optional warranty
on the portable surface cleaner. The portable room air cleaner is warranted for
renewable one-year periods so long as the main air filter is replaced annually.
A five-year warranty is offered for our built-in vacuum system.

Our distribution system consists of approximately 400 distributors and importers
who sell our products. Our independent authorized distributors and importers
sell our products in more than 50 countries worldwide.

                                       3
<PAGE>

Each distributor and importer has a defined territory in which he or she
maintains the exclusive right to sell our company's products. Each distributor
and importer sells the products to consumers through an in-home presentation
given by a sales associate who, in some parts of the world, has been trained and
certified by independent HMI trainers as an "Indoor Air Quality Specialist." Our
products are sold through direct, in-home sales and direct response advertising,
as both methods allow for a more complete presentation of the product's
benefits. Distributors are granted the right to market our products using the
demonstration method and utilizing our trademarks. These same distributors and
importers are responsible for providing service and replacement parts and
supplies to the end-consumers in their territories, which provides them with
another source of revenue and potential referral network. In addition, in August
2001, we began testing the effectiveness of direct response television
advertising. This method allows us to provide sales leads to our existing
distribution channel and market our products to a broader audience.

U.S. MARKET. In the United States, we primarily sell our high filtration
portable surface cleaner and portable room air cleaner through distributors who
sell our products to end consumers through sales associates.

To aid in the retention of distributors and help with the development of their
professional careers and independent businesses, we developed a unique training
and development program called "The Edge Success Program" (the "Edge"). The Edge
is an innovative, highly structured 12-step program that provides business
training from the earliest level of a new recruit to the most senior level of a
premier master distributor and provides incentives at each level to promote the
development and retention of quality distributors and sales associates. Business
and management training includes a business management correspondence course and
a training seminar, the Business Management Institute, designed in conjunction
with Baldwin Wallace College, in Ohio and addresses everything from in-home
demonstration techniques to generation of sales leads, personnel training,
compliance matters, ownership and operation of a distributorship, and more.

In addition, in 2001, Health-Mor at Home(TM) was created as a direct to consumer
outbound sales force designed to assist consumers in locations where
distributors are no longer located and the National Advertising Campaign began
which centers around the continued testing of a thirty-minute infomercial
designed to increase brand awareness, generate sales leads, and open new
territories.

MARKETS OUTSIDE THE U.S. Success in exporting is relatively new to us, occurring
mostly in the last twenty years. To sell our products in a foreign market, we
usually engage the services of a single importer to represent our products in
each country. We have less contact with the direct sales networks employed by
importers because we have fewer field staff outside the U.S. to support such
sales networks. Since each country poses its own unique set of challenges (among
others, currency fluctuations, differing political and economic systems, unique
business and legal environments, inconsistent duty and tax requirements, and
even civil unrest and war), it can be very difficult to penetrate a new market
without the help of an individual from that market. As a consequence, we are
dependent on our importers to address those challenges.

     MARKETING AND ADVERTISING

                                       4
<PAGE>

Traditionally, we have relied on our distributors to market and sell our
products to consumers. A portion of the sales of our products by our
distributors and their sales associates is dependent on telemarketing as a tool
for developing sales leads and arranging in-home demonstrations of our products
with end-consumers who purchase these products. Regulatory efforts in Europe and
the U.S. have focused on imposing more restrictions on telemarketing. There can
be no assurance that such regulations will not further restrict telemarketing,
and thereby make it increasingly difficult to sell our products with the aid of
telemarketing. Because of these increased regulations and the high relative cost
of telemarketing, many of the distributors have been developing alternative
methods to generate leads for in-home demonstrations. Such alternative methods
include, but are not limited to, setting up displays at trade shows and fairs,
distributing flyers and door hangers, and using customer referral programs.

Though we have not marketed our products directly to the consumer in the past,
we have been testing a National Advertising Campaign as a method to develop
sales leads, increase market penetration and improve brand awareness.

This method of television advertising, more commonly referred to as an
infomercial, may benefit us in numerous ways. First, it greatly improves our
brand awareness and increases our credibility; second, it allows us to provide
validated leads to our existing distribution channel; and third, we are now
able to sell products directly to consumers in areas where we do not have
representation by a distributor. Early returns are proving direct response
television to be a complementary solution to our existing marketing channels.

In addition, we have teamed up with the National Trust for Historic Preservation
("National Trust") by exclusively supplying our high filtration portable surface
cleaner to 19 homes of national historic significance under the National Trust's
care. Under the agreement with the National Trust, we are permitted to advertise
and promote the National Trust's choice of the Filter Queen(R) to take care of
damaging dust and dirt in some of America's most nationally significant homes,
including James Madison's Montpelier in Virginia, Frank Lloyd Wright's home and
studio in Oak Park and the Robie House, Cliveden in Philadelphia, Lyndhurst in
Tarrytown, New York and Woodrow Wilson's home in Washington, D.C.

     RAW MATERIAL

We assemble finished parts purchased from various suppliers. The raw materials
used by our manufacturing operations are purchased from a number of suppliers,
and substantially all such materials are readily available.

     PATENTS AND TRADEMARKS

We have numerous United States and foreign patents, patent and trademark
applications, registered trademarks and trade names that are used in our
business. We generally own the trademarks under which our products are marketed
and have registered our trademarks and will continue to register and protect
them as they are developed or acquired. We also believe that certain of the
trademarks and trade names are of material importance to the businesses/products
to which they relate and may be of material importance to our company as a
whole. Although protection of our patents and related technologies are important
components of our business

                                       5
<PAGE>


strategy, none of the individual patents is believed to be material to our
company. The remaining duration of the patents and trademarks varies.

     SEASONALITY

Our business is typically not seasonal.

     MAJOR CUSTOMERS AND DEPENDENCE ON INDEPENDENT DISTRIBUTORS

We are subject to risks specific to the individual countries in which we do
business. Sales of our products to three of our international importers
accounted for 13.1%, 11.2% and 10.2% of total product sales in fiscal 200l,
13.1%, 12.9% and 11.3% of total product sales in fiscal year 2000, and 20.5%,
11.6% and 11.0% of total product sales in fiscal year 1999. The loss of any
significant portion of our sales from these importers would have a material
adverse impact on our sales and earnings.

Our revenues, and the stability of such revenues, are dependent on our
relationships with third-party distributors and their sales persons and their
level of satisfaction with our products and us. The distributors are independent
third parties who are not our employees and are not directly under our control.
There can be no assurance that the current relationships with distributors will
continue on acceptable terms and conditions to us, nor can there be any
assurance that additional distributorship arrangements with third parties will
be obtained on acceptable terms. Moreover, there can be no assurance that the
distributors will devote sufficient time and resources to our products to enable
the products to be successfully marketed. Failure of some or all of our products
to be successfully and efficiently distributed could have a material adverse
effect on our financial condition and results of operations.

In addition, our business could be adversely affected by a variety of
uncontrollable and changing factors, including but not limited to: difficulty in
protecting our intellectual property rights in a particular foreign
jurisdiction; recessions in economies outside the United States; longer payment
cycles for and greater difficulties collecting accounts receivable; export
controls, tariffs and other trade protection measures; social, economic and
political instability; and changes in United States and foreign countries laws
and policies affecting trade.

     BACKLOG

We operate monthly with a minimal backlog (backlog at September 30, 2001, 2000
and 1999 was $-0-, $19 and $40, respectively).

     COMPETITION

We experience strong competition in the sale of our high filtration portable
surface cleaners, central vacuum systems and portable room air cleaners.
Participants in the vacuum and indoor air cleaner industries compete primarily
on price, quality, brand name recognition, product availability and product
performance, including the perceived amount of particles removed by a vacuum
cleaner or air filter. Vacuums and indoor air filters are sold through a variety
of channels, including department stores, discount houses, appliance stores, and
catalogs, generally at substantially lower prices than our products. According
to the last survey from the Vacuum Dealers Trade Association, 75% of vacuum
sales in 1998 were through retail store outlets while

                                       6
<PAGE>

direct-selling companies like HMI sold 25%. We believe that our high filtration
portable surface cleaner is competitive with other vacuum cleaners because of
its superior performance and warranty, as described in greater detail above
under "Products and Distribution."

Our high filtration portable surface cleaner and central vacuum system compete
with many significant vacuum cleaner manufacturers and with regional and private
label manufacturers, including other direct selling companies, such as Rainbow,
Tri-Star, Kirby, Miracle Mate, Electrolux and Water-Matic, and companies that
sell through retail outlets such as Eureka, Hoover, Kenmore and Royal. Our
portable room air cleaner competes with other indoor air cleaners sold by
direct-selling companies such as Alpine, and others that sell through retail
outlets such as Honeywell and Bionaire. Many of our competitors have greater
financial, marketing and manufacturing resources and better brand name
recognition than us, and sell their products through broader and more extensive
distribution channels.

     RESEARCH AND DEVELOPMENT

Our ongoing research and development program involves creating new products and
redesigning existing products to reduce manufacturing costs and to increase
product quality and efficiencies. In fiscal year 2001, 2000 and 1999, we
invested $351, $643 and $290, respectively, in new product development. We
anticipate expending less money on the development of new products in fiscal
year 2002.

     ENVIRONMENTAL

To our knowledge, we are in compliance with all applicable Federal, State and
local laws relating to the protection of the environment.

While we anticipate no current expenses for environmental issues, there can be
no assurance that we will not receive claims for environmental conditions in the
future, nor any assurance that any such claims, if received, would not have a
material adverse impact on our financial condition and results of operations.

     EMPLOYEES

We employed 113 full-time and 10 part-time employees at September 30, 2001. None
of our employees are parties to a collective bargaining agreement, and we
believe our relationships with our employees to be good.

FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
Sales to international customers represent 57.8%, 64.4%, and 67.0% of net
product sales for the years ending September 30, 2001, 2000, and 1999,
respectively.


                                       7
<PAGE>


     EXECUTIVE OFFICERS OF THE REGISTRANT

<TABLE>
<CAPTION>
NAME                              AGE                        POSITION AND TERMS OF SERVICE AS OFFICER
----------------------------    --------    ----------------------------------------------------------------------------
<S>                            <C>        <C>
James R. Malone                   58        Chairman and Chief Executive Officer (1)
John A. Pryor                     58        President and Chief Operating Officer(2)
Carl H. Young III                 60        Vice President and General Counsel (3)
Julie A. McGraw                   37        Vice President, Chief Financial Officer, Treasurer and Assistant Secretary
                                            (4)
Joseph Najm                       41        Vice President-Operations (5)
</TABLE>


(1)  Mr. Malone was elected Chairman of the Board of Directors in December 1996
     and Chief Executive Officer in May 1997. From 1993 to 1997, Mr. Malone was
     Chairman, President, and Chief Executive Officer of Anchor Glass Container
     Corporation, a manufacturer of glass containers.

(2)  Mr. Pryor was elected President and Chief Operating Officer in September
     2001. From 1992 to 2001 he was President of Pryor & Associates, which
     provided consulting services to the food service industry. From 1996 to
     2000 he was President and Chief Executive Officer of Valley Innovative
     Services, a food services management company.

(3)  Mr. Young was elected Vice President in September 2001. He previously
     served as President and Chief Operating Officer from July 1998 to September
     2001, as Executive Vice President and Assistant Secretary from May 1997 to
     July 1998 and as Vice President from February 1997 to May 1997. He has
     served as General Counsel since 1997. From 1993 to 1997, Mr. Young served
     as Senior Vice President and General Counsel of Anchor Glass Container
     Corporation.

(4)  Ms. McGraw was elected Chief Financial Officer and Treasurer in March 2000,
     Vice President in February 1999 and Corporate Controller in March 1998. She
     served as Assistant Corporate Controller from July 1996 until March 1998.

(5)  Mr. Najm was elected Vice President-Operations in March 1999. He previously
     was employed by the Kirby Company as Vice President-Manufacturing from 1995
     to 1999. The Kirby Company is a manufacturer of vacuum cleaners.


                                       8
<PAGE>



ITEM 2.  PROPERTIES

The following table sets forth the location, character and size (in square feet)
of the real estate we used in our operations at September 30, 2001:

<TABLE>
<CAPTION>

Location                                  Character                                               Square Feet
-------------------------------------     ----------------------------------------------      --------------------
<S>                                      <C>                                                 <C>
  United States of America
  Strongsville, Ohio                      Leased office, manufacturing
                                           and warehouse space                                      72,991

  Seven Hills, Ohio                       Leased office space                                       15,706

   Naples, Florida                        Leased office space                                        2,180
</TABLE>


ITEM 3.  LEGAL PROCEEDINGS

Claims arising in the ordinary course of business are pending against us.
Although these are in various stages of the litigation process, we believe that
none of these matters will have a material adverse effect on our consolidated
financial position, results of operations or cash flows. Included in the
accompanying Consolidated Balance Sheets at September 30, 2001 and 2000 were
accruals of $15 and $177, respectively, relating to various claims.

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

Not applicable.

PART II

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

Since February 11, 1999, our common stock has been traded in the
over-the-counter market on the OTC Bulletin Board under the symbol "HMII.OB".
Our common stock was listed for trading on the NASDAQ National Market under the
symbol "HMII" until February 10, 1999, the date when it was delisted. The
delisting occurred as the stock no longer met Nasdaq's minimum public float
requirement due to a combination of a decline in the price of our shares of
common stock and a concentration of stock holding.

As of September 30, 2001, there were approximately 231 stockholders of record.

                                       9

<PAGE>


A summary of the quarterly high and low bid price of our common stock on the OTC
Bulletin Board for the years ended September 30, 2001 and 2000, are as follows:

2001
                       High [1]                 Low [1]
                     --------------          --------------
        1st Quarter  $ 1.125                 $ 0.6875
        2nd Quarter  $ 1.5                   $ 0.84375
        3rd Quarter  $ 1.15                  $ 0.7
        4th Quarter  $ 1.15                  $ 1.01

2000
                        High [1]                Low [1]
                     ---------------          -------------
        1st Quarter  $ 1.4375                 $ 0.5
        2nd Quarter  $ 1.375                  $ 0.9375
        3rd Quarter  $ 1.5                    $ 1.03125
        4th Quarter  $ 1.5                    $ 1.0

[1] The bid price for our common stock was received from Nasdaq Trading & Market
Services. Such over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.

The declaration and payment of quarterly dividends is at the discretion of the
Board of Directors, which may raise, lower or omit the dividend in any quarter.
No dividends were declared in 2001 or 2000 as the credit agreement with our
lender presently prohibits us from declaring or paying any dividends.

On March 1, 2000, we successfully completed a private offering of our common
stock in a transaction exempt from the registration requirements under federal
securities law pursuant to section 4(2) of the Securities Act of 1933. A total
of 1,231 shares of our common stock were sold at $1.625 per share. Individuals
affiliated with HMI acquired approximately 71% of the Shares, which were
purchased at a 35% premium over the market value. Net proceeds received from the
sale of the shares were used for general business purposes and in the beginning
implementation stage of our strategic initiatives as described below.

As part of our continuing initiative to streamline costs and restructure our
company to its core business of manufacturing and distributing high filtration
portable surface cleaners, central vacuum systems and portable room air
cleaners, we have developed a strategic plan for growth. We intend to leverage
our position as a leading manufacturer and direct seller of high filtration
portable surface cleaners, central vacuum systems and portable room air cleaners
by undertaking key initiatives that we believe will drive revenues higher and
lower operating costs.

                                       10

<PAGE>


The key initiatives include but are not limited to the following:

  -    Develop a better trained and more knowledgeable distribution network;
  -    Increase product awareness and brand recognition;
  -    Expand the geographic and demographic markets in which our products are
       distributed and sold;
  -    Continue to streamline processes and lower costs; and
  -    Invest in new infrastructure and pursue additional growth opportunities.

Our plan was to use the proceeds from this offering and funds from operations
and bank financing to implement our strategic plan. Even with the monies raised
by the offering, there can be no assurance that cash generated from operations
or other sources of financing will be available that will enable us to fully
implement the strategic plan. In addition, there can be no assurance that our
financial condition and results of operations will not be materially and
adversely affected if we are unable to fully implement our strategic
initiatives.


                                      11
<PAGE>



ITEM 6.  SELECTED FINANCIAL DATA
In thousands except per share amounts and ratios
<TABLE>
<CAPTION>
                                            2001         2000         1999        1998         1997
                                         ---------    ----------    ---------   ----------   ---------
<S>                                    <C>           <C>          <C>          <C>          <C>

Net Product Sales                        $ 32,299     $ 34,621     $ 36,927     $ 38,748     $ 49,878
Cost of Product Sold and SG&A Expenses   $ 32,518     $ 33,515     $ 38,447     $ 48,203     $ 68,603
 Impairment Loss                         $   --       $   --       $  2,665     $   --       $   --
Other Income (Expense), net              $    287     $      6     $     60     $ (1,335)    $ (2,038)
(Loss) Income From Continuing
  Operations Before Taxes                $   (506)    $  1,112     $ (4,125)    $(10,790)    $(20,763)
(Loss) Income Margin From Continuing
  Operations Before Taxes                    (1.6%)        3.2%       (11.2%)      (27.8%)      (41.6%)
Income Tax (Benefit) Expense             $   (593)    $   (353)    $    116     $ (2,217)    $ (7,286)
Income Tax Rate                             117.2%       (31.7%)       (2.8%)       20.5%        35.1%
Income (Loss) From Continuing
  Operations                             $     87     $  1,465     $ (4,241)    $ (8,573)    $(13,477)
Income (Loss) Margin From Continuing
  Operations                                  0.3%         4.2%       (11.4%)      (21.9%)      (26.7%)
Income From Discontinued Operations      $   --       $   --       $   --       $    441     $  2,347
Gain (Loss) on Disposals                 $   --       $    425     $   (375)    $  7,157     $ (5,520)
Net Income (Loss)                        $     87     $  1,890     $ (4,616)    $   (975)    $(16,650)
Net Income (Loss) Margin                      0.3%         5.5%       (12.4%)       (2.5%)      (33.0%)

Per Share Data - Basic and Diluted:
Income (Loss) Before Discontinued
  Operations                             $   0.01     $   0.24     $  (0.81)    $  (1.66)    $  (2.72)
Income From Discontinued Operations      $   --       $   --       $   --       $    .09     $    .47
Gain (Loss) on Disposals                 $   --       $   0.07     $  (0.07)    $   1.38     $  (1.11)
Net Income (Loss)                        $   0.01     $   0.31     $  (0.88)    $  (0.19)    $  (3.36)
Weighted Average Number of Common
  Shares Outstanding:
   Basic                                    6,691        6,113        5,263        5,170        4,956
   Diluted                                  6,724        6,140        5,263        5,170        4,956

Total Assets                             $ 20,843     $ 20,843     $ 17,465     $ 24,409     $ 54,590
Long-Term Debt                           $     75     $     71     $   --       $     42     $    763
Stockholders' Equity                     $ 14,543     $ 14,394     $ 10,326     $ 14,099     $ 14,552
Working Capital                          $  1,923     $  3,913     $    612     $    (18)    $  2,680

Ratio of Current Assets to Current
  Liabilities                                1.31         1.61         1.09         1.00         1.07
Percent of Earnings on Average
  Stockholders' Equity                        0.6%        15.3%       (37.8%)      (6.80%)      (73.3%)
Stock High                                1 11/16        1 3/4        2 1/4        6 1/2        8 1/8
Stock Low                                   11/16          1/2            1        1 1/4        3 7/8
</TABLE>




                                       12

<PAGE>



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (DOLLARS IN THOUSANDS)

The discussion and analysis contained in this section relates only to our
continuing operations.

RESULTS OF OPERATIONS - 2001 COMPARED WITH 2000
NET PRODUCT SALES- Net product sales of $32,299 for the year ended September 30,
2001, were $2,322 or 6.7% lower when compared to the prior year sales of
$34,621. The decrease in sales was primarily attributable to lower international
sales in Western Europe and Asia offset by increased sales in the Americas.
Decreased sales in Western Europe had the largest unfavorable international
impact and were primarily attributable to reduced sales to Portugal, the U.K.
and Belgium.

The reduced sales to Portugal reflect realignments made by this importer to his
inventory levels throughout fiscal 2001. The realignment was done in part to
lower warehouse safety stock in order to improve his cash flow position to
assist in the development of a distribution network in Brazil and in part due
to a lower sell through rate to the end consumer in the fourth quarter.

The reduced sales to the U.K. were the result of the loss of our largest
importer who resigned as an HMI importer in the first quarter of fiscal 2001.
While a former distributor has since become the importer for that territory, it
will be some time before the new distributor can recover the volume loss from
the largest importer. The decline in the Belgium (formerly Holland) importer's
sales was largely associated with the reduced level of warehouse sales to
distributors in the U.K. who typically purchase smaller quantities from this
"European warehouse" rather than container-sized shipments purchased directly
from HMI.

Sales in the Americas to our existing distributor base increased $1,321 from
fiscal 2000 and were driven primarily by growth in Defender(R) sales, which
have been favorably impacted by the recent introduction of the new model as
well as its approval in the second quarter as a Class II Medical Device by the
Food and Drug Administration. Defender(R) sales have also increased as
distributors continued the trend of marketing the Majestic(R) and Defender(R)
together as a system rather than as standalone products, by the opening of
additional offices within the existing network, as well as the switch of
distributors from a competitor. Majestic(R) sales were favorably impacted by
these additional offices as well. Further contributing to the Americas revenue
growth were sales from our Health-Mor at Home(TM) and infomercial initiatives.
Health-Mor at Home(TM) is a direct to consumer outbound sales force formed by
us in early fiscal year 2001 that is designed to assist consumers in locations
where distributors were no longer located. Our infomercial, which was rolled
out in the fourth quarter, is intended to increase sales and brand awareness in
areas where we do not have distributors.

Net product sales were not materially impacted by changing prices.



GROSS PROFIT- The gross margin for the year ended September 30, 2001, was
$13,166 or 40.8% of sales as compared to $14,173 or 40.9% of sales in 2000. This
decrease in the gross margin of $1,007 was principally attributable to lower
year-to-date sales volume, which negatively impacted the gross margin by $1,290.
The negative sales volume was offset by a favorable material variance of $271,
which was associated with lower costs for commodities such as

                                       13
<PAGE>


cardboard packaging, filters, motors, and electrical cords that continue to be
reduced by improving vendor quality, internal processes, and identifying and
pursuing cost savings opportunities.

SELLING, GENERAL, AND ADMINISTRATIVE - Selling, general, and administrative
("SG&A") expenses for the year ended September 30, 2001, of $13,385 were
unfavorable to fiscal 2000 expenses of $13,067 by $318. The increase in SG&A was
largely attributable to increases associated with the training, support and
development of our distributors, advertising costs associated with the
development and airtime of our television infomercial, and non-recurring
professional fees incurred in the second quarter in connection with the
evaluation of potential growth opportunities. This overall increase in expense
was offset by certain reduced expenses, which were primarily driven by the
absence of a bonus expense in 2001. Lower product development expense and a
refund of Canadian Goods and Services Taxes also helped to reduce the overall
increase.

INTEREST EXPENSE - Interest expense for fiscal year 2001 was $101, or $54 higher
than fiscal 2000 due primarily to higher outstanding balances on the credit
facility as compared to that in fiscal 2000.

OTHER (INCOME) EXPENSE - The increase in other (income) expense from ($53) in
fiscal 2000 to $186 for the year ended September 30, 2001 resulted in part from
an assessment, in fiscal 2001, associated with a state sales and use tax audit,
as well as a decrease of other income associated with the cessation of the
financing of end user purchase contracts by HMI.

INCOME TAXES - The effective income tax rate for the year ended September 30,
2001 was 117.2% compared to (31.7%) in fiscal 2000. This difference was driven
by the reversal of income tax reserves and the prior year utilization of net
operating loss carryforwards not previously recognized. During the second
quarter of fiscal 2001, we were informed by the Internal Revenue Service that
examinations for fiscal years 1994 through 1997 were completed. As the
examinations resulted in minimal impact to the financial statements, we recorded
a benefit of $445,000 for the reversal of income tax reserves associated with
these fiscal tax years. The effective rate absent these reserves would have been
(29.2%).

The effective rate for fiscal 2000 was primarily attributable to the utilization
and reversal of the $1,008 valuation allowance associated with the U.S. net
operating loss carryforwards recorded in prior years (See Note 7 to the
Consolidated Financial Statements).

GAIN ON DISPOSAL - On March 27, 1998, we completed the sale of, our then
wholly-owned subsidiary, Bliss Manufacturing to an investor group led by Mr.
Mervin Dunn and Rhone Capital L.L.C. pursuant to a Stock Purchase Agreement,
dated December 17, 1997, as subsequently amended. In March 1999, we recorded a
reserve of $425,000 for future environmental damage expenditures pursuant to
section 8.5 of this Purchase Agreement. This amount was recorded as an estimate
of potential liability under the Stock Purchase Agreement as studies conducted
by independent third parties noted no obligations under existing regulatory
guidelines.

On January 21, 2000, Bliss, under the ownership of Rhone Capital L.L.C., filed
Chapter 11 bankruptcy with the Michigan Eastern Bankruptcy Court, in Detroit,
Michigan. Subsequently, all Bliss facilities were auctioned through the
Bankruptcy Court. The indemnification obligation noted in the Stock Purchase
Agreement did not survive the sale through the bankruptcy court, and as a
result, in June 2000 the $425,000 reserve, recorded in accordance with the Stock
Purchase Agreement, was reversed to income and recorded as a gain on disposal of
discontinued

                                       14
<PAGE>


operations in the Consolidated Statements of Operations (See Note 2 to the
Consolidated Financial Statements).

INFLATION AND PRICING - While inflation or changing prices have not had, and we
do not expect them to have, a material impact upon operating results, there can
be no assurances that our business will not be affected by inflation or changing
prices in the future.

RESULTS OF OPERATIONS - 2000 COMPARED WITH 1999
NET PRODUCT SALES- Net product sales of $34,621 for the year ended September 30,
2000, were $2,306 or 6.2% lower when compared to the prior year sales of
$36,927. The decrease in sales was primarily related to the decline of sales in
Asia and Western Europe of $1,831 and $1,571, respectively, offset by increased
sales to Eastern Europe/Middle East of $1,136.

The decrease in Asia was largely the result of decreased Majestic(R) volume,
which was driven primarily by a sales decline in Japan. This situation was being
addressed through a reorganization of the territories within the Japanese
importer's network of distributors. However, in September 2000, the importer, in
the best interest of his network and HMI, made the decision to sell his business
to a group led by the two largest volume distributors in his network and the
former President of his business. The sale was effective October 1, 2000, and
given that this new group had made a substantial investment in their business,
which deals with our Filter Queen(R) products, management of HMI anticipated
that this new group of importers would meet or exceed the sales targets for
fiscal 2001.

Sales in Western Europe have been adversely effected by decreased sales to our
Holland importer and a major U.K. importer. These decreases were offset by
increased sales to Portugal and Spain, as these two countries continued to grow
their businesses. Holland sales were negatively impacted by the fact that some
of our Eastern European and Middle Eastern distributors had increased their
volume sufficiently enough to be able to order container-sized shipments
directly from us. Accordingly, they no longer needed to buy product from our
Holland importer. Decreased sales within his own territory also added to the
Holland importer's overall sales decline, as telemarketing regulations in this
area had hindered the growth and stability of the direct sales market. Our major
U.K. importer's business suffered when, in the first quarter of fiscal 2000, he
lost two master distributors to a competitor. He spent the rest of the year
working to rebuild his network and open new offices. In addition, an English
television news expose on disreputable sales associates (not affiliated with
this importer) demonstrating the Filter Queen(R) product in the U.K., as well as
a truck drivers strike which caused an oil/gas shortage in the U.K., had an
adverse effect on the importer's attitude toward the business which prevented
him from making any appreciable recovery during the year. This caused him to
resign his position as an importer of our product.

The favorable sales comparison in the Eastern European/Middle Eastern region was
primarily related to increased sales in Norway and Turkey. As previously
discussed these importers had grown their businesses and increased their sales
volume to the point where they were now able to place container-sized orders
directly from us. As such, they no longer purchased product from our Holland
importer, as was done in fiscal 1999.

Net product sales were not materially impacted by any changing prices.

GROSS PROFIT- The gross margin for the year ended September 30, 2000, was
$14,173 or 40.9% of sales as compared to $12,829 or 34.7% of sales in 1999. This
increase in the gross margin of $1,344 was principally attributed to favorable
material and overhead spending variances of

                                       15
<PAGE>


$2,275 and $198, respectively; offset by lower year-to-date sales volume, which
negatively impacted the gross margin by $1,129.

Material costs were reduced due to management's on-going focus to improve
quality and reduce costs. The key areas in which material cost reductions had
been obtained were filtration products, motors and molded plastic parts, as well
as other improvements in the procurement process. Material costs had also been
favorably impacted by reduced obsolescence expense, which was $691 lower than
the prior year due to adjustments recorded in fiscal 1999 for certain motors and
product changes.

Improved purchasing and inventory controls further contributed to the current
year improvement. In addition, our parts specifications was conveyed clearly to
our suppliers who must meet our specifications. Vendor charge backs have become
the norm when parts fail our quality inspection. Process improvements and
operational efficiencies brought about by Total Quality Control procedures
reduced direct labor costs in our manufacturing plant. These are examples of
where attention to cost and quality directly resulted in improved gross margins.

SELLING, GENERAL, AND ADMINISTRATIVE - Selling, general, and administrative
("SG&A") expenses for the year ended September 30, 2000, of $13,067 were
favorable to fiscal 1999 expenses of $14,349 by $1,282. The decrease in SG&A was
primarily attributable to decreases associated with the decreased sales volume,
such as commissions and certain career development expenses, which decreased
$987. Other significant favorable variances were for rental equipment, a
distributor development program and legal and professional fees. Rental
equipment expense was favorable $369 as a result of the cancellation and
subsequent settlement of a computer equipment lease, which was accrued for, in
fiscal 1999. The distributor development program adjustment was based on the
results of an actuarial study and resulted in a non-cash credit to income of
$332, during the third quarter of fiscal 2000. The actuarial study was
commissioned to refine the existing calculation and to provide the credibility
of a third party verification. Legal and professional expenses were down $327 as
a result of reduced legal activity in this year. Offsetting these favorable
variances were $657 in benefits expense associated with the fiscal year 2000
incentive program.

IMPAIRMENT LOSS - On January 12, 1999, we sold our Cleveland, Ohio facility and
related land to Rose Management Company, a local real estate investment company,
for $840. The net book value of the related land and building at the time of
sale was $3,505. In December 1998, we recorded a non-cash impairment loss of
$2,665 on the building to reflect the difference between the sales price and the
net book value of the property.

INTEREST EXPENSE - Interest expense for fiscal year 2000 was $47, or $24 lower
than fiscal 1999 due primarily to lower outstanding balances on the current
credit facility as compared to that in fiscal 1999.

OTHER (INCOME) EXPENSE - The decrease in other income from $131 in fiscal 1999
to $53 for the year ended September 30, 2000 was primarily associated with the
reclass of financing revenue to this line of our Consolidated Statement of
Operations. Financing revenue represents the interest and fees generated on the
contracts financed by our Australian, Canadian, and United States subsidiaries.
It was decided in January 1998 to discontinue the financing of contracts to the
end customers. In fiscal 2000, any remaining monies received relating to this
business were recorded

                                       16
<PAGE>



to the other income/expense line of our Consolidated Statements of Operations.
Therefore, finance revenue of $436 for the year ended September 30, 1999 was
reclassified to conform to the 2000 presentation. The financing revenue
decreased due to the January 1998 cessation of the financing of end user
purchase contracts by HMI.

INCOME TAXES - The effective income tax rate for the year ended September 30,
2000 was (31.7%) compared to (2.8%) in fiscal 1999. The effective tax rate for
fiscal 1999 was attributable to the establishment of a valuation allowance
against 1999 net operating losses offset by a provision for state taxes. The
valuation allowance was established in September of 1999, because although we
had just reported our first profitable quarter in sixteen quarters, management
felt that this was still not enough positive evidence at that time to warrant an
adjustment to the valuation allowance that had been previously established to
reserve a portion of the deferred tax asset. During the first three quarters of
fiscal 2000, we recognized operating profits but utilized the `rolling' method
of accounting for income taxes which resulted in the reduction of the valuation
allowance associated with U.S. deferred tax assets to the extent those assets
were utilized in a given quarter. This method created an effective tax rate of
0% for each quarter. However, as of September 30, 2000, it was management's
belief that enough positive evidence existed so as to warrant the reversal of
the valuation allowance associated with domestic deferred tax assets. Therefore
the income tax benefit and the effective tax rate for fiscal 2000 primarily
represent the reversal of this portion of the valuation allowance. (See Note 7
to the Consolidated Financial Statements).

GAIN ON DISPOSAL - On March 27, 1998, we completed the sale of, our then
wholly-owned subsidiary, Bliss Manufacturing to an investor group led by Mr.
Mervin Dunn and Rhone Capital L.L.C. pursuant to a Stock Purchase Agreement,
dated December 17, 1997, as subsequently amended. In March 1999, we recorded a
reserve of $425,000 for future environmental damage expenditures pursuant to
section 8.5 of this Purchase Agreement. This amount was recorded as a
conservative estimate of potential liability under the Stock Purchase Agreement
as studies conducted by independent third parties noted no obligations under
existing regulatory guidelines.

On January 21, 2000, Bliss, under the ownership of Rhone Capital L.L.C., filed
Chapter 11 bankruptcy with the Michigan Eastern Bankruptcy Court, in Detroit,
Michigan. Subsequently, all Bliss facilities were auctioned through the
Bankruptcy Court. The indemnification obligation noted in the Stock Purchase
Agreement did not survive the sale through the bankruptcy court, and as a
result, in June 2000 the $425,000 reserve, recorded in accordance with the Stock
Purchase Agreement, was reversed to income and recorded as a gain on disposal of
discontinued operations in the Consolidated Statements of Operations. (See Note
2 to the Consolidated Financial Statements).

LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES- Cash flows from operating activities utilized net cash of
$424 for the year ended September 30, 2001, principally due to cash outflows
resulting from decreases in accrued expenses and other liabilities, account
payables, and income taxes of $824, $655 and $431, respectively, and an increase
in inventories of $532, offset by decreased receivables of $1,181 and net
non-cash expenses of $854, primarily relating to depreciation and amortization
of $913.

The decrease in accrued expenses and other liabilities primarily relates to the
payment of the fiscal 2000 management incentive bonus, adjustments to the
warranty reserve, and litigation settlement payouts. Cash disbursements for the
month of September 2001 exceeded purchasing

                                       17
<PAGE>


activity by nearly $300, resulting in a decreased accounts payable balance. This
decrease was also a result of a $400 decrease in raw material purchases in the
month of September 2001, attributable to improved management of the supply chain
lead-times. The decrease in income taxes payable relates to the reversal of
income tax reserves as discussed above in the "Results of Operations - 2001
compared with 2000" section. The increase in inventory is largely a direct
result of lower than anticipated product revenue, as well as additional
purchases relating to our new portable room air cleaner model.

The decline in our receivables balance is largely attributable to lower sales in
September 2001 versus September 2000.

INVESTING ACTIVITIES- Capital expenditures of $2,278 represent the entire net
cash used in investing activities for the year ended September 30, 2001, of
which the largest portion relates to tooling associated with new units
anticipated for release during fiscal 2002.

FINANCING ACTIVITIES- Net cash provided by financing activities was $1,174,
which included $1,191 for net borrowings under the credit facility and $17 for
payment of long-term debt.

Current working capital, together with anticipated cash flows generated from
future operations and our existing credit facility are believed to be adequate
to cover our anticipated cash requirements, including but not limited to capital
expenditures, expenses associated with the execution of our brand-awareness
initiatives and research and development costs. As of September 30, 2001, there
was $1,191 borrowed on our $2,000 credit facility.

SCHEDULE 13D- On October 19, 2001, Kirk W. Foley and certain other reporting
persons filed a Statement on Schedule 13D reporting the acquisition of
additional shares of our common stock by such persons. According to the Schedule
13D, the reporting persons intend to seek, among other things, (i) control of
our board of directors and (ii) to have our board of directors engage an
investment banking firm to explore strategic alternatives. We have rejected
these proposals; however, we are engaged in negotiations with Mr. Foley
regarding what role, if any, the Schedule 13D filers will have in the company on
a going forward basis.

FUTURE ACCOUNTING REQUIREMENTS
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("FAS") 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." FAS 144 replaces FAS 121,
"Accounting for the Impairment of long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The FASB issued FAS 144 to establish a single accounting model,
based on the framework established in FAS 121, as FAS 121 did not address the
accounting for a segment of a business accounted for as a discontinued operation
under APB 30 "Reporting The Results of Operations - Reporting The Effects of
Disposal of a Segment if a Business, and Extraordinary Unusual and Infrequently
Occurring Events and Transactions." FAS 144 also resolves significant
implementation issues related to FAS 121. Companies are required to adopt FAS
144 for fiscal years beginning after December 15, 2001, but early adoption is
permitted. We have not yet determined the impact, if any, this standard will
have on our operating results and financial position.

In July 2001, the FASB issued FAS 141 "Business Combinations". FAS 141 requires
that all business combinations be accounted for under the purchase method of
accounting. In addition,

                                       18
<PAGE>


this Statement addresses financial accounting and reporting for goodwill and
other intangible assets acquired in a business combination at acquisition. The
Statement also provides criteria for the separate recognition of intangible
assets acquired in a business combination. FAS 141 is effective for all business
combinations initiated after June 30, 2001.

In July 2001, the FASB also issued FAS 142 "Goodwill and Other Intangible
Assets". FAS 142 addresses financial accounting and reporting for intangible
assets acquired individually or with a group of other assets at acquisition. FAS
142 presumes that goodwill and certain intangible assets have indefinite useful
lives. Accordingly, goodwill and certain intangibles with indefinite lives will
not be amortized, but rather will be tested at least annually for impairment.
FAS 142 also addresses accounting and reporting for goodwill and other
intangible assets subsequent to their acquisition. FAS 142 is effective for
fiscal years beginning after December 15, 2001. As of the date of this filing,
we have not yet completed our assessment of the impact of FAS 142 on our
financial statements.

In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin 101 (SAB 101), "Revenue Recognition in Financial
Statements." In June 2000, the SEC staff amended SAB 101 to provide registrants
with additional time to implement SAB 101. We adopted SAB 101 during the fourth
quarter of fiscal 2001. The adoption of this statement did not have a material
impact on our financial statements.

In June 1998, FASB issued FAS 133, "Accounting for Derivative Instruments and
Hedging Activities." In May 1999, the FASB delayed the effective date of FAS 133
by one year. We were required to adopt FAS 133 for the quarter ended December
31, 2000. This statement establishes a new model for accounting for derivatives
and hedging activities. Under FAS 133, certain derivatives must be recognized as
assets and liabilities and measured at fair value. Due to the fact that we are
currently not engaged in hedging activities, the adoption of FAS 133 did not
have any effect on our results of operations or financial position.

CAUTIONARY STATEMENT FOR "SAFE HARBOR" - PURPOSES UNDER THE PRIVATE SECURITIES
LITIGATION ACT OF 1995

This report, including Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements within
the meaning of the Federal securities laws. As a general matter, forward-looking
statements are those focused upon future plans, objectives or performance as
opposed to historical items and include statements of anticipated events or
trends and expectations and beliefs relating to matters not historical in
nature, including, but not limited to, the statements made in "Net Product
Sales" relating to infomercial sales and brand awareness and in "Liquidity"
regarding anticipated cash requirements and the adequacy of our current means to
be able to meet those requirements. Such forward-looking statements are subject
to uncertainties such as anticipated sales trends, improved lead generation and
recruiting and the ability to obtain financing for the end consumer through
consumer financing companies. Such uncertainties are difficult to predict and
could cause our actual results of operation to differ materially from those
matters expressed or implied by such forward-looking statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to interest rate risk is related to our borrowings. Fixed rate
borrowings may have their fair market value adversely impacted from changes in
interest rates. Variable rate

                                       19
<PAGE>

borrowings will lead to additional interest expense if interest rates increase.
As of September 30, 2001, we had $1,191 outstanding under our credit facility
bearing interest at the prime rate. If interest rates were to increase 50 basis
points (0.5%) from the September 30, 2001 rates and assuming no changes in
outstanding debt levels from the September 30, 2001 levels, we would realize an
increase in our annual interest expense of approximately $6.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Index to Financial Statements included on page 23 of
this report.

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

Not applicable.

PART III.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
See Item 13.

ITEM 11.  EXECUTIVE COMPENSATION
See Item 13.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See Item 13.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information provided under the captions "Election of Directors," "Committees and
Compensation of the Board of Directors", "Security Ownership", and "Executive
Compensation" in the Proxy Statement for the 2002 Annual Meeting of Shareholders
is incorporated herein by reference. See "Executive Officers of the Registrant"
following Item 1 in this Report for information concerning executive officers.

PART IV.

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

(a) Documents filed as part of this Report.

     1.   FINANCIAL STATEMENTS - Reference is made to the Index to Financial
          Statements, included as page 23 of this report.

     2.   FINANCIAL STATEMENT SCHEDULES - Reference is made to the Index to
          Financial Statements, included as page 23 of this report.

     3.   EXHIBITS - Reference is made to the Index to Exhibits, included as
          pages 45-46 of this report.

(b) Report on Form 8-K.
    No report on Form 8-K was filed during the last quarter of fiscal 2001.

                                       20
<PAGE>

(c)      Exhibits.
         Reference is made to the Index to Exhibits, included as pages 45-46 of
         this report.

(d)      Financial Statement Schedules.
         Reference is made to the Index to Financial Statements, included as
         page 23 of this report.



                                       21
<PAGE>



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 on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.


                                  HMI INDUSTRIES INC.
                                  (Registrant)

                                  by /s/ Julie A. McGraw
                                    ------------------------------------------
                                        Julie A. McGraw
                                        Vice President, Chief Financial Officer
                                        and Treasurer
                                        December 17, 2001

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
on Form 10-K has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<S>                                          <C>                                          <C>
/s/ James R. Malone                           /s/ Carl H. Young III                       /s/ Robert J. Abrahams
------------------------------------------    ----------------------------------------    ----------------------------------------
James R. Malone                               Carl H. Young III                           Robert J. Abrahams
Chairman of the Board, Chief Executive        Vice President and Director                 Director
Officer and Director                          December 17, 2001                           December 19, 2001
December 17, 2001


/s/ Thomas N. Davidson                        /s/ John S. Meany, Jr.                      /s/ Barry L. Needler
------------------------------------------    ----------------------------------------    ----------------------------------------
Thomas N. Davidson                            John S. Meany, Jr.                          Barry L. Needler
Director                                      Director                                    Director
December 18, 2001                             December 17, 2001                           December 20, 2001


/s/ Murray Walker                             /s/ Ivan J. Winfield                        /s/ Earl J. Watson
------------------------------------------    ----------------------------------------    ----------------------------------------
Murray Walker                                 Ivan J. Winfield                            Earl J. Watson
Director                                      Director                                    Corporate Controller
December 21, 2001                             December 21, 2001                           December 17, 2001
</TABLE>



                                       22

<PAGE>



INDEX TO FINANCIAL STATEMENTS


                                                                          PAGE
Report of Management ..................................................    24

Report of Independent Accountants .....................................    25

FINANCIAL STATEMENTS
  Consolidated Balance Sheets as of September 30, 2001
    and 2000 ..........................................................    26

  Consolidated Statements of Operations for the years ended
    September 30, 2001, 2000 and 1999 .................................    27

  Consolidated Statements of Stockholders' Equity for the years
    ended September 30, 2001, 2000 and 1999 ...........................    28

  Consolidated Statements of Cash Flow for the years ended
    September 30, 2001, 2000 and 1999 .................................    29

  Notes to Consolidated Financial Statements ..........................   30-42

  Report of Independent Accountants on Financial Statement Schedule ...    43

FINANCIAL STATEMENT SCHEDULE:  II - Valuation and Qualifying
Accounts and Reserves .................................................    44


Schedules other than those listed above are omitted because they are not
required or are not applicable, or the required information is shown in the
consolidated financial statements, the notes thereto or in Management's
Discussion and Analysis of Financial Condition and Results of Operations.


                                       23
<PAGE>


                              REPORT OF MANAGEMENT



To the Board of Directors and Stockholders of HMI Industries Inc.

The management of HMI Industries Inc. is responsible for the preparation,
integrity and objectivity of the financial statements and all other financial
information included in this report. Management believes that the financial
statements have been prepared in accordance with generally accepted accounting
principles and that any amounts included herein which are based on estimates of
the expected effects of events and transactions have been made with sound
judgment and approved by qualified personnel.

HMI maintains an internal control structure to provide reasonable assurance that
assets are safeguarded and that transactions and events are recorded properly.
The internal control structure is regularly reviewed, evaluated and revised as
necessary by management. Additionally, HMI requires employees to maintain the
highest level of ethical standards in the conduct of all aspects of HMI's
business, and their compliance is regularly monitored.

The financial statements in this report have been audited by the independent
accounting firm of PricewaterhouseCoopers LLP. Their audits were conducted in
accordance with auditing standards generally accepted in the United States of
America and included a study and evaluation of our internal control structure as
they considered necessary to determine the extent of tests and audit procedures
required for expressing an opinion on HMI's financial statements.

The Audit Committee of the Board of Directors, of which outside directors are
members, meets periodically with the independent accountants and management to
review accounting, auditing, internal control and financial reporting matters.
The independent accountants have full and free access to the Audit Committee and
its individual members at any time.

                                             /s/ John A. Pryor
                                             ----------------------------------
                                             John Pryor
                                             President, Chief Operating Officer

                                              /s/ Carl H. Young III
                                             ----------------------------------
                                             Carl H. Young III
                                             Vice President

                                              /s/ Julie A. McGraw
                                             ----------------------------------
                                             Julie A. McGraw
                                             Vice President, Chief Financial
                                             Officer and Treasurer


                                       24

<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders of HMI Industries Inc.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and of cash flow
present fairly, in all material respects, the financial position of HMI
Industries Inc. and its subsidiaries at September 30, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 2001, in conformity with accounting principles
generally accepted in the United States of America. 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 of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

/s/  PRICEWATERHOUSECOOPERS LLP
---------------------------------
Cleveland, Ohio
December 17, 2001



                                       25

<PAGE>



<TABLE>
<CAPTION>

HMI Industries Inc.
CONSOLIDATED BALANCE SHEETS
Dollars and shares in thousands, except par values                   SEPTEMBER 30,         September 30,
                                                                         2001                   2000
------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                  <C>

ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                                               $        7           $      1,535
  Trade accounts receivable (net of allowance of $464 and $507)                2,131                  3,207
  Note receivable                                                                 35                    105
  Inventories:
    Finished goods                                                             1,902                  1,778
    Work-in-progress, raw material and supplies                                1,845                  1,437
  Deferred income taxes                                                        1,681                  1,528
  Prepaid expenses                                                               184                    411
  Other current assets                                                           363                    290
------------------------------------------------------------------------------------------------------------
      Total current assets                                                     8,148                 10,291
------------------------------------------------------------------------------------------------------------

PROPERTY, PLANT AND EQUIPMENT, NET                                             3,810                  1,551
------------------------------------------------------------------------------------------------------------

OTHER ASSETS:
  Long-term note receivable (less amounts due within one year)                     -                     35
  Cost in excess of net assets of acquired businesses
    (net of accumulated amortization of $3,493 and $3,248)                     5,698                  5,963
  Deferred income taxes                                                        2,581                  2,504
  Trademarks (net of accumulated amortization of $120 and $80)                   337                    309
  Other                                                                          269                    190
------------------------------------------------------------------------------------------------------------
      Total other assets                                                       8,885                  9,001
------------------------------------------------------------------------------------------------------------
      Total assets                                                      $     20,843           $     20,843
============================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Line of credit                                                         $     1,191             $        -
  Trade accounts payable                                                       1,902                  2,558
  Income taxes payable                                                           532                    963
  Accrued expenses and other liabilities                                       2,016                  2,840
  Long-term debt due within one year                                             584                     17
------------------------------------------------------------------------------------------------------------
     Total current liabilities                                                 6,225                  6,378
------------------------------------------------------------------------------------------------------------

LONG-TERM LIABILITIES:
  Long-term debt (less amounts due within one year)                               75                     71
------------------------------------------------------------------------------------------------------------
      Total long-term liabilities                                                 75                     71
------------------------------------------------------------------------------------------------------------

STOCKHOLDERS' EQUITY:
  Preferred stock, $5 par value; authorized, 300 shares; issued, none              -                      -
  Common stock, $1 par value; authorized, 10,000 shares;
    issued and outstanding, 6,708 and 6,658 shares                             6,708                  6,658
  Capital in excess of par value                                               8,279                  8,279
  Unearned compensation, net                                                     (8)                   (41)
  Retained earnings                                                              464                    377
  Accumulated other comprehensive loss (Note 1)                                (900)                  (879)
------------------------------------------------------------------------------------------------------------
      Total stockholders' equity                                              14,543                 14,394
------------------------------------------------------------------------------------------------------------
      Total liabilities and stockholders' equity                        $     20,843           $     20,843
============================================================================================================
</TABLE>


See notes to consolidated financial statements.

                                       26
<PAGE>


<TABLE>
<CAPTION>
HMI Industries Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
Dollars and shares in thousands, except per share data                     FOR THE YEARS ENDED SEPTEMBER 30,
                                                                        2001               2000               1999
------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                <C>                <C>
REVENUES:
  Net product sales                                                      $  32,299        $   34,621         $   36,927
------------------------------------------------------------------------------------------------------------------------

OPERATING COSTS AND EXPENSES:
  Cost of products sold                                                     19,133            20,448             24,098
  Selling, general and administrative expenses                              13,385            13,067             14,349
  Impairment loss (Note 3)                                                       -                 -              2,665
  Interest expense                                                             101                47                 71
  Other expense (income), net                                                  186              (53)              (131)
------------------------------------------------------------------------------------------------------------------------
    Total operating costs and expenses                                      32,805            33,509             41,052
------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES                 (506)             1,112            (4,125)
(Benefit) provision for income taxes                                         (593)             (353)                116
------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS                                        87             1,465            (4,241)
------------------------------------------------------------------------------------------------------------------------

Gain (loss) on disposals-
  Bliss Manufacturing (net of taxes of $-0-, $-0-, and $-0-)                     -               425              (375)
------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS)                                                        $      87        $    1,890         $  (4,616)
=========================================================================================================================

Weighted average number of shares outstanding:
  Basic                                                                      6,691             6,113              5,263
  Diluted                                                                    6,724             6,140              5,263
=========================================================================================================================

BASIC AND DILUTED PER SHARE OF COMMON STOCK (NOTE 1):
  Income (loss) from continuing operations                               $    0.01         $    0.24         $   (0.81)
  Gain (loss) on disposals                                               $       -         $    0.07         $   (0.07)
------------------------------------------------------------------------------------------------------------------------
  Net income (loss)                                                      $    0.01         $    0.31         $   (0.88)
=========================================================================================================================
</TABLE>


See notes to consolidated financial statements.

                                       27
<PAGE>


HMI Industries Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999

<TABLE>
<CAPTION>

Dollars in thousands
                                           Capital
                                             in                                Accumulated
                                           Excess                 Retained        Other                  Treasury     Total
                                 Common    of Par       Unearned  Earnings    Comprehensive   Treasury    Stock    Stockholders'
                                 Stock     Value     Compensation (Deficit)       Loss          Shares    Amount      Equity
                                ---------  -------  ------------- ---------    --------------  --------  --------- -------------

<S>                            <C>       <C>          <C>        <C>            <C>              <C>    <C>          <C>
Balance at September 30, 1998    $ 5,369   $8,246       ($595)     $ 3,103        ($ 1,038)        210    ($ 986)      $ 14,099


  Comprehensive loss:
    Net loss                                                        (4,616)                                              (4,616)
    Translation adjustment                                                              31                                   31
                                                                                                                      ----------
  Total comprehensive loss                                                                                               (4,585)
  Write off of sold
      subsidiaries
      cumulative translation
      adjustment                                                                       139                                  139
  Treasury shares issued                     (613)                                                (178)      860            247
  Unearned compensation                                   450                                                               450
  Employee benefit stock                      (24)                                                                          (24)

                                 =======   =======       =====      =======          ======     ========  =======     ==========
Balance at September 30, 1999      5,369    7,609        (145)      (1,513)           (868)         32      (126)        10,326

  Comprehensive loss:
    Net income                                                       1,890                                                1,890
    Translation adjustment                                                             (11)                                 (11)
                                                                                                                      ----------
  Total comprehensive income                                                                                              1,879
  Treasury shares issued                      (92)                                                 (32)      126             34
  Issuance of common stock         1,289      714                                                                         2,003
  Unearned compensation                                   104                                                               104
  Employee benefit stock                       48                                                                            48

                                 =======   =======       =====      =======          ======     ========  =======     ==========
Balance at September 30, 2000      6,658    8,279         (41)         377            (879)         -          -         14,394

  COMPREHENSIVE INCOME:
    NET INCOME                                                          87                                                   87
    TRANSLATION ADJUSTMENT                                                             (21)                                 (21)
                                                                                                                      ----------
  TOTAL COMPREHENSIVE INCOME                                                                                                 66
  ISSUANCE OF COMMON STOCK            50                                                                                     50
  UNEARNED COMPENSATION                                    33                                                                33
                                 =======   =======       =====      =======          ======     ========  =======     ==========
BALANCE AT SEPTEMBER 30, 2001    $ 6,708   $8,279        ($ 8)     $   464          ($ 900)         -          -       $ 14,543
                                 =======   =======       =====      =======          ======     ========  =======     ==========

</TABLE>




See notes to consolidated financial statements.


                                      28
<PAGE>

<TABLE>
<CAPTION>

HMI Industries Inc.
CONSOLIDATED STATEMENTS OF CASH FLOW
Dollars in thousands                                           FOR THE YEARS ENDED SEPTEMBER 30,
                                                                     2001     2000       1999
-----------------------------------------------------------------------------------------------
<S>                                                               <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                               $    87    $ 1,890    $(4,616)
  Adjustments to reconcile net income (loss) to net cash
      (used in) provided by operating activities:
        Depreciation and amortization                                 913        802        823
        Impairment of asset                                          --         --        2,665
        (Gain) loss on disposal of discontinued operations           --         (425)       375
        Provision for loss on sale/disposal of assets                --           12         48
        Treasury/common shares issued, net of unearned
           compensation                                                83        263        674
        Deferred income taxes                                        (230)      (435)      --
  Changes in operating assets and liabilities:
    Decrease (increase) in receivables                              1,181       (868)     1,881
    (Increase) decrease in inventories                               (532)      (380)     1,529
    Decrease (increase) in prepaid expenses                           227       (234)        49
    Increase in other current assets                                  (73)      (244)       (46)
    Decrease in accounts payable                                     (656)      (329)    (2,231)
    (Decrease) increase in accrued expenses and other
           liabilities                                               (824)        71       (575)
    Decrease in income taxes payable                                 (431)       (53)      (110)
    Other, net                                                       (169)      (205)       161
-----------------------------------------------------------------------------------------------
            Net cash (used in) provided by operating activities      (424)      (135)       627
-----------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of assets, net                                  --         --          793
  Capital expenditures                                             (2,278)      (970)       (76)
-----------------------------------------------------------------------------------------------
            Net cash (used in) provided by investing activities    (2,278)      (970)       717
-----------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net borrowings (repayments) under credit facility                 1,191       --         (508)
  Payment of long term debt                                           (17)       (51)      (122)
  Net proceeds from issuance of common stock                         --        1,926       --
-----------------------------------------------------------------------------------------------
            Net cash provided by (used in) financing activities     1,174      1,875       (630)
-----------------------------------------------------------------------------------------------

Net (decrease) increase in cash and cash equivalents               (1,528)       770        714
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                      1,535        765         51
-----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                          $     7    $ 1,535    $   765
=================================================================================================
</TABLE>

See notes to consolidated financial statements.


                                       29

<PAGE>


HMI Industries Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (DOLLARS IN THOUSANDS, EXCEPT
SHARES AND PER SHARE DATA)

BASIS OF CONSOLIDATION
The consolidated financial statements include all controlled subsidiaries.
Operations include the accounts of HMI Industries Inc and the following
wholly-owned subsidiaries: Health-Mor International Inc., HMI Incorporated,
Health-Mor Acceptance Corporation, HMI Acceptance Corporation, and Health-Mor
Acceptance Pty. Ltd. All significant intercompany accounts and transactions have
been eliminated.

Our principal products include a high filtration portable surface cleaner that
is marketed as a healthier alternative to the typical vacuum cleaner, and a
portable room air cleaner that helps to remove particles, gases and odors from
the air. The two products are sold together as a complete Filter Queen Indoor
Air Quality System(TM), primarily in the United States. In other areas,
primarily Asia and Europe, the two products are sold separately.

USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of any contingent 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.

FAIR VALUE OF FINANCIAL INSTRUMENTS
Our financial instruments consist principally of cash and cash equivalents,
accounts and notes receivable, accounts payable, accrued expenses and other
liabilities, line of credit, and short and long-term debt in which the fair
value of these financial instruments approximates the carrying value.

CASH EQUIVALENTS
We consider all highly liquid instruments purchased with a maturity of less than
three months to be cash equivalents. Cash equivalents are comprised primarily of
commercial paper. We believe the carrying amounts approximate fair value due to
the short maturities of these instruments.

ALLOWANCE FOR DOUBTFUL ACCOUNTS
On a quarterly basis, we perform a review of potentially uncollectible trade
accounts receivable to provide our best estimate of the net realizable value of
the receivables.

PREPAID ADVERTISING
We expense the production costs of advertising the first time the advertising
takes place, except for direct-response advertising, which is capitalized and
amortized over its expected period of future benefits, in no event longer than
one year.

Direct-response advertising consists primarily of design and development costs
incurred in connection with a Filter Queen(R) television spot, which directs
viewers to call a 1-800-number to purchase our products. The capitalized costs
of the advertisement is being amortized over a

                                       30
<PAGE>


twelve-month period, which began in July 2001, following the first introduction
of the advertisement into our Americas sales division.

At September 30, 2001 and 2000, $275, and $254, respectively, of advertising was
reported as other current assets. Advertising expense was $591, $193, and $49,
in fiscal 2001, 2000 and 1999, respectively.

INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
principally on the last-in, first-out (LIFO) method, which provides a better
matching of current costs and revenues. The following presents the effect on
inventories and income before taxes had the Company used the first-in, first-out
(FIFO) method of inventory valuation.

<TABLE>
<CAPTION>
                                                                           2001           2000
                                                                         ---------      ---------
<S>                                                                 <C>            <C>
Percentage of total inventories on LIFO                                      100%           100%
Inventory amount had FIFO method been utilized to value inventory     $     4,147    $     3,709
Increase in net income before taxes due to LIFO                       $        94    $        38
</TABLE>

PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation is provided on
the straight-line method over estimated useful lives of 5 years for leasehold
improvements and 3 to 10 years for machinery and equipment. Improvements, which
extend the useful life of property, plant and equipment, are capitalized, and
maintenance and repairs are expensed. When property, plant and equipment are
retired or otherwise disposed of, the cost and accumulated depreciation are
removed from the appropriate accounts and any gain or loss is included in
income.

GOODWILL AND OTHER INTANGIBLE ASSETS
Intangibles resulting from business acquisitions, comprising cost in excess of
net assets of businesses acquired, are being amortized on a straight-line basis
over 40 years.

Quarterly, we evaluate the recoverability of intangibles resulting from business
acquisitions and measure the amount of impairment, if any, by assessing current
and future levels of income and cash flows as well as other factors, such as
business trends and market and economic conditions. If there is an impairment in
value, recorded balances will be adjusted.

Other intangible assets are amortized on a straight-line basis over their useful
lives, ranging from ten to seventeen years.

FOREIGN CURRENCY TRANSLATION
All consolidated foreign operations use the local currency of the country of
operation as the functional currency and translate the local currency asset and
liability accounts at year-end exchange rates while income and expense accounts
are translated at weighted average exchange rates. The resulting translation
adjustments are accumulated as a separate component of Stockholders' Equity
titled "Accumulated Other Comprehensive Loss". Such adjustments will affect net
income only upon sale or liquidation of the underlying foreign investments.

In February 1999, we finalized the closing of our Holland sales office. This
action resulted in an expense of $139 associated with the write off of the
Holland cumulative translation adjustment

                                       31
<PAGE>

previously included within the accumulated other comprehensive loss caption of
the Consolidated Balance Sheets.

Exchange gains and losses from transactions in a currency other than the local
currency of the entity involved are included in income as they occur.
Significantly all of our product sales to our customer base are conducted in
U.S. dollars and therefore net transaction and translation adjustments are not
significant.

COMPREHENSIVE INCOME/LOSS
Comprehensive income/loss combines net income/loss and "other comprehensive
items," which represents foreign currency translation adjustments, which are
reported as a separate component of stockholders' equity in the accompanying
Consolidated Balance Sheets. We present such information in our Statements of
Stockholders' Equity on an annual basis and in a footnote in our quarterly
reports.

SEGMENT REPORTING
We conduct our business as a single reportable segment.

CONCENTRATIONS
Sales of our products to three of our international importers accounted for
13.1%, 11.2% and 10.2% of total product sales in fiscal 200l, 13.1%, 12.9% and
11.3% of total product sales in fiscal year 2000, and 20.5%, 11.6% and 11.0% of
total product sales in fiscal year 1999. The loss of any significant portion of
our sales from these importers would have a material adverse impact on our
sales and earnings.

Our revenues, and the stability of such revenues, are dependent on our
relationships with third-party distributors and their sales persons and their
level of satisfaction with our products and us. The distributors are independent
third parties who are not our employees and are not directly under our control.
There can be no assurance that the current relationships with distributors will
continue on acceptable terms and conditions to us, nor can there be any
assurance that additional distributorship arrangements with third parties will
be obtained on acceptable terms. Moreover, there can be no assurance that the
distributors will devote sufficient time and resources to our products to enable
the products to be successfully marketed. Failure of some or all of our products
to be successfully and efficiently distributed could have a material adverse
effect on our business, prospects, financial condition and results of
operations.

Sales to international customers represent 57.8%, 64.4% and 67.0% of net product
sales for the years ending September 30, 2001, 2000 and 1999, respectively.

REVENUE RECOGNITION
Our revenue recognition policy is to recognize revenues when products are
shipped, or for certain customers when the products are received by the
customer's shipping agent, at which time title transfers to the customer.

WARRANTY
Estimated future warranty obligations related to our products are provided by
charges to operations in the period in which the related revenue is recognized.
This provision is reviewed, and if necessary, adjusted quarterly to reflect the
actual experience.

                                       32
<PAGE>

RESEARCH AND DEVELOPMENT COSTS
Costs incurred in research and development are expensed as incurred and included
in SG&A expenses. In fiscal year 2001, 2000 and 1999, we invested $351, $643 and
$290, respectively, in new product development.

INCOME TAXES
We account for income taxes pursuant to the provisions of Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." Under
SFAS 109, the tax consequences in the future years for differences between the
financial and tax bases of assets and liabilities at year-end are reflected as
deferred income taxes.

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest was $96, $44 and $68 for the years ended September 30,
2001, 2000 and 1999, respectively.

Each of the following transactions has been treated as non-cash items for
purposes of the Consolidated Statements of Cash Flows. During the fourth quarter
of fiscal 2001, we recorded $588 in debt in exchange for assets. These assets
have been vendor-financed and consist primarily of tools, molds and production
equipment associated with our new unit, anticipated for launch in fiscal 2003.
During the second quarter of fiscal 2000, by entering into three capital leases,
we incurred debt totaling $97 in exchange for assets. The assets consisted of
racking and compactors for our Strongsville, Ohio manufacturing facility.

EARNINGS PER SHARE
Earnings per share have been computed according to Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share". The following is a
reconciliation of the number of shares (denominator) used in the basic and
diluted earnings per share computations (shares in thousands) for the year ended
September 30,

<TABLE>
<CAPTION>
                                                 2001                2000
                                          ---------------      ----------------
                                                      Per                  Per
                                                     Share                Share
                                          Shares    Amount     Shares     Amount
                                          -----      -----      -----      -----

<S>                                       <C>        <C>        <C>        <C>
Basic EPS                                 6,691      $ 0.01     6,113      $ 0.31
  Effect of dilutive stock options           33        --          27        --
                                          ------     ------     ------     ------
Diluted EPS                               6,724      $ 0.01     6,140      $ 0.31
                                          ======     ======     ======     ======
</TABLE>


The shares used for calculating our basic and diluted earnings per share amounts
were identical as of September 30, 1999 as the outstanding options were not
included as the result would have been anti-dilutive since a loss from
continuing operations existed for that period.

Options outstanding during the years ended September 30, 2001 and 2000 to
purchase approximately 1,322, and 616 shares of common stock, respectively, were
not included in the computation of diluted EPS because the options' exercise
prices were greater than the average market prices of the common stock during
the period and, therefore, the effect would be anti-dilutive.

                                       33
<PAGE>

FUTURE ACCOUNTING REQUIREMENTS
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("FAS") 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." FAS 144 replaces FAS 121,
"Accounting for the Impairment of long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The FASB issued FAS 144 to establish a single accounting model,
based on the framework established in FAS 121, as FAS 121 did not address the
accounting for a segment of a business accounted for as a discontinued operation
under APB 30 "Reporting The Results of Operations - Reporting The Effects of
Disposal of a Segment if a Business, and Extraordinary Unusual and Infrequently
Occurring Events and Transactions." FAS 144 also resolves significant
implementation issues related to FAS 121. Companies are required to adopt FAS
144 for fiscal years beginning after December 15, 2001, but early adoption is
permitted. We have not yet determined the impact, if any, this standard will
have on our operating results and financial position.

In July 2001, the FASB issued FAS 141 "Business Combinations". FAS 141 requires
that all business combinations be accounted for under the purchase method of
accounting. In addition, this Statement addresses financial accounting and
reporting for goodwill and other intangible assets acquired in a business
combination at acquisition. The Statement also provides criteria for the
separate recognition of intangible assets acquired in a business combination.
FAS 141 is effective for all business combinations initiated after June 30,
2001.

In July 2001, the FASB also issued FAS 142 "Goodwill and Other Intangible
Assets". FAS 142 addresses financial accounting and reporting for intangible
assets acquired individually or with a group of other assets at acquisition. FAS
142 presumes that goodwill and certain intangible assets have indefinite useful
lives. Accordingly, goodwill and certain intangibles with indefinite lives will
not be amortized, but rather will be tested at least annually for impairment.
FAS 142 also addresses accounting and reporting for goodwill and other
intangible assets subsequent to their acquisition. FAS 142 is effective for
fiscal years beginning after December 15, 2001. As of the date of this filing,
we have not yet completed our assessment of the impact of FAS 142 on our
financial statements.

2. DISCONTINUED OPERATIONS

In fiscal 1998, we reported our subsidiary Bliss, as a discontinued operation.
On March 27, 1998, we completed the sale of, our then wholly-owned subsidiary,
Bliss Manufacturing to an investor group led by Mr. Mervin Dunn and Rhone
Capital L.L.C. pursuant to a Stock Purchase Agreement, dated December 17, 1997,
as subsequently amended. In March 1999, we recorded a reserve of $425,000 for
future environmental damage expenditures pursuant to section 8.5 of this
Purchase Agreement. This amount was recorded as an estimate of potential
liability under the Stock Purchase Agreement as studies conducted by independent
third parties noted no obligations under existing regulatory guidelines.

                                       34
<PAGE>


On January 21, 2000, Bliss, under the ownership of Rhone Capital L.L.C., filed
Chapter 11 bankruptcy with the Michigan Eastern Bankruptcy Court, in Detroit,
Michigan. Subsequently, all Bliss facilities were auctioned through the
Bankruptcy Court. The indemnification obligation noted in the Stock Purchase
Agreement did not survive the sale through the bankruptcy court, and as a
result, in June 2000 the $425,000 reserve, recorded in accordance with the Stock
Purchase Agreement, was reversed to income and recorded as a gain on disposal of
discontinued operations in the Consolidated Statements of Operations.

3. PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
                                                      2001             2000
                                                    ----------       ---------
<S>                                                 <C>              <C>
Leasehold improvements                              $     288        $    288
Machinery and equipment                                 6,168           5,178
Construction in progress                                2,074             197
                                                    ----------       ---------
                                                        8,530           5,663
Accumulated depreciation                                4,720           4,112
                                                    ----------       ---------
Net property, plant and equipment                   $   3,810        $  1,551
                                                    ==========       =========
</TABLE>

On January 12, 1999, we sold our Perkins Avenue facility and related land in
Cleveland, Ohio, to Rose Management Company, a local real estate investment
company, for $840. The net book value of the related land and building at the
time of sale was $3,505. In December 1998, we recorded a non-cash impairment
loss of $2,665 on the building to reflect the difference between the sales price
and the net book value of the property. The impairment loss was recorded as a
separate line item under operating expenses in the Consolidated Statements of
Operation.

Depreciation expense relating to continuing operations for the years ended
September 30, 2001, 2000, and 1999 was $608, $523, and $560, respectively.

4. ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following:

<TABLE>
<CAPTION>
                                                           2001            2000
                                                         ---------       ---------
<S>                                                   <C>             <C>
Accrued distributor development                          $    530        $    459
Distributor fund payable                                      483             347
Accrued compensation                                          407             987
Accrued warranty                                              299             431
Other                                                         297             616
                                                         ---------       ---------
                                                         $  2,016        $  2,840
                                                         =========       =========
</TABLE>


In June 2000, an adjustment was made to a certain distributor development
program accrual. This adjustment was based on the results of an actuarial study
and resulted in a credit to income of $331. The actuarial study was commissioned
to refine the existing calculation and to provide the credibility of a third
party verification.

                                       35

<PAGE>



5. DEBT AND CREDIT FACILITY

In May 1999, we entered into a $3,500 revolving line of credit with Finova
Capital, consisting of loans against our eligible receivables and inventory. A
pre-payment penalty waiver for early termination of our old credit facility was
obtained from Heller Financial in February 1999. The credit agreement with
Finova Capital expired in 2002 and called for interest to accrue at a rate of
prime plus 2%, or 11.50% as of September 30, 2000.

During the quarter ended March 31, 2000, we entered into capital leases totaling
$97. These leases, with a term of 60 months, require monthly payments, principal
and interest, of $2. The nominal annual interest rates on these leases range
from 2.62% to 12.0%, compounding monthly.

In June 2001, we terminated our credit facility with Finova Capital and entered
into a $2,000 revolving line of credit with a new lender consisting of loans
against our eligible receivables and inventory. The new credit agreement expires
in 2003 and calls for interest to accrue at the prime rate (6.0% at September
30, 2001). The new facility provides us with an improved interest rate,
increased availability and more favorable eligibility requirements, lower annual
fees and less restrictive covenants. The credit facility agreement includes
various covenants that include, but are not limited to, restrictions on paying
dividends, limitations on our ability to incur additional indebtedness, and
minimal requirements on tangible net worth, interest coverage ratio and capital
expenditures. There were no covenant violations under the credit facility
agreement as of September 30, 2001.

During the fourth quarter of fiscal 2001, we recorded $588 in obligations
relating to vendor-financed assets. These assets consist primarily of tools,
molds and production equipment associated with our new unit, anticipated for
launch in fiscal 2002. These obligations require monthly payments, including
principal and interest, of $67, with the nominal annual interest rates on these
leases ranging from 0.0% to 11.5%, compounding monthly. The remaining terms of
the obligations range from 6 to 13 months.

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                            2001           2000
                                                          ---------      ---------

<S>                                                    <C>            <C>
Bank Line of Credit - See Above                        $     1,191    $       ---
-------------------------------

Vendor-finance Obligations                                     588            ---
--------------------------
bearing interest at 0.0% to 11.50% due in monthly
installments of $67 (including interest) through
October 2002
</TABLE>


                                       36
<PAGE>



<TABLE>

<S>                                                             <C>            <C>
Capitalized Lease Obligations                                   71             88
-----------------------------
bearing interest at 2.62% to 12.00% due in
monthly installments of $2 (including interest)
through March 2005
                                                          ---------      ---------
                                                             1,850             88
Less amounts due within one year                             1,775             17
                                                          ---------      ---------
                                                       $        75    $        71
                                                          =========      =========
</TABLE>

The principal amount of long-term debt payable in the five years ending
September 30, 2002 through 2006 is $1,775, $42, $22, $11 and $-0-. The weighted
average interest rate on short-term borrowings at September 30, 2001 and 2000
was 6.05% and 8.87%, respectively.

6. LONG-TERM COMPENSATION PLAN

We adopted the Health-Mor Inc. 1992 Omnibus Long-Term Compensation Plan in 1992.
The Plan provides for the granting of stock options, stock appreciation rights,
restricted stock awards, phantom stock and/or performance shares ("Awards") to
our key employees and stock options for our non-employee directors. Options
granted under the Plan expire up to ten years after the date of grant if not
exercised and may be exercisable in whole or in part at the discretion of the
Committee established by the Board of Directors. Shares available for issuance
under the Plan may be authorized and unissued shares or treasury shares. The
maximum number of shares of Common Stock available for grant of Awards under the
Plan are limited on an annual and cumulative basis as further defined in the
Plan.

Stock options under the Plan generally have exercise prices equal to the fair
market values at dates of grant, otherwise, if the option price is less than the
fair market value at the date of the grant, compensation expense is recorded for
the difference. For restricted or phantom stock, we record compensation expense
as the excess of the quoted market price of the unrestricted share of stock at
the award date over the purchase price, if any.

During fiscal 1999, the Board of Directors granted 308,000 incentive stock
options (298,000 at $1.50 per share and 10,000 at $1.375 per share) and 77,000
restricted shares to certain of our key employees in accordance with the Plan.
The majority of the options and restricted shares vest over a 36-month period
with the exception of 133,000 options and 26,000 restricted shares that vested
immediately. No compensation expense was recorded related to the stock options
during fiscal 1999, as the exercise price was equal to the fair market value at
the grant date.


During fiscal 2000, the Board of Directors granted 415,000 incentive stock
options (215,000 at $1.0625 per share and 200,000 at $1.25 per share) and 10,000
restricted shares to certain of our key employees in accordance with the Plan.
Vesting immediately were 215,000 options. The remaining options or, 200,000
options, vest over a 48-month period with the vesting subject to acceleration
clauses based upon our company's stock price. No compensation expense was
recorded related to the stock options during fiscal 2000, as the exercise price
was equal to the fair market value at the grant date.


                                       37
<PAGE>

During fiscal 2001, the Board of Directors granted 560,000 incentive stock
options (410,000 at $1.15 per share and 150,000 at $1.30 per share) to certain
of our key employees in accordance with the Plan. All 560,000 options vest over
a three-year period. No compensation expense was recorded related to the stock
options, as the exercise price was equal to the fair market value at the grant
date.

There were -0-, 10,000 and 77,000 shares issued and -0-, 16,700 and 7,000
non-vested shares forfeited pursuant to the Plan in fiscal 2001, 2000 and 1999,
respectively. Unamortized deferred compensation amounted to $8, $41, and $144 at
September 30, 2001, 2000, and 1999, respectively. Total compensation expense, in
conjunction with the Plan was $33, $95, and $511 in fiscal 2001, 2000, and 1999,
respectively.

We apply APB Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations in accounting for our stock plans as allowed under SFAS
Statement No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). Had
compensation cost for the stock granted in 2001, 2000 and 1999 been determined
consistent with SFAS 123, pro forma net income (loss) and earnings per common
share would have been as follows (dollars in thousands, except per share data):

<TABLE>
<CAPTION>
                                                     2001           2000             1999
                                                 ------------    -----------     ------------
<S>                                              <C>             <C>              <C>
Net income (loss), as reported                   $      87       $   1,890        ($  4,616)
Net (loss) income, pro forma                     $    (153)      $   1,685        ($  4,781)
Income (loss) per common share (basic and
  diluted):
    As reported                                  $    0.01       $    0.31        ($   0.88)
    Pro forma                                    ($   0.02)      $    0.27        ($   0.91)
</TABLE>


The fair value for all options granted in 2001, 2000 and 1999 were estimated at
the date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions:

<TABLE>
<CAPTION>
                                                 2001                    2000                     1999
                                               OPTIONS                  OPTIONS                 OPTIONS
                                        ----------------------- ------------------------ -----------------------
<S>                                     <C>                      <C>                     <C>
Risk free interest rate                           3.9% to 4.9%             6.1% to 6.5%            4.7% to 5.1%
Expected life of option                       3 yrs. to 4 yrs.         3 yrs. to 4 yrs.                  3 yrs.
Expected dividend yield
  of stock                                                0.0%                     0.0%                    0.0%
Expected volatility
  of stock                                     95.3% to 102.5%           79.4% to 85.5%          75.3% to 80.4%

</TABLE>

                                       38
<PAGE>


A summary of our stock option activity, and related information for the years
ended September 30, 2001, 2000, and 1999, is shown in the following table.

<TABLE>
<CAPTION>
                                                             Shares subject                Weighted
                                                               to option                average option
                                                             (in thousands)            price per share
                                                           -------------------       ------------------
<S>                                                        <C>                      <C>
September 30, 1998, Outstanding                                           454         $           7.83
    Granted                                                               350                     1.47
    Canceled                                                             (63)                     9.14
                                                           -------------------
September 30, 1999                                                        741                     4.72
    Granted                                                               457                     1.14
    Canceled                                                            (137)                     7.01
                                                           -------------------
September 30, 2000                                                      1,061                     2.89
    Granted                                                               596                     1.18
    Canceled                                                             (54)                     5.14
                                                           -------------------
September 30, 2001, Outstanding                                         1,603         $           2.18
                                                           ===================
</TABLE>

Options exercisable and shares available for future grant on September 30 (in
thousands except per share data):

<TABLE>
<CAPTION>
                                                          2001              2000              1999
                                                       ------------     -------------     -------------
<S>                                                   <C>               <C>               <C>
Options exercisable                                            784               667               438
Weighted-average option price per share
  of options exercisable                                     $3.16             $3.74             $6.01
Weighted-average fair value of options
  granted during the year                                    $0.77             $0.67             $0.81
</TABLE>


The ranges of exercise prices and the remaining contractual life of options as
of September 30, 2001 were:

<TABLE>
<S>                                                                   <C>               <C>
Range of exercise prices                                                  $1-$2             $2-$8
Options outstanding:
  Outstanding as of September 30, 2001 (in thousands)                     1,302               301
  Weighted-average remaining contractual life                              5.02              2.39
  Weighted-average exercise price                                         $1.23             $6.28
Options exercisable:
  Outstanding as of September 30, 2001 (in thousands)                       487               297
  Weighted-average remaining contractual life                              4.07              2.39
  Weighted-average exercise price                                         $1.27             $6.28
</TABLE>


                                       39

<PAGE>



7. INCOME TAXES

The provision (benefit) for income taxes relating to continuing operations
consists of the following:

<TABLE>
<CAPTION>
                                             2001             2000              1999
                                           ---------       ------------      ------------
Current:
<S>                                        <C>             <C>               <C>
  Federal and state                        $    (363)      $         82      $        116
  Foreign                                       ---                ---               ---
                                           ---------       ------------      ------------
                                                (363)                82               116
Deferred (benefit) expense                      (230)              (435)              ---
                                           ---------       ------------      ------------
                                           $    (593)      $       (353)     $        116
                                           =========       ============      ============
</TABLE>

A reconciliation of the provision for income taxes at the Federal statutory rate
to that included in the Consolidated Statements of Operations related to
earnings from continuing operations is as follows:

<TABLE>
<CAPTION>
                                                                2001            2000           1999
                                                             ------------    ------------   -----------
<S>                                                       <C>             <C>            <C>
Tax at Federal statutory rate of 34%                         $     (172)     $       378    $  (1,402)
(Reductions) increases in taxes resulting
  from:
    Tax expense relating to Internal Revenue
       Service audits and settlements                              (445)             ---           ---
    Foreign Sales Corporation earnings                                               ---         (104)
    Amortization of cost in excess of net
       assets of acquired businesses                                 84               84           86
    Valuation allowances against deferred
       tax assets                                                    ---          (1,008)       1,466
    Other - net                                                     (60)             193           70
                                                             ------------    ------------   -----------
                                                             $     (593)     $      (353)    $    116
                                                             ============    ============   ===========
</TABLE>

The increase in the effective tax rate (income tax benefit) from fiscal 2000 to
fiscal 2001 is primarily attributable to the settlement of the IRS audit for tax
years 1993-97 which resulted in the reversal of tax reserves in 2001 and the
reversal of the $698 valuation allowance associated with the U.S. net operating
loss carryforwards recorded in prior years in 2000.

The components of deferred tax assets and liabilities are comprised of the
following at September 30,

<TABLE>
<CAPTION>
                                                           2001          2000
                                                        ----------    ---------
<S>                                                     <C>           <C>
Gross deferred tax assets:
    Operating loss carryforwards                        $   4,741     $   4,921
    Receivable and inventory reserves                         233           267
    Accrued compensation                                       48           126
</TABLE>


                                       40
<PAGE>


<TABLE>
<S>                                                        <C>              <C>

    Other                                                        158               174
                                                           ----------       -----------
                                                               5,180             5,488
                                                           ----------       -----------
Gross deferred tax liabilities:
    Accounts receivable fair market value
       adjustment for tax purposes                               ---               508
    Depreciation                                                  69                99
                                                           ----------       -----------
                                                                  69               607
Valuation allowances on foreign net
  deferred tax assets                                            849               849
                                                           ----------       -----------
Net deferred tax asset                                     $   4,262        $    4,032
                                                           ==========       ===========
</TABLE>


We have determined that we should fully reserve against this net potential
foreign tax asset to the extent it represents excess available net deferred tax
assets for certain foreign subsidiaries and divisions as it is more likely than
not that these tax assets will not be realized. Accordingly, such benefits will
be realized only as, and if, they are used to reduce future tax expense, subject
to evaluation of the continuing need for such valuation allowance, or until
fully realized. Income taxes paid during the years ended September 30, 2001,
2000, and 1999 were $68, $136, and $226, respectively.

Net operating loss carryforwards of approximately $13,369 for tax are available
to offset future taxable income. The carryforwards will expire in 2005 through
2019. Undistributed earnings of foreign subsidiaries are reinvested in their
operations and therefore, no provision is made for additional income taxes that
might be payable on such earnings.


8.  EMPLOYEE BENEFIT PLANS

We have a qualified profit sharing plan that covers substantially all employees.
The overall contribution to our plan and the allocation method is at the
discretion of our Board of Directors. The allocation to the participants is
based on either a fixed amount per participant, a percentage of eligible wages,
or a combination of a fixed amount and a percentage of eligible wages. There was
no profit sharing expense for the plan for the years ended September 30, 2001,
2000 and 1999.

In addition, we offer a 401(K) savings plan to all of our full-time employees.
We match 50% of the first 6% of the employee's contribution to the plan.
Employees may contribute up to 15% of compensation to the plan. Amounts expensed
for the years ended September 30, 2001 and 2000 were $110 and $42, respectively.

9. COMMITMENTS AND CONTINGENCIES, GUARANTEES AND LEASES

We are obligated under certain operating leases for facilities, which expire on
various dates through 2006. The minimum annual lease payments under these
agreements, including renewal options, if exercised, are $907, $788, $765, $227
and $33 for the years ending September 30, 2002, 2003, 2004, 2005 and 2006,
respectively. Rent expense was $1,104, $854 and $705 for the years ended
September 30, 2001, 2000 and 1999, respectively.

                                      41

<PAGE>

LITIGATION

Claims arising in the ordinary course of business are pending against us.
Although these are in various stages of the litigation process, we believe that
none of these matters will have a material adverse effect on our consolidated
financial position, results of operations or cash flows. Included in the
accompanying Consolidated Balance Sheets at September 30, 2001 and 2000 were
accruals of $15 and $177, respectively, relating to various claims.

10. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>

                                                                      2001
                                           ----------------------------------------------------------
                                           December 31,      March 31,     June 30,      September 30,
                                           ------------      ---------     --------      -------------

<S>                                          <C>             <C>            <C>            <C>
Net revenues                                 $ 7,391         $ 8,956        $ 8,980        $ 6,972
Gross profit                                 $ 3,097         $ 3,780        $ 3,556        $ 2,733
Net (loss) income                            $  (117)        $   392        $    49        $  (237)

Basic and diluted (loss) income per
  share of common stock:                     $ (0.02)        $  0.06        $  0.01        $ (0.04)



                                                                       2000
                                           ----------------------------------------------------------
                                           December 31,      March 31,     June 30,      September 30,
                                           ------------      ---------     --------      -------------


Net revenues                                 $ 8,479         $ 9,655        $ 8,313        $ 8,174
Gross profit                                 $ 3,379         $ 4,013        $ 3,293        $ 3,488
Income from continuing operations            $   251         $   331        $   354        $   176
Gain on disposal                             $  --           $  --          $   425        $  --
Net income                                   $   251         $   310        $   779        $   550

Basic and diluted income per share Of
  common stock:
    Income from continuing
      operations                             $  0.05         $  0.05        $  0.05        $  0.09
    Gain on disposal                         $  --           $  --          $  0.07        $  --
    Net income                               $  0.05         $  0.05        $  0.12        $  0.09
</TABLE>


11. RELATED PARTY TRANSACTIONS

In 1995, we converted $750 of accounts receivable from a former Filter Queen
distributor to a note receivable. This distributor was an officer of one of our
majority owned subsidiaries. In 1996, the officer contributed various assets and
liabilities to the subsidiary in exchange for a reduction in the note
receivable. During the quarter ended March 31, 1998, we relinquished land and a
building valued at $523 and the related mortgage in the amount of $317 in
exchange for an increase in the note receivable noted above. The note receivable
of $35 and $140 is reflected in current and long-term assets at September 30,
2001 and 2000, respectively.

                                       42
<PAGE>


                      Report of Independent Accountants on
                          FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Stockholders of
HMI Industries Inc.


Our audits of the consolidated financial statements of HMI Industries Inc.
referred to in our report dated December 17, 2001 appearing in this Annual
Report on Form 10-K also included an audit of the financial statement schedule
listed in item 14 of this Form 10-K. In our opinion, the financial statement
schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.


/s/ PRICEWATERHOUSECOOPERS LLP
-------------------------------
Cleveland, Ohio
December 17, 2001









                                       43

<PAGE>



                               HMI INDUSTRIES INC.
                                   SCHEDULE II
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES


<TABLE>
<CAPTION>
Dollars in Thousands                                 Balance At      Additions                      Balance At
--------------------                                Beginning of     Charged to                       End of
               Description                            Period      Costs and Expense  Deductions       Period
              -------------                         -------------------------------------------------------------
<S>                                               <C>                <C>             <C>             <C>
Valuation account for accounts receivable:
   Year ended September 30, 2001                    $  507             $ --            $   43          $  464
   Year ended September 30, 2000                    $  691             $ --            $  184          $  507
   Year ended September 30, 1999                    $1,085             $ --            $  394          $  691

Valuation account for inventory:
   Year ended September 30, 2001                    $  235             $   90          $  126          $  199
   Year ended September 30, 2000                    $  602             $   71          $  438          $  235
   Year ended September 30, 1999                    $  484             $  762          $  644          $  602

Reserve for loss on disposal:
   Year ended September 30, 2001                    $ --               $ --            $ --            $ --
   Year ended September 30, 2000                    $  451             $ --            $  451          $ --
   Year ended September 30, 1999                    $  233             $  375          $  157          $  451

Valuation for deferred tax asset:
   Year ended September 30, 2001                    $  849             $ --            $ --            $  849
   Year ended September 30, 2000                    $1,857             $ --            $1,008          $  849
   Year ended September 30, 1999                    $1,159             $  698          $ --            $1,857


</TABLE>



                                       44




<PAGE>



<TABLE>
<CAPTION>
INDEX TO EXHIBITS

<S>            <C>                                            <C>
   3.1          Certificate of Incorporation                  Incorporated by reference from, Annual Report on form
                                                              10-K for the year ended September 30, 1995

   3.2          Bylaws                                        Incorporated by reference from, Annual Report on form
                                                              10-K for the year ended September 30, 1995

   9.0          Voting Trust Agreement                        Stockholders Voting Agreement, incorporated by
                                                              reference from Form 13-D filed on October 19, 2001

  10.00         Material Contracts                            Firstar Revolving Credit Agreement, incorporated by
                                                              reference from Form 10-Q for the quarter ended June
                                                              30, 2001

  10.01         Material Contracts                            Change of Control Agreement, Pryor, attached

  10.02         Material Contracts                            Change of Control Agreements, incorporated by
                                                              reference from Form 10-K/A3 for the year ended
                                                              September 30, 1997

  10.03         Material Contracts                            Employment Agreement - Pryor, attached

  10.04         Material Contracts                            Employment Agreement - Malone, incorporated by
                                                              reference from Form 10-K/A3 for the year ended
                                                              September 30, 1997

  10.05         Material Contracts                            Employment Agreement - Young, incorporated by
                                                              reference from Form 10-K/A3 for the year ended
                                                              September 30, 1997

  10.06         Material Contracts                            Incentive Stock Option Agreements, incorporated by
                                                              reference from Form 10-K for the year ended September
                                                              30, 2000

  10.07         Material Contacts                             Accelerated Incentive Stock Option Agreements,
                                                              incorporated by reference from Form 10-K for the year
                                                              ended September 30, 2001

  10.08         Material Contracts                            Restricted Stock Agreements incorporated by reference
                                                              from Form 10-Q for the quarter ended March 31, 1999

  10.09         Material Contracts                            Amendment to Restricted Stock Agreements incorporated
                                                              by reference from Form 10-Q for the quarter ended
                                                              March 31, 1999

  10.10         Material Contracts                            Restricted Stock Agreements incorporated by reference
                                                              from Form 10-K for the year ended September 30, 1998

  10.11         Material Contracts                            Restricted Stock Agreements, incorporated by reference
                                                              from Form 10-Q for the quarter ended March 31, 1998

  10.12         Material Contracts                            Restricted Stock Agreements, incorporated by reference
                                                              from Form 10-K/A3 for the year ended September 30, 1997

  10.13         Material Contracts                            Non-statutory Stock Option Agreements, incorporated
</TABLE>

                                       45
<PAGE>


<TABLE>
<S>            <C>                                            <C>
                                                              by reference from Form 10-K/A3 for the year ended
                                                              September 30, 1997

  10.14         Material Contracts                            Incentive Stock Option Agreement, Pryor, attached

  10.15         Material Contracts                            Incentive Stock Option Agreements, attached

  10.16         Material Contracts                            Incentive Stock Option Agreements incorporated by
                                                              reference from Form 10-Q for the quarter ended March
                                                              31, 1999.

  10.17         Material Contracts                            Incentive Stock Option Agreements, incorporated by
                                                              reference from Form 10-K/A3 for the year ended
                                                              September 30, 1997

    11          Statement re:  Computation of per             Note 1 on Page 33 of the Financial Statements
                share earnings

    21          Subsidiaries of Registrant                    Note 1 on Page 30 of this report

    23          Consent of Experts                            Attached
</TABLE>


                                       46