<PAGE>   1

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

                                  FORM 10-K/A3
              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended September 30, 1997      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)

 3631 Perkins Avenue, Cleveland, Ohio                      44114
(Address of principal executive offices)                 (Zip Code)

       Registrant's telephone number, including area code: (216) 432-1990

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 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 NASDAQ Stock Exchange on
March 6, 1998 was approximately $9,465,990.

Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.

                Class                          Outstanding at March 6, 1998
 --------------------------------------   --------------------------------------
 Common stock, $1 par value per share                  5,033,996

                       Documents Incorporated by Reference

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

None

Index to Exhibits is found on page  60.        This report consists of 61 pages.
================================================================================



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<PAGE>   2

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

<TABLE>
<CAPTION>
PART I.                                                                                                     Page
-------                                                                                                  ---------

<S>                 <C>                                                                                     <C>
Item 1.             Business
(a)                   General Development of Business .........................................              3
(b)                   Financial Information About Industry Segments ...........................              4
(c)                   Narrative Description of Business .......................................              4
                        Consumer Goods ........................................................              4
                        Manufactured Products .................................................              5
                          Metal Stamping and Metal Formed Tubing ..............................              6
                          Tools, Dies and Specialty Machinery .................................              6
                        Employees .............................................................              6
                        Environmental Policies and Controls ...................................              7
                        Methods of Production and Raw Materials ...............................              7
(d)                   Financial Information About Foreign and Domestic
                        Operations and Export Sales ...........................................              7
                      Executive Officers of the Registrant ....................................              7
Item 2.             Properties ................................................................              9
Item 3.             Legal Proceedings .........................................................              9
Item 4.             Submission of Matters to a Vote of Security Holders .......................             10

PART II.
--------

Item 5.             Market for Registrant's Common Equity and Related
                      Stockholder Matter ......................................................             10
Item 6.             Selected Financial Data ...................................................             11
Item 7.             Management's Discussion and Analysis of Financial
                      Condition and Results of Operations .....................................             12
Item 8.             Financial Statements and Supplementary Data ...............................             17
Item 9.             Changes in and Disagreements with Accountants on
                      Accounting and Financial Disclosure .....................................             17

PART III.
---------

Item 10.            Directors and Executive Officers of Registrant ............................             17
Item 11.            Executive Compensation ....................................................             20
Item 12.            Security ownership of Certain Beneficial Owners and
                      Management ..............................................................             27
Item 13.            Certain Relationships and Related Transactions ............................             29

PART IV.
--------

Item 14.            Exhibits, Financial Statement Schedules, and Reports on
                      Form 8-K ................................................................             30

                    SIGNATURES ................................................................             31
                    INDEX TO FINANCIAL STATEMENTS .............................................             32
                    INDEX TO EXHIBITS .........................................................             60
</TABLE>



                                       2
<PAGE>   3


PART I.
-------

Item 1.  Business
-----------------

(a)  General Development of Business
     -------------------------------

HMI Industries Inc. (the "Company" or "registrant") was known as Health-Mor Inc.
until January 1995. The Company was reorganized in 1968 as a Delaware
corporation, succeeding an Illinois corporation originally formed in 1928. In
1997, the business of the Company was carried out through two primary divisions.
The Consumer Goods Division manufactures and sells floor care and air filtration
products, primarily portable bagless vacuum cleaners sold under the trade names
"Filter Queen", "Princess", "Majestic" and "Empress", central vacuum cleaning
systems sold under the trade names "Vacu-Queen" and "Majestic II". Portable room
air cleaners are sold under the trade name "Defender" and carpet cleaning
systems under the trade name "Easy Way" are both sold and leased. This division
also sells needle-free insulin injectors under the "AdvantaJet" name. The
operations of the Consumer Goods Division are carried on through the operations
at the Perkins Avenue facility in Cleveland, Ohio, and the following
wholly-owned subsidiaries: HMI Incorporated (incorporated in Ontario, Canada);
Home Impressions Inc. (incorporated in Delaware);; Health-Mor International,
Inc., which meets the qualifications under the Internal Revenue Code as a
foreign sales corporation (incorporated in the U.S. Virgin Islands); Health-Mor
Acceptance Corporation (incorporated in Delaware); HMI Acceptance Corporation
(incorporated in Ontario, Canada); and Health-Mor Acceptance PTY Ltd.
(incorporated in Sydney, Australia). Health-Mor Personal Care Corp.
(incorporated in Delaware) is 85% owned by the registrant.

The Manufactured Products Division engages in the fabrication and sale of
commercial and industrial stamped components, metal formed tubular products and
machined components, and the manufacture of needle-free insulin injectors. The
operations of this division are carried out by Bliss Manufacturing Company
(incorporated in Ohio) and Tube-Fab Ltd. (incorporated in Ontario, Canada), both
wholly-owned subsidiaries of the Company.

In 1997, the Company made a decision to sell its Manufactured Products Division
businesses and any poor performing product lines in the Consumer Goods Division.
As a result of this decision, Bliss Tubular Products, which engaged in the
bending of aluminum, steel and copper tubing, was sold in fiscal 1997 and the
Company is negotiating the sale of Tube-Fab Ltd.

In September 1997, the Company decided to sell Bliss Manufacturing Company and
this subsidiary was offered for sale. On December 18, 1997, the Company signed a
definitive agreement to sell the stock of its Bliss Manufacturing Company to an
investor group led by Mervin Dunn and Rhone Capital, LLC. The purchase price is
$31,500,000, subject to certain adjustments, including a $1,500,000 distribution
for certain payments to vendors and employee obligations. The sale is expected
to close in March 1998, subject to regulatory and shareholder approval.

In the Consumer Goods Division, the Company has offered for sale two businesses,
Health-Mor Personal Care Corporation and Household Rental Systems ("HRS"). A
letter of intent to sell HRS was signed in December, 1997. In addition, the
Company discontinued selling the "Optima" portable canister vacuum and the
"Princess 2000" upright vacuum cleaner in 1997. In December 1997, the Company
announced it 



                                       3
<PAGE>   4



was discontinuing the "Electrapure" portable canister vacuum product. Sale of
the "SuperNaturals" brand of cleaning products was suspended in 1997. Most of
the Home Impressions product lines were discontinued in 1997, except for the
"Vacu-Queen" central vacuum cleaning system. The Company also discontinued
rental of the "Easy Way" carpet cleaning systems to Filter Queen direct
distributors in 1997.

 (b)     Financial Information About Industry Segments
         ---------------------------------------------

As of September 30, 1997, the Company's continuing operations consist of a
single operating segment: the Consumer Goods Division. See Note 12 (Business
Segments) of the Notes to the Consolidated Financial Statements found on page 55
for further information.

(c)      Narrative Description of Business
         ---------------------------------

Consumer Goods
--------------

The principal products of the Consumer Goods Division of the Company are floor
care and air filtration products, primarily portable vacuum cleaners and central
vacuum cleaning systems. Portable bagless vacuum cleaners are sold under the
trade names "Filter Queen", "Princess", "Majestic" and "Empress". The central
vacuum cleaning systems are sold under the trade names "Vacu-Queen" and
"Majestic II". The bagless portable and portable canister vacuums consist of a
canister type suction cleaner, motorized vacuum cleaning head with a revolving
brush ("Pow-R-Nozzle"), hose, wand, brushes and other cleaning tools. The
Company also offers accessories for use with its bagless and canister vacuum
cleaners, most of which are attached to the exhaust outlet and may be used as
room deodorizers, air circulators, and for other blowing operations such as the
spraying of liquids. The central vacuum cleaning systems use the motorized
vacuum cleaning head with a revolving brush, as well as the hose, wand, brushes
and other cleaning tools. The Company also manufactures straight suction
attachments, which do not have a motorized vacuum cleaning head.

The Filter Queen cleaning system has been registered by Underwriters
Laboratories and Canadian Standards Authority as an Air Filtration Device.

The floor care products of the Consumer Goods Division are marketed in the
United States, Canada, and over forty other countries. The Company markets the
Filter Queen Majestic and the Empress through independent distributors who sell
in the home directly through their own independent representatives and who also
sell indirectly through the representatives of smaller independent local
distributors.

Central vacuum cleaning systems are marketed worldwide under the trade name
"Vacu-Queen" through retail distributors and under the trade name "Majestic II"
through direct distributors. The Company also markets the Vacu-Queen to building
contractors and developers for installation in newly constructed homes and
apartments.

Household Rental Systems ("HRS") provides carpet cleaning systems for rent to
consumers through independent retail vacuum cleaner stores under the name "Easy
Way" in the United States and Canada. The Canadian HRS business has been
reported as discontinued operations and a letter of intent to sell HRS was
signed in December 1997. 



                                       4
<PAGE>   5


Health-Mor Personal Care Corp. markets the AdvantaJet needle-free insulin
injector and other health care products. Customer service is crucial to this
product line. This business has been classified as a discontinued operation and
the Company is seeking a buyer for this business.

The Company meets strong competition in the sale of its vacuum cleaners and
central vacuum systems. In the case of sales through in-home solicitation, this
competition is primarily with vacuum cleaner equipment in use in the home at the
time of the sales presentation. There are many significant vacuum cleaner
manufacturers, plus many regional and private label manufacturers, who make
numerous brand name vacuum cleaners in the United States. Most of these are sold
through department stores, discount houses, appliance shops and by catalog,
generally at substantially lower prices than the Filter Queen. There are more
than five companies which compete significantly with the Company in the United
States and Canada in distribution of vacuum cleaners by in-home solicitation.
Many of its competitors in the sale of vacuum cleaners are substantially larger
and have greater resources than the Company. The Company believes that its
vacuum cleaners are competitive with other vacuum cleaners because of their
performance and warranty. It is the practice of the Company, along with other
companies in the vacuum cleaner industry, to maintain sufficient amounts of
inventory to meet the rapid delivery requirements of customers. The Consumer
Goods Division of the Company operates with a minimal backlog.

The Company is expanding its parts and service business by utilizing its
extensive customer data base to market accessories and new products and
services. The purpose is to enhance the annuity value of each customer to the
Company and to distributors by encouraging add-on sales and generating referrals
by utilizing these same data bases and the Distributor network. The parts and
service business continues to expand in markets outside of North America.

The Company's financing program, through its subsidiaries Health-Mor Acceptance
Corporation and HMI Acceptance Corporation continues to serve its distributors
and consumers by offering financing to marginally credit worthy consumers. The
Company has sold a portion of its U.S. portfolio to a first line finance
company, and continues to explore ways to serve its distributors and consumers
while at the same time reducing its overhead through alliances with first line
finance companies. Health-Mor Acceptance PTY Ltd. was incorporated in Sydney,
Australia, to offer consumer financing of the Company's products in that
country. This portfolio is currently being liquidated.

The Company holds trademark or trade name registration on the principal
trademarks and trade names used by the Consumer Goods Division. These trademarks
have been registered in the United States, Canada and other countries in which
the Company has distributors which sell a significant number of units. The
Company owns a number of patents in the United States, Canada and other
countries on various features of the Filter Queen, Vacu-Queen and related
products. The Company does not believe that its business is materially dependent
on any patent or group of patents.

Manufactured Products
---------------------

The Manufactured Products Division of the Company consists of commercial and
industrial stamped components, metal formed tubular products, machined
components, tools, dies and specialty products and production of needle-free
insulin injection systems. All businesses related to the Manufactured Products
Division have been reclassified to discontinued operations and are held for sale
at September 30, 1997. 

                                       5
<PAGE>   6



Metal Stamping and Metal Formed Tubing
--------------------------------------

Bliss Manufacturing Company ("Bliss"), a wholly-owned subsidiary of the Company,
engages in the manufacture of various types of sheet metal stamping and
sub-assemblies, and painting and welding in conjunction therewith, for customers
in the automotive and truck manufacturing, materials handling equipment,
military, and plumbing industries. The products manufactured by Bliss are sold
primarily to original equipment manufacturers, mostly in the Midwest.

The customers of Bliss issue releases for parts depending upon their own
requirements. Therefore, Bliss operates with a minimal backlog.

The business of Bliss is significantly dependent upon several automotive and
truck manufacturers. In the event that a significant portion of the automotive
and truck business were to cease immediately, and the revenues were not replaced
with sales to other customers, whether existing or new, the loss could have a
material adverse effect on the registrant and its subsidiaries, taken as a
whole. However, the registrant believes that its relationship with these
customers is good and, although it anticipates the loss of business for
particular parts from time to time as the products in which those parts are
incorporated are discontinued or substantially changed, the registrant believes
that it can, at least in part, make up for such losses through existing or new
customers. The Company has signed a definitive agreement to sell Bliss
Manufacturing (See Item 1a).

Tube-Fab Ltd. ("Tube-Fab"), a wholly-owned subsidiary of the Company, is engaged
in the manufacture of high quality tubular products for the aircraft, military,
communications and specialty architectural industries. The Company intends to
sell Tube-Fab in 1998 (See Note 14 "Related Party Transactions" of the Notes to
the Consolidated Financial Statements).

Tools, Dies and Specialty Machinery
-----------------------------------

Machined Products Division ("MPD"), a division of Tube-Fab, engages in the
manufacture and sale of precision machined components for aircraft engines for
the aerospace industry. The work performed is primarily subcontract work for
engine manufacturers. In addition, MPD continues its work with Spar Aerospace,
manufacturing components for the Special Purpose Dextrous Manipulator for the
International Space Station. MPD has numerous competitors in the machining
field, none of whom has any sizable market share.

Sales backlog for MPD as of September 30, 1997 and 1996 was approximately
$540,903 and $420,000, respectively. It is expected that this backlog will be
filled during the current fiscal year.

Employees
---------

The Company and its subsidiaries employed 836 persons at September 30, 1997
throughout the world. Approximately 70% are part of businesses that have been
classified as discontinued.


                                       6
<PAGE>   7

Environmental Policies and Controls
-----------------------------------

To the best of the Company's knowledge, it is in compliance with all applicable
Federal, State and local laws relating to the protection of the environment. It
does not anticipate that any laws or regulations relating to the protection of
the environment will have any material effect on its earnings, capital
expenditures, or competitive position. The Company does not anticipate making
any material capital expenditures for environmental control facilities during
the current and succeeding fiscal years.

Methods of Production and Raw Materials
---------------------------------------

The Consumer Goods Division of the Company assembles finished parts purchased
from various suppliers. Tube-Fab purchases metal tubing from various suppliers
and engages in finishing operations, such as bending, beading and flaring. MPD
manufactures needle-free insulin injectors and precision machined parts for the
aerospace industry. Bliss purchases steel (both coil and blank) from various
suppliers and stamps metal parts for its customers. Bliss also engages in
welding and painting of certain parts, including the painting of parts for other
companies.

(d) Financial Information About Foreign and Domestic Operations and Export Sales
    ----------------------------------------------------------------------------

Financial information relating to foreign and domestic operations for the years
ended September 30, 1997, 1996 and 1995 are set forth in Note 12 (Business
Segments) of the Notes to Consolidated Financial Statements found on page 55.

Executive Officers of the Registrant
------------------------------------

<TABLE>
<CAPTION>
NAME                             AGE          POSITION AND TERMS OF SERVICE AS OFFICER
----                             ---          ----------------------------------------
<S>                              <C>       <C>
James R. Malone                  55        Chairman and Chief Executive Officer (1)
Mark A. Kirk                     40        President, Chief Operating Officer and Chief Financial
                                             Officer (2)
Carl H.Young III                 56        Executive Vice President, General Counsel and Assistant Secretary (3)
Sherwin Ellens                   60        Vice President - Sales and Marketing (4)
Robert M. Benedict               54        Vice President and Treasurer (5)
Kevin Dow                        41        Vice President - Corporate Services and Assistant Treasurer (6)
Michael Harper                   41        Vice President, Corporate Controller and Chief Accounting
                                             Officer and Assistant Secretary (7)
</TABLE>



                                       7
<PAGE>   8


(1)  Mr. Malone was elected Chairman of the Board of Directors on December 5,
     1996 and Chief Executive Officer on May 14, 1997. From 1993 to 1997, Mr.
     Malone was Chairman, President, and Chief Executive Officer of Anchor Glass
     Container Corporation, a manufacturer of glass containers. From 1990 to
     1993 he was Chairman and Chief Executive Officer of Grimes Aerospace
     Company, an aircraft component manufacturer.

(2)  On May 14,1997, Mr. Kirk was elected President and Chief Operating
     Officer. He is also Chief Financial Officer, and was elected to that
     position in February 1997. From 1993 to 1997 he served as Senior Vice
     President and Chief Financial Officer of Anchor Glass Container
     Corporation. From 1990 to 1993 he was Senior Vice President and Chief
     Financial Officer at Grimes Aerospace Company.
     
(3)  Carl Young was elected Executive Vice President, General Counsel, and
     Assistant Secretary on May 28, 1997. He had previously served as Vice
     President and General Counsel from February 14, 1997 to May 28, 1997. From
     1993 to 1997 Mr. Young served as Senior Vice President and General Counsel
     of Anchor Glass Container Corporation. From 1990 to 1993, Mr. Young was
     Senior Vice President and General Counsel for Grimes Aerospace Company.
     
(4)  Mr. Ellens has served as Vice President - Sales and Marketing since May
     28, 1997. From 1996 to May 14,1997 he was Vice President of Direct Sales.
     From 1992 to 1995, he served as Director of Direct Sales for North
     America.
     
(5)  Mr. Benedict was elected Vice President and Treasurer on May 28, 1997.
     From 1995 to 1997 he was Assistant Treasurer of Sealy Inc., a mattress
     manufacturer. From 1992 to 1995 he was Vice President of Benedict, Kuhit &
     Associates, a consulting firm.
     
(6)  Mr. Dow was named Vice President - Corporate Services and Assistant
     Treasurer on May 28, 1997. From March 1996 to May 1997 he served as Vice
     President-Administration and Treasury. He has also served as Treasurer or
     Assistant Treasurer at various times since 1995. He served as Vice
     President - Finance and Administration from 1989 to 1996.
     
(7)  Mr. Harper was elected Vice President, Chief Accounting Officer and
     Assistant Secretary on May 28, 1997. He has also served as Corporate
     Controller since December 1996. He served as Vice President, Finance for
     Bliss Manufacturing Company from January 1996 to December 1996. For over
     sixteen years prior to that time he served in various financial management
     positions with The Sherwin-Williams Company, most recently as the
     Controller of the Transportation Services Division. Sherwin-Williams
     Company is a paint manufacturer.

Kevin Dow, Vice President-Corporate Services and Assistant Treasurer, is the
first cousin of Barry L. Needler, Vice Chairman and a director.



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<PAGE>   9


Item 2. Properties
------------------

The following table sets forth by industry segment, the location, character and
size (in square feet) of the real estate used in the operations of the Company
and its subsidiaries at September 30, 1997:

<TABLE>
<CAPTION>
                                                                                          SQUARE       FEET
                                                                                     --------------------------------
LOCATION                                               CHARACTER                        OWNED             LEASED
---------------------------------------------------    ------------------------      ------------      --------------
<S>                                                    <C>                               <C>                  <C>
CONSUMER GOODS DIVISION
  United States of America
  ------------------------
  Cleveland, Ohio                                      Office, Plant &                   210,000
                                                       Warehouse
  Bradley, Illinois (1)                                Office & Warehouse                  7,516

  Canada
  Mississauga, Ontario                                 Office & Warehouses                                    46,772
  Dorval, Quebec                                       Office & Warehouse                                      4,762
  Calgary, Alberta                                     Office & Warehouse                                      4,500
  Surrey, British Columbia                             Office & Warehouse                                      4,100
  Edmonton, Alberta                                    Office & Warehouse                                      2,049
  Vancouver, British Columbia                          Office & Store                                          2,292
  Burlington, Ontario                                  Office & Store                                          1,100

MANUFACTURED PRODUCTS DIVISION
Tools, Dies & Specialty Machinery (1)
-------------------------------------
  Charlottetown, Prince Edward Island                  Office, Plant &                    19,000
                                                       Warehouse

Metal Stamping and Metal Formed Tubing (1)
------------------------------------------
  Newton Falls, Ohio                                   Office, Plant &                   400,000
                                                       Warehouse
  Youngstown, Ohio                                     Office, Plant &                   150,000
                                                       Warehouse
(1) Included in Assets Held for Sale
</TABLE>

Item 3.  Legal Proceedings
-------  -----------------

The Receiver of the Health Mor B.V. bankruptcy estate commenced litigation
against HMI Industries Inc and one of Health Mor B.V.'s Managing Directors,
Kevin Dow, on or about December 3, 1997, in bankruptcy case asserting that HMI
Industries Inc and Dow are liable, under the law of the Netherlands, for a
616,000 NLG ($308,000) deficit in the Health Mor B.V. estate and approximately
85,000 NLG ($42,500) in costs of administration. HMI Industries Inc believes the
Receiver's claims against HMI are without merit and will vigorously oppose the
Receiver.

Claims arising in the ordinary course of business are pending against the
Company. Although these are in various stages of the litigation process,
management believes that none of these matters will have a material adverse
effect on the consolidated financial position, results of operations or
liquidity of the Company.


                                       9
<PAGE>   10

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
-------

The common stock of the Company is listed and traded on the NASDAQ Stock Market
under the symbol HMII. As of September 30, 1997, there were approximately 253
stockholders of record.

A summary of the dividends declared and the quarterly high and low sales price
of the Company's common stock on the Nasdaq Stock Exchange for the years ended
September 30, 1997 and 1996, are as follows:

<TABLE>
<CAPTION>
1997
                                 High                             Low                          Dividend
                         ----------------------          ----------------------          ----------------------

<S>                                <C>                            <C>                           <C>
            1st Quarter             6 3/4                          4 3/4                        $ .0000
            2nd Quarter             8 1/8                          5 1/8                        $ .0000
            3rd Quarter             7 5/8                          4 7/8                        $ .0000
            4th Quarter             6 1/4                          3 7/8                        $ .0000

1996
                                 High                             Low                          Dividend
                         ----------------------          ----------------------          ----------------------
            1st Quarter            15                             11 1/4                        $ .0875
            2nd Quarter            12 1/4                          7 3/4                        $ .0875
            3rd Quarter             8 3/4                          7                            $ .0875
            4th Quarter             8 1/4                          4 3/4                        $ .0000
</TABLE>

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.
Due to losses in the first three quarters of 1996, the Company did not declare a
dividend in the fourth quarter of fiscal 1996. No dividends were declared in
1997 due to continued losses. The Credit Agreement with the Company's lender
will not permit the payment of dividends and this restriction remains in effect
until the credit facility is paid in full in 1998. It is not expected that the
Company will declare a dividend until the Company returns to profitability.



                                       10
<PAGE>   11


Item 6. Selected Financial Data
-------------------------------

<TABLE>
<CAPTION>
                                                1997              1996               1995             1994               1993
                                            --------------    -------------     -------------    -------------      -------------
<S>                                        <C>                <C>                <C>                <C>               <C>          
Net Revenue From Continuing Operations     $    50,490,250   $   59,548,908    $   62,785,302    $   52,759,037   $    44,224,939
Operating Costs and Expenses               $    68,603,306   $   63,882,184    $   60,509,044    $   50,539,058   $    41,416,946
Other Income (Expense), net                $   (2,650,313)   $  (4,272,428)    $  (1,282,491)    $  (1,080,894)   $   (1,080,413)
Income (loss) Before Discontinued
  Operations  Before Taxes                 $  (20,763,369)   $  (8,605,704)    $      993,767    $    1,139,085   $     1,727,580
Income (loss) Margin Before Discontinued         
  Operations Before Taxes                           (41.1%)          (14.5%)              1.6%              2.2%              3.9%
Income Taxes (benefits)                    $   (7,285,949)   $  (2,838,259)    $    (614,791)    $     (69,510)   $       145,512
Income Tax Rate                                      35.1%            33.0%             69.1%              6.1%              8.4%
Income (loss) before Discontinued
  Operations                               $  (13,477,420)   $  (5,767,445)    $    1,608,558    $    1,208,595   $     1,582,068
Income (loss) Margin Before Discontinued
  Operations                                       (26.7%)           (9.7%)              2.6%              2.3%              3.6%
Income (loss) From Discontinued
  Operations                               $     2,347,039   $  (1,965,815)    $    3,833,317    $    3,422,894   $     3,287,695
Loss on Disposal                           $   (5,519,684)   $  (2,280,844)    $          ---    $          ---   $           ---
Cumulative Effect-
    Change of Accounting for Income       
    Taxes                                  $           ---   $          ---    $          ---    $      719,016   $           ---
Net Income (loss)                          $  (16,650,065)   $ (10,014,104)    $    5,441,875    $    5,350,505   $     4,869,763
Net Income (loss) Margin                           (33.0%)          (16.8%)              8.7%             10.1%             11.0%
Per Share Data:
Income (loss) Before Discontinued
  Operations                               $        (2.72)   $       (1.18)    $          .33    $          .25   $           .33
Income (loss) From Discontinued
  Operations                               $           .47   $        (.40)    $          .79    $          .70   $           .68
Net Income (loss)                          $        (3.36)   $       (2.04)    $         1.12    $         1.09   $          1.01
Cash Dividends                             $          .000   $         .263    $         .346    $         .324   $          .301
Weighted Average Number of Common
  Shares Outstanding                             4,956,276        4,912,135         4,876,599         4,888,395         4,851,192

Total Assets                               $    55,390,133   $   92,511,124    $   85,191,635    $   78,642,212   $    65,102,797
Long-Term Debt                             $       762,777   $   22,334,613    $   14,050,715    $   13,176,973   $     8,800,956
Stockholders' Equity                       $    14,551,505   $   30,882,960    $   40,350,913    $   37,901,982   $    34,442,194
Book Value Per Share                       $          2.94   $         6.29    $         8.27    $         7.75   $          7.10
Working Capital                            $     3,793,541   $   24,981,647    $   23,771,993    $   22,941,184   $    18,189,328

Ratio of Current Assets to Current                    1.10             1.77              1.91              1.99              1.90
  Liabilities
Percent of Earnings on Average
  Stockholders' Equity                             (73.3%)          (28.1%)             13.9%             14.8%             14.8%
Percent of All Dividends to Net Income                 ---          (12.9%)             31.0%             29.7%             30.0%
Stock High                                           8 1/8               15                17            19 1/8            13 3/4
Stock Low                                            3 7/8            4 3/4            13 1/4            11 1/4             5 5/8
Average Annual Price to Earnings Ratio               (1.8)            (4.8)              13.5              13.9               9.6
Average Annual Dividend Yield                          ---             2.7%              2.3%              2.1%              3.1%
</TABLE>



                                       11
<PAGE>   12

Item 7. Management's Discussion and Analysis of Financial Condition and Results
-------------------------------------------------------------------------------
of Operations
-------------

The discussion and analysis contained in this section relates only to the
continuing operations of the Company.

RESULTS OF OPERATIONS
1997 COMPARED WITH 1996

NET PRODUCT SALES- Net product sales for the year ended September 30, 1997
decreased by $8,942,000 or 15.2% as compared to fiscal 1996. The decrease in
sales is due primarily to declines in North America and Asia. Weak sales in
North America were attributable to a correction of high inventory levels in the
distribution network, lower sales to end consumers and a reduction in the
distributor base. Additionally, excess credit granted in prior years to the
Company's distributors resulted in an overall deterioration of liquidity in the
distribution network. Discussions with the HMI North American distributors
revealed that inventories were high at their level due to over ordering spurred
by generous credit terms from the Company. This had eroded liquidity in the
Distribution Network and created a need for an inventory correction. The Company
has adopted a cash only credit policy for North American distributors, which may
depress sales in the near term, but over time, should strengthen the health of
the distribution network. Sales in Asia were adversely affected by economic
conditions in that region and the devaluation of certain currencies. Sales gains
in a strong European market continued their favorable trend.

FINANCING REVENUE AND OTHER INCOME- Financing revenues represent the interest
and fees generated on the contracts financed by the Company's Australian,
Canadian, and United States Subsidiaries. The decline in these revenues is
consistent with the sales decrease experienced mainly in North America.

GROSS PROFIT- Gross Profit, exclusive of financing revenues, for fiscal 1997 was
$13,869,000 or 27.8% as compared to 1996 gross profit of $20,574,000 or 35.0%.
Gross profit was adversely affected by lower volume, quality problems, and
operational inefficiencies. Additionally, non-recurring charges of $1,084,000
were taken to write-off unused barter credits and tooling related to a
discontinued product line. Initiatives were begun in the fourth quarter of 1997
to strengthen business processes, reduce costs, and improve quality.

SELLING, GENERAL, AND ADMINISTRATIVE - Selling, general and administrative costs
increased by $6,958,000 from fiscal 1996 to fiscal 1997. An additional bad debt
expense taken of $4,659,000 was a major factor in the increased SG&A costs. As
previously discussed, deteriorating liquidity in the North American distribution
network and extended credit terms created a customer base with the inability to
pay outstanding debt. This has caused the Company to enter into agreements with
certain distributors that will result in collected balances of substantially
less than 100%. On January 1, 1998, the Company implemented a cash basis policy
for North American distributors that may depress sales temporarily, but over
time, should improve the Company's liquidity and strengthen the fiscal health of
the North American Distribution Network. The Company believes that accounts
receivable, after the reserve for uncollectable accounts, are reflected at their
net realizable value.


                                       12
<PAGE>   13

Severance charges related to the termination of Kirk W. Foley (See Note 14 to
the Consolidated Financial Statements) of approximately $2,000,000 also led to
the increase in SG&A in addition to expenses incurred in March 1997 for the     
settlement of multiple lawsuits in Alabama for $294,000. These lawsuits were    
based upon a variety of tort claims covered by a confidentiality agreement.     
Adjusted for these charges, selling, general and administrative expenses would
have decreased by approximately $1,200,000.

The Company has initiated cost reduction measures in 1997 that should continue
to reduce selling, general and administrative costs in 1998. These include
implementation of a cash basis policy for North American distributors effective
January 1, 1998. The subsequent reduction in credit resulting from this policy
should significantly reduce bad debt expense in 1998.

INTEREST EXPENSE - Interest expense increased $532,000 in fiscal 1997 from 1996
as a result of additional borrowings and increases in interest rates in 1997.

INCOME TAXES - The effective tax rate for fiscal 1997 is 35.1 % compared to
33.0% in 1996.

YEAR 2000 - Customary computer programming changes, developed prior to the
upcoming change in the century becoming a concern, have used two digits rather
than four to identify the year in a date field. If not corrected, many computer
applications may fail to treat year dates intended to represent years in the
twenty-first century as such but instead treat them as still in the twentieth
century, potentially resulting in system failure or miscalculations disruptive
of business operations, including, among other things, an inability to initiate,
receive, process, invoice or otherwise complete normal business activities.
These Year 2000 issues affect virtually all companies and organizations.

The Company has performed a detailed review and assessment of the impact of the
Year 2000 issue on its continuing operations. In connection with this review,
the Company has determined that the remaining costs to be incurred to address
the Year 2000 issue subsequent to September 30, 1997 will not have a material
impact on the Company's future operating results, financial condition, or cash
flows. During fiscal 1997 and 1996, the Company implemented new information
systems throughout its continuing operations which are Year 2000 compliant. The
Company's remaining Year 2000 issue activities consist of replacing a minimal
amount of older personal computer equipment and investigating the status of Year
2000 compliance for its major suppliers. While the Company is beginning to
consider that inquiries might be appropriate to make of such other parties
(principally of its suppliers and other providers) in these regards, there can
be no assurance that the Year 2000 issues confronting such other parties and any
failure on their part to timely address them will not have a material adverse
effect on the Company.

DISCONTINUED OPERATIONS - As of June 30, 1997, the Company reported Bliss
Tubular and Tube-Fab Ltd., its tubular and aerospace businesses, as well as
Health-Mor Personal Care Corp., its personal care business, as discontinued
operations. The Company recorded a pretax estimated loss on disposal of the
assets of Tube-Fab Ltd., and Health-Mor Personal Care Corp. of $1,937,200 during
fiscal 1997. In August 1997, the Company sold the assets of Bliss Tubular to H-P
Products and recorded a pretax loss on the sale of those assets of $1,524,000.
As of September 30, 1997, the Company reported Bliss Manufacturing, its metal
fabrication and stamping business, as a discontinued operation. Accordingly, the
consolidated financial statements of the Company have been reclassified to
report separately the net assets and net 


                                       13
<PAGE>   14



operating results of these discontinued operations. Income Statements for
periods prior to the dates of discontinuance have been restated to reflect
continuing operations. The Company's steam cleaning business, Household Rental
Systems, reported as a discontinued operation in fiscal 1996, recorded an
additional loss on disposal of $2,651,000 in fiscal 1997. At the time of the
filing of the Fiscal Year 1996 10-K, the Company had a letter of intent to
purchase Household Rental Systems for $3.2 million. Subsequently, the deal could
not be completed as the acquiring company could not complete its financing and
has since filed for bankruptcy. When the Company went back into the market to
sell Household Rental Systems, there was a significant diminution in the market
price, despite positive results in the operations. In November 1997, the Company
received two signed letters of intent regarding the planned sale of this
business. The current offers, as described in the letters of intent, are
substantially lower. As a result, the assets were further written down to
recognize this impairment. Management anticipates that the sale of this business
will be completed in early 1998. Sales applicable to the discontinued operations
as of September 30, 1997 and September 30, 1996 were $75,151,642 and
$65,771,728, respectively.

Bliss Manufacturing, the major entity of the Manufactured Products Segment, had
sales of $61,813,000 for the fiscal year ended September 30, 1997, an increase
of $14,654,000 or 31.1% for the comparable period. Gross profit was 13.2% for
the fiscal year 1997 compared to 16.5% for the fiscal year ended September 30,
1996. Gross profit was lower due to a change in product mix and incurrence of
higher material and conversion costs that could not be passed through to
customers. Selling, General, and Administrative expense was $3,959,900 for the
year ended September 30, 1997, a decrease of $580,900 from the year ended
September 30, 1996.

RESULTS OF OPERATIONS
1996 COMPARED WITH 1995

NET PRODUCT SALES - Net product sales for the year ending September 30, 1996
decreased by $3,408,000 or 5.5% as compared to fiscal 1995. Sales declines in
the North American and Asian markets were offset by growth in the European
market. Decreases in the North American market were attributable to, among other
things, a tightening of consumer credit. Distribution difficulties and required
product changes in Asia hampered sales in fiscal 1996.

FINANCING REVENUES - Financing revenues represent the interest and fees
generated on the contracts financed by the Company's Australian, Canadian, and
United States Subsidiaries.

GROSS PROFIT - Gross profit, exclusive of financing revenues, for fiscal 1996
was $20,574,000 or 35.0% as compared to 1995 gross profit of $23,119,000 or
37.1%. Total gross profit was lower due to the decline in sales volume. The
Consumer Goods operations moved into a new facility in March 1996, thus
eliminating the cost of duplicate facilities incurred during the first six
months of the year. Additionally, scheduling and process changes were made,
within the operations, in an effort to reduce production inefficiencies.

SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and administrative costs
increased by $4,236,000 from fiscal 1995 to fiscal 1996. Included in the
increase is $2,200,000 of product development and introduction costs for the
Consumer Goods business with corresponding increases in sales from these
products. The Company also experienced increased legal and professional fees,
increased compensation costs and increased reserves for uncollectable accounts.



                                       14
<PAGE>   15


INCOME TAXES - The effective rate for fiscal 1996 was 33.0% compared to 69.1% in
1995.

DISCONTINUED OPERATIONS - The Company adopted a plan to exit its direct sales
business in Mexico and to sell the Canadian Household Rental Systems operation.
Accordingly, the results of these operations were reported as discontinued
operations. The Company recorded a loss on the disposal of Mexico of $1,481,000
primarily comprised of the currency devaluation which was previously reflected
as a component of equity offset by a U.S. tax benefit of the loss on the
Company's investment in the Mexican operation. An $800,000 charge was recorded
in fiscal 1996 on the disposal of the steam cleaning business in order to record
the assets of this operation at their estimated net realizable value.

LIQUIDITY AND CAPITAL RESOURCES

The working capital balance at September 30, 1997 was $3,793,500 compared to the
September 30, 1996 balance of $24,982,000, principally as a result of the
Company's long-term debt being classified as current on the September 30, 1997
consolidated balance sheet. On December 18, 1997, the Company entered into a
definitive agreement to sell 100% of the stock of Bliss Manufacturing, a wholly
owned subsidiary for $31,500,000, subject to certain adjustments. The Company
expects the entire proceeds from the sale of Bliss Manufacturing to be applied
to the retirement of substantially all of its debt, certain vendor obligations,
transaction costs and related expenses, certain employee benefit payments, and
amounts necessary to fund future tax obligations arising from the gain on the
sale of Bliss Manufacturing. It is anticipated that this transaction will close
by the end of the second fiscal quarter of 1998. Accordingly, debt to be retired
from the proceeds of the sale has been classified as current.

The Company's cash decreased $233,000 during the year ended September 30, 1997.
The decrease in receivables of $3,241,000 was due primarily to lower sales,
tighter credit terms, and an increase in the allowance for doubtful accounts.
Inventories decreased by $4,362,000 due to tighter inventory controls in the
Consumer Goods Division and at Bliss Manufacturing. Accounts payable decreased
by $3,214,000 as a result of lower inventory levels. Accrued liabilities
increased $4,208,000 due primarily to severance charges taken as a result of the
termination of Kirk W. Foley.(See Note 14 to the Consolidated Financial
Statements). The aforementioned variances relate to information in the
Consolidated Statement of Cash Flow in which items relating to discontinued
operations have not been disaggregated as they have in the Consolidated Balance
Sheet.

In November 1996, the Company increased the line of credit facility from
$17,500,000 to $19,500,000 with a principal payment of $2,000,000 due by
February 28, 1997. Under this line of credit agreement, a principal amount of
$2,500,000 was due no later than January 2, 1997. In December 1996, the proceeds
from the sale of the Bedford Heights, Ohio tubular facility were utilized to pay
down the $2,500,000 principal amount to $1,379,100. In January 1997, proceeds
from a federal income tax refund were used to pay the remaining principal amount
due. Effective February 28, 1997, the Credit Facility Agreement was amended to
increase the line of credit from $17,000,000 to $20,000,000 with $5,000,000 of
the commitment due March 31, 1997. Subsequently, the availability of the
$20,000,000 facility was extended through May 31, 1997.


                                       15
<PAGE>   16

Effective June 1997, the Company entered into a $20 million credit facility with
its lender which replaced the February 1997 amended and restated credit facility
agreement. The new credit agreement expires on October 1, 1998 and requires an
unused facility fee, computed at 0.25% per annum on the Unused Revolving
Facility amount, payable monthly. The secured facility consists of a $13 million
revolving credit facility and $7 million in term loans. The term loans require
monthly principal payments of $98,501. Interest rates accrue at prime on the
revolving credit facility and up to prime plus 2.25% on the term loans. As of
September 30, 1997, the outstanding balance on the Company's credit facility was
$15,824,397.

At September 30, 1997, the Company was in violation of the financial covenants
under its credit agreement and was experiencing increasing liquidity problems.
The Company's deteriorating cash position was a significant factor that led to
the decision to sell Bliss Manufacturing. In December 1997, the Company obtained
waivers from its lenders with respect to the covenant violations and received
$2,000,000 in a special term loan that accrues interest at a rate of prime plus
2.0%, to be paid monthly. The maturity date of this agreement is the earlier of
the receipt of the Bliss Manufacturing sale proceeds or March 31, 1998.
Additionally, a fee with respect to the special term loan of $80,000 will be
paid on such date that the special term loan is paid in full. Additionally , the
Company expects to receive additional financing of $1,200,000 upon the filing of
its fiscal 1997 tax return, which is expected to be filed in early January 1998.
The proceeds of the anticipated tax refund will be first used to repay the
$1,200,000 to the bank and any excess will be used for working capital.

In November 1996, the Company made an annual principal payment of $1,666,666 on
the unsecured, 9.86%, seven year private placement term notes, leaving a balance
of $1,666,667 as of September 30, 1997, with the final payment due date extended
until the earlier of March 31, 1998 or upon receipt of proceeds from the sale of
Bliss Manufacturing.

The Australian Unsecured Demand Authorization, payable on demand or February 28,
1997, was extended until the earlier of March 31, 1998 or upon the receipt of
proceeds from the sale of Bliss Manufacturing. An extension was also obtained in
April 1997 for the bank credit facility utilized by the Netherlands operation.
The facility ($480,822), originally payable in March 1997, is now available
through December 1997. The Company is presently negotiating, with its lender, an
extension on this debt until the earlier of March 31, 1998 or upon receipt of
proceeds from the sale of Bliss Manufacturing.

Interest expense for 1997 was primarily related to borrowing on the line of
credit, term loans, and the Private Placement unsecured term notes. Other
interest relates to the Industrial Revenue Bonds on the Lombard property,
interest on capital leases and interest paid on Distributors' deposits.

The Company's principal sources of liquidity, until the sale of Bliss
Manufacturing, are expected to be funded with cash generated from operations,
additional borrowings under the Company's credit facility referred to above and
the 1997 tax refund. After the sale of Bliss Manufacturing the Company's
principal sources of liquidity are expected to be from the proceeds from the
sale, a new credit facility to be put in place in the second fiscal quarter of
1998 and from cash generated from operations.


                                       16
<PAGE>   17

The sale of Bliss Manufacturing is contingent upon shareholder approval,
regulatory approval and a variety of other customary closing conditions. The
Company expects all these conditions to be met and the sale of Bliss
Manufacturing to be consummated by March 31, 1998. However, if the sale of Bliss
Manufacturing is not achieved by such date, the Company would have liquidity
needs that could only be satisfied by further amendment to the credit facility
to allow for additional time to close the sale transaction or obtaining
additional financing sources.

The agreements relating to the Company's outstanding debt include various
covenants that limit its ability to incur additional indebtedness, restricts
paying dividends, and limits the ability for capital expenditures. As of
September 30, 1997, the Company was not in compliance with certain of these
covenants contained in its credit agreements; however, the Company obtained a
waiver on these covenants through September 30, 1997. Additionally, the credit
agreements were amended so as to eliminate the restrictive covenants referred to
above until March 31, 1998.

CAUTIONARY STATEMENT FOR "SAFE HARBOR"
PURPOSES UNDER THE PRIVATE SECURITIES REFORM 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. Such forward-looking statements are subject to certain uncertainties
including the successful completion of the sale of Bliss Manufacturing, and
retention and rebuilding of the Consumer Products Division distribution network.
Such uncertainties are difficult to predict and could cause actual results of
the Company to differ materially from those matters expressed or implied by such
forward-looking statements.

Item 8. Financial Statements and Supplementary Data
---------------------------------------------------

Reference is made to the Index to Financial Statements included on page 32 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

(A) DIRECTORS

The following information is presented regarding the name, age, business
experience, term of office, positions with HMI Industries Inc. ("the Company")
and legal proceedings for each of the directors of the Company.


                                       17
<PAGE>   18



CLASS C DIRECTORS: NOMINEE FOR ELECTION AT THE 1998 ANNUAL SHAREHOLDERS' MEETING
TO SERVE FOR A THREE-YEAR TERM EXPIRING IN THE YEAR 2001

Mark A. Kirk, age 40, became a Director of the Company in May 1997. He was
elected President and Chief Operating Officer of the Company in May 1997. He was
elected Chief Financial Officer of the Company in February 1997. From 1993 to
1997 he served as Senior Vice President and Chief Financial Officer of Anchor
Glass Container Corporation, a manufacturer of glass bottles and other
containers. From 1990 to 1993 he was Senior Vice President and Chief Financial
Officer of Grimes Aerospace Company, a manufacturer of components for the
aircraft industry, including interior and exterior lighting, engine valves,
electronic systems and avionics. In September 1996, a petition was filed in the
United States Bankruptcy Court in Delaware by Anchor Glass under Chapter 11 of
the Bankruptcy Code in order to restructure the debt of Anchor Glass. Mr. Kirk
was an executive officer of that company at that time.

John S. Meany, Jr., age 52, became a Director of the Company in 1986. Mr. Meany
is an attorney in private practice and has served as Secretary of the Company
since 1995. Mr. Meany previously served as Secretary of the Company from 1986 to
1991, as Vice President-Legal of the Company from 1983 to 1990 and as Vice
President and General Counsel from 1990 to 1991.

Barry L. Needler, age 49, became a Director of the Company in 1989. Mr. Needler
is a private investor. Since 1991 he has been President and Chief Executive
Officer of Steeplechase Corp. and Reldeen Ltd., investment holding companies,
and since 1990 he has been President and Chief Executive Officer of Fairway,
Inc., a personal holding company for business investments.

CLASS A DIRECTORS: (CONTINUING) TERM EXPIRING IN 1999

Moffat Dunlap, age 56, became a Director of the Company in 1993. Mr. Dunlap has
held a license in the real estate industry since 1962 and has been President of
Moffat Dunlap Real Estate Limited (real-estate broker for residential estates)
since 1972.

Grace McCarthy, age 70, became a Director of the Company in 1993. Mrs. McCarthy
is a former Deputy Premier of the Province of British Columbia. She served as
the leader of the B.C. Social Credit Party in 1993 and 1994. She served as a
Member of the Legislature for British Columbia for 26 years, retiring in 1991.
She has served as a Cabinet Minister holding various portfolios including
Economic Development, Tourism, Human Resources, Fish and Wildlife and Provincial
Secretary. Mrs. McCarthy has submitted a letter of resignation to the Board, to
be effective as of the Annual Meeting.

Ivan Winfield, age 63, became a Director of the Company in 1995. He is an
independent business and financial consultant. Mr. Winfield was a partner of
Coopers & Lybrand (the Company's auditors) from 1970 to 1994. Mr. Winfield is a
trustee of the Fairport Group of Mutual Funds. He is also a director of Boykin
Lodging Company and International Total Service, Inc.



                                       18
<PAGE>   19

CLASS B DIRECTORS: (CONTINUING) TERM EXPIRING IN THE YEAR 2000

Robert J. Abrahams, age 71, became a Director of the Company in 1984. Mr.
Abrahams has been President of Crestwood Consultants, a financial consulting
company, since 1988. Mr. Abrahams is also the President of Health-Mor Acceptance
Corporation and HMI Acceptance Corporation, wholly-owned subsidiaries of the
Company.

Donald L. Baker, age 68, became a Director of the Company in 1986. Mr. Baker has
been President of Complete Industrial Enterprises, Inc., a distributor of
electrical and industrial equipment, since 1985. Mr. Baker has also served as
Mayor of Peru, Illinois since 1965.

James R. Malone, age 55, became a Director of the Company in 1996. Mr. Malone
was elected Chairman of the Board in December 1996, and was elected as Chief
Executive Officer in May 1997. He is also Chairman and Chief Executive Officer
of Intek Capital Corp., a private investment firm. From 1993 to 1997 he was
Chairman, President and Chief Executive Officer of Anchor Glass Container
Corporation, a manufacturer of glass bottles and other containers. From 1990 to
1993 he was Chairman and Chief Executive Officer of Grimes Aerospace Company, a
manufacturer of components for the aircraft industry, including interior and
exterior lighting, engine valves, electronic systems and avionics. He is a
member of the Board of Directors of AmSouth Bancorporation, a regional bank
holding company in the Southeast, and Ametek Inc., a manufacturer of measuring
and controlling devices, including motors, blowers, sensors, filters and
housings. In September 1996, a petition was filed in the United States
Bankruptcy Court in Delaware by Anchor Glass under Chapter 11 of the Bankruptcy
Code in order to restructure the debt of Anchor Glass. Mr. Malone was an
executive officer of that company at that time.

Frank M. Rasmussen, age 63, became a Director of the Company in 1994. Mr.
Rasmussen was a Partner of Squire, Sanders & Dempsey L.L.P., the Company's
principal law firm, from 1970 until his retirement in 1996.

(B) EXECUTIVE OFFICERS

For information regarding the Executive Officers of the registrant, please see
the list of Executive Officers following Part I of this Report on Form 10-K.

(C) SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that
the Company's officers, directors and owners of more than 10% of the Company's
common stock file reports of ownership and changes in ownership of the Company's
securities with the Securities and Exchange Commission and the Nasdaq Stock
Market and to furnish the Company with a copy of all such reports they file

Based solely on a review of the copies of such forms the Company has received,
the Company believes that all of its executive officers and directors complied
with all filing requirements applicable to them with respect to transactions
during the fiscal year ended September 30, 1997, except for the following: Kirk
Foley, an executive officer and director, failed to file a Form 4 for January
1997 reporting the vesting of 24,390 shares of phantom stock and the grant of an
employee stock option to purchase 20,000 shares of 


                                       19
<PAGE>   20



Common Stock; and Michael Harper and Robert M. Benedict, Jr., each an executive
officer of the Company, were each late in filing Form 5 relating to the grant of
employee stock options to purchase 15,000 shares of Common Stock.

ITEM 11.  EXECUTIVE COMPENSATION

(A) COMPENSATION OF EXECUTIVE OFFICERS

The following table sets forth the respective amounts of compensation for the
individuals who served as the Chief Executive Officer in 1997, and the four most
highly compensated executive officers of the Company other than the Chief
Executive Officer for each of the years 1995, 1996 and 1997 (all such officers,
the "named executive officers").

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                              All Other
                                          Annual Compensation         Long Term Compensation (5)            Compensation (8)
                                    --------------------------------  -------------------------------       ----------------
                                                                                  Awards
                                                        Other Annual Restricted   Stock      Phantom
        Name and                                        Compensation  Stock ($)  Options(#)  Stock ($)
  Principal Position          Year  Salary(1) Bonus (2)    ($)(3)       (4)        (6)         (7)
----------------------------  ----  --------- ---------    -------    ------     -------   ----------
<S>                           <C>   <C>       <C>          <C>         <C>         <C>      <C>               <C>
James R. Malone (9)           1997  $277,642        $0                 $75,000     76,500           $0              $0
Chairman and Chief Executive  1996         -         -            -          -          -            -               -
Officer since May 1997        1995         -         -            -          -          -            -               -
                                                                                            
Kirk W. Foley (10)            1997  $451,667        $0     $127,200         $0     20,000           $0          $3,956 (11)
President & Chief             1996  $449,802        $0     $182,613         $0     20,000           $0          $5,549 (11)
Executive Officer to May 1997 1995  $368,316  $382,121      $96,155         $0     40,000   $1,734,375          $4,790 (11)
                                                                                            
Chuck Ellens (12)             1997  $324,066        $0      -               $0          0           $0              $0
Vice President,  Sales and    1996  $344,878        $0      -               $0          0           $0            $685
Marketing                     1995  $499,305        $0      -               $0          0           $0            $775
                                                                                            
Mark A. Kirk (13)             1997  $204,333        $0      -         $200,000     75,000           $0        $108,040 (14)
President, Chief Operating    1996         -         -      -                -          -            -               -
Officer & Chief Financial     1995         -         -      -                -          -            -               -
Officer                                                                                     
                                                                                            
Carl H. Young, III (15)       1997  $204,333        $0      -         $200,000     75,000           $0              $0
Executive Vice President and  1996         -         -      -                -          -            -               -
General Counsel               1995         -         -      -                -          -            -               -
                                                                                            
Kevin Dow                     1997  $130,400        $0      -               $0          0           $0              $0
Vice President, Corporate     1996  $130,400        $0      -               $0          0           $0            $685
Services & Assistant          1995  $126,300   $71,875      -               $0          0           $0            $775
Treasurer                                                                                   
</TABLE>

(1)  Salary amounts include automobile allowance and automobile insurance.
     Amount for Kirk Foley also includes $38,317 paid in 1997, $27,250 paid in
     1996 and $10,500 paid in 1995 as an allowance for living expenses pursuant
     to his employment agreement with the Company. Amounts for Mark Kirk and
     Carl Young include an employment bonus of $65,000 each.

(2)  Amounts paid in the fiscal year pursuant to the Company's Incentive Bonus
     Plans. Incentive bonuses are calculated on a calendar year basis.


                                       20
<PAGE>   21


(3)  Kirk Foley is the only named executive officer who received perquisites or
     other benefits required to be disclosed under applicable regulations. The
     amounts identified consist of repayments of interest and principal made by
     the Company on behalf of Mr. Foley in accordance with his employment
     agreement for loans taken out by Mr. Foley. See "Compensation of the Chief
     Executive Officer" elsewhere in this amendment for more information.

(4)  Reflects the fair market value of grants of restricted stock on the dates
     of grant. Mr. Kirk and Mr. Young each received an award of 20,000 shares
     of restricted stock which vested on February 1, 1998. Messrs. Malone, Kirk 
     and Young each received an award of 25,000 shares of restricted stock
     which vested in equal amounts of 12,500 shares on October 1, 1997 and
     January 1, 1998. Subsequently, Messrs. Malone, Kirk and Young each
     surrendered to the Company the 12,500 shares of stock vesting on October
     1, 1997. The value of these shares was not included in the value of the
     restricted stock awards in the table above. The value of the shares, which
     were still restricted at September 30, 1997, including the shares  
     subsequently surrendered, was $603,750. No dividends have been paid on the
     shares awarded in the above table because no dividends have been declared
     by the Company since those shares were awarded.

(5)  Reflects the number of shares of Common Stock of the Company covered by
     stock options granted during the year, and the fair market value on the
     date of grant of phantom stock and restricted stock. No stock appreciation
     rights ("SAR"), either in conjunction with or separate from stock options,
     were granted to the named executives during the years shown.

(6)  The Company maintains plans under which stock options may be awarded. The
     Company does not, however, make "long term compensation awards" as that
     term is used in applicable Commission rules, because the amount of Company
     incentive awards is not measured by performance of the Company over longer
     than a one-year period.

(7)  Phantom shares were deemed issued October 4, 1994 when Mr. Foley signed his
     employment agreement with the Company. This agreement provides that the
     shares vest in installments in 1995, 1996 and 1997, with the final
     installment vesting on January 1, 1999. See "Compensation of the Chief
     Executive Officer" regarding the surrender of a portion of the phantom
     shares vesting in 1996.

(8)  Except as otherwise noted, reflects contributions made by the Company or a
     subsidiary under defined contribution plans maintained by the Company and a
     subsidiary.

(9)  Mr. Malone was elected as Chairman of the Company in December 1996 and
     Chief Executive Officer in May 1997.

(10) The amount shown as salary for 1995 and 1996 represents compensation paid
     to Mr. Foley as President of the Company and as Chairman and Chief
     Executive Officer of the Company. The amount shown as salary for 1997
     includes amounts paid through September 30, 1997.

(11) Premiums on life insurance paid pursuant to Mr. Foley's employment
     agreement. For a description of additional compensation received by Mr.
     Foley in connection with his termination of employment, see also "Certain
     Relationships and Related Transactions" in this amendment.

(12) Mr. Ellens was elected an executive officer of the Company in 1996.

(13) Mr. Kirk was elected Vice President-Finance and Chief Financial Officer in
     February 1997 and President and Chief Operating Officer in May 1997. 

(14) Represents an allowance for Mr. Kirk's relocation to Cleveland, Ohio.

(15) Mr. Young was elected Executive Vice President and General Counsel in May
     1997 and previously served as Vice President- Administration and General
     Counsel from February 1997 to May 1997.

(B) 1992 OMNIBUS LONG-TERM COMPENSATION PLAN

In 1992, the stockholders of the Company adopted the Omnibus Long-Term
Compensation Plan (the "Plan"). The purpose of the Plan is to advance the
long-term interests of the Company by motivating executive personnel by means of
long-term stock based or derivative compensation, to align the interests of
participants with those of the stockholders, and to permit the Company to
attract and retain directors and executive personnel.

The Plan provides for the grant of the following types of awards: stock options,
including incentive stock options; stock appreciation rights, in tandem with
stock options or freestanding; common stock awards; phantom stock; restricted
stock; and performance shares. Awards are determined by the Compensation
Committee.


                                       21
<PAGE>   22

The following table sets forth certain information regarding stock options
granted to the executive officers named in the Summary Compensation Table during
fiscal 1997.

OPTION GRANTS IN 1997

<TABLE>
<CAPTION>
                    NUMBER OF                                                   POTENTIAL REALIZABLE VALUE AT
                    SECURITIES       PERCENT                                       ASSUMED ANNUAL RATES OF
                    UNDERLYING  OF TOTAL OPTIONS                                  STOCK PRICE APPRECIATION
                     OPTIONS       GRANTED TO      EXERCISE     EXPIRATION             FOR OPTION TERM
       NAME          GRANTED        EMPLOYEES      PRICE (1)       DATE            5%($)           10%($)
       ----          -------        ---------      ---------       ----            -----           ------
<S>                   <C>              <C>           <C>      <C>                     <C>            <C>
James R. Malone        6,000            2%           $5.50    January 2, 2002           $9,117        $20,147
James R. Malone       75,000           24%           $5.68       July 2, 2002         $148,327       $298,730
Kirk W. Foley         20,000            6%           $6.05    January 2, 2007          $58,178       $164,312
Mark A. Kirk          75,000           24%           $5.68       July 2, 2002         $148,327       $298,730
Carl H. Young, III    75,000           24%           $5.68       July 2, 2002         $148,327       $298,730
</TABLE>

--------------------------------------------------------------------------------

(1)  Stock options issued to Mr. Foley were granted pursuant to his Employment
     Agreement with the Company and have an exercise price equal to 110% of fair
     market value on the date of grant, which is the first business day of the
     year. The closing price on the Nasdaq Stock Market on January 2, 1997 was
     $5.50. The stock options issued to Mr. Malone, on January 2, 1997, were
     valued at the closing price on the date of grant. The stock options issued
     to Messrs. Malone, Kirk and Young on July 2, 1997, were valued at the
     average between the high and the low sale price for the ten trading days
     preceding the date of grant. The closing price on the Nasdaq Stock Market
     on July 2, 1997, the date of grant, was $6.00.

The following table sets forth information regarding stock options held at the
end of the fiscal year by the named executive officers. There were no stock
option exercises in 1997 by any named executive officer.


<TABLE>
<CAPTION>
                                 NUMBER OF SHARES OF
                               COMMON STOCK UNDERLYING                      VALUE OF UNEXERCISED
                                UNEXERCISED OPTIONS AT                     IN-THE-MONEY OPTIONS AT
                                SEPTEMBER 30, 1997 (1)                     SEPTEMBER 30, 1997 (2)
                                ----------------------                     ----------------------
NAME                       EXERCISABLE         UNEXERCISABLE         EXERCISABLE           UNEXERCISABLE
----                       -----------         -------------         -----------           -------------
<S>                           <C>                 <C>                    <C>                    <C>
James R. Malone               57,395              23,605                 $0                     $0
Kirk W. Foley                 80,000                   0                 $0                     $0
Kevin Dow                          0                   0                 $0                     $0
Chuck Ellens                       0                   0                 $0                     $0
Mark A. Kirk                  57,395              17,605                 $0                     $0
Carl H. Young, III            57,395              17,605                 $0                     $0
</TABLE>

--------------------------------------------------------------------------------

(1)  There were no SARs outstanding at September 30, 1997 and none granted
     during the fiscal year.

(2)  The "value of unexercised in-the-money options at September 30, 1997" was
     calculated by determining the difference between the fair market value of
     the underlying shares of Common Stock at September 30, 1997 ($5.25 per
     share) and the exercise price of the option. An option is "in-the-money"
     when the fair market value of the underlying shares of Common Stock exceeds
     the exercise price of the option. None of the options held by the named
     executive officers was "in the money" on September 30, 1997.


                                       22
<PAGE>   23



(C) DIRECTORS' COMPENSATION

A director who is an employee of the Company or a subsidiary is not separately
compensated for service as a director. Other directors receive a retainer of
$10,000 per year, payable quarterly, and $600 per meeting for each committee
meeting attended which is held on a day other than a day on which there is a
Board of Directors meeting.

Pursuant to the Company's Omnibus Plan, on the first business day of each
calendar year each non-employee director automatically receives an option to
purchase 6,000 shares of Common Stock of the Company (as adjusted for stock
splits).

(D) DIRECTORS' CONSULTING AGREEMENTS

Several members of the Board have entered into consulting contracts with the
Company relating to various matters within their fields of expertise.
Information regarding these contracts follows.

In 1990, the Company entered into a consulting agreement with Robert J.
Abrahams, a director of the Company, for consulting services relating to retail
financing programs for distributors of the Company's Consumer Goods Division. In
1991, this agreement was amended to include services to Health-Mor Acceptance
Corporation and HMI Acceptance Corporation, subsidiaries of the Company. Mr.
Abrahams is paid a total of $50,000 per year, plus expenses, for such services.
The consulting agreements with Mr. Abrahams are for one year periods and are
anticipated to be renewed. A total of $50,000 was paid in fiscal 1997 under this
agreement.

The Company pays a management fee in the amount of $25,000 per quarter to
Fairway Inc. for the consulting services of Mr. Needler relating to various
matters requested by the Company. Barry L. Needler, a director of the Company,
owns a majority of the outstanding shares of Fairway Inc. and is President of
that company. A total of $50,000 was paid to Fairway Inc. in 1997.

In 1996, the Company entered into a consulting agreement with Ivan Winfield, a
director of the Company, for services relating to issues involving the capital
structure of the Company, proposed acquisitions and divestitures, oversight of
the Company's capital structure, cash flow, debt management, long term corporate
planning and such other matters as may be required by the Chief Executive
Officer. Mr. Winfield was paid $12,500 per month for his services from October
1996 through March 1997, and $6,250 per month from April through September 1997.
A total of $112,500 was paid to Mr. Winfield in 1997 under this consulting
agreement. This agreement was terminated at the end of November 1997.

In 1995, the Company entered into an agreement with John Meany, a director of
the Company, to act as Administrator of the Company's Profit Sharing Plan. Also
in 1995, the Company entered into an agreement with Mr. Meany to act as
corporate Secretary of the Company and to oversee the functions of the corporate
Secretary's office. Mr. Meany received $2,700 per month under these agreements
from October 1996 through June 1997. Effective July 1997, the amount was raised
to $4,167 per month. In 1997, the Company paid Mr. Meany a total of $38,300
under these agreements.


                                       23
<PAGE>   24


(E) EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-OF-CONTROL
ARRANGEMENTS

Messrs. Malone, Kirk and Young each have employment agreements which state that
they are to receive one year's salary in the event of termination of employment
without cause. Certain executives of the Company, including Messrs. Malone, Kirk
and Young, also have agreements which provide that in the event of termination
of employment without cause (other than for death or disability, or voluntary
termination by the employee) in the twelve months following a change in control
(as defined in the agreement), the executives are to receive compensation equal
to a certain number of months of salary. In the case of Messrs. Malone, Kirk and
Young, this compensation is equal to two years' base salary.

(F) COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Compensation Committee of the Board is responsible for recommending to the
Board the compensation of executive officers and key employees of the Company
and its subsidiaries. The Compensation Committee consists of Robert J. Abrahams,
Donald L. Baker and Barry L. Needler.

The Compensation Committee annually reviews compensation of the Chief Executive
Officer, other executive officers and key employees of the Company and its
subsidiaries. The Compensation Committee meets periodically during the year to
monitor performance and fix awards based on performance standards and to review
compensation decisions. The Committee's policy in evaluating and compensating
executive officers and key employees is to consider the performance of the
Company as a whole, the performance of the business unit for which the
individual has responsibility and the individual's contribution toward the
Company's attainment of established Company and individual goals. Factors
considered in evaluating performance are both subjective (such as the
individual's performance and development) and objective (such as the attainment
of specified financial goals).

The composition of compensation varies broadly among executive officers and key
employees of the Company based on their responsibilities and the business unit
to which they are assigned. Generally, base salary is targeted at competitive
rates believed by the Committee members to be necessary in their experience to
retain qualified personnel. The Company maintains an Incentive Bonus Plan under
which participating employees may be eligible for a bonus if the pretax profits
of the Company for the year exceed a specified target which is established
annually by the Compensation Committee. Beginning in 1995, the target was
changed from an after-tax to a pretax amount in order to put more emphasis on
meeting operating goals, and to remove from consideration those factors over
which the Company has no control, such as tax rates. The maximum bonus payable
to an individual is a percentage of base salary ranging from 25% to 150% of base
salary. Bonuses are based on varying performance criteria, including the
Company's pretax profits, return on assets, divisional net contribution, cost
containment programs and departmental gross margins. Specific incentive
performance criteria for each participating individual are determined by the
Committee at the beginning of the year based upon the individual's duties. The
targets for 1995, 1996 and 1997 were not met, and no bonuses were awarded for
those years under this Plan. Key employees of subsidiaries who do not
participate in the Incentive Bonus Plan have bonus or incentive arrangements
based on criteria deemed by the Compensation Committee to be effective in
aligning the financial interest of the employee with those of Company's
stockholders. Among the criteria that are utilized in incentive compensation of
key employees of subsidiaries include percentage of profits or net 



                                       24
<PAGE>   25


income, commissions based on sales, net profit contribution, and balance sheet
measures such as inventory and accounts receivable turnover and working capital
improvements. From time to time, the Company engages outside compensation
consultants to provide information and advice about competitive levels of
compensation and particular compensation techniques.

Compensation of the Chief Executive Officer

Mr. Foley's compensation was paid pursuant to his employment agreement with the
Company, which was approved by the Company's stockholders at the 1995 annual
meeting. In fiscal year 1997, Mr. Foley was paid total salary of $396,850. No
bonus relating to calendar year 1997 was earned.

Mr. Foley's employment agreement also provided that he receive options to
purchase 20,000 shares of Common Stock on the first business day of each year
through 1998. The option price is equal to 110% of the fair market value on the
date of grant, and the options are immediately exercisable. The period of
exercisability will be determined by the Compensation Committee and may last for
up to ten years. Mr. Foley's contract also provided that he receive 125,000
shares of phantom stock. The phantom stock was to vest in increments of 21,857
shares on each of June 30, 1995, January 1 and June 30, 1996, and January 1 and
June 30, 1997, with the final 37,571 shares vesting on January 1, 1999.
Dividends that would have been paid had the phantom shares been issued could
have been used to "purchase" additional phantom shares, which would have vested
on the same schedule as the other phantom shares. Mr. Foley deferred the vesting
of one half of the phantom shares and accrued dividends scheduled to vest on
January 1, 1996 for three years. In 1996, his employment agreement was amended
so that the phantom shares that were scheduled to vest on January 1, 1996 and
were deferred and the phantom shares scheduled to vest on June 30, 1996 were
surrendered in exchange for cash payments of $150,000 on June 30, 1997 and June
30, 1998. In addition, Mr. Foley would have been entitled to receive an award of
shares in the Company in the event of an increase in the price of the Common
Stock between June 30, 1996 and June 30, 1998. The increase in share price would
have been multiplied by the number of phantom shares surrendered, and the result
would have been divided by the share price on June 30, 1998 to determine the
number of shares to be awarded.

Mr. Foley's employment agreement also provided that the Company would guarantee
a loan to him and to pay interest on the loan. The unpaid principal on the loan
at September 30, 1997 was $486,750.

Mr. Foley's employment with the Company was terminated by the Board on May 13,
1997. See "Certain Relationships and Related Transactions" elsewhere in this
report for information regarding the settlement entered into by the Company with
Mr. Foley in connection with the termination of his employment.

Mr. Malone, who became Chief Executive Officer on May 13, 1997, is paid a base
salary of $325,000 per year and participates in the incentive bonus plan. Mr.
Malone also receives other benefits available generally to all executives.

         For the Compensation Committee

                  Robert J. Abrahams
                  Donald L. Baker
                  Barry L. Needler



                                       25
<PAGE>   26



(G) COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Robert J. Abrahams, Chairman of the Compensation Committee, provides consulting
services to the Company and its finance company subsidiaries (Health-Mor
Acceptance Corporation, HMI Acceptance Corporation and Health-Mor Acceptance PTY
Ltd.) and serves as President of these subsidiaries. He received $50,000 for
these services in fiscal 1997. Fairway Inc., a company controlled by Barry L.
Needler, provides management consulting services to the Company and received
$50,000 from the Company for services rendered in 1997. Mr. Needler is Vice
Chairman of the Company and is a member of the Compensation Committee.

(H) PERFORMANCE COMPARISONS

The following chart compares the cumulative shareholder return of the Company
for the five years ended September 30, 1997 to the Nasdaq National Market
Composite Index and a Company-determined peer group. The Company's Common Stock
trades on the Nasdaq National Market System. The chart assumes the investment of
$100 on September 30, 1992 and the immediate reinvestment of all dividends. The
ten companies making up the peer group are in industries believed to be
comparable to the Company's lines of business in 1997 and the peer group, in the
aggregate, is believed to approximate the Company's mix of consumer and
industrial business in 1997.


                COMPARISON OF 5-YEAR CUMULATIVE RETURN AMONG THE
               COMPANY, PEER GROUP INDEX AND NASDAQ MARKET INDEX

                                   [GRAPHIC]


<TABLE>
<CAPTION>
----------------------- --------- --------- --------- -------- --------- -------
                          1992      1993      1994     1995      1996    1997
----------------------- --------- --------- --------- -------- --------- -------
<S>                         <C>       <C>       <C>      <C>       <C>      <C>
HMI INDUSTRIES INC.         $100      $227      $236     $253      $125     $97
----------------------- --------- --------- --------- -------- --------- -------
NASDAQ MARKET INDEX         $100      $130      $138     $167      $195    $265
----------------------- --------- --------- --------- -------- --------- -------
PEER GROUP INDEX            $100      $143      $160     $160      $197    $236
----------------------- --------- --------- --------- -------- --------- -------
</TABLE>

                      ASSUMES $100 INVESTED ON OCT. 1, 1992
                           ASSUMES DIVIDEND REINVESTED
                        FISCAL YEAR ENDING SEP. 30, 1997



                                       26
<PAGE>   27

The Company business in 1997 consisted of two segments: a Consumer Goods segment
and a Manufactured Products segment. The peer companies include companies
believed to be in similar lines of business as the Company. The companies in the
peer group are: Amcast Industrial Corporation, Black and Decker Corporation,
Material Sciences Corporation, National Presto Industries Inc., Rival Co., SPS
Technologies Inc., Steel Technologies Inc., Sunbeam Corporation, Toastmaster
Inc. and Worthington Industries Inc. Some of the Company's direct competitors
are divisions of larger corporations, privately held corporations or foreign
corporations and are not included in the peer comparisons since the pertinent
information is not available to the public.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth the names and share ownership as of March 2, 1998
of those persons who, to the knowledge of the Company, are the beneficial owners
of more than 5% of the Company's outstanding Common Stock based upon information
furnished to the Company by such person. Each beneficial owner has sole power to
vote and dispose of the shares indicated, except as otherwise stated.

<TABLE>
<CAPTION>
Amount and
Name and Address of                        Nature of
Beneficial Owners                          Beneficial                Percent of
as of January 16, 1998                     Ownership                Common Stock
--------------------------------------------------------------------------------

<S>                                        <C>                          <C>   
Steeplechase Corp. (1)                     1,704,750                    33.86%
P.O. Box 2463, Station B
Richmond Hill, Ontario L4E 1A5

Barry L. Needler                           1,869,000 (2)                37.06%
P.O. Box 2463, Station B
Richmond Hill, Ontario L4E 1A5

Kirk W. Foley                                635,016 (3)                12.42%
12700 Lake Avenue, #2006
Lakewood, OH  44107

Amherst Tanti U.S. Inc. (4)                  520,148                    10.33%
12700 Lake Avenue, #2006 
Lakewood, Ohio 44107

John S. Meany, Jr.                           376,354 (5)                 7.45%
9200 S. Winchester Ave.
Chicago, Illinois 60620

Dimensional Fund Advisors                    325,925                     6.47%
1299 Ocean Drive
Santa Monica, CA  90401
</TABLE>



                                       27
<PAGE>   28

(1)  Mr. Needler is the President and Chief Executive Officer of Steeplechase
     Corp.

(2)  Includes shares owned of record and beneficially by Fairway Inc. (150,750
     shares) and Steeplechase Corp. (1,704,750 shares), and beneficially by
     Reldeen Ltd. (4,500 shares). Includes 9,000 shares subject to issuance upon
     the exercise of stock options exercisable within 60 days of the date
     hereof. Mr. Needler controls these corporations and serves as a Director
     and Chief Executive Officer of these corporations.

(3)  Includes 520,148 shares owned of record by Amherst Tanti U.S. Inc.; 10,300
     shares in a retirement fund; and 80,000 shares subject to issuance upon the
     exercise of stock options exercisable within 60 days of the date hereof.

(4)  Amherst Tanti U.S. Inc. is owned by Kirk W. Foley and his wife. Mr. Foley
     serves as President of this corporation.

(5)  Includes 20,250 shares subject to issuance upon the exercise of stock
     options exercisable within 60 days hereof. Also includes 9,000 shares owned
     by members of Mr. Meany's immediate family, beneficial ownership of which
     is disclaimed.

(B) SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth, as of March 2, 1998, information concerning the
number of shares of Common Stock beneficially owned by each nominee
individually, each named executive officer, and by all executive officers and
directors as a group. The totals shown below for each person and for the group
include shares held personally, shares held by immediate family members, and
shares acquirable within sixty days of the date hereof by the exercise of stock
options.

                  AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP(1)


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                       Direct              Exercisable
Name of Beneficial Owner              Ownership            Options (2)               Total            Percent (3)
------------------------              ---------            -------                   -----            -------
<S>                                      <C>                     <C>                  <C>               <C>   
Robert J. Abrahams                          28,175                20,250                 48,425          *
Donald L. Baker                            143,536 (4)            20,250                163,786          3.24%
Kevin Dow (5)                               17,075                     0                 17,075          *
Moffat Dunlap                                    0                20,250                 20,250          *
Chuck Ellens                                16,350 (6)                 0                 16,350          *
Kirk W. Foley                              555,016 (7)            80,000                635,016         12.42%
Mark A. Kirk                                32,500                75,000                107,500          2.10%
James R. Malone                             12,500                76,500                 89,000          1.74%
Grace McCarthy                               1,100 (8)            20,250                 21,350          *
John S. Meany, Jr.                         356,104 (9)            20,250                376,354          7.45%
Barry L. Needler (5)                     1,860,000 (10)            9,000              1,869,000         37.06%
Frank M. Rasmussen                               0                11,250                 11,250          *
Ivan Winfield                                2,800               104,500                107,300          2.09%
Carl H. Young, III                          32,500                75,000                107,500          2.10%
All Executive Officers and
Directors as a Group                     3,057,656               532,500              3,590,156         64.50%
-------------------------------------------------------------------------------------------------------------------
</TABLE>


(1)  Each person has sole voting and investment power with respect to all shares
     shown except as indicated below.

(2)  Represents shares subject to stock options that are currently exercisable
     or become exercisable within 60 days hereof.

(3)  Unless otherwise indicated, the percentage of Common Stock owned is less
     than one percent of the Common Stock outstanding.

(4)  Includes 138,136 shares owned by Mr. Baker's wife, beneficial ownership of
     which is disclaimed. Mr. Baker owns 2,700 shares jointly with his wife.




                                       28
<PAGE>   29



(5)  Mr. Dow and Mr. Needler are first cousins.

(6)  Includes 10,350 shares owned jointly with his spouse.

(7)  Includes 520,148 shares owned by Amherst Tanti U.S. Inc. and 10,300 shares
     in a retirement fund.

(8)  These shares are owned by her spouse. Mrs. McCarthy disclaims beneficial
     ownership of these shares.

(9)  Includes 9,000 shares owned by members of his immediate family, beneficial
     ownership of which is disclaimed.

(10) Shares are owned of record and beneficially by Fairway Inc. (150,750
     shares) and Steeplechase Corp. (1,704,750 shares), and beneficially by
     Reldeen Ltd. (4,500 shares). These corporations are controlled by Mr.
     Needler.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In May 1997, the Company advised Kirk W. Foley, then its Chief Executive
Officer, that it was terminating his employment which triggered certain
obligations as per Mr. Foley's employment contract, including an $800,000
severance payment, an assumption of a $518,000 personal bank loan made to Mr.
Foley, other compensation obligations of approximately $79,000 and an obligation
to purchase Mr. Foley's Company Common Stock at current market value
(approximately $325,000).

Because of the Company's tight cash position, noncash ways to satisfy its
obligations to Mr. Foley were sought. The resolution was a decision to transfer
to Mr. Foley the Company's 100% stock interest in Tube Fab Ltd, a Canadian
subsidiary of the Company ("Tube Fab Ltd.") headquartered in Mississauga,
Ontario, Canada, that an independent appraiser valued at $1,512,000. The
Tube-Fab Ltd. stock had been carried on the Company's books at a value of
$2,157,500 and was accordingly written down to its appraised value.

The settlement transaction with Mr. Foley closed on January 8, 1998. It entailed
a transfer of the Tube-Fab Ltd. shares to Mr. Foley; Mr. Foley's payment of
$303,000 to the Company; cancellation of the Company's $800,000 severance
obligation; an assumption of the $486,750 ($518,000 less a $31,250 principal
payment made in June 1997) bank loan; cancellation of Mr. Foley's put right with
respect to his Company Common Stock; and assumption by Mr. Foley of an operating
lease of Canadian facilities currently leased by the Company, which had a
remaining lease obligation of approximately $1,050,000 over 8 1/2 years.

Mr. Foley's employment contract also required the Company to pay to him a
$300,000 cash award relating to phantom shares he had previously earned but had
deferred in 1996. This award was reduced to a $150,000 payment in the settlement
transaction. The settlement also required the Company to continue Mr. Foley's
salary and benefits from the time of the termination advisement through December
15, 1997 (approximately $320,000).

As part of the negotiations to settle the obligations under Mr. Kirk Foley's
employment agreement and to avoid litigation regarding disputes as to the amount
of these obligations, certain related party receivables aggregating $743,000
were forgiven and accordingly written off in the third and fourth quarters of
fiscal 1997. These receivables consisted of $292,200 advanced by the Company in
1989 to three companies which were controlled by two directors of the Company
(Mr. Foley and Mr. Larry Needler), $334,100 loaned by the Company in 1997 to
Amherst Tanti U.S. Inc., a corporation owned by an officer of the Company (Mr.
Foley), and $116,700 relating to other employee receivables.


                                       29
<PAGE>   30

As an inducement to retain the continued services, following the sale of Bliss
Manufacturing (as discussed in Note 1 of the Notes to the Consolidated Financial
Statements), of certain key executives and individuals employed by the Company,
the Company entered into separate agreements in October 1997 with such
executives and individuals to provide for the payment of bonuses upon the
consummation of the sale and severance allowances in the event of a termination
of employment as a result of a change of control of the Company (as defined in
such agreements). The amount of the bonuses to be awarded varies by individual
and is dependent on the amount of the purchase price ultimately received in the
sale of Bliss Manufacturing by the Company. The current executive officers of
the Company, Messrs. Malone, Kirk and Young will each receive stay bonuses in
the amount of $300,000 (less applicable withholding taxes) upon the consummation
of the sale pursuant to the terms of such agreements.

Refer to Item 11 in this Report on Form 10-K for additional transactions.

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 32 of this report.

         2.   FINANCIAL STATEMENT SCHEDULES - Reference is made to the Index To
              Financial Statements, included as page 32 of this report.

         3.   EXHIBITS - Reference is made to the Index To Exhibits, included as
              page 60 of this report.

(b)  Reports on Form 8-K. No report on Form 8-K was filed during the last
     quarter of 1997.

(c)  Exhibits Reference is made to the Index To Exhibits, included as page 60 of
     this report.

(d)  Financial Statement Schedules - Reference is made to the Index To Financial
     Statements, included as page 32 of this report.


                                       30
<PAGE>   31



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/ Michael Harper
                                       -----------------------------------
                                       Michael Harper
                                       Vice President, Corporate Controller and
                                       Chief Accounting Officer
                                       March 9, 1998

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/ Mark A. Kirk
-----------------------------------------    ---------------------------------------     ---------------------------------------
James R. Malone                              Mark A. Kirk                                Frank Rasmussen
Chairman of the Board, Chief Executive       President, Chief Operating Officer,         Director
Officer and Director                         Chief Financial Officer and Director        March 9, 1998
March 9, 1998                                March 9, 1998


                                             /s/ Grace McCarthy
-----------------------------------------    ---------------------------------------     ---------------------------------------
Robert J. Abrahams                           Grace McCarthy                              Ivan Winfield
Director                                     Director                                    Director
March 9, 1998                                March 9, 1998                               March 9, 1998


/s/ Donald L. Baker                          /s/ John S. Meany, Jr.
-----------------------------------------    ---------------------------------------
Donald L. Baker                              John S. Meany, Jr.
Director                                     Director
March 9, 1998                                March 9, 1998


/s/ Moffat Dunlap                            /s/ Barry L. Needler
-----------------------------------------    ---------------------------------------
Moffat Dunlap                                Barry L. Needler
Director                                     Director
March 9, 1998                                March 9, 1998
</TABLE>



                                       31
<PAGE>   32

                          INDEX TO FINANCIAL STATEMENTS
                          -----------------------------


<TABLE>
<CAPTION>
                                                                                                             PAGE
                                                                                                             ----

<S>                                                                                                         <C>
Report of Management                                                                                          33

Report of Independent Accountants
---------------------------------
  For the years ended September 30, 1997, 1996 and 1995 ...........................                           34

Financial Statements
--------------------
  Consolidated Balance Sheets for the years ended September 30, 1997
    and 1996 ......................................................................                           35

  Consolidated Statements of Income for the years ended September 30,
    1997, 1996 and 1995 ...........................................................                           36

  Consolidated Statements of Stockholders' Equity for the years ended
    September 30, 1997, 1996 and 1995 .............................................                           37

  Consolidated Statements of Cash Flows for the years ended September
    30, 1997, 1996 and 1995 .......................................................                           38

  Notes to Consolidated Financial Statements ......................................                         39-58

FINANCIAL STATEMENT SCHEDULE:  II - Valuation and Qualifying Accounts and Reserves                            59
</TABLE>

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.



                                       32
<PAGE>   33

                              REPORT OF MANAGEMENT



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

The management of HMI Industries Inc. (HMI) 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 every Company employee to
maintain the highest level of ethical standards in the conduct of all aspects of
the Company's business, and their compliance is regularly monitored.

The financial statements in this report have been audited by the independent
accounting firm of Coopers & Lybrand L.L.P. Their audits were conducted in
accordance with generally accepted auditing standards and included a study and
evaluation of our internal control structure as they considered necessary to
determine the extend of tests and audit procedures required for expressing an
opinion on the company's financial statements.

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

                                    /s/ Mark A. Kirk
                                    --------------------------------------------
                                    President, Chief Operating Officer and Chief
                                    Financial Officer

                                    /s/ Michael Harper
                                    --------------------------------------------
                                    Vice President, Corporate Controller and
                                    Chief Accounting Officer


                                       33
<PAGE>   34


REPORT OF INDEPENDENT ACCOUNTANTS




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


We have audited the consolidated financial statements and the financial
statement schedule of HMI Industries Inc. and its subsidiaries listed in the
index on page 32 of this Form 10-K. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of HMI Industries
Inc. and its subsidiaries as of September 30, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1997 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.

As discussed in Note 1 to the consolidated financial statements, the Company has
restated its prior year consolidated financial statements.

As discussed in Note 1 to the consolidated financial statements, the Company
intends to retire substantially all of its outstanding debt with the expected
proceeds from the sale of its subsidiary Bliss Manufacturing Company.

/s/  Coopers & Lybrand, L.L.P.
Cleveland, Ohio
December 29, 1997




                                       34
<PAGE>   35



                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                 SEPTEMBER 30,      September 30,
                                                                                     1997                1996
                                                                                --------------      -------------
ASSETS                                                                                               (Restated)
<S>                                                                              <C>                <C>         
CURRENT ASSETS:
  Cash and cash equivalents                                                      $    239,797       $    472,408
  Trade accounts receivable (net of allowance of $5,512,063 and $2,439,406)        10,357,999         26,252,884
  Finance contracts receivable                                                        496,044          2,224,480
  Notes receivable                                                                    228,414            560,884
  Inventories:
    Finished goods                                                                  2,438,282          6,943,970
    Work-in-progress, raw material and supplies                                     1,714,576         11,420,627
  Income tax receivable                                                             3,373,898          1,463,000
  Deferred income taxes                                                             8,239,080          1,772,129
  Prepaid expenses                                                                    123,099          1,985,276
  Other current assets                                                                 83,307                  -
  Net assets held for sale at realizable value                                     14,658,322          4,228,059
                                                                                 ------------       ------------
      Total current assets                                                         41,952,818         57,323,717
                                                                                 ------------       ------------

PROPERTY, PLANT AND EQUIPMENT, NET                                                  6,194,868         15,717,653
                                                                                 ------------       ------------

OTHER ASSETS:
  Long-term notes receivable (less amounts due within one year)                             -            334,123
  Cost in excess of net assets of acquired businesses
    (net of amortization of $3,534,511 and $3,092,432)                              5,777,440         12,636,147
  Deferred income taxes                                                                     -          1,499,600
  Unamortized trademarks                                                              339,823            312,775
  Finance contracts receivable (less amounts due within one year)                     992,090          4,449,628
  Other                                                                               133,094            237,481
                                                                                 ------------       ------------
      Total other assets                                                            7,242,447         19,469,754
                                                                                 ------------       ------------
      Total assets                                                               $ 55,390,133       $ 92,511,124
                                                                                 ============       ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Line of credit                                                                 $    480,822       $  3,132,975
  Trade accounts payable                                                            6,939,040         17,785,859
  Income taxes payable                                                              2,149,163            734,605
  Accrued expenses and other liabilities                                            8,125,620          7,202,990
  Long-term debt due within one year                                               20,464,632          3,485,641
                                                                                 ------------       ------------
     Total current liabilities                                                     38,159,277         32,342,070
                                                                                 ------------       ------------

LONG-TERM LIABILITIES:
  Long-term debt (less amounts due within one year)                                   762,777         22,334,613
  Postretirement benefits other than pensions                                               -          3,749,000
  Deferred income taxes                                                               573,613            192,372
  Other                                                                             1,342,961          3,010,109
                                                                                 ------------       ------------
      Total long-term liabilities                                                   2,679,351         29,286,094
                                                                                 ------------       ------------

Commitments and contingencies (Note 11)
                                                                                            -                  -

STOCKHOLDERS' EQUITY:
  Preferred stock, $5 par value; authorized, 300,000 shares; issued, none                   -                  -
  Common stock, $1 par value; authorized, 10,000,000 shares;
    issued, 5,295,556 shares                                                        5,295,556          5,295,556
  Capital in excess of par value                                                    8,050,212          7,686,944
  Unearned compensation, net                                                         (191,500)                 -
  Retained earnings                                                                 4,077,771         20,740,344
  Cumulative translation adjustment                                                (1,418,762)        (1,077,325)
                                                                                 ------------       ------------
                                                                                   15,813,277         32,645,519
  Less treasury stock 269,296 shares, at cost                                       1,261,772          1,762,559
                                                                                 ------------       ------------
      Total stockholders' equity                                                   14,551,505         30,882,960
                                                                                 ============       ============
      Total liabilities and stockholders' equity                                 $ 55,390,133       $ 92,511,124
                                                                                 ============       ============
</TABLE>


See notes to consolidated financial statements.


                                       35
<PAGE>   36



CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                  FOR THE YEARS ENDED SEPTEMBER 30,
                                                                             1997               1996                1995
                                                                       ------------------------------------------------------
REVENUES:                                                                                     (Restated)         (Restated)
<S>                                                                      <C>                <C>                <C>         
  Net product sales                                                      $ 49,878,534       $ 58,820,833       $ 62,228,698
  Financing revenue and other                                                 611,716            728,075            556,604
                                                                         ------------       ------------       ------------
                                                                           50,490,250         59,548,908         62,785,302
OPERATING COSTS AND EXPENSES:
  Cost of products sold                                                    36,009,821         38,247,052         39,110,004
  Selling, general and administrative expenses                             32,593,485         25,635,132         21,399,040
  Interest expense                                                          2,217,781          1,686,254          1,409,291
  Loss on investment in Holland-Electro
                                                                                    -          2,012,356                  -
  Other expenses                                                              432,532            573,818           (126,800)
                                                                         ------------       ------------       ------------
    Total expenses                                                         71,253,619         68,154,612         61,791,535
                                                                         ------------       ------------       ------------
INCOME (LOSS) BEFORE INCOME TAXES                                         (20,763,369)        (8,605,704)           993,767
Benefit for income taxes                                                   (7,285,949)        (2,838,259)          (614,791)
                                                                         ------------       ------------       ------------
INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS                              (13,477,420)        (5,767,445)         1,608,558
                                                                         ------------       ------------       ------------

Income (loss) from discontinued operations -
  Mexico (net of taxes of $-0-, $-0- and $496,000)
                                                                                    -         (1,428,183)          (235,838)
  Household Rental Systems (net of taxes of $-0-, $-0- and $-0-)
                                                                              498,131         (1,082,502)          (388,233)
  Bliss Manufacturing (net of taxes of $1,323,395, $1,103,664
  and $3,075,442)                                                           2,159,224          1,655,497          4,613,163
  Bliss Tubular (net of taxes of $87,090, $119,901, and $20,746)             (142,094)          (179,851)            31,120
  Tube Fab Ltd (net of taxes of $-0-, $-0- and $-0-)                          386,095             32,042           (132,796)
  Health-Mor Personal Care Corp. (net of taxes of $339,742,
   $641,878 and $36,066)                                                     (554,317)          (962,818)           (54,099)
                                                                         ------------       ------------       ------------
                                                                            2,347,039         (1,965,815)         3,833,317
                                                                         ------------       ------------       ------------
Loss on disposals-
  Mexico - Currency loss previously reflected as component of
   equity (net of taxes of $1,000,000)                                              -         (1,396,509)                 -
  Mexico                                                                            -            (84,335)                 -
  Household Rental Systems (net of taxes of $-0-, $-0- and $-0-)           (2,651,209)          (800,000)                 -
  Bliss Tubular (net of taxes of $244,351, $-0-, and $-0-)                 (1,279,799)                 -                  -
  Tube Fab Ltd (net of taxes of $-0-, $-0- and $-0-)                       (1,020,065)                 -                  -
  Health-Mor Personal Care Corp.  provision  for operating losses
  during phase-out period (net of taxes of $348,503, $-0- and $-0-)          (568,611)                 -                  -
                                                                         ------------       ------------       ------------
                                                                           (5,519,684)        (2,280,844)                 -
                                                                         ============       ============       ============
NET INCOME (LOSS)                                                        $(16,650,065)      $(10,014,104)      $  5,441,875
                                                                         ============       ============       ============

Weighted average number of shares outstanding                               4,956,276          4,912,135          4,876,599
                                                                         ============       ============       ============

PER SHARE OF COMMON STOCK:
  Income (loss) before discontinued operations                           $      (2.72)      $      (1.18)      $       0.33
  Income (loss) from discontinued operations                             $       0.47       $      (0.40)      $       0.79
  Loss on disposals                                                      $      (1.11)      $      (0.46)      $          -
                                                                         ============       ============       ============
  Net income (loss)                                                      $      (3.36)      $      (2.04)      $       1.12
                                                                         ============       ============       ============

Cash dividends per common share                                          $          -       $      0.263       $      0.346
                                                                         ============       ============       ============
</TABLE>


See notes to consolidated financial statements.



                                       36

<PAGE>   37



CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS SEPTEMBER 30, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                               Capital                             Cumulative       Treasury stock        Total
                                   Common     in Excess    Unearned    Retained    Translation   --------------------  Stockholders'
                                    Stock   of Par Value Compensation  Earnings     Adjustment    Shares     Amount      Equity
                                 ---------- ------------ ------------ ----------   -----------   --------- ----------- -----------

<S>                              <C>        <C>         <C>          <C>          <C>             <C>     <C>         <C>          
Balance at September 30, 1994,        
  as reported                    $5,295,556  $7,223,367         ---  $30,111,101    ($869,016)    436,133 ($2,043,426) $39,717,582

  Adjustment for postretirement
   benefits   (See Note 1)                                            (1,815,600)                                       (1,815,600)

                                  ---------- ----------- -----------  ------------  -----------  --------- -----------  ------------
Balance at September 30, 1994,
  as restated                     5,295,556   7,223,367         ---    28,295,501    (869,016)    436,133  (2,043,426)   37,901,982

  Net income, as reported
                                                                        5,614,675                                         5,614,675

   Adjustment for postretirement
   benefits   (See Note 1)                                              (172,800)                                         (172,800)
   Cash dividends - $.345 per
share                                                                 (1,691,482)                                       (1,691,482)
  Treasury shares issued
                                                298,484                                          (41,607)     194,942       493,426
  Foreign currency translation
  adjustment                                                                        (1,794,888)                         (1,794,888)

                                  ---------- ----------- -----------  ------------  -----------  --------- -----------  ------------

September 30, 1995, as restated   5,295,556   7,521,851         ---    32,045,894   (2,663,904)   394,526  (1,848,484)   40,350,913

  Net loss, as reported                                               (9,334,042)                                       (9,334,042)

   Adjustment for postretirement
    benefits  (See Note 1)                                              (261,000)                                         (261,000)
    Adjustment for certain
    deferred costs   (See Note 1)                                       (419,062)                                         (419,062)
   Cash dividends - $.2625 per
   share                                                              (1,291,446)                                       (1,291,446)
  Treasury shares issued                        165,093                                          (18,340)      85,925       251,018
  Foreign currency translation
  adjustment                                                                         1,586,579                            1,586,579

                                  ---------- ----------- -----------  ------------  -----------  --------- -----------  ------------

SEPTEMBER 30, 1996, AS RESTATED   5,295,556   7,686,944         ---    20,740,344   (1,077,325)   376,186  (1,762,559)   30,882,960

  NET LOSS
                                                                     (16,650,065)                                      (16,650,065)
  TREASURY SHARES ISSUED                        363,268                  (13,288)                (106,890)    500,787       850,767
  UNEARNED COMPENSATION                                   (273,500)                                                       (273,500)
  EMPLOYEE BENEFIT STOCK                                     82,000                                                          82,000
  UNCLAIMED DIVIDENDS                                                         780                                               780
  Foreign currency translation
  adjustment                                                                         (341,437)                            (341,437)

                                  ========== =========== ===========  ============  ===========  ========= ===========  ============
BALANCE AT SEPTEMBER 30, 1997    $5,295,556 $ 8,050,212 $ (191,500)     4,077,771 $ (1,418,762)   269,296 $(1,261,772)$  14,551,505
                                  ========== =========== ===========  ============  ===========  ========= ===========  ============
</TABLE>


See notes to consolidated financial statements.



                                       37
<PAGE>   38


CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
                                                                                             FOR THE YEARS ENDED SEPTEMBER 30,
                                                                                      1997              1996               1995
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                <C>                <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                (Restated)         (Restated)
  Net income (loss)                                                              $(16,650,065)      $(10,014,104)      $  5,441,875
  Adjustments to reconcile net income (loss) to net cash provided by (used)
    in operating activities:
        Depreciation and amortization                                               2,744,553          3,564,595          3,768,822
        Loss on disposal of discontinued operations                                 5,519,684          2,280,844                  -
        Provision for loss on asset write down                                        451,297                  -
        Provision for losses on receivables                                         6,069,937          1,069,509            641,562
        Amortization of stock awards, net                                             385,766                  -                  -
        Amortization of deferred non-compete agreement                                      -                  -            380,576
        Net increase in postretirement liability                                      488,000            435,000            288,000
        Deferred income taxes                                                      (4,683,948)          (701,049)          (169,123)
  Changes in operating assets and liabilities:
    Decrease (increase) in receivables                                              3,241,172         (2,668,671)        (5,916,069)
    Decrease (increase) in inventories                                              4,362,110         (2,139,794)        (2,191,579)
    Decrease (increase) in prepaid expenses                                         1,716,065            (20,741)          (429,965)
    Increase in other current assets                                                 (131,180)                 -                  -
    Increase (decrease) in accounts payable                                        (3,213,858)         7,016,530          3,301,638
    Increase (decrease) in accrued expenses and other liabilities                   4,208,023          1,015,940         (1,545,968)
    Decrease in income taxes payable                                                 (774,447)        (2,465,824)          (245,319)
    Other, net                                                                         74,895           (258,612)          (186,780)
                                                                                 ------------       ------------       ------------
            Net cash provided by (used) in operating activities                     3,808,004         (2,886,377)         3,137,670
                                                                                 ------------       ------------       ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of assets                                                      2,720,916            523,783                  -
  Capital expenditures                                                             (1,463,320)        (6,484,846)        (3,805,326)
  Collection of notes receivable                                                            -                  -                  -
                                                                                 ------------       ------------       ------------
            Net cash provided by (used) in investing activities                     1,257,596         (5,961,063)        (3,805,326)
                                                                                 ------------       ------------       ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from credit facility                                                    38,491,000          7,795,616          4,117,324
  Payments of credit facility                                                     (40,166,603)                 -                  -
  Proceeds from mortgage                                                               55,077          2,214,923                  -
  Payment of long term debt                                                        (3,690,397)        (2,807,706)        (2,012,371)
  Proceeds from long term debt                                                         12,712          3,022,807                  -
  Dividends paid                                                                            -         (1,721,162)        (1,669,565)
  Proceeds from exercise of stock options                                                   -                  -            112,850
                                                                                 ------------       ------------       ------------
            Net cash provided by (used) in financing activities                    (5,298,211)         8,504,478            548,238
                                                                                 ------------       ------------       ------------

Effect of exchange rate changes on cash                                                     -            244,611                  -
                                                                                 ------------       ------------       ------------

Net decrease in cash and cash equivalents                                            (232,611)           (98,351)          (119,418)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                        472,408            570,759            690,177
                                                                                 ============       ============       ============
CASH AND CASH EQUIVALENTS, END OF PERIOD                                         $    239,797       $    472,408       $    570,759
                                                                                 ============       ============       ============
</TABLE>


See notes to consolidated financial statements.


                                       38
<PAGE>   39


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Basis of Consolidation
     ----------------------

The consolidated financial statements include all significant controlled
subsidiaries both continuing and discontinued operations. Continuing operations
include the accounts of HMI Industries Inc (the "Company") and the following
wholly-owned subsidiaries: Health-Mor B.V., Health-Mor International Inc., HMI
Incorporated, Health-Mor Acceptance Corporation, HMI Acceptance Corporation,
Health-Mor Acceptance Pty. Ltd., and Home Impressions Inc. Operations reported
as discontinued are Household Rental Systems, Tube-Fab Ltd., Health-Mor Personal
Care Corp., Bliss Tubular, and Bliss Manufacturing Company. All significant
inter-company accounts and transactions have been eliminated.

     Reclassification
     ----------------

Certain amounts in the 1996 and 1995 financial statements have been reclassified
to conform to the 1997 presentation.

     Restatement
     -----------

During the fourth quarter of fiscal 1997, new management personnel discovered
the fact that the basic labor agreement between Bliss Manufacturing and its
employees provides hospitalization and life insurance benefits for eligible
employees upon retirement. Upon discovery, an actuarial valuation was
immediately performed which reflected an APBO of $4.1 million at September 30,
1997. Under the immediate recognition rules of FASB No. 106 "Employers'
Accounting for Postretirement Benefits Other than Pensions" (FAS 106),
management has recorded the actuarially determined liability of $4.2 million at
September 30, 1997 and has restated its opening fiscal year 1995 retained
earnings ($3.0 million accrued cost less $1.2 million tax impact) and its 1995
and 1996 results of operations for the respective years' FAS 106 expense of
$385,000 and $541,000, respectively (net of "pay as you go" amounts previously
included in the respective year's income statements of $97,000 and $106,000,
respectively and net of taxes of $115,200 and $174,000, respectively). These
adjustments reduced the Company's net income per share of common stock by $.03
and $.05 for 1995 and 1996, respectively.

In addition, certain other costs associated with the Company's Health-Mor
Personal Care Corporation totaling approximately $698,000 ($419,000 net of taxes
or $.09 per share of common stock), which were capitalized and deferred in
fiscal 1996, to match such expenses with associated revenues to be generated in
connection with the sale of the AdvantaJet needle-fee insulin injector, have
been restated in the Company's financial statements to reflect the expensing of
these costs in fiscal year 1996 rather than in fiscal year 1997 as previously
reported.



                                       39
<PAGE>   40

     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 Shareholders' Equity
titled "Cumulative foreign currency translation adjustment". Such adjustments
will affect net income only upon sale or liquidation of the underlying foreign
investments. During the fourth quarter of 1997, the Company recorded $719,900 to
loss on disposal for cumulative translation adjustments associated with
discontinued foreign operations.

Exchange gains and losses from transactions in a currency other than the local
currency of the entity involved are included in income. Net transaction and
translation adjustments are not significant.

     Use of Estimates
     ----------------

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities 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.

     Cash Equivalents
     ----------------

The Company considers all highly liquid instruments purchased with a maturity of
less than three months to be cash equivalents.

     Allowance for Doubtful Accounts
     -------------------------------

On a periodic basis, the Company's management performs a review of potentially
uncollectable trade accounts receivable to provide its best estimate of the net
realizable value of the receivables. This review consists of a detailed specific
customer analysis and a focus on aging categorization, days sales outstanding
and other related analytical procedures.

     Cost in Excess of Net Assets of Acquired Businesses
     ---------------------------------------------------

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. Cost in excess of net assets acquired of $881,121 which related
to the acquisition of Tube Form in 1970 are included in the loss on disposal for
the Tubular business, which was recorded in June 1997.

The Company periodically evaluates the recoverability of intangibles resulting
from business acquisitions and measures 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.


                                       40
<PAGE>   41

     Inventories
     -----------

Inventories are stated at the lower of cost or market and are valued using the
last-in, first-out (LIFO) and the first-in, first out (FIFO) cost methods.
Inventories from continuing operations on the LIFO method were 90.9% and 86.3%
of inventories in 1997 and 1996, respectively. If the FIFO method had been used
for these inventories, their value would have been approximately $4,768,400 and
$8,174,100 at September 30, 1997 and 1996, respectively.

All discontinued operations are on the FIFO cost method. The value of these
inventories approximate $7,859,200 and $11,229,200 at September 30, 1997 and
1996.

     Assets Held for Sale
     --------------------

In 1997, assets held for sale include the assets of Health-Mor Personal Care
Corporation, Tube-Fab Ltd., Bliss Manufacturing and Household Rental Systems. In
1996, assets held for sale included the assets of Household Rental Systems and
the former Bedford Heights, Ohio facility for the Tubular operation. The assets
and liabilities of these businesses at September 30, 1997 and 1996, have been
reclassified to net assets held for sale and are stated at their estimated net
realizable value.

In December 1997, the Company signed a letter of intent with respect to the sale
of Household Rental Systems. Management anticipates that the sale of this
business will be completed in early 1998.

On December 18, 1997, the Company signed a definitive agreement to sell the
stock of its Bliss Manufacturing Company to an investor group led by Mervin Dunn
and Rhone Capital, LLC. The purchase price is $31,500,000, subject to certain
adjustments, including a $1,500,000 distribution for certain payments to vendors
and employee obligations. The sale is expected to close in March 1998, subject
to regulatory and HMI shareholder approval. Holders of over 50% of the
outstanding shares of HMI common stock have granted to representatives of the
buyer group irrevocable proxies to vote their HMI shares in favor of the
transaction. The Company expects the entire proceeds from the sale of Bliss
Manufacturing to be applied to the retirement of substantially all of its debt,
certain vendor obligations, transaction costs and related expenses, certain
employee benefit payments, and amounts necessary to fund future tax obligations
arising from the gain on the sale of Bliss Manufacturing.

In January 1998, the Company expects to sell Tube-Fab Ltd. to its former CEO,
Mr. Kirk Foley, as part of the Company's negotiated settlement of obligations
under Mr. Foley's employment contract (See Note 14). The assets of Health-Mor
Personal Care Corp. are expected to be sold in early 1998.

The former Bedford Heights, Ohio facility for the Tubular operation was sold in
December 1996 resulting in an insignificant gain on disposal.


                                       41
<PAGE>   42

Assets held for sale at September 30, 1997 and 1996 consist of the following:

<TABLE>
<CAPTION>
                                                      1997             1996
                                                  ------------    --------------
<S>                                               <C>              <C>        
Accounts receivable, net                          $ 9,524,069      $   823,393
Inventories                                         7,859,180          331,992
Property, plant and equipment, net                  9,240,582        3,122,164
Other assets                                        8,260,924        1,113,601
                                                  -----------      -----------
    Total assets                                  $34,884,755      $ 5,391,150
                                                  -----------      -----------


Accounts payable                                    7,801,520          168,559
Accrued expenses                                    7,079,624          994,532
Other liabilities                                   5,345,289              ---
                                                  -----------      -----------
    Total liabilities                             $20,226,433      $   363,091
                                                  ===========      ===========
Net assets held for sale at realizable value      $14,658,322      $ 4,228,059
                                                  ===========      ===========
</TABLE>

     Property, Plant and Equipment
     -----------------------------

Property, plant and equipment are recorded at cost. Depreciation is provided on
the straight-line and declining balance methods over estimated useful lives of
10 to 40 years for buildings and 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 is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the appropriate accounts and any gain
or loss is included in current income.

     Fair Value of Financial Instruments
     -----------------------------------

It is not practical to determine the fair value of finance contract receivables
due to the unavailability of quoted market prices and the significant volume of
outstanding contracts with varying maturity dates. The Company's finance
contract receivables generally mature three years after issuance and generate
interest at rates ranging from 18% to 23%.

The Company's remaining 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.

     Income Taxes
     ------------

The Company accounts 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 basis of assets and liabilities at year end are
reflected as deferred income taxes.



                                       42
<PAGE>   43


     Revenue Recognition
     -------------------

Product revenues are recognized upon the shipment of product. Prior to January
1, 1998, the Company provided extended credit terms to its distribution network
in the Consumer Goods Division. On January 1, 1998, the Company revised this
policy to cash only sales terms for its North American distributors.


     Supplemental Disclosure of Cash Flow Information
     ------------------------------------------------

Cash paid for interest was $2,171,658, $1,509,627 and $1,477,552 for the years
ended September 30, 1997, 1996 and 1995, respectively. During the year, the
tenant of the Company's Lombard, Illinois building, exercised his right to
purchase the property at a price equal to the remaining principal debt service
of approximately $800,000. The amount of the debt service equaled the net book
value of the asset recorded on the Company's books. In addition, $5,286,277 of
goodwill related to the discontinued Bliss Manufacturing operation was
reclassified to net assets held for sale. During fiscal 1996, the Company
assumed a mortgage of $323,000 and relieved a note receivable for $302,000 in
exchange for $625,000 of fixed assets. During 1995, the Company acquired
approximately $470,000 of fixed assets which were not paid for as of September
30, 1995.

Items relating to discontinued operations included in the Consolidated
Statements of Cash Flow have not been disaggregated as they have in the
Consolidated Balance Sheets under the heading net assets held for sale at
realizable value.

     Income Per Share
     ----------------

Income per share of common stock is based upon the weighted-average number of
common shares and common share equivalents outstanding. The weighted-average
number of common shares and common share equivalents outstanding during 1997,
1996 and 1995 was 4,956,276, 4,912,135 and 4,876,599, respectively.

 2. DISCONTINUED OPERATIONS

In the third quarter of fiscal 1997, the Company reported its Health-Mor
Personal Care Corporation, Bliss Tubular and Tube-Fab Ltd. as discontinued
operations. Bliss Tubular, Tube-Fab Ltd and Bliss Manufacturing comprise the
Company's reported Manufactured Products segment. The Bliss Tubular and Tube-Fab
Ltd. operations represent the Company's only tube fabrication and tube forming
businesses (primarily for the consumer goods marketplace) and have been
accounted for and operated separately from the Bliss Manufacturing business. The
Company recorded a pre-tax estimated loss on disposal of the assets of Tube-Fab
Ltd., and Health-Mor Personal Care Corp. of $1,937,179 during fiscal 1997. In
August 1997, the Company sold the assets of Bliss Tubular to H-P Products and
recorded a pre-tax loss on the sale of those assets of $1,524,150.


In the fourth quarter of fiscal 1997, the Company received Board approval for
the proposed sale of the Bliss Manufacturing Company, a business which
represents a heavy-duty metal stamping operation and supplier to the automobile
and heavy-duty truck industry. As a result, the entire Manufactured Products
Division, which was previously reported as a separate segment in the Company's
financial statements, is reflected as a discontinued operation for the year
ended September 30, 1997.



                                       43
<PAGE>   44



Sales applicable to the discontinued operations were $69,902,015, $58,358,230
and $68,964,988 for the years ended September 30, 1997, 1996 and 1995,
respectively.

During the fourth quarter of fiscal 1996, the Company adopted a plan to exit its
direct sales operation in Mexico. Revenues and expenses related to this business
have been classified as discontinued operations for the years ended September
30, 1996 and 1995. The Company recorded a loss on disposal of $1,480,844 in
fiscal 1996 primarily comprised of the currency devaluation which was previously
reported as a component of equity, net of the U.S. tax benefit of the loss on
the Company's investment in the Mexican operation. Revenues of the Mexican
operations were $1,876,516, and $2,873,044 for the years ended September 30,
1996, and 1995, respectively.

In March 1996, the Company adopted a plan to sell its steam cleaning rental
leasing operations distributed through grocery chains and supermarkets in
Canada. Revenues and expenses related to this business have been classified as
discontinued operations for the years ended September 30, 1997, 1996 and 1995.
Revenues of this operation for the years ended September 30, 1997, 1996 and 1995
were $5,249,627, $5,536,983 and $6,592,853, respectively. The Company recorded
an estimated loss on the disposal of the operation of $800,000 during 1996. An
additional charge of $2,651,209 on the disposal of this asset was recorded in
the third and fourth quarters of fiscal 1997 to reflect its current realizable
value. This charge also includes an estimated write-off of the entity's currency
translation adjustment (reported as a component of equity) which will occur upon
the sale of the operation. Net assets of Household Rental Systems are included
in assets held for sale.

3. NOTES RECEIVABLE

Long-term notes receivable consist of the following:
<TABLE>
<CAPTION>
                                           1997             1996
                                       -----------      -----------

<S>                                    <C>              <C>        
Notes receivable - See Note 14         $   228,414      $   895,007

Less amounts due within one year           228,414          560,884
                                       ===========      ===========
                                       $       ---      $   334,123
                                       ===========      ===========

4. PROPERTY, PLANT AND EQUIPMENT

                                           1997             1996
                                       -----------      -----------

Land                                   $     7,083      $   576,109
Buildings and improvements               3,867,012        9,712,417
Machinery and equipment                  7,552,322       20,553,692
                                       -----------      -----------
                                        11,426,417       30,842,218
Accumulated depreciation                 5,231,549       15,124,565
                                       ===========      ===========
Net property, plant and equipment      $ 6,194,868      $15,717,653
                                       ===========      ===========
</TABLE>

Gross property, plant and equipment related to discontinued operations amounted
to $23,485,754, with associated accumulated depreciation of $14,245,172, at
September 30, 1997.

                                       44
<PAGE>   45



5. ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following:

<TABLE>
<CAPTION>
                                   1997            1996
                                ----------      ----------
<S>                             <C>             <C>       
Accrued compensation            $4,049,464      $3,127,615
Distributor funds payable        1,171,998         292,198
Pension and profit sharing         362,560         852,413
Accrued interest                   332,364         259,657
Accrued taxes                          ---         110,810
Other                            2,209,234       2,560,297
                                ==========      ==========
                                $8,125,620      $7,202,990
                                ==========      ==========
</TABLE>

6. CREDIT FACILITY AND LONG-TERM DEBT

In November 1996, the Company increased the line of credit facility from
$17,500,000 to $19,500,000 with a principal payment of $2,000,000 due by
February 28, 1997. Under this line of credit agreement, a principal amount of
$2,500,000 was due no later than January 2, 1997. In December 1996, the proceeds
from the sale of the Bedford Heights, Ohio tubular facility were utilized to pay
down the $2,500,000 principal amount to $1,379,100. In January 1997, proceeds
from a federal income tax refund were used to pay the remaining principal amount
due. Effective February 28, 1997, the Credit Facility Agreement was amended to
increase the line of credit from $17,000,000 to $20,000,000 with $5,000,000 of
the commitment due March 31, 1997. Subsequently, the availability of the
$20,000,000 facility was extended through May 31, 1997.

Effective June 1997, the Company entered into a $20 million credit facility with
its lender which replaced the February 1997 amended and restated credit facility
agreement. The new credit agreement expires on October 1, 1998 and requires an
unused facility fee, computed at 0.25% per annum on the Unused Revolving
Facility amount, payable monthly. The secured facility consists of a $13 million
revolving credit facility and $7 million in term loans. The term loans require
monthly principal payments of $98,501. Interest rates accrue at prime on the
revolving credit facility and up to prime plus 2.25% on the term loans. As of
September 30, 1997, the outstanding balance on the Company's credit facility was
$15,824,397 (including $10.1 million of the line of credit, the special term
loan, the equipment term loan and the real estate term loan disclosed below).

At September 30, 1997, the Company was in violation of the financial covenants
under its credit agreement and was experiencing increasing liquidity problems.
The Company's deteriorating cash position was a significant factor that led to
the decision to sell Bliss Manufacturing. In December 1997, the Company obtained
waivers from its lenders with respect to the covenant violations and received
$2,000,000 in a special term loan that accrues interest at a rate of prime plus
2.0%, to be paid monthly. The maturity date of this agreement is the earlier of
the receipt of the Bliss Manufacturing sale proceeds or March 31, 1998.
Additionally, a fee with respect to the special term loan of $80,000 will be
paid on such date that the special term loan is paid in full. Additionally , the
Company expects to receive additional financing of $1,200,000 upon the filing of
its fiscal 1997 tax return, which is expected to be filed in early January 1998.
The proceeds of the anticipated tax refund will be first used to repay the
$1,200,000 to the bank and any excess will be used for working capital.



                                       45
<PAGE>   46


In November 1996, the Company made an annual principal payment of $1,666,666 on
the unsecured, 9.86%, seven year private placement term notes, leaving a balance
of $1,666,667 as of September 30, 1997, with the final payment due date extended
until the earlier of March 31, 1998 or upon receipt of proceeds from the sale of
Bliss Manufacturing.

In March 1996, the Company entered into a bank credit facility, utilized by the
Netherlands operations, for a maximum amount of NLG 1,000,000 or approximately
$600,000. Interest is incurred at the promissory note discount rate as
determined by the Dutch central bank. At September 30, 1997 the promissory note
discount rate was 6.00%. This commitment is available through December 31, 1997
and the $481,000 outstanding balance at September 30, 1997 is classified as
short term debt in the consolidated balance sheet. The Company is presently
negotiating, with its lender, an extension on this debt until the earlier of
March 31, 1998 or upon receipt of proceeds from the sale of Bliss Manufacturing.

The Australian Unsecured Demand Authorization, payable on demand or February 28,
1997, was extended until the earlier of March 31, 1998 or upon the receipt of
proceeds from the sale of Bliss Manufacturing.

Long-term debt consists of the following:
<TABLE>
<CAPTION>
                                                                       1997                             1996
                                                                 -----------------                -----------------
<S>                                                           <C>                              <C>                 
BANK LINES OF CREDIT - see above                              $        10,579,822              $         18,132,975

SPECIAL TERM LOAN, bearing interest at Prime                            1,580,052                               ---
plus 2 1/4% (10.75% at September 30, 1997), due
in monthly installments of $50,000 through
October 1, 1998

EQUIPMENT TERM LOAN, bearing interest at Prime                          1,951,595                               ---
plus 1/2% (9.00% at September 30, 1997), due in
monthly installments of $29,751 through October
1, 1998

REAL ESTATE TERM LOAN, bearing interest at Prime                        2,193,750                               ---
plus 1/2% (9.00% at September 30, 1997), due in
monthly installments of $18,750 through October
1, 1998

SEVEN YEAR, 9.86% PROMISSORY                                            1,666,667                         3,333,333
NOTES, interest payable semi-
annually and principal
payments of $1,666,666,
commencing November, 1992
through March 31, 1998
</TABLE>



                                       46
<PAGE>   47


<TABLE>
<CAPTION>
                                                                       1997                             1996
                                                                 -----------------                -----------------
<S>                                                           <C>                              <C>                 
CONSTRUCTION LOAN/MORTGAGE bearing                            $         2,252,156              $          2,214,923
interest at 9.00% at September
30, 1997, collateralized by buildings, 
contents and inventory, principal and
interest payments due in monthly 
installments of $23,193 commencing 
June 1997 through October 1, 1998

CAPITALIZED LEASE OBLIGATIONS                                             478,760                         1,745,303
bearing interest at 6.48% to
8.04% due in monthly
installments of $21,496
(including interest)
through January 2000

DISTRIBUTOR DEPOSITS bearing                                              599,429                         1,144,492
interest up to 6% at September 30, 1997 payable
180 days after termination of
distributor agreement

UNSECURED DEMAND AUTHORIZATION                                            406,000                         1,007,745
bearing interest at Australian prime less
1/2% (5.4%), due in monthly
installments of $25,375 payable on
March 31, 1998

INDUSTRIAL REVENUE DEVELOPMENT                                                ---                           956,849
BONDS- See Note 11

MORTGAGE LOAN, variable interest (9.25%                                       ---                           316,537
at September 30, 1996) payable
monthly with principal payments of
$1,226, through May 2008

INTEREST FREE GRANT with varied principal                                     ---                           101,072
installments due annually through June
1999

                                                                 -----------------                ------------------
                                                                       21,708,231                        28,953,229
Less amounts due within one year                                       20,945,454                         6,618,616
                                                                 =================                ==================
                                                              $           762,777              $         22,334,613
                                                                 =================                ==================
</TABLE>


                                       47
<PAGE>   48



Long-term debt relating to discontinued operations has been reclassified to net
assets held for sale. Total debt ($481,897 long-term and $508,046 short-term for
the year ended September 30, 1997) associated with these operations amounted to
$989,940 at September 30, 1997. Interest rates relating to debt for discontinued
operations range from 3.74% to 9.5%.

The principal amount of long-term debt payable in the five years ending
September 30, 1998 through 2002, relating to continuing operations, is
$20,945,454, $121,418, $41,929, $599,430 and $-0-, and for discontinued
operations is $508,046, $194,757, $14,700, $14,700 and $257,737. The weighted
average interest rate on short term borrowings at September 30, 1997 and 1996
was 8.75% and 8.10%, respectively.

The agreements relating to the Company's outstanding debt include various
covenants that limit its ability to incur additional indebtedness, restricts
paying dividends, and limits the ability for capital expenditures. As of
September 30, 1997, the Company was not in compliance with certain of these
covenants contained in its credit agreements; however, the Company obtained a
waiver on these covenants through September 30, 1997. Additionally, the credit
agreements were amended so as to eliminate the restrictive covenants referred to
above until March 31, 1998.

The Company's principal sources of liquidity, until the sale of Bliss
Manufacturing, are expected to be funded with cash generated from operations,
additional borrowings under the Company's credit facility referred to above and
the 1997 tax refund. After the sale of Bliss Manufacturing the Company's
principal sources of liquidity are expected to be from the proceeds from the
sale, a new credit facility to be put in place in the second fiscal quarter of
1998 and from cash generated from operations.

7. LONG-TERM COMPENSATION PLAN

The Company adopted the Health-Mor Inc. 1992 Omnibus Long-Term Compensation Plan
("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 key employees of the Company and its Subsidiaries and stock
options for the non employee directors of the Company. 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. Share awards 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, the Company records
compensation expense as the excess of the quoted market price of a similar but
unrestricted share of stock at the award date over the purchase price, if any.

In May 1997, the Board of Directors approved a stock option grant to two
executives of 20,000 shares each, of common stock subject to certain
restrictions. The shares will vest over a maximum period of eight months and are
subject to each executive's continued employment and other various restrictions.


                                       48
<PAGE>   49



In July 1997, the Board of Directors granted stock and stock options under the
Plan to three of its executives. Each executive was awarded 25,000 shares of
restricted stock, with 12,500 vesting on October 1, 1997 (subsequently, the
executives forfeited the 12,500 shares vesting on October 1, 1997) and the
balance on January 2, 1998. An additional 75,000 shares of restricted common
stock will be issued in 1998 contingent upon certain conditions and continued
employment. In addition, they each received options to purchase 75,000 shares of
common stock at $5.68 per share, of which 35,210 options are incentive stock
options, half exercisable on July 2, 1997 and the remaining on January 2, 1998.
The remaining 39,790 options are non-qualified stock options that became
exercisable on July 2, 1997. All options expire July 2, 2002, to the extent not
exercised.

There were 77,500 shares issued pursuant to 1997 executive grants during the
current fiscal year. Unamortized deferred compensation amounted to $273,500 at
September 30, 1997. Total compensation expense, in conjunction with the Plan was
$659,266, $251,000 and $380,600 in 1997, 1996 and 1995, respectively.

The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its stock plans as
allowed under FAS Statement No. 123, "Accounting for Stock-Based Compensation"
(FAS 123). Accordingly, the adoption of this statement did not affect the
Company's results of operations, financial position or liquidity. Had
compensation cost for the stock granted in 1997 and 1996 been determined
consistent with FAS 123, pro forma net income and earnings per share would have
been as follows:

<TABLE>
<CAPTION>
                                          1997                  1996
                                    -----------------     -----------------
<S>                                      <C>                   <C>        
Net loss, as reported                    $16,650,065           $10,014,104
Net loss, pro forma                      $17,482,065           $10,515,359
Loss per Common share:
  As reported                                  $3.36                 $2.04
  Pro forma                                    $3.53                 $2.14
</TABLE>


Because the FAS No. 123 method of accounting has not been applied to options
granted prior to 1996, the above pro forma disclosures are not necessarily
indicative of future amounts.

The fair value for all options granted in 1997 and 1996 were estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions:

<TABLE>
<CAPTION>
                                                   1997                  JUNE 1996              JANUARY 1996
                                                  OPTIONS                 OPTIONS                  OPTIONS
                                            --------------------    ---------------------    --------------------
<S>                                               <C>                      <C>                     <C>
Risk free interest rate                            6.2%                     6.5%                    5.3%
Expected life of option                           3 yrs.                   3 yrs.                  3 yrs.
Expected dividend yield of stock                   0.0%                     0.0%                    0.0%
Expected volatility of stock                       51.5%                   41.8%                    41.8%
</TABLE>



                                       49
<PAGE>   50

A summary of the Company's stock option activity, and related information for
the years ended September 30, 1997, 1996, and 1995, is shown in the following
table.

<TABLE>
<CAPTION>
                                                              Shares subject             Average option
                                                                to option                price per share
                                                         -------------------------     -------------------
<S>                                                                      <C>           <C>
September 30, 1994, Outstanding                                           314,300      $          8.49
    Granted                                                                94,000                16.18
    Exercised                                                            (13,594)                 7.35
    Canceled                                                             (13,031)                 7.54
                                                         -------------------------
September 30, 1995                                                        381,675                10.46
    Granted                                                               162,000                 9.08
    Canceled                                                             (12,750)                 7.55
                                                         -------------------------
September 30, 1996                                                        530,925                10.18
    Granted                                                               356,000                 5.52
    Canceled                                                            (163,300)                 7.49
                                                         =========================
September 30, 1997, Outstanding                                           723,625      $          8.47
                                                         =========================
</TABLE>

Options exercisable and shares available for future grant on September 30:

<TABLE>
<CAPTION>
                                                                         1997                  1996                 1995
                                                                   -----------------     -----------------    -----------------
<S>                                                                         <C>                   <C>                  <C>    
Options exercisable                                                         487,810               403,893              197,737
Weighted- average option price per share of options exercisable               $8.90                 $8.58               $10.28
Weighted-average fair value of options granted during the year                $2.34                 $3.09                  ---
</TABLE>


The ranges of exercise prices and the remaining contractual life of options as
of September 30, 1997 were:

<TABLE>
<S>                                                                           <C>                    <C> 
Range of exercise prices                                                       $4-$10                $11-$18
Options outstanding:
  Outstanding as of September 30, 1997                                        504,625                219,000
  Weighted-average remaining contractual life                                    5.41                   4.32
  Weighted-average exercise price                                               $6.06                 $13.98
Options exercisable:
  Outstanding as of September 30, 1997                                        340,810                147,000
  Weighted-average remaining contractual life                                    5.60                   4.85
  Weighted-average exercise price                                               $6.43                 $14.20
</TABLE>



                                       50
<PAGE>   51

8. INCOME TAXES

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

<TABLE>
<CAPTION>
                                                             1997                    1996                   1995
                                                       ------------------       ----------------       ----------------
<S>                                                 <C>                      <C>                    <C>               
Current:
  Federal                                           $        (6,205,078)     $      (2,678,363)     $      (1,177,783)
  Foreign                                                         25,000                 25,000                 25,000
                                                       ------------------       ----------------       ----------------
                                                             (6,180,078)            (2,653,363)            (1,152,783)
Deferred (benefit) expense                                   (1,105,871)              (184,896)                537,992
                                                       ==================       ================       ================
                                                    $        (7,285,949)     $      (2,838,259)     $        (614,791)
                                                       ==================       ================       ================
</TABLE>

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

<TABLE>
<CAPTION>
                                                                  1997                  1996                 1995
                                                            -----------------      ---------------      ---------------
<S>                                                      <C>                    <C>                  <C>              
Tax at Federal statutory rate of 34%                     $       (7,059,545)    $     (2,925,939)    $         337,881
Increases (reductions) in taxes
  resulting from:
    Valuation allowance reserves on
       foreign net operating losses                                      ---                  ---            (325,085)
    Foreign Sales Corporation earnings                             (231,455)            (269,595)            (548,500)
    Amortization of cost in excess of                                                      79,152
       net assets of acquired businesses                              79,152                                    79,152
    Foreign income taxes, net                                         25,000               25,000               25,000
    Other - net                                                     (99,101)              253,123            (183,239)
                                                            =================      ===============      ===============
                                                         $       (7,285,949)    $     (2,838,259)    $       (614,791)
                                                            =================      ===============      ===============
</TABLE>


                                       51
<PAGE>   52

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

<TABLE>
<CAPTION>
                                                                          1997                            1996
                                                                     ---------------                 ---------------
<S>                                                               <C>                             <C>              
Gross deferred tax assets:
     Postretirement benefits                                      $       1,631,245               $       1,499,600
    Operating loss carryforwards                                          3,222,314                         871,000
    Receivable and inventory reserves                                       857,822                         853,556
    Accrued compensation                                                  1,816,797                         684,871
    Benefits insurance reserves                                             181,335                         117,425
    Impairment reserves                                                   1,999,901                         308,000
    Warranty reserves                                                        90,475                          90,475
    Other                                                                   241,373                         171,674
                                                                     ---------------                 ---------------
                                                                         10,041,262                       4,596,601
                                                                     ---------------                 ---------------
Gross deferred tax liabilities:
    Deferred DISC income                                                     31,219                          62,438
    Depreciation                                                            668,445                         583,806
                                                                     ---------------                 ---------------
                                                                            699,664                         646,244
Valuation allowances on foreign
  net deferred tax assets                                                 1,676,131                         871,000
                                                                     ---------------                 ---------------
Net deferred tax asset                                            $       7,665,467               $       3,079,357
                                                                     ===============                 ===============
</TABLE>


The Company has determined that it should fully reserve against this net
potential tax asset to the extent it represents excess available net deferred
tax assets for all 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. The Mexican NOL which was recognized as an asset in fiscal year
1995, amounting to $496,537, was written off in fiscal year 1996 in connection
with the decision to discontinue the Company's Mexican operations. Income taxes
paid during the years ended September 30, 1997, 1996 and 1995 were $277,559,
$1,082,229 and $1,622,986, respectively.


Net operating loss carryforwards of approximately $3,222,314 for tax are
available to offset future taxable income. The carryforwards will expire in 2002
through 2012. 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.

9. PROFIT SHARING AND PENSION PLANS

Bliss Manufacturing has a defined contribution plan which covers substantially
all employees. The Bliss plan contribution is at management's discretion and is
allocated based on a percentage of each employee's wages. In addition, Tube Form
had a defined contribution plan which covered substantially all employees. This
plan required an annual contribution of a specified percentage of each
employee's wage, with a minimum contribution of $660 per employee. This plan was
terminated in April 1996. All funds relating to the plan were distributed in
fiscal year 1997.


                                       52
<PAGE>   53



The Company and Tube-Fab have qualified profit sharing plans which cover
substantially all employees. The overall contribution to the Company's plan and
the allocation method is at the discretion of the 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. The required annual contribution to the
Tube-Fab plan is based upon a percentage of net income after certain
adjustments. The allocation to the participants is based upon a formula
established in the Plan. Profit sharing and pension plan expense for all plans
for the years ended September 30, 1997, 1996 and 1995 was $600,804, $1,978,647
and $1,042,741, respectively. For the years ended September 30,1997, 1996 and
1995, continuing operations represented $112,560, $-0- and $112,515 of the total
expense.

Tube-Fab Ltd., and Bliss Manufacturing have been reported as discontinued
operations, and accordingly, pension and profit sharing expense for these
entities have been reflected in results of discontinued operations.

10.  POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

The Company provides postretirement health care and life insurance benefits to
certain employees and retirees of Bliss Manufacturing, a wholly owned
subsidiary. As the Bliss Manufacturing business qualified for discontinued
operations treatment for the fiscal year ended September 30, 1997, the
postretirement benefit costs are reflected in the "Income from discontinued
operations - Bliss Manufacturing" line of the Consolidated Statement of Income
and the accrued postretirement benefit costs are grouped in the "net assets held
for sale at realizable value" line in the Consolidated Balance Sheet.

The components of the postretirement benefit costs are as follows:

<TABLE>
<CAPTION>
                                                1997                 1996                   1995
                                           -------------         -------------          -------------

<S>                                        <C>                   <C>                    <C>          
Service costs                              $     339,000         $     309,000          $     213,000
Interest costs                                   265,000               232,000                192,000
Net amortization and deferral                        ---                   ---              (20,000)
                                           -------------         -------------          -------------
                                           $     604,000         $     541,000          $     385,000
                                           =============         =============          =============
</TABLE>



                                       53
<PAGE>   54

The status of the plans was as follows at  September 30,
<TABLE>
<CAPTION>
                                                                                   1997                       1996
                                                                         -------------------        --------------------
<S>                                                                         <C>                        <C>             
Accumulated postretirement benefit obligation (APBO):
  Retirees                                                                  $   (1,642,000)            $    (1,639,000)
  Actives fully eligible                                                          (195,000)                   (181,000)
  Actives not yet fully eligible                                                (2,242,000)                 (1,769,000)
                                                                         -------------------        --------------------
Total APBO                                                                      (4,079,000)                 (3,589,000)
Fair value of plan assets                                                            ---                           ---
                                                                         -------------------        --------------------
Funded status                                                               $   (4,079,000)            $    (3,589,000)
  Unrecognized (gain)/loss                                                        (158,000)                   (160,000)
                                                                         -------------------        --------------------
  Accrued postretirement benefit costs                                      $   (4,237,000)            $    (3,749,000)
                                                                         ===================        ====================

  Assumed weighted average discount rate                                             7.5%                       7.5%
</TABLE>

The assumed health care cost trend rate used in measuring the health care
portion of the postretirement benefit cost for 1997 is 10.5%, gradually
declining to 5.5% by the year 2007 and remaining at that level thereafter. The
health care cost trend rate assumption has a significant effect on the amounts
reported. To illustrate, increasing the assumed health care cost trend rates by
1 percentage point in each year would increase the APBO as of September 30, 1997
by $849,000 and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for the year then ended by $165,000.

11. COMMITMENTS AND CONTINGENCIES, GUARANTEES AND LEASES

The Company has guaranteed certain surety bonds totaling $90,512 executed by
distributors. The Company is obligated under certain operating leases for
facilities which expire on various dates through 2003. The minimum annual lease
payments, for continuing operations, under these agreements including renewal
options, if exercised, are $193,242, $185,062, $167,161, $152,520 and $147,518
for the years ending September 30, 1998, 1999, 2000, 2001 and 2002,
respectively. Minimum annual lease payments for discontinued operations are
$195,272, $94,248, $56,958, $40,853 and $20,058 for the years ending September
30, 1998, 1999, 2000, 2001 and 2002, respectively. Rental expense for all leases
and other short-term needs was $858,589, $917,600 and $756,000 for the years
ended September 30, 1997, 1996 and 1995, respectively. Of the total rent expense
for the year ended September 30, 1997, $359,520 related to discontinued
operations.

During the fiscal year 1994 and continuing throughout 1996, the property owned
by the Company in Lombard, Illinois that housed the office facilities for the
discontinued operations of HMI Credit Inc. was leased to a third party. The
lease included an option to purchase the property at any time during the ten
year lease term. The tenant was responsible for all operating expenses related
to the property and the lease payments equal the debt service for the variable
rate industrial revenue development bonds originally issued to finance the
property.

On July 7,1997, the tenant exercised his right to purchase the property at a
price equal to the remaining principal debt service for the variable rate
industrial revenue development bonds of approximately $800,000.


                                       54
<PAGE>   55

     Litigation
     ----------

The Receiver of the Health Mor B.V. bankruptcy estate commenced litigation
against HMI Industries Inc and one of Health Mor B.V.'s Managing Directors,
Kevin Dow, on or about December 3, 1997, in bankruptcy case asserting that HMI
Industries Inc and Dow are liable, under the law of the Netherlands, for a
616,000 NLG ($308,000) deficit in the Health Mor B.V. estate and approximately
85,000 NLG ($42,500) in costs of administration. HMI Industries Inc believes the
Receiver's claims against HMI are without merit and will vigorously oppose the
Receiver.

Various other claims arising in the ordinary course of business are pending
against the Company. In the opinion of management none of these matters will
have a material adverse effect on the consolidated financial position, results
of operations or cash flows of the Company.

     Executive Compensation Agreement
     --------------------------------

During 1994, the Company negotiated a five year Compensation Agreement with the
Chief Executive Officer, Kirk W. Foley, which was ratified at the 1995 Annual
Shareholders' Meeting. The Agreement combines salary, incentive compensation,
loans, stock options and Phantom Stock to employ Mr. Foley. On May 14, 1997 Mr.
Foley's employment with the Company was terminated triggering certain
obligations under this employment agreement (See Note 14).

Also in May 1997, the Company announced and completed a reduction of personnel
which affected approximately forty people (hourly and salaried) at its
Cleveland, Ohio Consumer Goods facility. The Canadian corporate office was also
scaled down, with all accounting functions being brought into the Cleveland,
Ohio office, reducing staff by approximately eleven people in the Canadian
office.

Total charges of $3,049,754 relating to the layoffs announced in May and Mr.
Foley's termination benefit package were recorded in the third and fourth
quarter of 1997. The balance in the related reserve at September 30, 1997 was
$2,058,492, of which $300,000 was previously recorded as compensation expense in
fiscal year 1996 in accordance with Mr. Foley's employment agreement.

12. BUSINESS SEGMENTS

As of September 30, 1997, the Company's continuing operations consist of a
single operating segment: the Consumer Goods Division. Previously, the Company
was segmented into three operating divisions: Consumer Goods, Health-Mor
Personal Care and Manufactured Products. During 1997, the Company sharpened its
focus on its core business in the Consumer Goods Division and operations that
were outside of the core business were identified in the third and fourth
quarters and classified as discontinued operations. The identified operations
consist of all of the Manufactured Products Division entities as well as the
Health-Mor Personal Care segment.

Canadian sales are not considered export sales. One of the Company's major
foreign operations is located in Canada. The Company primarily conducts business
in local currency. Identifiable assets of the Canadian operations, excluding the
assets of Household Rental Systems and Tube-Fab Ltd., which are classified as
net assets held for sale, were $2,318,521 and $3,790,067 at September 30, 1997
and 1996, respectively. Identifiable 



                                       55
<PAGE>   56


revenues of Canadian operations for the years ended September 30, 1997, 1996 and
1995 were $4,981,069, $4,387,750 and $5,841,140, respectively. Three customers
in the Consumer Goods segment, each with individual sales greater than 10% of
total product sales, represented 44.9% and 23.4% of the Company's total net
sales in 1997 and 1996, respectively.

13. QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                 1997
                                        -------------------- --- ----------------- ---- ----------------- --- ---------------------
                                           December 31,             March 31,               June 30,             September 30,
                                        --------------------     -----------------      -----------------     ---------------------

<S>                                  <C>                      <C>                    <C>                   <C>                    
Net revenues                         $           14,620,888   $        13,725,320    $        11,120,603   $            11,023,439
Gross profit (exclusive of
financing revenues)                  $            5,073,398   $         3,456,337    $         2,433,425   $             2,905,553
Loss before discontinued
operations                           $            (657,479)   $       (3,158,796)    $       (4,945,981)   $           (4,715,164)
Loss on disposals                    $                  ---   $               ---    $       (3,439,298)   $           (2,080,386)
Income from discontinued
operations                           $              534,487   $           141,795    $         1,111,073   $               559,684
Net loss                             $            (122,992)   $       (3,017,001)    $       (7,274,206)   $           (6,235,866)


Per share of common stock:
  Loss before discontinued
  operations                         $               (0.13)   $            (0.64)    $            (1.00)   $                (0.95)
  Loss on disposals                  $                  ---   $               ---    $            (0.69)   $                (0.42)
  Income from discontinued
  operations                         $                 0.11   $              0.03    $              0.22   $                  0.11
 Net loss                            $               (0.02)   $            (0.61)    $             (1.47)  $                (1.26)
</TABLE>




                                       56
<PAGE>   57

<TABLE>
<CAPTION>
                                                                                1996
                                       -------------------- -- ------------------ --- ------------------ -- ---------------------
                                          December 31,             March 31,              June 30,             September 30,
                                       --------------------    ------------------     ------------------    ---------------------

<S>                                 <C>                     <C>                    <C>                   <C>                    
Net revenues                        $           13,432,049  $         16,789,086   $         13,291,222  $            16,036,551
Gross profit (exclusive of
financing revenues)                 $            4,874,589  $          5,073,776   $          4,712,003  $             5,913,410
Loss before discontinued
operations                          $            (446,993)  $        (1,284,982)   $        (1,411,563)  $           (2,623,907)
Loss on disposals                   $                  ---  $                ---   $          (800,000)  $           (1,480,844)
Income (loss) from
discontinued operations             $             (48,119)  $        (1,577,795)   $          (748,562)  $               408,661
Net loss                            $            (495,112)  $        (2,862,777)   $        (2,960,125)  $           (3,696,090)


Per share of common stock:
  Loss before discontinued
  operations                        $               (0.09)  $             (0.26)   $             (0.29)  $                (0.53)
  Loss on disposals                 $                  ---  $                ---   $             (0.16)  $                (0.30)
  Income (loss) from
  discontinued operations           $               (0.01)  $             (0.32)   $             (0.15)  $                  0.08
  Net loss                          $               (0.10)  $             (0.58)   $             (0.60)  $                (0.75)
</TABLE>


The first two quarters of 1997 have been restated as shown above. Inventory
analysis performed in conjunction with the third quarter physical inventory
revealed $1.1 million of raw material procurements from a supplier which were
recognized in the third quarter that related to the two previous quarters and
additionally, inventory adjustments of $582,800 were required to reflect product
costs not properly recognized in the first two quarters.

14. RELATED PARTY TRANSACTIONS

In May 1997, the Company advised Kirk W. Foley, then its CEO, that it was
terminating his employment which triggered certain obligations as per Mr.
Foley's employment contract, including an $800,000 severance payment, an
assumption of a $518,000 personal bank loan made to Mr. Foley, other
compensation obligations of approximately $79,000 and an obligation to purchase
Mr. Foley's Company stock at current market value (approximately $325,000).

Because of the Company's tight cash position, noncash ways to satisfy its
obligations to Mr. Foley were sought. The resolution was a decision to transfer
to Mr. Foley the Company's 100% stock interest in Tube-Fab Ltd, a Canadian
subsidiary headquartered on Prince Edward Island, Canada, which an independent
appraiser valued at $1,512,000. The Tube-Fab Ltd. stock had been carried on the
Company's books at a value of $2,157,500 and was accordingly written down to its
appraised value.



                                       57
<PAGE>   58

The settlement transaction with Mr. Foley is expected to be closed in January
1998. It entails a transfer of the Tube-Fab Ltd. shares to Mr. Foley; Mr.
Foley's payment of $303,000 to the Company; cancellation of the Company's
$800,000 severance obligation; an assumption of the $486,750 ($518,000 less a
$31,250 principal payment made in June 1997) bank loan; cancellation of Mr.
Foley's put right with respect to his Company stock; and assumption by Mr. Foley
of an operating lease of Canadian facilities currently leased by the Company,
which has a remaining lease obligation of approximately $1,050,000 over 8 1/2
years.

Mr. Foley's employment contract also requires the Company to pay to him a
$300,000 cash award relating to phantom shares he had previously earned but had
deferred in 1996. This award has been reduced to a $150,000 payment in the
settlement transaction. The settlement also requires the Company to continue Mr.
Foley's salary and benefits from the time of termination advice through December
15, 1997 (approximately $320,000).

Mr. Foley's departure caused the Company to examine the collectability of
certain other related party receivables aggregating $743,000 which were forgiven
and accordingly written off in the third and fourth quarters of fiscal 1997.

In 1995, the Company converted $750,000 of accounts receivable from a former
Filter Queen distributor to notes receivable. This distributor is an officer of
a majority owned subsidiary of the Company. In 1996, the officer contributed
various assets and liabilities to the subsidiary in exchange for a reduction in
the note receivable. The note receivable of $228,414 is reflected in current
assets as a note receivable at September 30, 1997.

15. MAJOR VENDOR

In 1991, the Company entered into an agreement that provided for the potential
acquisition of Holland Electro B.V. of Rotterdam, the Netherlands, contingent
upon attaining certain earnings targets in the two year period ended September
30, 1992. When Holland Electro B.V. failed to achieve the agreed targets, HMI
walked away from the proposed purchase but continued to buy products and other
services from Holland-Electro.

In January 1996, Holland Electro B.V. filed for bankruptcy, triggering a
Conditional Purchase Agreement the Company had with Kredietbank N.V. in the
amount of $1,104,000. As a result, the Company was required to take possession
of finished goods and work in progress inventories. Upon acquisition of these
inventories, the Company began production of the ElektraPure and other floorcare
products for distribution in North America and Europe. The Company had paid in
advance for certain services and inventory to be acquired from Holland Electro
B.V. The advances, royalties and other receivables totaled $2,012,000. During
fiscal 1996, as a result of the bankruptcy and subsequent resolution of pending
claims, the Company determined that recovery of these advances was not likely.
Accordingly, the Company recorded a charge for the write-off of these advances.


                                       58
<PAGE>   59

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


<TABLE>
<CAPTION>
                                                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, 1997                 $ 2,439,000            $  4,820,000       $ 1,747,000       $ 5,512,000
   Year ended September 30, 1996                 $ 1,550,000            $    889,000               ---       $ 2,439,000
   Year ended  September 30, 1995                $ 1,121,000            $    429,000               ---       $ 1,550,000

Valuation account for inventory:
   Year ended September 30, 1997                $  1,234,000            $    754,000       $   357,000       $ 1,631,000
   Year ended September 30, 1996                $    305,000            $    929,000               ---       $ 1,234,000
   Year ended  September 30, 1995               $    120,000            $    185,000               ---       $   305,000

Reserve for loss on disposal:
   Year ended September 30, 1997                $    800,000            $  6,112,000       $ 1,524,000       $ 5,388,000
   Year ended September 30, 1996                         ---            $    800,000               ---       $   800,000
   Year ended  September 30, 1995                        ---                     ---               ---               ---

Valuation for deferred tax asset:
   Year ended September 30, 1997                $    871,000            $  1,151,000      $    346,000       $ 1,676,000
   Year ended September 30, 1996                $    517,000           $     354,000               ---      $    871,000
   Year ended  September 30, 1995               $    193,000            $    324,000                        $    517,000
</TABLE>



                                       59
<PAGE>   60


INDEX TO EXHIBITS
-----------------

<TABLE>
<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

       10.00             Material Contracts                          Incorporated by reference from, Proxy Statement for the
                                                                     Annual Meeting of Stockholders January 19, 1995 -
                                                                     Exhibit B

       10.01             Material Contracts                          Change of Control Agreements, attached

       10.02             Material Contracts                          Non-statutory Stock Option Agreements, attached

       10.03             Material Contracts                          Incentive Stock Option Agreements, attached

       10.04             Material Contracts                          Deferred Bonus Agreements, attached

       10.05             Material Contracts                          Employment Agreement - Malone, attached

       10.06             Material Contracts                          Employment Agreement - Kirk, attached

       10.07             Material Contracts                          Employment Agreement - Young, attached

       10.08             Material Contracts                          Restricted Stock Agreements, attached

       10.09             Material Contracts                          Amended and Restated Credit Agreement, attached

       10.10a            Material Contracts                          Amendment No. 1 to Amended and Restated Credit
                                                                     Agreement, attached

       10.10b            Material Contracts                          Amendment No. 2 to Amended and Restated Credit
                                                                     Agreement, attached

       10.11             Material Contracts                          Bliss Stock Purchase Agreement, attached

       11                Statement re:  Computation of per           Note 1 on Page 43 of the Financial Statements
                         share earnings
          
       21                Subsidiaries of Registrant                  Page 3 of this report
          
       27                Financial Data Schedule
</TABLE>


                                       60