<PAGE>

                                    UNITED STATES
                          SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C. 20549
                                           
                                      FORM 20-F
                                           
                                           
(Mark One)

    --   REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
         SECURITIES EXCHANGE ACT OF 1934 

                                          OR
                                           
    X    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    --   EXCHANGE ACT OF 1934 
         For the fiscal year ended June 30, 1997

                                          OR
                                           
    --   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 
                                           
                            Commission file number 0-26308
                                           
                               FANTOM TECHNOLOGIES INC.
-------------------------------------------------------------------------------
                (Exact name of Registrant as specified in its charter)
                                           
                                   Ontario, Canada
-------------------------------------------------------------------------------
                   (Jurisdiction of incorporation or organization)
                                           
                     1110 Hansler Road, Welland, Ontario L3B 5S1
-------------------------------------------------------------------------------
                       (Address of principal executive offices)
                                           
Securities registered or to be registered pursuant to Section 12(b) of the Act:
  NONE

Securities registered or to be registered pursuant to Section 12(g) of the Act:

                          COMMON SHARES, WITHOUT PAR VALUE 
                          --------------------------------
                                   (Title of Class)
                                           
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:  NONE

Indicate the number of outstanding shares of the issuer's capital or common
stock covered by this registration statement:  6,811,693 COMMON SHARES AS OF
JUNE 30, 1997

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:

X  Yes          No
--           --

Indicate by check mark which financial statement item registrant has elected to
follow:

   Item 17   X  Item 18
--           --

<PAGE>

                                  TABLE OF CONTENTS
                                           


         EXCHANGE RATES OF THE CANADIAN DOLLAR.............................   1

ITEM 1.  DESCRIPTION OF BUSINESS...........................................   2

ITEM 2.  DESCRIPTION OF PROPERTY...........................................  12

ITEM 3.  LEGAL PROCEEDINGS.................................................  12

ITEM 4.  CONTROL OF REGISTRANT.............................................  12

ITEM 5.  NATURE OF TRADING MARKET..........................................  14

ITEM 6.  EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING
         SECURITY HOLDERS..................................................  15

ITEM 7.  TAXATION..........................................................  16

ITEM 8.  SELECTED FINANCIAL DATA...........................................  17

ITEM 9.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS...............................  20

ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT..............................  28

ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS............................  31

ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES....  37

ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS....................  39

ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED........................  39

ITEM 15. DEFAULTS UPON SENIOR SECURITIES...................................  39

ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR 
         REGISTERED SECURITIES.............................................  39
               
ITEM 17. FINANCIAL STATEMENTS..............................................  39

ITEM 18. FINANCIAL STATEMENTS..............................................  39

ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS.................................  40

<PAGE>

                        EXCHANGE RATES OF THE CANADIAN DOLLAR
                                           

    Fantom Technologies Inc. publishes its financial statements in Canadian
dollars.  Financial information in this annual report is expressed in Canadian
dollars, unless otherwise noted.  References to "Cdn$" or "$" are to Canadian
dollars.  The following table sets forth, for the periods indicated, the high
and low exchange rates, the average of the month end exchange rates and the
period-end exchange rate of the Canadian dollar in exchange for United States
dollars, based upon the inverse of exchange rates reported by the Federal
Reserve Bank of New York as the noon buying rates in New York City for cable
transfers payable in Canadian dollars as certified for customs purposes.  On
November 10, 1997, the noon buying rate (expressed in U.S. dollars) was Cdn.
$1.00 = U.S.$0.7107.





                             Fiscal Year Ended June 30, 
----------------------------------------------------------------------
                    1997      1996      1995      1994      1993
                           (prices given in U.S. dollars)

High                .7513     .7527     .7457     .7834     .8453
Low                 .7145     .7235     .7023     .7166     .7761
Average             .7308     .7349     .7259     .7436     .7986
Period End          .7241     .7322     .7279     .7233     .7798


                                       -1-

<PAGE>

                                        PART I
                                           

ITEM 1.   DESCRIPTION OF BUSINESS

                                     THE COMPANY
                                           
        Fantom Technologies Inc. (the "Company") was formed by articles of
amalgamation on May 12, 1986 under the BUSINESS CORPORATIONS ACT (Ontario).  The
articles of the Company were amended on May 1, 1997 to change the Company's name
from its former name of Iona Appliances Inc.  The Company has one operating
subsidiary, Fantom Technologies Direct, Inc., a wholly-owned subsidiary
incorporated under the BUSINESS CORPORATIONS ACT (Ontario).  The Company's
registered and principal executive office is located at 1110 Hansler Road,
Welland, Ontario, Canada, L3B 5S1.  

     The Company's fiscal year ends on June 30 of each year.


                               BUSINESS OF THE COMPANY
                                           
PRODUCTS

        The Company's principal product line currently consists of its 
full-size, upright, dual-cyclonic vacuum cleaners.  The Company also 
continues to sell stick vacuums and dual-cyclonic, carpet dry-cleaning 
machines; however, manufacturing of these products has recently been 
discontinued and the Company intends to discontinue their sale once existing 
inventory is depleted.
        
        STICK VACUUMS.   The Company, through predecessor companies, played an
important role in developing the lightweight stick vacuum business in Canada,
with its products being merchandised by several leading Canadian retailers. 
These products are sold under the IONA-Registered Trademark-,
ELECTRIKBROOM-Registered Trademark- and SPEEDVAC-Registered Trademark-
trademarks.  With the development of the Company's dual-cyclonic products,
coupled with increased competitive activity in the stick-vacuum segment, the
stick vacuums have become increasingly less significant to the Company's
operations, amounting to less than 2% of sales in the Company's fiscal year
ended June 30, 1997.
        
        HAND-HELD VACUUMS.  A corded hand-held vacuum was also marketed by the
Company commencing in the mid 1980's.  This product had a market share
significantly less than that of the Company's stick vacuum line of products and
the Company ceased the manufacturing of this product in March, 1996.


                                       -2-

<PAGE>

        DUAL-CYCLONIC PRODUCTS.  Starting in 1986, the Company committed itself
to developing new cleaning products based on patented, dual-cyclonic vacuuming
technology.  The Company believes that this technology is significant for two
reasons: (a) it eliminates the use of filter bags; and (b) it provides constant
peak cleaning power versus the declining cleaning power often experienced with
conventional vacuums using filter bags.
        
        In 1988, the Company introduced its first dual-cyclonic product, a
carpet dry-cleaning machine.  This product is currently sold under the
CAPTURE-Registered Trademark- and FANTOM-Registered Trademark- trademarks. 
CAPTURE-Registered Trademark- is a registered trademark of Milliken Research
Corporation and has been licensed to the Company for use with the dual-cyclonic
carpet dry-cleaning machine.  The Company also currently distributes certain
CAPTURE-Registered Trademark- carpet cleaning products manufactured by Milliken
& Company.
        
        In 1991, the Company introduced its second dual-cyclonic product, an
upright vacuum cleaner called the FANTOM-Registered Trademark- vacuum.  This
product gave the Company its first entry into the mainstream, full-size, vacuum
cleaner market.
        
        In January 1996, the Company commenced marketing a new model of the
FANTOM-Registered Trademark- vacuum called the FANTOM-Registered Trademark-
FURY-Registered Trademark- vacuum.  This is a smaller, lighter version of the
original FANTOM-Registered Trademark- vacuum and has a lower retail price point.
In March 1996, the Company began shipping to the U.S. market a more powerful
version of the original FANTOM-Registered Trademark- vacuum.  This product is
called the FANTOM-Registered Trademark- THUNDER-Registered Trademark- vacuum. 
The Company previously sold a similar version of the original FANTOM-Registered
Trademark- vacuum to Sears, Roebuck and Co. under private label arrangements,
and currently sells similar versions of the FANTOM-Registered Trademark-
FURY-Registered Trademark- and FANTOM-Registered Trademark- THUNDER-Registered
Trademark- models to Sears, Roebuck and Co. under private label arrangements.
        
        Included among the current features of household models of the 
FANTOM-Registered Trademark- FURY-Registered Trademark- and FANTOM-Registered 
Trademark- THUNDER-Registered Trademark- vacuums are the following:  (a) a 
two-stage motor, 10-amps in the case of the FANTOM-Registered 
Trademark-FURY-Registered Trademark- vacuum and 12-amps in the case of the 
FANTOM-Registered Trademark- THUNDER-Registered Trademark- vacuum;  (b) a 
handle which detaches and becomes a cleaning wand;  (c) a 5:1 stretch, steel 
reinforced hose;  (d) a HEPA filter; (e) a minimum of three on-board 
attachments, including a crevice tool, a dusting/upholstery brush and a floor 
nozzle;  (f) twin headlights;  (g) a quick release, see-through bin designed 
for convenient emptying;  (h) a height adjustment dial;  (i) a How-to-Use 
video;  and (j) a two-year limited warranty.
        
        The HEPA filter is designed to clean the air exiting the vacuum and 
capture impurities such as bacteria, pollen, plant-spores, molds, yeast 
cells, dust mites and lung-damaging particles.  The HEPA filter is made of 100% 


                                       -3-

<PAGE>

glass-microfiber media and manufactured to rigid specifications.  Each filter 
is certified for efficiency by the manufacturer.
        
        Until the Fall of 1993, the main marketing effort behind the Company's
CAPTURE-Registered Trademark- carpet dry-cleaning machine and household models
of its FANTOM-Registered Trademark- vacuum was to sell them to retailers in the
United States and Canada, which retailers typically had trained floor sales
personnel to demonstrate the products to consumers or catalogs in which to
present them.  This effort was hampered by a marketplace which became
increasingly competitive and which forced several retailers to reduce their
trained floor sales personnel, a resource which the Company needed to
demonstrate effectively the features and benefits of its products.  In response,
the Company developed a communications strategy for its FANTOM-Registered
Trademark- vacuum aimed at significantly building consumer awareness and
expanding retail distribution.  This strategy utilizes infomercials, a
television format which lends itself to demonstrating the features and benefits
of the Company's products.
        
        In the Fall of 1993, the Company commenced airing a 30-minute, 
direct-response TV infomercial on U.S. television for its FANTOM-Registered 
Trademark-vacuum.  No similar media was purchased in Canada due to regulatory 
restrictions on the airing of full-motion, long-form commercials.  In 
February 1995, the Company commenced airing short-form (60 second and 120 
second) direct-response TV spots in the U.S. to supplement its 30-minute 
infomercial.  In February 1996, the Company commenced airing in the U.S. a 
new 30-minute TV infomercial for its FANTOM-Registered Trademark- 
FURY-Registered Trademark- vacuum and, in March 1996, new short-form (60 
second and 120 second) TV spots for this product.  In June 1996, the Company 
commenced airing in the U.S. short-form (60 second and 120 second) TV spots 
for its FANTOM-Registered Trademark- THUNDER-Registered Trademark- vacuum.  
In March, 1996, the Company commenced airing in Canada the TV infomercial and 
short-form TV spots for its FANTOM-Registered Trademark-FURY-Registered 
Trademark- vacuum.  This followed the easing of regulatory restrictions on 
the airing of full-motion, long-form commercials in Canada.
        
        Sales of dual-cyclonic products (including spare parts and accessories)
through all channels of distribution totaled $147.6 million in the Company's
fiscal year ended June 30, 1997, compared with $93.7 million in fiscal 1996 and
$53.0 million in fiscal 1995 with over 98% of such sales being to customers in
the United States in all three years.  Direct-response television sales in
fiscal 1997 were $23.0 million compared to $18.4 million in fiscal 1996 and
$22.1 million in fiscal 1995.  See "Management Discussion of Operating Results".

RAW MATERIALS AND SUPPLIERS
        
        The Company currently conducts product assembly operations at its
Welland, Ontario facility.  The Company relies on several different vendors 


                                       -4-

<PAGE>

to satisfy its plastic injection molding needs.  With the exception of 
motors, the raw materials and components used by the Company in its 
manufacturing operations are readily available from a number of Canadian, 
United States and offshore suppliers.  The Company is largely dependent on a 
single supplier, Ametek, Inc., for motors.  The Company does not have any 
formal agreement with Ametek, Inc. regarding the Company's purchase of 
motors.  The Company believes it has an excellent relationship with Ametek, 
Inc., and has not experienced any significant quality or supply problems 
during its relationship with Ametek, Inc. Nevertheless, the Company's 
inability to acquire the type and number of motors needed to satisfy demand 
for its products could have a material adverse effect on the Company's 
financial condition and results of operations.  The Company has identified a 
second source for motors and intends to purchase some of its requirements for 
its next new product (the FANTOM-Registered Trademark-LIGHTNING-Registered 
Trademark- vacuum) from this source.

DUAL-CYCLONIC TECHNOLOGY
        
        The Company's upright vacuum cleaners and the Company's carpet 
dry-cleaning machine are based on patented dual-cyclonic technology and 
related know-how which the Company licenses from Prototypes Limited and 
Notetry Limited (collectively, the "Licensor") and is protected by several 
patents in the United States and Canada, including (without limitation) 
Canadian Patent Nos. 1,321,960, 1,238,869, 1,241,158 and 1,182,613, and 
United States Patent Nos. 4,853,011, 4,826,515, 4,643,748, 5,558,697, 
4,853,008 and 4,593,429.  The dual-cyclonic technology involves two cyclones 
through which air whirls in sequence to separate dirt from the airstream 
instead of forcing it through a traditional filter bag.  Large dirt particles 
are hurled to the edge of the outer cyclone and smaller dirt particles are 
hurled to the edge of the inner cyclone.
        
        The Company has entered into a series of technology transfer 
agreements with the Licensor pursuant to which the Company has the exclusive 
right (except for the Amway Corporation ("Amway") license discussed below) to 
sell upright vacuum-cleaning devices utilizing the dual-cyclonic technology 
in the United States and Canada, and the non-exclusive right to sell upright 
dry-powder carpet shampooers utilizing the dual-cyclonic technology in the 
United States and Canada.  In addition, in September of 1996 the Company 
entered into an agreement with the Licensor expanding the Company's rights in 
the United States and Canada to include the exclusive right to sell canister 
and back-pack vacuums utilizing the dual-cyclonic technology.  The Company 
also has the non-exclusive right to manufacture upright, canister and 
back-pack vacuum-cleaning devices and upright dry-powder carpet shampooers 
utilizing the dual-cyclonic technology in the United States, Canada and other 
countries, not including Japan.


                                       -5-

<PAGE>

        The Company's right to continue using the dual-cyclonic technology is 
subject to the continued performance of its obligations under the various 
technology transfer agreements, which include an on-going obligation to pay 
royalties based upon a fixed percentage of sales of products utilizing the 
dual-cyclonic technology.   In some instances, the Company must pay a minimum 
annual royalty in order to preserve the exclusive or non-exclusive nature of 
its rights to use the dual-cyclonic technology.  Other than the Company's 
obligation to make royalty payments and submit periodic reports to the 
Licensor substantiating the basis for such royalty payments, the Company has 
no other material on-going obligations under the technology transfer 
agreements.  In the absence of the Company's bankruptcy or a default by the 
Company in the performance of its obligations under the technology transfer 
agreements, the licensing arrangements may not be terminated by the Licensor 
and continue in effect until the last of the patents covered by the 
agreements expires.  The Company's obligations under the technology transfer 
agreements expire upon the expiration of the various agreements.  The first 
to expire of the basic patents in the United States for the dual-cyclonic 
technology does not expire until June 10, 2003, assuming that all necessary 
renewal fees are paid and such patent is not invalidated by a court action 
prior to such time.
        
        The Company believes that the continued validity of the dual-cyclonic 
patents will allow the Company to protect effectively its right to use and 
exploit the dual-cyclonic technology in the United States and Canada.  Most 
of the patents have been in existence for approximately ten years, during 
which time the Licensor and the Company have diligently protected their 
rights in and to the dual-cyclonic technology.  As part of a comprehensive 
settlement with Amway in 1991 arising out of various legal proceedings 
relating to the dual-cyclonic technology, Amway was granted the perpetual 
right to manufacture and sell upright vacuum cleaners utilizing the 
dual-cyclonic technology in the United States and Canada for household use 
only.  Amway has an on-going obligation to pay royalties on sales of 
dual-cyclonic products based upon a fixed percentage of Amway's regularly 
listed selling price to its distributors. Amway may market and sell 
dual-cyclonic products only through Amway's private-party distributors and 
direct-mail catalogs, but by no other means.  Due to the significant 
limitations imposed on Amway's ability to market and sell products utilizing 
the dual-cyclonic technology, the Company does not believe that Amway's right 
to use the dual-cyclonic technology will have a material adverse effect on 
the Company's financial condition and results of operations.  The Company 
believes that, to date, Amway's sales of dual-cyclonic upright vacuum 
cleaners in the United States have not constituted a significant percentage 
of the total upright vacuum cleaners sold in the United States.


                                       -6-

<PAGE>

        The loss of the Company's right to use and exploit the dual-cyclonic
technology for vacuum cleaning devices would have a material adverse effect on
the Company's financial condition and results of operations.
        
        Because of market recognition achieved by the dual-cyclonic technology,
the Company expects competitors to develop cyclonic vacuum cleaners.  In early 
1997, a competitive vacuum incorporating a form of cyclonic action was launched 
in Europe and this product is currently being introduced in North America.  The
Company is uncertain what effect this competitive product, or other competitive
cyclonic products which might be introduced in the future, will have on its
sales and results of operations.

EMPLOYEES
        
        The Company had approximately 400 employees as of June 30, 1997.  Of
these employees, 80%, 11%, 6% and 2% were engaged in production,
marketing/sales, administration and engineering, respectively.  As of June 30,
1997, approximately 300 of the employees in the Company's manufacturing plant
were unionized and were members of The United Steel Workers of America.  The
Company has an agreement with the United Steel Workers which expires March 31,
1999.  The Company's relationship with the union has been good and uneventful,
except for a week long strike in December 1993.  The strike occurred after the
union had rejected the Company's first contract offer. 

CUSTOMER CONCENTRATION

        Over the last few years, a small number of retailers have accounted 
for a significant portion of the Company's total sales.  In fiscal 1997, five 
customers accounted for 61% of the Company's revenue.  In fiscal 1996, a 
different mix of five customers also accounted for 61% of the Company's 
revenue. One specific customer accounted for 29% and 33% of sales in fiscal 
1997 and fiscal 1996, respectively.
        
        The Company is continuing to expand its retail distribution of the
FANTOM-Registered Trademark- vacuum product line in the United States and Canada
with the assistance of direct-response television commercials.  While this
expansion is intended to increase the number of retailers the Company sells to,
it may not reduce the Company's dependence on a small number of retailers for a
significant portion of its sales.


                                       -7-

<PAGE>

<TABLE>
<CAPTION>
                                                                                              FISCAL YEAR ENDED JUNE 30
                                                                                ---------------------------------------------------
                                                                                   1997                 1996                1995
                                                                                -----------          ----------          ----------
                                                                                                    (in dollars)
<S>                                                                            <C>                  <C>                 <C>
TOTAL SALES                                                                     150,213,517          98,428,527          59,421,732

SALES BY METHOD OF DISTRIBUTION
     Total direct-response television sales                                      23,007,342          18,356,727          22,132,273
     Total sales to retailers and distributors                                  127,206,175          80,071,800          37,289,459

SALES BY TERRITORY

Canada          Total                                                             4,356,025           5,205,169           6,787,371
                Stick and hand-held products                                      2,538,979           4,692,200           6,447,382
                Dual-cyclonic products                                            1,817,046             512,969             326,265
                All other                                                                 -                   -              13,724
United States   Total                                                           145,857,492          93,223,358          52,634,361
                Stick and hand-held products                                              -              32,890                   -
                Dual-cyclonic products                                          145,857,492          93,190,468          52,633,035
                All other                                                                 -                   -               1,326

                                                                                              FISCAL YEAR ENDED JUNE 30
                                                                                ---------------------------------------------------
                                                                                   1997                 1996                1995
                                                                                -----------          ----------          ----------
                                                                                                    (in dollars)
SALES OF DUAL-CYCLONIC PRODUCTS

                Total                                                           147,674,538          93,703,437          52,959,300
                Fantom-Registered Trademark- vacuum                             146,664,274          92,116,168          52,237,251
                   Fantom-Registered Trademark- vacuum direct-response           23,007,342          18,356,729          22,132,273
                   Fantom-Registered Trademark- vacuum retail and distributors  123,656,932          73,759,439          30,104,978
                Capture-Registered Trademark- carpet shampooer                      610,077             791,087             666,502
                Other Capture-Registered Trademark- carpet cleaning products        400,187             796,182              55,547
</TABLE>

SALES AND MARKETING

        The Company's main products are its FANTOM-Registered Trademark- 
vacuums and the Company sells the products in two ways: (a) to end-users 
through direct-response television; and (b) to various types of retailers, 
including mass merchants, catalog and catalog-showroom retailers, warehouse 
clubs, television shopping networks and independent vacuum dealers.  The 
independent vacuum dealers also serve as product repair centers.  The Company 
uses a combination of its own sales personnel and manufacturers' 
representatives to call on accounts. It also has a small group of product 
trainers to instruct in-store sales personnel on the features and benefits of 
its products.  In addition, the Company maintains a special toll-free call 
centre in its Welland, Ontario plant to handle inquiries that 
FANTOM-Registered Trademark- owners and potential purchasers have about its 
products.  The Company has been focusing on increasing distribution of its 
FANTOM-Registered Trademark- vacuums in self-service retail outlets, and has 
been relying on the consumer awareness generated by its direct-response 
television campaign, exposure on television shopping networks, and trade 
promotions, to drive retail sales in these accounts.  
        
        The Company's FANTOM-Registered Trademark- vacuums are currently listed
in the United States by prominent retailers including B. J. Wholesale Inc.,
Costco Wholesale Inc., Damark International Inc., Fingerhut Companies Inc., Fred


                                       -8-

<PAGE>

Meyer, Inc., Home Shopping Network Inc., JC Penney Company, Inc., Kmart 
Corporation, Kohl's Department Stores, Sears, Roebuck and Co., Service 
Merchandise Company, Inc., Shopko Stores Inc., Spiegel, Inc., Target Stores, 
The Caldor Corporation and Meijer Inc.  They are also sold by several hundred 
independent vacuum dealers.  In Canada, the FANTOM-Registered Trademark- 
vacuums are listed by Home Hardware Stores Ltd., T. Eaton Co. Ltd., The 
Shopping Channel, Kmart Canada Limited, Canadian Tire Corporation, Limited, 
Costco Wholesale Corporation and Zellers Inc.
        
        The Company's FANTOM-Registered Trademark- vacuum business is more
developed in the United States than in Canada due mainly to the following:

     (a)  the regulatory restrictions which existed on the airing of 
          full-motion, long-form TV commercials in Canada until late 1994;
     
     (b)  the regulatory restrictions which existed on live selling on TV
          shopping channels in Canada until early 1995; and
     
     (c)  the lack of availability of attractively priced air time in Canada, at
          times of the day and on days of the week that have worked well for the
          Company in the U.S. market.

        During the past two years, the Company has begun developing a market for
its FANTOM-Registered Trademark- vacuums in Canada and believes it is positioned
to continue this growth.

NEW PRODUCT DEVELOPMENT

        The Company conducts on-going new product development activities 
through an engineering team which currently has a complement of 12 personnel. 
 Capital expenditures for new products were $2.1 million in fiscal 1997, $3.4 
million in fiscal 1996 and $1.4 million in fiscal 1995.
        
        The Company is currently preparing to introduce a major line 
extension to the FANTOM-Registered Trademark- vacuum line in the United 
States and Canada. This dual-cyclonic product will compete in the canister 
segment of the market and is called the FANTOM-Registered Trademark- 
LIGHTNING-Registered Trademark-vacuum.  Shipments are expected to commence in 
the Fall of 1997.
        
        Included among the standard features of household models of the 
FANTOM-Registered Trademark- LIGHTNING-Registered Trademark- canister will be 
the following: (a) a 6-foot, electrified hose and metal wand, which will 
attach to a powerhead that features a rotating brush for cleaning carpets; 
the rotating brush can be turned off for cleaning bare floors; (b) an 
electronic system in the powerhead that will turn the rotating brush off and 
prevent the drive belt from breaking, should the rotating brush become 
jammed; (c) a certified HEPA filter; (d) a retractable 


                                       -9-

<PAGE>

power cord; (e) three on-board attachments; (f) an ergonomically designed 
handle; (g) an easily released, see-through bin designed for convenient 
emptying; (h) a height adjustment dial; (i) a how-to-use video; and (j) a 
two-year limited warranty.
        
        Due to the uncertainties associated with a new product launch, the
Company is not able to forecast sales of the FANTOM-Registered Trademark-
LIGHTNING-Registered Trademark- vacuum with any reasonable degree of accuracy. 
It is also not possible to predict at this time to what extent, if any, sales of
the other FANTOM-Registered Trademark- vacuums might be negatively affected by
the introduction of the FANTOM-Registered Trademark- LIGHTNING-Registered
Trademark- vacuum. 

        Capital expenditures for tooling and for an assembly line for the
FANTOM-Registered Trademark- LIGHTNING-Registered Trademark- vacuum are
estimated to be approximately $4.3 million.  Marketing expenses for the
production of an infomercial and for other launch materials are estimated at
approximately $0.7 million.  As of June 30, 1997, the Company had spent $2.1
million towards the completion of this project.  The Company is planning to
manufacture the FANTOM-Registered Trademark- LIGHTNING-Registered Trademark-
vacuum in its Welland, Ontario facility.  The Company has been financing the
capital expenditures and working capital requirements for this project from its
line of credit with a Canadian chartered bank and from its cash on hand.  The
Company believes that its current borrowing limit of $17 million under its line
of credit will be sufficient to provide for its cash requirements relating to
the development of the FANTOM-Registered Trademark- LIGHTNING-Registered
Trademark- product.

INDUSTRY OVERVIEW

        The electric floor-care industry is highly competitive and has several
product segments including canister, upright and stick vacuums, hand-held
vacuums, extractors and wet/dry vacuums.  Products are sold in a variety of
retail outlets, on a door-to-door basis and through television shopping networks
and various direct-response formats.
        
        Industry shipments of full-sized vacuums (canister, upright and stick
vacuums) within the United States in calendar 1996, as estimated by the Vacuum
Cleaner Manufacturers Association, were 16.2 million units compared with 14.9
million units for 1995 and 14.1 million units for 1994.  Shipments of upright
vacuums in 1996 were 11.2 million units compared with 10.5 million units for
1995 and 9.9 million for 1994. The Canadian market is estimated by the Company
to be less than 10% of the size of the U.S. market.
        
        The Company is aware of several major competitors in the United States
and Canada including Bissell Inc.; The Hoover Company; Eureka 


                                       -10-

<PAGE>

Company; Matsushita Appliance Corporation; and Royal Appliance Mfg. Co.  
Some of these competitors have recently introduced new products which are 
competing at similar price points with the Company's Fantom-Registered 
Trademark- Fury-Registered Trademark- and Fantom-Registered Trademark- 
Thunder-Registered Trademark-vacuums.  One such competitive product, the 
introduction of which appears to have been heavily supported by media 
advertising, is based on bag technology. Another new competitive product 
incorporates a form of cyclonic filtering system.  The Company is uncertain 
what effect these new competitive products, or future ones which could be 
introduced, will have on its sales and results of operations.

BUSINESS STRATEGIES

        During the next 12 months, the Company intends to focus on increasing
its sales in the United States and Canada by employing the following strategies:

     (a)  continuing to focus on expanding distribution and promotional activity
          for its existing models with retailers;
     
     (b)  continuing to employ direct-response television, and to explore other
          direct-response formats, not only to generate direct sales but also to
          build broad-scale consumer awareness and demand for FANTOM-Registered
          Trademark- products at the retail level; and
     
     (c)  introducing the FANTOM-Registered Trademark- LIGHTNING-Registered
          Trademark- canister vacuum.

        The Company intends to continue to focus on developing and introducing
further new vacuum cleaning products in the upright, canister and back-pack
categories utilizing its proprietary, dual-cyclonic technology.  The development
of these additional products is still in the preliminary stage.  Accordingly,
the impact on sales or results of operations, as well as capital requirements,
have not yet been determined.
        
        The Company intends to market a range of dual-cyclonic vacuum 
cleaners under the FANTOM-Registered Trademark- brand name.  The goal is to 
firmly establish a "FANTOM-Registered Trademark-" presence in the marketplace 
and in the minds of consumers, by offering a line of FANTOM-Registered 
Trademark-vacuums, and to make the FANTOM-Registered Trademark- brand name 
stand for a unique, superior, cleaning machine, not only in how it operates, 
i.e. its dual-cyclonic technology, but also in the benefits it offers 
consumers: no filter bags; a see-through collection bin; constant cleaning 
power; handle-to-hose cleaning wand for the upright models; and the HEPA 
filtration system.

        In the longer term, the Company believes it should seek new product
lines which will allow it to capitalize on its expertise in 


                                       -11-

<PAGE>

manufacturing and marketing consumer, durable products.  Although preliminary 
investigation of possible options has commenced, no decisions have been made 
about any specific opportunity.

ITEM 2.   DESCRIPTION OF PROPERTY

        The Company's manufacturing operations and administrative offices are 
located at a facility which it owns in Welland, Ontario, Canada.  The 
facility is situated on approximately 53 acres of land, which is subject to a 
mortgage in favour of a Canadian chartered bank.  The Welland, Ontario 
facility was constructed in 1973 and has approximately 78,000 square feet of 
production and warehousing space and 12,000 square feet of office space.  All 
of the Company's continuing motorized products are currently made at this 
facility.  The Company leases a small sales office in Toronto, Ontario which 
houses marketing and sales personnel.  The lease on the Toronto sales office 
will expire in 1999.
        
        The Company provided additional space in 1996 for manufacturing its 
FANTOM-Registered Trademark- vacuums at its Welland plant by out-sourcing all 
of its finished goods warehousing.  At the beginning of July 1996, the 
Company implemented the SAP enterprise-information-technology system (the 
"System") at a cost of approximately $1.2 million.  The System has improved 
efficiencies of the Company's total operations.  Also in 1996, the Company 
introduced kanbans to control better its inventory of raw materials.  The 
Company believes its current production facilities as presently configured 
are suitable for an annual sales volume in excess of $250 million.  Based 
upon annual capacity of $250 million and the Company's total sales of $150 
million for the fiscal year ended June 30, 1997, the Company's production 
facilities were 60% utilized during such period.  

ITEM 3.   LEGAL PROCEEDINGS
                                           
        The Company is not involved in any material pending legal proceeding,
other than ordinary routine litigation incidental to the Company's business. 
The Company is not aware of any material proceedings currently being
contemplated by governmental authorities.
                                           
                                           
ITEM 4.   CONTROL OF COMPANY
                                           
        As of October 15, 1997, there were 7,905,001 common shares ("Common
Shares") and 994,810 series 1, class A preferred shares ("Series 1 Shares") of
the Company issued and outstanding.  Holders of Common Shares are entitled to
vote on all matters requiring the vote or consent of the 


                                       -12-

<PAGE>

shareholders of the Company.  The Series 1 Shares possess equal voting rights 
on a share-for-share basis with the Common Shares, except with respect to the 
election of directors in respect of which the holders of the Series 1 Shares 
possess the right, voting as a series, to elect two directors and no other 
voting rights for directors so long as there are no fewer than 615,000 Series 
1 Shares outstanding.  If at any time there are fewer than 615,000 Series 1 
Shares outstanding, the holders of Series 1 Shares have the same right to 
vote for the election of directors as the holders of the Common Shares, the 
Series 1 Shares and the Common Shares being deemed to constitute one class of 
shares for such purpose.  The Series 1 Shares are fully convertible into 
Common Shares on a share-for-share basis, subject to comprehensive 
anti-dilution protection for the holders of the Series 1 Shares.  
                                           
        To the knowledge of the Company, the following table sets forth the
names of shareholders owning of record or beneficially, directly or indirectly,
more than 10% of the outstanding Common Shares and Series 1, Class A preferred
shares of the Company and the number of Common Shares and Series 1, Class A
preferred shares owned directly and indirectly by the directors and officers of
the Company as a group as at October 15, 1997:

                                                                   Percentage of
                                                                     Outstanding
                                                                       Common
                                  Percentage             Percentage    Shares
                                      of                     of         and
                       Common     Outstanding  Series 1  Outstanding  Series 1
                       Shares       Common      Shares    Series 1     Shares
     Name              Owned        Shares      Owned      Shares    Combined(1)
     ----              ------     -----------  --------  ----------- -----------
International
Network                                                                  
Fund Limited                                                            
Partnership(2)(3)(4)  1,000,000(5)    12.7%    994,810       100%        22.4%

Directors and
Officers as a                                                           
group                 1,056,828       13.4%          0         0%        11.9%

NOTES:
-----

(1)  Includes all Common Shares and Series 1 Shares owned by each person listed
     and by the directors and officers as a group as a percentage of the
     aggregate number of outstanding Common Shares and Series 1 Shares as of
     October 15, 1997.

(2)  All shares are held beneficially and of record, except as set out in Note
     5.

(3)  An investment fund managed by Advent International Corporation.

(4)  After giving effect to the exercise of 1,000,000 Class C Special Warrants
     of International Network Fund Limited Partnership ("INF") (the "Special
     Warrants") issued on September 30, 1997, each exercisable into one Common
     Share of the Company, INF would not hold any Common Shares and it would
     hold 12.0% of the aggregate number of outstanding Common Shares and Series
     1 Shares.

(5)  INF has delivered all 1,000,000 of these Common Shares to CIBC Mellon Trust
     Company (the "Trustee") pursuant to the terms of a Class C Special Warrant
     Indenture (the "Special Warrant 


                                       -13-

<PAGE>

     Indenture") dated as of September 30, 1997 between INF and the Trustee, 
     to be held in the name of the Trustee for the benefit of the holders of 
     the Special Warrants in accordance with the Special Warrant Indenture.  
     Upon exercise of the Special Warrants, these 1,000,000 Common Shares 
     will be transferred to the holders of the Special Warrants.

ITEM 5.   NATURE OF TRADING MARKET

        The Common Shares are listed and posted for trading on the Nasdaq Stock
Market and on The Toronto Stock Exchange, the exclusive non-United States
trading market for such securities.  The Company's Common Shares commenced
trading on the Nasdaq Small Cap Market on November 20, 1995 and on the Nasdaq
National Market on March 18, 1996.  The high and low sales prices for the
Company's Common Shares on the Nasdaq Stock Market during each quarter of the
1997 fiscal year are as follows:

                                              HIGH                  LOW
                                              ----                  ---
           FISCAL YEAR ENDED
           JUNE 30, 1997
           -----------------
             Fourth Quarter                 US$10.625            US$8.250
             Third Quarter                   US$8.625            US$6.500
             Second Quarter                  US$9.125            US$6.750
             First Quarter                   US$7.938            US$5.375
             
           FISCAL YEAR ENDED
           JUNE 30, 1996
           -----------------
             Fourth Quarter                US$7 15/16            US$5 3/4
             Third Quarter                   US$6 1/4            US$4 3/4
             Second Quarter                  US$5 3/4            US$4 1/4
     
        The following table shows the high and low sales prices for the 
Company's Common Shares on The Toronto Stock Exchange during each quarter of 
the 1997 and 1996 fiscal years.

                                              HIGH                  LOW
                                              ----                  ---
           FISCAL YEAR ENDED
           JUNE 30, 1997
           -----------------
             Fourth Quarter                    $15.00              $11.75
             Third Quarter                     $11.90               $9.00
             Second Quarter                    $12.65               $9.20
             First Quarter                     $10.95               $7.00


                                       -14-

<PAGE>

           FISCAL YEAR ENDED
           JUNE 30, 1996
           -----------------
             Fourth Quarter                    $11.10               $7.50
             Third Quarter                      $8.30               $6.60
             Second Quarter                     $7.70               $4.75
             First Quarter                      $6.30               $4.05

        Based on information supplied to the Company by CIBC Mellon Trust
Company, the Company's transfer agent, the Company estimates that on September
30, 1997, 12 persons who held 972,084 Common Shares were residents of the United
States, representing approximately 13.1% of the outstanding Common Shares as of
such date.


ITEM 6.   EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY
          HOLDERS

        There are no governmental laws, decrees or regulations in Canada that
restrict the export or import of capital, including, but not limited to, foreign
exchange controls, or that affect the remittance of dividends, interest or other
payments  to nonresident holders of the Common Shares, other than withholding
tax requirements.  Any such remittances, however, are subject to withholding
tax. 
        
        There is no limitation imposed by Canadian law or by the charter or
other constituent documents of the  Company on the right of nonresident or
foreign owners to hold or vote Common Shares, other than as provided in the
Investment Canada Act (Canada) (the "Investment Canada Act").  The following
summarizes the principal features of the Investment Canada  Act.
        
        The Investment Canada Act requires certain "non-Canadian" (as defined in
the Investment Canada Act) individuals, governments, corporations and other
entities who wish to acquire control of a "Canadian business" (as defined in the
Investment Canada Act) to file either a notification or an application for
review with the Director of Investments appointed under the Investment Canada
Act.  The Investment Canada Act requires that in certain cases an acquisition of
control of a Canadian business by a "non-Canadian" must be reviewed and approved
by the Minister responsible for the Investment Canada Act on the basis that the
Minister is satisfied that the acquisition is "likely to be of net benefit to
Canada", having regard to criteria set forth in the Investment Canada Act.  
        
        With respect to acquisitions of voting shares, only those acquisitions
of voting shares of a corporation that constitute acquisitions of control of
such corporation are reviewable under the Investment Canada Act.  The Investment
Canada Act provides detailed rules for the determination of 


                                       -15-

<PAGE>

whether control has been acquired, and, pursuant to those rules, the 
acquisition of one-third or more of the voting shares of a corporation may, 
in some circumstances, be considered to constitute an acquisition of control. 
Certain reviewable acquisitions of control may not be implemented before 
being approved by the Minister.  If the Minister does not ultimately approve 
a reviewable acquisition which has been completed, the non-Canadian person or 
entity may be required, among other things, to divest itself of control of 
the acquired Canadian business.  Failure to comply with the review provisions 
of the Investment Canada Act could result in, among other things, a court 
order directing the disposition of assets or shares.

ITEM 7.   TAXATION

        The following is a summary of the principal Canadian federal income 
tax considerations generally applicable to a person who is a U.S. Holder.  In 
this summary, a "U.S. Holder" means a person who, for the purposes of the 
CANADA-UNITED STATES TAX CONVENTION (1980) (the "Convention"), is a resident 
of the United States and not of Canada and who, for the purposes of the 
INCOME TAX ACT (Canada) (the "Canadian Tax Act"), deals at arm's length with 
the Company, does not use or hold and is not deemed to use or hold the Common 
Shares in carrying on business in Canada and who holds his Common Shares as 
capital property. Generally, Common Shares will be considered to be capital 
property to a U.S. Holder provided the U.S. Holder does not hold the Common 
Shares in the course of carrying on a business and has not acquired the 
Common Shares in one or more transactions considered to be an adventure in 
the nature of trade.  This summary is not applicable to a U.S. Holder that is 
a "financial institution" for purposes of the mark-to-market rules in the 
Canadian Tax Act.  
        
        The summary is based upon the Convention, the current provisions of the
Canadian Tax Act, the regulations thereunder, and proposed amendments to the
Canadian Tax Act and regulations publicly announced by or on behalf of the
Minister of Finance, Canada prior to the date hereof.  It does not otherwise
take into account or anticipate any changes in law, whether by legislative,
governmental or judicial decision or action.  The discussion does not take into
account the tax laws of the various provinces or territories of Canada.  It is
intended to be a general description of the Canadian federal income tax
considerations and does not take into account the individual circumstances of
any particular shareholder.
        
        U.S. Holders will be subject to a 15% withholding tax on the gross
amount of dividends paid or deemed to be paid by the Company.  In the case of a
U.S. Holder that is a corporation which beneficially owns at least 10% of the
voting stock of the Company, the applicable withholding tax rate on dividends 
is 5%.


                                       -16-

<PAGE>

        A purchase of Common Shares by the Company (other than by a purchase in
the open market in the manner in which shares are normally purchased by a member
of the public) will give rise to a deemed dividend equal to the amount paid by
the Company on the purchase in excess of the paid-up capital of such shares,
determined in accordance with the Canadian Tax Act.  Any such deemed dividend
will be subject to non-resident withholding tax, as described above, and will
reduce the proceeds of disposition to a holder of Common Shares for the purposes
of computing the amount of his capital gain or loss arising on the disposition.

        A U.S. Holder will not be subject to tax under the Canadian Tax Act in
respect of any capital gain arising on a disposition of Common Shares (including
on a purchase by the Company) unless such shares constitute taxable Canadian
property and the U.S. Holder is not entitled to relief under the Convention. 
Generally, Common Shares will not constitute taxable Canadian property of a U.S.
Holder unless, at any time during the five year period immediately preceding the
disposition of the Common Shares, not less than 25% of the issued shares of any
class or series of a class of the capital stock of the Company belonged to the
U.S. Holder, to persons with whom the U.S. Holder did not deal at arm's length
or to any combination thereof.  In any event, under the Convention, gains
derived by a U.S. Holder from the disposition of Common Shares will generally
not be taxable in Canada unless the value of the Company's shares is derived
principally from real property situated in Canada.

        Common Shares will constitute taxable Canadian property of a U.S. Holder
that is a former Canadian resident who made an election under the Canadian Tax
Act to be deemed not to dispose of such shares on the U.S. Holder's departure
from Canada.  Such U.S. Holders may not be eligible to claim the exemption
provided in the Convention for gains realized on a disposition of Common Shares
if they were resident in Canada at any time during the ten year period preceding
the disposition.


ITEM 8.   SELECTED FINANCIAL DATA

        The following tables provide a summary of certain financial information
for fiscal years 1993 through 1997.  The selected financial data set forth below
as of June 30, 1997, 1996, 1995, 1994 and 1993 have been derived from the
Company's audited consolidated financial statements which are prepared in
accordance with generally accepted accounting principles in Canada ("Canadian
GAAP"), which are different in some respects from generally accepted accounting
principles in the United States ("U.S. GAAP").  See the reconciliation footnote
set forth in Note 14 to the Consolidated Financial Statements appearing under
Item 19 hereof.  The information presented should be read in conjunction with
such Consolidated Financial 


                                       -17-

<PAGE>

Statements and related Notes thereto and "Management's Discussion and 
Analysis of Financial Condition and Results of Operations" included elsewhere 
in this annual report.

CONSOLIDATED STATEMENT OF OPERATIONS DATA (CANADIAN GAAP)

<TABLE>
<CAPTION>
                                                                Fiscal Year Ended June 30
                                        ------------------------------------------------------------------------
                                             1997           1996           1995           1994           1993
                                        ------------    -----------    -----------    -----------    -----------
<S>                                    <C>             <C>            <C>            <C>            <C>
Sales and Other Income                  $150,213,517    $98,428,527    $59,421,732    $20,521,889    $17,547,983
Cost of Goods Sold                        96,246,860     66,586,407     37,604,534     14,167,856     13,571,341
                                        ------------    -----------    -----------    -----------    -----------
                                          53,966,657     31,842,120     21,817,198      6,354,033      3,976,642

Selling, General and
  Administrative Expenses                 41,999,459     25,409,225     18,269,770      9,465,086      4,597,522
Finance Charges                              464,595        718,045        523,632        515,086        261,134
                                        ------------    -----------    -----------    -----------    -----------
                                          42,464,054     26,127,270     18,793,402      9,980,172      4,858,656

Income Before Taxes                       11,502,603      5,714,850      3,023,796     (3,626,139)      (882,014)

Income Taxes                               4,142,000        504,200             --             --             --

Net Income (Loss)                         $7,360,603     $5,210,650     $3,023,796    ($3,626,139)     ($882,014)

Net Income (Loss)
per share                                      $0.88          $0.72          $0.48         ($0.72)        ($0.18)

</TABLE>

RECONCILED CONSOLIDATED STATEMENT OF OPERATIONS DATA (U.S. GAAP) (1)

<TABLE>
<CAPTION>
                                                       Fiscal Year Ended June 30
                                        ---------------------------------------------------------
                                             1997           1996           1995           1994
                                        ------------    -----------    -----------    -----------
<S>                                    <C>             <C>            <C>            <C>
Sales and Other Income                  $150,213,517    $98,428,527    $59,421,732    $20,521,889
Cost of Goods Sold                        96,333,860     65,991,946     37,083,256     13,586,786
                                        ------------    -----------    -----------    -----------
                                          53,879,657     32,436,581     22,338,476      6,935,103

Selling, General and
   Administrative Expenses                42,088,959     25,579,225     18,269,770      9,325,086
Finance Charges                              464,595        718,045        523,632        515,086
                                        ------------    -----------    -----------    -----------
                                          42,553,554     26,297,270     18,793,402      9,840,172

Income Before Taxes                       11,326,103      6,139,311      3,545,074     (2,905,069)

Income Taxes                               4,131,800        547,200             --             --

Net Income (Loss)                         $7,194,303     $5,592,111     $3,545,074    ($2,905,069)

Net Income (Loss) per share                    $0.85          $0.75          $0.52         ($0.90)

</TABLE>

NOTE:
-----

(1)  The financial information is stated here giving the effect of a 
     reconciliation to U.S. GAAP from Canadian GAAP, which are the 
     accounting principles under which the Company's primary financial 
     statements are presented.


                                       -18-

<PAGE>

CONSOLIDATED BALANCE SHEET DATA (CANADIAN GAAP)

<TABLE>
<CAPTION>
                                                                  Fiscal Year Ended June 30, 
                                         -----------------------------------------------------------------------
                                             1997           1996           1995           1994           1993
                                         -----------    -----------    -----------    -----------    -----------
<S>                                     <C>            <C>            <C>            <C>            <C>
Total Assets                             $60,760,190    $42,666,839    $24,459,624    $12,026,300    $11,300,414

Total Current Assets                     $48,085,005    $34,858,913    $21,066,479     $9,005,628     $7,203,708

Long-term Debt                              $238,273       $378,710        $27,337        $57,675        $82,251

Shareholders' Equity                     $34,420,695    $19,959,472     $8,028,092     $3,285,875     $6,169,539

Cash Dividend per share                        $0.00          $0.00          $0.00          $0.00          $0.00
</TABLE>

RECONCILED CONSOLIDATED BALANCE SHEET DATA (U.S. GAAP) (1)

<TABLE>
<CAPTION>
                                                          Fiscal Year Ended June 30, 
                                         --------------------------------------------------------
                                             1997           1996           1995           1994
                                         -----------    -----------    -----------    -----------
<S>                                     <C>            <C>            <C>            <C>
Total Assets                             $61,700,744    $43,874,723    $24,319,445    $11,403,543

Long-term Debt                              $238,273       $378,710        $27,337        $57,675

Shareholders' Equity                     $34,908,849    $20,493,956     $8,011,111     $2,747,616

Cash Dividend per share                        $0.00          $0.00          $0.00          $0.00

</TABLE>

NOTE:
-----

(1)  The financial information is stated here giving the effect of a 
     reconciliation to U. S. GAAP from Canadian GAAP, which are the 
     accounting principles under which the Company's primary financial 
     statements are presented.


                                       -19-

<PAGE>

ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
        AND RESULTS OF OPERATIONS

SUMMARY

The following table summarizes the Company's results of operation for the 1997, 
1996 and 1995 fiscal years:

<TABLE>
<CAPTION>
                             Percentage of Sales                  % Change
                       ------------------------------      ---------------------
                       1997         1996         1995      1997-1996   1996-1995
                       ----         ----         ----      ---------   ---------
<S>                   <C>          <C>          <C>         <C>         <C>
Sales and other
income                 100%         100%         100%          53%        66%
Gross profit            36%          32%          37%          69%        46%
Selling, general and
administrative
expenses                28%          26%          31%          65%        39%
Finance charges          0%           1%           1%         (35%)       37%
Tax provision            3%           1%           0%         721%        n/a
Net income               5%           5%           5%          41%        72%

</TABLE>

     Note 14 of the Notes to the Company's Consolidated Financial Statements
contains a discussion of the differences between Canadian GAAP and U.S. GAAP and
the extent to which such differences impact the Company's financial statements. 
See Item 18 - Financial Statements.

FISCAL 1997 COMPARED WITH FISCAL 1996

        RESULTS OF OPERATIONS

        SALES.   The Company's sales in fiscal 1997 increased 53% from the
previous year to $150.2 million.  Selling prices remained relatively unchanged
from fiscal 1996 and therefore the increase in dollar sales was primarily
attributable to increased unit volume.  Shipments to the United States accounted
for 97% of total revenue compared to 95% for fiscal 1996.  Shipments of
FANTOM-Registered Trademark- vacuums, including accessories, accounted for 98%
of total revenue compared to 94% for the previous year.


                                       -20-

<PAGE>

        The distribution of revenue between the United States and Canada, by
retailers (including distributors) and direct-response programs, was as follows:


     Revenue
     (Millions of Dollars)
                    United States             Canada                Total
                  ----------------       ---------------      ----------------
                   1997       1996       1997       1996      1997        1996
                  -----       ----       ----       ----      -----       ----
Retailers         123.6       74.8        3.6        5.2      127.2       80.1
Direct-response    22.3       18.4        0.7         -        23.0       18.4
                  -----       ----       ----       ----      -----       ----
Total             145.9       93.2        4.3        5.2      150.2       98.4
                  -----       ----       ----       ----      -----       ----
                  -----       ----       ----       ----      -----       ----

        Shipments to retailers in the United States in fiscal 1997 increased 65%
from the previous year.  The increase was due to two new FANTOM-Registered
Trademark- models introduced in fiscal 1996 - the FANTOM-Registered Trademark-
FURY-Registered Trademark- and FANTOM-Registered Trademark- THUNDER-Registered
Trademark- vacuums being in the Company's line-up of products for all of fiscal
1997, as well as expanded listings, a greater number of promotional events, and
the cumulative effect of the Company's direct-response advertising.  Aggregate
sales to the Company's five largest customers were $91.1 million in fiscal 1997
compared to $60.4 million in fiscal 1996.
        
        Shipments to retailers in Canada in fiscal 1997 declined 31% from the
previous year to $3.6 million.  Shipments of FANTOM-Registered Trademark-
vacuums increased to $1.1 million from $0.2 million in the previous year, but
this gain was offset by a decline in sales of stick vacuums.
        
        Direct-response sales of FANTOM-Registered Trademark- vacuums in fiscal
1997 increased 25% to $23.0 million, with 97% of these sales being in the United
States compared to 100% in fiscal 1996.  Media spending amounted to $11.3
million in fiscal 1997 compared to $6.7 million in the previous year and
essentially all of the spending was for television time, utilizing 30-minute and
60- and 120-second formats.
        
          COST OF GOODS SOLD.  The percentage of cost of goods sold as a
function of sales was 64.1 % in fiscal 1997 compared to 67.6% for the previous
year.  The decrease, despite a higher portion of sales being to retailers rather
than to end-users by direct-response television, was due to a wide range of cost
reduction activities.  These activities encompassed material price reductions
from suppliers, productivity gains in assembly, and management of inventory and
improvements in overall efficiencies assisted by both the use of kanbans for
certain raw materials and the SAP enterprise-information-technology system.
        
        SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and
administrative expenses, as a percentage of sales, increased to 28.0% in fiscal
1997 from 25.8% in fiscal 1996.  Direct-response expenses associated with the


                                       -21-

<PAGE>

purchase of media time and the mailing out of information kits increased to
$12.5 million from $7.3 million in fiscal 1996.  Co-op advertising spending
(which is advertising controlled by the retailer which includes the supplier's
product and for which the supplier agrees to pay a portion of the costs)
increased to $5.1 million from $3.6 million to support a significant increase in
promotional events.  Sales commissions increased to $1.7 million from $0.8
million.  Expenses related to warranty activity and the refurbishing of returns
increased to $3.7 million from $1.4 million in the previous year.  Costs
associated with insurance for receivables, bad debts and allowances for doubtful
and unreconciled accounts increased to $2.6 million from $0.9 million.
        
        NET INCOME.  The net income for fiscal 1997 was $7.4 million compared
with $5.2 million for fiscal 1996.  The improvement was due mainly to the large
increase in sales and the reduction in cost of goods sold as a percentage of
sales, partially offset by the increase in selling, general and administrative
expenses as a percentage of sales and by tax provisions of $4.1 million compared
with only $0.5 million in fiscal 1996.
        
        FINANCIAL CONDITION
        
        During fiscal 1997 there was a cash generation from operations of $5.4
million.  Non-cash operating working capital increased by $4.5 million due
mainly to increases in trade accounts receivable ($6.9 million), other
receivables ($1.8 million) and inventory ($1.1 million) net of a decrease in
prepaid expenses ($0.9 million), increases in payables and accruals ($2.3
million) and an increase in income taxes payable ($2.1 million).  Items not
requiring cash included depreciation of $1.0 million and a deferred tax
provision of $1.5 million.
        
        Cash in the amount of $6.9 million was provided from equity infusions. 
On June 27, 1997 the Company completed a private placement of 500,000 Class A
Special Warrants at $14.00 per special warrant for gross proceeds of $7.0
million.  Costs of the Class A Special Warrant offering, including underwriters'
fees, are anticipated to amount to $0.5 million.  An additional $0.4 million of
equity was provided from the exercise of stock options and broker compensation
warrants.
        
        During fiscal 1997, the Company invested $5.9 million in capital
expenditures.  These expenditures were mainly for tooling and assembly equipment
to support the increased demand for the Company's existing FANTOM-Registered
Trademark- vacuums; to modernize assembly operations at the Company's Welland,
Ontario plant; for tooling for the Company's new FANTOM-Registered Trademark-
LIGHTNING-Registered Trademark- canister vacuum scheduled for launch in Fall
1997; and for software and hardware to support advances in information
technology.


                                       -22-

<PAGE>

        The Company's net cash position as at June 30, 1997 was $4.7 million
compared with a net loan payable of $1.6 million at June 30, 1996.  Key ratio's
improved from the previous year as follows:

      As of June 30                                1997      1996
      -------------                                ----      ----

      Current Assets to Current Liabilities        1.95      1.57
      Total Liabilities to Tangible Net Worth      0.77      1.14

        Effective September 30, 1996 the Company arranged a new credit 
facility with a Canadian chartered bank which currently allows the Company to 
borrow up to a maximum of $13.0 million for general operating requirements 
and a further $4.0 million for capital expenditures.  Interest on the 
operating line is at the prime rate of the Canadian chartered bank; interest 
on the capital line is at prime plus 1/2%.  There are no service or 
administrative fees.  The availability on the operating loan is subject to a 
formula based upon trade-receivable and inventory levels.  Both loans are 
secured by a general assignment of book debts, a general security agreement 
and a mortgage over the Company's assets.  The facility was fully available 
but unused as at June 30, 1997.  Prior to the current agreement becoming 
effective, the Company had a financing agreement with Commcorp Financial 
Services Inc. of Burlington, Ontario.  The interest rate payable was the 
prime rate of a Canadian chartered bank plus 2%.  During the term of the 
agreement there was also a service and administration fee payable, calculated 
as a percentage of sales.  This fee for the period the agreement was in 
effect during fiscal 1997 was $0.3 million compared to $0.9 million for all 
of fiscal 1996.
        
        FISCAL 1996 COMPARED WITH FISCAL 1995
        
          RESULTS OF OPERATIONS
        
        SALES.  The Company's sales in fiscal 1996 increased 66% from the
previous year.  Because no material price changes were implemented in 1996 the
increase in revenue was primarily attributable to unit volume increases.  Sales
to the United States accounted for 95% of total revenue compared to 89% for the
previous year.  Shipments of FANTOM-Registered Trademark- vacuums accounted for
94% of revenue compared with 87% for fiscal 1995.
        
        In January 1996 the Company launched a new FANTOM-Registered 
Trademark-vacuum called the FANTOM-Registered Trademark- FURY-Registered 
Trademark-, a lighter version of the original FANTOM-Registered Trademark- 
vacuum.  To support the launch, the Company produced a new 30-minute TV 
infomercial and two short-form TV spots (60 and 120 seconds) which commenced 
airing in February and March, 1996 respectively.  Also in March, the Company 
began shipping to the U.S. market a more powerful version of the original 
FANTOM-Registered Trademark-vacuum called the FANTOM-Registered Trademark- 
THUNDER-Registered Trademark-vacuum.  


                                       -23-

<PAGE>

The Company produced two short-form TV spots (60 and 120 seconds) for this 
product and they commenced airing in June 1996.
        
        Sales to retailers in fiscal 1996 increased 115% from the previous year
to $80.1 million.  Aggregate sales to two major United States retailers were
$44.0 million compared with $18.8 million for the previous year.  The increase
resulted from the introduction of the two new FANTOM-Registered Trademark-
models, from expanded listings and promotional activity, and from the cumulative
effect of the Company's direct response television advertising.
        
        Direct-response sales were $18.4 million compared with $22.1 million for
the previous year.  Media spending was $6.7 million compared with $7.5 million
for fiscal 1995.  The decline in advertising was due in part to escalating media
rates and less availability of attractive 30-minute time periods.
        
        SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and
administrative expenses in fiscal 1996 increased 39% from the previous year but
as a percentage of sales declined from 30.7% to 25.8%.  Co-op advertising
spending (which is advertising controlled by the retailer which includes the
supplier's product and for which the supplier agrees to pay a portion of the
costs) with U.S. retailers increased from $0.7 million to $3.2 million to
support the large increase in sales.  Direct-response TV expenses totalled $10.9
million and included $6.7 million for media and $2.1 million for back-end costs
associated with in-bound telemarketing, credit card fees, fulfillment and
delivery.  These compare with media spending and back-end costs of $7.5 million
and $2.2 million respectively for fiscal 1995.
        
        COST OF GOODS SOLD.  Cost of goods sold for the year ended June 30,
1996, as a percentage of sales, increased to 67.6% from 63.3% in the previous
year.  This percentage increase was due mainly to a greater portion of sales
being to retailers rather than to end-users via direct-response television.
        
        NET INCOME.  The net income for fiscal 1996 was $5.2 million compared
with $3.0 million for 1995.  The improvement was due mainly to the large
increase in sales and the decrease in selling, general and administrative
expenses as a percentage of sales.  The net income achievement for fiscal 1996
includes tax provisions of $0.5 million compared with nil for 1995.
        
        FINANCIAL CONDITION
        
        During the year ended June 30, 1996 there was a cash generation from
operations of $1.3 million.  Non-cash operating working capital increased by
$5.0 million due to increases in accounts receivable and inventory net of
increases in accounts payable and accrued liabilities, and this 


                                       -24-

<PAGE>

was primarily due to the large increase in sales.  Cash in the amount of $6.7 
million was provided from equity infusions.  On December 6, 1995 Fair Global 
International Ltd. of Hong Kong exercised warrants to purchase 100,000 Common 
Shares of the Company at a price of $2.50 per Common Share.  On December 20, 
1995 the Company received gross proceeds of $6.0 million (of which $3.0 
million went into escrow) on the issue of 1,000,000 special warrants.  The 
escrowed funds were released on March 29, 1996.  Costs of the special warrant 
offering, net of estimated corporate income tax recoveries of $0.2 million, 
were $0.3 million.  On February 5, 1996 B & H Electronics (HK) Ltd. of Hong 
Kong exercised warrants to purchase 200,000 Common Shares of the Company at a 
price of $2.50 per Common Share.  On April 30, 1996 Newcrest Capital Inc. 
exercised compensation warrants to purchase 24,000 Common Shares of the 
Company at a price of $6.125 per Common Share.  On May 6, 1996 Sprott 
Securities Limited exercised compensation warrants to purchase 2,400 Common 
Shares of the Company at a price of $6.125 per Common Share.  An additional 
$0.1 million of equity was provided from the exercise of outside director and 
employee stock options.
        
        During fiscal 1996, the Company invested $5.3 million in capital
expenditures.  These expenditures were mainly for tooling and assembly equipment
for the Company's FANTOM-Registered Trademark- FURY-Registered Trademark- vacuum
cleaner, to modernize assembly operations at the Company's Welland plant and to
install new information technology.
        
        The Company's net loan payable (loan payable less cash) as at June 30,
1996 was $1.6 million compared with $4.3 million at June 30, 1995.  Key ratio's
improved from the previous year as follows:

      As of June 30                                1996      1995
      -------------                                ----      ----

      Total Liabilities to Tangible Net Worth      1.14      2.18
      Current Assets to Current Liabilities        1.57      1.28

        Finance charges during fiscal 1996 increased to $0.7 million from $0.5
million in fiscal 1995.  This resulted from the increased loan required to
support the higher level of working capital.  Service and administration fees
paid to Commcorp Financial Services Inc. increased to $0.9 million from $0.7
million.
        
        IMPACT OF INFLATION AND CHANGING PRICES

        The Company has not experienced any net inflationary cost increases
during the past three fiscal years. The Company has enjoyed a period of overall
product cost reductions from fiscal 1995 to 1997 due primarily to the additional
purchasing leverage associated with the Company's volume growth. Several
individual cost components have 


                                       -25-

<PAGE>

increased thereby reducing the amount of the overall cost reduction, notably 
corrugated carton costs and the cost of the Company's labour agreements, 
however the overall impact on product costs for these items has been less 
than 2% of product costs.
        
        The cost of media time for the Company's infomercial has increased from
fiscal 1995 to fiscal 1997 as the use of infomercals and the associated demand
for air time has increased. Due to the various markets and seasonality
associated with media time it is difficult to quantify the impact of this
increased cost on the Company's net income.
        
        The Company's selling price structure has not changed significantly in
the fiscal years from 1995 to 1997. Substantially all of the sales growth has
been a function of unit volume increases.
        
        OUTLOOK
        
        The Company believes that its FANTOM-Registered Trademark- vacuum line
is continuing to grow in popularity in the United States, and is beginning to
grow in Canada as a result of the Company's advertising campaigns, broadened
exposure among retailers and word-of-mouth endorsements by satisfied customers.
        
        The Company intends to focus on increasing its sales of
FANTOM-Registered Trademark- vacuums in the United States and Canada by:

     (a)  continuing to focus on expanding distribution and promotional activity
          for its existing models with retailers;
     
     (b)  continuing to employ direct-response television, and to explore other
          direct-response formats, not only to generate direct sales but also to
          build broad-scale consumer awareness and demand for FANTOM-Registered
          Trademark- products at the retail level; and
     
     (c)  developing and introducing new vacuum-cleaning products utilizing the
          Company's proprietary, dual-cyclonic technology.
        
        The Company has various agreements with the licensor of its 
dual-cyclonic technology which provide the Company with the exclusive right 
(except for a special-purpose license to a direct-marketing company) to sell 
upright vacuum-cleaning devices utilizing the dual-cyclonic technology in the 
United States and Canada, the exclusive right to sell canister and backpack 
products utilizing the technology in the United States and Canada, and the 
non-exclusive right to sell upright dry-powder carpet shampooers utilizing 
the technology in the United States and Canada.  The first of the basic 
patents in the U.S. for the dual-cyclonic technology does not expire until 
June 2003.


                                       -26-

<PAGE>

        The Company plans to introduce the FANTOM-Registered 
Trademark-LIGHTNING-Registered Trademark- canister vacuum in Fall 1997.  Due 
to the uncertainties associated with a new product launch, it is not possible 
to forecast sales of this product, or its effect or net income, with any 
reasonable degree of accuracy.  Up-front spending for design and development, 
tooling, assembly equipment and the production of a new 30-minute TV 
infomercial and short-form (60- and 120-second) TV spots is expected to 
amount to approximately $5.0 million.  Of this amount, $2.1 million was 
incurred in fiscal 1997.  The Company plans to manufacture the 
FANTOM-Registered Trademark-LIGHTNING-Registered Trademark- product in its 
Welland, Ontario facility.
        
        The Company is pursuing the development of other new product concepts
for vacuum cleaners based on its proprietary, dual-cyclonic technology; however,
it is not possible at this early stage of the development process to forecast
sales, impact on net income or capital requirements associated with these
concepts.  The Company is also exploring the possibility of acquiring other
product lines, or technology which could lead to new products, which fit with
its core competencies.  The Company is not able at this time to estimate the
costs or impact on its business of making such an acquisition.
        
        Given that the Company's sales occur mainly in the United States, but
manufacturing takes place in Canada, the Company's results are sensitive to
changes in the exchange rate between the Canadian and U.S. dollar.  To help
offset the effect of adverse currency fluctuation, the Company maintains a
hedging program consisting mainly of the purchase of forward contracts to sell
U.S. dollars.  As of June 30, 1997 the Company held forward contracts to sell
$37.5 million U.S. dollars, expiring at various dates through December, 1997 at
an average price of $1.3679 Cdn.  A protracted rise in the relative value of the
Canadian dollar would have a negative effect on net income for the Company. 
Based on the Company's fiscal 1997 results, a rise in value of the Canadian
dollar of 1 cent, without the protection of hedging, would adversely affect net
income by approximately $0.7 million.
        
        The electric floor-care industry is highly competitive and includes,
among others, the following major competitors: Bissell Inc.; Eureka Company; The
Hoover Company; Matsushita Appliance Corporation; and Royal Appliance Mfg. Co. 
Some of these competitors have recently introduced new products which are
competing at similar price points with the Company's Fantom-Registered
Trademark- Fury-Registered Trademark- and Fantom-Registered Trademark-
Thunder-Registered Trademark- vacuums.  One such competitive product, the
introduction of which appears to have been heavily supported by media
advertising, is based on bag technology.  Another new competitive product
incorporates a form of cyclonic filtering system.  The Company is uncertain what
effect these new competitive products, or future ones which could be introduced,
will have on its sales and results of operations.


                                       -27-

<PAGE>

        The Company believes it is positioned to realize further cost savings in
manufacturing as a result of programs initiated in fiscal 1997 and new programs
anticipated to be initiated in fiscal 1998.  The savings are expected to occur
mainly from material price reductions from suppliers, productivity gains in
assembly, and efficiencies associated with increased levels of output.


ITEM 10.  DIRECTORS AND OFFICERS OF COMPANY

                                                     Executive
  Name and Municipality   Position(s) with the        Officer        Director
      of Residence             Company              Since(1)(2)     Since(1)(2)
-----------------------   --------------------      -----------     -----------
 Arthur H. Crockett           Director                   --            1984
 Toronto, Ontario (3)                             

 Maxwell Goldhar              Director                   --            1989
 Toronto, Ontario (3)                             

 Kenneth Kelman               Director and Chairman     1989           1984
 Toronto, Ontario             of the Board        

 Rikki Meggeson               Director                   --            1989
 North York, Ontario(4)                           

 Allan D. Millman             Director,                 1984           1984
 Toronto, Ontario             President and
                              Chief Executive
                              Officer

 C. George Scala              Director                   --            1992
 Beverly,
 Massachusetts(3)

 Alan Steinert, Jr.           Director                   --            1990
 Cambridge,
 Massachusetts (3)

 Stephen J. Doorey            Vice-President,           1997            --
 Mississauga, Ontario         Finance and Chief
                              Financial Officer
                              
 Alan C. Hussey               Vice President,           1995            --
 Welland, Ontario             Manufacturing

 Walter J. Palmer             Secretary                 1996            --
 Toronto, Ontario

 Joseph A. Shillington        Vice President,           1996            --
 Welland, Ontario             Information
                              Systems

 Paul F. Smith                Vice President,           1997
 Oakville, Ontario            Sales

 Norman V. Soler              Vice President,           1984            --
 Port Colborne, Ontario       Engineering

 Nick E. Varanakis            Vice President,           1989            --
 Sandy,Utah                   Sales - United
                              States

 Linda L. Watson              Vice President,           1995            --
 Mississauga, Ontario         Marketing

 Norman Wotherspoon           Treasurer                 1997            --
 St.Catharines, Ontario


                                       -28-

<PAGE>

NOTES:
------

(1)  All directors are elected and serve until the next annual meeting of
     shareholders or until their successors are elected or appointed.  All
     executive officers of the Company serve at the pleasure of the Company's
     board of directors.

(2)  Each director/officer has served as a director/officer of the Company and
     its predecessor continuously since the year set out opposite his/her name.

(3)  Member of the Audit Committee.

(4)  Daughter of Kenneth Kelman.

THE BOARD OF DIRECTORS

        The mandate of the Board of Directors is to oversee the conduct of the
Company's business.  The Board has approved guidelines on corporate governance
issues which set out the manner in which it will discharge its responsibilities
in this regard, in some cases with the assistance of committees of the Board
whose duties are described below.
        
        The Board is responsible for the overall strategic direction of the
Company, and approves major new product development programmes and debt and
equity financing.
        
        The objective of the Board of Directors is to maximize shareholder value
in a manner which is consistent with good corporate citizenship, including fair
treatment of the Company's employees, customers and suppliers.  The Board
expects management to perform in a manner consistent with achieving these
objectives.
        
        The majority of the Company's directors are unrelated to the Company, in
that they are independent of management and are free from any interest, business
or other relationship (other than any arising from shareholding) which could, or
could reasonably be perceived to, materially interfere with their ability to act
with a view to the best interests of the Company.

BOARD COMMITTEES

        AUDIT COMMITTEE
        
        The mandate of the Audit Committee is to review the Company's audited
annual financial statements and to report on such statements to the Board before
the statements are approved by the Board.  To fulfill this responsibility, the
Committee meets with the Company's auditors to discuss the financial statements
and any concerns raised by the auditors with respect to financial presentation
or disclosure, and with respect to the Company's 


                                       -29-

<PAGE>

internal financial controls. The Audit Committee also recommends to the Board 
the auditors to be appointed as the Company's auditors at the annual meeting.
        
        COMPENSATION COMMITTEE
        
        The Compensation Committee reviews the Company's overall compensation
philosophy, and corporate succession and development plans at the executive
officer level.  This Committee has been mandated to recommend to the Board the
corporate objectives which the chief executive officer is responsible for
meeting, to review the annual performance of the chief executive officer in
light of these objectives, and to make recommendations to the Board with respect
to the chief executive officer's remuneration.
        
        ENVIRONMENTAL COMMITTEE
        
        The Environmental Committee reviews the Company's policies and
procedures relating to environmental matters, to determine whether they are
adequate to ensure compliance with all relevant laws.  This Committee receives
reports from management with respect to compliance issues.
        
        NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
        
        The Nominating and Corporate Governance Committee is responsible for
developing the Company's approach to governance issues, including recommending
to the Board limits to management's responsibilities.
        
        The Nominating and Corporate Governance Committee's mandate also
includes making recommendations with respect to the size and composition of the
Board; recommending nominees to the Board and the amount and form of directors'
remuneration; assisting in selecting a chair of the Board; and developing and
implementing an orientation and education program for new recruits to the Board.
        
        In addition, the Nominating and Corporate Governance Committee has been
mandated to develop a process for assessing the effectiveness of the Board as a
whole and of committees of the Board, and for assessing the contribution of
individual directors.
        
        If an individual director wishes to engage an outside adviser at the
expense of the Company, in relation to a matter involving the Company, such
engagement must be approved by the Nominating and Corporate Governance
Committee.


                                       -30-

<PAGE>

ITEM 11.  COMPENSATION OF DIRECTORS AND OFFICERS

        The aggregate amount of compensation paid by the Company and its 
subsidiaries during the Company's 1997 fiscal year to all directors and 
officers as a group for services in all capacities was approximately 
$1,635,000.  The aggregate amount set aside or accrued by the Company and its 
subsidiaries during the last fiscal year of the Company to provide pension, 
retirement or similar benefits for directors or officers, pursuant to any 
existing plan provided or contributed to by the Company or its subsidiaries 
was approximately $52,000.

        The following table sets forth all annual and long-term compensation 
for services in all capacities to the Company and its subsidiaries for the 
fiscal years ended June 30, 1997, 1996 and 1995 (to the extent required to be 
disclosed by the regulation made under the Securities Act (Ontario)) in 
respect of each individual who was, at June 30, 1997, (a) the chief executive 
officer or (b) an executive officer who received compensation greater than 
$100,000 per annum (collectively with the chief executive officer, the "Named 
Executive Officers").

SUMMARY COMPENSATION TABLE

        The following table provides a summary of the compensation earned 
during the last three fiscal years for each of the Named Executive Officers.

<TABLE>
<CAPTION>

                               Annual Compensation                         Long-Term Compensation
                               -------------------                    -------------------------------
                                                                             Awards           Payouts
                                                                      ---------------------   -------
                                                                    Securities   Restricted
                                                          Other        Under      Shares or                  All
                                                          Annual      Options/    Restricted                Other
                                                          Compen-      SARs        Share        LTIP       Compen-
 Name and Principal              Salary        Bonus      sation      Granted      Units      Payouts      sation
     Position(1)       Year        ($)         ($)         ($)          (#)        ($)  )       ($)         ($)
     --------          ----      -------      ------    ---------     --------   ----------   -------     --------
<S>                    <C>       <C>          <C>       <C>           <C>        <C>          <C>         <C>
 Allan D. Millman      1997      235,000      88,125                  40,000                              12,925
 PRESIDENT AND         1996      195,000      68,250
 CHIEF EXECUTIVE       1995      144,193      50,000
 OFFICER

 Nick E. Varanakis     1997      138,889      54,495                  20,000                              7,735
 VICE PRESIDENT,       1996      115,864      40,754
 SALES (2)             1995      116,131      43,288


 Alan C. Hussey        1997      118,334      45,000                  30,000                              6,533
 VICE PRESIDENT,       1996      108,336      38,500
 MANUFACTURING (3)     1995       33,332

</TABLE>


                                       -31-

<PAGE>

<TABLE>
<CAPTION>
                                      Annual Compensation                 Long-Term Compensation
                                  ----------------------------       -------------------------------
                                                                            Awards           Payouts
                                                                     --------------------    -------
                                                                   Securities   Restricted
                                                         Other        Under     Shares or                  All
                                                        Annual      Options/    Restricted                Other
                                                        Compen-       SARs        Share       LTIP       Compen-
 Name and Principal              Salary       Bonus     sation       Granted      Units      Payouts      sation
     Position(1)       Year        ($)         ($)       ($)           (#)        ($)  )       ($)         ($)
     --------          ----      -------      ------    ------       -------     --------    -------     -------
<S>                    <C>       <C>          <C>       <C>          <C>         <C>         <C>         <C>
 Norman V. Soler       1997      118,334      45,000                 20,000
 VICE PRESIDENT,       1996      110,000      38,500
 ENGINEERING           1995      104,778      42,000

 Linda L. Watson       1997      118,334      45,000                 30,000                               6,533
 VICE PRESIDENT,       1996      102,631      38,500
 MARKETING (4)         1995        7,692
</TABLE>

NOTES:
------

(1)  Positions indicated are those as at June 30, 1997.

(2)  The salary of this Named Executive Officer is expressed and paid in U.S.
     dollars.  For purposes of the table, his salary was converted to Canadian
     dollars using the simple average of the closing exchange rate on the last
     day of each month during the relevant fiscal year.

(3)  This Named Executive Officer was employed with the Company for only 4
     months during the 1995 fiscal year.

(4)  This Named Executive Officer was employed with the Company for only 1 month
     during the 1995 fiscal year.

PENSION PLAN TABLE

     Historically, the Company's Salaried Employees' Pension Plan (the 
"Pension Plan") was solely a defined benefit plan.  Effective January 1, 
1997, members of the Pension Plan were given the option to transfer the 
commuted value of their accrued benefits to a newly-created defined 
contribution portion of the Pension Plan and thereafter to participate in the 
defined contribution portion of the Pension Plan.

     The following table sets out the annual amount which would be payable 
from the defined benefit portion of the Pension Plan based on retirement at 
age 65, at various levels of remuneration and years of credited service to 
employees who did not elect to transfer to the defined contribution portion 
of the Pension Plan.

<TABLE>
<CAPTION>
Remuneration                           Years of Service
------------                           ----------------
       ($)              5         10        15        20        25        30
     -------        -----     ------    ------    ------    ------    ------
     <S>            <C>       <C>       <C>       <C>       <C>       <C>
     100,000        7,070     14,140    21,210    28,281    35,351    42,421

     125,000        8,611     17,222    25,833    34,444    43,056    51,667

     150,000        8,611     17,222    25,833    34,444    43,056    51,667

     175,000        8,611     17,222    25,833    34,444    43,056    51,667

     200,000        8,611     17,222    25,833    34,444    43,056    51,667

     225,000        8,611     17,222    25,833    34,444    43,056    51,667

     250,000        8,611     17,222    25,833    34,444    43,056    51,667
</TABLE>

                                       -32-

<PAGE>

NOTES:
------

(1)  The remuneration used to calculate defined benefits (for the defined
     benefit portion of the Pension Plan) for Named Executive Officers is their
     salary and includes sales incentives, commissions, bonuses, overtime pay,
     vacation pay and holiday pay.

(2)  The credited years of service for Norman V. Soler, who is the only Named
     Executive Officer continuing to participate in the defined benefit portion
     of the Pension Plan, was 21.5 years as at June 30, 1997.  The remaining
     Named Executive Officers participate in the defined contribution portion of
     the Pension Plan.

(3)  Pensions paid under the Pension Plan are payable for the member's lifetime
     with the guarantee that the pension will be paid for at least five years. 
     Company pensions are augmented by government pension benefits after age 65.

AGGREGATED OPTION EXERCISES DURING THE FISCAL YEAR ENDED JUNE 30, 1997

        The following table sets out, for each of the Named Executive Officers,
any options exercised during the year ended June 30, 1997 and the current value
of any unexercised options at June 30, 1997.

<TABLE>
<CAPTION>

                                                            Unexercised          Value of Unexercised
                                 Common Shares              Options at           in the money Options
                                 -------------              June 30, 1997        at June 30, 1997
                         Acquired on      Aggregate             (#)                 ($)
                         Exercise         Value Realized    Exercisable/         Exercisable/
Name                     (#)              $                 Unexercisable        Unexercisable
----                     -----------      --------------    -------------        -------------
<S>                      <C>              <C>               <C>                  <C>
Allan D. Millman              Nil              Nil          Nil/40,000           Nil/124,000
Nick E. Varanakis             Nil              Nil          Nil/20,000           Nil/77,000
Alan C. Hussey                Nil              Nil          10,000/20,000        107,500/77,000
Norman V. Soler               Nil              Nil          Nil/20,000           Nil/77,000
Linda L. Watson               Nil              Nil          10,000/20,000        107,500/77,000

</TABLE>

TERMINATION OF EMPLOYMENT CONTRACTS

        The Company has entered into agreements with its Named Executive
Officers pursuant to which the Company has agreed that in the event the
employment of any of such officers is terminated following a change of control
of the Company, the terminated officer will be entitled to receive a lump sum
retiring allowance varying from one and one-half to two and one-half times the
annual salary of the terminated officer and will also be entitled to
continuation of normal employee benefits for an equivalent period.


                                       -33-

<PAGE>

COMPOSITION OF THE COMPENSATION COMMITTEE

        During the fiscal year ended June 30, 1997, the Compensation Committee
of the Board consisted of Messrs. C. George Scala, Arthur H. Crockett, Maxwell
Goldhar and Alan Steinert, Jr.

REPORT OF THE COMPENSATION COMMITTEE

        The Compensation Committee is mandated to ensure that the Company's
compensation policies are adequate to attract and retain highly qualified and
experienced executives.
        
        The Company's compensation policy for Named Executive Officers,
including the chief executive officer, primarily emphasizes annual cash
compensation.  The Compensation Committee obtains survey data on executive
compensation from independent professional compensation consultants which it
reviews with a view to assessing the Company's salary ranges and to determining
its policies on executive compensation.  At present, the target level for
executive salaries is the 75% quartile level of companies of comparable size
(Canadian companies for Company executives based in Canada and United States
companies for the Company executive based in the U.S.).

        The Company has an Executive Gain Sharing Plan which relates a portion
of the total executive compensation to the Company's overall performance.  Under
this plan, each of the Named Executive Officers was entitled during the 1997
fiscal year to receive a bonus based on the amount by which the Company's actual
pre-tax income exceeded a pre-established target level.

        During the Company's 1997 fiscal year, the Company granted options to
purchase Common Shares pursuant to the Key Employees' Stock Option Plan of the
Company (the "Employee Plan") to each of the Named Executive Officers.  These
options vest over a two year period from the date of grant and are exercisable
at an option price which was equal to the fair market value of the Common Shares
on the date of the grant of the options.  These options provide the medium-term
incentive component of the Named Executive Officers' remuneration.  The amount
of options already outstanding under the Employee Plan was taken into account at
the time of each option grant.

        Presented by the Committee:
        
          C. George Scala
          Arthur H. Crockett
          Maxwell Goldhar
          Alan Steinert, Jr.


                                       -34-

<PAGE>

COMPENSATION OF DIRECTORS

        The Company does not pay any compensation to any of its Named Executive
Officers who is a director for his services as a director. The Company pays each
of its remaining directors who is not an employee of the Company a fixed sum of
U.S. $10,000 per annum for his or her services as a director (except for the
chairman of the board who is paid a fixed sum of U.S. $25,000 for his services
in that capacity), U.S. $1,000 for each directors' meeting attended and U.S.
$600 for each committee meeting attended (except for the chairman of each
committee meeting who receives U.S. $1,000 per meeting).
          
        On January 9, 1997, each of the non-employee directors was granted an
option to purchase 20,000 Common Shares at an exercise price of $9.30 per share,
pursuant to the Company's Outside Director Share Option Plan.  Each of these
options vest as to 10,000 Common Shares on the first anniversary of their grant
and as to the balance on the second anniversary of their grant.

SHARE PERFORMANCE GRAPH

          The following graph compares the total cumulative shareholder return
over the last five years for $100 invested in Common Shares of the Company at
June 30, 1992 with that of the total cumulative return of the TSE 300 Stock
Index.  As the Company has not paid dividends during this five-year period, the
shareholders return for the Company does not assume reinvestment of dividends.


                                       -35-

<PAGE>

                                [GRAPH]

<TABLE>
<CAPTION>

                      1993     1994      1995      1996          1997
<S>                   <C>      <C>       <C>       <C>           <C>
TSE 300 INDEX         $117     $118      $132      $146          $ 187
FANTOM                $ 95     $235      $415      $900          $1465

</TABLE>

DIRECTORS' AND OFFICERS' LIABILITY INSURANCE

        Under the existing policy of insurance, the Company is entitled to be
reimbursed for indemnity payments it is required or permitted to make to
directors and officers which are in excess of $25,000 deductible per occurrence,
to a maximum of $40,000,000 in each policy year.  The directors and officers of
the Company are insured for losses arising from claims against them for certain
of their acts, errors or omissions for which the Company does not indemnify
them, to a maximum of $40,000,000 in each policy year.  As at the date hereof
all of the directors and officers of the Company and its subsidiaries are
included as insureds under the policy.  All premiums for the policy are paid by
the Company.  The annual premium paid for directors and officers liability
insurance was $62,695 for fiscal 1997.  The premiums for the insurance are not
allocated between directors and officers as separate groups.


                                       -36-

<PAGE>

ITEM 12.  OPTIONS TO PURCHASE SECURITIES FROM COMPANY OR SUBSIDIARIES

        The following table describes options to acquire Common Shares of the
Company outstanding as of October 15, 1997:

<TABLE>
<CAPTION>

                                           NUMBER       EXERCISE
                                           UNDER          PRICE           EXPIRY
         RECIPIENT                         OPTION       PER SHARE          DATE
         ---------                         ------       ---------          ----
<S>                                        <C>          <C>           <C>
Outside Directors                           40,000        $5.00       October 30, 1998
Outside Directors                          120,000        $9.30       January 8, 2000
                                           -------
TOTAL FOR OUTSIDE DIRECTORS                160,000
                                           -------
                                           -------

Officers                                    20,000        $3.90        April 12, 2000
Officers                                    10,000        $8.50        April 10, 2001
Officers                                    50,000        $9.30       January 8, 2002
Officers                                   110,000       $12.30        April 16, 2002
Employees                                   20,000       $12.30        April 16, 2002
                                           -------
TOTAL FOR OFFICERS AND EMPLOYEES           210,000
                                           -------
                                           -------

Independent Consultant                      30,000        $7.00      December 19, 2000
Independent Consultant                      10,000        $7.75       January 8, 2001
Independent Consultant                      20,000       $12.30        April 16, 2002
                                           -------
TOTAL FOR INDEPENDENT CONSULTANTS           60,000
                                           -------
                                           -------

</TABLE>

STOCK OPTION PLANS

        The Company has three existing stock option plans, two for employees and
one for non-employee directors.  The original plan for employees (the "Prior
Plan") was implemented in 1986 and 130,000 Common Shares have been reserved for
issuance thereunder to full-time employees of the Company.  As of October 15,
1997, a total of 119,250 Common Shares had been acquired pursuant to options
granted under the Prior Plan and no options remained outstanding.  The Company
has stated that no further options will be granted under the Prior Plan.
        
        As a result of the implementation by The Toronto Stock Exchange of new
rules relating to stock option plans, the Company created a new key employee
stock option plan (the "Current Plan") on October 20, 1994.  An aggregate of
400,000 Common Shares has been reserved for issuance pursuant to the Current
Plan.  As of October 15, 1997, options had been granted with respect to 250,000
Common Shares and options remained outstanding in respect of an aggregate of
210,000 Common Shares.


                                       -37-

<PAGE>

        Under the Current Plan, the Company's Board of Directors may grant to
full-time employees of the Company or its subsidiaries options to purchase such
number of Common Shares as the Board in its discretion considers appropriate. 
The exercise price for the Common Shares covered by each option is determined by
the Board of Directors, but must not be less than the fair market value of the
Common Shares at the time of the grant of the option.  Options granted under the
Current Plan cannot have a term exceeding five years.  Such options become
exercisable as to 50% on the first anniversary of the date of grant and as to
the balance on the second anniversary of the date of the grant.  Options granted
under the Current Plan are non-assignable and expire on the earlier of (a) the
last day of their original term and (b) the earliest of (i) the first
anniversary of the optionee's retirement, (ii) 180 days after the optionee's
death and (iii) 90 days after any other termination of the employee's employment
with the Company.
        
        The Company also has a stock option plan (the "Outside Director Plan")
which it introduced in September 1993 pursuant to which an aggregate of 340,000
Common Shares have been reserved for issuance to directors who are not full-time
employees of the Company.  The Outside Director Plan entitles each of the
Company's outside directors upon his or her initial election to the Board, to an
option to purchase 20,000 Common Shares (or such lesser number as is available
for options under the Outside Director Plan at the time a new director first
becomes a director) and additional options may be granted to outside directors
under the Outside Director Plan.  The option price is determined by the Board of
Directors and must not be less than the greater of $1.10 per Common Share and
the fair market value of the Common Shares on the date of grant.  Options
granted under the Outside Director Plan are fully vested no later than the
second anniversary following the date of grant and must be exercised within
three years from the date of grant.  At October 15, 1997, options in respect of
an aggregate of 300,000 Common Shares have been granted under the Outside
Director Plan, of which options in respect of 140,000 Common Shares have been
exercised.
        
        The Company has also reserved 60,000 Common Shares pursuant to
outstanding options granted to independent consultants.
        
        The Board of Directors of the Company is entitled to amend both the
Current Plan and the Outside Director Plan subject to the approval of The
Toronto Stock Exchange, which approval would require shareholder approval in
certain circumstances.
        
        The Company does not provide financial assistance to optionees to
facilitate the purchase of Common Shares under any of its stock option plans.


                                       -38-

<PAGE>

ITEM 13.  INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

     Not Applicable


                                       PART II
                                           
ITEM 14.  DESCRIPTION OF SECURITIES TO BE REGISTERED.

     Not Applicable


                                       PART III
                                           
ITEM 15.  DEFAULTS UPON SENIOR SECURITIES

     None


ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES

     None
                                           
                                           
                                       PART IV
                                           
ITEM 17.  FINANCIAL STATEMENTS.

     Not Applicable


ITEM 18.  FINANCIAL STATEMENTS.

        The financial statements of the Company have been prepared on the basis
of Canadian GAAP.  A reconciliation to U.S. GAAP appears in Note 14 thereto.


                                       -39-

<PAGE>

ITEM 19.  FINANCIAL STATEMENTS AND EXHIBITS.
     
(a)  The following financial statements, financial statement schedules and
     related materials are filed as part of this annual report:
                                                                        Page No.
                                                                        --------
     (1)  Auditors' Report to the Directors                                47
      
     (2)  Consolidated Balance Sheets as at June 30, 1997 and 1996
          (audited)                                                        48
      
     (3)  Consolidated Statements of Income and Retained Earnings for the
          fiscal years ended June 30, 1997, 1996 and 1995 (audited)        49
      
     (4)  Consolidated Statements of Changes in Financial Position for the
          fiscal years ended June 30, 1997, 1996 and 1995 (audited)        50
      
     (5)  Notes to Consolidated Financial Statements                       51
      
      (6) Auditors' Report as to Financial Statement Schedule              70
      
      (7) Schedule II - Valuation and Qualifying Accounts                  71
     
(b)  The following exhibits are filed as part of this annual report:
          
     (1)  Articles of incorporation and by-laws.

          *(1.1)    The Company's Articles of Incorporation (Amalgamation),
                    including all amendments thereto
     
          *(1.2)    The Company's By-Laws, including all amendments thereto
     
     (2)  Instruments defining the rights of holders of registered equity 
          securities.
     
          *(2.1)    Employee Incentive Stock Option Plan
     
          **(2.2)   Outside Director Share Option Plan
     
          *(2.3)    Key Employees' Stock Option Plan
     
          *(2.4)    Warrant for Purchase of Common Shares dated October 3, 
                    1994 issued to B & H Electronics (HK) Ltd.


                                       -40-

---------------------------------
*    Incorporated by reference to File No. 0-26308, Registration Statement on
     Form 20-F/A dated November 11, 1995.

<PAGE>

          *(2.5)    Warrant for Purchase of Common Shares dated October 3, 
                    1994 issued to Fair Global International Ltd.
     
          *(2.6)    Subscription Agreement dated September 8, 1994 between the
                    Company and B & H Electronics (HK) Ltd.
     
          *(2.7)    Amending Agreement dated September 22, 1994 between the 
                    Company and B & H Electronics (HK) Ltd.
     
           (2.8)    Class A Special Warrant Indenture dated as of June 27, 
                    1997 between the Company and The R-M Trust Company
     
           (2.9)    Underwriting Agreement dated June 27, 1997 between the 
                    Company, International Network Fund Limited Partnership, 
                    Newcrest Capital Inc. and Sprott Securities Inc.
     
          (2.10)    Underwriting Agreement dated September 30, 1997 between 
                    the Company, International Network Fund Limited 
                    Partnership, Newcrest Capital Inc. and Sprott Securities 
                    Inc.

     (3)  Contracts not made in the ordinary course of business.
     
          *(3.1)    Technology Transfer Agreement***
     
          *(3.2)    Technology Transfer Agreement***
     
          *(3.3)    U.S. Technology Transfer Agreement***
     
          *(3.4)    Umbrella Agreement***
     
         **(3.5)    Agreement dated September 13, 1996 between Prototypes 
                    Limited, Notetry Limited and the Company***
     
          *(3.6)    General Security Agreement dated October 8, 1993 between 
                    the Company and IMF
     
          *(3.7)    Assignment made October 18, 1993 between Royal Bank of 
                    Canada, IMF and the Company with respect to General 
                    Security Agreement dated May 30, 1986 and Charge/Mortgage 
                    of Land (Debenture) dated July 16, 1990
     
          *(3.8)    General Security Agreement dated May 30, 1986 between the 
                    Company and Royal Bank of Canada


                                       -41-

-------------------
*    Incorporated by reference to File No. 0-26308, Registration Statement on
     Form 20-F/A dated November 11, 1995.
**   Incorporated by reference to File No. 0-26308, Registration Statement on
     Form 20-F dated November 14, 1996.
***  Filed pursuant to Rule 24b-2 under which the Company has requested
     Confidential Treatment of certain portions of this exhibit.

<PAGE>

          *(3.9)    Assignment of Mortgage registered October 21, 1993 as 
                    instrument no. 660959 by Royal Bank to IMF acknowledged 
                    by the Company

         *(3.10)    Memorandum of Agreement of Sales, Assignment and Transfer 
                    of Book Debts, Accounts, etc. (Quebec) dated October 21, 
                    1993 between the Company and IMF

         *(3.11)    Moveable Hypothec dated December 15, 1994 granted by the 
                    Company in favour of IMF

         *(3.12)    General Security Agreement (United States) dated 
                    December 8, 1993 between Fantom Technologies Direct, Inc. 
                    and IMF
     
         *(3.13)    Guarantee Agreement made October 15, 1993 between the 
                    Company, International Network Fund Limited Partnership, 
                    RKK Holdings Inc. and Allan D. Millman
     
         *(3.14)    General Security Agreement dated October 15, 1993 between 
                    the Company and International Network Fund Limited 
                    Partnership, RKK Holdings Inc. and Allan D. Millman
     
         *(3.15)    Charge/Mortgage of Land registered October 21, 1993 as 
                    instrument no. 660956 between the Company and 
                    International Network Fund Limited Partnership, RKK 
                    Holdings Inc. and Allan D. Millman
     
         *(3.16)    Amendment to Guarantee Agreement made February 28, 1994 
                    between the Company, International Network Fund Limited 
                    Partnership, RKK Holdings Inc. and Allan D. Millman
     
         *(3.17)    Mortgage Amending Agreement registered March 23, 1994 as
                    instrument no 668362 with respect to Charge/Mortgage of 
                    Land registered October 21, 1993
     
         *(3.18)    Loan and Receivables Service Agreement made as of 
                    September 30, 1993 between the Company and IMF


                                       -42-

---------------------
*    Incorporated by reference to File No. 0-26308, Registration Statement on
     Form 20-F/A dated November 11, 1995.

<PAGE>

         *(3.19)    Amending Agreement:  Loan and Receivables Service 
                    Agreement dated as of January 17, 1994 between IMF and 
                    the Company
     
         *(3.20)    Amending Agreement:  Loan and Receivables Service 
                    Agreement May 9, 1994 between IMF and the Company
     
         *(3.21)    Third Amending Agreement:  Loan and Receivables Service 
                    Agreement dated August 31, 1994 between IMF and the 
                    Company
     
         *(3.22)    Assumption Agreement:  Loan and Receivables Service 
                    Agreement dated November 8, 1993 between IMF and Fantom 
                    Technologies Direct, Inc. and acknowledged by the Company
     
         *(3.23)    Fourth Amending Agreement:  Loan and Receivables 
                    Servicing Agreement dated August 4, 1995 among IMF, the 
                    Company and Fantom Technologies Direct, Inc.
     
         *(3.24)    Moveable Hypothec dated September 22, 1995 granted by the 
                    Company in favour of IMF
     
         *(3.25)    Letter Agreement dated August 29, 1994 between the 
                    Company and B & H Electronics (HK) Ltd.
     
         *(3.26)    General Security Agreement dated September 9, 1994 
                    between the Company and B & H Electronics (HK) Ltd.
     
        **(3.27)    Release of Security dated September 30, 1996 by IMF
     
         *(3.28)    Agreement dated April 14, 1988 between the Company and 
                    Allan D. Millman
     
         *(3.29)    Agreement dated April 14, 1988 between the Company and 
                    William G. Birdsall
     
        **(3.30)    Letter Agreement dated August 12, 1996 between the 
                    Company and William G. Birdsall
     
         *(3.31)    Agreement dated April 14, 1988 between the Company and 
                    Dominic M. Lapenna


                                       -43-

--------------------
*    Incorporated by reference to File No. 0-26308, Registration Statement on
     Form 20-F/A dated November 11, 1995.
**   Incorporated by reference to File No. 0-26308, Registration Statement on
     Form 20-F dated November 14, 1996.

<PAGE>

         *(3.32)    Agreement dated September 10, 1992 between the Company 
                    and Nick E. Varanakis
     
         *(3.33)    Agreement dated April 14, 1988 between the Company and 
                    Norman V. Soler
     
        **(3.34)    Commitment Letter from a Canadian chartered bank (the 
                    "Bank") to the Company dated May 22, 1996
     
        **(3.35)    General Security Agreement dated September 27, 1996 made 
                    by Company in favour of the Bank 
     
        **(3.36)    General Assignment of Book Debts, etc., dated 
                    September 27, 1996 made by the Company in favour of the 
                    Bank
     
        **(3.37)    Form 2 Charge/Mortgage of Land issued by the Company to 
                    the Bank with regard to the real property municipally 
                    known as 1110 Hansler Road, Welland, Ontario
     
        **(3.38)    Notice of Intention to give Security under Section 427 of 
                    the BANK ACT (Canada) dated September 27, 1996 made by 
                    the Company in favour of the Bank
     
        **(3.39)    Agreement as to loans and advances and security therefor 
                    under Section 427 of the BANK ACT (Canada) dated 
                    September 27, 1996 made by the Company in favour of the 
                    Bank
     
        **(3.40)    Agreement re: operating credit line dated September 27, 
                    1996 between the Bank and the Company
     
        **(3.41)    Acceptance Agreement dated September 27, 1996 made by the 
                    Company in favour of the Bank
     
        **(3.42)    Guarantee dated September 27, 1996 made by Fantom 
                    Technologies Direct, Inc. ("Fantom Direct") in favour of 
                    the Bank
           
        **(3.43)    General Security Agreement dated September 27, 1996 made 
                    by Fantom Direct in favour of the Bank
           
        **(3.44)    General Assignment of Book Debts, etc. dated 
                    September 27, 1996 made by Fantom Direct in favour of the 
                    Bank


                                       -44-

----------------
*    Incorporated by reference to File No. 0-26308, Registration Statement on
     Form 20-F/A dated November 11, 1995.
**   Incorporated by reference to File No. 0-26308, Registration Statement on
     Form 20-F dated November 14, 1996.

<PAGE>

        **(3.45)    Agreement dated September 8, 1995 between the Company and 
                    Alan C. Hussey
     
        **(3.46)    Agreement dated September 8, 1995 between the Company and 
                    Linda L. Watson
     
          (3.47)    Agreement dated May 8, 1997 between the Company and Joseph
                    A. Shillington
     
          (3.48)    Agreement dated May 20, 1997 between the Company and Paul
                    Smith
     
          (3.49)    Agreement dated July 14, 1997 between the Company and
                    Stephen Doorey


                                       -45-

---------------------
**   Incorporated by reference to File No. 0-26308, Registration Statement on
Form 20-F dated November 14, 1996.

<PAGE>

                                      SIGNATURES
                                           

     Pursuant to the Requirements of Section 12 of the Securities Exchange Act
of 1934, the Company certifies that it meets the requirements for filing on Form
20-F and has duly caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized.


                                          FANTOM TECHNOLOGIES INC.
                                          (Company)





Dated:  November 13, 1997                 By:   "Allan D. Millman"
                                             ----------------------------------
                                              Name:     Allan D. Millman
                                              Title:    President and
                                                        Chief Executive Officer