<PAGE>   1

                                 EXHIBIT 99.1 TO

                                    FORM 10-K


                                     AMENDED

                                    FORM 11-K

                                  ANNUAL REPORT





                        Pursuant to Section 15(d) of the
                         Securities Exchange Act of 1934


              For the Fiscal Years Ended December 31, 1995 and 1996





                            ROYAL APPLIANCE MFG. CO.
               EMPLOYEES PROFIT SHARING RETIREMENT PLAN AND TRUST
               --------------------------------------------------
                            (Full title of the plan)


                            ROYAL APPLIANCE MFG. CO.
                            ------------------------
          (Name of issuer of the securities held pursuant to the plan)


                     650 ALPHA DRIVE, CLEVELAND, OHIO 44143
                     --------------------------------------
                     (Address of principal executive office)





<PAGE>   2



                          INDEX OF FINANCIAL STATEMENTS

                                   ----------




                                                                           PAGES
                                                                           -----

Report of Independent Accountants                                            2

Financial Statements:

  Statement of Net Assets Available for Plan
    Benefits at December 31, 1995                                            3

  Statement of Net Assets Available for Plan
         Benefits at December 31, 1996                                       4

  Statement of Changes in Net Assets Available for
    Plan Benefits for the year ended December 31, 1995                       5

  Statement of Changes in Net Assets Available for
         Plan Benefits for the year ended December 31, 1996                  6

Notes to Financial Statements                                              7-9


Supplemental Schedules:

   Schedule of Assets Held for Investment Purposes
         for the years ended December 31, 1995 and 1996                     10

   Schedule of Reportable Transactions for the years
          ended December 31, 1995 and 1996                                  11












                                        1

<PAGE>   3



                        REPORT OF INDEPENDENT ACCOUNTANTS

                                   ----------


To the Trustees of the
  Royal Appliance Mfg. Co. Employees
  Profit Sharing Retirement Plan and Trust


We have audited the accompanying statements of net assets available for plan
benefits of the Royal Appliance Mfg. Co. Employees Profit Sharing Retirement
Plan and Trust (the Plan) as of December 31, 1995 and 1996 and the related
statements of changes in net assets available for plan benefits for the years
then ended. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 1995 and 1996 and the changes in net assets available for Plan
benefits for the years then ended in conformity with generally accepted
accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets held
for investment purposes and reportable transactions for the years ended December
31, 1995 and 1996 are presented for the purpose of additional analysis and are
not a required part of the basic financial statements but are supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. The Fund Information in the statement of net assets available for plan
benefits and the statement of changes in net assets available for plan benefits
is presented for purposes of additional analysis rather than to present the net
assets available for plan benefits and changes in net assets available for plan
benefits of each fund. The supplemental schedules and Fund Information have been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a whole.



                                                                             
                                         Coopers & Lybrand L.L.P.



Cleveland, Ohio
March 25, 1997


                                        2

<PAGE>   4



                            ROYAL APPLIANCE MFG. CO.

               EMPLOYEES PROFIT SHARING RETIREMENT PLAN AND TRUST

               STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS

                              AT DECEMBER 31, 1995

                                   ----------
<TABLE>
<CAPTION>


                            National   Institutional    Strong                   Vanguard    Kaufmann              
                              City       Investors'   Government   Fidelity        500       Aggressive             
                              Cash          GIC       Securities   Puritan      Portfolio     Growth               
               Assets       Account        Fund         Fund        Fund          Fund         Fund                
                            -------        ----         ----        ----          ----         ----                

<S>                        <C>           <C>          <C>          <C>          <C>          <C>       
Investments                $  103,627    $1,868,941   $  526,296   $  968,232   $  627,088   $1,445,854
Contributions receivable         --          92,394       19,154       30,538       31,865       73,579
Loans to participants         (58,877)         --           --           --           --           -- 
                           ----------    ----------   ----------   ----------   ----------   ----------
Total assets               $   44,750    $1,961,335   $  545,450   $  998,770   $  658,953   $1,519,433
                           ==========    ==========   ==========   ==========   ==========   ==========
NET ASSETS AVAILABLE
     FOR PLAN BENEFITS
Net Assets Available       $   44,750    $1,961,335   $  545,450   $  998,770   $  658,953   $1,519,433
     For Plan Benefits     ==========    ==========   ==========   ==========   ==========   ==========
                      

<CAPTION>



                                         Dodge &      Davis                                                                     
                            Scudder       Cox        New York      Templeton    Royal                                      
                            Global      Balanced      Venture       Foreign     Stock         Loan                            
              Assets         Fund         Fund         Fund          Fund       Fund         Account       Total       
                             ----         ----         ----          ----       ----         -------       -----       

<S>                        <C>          <C>          <C>                       <C>           <C>        <C>       
Investments                $  538,856   $  123,278   $  915,688         --     $ 388,266   $   35,787   $7,541,913
                                                                                                                            
Contributions receivable         --         14,532       47,596       22,828      25,186         --        357,672

Loans to participants            --           --           --           --          --         58,877         --
                           ----------   ----------   ----------   ----------   ---------   ----------   ----------
Total assets               $  538,856      137,810   $  963,284   $   22,828   $ 413,452   $   94,664   $7,899,585
                           ==========   ==========   ==========   ==========   =========   ==========   ==========
NET ASSETS AVAILABLE
     FOR PLAN BENEFITS
Net Assets Available       $  538,856   $  137,810   $  963,284   $   22,828   $ 413,452   $   94,664   $7,899,585
     For Plan Benefits     ==========   ==========   ==========   ==========   =========   ==========   ==========
                      
</TABLE>


                                                                             
   The accompanying notes are an integral part of these financial statements.


                                        3

<PAGE>   5




                            ROYAL APPLIANCE MFG. CO.

               EMPLOYEES PROFIT SHARING RETIREMENT PLAN AND TRUST

               STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS

                              AT DECEMBER 31, 1996

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


<TABLE>
<CAPTION>


                             National   Institutional     Strong                Vanguard      Kaufmann           
                               City       Investors'    Government   Fidelity      500       Aggressive   Scudder
                               Cash         GIC         Securities   Puritan    Portfolio      Growth     Global 
                Assets       Account        Fund          Fund        Fund        Fund          Fund       Fund  
                ------       -------        ----          ----        ----        ----          ----       ----  

<S>                          <C>         <C>           <C>         <C>           <C>           <C>        <C>    
Investments                  $186,992    $1,713,117    $499,147    $1,006,468    $1,063,144    $ --       $ --   
Contributions receivable         --          77,893      16,205        27,089        43,602      --         --   
                             --------    ----------    --------    ----------    ----------    ----       -----

Total assets                 $186,992    $1,791,010    $515,352    $1,033,557    $1,106,746    $ --       $ --   
                             ========    ==========    ========    ==========    ==========    ====       ====   
NET ASSETS AVAILABLE                                                                                      
     FOR PLAN BENEFITS                                                                                    
Net Assets Available         $186,992    $1,791,010    $515,352    $1,033,557    $1,106,746    $ --       $ --   
     For Plan Benefits       ========    ==========    ========    ==========    ==========    ====       ====   


<CAPTION>

                               Dodge &     Davis                                                          
                                Cox      New York      Templeton     Parkstone     Royal                                
                              Balanced    Venture       Foreign        Small       Stock        Loan                    
                Assets          Fund       Fund           Fund    Capitalization    Fund       Account       Total      
                ------          ----       ----           ----    --------------    ----       -------       -----      
                                                                                                                        
<S>                         <C>         <C>           <C>         <C>           <C>           <C>         <C>           
Investments                 $315,105    $1,305,178    $623,844    $1,973,851    $1,134,642    $551,019    $10,372,507   
                                                                                                                        
Contributions receivable      18,299        52,524      23,197        84,560        26,969        --          370,338   
                             --------    ----------    --------    ----------    ----------    ----       -----
                                                                                                                        
                                                                                                                        
Total assets                $333,404    $1,357,702    $647,041    $2,058,411    $1,161,611    $551,019    $10,742,845   
                            ========    ==========    ========    ==========    ==========    ========    ===========   
NET ASSETS AVAILABLE                                                                                                    
     FOR PLAN BENEFITS                                                                                                  
Net Assets Available        $333,404    $1,357,702    $647,041    $2,058,411    $1,161,611    $551,019    $10,742,845   
     For Plan Benefits      ========    ==========    ========    ==========    ==========    ========    ===========   
</TABLE>
                            
                                                                             
The accompanying notes are an integral part of these financial statements.

                                        4

<PAGE>   6



                            ROYAL APPLIANCE MFG. CO.

               EMPLOYEES PROFIT SHARING RETIREMENT PLAN AND TRUST

         STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS

                      FOR THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>

                                                         National    Institutional    Strong                 Vanguard               
                                                           City        Investors'   Government   Fidelity       500        Gabelli  
                                                           Cash           GIC       Securities    Puritan    Portfolio     Growth   
                                                          Account         Fund         Fund        Fund        Fund         Fund    
                                                          -------         ----         ----        ----        ----         ----    
<S>                                                   <C>            <C>            <C>        <C>         <C>         <C>          
Additions:
  Contributions and Contributions Receivable:
      Company contributions                           $      --      $   163,144    $ 40,565   $  78,586   $  65,306   $    --      
      Employee pre-tax contributions                      (59,345)       173,553      51,006     145,865     108,956       5,770    
      Participant's voluntary after-tax contributions        (557)         1,999         373         249         460          43    
  Investment Income:                                                                                                                
      Interest                                              2,743            699         238         346         379         395    
      Dividend                                               --             --        30,741      50,138      13,293        --      
  Net appreciation/(depreciation) in fair                                                                                           
    market value                                             --          117,061      56,875     114,910     129,627      22,452    
  Loans to participants, net                               44,842        (14,872)     (3,939)     (9,972)     (3,097)       (220)   
  Transfers between funds, net                            (14,911)        26,612     (83,385)    (39,288)     49,858    (480,408)   
                                                      -----------    -----------   ---------   ---------   ---------   ---------    
      Total additions                                     (27,228)       468,196      92,474     340,834     364,782    (451,968)   
Deductions:                                                                                                                         
  Benefits paid to participants                            36,016        333,894      27,439      58,848      40,483       4,667    
  Miscellaneous fees                                         --               62          21          31          35           2    
                                                      -----------    -----------   ---------   ---------   ---------   ---------    
      Net additions                                       (63,244)       134,240      65,014     281,955     324,264    (456,637)   
  Net Assets Available for Plan Benefits,                                                                                           
      Beginning of Year                                   107,994      1,827,095     480,436     716,815     334,689     456,637    
                                                      -----------    -----------   ---------   ---------   ---------   ---------    
  Net Assets Available for Plan Benefits,                                                                                           
      End of Year                                     $    44,750    $ 1,961,335   $ 545,450   $ 998,770   $ 658,953   $  --        
                                                      ===========    ===========   =========   =========   =========   =========


<CAPTION>

                                                        Kaufmann               Dodge &      Davis              
                                                       Aggressive    Scudder     Cox      New York    Templeton
                                                         Growth       Global   Balanced    Venture     Foreign 
                                                          Fund         Fund      Fund       Fund        Fund   
                                                          ----         ----      ----       ----        ----   
<S>                                                   <C>         <C>        <C>         <C>         <C>       
Additions:                                                                                                     
  Contributions and Contributions Receivable:                                                                  
      Company contributions                           $  165,746  $  39,075  $  29,073   $  99,434   $ 17,554  
      Employee pre-tax contributions                     245,532     82,067     42,235     131,646      5,274  
      Participant's voluntary after-tax contributions        710        175       --         1,070       --    
  Investment Income:                                                                                           
      Interest                                               639        255        253         777       --    
      Dividend                                            26,621     11,548      5,026      62,466       --    
  Net appreciation/(depreciation) in fair                                                                      
    market value                                         342,306     69,458      7,255     162,229       --    
  Loans to participants, net                              (5,690)    (2,769)    (1,173)     (2,305)      --    
  Transfers between funds, net                            (4,271)   (23,213)    51,511     517,730       --    
                                                      ---------   ---------  ---------   ---------   --------  
      Total additions                                    771,593    176,596    134,180     973,047     22,828  
Deductions:                                                                                                    
  Benefits paid to participants                          115,426     34,435      3,199      37,323       --    
  Miscellaneous fees                                         106         23         21          65       --    
                                                      ---------   ---------  ---------   ---------   --------  
      Net additions                                      656,061    142,138    130,960     935,659     22,828  
  Net Assets Available for Plan Benefits,                                                                      
      Beginning of Year                                  863,372    396,718      6,850      27,625       --    
                                                      ---------   ---------  ---------   ---------   --------  
  Net Assets Available for Plan Benefits,                                                                      
      End of Year                                     $1,519,433  $ 538,856  $ 137,810   $ 963,284   $ 22,828  
                                                      =========   =========  =========   =========   ========  
                                                      
<CAPTION>

                                                                                        
                                                          Royal                         
                                                          Stock     Loan                
                                                          Fund     Account      Total   
                                                          ----     -------      -----   
<S>                                                   <C>         <C>       <C>         
Additions:                                                                              
  Contributions and Contributions Receivable:                                           
      Company contributions                           $  57,425   $   --    $  755,908  
      Employee pre-tax contributions                     94,766       --     1,027,325  
      Participant's voluntary after-tax contributions     1,577       --         6,099  
  Investment Income:                                                                    
      Interest                                              381      5,642      12,747  
      Dividend                                             --         --       199,833  
  Net appreciation/(depreciation) in fair                                               
    market value                                       (152,101)      --       870,072  
  Loans to participants, net                               (805)    38,122      38,122  
  Transfers between funds, net                             (235)      --          --    
                                                      ---------   --------  ----------  
      Total additions                                     1,008     43,764   2,910,106  
Deductions:                                                                             
  Benefits paid to participants                          26,818       --       718,548  
  Miscellaneous fees                                         35       --           401  
                                                      ---------   --------  ----------  
      Net additions                                     (25,845)    43,764   2,191,157  
  Net Assets Available for Plan Benefits,                                               
      Beginning of Year                                 439,297     50,900   5,708,428  
                                                      ---------   --------  ----------  
  Net Assets Available for Plan Benefits,                                               
      End of Year                                     $ 413,452   $ 94,664  $7,899,585  
                                                      =========   ========  ==========                      
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                        5

<PAGE>   7



                            ROYAL APPLIANCE MFG. CO.

               EMPLOYEES PROFIT SHARING RETIREMENT PLAN AND TRUST

         STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS

                      FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>


                                                         National    Institutional     Strong                        
                                                           City        Investors'    Government     Fidelity         
                                                           Cash           GIC        Securities      Puritan         
                                                          Account         Fund          Fund          Fund           
                                                          -------         ----          ----          ----           
<S>                                                     <C>          <C>            <C>          <C>        
Additions:
  Contributions and Contributions Receivable:
      Company contributions                             $ (18,958)   $   129,362    $  35,808    $    58,895
      Employee pre-tax contributions                       64,760        105,129       40,137         82,286
      Participant's voluntary after-tax contributions       4,818            105           24             24

  Investment Income:
      Interest                                              1,976          1,570       31,338        112,773

      Dividend                                                 --             --           --             -- 

  Net appreciation/(depreciation) in fair
    market value                                               --        105,407      (18,251)        23,837

  Loans to participants, net                               12,253       (125,898)     (33,846)       (33,337)

  Transfers between funds, net                            106,618       (193,758)     (44,140)      (104,150)
                                                        ---------    -----------    ---------    -----------

      Total additions                                     171,467         21,917       11,070        140,328
Deductions:
  Benefits paid to participants                            29,225        192,082       41,164        105,535

  Miscellaneous fees                                           --            160            4              6
                                                        ---------    -----------    ---------    -----------

      Net additions                                       142,242       (170,325)     (30,098)        34,787

  Net Assets Available for Plan Benefits,
      Beginning of Year                                    44,750      1,961,335      545,450        998,770
                                                        ---------    -----------    ---------    -----------

  Net Assets Available for Plan Benefits,
      End of Year                                       $ 186,992    $ 1,791,010    $ 515,352    $ 1,033,557
                                                        =========    ===========    =========    ===========


<CAPTION>

                                                             Vanguard      Kaufmann                 Dodge &        Davis          
                                                                500       Aggressive     Scudder      Cox         New York        
                                                             Portfolio      Growth       Global     Balanced      Venture         
                                                               Fund          Fund         Fund        Fund          Fund          
                                                               ----          ----         ----        ----          ----          

<S>                                                     <C>            <C>            <C>          <C>          <C>        
Additions:
  Contributions and Contributions Receivable:
      Company contributions                             $    93,833    $   137,938    $      --    $  41,883    $    65,767
      Employee pre-tax contributions                        130,927        204,978           --       54,304        172,996
      Participant's voluntary after-tax contributions            --             68           --           --          2,296

  Investment Income:
      Interest                                               22,096            108       10,035       12,700         61,988

      Dividend                                                   --             --           --           --             -- 

  Net appreciation/(depreciation) in fair
    market value                                            155,419        338,117        7,293       21,421        202,250

  Loans to participants, net                                (31,349)       (53,638)          --      (11,054)       (51,356)

  Transfers between funds, net                              120,638     (2,039,285)    (556,175)      82,512         64,445
                                                        -----------    ----------     ---------    ---------    -----------

      Total additions                                       491,564     (1,411,714)    (538,847)     201,766        518,386
Deductions:
  Benefits paid to participants                              43,760        107,707           --        6,166        123,956

  Miscellaneous fees                                             11             12            9            6             12
                                                        -----------    ----------     ---------    ---------    -----------
                                                    
      Net additions                                         447,793     (1,519,433)    (538,856)     195,594        394,418

  Net Assets Available for Plan Benefits,
      Beginning of Year                                     658,953      1,519,433      538,856      137,810        963,284

                                                        -----------    ----------     ---------    ---------    -----------
  Net Assets Available for Plan Benefits,
      End of Year                                       $ 1,106,746    $      --      $      --    $ 333,404    $ 1,357,702
                                                        ===========    ==========     =========    =========    ===========


<CAPTION>

                                                                                                                                 
                                                        Templeton       Parkstone     Royal                                     
                                                         Foreign          Small       Stock            Loan                      
                                                          Fund       Capitalization   Fund           Account      Total        
                                                          ----       --------------   ----           -------      -----        
<S>                                                     <C>          <C>            <C>            <C>        <C>        
Additions:                                             
  Contributions and Contributions Receivable:
      Company contributions                             $  48,062    $   115,108    $    54,659    $     --   $   762,357
      Employee pre-tax contributions                       75,064         51,551        118,654          --     1,100,786
      Participant's voluntary after-tax contributions          22             --          2,279          --         9,636

  Investment Income:
      Interest                                             26,562        307,471            121       6,400       595,138

      Dividend                                                 --             --             --          --            --

  Net appreciation/(depreciation) in fair
    market value                                           54,222       (361,448)       715,383          --     1,243,650

  Loans to participants, net                              (31,046)       (33,537)       (57,147)    449,955            --

  Transfers between funds, net                            526,013      2,015,421         21,861          --            --

                                                        ---------    -----------    -----------    --------   -----------
      Total additions                                     698,899      2,094,566        855,810     456,355     3,711,567

Deductions:
  Benefits paid to participants                            74,666         36,123        107,639          --       868,023

  Miscellaneous fees                                           20             32             12          --           284

                                                        ---------    -----------    -----------    --------   -----------
      Net additions                                       624,213      2,058,411        748,159     456,355     2,843,260

  Net Assets Available for Plan Benefits,
      Beginning of Year                                    22,828             --        413,452      94,664     7,899,585

                                                        ---------    -----------    -----------    --------   -----------
  Net Assets Available for Plan Benefits,
      End of Year                                       $ 647,041    $ 2,058,411    $ 1,161,611    $551,019   $10,742,845
                                                        =========    ===========    ===========    ========   ===========
</TABLE>




                                                                             
The accompanying notes are an integral part of these financial statements.

                                        6

<PAGE>   8



                            ROYAL APPLIANCE MFG. CO.

               EMPLOYEES PROFIT SHARING RETIREMENT PLAN AND TRUST

                          NOTES TO FINANCIAL STATEMENTS

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


1.         Plan Description and Benefits:
           -----------------------------

           The following brief description of the Royal Appliance Mfg. Co.
           Employees Profit Sharing Retirement Plan and Trust (the "Plan") is
           provided for general information purposes only. Participants should
           refer to the Summary Plan Description for more complete information.

           GENERAL - The Plan is a defined contribution plan covering
           substantially all employees of Royal Appliance Mfg. Co. (the
           "Company"). Employees who attain age 20-1/2 and complete at least six
           months of service are eligible to become participants in the Plan.

           On December 27, 1991, the Company filed Form S-8 with the Securities
           and Exchange Commission (SEC) allowing participants in the Plan to
           invest in Common Shares of the Company. This investment option was
           available as of February 1, 1992. As a result, the Plan is now
           required to comply with the reporting provisions of the SEC Form
           11-K.

           CONTRIBUTIONS - Contributions consist of employer matching, employer
           profit sharing, salary reduction, voluntary after-tax contributions,
           and rollover contributions.

           In 1995 and 1996, employer matching contributions were 100% of the
           salary reduction contributions that do not exceed 2% of qualified
           employee compensation and 50% of the salary reduction contributions
           greater than 2% but not in excess of 4% of qualified employee
           compensation. The employer profit sharing contribution is
           discretionary based on amounts as authorized by the Board of
           Directors. All employer contributions have been made in the form of
           cash. Salary reduction contributions may range from 1% to 15% of
           qualified compensation subject to annual I.R.S. limits. Participants
           may also make voluntary after-tax contributions of up to 10% of their
           annual compensation in addition to the contribution through salary
           reduction. Rollover contributions are also permitted.

           INVESTMENT OF FUNDS - All of the investment transactions are executed
           by National City Trust ("National City"), an affiliate of National
           City Corporation.

           Each participant may elect among the following investment vehicles:

           A.        INSTITUTIONAL INVESTORS' GIC FUND - Seeks to provide income
                     and stability of principal by investing in guaranteed
                     investment contracts (GIC's) or similar instruments issued
                     by insurance companies and/or banks.

           B.        STRONG GOVERNMENT SECURITIES FUND - Seeks to provide a high
                     level of current income by investing in securities issued
                     or guaranteed by the U.S. government.

           C.        FIDELITY PURITAN FUND - Seeks to maximize income, with
                     growth of capital being a secondary objective. Invests in
                     high-yielding securities, including common stocks,
                     preferred stocks and bonds.

           D.        VANGUARD 500 PORTFOLIO FUND - Seeks to return investment
                     results that correspond to the price and yield performance
                     of the S&P 500 index.

           E         KAUFMANN AGGRESSIVE GROWTH FUND - Seeks growth of capital
                     by investing in stocks of small to medium size companies
                     typically outside of the S&P 500 "universe". This
                     investment option was discontinued in 1996.

                                       -7-

<PAGE>   9



           F.        SCUDDER GLOBAL FUND - Seeks long term growth of capital by
                     investing in companies incorporated in the U.S. and foreign
                     countries. This investment option was discontinued in 1996.



                            ROYAL APPLIANCE MFG. CO.

               EMPLOYEES PROFIT SHARING RETIREMENT PLAN AND TRUST

                          NOTES TO FINANCIAL STATEMENTS

                                   ----------

1.         Plan Description and Benefits (cont.):
           -------------------------------------

           G.        DODGE & COX BALANCED FUND - seeks income, conservation of
                     principal, and long-term growth of principal and income.

           H.        DAVIS NEW YORK VENTURE FUND - seeks long term capital
                     growth by investing in securities that have above average
                     appreciation potential.

           I.        TEMPLETON FOREIGN FUND - seeks long term growth of capital
                     by investing in companies generally located in foreign
                     countries.

           J.        PARKSTONE SMALL CAPITALIZATION FUND - seeks growth of
                     capital by investing in stocks of small to medium size
                     companies primarily in the United States.

           K.        ROYAL STOCK FUND - This fund is comprised exclusively of
                     Common Shares, without par value of the Company (Common
                     Shares). Each participant electing to purchase Common
                     Shares through the Stock Fund is permitted to vote such
                     Common Shares in the same manner as any other shareholder
                     and is furnished proxy materials to such effect. If a
                     participant does not vote their proxy, the Trustee votes
                     the proxy for the participant's Common Shares. Investments
                     in the Stock Fund may be made as of January 1, April 1,
                     July 1, or October 1 investment dates, but may not, for
                     administrative reasons, be effected until up to 12 days (or
                     such later date as is legally or administratively required)
                     after the relevant quarterly investment date. Common Shares
                     purchased under the Account are generally purchased on the
                     open market for cash. The price of Common Shares purchased
                     on the open market is priced for each participant's account
                     at an average purchase price of all shares purchased, plus
                     brokerage fees, taxes, commissions and expenses incident to
                     the purchase, unless it is determined that the Company will
                     bear these costs. No more than 50% of a participant's
                     contributions may be invested in the Stock Fund.

           Participants can allocate their contribution between the Funds in
           various percentages, which can be changed on a quarterly basis
           throughout the year.

           The number of participants in each investment program as of December
           31, 1996 was as follows:
                                                                     No. of
                                                                  Participants
                                                                  ------------
                     Institutional Investors' GIC Fund               367
                     Strong Government Securities Fund               201
                     Fidelity Puritan Fund                           253
                     Vanguard 500 Portfolio Fund                     283
                     Dodge & Cox Balanced Fund                       163
                     Davis New York Venture Fund                     344
                     Templeton Foreign Fund                          212
                     Parkstone Small Capitalization Fund             423
                     Royal Stock Fund                                266

           VESTING - All contributions are 100% vested and non-forfeitable.

                                       -8-

<PAGE>   10



                            ROYAL APPLIANCE MFG. CO.

               EMPLOYEES PROFIT SHARING RETIREMENT PLAN AND TRUST

                          NOTES TO FINANCIAL STATEMENTS

                                   ----------

1.         Plan Description and Benefits (cont.):
           -------------------------------------

           DISTRIBUTION AND WITHDRAWALS - Loans and hardship withdrawals are
           permitted pursuant to the terms of the Plan. In addition,
           participants may make hardship withdrawals from the voluntary
           after-tax contribution account by filing a written request at least
           thirty (30) days in advance.

           Participants and their beneficiaries are entitled to receive a
           distribution of their account balances upon death, disability,
           termination of employment prior to retirement, or retirement.
           Distribution may be made in a lump sum or periodic payments, as may
           be elected by the participants or their beneficiaries, subject to the
           terms of the Plan.

           APPRECIATION (DEPRECIATION) IN FAIR MARKET VALUE OF ASSETS - The Plan
           presents, in the Statements of Changes in Net Assets Available for
           Plan Benefits, the net appreciation (depreciation) in the fair market
           value of its investments, which consist of realized gains or losses
           and unrealized appreciation (depreciation).

           EXPENSES - Administrative fees, brokerage fees and other Plan
           expenses are the responsibility of the Plan. The Company, at its
           discretion has elected to pay these costs directly.

2.         Summary of Significant Accounting Policies:
           ------------------------------------------

           BASIS OF PRESENTATION - The accompanying financial statements have
           been prepared on an accrual basis in accordance with generally
           accepted accounting principles.

           INVESTMENTS - Certain assets of the Plan are maintained in Guaranteed
           Investment Contracts (the Institutional Investors' GIC Fund) and
           Investment Funds (Strong Government Securities Fund, Fidelity Puritan
           Fund, Vanguard 500 Portfolio Fund, Kaufmann Aggressive Growth Fund,
           Scudder Global Fund, Dodge & Cox Balanced Fund, Davis New York
           Venture Fund, Templeton Foreign Fund, and Parkstone Small
           Capitalization Fund) and common shares of the Company. Contributions
           by the Company and employees are first made to National City via the
           cash account facility. Contributions and income from investments of
           each fund are reinvested in the same fund.

           Investments in Guaranteed Investment Contracts are recorded at the
           guaranteed value (contribution and interest) of the Plan assets.

           Other investments are valued at fair market value by National City
           using readily available published market values.

           USE OF ESTIMATES - The preparation of financial statements in
           conformity with generally accepted accounting principles requires
           management to make estimates and assumptions that affect the reported
           amounts of net assets available for plan benefits and changes,
           therein. Actual results could differ from those estimates.

3.         Income Tax Status:
           -----------------

           The Internal Revenue Service (IRS) has issued a favorable
           determination letter dated June 20, 1995, with respect to the Plan's
           qualified status, as amended, under Section 401(a) of the Internal
           Revenue Code (Code). As such, the trust established thereunder is
           exempt from Federal income taxes under Section 501(a) of the Code.
           All withdrawals are taxable to the participants of the Plan.

4.         Right to Terminate:
           ------------------

           Although it has not expressed any interest to do so, the Company has
           the right to terminate the Plan at any time.

                                       -9-

<PAGE>   11



                            ROYAL APPLIANCE MFG. CO.

               EMPLOYEES PROFIT SHARING RETIREMENT PLAN AND TRUST

          ITEM 27 (A) - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES

                 FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996

<TABLE>
<CAPTION>


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

(a)                 (b)                                              (c)                            (d)                    (e)
       Identity of issue, borrower,        Description of investment including maturity date,      Cost                  Current
       lessor, or similar party            rate of interest, collateral, par or maturity value                            Value
-------------------------------------------------------------------------- ------------------------------------------------------
<S>                                        <C>                                                 <C>                      <C>
1995
====
     Royal Appliance Stock                 Common Stock                                          $969,611                $388,007
     Armada Money Market Fund              Mutual Fund                                             29,770                  29,770
     Dodge & Cox Balanced Fund             Mutual Fund                                            114,065                 121,320
     Fidelity Puritan Fund                 Mutual Fund                                            907,585                 967,696
     Kaufmann Fund                         Mutual Fund                                          1,068,027               1,443,216
     Davis New York Venture Fund           Mutual Fund                                            751,463                 859,620
     Scudder Global Fund                   Mutual Fund                                            490,712                 537,616
     Vanguard Index 500 Fund               Mutual Fund                                            493,344                 617,198
     Strong Government Securities          Mutual Fund                                            499,044                 526,597
     Institutional Investors GIC Fund      GIC Fund                                             1,674,244               1,850,373
     Participant Loans                     Various maturity dates; interest prime plus 1%          94,664                  94,664

1996
====
     Royal Appliance Stock                 Common Stock                                          $988,120              $1,134,485
     Armada Money Market Fund              Mutual Fund                                            106,650                 105,650
     Dodge & Cox Balanced Fund             Mutual Fund                                            287,586                 315,068
     Fidelity Puritan Fund                 Mutual Fund                                            943,228               1,006,439
     Davis New York Venture Fund           Mutual Fund                                          1,025,517               1,305,118
     Vanguard Index 500 Fund               Mutual Fund                                            787,685               1,050,525
     Strong Government Securities          Mutual Fund                                            487,730                 496,561
     Institutional Investors GIC Fund      GIC Fund                                             1,455,182               1,705,780
     Parkstone Small Cap                   Mutual Fund                                          2,332,149               1,973,315
     Templeton Foreign Fund                Mutual Fund                                            565,152                 615,736
     Participant Loans                     Various maturity dates; interest prime plus 1%         551,020                 551,020
</TABLE>





                                      -10-

<PAGE>   12



                            ROYAL APPLIANCE MFG. CO.

               EMPLOYEES PROFIT SHARING RETIREMENT PLAN AND TRUST

        ITEM 27 (D) - SCHEDULE OF TRANSACTIONS OR SERIES OF TRANSACTIONS

               IN EXCESS OF 5% OF THE CURRENT VALUE OF PLAN ASSETS

                 FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996

<TABLE>
<CAPTION>


                                                                                                                          Realized
                                                         Number     Purchase   Selling      Cost of         Current      Gain (Loss)
Identity of Party Involved       Description Of Asset   Of Shares    Price      Price        Asset      Value Of Asset     On Sale
--------------------------       --------------------   ---------    -----      -----        -----      --------------     -------
<S>         <C>               <C>                        <C>        <C>        <C>          <C>           <C>            <C> 
1995
            National City     Royal Appliance Mfg. Co.
                              Common Stock

                                             Purchases   37,861     $128,427   $  --        $  128,427    $94,202        $ --
1996                                                                                                      
            National City     Royal Appliance Mfg. Co.                                                    
                              Common Stock                                                                
                                                                                                          
                                             Purchases   41,734     $208,123   $   --       $  208,123    $286,921       $ --
                                                                                                          
                                             Sales       31,461     $ --       $  175,447   $  188,034    $     --       $ (12,587)
                                                                                                                   
                                                                                                                     
</TABLE>


                                      -11-