<PAGE>
CONSOLIDATED STATEMENTS OF
CHANGES IN FINANCIAL POSITION
- ------------------------------------------------------------------------------
FANTOM TECHNOLOGIES INC.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
March 31 (Unaudited) March 31 (Unaudited)
1998 1997 1998 1997
<S> <C> <C> <C> <C>
CASH PROVIDED BY (USED FOR):
OPERATIONS:
Net income $ 7,197,316 $ 4,555,887 $ 2,873,508 $ 1,987,234
Items not requiring cash:
Depreciation 1,013,703 679,240 396,478 317,538
Amortization of
deferred charges 159,723 - 159,723 -
Deferred tax provision 1,047,000 783,500 303,000 341,500
Change in non-cash
operating working
capital (2,888,025) (8,117,591) (987,100) (3,575,317)
-------------------------- -------------------------
6,529,717 (2,098,964) 2,745,609 (929,045)
FINANCING:
Proceeds from
capital leases - 160,334 - 43,154
Payments on
capital leases (194,287) (194,713) (65,934) (70,091)
Issuance of common
shares and warrants 224,998 351,820 186,000 10,409
-------------------------- -------------------------
30,711 317,441 120,066 (16,528)
INVESTMENTS:
Additions to property,
plant and equipment (5,549,403) (3,491,264) (836,472) (1,906,406)
Additions to deferred
charges relating to
new products (1,596,723) - (1,596,723) -
-------------------------- -------------------------
Increase (Decrease)
in cash position (585,698) (5,272,787) 432,480 (2,851,979)
Cash position at
beginning of period 4,698,156 (1,640,090) 3,679,978 (4,060,898)
-------------------------- -------------------------
Cash position at
end of period $ 4,112,458 $(6,912,877) $ 4,112,458 $(6,912,877)
-------------------------- -------------------------
</TABLE>
Cash is comprised of loan payable less cash in bank.
[GRAPHIC]
<PAGE>
TO OUR SHAREHOLDERS
- ------------------------------------------------------------------------------
FANTOM TECHNOLOGIES INC.
We are pleased to report record sales and earnings for the third quarter of
fiscal 1998.
For the three months ended March 31, 1998 net income rose 45% over the
year-earlier period to $2.9 million. Earnings per share increased to 32
cents (based on 8,927,275 shares outstanding) from 24 cents (based on
8,381,441 shares outstanding) for the same period in the previous year.
Revenue increased 33% to $52.1 million.
For the nine months ended March 31, 1998 net income rose 58% from the
year-earlier period to $7.2 million. Earnings per share expanded to 83
cents (based on 8,722,830 shares outstanding) compared with 55 cents
(based on 8,353,725 shares outstanding) for the same period in the
previous year. Revenue grew 22% to $125.1 million.
The highlight of the third quarter was the successful launch of the
FANTOM-Registered Trademark- LIGHTNING-Registered Trademark- vacuum. This
product represents the Company's first entry into the canister segment of the
market, and both retailer and end-user receptivity has been very encouraging.
As with the FANTOM-Registered Trademark- THUNDER-Registered Trademark- and
FANTOM-Registered Trademark- FURY-Registered Trademark- uprights, the
LIGHTNING-Registered Trademark- canister features the Company's proprietary
dual-cyclonic vacuuming technology, which eliminates the use of filter bags
and provides constant peak cleaning power, versus the declining cleaning
power often experienced with conventional vacuums using filter bags. It also
features a unique STAIRHUGGER-TM- design that allows the product to sit on
stairs while the user vacuums, as well as a certified HEPA filter which
cleans air exiting the machine to a very high level. Importantly, as a result
of the introduction of the LIGHTNING-Registered Trademark- vacuum, the
Company now has a broader product line with which to compete, spanning the
upright and canister segments of the market.
We are also pleased to advise that significant improvements have been made in
working-capital management, assisted by the Company's SAP
enterprise-information-technology system, which was installed in July
1996. The improved working-capital efficiency contributed to the fact that
the Company had cash on hand of $4.1 million as at March 31, 1998, and no
bank debt.
Earlier this month, the Company completed leasing arrangements for approximately
35,000 sq. ft. of factory space in West Columbia, South Carolina. These
premises, when combined with the Welland, Ontario facility, provide a total
of about 114,000 sq. ft. of factory space to support the growth of the
Company's existing products as well as its aggressive plans for new products.
In addition, it gives the Company a physical presence in the United States,
where the bulk of its sales occur. The West Columbia plant is expected to
become operational in June, and will be used initially to manufacture part of
the Company's requirements for FANTOM-Registered Trademark- FURY-Registered
Trademark- machines. It will also be used to refurbish vacuums, a function
currently being performed by a third party in the Buffalo, New York area.
The Company is continuing to focus on developing new products and new
technologies in both the floor-care and broader consumer products fields. The
next new entry -- a FANTOM-Registered Trademark- vacuum line extension -- is
presently scheduled for introduction at the beginning of 1999.
On behalf of the Board,
/s/ Kenneth Kelman /s/ Allan D. Millman
KENNETH KELMAN ALLAN D. MILLMAN,
CHAIRMAN OF THE BOARD PRESIDENT AND CHIEF EXECUTIVE OFFICER
APRIL 30, 1998
CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS
- ------------------------------------------------------------------------------
FANTOM TECHNOLOGIES INC.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
March 31 (Unaudited) March 31 (Unaudited)
1998 1997 1998 1997
<S> <C> <C> <C> <C>
SALES $125,082,625 $102,657,553 $52,124,311 $39,275,702
COSTS OF GOODS SOLD 80,162,124 65,230,937 33,889,815 25,256,728
--------------------------- -------------------------
44,920,501 37,426,616 18,234,496 14,018,974
EXPENSES:
Selling, general and
administrative 33,569,647 29,874,620 13,639,484 10,828,345
Finance charges 25,538 433,109 26,504 86,395
--------------------------- -------------------------
33,595,185 30,307,729 13,665,988 10,914,740
--------------------------- -------------------------
INCOME BEFORE
INCOME TAXES 11,325,316 7,118,887 4,568,508 3,104,234
INCOME TAXES:
Current 3,081,000 1,779,500 1,392,000 775,500
Deferred 1,047,000 783,500 303,000 341,500
--------------------------- -------------------------
4,128,000 2,563,000 1,695,000 1,117,000
--------------------------- -------------------------
NET INCOME 7,197,316 4,555,887 2,873,508 1,987,234
RETAINED EARNINGS
at beginning of period 7,698,105 337,407 12,021,913 2,906,060
--------------------------- -------------------------
RETAINED EARNINGS
at end of period $ 14,895,421 $ 4,893,294 $14,895,421 $ 4,893,294
--------------------------- -------------------------
NET INCOME PER SHARE* $ 0.83 $ 0.55 $ 0.32 $ 0.24
--------------------------- -------------------------
</TABLE>
*Net income per share has been calculated using the weighted average number
of common and series 1, class A preferred shares outstanding during the
respective periods. For the nine months ended March 31, these were 8,722,830
shares for 1998 and 8,353,725 shares for 1997. For the three months ended
March 31, these were 8,927,275 shares for 1998 and 8,381,441 shares for 1997.
Financial information in this report is expressed in Canadian dollars, unless
otherwise noted.
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------
FANTOM TECHNOLOGIES INC.
<TABLE>
<CAPTION>
March 31
(Unaudited)
1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash in bank $ 4,112,458 $ -
Trade accounts receivable 31,803,125 27,929,536
Other receivables 1,707,249 1,628,059
Inventories 11,875,980 14,058,444
Prepaid expenses 2,201,227 1,441,690
--------------------------
51,700,039 45,057,729
PROPERTY, PLANT AND EQUIPMENT,
at cost 21,828,981 13,982,491
Less accumulated depreciation (4,618,096) (3,362,541)
--------------------------
17,210,885 10,619,950
DEFERRED CHARGES,
at cost less amortization 1,437,000 -
--------------------------
$70,347,924 $55,677,679
--------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Loan payable $ - $ 6,912,877
Trade accounts payable 17,509,874 15,884,959
Other payables and accruals 6,983,133 4,814,048
Income taxes payable 1,235,403 1,728,644
Current portion of capital
lease obligations 265,891 257,949
--------------------------
25,994,301 29,598,477
CAPITAL LEASE OBLIGATIONS,
Less current portion 37,414 305,418
DEFERRED INCOME TAXES 2,473,200 906,700
SHAREHOLDERS' EQUITY:
Share capital 26,947,588 19,973,790
Retained earnings 14,895,421 4,893,294
--------------------------
41,843,009 24,867,084
--------------------------
$70,347,924 $55,677,679
--------------------------
</TABLE>
