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[PICTURE]
FIRST QUARTER REPORT
TO SHAREHOLDERS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
[LOGO]
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To our shareholders
FANTOM TECHNOLOGIES INC .
We are very pleased to report record results for the July -
September, 1998 period (Q1 fiscal 1999), the third successive quarter in which
we have set a record. Net Income for the quarter rose 88% to $3.3 million or
$0.36 per share (based on 8,972,809 shares outstanding), compared with $1.7
million or $0.21 per share (based on 8,393,441 shares outstanding) for the
year-earlier period.
Sales during the quarter increased 84% to $55.1 million. Shipments
of the FANTOM-Registered Trademark- LIGHTNING-Registered Trademark- canister,
launched in late November 1997, contributed significantly to the large year-
over-year gain. In addition, sales of upright vacuums were strong, due in part
to a number of changes made to the FANTOM-Registered Trademark- FURY-Registered
Trademark- and FANTOM-Registered Trademark- THUNDER-Registered Trademark-
models. We restyled both products cosmetically, introduced improved packaging
graphics, upgraded the FANTOM-Registered Trademark- FURY-Registered Trademark-
vacuum from 10 amps to 12 amps, and commenced airing new short-form advertising
for the FURY-Registered Trademark- product. Both uprights also enjoyed the
benefits of sharper retail pricing.
The Company's next dual-cyclonic entry, the FANTOM-Registered
Trademark- CYCLONE XT-TM- upright, is scheduled for introduction early in
calendar 1999. This premium machine operates with two motors, one to rotate
the brush, the other to create suction and airflow, thereby improving the
vacuum's cleaning performance through specialization of tasks. It has an
improved air path, a more ergonomically-positioned carrying handle, a
re-designed collection bin, and a new tool compartment at the top of the
vacuum. With the CYCLONE XT-TM- introduction, consumers will be able to choose
from a range of FANTOM-Registered Trademark- uprights, with different features
and at different price points.
In August, the Company entered into arrangements with Omachron
Technologies, Inc. covering the acquisition and development of a number of
technologies for various household appliances and other consumer and commercial
products. The principal scientists of Omachron have been working together for
almost two decades on a wide range of civilian and non-civilian projects, many
of which have direct application to consumer products. Pursuant to these
arrangements, we are combining our Company's expertise in product design,
manufacturing and marketing with Omachron's broad scientific knowledge for the
purpose of developing exciting new products with ground-breaking technologies.
We are targeting to launch at least two new product lines within a two-year
time-frame.
In September, the Company established a new $59 million secured loan
facility with a Canadian chartered bank. The new banking facility includes a $15
million operating credit as well as three term credits totaling $44 million for
general corporate purposes, capital expenditures, and research and development
activities.
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
OCTOBER 21, 1998
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CONSOLIDATED STATEMENTS OF
INCOME AND RETAINED EARNINGS
FANTOM TECHNOLOGIESINC.
<TABLE>
<CAPTION>
Three Months Ended
September 30 (Unaudited)
1998 1997
<S> <C> <C>
Sales $ 55,114,160 $ 30,019,582
Cost of goods sold 36,168,204 18,185,471
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18,945,956 11,834,111
Expenses:
Selling, general and administrative 13,930,832 9,136,719
Finance charges (99,932) (17,268)
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13,830,900 9,119,451
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Income before income taxes 5,115,056 2,714,660
Income taxes:
Current 1,279,119 678,000
Deferred 562,881 299,000
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1,842,000 977,000
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Net income 3,273,056 1,737,660
Retained earnings
at beginning of period 18,015,632 7,698,105
Dividends (270,093) -
Retained earnings
at end of period $ 21,018,595 $ 9,435,765
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Net income per share (Basic):* $ 0.36 $ 0.21
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</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. These were 8,972,809 shares for 1998 and 8,393,441 shares for 1997.
FINANCIAL INFORMATION IN THIS REPORT IS EXPRESSED IN CANADIAN DOLLARS, UNLESS
OTHERWISE NOTED.
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CONSOLIDATED BALANCE SHEETS
FANTOM TECHNOLOGIES INC .
<TABLE>
<CAPTION>
September 30
(Unaudited)
1998 1997
ASSETS
<S> <C> <C>
Current assets:
Cash $ 2,086,587 $ -
Trade accounts receivable 40,242,126 18,836,749
Other receivables 1,253,465 1,587,696
Inventories 17,769,684 18,996,713
Prepaid expenses 2,804,150 1,781,833
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64,156,012 41,202,991
Deferred development costs,
net of amortization 1,320,046 -
Property, plant and equipment,
at cost 28,298,147 18,686,947
Less accumulated depreciation (5,520,072) (3,909,778)
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22,778,075 14,777,169
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$ 88,254,133 $ 55,980,160
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loan payable $ - $ 1,738,918
Trade accounts payable 27,089,836 11,730,135
Other payables and accruals 9,065,459 4,193,556
Current portion of capital
lease obligations 163,353 264,102
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36,318,648 17,926,711
Capital lease obligations,
Less current portions 7,739 169,894
Deferred income taxes 3,072,114 1,725,200
Shareholders' equity:
Share capital 27,837,037 26,722,590
Retained earnings 21,018,595 9,435,765
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48,855,632 36,158,355
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$ 88,254,133 $ 55,980,160
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</TABLE>
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CONSOLIDATED STATE MENTS OF
CHANGES IN FNANCIAL POSITION
FANTOM TECHNOLOGIES INC .
<TABLE>
<CAPTION>
Three Months Ended
September 30 (Unaudited)
1998 1997
CASH PROVIDED BY (USED FOR):
<S> <C> <C>
Operations:
Net income $ 3,273,056 $ 1,737,660
Items not requiring cash:
Depreciation 525,171 305,385
Deferred tax provision 562,881 299,000
Amortization of deferred
development costs 25,525 -
Change in non-cash
operating working capital (3,804,610) (6,308,154)
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582,023 (3,966,109)
Financing:
Payments on capital leases (68,381) (63,596)
Issuance of common
shares and warrants 839,447 -
Dividends paid (270,093) -
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500,973 (63,596)
Investments:
Additions to property,
plant and equipment (2,807,384) (2,407,369)
Change in non-cash working capital
relating to investments (307,489) -
Additions to deferred
development costs (491,334) -
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(3,606,207) (2,407,369)
Decrease in cash position (2,523,211) (6,437,074)
Cash position at
beginning of period 4,609,798 4,698,156
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Cash position at
end of period $ 2,086,587 $ (1,738,918)
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</TABLE>
Cash position is defined as cash less loan payable.
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[LOGO]
FANTOM TECHNOLOGIES INC .
HEAD OFFICE AND CANADIAN MANUFACTURING FACILITY:
1110 Hansler Road, P.O. Box 1004
Welland, Ontario L3B 5S1
Voice: (905) 734-7476 Fax: (905) 734-9955
UNITED STATES MANUFACTURING FACILITY:
102 Corporate Blvd., Carolina Center Business Park
West Columbia, South Carolina 29169
Voice: (803 ) 739 -1151 Fax: (803) 939-0730
TORONTO SALES OFFICE:
Suite 414, 1 Eva Road, Toronto, Ontario M9C 4Z5
Voice: (416)-622-9740 Fax: (416)-626-0674
TORONTO STOCK EXCHANGE: FTM NASDAQ: FTMTF
WEBSITE: www.fantom.com E-MAIL: [email protected]
TRANSFER AGENT & REGISTRAR:
CIBC Mellon Trust Company
320 Bay Street, P.O. Box 1, Toronto, Ontario M5H 4A1
FANTOM-Registered Trademark-, FURY-Registered Trademark-, THUNDER-Registered
Trademark-, LIGHTNING-Registered Trademark- and CYCLONE XT are trademarks of
FANTOM TECHNOLOGIES INC.
