<PAGE>
SECOND QUARTER REPORT
TO SHAREHOLDERS
FOR THE SIX MONTHS ENDED
DECEMBER 31, 1998
FANTOM
<PAGE>
TO OUR SHAREHOLDERS
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FANTOM TECHNOLOGIES INC.
The Company continued its record-setting pace during the three months
ended December 31, 1998 (Q2 fiscal 1999), achieving its fourth, consecutive,
best-ever quarterly performance. Net income rose 39% over the year-earlier
period to $3.6 million. Earnings per share increased to 40 cents (based on
9,003,108 shares outstanding) from 29 cents (based on 8,899,137 shares
outstanding) for the same period in the previous year. Sales increased 40% to
$60.0 million. Our marketing programs appear to have been very effective in
generating retail sell-through during the key holiday period.
For the six months ended December 31, 1998 net income grew 59% from the
year-earlier period to $6.9 million. Earnings per share increased to 76 cents
(based on 8,991,763 shares outstanding) from 50 cents (based on 8,646,289
shares outstanding) for the same period in the previous year. Revenue rose
58% to $115.1 million.
On January 21, 1999 the Board of Directors declared a regular, quarterly
cash dividend of 3 cents per share payable on March 31, 1999 to the
shareholders of record at the close of business on February 28, 1999.
Also in January, the Company announced that consumers in the United
States and Canada could now purchase FANTOM-Registered Trademark- products
directly via our Internet website (www.fantom.com). This initiative
recognizes the trend among consumers toward online purchasing, as more and
more households gain access to the Internet. In providing this convenient
means of ordering, we are utilizing iCat Electronic Commerce Suite 3.01
software, which integrates with our SAP R/3 v. 4.0B,
enterprise-information-technology system.
In March, 1999 we are planning to commence shipping our new, premium,
dual-cyclonic upright, the FANTOM-Registered Trademark- CYCLONE XT-TM-
vacuum. This machine is sleek and powerful and has many new features. For
instance, it operates with two motors, one to rotate the brush and the other
to create airflow, thereby improving the vacuum's cleaning performance
through specialization of tasks. Importantly, the brush motor automatically
shuts off when an object jams it, thus saving the belt from breaking. It has
an improved air path, a more ergonomically positioned carry-handle, a
re-designed collection bin and an easy-access tool compartment at the top of
the vacuum. New long-form and short-form television commercials are being
developed to support the launch.
Since May, 1998 twenty-three utility patent applications have been filed
for technologies the Company is either acquiring or exclusively licensing
through its association with Omachron Technologies, Inc. We are targeting to
introduce two new household appliances, utilizing some of these technologies,
in the first half of calendar 2000. One of these products is in the
floor-care area and the other is in the water-treatment field.
The Company is continuing to take reasonable measures to ensure that all
of its internal systems as well as those of its significant business partners
are Year 2000 ready. The Company's SAP R/3 enterprise-information-technology
system is certified by a third party to be Year 2000 ready, and we are
currently conducting tests of the system to verify this. Other internal
systems are also being tested as well as interfaces with business partners.
The foregoing information includes certain statements relating to the
Company which are forward-looking statements under Section 21E of the United
States Securities Exchange Act of 1934. The words "planning", "targeting" and
similar expressions, as they relate to the Company or its management, are
intended to identify forward-looking statements. Such statements are based on
assumptions made by and information available to the Company but there are
important factors that could cause actual results to differ materially from
those in such forward-looking statements including, among others, the
contingencies arising from the uncertainties which are inherent in the
development of new technology and the unanticipated costs and time delays
which often arise in the process of developing new products based on
innovative technology.
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
FEBRUARY 5, 1999
<PAGE>
CONSOLIDATED STATEMENTS OF
INCOME AND RETAINED EARNINGS
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FANTOM TECHNOLOGIES INC.
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
December 31 (Unaudited) December 31 (Unaudited)
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Sales $115,119,510 $72,958,314 $60,005,350 $42,938,732
Cost of goods sold 73,165,695 46,272,309 36,997,491 28,086,838
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41,953,815 26,686,005 23,007,859 14,851,894
Expenses:
Selling, general and
administrative 30,287,407 19,930,163 16,693,394 10,793,444
Research and
development expenses 997,560 - 660,741 -
Finance charges (65,331) (966) 34,601 16,302
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31,219,636 19,929,197 17,388,736 10,809,746
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Income before
income taxes 10,734,179 6,756,808 5,619,123 4,042,148
Income taxes 3,866,000 2,433,000 2,024,000 1,456,000
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Net Income 6,868,179 4,323,808 3,595,123 2,586,148
Retained earnings
at beginning of period 18,015,632 7,698,105 21,018,595 9,435,765
Dividends (540,186) - (270,093) -
Retained earnings
at end of period $24,343,625 $12,021,913 $24,343,625 $12,021,913
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Net income per share
- - Basic* $0.76 $0.50 $0.40 $0.29
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- - Fully Diluted $0.73 $0.47 $0.38 $0.28
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</TABLE>
*Basic 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 six months ended December 31, these were 8,991,763
shares for 1998 and 8,646,289 shares for 1997. For the three months ended
December 31, these were 9,003,108 shares for 1998 and 8,899,137 shares for 1997.
FINANCIAL INFORMATION IN THIS REPORT IS EXPRESSED IN CANADIAN DOLLARS, UNLESS
OTHERWISE NOTED.
<PAGE>
CONSOLIDATED BALANCE SHEETS
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FANTOM TECHNOLOGIES INC.
<TABLE>
<CAPTION>
December 31
(Unaudited)
1998 1997
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,317 $ 3,679,978
Trade accounts receivable 34,340,706 24,720,855
Other receivables 2,133,455 1,589,475
Inventories 17,840,036 13,951,442
Prepaid expenses 3,051,826 2,974,643
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57,367,340 46,916,393
Deferred development costs,
net of amortization 1,558,028 -
Property, plant and equipment,
at cost 30,518,893 20,992,509
Less accumulated depreciation (6,082,677) (4,221,618)
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24,436,216 16,770,891
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$83,361,584 $63,687,284
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $17,889,951 $16,578,028
Other payables and accruals 8,675,060 5,786,316
Currency hedging exchange gains 600,528 -
Current portion of capital
lease obligations 101,210 268,988
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27,266,749 22,633,332
Capital lease obligations,
Less current portions - 100,251
Long term deferrals:
Income taxes 2,946,114 2,170,200
Currency hedging exchange gains 968,059 -
Shareholders' equity:
Share capital 27,837,037 26,761,588
Retained earnings 24,343,625 12,021,913
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52,180,662 38,783,501
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$83,361,584 $63,687,284
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</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF
CHANGES IN FINANCIAL POSITION
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FANTOM TECHNOLOGIES INC.
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
December 31 (Unaudited) December 31 (Unaudited)
1998 1997 1998 1997
<S> <C> <C> <C> <C>
CASH PROVIDED BY (USED FOR):
Operations:
Net income $6,868,179 $4,323,808 $3,595,123 $2,586,148
Items not requiring cash:
Depreciation 1,087,776 617,225 562,605 311,840
Deferred tax provision 436,881 744,000 (126,000) 445,000
Amortization of deferred
development costs 51,049 - 25,524 -
Change in non-cash
operating working
capital (8,649,321) (1,900,925) (4,844,711) 4,407,229
Increase in currency
hedging exchange gains 968,059 - 968,059 -
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762,623 3,784,108 180,600 7,750,217
Financing:
Payments on capital leases (138,265) (128,353) (69,884) (64,757)
Issuance of common
shares and warrants 839,447 38,998 - 38,998
Dividends paid (270,093) - - -
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431,089 (89,355) (69,884) (25,759)
Investments:
Additions to property,
plant and equipment (5,028,130) (4,712,931) (2,220,746) (2,305,562)
Change in non-cash
working capital relating
to investments (19,223) - 288,266 -
Additions to deferred
development costs (754,840) - (263,506) -
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(5,802,193) (4,712,931) (2,195,986) (2,305,562)
Increase (Decrease) in
cash position (4,608,481) (1,018,178) (2,085,270) 5,418,896
Cash position at
beginning of period 4,609,798 4,698,156 2,086,587 (1,738,918)
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Cash position at
end of period $1,317 $3,679,978 $1,317 $3,679,978
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</TABLE>
<PAGE>
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- AND CYCLONE XT ARE TRADEMARKS OF
FANTOM TECHNOLOGIES INC.