<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)
1999 1998 1999 1998
<S> <C> <C> <C> <C>
CASH PROVIDED BY (USED FOR):
Operations:
Net income $ 10,854,080 $ 7,197,316 $ 3,985,901 $ 2,873,508
Items not requiring cash:
Depreciation 1,673,492 1,013,703 585,716 396,478
Deferred tax provision 1,117,867 1,047,000 680,986 303,000
Amortization of deferred
development costs - 159,723 (51,049) 159,723
Change in non-cash
operating working
capital (12,935,375) (2,888,025) (4,286,054) (987,100)
Increase in currency
hedging exchange gains 3,737,019 - 2,768,960 -
- --------------------------------------------------------------------------------------------------------------------------
4,447,083 6,529,717 3,684,460 2,745,609
Financing:
Payments on capital leases (194,102) (194,287) (55,837) (65,934)
Issuance of common
shares and warrants 912,697 224,998 73,250 186,000
Dividends paid (810,502) - (540,409) -
- --------------------------------------------------------------------------------------------------------------------------
(91,907) 30,711 (522,996) 120,066
Investments:
Additions to property,
plant and equipment (8,700,055) (5,549,403) (3,671,925) (836,472)
Change in non-cash
working capital relating
to investments 521,010 - 540,233 -
Additions to deferred
development costs (784,781) (1,596,723) (29,941) (1,596,723)
- --------------------------------------------------------------------------------------------------------------------------
(8,963,826) (7,146,126) (3,161,633) (2,433,195)
Increase (Decrease) in
cash position (4,608,650) (585,698) (169) 432,480
Cash position at
beginning of period 4,609,798 4,698,156 1,317 3,679,978
- --------------------------------------------------------------------------------------------------------------------------
Cash position at
end of period $ 1,148 $ 4,112,458 $ 1,148 $ 4,112,458
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
[GRAPHIC]
[LOGO]
F A N T O M T E C H N O L O G I E S I N C .
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.
[GRAPHIC]
TO SHAREHOLDERS
FOR THE NINE MONTHS ENDED
MARCH 31, 1999
[LOGO]
<PAGE>
FANTOM TECHNOLOGIES INC.
THIRD QUARTER REPORT TO SHAREHOLDERS
FOR THE NINE MONTHS ENDED MARCH 31, 1999
We are pleased to advise that, once again, the Company had a record-breaking
quarter, the fifth in a row.
For the three months ended March 31, 1999 (Q3 fiscal 1999), net income rose 39%
from the year-earlier period to $4.0 million. Earnings per share increased to 44
cents (based on 9,008,802 shares outstanding) from 32 cents (based on 8,927,275
shares outstanding) for the same period in the previous year. Revenue increased
26% to $65.6 million.
For the nine months ended March 31, 1999, net income rose 51% from the
year-earlier period to $10.9 million. Earnings per share increased to $1.21
(based on 8,997,360 shares outstanding) from 83 cents (based on 8,722,830 shares
outstanding) for the same period in the previous year. Revenue grew 45% to
$180.7 million.
At its April 15, 1999 meeting, the Board of Directors declared a regular,
quarterly cash dividend of 3 cents per share payable on June 30, 1999 to the
shareholders of record at the close of business on May 31, 1999.
All vacuum products performed well in the quarter and contributed to the
outstanding results. The highlight of the quarter was the launch of the new
FANTOM-Registered Trademark- CYCLONE XT-TM- upright. This powerful and
sleek-looking machine has many new features and benefits: It operates with two
motors, one to rotate the brush, the other to create airflow, thereby improving
the vacuum's cleaning performance through the specialization of tasks. The brush
motor can be turned off for cleaning bare floors. Importantly, it automatically
shuts off when an object jams it, thus saving the belt from breaking. It also
shuts off when the vacuum is rotated to the upright, locked position, saving
wear and tear on the carpet as the user cleans with the wand. The machine has an
ergonomically-positioned carrying handle, a re-designed collection bin, and an
easy-access, tool-storage compartment at the top.
Shipments of the CYCLONE XT-TM- upright commenced at the beginning of March and
early responses from end-users have been positive. With the addition of this
product, consumers can now choose from four FANTOM-Registered Trademark-
vacuums - three uprights and one canister - with different features and at
different price points.
The introduction of the FANTOM-Registered Trademark- CYCLONE XT-TM- vacuum is
being supported with new long-form (30-minute) and short-form (60-second)
direct-response television commercials. The long-form infomercial began airing
in the United States and Canada in mid-March, and the short-form spot commenced
airing in mid-April.
We are continuing to work aggressively on the development of new household
appliances and stay targeted to introduce two new products in the first half of
calendar 2000, one in the floor-care area and the other in the water-treatment
field. As of this report, twenty-eight utility patent applications have been
filed for technologies the Company is either acquiring or exclusively licensing
through its association with Omachron Technologies, Inc.
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 word "targeted" 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. However, 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,
KENNETH KELMAN ALLAN D. MILLMAN,
CHAIRMAN OF THE BOARD PRESIDENT AND CHIEF EXECUTIVE OFFICER
MAY 6, 1999
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FANTOM TECHNOLOGIES INC.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
March 31 (Unaudited) March 31 (Unaudited)
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Sales $ 180,748,331 $ 125,082,625 $ 65,628,821 $ 52,124,311
Cost of goods sold 114,828,728 80,162,124 41,663,033 33,889,815
- ----------------------------------------------------------------------------------------------------------------------------
65,919,603 44,920,501 23,965,788 18,234,496
Expenses:
Selling, general and
administrative 47,371,735 33,569,647 17,084,328 13,639,484
Research and
development expenses 1,634,875 - 637,315 -
Finance charges (40,087) 25,538 25,244 26,504
- ----------------------------------------------------------------------------------------------------------------------------
48,966,523 33,595,185 17,746,887 13,665,988
- ----------------------------------------------------------------------------------------------------------------------------
Income before
income taxes 16,953,080 11,325,316 6,218,901 4,568,508
Income taxes 6,099,000 4,128,000 2,233,000 1,695,000
- ----------------------------------------------------------------------------------------------------------------------------
Net income 10,854,080 7,197,316 3,985,901 2,873,508
Retained earnings
at beginning of period 18,015,632 7,698,105 24,343,625 12,021,913
Dividends (810,502) - (270,316) -
Retained earnings
at end of period $ 28,059,210 $ 14,895,421 $ 28,059,210 $ 14,895,421
- ----------------------------------------------------------------------------------------------------------------------------
Net income per share
- Basic* $ 1.21 $ 0.83 $ 0.44 $ 0.32
- ----------------------------------------------------------------------------------------------------------------------------
- Fully Diluted $ 1.16 $ 0.78 $ 0.42 $ 0.31
- ----------------------------------------------------------------------------------------------------------------------------
</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 nine months ended March 31, these were 8,997,360
shares for 1999 and 8,722,830 shares for 1998. For the three months ended March
31, these were 9,008,802 shares for 1999 and 8,927,275 shares for 1998.
FINANCIAL INFORMATION IN THIS REPORT IS EXPRESSED IN CANADIAN DOLLARS, UNLESS
OTHERWISE NOTED.
CONSOLIDATED BALANCE SHEETS
FANTOM TECHNOLOGIES INC.
<TABLE>
<CAPTION>
March 31
(Unaudited)
1999 1998
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,148 $ 4,112,458
Trade accounts receivable 45,072,832 31,803,125
Other receivables 2,958,179 1,707,249
Inventories 20,817,899 11,875,980
Prepaid expenses 2,706,152 2,201,227
71,556,210 51,700,039
Deferred development costs,
net of amortization 1,639,016 1,437,000
Property, plant and equipment,
at cost 34,190,818 21,828,981
Less accumulated depreciation (6,668,393) (4,618,096)
- -------------------------------------------------------------------------------------
27,522,425 17,210,885
- -------------------------------------------------------------------------------------
$ 100,717,651 $ 70,347,924
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 28,428,635 $ 17,509,874
Other payables and accruals 8,910,029 8,218,536
Currency hedging exchange gains 600,528 -
Current portion of capital
lease obligations 45,371 265,891
- -------------------------------------------------------------------------------------
37,984,563 25,994,301
Capital lease obligations,
Less current portions - 37,414
Long term deferrals:
Income taxes 3,627,100 2,473,200
Currency hedging exchange gains 3,136,491 -
Shareholders' equity:
Share capital 27,910,287 26,947,588
Retained earnings 28,059,210 14,895,421
- -------------------------------------------------------------------------------------
55,969,497 41,843,009
- -------------------------------------------------------------------------------------
$ 100,717,651 $ 70,347,924
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
