<PAGE>
(GRAPHIC)
First Quarter Report to Shareholders
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
(LOGO) (R)
<PAGE>
TO OUT SHAREHOLDERS
FANTOM TECHNOLOGIES INC.
During the first quarter of fiscal 2001 (three months ended September 30, 2000),
we continued to face intense competitive activity within the bagless segment of
the vacuum-cleaner market. The Company recorded a net loss of $0.2 million or
$0.03 per share (based on 9,130,408 shares outstanding) compared with net income
of $3.4 million or $0.38 per share (based on 9,046,119 shares outstanding) for
the year-earlier period. Sales were $49.7 million compared with $57.0 million
for the year-earlier period.
The Company's dual-cyclonic, floor-care business recorded pre-tax income of $0.2
million during the period. Research and development spending totalled $1.5
million (net of tax credits of $0.1 million). Of the total research and
development spending, $0.6 million was capitalized, $0.3 million was allocated
against deferred costs and $0.6 million was expensed (net of tax credits of $0.1
million). Gross margin declined to 24.6% from 37.3% in Q1 of fiscal 2000 due to
competitive pressures on pricing and $7.1 million of sales of refurbished vacuum
cleaners that were recorded at cost. The sales of refurbished goods were
transacted for a combination of cash and barter credits.
To strengthen our core business in this time of heightened competitive activity,
we are aggressively reducing costs and repositioning retail price points. In the
first half of calendar 2001, we also plan to introduce a fresh, new look, and
incorporate additional features in our product line.
In addition, we are directing considerable efforts preparing for the launches of
"next-generation" products. Our innovative CALYPSO(TM) Microbiological Water
Processor is scheduled for introduction in upcoming months, and our full-
performance wireless vacuum is planned for launch around mid-year, calendar
2001. Work is progressing well on our universal thermal energy cell that is
designed to act as a heat pump, converting electrical energy for heating or
cooling, or as an electrical generator fed by solar energy or fossil fuels. We
plan to have the energy cell's performance characteristics assessed by third
parties to assist us in evaluating its commercial viability.
<PAGE>
Our strategy for geographic expansion and growth includes developing global
partnerships and international licensing agreements. Recently, as a step in this
direction, we signed a letter of intent with Matsushita Seiko Co., Ltd. of Japan
to license Matsushita Seiko to manufacture and market Fantom's CALYPSO(TM)
Microbiological Water Processor in the Far East and to utilize Fantom's ozone
technology in humidifiers in the Far East. The license is subject to further
evaluation of the CALYPSO(TM) product and ozone technology by Matsushita Seiko
and completion of a definitive agreement.
On October 25, 2000 the Board of Directors declared a quarterly cash dividend of
5 cents per share payable on January 1, 2001 to shareholders of record at the
close of business on November 30, 2000.
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 "plan", "scheduled", "designed",
"strategy" 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. The Company does not intend, and assumes no obligation, to update
the forward-looking statements to reflect actual results, changes in assumptions
or changes in other factors affecting such statements.
On behalf of the Board,
"Rikki Meggeson" "Allan D. Millman"
Rikki Meggeson Allan D. Millman,
Chair of the Board President and Chief Executive Officer
November 10, 2000
<PAGE>
CONSOLIDATED STATEMENTS OF
INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Three Months Ended
September 30 (Unaudited)
2000 1999
<S> <C> <C>
Sales $ 49,676,554 $ 57,044,537
Cost of goods sold 37,461,449 35,764,199
------------- -------------
12,215,105 21,280,338
Expenses:
Selling, general and administrative 11,805,309 15,155,355
Research and development 586,143 784,374
Finance charges 213,951 (64,921)
------------- -------------
12,605,403 15,874,808
------------- -------------
Income (loss) before income taxes (390,298) 5,405,530
Income taxes (150,483) 2,000,000
------------- -------------
Net income (loss) (239,815) 3,405,530
Retained earnings
at beginning of period 31,353,568 31,116,910
Dividends (456,521) (451,900)
------------- -------------
Retained earnings
at end of period $ 30,657,232 $ 34,070,540
============= =============
Net income (loss) per share:
Basic* $ (0.03) $ 0.38
Fully diluted $ -- $ 0.36
============= =============
</TABLE>
*Basic Net income per share has been calculated using the weighted average
number of common shares outstanding during the respective periods. These were
9,130,408 shares for 2000 and 9,046,119 shares for 1999.
Effective July 1, 2000 the Corporation retroactively adopted the new accounting
standards of the Canadian Institute of Chartered Accountants relating to future
income taxes and employee future benefits including pension and non-pension
post-employment benefits.
The adoption of these new standards had no material impact on the results of
operations or on the financial position as presented in the Financial Statements
included with this report.
Certain comparative figures have been reclassified to conform with the financial
statement presentation adopted in the current year. Financial information in
this report is expressed in Canadian dollars, unless otherwise noted.
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30
(Unaudited)
2000 1999
A S S E T S
<S> <C> <C>
Current assets:
Cash and cash equivalents $ -- $ 7,513,003
Trade accounts receivable 31,158,107 38,297,211
Other receivables 3,322,297 1,306,773
Income taxes receivable 7,424,653 --
Inventories 16,714,128 20,757,965
Prepaid expenses 4,690,648 2,766,402
Future income taxes 272,000 1,347,344
-------------- --------------
63,581,833 71,988,698
Deferred development costs,
net of amortization 4,465,119 2,128,044
Other assets 7,174,044 1,842,400
Property, plant and equipment, net 36,722,570 30,361,900
-------------- --------------
$ 111,943,566 $ 106,321,042
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness $ 13,137,307 $ --
Trade accounts payable 25,474,672 26,252,447
Other payables and accruals 5,204,400 8,701,968
Currency hedging exchange gains 715,928 3,545,642
-------------- --------------
44,532,307 38,500,057
Currency hedging exchange gains -- 1,451,573
Future income taxes 7,545,200 3,632,564
Other liabilities 220,000 43,000
Shareholders' equity:
Share capital 28,988,827 28,623,308
Retained earnings 30,657,232 34,070,540
-------------- --------------
59,646,059 62,693,848
-------------- --------------
$ 111,943,566 $ 106,321,042
============== ==============
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS
OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
September 30 (Unaudited)
2000 1999
<S> <C> <C>
CASH PROVIDED BY (USED FOR):
Operations:
Net income (loss) $ (239,815) $ 3,405,530
Items not requiring cash:
Depreciation 886,421 882,906
Future income taxes (77,405) 148,840
Amortization of deferred
development costs 160,867 87,321
Change in non-cash
operating working capital 2,056,262 (3,393,770)
Increase in other assets (5,112,894) (43,000)
Increase in other liabilities 50,000 43,000
Decrease in currency hedging
exchange gains (1,529,616) (996,406)
------------- -------------
(3,806,180) 134,421
Financing:
Increase in bank indebtedness 6,804,807 --
Payments on capital leases -- (10,304)
Issuance of common shares
and warrant -- 674,021
Dividends paid (456,521) (451,900)
------------- -------------
6,348,286 211,817
Investments:
Additions to property,
plant and equipment (2,056,614) (2,119,253)
Additions to deferred
development costs (485,492) (153,188)
------------- -------------
(2,542,106) (2,272,441)
------------- -------------
Increase (decrease) in cash -- (1,926,203)
Cash and cash equivalents,
beginning of period -- 9,439,206
------------- -------------
Cash and cash equivalents,
end of period $ -- $ 7,513,003
============= =============
</TABLE>
<PAGE>
(GRAPHIC)
The Best of Science and Technology Committed to Humanity
<PAGE>
(LOGO) (R)
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(R) and CALYPSO(TM) are trademarks of Fantom Technologies Inc.