EX-99 2 0002.txt 1ST QUARTER REPORT (GRAPHIC) First Quarter Report to Shareholders FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 (LOGO) (R) 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. 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 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Three Months Ended September 30 (Unaudited) 2000 1999 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 ============= =============
*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. CONSOLIDATED BALANCE SHEETS
September 30 (Unaudited) 2000 1999 A S S E T S 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 ============== ==============
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended September 30 (Unaudited) 2000 1999 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 ============= =============
(GRAPHIC) The Best of Science and Technology Committed to Humanity (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: fantom@fantom.com 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.