Electrohome Announces First Quarter Results
February 3, 2003

Highlights

• Electrohome Limited - Revenues for the first quarter of $5.0 million were $0.3 million better than the same quarter last year. A loss of $0.8 million or $0.09 per share was $0.3 million better than the loss of $1.1 million or $0.12 per share last year.
  
  Fakespace Systems Inc. - Fakespace's revenues and operating results improved nicely over the same quarter last year and it has a strong order book going into the second quarter. Fakespace's previously announced merger with Mechdyne Corporation (see press release dated November 18, 2002) is expected to close during the second quarter.
  
  
• Robotel - Sales continued at a slower pace than last year. Despite this shortfall, reduced expense levels resulted in improved operating results. Subsequent to the quarter end, Ms. Nancy Brown, Robotel's Controller, was appointed Acting President replacing Rick Willis, an Electrohome appointee, who was filling this role on a temporary basis.

Management Discussion and Analysis

Results from Operations

Revenues of $5.0 million for the first quarter increased $0.3 million or 7% from the same quarter last year with increases at Fakespace largely offset by declines at Robotel. Gross profit of $2.1 million or 41% of sales increased from $1.5 million or 31% last year, primarily due to a large low margin strategic sale by Fakespace in the first quarter of 2002. Selling and general and administrative expenses decreased $0.4 million over the same quarter last year due to cost reduction measures taken later in fiscal 2002. Research and development expenses increased $0.5 million due to a grant in fiscal 2002 received by Fakespace, which when excluded would result in expenditures equal to this year. Amortization of capital assets decreased $0.1 million from last year primarily due to the sale of the Robotel facility in mid-fiscal 2002. An operating loss of $1.1 million compares to a loss last year of $1.7 million. Interest expense increased slightly from last year due to higher overall debt levels. Other income was down slightly from last year due to a vacancy in a portion of our facility, most of which has now been leased to outside tenants. Income tax recovery was equal to last year while minority interest decreased due to the reduced losses. As a result of the above, a loss of $0.8 million for the quarter compares to a loss of $1.1 million last year.

Fakespace Systems Inc.

Revenues at Fakespace Systems of $3.7 million increased $1.1 million versus the same quarter last year. Gross profit also increased $1.1 million over last year due to a large low margin "strategic" sale made in the first quarter of 2002. The increase in gross profit however, was offset in part an increase in R&D expenses due to a significant R&D grant received during the first quarter last year. Excluding this grant, year over year operating expenses were consistent with last year.

Robotel Electronique Inc.

Robotel's revenue of $1.4 million for the quarter was $0.8 million lower than last year resulting in a gross profit shortfall of $0.5 million. The decline in sales follows the softness of the fourth quarter last year and is almost entirely due to the US corporate market as sales to other markets were generally equal to last year's levels. Despite the revenue shortfall, an operating loss of $0.2 million was $0.1 million better than last year as operating expenses were significantly lower due to cost reduction actions taken in 2002 and early 2003. Etienne Bouchard, Robotel's historic President, resigned from his role as Executive Vice President effective January 31, 2003. He will remain on Robotel's board of directors. Subsequent changes and a revised mandate for the senior management team along with March and summer introductions of new products, has strengthened confidence in Robotel's ability to achieve improved results as the year progresses.

Liquidity and Capital Resources

Cash increased $2.2 million during the first quarter of fiscal 2003. Cash was provided from operations ($2.4 million) and was used to reduce long-term debt ($0.1 million) and to reduce other liabilities ($0.1 million).

During the first quarter of fiscal 2002, cash decreased $2.2 million. Cash was provided from an increase in long-term debt ($1.2 million) and was used to fund operations ($2.9 million), to reduce long-term debt ($0.2 million) and to purchase fixed assets ($0.3 million).

Through its subsidiary, Robotel, the Company has a line of credit providing up to $1.7 million based on receivable and inventory levels of which $1.1 million was being utilized at December 31, 2002.

Outlook

Some positive progress was made in the first quarter, however, current results from Robotel continue to be a disappointment. While we are encouraged by the cost reductions and other changes that have been made at both Fakespace and Robotel, increased revenue in the latter case is key to their return to profitability.

Electrohome participates in the rapidly-growing visual communications marketplace as a provider of virtual immersive systems, computer-based training systems and digital interactive cinema. Electrohome's shares are traded on the TSX under the symbols ELL.X (voting) and ELL.Y (non-voting).

Download the full report, including financial statements in PDF format.