Art In Motion Income Fund
TSX : AIM.UN

Art In Motion Income Fund

November 10, 2005 07:15 ET

Art In Motion Income Fund Announces 3rd Quarter Results for 2005

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Nov. 10, 2005) - Art In Motion Income Fund (the "Fund") (TSX:AIM.UN) today reported its interim financial results for the period ended September 30, 2005. The Fund's unaudited consolidated financial statements for the three months ended September 30, 2005 are included in this news release. The Fund's financial statements and Management's Discussion and Analysis are being concurrently filed on the SEDAR website (www.sedar.com) and on the Fund's investor website at www.aimincomefund.com.

Management will host a conference call on Thursday, November 10, 2005 at 10:00 am pacific time (1:00 PM eastern) to discuss the Fund's financial results for the period ended September 30, 2005. Garry Peters, Chief Executive Officer, and Allan Achtemichuk, Chief Financial Officer will host the call. Following management's presentation, there will be a question and answer session.

To participate in the teleconference, dial in to (800) 266-1762 at least five minutes before the scheduled start time.

The call will be webcast simultaneously at www.investorcalendar.com/IC/CEPage.asp?ID=97366. The archive will also be posted to Art In Motion's web site at www.aimincomefund.com approximately one hour after the end of the conference call.

CEO's Remarks

"The third quarter of 2005 was a challenging period for Art In Motion," says Garry Peters, CEO. "Our revenues declined as a result of the continuing strength of the Canadian dollar and lower than expected orders during the traditionally strong pre-Christmas buying season. Revenue for the quarter was $15.8 million. Despite a decline in sales, our gross profit margin held steady at 31.1% for the quarter and 31.2% for the nine months this year.

As a result of these difficult market conditions our Board decided to align monthly Fund distributions with the distributable cash the Fund expects to generate this year. On October 6, 2005 we announced a reduction in our cash distributions as of the month of October from the historical monthly amount of $0.10417 per fund unit to $0.05 per fund unit. The amount that is not being paid accrues to the benefit of our Unitholders for a period of 12 months and is paid in priority to any distribution on our subordinated fund units. Our payout ratio for the third quarter was high but is expected to return to previous levels near 100% by the end of this year.

Despite the current downturn in our business, we are maintaining our financial health and our operations remain busy as customers continue to replenish their stocks of our current collection. During the quarter the Fund generated cash from operations of $3.4 million and at Sept. 30, 2005 we had a net cash position of approximately $3.8 million. We are not using our bank line of credit and have sufficient cash on hand to run our day-to-day operations and invest in strategic growth initiatives.

I am pleased to report that we have added a new member to our leadership team," says Peters. "In early October, Margaret Penfold joined Art In Motion as Senior Vice President, Sales and Marketing. Margaret has had a progressive career that has included strategic senior sales and management roles with other respected companies. Her wealth of knowledge of the retail industry, her passion for strategic development, effective team-building, and her focus on results makes her a great addition to our team as we grow our global company.

Even with the challenging times we are going through, I remain optimistic about the future of Art In Motion and I am confident in our company's ability to deliver long-term value to our investors. The quality and value of our products continue to set the standard for the wall decor sector, and we are working towards tapping new international markets. At the same time as we expand into new markets and channels, we are working with our Asian manufacturing partners to reduce our costs and enhance our product mix."

Overall Performance

This report presents the results for the period ended September 30, 2005. A discussion of our results is presented in the sections that follow. The following points present the highlights of our performance for the quarter.

- The Fund's revenue was $15.8 million.

- Gross profit was $4.9 million for a gross margin of 31.1%.

- Earnings before interest, taxes depreciation and amortization (EBITDA) were $2.2 million for an EBITDA margin of 14.2%.

- The Fund posted net earnings before non-controlling interest of $1.8 million.

- Basic and diluted earnings per unit were $0.1906.

- The Fund generated $3.4 million in cash flow from operations and ended the quarter with $3.8 million of cash on hand.

- The Fund generated distributable cash of $1.7 million or $0.16074 per unit on the total 10,706,760 units outstanding(1).

- The Fund had total assets of $87.4 million and $46.4 million in current and long-term liabilities.



Note (1) In addition to the 8,030,070 outstanding Fund units, there
are 535,338 unsubordinated units of AIM LP and 2,141,352
subordinated units of AIM LP held by the non-controlling
interest. The subordinated and unsubordinated units of AIM
LP are currently held by GVP and represent GVP's retained
interest in our business. The Exchange Rights associated
with the unsubordinated units provide that these units could
be exchanged for Fund units on a one-for-one basis as of
January 30, 2005. These rights have not been exercised as of
the date of this report.


Selected Consolidated Financial Information
--------------------------------------------------------------------
(in thousands of (unaudited) (unaudited) (unaudited) (unaudited)
dollars except The Fund Pre-Fund(1) The Fund Pre-Fund(1)
per unit amounts) 3 months 3 months 9 months 9 months
ended ended ended ended
Sept 30, Sept 30, Sept 30, Sept 30,
2005 2004 2005 2004
--------------------------------------------------------------------
--------------------------------------------------------------------
Revenue 15,810 21,975 50,710 67,452
Cost of sales 10,893 13,980 34,889 43,724
--------------------------------------------
Gross profit 4,917 7,995 15,821 23,728
31.1% 36.4% 31.2% 35.2%
Operating expenses(2) 3,163 3,080 50,389 9,739
Non-controlling
interest(3)
Net earnings for
the period 223 519 (9,617) 519
--------------------------------------------
1,531 4,396 (24,951) 13,470
9.7% 20.0% -49.2% 20.0%
Add (deduct)
Non-controlling
interest 223 519 (9,617) 519
Founders' employee
participation plan(4) 305 381 1,333 381
Interest 277 166 824 211
Amortization 1,822 1,325 5,437 2,235
Goodwill Impairment - - 34,826 -
Net change in
interest rate swap (222) - (104) -
Net change in forward
foreign exchange
contracts (1,692) (2,810) 915 (5,189)
--------------------------------------------
EBITDA(5) 2,244 3,977 8,663 11,627
14.2% 18.1% 17.1% 17.2%
--------------------------------------------
Basic earnings per
unit 0.1906 n/a -3.1072 n/a
Diluted earnings per
unit 0.1906 n/a -3.1072 n/a
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(1) The values for the period ended September 30, 2004 are for the
combined entities of the predecessor companies that were
amalgamated to form GVP prior to the IPO on August 3, 2004 and
the financial information of the Fund subsequent to that date.
To provide comparable amounts we have eliminated shareholder
bonuses and income taxes from the 2004 amounts. The 2004 amounts
have not been adjusted for our $20 million term loan or the
amortization of our identifiable intangible assets.
(2) Operating Expenses are the combined net total of Expenses and
Other Earnings as shown in our Financial Statements.
(3) In the second quarter of 2005 the Fund completed a fair value
assessment of Other Net Assets and based on this assessment
wrote down goodwill by $34.8 million before non-controlling
interest.
(4) Under the FEPP, GVP provides bonus payments to employees based
on the notional interest in a portion of its non-controlling
interest in AIM LP. The costs of the FEPP are recorded as a
charge against the Fund but are funded by GVP. These charges are
then offset against the non-controlling interest resulting in no
impact to our net earnings.
(5) See "Non-GAAP Measures" for our definition of EBITDA.


Discussion of 3rd Quarter Results

Revenue for the quarter ended September 30, 2005 was $15.8 million compared to $22.0 million for the quarter ended September 30, 2004 or a decrease of 28%. The revenue decrease was largely as a result of some of our key customers experiencing reduced sales that resulted in lower replenishment orders. One of our key customers that normally purchases new products late in the third quarter has elected not to roll out any new products until the first quarter of next year. This customer has indicated that they are not taking new products from any wall decor vendors until next year. This customer continues to replenish their current selection of products on a regular basis. Another key customer has made their selection of new products but purchased quantities for only 75 stores for testing. After the test, they will determine which products are to be rolled out to the rest of their approximately 700 stores.

Approximately 86% of our sales for the quarter were denominated in US dollars. The strengthening of the Canadian dollar relative to the US dollar continues to impact our top line sales. The average exchange rate for the quarter was down approximately 8% compared to the same quarter in 2004. Although the drop in foreign exchange rates has impacted our gross sales, we use forward foreign exchange contracts to hedge our currency risks and protect our profit margins.

Gross margin was 31.1% for the quarter ended September 30, 2005 compared to 36.4% for the quarter ended September 30, 2004. Gross profit for the quarter ended September 30, 2005 was $4.9 million compared to $8.0 million for the quarter ended September 30, 2004. The current period includes approximately $0.3 million of charges related to the FEPP where $0.2 million is charged to cost of sales and $0.1 million is charged to operating expenses. These costs are funded by GVP and do not impact net earnings. For the same quarter last year, the FEPP charges were $0.4 million with $0.2 million charged to cost of sales and $0.2 million charged to operating expenses. The reduction in gross profit and gross margin compared to the prior year are largely a result of certain fixed manufacturing costs, lower gross revenue and higher customer allowances and rebates.

Operating expenses were $3.2 million for the quarter ended September 30, 2005 compared to $3.1 million for the same period in 2004.

For the quarter ended September 30, 2005 the Fund posted net earnings of $1.5 million. Net earnings for the same quarter in 2004 were $4.4 million.

EBITDA was $2.2 million for the quarter this year compared to $4.0 million for the same quarter last year. The EBITDA margin was 14.2% this year compared to 18.1% for the same quarter last year.

Discussion of Nine month Results

Revenue for the nine months ended September 30, 2005 was $50.7 million compared to $67.5 million for the nine months ended September 30, 2004 or a decrease of 25%. The revenue decrease was a result of lower sales volume and the lower value of the US dollar relative to the Canadian dollar. Approximately 90% of our sales for the nine month period were denominated in US dollars. The average exchange rate for the period was down approximately 8% from the same period in 2004.

Gross margin was 31.2% for the nine months ended September 30, 2005 compared to 35.2% for the nine months ended September 30, 2004. Gross profit for the nine months ended September 30, 2005 was $15.8 million compared to $23.7 million for the quarter ended September 30, 2004. The current period includes approximately $1.3 million of charges related to the FEPP where $0.5 million is charged to cost of sales and $0.8 million is charged to operating expenses. For the same period last year, the total was $0.4 million with $0.2 million charged to cost of sales and $0.2 million charged to operating expenses. These costs are funded by GVP and do not impact net earnings. Excluding these charges, our gross margin was 32.3% for the nine months this year.

Operating expenses were $50.4 million for the nine months ended September 30, 2005 compared to $9.7 million for the same period in 2004. The current period includes a $34.8 million charge related to the write-down of goodwill. Excluding this charge, operating expenses were $15.6 million for the nine months this year. The net increase in current year expenses is a result of several items the most notable being increased amortization of $3.2 million, increased interest expense of $0.6 million, a decrease in hedge values of $6.0 million and a one-time charge of $0.4 million related to the resignation of our Chief Executive Officer on March 24, 2005, all of which are partially offset by a $1.8 million reduction in selling, general and administrative expenses and a $2.5 million increase in foreign exchange gains.

For the nine months ended September 30, 2005 the Fund posted a net loss of $25.0 million after the $34.8 million write-down of goodwill. Excluding this charge net earnings were $9.8 million. Net earnings for the same period in 2004 were $13.5 million.

EBITDA was $8.7 million for the nine months this year compared to $11.6 million for the same period last year. The EBITDA margin was 17.1% for the nine months this year compared to 17.2% for the same period last year.

Liquidity, Cash Flow and Distributions

At September 30, 2005 we had a net cash position of approximately $3.8 million. Our operating line was not used as of September 30, 2005. During the three month period ended September 30, 2005 the Fund generated cash from operations of $3.4 million including $1.4 million related to changes in our non-cash operating working capital. For the nine months ended September 30, 2005, the Fund generated $11.1 million of cash from operations.

The Fund's policy is to make distributions of our available cash to the maximum extent possible based on our estimate of Distributable Cash for the year. We intend to make equal monthly cash distributions to Unitholders of record on the last business day of each month, less amounts required to meet estimated expenses, cash redemptions or repurchase of units and other obligations and to establish reasonable reserves.

For the period from July 1, 2005 to September 30, 2005, the Fund declared three monthly distributions of $0.10417 per Fund unit. The same distributions were paid on the unsubordinated Class B Limited Partnership (LP) units. Distributions for the subordinated Class C LP units have been suspended from the quarter ended December 31, 2004. On October 6, 2005 the Fund announced that monthly distributions on Fund units would be reduced to $0.05 per unit effective with the October 2005 distribution. Distributions on subordinated LP units remain suspended.



Distributable Cash for the Period Ended September 30, 2005
--------------------------------------------------------------------
(in thousands of dollars 3 months ended 9 months ended
except per unit amounts) September 30, September 30,
2005 2005
--------------------------------------------------------------------
--------------------------------------------------------------------
EBITDA(1) 2,244 8,663
Add (deduct)
Interest (277) (824)
Capital expenditures (247) (443)
------------------------------
Distributable cash(1) 1,720 7,396
------------------------------

Distributions on Fund units 2,509 7,529
Distributions on unsubordinated
non-controlling interest(2) 168 502
Distributions on subordinated
non-controlling interest(2) - -
------------------------------
2,677 8,031
------------------------------

--------------------------------------------------------------------
--------------------------------------------------------------------
Outstanding units and per unit amounts
Total units outstanding(2) 10,706,760 10,706,760
Distributable cash per unit $ 0.16065 $ 0.69078
Distributions paid per unit $ 0.25003 $ 0.75009
Distribution ratio 155.6% 108.6%
--------------------------------------------------------------------
--------------------------------------------------------------------
Outstanding units and per unit amounts
Total units outstanding(2) 8,565,408 8,565,408
Distributable cash per unit $ 0.20081 $ 0.86347
Distributions paid per unit $ 0.31254 $ 0.93761
Distribution ratio 155.6% 108.6%
--------------------------------------------------------------------
--------------------------------------------------------------------
(1) EBITDA and Distributable Cash are not recognized measures under
Canadian GAAP. See our discussion on "Non-GAAP Measures".

(2) In addition to the 8,030,070 outstanding Fund units, there are
535,338 unsubordinated Class B units of AIM LP and 2,141,352
subordinated Class C units of AIM LP held by the non-controlling
interest. These subordinated and unsubordinated units of AIM LP
are currently held by GVP and represent GVP's retained interest
in AIM LP. The Fund pays monthly distributions on 8,565,408
units being the total of the Fund units and the unsubordinated
Class B AIM LP units. Distributions on the Class C LP units have
been suspended.


Credit Facilities

The Fund has a three-year non-amortizing $20 million CAD term loan that was fully drawn at the time of closing of the IPO. The Fund entered into an interest rate swap that effectively locks the interest rate at 5.4% for the term of the loan.

The Fund has a 364-day committed operating facility with a $15 million CAD limit based on various margin requirements. The operating facility was unused at September 30, 2005.

The Fund also has a foreign exchange facility with a notional risk limit of $22.8 million USD. This facility allows us to enter into a maximum of $60 million USD face value of USD/CAD forward foreign exchange contracts with maturities of up to 36 months. At September 30, 2005 we had US$47.0 million face value of contracts with maturities through April 2007. These contracts have exchange rates from 1.20 USD/CAD to 1.41 USD/CAD and a weighted average rate of 1.29 USD/CAD.

Capital Expenditures

For the quarter ended September 30, 2005 the Fund spent approximately $247,000 on capital items. For the nine months ended September 30, 2005 capital expenditures were approximately $443,000.

Contractual Obligations

During the third quarter the Fund expanded its warehouse facilities in Ferndale, WA. Total warehouse space increased from approximately 24,000 square feet to approximately 45,000 square feet with occupancy completed in mid August. Lease costs for the new facility are US$23,850 per month for a period of five years. Lease costs for the previous facility were US$11,040 per month. There have been no other changes in contractual obligations during the quarter ended September 30, 2005.

Summary of Quarterly Results

The table below presents a summary of our quarterly results since the inception of the Fund.



--------------------------------------------------------------------
(in thousands of 2005 2005 2005 2004 Aug. 3,
dollars except 2004-
per unit amounts) Q3 Q2 Q1 Q4 Sep. 30,
2004
--------------------------------------------------------------------
--------------------------------------------------------------------
Revenue 15,810 17,128 17,772 19,283 15,498
Gross Profit 4,917 5,329 5,575 6,000 5,237
Gross Profit % 31.1% 31.1% 31.4% 31.1% 33.8%
Operating
expenses 3,163 40,938 6,288 3,375 2,090
Non-Controlling
Interest 223 (9,150) (690) 397 519
Net earnings 1,531 (26,459) (23) 2,228 2,628
EBITDA 2,244 3,342 3,077 3,370 2,280
EBITDA % 14.2% 19.5% 17.3% 17.5% 14.7%
Distributable
cash 1,720 2,922 2,754 2,966 2,113
Distributions 2,677 2,677 2,677 2,676 2,159
Payout ratio 155.6% 91.6% 97.2% 90.2% 102.2%
Basic and
diluted
earnings
per unit 0.1906 (3.2950) (0.0028) 0.2774 0.3337
Weighted
average number
of units
outstanding 8,030,070 8,030,070 8,030,070 8,030,070 7,877,338
--------------------------------------------------------------------


Outlook

Orders during the third quarter have been slower than originally projected by some of our major customers. Several of our customers have been taking smaller orders as they experience lower sales to end consumers. We expect this lower level of activity to continue through the balance of the year although a good start to the holiday shopping season in late November could improve our outlook for the fourth quarter.

We believe that home improvement stores and discount or off-price retailers are making inroads into the wall decor sector. There are more low priced items imported from Asia that are driving price points and, in some cases, quality down. These shifts are putting pressure on more traditional home accent retailers that are selling design oriented products. We further expect that consumer discretionary spending will be negatively impacted by rising fuel costs and increasing interest rates.

We continue to invest in our strategic initiatives which we believe will provide returns in coming quarters. In August we completed the move into our expanded warehouse facility in Washington State. This facility was designed specifically for our use and will allow us to better service our customers.

We have largely completed our new collection of images and wall decor products that we will introduce along with our new catalogue early in 2006. We have also created a new line of alternative wall decor products that complement our existing wall decor products. We will be presenting our new line to select customers late this year and in early 2006.

Two new national account customers have taken their first orders in the third quarter and we are starting to see their initial replenishment orders. These accounts have increased potential as they rollout our collection to their entire chain of stores. We are also conducting research and assessing overseas markets to confirm the viability of selling our finished products in markets that we do not currently service.

We are working closely with our suppliers and manufacturing partners in Asia to improve our range of available products and supply chain efficiencies. Our goal is to continue to add design value and maintain quality.

Although we do not expect any improvement in our top line sales for the balance of the year, our financial position remains strong and we are working hard to develop new products and secure new customers and markets. We are focused on these items, which we believe will improve our results over the next several quarters.

Forward Looking Statements

This report contains "forward looking statements". These statements relate to future events or future performance and reflect our expectations regarding our growth, results of operations, performance, business prospects or opportunities or industry performance or trends. These forward looking statements reflect our current internal projections, expectations or beliefs and are based on information currently available to us. In some cases, forward looking statements can be identified by terminology such as "may", "will", "should", "expect", "intend", "plan", "anticipate", "believe", "predict", "potential", "continue" or the negative of these terms or other comparable terminology. A number of factors could cause actual events or results to differ materially from those discussed in the forward-looking statements. You should specifically consider these factors including the risks and uncertainties described under "Risk Factors" elsewhere in this report. Although we believe that the forward looking statements contained herein are based on reasonable assumptions, you cannot be assured that actual results will be consistent with such statements. Forward-looking statements are made as of the date hereof and we assume no obligation to update or revise them to reflect new events or circumstances.

Non-GAAP Measures

References to EBITDA are to our net earnings that have been adjusted for: Non-controlling interest, interest expense, income taxes, amortization, inclusion of realized gains and losses on forward foreign exchange contracts and exclusion of unrealized gains and losses on forward foreign exchange contracts and interest rate swap, and charges related to the Founders' Employee Participation Plan (FEPP).

EBITDA is a measure used by many investors to compare issuers on the basis of ability to generate cash flows from operations. EBITDA is not a recognized measure under Canadian GAAP and is not intended to be representative of cash flows or results of operations determined in accordance with Canadian GAAP or cash available for distribution. We believe that EBITDA is the appropriate measure from which to make adjustments to determine our Distributable Cash. Since we intend to distribute substantially all of our available cash on an ongoing basis, we believe that EBITDA is a useful supplemental measure in evaluating our performance. You are cautioned, however, that EBITDA should not be construed as an alternative to net earnings (as determined in accordance with Canadian GAAP) as an indicator of our performance or to cash flows from operating activities as a measure of our liquidity and cash flows. Our methods of calculating EBITDA may differ from methods used by other issuers and, accordingly, our EBITDA may not be comparable to similarly titled amounts presented by other issuers.

Distributable cash is not a recognized measure under Canadian GAAP. Canadian open-ended income trusts, such as the Fund, use distributable cash as an indicator of financial performance. We define Distributable Cash as EBITDA less interest expense and sustaining capital expenditures.

Distributable cash may differ from similar computations as reported by other issuers and, accordingly, may not be comparable to distributable cash as reported by such issuers. We believe that Distributable cash is a useful supplemental measure that tracks the performance of the business, excluding the effect of non-cash items. As such, we believe the most directly comparable GAAP measure is net earnings.



ART IN MOTION INCOME FUND
Consolidated Balance Sheets
(in thousands of dollars)
(Unaudited)

--------------------------------------------------------------------
--------------------------------------------------------------------
September 30, December 31,
2005 2004
--------------------------------------------------------------------

Assets

Current assets:
Cash and cash equivalents $ 3,813 $ 1,881
Accounts receivable 8,730 12,325
Forward foreign exchange contracts 4,789 4,780
Inventories 6,181 6,470
Prepaid expenses 1,110 1,326
-------------------------------------------------------------------
24,623 26,782

Forward foreign exchange contracts 1,409 2,333

Property, plant and equipment 18,971 19,652

Deferred financing costs 31 43

Intangible assets (note 3) 12,981 17,282

Goodwill (note 3) 29,384 64,210
--------------------------------------------------------------------

$ 87,399 $ 130,302
--------------------------------------------------------------------
--------------------------------------------------------------------

Liabilities and Unitholders' Equity

Current liabilities:
Bank indebtedness $ - $ 662
Accounts payable and accrued liabilities 6,528 7,342
Distributions payable 892 892
Due to related party - 57
-------------------------------------------------------------------
7,420 8,953

Interest rate swap 67 171

Long-term debt 20,000 20,000

Non-controlling interest 18,950 27,736

Unitholders' equity 40,962 73,442
--------------------------------------------------------------------
$ 87,399 $ 130,302
--------------------------------------------------------------------
--------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


ART IN MOTION INCOME FUND
Consolidated Statement of Operations
(in thousands of dollars, except per unit amounts)
(Unaudited)

--------------------------------------------------------------------
--------------------------------------------------------------------
Period from
Three months Nine months August 3,
ended ended 2004 to
September 30, September 30, September 30,
2005 2005 2004
--------------------------------------------------------------------

Revenue:
Sales $ 15,186 $ 48,645 $ 14,790
Royalties 624 2,065 708
--------------------------------------------------------------------
15,810 50,710 15,498
Cost of goods sold 10,893 34,889 10,261
--------------------------------------------------------------------
4,917 15,821 5,237

Expenses:
Amortization 1,610 4,818 1,069
General and
administrative 1,272 4,270 1,011
Image and product
development 456 1,370 359
Interest and bank
charges 318 982 213
Selling 2,212 6,538 1,746
--------------------------------------------------------------------
5,868 17,978 4,398
--------------------------------------------------------------------

Earnings (loss)
before undernoted items (951) (2,157) 839

Other earnings (expenses):
Interest rate swap 221 104 -
Interest and
miscellaneous 13 56 6
Foreign exchange gain 2,471 2,235 2,301
Goodwill impairment - (34,826) -
Gain on disposal of
property, plant and
equipment - 20 1
--------------------------------------------------------------------
2,705 (32,411) 2,308
--------------------------------------------------------------------

Earnings (loss) before
non-controlling interest 1,754 (34,568) 3,147

Non-controlling interest 223 (9,617) 519
--------------------------------------------------------------------

Net earnings (loss) $ 1,531 $ (24,951) $ 2,628
--------------------------------------------------------------------
--------------------------------------------------------------------

Basic and diluted
earnings (loss) per
unit $ 0.1906 $ (3.1072) $ 0.3337
--------------------------------------------------------------------
--------------------------------------------------------------------

Weighted average
number of units
outstanding 8,030,070 8,030,070 7,877,338
--------------------------------------------------------------------
--------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


ART IN MOTION INCOME FUND
Consolidated Statement of Unitholders' Equity
(in thousands of dollars)
(Unaudited)

Three months ended September 30, 2005

--------------------------------------------------------------------
--------------------------------------------------------------------
Unitholders' Accumulated Distrib-
capital earnings utions Total
--------------------------------------------------------------------

Balance, December 31,
2004 $ 72,714 $ 728 $ - $ 73,442

Activity for the
period - (23) (2,510) (2,533)
--------------------------------------------------------------------

Balance, March 31,
2005 72,714 705 (2,510) 70,909

Activity for the
period - (26,459) (2,510) (28,969)
--------------------------------------------------------------------

Balance, June 30,
2005 72,714 (25,754) (5,020) 41,940

Activity for the
period - 1,531 (2,509) (978)
--------------------------------------------------------------------

Balance, September 30,
2005 $ 72,714 $ (24,223) $(7,529) $ 40,962
--------------------------------------------------------------------
--------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


ART IN MOTION INCOME FUND
Consolidated Statement of Cash Flows
(in thousands of dollars)
(Unaudited)

--------------------------------------------------------------------
--------------------------------------------------------------------
Period from
Three months Nine months August 3,
ended ended 2004 to
September 30, September 30, September 30,
2005 2005 2004
--------------------------------------------------------------------

Cash provided by
(used in):

Operations:
Net earnings (loss) $ 1,531 $ (24,951) $ 2,628
Items not involving
cash:
Amortization 1,822 5,437 1,211
Goodwill impairment - 34,826 -
Gain on sale disposal
of property,
plant and equipment - (20) (1)
Non-controlling
interest 223 (9,617) 519
Founders' Employee
Participation
Plan expenses 305 1,333 280
--------------------------------------------------------------------
3,881 7,008 4,637
Net change in
interest rate swap (222) (104) -
Net change in forward
foreign exchange
contracts (1,692) 915 (2,620)
Change in non-cash
operating working
capital (note 6) 1,400 3,286 2,176
--------------------------------------------------------------------
3,367 11,105 4,193
Investments:
Purchase of property,
plant and equipment (247) (443) (5)
Proceeds on disposal
of property, plant
and equipment - 20 4
Acquisition of
business - - (87,904)
Acquisition of
non-controlling
interest - - (4,983)
--------------------------------------------------------------------
(247) (423) (92,888)
Financing:
Bank indebtedness - (662) 2,104
Distributions paid or
due to unitholders (2,509) (7,529) (1,619)
Distributions paid or
due to
non-controlling
interest (168) (502) (540)
Contributions
received for
Founders' employee
participation plan - - 101
Long-term debt - - 20,000
Net proceeds from
issuance of units - - 72,888
Due to related party - (57) 1,421
--------------------------------------------------------------------
(2,677) (8,750) 94,355
--------------------------------------------------------------------

Increase in cash and
cash equivalents 443 1,932 5,660

Cash and cash
equivalents,
beginning of period 3,370 1,881 -
--------------------------------------------------------------------

Cash and cash
equivalents, end of
period $ 3,813 $ 3,813 $ 5,660
--------------------------------------------------------------------
--------------------------------------------------------------------

Interest paid $ 288 $ 836 $ 201
--------------------------------------------------------------------
--------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


ART IN MOTION INCOME FUND
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars)
(Unaudited)

Three months ended September 30, 2005


1. Basis of presentation:

These interim consolidated financial statements have been prepared using Canadian generally accepted accounting principles (Canadian GAAP). The interim financial statements include normal recurring adjustments, which in management's opinion, are necessary for a fair presentation of the financial results of the interim period presented.

The disclosures in these statements do not conform in all aspects to the requirements of Canadian GAAP for annual financial statements. These statements follow the same accounting policies and methods of their application as the most recent annual financial statements, except as described in note 2. These statements should be read in conjunction with the significant accounting policies and other information in the most recent annual financial statements of Art In Motion Income Fund (the "Fund").

2. Accounting changes:

As of January 1, 2005, the Fund adopted Accounting Guideline 15, which requires a variable interest entity ("VIE") to be consolidated by its primary beneficiary ("PB"). The PB is the party that absorbs a majority of the VIE's expected losses and/or receives a majority of the expected residual returns. The Fund has evaluated its variable interests and has determined that the adoption of this guidance has no material impact on the financial statements.

3. Asset impairment:

During the second quarter ending June 30, 2005, both the intangible assets and goodwill underwent annual impairment tests. All individual intangible asset classes had current fair valuations greater than their net carrying values. The current valuation of the Fund was determined to be lower than its then carrying value and required a goodwill impairment loss of $34,826,000 to be recorded in the second quarter. A significant cause in the decline of the estimated value of the Fund was due to lower sales volume, which in turn had significant impact on lower than expected cash available for distribution to all unit holders of the Partnership.

4. Subsequent events:

On October 6, 2005, the Fund announced that distributions will be reduced from $0.10417 per month to $0.05 per month effective with the October distribution.

5. Segmented information:

The Fund operates in a single reportable operating segment as a publisher, framer and licensor of images and fine art reproductions.

The Fund's gross sales are derived from four main categories as follows:



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Period from
Three months Nine months August 3,
ended ended 2004 to
September 30, September 30, September 30,
2005 2005 2004
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Artprints $ 2,011 $ 6,295 $ 1,916
Framed and other 8,524 28,431 7,234
Decographs 4,663 15,029 5,954
Transfers 937 2,091 916
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Gross sales 16,135 51,846 16,020
Discounts and allowances (949) (3,201) (1,230)
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Sales 15,186 48,645 14,790
Royalties 624 2,065 708
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$ 15,810 $ 50,710 $ 15,498
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The Fund sells to customers located in the following regions:

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--------------------------------------------------------------------
Canada $ 2,228 $ 5,178 $ 1,578
United States 11,821 40,052 12,378
Europe 1,700 5,417 1,731
Other 386 1,199 333
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Gross sales 16,135 51,846 16,020
Discounts and allowances (949) (3,201) (1,230)
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Sales $ 15,186 $ 48,645 $ 14,790
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--------------------------------------------------------------------


Royalty income is earned almost entirely from customers located in
the United States.

As at September 30, 2005, $192,000 of the Fund's assets were located
in the United States and the remainder of the assets were located in
Canada.

6. Supplemental information:

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--------------------------------------------------------------------
Period from
Three months Nine months August 3,
ended ended 2004 to
September 30, September 30, September 30,
2005 2005 2004
--------------------------------------------------------------------

Change in non-cash
operating working
capital:
Accounts receivable $ 86 $ 3,595 $ (1,444)
Inventories 552 289 333
Prepaid expenses (19) 216 202
Accounts payable and
accrued liabilities 781 (814) 3,085
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$ 1,400 $ 3,286 $ 2,176
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The Fund is an unincorporated, open-ended limited purpose trust established under the laws of British Columbia to hold, indirectly, the securities of Art In Motion Limited Partnership. Art In Motion is a leading global publisher, framer and licensor of images and fine-art reproductions. Art In Motion designs, manufactures and markets fine-art reproductions based on proprietary artwork.

Contact Information

  • Art In Motion Income Fund
    Allan Achtemichuk
    Chief Financial Officer
    877-AIM-3233 (877-246-3233)
    www.aimincomefund.com