FMX Ventures Inc. formerly Footmaxx Holdings Inc.
TSX VENTURE : FMX

FMX Ventures Inc. formerly Footmaxx Holdings Inc.

August 28, 2007 22:12 ET

Footmaxx Holdings Inc.: Financial Statements and MD&A for Q2 2007

TORONTO, ONTARIO--(Marketwire - Aug. 28, 2007) - Footmaxx Holdings Inc., ("Footmaxx")(TSX VENTURE:FMX), a leading orthopaedic and diagnostic company announces that:

Footmaxx achieves Q2 EBITDA of $456,000, Year-to-date $871,000

During the second quarter of 2007 the Company was impacted by fluctuations in exchange rates due to a strengthening Canadian dollar. As a result, revenue decreased slightly from $3,448,688 in the second quarter of 2006 to $3,447,993 in the second quarter of 2007. EBITDA for the second quarter decreased from $507,421 in 2006 to $456,457 in 2007. The company experienced a net loss of $35,247 for the second quarter of 2007 as compared to an net income of $16,599 in 2006.Year to date revenue was also slightly less than that for the same period of 2006 with revenue decreasing $4,293 from $6,792,871 in 2006 to $6,788,578 in 2007. Year to date EBITDA decreased $53,161 from $923,740 in 2006 to $870,579 in 2007. Net loss increased from $62,125 in 2006 to $90,049 in 2007.

Non-GAAP Measures

In the Management Discussion and Analysis, and elsewhere, measures such as earnings before interest, taxes, depreciation and amortization (EBITDA) and other terms that are used are not defined by generally accepted accounting principles ("GAAP"). The use of these terms may not be consistent with the way these terms are used by others. Where possible, in particular for EBITDA, tables and other information are provided that enables readers to reconcile between such non-GAAP measures and standard GAAP measures. While these measures are not defined by or required by GAAP, this information is provided to readers to help them better understand significant measures.

Forward-looking Statements

This release may contain projections and other forward-looking statements regarding future events. Such statements are predications involving known and unknown risks, uncertainties and other factors that may cause the actual events or results to be materially different. Although the Company believes that the forward-looking statements contained herein are reasonable, it can give no assurance that the Company's expectations are correct. For information concerning factors affecting the Company's business, the reader is referred to the documents that the Company files from time to time with applicable Canadian securities and regulatory authorities.

Footmaxx produces and globally markets high quality, state-of-the-art orthopaedic devices and products. Footmaxx's diagnostic system and proprietary software provides detailed information which enable clinicians to further evaluate patients for certain for knee, hip, lower back and bio-mechanical problems. For more information on Footmaxx visit: www.footmaxx.com.



FOOTMAXX HOLDINGS INC.

Consolidated Balance Sheet
As at June 30, 2007
Unaudited

June 30, 2007 December 31, 2006
-----------------------------------
Current assets

Cash $ 9,184 322,613
Accounts receivable 1,507,894 1,368,931
Inventory
Systems 114,544 47,229
Materials 429,575 387,304
Other assets 99,136 69,372

-----------------------------------
Total current assets 2,160,333 2,195,449

Capital assets 445,794 533,513
Deferred financing costs - 38,745

-----------------------------------
Total assets $ 2,606,127 2,767,707
-----------------------------------
-----------------------------------

Current liabilities

Accounts payable and accruals $ 913,713 1,147,358
Bank Indebtedness 240,000 -
Current portion of Penfund loan
(Note 6) - 864,932
Current Portion Convertible
debentures 16,448,103 15,661,057

-----------------------------------
Total liabilities 17,601,816 17,673,347
-----------------------------------

Shareholders' deficiency

Capital stock 20,248,082 20,248,082

Deficit (35,243,771) (35,153,722)

-----------------------------------
Total shareholders' deficiency (14,995,689) (14,905,640)
-----------------------------------

-----------------------------------
Total liabilities and
shareholders' deficiency $ 2,606,127 2,767,707
-----------------------------------
-----------------------------------


The interim Consolidated Financial Statements for the three months ended June 30, 2007 have not been reviewed by an auditor.

See accompany notes to the Consolidated Financial Statements.



FOOTMAXX HOLDINGS INC.

Consolidated Statement of Operations and Deficit
For Quarterly Periods ended June 30, 2007 & 2006
Unaudited

---------------------------------------------------------------------------
Year-to-Date Year-to-Date
June 30, June 30,
Q2 2007 Q2 2006 2007 2006
-----------------------------------------------------------
Sales $ 3,447,993 $ 3,448,688 $ 6,788,578 $ 6,792,871
Cost of sales 1,702,262 1,639,178 3,265,350 3,256,953
-----------------------------------------------------------
Gross profit 1,745,731 1,809,510 3,523,228 3,535,918
-----------------------------------------------------------

Expenses
Selling and
administration
(note 3) 1,078,762 1,102,434 2,217,305 2,224,827
Information
technology 220,041 219,254 437,659 434,435
Accrued
interest on
convertible
debentures 403,825 331,355 787,047 646,968
Interest on
Penfund loan 4,296 54,415 21,480 123,149
Other interest 1,885 723 1,901 1,270
Foreign
exchange loss
(gain) (9,529) (19,599) (2,315) (47,084)
Amortization of
capital assets 66,201 81,083 111,456 167,985
Amortization of
deferred
financing
expenses 15,497 23,246 38,744 46,493
-----------------------------------------------------------
Total expenses 1,780,978 1,792,911 3,613,277 3,598,043
-----------------------------------------------------------

Loss before
income taxes (35,247) 16,599 (90,049) (62,125)

Income taxes - - - -

-----------------------------------------------------------
Net loss for
the period (35,247) 16,599 (90,049) (62,125)
-----------------------------------------------------------

Deficit,
beginning of
period (35,208,524) (34,848,375) (35,153,722) (34,769,651)

-----------------------------------------------------------
Deficit, end of
period $ (35,243,771) $ (34,831,776) $ (35,243,771) $ (34,831,776)
-----------------------------------------------------------
-----------------------------------------------------------

Outstanding
shares 41,131,205 41,131,205 41,131,205 41,131,205

Basic and
diluted loss
per common
share (note 5) $ 0.00 $ 0.00 $ 0.00 $ 0.00

---------------------------------------------------------------------------


The interim Consolidated Financial Statements for the three months ended June 30, 2007 have not been reviewed by an auditor.

See accompany notes to the Consolidated Financial Statements.



FOOTMAXX HOLDINGS INC.

Consolidated Statement of Cash Flows
For Quarterly Periods ended June 30, 2007 & 2006
Unaudited

---------------------------------------------------------------------------
Year-to-Date Year-to-Date
June June
Q2 2007 Q2 2006 30,2007 30,2007
-------------------------------------------------
Cash flows from (used in)
operating activities:

Loss for the period: $ (35,247) $ 16,599 $ (90,049) $ (62,125)

Items not involving cash:
Amortization of capital
assets 66,201 81,083 111,456 167,985
Amortization of deferred
financing costs 15,497 23,246 38,744 46,493
Interest on convertible
debentures 403,825 331,355 787,047 646,968
Imputed interest on
Penfund loan (422,154) (279,215) (420,488) (251,394)
-------------------------------------------------
28,122 173,068 426,710 547,927
-------------------------------------------------

Change in other non-cash
working capital:

Decrease (increase) in
accounts receivable (95,442) (40,942) (138,963) (176,134)
Decrease (increase) in
inventory (15,219) (42,628) (109,586) (90,845)
Decrease (increase) in
other assets (63,918) (12,223) (29,764) (8,864)
(Decrease) increase in
accounts payable
and accruals (178,297) (115,913) (233,645) 128,913
-------------------------------------------------
(352,876) (211,706) (511,958) (146,930)
-------------------------------------------------

(324,754) (38,638) (85,248) 400,997
-------------------------------------------------

Cash flows from (used in)
financing activities

Increase (decrease) in
bank indebtedness 240,000 200,000 240,000 (20,000)
Repayment of
Penfund loan (148,148) (222,222) (444,444) (444,444)
-------------------------------------------------
91,852 (22,222) (204,444) (464,444)
-------------------------------------------------
Cash flows used in
investing activities:

Purchase of capital
assets (16,415) 12,449 (23,737) (3,452)
-------------------------------------------------

Increase (decrease) in
cash (249,317) (48,411) (313,429) (66,899)

Cash, beginning of period 258,501 95,502 322,613 113,990
-------------------------------------------------

Cash, end of period $ 9,184 $ 47,091 $ 9,184 $ 47,091
-------------------------------------------------
-------------------------------------------------

---------------------------------------------------------------------------

The interim Consolidated Financial Statements for the three months
ended June 30, 2007 have not been reviewed by an auditor.

See accompany notes to the Consolidated Financial Statements.

FOOTMAXX HOLDINGS INC.

Notes to Consolidated Financial Statements
As at June 30, 2007


1. Basis of Presentation

The unaudited interim period consolidated financial statements have been prepared by the Company in accordance with Canadian generally accepted accounting principles. The preparation of financial data is based on accounting policies and practices consistent with those used in the preparation of the audited annual consolidated statements. These unaudited interim period financial statements do not include all the disclosures required by generally accepted accounting principles and accordingly should be read together with the audited annual consolidated financial statements and the accompanying notes included in the Company's 2006 Annual Report.

These statements have been prepared on the basis of accounting principles applicable to a going concern. Footmaxx has incurred losses over the past three consecutive years and as at June 30,2007 had a shareholders equity deficiency of $14,995,684. The Company's convertible debentures matured on June 30, 2007.

As previously announced, the Board of Directors of the Company formed a special committee to consider and evaluate various alternatives to repay or refinance its outstanding secured convertible debentures which are due to mature on June 30, 2007. In the process of reviewing its alternatives, the Company has received interest from several parties with respect to various potential alternatives and has received several non-binding indications of interest. After carefully reviewing each of these and considering a number of other potential alternatives, the Company, based on the recommendation of the special committee, agreed to negotiate exclusively with one of the interested parties for a period of 45 of days in connection with the proposed acquisition of all the assets and associated liabilities of the Company (other than the outstanding convertible debentures). As the due diligence process has taken longer than initially anticipated, Footmaxx has agreed to extend the exclusivity period for a further (14) days in order to provide the interested party and Footmaxx sufficient time to negotiate and execute a definitive asset purchase agreement. In light of these negotiations, the holders of the Company's debentures have agreed with the Company to extend the maturity date of the debentures and not realize on their security until September 30, 2007, subject to certain conditions.

The non-binding indication of interest remains subject to completion of confirmatory due diligence, the execution and delivery of a definitive legal documentation and other customary conditions, including the approval of the Company's shareholders. There can be no assurance that the negotiations with this party will result in a binding agreement being made for the sale of the assets of the Company or any similar transaction. Furthermore, in the event that a transaction is completed, it is highly unlikely that the Company will receive sufficient proceeds after payment of all transaction costs to repay in full the convertible debentures and all accrued interest, or that any residual proceeds will remain for the benefit of the common shareholders of the Company. Following closing, the Board of Directors intends to explore potential alternatives to maximize the value of the Company's listing on the TSX Venture Exchange and accumulated tax losses.

2. Revenue Recognition

The Company recognizes revenue from the sales of orthotics, proprietary computer systems, footwear and other accessories for orthopedic products when shipment occurs, title is transferred and collection is reasonably assured. Revenue is recorded at the invoice price for each product net of estimated returns and incentives provided to customers.



3. Analysis of Fixed Expenses
Year-to-date Year-to-date
Q2 2007 Q2 2006 June 30, 2007 June 30, 2006
------------------------------------------------------
Selling and
administration
Field sales force $ 555,604 $ 603,149 $ 1,167,492 $ 1,217,858
Marketing expense 53,353 52,700 106,858 112,389
Finance and
administration 469,805 421,953 942,955 894,580
------------------------------------------------------
$1,078,762 $1,077,802 $ 2,217,305 $ 2,224,827
------------------------------------------------------
------------------------------------------------------


4. Summary of Stock Options

There were no stock options outstanding during the period January 1 to June 30, 2007.



5. Loss per Common Share
Year-to-date Year-to-date
Q2 2007 Q2 2006 June 30, 2007 June 30, 2006
---------------------------------------------------------
Loss for the
quarter $ (35,247) $ 16,599 $ (90,049) $ (62,125)
---------------------------------------------------------
---------------------------------------------------------
Weighted
average
common shares 41,131,205 41,131,205 41,131,205 41,131,205
---------------------------------------------------------
---------------------------------------------------------
Basic loss per
common share $ - $ - $ - $ -
---------------------------------------------------------
---------------------------------------------------------


The conversion of debentures which would result in the issuance of 164,481,030 have not been considered in the calculation of diluted shares since they would cause the calculation of the year to date loss per share to be anti-dilutive.

6. Penfund Long Term Loan

The Company made final payment to Penfund on May 31, 2007 to retire all indebtedness to Penfund Inc.

7. Segmented Information

The Company operates in Canada and internationally in one dominant segment, foot orthotics and associated computer systems. Revenue is attributed to geographic areas based on location of the customer. International sales are predominantly sales to the United States.



Year-to-date Year-to-date
Q2 2007 Q2 2006 June 30, 2007 June 30, 2006
-----------------------------------------------------
Revenue
Canada $ 1,857,189 $ 1,799,341 $ 3,548,907 $ 3,533,671
International 1,590,804 1,649,347 3,239,671 3,259,200
-----------------------------------------------------
$ 3,447,993 $ 3,448,688 $ 6,788,578 $ 6,792,871
-----------------------------------------------------
-----------------------------------------------------

Year-to-date Year-to-date
Q2 2007 Q2 2006 June 30, 2007 June 30, 2006
-----------------------------------------------------

Gross profit
Canada $ 992,707 $ 996,799 $ 1,908,867 $ 1,934,075
International 753,024 812,711 1,614,361 1,601,843
-----------------------------------------------------
$ 1,745,731 $ 1,809,510 $ 3,523,228 $ 3,535,918
-----------------------------------------------------
-----------------------------------------------------

June 30, 2007 June 30, 2006
---------------------------
Capital assets and
deferred financing
costs
Canada $ 251,653 $ 343,806
United States 194,141 225,353
---------------------------
$ 445,794 $ 569,159
---------------------------
---------------------------



FOOTMAXX HOLDINGS INC.
For the Six Months Ended June 30, 2007
Management Discussion and Analysis


Overall Performance

During the second quarter of 2007 the Company was impacted by fluctuations in exchange rates due to a strengthening Canadian dollar. As a result, revenue decreased slightly from $3,448,688 in the second quarter of 2006 to $3,447,993 in the second quarter of 2007. EBITDA for the second quarter decreased from $507,421 in 2006 to $456,457 in 2007. The company experienced a net loss of $35,247 for the second quarter of 2007 as compared to an net income of $16,599 in 2006.Year to date revenue was also slightly less than that for the same period of 2006 with revenue decreasing $4,293 from $6,792,871 in 2006 to $6,788,578 in 2007. Year to date EBITDA decreased $53,161 from $923,740 in 2006 to $870,579 in 2007. Net loss increased from $62,125 in 2006 to $90,049 in 2007.

Results of Operations

Non-GAAP Measures

In the Management Discussion and Analysis, and elsewhere, measures such as earnings before interest, taxes, depreciation and amortization (EBITDA) and other terms that are used are not defined by generally accepted accounting principles ("GAAP"). The use of these terms may not be consistent with the way these terms are used by others. Where possible, in particular for EBITDA, tables and other information are provided that enables readers to reconcile between such non-GAAP measures and standard GAAP measures. While these measures are not defined by or required by GAAP, this information is provided to readers to help them better understand significant measures.

Revenue

Revenue for the second quarter of 2007 decreased by $695, from $3,448,688 in Q2 2006 to $3,447,993 in Q2 2007, a decrease of less than 0.1%. Revenue would have increased $33,453 had it not been for the unfavorable effect of foreign exchange. Orthotic volumes were at the same level as in Q2 2006.

Year to date revenue for the first six months of 2007 decreased $4,293 or 0.1% from $6,792,871 in 2006 to $6,788,578 in 2007. For the first six months of 2007 the foreign exchange gains in the first quarter were offset by losses in the second quarter.



Second Quarter Revenues by Geographic Area

CDN $ Q2 2007 % Total Sales Q2 2006 % Total Sales
-----------------------------------------------------
Canada $ 1,857,189 53.8% $ 1,799,341 52.2%
International
(mainly USA) 1,590,804 46.2% 1,649,347 47.8%
Total sales $ 3,447,993 100.0% $ 3,448,688 100.0%
-----------------------------------------------------
-----------------------------------------------------



The revenue in Canada for Q2 2007 increased $ 57,848 or 3.2% over the revenue in Canada for the same period of 2006. Increases in footwear and systems more than offset the decrease in orthotic volume. The International business decreased by $ 58,543 or 3.6% . Increased orthotic volume was more than offset by a decrease in system revenue and $34,148 unfavorable foreign exchange.



Year-to date Revenue by Geographic Area

CDN $ YTD Q2 2007 % Total Sales YTD Q2 2006 % Total Sales
-----------------------------------------------------

Canada $ 3,548,907 52.3% $ 3,533,671 52.0%
International
(mainly USA) 3,239,671 47.7% 3,259,200 48.0%
Total sales $ 6,788,578 100.0% $ 6,792,871 100.0%
-----------------------------------------------------
-----------------------------------------------------


The year to date revenue in Canada for Q2 2007 increased $ 15,236 or 0.4% over the revenue in Canada for the same period of 2006. Increases in footwear and systems offset the decrease in orthotics. The International business decreased by $19,529 or 0.6%. Increased orthotic volume was more than offset by a decrease in system revenue.

Gross Profit

Gross profit for the second quarter of 2007 decreased by $ 63,779 or 3.5% from $1,809,510 in Q2 2006 to $1,745,731 in Q2 2007. Increased manufacturing costs and unfavorable foreign exchange were the main contributors.

Year to date gross profit decreased $12,690 or 0.4% from $3,535,918 in 2006 to $3,523,228 for the same period in 2007.



Second Quarter Gross Profit by Geographic Area

% Gross % Gross
CDN $ Q2 2007 Profit Q2 2006 Profit
---------------------------------------------------

Canada $ 992,707 56.9% $ 996,799 55.1%
International
(mainly USA) 753,024 43.1% 812,711 44.9%
Total gross
profit $ 1,745,731 100.0% $ 1,809,510 100.0%
---------------------------------------------------
---------------------------------------------------


Canadian gross profit decreased slightly by $4,092 or 0.4%. Gross profit in the International business decreased 7.3% due to increased manufacturing costs and unfavorable foreign exchange during Q2 of 2007.



Year-to-date Second Quarter Gross Profit by Geographic Area

% Gross % Gross
CDN $ YTD Q2 2007 Profit YTD Q2 2006 Profit
-----------------------------------------------------
Canada $ 1,908,867 54.2% $ 1,934,075 54.7%
International
(mainly USA) 1,614,361 45.8% 1,601,843 45.3%
Total gross
profit $ 3,523,228 100.0% $ 3,535,918 100.0%
-----------------------------------------------------
-----------------------------------------------------


Canadian gross profit decreased by $25,208 or 1.3%. Gross profit in the International business increased $12,518 or 0.8%.

Operating Expenses

Selling and administrative expenses decreased $23,672 or 2.2% during the second quarter of 2007 as compared to the same period in 2006. Year-to-date selling and administration expenses decreased $7,522 or 0.3% from $2,224,827 in the first six months of 2006 to $2,217,305 for the same period in 2007.



------------------------------------------------------------------------
Operating expenses Q2 2007 Q2 2006 YTD Q2 2007 YTD Q2 2006
------------------------------------------------------------------------
Field sales force $ 555,604 $ 605,653 $ 1,167,492 $ 1,217,858
------------------------------------------------------------------------
Marketing 53,353 57,714 106,858 112,389
------------------------------------------------------------------------
Finance and
administration 469,805 439,067 942,955 894,580
------------------------------------------------------------------------
Total Operating
expenses $ 1,078,762 $ 1,102,434 $ 2,217,305 $ 2,224,827
------------------------------------------------------------------------
------------------------------------------------------------------------


Information technology expenses increased by $787 or 0.4%, from $219,254 in Q2 2006, to $220,041 in Q2 2007. Year-to-date Information technology expenses increased $3,224 or 0.7% from $434,435 in 2006 to $437,659 in 2007.

Net Loss

Net loss for the second quarter of 2007 was $35,247, which is $ 51,846 less than the $16,599 net income for the same period of 2006. The decrease in gross profit was the main reason.
Year-to-date net loss for the six months ended June 30, 2007 was $90,049, which is a $27,924 increase from the $62,125 loss achieved for the same period of 2006. The decrease in gross profit and the increase in total expenses were the contributing factors.

EBITDA

Earnings before interest, taxes, depreciation and amortization for Q2 2007 decreased by $50,964 from $507,421 in Q2 2006 to $ 456,457 in the second quarter of 2007. The decrease in gross profit was the main contributing factor. Year-to-date EBITDA for the six months ended June 30, 2007 decreased $53,161 from $ 923,740 in 2006 to $ 870,579 in 2007. The decrease in gross profit and the $44,769 decrease in favorable foreign exchange were the main contributing factors. EBITDA has been used by the Company historically to measure the cash flow generated by operations.



Q2 2007 Q2 2006 YTD Q2 2007 YTD Q2 2006
------------------------------------------------------------------------
Net Income (Loss) $ (35,247) $ 16,599 $ (90,049) $ (62,125)
Add back:
Accrued
interest on
debentures 403,825 331,355 787,047 646,968
Interest on
long term debt 4,296 54,415 21,480 123,149
Other interest 1,885 723 1,901 1,270
Amortization
capital assets 66,201 81,083 111,456 167,985
Amortization
deferred
financing 15,497 23,246 38,744 46,493
Income taxes - - - -
-------------------------------------------------
EBITDA $ 456,457 $ 507,421 $ 870,579 $ 923,740
-------------------------------------------------
-------------------------------------------------


Liquidity

Cash Flow

Cash flow for the second quarter of 2007 was negative by $249,317. During the quarter, the Company reduced its Penfund debt by $148,148 and paid a $425,000 bonus interest payment as the final payment to Penfund. Year-to-date cash flow was negative $313,429. The company reduced the Penfund loan $444,444 and paid all outstanding interest including bonus interest in the amount of $425,000. Management feels that the Company will be able to meet all of its obligations in a timely manner, as it is currently doing, aside from the convertible debentures. (See convertible debentures.) Collections of accounts receivable remained normal with average days outstanding at 39 days at the end of the second quarter.

Capital Expenditures

The Company made investments in capital assets in the amount of $23,737 during the first six months of 2007 that were related mainly to the equipment pool to meet demand from trial, loaner and rental systems customers. These investments will support increases in the orthotic volumes.

Debt Covenants

On May 31, 2007 the company made the final payments on the Penfund loan and therefore the debt covenant calculations are no longer relevant.

Convertible debentures

As previously announced, the Board of Directors of the Company formed a special committee to consider and evaluate various alternatives to repay or refinance its outstanding secured convertible debentures which are due to mature on June 30, 2007. In the process of reviewing its alternatives, the Company has received interest from several parties with respect to various potential alternatives and has received several non-binding indications of interest. After carefully reviewing each of these and considering a number of other potential alternatives, the Company, based on the recommendation of the special committee, has agreed to negotiate exclusively with one of the interested parties for a period of 45 of days in connection with the proposed acquisition of all the assets and associated liabilities of the Company (other than the outstanding convertible debentures). As the due diligence process has taken longer than initially anticipated, Footmaxx has agreed to extend the exclusivity period for a further (14) days in order to provide the interested party and Footmaxx sufficient time to negotiate and execute a definitive asset purchase agreement. In light of these negotiations, the holders of the Company's debentures have agreed with the Company to extend the maturity date of the debentures and not realize on their security until September 30, 2007, subject to certain conditions.

There can be no assurance that the negotiations with this party will result in a binding agreement being made for the sale of the assets of the Company or any similar transaction. Furthermore, in the event that a transaction is completed, it is highly unlikely that the Company will receive sufficient proceeds after payment of all transaction costs to repay in full the convertible debentures and all accrued interest, or that any residual proceeds will remain for the benefit of the common shareholders of the Company. Following closing, the Board of Directors intends to explore potential alternatives to maximize the value of the Company's listing on the TSX Venture Exchange and accumulated tax losses.

2007 Financial Outlook

For the first six months of 2007 orthotic volume was approximately equal to the level for the same period of 2006. The company expects that there will be moderate growth during the balance of 2007 and the profitability will be at the same level as experienced in 2006. Though management tries to mitigate foreign exchange losses using forward contracts, a significant unfavorable foreign exchange move during the year could have a negative impact on operating results. (See convertible debenture.)

During the first six months of 2007, the Company's Canadian manufacturing employees were certified under the United Food and Commercial Workers Union. The company reached an agreement with the union and its membership and the resulting contract took effect June 9, 2007 and is in effect until March 1, 2010. The negotiated contract will not have a material impact on profitability.

Oversight Role of the Audit Committee

The Audit Committee reviews, with management, the Company's quarterly MD&A and related consolidated financial statements and approves the release to shareholders. Management also periodically presents to the Audit Committee a report of their assessment of the Company's internal controls and procedures for financial reporting.

Forward-looking statements

The foregoing may contain forward-looking statements. These statements are based on current expectations that are subject to risks and uncertainties, and the Company can give no assurance that these expectations are correct. Various factors could cause actual results to differ materially from those projected in such statements, including financial considerations and those predicting the timing and market acceptance of future products. The Company disclaims any intention or obligation to revise forward-looking statements whether as a result of new information, future developments or otherwise. All forward-looking statements are expressly qualified in their entirety by this Cautionary Statement.

Management's Responsibility for Financial Reporting

Disclosure Controls

The Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") have reviewed the disclosure controls in place as at June 30, 2007 and have concluded that they provide reasonable assurance that all material information relating to the Company would be made known to them. While the CEO and CFO believe that the Company's disclosure controls and procedures provide reasonable assurance they are also aware that any control system can only provide reasonable, not absolute, assurance of achieving its control objectives.

Internal Controls Over Financial Reporting

Management is also responsible for the design of internal controls over financial reporting ("ICFR") within the Company in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, the design of any system of control is based upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all future events, no matter how remote, or that the degree of compliance with the policies or procedures may not deteriorate. Accordingly, even effective ICFR can only provide reasonable, not absolute, assurance of achieving the control objectives for financial reporting. Based on an the initial evaluation of the overall control structure and in accordance with criteria established in Multilateral Instrument 52-109 the following disclosable weaknesses existed, as at June 30, 2007 and require internal control improvements.

Limited Resources - Segregation of Duties

Given the Company's size it had limited resources within the finance department to adequately segregate duties and to permit or necessitate the comprehensive documentation of all policies and procedures that form the basis of an effective design of ICFR. As a result, the Company is highly reliant on the knowledge of a limited number of employees and on the performance of mitigating procedures during its financial close process to ensure that the consolidated financial statements are presented fairly in all material respects. As of December 31, 2006 the Company had done an initial documentation of its key accounting policies and procedures to determine where weaknesses existed. The Company has retained an experienced practitioner to assist in completing the process of comprehensively documenting and disseminating all policies and procedures that could have an impact on financial reporting. This will be completed in 2007.

Number of Common Shares issued to date - 41,131,205

Contact Information