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

FMX Ventures Inc. formerly Footmaxx Holdings Inc.

May 30, 2005 15:26 ET

Footmaxx Holdings Inc.: First Quarter Statements and MD&A for 2005

TORONTO, ONTARIO--(CCNMatthews - May 30, 2005) - Footmaxx Holdings Inc. (TSX VENTURE:FMX), ("Footmaxx"), a Canadian owned company and one of North America's leading suppliers of corrective foot orthotics and diagnostic systems announces that:

Footmaxx deals with stronger Canadian dollar and increased competition

The Company has faced the challenges created by a strengthening Canadian dollar and a soft market demand for orthotics during the last few years. The first quarter of 2005 showed no change to this situation as further changes to reimbursement for orthotics in corporate health plans and increased competition reduced revenues along with the strengthening Canadian dollar. As a result, final revenues were $2,785,175, 9.8% below prior year revenues of $3,088,304. Consequently, EBITDA for the first quarter decreased by $245,118, from $431,258 in 2004 to $186,140 in 2005. Net loss increased from $126,652 for the first quarter of 2004 to $331,418 in 2005.

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 foot orthotics. Footmaxx's proprietary software uses advanced computer techniques to produce individually prescribed and technologically superior foot orthotics which reduce foot, knee, hip and lower back pain and enhance both the comfort and performance level of the wearer. For more information on Footmaxx visit: http://www.footmaxx.com



FOOTMAXX HOLDINGS INC.

Consolidated Balance Sheet
As at March 31, 2005
Unaudited


March 31, 2005 December 31, 2004
--------------------------------------

Current assets

Cash $ 19,247 $ 27,878
Accounts receivable 1,398,342 1,419,710
Inventory
Systems 68,581 44,840
Materials 407,873 409,418
Other assets 102,053 102,015

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Total current assets 1,996,096 2,003,861

Capital assets 810,292 906,910
Deferred financing costs 201,471 224,718

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Total assets $ 3,007,859 $ 3,135,489
--------------------------------------
--------------------------------------

Current liabilities

Accounts payable and accruals $ 1,053,556 $ 1,057,528
Current portion of Penfund loan 2,601,944 2,775,479
Demand loan - bank 383,000 260,000

--------------------------------------
Total current liabilities 4,038,500 4,093,007

Long term liabilities

Convertible debentures 13,440,593 13,182,298
Redeemable and retractable
preferred shares 2,103,924 2,103,924
--------------------------------------
Total long term liabilities 15,544,517 15,286,222

--------------------------------------
Total liabilities 19,583,017 19,379,229

Shareholders' equity

Capital stock 20,212,315 20,212,315

Closing retained earnings (36,787,473) (36,456,055)

--------------------------------------
Total shareholders' equity (16,575,158) (16,243,740)

--------------------------------------
Total liabilities and
shareholders' equity $ 3,007,859 $ 3,135,489
--------------------------------------
--------------------------------------

The interim Consolidated Financial Statements for the three months
ended March 31,2005 have not been reviewed by an auditor.


FOOTMAXX HOLDINGS INC.

Consolidated Statement of Operations and Deficit
For Quarterly Periods ended March 31, 2005 & 2004
Unaudited


Q1 2005 Q1 2004
--------------------------------------

Sales $ 2,785,175 $ 3,088,304
Cost of sales 1,301,943 1,288,300
--------------------------------------
Gross profit 1,483,232 1,800,004
--------------------------------------

Expenses
Selling and administration (note 3) 1,087,708 1,138,735
Information technology (note 3) 221,512 232,256
Accrued interest on convertible
debentures 258,296 215,097
Interest on long term loan 120,285 171,837
Other interest 4,718 6,735
Foreign exchange loss (gain) (12,128) (2,245)
Amortization of capital assets 104,863 131,084
Amortization of deferred
financing expenses 23,247 23,247
--------------------------------------
Total expenses 1,808,501 1,916,746
--------------------------------------

--------------------------------------
Loss before income taxes (325,269) (116,742)
--------------------------------------

Income taxes 6,149 9,910

--------------------------------------
Net loss for the period (331,418) (126,652)
--------------------------------------
--------------------------------------

Deficit, beginning of period (36,456,055) (35,993,703)

--------------------------------------
Deficit, end of period $ (36,787,473) $ (36,120,355)
--------------------------------------
--------------------------------------

Outstanding shares 37,554,534 37,554,534

Basic and diluted loss per
common share (note 5) $ (0.01) $ 0.00


The interim Consolidated Financial Statements for the three months
ended March 31,2005 have not been reviewed by an auditor.


FOOTMAXX HOLDINGS INC.

Consolidated Statement of Cash Flows
For Quarterly Periods ended March 31, 2005 & 2004
Unaudited

Q1 2005 Q1 2004
--------------------------------------

Cash flows from (used in)
operating activities:

Loss for the period: $ (331,418) $ (181,177)

Items not involving cash:
Amortization of capital assets 104,863 132,938
Amortization of deferred
financing costs 23,247 23,247
Interest on convertible
debentures 258,296 178,300
Imputed interest on long
term loan 48,687 98,336
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103,675 251,644
--------------------------------------

Change in other non-cash
working capital:

Decrease (increase) in
accounts receivable 21,368 (354,315)
Decrease (increase) in
inventory (22,196) (103,702)
Decrease (increase) in other
assets (38) 35,811
(Decrease) increase in accounts
payable and accrued liabilities (3,973) (56,804)
--------------------------------------
(4,839) (479,010)
--------------------------------------

98,836 (227,366)
--------------------------------------
Cash flows from (used in)
financing activities

Increase (decrease) in bank
indebtedness 123,000 400,000
Proceeds (repayment) of
Penfund loan (222,222) (222,222)
--------------------------------------
(99,222) 177,778
--------------------------------------
Cash flows used in
investing activities:

Purchase of capital assets (8,245) (63,341)

--------------------------------------
Increase (decrease) in cash (8,631) (112,929)
--------------------------------------

--------------------------------------
Cash, beginning of period 27,878 94,272
--------------------------------------

--------------------------------------
Cash, end of period $ 19,247 $ (18,657)
--------------------------------------
--------------------------------------


FOOTMAXX HOLDINGS INC.

Notes to Financial Statements
As at March 31, 2005


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 2004 Annual Report.

These statements have been prepared on the basis of accounting principles applicable to a going concern. The Company's ability to continue as a going concern is dependant upon the Company being able to meet its financial covenant tests for the Royal Bank and Penfund Inc. and its ability to improve the profitability of the business to permit it to realize its assets and discharge its liabilities in the normal course of operations. During the quarter, the Company achieved its covenants with Penfund Inc (note 6) and the Royal Bank has eliminated any covenants from the terms of its demand loan. If the going concern assumption is not appropriate for these consolidated financial statements, adjustments would be necessary to the carrying value of assets and liabilities and the reported revenue and expenses.

2. Revenue Recognition

The Company recognizes revenues from the sales of orthotics and proprietary computer systems when shipment occurs and title transfers. Revenue is recorded at the invoice price for each product net of estimated returns and incentives provided to customers.



3. Analysis of Fixed Expenses

Q1 2005 Q1 2004
--------------------------------------

Selling and administration
Field sales force 636,168 646,930
Marketing expense 51,987 53,010
Finance and administration 399,553 438,795
--------------------------------------
$ 1,087,708 $ 1,138,735
--------------------------------------
--------------------------------------

Q1 2005 Q1 2004
--------------------------------------

--------------------------------------
Information technology $ 221,512 $ 232,256
--------------------------------------
--------------------------------------


4. Summary of Stock Options
The following summarizes the stock options outstanding:

Weighted
average
Number exercise
of shares price
--------------------------------------

Outstanding, January 1, 2005 1,478,121 $ 0.10
Granted 0 0.00
Exercised 0 0.00
Retired 0 0.00
--------------------------------------
Outstanding, March 31, 2005 1,478,121 $ 0.10
--------------------------------------
--------------------------------------

The Company grants stock options to employees, directors and members
of the advisory board of the Company. The stock options vest over
varying time periods from the date of grant to four years and expire
approximately five years from the date of grant.


5. Loss per Common Share

Q1 2005 Q1 2004
--------------------------------------

Loss for the quarter $ (331,418) $ (126,652)

Weighted average common shares 37,554,534 37,554,534

Basic and diluted loss per
common share $ (0.01) $ (0.00)

The exercise of stock options which would result in the issuance of
1,478,121 shares and the conversion of debentures which would result
in the issuance of 133,906,538 have not been considered in the
calculation of diluted shares since they would cause the calculation
of loss per share to be anti-dilutive.

6. Penfund Long Term Loan

The Company achieved both covenants relating to the Penfund long term
loan for the first quarter of 2005.

7. Bank Indebtedness:

The Royal Bank has eliminated the financial covenants from their loan
agreement with Footmaxx Ltd. effective January 01,2005.

8. 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.

Q1 2005 Q1 2004
--------------------------------------
Revenue
Canada $ 1,232,035 $ 1,218,736
International 1,553,140 1,869,568
--------------------------------------
$ 2,785,175 $ 3,088,304
--------------------------------------
--------------------------------------


Q1 2005 Q1 2004
--------------------------------------
Gross profit
Canada $ 671,069 $ 776,743
International 812,163 1,023,261
--------------------------------------
$ 1,483,232 $ 1,800,004
--------------------------------------
--------------------------------------


March 31, 2005 March 31, 2004
--------------------------------------

Capital assets
Canada $ 747,826 $ 995,112
United States 263,937 307,549
--------------------------------------
$ 1,011,763 $ 1,302,661
--------------------------------------
--------------------------------------


FOOTMAXX HOLDINGS INC.

For the Three Months Ended March 31, 2005

Management Discussion and Analysis

Overall Performance

The Company has faced the challenges created by a strengthening Canadian dollar and a soft market demand for orthotics during the last few years. The first quarter of 2005 showed no change to this situation as further changes to reimbursement for orthotics in corporate health plans and increased competition reduced revenues along with the strengthening Canadian dollar. As a result, final revenues were $2,785,175, 9.8% below prior year revenues of $3,088,304. Consequently, EBITDA for the first quarter decreased by $245,118, from $431,258 in 2004 to $186,140 in 2005. Net loss increased from a loss of $126,652 for the first quarter of 2004 to $331,418 in 2005.

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.

Revenues

Revenues for the first quarter of 2005 decreased by $303,129, from $3,088,304 in Q1 2004 to $2,785,175 in Q1 2005, a decrease of 9.8%. The decline in the value of the US dollar, the currency in which Footmaxx transacts a majority of its business cost the Company $122,300 or 4.0% of revenues versus those achieved in the same period of 2004. Orthotic volumes decreased by 1,222 pairs or 4.4% versus the same period or 2004 and decreased orthotic revenues by $134,400. Changes to the reimbursement for orthotics in corporate health plans and increased competition are the reasons for decreased orthotic volumes. The balance of the decrease revenues was the result of decreased systems revenues due to the change in marketing direction from sale of systems to rental of systems.



Revenues by Geographic Area
% Total % Total
CDN $ Q1 2005 Sales Q1 2004 Sales
--------------------------------------------------
--------------------------------------------------

Canada $ 1,232,035 44.2% $ 1,218,736 39.5%
International
(mainly USA) 1,553,140 55.8% 1,869,568 60.5%
--------------------------------------------------
Total sales $ 2,785,175 100.0% $ 3,088,304 100.0%
--------------------------------------------------
--------------------------------------------------


The revenues in Canada for Q1 2005 were 1.1% better than revenues in Canada for the same period of 2004. The International business decreased by 16.9% caused equally by the weak demand for Orthotics and the strengthening Canadian dollar.

Gross Profit

Gross profit for the first quarter of 2005 decreased by $ 316,772 or 17.6% from $1,800,004 in Q1 2004 to $1,483,232 in Q1 2005. The unfavorable net impact of the strengthening Canadian dollar decreased gross profit approximately $85,400. The orthotic volume reduction resulted in a $95,000 decrease in gross profit. Increases in material and labor costs of orthotic manufacturing accounted for the balance of the decrease in gross profit.



Gross Profit by Geographic Area
% Gross % Gross
CDN $ Q1 2005 Profit Q1 2004 Profit
--------------------------------------------------
--------------------------------------------------

Canada 671,069 45.2% $ 776,743 43.2%
International
(mainly USA) 812,163 54.8% 1,023,261 56.8%
--------------------------------------------------
Total
gross profit 1,483,232 100.0% $ 1,800,004 100.0%
--------------------------------------------------
--------------------------------------------------


Canadian gross profit decreased 13.7% due to the volume decrease. Gross profit in the International business decreased 20.6% primarily due to decreased orthotic volumes and the unfavorable foreign exchange situation. In addition material costs have increased and manufacturing headcount was increased in late 2004 to deal with increased volumes.

Operating Expenses

Selling and administrative expenses decreased by $51,027 or 4.5% during the first quarter of 2005. The favorable effect of the stronger Canadian dollar reduced US sales and administration expenses by approximately $32,900 accounting for the majority of the cost reduction.



Selling and administration
Q1 2005 Q1 2004 Fav/(Unfav) %
--------------------------------------------------
--------------------------------------------------

Field sales force $ 636,168 $646,930 $ 10,762 1.7%
Marketing expense 51,987 53,010 1,023 2.0%
Finance and
Administration 399,553 438,795 39,242 8.9%
$1,087,708 $1,138,735 $ 51,027 4.5%
--------------------------------------------------
--------------------------------------------------


Information technology expenses decreased by $10,744 or 4.6% from $232,256 in Q1 2004, to $ 221,512 in Q1 2005

Net Loss

Net loss for the first quarter of 2005 was $331,418 which is $ 204,766 more than the $126,652 net loss for the same period of 2004. The $316,772 decrease in gross profit was only partial offset by fixed cost reductions.

EBITDA

Earnings before interest, taxes, depreciation and amortization for Q1 2005 decreased by $245,118 from $431,258 in Q1 2004 to $186,140 in Q1 2005. The $316,772 decrease in gross profit was partially offset by decreases in depreciation and selling and administration cost decreases. EBITDA has been used by the Company historically to measure the cash flow generated by operations. EBITDA is also used in calculating some of the Company's debt covenants for the Royal Bank line of credit and the Penfund long term debt.



Q1 2005 Q1 2004
------------------------------
Net loss $ (331,418) (126,652)

Add back:
Accrued interest on
convertible debentures 258,296 215,097
Interest on long term debt 120,285 171,837
Other interest 4,718 6,735
Amortization of capital assets 104,863 131,084
Amortization of financing costs 23,247 23,247
Income taxes 6,149 9,910
------------------------------

EBITDA $ 186,140 $ 431,258
------------------------------
------------------------------


Liquidity

Cash Flow

Cash flow for the first quarter of 2005 was negative $8,631. During the quarter, the Company increased its bank debt by $123,000 and reduced its long term debt by $222,222. Management feels that the Company will be able to meet all of its obligations in a timely manner, as it is currently doing. Collections of accounts receivable remained good with average days outstanding at 41 days at the end of the first quarter.

Capital Expenditures

The Company made investments in capital assets in the amount of $8,245 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

During the first quarter of 2004, the Company achieved all of the Penfund covenants. The Royal Bank has eliminated the financial covenants from their loan arrangement effective January 1,2005.

2005 Financial Outlook

Management believes that the impact of unfavourable foreign exchange should be minimal during 2005. The company has tried to minimize the effect of fluctuating foreign exchange rates by committing to hedging contracts for the balance of the year. Taking these factors into account and projecting moderate growth for 2005, management believes that profitability will be in the same range in 2005 as experienced during 2004. However, there are several potential upsides in the expansion of distribution orthotic products and new developments of the company's orthotic ordering system.

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.

Number of Common Shares issued to date: 37,554,535

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