A R T INTERNATIONAL INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X ] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED November 30, 2003

Commission File No. 000-16008

ART INTERNATIONAL CORPORATION (formerly A.R.T. INTERNATIONAL INC.)

Ontario, Canada 98-0082514

5-7100 Warden Avenue, Markham, Ontario, L3R 8B5 Canada (905) 477-0252

Securities registered pursuant to Section 12(b) of the Exchange Act:
None

Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Shares, without par value

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
YES [] NO [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
YES [] NO [X]

The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $US 2,750,000 as of November 30, 2003 based upon
the closing price of $US0.91 on the Nasdaq OTCBB reported on such date, although
the common shares are thinly traded and in the year ended November 30, 2003 the
common shares traded at prices between $US0.30 and $US1.50. Shares of common
stock held by each executive officers and directors have been excluded in that
such persons may under certain circumstances be deemed to be affiliates. This
determination of executive officer and affiliate status is not necessarily a
conclusive determination for other purposes. As of November 30, 2003, the number
of shares of Common Stock outstanding was 3,035,457.

PART I

Item 1. Business.
This Annual Report on Form 10-K and the documents incorporated herein by
reference contain forward looking statements based on current expectations,
estimates and projections about A.R.T. International Inc.'s businesses,
management's beliefs, and certain assumptions made by management. All
statements, trends, analyses and other information contained in this report
relative to trends in sales, gross margin, anticipated expense levels and
liquidity and capital resources, as well as other statements including, but
not limited to, words such as "anticipate", "believe", "plan", "estimate",
"expect", "seek", "intend" and other similar expressions, constitute
forward-looking statements. These forward-looking statements are not
guarantees of future performance and are subject to certain risks and
uncertainties that are difficult to predict. Accordingly, actual results
may differ materially from those anticipated or expressed in such
statements. Potential risks and uncertainties include, among others, those
set forth herein under "Factors That May Affect the Business", as well as
"Management's Discussion and Analysis of Financial Conditions and Results
of Operations". Except as required by law, we undertake no obligation to
update any forward-looking statement, whether as a result of new
information, future events or otherwise. Readers, however, should carefully
review the factors set forth in other reports or documents that we file
from time to time with the Securities and Exchange Commission.

In this Annual Report, "Company", "Corporation", "A.R.T.", "we", "us" and
"our" refer to ART International Corporation (formerly A.R.T. International
Inc.) unless the context otherwise dictates.

The Company operates in Canada and it reports in Canadian dollars. Unless
other wise stated the numbers contained herein are reported in Canadian
dollars. During fiscal 2003, monthly average translation rates between
Canadian and United States dollars have ranged from a low of: $CAD1.30:
$US1.0 to a high of $CAD1.58: $US1.0. Approximately $62,000 (76%) of the
Company's sales revenues were transacted in US dollars. In addition, at
November 30, 2003, the Company owed approximately $US150,000 and $US553,000
[$US = United States dollars] to trade and secured creditors respectively.
(See Item 7a. Qualitative and Quantitative Disclosures about Market Risk.)

The Company was incorporated in Canada on January 24, 1986 under The
Ontario Business Corporations Act. The Company's primary business is the
production, distribution and marketing of replications of original
paintings that incorporated brushwork texture including but not limited to
oil, acrylic and other textured pigment-mediums. The principle component of
the Company's product line is PVC-based plastic.

The Corporation operates as ART International Corporation (formerly ART
International Inc. & Artagraph Reproduction Technology Inc. or "ART".) The
Company's reproductions on canvas are marketed using the registered
trademark of Artagraph(R) Editions, (sometimes referred to as
"Artagraph(R)" or Artagraphs(R)").

The Corporate offices and operations are located at 7100 Warden Avenue,
Markham, Ontario, Canada. Telephone: 905 477 5052. . The Company continued
to face severe liquidity problems during fiscal 2003, which was due to
ongoing losses and falling revenues. The ongoing business viability of the
Company is in serious jeopardy, while the Company continued to rely on its
creditors for ongoing support and The Museum Company ("Museum') for as its
main source of sales revenues.

Generally, the Company has been reliant on one or a few major customers. In
the past three fiscal years the Company's major customer was Museum, a
specialty retailer operating in the United States, whereby the
Corporation's sales revenues from that source had represented in the range
of 40 - 60% of its total revenues.

On January 10, 2002, Museum went into Chapter 11; at which date Museum owed
the Company approximately $100,000 of trade receivables. The Company had
purchased export insurance for its US customers including the Museum, which
lowered the bad-debt loss on its trade-receivables (owed by Museum) to
approximately $30,000. In the period from December 1, 2001 to January 10,
2002, the Corporation sold $65,000 of Artagraph images to Museum.

During the period in Chapter 11, from January through April 2002, Museum
operated as The Museum Company, D.I.P. ("Museum") and continued to purchase
products from the Company. Total sales revenues reported in the Chapter 11
period were approximately $21,000.

In May 2002, Museum emerged from Chapter 11, whereby the continuing
business assets were sold to a third party company, "The Museum Company
Acquisition Corp" (hereinafter also referred to as "Museum"). During the
Chapter 11 proceedings Trustee/Receiver-manager had closed approximately 50
- 60% of its stores. Consequently, a reduction of sales revenues from this
retail store-chain was anticipated because of: first, the closed stores;
second, the Company's inability to finance additional images and
point-of-sale materials; and, third, the Company placed Museum on 15-day
payment terms that have reduced Museum's ability to finance its inventory
and consequently Museum purchased only made-to-order framed images that the
Company drop-shipped directly to the customer.

From May 2002 through November 2002, the Company sold Museum approximately
$30,000 of Artagraph products.

In the first six months of fiscal year 2003, sales to the Museum Company
declined significantly; reported sales revenues were approximately $14,000.
Thereafter, following the first NSF payment, the Company placed Museum on
"cash-on-order" basis exclusively, and following this the Company received
no further orders from the Museum. Management believes Museum may have
reorganized its business affairs a second time and that its new operations
focus on an internet-based business model and lower-priced merchandise
product. There is no expectation that the Corporation will resume sales to
the Museum in the foreseeable future.

Business
The Fine Art Reproduction Division ("Artagraph") manufactures high quality
fine art reproductions of original paintings using the Company's patented
and proprietary technologies and markets them through a variety of channels
and programs. The Company's reproductions on canvas are marketed using the
registered trademark of Artagraph(R) Editions, (sometimes referred to as
"Artagraph(R)" or Artagraphs(R)").

Within the last three years the Corporation invested in The Buck a Day
Company ("Buck") eventually acquiring 100% of Buck's share capital, and
then through the conversion of debt, owed to Buck's founding management
group and third party debt, into common shares by Buck, the Corporation's
investment was diluted down-to 10% ownership; and in February 2002 the
Corporation sold 100% of the common shares it owned in Buck to a third
party corporation. At the time of its investment in the Buck common shares
the Corporation had the expectation that Buck would market and distribute
its products.

Buck was a marketing, telesales and financing operation designed to bring
direct response to the next level through an integration of media, internet
and communications technologies. The "Buck A Day" branding is the basic
premise of its business model; specifically that name brand products are
packaged so that the customer can purchase them for as little as "a dollar
a day" with no down payment.

On December 6, 2002, the management of Buck laid-off all employees of the
corporation and subsequently filed Buck for bankruptcy proceedings.
Shareholders of Buck representing approximately 60% and control of that
corporation applied to the Ontario Courts for injunctive relief and removal
of the management of the corporation, Edward LaBuick Dennis LaBuick and
Keith Kennedy ("Defendants"). In subsequent rulings the Ontario Court
halted the bankruptcy proceedings, removed the Defendants from management
and directors of Buck, in addition Edward LaBuick and Keith Kennedy were
ruled in contempt of court. On January 28, 2003, in a special meeting of
shareholders of Buck a new board of directors was elected. Said directors
and shareholders of the corporation attempted unsuccessfully to recommence
operations in 2003; on and about April 2003 the landlord of Buck's offices
repossessed the premises to protect landlord's rights and locked-out Buck.

The following table shows comparatives of gross revenues between the two
disparate business segments of the Corporation and the percentage ownership
by the Corporation of Buck common shares at the beginning and end of each
fiscal year.

--------------------------- ----------- ----------- ----------- -----------
Business Segment 2003(2) 2002 (1) 2001(1) 2000(1)

Artagraph 83,450 191,820 520,528 807,144
Buck (3) - 19,153,000 8,070,000 3,563,171
% Ownership in Buck
-- Year Beginning Dec. 1 0% 10% 100% 40%
-- Year End Nov. 30 0% 0% 10% 100%
--------------------------- ----------- ----------- ----------- -----------

(1) The applicable dates for Buck are 9 months ended April 2002 (un-audited);
the year ended July 31, 2001 (audited); and, the 11 months from inception
January 1, 2000 through November 30, 2000 (audited) respectively.

(2) Although Buck continued in operations until April 2003, at which date Buck
was locked out of its corporate offices, there are no reported financial
results for the years ended July 2002 or 2003 respectively.

(3) The gross revenues for the fiscal 2002 and 2001 periods were translated
from the reported gross revenues in USD$ at $CAD:$USD 1.55:1.00 and
1.50:1.00 respectively. The gross revenues for fiscal 2000 were reported in
Canadian dollars.

Artagraph -- replicates both the color and brush stroke texture, so that
the resulting works of art are almost indistinguishable, by the average
person, from original paintings. The Artagraph(R) Editions include signed
and numbered limited editions by contemporary artists, as well as editions
of works by the great masters, and have a suggested retail price of between
US$299 and US$849. Some limited edition reproductions of contemporary
artists retail considerably higher, but this is solely due to the Artist's
reputation.

The majority of the Company's sales represent exports, principally to the
United States, and to a lesser extent, to other countries. The following
table shows the Company's sales to its principal geographic markets for the
last four fiscal years.

---------------------------------------------------------------------
Year Ended Nov 30
-----------------
2003 2002 2001 2000
---- ---- ---- ----
(In Canadian Dollars)
Canada 20,233 17,554 102,934 113,360
United States 63,217 174,266 389,198 626,908
Overseas 0 0 28,396 66,876
------------------------------------------------------
83,450 520,528 807,144
---------------------------------------------------------------------

Many of the works reproduced by the Company are in the public domain.
Works, which are not in the public domain, are reproduced pursuant to
agreements with various copyright holders.

The Company manufactures reproductions of Impressionist and
Post-Impressionist paintings as well as paintings by contemporary artists.
The Company does not always create a replication directly from an original
painting. A contract artist, who is engaged to replicate the texture and
brush strokes of the original artist's style, also creates semi-originals
(a copy of the original art work's texture rendered by a professional
artist in an oil or acrylic medium)..

The Company also contracts with art publishers, and produces and sells
replications of contemporary works of art for a fixed price, which are then
distributed by the publisher.

The Company has a library of approximately 80 different Artagraph(R)
titles, of which the majority are Impressionist or Post-Impressionist
paintings, some being limited edition reproductions. These reproductions
are of paintings by such artists as Monet, Manet, Van Gogh, Degas, Renoir,
Turner and other well-known artists. Once the Company has a reproduced
title in its library, it can manufacture as many reproductions from that
title as the market will bear, subject only to limitations imposed by
contracts with third parties that limit the availability of certain
Artagraph(R) Editions.

The replication process is a two-stage process. The first stage is
replication of the painting's color. The second stage, which directly
involves the Company's patented process, is the reproduction of texture and
brush strokes. The Company works from transparencies of the original art,
preparing color separations and then printing the image on a specially
designed "paper" called a litho, a PVC-based plastic. The Company
subcontracts with third parties to produce the transparencies and printed
lithos in accordance with the Company's proprietary specifications. In the
second stage, the Company produces a bass relief mold from either the
original oil painting or, in cases where the original oil painting is not
available, from the semi-original of the painting.

The final stage of processing involves precise application of heat and
pressure to the bass relief mold, the printed litho and to a specially
PVC-coated canvas to create the finished product.

During 1998, the Company's Artagraph Product won two Benny awards for
Best-of-Category in the Latest Technology Pieces category for its
submission of the limited edition reproduction of Howard Terpning's "Crow
Pipe Ceremony", and in the Poster and Art Prints category for the "Holy Man
of the Blackfoot". The Bennys Awards are the "oldest and largest
international printing competition", which was held in Chicago during
October 1998. The Company faced competition from 874 companies that
submitted 4,990 printed products.

Currently it is primarily engaged in supplying retail store or art gallery
customers with its catalogue products. In the past, the Company has
marketed through specialty retail; overseas distributors, including Japan
and Spain; direct mail with American Express Card Members programs; and,
carried out contract printing for publishers.

The Company has been seeking to expand its business in foreign markets,
extending some territories with existing distributors and signing new
agreements with new distributors. Due to the Company's lack of financial
resources these distributors have to provide their own point-of-sale
materials, framing products and other promotional materials to their
businesses. Consequently, all these agreements are on a best efforts basis
and, like all the Company's distributor agreements; there can be no
assurance of future revenues or profits from the efforts of any of these
distributors.

There are many publishers who represent contemporary artists engaged in
publishing art reproductions, such as lithographs, serigraphs and posters.
The Company believes that its products offer a unique alternative to these
publishers to add an important new and more accurate reproduction medium to
their existing product lines.

The Company has produced custom pieces under fixed price contracts for art
publishers and agents, with product development costs paid by the
publisher. Prices charged vary depending upon the size of the product, the
number of colors and the size of the edition. Pricing for textured canvas
(sold without framing, which is the responsibility of the customer) ranges
from $US50 through $200 per canvas print. Currently, the Company has no
publishing contracts, and nor is it actively promoting this business owing
to its limited financial resources; the last year that the Company had and
significant publishing business was in 1999 when revenues from that segment
accounted for 25% (approximately $250,000) of total sales.

The process for manufacturing Artagraph(R) Editions has been patented in
Canada and the United States. An application for improvements to the
Artagraph(R) replication process resulted in the issuance of a new United
States patent in November 1990, which patent expires in 2008. Currently,
the Company is delinquent in paying its patent fees and although it may
bring them into a current status by paying a penalty, there is continuing
doubt concerning the Company's ability to meet its on-going obligations.
Consequently the Company's enjoyment of patent protection is in serious
jeopardy and the loss of patent protection could have negative consequences
for the Company' ability to raise capital or successfully challenge patent
infringement by third parties.

The main business of the Company, that is in the retail sector, has
seasonality and follows the traditional retail experience with the
strongest sales period through the Thanksgiving and Christmas holidays,
however, the absence of promotional materials, which the Company would
normally utilize to maximize its potential for sales growth, results in a
flatter sales peaks. The seasonality impact is significantly softened
because overall promotional activity is entirely reliant on the customers'
own efforts and because total gross sales revenues are at an all-time low.

Raw materials utilized in the manufacturing process are commodities that
can be purchased from alternative suppliers. A principal component of the
raw material inventoried by the Company is sheet PVC, which is utilized in
the printed lithos, and a PVC coated canvas. The PVC is the key component
enabling the Company to mold the texture and promote molecular bonding of
the laminated litho and canvas. Raw materials have an indefinite shelf life
and do not spoil or become obsolete. Components such as frames are not
inventoried; rather they are purchased to fill custom orders on a
just-in-time basis. Raw materials are all sourced locally and although
there has been a steady increase in raw material prices over the past five
years, the Company has no volatile pricing to contend with. Increasing
price trends in its raw materials have been offset by the weaker Canadian
dollar versus the United States dollar, during the same time frame. As
discussed above, the Company predominantly exports and consequently prices
in United States Dollars.

The Company prints and inventories quantities of individual images from 500
to 1,000 units to achieve economical print costs. Printed lithos also have
an indefinite shelf life and are sold through variety programs over a
number of years. Printer lithos are stored pending orders from customers
then completed through the texturing, stretching and framing phases to ship
on a just-in-time basis. Framing and printing are out sourced to other
third parties, and there are many alternative suppliers for both available
in the general locality of the Company's production facility.

The Company transfers out-sourced products and services through to its
customers at cost plus a modest mark-up. The Company charges a significant
mark-up on its patented texturing process, which contributes more than 80 %
of its gross profit.

The Company has accumulated excessive inventories of printed images from
earlier years through 1994. Approximately 75% of its current inventory of
images has only been printed once and that pre-dates 1994. All inventories

that have not turned more than once in three years have been written-off.
The replacement cost of the quantities-on-hand of images, which is carried
in the financial statements at approximately $50,000, is estimated at over
$1,000,000.
================================================================================

In the past three years the Company was engaged in a direct marketing
business through its investment in Buck. The Company sold its investment in
Buck February 2002. The Corporation's investment in Buck went from 40%, on
December 4, 2000, to 100%, and from 100% to approximately 10%, on October
31, 2001.

Buck marketed and sold name brand products directly to consumers and small
businesses, utilizing its multi-media approach, which was principally,
direct response television advertising. The Company operated a turnkey
business, including tele-sales and warehouse-fulfillment locations as well
as purchase financing services through its branded consumer credit card
program, the "Buck a Day" credit card.

The basic product line packages could be purchased under a
minimum-financing program for "a buck a day", which slogan is the Company's
own name brand. The Company also sold up-grades, referred to as "up-sells",
to its basic product line packages, which carried a higher gross profit
margin. Potential customers were approved for a pre-determine level of
credit ranging from $1,000 up to $10,000 dollars by a third party credit
underwriter, which eliminated credit risk for the Company.

The Company operated its business in Canada; marketing and sales activities
were principally concentrated on the sale of IBM's product lines in
personal computing and related peripherals.

A direct by-product of the Company's activities was the accumulation of a
database of consumers with pre-approved credit limits. At the end of fiscal
2000, this consumer database was approximately 5,000 in numbers and had
grown to approximately 20,000 by fiscal 2002. The Company anticipated that
it would develop business alliances with other companies to market and sell
name brand products through its catalogue division to this consumer
database.

A key factor to the success of the Company's business was the formation of
strategic business relationships with large manufactures and distributors
of consumer products, to ensure the timely supply of products at
competitive prices. In addition, the Company's sales success relied on its
ability to offer its customers credit finance services.

On September 1, 2000, the Company signed a direct distributor agreement
with IBM, whereby the Company became a full IBM Business Partner Reseller.
This had the direct benefit of improving the Company's gross margin by up
to 10 percentage points. The Company had commenced negotiations with other
name brand manufactures and distributors, including JVC Electronics.

The retail financing service offered by the Company was provided through
Associates Finance Group and CITI Bank; the latter purchased the former in
2001. Since the Company commenced processing its deals through Associates
in April 2000, it had consistently approved finance credit for 25% of all
deals submitted for credit approval.

The Buck owner-managers, however, focused on intense advertising without
regard to operations, fulfillment and customer service. In 2002, Buck was a
major marketing success, with sales of almost 10,000 IBM systems in an
8-month period but fractured, inefficient operations and poor management
overshadowed the sales success. Despite the high sales generated in 2002,
Buck owner-managers failed to exploit the merchandising opportunities,
posted significant losses and abandoned Buck on the brink of bankruptcy.

Research and Development.

The Corporation does not expend capital on research and development. As
reported herein the Company has been unable to pay patent fees with respect
to maintenance payments on its US patents. During fiscal 2002 the 11.5-year
maintenance fee for approximately $3,000 was not paid, and consequently in
order for the patent to be reinstated the Corporation must pay in excess of
$10,000, including the applicable surcharges. There is no certainty that
the Company can reinstate its US patents.

Trend information.

The Company's future success in the marketplace will depend upon raising
additional capital, creating greater awareness of its products through
aggressive advertising, participation at trade shows, as well as updating

and expanding its library of images and providing new point-of-sale
materials. Owing to the Company's inability to finance new initiatives, or
to actively participate in trade shows, or to hire dedicated sales
personnel to sell to its markets, the Company continues to achieve limited
success in developing new opportunities, with new or existing customers and
markets.

Management believes that a minimum level of capital of $US 500,000 and
lead-time of three to six months would be required to rollout an initial
market strategy. Including capital to acquire new images, print a
catalogue, attend trade shows, and hire marketing and sales staff

Recent trends in the ART Market include new reproduction processes that
minimize capital investment in inventory and equipment such as the giclee
reproduction process. In addition, limited edition art is trending to
smaller edition sizes to address consumer demand for value.

The Company believes that the Artagraph process is very price-competitive
with other known canvas-textured products that are available in the market
today. The Company believes that no other known reproduction processes
compare in quality with the Company's processes in accurately reproducing
brush strokes and texture, and the colour intensity and other reproduction
characteristics are believed to be at least equal to any other known
reproduction process.

With retail sales topping $29 billion, the art market is becoming big
business, with sales up 14% over 2000's $25.5 billion, according to a new
market research study Art and Wall Decor Report, 2003: The Market, The
Competitors, The Future Trends. "Nearly 48 million U.S. households, or 42%
of all American households buying art in 2002, the art market is
increasingly diverse as distinct market segments buy for different
reasons."

While the art market is rapidly becoming a mass market, with pre-framed
prints available at all sorts of mass outlets, including Wal-Mart, Target
and Kmart, as well as at national specialty home furnishing chains, such as
Bed, Bath & Beyond, Bombay Company, Pier 1, and Linen's & Things, a more
clearly differentiated connoisseurs' market at the luxury end is emerging.
The single fastest growing category in the art market is original art,
defined as one-of-a-kind work, such as watercolor, oil painting, pencil
sketch, and chalk drawing. In addition recent advances in art reproduction
technologies, such as printing on canvas and giclee, appeal most to the
upper-end of the art buying market. Today's art buyer has much greater
availability and accessibility to original art than ever before, with the
average amount spent on an original work of art being $US 300. They also
are more sophisticated and better educated so they can truly appreciate the
value of owning a one-of-a-kind piece.

According to some experts, in reviewing past purchase behavior and art
consumers' expected spending through 2003 and beyond, two key market
segments emerge which offer art marketers their best sales opportunities:

(1) At the luxury end, art connoisseurs, representing over one-fourth of
the total art market, are projected to be the most active buyers.
Their appetite for art is undiminished by world events, as they have
been the most active segment buying art in the first quarter of 2003.
This segment is comprised mainly of affluent and highly educated baby
boomers that view themselves as collectors, who shop primarily in art
galleries and framing shops and for whom decorating takes a back seat.

(2) The other segment holding the most promise is home decorators, 28% of
the market. This segment is largely budget-minded young married
families who have a need to buy art to fill empty walls in new homes.
Many home decorators expect to buy more art in the coming year and are
likely to continue frequenting mass merchants and home furnishings and
furniture stores for the already-framed prints they favor.

(3) Major trends and strategic implications impacting art market now and
in the future:

o Art market is diverging with trend toward mass, while others want
more class
o Home decorating is only half the story in why people buy art
o Internet continues to grow in importance in the art market
o Changing technologies and mediums must be embraced
o Think outside the home box: increasing opportunities in the
commercial art market
o Channels of distribution are shifting and marketers must respond

Employees

We believe that the Company has satisfactory relations with our employees.

---------------------------------------------- ------- ----- ------
Category 2003 2002 2001
Management 2 2 2
Administration / Sales 1 1 1
Manufacturing 2 2 2
Temporary Ave. 1 1 2
Totals 6 6 7
---------------------------------------------- ------- ----- ------

The Corporation has no unionized employees. Employees have worked for the
Corporation between 10 and 15 years.

Factors that may affect the business

IN ADDITION TO OTHER INFORMATION IN THIS ANNUAL REPORT ON FORM 10-K, THE
FOLLOWING IMPORTANT FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE
COMPANY, BECAUSE SUCH FACTORS CURRENTLY HAVE A SIGNIFICANT IMPACT OR MAY HAVE
SIGNIFICANT IMPACT ON OUR BUSINESS, PROSPECTS, FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

- There Is Significant Doubt That The Company Is A Going Concern - As
reported by our independent chartered accountants in the accompanying
audited financial statements have been prepared on the basis of
accounting principles applicable to a going concern, meaning that the
Company will be able to realize its assets and discharge its
liabilities in the normal course of operations. However, the use of
generally accepted accounting principles that are applicable to a
going concern is potentially inappropriate because there is
significant doubt about the appropriateness of the going concern
assumption. Given the accumulation of operating losses and the
deficiency of working capital, the Company's ability to realize its
assets and discharge its liabilities is dependent upon the attainment
of profitable operations and the continued financial support of its
creditors. The financial statements do not reflect adjustments that
might be necessary should profits not be attained, or should the
support not be continued.

- If We Are Unable to Achieve Profitability, We Will Continue To Rely On
External Financing - Artagraph operates at a loss. During fiscal 2003
the Company was able to obtain equity and debt financing. In future,
our inability to raise new capital or achieve profitability could have
a material adverse effect on the ability of the Company to continue
operations.

- We May Not Be Able to Compete Effectively Against Our Existing or
Potential Customers. -We cannot guarantee that we will be able to
compete successfully against existing or potential competitors.

- The Success of Our Business Depends Upon Our Ability to Establish
Growth in New Products and Markets. - Based on the Company's
historical financial performance, the Company has no capital to
support growth in new markets or products.

- Artagraph believes its patents are valid and would withstand a
challenge to their validity. No assurances can be given, however, that
a third party will not attempt to challenge the validity of the
patents. The Company intends to vigorously defend its patent rights
against any such challenge, but no assurance can be given that the
Company will be successful. Loss of protection provided by the
patented process could have a material adverse impact on the Company.
Moreover, there can be no assurance that other companies will not
design competitive processes that do not infringe on such patents.

- The Corporation has failed to pay maintenance payments on its US
Patent. Currently the Company has not paid maintenance fees on its US
patents and may not be able to maintain its patents in the foreseeable
future because of its cash flow difficulties. Although the Corporation
can pay a penalty payment to resurrect an "up-to-date" status with
respect to its US Patent. The Corporation's continued inability to
meet its periodic obligations due under such Patent regulations
jeopardizes its enjoyment of operating under a patent-protected
process. Loss of protection provided by the patented process could
have a material adverse impact on the Company.

- There can be no assurance that we will be successful in the art
reproduction markets or that other processes will not provide
successfully competing products. -- The Artagraph reproductions must
compete with a variety of decorative art products, including products
from other companies, which replicate fine art as well as original
artwork from local artists and others. Small vendors can compete
effectively within the marketplace while larger vendors can benefit
from volume discounts. Artagraph must competitively price its products
against both the large and the small vendors to successfully build
sales volume. Many companies have processes for reproducing oil
paintings, including other methods of texturing their reproductions,
and there are also many companies, which market art reproductions such

as lithographs and serigraphs. Nevertheless, we believe that no other
known reproduction processes compare in quality with the Artagraph
processes in accurately reproducing brush strokes and texture; and the
color intensity and other reproduction characteristics are believed to
be at least equal to any other known reproduction process. Artagraph's
success in the marketplace will depend upon creating greater awareness
of its products, as well as its pricing and delivery policies.

- Certain Stockholders Can Exercise Significant Influence Over Our
Business and Affairs and May Have Interests That are Different from
the Common Shareholders. - The Company has 372,200 Class "C" Common
shares issued and outstanding at November 30 2003. Each Class "C"
Common share entitles the holder to 100 votes. Therefore the remaining
Class "C" Common shares have a total of 37 million votes, which gives
them control over the Board of Directors and operations of the
Company. The Class "C" Common Shares are not traded.

- The Secured Note Holders of The Company May not Renew and Extend
Repayment Terms. - The Company is in default under its extended
repayment terms. In addition, one Note Holder commenced proceedings
against the Company, in 1999 and 2000 in the State of New York and
Province of Ontario, respectively. In both cases the Company had
counter-claimed, and in both cases the plaintiff has filed for
discontinuance without prejudice. We cannot be assured that the Note
Holders will agree to further credit extensions, or that the Company
would be able to pay them or in the case of further actions by the
Note Holder(s) to enforce payment, that the Company could mount a
successful defense.

- We Rely Upon the Continuing Support of Trade Creditors. There is no
assurance that the trade creditors will continue to cooperate with the
Company, which could jeopardize its future ability to obtain products
and services and negatively impact operations in a material way.

- Fluctuations in Conversion Rate Between The Canadian and United States
Dollars Could Have a Negative Impact on Our Financial Results - The
majority of Artagraph's revenues are exports and its invoicing is in
United States dollars. The Company has experienced a strong Canadian
dollar in relation to the US dollar during the current year, which
negatively impacted gross margins. However, the Company benefited from
the stronger Canadian dollar because its US liabilities, as reported
in Canadian dollars, decreased by approximately $130,000 because of
unrealized exchange gains. However the reverse is true, a weakening
Canadian dollar would improve gross profit but result in more onerous
US liabilities.

- Our Stock Price Has Been Volatile. - The market price of our common
stock has been volatile, for example between January and November
2003, the trading prices for our common shares varied between a high
of $US1.50 and a low of $US.001. Fluctuations in trading price of our
common stock may continue in response to a number of events and
factors, which may adversely impact our ability to obtain further
equity financing.

Item 2. Properties.

The Company's executive offices, Artagraph production facility and gallery
are located at 7100 Warden Avenue, Markham, Ontario, Canada L3R 8B5,
occupying 12,000 square feet of space leased through March 31, 2006. The
lease provides for a fixed annual net rental of $71,950 (2004) and $75,354
(2005), respectively, excluding its pro rata share of taxes, insurance,
building maintenance and occupancy costs.

The Company believes its leased facilities are in good operating condition
and adequate for its present requirements.

Currently, the Company has three sets of equipment in operation for the
production of Artagraphs(R). This equipment has an annual capacity of
approximately 60,000 to 75,000 units. In the Company's most prolific years
the maximum through put was approximately 20,000 units. In the last couple
of years the production has dwindled down to 1,000 - 3,000 units. The three
sets of equipment were acquired from a supplier in the UK, and are
customized hydraulic press-machines typical of the lamination industry. The
customization incorporates a cooling cycle between each heating cycle.
Local service operators readily maintain the machines and spare parts are
also attainable in the local vicinity.

There are no plans to acquire additional machines as the Company operates
well within current expectations of capacity.

Item 3. Legal Proceedings.

While the Company is not currently involved as defendant in any litigation,
in the last three years certain Note holders have commenced litigations in
two jurisdictions. The underlying default, that the Company has failed to
make payments of principal or interest, remains ongoing and therefore the
very real possibility exists that one or more of the Note holders may
commence action against the Company, including the petitioning of the
Corporation into bankruptcy. Recent developments in the last three years
are summarized below.

The notes payable bear interest at 10% and are secured by a general
security agreement over all the assets of the Company.

As the Company has not made timely principal or interest payments, the
notes are considered to be in default. Under the terms of the original
security agreement, the notes payable shall, at the option of the lenders,
become immediately due and payable with notice or demand.

In December 2000, one Note Holder commenced proceedings in Ontario court
for payment of US $45,000, interest and costs, whereby they brought a
motion for the appointment of a private receiver-manager. The Company
brought a cross-motion to dismiss the action for lack of legal capacity to
commence the proceedings. In February 2001 the counsel for the plaintiff
delivered a notice of discontinuance. The same Note Holder had commenced
proceedings in New York State in 1999, however the complaint was also
discontinued in September 2000.

During 1999 certain of the Company's 10% note holders demanded full
repayment of principal and interest, and commenced legal proceedings to
enforce their demands including an attempt to appoint a receiver. The
Company successfully negotiated with the majority of the note holders,
being 2/3rds, to extend the repayment terms an additional year.

The Company and the note holders did not negotiate any further extensions
from fiscal 2001 through fiscal 2003; however, the note holders have made
no payment demands.

Item 4. Submission of Matters to a Vote of Security Holders.

(a) None

PART II
[(See General Instruction G(2)]

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

As of November 30, 2003 the Company had approximately 600 holders of record
of the Common Shares.

The following table sets forth the high and low bid quotations for the
Company's securities, as reported by The OTC Bulletin Board monthly trade
and quote summary The quotations are reported quotations without retail
markup, markdown or commission and may not represent actual transactions.

Common
Shares
Fiscal Year High Low
----------- ---- ---

1999(1)
-------
1st Quarter -- --
2nd Quarter 25.0 25.0
3rd Quarter 25.0 25.0
4th Quarter 12.5 12.5

2000(1)
-------
1st Quarter 106.3 106.3
2nd Quarter 625.0 12.5
3rd Quarter 1,056.3 137.5
4th Quarter 462.5 51.0

2001(1)
-------
1st Quarter 115.6 46.9
2nd Quarter 53.1 18.0
3rd Quarter 19.0 1.1
4th Quarter 13.0 0.5

2002(1)
-------
1st Quarter -- --
2nd Quarter -- --
3rd Quarter -- --
4th Quarter -- --

2003(1)
-------
1st Quarter -- --
2nd Quarter 1.5 0.6
3rd Quarter 1.1 0.8
4th Quarter 1.1 0.3
Note (1) the reverse stock split of 100:1 has adjusted the common
share prices for 1999 through the 2nd Qtr 2003

At the Annual General and Special Meeting of Shareholders of the
Corporation held on May 7, 2003, the shareholders unanimously approved an
amendment to the articles of the Corporation to consolidate the issued and
outstanding common shares on a basis of one (1) new common share for each
hundred (100) old common shares; so that the 25,516,780 issued and
outstanding common shares were consolidated into 255,457 new common shares
(no fractional shares were issued and the number of consolidated shares
includes shares rounded up to the nearest whole number).

At the Annual General and Special Meeting of Shareholders of the
Corporation held on May 7, 2003, the shareholders unanimously approved an
amendment to the articles of the Corporation to attach certain conversion
rights to the class C common shares. The holders of the class C common
shares shall henceforth from May 7, 2003 be entitled at their option to
convert into common shares on the basis of a hundred (100) new common
shares for each one class C common.

During fiscal year 2003 holders of 27,800 class C common shares converted
into 2,780,000 new common shares. The remaining balance of class C common
shareholders numbering 37,220,000 votes, and therefore, the Class C Common
shareholders have control of the Company in aggregate, including the power
to appoint its Board of Directors and control the Company's operations. The
class C common shares are not listed.

Markets.

During fiscal 1995, NASDAQ advised the Company that the Company was no
longer in compliance for continued listing on NASDAQ's Small Cap Market.
The Company's securities are now listed on the NASDAQ sponsored OTC
Bulletin Board.

To be legally entitled to pay dividends, the Company is required to have
assets in excess of liabilities and stated capital after any payment of
dividends. The Company has a shareholders' deficit of $2,048,747 as of
November 30, 2003 and therefore it does not meet this standard and cannot
pay dividends on its securities at this time.

The payment of dividends on the Common Shares will depend on the Company's
future earnings and financial condition and such other factors, as the
Board of Directors of the Company may then consider relevant.

Item 6. Selected Financial Data.

The following presents selected financial data for the Company in Canadian
dollars and in accordance with Canadian Generally Accepted Accounting
Principles ("CDN-GAAP"). It should be read in conjunction with the separate
financial statements of the Company and related notes included elsewhere
herein, which were prepared under CDN-GAAP. This financial data should be
compared to the Company's Audited Financial Statements and the
reconciliation of the financial information presented between CDN-GAAP and
US-GAAP. The financial data as of November 30, 2003 and for the four
previous fiscal years has been derived from financial statements of the
Company that have been examined by independent chartered accountants in
Canada.

----------------------------------------------------------------------------------------------------------------
Extracts from audited financial November 30 November 30 November 30 November 30 November 30
statements; see Item 8.
--------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------

Summary of operations:
Sales 83,450 191,820 520,528 807,144 1,043,550
Cost of goods sold 222,662 332,198 518,946 688,768 685,908
Gross profit / (loss) (135,506) (135,746) 1,582 118,376 357,642
Depreciation and amortization 5,616 10,724 9,701 4,888 13,725
Selling, general and administrative 238,451 303,354 435,821 612,142 400,103
Interest and finance expense 40,921 49,455 47,699 47,980 46,226
Operating loss (420,494) (499,279) (491,639) (546,634) (102,412)
Interest income -- -- -- -- --
Income taxes -- -- -- -- --
Loss before equity in loss of affiliated company (420,494) (499,279) (491,639) (546,634) (102,412)
Equity in loss of affiliated company(1) -- -- (812,184) (400,798)
Net loss (420,494) (499,279) (1,303,823) (947,432) (102,412)
Net loss per common share (2) (0.489) (1.957) (5.110) (5.886) (8.932)
Weighted average number of common shares o/s (5) 860,000 255,168 255,168 160,963 11,466
Summary of balance sheet data:
Current assets 76,580 129,290 186,684 368,564 277,306
Total assets 99,045 157,371 395,489 517,437 376,585
Current liabilities 2,147,792 1,914,792 1,653,631 1,449,098 1,192,290
Total liabilities 2,147,792 1,914,792 1,653,631 1,449,098 1,192,290
Share capital 10,595,218 10,595,218 10,595,218 9,617,876 8,786,398
Contributed surplus 11,775,000 11,775,000 11,775,000 11,775,000 11,775,000
Accumulated deficit (24,548,133) (24,127,639) (23,628,360) (22,324,537) (21,377,103)
Cum. Translation adjustment gain 129,168 -- -- -- --
Shareholders' (Deficit) Equity (2,048,747) (1,757,421) (1,258,142) (931,661) (815,705)
Under U.S. GAAP
---------------------------------------------------------------------------------------------------------------------------
Net loss (420,494) (499,279) (1,303,823) (947,432) (102,412)
Net loss per common share (0.4889) (1.957) (5.110) (5.886) (8.932)
Share capital (3) 12,636,761 12,636,761 12,636,761 11,659,419 10,827,941
Accumulated deficit (3) (26,595,891) (26,175,397) (25,676,118) (24,372,295) (23,424,861)
Cum. Translation adjustment gain 129,168 -- -- -- --
Shareholders' (Deficit) Equity (2,048,747) (1,757,421) (1,258,142) (931,661) (815,705)
Ave. annual exchange rates $1US: Canadian $(4) 1.3570 1.5650 1.5728 1.5360 1.4709
---------------------------------------------------------------------------------------------------------------------------

(1) The affiliate company is The Buck A Day Company ("Buck"). The
investment in Buck is accounted for on the equity basis, whereby the
Company records its share of Buck's net losses. The Company owned 100%
of the affiliate's outstanding shares from December 2, 2000 through
August 31, 2001, and subsequently its ownership was diluted down to
10%; effective August 2001. And in February 2002, the investment in
Buck was sold to a third party. Consequently the Company has reflected
the reported years on the equity basis.

(2) As the Company is in a loss position, it does not reflect the fully
diluted earnings per share, as the effect would be anti-dilutive.
(3) In prior years, under Canadian GAAP share capital was reported net of
issuance costs, in the aggregate of $2,047,758, whereas under U.S.
GAAP such costs were charged against the operating income as a period
expense in the year of stock issuance; thus under U.S. GAAP the
reported share capital amount was greater by the amount of the
issuance costs. Consequently, under the respective Canadian GAAP the
corporation's reported accumulated deficit was lower by the same
margin.
(4) The above noted summary financial data is prepared in the currency of
the Corporation's jurisdiction of incorporation in Canadian dollars.
Notwithstanding the relative stability of the Canadian and U.S. dollar
exchange rates enjoyed by the Company during the four fiscal years to
November 2002; through November 2003 the Canadian dollar has
strengthened against the U.S. dollar by approximately 15-17%, and
during fiscal 2003 the average monthly exchange rate per $1.0 United
States dollar was equivalent to $1.35 in Canadian dollars.
(5) Effective May 2003, the shareholders of the Corporation voted
unanimously to consolidate the common shares on the basis of 100:1;
the prior years' numbers have been adjusted to reflect this
consolidation (see Items 7 & 8 MD&A and Financial Statements and
Supplementary Data respectively).

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.

a) General
The following should be read in conjunction with our audited financial
statements and the notes thereto, Item 6. "Selected Financial Data" and
other financial information contained elsewhere and incorporated by
reference in this Annual Report. In the following discussions "we" "us" and
"our" refer to A.R.T. International Inc, unless the context otherwise
dictates.

In addition to historical information, the discussions in this section may
contain certain forward-looking statements that involve risks and
uncertainties. The forward-looking statements relate to, among other
things, operating results, trends in sales, gross profit, operating
expenses, anticipated expenses and liquidity and capital resources. Our
actual results could differ materially from those anticipated by
forwarded-looking statements due to factors including, but not limited to,
those set out forth under Item 1. Business - "Factors that may affect the
business".

b)
(i) Accounting policies critical to the reported financial results
------------------------------------------------------------------

Inventories
-----------

In the past, the Corporation has reported significant inventory levels on
its balance sheets. Indeed, the current replacement cost of the physical
inventory on hand at the Company's premises exceeds $1,000,000. The
reported value of inventory in the balance sheet for November 30, 2003, is
approximately $48,000 for the reason that the majority of the on-hand
inventory has been written off, because of very low to zero sales
experienced by the Company for virtually all its images.

For the Company to compete successfully in the market place it must carry
inventories of many images to accommodate wide ranges of consumer tastes
for different subject matter and imagery. In addition, consumer tastes are
always changing and wall-decor trends are influenced by many factors: such
as colour, subject matter, perceived value to price and individual choice
for framing materials (i.e. modern simple lines, classical ornate patterns
as well as colour and finish-style, and so forth). Owing to economies of
scale the Company must print a minimum of 500 pieces for each item in its
catalogue. Other than the frame the printing represents the most
significant investment by the Company. Five hundred printed lithos
represents a cost of $3 - 5,000 per lot. A catalogue of 200 images
represents an investment of up to $1,000,000.

To mitigate against carrying significant investment of inventory for
multiple images and framing materials, the Company only processes minimum
quantities, although the top-most 20 popular images may be at higher
quantities, through to the textured phase; and then only completes the
production of finished-goods inventory through the stretching and framing
stages once customers' orders are in the pipeline.

The Company's policy is to periodically evaluate the inventory levels of
each product in its inventory on an image-by-image basis, both in light of
past sales and estimated future sales of each product and similar products.
In addition, when the Company determines that a product line or market

should be discontinued, the inventory relating to that product line or
market is written down to net realizable value. The purpose of these
policies is to ensure that the Company's inventory balance, net of
reserves, exclude slow-moving and obsolete inventory and are valued at the
lower of cost and market value. The Company uses annual physical inventory
counts combined with an analysis of each product's preceding three year's
(or for such shorter period that a particular product may have been in
existence) sales and a review of the Company's sales expectations for each
product to determine whether the level and value of the Company's inventory
of a particular product at a given time is excessive. This three-year
period has been deemed to be an appropriate period for evaluating the
historical sales of the Company's products since such products are not
perishable and tends to be marketed over multi-year periods through
intermittent and recurring sales programs.

Inventories of newly selected images, that have less than stellar sales,
involve significant judgement by management in the application of its
valuation policy. Future circumstances might radically change the
performance characteristics of any given catalogue image and in aggregate
with other failures result in material write-downs. This has happened in
the company's history, although not recently as the Company has not had
capital to invest in new images.

Other assets
------------

Historically, the Company had a significant investment, in excess of
$3,000,000, in its patented process. In the future, subject to availability
of capital resources, the Company could seek to apply for an additional
patent because of modifications to its process. In addition, the Company
may seek patent protection in other geographic territories. Similar to
judgment on carrying values of its inventories the carried value of
capitalized cost for future patent(s) is dependant on future cash flows and
underlying marketing and sales trends, which will involves judgments and
estimates. Again, should these future events differ materially from its
projection then the Company may experience significant write-offs on
capitalized costs.

(ii) Operating Results
----------------------

Year ended November 30, 2003, compared with year ended November 30, 2002
------------------------------------------------------------------------

During the year ended November 30, 2003 the Corporation lost its largest
retail customer, The Museum Company, which company experienced further
financial difficulties following its emergence from Chapter 11 in 2002.
Although the Museum Company may continue under new management after its
current reorganization it appears to have abandoned its bricks-&-mortar
retail distribution in favour of a web-based distribution strategy, and is
also refocusing its product lines on lower-priced merchandises. Sales from
the Museum Company were $14,706 in 2003 down from $129,494 in 2002, and
consequently total sales revenues fell from $191,820 to $83,450. The
Company or its management has no affiliation with The Museum Company.

In addition, the majority, approximately 75% in 2003 [90% in 2002], of the
Company's sales are transacted in United States Dollars and during fiscal
2003 the Canadian dollar strengthened significantly, approximately 17%,
against the United States dollar.

Declines from the loss of The Museum Company customer and the weakening US
revenue streams were partly offset by small gains in independent retail
galleries in the US and in Canada. New customers that were added in fiscal
2003 were derived from word-of-mouth leads, as the Corporation does no
promotional activities.

----------------------------- ----------- ----------- ----------- ----------- ----------- -----------
2003 % 2002 % 2001 %
Total Sales $83,450 100% $191,820 100% $520,528 100%
----------- ------- ---- -------- ---- -------- ----

Sales to one Retail Customer $14,706 17% $129,494 65% $203,460 39%
Sales to next ranked Customer $12,047 14% $10,441 5% $64,910 13%
----------------------------- ----------- ----------- ----------- ----------- ----------- -----------

In the last five years, Unit sales with all customers fell dramatically due
to the lack of cash flow to support new initiatives in marketing and
selling.

Historically the Company has operated with a two-tier sales price list for
its catalogue products. The Company's sales price lists are based in United
States Dollars and have not been modified for over five years. The two-tier
price system was originally designed to accommodate distributors and
dealers, national retail chains and individual / regional gallery operators
respectively. In recent years the distinction between distributor and
dealer has become blurred. In part, this is because the Company's only
national customer has reduced the number of stores it operates through by
over 60%. Related to this, major galleries that the Company sells to are
able to command distributor-level prices because of intense pricing
competition from suppliers of fine-art printed images. Competitive
initiatives focus on brand differentiation, consumer-buying patterns due to
trends in colour, and image-subject and framing products. In the last three
years the Company has sold 80% or more of its catalogue product at the
distributor's price-level. The distributor sales price lists maintained by
the Company range from $US75 to $US300, which represents the range from an
unframed image to the highest priced frame image. The average selling price
in the last five years has consistently been in the region of $US210. The
pricing of specific catalogue images (framed or unframed) has remained
constant within this time frame. Sales revenue declines are entirely due to
falling unit sales.

Gross Loss

Similar to recent prior years, the fall in revenues resulted in the Company
reporting a gross loss in fiscal 2003. In addition, sales revenues were
less than the fixed overhead costs including the occupancy costs and plant
salaries.

The Company purchases print, canvas, PVC and frame materials from a variety
of commodity-suppliers in Canada. Over the last three years, the increases
to purchased material prices have been more that offset by relative
increases in selling price due to the weakening Canadian Dollar against the
United States Dollar. The Company's price lists were set-up when the
Canadian and United States Dollar conversion was in the range
$CAD1.30:$US1.00. In recent years the actual exchange has been at or above
$CAD1.50:$US1.00, which has conferred a 15% improvement to the effective
selling prices that the Company has enjoyed. In the last three years
purchase costs have increased between 5 and 7% annually and were
effectively eroding the selling price-exchange advantage.

However with the strengthening Canadian dollar, the Company enjoyment of
strong gross margins from its sales in US dollars and its costs in Canadian
dollars has ended.

Offsetting this negative trends was the benefit the Company derived of
selling some images, that were previously written-off to its new customers
in 2003. Such product is carried on the Company's books at zero dollars and
therefore any sales yield 100% margin to the overall gross margin mix. Such
gains are short lived because repeat sales to those new customers are
usually concentrated in universally popular images. The likelihood that the
Company continues to find new customers and thereby maintains the benefit
from sales of products conferring 100% gross margin is limited due to the
lack of promotional activities and consequence reliance on referrals for
sales growth.

The Company continued to operate at less than 10% of its total production
capacity. Consequently, the fixed cost elements associated with its
manufacturing operation have completely offset the limited revenues. On
2003 sales of $83,000 the Company enjoyed a standard margin of
approximately $50,000. This margin did not cover the Company's fixed costs
such as its occupancy expenses, of $100,000 and plant indirect-wages of
$40,000. Occupancy costs were lower due to one-time recovery, in fiscal
2003, against estimated property taxes, maintenance and insurance ("TMI")
of approximately $8,000; versus a charge in fiscal 2002 of approximately
$12,000. The Company leases its property for a net monthly rent plus a
monthly estimate for TMI, which is subject to an annual adjustment to
actual TMI.

As with past years, the Company was able to mitigate some of its wage
expenses by rotating employees through temporary lay-off programs permitted
under Ontario labour law provisions. Under such arrangements the Company
was able to lay-off employees up to a maximum of 35 weeks while only paying
those employees' benefit costs. In turn, employees laid-off under such
circumstances can claim accelerated employment benefit relief.

Net Loss

The net loss fell from approximately $500,000 to $420,000 due to savings
from consulting and professional fees and a foreign exchange gain of
$36,000 [2002 $9,000 gain], which was due to the strengthening Canadian
dollar.

Year ended November 30, 2002, compared with year ended November 30, 2001
------------------------------------------------------------------------

Sales

The Company became totally dependant on The Museum Company, a retail
customer, for 65% of its sales. The Museum Company has been a major
customer of the Company for over five years that operates company
owed-and-managed retail stores throughout the United Sates

In the last three years, sales of its products under fixed priced contracts
have been virtually insignificant. This was solely due to the inability of
the Company to attend international art shows or advertise its products
through business art media.

Gross Loss

The fall in revenues resulted in the Company reporting a gross loss in
fiscal 2002. In addition, sales revenues were less than the fixed overhead
costs including the occupancy costs and plant salaries.

The Company is operating at less than 10% capacity. Consequently, the fixed
cost elements associated with its manufacturing operation have completely
off-set the gross margin benefits realized by the company from the
exchange-inflated sales prices. When the Company set its catalogue price
lists, its mark-up on its variable costs was approximate 150%. On 2002
sales of $192,000 the Company enjoyed a standard margin of $115,000, after
direct-variable costs, however, this margin did not cover the Company's
fixed costs such as its occupancy expenses, of $120,000 and plant
indirect-wages of $55,000. Consequently, in fiscal 2002 the Corporation had
a gross loss of $140,000 compared with a gross loss of $4,000 in fiscal
2001.

Net Loss

The operating loss remained at the same level as the previous fiscal years
at approximately $0.5 million.

The Company had disposed of its investment in the Buck A Day Company in
February 2002, for an amount equal to the net realizable value, and
therefore did not continue to record ongoing losses from its former
subsidiary. In fiscal 2001 and 2000 the Corporation's equity losses were
$812,000 and $401,000 respectively.

Selling and administrative expenses were reduced to $312,000 in fiscal 2002
from $422,000 reported for fiscal 2001. The major savings were enjoyed
through the reduction of: wages and benefits ($25,000); consulting fees
($40,000) and, professional fees ($25,000).

The Corporation continued to accrue interest on the 10% Notes at the annual
rate of $US 31,500.

c) Liquidity and Capital Resources.
-----------------------------------

Year ended November 30, 2003, compared with year ended November 30, 2002
------------------------------------------------------------------------

As of the year ended November 30, 2003, the Company had minimal cash and
possessed a substantial working capital deficit. For the year ended at
November 30, 2003, the Company was able to sustain its operations primarily
from a series of loan advances totalling $322,000, which loans were
received from a total of 7 persons including several shareholders. Included
in the loans advanced to the Company was $10,000 loaned by Michel Van
Herreweghe, an officer and director of the Company. As noted by our
chartered accountants in their financial report contained herein,
substantial doubt exists that the Company will be able to continue as a
going concern.

The Company can provide no assurance that it will be able to obtain
additional working capital from the sale of its equity, or borrow funds
from traditional lending sources or from any person who has advanced, or
may be interested in advancing, unsecured, demand funds to the Company. If
additional loans are received or the Company is able to raise additional
funds from the sale of its equity, substantial dilution to the interests
and voting rights of current equity holders may occur. Additionally, the
Company is not aggressively seeking additional sales of its products from
its major customers or from any other sources. If the Company is unable to
substantially increase sales from the level experienced in 2003, or obtain
additional working capital from loans or from the sale of its equity, this
could have a material adverse effect on the ability of the Company to
continue its operations. In this event, we may have to re-evaluate all
aspects of our business.

At the Company's Annual, General and Special Meeting of shareholders, held
on May 7 2003, the shareholders unanimously approved the following
resolutions.

1. An amendment to the articles of the Corporation whereby the
issued and outstanding shares of the Corporation were
consolidated on the basis of one (1) new common share for each
one hundred (100) old common shares. The resulting number of
issued and outstanding shares was reduced from 25,516,780 old
common shares to 255,168 new common shares.

2. An amendment to the articles of the Corporation whereby the
holder of class C common shares of the Corporation are entitled
to convert at their option at any time to new common shares on
the basis of one (1) class C common share for one hundred (100)
new common shares.

The Corporation believes that under current conditions its access to
capital markets and its future success in raising additional capital is
dependent upon modifying its capital structure. The consolidation of the
shares is designed to enhance the Corporation's ability to raise capital by
way of share issuance and to facilitate any potential acquisition by way of
share issuance.

During the year ended November 30, 2003 27,800 class C common shares were
converted into 2,780,000 new common shares. Following the date of the
year-end 52,000 class C common shares were converted into 5,200,000 new
common shares. The total issued and outstanding common shares and class C
common shares at November 30, 2003, and March 1, 2004 were 3,035,457 and
372,200 and 8,235,457 and 320,200 respectively. As at March 1, 2004, the
remaining issued and outstanding convertible class C common shares of
320,200 represent 32,020,000 new common shares or votes; therefore the
class C common shareholders have control of the Company in aggregate,
including the power to appoint its Board of Directors and control the
Company's operations. The class C common shares are not listed.

During the year ended November 30, 2003, the loans payable to third parties
increased by approximately $322,000 from $354,176 to $675,700, which monies
were utilized by the Company for working capital purposes. The current
loans payable are due and payable to a total of 7 persons, including 5
persons who are shareholders including Michel Van Herreweghe, officer and
director of the Company. The loans are repayable on demand, are
non-interest bearing and are convertible into common shares of of the
Company at the market rate on the date of conversion. Based on the market
value of the common shares at approximately $0.30, the conversion of all
loans into common stock of the Company would result in dilution, as
approximately 2,225,000 common shares would be issued. During the ensuing
year, the Company anticipates that it will attempt to re-negotiate the
demand, non-interest bearing loans into more acceptable term notes
containing stated maturity date(s) with nominal interest and a prescribed
conversion based on an established market value of the common shares. No
assurances can be provided that we will be able to successfully negotiate
all or any substantial portion of the existing demand loans into acceptable
term notes.

At November 30, 2003, the corporation reported negative working capital of
$2,071,212 representing an increase from November 30 2002 of negative
$285,710, which was due to increased current liabilities. The Corporation
is reporting a shareholders' deficit at the year-end of $2,048,747 that
resulted from the Corporation's on-going losses. In fiscal 2003, operating
cash flows were negative $347,582, driven by its fiscal 2003 operating
losses and compared with negative $333,246 in fiscal 2002. In 2003 the
additional current loan advances of $322,0000 financed the shortfall of
cash, and in 2002 loan advances of $183,000 and the sale of the
Corporation's investment in Buck for $170,000 financed the cash short fall.

Year ended November 30, 2002, compared with year ended November 30, 2001
------------------------------------------------------------------------

Effective February 18, 2002, the Company sold its remaining interest in
Buck common share to Savaran Financial Inc. for $171,428. At that date,
Buck's filing of its registration statement with U.S. Securities and
Exchange Commission to become a public company in the United States was
still not completed. In addition, Buck was raising further pre-IPO capital,
which transaction would have diluted the current share prices and place
selling-restrictions on the current shareholders of Buck. At the time of
the sale of remaining Buck investment, the Company believed that there was
a limited market for Buck common shares, and that the longer-term
investment strategy involved significant downside risk. Further, the
Company's Artagraph business was facing sever liquidity problems and the
sale of the Buck investment would give access to immediate working capital.

The total amount due to the note holders of $815,691 including accrued 10%
interest and principal has been reflected as a current liability. These 10
% notes and accrued interest are secured by a general security agreement
over the assets of the Company.

The loans payable by the Company increased from $171,367 to $354,176, which
capital was utilized by the Company to cover cash flow shortages from its
ongoing losses. Subsequent to the November 2002 yearend, these loans have
increased to approximately $400,000. The loans are repayable on demand and
carry no interest; they are convertible into securities of the Company at
their market value on the date of conversion. Based on the market value of
the common shares at approximately $0.01, as at November 30, 2002, the
conversion of all the loans to securities in the Company would result in
significant dilution, as their said conversion would cause the issuance of
approximately 40,000,000 common shares.

The Company has negative working capital at November 30, 2002, of
$1,785,502 compared with negative working capital at November 30, 2001, of
$1,466,946, which was due to its increased current liabilities.

During the 2001 fiscal year, the Company issued 800,000 common shares for a
total cash consideration of $507,342. In addition 2,000,000 shares were
issued in conjunction with the acquisition of Buck at a value of $470,000.

On December 4, 2000, the Company acquired the balance of 200 common shares
of Buck, thereby owning 100% of Buck. The consideration paid for the
remaining 200 common shares was as follows:

Cash ...........................................$ 500,000
Add - 2,000,000 Common Shares Issued
Fully Paid and Non-assessable ............................ 470,000
--------------------------------------------------------------------------

Total Consideration ...............................$ 970,000
============

The Company attributed the cash value of the 2,000,000 common shares issued
of $470,000 or $0.235 per common share, as the shares are restricted and
may not be traded for three {3} years. The average market price of the
common share was approximately $1.00 in the corresponding period.

The balance sheet of Buck had a shareholders' deficiency of $434,715 and
the stated capital of the shares acquired from the selling shareholders of
Buck was $ 75,000. In the opinion of management, the underlying fair market
value of assets acquired approximates the book value as stated in Buck's
audited financial statements for the year ended November 30, 2000. The
consideration has been allocated as follows:

Total Consideration..........................................$ 970,000
Less - Shares Purchased...................................... 75,000
---------------------------------------------------------------------------
Allocated to Goodwill $ 895,000
============

The Company funded the purchase of the balance of the Buck common shares by
issuing 500,000 of its common shares for $500,000 cash and issuing
2,000,000 fully paid and non-assessable restricted common shares to the

vendors. In addition, the selling shareholders of Buck received 1,000,000
options to purchase common shares pursuant to the Company's stock option
plan. The 1,000,000 common shares are reserved and conditionally allotted
to be issued in respect of share purchase options upon receipt by the
Company of the purchase price per share on the exercise of each such
option.

The letter of intent dated November 27, 2000, issued by the Company to
Buck, also provided that the Company would arrange for a further $500,000
financing for Buck within 10 to 15 days of A.R.T. having 100% of Buck and
further arrange $500,000 financing on or about March, 2001. As of August
2001, the Company had not arranged the $1,000,000 financing.

Buck had experienced liquidity problems since the beginning of the first
quarter of fiscal 2001, due to its on going operating losses and negative
cash flows, and the Company's inability to raise additional operating
capital of $1,000,000. By the end of the 1st quarter Buck was seriously
delinquent on approximately $200,000 of sales taxes owed to the Province of
Ontario. Buck had net losses of $US 1,514,959 for the year ended July 31,
2001. At August 31, 2001, Buck had negative working capital of $2,385,686.
Without the continuing support of its secured and unsecured creditors, the
Buck A Day Company would likely have been forced to seek creditor
protection.

In this regard, the holders of the $710,000 debenture, including Dennis and
Ed Labuick who were the co-founders and President and CEO of Buck
(hereinafter referred to as "Labuick Group"), threatened to exercise their
security rights if the Company failed to raise the aforementioned
$1,000,000, which included the right to appoint a receiver manager.

In July 2001, Buck executed a Security Agreement with 1483516 Ontario
Limited ("1483516"), whereby 1483516 agreed to loan Buck $USD 450,000. The
Security Agreement provided for the conversion of the $USD 450,000 of
principal into 3,000,000 Buck common shares and a Series "B" Warrant to
purchase 3,000,000 Buck common shares exercisable at $USD 0.15 per share.

The $710,000 Loan held by the Labuick Group was amended to add a conversion
privilege into Buck common shares at $0.10 per share for a total aggregate
7,100,000 common shares. Upon conversion, the holders of the Security
Agreement held by the LaBuick Group also received a Series "A" Warrant for
the purchase of up to 1,500,000 additional shares of Buck at $0.10 per
share.

In August 2001 Buck allotted and issued 1,999,600 fully paid and
non-assessable common shares to the Company for $1.00, thereby bringing the
total Buck common shares owned by ART to 2,000,000 in the aggregate. The
said allotted common shares are effectively a stock-split of the 400 common
shares originally owned by ART into 2,000,000 common shares. Further, Buck
granted ART a Series "C" Warrant to purchase up to 800,000 common shares of
Buck at $0.10 per share, exercisable for a period of 120 days after the
exercise by the LaBuick Group of its conversion rights.

As a consequence of the above transactions, plus further common shares
issues by Buck through October 31, 2001, the resulting common share
ownership in Buck, on a fully diluted basis assuming all warrants to
purchase Buck common shares are exercised, was as follows:

The LaBuick Group,
1483516 & other 18,000,000 90%
ART 2,000,000 10%
---------------------------------------------------------------------------
TOTAL 20,000,000 100%
---------------------------------------------------------------------------

The outcome of the aforementioned Buck transactions was that ART's
investment in Buck went from 50%, on December 4, 2000, to 100%, and from
100% to approximately 10%, on October 31, 2001. Consequently, the audited
financial statements of the Company for the year ended November 30, 2001,
include the Buck investment on an equity basis. As a result of the losses
recorded by Buck, ART had written-down its investment in Buck to its
realizable value of approximately $170,000.

From aforementioned transactions, Buck A Day received approximately $US
1.25 million dollars in capital investment. In addition, the secured loan
of $710,000 was converted into common shares of Buck. Consequently, Buck's
management was able to negotiate extended payment terms with all their
preferred and un-secured creditors.

Dividends - Year ended November 30, 2003

None.

To be legally entitled to pay dividends, the Company is required to have
assets in excess of liabilities and stated capital after any payment of
dividends. The Company has a shareholders' deficit of $2,048,747 as of
November 30, 2003 and therefore it does not meet this standard and cannot
pay dividends on its securities at this time.

The payment of dividends on the Common Shares will depend on the Company's
future earnings and financial condition and such other factors, as the
Board of Directors of the Company may then consider relevant.

Dividends - Year ended November 30, 2002

None.

Dividends - Year ended November 30, 2001

None.

Legal proceedings -- information on the 10% Note Holders

In December 2000, a Note Holder commenced proceedings in Ontario court for
payment of US $45,000, interest and costs, whereby they brought a motion
for the appointment of a private receiver-manager. The Company brought a
cross-motion to dismiss the action for lack of legal capacity to commence
the proceedings. In February 2001 the counsel for the plaintiff delivered a
notice of discontinuance. The same Note Holder had commenced proceedings in
New York State in 1999, however the complaint was also discontinued in
September 2000.

During 1999 certain of the Company's 10% note holders demanded full
repayment of principal and interest, and commenced legal proceedings to
enforce their demands including an attempt to appoint a receiver. The
Company successfully negotiated with the majority of the note holders,
being 2/3rds, to extend the repayment terms an additional year.

The Company and the note holders did not negotiate any further extensions
through fiscal 2003; however, the note holders have made no payment
demands.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The Corporation has exposure to exchange risk from its United States dollar
debt and trade liabilities. The table below summarizes the principle USD$
debt arising from its notes and trade payables. In addition the Corporation
has not paid any interest on its USD$ notes, which accrues annually at 10%.
The total exposure to USD$ debt has increased from $559,000 to $702,000,
from 1999 to 2003 respectively. The exchange rate between CAD / USD $'s has
been somewhat volatile ranging from a high to low of 1.6 / 1.0 to 1.29 /
1.0 correspondingly; in the current fiscal year ended November 30, 2003,
the Canadian dollar has strengthened significantly against the US dollar,
generating the reported unrealized exchange gain of approximately $130,000.
Currently the Corporation's USD$ assets are negligible, its sales revenues,
which are mainly USD$ have dived in recent years, resulting in only minor
USD$ trade receivables. In the past five years the Corporation had a
maximum trade receivable in USD$ of approximately $100,000.

-------------------------------- ------------ ------------ ------------ ------------ ------------
Nov 30 03 Nov 30 02 Nov 30 01 Nov 30 00 Nov 30 99

Fixed Interest
10% USD Notes
Principle (USD $) 315,000 315,000 315,000 315,000 315,000
Accrued Interest (USD $) 237,708 206,208 174,708 143,208 111,708
Total US debt & unpaid interest 552,708 521,208 489,708 458,208 426,708
US$ Trade Payables 149,823 132,750 132,750 132,750 132,750
Total US liabilities 702,531 653,958 622,458 590,958 559,458
Exchange Rate USD:CAD $* 1.299 1.565 1.573 1.536 1.471
912,588 1,023,444 979,002 907,711 822,907
*Exch. Rate Increase (Decrease) (17.0)% (0.0)% 2.4% 4.4% --
-------------------------------- ------------ ------------ ------------ ------------ ------------

Conversely, a strengthening Canadian dollar has a detrimental impact on the
Corporation's profitability. The table below illustrates the impact based
on the previous tables actual exchange rates.

------------------------------------------ ---------- ------------ ---------- ---------- ---------
2003 2002 2001 2000 1999

Assumed sales revenues in USD 100,000 100,000 100,000 100,000 100,000
Canadian equivalents per $US 100,000 129,900 156,500 157,300 153,600 147,100
COGS, apprx. (annual 2.5% RM price-inc.) 49,672 48,460 47,278 46,125 45,000
Gross Profit (GP) 80,228 108,040 110,022 107,475 102,100
(Loss) contribution vs highest GP (29,793) (1,982) -- (2,547) (7,922)
------------------------------------------ ---------- ------------ ---------- ---------- ---------

During fiscal 2003, monthly average translation rates between Canadian and
United States dollars have ranged from a low of: $CAD1.29: $US1.0 to a high
of $CAD1.60: $US1.0. Approximately $62,000 (76%) of the Company's sales
revenues was transacted in US dollars.

We are exposed to variety of risks, indirectly by changes in interest rates
affecting consumer-purchasing habits and directly affected by currency
fluctuations between the Canadian and US dollars. The Company does not
purchase forward foreign exchange contracts. The Company has no debt or
credit subject to variable interest rates. The exchange gains and losses
that the Company may be impacted by from time to time will depend on the
levels of US dollar monetary assets and liabilities as well as their
corresponding collection and payment events. Long term trends of a
weakening of the Canadian dollar relative the United Sates dollar would
likely have permanent negative impact from the balance sheet perspective,
as the Corporation would become more exposed to its net USD liabilities.
Conversely, a strengthening Canadian dollar reduces the gross profits of
the Corporation.

Item 8. Financial Statements and Supplementary Data.

AUDITORS' REPORT

To the Shareholders of
ART International Corporation
[Formerly A.R.T. International Inc.]

We have audited the balance sheet of ART International Corporation [Formerly
A.R.T. International Inc.] as at November 30, 2003 and 2002 and the statements
of loss, shareholders' deficit and cash flows for each of the years in the
three-year period ended November 30, 2003, 2002 and 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with Canadian and United States generally
accepted auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.

In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at November 30, 2003 and 2002
and the results of its operations and its cash flows for each of the years in
the three-year period ended November 30, 2003, 2002 and 2001 in accordance with
generally accepted accounting principles.

In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events, such as the going concern
uncertainty described in Note 3 to the financial statements. Our report to the
shareholders dated February 20, 2004 is expressed in accordance with Canadian
and United States reporting standards. Canadian reporting standards do not
permit a reference to such events and conditions in the auditors' report when
they are adequately disclosed in the financial statements.

Toronto, Canada CHARTERED ACCOUNTANTS

February 20, 2004

ART INTERNATIONAL CORPORATION
(FORMERLY A.R.T. INTERNATIONAL INC.)

BALANCE SHEET

NOVEMBER 30, 2003 AND 2002
(STATED IN CANADIAN DOLLARS)

2003 2002
---------- ----------
ASSETS
CURRENT
Cash $ 9,102 $ 35,160
Accounts Receivable 8,657 17,822
Inventories [Notes 2(a) and 5] 48,446 68,403
Prepaid Expenses and Deposits 10,375 7,905
---------- ----------
76,580 129,290
---------- ----------

INVESTMENT IN AFFILATED COMPANY [Note 6] -- --
---------- ----------

CAPITAL [Note 7] 22,464 28,080
---------- ----------

OTHER
Patents 3,931,051 3,931,051
Art Reproduction Rights 441,875 441,875
---------- ----------
4,372,926 4,372,926
Less - Accumulated Amortization [Note 2(c)] 4,372,925 4,372,925
---------- ----------
1 1
---------- ----------

TOTAL ASSETS $ 99,045 $ 157,371
========== ==========

The accompanying notes form an integral part of these financial statements.

ART INTERNATIONAL CORPORATION
(FORMERLY A.R.T. INTERNATIONAL INC.)

BALANCE SHEET

NOVEMBER 30, 2003 AND 2002
(STATED IN CANADIAN DOLLARS)

2003 2002
------------ ------------
LIABILITIES
CURRENT
Accounts Payable and Accrued Liabilities $ 754,069 $ 744,925
Loans Payable [Note 8] 675,700 354,176
Notes Payable [Note 9] 718,023 815,691
------------ ------------

TOTAL LIABILITIES 2,147,792 1,914,792
------------ ------------

SHAREHOLDERS' DEFICIENCY
SHARE CAPITAL [Note 10]
COMMON SHARES
3,035,457 {2002 - 255,168} 10,502,167 10,495,217
CLASS "C" COMMON SHARES
372,200 {2002 - 400,000} 93,051 100,001
------------ ------------

10,595,218 10,595,218

CONTRIBUTED SURPLUS 11,775,000 11,775,000

DEFICIT (24,418,965) (24,127,639)
------------ ------------
(2,048,747) (1,757,421)

TOTAL LIABILITIES
LESS SHAREHOLDERS' DEFICIENCY $ 99,045 $ 157,371
============ ============

APPROVED BY THE BOARD: Director _________________ Director ____________________

To be read in conjunction with the Auditors' Report attached hereto dated
February 20, 2004.

ART INTERNATIONAL CORPORATION
(FORMERLY A.R.T. INTERNATIONAL INC.)

STATEMENT OF SHAREHOLDERS' DEFICIT

FOR THE YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001
(STATED IN CANADIAN DOLLARS)

CLASS "C" CUMULATIVE
COMMON COMMON CONTRIBUTED TRANSLATION SHAREHOLDERS'
SHARES SHARES SURPLUS ACCOUNT DEFICIT
------------- ------------- ------------- ------------- -------------

BALANCE AT NOVEMBER 30, 2000 $ 9,517,875 $ 100,001 $ 11,775,000 $ -- $ 22,324,537

ADD - Shares Issued 470,000 -- -- -- --
- Stock Dividend 507,342 -- -- -- --
- Net Loss -- -- -- -- 1,303,823
- Dividend -- -- -- -- --
------------- ------------- ------------- ------------- -------------
BALANCE AT NOVEMBER 30, 2001 10,495,217 100,001 11,775,000 -- 23,628,360

ADD - Net Loss -- -- -- -- 499,279
------------- ------------- ------------- ------------- -------------
BALANCE AT NOVEMBER 30, 2002 10,495,217 100,001 11,775,000 -- 24,127,639

ADD - Conversion 6,950 -- -- -- --
- Net Loss -- -- -- -- 420,494
------------- ------------- ------------- ------------- -------------
10,502,167 100,001 11,775,000 -- 24,548,133
LESS - Conversion -- 6,950 -- -- --
- Exchange Difference -- -- -- 129,168 129,168
------------- ------------- ------------- ------------- -------------

BALANCE AT NOVEMBER 30, 2003 $ 10,502,167 $ 93,051 $ 11,775,000 $ 129,168 $ 24,418,965
============= ============= ============= ============= =============

The accompanying notes form an integral part of these financial statements.

ART INTERNATIONAL CORPORATION
(FORMERLY A.R.T. INTERNATIONAL INC.)

STATEMENT OF LOSS

FOR THE YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001
(STATED IN CANADIAN DOLLARS)

2003 2002 2001
----------- ----------- -----------

SALES $ 83,450 $ 191,820 $ 520,528
----------- ----------- -----------

COST OF GOODS SOLD AND OTHER
MANUFACTURING COSTS
Cost of Goods Sold and Other Manufacturing
Costs Before the Undernoted: 218,956 327,566 518,946

Amortization of Capital Assets 3,706 4,632 5,790
----------- ----------- -----------
222,662 332,198 524,736
----------- ----------- -----------

GROSS LOSS (139,212) (140,378) (4,208)

SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
Selling, General and Administrative Expenses
Before the Undernoted: 274,829 312,734 422,466
----------- ----------- -----------

LOSS FROM OPERATIONS (414,041) (453,112) (426,674)

Foreign Exchange Loss (Gain) (36,378) (9,380) 13,355
Amortization of Capital Assets 1,910 6,092 3,911
Loan Interest 40,921 49,455 47,699
----------- ----------- -----------

LOSS BEFORE UNDERNOTED ITEM (420,494) (499,279) (491,639)

EQUITY IN LOSS OF AFFILIATED COMPANY [Note 6] -- -- (812,184)
----------- ----------- -----------

NET LOSS $ (420,494) $ (499,279) $(1,303,823)
=========== =========== ===========

NET LOSS PER COMMON SHARE [Note 13(b)] $ (0.49) $ (1.96) $ (5.11)
=========== =========== ===========

WEIGHTED AVERAGE NUMBER OF
COMMON SHARES [Note 13(d)] 860,389 255,168 255,168
=========== =========== ===========

The accompanying notes form an integral part of these financial statements.

ART INTERNATIONAL CORPORATION
(FORMERLY A.R.T. INTERNATIONAL INC.)

STATEMENT OF CASH FLOWS

FOR THE YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001
(STATED IN CANADIAN DOLLARS)

2003 2002 2001
----------- ----------- -----------

CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (420,494) $ (499,279) $(1,303,823)
Adjustments for:
Amortization of Capital Assets 5,616 10,724 9,701
Foreign Exchange Gain on Accrued Interest
AND PENALTIES on Notes Payable (9,421) -- --
Equity in Loss of Affiliated Company -- -- 812,184
Legal Expenses Reimbursed by Affiliated Company -- -- 57,018

Allowance on Inventories 12,670
Accrued Interest and Penalties on Notes Payable 40,921 45,479 66,405
----------- ----------- -----------
(370,708) (443,076) (358,515)
Net Changes in Working Capital Balances:
Accounts Receivable 9,165 35,098 43,363
Inventories 7,287 41,859 74,590
Prepaid Expenses and Deposits (2,470) -- 9,000
Accounts Payable and Accrued Liabilities 9,144 32,873 26,761
----------- ----------- -----------
(347,582) (333,246) (204,801)
----------- ----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES
Loans Payable 321,524 182,809 111,367
Foreign Exchange on note Payable (129,168) -- --
Issuance of Share Capital for Cash {Net} -- -- 507,342
Exchange Difference 129,168 -- --
----------- -----------
321,524 182,809 618,709
----------- ----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Affiliated Company -- 170,000 (500,000)
----------- ----------- -----------

NET INCREASE (DECREASE) IN CASH (26,058) 19,563 (86,092)

CASH - Beginning of Year 35,160 15,597 101,689
----------- ----------- -----------

CASH - End of Year $ 9,102 $ 35,160 $ 15,597
=========== =========== ===========

The accompanying notes form an integral part of these financial statements.

ART INTERNATIONAL CORPORATION
(FORMERLY A.R.T. INTERNATIONAL INC.)

NOTES TO FINANCIAL STATEMENTS

NOVEMBER 30, 2003
(STATED IN CANADIAN DOLLARS)

1. INCORPORATION AND NATURE OF OPERATIONS

The Company was incorporated in Canada on January 24, 1986 under The
Ontario Business Corporations Act. The Company's primary business is the
production, distribution and marketing of replications of oil paintings.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

(A) INVENTORIES

(i) Inventories are valued at the lower of cost and market value.
Cost is determined on a first-in, first-out basis.

(ii) The Company's policy is to periodically evaluate the inventory
levels of each product in its inventory on an image-by-image
basis, both in light of past sales and estimated future sales of
each product and similar products. In addition, when the Company
determines that a product line or market should be discontinued,
the inventory relating to that product line or market is written
down to net realizable value. The purpose of these policies is to
ensure that the Company's inventory balance, net of reserves,
exclude slow-moving and obsolete inventory and are valued at the
lower of cost and market value. The Company uses annual physical
inventory counts combined with an analysis of each product's
preceding three year's (or for such shorter period that a
particular product may have been in existence) sales and a review
of the Company's sales expectations for each product to determine
whether the level and value of the Company's inventory of a
particular product at a given time is excessive. This three year
period has been deemed to be an appropriate period for evaluating
the historical sales of the Company's products since such
products are not perishable and tend to be marketed over
multi-year periods through intermittent and recurring sales
programs.

(B) CAPITAL ASSETS

Capital assets are recorded at cost and are amortized at rates
sufficient to substantially amortize the cost of the assets over their
estimated useful lives on the following basis:

Equipment, Furniture and Fixtures................20% Declining Balance

(C) OTHER ASSETS

Patents are recorded at cost and are fully amortized.

In the past, at each balance sheet date, the Company reviews the
remaining benefit associated with the Artagraph patents to ensure that
the Company will generate sufficient undiscounted cash flows to
recover their carrying costs. In accordance with this policy, all
patents at November 30, 1998 were written down to $1.

Art reproduction rights are recorded at cost and are fully amortized.

(D) FAIR VALUES

The carrying amounts of all financial instruments approximate their
respective fair values at year end. The recorded amounts of other
financial instruments in these financial statements approximate their
fair values.

(E) FOREIGN CURRENCY TRANSLATION

These financial statements are presented in Canadian dollars.

Under Canadian generally accepted accounting principles, the
translation gains or losses arising on translation of long-term
monetary items are included in the Income Statement, whereas
unrealized gains and losses arising on translation are recorded as a
separate component of shareholders' equity.

(F) MANAGEMENT REPRESENTATIONS

In the opinion of management, all adjustments necessary for a fair
presentation of the financial position at November 30, 2003 and 2002
and the results of operations, cash flows and related note disclosures
for the fiscal years ended November 30, 2003, 2002 and 2001 have been
made. The preparation of financial statements in conformity with
Canadian generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
these estimates.

(G) REVENUE RECOGNITION

Revenues and cost of sales are recognized as title to products and
material passes to the customer. Title passes when the product is
shipped to the customer and all sales invoices stipulate the terms and
conditions, i.e. "free on board" and "at the Company's premises".

(H) INCOME TAXES

The Company follows the liability method of accounting for income
taxes in accordance with the Canadian Institute of Chartered
Accountants' new income tax standard and SFAS #109 {Accounting for
Income Taxes}. Under this method, income tax liabilities and assets
are recognized for the estimated tax consequences attributable to
differences between the amounts reported in the financial statements
and their respective tax bases, using enacted income tax rates. The
effect of a change in income tax rates on future income tax
liabilities and assets is recognized in income in the period that the
change occurs.

(I) COMPARATIVE FIGURES

The comparative figures for common shares issued have been restated to
reflect a 1 for 100 reverse stock-split.

3. GOING CONCERN

The accompanying financial statements have been prepared on the basis of
accounting principles applicable to a going concern, meaning that the
Company will be able to realize its assets and discharge its liabilities in
the normal course of operations. However, the use of generally accepted
accounting principles that are applicable to a going concern, is
potentially inappropriate because there is substantial doubt about the
appropriateness of the going concern assumption. Given the accumulation of
operating losses and the deficiency of working capital, the Company's
ability to realize its assets and discharge its liabilities is dependent
upon the attainment of profitable operations and the continued financial
support of its creditors. The financial statements do not reflect
adjustments that might be necessary should profits not be attained, or
should the support not be continued.

4. CURRENCY RISK

The Company is exposed, in its normal course of business, to foreign
exchange risks. The foreign exchange rate may change from that of the
balance sheet date.

5. INVENTORIES

Inventories consist of the following:

2003 2002
----------------------------------------------- -----------------------------------------------

Provision for Provision for
Obsolete and Obsolete and
Gross Slow-Moving Net Gross Slow-Moving Net
Amount Inventories Amount Amount Inventories Amount
------------- ------------- ------------- ------------- ------------- -------------

Finished Goods $ 62,317 $ (24,870) $ 37,447 $ 60,840 $ (19,460) $ 41,380
Work-in-Process -- -- -- -- -- --
Raw Materials 36,146 (25,147) 10,999 44,910 (17,887) 27,023
------------- ------------- ------------- ------------- ------------- -------------

$ 98,463 $ (50,017) $ 48,446 $ 105,750 $ (37,347) $ 68,403
============= ============= ============= ============= ============= =============

6. INVESTMENT IN AFFILIATED COMPANY
CUMULATIVE % CHARGED
INVESTMENT OWNERSHIP TO COSTS

IN BUCK IN BUCK AND EXPENSES
------------ ------------ ------------

BALANCE AT November 30, 1999 $ -- Nil% $ --
------------ ------------ ------------

ADD - Purchase of Common Shares 400,000 44 --
- Conversion of Debt 70,000 50 --
------------
470,000 --
LESS - Equity in Share of Loss 400,798 400,798
------------

BALANCE AT NOVEMBER 30, 2001 69,202 50 --

ADD - Purchase of Common Shares 970,000 100 --
------------
1,039,202 --
------------

LESS - Legal Expenses Reimbursed 57,018 --
- Equity in Share of Loss 812,184 812,184
------------
869,202

BALANCE AT NOVEMBER 30, 2002 170,000 10 --

LESS - Disposal of Investment 170,000 --
------------ ------------

BALANCE AT NOVEMBER 30, 2003 $ -- Nil% $ --
============ ============ ============

(A) ACQUISITION OF THE BUCK-A-DAY COMPANY INC.

On December 15, 1999, the Company executed an agreement with The
Buck-a-Day Company Inc. (formerly 1375400 Ontario Limited),
hereinafter collectively referred to as "Buck". Buck is in the direct
response telemarketing and sales business. In addition, Buck offers
third party retail financing services, utilizing its "Buck a Day"
credit card, whereby customers can purchase computers and other
consumer products for as little as "a dollar a day" with no down
payment. Initially, ART International Corporation (formerly A.R.T.
International Inc. had the right to purchase a 44% interest in Buck
for $400,000.

By March 30, 2000, the Company had paid Buck $400,000 for 160 common
shares, representing 44.44% of the total issued share capital of Buck.
On April 27, 2000, the Company loaned Buck $70,000 under an agreement
which allowed the Company the right to convert an additional 40 common
shares, representing an additional 5.56% of the total issued share
capital. Effective August 8, 2000, the Company exercised its option
and converted its loan into equity, thereby bringing its ownership in
Buck up to 50%. On December 4, 2000, the Company acquired the balance
of 200 common shares to own 100% of Buck. The consideration paid for
the remaining 200 common shares was as follows:

Cash $ 500,000
Add - 2,000,000 Common Shares Issued
Fully Paid and Non-assessable 470,000
------------

TOTAL CONSIDERATION $ 970,000
============

The Company attributed the cash value of the 2,000,000 common shares
issued at $470,000 or $0.235 per common share, as the shares are
restricted and may not be traded for three {3} years. The average
market price per common share was approximately $1.00 in the
corresponding period.

The balance sheet of Buck had a shareholders' deficiency of $434,715
and the stated capital of the shares acquired from the selling
shareholders of Buck was $75,000. In the opinion of management, the
underlying fair market value of assets acquired approximates the book
value as stated in Buck's audited financial statements for the year
ended November 30, 2000. The consideration has been allocated as
follows:

Total Consideration $ 970,000
Less - Shares Purchased 75,000
------------

ALLOCATED TO GOODWILL $ 895,000
============

The Company funded the purchase of the initial 50% of Buck's shares
from the sale of its common shares under the Regulation S Offering. In
total, the Company paid $470,000 for 200 common shares, representing
50% of Buck's total share capital. The 200 common shares were issued
from treasury.

The Company funded the purchase of the balance of the Buck common
shares by issuing 500,000 of its common shares for $500,000 cash and
issuing 2,000,000 fully paid and non-assessable restricted common
shares to the vendors. In addition, the selling shareholders of Buck
received 1,000,000 options to purchase common shares pursuant to the
Company's stock option plan.

The letter of intent dated November 27, 2000, issued by the Company to
Buck, also provided that the Company would arrange for a further
$500,000 financing for Buck within 10 to 15 days of A.R.T. having 100%
of Buck and further arrange $500,000 financing by March, 2001. The
Company was unable to arrange said financings. Consequently, the
senior management of Buck, Ed LaBuick, C.E.O. and Dennis LaBuick,
President, as the co-founders of Buck (hereinafter referred to as
"LaBuick Group") secured an agreement with a third party, subject to
the Company's shareholders' approval in a special meeting, to invest
directly into the Buck subsidiary.

(B) DILUTION IN OWNERSHIP OF BUCK

In July, 2001, Buck executed a Security Agreement with 1483516 Ontario
Limited ("1483516"), whereby 1483516 agreed to loan Buck U.S.
$450,000. The Security Agreement provided for the conversion of the
U.S. $450,000 of principal into 3,000,000 Buck common shares and a
Series "B" warrant to purchase 3,000,000 Buck common shares
exercisable at U.S. $0.15 per share.

A $710,000 loan held by the LaBuick Group in Buck was amended to add a
conversion privilege into Buck common shares at $0.10 per share for a
total aggregate of 7,100,000 common shares. Upon conversion, the
holders of the Security Agreement held by the LaBuick Group also
received a Series "A" warrant for the purchase of up to 1,500,000
additional shares of Buck at $0.10 per share.

In August, 2001, Buck allotted and issued 1,999,600 fully paid and
non-assessable common shares to the Company for $1.00, thereby
bringing the total Buck common shares owned by A.R.T. to 2,000,000 in
the aggregate. The said allotted common shares are effectively a
stock-split of the 400 common shares originally owned by A.R.T. into
2,000,000 common shares. Further, Buck granted A.R.T. a Series "C"
warrant to purchase up to 800,000 common shares of Buck at $0.10 per
share, exercisable for a period of 120 days after the exercise by the
LaBuick Group of its conversion rights.

As a result of the issuance of shares and exercise of warrants, the
Company's ownership in Buck was diluted to 10% of the issued common
shares.

(C) DISPOSITION OF BUCK

Effective February 18, 2003, the Company sold its remaining investment
in Buck to a third party. The 2,000,000 common shares of Buck were
sold at the aggregate price of $171,428. The proceeds were used to
partially repay the loans payable and for on-going working capital
purposes.

7. CAPITAL ASSETS 2003 2002

ACCUMULATED NET BOOK NET BOOK
COST AMORTIZATION VALUE VALUE
------------ ------------ ------------ ------------

Equipment, Furniture and Fixtures $ 358,821 $ 336,357 $ 22,464 $ 28,080
============ ============ ============ ============

8. LOANS PAYABLE - $675,700

These loans are unsecured, repayable on demand, non-interest bearing and
convertible into common shares of the Company at the market price per share
on the date of conversion. These loans are payable to seven {7} parties, of
which five {5} are shareholders of the Company and represent more than 50%
of the loan.

9. NOTES PAYABLE

The notes payable bear interest at 10% and are secured by a general
security agreement over all the assets of the Company.

As the Company has not made timely principal or interest payments, the
notes are considered to be in default. Under the terms of the original
security agreement, the notes payable shall, at the option of the lenders,
become immediately due and payable with notice or demand.

2003 2002
---- ----
--------------------------- ---------------------------
U.S. Dollars Cdn. Dollars U.S. Dollars Cdn. Dollars

Principal $ 315,000 $ 409,217 $ 315,000 $ 492,975
Accrued Interest 237,708 308,806 206,208 322,716
------------ ------------ ------------ ------------

$ 552,708 $ 718,023 $ 521,208 $ 815,691
============ ============ ============ ============

10. SHARE CAPITAL

(A) AUTHORIZED

The Company is authorized by its Articles of Incorporation to issue an
unlimited number, except where noted, of the following classes of
shares:

(i) Non-voting, redeemable, class "A" preference shares, series 1 and
series 2; convertible into common shares and have the right to
cumulative dividends as and if declared in the amount of U.S.
$0.60 per share per annum, payable quarterly in the first year of
issuance and annually thereafter, as and when declared, subject
to the provisions of The Ontario Business Corporations Act. The
future dividend payments are payable in cash or common shares at
the discretion of the directors.

The directors have authorized 875,000 class "A" preference
shares, series 1, each of which is convertible into 0.048 common
shares. All the 875,000 class A preference shares were issued and
fully converted into common shares in fiscal 2000.

The directors have authorized an unlimited number of class "A"
preference shares, series 2, each of which is convertible into
0.24 common shares.

(ii) The shareholders authorized an unlimited number of class "B"
preference shares. These shares are non-voting, retractable at
the option of the Company at the amount paid up thereon and have
a non-cumulative preferential dividend of $0.10 per share in
priority to all other shares of the Company. In the event of
dissolution, these shares are entitled to receive the greater of
$1.00 per share or the amount paid up thereon in priority to all
other shares of the Company. No class "B" shares have been
issued;

(iii)The shareholders authorized an unlimited number of class "C"
common shares. Each class "C" common share has 100 votes and a
non-cumulative dividend right of $0.01 which is payable only in
the event that the annual dividends required in respect of the
senior shares of the Company, including class "A" preference
shares, class "B" preference shares and common shares, have been
paid. In the event of dissolution, these shares are entitled to
receive the greater of $0.01 per share or the amount paid up
thereon in priority to the common shares and no share of any
further distribution; and

(iv) Common shares

(B) ISSUED

Common Shares
2003 2002
----------------------------------------------------

Number of Number of
Shares Amount Shares Amount
----------- ----------- ----------- -----------

Balance - End of Year 3,035,457 $10,502,167 255,168 $10,495,217
=========== =========== =========== ===========

During the 2003 fiscal year, the Company had a 100 to 1 reverse stock
split on common shares. In addition, 27,800 of the class "C" common
shares were converted to common shares at a rate of 1 to 100. The cash
consideration of $6,950 was transferred from class "C" common shares
to common shares.

During the 2001 fiscal year, the Company issued 800,000 common shares
(on a post-stock dividend basis) for a total cash consideration of
$507,342. In addition, 2,000,000 shares were issued in conjunction
with the acquisition of The Buck-A-Day Company Inc. at a value of
$470,000.

Class C Common Shares

The Company has issued 400,000 class C common shares. After adjusting
for the above noted conversion of 27,800 class C common shares, the
balance of 372,200 class C common shareholders representing 37,200,000
votes and therefore they control the election of its directors, and
the operations of the Company.

(C) STOCK OPTIONS AND WARRANTS TO PURCHASE COMMON SHARES

The Company has issued various stock options for common shares of the
Company's share capital. The stock options provide for the granting of
options to key employees, including officers, directors and
independent contractors of the Company. No option may be granted with
a term exceeding ten years. In addition, the Company has granted
warrants from time to time to lenders of the Company.

The options and warrants are allocated as follows:

NUMBER OF SHARES
------------------------------------
2003 2002 2001
---------- ---------- ----------

Balance - Beginning of Year -- 1,016,000 16,000
Add - Options and Warrants Issued -- -- 1,000,000
---------- ---------- ----------
-- 1,016,000 1,016,000
Less - Options and Warrants Expired -- 1,016,000 --
---------- ---------- ----------

Balance - End of Year -- -- 1,016,000
========== ========== ==========

During the year, the Company issued Nil common stock options [2002 -
Nil; 2001 - 1,000,000], pursuant to an option plan approved by the
shareholders in July, 1998. The stock options provide for the granting
of options to directors, officers and employees of the Company,
subject to a maximum limit of ten {10} percent of the total common
shares issued and outstanding at the date of the issuance of the stock
options. No stock option may be granted with a term exceeding ten
years. The 1,000,000 stock options were issued at an option price of
$1.00 per stock option, with an expiry date of December 4, 2001 and
expired unexercised.

11. SEGMENTED INFORMATION

The Company operates in one business segment, the production, distribution
and marketing of replications of oil paintings.

Operations and identifiable assets by geographic segments are as follows:

2003 2002 2001
-------- -------- --------

DOMESTIC SALES - Canada $ 20,233 $ 17,554 $102,934

INTERNATIONAL EXPORT SALES:
U.S.A 63,217 174,266 389,198
European Economic Community -- -- 7,930
Other -- -- 20,466
-------- -------- --------

$ 83,450 $191,820 $520,528
======== ======== ========

All significant identifiable assets and amortization relate to assets
situated in Canada.

12. LEASE COMMITMENT

Under a long-term lease expiring January 31, 2006, the Company is obligated
for minimum future lease payments, net of occupancy costs, for office,
showroom and factory premises as follows:

FISCAL YEAR ENDING AMOUNT
------------------ ------

2004........................................... $ 67,091
2005........................................... 71,953
2006........................................... 75,356

The rent paid in 2003 was $98,176; [2002 - $106,998]; and [2001 -
$111,905].

13. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES

The financial statements of the Company are prepared in accordance with
Canadian generally accepted accounting principles ("Canadian G.A.A.P."),
which state that issue costs of the shares are treated as a reduction of
capital. These principles differ in some respects from United States
generally accepted accounting principles ("U.S. G.A.A.P."), which state
that the issue costs of the shares are treated as an expense in the period.

The effect of such differences on the Company's balance sheet and statement
of loss is as follows:

2003 2002 2001
---------------------------- ---------------------------- ----------------------------
CANADIAN U.S. CANADIAN U.S. CANADIAN U.S.
G.A.A.P. G.A.A.P. G.A.A.P. G.A.A.P. G.A.A.P. G.A.A.P.
------------ ------------ ------------ ------------ ------------ ------------>

(A) BALANCE SHEET:

Share Capital
Issued $ 10,595,218 $ 12,636,761 $ 10,595,218 $ 12,636,761 $ 10,595,218 $ 12,636,761
============ ============ ============ ============ ============ ============

Accumulated
Deficit $(24,418,965) $(26,466,723) $(24,127,639) $(26,175,397) $(23,628,360) $(25,676,118)
============ ============ ============ ============ ============ ============

(B) STATEMENT OF LOSS:

2003 2002 2001
-------- -------- --------

Net Loss per Common Share under U.S. G.A.A.P $ (0.49) $ (1.96) $ (5.15)
======== ======== ========

(C) WEIGHTED AVERAGE NUMBER OF SHARES

- U.S. G.A.A.P. [Note 12(e)] 860,389 255,168 255,168
======== ======== ========

(D) WEIGHTED AVERAGE NUMBER OF SHARES

- CANADIAN G.A.A.P. 860,389 255,168 255,168
======== ======== ========

(E) The Financial Accounting Standards Board {FAS 128} requires that for
U.S. G.A.A.P. purposes the Company follow the "Treasury Stock Method"
in determining the weighted average number of shares. This method
could result in a difference in the weighted average number of shares
as determined in accordance with Canadian G.A.A.P.

For U.S. G.A.A.P. purposes the "Treasury Stock Method" increases the
weighted average number of shares by a factor which takes into
consideration the number of stock options outstanding, the exercise
price of these stock options and the quoted market price for the
Company's shares. No similar calculation is required under Canadian
G.A.A.P. to determine the weighed average number of shares.

As the Company is in a loss position, the weighted average number of
shares for U.S. G.A.A.P. purposes does not take into account the
potential conversion of the preference shares or the stock options, as
the effect would be anti-dilutive.

(F) EARNINGS PER SHARE

As the Company is in a loss position, it does not reflect the fully
diluted earnings per share, as the effect would be anti-dilutive.

(G) STATEMENT OF CASH FLOW

For U.S. GAAP purposes, the bad debt and inventory reserves are
non-cash adjustments to net loss rather than adjustments to working
capital

14. INCOME TAXES

There are no current or future income taxes payable in Canada or the United
States.

The Company has sustained net operating losses. Realization of the income
tax benefits of these losses is dependant on generating sufficient taxable
income prior to expiration of any net operating loss carry-forwards
{NOL's}. Realization is not assured and management believes that a
valuation allowance equal to the deferred income tax asset should be set
up. 100% of the NOL's were generated in Canada and expire as follows:

YEAR CANADIAN U.S. TOTAL
----------- ----------- -----------
2004.............. $ 924,031 -- $ 924,031
2005.............. 395,462 -- 395,462
2006.............. 88,687 -- 88,687
2007.............. 531,742 -- 531,742
2008.............. 481,938 -- 481,938
2009.............. 488,555 -- 488,555
2010.............. 414,879 -- 414,879
----------- ----------- -----------

$ 3,325,294 $ -- $ 3,325,294
=========== =========== ===========

There were no reportable temporary differences between income for financial
statement purposes and taxable income.

The following sets forth the differences between the provision for income
taxes computed at the United States federal statutory income tax rate of
35% and that reported for financial statement purposes:

2003 2002 2001
-------- -------- --------

Provision Computed at the
Canadian Federal and Provincial
Statutory Income Tax Rates $273,322 $324,532 $847,485

Less - Valuation Allowance 273,322 324,532 847,485
-------- -------- --------

NET TAX BENEFIT RECOGNIZED $ -- $ -- $ --
======== ======== ========

15. MAJOR CUSTOMER

Sales to specific major customers of the Company were as follows:

2003 2002
------------------------- -------------------------

Percentage Percentage
Percentage of Accounts Percentage of Accounts
of Sales Receivable of Sales Receivable
----------- ----------- ----------- -----------

SALES THROUGH TWO RETAIL
COMPANIES (U.S.) 31% 27 % 70% 29%
== == == ==

16. SUBSEQUENT EVENT

Subsequent to the year end, the Company converted 52,000 class "C" common
shares to 5,200,000 common shares.

17. SUPPLEMENTAL DISCLOSURE - STATEMENT OF CASH FLOWS

There were no interest or income tax payments made during the year 2003
[2002: interest - $ Nil; income taxes - $ Nil] [2001: interest - $ Nil;
income taxes - $ Nil].

18. SUPPLEMENTARY DATA

(I) SELECTED QUARTERLY FINANCIAL INFORMATION

- --------------------------------------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QTR QTR QTR QTR TOTAL QTR QTR QTR QTR TOTAL
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------

NET SALES 21,166 20,994 24,038 17,252 83,450 91,890 41,010 25,000 33,920 191,820
======== ========
(5,186)
GROSS LOSS 39,118
(PROFIT) 16,512 36,235 47,347 139,212 39,310 54,634 51,620 140,378
======== ========

NET LOSS 110,906 82,459 111,568 115,561 420,494 128,970 133,340 125,080 111,889 499,279
======== ========
- --------------------------------------------------------------------------------------------------------------------- --------
NET LOSS PER
COMMON SHARE 0.435 0.323 0.209 0.134 1.10 0.505 0.522 0.490 0.438 1.954
========
- --------------------------------------------------------------------------------------------------------------------- --------
WEIGHTED
AVERAGE NUMBER
OF COMMON SHARES 255,168 255,168 534,909 860,389 860389 255,168 255,168 255,168 255,168 255,168
========
- --------------------------------------------------------------------------------------------------------------------- --------

(II) VALUATION AND QUALIFYING ACCOUNT

INVENTORIES
-----------------------------------
BALANCE CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER END
of Year Expenses Accounts Deductions of Year
---------- ---------- ---------- ---------- ----------

PROVISION FOR
OBSOLETE AND
SLOW-MOVING
INVENTORIES $ 37,347 $ 12,670 $ -- $ -- $ 50,017
========== ========== ========== ========== ==========

The inventory allowance of $48,827 as at November 30, 2001 was
written-off against the opening work-in-process of $48,827, which
resulted in the work-in-process being carried at $ Nil as at November
30, 2003 and November 30, 2002.

Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.

None.

Item 9A. Controls and Procedures.

The Corporation is a foreign private issuer within the meaning of Rule 3b-4
under the Securities Act of 1934 and its full compliance with the requirements
under Regulation S-K is not mandated until 2005.

(a) Evaluation of disclosure control and procedures. Based on Management's
evaluation as of a date within 90 days of the filing date of this Annual Report
on Form 10-K, the Company's principal executive officer and principal financial
officer have concluded that the designed and operation of the Company's
disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c)
under the Securities Exchange Act of 1934, as amended ("Exchange Act")) are
effective to ensure that information required to be disclosed by the Company in
its reports filed and submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms, and that such information is accumulated and communicated to the
Company's management, including the principal executive officer and the
principal financial officer, as appropriate, to allow timely decisions regarding
required disclosures.

(b) Changes in internal controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
the internal controls subsequent to the date of their evaluation, nor were there
been any corrective actions with regard to significant deficiencies or material
weaknesses.

PART III

Item 10. Directors and Executive Officers of the Registrant.

On May 7, 2003, the Company held an Annual, General and Special Meeting of
Shareholders at the Corporation's offices located at 5-7100 Warden Avenue,
Markham, Ontario, Canada L3R 8B5, on May 7, 2003. At that meeting Simon
Meredith, Michel Van Herreweghe, Roger Kirby, Stephan Gudmundsson were
elected as Directors of the Corporation to hold office until the next
Annual Meeting or until their successors are elected or appointed

Simon P. Meredith, President & COO -- Was elected a director of the Company
and President and Chief Operating Officer in November 1994. Mr. Meredith is
a Chartered Accountant and was Vice President, Finance and Administration
of Gormont Group Limited from April 1991 through December 1994. He was a
consultant for Helix Investments Limited (a private investment group) from
October 1990 through March 1991 and Vice President, Finance and
Administration of The Diecut Group, Inc from June 1987 through September
1990.

Michel van Herreweghe, Chairman & CEO -- Was Director of Nickeldale
Resources Inc. from 1988 through 1996. He was a Director of Aronos
Multinational Inc. From 1991 though 1992; Director of Xxpert Rental Tool
Inc. from 1993 through 1994; CEO Oxford Securities Corporation (Bahamas)
1993 to 2000; Director Commonwealth Asset Managers Limited (Bahamas) 1994
to June 1997. He was appointed State of Florida Commissioner of Deeds 1994
to March 1999; Director Creditanstalt Bank of Switzerland, A.G. 1996 to
2001;

Roger Kirby, Director. -- Is President of Enviro-Lite International Inc;
General Manager of Can-Am Teck Inc. 1991; Vice-President Sales for Demax
Inc. 1990; President of Telephony Communications International Inc. from
1987 through 1990; President of Nickeldale Resources Inc. to November 1996.

Stephan Gudmundsson, Director - President Technopac since 1991; President
Trinity Plastics Inc. 1989 - 1991.

Compliance With Section 16(a) of the Exchange Act

This item is not applicable because the Company is a foreign private issuer
within the meaning of Rule 3b-4 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the Company's securities are therefore
currently exempt from the provisions of Sections 14(a), 14(b), 14(c), 14(f)
and 16 of the Exchange Act.

The Audit Committee.

The Company has a separately designated standing Audit Committee
established in accordance with Section 3(a)(58)(A) of the Securities
Exchange Act of 1934. The members of the Audit Committee are Michel Van
Herreweghe, Simon Meredith and Roger Kirby. The Company's Board of
Directors has determined that Simon Meredith is an audit committee
financial expert as defined by Item 401(h) of Regulation S-K of the
Securities Exchange Act of 1934.

The Audit Committee meets two times during a fiscal year. The Corporation
has not adopted a written charter for the audit committee. This committee
is primarily concerned with assisting the Board in fulfilling its fiduciary
responsibilities relating to accounting policies and auditing and reporting
practices and insuring that all Canadian standards of practice comport with
standards adopted and required by the SEC and other appropriate regulatory
authorities. The committee also is tasked with assuring the independence of
the Company's public accountants, the integrity of management and the
adequacy of the Company's financial disclosure. Its duties include
recommending the selection of independent accountants, reviewing the scope
of the audits and the results thereof, and reviewing the organization and
scope of the Company's internal systems of financial control and accounting
policies.

Code of Ethics

The Company has adopted a Code of Ethics that applies to its principal
executive and financial officers and the persons performing similar
functions. The Code of Ethics will be posted in the near future on our
website at www.artinternationalinc.com. The Company will provide a copy of
its Code of Ethics, without charge, to any investor that requests it.
Requests should be addressed in writing to ART International Corporation,
Attn.: Simon Meredith, 7100 Warden Avenue, Markham, Ontario, Canada L3R
8B5.

Item 11. Executive Compensation.

The following table sets forth the aggregate cash compensation paid for services
rendered to the Company during the last three fiscal years by all individuals
who served as the Company's Officers and Directors during each fiscal year.

- --------------------------------------------------------------------------------------------------------------------------
(In Canadian Dollars)
- --------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation Awards
Other Annual Restricted Securities All
Name and Year Salary Bonus Compensation Stock Underlying Other
Principal Position ($) ($) ($) Awards ($) Options (#) Compensation ($)
- ------------------ ----- -------- ------- ------- ------------ ------------- -----------------

Simon Meredith (1) 2003 -- -- 60,000 -- -- --
President 2002 -- -- 60,000 -- -- --
2001 -- -- 120,000 -- -- --
Michel van Herreweghe, 2003 -- -- -- -- -- --
Chairman 2002 -- -- -- -- -- --
2001 -- -- -- -- -- --
Roger Kirby, Director 2003 -- -- -- -- -- --
2002 -- -- -- -- -- --
2001 -- -- -- -- -- --
Stephan Gudmundsson 2003 -- -- -- -- -- --
Director 2002 -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Marc Bielby, Director -- -- -- -- -- -- --
(Resigned 2002) 2002 -- -- -- -- -- --
2001
Ed LaBuick -- -- -- -- -- -- --
(Resigned 2001) -- -- -- -- -- -- --
(Father - Dennis LaBuick) 2001 -- -- -- -- -- --
Dennis LaBuick -- -- -- -- -- -- --
(Resigned 2001) -- -- -- -- -- -- --
(Son - Ed LaBuick) 2001 -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------

(1) Represents the fees paid in Canadian dollars to a consulting company owned
by Mr. Meredith (See "Employment and Consulting Agreements").

Employment and Consulting Agreements

In November 1994, the Company entered into a consulting agreement with The
Merrick Group Limited, a company beneficially owned by Simon Meredith. Under the
terms of the contract, Mr. Meredith provides management services to the Company
for up to 100 hours per month as President and Chief Operating Officer.

Stock Options

In July 1998, a Stock Option Plan (the "Plan") was approved by the Shareholders.
The Plan was designed to provide an added incentive for effective service and
performance to participating key employees (including officers) and directors of
the Company by affording them an opportunity to increase their proprietary
interest in the Company's success through increased stock ownership.

The Plan may be administered by either the Board of Directors or a Stock Option
Committee consisting of three members who shall be appointed by the Board of
Directors (the "Committee"). The Board of Directors or, if acting, the Committee
has the authority to select optionees, to establish the number of shares and
other terms applicable to each option and to construe the provisions of the
Plan. The Plan may be amended or terminated at any time by the Board of
Directors of the Company without further approval of the shareholders.

The Board of Directors or the Committee determines the option price per share
with respect to each option and fixes the period of each option, but in no event
may the option period be longer than 10 years. Options granted under the Plan
are nontransferable. Up to and including March 1, 2000, pursuant to the option
plan, subject to and conditional upon any necessary regulatory approval or
ruling, the Company authorized the issue of 238,500 stock options to employees,
officers and directors at option prices ranging from $ 0.20 to $ 0.37 per share
option. On July 31, all 238,500 options were exercised.

Subsequent to the year-end, effective December 4, 2000, pursuant to the
acquisition of 100% of Buck, the Company granted 1,000,000 options to purchase
common shares of the Company to the selling shareholders of Buck, whereby the
options expire December 1, 2001, or such other extended date set by the Company
in accordance with the Stock Option Plan, and at a price of $1.0.

Aggregate Option Exercises In Last Fiscal Year And Fiscal Year-End Option Values

- --------------------------------------------------------------------------------
Name Open Options Options Close
Options Granted Expred Options
Qty $ Qty $Price Qty $ Qty $
/sh.
Simon
Meredith -- -- -- --
Michel van
Herreweghe -- -- -- --
Roger
Kirby -- -- -- --
Stephan
Gudmundsson -- -- -- --
Marc
Bielby -- -- -- --
Ed
LaBuick (1) -- -- -- --
Dennis
La Buick(1) -- -- -- --
- --------------------------------------------------------------------------------
(1) Ed and Dennis LaBuick were the founder shareholders of and senior
management, CEO and President respectively, of Buck.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

The following table shows, as of February 29, 2004, the number of shares of our
common stock beneficially owned by each director, any shareholder beneficially
owning 5% of the outstanding shares of our common stock, and all directors and
executive officers as a group.

- -----------------------------------------------------------------------
Aggregate number Percentage of
Name Common Shares Outstanding
Beneficially Owned Common Stock (1)
Simon Meredith
President 2,000 0.025%
Michel van Herreweghe
Chairman 3,600 0.045%
Roger Kirby
Director 100 0.0012%
- ----------------------------------------------------------------------
Directors & Officers
As a group (3) 5,700 (2)
- ----------------------------------------------------------------------

(1) Based on the number of shares outstanding at February 29, 2004.
(2) Percentage of shares beneficially owned does not exceed one percent of the
outstanding shares of the common stock of the Company.

Item 13. Certain Relationships and Related Transactions.

At February 29, 2004, the Company has 320,200 Class "C" Common shares issued and
outstanding. Each Class "C" Common share entitles the holder to 100 votes.
Therefore the Class "C" Common shares have a total of 32,020,000 votes, which
gives them control over the Board of Directors and operations of the Company.
The Class "C" Common Shares are not traded.

It is the Company's policy that transactions between the Company and persons or
entities affiliated with the officers, directors, employees, or shareholders of
the Company, which relate to the operations of the Company, will be on terms no
less favorable to the Company than could have reasonably been obtained in
arm's-length transactions with independent third parties.

See "Executive Compensation--Employment and Consulting Agreements" for a
description of certain employment and consulting arrangements with officers
and/or directors of the Company.

Item 14. Principal Accounting Fees and Services.

The following expenses represent the cost of the Corporation's annual audit
services.

- -------------------------------------------------
Details / service 2003 2002 2001
$ $ $

Audit 36,000 25,000 25,000
Taxation -- -- --
All Other Fees -- -- --
Total 36,000 25,000 25,000
- ------------------------------------------------

PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

Former Subsidiary - The Buck A Day Company ( "Buck" ) -- Financial Information.

Buck's Auditor and Management prepared the financial information presented
herein below. Buck's fiscal year end does not coincide with that of the
Corporation's, being July 31 and November 30 respectively.

During to the years ending November 30, 2001 and 2002 the Corporation's
ownership of the Buck common shares had been diluted to 10% and consequently
Buck did not provide audited financial statements for years ending November 30
2001 and 2002.

On December 6, 2002, the management of Buck laid-off all employees of the
corporation and subsequently filed Buck for bankruptcy proceedings. Shareholders
of Buck representing approximately 60% and control of that corporation applied
to the Ontario Courts for injunctive relief and removal of the management of the
corporation, Edward LaBuick Dennis LaBuick and Keith Kennedy ("Defendants). In
subsequent rulings the Ontario Court halted the bankruptcy proceedings, removed
the Defendants from management and directors of Buck, in addition Edward LaBuick
and Keith Kennedy were ruled in contempt of court. On January 28, 2003, in a
special meeting of shareholders of Buck a new board of directors was elected.
Said directors and shareholders of the corporation attempted unsuccessfully to
recommence operations in 2003; on and about April 2003 the landlord of Buck's
offices repossessed the premises to protect landlord's rights and locked-out
Buck.

As a consequence ART's management has been unable to obtain complete financial
information from its former subsidiary corporation.

Following are audited financial statements for Buck prepared by the auditors of
said corporation including materials extracted from public filings made by Buck
in conjunction with its NASDAQ registration application during 2001 and 2002.

The balance sheets of The Buck A Day Company Inc. as at July 31, 2001 and 2000
and the statements of operations, changes in shareholders' equity and cash flows
for the year ended July 31, 2001 and from inception, January 1, 2000 through
July 31, 2000. These audited financial statements were prepared in United States
dollars.

INDEPENDENT AUDITOR'S REPORT

To the Shareholders of
The Buck A Day Company Inc.
Newmarket, Ontario, Canada

I have audited the balance sheets of THE BUCK A DAY COMPANY INC. as at July
31, 2001 and 2000 and the statements of operations, changes in shareholders'
equity and cash flows for the year ended July 31, 2001 and from inception,
January 1, 2000 through July 31, 2000. These statements are the responsibility
of the company's management. My responsibility is to express an opinion on these
financial statements based on my audits.

I conducted my audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that I plan
and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.

In my opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at July 31, 2001 and 2000 and
the results of its operations and changes in its cash flows for the year ended
July 31, 2001 and from inception, January 1, 2000 through July 31, 2000 in
accordance with accounting principles generally accepted in the United States of
America.

North York, Ontario "Stephen Diamond"
September 15, 2001 Chartered Accountant

THE BUCK-A-DAY COMPANY INC.
BALANCE SHEETS
(IN UNITED STATES DOLLARS)

July 31, July 31, April 30,
As at 2001 2000 2002
(Unaudited)
- ---------------------------------------------------------------------------------------------

ASSETS
CURRENT ASSETS
Cash $ 316,427 $ 25,164 $ 226,568
Accounts receivable 126,621 39,628 105,490
Prepaid expenses 49,377 84,317 134,468
Inventory 122,037 12,117 368,180
Loan to shareholders (Note 13) -- -- 270,923

TOTAL CURRENT ASSETS 614,462 161,226 1,105,629
FIXED ASSETS
(Net of accumulated depreciation)(Note 2) 191,647 90,255 325,240
GOODWILL - net (Note 3) 559,085 -- --

- ---------------------------------------------------------------------------------------------
$ 1,365,194 $ 251,481 $ 1,430,869

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable and accrued liabilities
(Notes 5 and 8) $ 1,184,277 $ 286,093 $ 1,935,060
Deferred marketing revenue (Note 6) 228,865 -- --
Reserve for returns -- -- 191,266

TOTAL CURRENT LIABILITIES 1,413,142 286,093 2,126,326

LONG TERM LIABILITIES
Advances from shareholders' (Note 4) 834,976 33,825 --
Provincial sales tax payable (Note 5) 79,319 -- 24,129

914,295 33,825 24,129

TOTAL LIABILITIES 2,327,437 319,918 2,150,455
- ---------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 9 and 12)
SHAREHOLDERS' DEFICIENCY:
Capital stock (Note 7) 354,250 305,500 2,823,043
Additional Contributed Capital (Notes 3 and 7 ) 585,241 -- 1,299,241
Accumulated other comprehensive income (Note 8) 29,512 16,075 42,134
Deficit (1,931,246) (390,012) (4,884,004)
- ---------------------------------------------------------------------------------------------
(962,243) (68,437) (719,586)

$ 1,365,194 $ 251,481 $ 1,430,869
=============================================================================================

THE BUCK-A-DAY COMPANY INC.
STATEMENTS OF OPERATIONS
(IN UNITED STATES DOLLARS)

9 MONTHS 9 MONTHS
INCEPTION, ENDED ENDED
JANUARY 1, APRIL 30, APRIL 30,
FOR THE YEAR ENDED 2000 TO 2002 2001
JULY 31, 2001 JULY 31, 2000 (UNAUDITED) (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------

REVENUE
Sales $ 5,381,008 $ 733,973 12,356,968 4,164,467
Cost of sales (3,955,228) (537,406) (8,615,836) (3,042,246)

Gross Profit 1,425,780 196,567 3,741,132 1,122,221

EXPENSES
Amortization 48,601 9,283 61,205 31,413
Automobile and travel 54,887 17,193 82,108 38,245
Bad debts 38,440 -- -- --
Communication costs 77,776 37,763 140,452 63,988
Consulting fees 104,656 796 370,864 --
Interest and bank charges 11,937 2,438 45,286 4,990
Media and printing costs 1,114,561 186,847 1,604,643 735,284
Office expenses 32,870 31,270 170,186 38,822
Outside answering and approval 184,218 2,550 348,122 129,656
Professional fees 63,399 14,647 148,897 18,274
Rent and utilities 67,585 32,106 71,007 49,556
Repairs and maintenance 23,547 6,945 21,394 15,669
Salaries and commissions 1,075,467 217,738 3,102,573 796,886
- ------------------------------------------------------------------------------------------------------------

2,967,014 586,579 6,166,736 1,922,763
- ------------------------------------------------------------------------------------------------------------

NET LOSS BEFORE UNDERNOTED
ITEM (Note 3) $ (1,541,234) $ (390,012) $ (2,425,604) $ (800,542)
Goodwill writeoff (Note 3) -- -- (527,153) --
============================================================================================================

NET LOSS $ (1,541,234) $ (390,012) $ (2,952,757) $ (800,542)
============================================================================================================
Loss per share $ (3,853) $ (975.03) $ (0.1546) (2,001)
============================================================================================================
Weighted average number of shares outstanding 400 400 19,097,223 400
============================================================================================================

THE BUCK-A-DAY COMPANY INC.

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

(IN UNITED STATES DOLLARS)

Accumulated
Comprehensive
Foreign
Accumulated Currency
Number Capital Contributed Translation Accumulated
of Shares Stock Capital Adjustment Deficit Total
- -----------------------------------------------------------------------------------------------------------------------------

Balance January 1, 2000 -- $ -- $ -- $ -- $ -- $ --
Issued for cash 360 305,500 -- -- -- 305,500
Net Loss -- -- -- -- (390,012) (390,012)
Foreign currency translation adjustment
(Note 8) -- 16,075 -- 16,075
- -----------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 2000 360 305,500 -- 16,075 (390,012) (68,437)
Issued for cash 40 48,750 -- -- -- 48,750
Pushdown accounting -- -- 585,241 -- -- 585,241
Net Loss -- -- -- -- (1,541,234) (1,541,234)
Foreign currency translation adjustment
(Note 8) -- -- -- 13,437 -- 13,347
- -----------------------------------------------------------------------------------------------------------------------------
Balance July 31, 2001 400 354,250 585,241 29,512 (1,931,246) (962,243)
Issue of Common Shares 1,999,600 1 -- -- -- 1
Settlement of secured creditor loans
and exercise of related A and B Warrants 14,600,000 1,290,140 -- -- -- 1,350,140
Exercise of C Warrants 800,000 5,200 -- -- -- 5,200
Private placement of common shares 2,522,974 1,147,452 -- -- -- 1,087,452
Compensatory shares and warrants 2,600,000 26,000 714,000 -- -- 740,000
Net loss for nine months ended
April 31, 2002 (Unaudited) -- -- -- -- (2,952,757) (2,952,757)
Foreign currency translation adjustment
(Note 8) -- -- -- 12,622 -- 12,622
- -----------------------------------------------------------------------------------------------------------------------------
Balance April 30, 2002 (Unaudited) 22,522,974 $ 2,823,043 $ 1,299,241 $ 42,134 $(4,884,004) $ (719,585)
- -----------------------------------------------------------------------------------------------------------------------------

THE BUCK-A-DAY COMPANY INC.
STATEMENTS OF CASH FLOWS
(IN UNITED STATES DOLLARS)

9 MONTHS 9 MONTHS
INCEPTION, ENDED ENDED
JANUARY 1, APRIL 30, APRIL 30,
THE YEAR ENDED 2000 TO 2002 2001
FOR JULY 31, 2001 JULY 31, 2000 (UNAUDITED) (UNAUDITED)
- -------------------------------------------------------------------------------------------------------

Cash Used in Operating Activities
Net (loss) $(1,541,234) $ (390,012) $(2,952,757) $ (800,542)
Amortization 48,601 9,283 61,205 31,413
Goodwill writeoff -- -- 527,153 --
Reserve for returns -- -- 191,266 --
Compensatory shares and warrants -- -- 714,000 --
Accounts receivable (86,993) (39,628) 21,131 727
Prepaid expenses 34,940 (84,317) (85,091) (43,970)
Inventory (109,920) (12,117) (246,143) (87,474)
Loans to shareholders -- -- (270,923) --
Provincial sales tax payable 79,319 -- (55,190) --
Accounts payable and
accrued liabilities 898,184 286,093 750,783 555,785
Deferred marketing revenue 228,865 -- (228,865) --
- -------------------------------------------------------------------------------------------------------

Cash used in operations (448,238) (230,698) (1,573,431) (344,059)
- -------------------------------------------------------------------------------------------------------

Financing Activities
Advances from shareholders
and loans payable 801,151 33,825 (834,976) 336,624
Proceeds from capital
stock issuance 48,750 305,500 2,468,793 48,750
Additional contributed
capital (Notes 3 and 7) 585,241 -- -- 585,241
- -------------------------------------------------------------------------------------------------------

Cash provided by financing activities 1,435,142 339,325 1,633,817 965,334
- -------------------------------------------------------------------------------------------------------

Investing Activity
Additions to fixed assets (123,718) (99,538) (162,867) (73,187)
Goodwill (Note 3) (585,241) -- -- (563,760)
- -------------------------------------------------------------------------------------------------------

Cash used in investing activities (708,959) (99,538) (162,867) (636,947)
- -------------------------------------------------------------------------------------------------------
Effect of foreign exchange rate
changes on cash 13,318 16,075 12,622 370
- -------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents 291,263 25,164 (89,859) (10,761)
Cash and cash equivalents
Beginning of year (inception) 25,164 -- 316,427 25,164

End of year $ 316,427 $ 25,164 $ 226,568 $ 14,403
- -------------------------------------------------------------------------------------------------------

THE BUCK-A-DAY COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of and for the Nine Month Period
Ended April 30, 2002 and 2001 is Un audited)

1. Summary of Significant Accounting Policies

These financial statements are prepared in accordance with United States
Generally Accepted Accounting Principles ("GAAP") applied on a consistent
basis. There are no significant differences between Canadian GAAP and
United States Accounting standards as applied to these financial
statements.

The company is in the business of selling computer hardware, software and
peripherals produced by others, throughout Canada.

(a) Reporting Currency and Foreign Currency translation

The financial statements have been presented in U.S. dollars. Assets and
liabilities denominated in foreign currencies are translated into U.S.
dollars at the rate of exchange in effect at the balance sheet date.
Revenues and expenses are translated at the weighted average rate for the
period. Translation adjustments are deferred in accumulated other
comprehensive income (loss), a separate component of shareholders' equity.

(b) Inventory

Inventory is valued at the lower of cost and net realisable value and
consists of goods purchased and held for resale.

(c) Depreciation/Amortization

Fixed assets are recorded at cost. Depreciation / amortization has been
provided for in the accounts at the following rates:

Furniture, equipment and computers - 20% declining balance

Goodwill - 15 years straight line basis

(d) Revenue Recognition

Revenues and expenses are recognized on the accrual basis. Revenue from
sales of products is recognized when title passes to customers, which is at
the time goods are shipped. Staff Accounting Bulletin ("SAB") No. 101
issued by the Securities and Exchange Commission ("SEC") requires the
company to report any changes in revenue recognition as a cumulative change
in accounting principle at the time of implementation. The adoption of SAB
101 did not have a material impact on the Company's financial position or
results of operations.

EITF 99-19 requires the company to determine how revenues are recognized,
on a gross less cost basis or on a net revenue basis. The company has
followed the guidance of EITF 99-19 and reports revenues on gross basis.
The company purchases and takes title to inventory before it is sold and if
it is returned. The company assumes general inventory risk in the
transaction. Further the company establishes, within economic constraints,
the price charged to the customer. The company maintains primary
responsibility in fulfilling the needs of the customer. It is the company's
responsibility to determine the nature, type, characteristics and
specifications of inventory sold to the consumer. The company is
responsible for collecting the sales price from the customer and has to pay
the supplier regardless of whether the full sales price has been collected.

Revenue from software sales (which is not modified or customized) is
recognized when there is persuasive evidence of a sales arrangement,
delivery has occurred, the fee is fixed or determinable and collectability
of the sales price is probable.

The company's policies for rights of return meet the criteria of SFAS # 48
since the selling price to the buyer is substantially fixed or determinable
at the date of sale. The buyer is obligated to pay the company and that
obligation is not contingent on resale of the product. The buyer's
obligation is unchanged in the event of theft or destruction of the
product. Upon the delivery of the product the buyer assumes the risks of
ownership. The buyer acquiring the product has physical presence and
substance beyond that of the company. The company does not have significant
obligations for future performance to directly bring about the resale of
the product by the buyer.

The company reports sales revenues net of returns. We continually evaluate
the returns of inventory by customers to ensure that there are no problems
with the inventory or that the customer can be sold a more appropriate
product. Actual returns are processed in the month the product is returned.
The return reserve is estimation by management based on the average
historic percentage ratio of returns to gross sales. In determining the
appropriate return ratio, management reviews average historic ratios for
the year to date and for the latest quarter. Where the current quarterly
return ratio has deteriorated from the year to date return ratio,
management will record the reserve for potential returns based on the
quarterly data, provided management is unable to identify specific reasons
for the deterioration that are of a non-recurring nature.

(e) Unaudited Interim Financial Data

The unaudited financial statements for the nine-months ended April 30, 2002
and 2001 reflect all adjustments, all of which are of a normal recurring
nature, which are in the opinion of management, necessary to a fair
presentation of the results for the interim periods presented and are not
necessarily indicative of full year results.

(f) Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. The more
subjective of such estimates are deferred expenses relating to media
advertising, certain shipping costs and telemarketing costs affecting
future periods. The recorded amounts for such items are based on
management's best information and judgement, and accordingly, actual
results could differ from those estimates.

(g) Income Taxes

The Company follows the liability method of accounting for income taxes in
accordance with the Canadian Institute of Chartered Accountants new income
tax standard and SFAS #109 -- Accounting for income taxes. Under this
method, income tax liabilities and assets are recognised for the estimated
tax consequences attributable to differences between the amounts reported
in the financial statements and their respective tax bases, using enacted
income tax rates. The effect of a change in income tax rates on future
income tax liabilities and assets is recognised in income in the period
that the change occurs.

(h) Cash Flows

For purposes of the statements of cash flows, the company considers all
highly liquid investments with an original maturity of three months or less
to be cash equivalents.

(i) Earnings (Loss) Per Share

Basic and diluted earnings (loss) per share have been computed in
accordance with SFAS No. 128. Basic earnings (loss) per share has been
computed on the basis of the weighted average number of common shares
outstanding. Separate diluted earnings (loss) per share has not been
presented, as the effect of any common stock equivalents, on such
calculation, would be antidilutive.

2. Fixed Assets

Fixed assets consist of the following:

July 31, July 31, April 30,
2001 2000 2002
(Unaudited)
- -------------------------------------------------------------------------------

Furniture, equipment
and computers $ 223,256 $ 99,538 $ 349,714
Leasehold improvements -- -- 49,078
Less: accumulated depreciation (31,609) (9,283) (73,552)
- -------------------------------------------------------------------------------
$ 191,647 $ 90,255 $ 325,240
===============================================================================

3. Goodwill

The financial statements include the initial goodwill acquired in the
transactions described below with A.R.T. International Inc. ("ART").
Management has determined that goodwill should be amortized over 15 years.

On December 15, 1999 , Buck executed an agreement with ART. ART initially
had the right to purchase a 44% interest in Buck. By March 30, 2000, ART
had paid Buck $273,680 for 160 common shares, representing 44.44% of the
total issued share capital of Buck. On April 27, 2000 ART loaned Buck
$48,750 under an agreement which allowed ART the right to convert an
additional 40 common shares, representing an additional 5.56% of the total
issued share capital. Effective August 8, 2000, ART exercised its option
and converted its loan into equity, thereby bringing its ownership in Buck
up to 50%. On December 4, 2000 ART acquired the balance of 200 common
shares to own 100% of Buck for $627,150 including cash of $328,430 and
$298,720 of ART common shares, from other shareholders of Buck.

The total consideration paid by ART was as follows:

Cash:
Initial investment $ 273,860
Loan converted 48,750
Final investment 328,430
---------------------------------------------------------------------------
Total cash consideration $ 651,040
2,000,000 ART common shares 298,720
---------------------------------------------------------------------------
Total consideration $ 949,760

In the opinion of management, the underlying fair market value of assets
sold to ART approximated the book value as stated in Buck's interim
financial statements for the period ended November 30, 2000. The
consideration was allocated as follows:

July 31, 2001

Total consideration $ 949,760
Purchase price of 200 common shares by ART (364,519)
--------------------------------------------------------------------------
Allocated to Goodwill $ 585,241
==========================================================================

Under the guidance of SAB Topic 5-J whereby the form of ownership is within
the control of the parent company the goodwill and resultant contributed
capital of $585,241 have been 'pushed down' into Buck.

July 31, 2001 July 31, 2000 April 30, 2002

Goodwill on acquisition $ 585,241 $ -- $ 585,241
Accumulated amortization of goodwill (26,156) -- (58,088)
Write off of goodwill (a) -- -- (527,153)
--------------------------------------------------------------------------------------
Net $ 559,085 -- $ --
======================================================================================

(a) Management has determined that as of April 30, 2002, Buck's continuing
losses and negative working capital have created an uncertainty of future
sustainable profits by Buck resulting in the decision to write off the
goodwill as at April 30, 2002.

4. Shareholder Advances and Loans payable

Shareholder advances and loans payable are non-interest bearing and
repayable upon demand. The shareholders have indicated that no demand for
repayment will be made in the current year. Shareholder loans are secured
by a debenture over the assets of the company. Subsequent to July 31, 2001,
the shareholder advances and loans payable were converted to common shares
of the company's stock.

5. Provincial Sales Tax

Due to poor cash flow during the first year of operations, the company was
delinquent in remitting its Provincial Sales Tax payments. The company
entered into a structured repayment plan with the Provincial Sales Tax
authority. The company is committed to 24 equal payments of principal and
interest in the amount of $8,269 per month. At July 31, 2001 the current
portion due was $89,175 and is included in accounts payable and accrued
liabilities. The company is currently not in default with the terms of the
payment plan.

6. Deferred Marketing Revenue

During the year the company entered into a three year agreement with IBM
Canada Ltd. ("IBM") to promote and sell IBM products exclusively. In
addition to the agreement IBM provided co-marketing funds in the amount of

$227,500 with an additional $32,500 of co-marketing funds to be provided
semi-annually. Management utilized the entire amount received by January
31, 2002. IBM advanced these funds to secure the company's exclusivity for
the sale of IBM products. The funds are non-refundable and can be utilized
at the discretion of management.

7. Capital Stock

Capital stock - no par value, unlimited number of common shares authorized;
Issued: - July 31, 2001 - 400 , July 31, 2000 - 360 and April 30, 2002 -
22,522,974 shares issued and outstanding

(i) Warrants

On July 7, 2001, the Company issued Series B Warrants for 3,000,000 common
shares at $0.15 per common share. The Warrants were issued to the holders
of secured convertible loans totaling $450,000, and were exercisable within
30 days following the date of conversion of the secured convertible loans
into 3,000,000 common shares of the Company.

In August 2001, the Company issued Series A Warrants for 1,500,000 Common
Shares at $0.0065 per common share. The Warrants were issued to the holders
of secured convertible loans to the company totaling $441,690, and were
exercisable within 30 days following the date of conversion of the secured
convertible loans into 7,100,000 common shares of the Company.

In August 2001, the Company issued Series C Warrants for 800,000 common
shares at $0.0065 per common share. The Warrants were issued to ART, and
were exercisable within 120 days following the issuance of common shares
arising from the conversion of the secured convertible loans into common
shares.

The Series A, B and C Warrants have been fully exercised during the nine
months ended April 30, 2002.

On October 1, 2001, the company issued 3,000,000 Class E Warrants to 37
investors. Class E Warrants are exercisable at $0.15 per common share,
expire on October 1, 2002 and entitles the holder to one share of Company
common stock.

In December 2001, the Company issued 600,000 Class D Warrants as
compensation for services rendered by a business consultant. Class D
Warrants are exercisable at $0.25 per share, expire on December 1, 2002 and
entitles the holder to one share of Company common stock. The Class D
Warrants have been valued at 15 cents per warrant, under the Black Scholes
method, resulting in an aggregate charge to consulting service expense and
contributed capital of $90,000.

In February 2002, the company issued 500,000 Class F Warrants to a
consultant as compensation for services rendered in their capacity as a
marketing consultant to the company. Class F Warrants are exercisable at
$0.50 per share, expire on February 1, 2003 and entitles the holder to one
share of Company common stock.

(ii)Common Stock

From inception, January 1, 2000, through May 31, 2000, the Company issued
360 shares of its common stock for net proceeds of $305,500.

In August 2000, the Company issued 40 shares of it common stock for net
proceeds of $48,750.

In August 2001, the Company issued to ART International Inc. 1,999,960
common shares for $1, which brought the total common shares owned by ART to
2,000,000.

Through September 2001, the company issued 8,600,000 shares of its common
stock in settlement of secured creditor loans ($441,690) and the exercise
of the Series A Warrants ($8,450) aggregating $450,140. The Company also
issued 6,000,000 shares of its common stock and received net proceeds of
$840,000 upon the conversion of secured convertible loans and the exercise
of Series B Warrants. In addition, the Series C Warrants were exercised and
the Company issued 800,000 shares of its common stock for net proceeds of
$5,200.

In October 2001, the company issued 2,600,000 shares of its common stock
with an aggregate value of $650,000 in lieu of payment of salaries and
consulting fees resulting in additional contributed capital.

In December 2001 through February 2002, pursuant to a private placement of
its common shares, the Company issued an aggregate of 2,522,974 shares of
its common stock for net proceeds of $11,147,452.

8. Foreign Currency Translation Adjustment

The balance in the foreign currency translation adjustment account includes
historic amounts related to the Corporation's long term assets and
liabilities.

9. Lawsuit

A supplier of computer hardware and software commenced an action against
the company in July 2001 claiming the sum of $150,875, plus interest and
costs for unpaid accounts. This amount was reflected in accounts payable as
of July 31, 2001. The Company settled this action in December 2001 for
$45,875 and effected payment at that time.

10. Income Tax Losses

The company has sustained net operating losses from inception. Realization
of the income tax benefits of these losses is dependant on generating
sufficient taxable income prior to expiration of any net operating loss
carry forwards (NOL's). Realization is not assured and management believes
that a valuation allowance equal to the deferred income tax asset should be
set up. 100% of the NOL were generated in Canada and begin to expire in
2007.

There were no reportable temporary differences between income for financial
statement purposes and taxable income.

The following sets forth the differences between the provision for income
taxes computed at the Unites States federal statutory income tax rate of
35% and that reported for financial statement purposes:

July 31 April 30
------- --------
The components are as follows: 2001 2000 2002

Provision computed at the Canadian
federal and provincial statutory
income tax rate $ 308,246 $ 78,002 $ 590,551
Permanent items (5,231) -- (117,049)
Income tax benefit 303,015 78,002 473,502
Valuation allowance (303,015) (78,002) (473,502)

Net tax benefit recognized $ -- $ -- $ --

United States income taxes have not been provided since all earnings occur
within Canada.

The reconciliation of income taxes is computed at the Canadian Federal and
Provincial rates based upon an effective tax rate of 20.0%.

11. Economic Dependence

In excess of 95% of the company's inventory purchases are from IBM
Corporation or its authorized business partners. The company has revolving
credit lines totalling $950,000 with these suppliers. Terms are net 30
days.

CITI Financial has agreed to make its Revolving Charge Plan available to
customers to facilitate credit purchases of consumer goods offered by the
Company. In excess of 90% of all sales of goods are placed through CITI
using the Revolving Charge Plan.

The following are details of the significant transaction with CITI:

# of transactions $ value of transactions
---------------------------------------------------------------------------
January 2000 - July 31, 2000 519 $505,000
---------------------------------------------------------------------------
August 2000 - July 31, 2001 3,473 $5,100,000
---------------------------------------------------------------------------
August 2001 - April 30, 2002 10,121 $12,419,633
---------------------------------------------------------------------------

12. Commitments

(a) In September 2001 the company leased approximately 16,500 square feet.
The lease term is from September 1, 2001 to January 31, 2006. Aggregate
minimum rental commitments under non-cancelable operating leases are as
follows:

Fiscal 2002 $ 91,028
2003 99,511
2004 98,012
2005 98,012
2006 17,955
--------
$404,518
--------

(b) Subsequent to the year ended July 31 2001, the company entered into
employment contracts with the Chief Executive Officer, the President, the
Vice President of operations and the Manager of Business Affairs. These
contracts are 3 years in length and provide for an aggregate annual salary
of $630,000 with annual increases equal to 10% of the of preceding year's
salary, the right to participate in any share option plan, share purchase
plan, retirement plan or similar plan. The anticipated increase will be
$409,500. Commencing January 1, 2002 through the period ended April 30,
2002, management was paid the contractual amount.

13. Loan to Shareholder

Loans to shareholders represent advances provided to various shareholders /
management of the company. The loans are repayable on demand and secured by
notes from the individuals and carry interest based on the floating
Canadian prime interest rate plus 2%. As of July 31, 2002, $200,000 has
been repaid to the company. We anticipate the balance being repaid by
December 31, 2002.

14. Prior year comparative numbers

Certain comparative numbers for the years ended July 31, 2001 and 2000 have
been reclassified to conform to the presentation adopted for the nine-month
periods ended April 30, 2002 and 2001.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized. Pursuant to the
requirements of the Securities Exchange Act of 1934, the following persons on
behalf of the registrant and in the capacities and on the dates indicated have
signed this report below.

ART INTERNATIONAL CORPORATION

By: /s/ SIMON MEREDITH
SIMON MEREDITH, PRESIDENT

Date: March 10, 2004

By: /s/ MICHEL van HERREWEGHE
MICHEL van HERREWEGHE, CHAIRMAN

Date: March 10, 2004