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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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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, 2000
Commission File No. 000-16008
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A.R.T. INTERNATIONAL INC.
Ontario, Canada 98-0082514
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
5-7100 Warden Avenue, Markham, Ontario, L3R 8B5 Canada (800) 278-4723
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 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 the Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was approximately $US 20,217,118 as of November 30, 2000
based upon the closing price of $US0.90625 on the Nasdaq OTCBB reported on
such date. 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, 2000, the number of shares of Common Stock outstanding
was 23,308,544.
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A.R.T. INTERNATIONAL INC.
FORM 10-K
NOVEMBER 30, 2000
Table of Contents
PART I
PAGE
----
Item 1. Business 3
Item 2. Property 10
Item 3. Legal Proceedings 10
Item 4. Submissions of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholders Matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 13
Item 7a Quantitative and Qualitative Disclosures about Market Risk 24
Item 8. Financial Statements and supplementary Data 25
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 47
PART III
Item 10. Directors and Executive Officers of the Registrant 48
Item 11. Executive Compensation 49
Item 12. Security Ownership of Certain Beneficial Owners and Management 51
Item 13. Certain Relationships and Related Parties 51
PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K 52
Signature Page 53
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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", "A.R.T.", "we", "us" and "our" refer to
A.R.T. International Inc. and its subsidiary The Buck a Day Company Inc,
unless the context otherwise dictates.
OVERVIEW
A.R.T. operates in two disparate businesses.
- 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)").
- The Buck a Day Company ("Buck A Day") is 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.
During the year ended November 30, 2000, A.R.T. acquired a 50% ownership in
Buck, and effective December 4, 2000, acquired the balance of Buck's share
capital. On February 26, 2001, The Board of Directors of the Company gave
notice that the Company's Annual General and Special Meeting will be held
on April 18, 2001 in Toronto, Canada. The Shareholders will also be asked
to approve a Special Resolution and change in the name of the corporation
from A.R.T International Inc. to Buck-a-Day International Inc. and a
further Special Resolution as to the sale of the Art Reproduction Division
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of A.R.T. International Inc., which more appropriately reflects the
Company's new business strategy of direct marketing of consumer based
products as the main business of the Company.
Background
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 November 30
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2000 1999 1998 1997
---- ---- ---- ----
(In Canadian Dollars)
Canada................................. 113,360 39,267 54,901 60,046
United States.......................... 626,908 971,569 1,083,681 857,357
Overseas............................... 66,876 32,714 59,057 76,121
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807,144 1,043,550 1,197,639 993,524
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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 museums or other 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.
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.
As of November 30, 2000, the Company had a library of approximately 110
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
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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. 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
coated canvas to create the finished product. Currently, the Company has
three sets of equipment in operation for the production of Artagraphs(R).
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.
The Company markets through specialty retail, overseas distributors, and
direct mail and carries out contract printing for publishers.
A major customer is "The Museum Company", a 90-plus-store chain located
principally in the US that specializes in the retailing of high quality
reproductions of museum products.
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.
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 produces 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.
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Buck a Day -- markets and sells name brand products directly to consumers
and small businesses, utilizing its multi-media approach, which at this
time is principally, direct response television advertising. The Company
operates a turnkey business, including tele-sales and warehouse-fulfillment
locations as well as purchase financing services through its own credit
card program, the "Buck a Day" credit card.
The basic product line packages can be purchased under a minimum-financing
program for "a buck a day", which slogan is the Company's own name brand.
The Company also sells up-grades, referred to as "up-sells", to its basic
product line packages, which carry a high gross profit margin. Potential
customers are approved for a pre-determine level of credit ranging from
$1,000 up to $10,000 dollars by a third party credit underwriter, which
eliminates credit risk for the Company.
The Company operates its business in Canada and currently, marketing and
sales activities are principally concentrated on the sale of IBM's product
lines in personal computing and related peripherals. The Company's business
model equally applies to any name brand consumer products and other
geographic markets. As well as expanding its product brand consumer base in
Canada, the Company intends to roll out its successful strategy into the
United States in the fourth quarter of 2001.
A direct by-product of the Company's activities is the accumulation of a
database of consumers with pre-approved credit limits. Presently, this
consumer database is approximately 5,000 in numbers and is expected to grow
to 20,000 by the end of fiscal 2001. The Company anticipates it will
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 is 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 relies 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 has commenced negotiations with other
name brand manufactures and distributors, including Compact Computers, JVC
Electronics, The Brick and Future Shop, the largest Canadian retailer of
consumer electronic products.
The retail financing service offered by the Company is provided through
Associates Finance Group. Since the Company commenced processing its deals
through Associates in April 2000, it has consistently approved finance
credit for 35% of all deals submitted.
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Patents and Trademarks
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.
The "Buck A Day" is trademarked in Canada and the United States.
Employees
The Company has approximately 10 employees and consultants, including
management, administrative and production employees at Artagraph.
Buck A Day employs approximately 65 fulltime staff, consisting of
management, technical, tele-sales, warehouse and administration staff.
We believe that the Company has satisfactory relations with our employees.
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.
- Failure To Manage Our Growth May Adversely Affect Our Business. --
Buck A Day has experienced, and is currently experiencing
significant growth. This growth has placed, and the future growth
we anticipate in our operations will continue to place, a
significant strain on our resources. As part of this growth, we
will have to implement new operational systems and procedures and
controls, expand, train and manage our employee base and maintain
close coordination among our technical, accounting, finance,
marketing and sales staffs.
- If We Are Unable to Achieve Profitability, We Will Continue To
Rely On External Financing -- Artagraph operates at a loss. 2000
was the first year in operation for Buck A Day, which had start-up
losses. During fiscal 2000 the Company was able to obtain equity
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. -- The PC market is intensely competitive and
gross profit margins are tight. Our success over our competition
will depend upon our ability to carve out a market niche. We
believe that the Buck A Day brand and strategy will give us the
necessary edge to compete successfully. 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. -- Buck A Day will continue to
seek strategic alliances with
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manufacturers and distributors of name brand consumer products. By the
fourth quarter Buck A Day plans to launch into the United States. We
cannot be sure that and such alliances or new markets will assist us in
attaining our goals.
- Buck A Day's Future Success Depends Upon Our Sales Ability to
Generate Up-Sells. -- The basic package consumer products offered
by Buck A Day have low margins. Sale staffs are given incentives
to up-sell additional products, which have high profit margins. In
part this is assisted by, providing customers with pre-approved
credit to finance the Up-Sells. The customer is sold additional
products that only add incremental "cents a day" to their
purchase. If we are not successful in achieving a significant
proportion of up-sells, we may fail to constant profitability.
- Buck A Day's Future Success Depends Upon Consistently Achieving a
reasonable Rate of Credit Approvals to Deals Submitted to The
Financial Institution. -- A key factor to enable Buck A Day to
close sales and up-sells is providing the customer with
pre-approved credit. We have improved our credit approval rate
from 10% to 35% through the year, by forming a business alliance
with a strong retail-financing partner. Loss of support from our
retail-financing partner, could negatively impact our business.
- Our Future Success Depends on Key Management Personnel. -- The
Company depends in part on the continuing services of Ed LaBuick,
CEO, and Dennis LaBuick, President, Keith Kennedy, VP of
Operations, and Dan LaRoche, Marketing Manager, in the Buck A Day
operations. The Company has `key person" life insurance of
$500,000 on Ed and Dennis LaBuick, however in the event of the
loss of one or both individuals the insurance may not be
sufficient to compensate the loss of their respective services.
Both individuals have incentives to remain with the Company,
including equity ownership and stock options.
- 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.
- 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
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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 400,000 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 40 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 has successfully re-negotiated
terms under the 10% Notes to extend them to October 31, 2001. 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 enjoyed a
strong US dollar in relation to the Canadian dollar during the
current year, which positively impacts gross margins. There is no
guarantee that the US dollar will remain as strong in relation to
the Canadian dollar, and in the event that the Canadian dollar
strengthens that the Company will be able to compensate by
increasing its selling prices.
- Our Stock Price Has Been Volatile. -- The market price of our
common stock has been volatile, for example between July and
October the trading prices for our common shares varied between a
high of $US 10.75 and a low of $US 0.875. 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.
- There Is Significant Doubt That The Company Is A Going Concern --
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
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reflect adjustments that might be necessary should profits not be
attained, or should the support not be continued.
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 January 31, 2003. The
lease provides for a fixed annual gross rental of Cdn$112,000 including its
pro rata share of taxes, insurance, building maintenance and occupancy
costs.
The Buck A Day's executive, administrative and telesales operations are
located at 465 Davis Drive, Newmarket, Ontario, L3Y 2P1, occupying
approximately 7000 square feet of space leased through January 2004. In
addition the Company has a separate fulfillments warehouse located in
Newmarket of approximately 4000 square feet of space leased for
approximately one year. The combined locations are carried for a fixed
annual gross rental of $115,000 including taxes insurance and maintenance,
which represents a significant discount to current market rental-rates in
Newmarket.
The Company believes its leased facilities are in good operating condition
and adequate for its present requirements. The Company's growth in the Buck
A Day division will dictate locating additional rental space, and it has
negotiated an option on an additional 3,000 sq ft of office space in the
same complex, as it is currently located.
ITEM 3. LEGAL PROCEEDINGS.
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.
A vendor, supplying computer hardware and software, has commenced an action
against Buck A Day claiming the sum of $232,114, interest and costs for
unpaid accounts. The Company has counter claimed that the vendor was in
breach of contractual representations, resulting in losses of $322,000. The
plaintiff has since filed for court protection from its creditors. The
amount of $232,114 is currently reflected in accounts payable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S EQUITY SECURITIES AND RELATED MATTERS.
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.
As of November 30, 2000 the Company had approximately 1300 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 NASDAQ Trading & Market Services
for each quarterly period within the two most recent fiscal years. The
quotations are reported quotations without retail markup, markdown or
commission and may not represent actual transactions.
Common
Shares
(Note 1)
Fiscal Year High Low
----------- ---- ---
1999
----
1st Quarter -- --
2nd Quarter 0.2500 0.2500
3rd Quarter 0.2500 0.2500
4th Quarter 0.1250 0.1250
2000
----
1st Quarter 1.0630 1.0630
2nd Quarter 6.2500 0.1250
3rd Quarter 10.5625 1.3750
4th Quarter 4.6250 0.5100
2001
----
1st Quarter 1.15625 0.46875
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 $931,661 as of
November 30, 2000 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.
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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, 2000 and for the three
previous fiscal years has been derived from financial statements of the
Company that have been examined by independent chartered accountants in
Canada.
(Stated in Canadian Dollars)
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Year ended November 30
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2000 (1) 2000 1999 1998 1997
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Summary of operations:
Sales 4,370,315 807,144 1,043,550 1,197,639 993,524
Cost of goods sold 3,171,885 688,768 685,908 748,683 871,656
Gross profit 1,198,430 118,376 357,642 448,956 121,868
Depreciation and amortization 27,588 4,888 13,725 295,311 298,671
Selling, general and
administrative expenses 2,642,952 612,142 400,103 623,739 489,335
Write-down of Patent Cost 0 0 0 2,106,630 0
Interest and finance expense 54,239 47,980 46,226 185,006 65,573
Operating loss (1,526,349) (546,634) (102,412) (2,761,730) (731,711)
Interest income -- -- -- -- --
Income taxes -- -- -- -- --
Loss before equity in loss of
affiliated company (1,526,349) (546,634) (102,412) (2,761,730) (731,711)
Equity in loss of affiliated
company -- (400,798) -- -- --
Net loss (1,526,349) (947,432) (102,412) (2,761,730) (731,711)
Net loss per Common Share(2) (0.9) (0.06) (0.09) (2.59) (4.88)
Weighted average number of Common
shares outstanding 16,096,346 16,096,346 1,146,551 1,066,551 149,852
Summary of balance sheet data:
Current assets 809,912 368,564 277,306 453,610 592,381
Total assets 1,958,756 517,437 376,585 548,050 3,111,323
Current liabilities 2,499,334 1,449,098 1,192,290 1,326,343 1,177,886
Long-term liabilities -- -- -- -- --
Total liabilities 2,499,334 1,449,098 1,192,290 1,326,343 1,177,886
Contributed surplus 11,775,000 11,775,000 11,775,000 11,775,000 11,775,000
Accumulated deficit (22,903,454) (22,324,537) (21,377,103) (21,274,691) (18,512,961)
Shareholders' (deficit) equity (540,578) (931,661) (815,705) (778,293) 1,933,437
(1) This column represents the pro forma consolidated financial data, base
upon the scenario that the Company had acquired 100% of Buck from
December1, 1999. Buck commenced its operations in January 2000.
(2) The weighted average number of shares outstanding for the current
period and prior years have been adjusted to reflect the 250:1
consolidation of shares retroactively. 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.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS.
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 and its wholly owned
subsidiary The Buck A Day Company 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".
The Company's audited financial statements for the year ended November
30, 2000, contained herein, are not consolidated with its affiliated
company, The Buck A Day Company ("Buck"). Buck only became a wholly
owned subsidiary of A.R.T. International Inc on December 4, 2000.
During the year ended November 30, 2000, the Company did not control
the Board of Directors or the day-to-day operations of Buck.
Accordingly, the investment in Buck has been accounted for by the
equity method, whereby the Company recorded the purchase of Buck at
cost less its equity share of losses.
b) Artagraph -- Year ended November 30, 2000, compared with year ended
November 30, 1999
The financial information discussions herein this sub-section will
principally relate to the fine art reproduction business. However,
certain overhead expenses, primarily investor relation costs, which were
reported in the Company's audited financial statements, are related to
both the Artagraph and Buck businesses.
The Company reported sales revenues from its Artagraph division of
$807,144 in fiscal 2000, down $236,406 from $1,043,550 in fiscal 1999.
The reason for the reduction in sales revenues was the loss of business
from the Company's major publishing customer, which had significantly
cutback its orders in 2000, following its own financial restructuring in
1999.
Consequently, with the loss of sales revenues from its major publishing
customer the Company is reliant for 55% of its total annual revenues
from one retail customer. The table below illustrates the dependency of
the Company on one major customer.
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13
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2000 % 1999 % 1998 %
In Canadian Dollars
---------------------------------------------------------------------------------------------------------------------
Total Sales $807,144 $1,043,550 100% $1,197,639 100%
----------- -------- ---------- ---- ---------- ----
Sales to two Publishing Customers $ 41,916 5% $358,786 34% $594,564 50%
Sales to one Retail Customer $442,809 55% $412,638 40% $327,629 27%
Sales to next ranked Customer $ 26,790 3% $ 47,650 5% $ 32,723 3%
Gross profit fell by $229,050 to $118,376 in fiscal 2000 from $357,426
in fiscal 1999. Gross Margin was 15% for the year ended November 30,
2000, which compares unfavourably to the 34% gross margin in 1999. The
lower margin can be attributed to the change in sales mix, the negative
impact of fixed plant costs on the lower sales revenues and material
purchase price increases.
Selling, General and Administration expenses were $614,488 for the year
ended November 30, 2000, an increase of $223,460 from the previous year,
which was in part due to higher consulting fees, advertising costs and
professional fees associated with the Company's investor relation costs.
The net loss for fiscal 2000 was $947,432, which also included the
Company's equity share of the losses from its affiliated company of
$400,798.
Fiscal 2000 operating cash flows were negative $731,446 and compare
unfavourably with the previous years at negative $135,012. The cash
shortfall was financed from the issuance of capital stock.
Sales Revenues
The decline in sales from the prior year is attributable to the
reduction in sales to the Company's major publishing customer, which
occurred after that customer went into financial restructuring. The
reduction in sales to this customer has, and will continue in the future
to have a serious detrimental impact on its ability to continue to
operate.
During fiscal 2000, the Company produced video commercials and ran
advertising on several Paid-TV stations in Canada. In addition, the
Company engaged two sales and marketing associates in an effort to
promote sales. In both cases results were mixed or disappointing.
Owing to the Company's inability to finance other initiatives, or to
attend trade shows, or to hire dedicated sales personnel to sell in its
markets, the Company continues to achieve limited success in developing
new opportunities to replace the loss of sales revenues from its
existing customers and markets.
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.
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14
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The Company's success in the marketplace will depend upon raising
capital in order to create greater awareness of its products through
aggressive advertising, attendance at trade shows, as well as updating
its library of images and providing new point-of-sale materials.
Gross Profit/Margin
Gross margin declined by 20% and gross profits fell by $229,050, which
was attributable to the following:
o Lower sales revenues due to the reduction of sales to the Company's
major publishing customer;
o The negative impact of fixed plant costs, including rent,
maintenance and insurance, on lower sales revenues; and,
o The sales-mix changed, as sales of framed products increased 30% in
relationship to total sales revenues; framed products, principally
catalogue items, have a lower mark-up than unframed product, which
are mainly overseas and publishing customer based.
Selling, general and administrative expenses
Selling, general and administrative expenses increased for the
following reasons:
o The Company produced several video commercials and ran television
advertising of approximately $120,000; o During fiscal 2000 the
Company engaged two sales and marketing associates in an effort to
promote sales; the Company was responsible for their out-of-pocket
expenses, which were approximately $70,000;
o During fiscal 2000, the Company's consulting and investor
relationship costs increased by $25,000, which was related the
administrative and communication activities of the conversion of the
Class "A" Preference Series 1 and 2 into common shares and the
"three for one" dividend declared on the common shares;
o Legal costs also increased by $20,000 because the Company had to
defend against two actions brought against the Company by one of the
10% Note holders; and,
o The Company issued 200,000 common shares, fully paid non-assessable
and restricted, to a consultant, being an introduction and
arrangement fee associated with the Buck acquisition; the value of
the issued shares of $47,000 was charged to consultation expenses.
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15
c) Buck A Day -- Year ended November 30, 2000, the company's first year in
operation.
The financial information and discussions herein this sub-section
principally relate to the Buck A Day business. However, certain
overhead expenses, primarily investor relation costs, which were
reported in the Company's audited financial statements, are related to
both the Artagraph and Buck businesses.
Sales revenues for the first 11 months in operation were $3,563,171, and
gross profit was $1,080,054. Selling, general and administrative costs
were $2,037,069; the major components being salaries and commissions
$772,513, media and printing $594,839, telemarketing $125,113 and
communication 114,557. The net loss was $979,715.
Operating cash flow was a negative $564,390 and the company spent
$196,873 on capital assets. The cash losses and capital expenditures
were financed by share capital issuances totaling $545,000 and the
balance by shareholders' loans totaling $296,412.
At November 30, 2000, the company had negative working capital of
$312,476 and a shareholders' deficiency of $434,715.
The company's start-up expenditures in relationship to initial sales
revenues were high during the first eight months of operation. In
addition fixed overheads were disproportionately high compared to
underlying revenues, as the company built its infrastructure and
franchise. Typical of any start-up business, the company suffered from
operating inefficiencies, giving rise to losses. By the end of November,
the Buck a Day name brand was highly visible, and its business model was
successfully launched. We believe that we could have capitalized a
minimum of $400,000 of our expenses against future earnings as an
investment in building the franchise. However under Canadian and United
States GAAP these start-up costs and non-recurring expenses have been
written-off. The net loss of $979,000 will be carried forward as tax
losses to be offset against future taxable income.
Sales Revenues
Sales revenues for the first eight months, January to August, were $1.6
million or an average of $205,000 per month. September, October &
November sales were $1.92 million dollars, which is an average of
$640,031 per month, which represents an increase of over 300% in average
monthly sales. This triple digit sales growth is attributable to two
major factors. First, the growing brand awareness in "Buck a Day"
promoted through the Company's aggressive media advertising campaign.
Second, the Company's ability and success in forming strategic
relationships with its business partners, IBM Canada and The Associates
Finance Group, has enabled it to supply competitively priced name brand
consumer products and reliable retail financing.
In the first two months of fiscal 2001, sales revenues were $1.8 million
with profit before taxes of approximately $80,000. This is an average
monthly volume of $900,000, an increase of 140%. Notwithstanding the
computer industry's sluggish sales, the Company's unique brand of
marketing has enabled it to carve a growing revenue niche in a
competitive marketplace.
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16
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The Company has forecasted its fiscal 2001 sales revenues will be $23
million. This forecast does not make any allowance for US sales; the
company is planning a fourth quarter launch of its business model into
the USA.
Gross Profit
The gross margin was 30% in fiscal 2000, approximately twice the margin
the company typically earns on the basic package, which was attributable
to the company aggressive up-sells strategy.
Notwithstanding the competitive industry that the company operates
within, and the potential for falling gross margins, the company
anticipates it can maintain its 30% gross margin, owing to the up-sells
it can generate through offering its customers the convenience of
pre-approved credit.
Selling, General and Administrative Expenses - start-up challenges
In the first four months of operations, the company unsuccessfully
partnered with several financing brokers and organizations that had
given us their assurances of their ability to provide reliable retail
financing, specifically with acceptable rates of consumer approval.
Unfortunately, we achieved only an average of 10%, which was
uneconomical for us, given our infrastructure; media and staff
investments were geared to a minimum approval rate of 20 to 25%.
On April 20th, we concluded an agreement with The Associates Finance
Group for its retail consumer financing. The approval rate began at 22%
and has grown to its current rate of 25% to 35%.
During its first eight months, the Company was plagued by a shortage of
computer and peripherals inventory availability from its contracted
distribution source, Beamscope, which led to substantial lost
opportunity for revenues to offset ongoing operating costs. The company
has refused to pay Beamscope $234,000 in order to offset against its
losses, and the resultant litigation between the two companies is
ongoing. Beamscope has since filed for protection from its creditors
under the bankruptcy act.
On September 1, 2000, the Company signed a direct distributor agreement
with IBM, whereby the Company became a full IBM Business Partner
Reseller.
Our media and commercial production investment of $595,000 generated in
excess of 9,800 national 60-second TV spots promoting the Company's
brand and products. Our advertising has aired on most national cable
networks including: TWN (Weather), CMT, Discovery, ATN, ROB-TV, Bravo,
Space, Showcase, OLN, CTS, Star, Much More Music, CLT, Headline Sports,
CP24, CityTV, CITV, BCTV, and ATV.
- --------------------------------------------------------------------------------
17
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We have made a substantial investment in our employees. Our management
team has substantial experience in our industry and we have hired and
trained over fifty telephone sales staff. This investment in our
infrastructure was necessary before we could service the calls from
prospective customers.
Fiscal 2001 forecast
The company forecasts profit before tax of $2 million dollars in fiscal
2001, which is an achievable goal including but not limited to the
factors listed below:
- Our credit approvals are running at a rate of 30% to 35%
- As of March 8th, IBM has elevated the company to its highest level
of business partner discount.
- Compaq is in the final stages of approving the company as a
full-fledged business partner reseller.
- Presently, our credit-approved consumer database is approximately
5,000 in numbers and is expected to grow to 20,000 by the end of
fiscal 2001. Buck is developing a catalogue division to service
these consumers with a variety of popular, brand name consumer
products. Final negotiations are taking place to secure these goods
through the distribution networks of The Brick and Future Shop.
- We intend to introduce other products in the second quarter.
- Our forecast does not include any allowance for US sales; the
company is planning a fourth quarter launch of its business model
into the USA.
d) Liquidity and Capital Resources
As at February 28, 2001, there is continuing doubt that the Company has
the financial ability to continue in business, which is dependent upon
the attainment of profitable operations, its ability to raise
additional capital and the continued financial support of its
creditors. Unless the Company is able to significantly increase sales
from the level experienced in the preceding fiscal years or raise
additional capital, it may not be able to perform all of its
obligations in a timely manner. Although the Company is seeking
additional sales from its major customers, as well as from other
sources, no assurance can be given that the Company will be successful.
Also, there is no assurance that the Company will be able to obtain
additional working capital from sale of its equity or acquisition of
loans, which could have a material adverse effect on the ability of the
Company to continue operations. Additionally, acquisition of loans or
issuance by the Company of additional equity securities could cause
substantial dilution to the interests and voting rights of current
security holders.
In August 1999 the Company's Board of Directors approved a third
offering of its common stock under Regulation S. During the 2000 fiscal
year, the Company issued 13,400,000 common shares
- --------------------------------------------------------------------------------
18
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(on a post stock dividend basis) for a total cash consideration of
$670,000. In addition, 200,000 shares were issued as consideration for
finders' fees valued at $47,000. Various officers and employees of the
Company exercised options for 238,500 shares for a cash consideration
of $64,476. In addition, the Company issued a further 50,000 Class "C"
Common shares for proceeds of $50,000.
Proceeds of $470,000 were invested in the acquisition of The Buck A Day
Company Inc ("Buck"), which in turn utilized the capital for start-up
requirements. $120,000 of the proceeds was invested in a television
marketing campaign for Artagraph. The balance was mainly utilized to
fund on going corporate expenses relating to the Company's financial
reorganizations (as detailed herein under).
On July 14, 2000, at the Annual, General and Special meeting of
shareholders of the Company, the shareholders approved an amendment to
the articles of the Corporation, whereby effective July 16, 2000, all
of the issued and outstanding 805,000 class "A" preference shares,
series 1, and all of the issued and outstanding 466,941 class "A"
preference shares, series 2, were converted into and became common
shares at the effective rate of 0.5837142 and 0.7114282 common shares
for each series 1 and series 2 class "A" preference shares,
respectively. The effective rate was higher than the actual stated
conversion rate of 0.048 and 0.24 as specified to the series 1 and
series 2 preference shares, respectively, to give credit for
accumulated undeclared dividends (as detailed in sub-section e)
"Dividends").
As of November 30, 2000, the Company had issued and outstanding
23,308,544 common shares. However, the total Class C Common Shares
issued and outstanding are 400,000 (on a post stock dividend basis) and
represent a total of 40,000,000 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.
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 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.
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19
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Shareholder loans to Buck in the amount of $296,000 are secured against
the assets of Buck under a general security agreement.
The Letter of Intent dated November 27, 2000, issued by the Company to
Buck, also provided that: the Company "will 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".
The Company has not arranged such financing as of February 2001;
notwithstanding Buck and the Company continue to cooperate in order to
arrange financing directly from third party sources.
Effective July 14, 1998, the Company's shareholders approved a stock
option plan for the Company. In 1999, pursuant to the option plan and
subject to and conditional upon any necessary shareholder or regulatory
approval or ruling, 238,500 stock options were granted to employees,
directors and officers of the Company. The stock options, which
commence December 1, 1998 and expire December 1, 2004, are exercisable
at various option exercise prices ranging from $0.20 to $ 0.37 per
share. Effective July 31, all 238,500 options were exercised. As the
stock options were not formally registered with the SEC, any common
shares issued pursuant to the exercise of stock options are restricted
shares.
The Company's working capital remained negative as at November 30,
1999, at Cdn$1,080,534, an increase over the balance at the fiscal 1999
year end of negative Cdn$914,984.
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.
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.
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.
The total amount due to the note holders of $703,807, 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.
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20
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e) Dividends
On July 14, 2000, at the Annual General and Special meeting of
shareholders of the Company, the shareholders approved an amendment to
the articles of the Corporation, whereby effective July 16, 2000 all the
Class "A" preference shares, series 1 and series 2 were converted into
common shares. At November 30, 1999, the Class "A" preference shares had
cumulative undeclared dividends amounting to U.S. $3,018,750 and U.S.
$1,540,907 on the series 1 shares and series 2 shares respectively. The
shareholders approved a bonus of 0.5357142 common shares per series 1
share, and 0.4714282 common shares per series 2 share. As a result of
the aforementioned amendment, the dividends payable but not yet declared
by the Company were effectively cancelled.
On July 14, 2000, the Company declared a stock dividend, whereby on
August 15, 2000, common shareholders of record received 3 common shares
for each common share owned on the record date of August 2, 2000. Based
on 5,277,136 shares outstanding as of the record date, the stock
dividend was 15,831,408 common shares.
The stock dividend was only issued to existing common shareholders of
the record date, August 2, 2000. Effectively, this transaction was
mechanically similar to a 4:1 stock split. Therefore, only a nominal
value of $1 {one dollar} was added to the stated share capital and
attributed to the dividend.
While the Company had a shareholders' deficit on the dividend
distribution date, it was for practical purposes exempt from the
provisions of the Ontario Business Corporation Act restricting its
ability to issue dividends, as no assets of the Company have been
actually distributed.
On July 14, 2000, the Company declared a stock dividend, whereby
effective August 15, 2000, class "C" common shareholders of record
received 3 common shares for each common share owned on the record date
of August 2, 2000. On a fully diluted basis, the stock dividend was
300,000 common shares. Effectively, this transaction was mechanically
similar to a 4:1 stock split. Therefore, only a nominal value of $1 {one
dollar} was added to the stated share capital and attributed to the
dividend. While the Company had a shareholders' deficit on the dividend
distribution date, it was for practical purposes exempt from the
provisions of the Ontario Business Corporations Act restricting its
ability to issue dividends, as no assets of the Company have been
actually distributed.
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21
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f) Year ended November 30, 1999, compared with year ended November 30, 1998
The Company's financial results for fiscal 1999 demonstrate that it
continued to be economically reliant on three major customers for its
business. In the tabulated revenues below, sales to these customers
combined was equal to 74% of the total sales revenues for fiscal 1999, very
comparable to the previous fiscal year when these same customers accounted
for 77% of total sales.
2000 % 1998 % 1997 %
In Canadian Dollars
---------------------------------------------------------------------------------------------------------------------
Total Sales $1,043,550 100% $1,197,639 100% $993,524 100%
----------- ---------- ---- ---------- ---- -------- ----
Sales to two Publishing Customers $358,786 34% $594,564 50% $295,706 27%
Sales to one Retail Customer $412,638 40% $327,629 27% $365.556 37%
During 1999 the Company's main publishing customer was forced by its
secured creditors to restructure financially. Initially, the Company made a
full provision of $75,000 against the non-payment of accounts receivable
from that customer; this loss was booked in the first quarter of fiscal
1999. Notwithstanding, the customer was successfully refinanced and, in
January 2000 the Company signed a settlement with that customer and
received payment of approximately $25,000, which recovery was booked as in
the last quarter. In addition, the publishing customer is committed to a
minimum of two publishing orders with the Company and, for the balance of
$50,000 ART will receive a number of signed limited-edition canvas prints
valued at their wholesale prices. During 2000 the Company intends to market
these canvases through its corporate galleries; however it is not
anticipated that the Company will completely recover its losses to date.
The second significant event during fiscal 1999 was the demand made by two
of the seven 10% note holders to be paid their principal totaling $90,000
plus interest. The agent representing the two note holders commenced legal
proceedings against the Company and communications with the other note
holders. The Company successfully negotiated with the majority of the note
holders, being 2/3rds, and the repayment terms were extended a further
year. As a result the Company recorded a recovery of accrued penalty
interest charged to interest expense in prior years. Further, with the
strengthening of the Canadian dollar relative to the United States dollar,
the Company's US dollar debt obligations, as reported in Canadian dollars
in the 1999 balance sheet were reduced. The impact of the penalty interest
recovery and the lower debt obligations was a recovery of $71,000, which
was included in other income and reduced total administration expenses.
During 1999 the Company's second Regulation S Offering, whereby the Company
issued 20,000 shares and raised $5,000 in capital, expired without
additional shares being issued. On August 31, 1999, the Company Board of
Directors approved a third Regulation S offering and, sold 300,000 common
shares for total proceeds of $60,000.
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22
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The Company recorded a net loss of $102,412 in 1999, which compared
favourably to the loss of $2,761,730 in 1998. In summary the principal
reasons for the improvement were:
In 1998, the Company wrote down capitalized patent costs by $2.15
million dollars to $1 and recorded $252,000 of patent amortization
charges. There were no such charges to operations in 1999.
Administration expenses fell to $391,028 in 1999 from $623,739 in 1998
as a result of several combined factors. First, the Company had lower
consulting fees in 1999 by $150,000, owing to the expiration of the
contract with Creative Enterprises at the end of 1998. Second, the
above noted reversal of penalty-interest combined with the
strengthening Canadian dollar resulted in the net recovery of $71,000
(recorded as other income in the Company's books in 1999), which
directly reduced the administration expenses for 1999. Third, although
the Company recorded loss-provision of $50,000 in 1999 against accounts
receivable; this loss was offset by cost reductions in other
categories.
In 1999 the company's interest expense on the 10% notes was $46,000
versus the charges, including the penalty interest, of $98,000 in 1998.
Gross Profit
As a direct result of the declining revenues the Company's gross profit
fell from $413,283 to $347,426 in 1999. Gross margin was 34% compared to
35% in 1998. The Company's manufacturing activity is operating
significantly below its full capacity at 15 - 20%. Consequently fixed plant
overhead costs, including rent and salaries negatively impacted its
margins.
Sales and Administration Expenses
The significant loss in 1998 is mainly attributable to the $2.1 million
write-down of the net book value of the Company's Artagraph patents to one
dollar.
Excluding consulting expenses and penalty interest recovery, sales and
administration expenses remained at similar levels in 1999 compared to
1998.
In 1999 the Company recorded a loss-provision of approximately $50,000
against accounts receivable from its main publishing customer. Although the
Company has received signed, limited-edition inventories from this customer
as compensation for the balance of $50,000 owed, the product has been
reflected on the Company's books at one dollar. This treatment is
consistent with the uncertainty that the Company will be successful in
selling this inventory, because in the North American markets for similar
product there is competition from a large number of dealers and retail
galleries. To the extent that the Company does succeed in generating sales
it will directly increase profitability net of any selling expenses.
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23
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ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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.
During fiscal 2000, monthly average translation rates between Canadian and
United States dollars have ranged from a low of: $CAD1.45: $US1.0 to a high
of $CAD1.54: $US1.0.
The Artagraph division sales revenues outside Canada are invoiced in United
States dollars. Such sales revenues represent approximately $700,000 or
approximately $US 455,000. At any given date the Company may be owed
$US40,000 based upon the current revenue levels. A strengthening of the
Canadian dollar against the United States dollar, assuming a shift in rates
within 30 days of the magnitude above, would result in an exchange loss of
$3,600. A more permanent shift, i.e. extended over 12 months, in exchange
rates, whereby the rate of exchange Canadian/United Sates dollars returned
to an historical level of $CAD1.36: $US1.0, could result in loss of revenue
of approximately $85,000.
Conversely, the Company owes $US 458,208 of principal and accrued interest
to its 10% Note Holders. A weakening Canadian dollar will negatively impact
by increasing losses. However, a strengthening Canadian dollar, along the
came lines above, could decrease the Company's debt by a similar amount of
$85,000.
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 strengthening Canadian dollar relative the United
Sates dollar would likely have permanent negative impact.
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24
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ITEM 8. FINANCIAL STATEMENTS
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AUDITORS' REPORT
To the Shareholders of
A.R.T. International Inc.
We have audited the balance sheet of A.R.T. International Inc. as at November
30, 2000 and 1999 and the statements of loss, deficit and cash flows for the
years ended November 30, 2000, 1999 and 1998. 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 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, 2000 and 1999
and the results of its operations and its cash flows for the years ended
November 30, 2000, 1999 and 1998 in accordance with generally accepted
accounting principles in Canada.
Armstrong, Szewczyk & Tobias
Toronto, Canada CHARTERED ACCOUNTANTS
February 15, 2001
COMMENTS BY AUDITORS
FOR U.S. READERS ON CANADA - U.S. REPORTING CONFLICT
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 significant uncertainties such as that referred to in
the attached balance sheet as at November 30, 2000 and 1999 and as described in
Note 14 to the financial statements. Our report to the shareholders dated
February 15, 2001 is expressed in accordance with Canadian reporting standards,
which do not permit a reference to such an uncertainty in the auditors report
when the uncertainty is adequately disclosed in the financial statements.
Armstrong, Szewczyk & Tobias
Toronto, Canada CHARTERED ACCOUNTANTS
February 15, 2001
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25
A.R.T. INTERNATIONAL INC.
BALANCE SHEET
NOVEMBER 30, 2000 AND 1999
(STATED IN CANADIAN DOLLARS)
2000 1999
---- ----
ASSETS
CURRENT
Cash $ 101,689 $ 10,861
Accounts Receivable 96,283 121,546
Inventories [Notes 2(a) and 3] 153,687 136,994
Prepaid Expenses and Deposits 16,905 7,905
------------ ------------
368,564 277,306
------------ ------------
INVESTMENT IN AFFILIATED COMPANY [Note 4] 69,202 -
------------ ------------
CAPITAL [Note 5] 48,505 60,631
------------ ------------
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(b)] 4,372,925 4,372,925
------------ ------------
1 1
------------ ------------
Inventories [Notes 2(a) and 3] 31,165 38,647
------------ ------------
TOTAL ASSETS $ 517,437 $ 376,585
============ ============
- --------------------------------------------------------------------------------
26
- --------------------------------------------------------------------------------
A.R.T. INTERNATIONAL INC.
BALANCE SHEET
NOVEMBER 30, 2000 AND 1999
(STATED IN CANADIAN DOLLARS)
2000 1999
---- ----
LIABILITIES
CURRENT
Accounts Payable and Accrued Liabilities $ 685,291 $ 564,655
Loans Payable [Note 6] 60,000 -
Notes Payable [Note 7] 703,807 627,635
------------ -----------
TOTAL LIABILITIES 1,449,098 1,192,290
------------ -----------
SHAREHOLDERS' DEFICIENCY
CAPITAL STOCK [Note 8]
PREFERENCE SHARES:
Series 1
Nil {1999 - 805,000} - 3,701,809
Series 2
Nil {1999 - 466,941} - 2,785,628
COMMON SHARES:
23,308,544 {1999 - 1,386,551} 9,517,875 2,248,961
Class "C"
400,000 {1999 - 50,000} 100,001 50,000
------------ -----------
9,617,876 8,786,398
CONTRIBUTED SURPLUS 11,775,000 11,775,000
DEFICIT (22,324,537) (21,377,103)
------------ -----------
(931,661) (815,705)
------------ -----------
TOTAL LIABILITIES
LESS SHAREHOLDERS' DEFICIENCY $ 517,437 $ 376,585
============ ============
The accompanying notes form an integral part of these financial statements.
APPROVED BY THE BOARD: Director _________________ Director ___________________
To be read in conjunction with the Auditors' Report attached hereto dated
February 15, 2001.
- --------------------------------------------------------------------------------
27
- --------------------------------------------------------------------------------
A.R.T. INTERNATIONAL INC.
STATEMENT OF DEFICIT
FOR THE YEARS ENDED NOVEMBER 30, 2000, 1999 AND 1998
(STATED IN CANADIAN DOLLARS)
2000 1999 1998
---- ---- ----
BALANCE - Beginning of Year $21,377,103 $21,274,691 $18,512,961
ADD - Net Loss 947,432 102,412 2,761,730
----------- ----------- -----------
22,324,535 21,377,103 21,274,691
ADD - Dividends [Note 9] 2 - -
----------- ----------- -----------
BALANCE - End of Year $22,324,537 $21,377,103 $21,274,691
=========== =========== ===========
The accompanying notes form an integral part of these financial statements.
- --------------------------------------------------------------------------------
28
- --------------------------------------------------------------------------------
A.R.T. INTERNATIONAL INC.
STATEMENT OF LOSS
FOR THE YEARS ENDED NOVEMBER 30, 2000, 1999 AND 1998
(STATED IN CANADIAN DOLLARS)
2000 1999 1998
---- ---- ----
SALES $ 807,144 $ 1,043,550 $1,197,639
------------ ----------- ----------
COST OF GOODS SOLD AND OTHER
MANUFACTURING COSTS
Cost of Goods Sold and Other Manufacturing
Costs Before the Under noted: 681,530 685,908 748,683
Amortization of Capital Assets 7,238 10,216 35,673
------------ ----------- ----------
688,768 696,124 784,356
------------ ----------- ----------
GROSS PROFIT 118,376 347,426 413,283
------------ ----------- ----------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
Selling, General and Administrative Expenses
Before the Under noted: 614,488 391,028 623,739
Foreign Exchange Loss (Gain) (2,346) 9,075 87,143
Amortization of Capital Assets 4,888 3,509 7,638
Amortization of Patents - - 2,358,630
Loan Interest 47,980 46,226 97,863
------------ ----------- ----------
665,010 449,838 3,175,013
------------ ----------- ----------
LOSS FROM OPERATIONS
BEFORE UNDER NOTED ITEM (546,634) (102,412) (2,761,730)
EQUITY IN LOSS OF AFFILIATED COMPANY (400,798) - -
------------ ----------- ----------
LOSS BEFORE TAXES (947,432) (102,412) (2,761,730)
PROVISION FOR INCOME TAXES [Note 13] - - -
------------ ----------- ----------
NET LOSS $ (947,432) $ (102,412) $(2,761,730)
============ ============ ===========
NET LOSS PER COMMON SHARE [Note 12(b)] $ (0.06) $ (0.09) $ (2.59)
============ ============ ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES [Note 12(d)] 16,096,346 1,146,551 1,066,551
============ ============ ==========
- --------------------------------------------------------------------------------
29
- --------------------------------------------------------------------------------
A.R.T. INTERNATIONAL INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 2000, 1999 AND 1998
(STATED IN CANADIAN DOLLARS)
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (947,432) $ (102,412) $(2,761,730)
Adjustments for:
Amortization of Capital Assets 12,126 13,725 43,311
Amortization of Patents - - 2,358,630
Accrued Interest and Penalties on
Notes Payable (Reversed) 76,172 (41,192) 144,893
----------- ----------- -----------
(859,134) (129,879) (214,896)
Net Changes in Working Capital Balances:
Accounts Receivable 25,263 25,967 (80,518)
Inventories - Current and Long-Term (9,211) 31,761 49,053
Prepaid Expenses and Deposits (9,000) - 118,300
Accounts Payable and Accrued Liabilities 120,636 (62,861) 163,360
Accounts Payable - Related Party - - (159,796)
----------- ----------- -----------
(731,446) (135,012) (124,497)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans Payable 60,000 - -
Notes Payable - (30,000) -
Issuance of Capital Stock for Cash {Net} 831,478 65,000 50,000
Dividends (2) - -
----------- ----------- -----------
891,476 35,000 50,000
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Affiliated Company (69,202) - -
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 90,828 (100,012) (74,497)
CASH - Beginning of Year 10,861 110,873 185,370
----------- ----------- -----------
CASH - End of Year $ 101,689 $ 10,861 $ 110,873
============ ============= ============
- --------------------------------------------------------------------------------
30
A.R.T. INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 2000
(STATED IN CANADIAN DOLLARS)
1. INCORPORATION AND 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, whether classified as current or long-term
assets, 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 balances, 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. In no event are
amounts carried as a current asset if it is not probable that
they will be sold within one year, nor do amounts carried as
long-term inventory exceed their fair value as determined by
the inventory valuation policies of the Company as described
above.
(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
Patents are recorded at cost and are amortized on a straight-line
basis, based on the legal life of such intellectual property,
which approximates fifteen years.
- --------------------------------------------------------------------------------
31
- --------------------------------------------------------------------------------
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 have been written down to $1.
Art reproduction rights are recorded at cost and are amortized over
their estimated useful lives on a straight-line basis over a period
of three years.
(C) OTHER ASSETS
Patents are recorded at cost and are amortized on a straight-line
basis, based on the legal life of such intellectual property, which
approximates fifteen years.
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 have been written down to $1.
Art reproduction rights are recorded at cost and are amortized over
their estimated useful lives on a straight-line basis over a period
of three years.
(D) FAIR VALUES
The Company determines the fair value of its financial instruments
based on quoted market values or discounted cash flow analysis. The
fair value of the accounts payable and the notes payable, based on
current estimated borrowing rates, is significantly less than the
stated carrying values at year end. The recorded amounts of
financial instruments in these financial statements approximate
their fair values.
(E) TRANSLATION OF FOREIGN CURRENCIES
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 deferred and amortized over the lives of the
related monetary item.
(F) MANAGEMENT REPRESENTATIONS
In the opinion of management, all adjustments necessary for a fair
presentation of the financial position at November 30, 2000 and
1999 and the results of operations, cash flows and related note
disclosures for the fiscal years ended November 30, 2000, 1999 and
1998 have been made. The preparation of financial statements in
conformity with 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.
- --------------------------------------------------------------------------------
32
- --------------------------------------------------------------------------------
3. INVENTORIES
Inventories consist of the following:
2000 1999
---------------------------------------------- ----------------------------------------------
Provision for Provision for
Obsolete and Obsolete and
Gross Slow-Moving Net Gross Slow-Moving Net
Amount Inventories Amount Amount Inventories Amount
------ ----------- ------ ------ ----------- ------
Finished Goods $ 61,900 $ - $ 61,900 $ 75,583 $ (3,104) $ 72,479
Work-in-Process 48,825 - 48,825 60,517 - 60,517
Raw Materials 74,127 - 74,127 42,645 - 42,645
----------- -------------- ----------- ----------- ------------- -----------
$ 184,852 $ - $ 184,852 $ 178,745 $ (3,104) $ 175,641
========== ============== ========== =========== ============ ===========
Current Portion ........................................ $ 153,687.....................................$ 136,994
Non-current Portion..................................... 31,165..................................... 38,647
----------- -----------
$ 184,852 $ 175,641
========== ==========
4. INVESTMENT IN AFFILIATED COMPANY - $69,202
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. 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%. Subsequent to the
year-end, the Company acquired the balance of 200 common shares to own
100% of Buck [See Note 17].
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 [See Note
8(b)]. In total, the Company paid $470,000 for 200 common shares,
representing 50% of Buck's total share capital. The 200 common shares
where issued from treasury.
During the year ended November 30, 2000, the Company did not control the
Board of Directors or the day-to-day operations of Buck. Accordingly, the
investment has been accounted for by the equity method, whereby the
Company recorded the purchase of Buck at cost less its equity share of
losses. As of November 30, 2000, the following summarizes the Company's
net investment in Buck:
Investment in Buck {at Cost}........................ $ 470,000
Less - Equity in Losses............................. 400,798
-------------
NET INVESTMENT IN BUCK.............................. $ 69,202
=============
- --------------------------------------------------------------------------------
33
5. CAPITAL ASSETS
2000 1999
----------------------------------------------------------------
ACCUMULATED NET BOOK NET BOOK
COST AMORTIZATION VALUE VALUE
---- ------------ ----- -----
Equipment, Furniture and Fixtures $ 358,821 $ 310,316 $ 48,505 $ 60,631
============ ============ ============ ============
6. LOANS PAYABLE - $60,000
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.
7. NOTES PAYABLE
The notes payable bear interest at 10% and are secured by a general
security agreement over all the assets of the Company.
The note holders have agreed to postpone the right to enforce their
security or collect upon the notes payable until October 12, 2001.
2000 1999
---- ----
U.S. Dollars Cdn. Dollars U.S. Dollars Cdn. Dollars
----------------------------- ------------------------------
Principal $ 315,000 $ 483,840 $ 315,000 $ 464,625
Accrued Interest 143,208 219,967 110,515 163,010
---------- ---------- ---------- ----------
$ 458,208 $ 703,807 $ 425,515 $ 627,635
=========== =========== =========== ===========
During the year, a certain note holder commenced an action against the
Company, including 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. Subsequent to the
year-end, counsel for the plaintiff delivered a notice of discontinuance,
thereby abandoning their legal action. Under the Rules of Civil Procedure
the note holder is obligated to pay the Company's costs.
- --------------------------------------------------------------------------------
34
- --------------------------------------------------------------------------------
8. CAPITAL STOCK
(A) SHARE CAPITAL
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.
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
- --------------------------------------------------------------------------------
35
- --------------------------------------------------------------------------------
(B) CAPITAL STOCK
CLASS "A" PREFERENCE SHARES, SERIES 1
----------------------------------------------------------------
2000 1999
----------------------------------------------------------------
Number of Number of
Shares Amount Shares Amount
------ ------ ------ ------
Balance - Beginning of Year 805,000 $ 3,701,809 805,000 $ 3,701,809
Less - Shares Converted to
Common Shares 805,000 3,701,809 - -
------- ----------- ------- -----------
Balance - End of Year - $ - 805,000 $ 3,701,809
======= =========== ======= ===========
CLASS "A" PREFERENCE SHARES, SERIES 2
-------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------
Number of Number of
Shares Amount Shares Amount
------ ------ ------ ------
Balance - Beginning of Year 466,941 $ 2,785,628 466,941 $ 2,785,628
Less - Shares Converted to
Common Shares 466,941 2,785,628 - -
------- ----------- ------- -----------
Balance - End of Year - $ - 466,941 $ 2,785,628
======= =========== ======= ===========
On July 14, 2000, at the Annual, General and Special meeting of
shareholders of the Company, the shareholders approved an amendment
to the articles of the Corporation, whereby effective July 16,
2000, all of the issued and outstanding 805,000 class "A"
preference shares, series 1, and all of the issued and outstanding
466,941 class "A" preference shares, series 2, were converted into
and became common shares at the effective rate of 0.5837142 and
0.7114282 common shares for each series 1 and series 2 class "A"
preference shares, respectively. The effective rate was higher than
the actual stated conversion rate of 0.048 and 0.24 as specified to
the series 1 and series 2 preference shares, respectively, to give
credit for accumulated undeclared dividends, as detailed in Note
9(a).
- --------------------------------------------------------------------------------
36
- --------------------------------------------------------------------------------
COMMON SHARES
-------------
2000 1999
-----------------------------------------------------------------
Number of Number of
Shares Amount Shares Amount
------ ------ ------ ------
Balance - Beginning of Year 1,386,551 $ 2,248,961 1,066,551 $ 2,183,961
Add:
Shares Issued Pre Stock Dividend 2,850,000 570,000 320,000 65,000
Options Exercised 238,500 64,476 - -
Conversion of Class "A"
Preference Shares, Series 1 469,890 3,701,809 - -
Conversion of Class "A"
Preference Shares, Series 2 332,195 2,785,628 - -
---------- ------------ --------- ------------
5,277,136 9,370,874 1,386,551 2,248,961
Add:
3 for 1 Stock Dividend 15,831,408 1 - -
Shares Issued Post Stock
Dividend 2,200,000 147,000 - -
---------- ------------ --------- ------------
Balance - End of Year 23,308,544 $ 9,517,875 1,386,551 $ 2,248,961
========== =========== =========== ===========
During the 2000 fiscal year, the Company issued 13,400,000 common shares
(on a post stock dividend basis) for a total cash consideration of
$670,000. In addition, 200,000 shares were issued as consideration for
finders' fees valued at $47,000. The shares were issued pursuant to the
August, 1999 Regulation S offering, which restricts the shares from being
offered to United States residents or traded in the United States. Various
officers and employees of the Company exercised options for 238,000 shares
for a cash consideration of $64,476.
CLASS "C" COMMON SHARES
-----------------------
2000 1999
------------------------------------------------------------------
Number of Number of
Shares Amount Shares Amount
------ ------ ------ ------
Balance - Beginning of Year 50,000 $ 50,000 50,000 $ 50,000
Add - Shares Issued During Year 50,000 50,000 - -
------------ ------------ ----------- -------------
100,000 100,000 50,000 50,000
Add - 3 for 1 Stock Dividend 300,000 1 - -
------------ ------------ ----------- -------------
Balance - End of Year 400,000 $ 100,001 50,000 $ 50,000
=========== =========== =========== =============
During the 2000 fiscal year, the Company issued 50,000 class "C"
common shares for a total cash consideration of $50,000. Effective
August 15, 2000, a three for one stock dividend was paid resulting
in 400,000 shares being outstanding at year end.
(C) STOCK OPTIONS AND WARRANTS TO PURCHASE COMMON SHARES
The Company has issued various stock options for common shares of the
Company's capital stock. 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
- --------------------------------------------------------------------------------
37
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
------------------------------
2000 1999
---- ----
Balance - Beginning of Year 118,700 13,800
Add - Options and Warrants Issued 133,500 105,000
------------ -------------
252,200 118,800
Less - Options and Warrants Exercised 238,500 -
------------ -------------
13,700 118,800
Add - 3 for 1 Stock Dividend 41,100 -
------------ -------------
54,800 118,800
Less - Options and Warrants Expired 38,800 100
------------ -------------
Balance - End of Year 16,000 118,700
============ ============
The options and warrants granted and outstanding as at November 30, 2000
are as follows:
COMMON SHARES
UNDER OPTION
OR SUBJECT
TO WARRANTS EXERCISE PRICE EXPIRY DATE
----------- -------------- -----------
16,000 U.S. $15.625 2002
During the year, the Company issued 133,500 [1999 - 105,000] common stock
options, 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 133,500 stock options were issued at an
option price of $0.20 per stock option. During the year, all 238,500 of
the options pursuant to the above noted plan were exercised [133,500
options at $0.20 and 105,000 options at $0.25]
9. DIVIDENDS
(A) CLASS "A" PREFERENCE SHARES, SERIES 1 AND SERIES 2
- --------------------------------------------------------------------------------
38
- --------------------------------------------------------------------------------
The holders of the class "A" preference shares, series 1 and series
2, were entitled to receive as and when declared by the directors, a
fixed preferential cumulative dividend at the rate of U.S. $0.60 per
annum, payable annually in cash or common shares at the discretion
of the directors.
On July 14, 2000, at the Annual General and Special meeting of
shareholders of the Company, the shareholders approved an amendment
to the articles of the Corporation, whereby effective July 16, 2000
all the Class "A" preference shares, series 1 and series 2 were
converted into common shares. At November 30, 1999, the class "A"
preference shares had cumulative undeclared dividends amounting to
U.S. $3,018,750 and U.S. $1,540,907 on the series 1 shares and
series 2 shares respectively. The shareholders approved a bonus of
0.5357142 common shares per series 1 share, and 0.4714282 common
shares per series 2 share. As a result of the aforementioned
amendment, the dividends payable but not yet declared by the Company
were effectively cancelled.
(B) COMMON SHARES
On July 14, 2000, the Company declared a stock dividend, whereby
effective August 15, 2000, common shareholders of record received 3
common shares for each common share owned on the record date of
August 2, 2000. Based on 5,277,136 shares outstanding as of the
record date, the stock dividend was 15,831,408 common shares.
The stock dividend was only issued to existing common shareholders
of the record date, August 2, 2000. Effectively, this transaction
was mechanically similar to a 4:1 stock split. Therefore, only a
nominal value of $1 {one dollar} was added to the stated share
capital and attributed to the dividend. While the Company had a
shareholders' deficit on the dividend distribution date, it was for
practical purposes exempt from the provisions of the Ontario
Business Corporation Act restricting its ability to issue dividends,
as no assets of the Company have been actually distributed.
(C) CLASS 'C' COMMON SHARES
On July 14, 2000, the Company declared a stock dividend, whereby
effective August 15, 2000, class "C" common shareholders of record
received 3 common shares for each common share owned on the record
date of August 2, 2000. On a fully diluted basis, the stock dividend
was 300,000 common shares. Effectively, this transaction was
mechanically similar to a 4:1 stock split. Therefore, only a nominal
value of $1 {one dollar} was added to the stated share capital and
attributed to the dividend. While the Company had a shareholders'
deficit on the dividend distribution date, it was for practical
purposes exempt from the provisions of the Ontario Business
Corporations Act restricting its ability to issue dividends, as no
assets of the Company have been actually distributed.
10. 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:
- --------------------------------------------------------------------------------
39
- --------------------------------------------------------------------------------
2000 1999 1998
---- ---- ----
DOMESTIC SALES - Canada $ 113,360 $ 39,267 $ 54,901
INTERNATIONAL EXPORT SALES:
U.S.A. 626,907 971,569 1,083,681
European Economic Community 19,160 3,035 35,655
Other 47,717 29,679 23,402
------------ ------------ ------------
$ 807,144 $ 1,043,550 $ 1,197,639
=========== ========== ==========
All significant identifiable assets and amortization relate to assets
situated in Canada.
11. LEASE COMMITMENT
Under a long-term lease expiring January 31, 2003, 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
------------------ ------
2001................................. $ 58,340
2002................................. 64,174
2003................................. 20,790
12. 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.").
These principles differ in some respects from United States generally
accepted accounting principles ("U.S. G.A.A.P.").
The effect of such differences on the Company's balance sheet and
statement of loss is as follows:
2000 1999 1998
---------------------------- ------------------------- ------------------------
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:
Capital Stock
Issued $ 9,617,876 $ 11,659,419 $ 8,786,398 $ 10,827,941 $ 8,721,398 $ 10,762,941
============= ============ ============= ============ ============= ============
Accumulated
Deficit $(22,324,537) $(24,372,295) $(21,377,103) $(23,434,861) $(21,274,691) $(23,322,449)
============= ============ ============= ============ ============= ============
- --------------------------------------------------------------------------------
40
- --------------------------------------------------------------------------------
2000 1999 1998
---- ---- ----
(B) STATEMENT OF LOSS:
Net Loss per Common Share under U.S. G.A.A.P. $(0.06) $(0.09) $(2.59)
===== ===== =====
(C) WEIGHTED AVERAGE NUMBER OF SHARES
- U.S. G.A.A.P. [Note 12(e)] 16,096,346 1,146,551 1,066,551
=========== =========== ===========
(D) WEIGHTED AVERAGE NUMBER OF SHARES
- CANADIAN G.A.A.P. 16,096,346 1,146,551 1,066,551
=========== =========== ===========
- --------------------------------------------------------------------------------
41
(E) Opinion 15 of the Accounting Principles Board 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
The earnings per share of the second preceding year have been
retroactively restated to reflect the sub-division of capital as a
result of the July 14, 1998 reverse split.
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.
13. INCOME TAXES
There are no current or future income taxes payable in Canada or the
United States.
The Company has combined tax losses for Canadian and U.S. income tax
purposes of approximately $4,888,922 (1999 - $6,587,180) available for
deduction against future years' earnings, the benefit of which has not
been recognized in these financial statements.
These losses expire as follows:
YEAR CANADIAN U.S. TOTAL
---- -------- ---- -----
2001................... $ 302,000 $ - $ 302,000
2002................... 717,000 400,000 1,117,000
2003................... - 1,530,000 1,530,000
2004................... 924,031 - 924,031
2005................... 395,462 - 395,462
2006................... 88,687 - 88,687
2007................... 531,742 - 531,742
------------ ---------------- -------------
$ 2,958,922 $ 1,930,000 $ 4,888,922
=========== =============== =============
42
14. 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 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.
15. MAJOR CUSTOMER
Sales to specific major customers of the Company were as follows:
2000 1999
--------------------------- ----------------------------
Percentage Percentage
Percentage of Accounts Percentage of Accounts
of Sales Receivable of Sales Receivable
-------- ---------- -------- ----------
SALES THROUGH ONE RETAIL
COMPANY (U.S.) 55% 59% 40% 54%
== == == ==
SALES THROUGH ONE ART
PUBLISHING AGENT (U.S.) 5% - % 25% 22%
== == == ==
16. SUPPLEMENTAL DISCLOSURE - STATEMENT OF CASH FLOWS
There were no interest or income tax payments made during the year 2000
(1999 - interest - $30,000; income taxes - $ Nil) (1998 - interest - $
Nil; income taxes - $ Nil).
43
17. SUBSEQUENT EVENTS
(A) ACQUISITION OF THE 100% OF THE BUCK A DAY COMPANY INC. {"BUCK"}
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
============
Below are pro forma consolidated financial statements of the Company for the
year ended November 30, 2000, including balance sheet and statements of loss and
deficit and cash flows. These pro forma consolidated financial statements are
presented as if the acquisition of Buck had taken place at December 1, 1999.
Comparative pro forma figures have not been presented, as Buck did not commence
business operations until January 2000.
44
A.R.T. INTERNATIONAL INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 2000
(STATED IN CANADIAN DOLLARS)
ASSETS
CURRENT
Cash $ 181,838
Accounts Receivable 121,453
Inventories 221,010
Prepaid Expenses and Deposits 285,611
------------
809,912
CAPITAL {at Cost} 222,678
OTHER {at Cost}
Patents $ 3,931,051
Less - Accumulated Amortization 3,931,050 1
----------
Goodwill 895,000
Inventories 31,165
------------
TOTAL ASSETS $ 1,958,756
============
LIABILITIES
CURRENT
Accounts Payable and Accrued Liabilities $ 1,439,115
Loans Payable 356,412
Notes Payable 703,807
-----------
TOTAL LIABILITIES 2,499,334
SHAREHOLDERS' DEFICIENCY
CAPITAL STOCK
25,808,544 Common Shares $10,487,875
400,000 Class "C" Common Shares 100,001 10,587,876
------------
CONTRIBUTED SURPLUS 11,775,000
DEFICIT (22,903,454)
------------
TOTAL LIABILITIES
LESS SHAREHOLDERS' DEFICIENCY $ 1,958,756
============
45
A.R.T. INTERNATIONAL INC.
PRO FORMA CONSOLIDATED STATEMENT OF LOSS AND DEFICIT
FOR THE YEAR ENDED NOVEMBER 30, 2000
(STATED IN CANADIAN DOLLARS)
SALES $ 4,370,315
COST OF GOODS SOLD 3,171,885
-----------
GROSS PROFIT 1,198,430
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, General and Administrative Expenses
Before the Undernoted: $ 2,645,298
Foreign Exchange Gain (2,346)
Amortization of Capital Assets 27,588
Interest 54,239 2,724,779
------------ ------------
NET LOSS (1,526,349)
DEFICIT - Beginning of Year (21,377,103)
------------
(22,903,452)
LESS - Stock Dividends 2
------------
DEFICIT - End of Year $(22,903,454)
============
46
A.R.T. INTERNATIONAL INC.
PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED NOVEMBER 30, 2000
(STATED IN CANADIAN DOLLARS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(1,526,349)
Adjustments for:
Amortization of Capital Assets 34,826
Accrued Interest and Penalties on Notes Payable 76,172
------------
(1,415,351)
Net Changes in Working Capital Balances:
Accounts Receivable 93
Inventories - Current and Long-Term (76,534)
Prepaid Expenses and Deposits (277,706)
Accounts Payable and Accrued Liabilities 874,460
------------
(895,038)
CASH FLOWS FROM FINANCING ACTIVITIES
Loans Payable $ 356,412
Issuance of Capital Stock for Cash {Net} 1,801,478
Stock Dividends (2) 2,157,888
------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Capital Assets (196,873)
Goodwill (895,000) (1,091,873)
------------ ------------
NET INCREASE IN CASH 170,977
CASH - Beginning of Year 10,861
------------
CASH - End of Year $ 181,838
============
47
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 "will 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". The Company has not arranged such financing as of February
2001; notwithstanding Buck and the Company continue to cooperate in
order to arrange financing directly from third party sources.
Shareholder loans to Buck in the amount of $296,000 are secured
against the assets of Buck under a general security agreement.
(B) CHANGE OF NAME AND SALE OF THE ART REPRODUCTION DIVISION OF A.R.T.
On February 26, 2001, the Board of Directors called the Company's
Annual General and Special Meeting, to be held on April 18, 2001 in
Toronto, Canada.
The shareholders of the Company will also be asked to approve a
Special Resolution to change the name of the Company from A.R.T
International Inc. to Buck-a-Day International Inc. and a second
Special Resolution as to the sale of the Art Reproduction Division of
the Company, with the intent of more appropriately reflecting the
Company's new business strategy of direct marketing consumer based
products as the main business of the corporation.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
48
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
On July 14, 2000, the Company held a Special Shareholders Meeting. At that
meeting the shareholders voted in favour of the management slate of
directors, consisting of Simon Meredith, Roger Kirby, Michel van
Herreweghe, Francoise Jacquel and Marc Bielby.
On December 4, 2000, following the acquisition of Buck, Ed LaBuick and
Dennis La Buick were appointed as CEO and as a Director respectively of the
Company.
Simon P. Meredith 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 1993. 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
Diecut Group, Inc from June 1987 through September 1990.
Marc Bielby is vice president of Computer Stop Limited, 1994 to the
present.
Michel van Herreweghe, Chairman. -- Is 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 present;
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 present;
Francoise Jacquel, Director. -- Was Director of Xxpert Rental Tool Inc.
from 1993 to 1994; Director and Vice President of Finance of Swiss Capital
Funds Corp. from 1994 to present; Director of First Canadian Securities
Corporation (Bahamas) from 1995 to June 1997; Director of Orford Resources
Ltd. from 1994 through 1995; Director of Lignex Inc. 1995; Director of
Harrington Financial Inc. from 1995 through 1996.
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.
Ed LaBuick. -- Co-founder, CEO and Director of The Buck A Day Company Inc.
Mr. LaBuick is a marketing entrepreneur with over 30 years of management
experience in Direct Response Television, Radio and Print, Retail
distribution in Canada and the United States, working with North American
Phillips, Silver Eagle Records, Time Life, National Geographic, Capital,
EMI, MCA, and Warner Bros.
49
Dennis LaBuick. -- Co-founder, President and Director of The Buck A Day
Company Inc. Fifteen years experience in Direct Response Television, Radio
and Print, Media Planning and Buying, Creative Writing and Television
Production, working with DCNL Corporation as VP Media, General Manager for
Quality Music & Video, and prior to that as director of media at Silver
Eagle Records.
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.
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)
- ------------------------------------------------------------------------------------------------------------------------------------
Long-Term
Compensation
Annual Compensation Awards
Name and Year Salary Bonus Other Annual Restricted Securities All
-------- ---- ------- ------ ------------ ------------------------- ---
Principal Position ($) ($) Compensation Stock Underlying Other
------------------ --- --- ------------- ----- ---------- -----
($) Awards ($) Options (#) Compensation ($)
--- ---------- ----------- ----------------
Simon Meredith 2000 -- -- 120,000(1) -- 200000 --
President 1999 -- -- 85,000(1) -- -- --
1998 85,000(1) -- --
Marc Bielby, Director -- -- -- -- -- -- --
Michel van Herreweghe, -- -- -- -- -- 360000 --
Chairman
Francoise Jacquel, Director -- -- -- -- -- 344000 --
Roger Kirby, Director -- -- -- -- -- 10000 --
Roger Scarr, Director -- -- -- -- -- -- --
Subsequent to the year-end, new appointments effective December 4, 2000.
Ed La Buick, CEO 2000 -- -- -- -- -- --
Dennis La Buick, Director 2000 -- -- -- -- -- --
(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.
50
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 Exercised Options
---------------------------------------------------------------------------------------
Qty $ Qty $Price Qty $ Qty $
/sh.
---------------------------------------------------------------------------------------
Simon
Meredith -- - 50000 0.20 50000 --
---------------------------------------------------------------------------------------
Michel van
Herreweghe -- - 90000 0.20 90000 --
---------------------------------------------------------------------------------------
Francoise
Jacquel -- - 86000 0.37 86000 --
---------------------------------------------------------------------------------------
Roger
Kirby -- - 2500 0.37 2500 --
---------------------------------------------------------------------------------------
Roger
Scarr -- - -- -- -- --
---------------------------------------------------------------------------------------
Marc
Bielby -- - -- -- -- --
---------------------------------------------------------------------------------------
Options granted pursuant to acquisition of Buck, effective December 4, 2000:
---------------------------------------------------------------------------------------
Ed
LaBuick (1) -- - 500,000 1.0 -- 500,000 1.0
---------------------------------------------------------------------------------------
Dennis
La Buick(2) -- - 500,000 1.0 -- 500,000 1.0
---------------------------------------------------------------------------------------
(1) 500,000 options beneficially owned by a related party
(2) Includes 250,000 options beneficially owned by a related party
51
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As At November 30, 2000, no one shareholder, including directors, officers
and employees own more than 5% of the common shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
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.
52
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Exhibits
(b) Financial Statement Schedules.
Incorporated herein.
(c) Reports on Form 8-K.
None.
53
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused to be signed on its behalf by the undersigned
thereunto duly authorized.
A.R.T INTERNATIONAL INC.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Michel van Herreweghe Chairman of the Board Date 28 Feb. 2001
Simon P. Meredith President Date 28 Feb. 2001
54