SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
FORM 10-K
[ X ] ANNUAL REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED November 30, 1999
Commission File No. 0-16008
--------------------------
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 (905) 477-0252
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: Common
Shares, without par value; Class A Preference Shares, Series 1, without par
value; Class A Preference Shares, Series 2, 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. [X]
As of November 30, 1999, there were 1,386,551 common shares outstanding.
Based on the closing share bid price, of $1.0625 in the first quarter of
fiscal 2000, the Company's market value was $1,473,210. Trading volumes on
the common shares are very low.
<PAGE>
PART I
Item 1. Business.
General
The Company 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
replicates both the color and brush stroke texture of the original, so that
the resulting works of art are almost indistinguishable, by the average
person, from original paintings. 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)"), while its
reproductions on paper are marketed as Works of A.R.T.(TM)
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$399 and US$849. Some
limited edition reproductions of contemporary artists retail considerably
higher, but this is solely due to the Artist's reputation.
The Works of A.R.T.(TM) product line, which retailed at significantly lower
prices, was originally introduced to allow the Company to broaden its
universe of customers through volume-oriented North American retailers.
Sales from this product line have always been disappointing. Consequently,
while the Company continues to sell Works of A.R.T.(TM) from its current
inventories, it has not introduced any new product or programs.
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.
<TABLE>
<CAPTION>
Year Ended November 30
----------------------
1999 1998 1997 1996
---- ---- ---- ----
(In Canadian Dollars)
<S> <C> <C> <C> <C>
Canada................................. 39,267 54,901 60,046 41,379
United States.......................... 971,569 1,083,681 857,357 1,668,104
Overseas............................... 32,714 59,057 76,121 847,067
-------------------------------------------------------------------
1,043,550 1,197,639 993,524 2,556,550
-------------------------------------------------------------------
</TABLE>
Sales outside Canada are invoiced in United States Dollars. Thus, the
Company is at risk to unfavorable changes in the exchange rates between
Canadian and United States dollars.
In the second half of 1994, the Company discovered a product quality
problem with a significant number of Artagraph(R) reproductions previously
shipped to a major customer in the publishing business. After several
months of investigation, including analyses of raw materials and production
processes, the Company modified its operations in an effort to eliminate
repetition of such problems in the future. No subsequent product
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<PAGE>
quality problems have since come to the Company's attention. As a
consequence of this problem, and the time and resources required to resolve
it, the Company's sales have not returned to the historic levels
experienced prior to fiscal 1994. Replacement of the defective
reproductions created severe financial and cash flow drain on the Company's
resources, which have continued to severely impact all areas of the
Company's business through to 1999.
Library of Titles and Acquisitions of Paintings
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's publishing division, under contracts with art publishers,
produces and sells replications of contemporary works of art for a fixed
price, which are then distributed by the publisher.
As of November 30, 1999, 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.
Manufacturing Process
The replication process is a two-stage process. The first stage is
replication of the painting's color. The second stage, which directly
involves the Company's patented process, is the reproduction of texture and
brush strokes. The Company works from transparencies of the original art,
preparing color separations and then printing the image on a specially
designed "paper" called a litho. 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).
Sales and Marketing
3
<PAGE>
The Company markets through specialty retail, overseas distributors, and
direct mail and carries out contract printing for publishers.
Specialty Retailers and Home Furnishings
During fiscal 1999, the Company continued to support existing customers in
these markets. The Company's ability to initiate new opportunities and to
continue to develop its marketing efforts to attract new customers has been
severely limited due to severe cash flow constraints experienced by the
Company since fiscal 1995.
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.
Overseas Distributors
Since 1994 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.
Publishing
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.
In 1996, the Company modified its policies for pricing and shipment to
customers in the limited edition contract printing market in order to widen
the potential customer base and to make the Artagraph(R) reproductions more
competitive. Deposits on future contracts now cover only initial process
costs, such as color printing, thereby reducing publisher customers'
initial capital commitments. Under these new policies, the Company
processes the product only through the final texturing phase, on an as
needed basis, in order to more closely match customers' actual sales
orders.
While this new "just-in-time" policy, has stimulated interest by art
publishers in the Artagraph(R) reproductions, such efforts have not
resulted in significant increases in contract printing business for the
Company. Again, the results reflect the Company's inability to finance new
initiatives, such as attending trade shows or hiring dedicated sales
personnel to market to potential customers.
Direct Marketing
4
<PAGE>
In the past, the Company has marketed its products by direct mail. The
declines since 1993 are attributable to the reduction in marketing through
American Express, because of the Company's inability to finance new
programs due to its continuing liquidity problems.
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. Patents in Europe have expired owing to the
Company's inability to finance renewal fees. In addition, due to similar
financial considerations, the Company has abandoned patent applications
that are pending in Japan and Korea at this time.
The Company believes its remaining North American 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.
Competition
The Company's 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. The Company 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, 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 color intensity
and other reproduction characteristics are believed to be at least equal to
any other known reproduction process. The Company's success in the
marketplace will depend upon creating greater awareness of its products, as
well as its pricing and delivery policies. There can be no assurance that
the Company will be successful in the art reproduction markets or that
other processes will not provide successfully competing products.
Suppliers
The Company purchases frames for its reproductions and obtains its
principal raw materials from several suppliers. The Company also contracts
for printing services principally of lithographs with several companies.
The Company believes that the frames and the raw materials and printing
services are commodity items that can be obtained from several alternative
sources.
5
<PAGE>
Employees
As of November 30, 1999, the Company had 10 employees and consultants,
including management, administrative and production employees.
Item 2. Properties.
The Company's executive offices, production facility and gallery are
located at 7100 Warden Avenue, Markham, Ontario, Canada L3R 8B5, occupying
11,668 square feet of space leased through January 31, 2003. The lease
provides for a fixed annual gross rental of Cdn$99,000 including its pro
rata share of taxes, insurance, building maintenance and occupancy costs.
The Company believes its leased facilities are in good operating condition
and adequate for its present and future requirements.
Item 3. Legal Proceedings.
The Company is defending an action by one of the 10% note holders. The note
holder, who is residing outside the United States, is demanding full
repayment of $45,000 principal plus accrued interest, and has commenced
legal action in New York State. Under the promissory note and security
agreement executed by the note holders with the Company a majority, of
2/3rds, is required to proceed against the Company under the security
agreement. The Company has hired New York Counsel and is actively disputing
New York State jurisdiction. The next court date is April 2000 and the
Company strongly believes it will win its argument that New York
jurisdiction is not applicable. Notwithstanding the outcome, the Company
believes it has a valid legal agreement with the required majority of note
holders; whereby the Company has until September 2000 before payments are
due to recommence.
Item 4. Submission of Matters to a Vote of Security Holders. None.
6
<PAGE>
PART II
Item 5. Market for the Company'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, 1999 the Company had approximately 1300, 230, and 180
holders of record of the Common Shares, Series 1 Preference A Shares,
Series 2 Preference A Shares respectively.
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 three most recent fiscal years. The
quotations are reported quotations without retail markup, markdown or
commission and may not represent actual transactions.
<TABLE>
<CAPTION>
Series 1 Preference Series 2 Common
Shares Preference Shares
Shares (Note 1)
In U.S. Dollars
------------------------------------------------------------------------------------------
Fiscal Year High Low High Low High Low
----------- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
1997
1st Quarter No Market No Market 2.5 0.0625
2nd Quarter For Company's For Company's N/A N/A
3rd Quarter Series 1 Pref. Series 2 Pref. 0.25 0.25
4th Quarter Shares Shares N/A N/A
1998
1st Quarter No Market No Market 7.5 2.5
2nd Quarter For Company's For Company's -- --
3rd Quarter Series 1 Pref. Series 2 Pref. -- --
4th Quarter Shares Shares 7.5 0.25
1999
1st Quarter No Market No Market 0.00 0.00
2nd Quarter For Company's For Company's 0.25 0.25
3rd Quarter Series 1 Pref. Series 2 Pref. 0.25 0.25
4th Quarter Shares Shares 0.125 0.125
2000
1st Quarter No Market No Market 1.063 1.063
</TABLE>
Note (1): The common share prices for 1997 through 1998 have been adjusted
by the reverse stock split of 250:1. The 1999 and 2000 prices reflect
actual bid prices.
To be legally entitled to pay dividends on the Series 1 or Series 2
Preference A Shares,
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<PAGE>
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 $914,984 as of November 30, 1999 and therefore it does not meet
this standard and cannot pay dividends on its securities at this time.
The payment of dividends on the Preference Shares or Common Shares will
depend on the Company's future earnings and financial condition and such
other factors, as the Board of Directors of the Company may then consider
relevant.
Item 6. Selected Financial Data.
The following presents selected financial data for the Company in Canadian
dollars and in accordance with Canadian Generally Accepted Accounting
Principles ("CDN-GAAP"). It should be read in conjunction with the separate
financial statements of the Company and related notes included elsewhere
herein, which were prepared under CDN-GAAP. This financial data should be
compared to the Company's Audited Financial Statements and the
reconciliation of the financial information presented between CDN-GAAP and
US-GAAP. The financial data as of November 30, 1999 and for the four
previous fiscal years has been derived from financial statements of the
Company that have been examined by independent chartered accountants in
Canada.
(Stated in Canadian Dollars)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Year ended November 30
-------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Summary of operations:
Sales 1,043,550 1,197,639 993,524 2,556,550 2,139,271
Cost of goods sold 685,908 748,683 871,656 1,701,238 1,640,343
Gross profit 357,642 448,956 121,868 855,312 498,928
Depreciation and amortization 13,725 295,311 298,671 356,369 324,792
-----------------------------------
Selling, general and expenses 400,103 623,739 489,335 887,692 1,178,399
Write-down of Patent Cost 0 2,106,630 0 0 0
Interest and finance expense 46,226 185,006 65,573 47,804 45,739
Operating loss (102,412) (2,761,730) (731,711) (442,089) (1,050,002)
Interest income -- -- -- 5,536 2,907
Income taxes -- -- -- -- --
Loss before discontinued operations (102,412) (2,761,730) (731,711) (436,553) (1,047,095)
-----------------------------------
Discontinued operations -- -- -- -- --
Net loss (102,412) (2,761,730) (731,711) (436,553) (1,047,095)
Dividends: Series 1 Preference Shares -- -- -- -- --
Dividends: Series 2 Preference Shares -- -- -- -- --
Net loss after dividends on Series 1
Perference Shares (102,412) (2,761,730) (731,711) (436,553) (1,047,095)
Net loss per Common Share before
dividends on Series 1 & Series 2 (0.09) (2.59) (4.88) (6.56) (15.74)
Perference Shares (1)
Weighted average number of Common 1,146,551 1,066,551 149,852 66,519 66,519
shares outstanding
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
(Stated in Canadian Dollars)
- ---------------------------------------------------------------------------------------------------------------
Year ended November 30
---------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Summary of balance sheet data:
Current assets 277,306 453,610 592,381 547,915 869,191
Total assets 376,585 548,050 3,111,323 3,459,221 4,408,070
Current liabilities 1,192,290 1,326,343 1,177,886 1,126,573 1,282,925
Long-term liabilities -- -- -- -- 355,944
Total liabilities 1,192,290 1,326,343 1,177,886 1,126,573 1,638,869
Contributed surplus 11,775,000 11,775,000 11,775,000 11,775,000 11,775,000
Accumulated deficit (21,377,103) (21,274,691) (18,512,961) (17,781,790) (17,345,240)
Shareholders' (deficit) equity (815,705) (778,293) 1,933,437 2,332,648 2,769,201
</TABLE>
(1) 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.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
a) General
Certain statements contained herein are not based on historical facts, but are
forward-looking statements that are based on numerous assumptions about
future conditions that could prove not to be accurate. Actual events,
transactions and results may materially differ from the anticipated
events, transactions or results described in such statements. The
Company's ability to consummate such transactions and achieve such
events or results is subject to certain risks and uncertainties. Such
risks and uncertainties include, but are not limited to, the existence
of demand for and acceptance of the Company's products and services,
regulatory approvals and developments, economic conditions, the impact
of competition and pricing results of financing efforts and other
factors affecting the Company's business that are beyond the Company's
control. The Company undertakes no obligation and does not intend to
update, revise or otherwise publicly release the results of any
revisions to these forward-looking statements that may be made to
reflect future events or circumstances.
b) 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.
<TABLE>
<CAPTION>
1999 % 1998 % 1997 %
In Canadian Dollars
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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%
9
<PAGE>
1999 % 1998 % 1997 %
In Canadian Dollars
- --------------------------------------------------------------------------------------------------------------------------
Sales to one Retail Customer $412,638 40% $327,629 27% $365.556 37%
</TABLE>
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 will 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 repelled the note holders' demands by
negotiating with third parties, including some of the Company's existing
shareholders, to buy-out five of the seven note holders. 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. Subsequent to the year-end the
Company has raised another $300,000 through February 28, 2000. The $60,000
was utilized for working capital requirements including the payment of
accrued interest to certain note holders. The $300,000 was used as part
payment to purchase a 40% interest in The Buck A Day Company Inc. for
$400,000. The Buck A Day Company Inc. is a television direct response,
print, direct mail and retail distribution company located in Ontario,
Canada.
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 (see paragraph "c) -
10
<PAGE>
Year ended November 30, 1998, compared with year ended November30,
1997"). 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.
Sales
Sales revenues declined by $154,089 from $1,197,639 in 1998 to $1,043,550
in 1999. The decline is attributable to the reduction in sales to the
Company's major publishing customer, which occurred when that customer went
into financial restructuring. Sales to the Company's three largest
customers combined were 74% of total sales revenues. The loss of any one of
these customers, unless replaced by new sources, would have a serious
detrimental impact on its ability to continue to operate in the future.
Owing to the Company's inability to finance new 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.
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.
Notwithstanding, 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.
11
<PAGE>
The Company's recent investment, in the first quarter of fiscal 2000, in the
marketing venture with The Buck A Day Company is expected to raise awareness of
the Company and its Artagraph product. However, there is no certainty that the
Company's efforts in this regard will successfully increase sales or
profitability.
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.
d) Liquidity and Capital Resources
As at February 29, 2000, 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 capital and the
continued financial support of its creditors.
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.
In August 1999 the Company's Board of Directors approved a third offering of its
common stock under Regulation S. As of February 29, 2000, the Company has issued
1,300,000 shares for total proceeds of $260,000 and, received $100,000 in
subscriptions for an additional 500,000 shares. Proceeds of $300,000 were
invested in a capital investment venture, whereby the Company has an agreement
to purchase up to 40% of The Buck A Day Company ("Buck") for $400,000. The
balance of $60,000
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<PAGE>
was utilized for working capital. Negotiations are underway to raise an
additional $200,000 through the Regulation S by issuing 1,000,000 shares. Of the
total proceeds, $100,000 will be used to complete the purchase of the 40%
interest in Buck and the balance for working capital. The Company is very
confident that it will complete the latter transaction forthwith.
Under the agreement with Buck, the Company has the right to require Buck to
repurchase the shares sold to the Company for 120% of its original investment,
equal to $500,000, provided the Company exercises its rights in this regard, and
only in the event that a third party wishes to purchase Buck, prior to Buck
filing its IPO.
Upon the completion of the above noted transactions the Company will have issued
and outstanding 3,886,551 common shares. However, the Class C Common Shares
represent a total of 5,000,000 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.
In 1998 the Company completed an offering of its securities under Regulation S,
whereby a total of 250 million shares of the Company's common stock were issued
in consideration for the receipt of a total of US$250,000. As a result of the
offering, the Company had a total of 266,629,789 shares of common stock issued
and outstanding. Effective July 14, 1998, the Shareholders approved a
reverse-stock split of 250:1 for the common shares, which reduced the issued and
outstanding number of common shares to 1,066,551.
Effective July 14, 1998, the Company's shareholders authorized two new
securities: an unlimited number of Class B Preference Shares and unlimited
number of Class C Common Shares. The Class B Preference Shares are non-voting,
redeemable at the option of the Company and have a preferred dividend of $0.10
per share in priority to all other shares of the Company. No Class B Preference
Shares have been issued. The Class C Common Shares have 100 votes per common
share and a dividend right of $0.01 per share, which is payable only in the
event that the annual dividend required in respect of the senior shares of the
Company have been paid. On September 1, 1998, the Company issued 50,000 shares
for a total consideration of $50,000. The Class B Preference Shares and the
Class C Common Shares have not been registered with the SEC.
Effective July 14, 1998, the Company's shareholders approved a stock option plan
for the Company. The maximum number of stock options is limited to 10% of the
outstanding common shares. In 1999, pursuant to the option plan and subject to
and conditional upon any necessary shareholder or regulatory approval or ruling,
105,000 stock options were granted to employees and officers of the Company. The
stock options, which commence December 1, 1998 and expire December 1, 2004, are
exercisable at the option exercise price of $US 0.25 per share. Until the stock
options are formally registered with the SEC, any common shares issued pursuant
to the exercise of stock options are restricted shares.
13
<PAGE>
The Company's working capital remained negative as at November 30, 1999, at
Cdn$914,984, an increase over the balance at the fiscal 1998 year end of
negative Cdn$872,733.
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.
The Company does not have sources for loans. Also, there is no assurance that
the Company will be able to obtain additional working capital from sale of its
equity, 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.
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. There is a
limited market for the Company's common shares.
The Company is in default under the 10% notes payable. 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 repelled the note
holders' demands by negotiating with third parties, including some of the
Company's existing shareholders to buy-out 5 of the 7 note holders. Under the
promissory note and security agreement executed by the 7 note holders with the
Company a majority, of 2/3rds, is required to proceed against the Company under
the security agreement. One note holder, residing outside North America, has
continued independently to sue the Company in the State of New York under
particular laws governing money owed by one party to another. The Company has
hired New York Counsel and is actively disputing New York State jurisdiction.
The next court date is April 2000 and the Company strongly believes it will win
its argument that New York jurisdiction is not applicable.
The total amount due to the note holders of $627,635, 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.
e) Dividends
The Company has not declared and paid dividends on its class A preference shares
series one since May 1994. In addition, the Company has never declared and paid
any dividends on its class A preference shares series two. Except for the first
year of dividends on the series two shares, which are payable in cash, the
Company can elect to pay dividends in common shares. As of November 30, 1999,
the Company had total dividends payable, but not yet declared of US$3,018,750
and US$1,540,907 on its series one and two class A preference shares
respectively. If these dividends were paid in common shares, the potential
dilution to the common shares, based on the recent average trade price of
$US1.0625 would be approximately 4.6 million shares. The
14
<PAGE>
Company does not anticipate declaring dividends on any of its securities for the
foreseeable future.
c) Year ended November 30, 1998, compared with year ended November 30, 1997
The Company's net loss for the year ended November 30, 1998 was $2,761,730 as
compared to the net loss of $731,711 in 1997. The 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. The write-down is required under
CDN-GAAP, followed by the Company, whereby the Company is not able to generate
sufficient cash flows from its operations to recover the patent's carrying
costs. The patented reproduction process remains core to the Company's business,
and the Company believes its patents have significant commercial value, and
would withstand a challenge to their validity. Notwithstanding, until the
Company could raise sufficient capital to finance sales growth and reach
sustained profitability, there was substantial doubt that the Company had the
ability to realize the carrying value of assets, including its investment in
patents.
The Company's sales revenues increased in 1998 to $1,197,639 from $993,524 in
1997. The increase in revenues is partly due to the strength of the US dollar
relative to the Canadian dollar in 1998. The majority of the Company's sales
represent exports, which the Company invoices in US dollars. In addition,
increases in sales to the Company's main publishing customer more than offset
declines in sales to its specialty retail customers. Nevertheless, the Company
remains very reliant on two customers for the majority of its sales revenues,
which amounted to approximately 77% of total sales revenues in 1998.
Gross profit increased in 1998 to $413,283 from $97,166 in 1997. The increase
was due to lower production fixed costs and the higher sales revenues. The
higher gross profit was offset by exchange losses on US dollar trade and debt
liabilities, of approximately $87,000, as well as increased consulting fees, of
approximately $150,000, and higher interest costs, of approximately $53,000. The
loss before the write-down of the patents was approximately $656,000 compared to
$731,711, for fiscal 1998 and fiscal 1997 respectively.
The Company's operating cash flow deficit was $269,390, which was comparable
with fiscal 1997. The Company's working capital deficit increased from $585,505
in fiscal 1997 to $872,733 in fiscal 1998. As a consequence of the continuing
operating losses and the write-down of the Company's patents the shareholders'
equity fell from $$1,933,437 to a deficit of $788,293.
In summary, the Company's continued existence and ability to operate is very
contingent on maintaining the support of its major trade and financial
creditors.
15
<PAGE>
Sales
Tabled below are the sales to the Company's major customers, which are also
expressed as a percentage of total sales, for the last three fiscal years.
<TABLE>
<CAPTION>
1998 % 1997 % 1996 %
In Canadian Dollars
- ------------------------------------------------------------------------------------------------------------------------
Total Sales $1,197,639 100% $993,524 100% $2,556,550 100%
----------- ---------- ---- -------- ---- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
Sales to two Publishing Customers $594,564 50% $295,706 27% $724,023 28%
Sales to one Retail Customer $327,629 27% $365.556 37% $305,271 12%
</TABLE>
Sales to the Company's two main customers accounted for 77% of its total sales
revenues for fiscal 1998. The increase in sales revenues of approximately
$204,000 was due to the increased strength of the US dollar relative to the
Canadian dollar and the increase in sales to one major publishing customer. The
Company's sales are mainly exported to the United States and to a lesser extent
overseas and are invoiced in US dollars. Consequently, the strengthening US
dollar resulted in approximately a $100,000 improvement to the Company sales
revenues as reported in Canadian dollars. The increased sales to the Company's
major publisher resulted from its modified pricing and shipment policy (see page
4 in "Item 1. Business." -- sub heading "Publishing"). During 1998, the Company
produced a prototype Artagraph for two other major publishing companies in an
attempt to stimulate increased sales in this market. While the prototypes were
highly successful, the Company was not able to generate any new sales orders,
which in part was due to the continued weakness of the Company's financial
status.
Gross Profit
Gross profit for the year ending November 30, 1998, rose to $413,283 from
$97,166 in fiscal 1997. The increase in gross profit resulted from the increase
in sales revenues due to the strengthening US dollar and lower fixed costs in
production. The Company's raw materials and services are purchased in Canadian
dollars; therefore improvements to its revenues resulting from a higher US
dollar will directly improve its gross margin. In January 1998, the Company was
successful in reducing its production and inventory floor area by 66%,
consequently it realized rental cost-savings of approximately $125,000 in 1998.
These savings will continue to accrue to the Company over the next four years.
The reduction in production floor space will not adversely impact the Company's
over all capacity.
Selling General and Administration Expenses
Generally, the level of selling, general and administration expenses in 1998
were comparable to levels in fiscal 1997. Notwithstanding, in the year ending
November 30, 1998, the Company had higher overall expenses due to increased
consulting services. The increased consulting expenses, of $150,000, resulted
from the contract agreement
16
<PAGE>
it signed with Creative Enterprises in October 1997. Other expenses were also
higher in fiscal 1998. First, under CDN-GAAP, the weakness of the Canadian
dollar resulted in the Company reporting unrealized exchange losses, of
approximately $87,000, which occur when its US dollar liabilities are translated
at a higher rate of exchange, as at the November 30, 1998 versus 1997 balance
sheet dates. The Company had current liabilities in US dollars of $603,000 and
$502,000 for 1998 and 1997 year-end balance sheet dates, respectively. Second,
because the Company remained in default on payments of interest and repayment of
principal on its 10% notes an additional five percent penalty interest was
accrued in fiscal 1998, which increased total interest charge against revenues
to $97,863, as compared to $44,214 in 1997.
17
<PAGE>
Item 8. Financial Statements
- --------------------------------------------------------------------------------
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, 1999 and 1998 and the statements of loss, deficit and cash flows for the
years ended November 30, 1999, 1998 and 1997. 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, 1999 and 1998
and the results of its operations and its cash flows for the years ended
November 30, 1999, 1998 and 1997 in accordance with generally accepted
accounting principles in Canada.
Armstrong, Szewczyk & Tobias
Toronto, Canada CHARTERED ACCOUNTANTS
February 17, 2000
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, 1999 and 1998 and as described in
Note 12 to the financial statements. Our report to the shareholders dated
February 17, 2000 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 17, 2000
18
<PAGE>
A.R.T. INTERNATIONAL INC.
BALANCE SHEET
NOVEMBER 30, 1999 AND 1998
(STATED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
CURRENT
Cash $ 10,861 $ 110,873
Accounts Receivable 121,546 147,513
Inventories [Notes 2(a) and 3] 136,994 187,319
Prepaid Expenses and Deposits 7,905 7,905
---------- ----------
277,306 453,610
---------- ----------
CAPITAL [Note 4] 60,631 74,356
---------- ----------
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] 38,647 20,083
---------- ----------
TOTAL ASSETS $ 376,585 $ 548,050
========== ==========
</TABLE>
19
<PAGE>
A.R.T. INTERNATIONAL INC.
BALANCE SHEET
NOVEMBER 30, 1999 AND 1998
(STATED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
LIABILITIES
CURRENT
Accounts Payable and Accrued Liabilities $ 564,655 $ 627,516
Notes Payable [Note 5] 627,635 698,827
------------ ------------
TOTAL LIABILITIES 1,192,290 1,326,343
------------ ------------
SHAREHOLDERS' DEFICIENCY
CAPITAL STOCK [Note 6]
PREFERENCE SHARES:
805,000 {Series 1} 3,701,809 3,701,809
466,941 {Series 2} 2,785,628 2,785,628
COMMON SHARES:
1,386,551 {1998 - 1,066,551} 2,248,961 2,183,961
50,000 {Class "C"} 50,000 50,000
------------ ------------
8,786,398 8,721,398
CONTRIBUTED SURPLUS 11,775,000 11,775,000
DEFICIT (21,377,103) (21,274,691)
------------ ------------
(815,705) (778,293)
------------ ------------
TOTAL LIABILITIES
LESS SHAREHOLDERS' DEFICIENCY $ 376,585 $ 548,050
============ ============
</TABLE>
20
<PAGE>
A.R.T. INTERNATIONAL INC.
STATEMENT OF DEFICIT
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
(STATED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
BALANCE - Beginning of Year $21,274,691 $18,512,961 $17,781,250
ADD - Net Loss 102,412 2,761,730 731,711
----------- ----------- -----------
21,377,103 21,274,691 18,512,961
ADD - Dividends [Note 7] -- -- --
----------- ----------- -----------
BALANCE - End of Year $21,377,103 $21,274,691 $18,512,961
=========== =========== ===========
</TABLE>
21
<PAGE>
A.R.T. INTERNATIONAL INC.
STATEMENT OF LOSS
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
(STATED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
SALES $ 1,043,550 $ 1,197,639 $ 993,524
----------- ----------- -----------
COST OF GOODS SOLD AND OTHER
MANUFACTURING COSTS
Cost of Goods Sold and Other Manufacturing
Costs Before the Undernoted: 685,908 748,683 871,656
Amortization of Capital Assets 10,216 35,673 24,702
----------- ----------- -----------
696,124 784,356 896,358
----------- ----------- -----------
GROSS PROFIT 347,426 413,283 97,166
----------- ----------- -----------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
Selling, General and Administrative Expenses
Before the Undernoted: 391,028 623,739 489,335
Foreign Exchange Loss 9,075 87,143 21,359
Amortization of Capital Assets 3,509 7,638 11,898
Amortization of Patents -- 2,358,630 262,071
Loan Interest 46,226 97,863 44,214
----------- ----------- -----------
449,838 3,175,013 828,877
----------- ----------- -----------
LOSS FROM
OPERATIONS BEFORE TAXES (102,412) (2,761,730) (731,711)
PROVISION FOR INCOME TAXES [Note 11] -- -- --
----------- ----------- -----------
NET LOSS $ (102,412) $(2,761,730) $ (731,711)
=========== =========== ===========
NET LOSS PER COMMON SHARE [Note 10(b)] $ (0.09) $ (2.59) $ (4.88)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES [Note 10(d)] 1,146,551 1,066,551 149,852
=========== =========== ===========
</TABLE>
22
<PAGE>
A.R.T. INTERNATIONAL INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
(STATED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (102,412) $(2,761,730) $ (731,711)
Adjustments for:
Amortization of Capital Assets 13,725 43,311 36,600
Amortization of Patents -- 2,358,630 262,071
Accrued Interest and Penalties on
Notes Payable (Reversed) (41,192) 144,893 67,275
----------- ----------- -----------
(129,879) (214,896) (365,765)
Net Changes in Working Capital Balances:
Accounts Receivable 25,967 (80,518) 82,415
Inventories - Current and Long-Term 31,761 49,053 134,527
Prepaid Expenses and Deposits -- 118,300 (67,767)
Accounts Payable and Accrued Liabilities (62,861) 163,360 6,853
Accounts Payable - Related Party -- (159,796) (11,615)
Customers' Deposits -- -- (11,200)
----------- ----------- -----------
(135,012) (124,497) (232,552)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Notes Payable (30,000) -- --
Issuance of Capital Stock for Cash {Net} 65,000 50,000 332,500
----------- ----------- -----------
35,000 50,000 332,500
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (100,012) (74,497) 99,948
CASH - Beginning of Year 110,873 185,370 85,422
----------- ----------- -----------
CASH - End of Year $ 10,861 $ 110,873 $ 185,370
=========== =========== ===========
</TABLE>
23
<PAGE>
A.R.T. INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999
(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.
By articles of amendment dated July 14, 1998, the name of the Company
was changed from Artagraph Reproduction Technology Incorporated to
A.R.T. International Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(A) INVENTORIES
(i) Inventories, whether classified as current or long-term
assets, are valued at the lower of 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
Leasehold Improvements.................Straight-line over Term
of the Lease
24
<PAGE>
Moulds are recorded at cost and are amortized on the
units-of-production basis which is sufficient to substantially
amortize the cost of the moulds over their estimated useful lives.
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.
(C) 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.
(D) MANAGEMENT REPRESENTATIONS
In the opinion of management, all adjustments necessary for a fair
presentation of the financial position at November 30, 1999 and
1998 and the results of operations, cash flows and related note
disclosures for the fiscal years ended November 30, 1999, 1998 and
1997 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.
Inventories consist of the following
<TABLE>
<CAPTION>
1999 1998
-----------------------------------------------------------------------------------
Provision for Provision for
Obsolete and Obsolete and
Gross Slow-Moving Net Gross Slow-Moving Net
Amount Inventories Amount Amount Inventories Amount
------ ----------- ------ ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Finished Goods $ 75,583 $ (3,104) $ 72,479 $ 81,058 $ (2,946) $ 78,112
Work-in-Process 60,517 - 60,517 855,756 (805,053) 50,703
Raw Materials 42,645 - 42,645 78,587 - 78,587
---------- ---------- ---------- --------- ---------- ---------
$ 178,745 $ (3,104) $ 175,641 $ 1,015,401 $ (807,999) $ 207,402
========== ========== ========== ========== ========== =========
Current Portion ...........................................$ 136,994.......................................$ 187,319
Non-current Portion........................................ 38,647....................................... 20,083
---------- ---------
$ 175,641 $ 207,402
========== =========
</TABLE>
25
<PAGE>
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
1999 1998
---- ----
ACCUMULATED NET BOOK NET BOOK
COST AMORTIZATION VALUE VALUE
<S> <C> <C> <C> <C>
Equipment, Furniture and Fixtures $ 641,821 $ 581,190 $ 60,631 $ 74,356
Moulds 150,000 150,000 -- --
Leasehold Improvements 288,958 288,958 -- --
---------- ---------- ---------- ----------
$1,080,779 $1,020,148 $ 60,631 $ 74,356
========== ========== ========== ==========
</TABLE>
5. NOTES PAYABLE
The Company is in default of principal and interest payments on these
notes payable that bear interest at 10%. Consequently, the total amount
due, including accrued interest has been reflected as a current liability.
<TABLE>
<CAPTION>
----------------------------- ------------------------------
1999 1998
---- ----
U.S. Dollars Cdn. Dollars U.S. Dollars Cdn. Dollars
<S> <C> <C> <C> <C>
Principal $315,000 $464,625 $315,000 $481,950
Accrued Interest 110,515 163,010 141,750 216,877
-------- -------- -------- --------
$425,515 $627,635 $456,750 $698,827
======== ======== ======== ========
</TABLE>
During the year, certain notes payable were reassigned to new note
holders. Penalties which were accrued in previous years were reversed, as
the note holders have not demanded repayment.
These notes payable and accrued interest are secured by a general security
agreement over all the assets of the Company.
6. 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
26
<PAGE>
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, of which 805,000 were issued, each of which is convertible
into 0.048 common shares.
The directors have authorized an unlimited number of class "A"
preference shares, series 2 of which 466,941 shares were issued on
May 19, 1994 for a cash consideration of $2,779,413, each of which is
convertible commencing November 13, 1995, into 0.24 common shares;
(ii) Effective July, 1998, the shareholders authorized an unlimited
number of class "B" preference shares. These shares are non-voting,
retractable at the option of the Company and have a preferential
dividend of $0.10 per share in priority to all other shares of the
Company. No class "B" shares have been issued;
(iii) Effective July, 1998, the shareholders authorized an unlimited
number of class "C" common shares. Each class "C" common share has
100 votes and a 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; and
(iv) Common shares
(B) CAPITAL STOCK
<TABLE>
<CAPTION>
COMMON SHARES
--------------------------------------------------------------
1999 1998
--------------------------------------------------------------
Number of Number of
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance - Beginning of Year 1,066,551 $ 2,183,961 266,629,785 $ 2,183,961
Add - Shares Issued During Year 320,000 65,000 -- --
------------ ------------ ------------ ------------
1,386,551 2,248,961 266,629,785 2,183,961
Less - Reverse Stock Split
of 250:1 -- -- 265,563,234 --
------------ ------------ ------------ ------------
Balance - End of Year 1,386,551 $ 2,248,961 1,066,551 $ 2,183,961
============ ============ ============ ============
</TABLE>
During the 1999 fiscal year, the Company issued 320,000 common shares for a
total cash consideration of $65,000. On July 14, 1998, the Company effected
a 250 for 1 reverse stock split. To effect the reverse split, the Company's
outstanding shares were decreased from 266,629,785 common shares to
1,066,551 common shares.
27
<PAGE>
<TABLE>
<CAPTION>
Class "C" Common Shares
1999 1998
-----------------------------------------------------------------
Number of Number of
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance - Beginning of Year 50,000 $50,000 -- $ --
Add - Shares Issued During Year -- -- 50,000 50,000
------- ------- ------- -------
Balance - End of Year 50,000 $50,000 50,000 $50,000
</TABLE>
(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
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:
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------
1999 1998
---- ----
<S> <C> <C>
Balance - Beginning of Year 13,800 3,475,000
Less - Reverse Stock Split 250:1 -- 3,461,100
--------- ---------
13,800 13,900
Less - Options and Warrants Expired During Year 100 100
--------- ---------
13,700 13,800
Add - Options and Warrants Issued During Year 105,000 --
--------- ---------
Balance - End of Year 118,700 13,800
========= =========
</TABLE>
The options and warrants granted and outstanding as at November 30, 1999 are as
follows:
COMMON SHARES
UNDER OPTION ---------------------------------
OR SUBJECT
TO WARRANTS EXERCISE PRICE EXPIRY DATE
----------- -------------- -----------
100 U.S. $375.00 2000
4,800 U.S. $ 2.50 2000
4,800 U.S. $ 50.00 2000
4,000 U.S. $ 62.50 2002
105,000 U.S. $ 0.25 2004
-----------
118,700
===========
28
<PAGE>
During the 1999 year, the Company issued 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 105,000
stock options were issued at an option price of $0.25 per stock option.
7. DIVIDENDS
(A) CLASS "A" PREFERENCE SHARES, SERIES 1
The holders of the class "A" preference shares, series 1, are 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.
The Company does not anticipate that any dividends will be declared
and payable on the preference shares in the foreseeable future.
The dividends payable, but not yet declared by the Company are as
follows:
PERIOD ENDED U.S. AMOUNT CDN. AMOUNT
------------ ----------- -----------
December 1, 1993 $ 120,750 $ 177,503
December 1, 1994 483,000 710,010
December 1, 1995 483,000 710,010
December 1, 1996 483,000 710,010
December 1, 1997 483,000 710,010
December 1, 1998 483,000 710,010
December 1, 1999 483,000 710,010
----------- -----------
$ 3,018,750 $ 4,437,563
=========== ===========
(B) CLASS "A" PREFERENCE SHARES, SERIES 2
The holders of the class "A" preference shares, series 2, are
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 quarterly in cash for the first year after issuance
and annually thereafter in cash or common shares at the discretion
of the directors.
The Company does not anticipate that any dividends will be declared
and payable on the preference shares in the foreseeable future.
The dividends payable, but not yet declared by the Company are as
follows:
PERIOD ENDED U.S. AMOUNT CDN. AMOUNT
------------ ----------- -----------
December 1, 1994 $ 140,082 $ 205,920
December 1, 1995 280,165 411,843
December 1, 1996 280,165 411,843
29
<PAGE>
PERIOD ENDED U.S. AMOUNT CDN. AMOUNT
------------ ----------- -----------
December 1, 1997 280,165 411,843
December 1, 1998 280,165 411,843
December 1, 1999 280,165 411,843
---------- ----------
$ 1,540,907 $ 2,265,135
========== ==========
8. 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:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
DOMESTIC SALES - Canada $ 39,267 $ 54,901 $ 60,046
INTERNATIONAL EXPORT SALES:
U.S.A 971,569 1,083,681 857,357
European Economic Community 3,035 35,655 3,178
Other 29,679 23,402 72,943
---------- ---------- ----------
$1,043,550 $1,197,639 $ 993,524
========== ========== ==========
</TABLE>
All significant identifiable assets and amortization relate to assets situated
in Canada.
9. 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
------------------ ------
2000.............................................$ 58,340
2001.............................................. 58,340
2002.............................................. 64,174
2003.............................................. 64,174
2004.............................................. 10,695
30
<PAGE>
10. 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:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------------------------------------------------------
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.
----------- ----------- ---------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(A) BALANCE SHEET:
Capital Stock
Issued $ 8,786,398 $ 10,827,941 $ 8,721,398 $ 10,762,941 $ 8,671,398 $ 10,712,941
============ ============ ============ ============ ============ ============
Accumulated
Deficit $(21,377,103) $(23,434,861) $(21,274,691) $(23,322,449) $(18,512,961) $(20,560,719)
============ ============ ============ ============ ============ ============
</TABLE>
(B) STATEMENT OF LOSS:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net Loss per Common Share under U.S. G.A.A.P $ (0.09) $ (2.59) $ (4.88)
========= ========= ========
(C) WEIGHTED AVERAGE NUMBER OF SHARES
- U.S. G.A.A.P. [Note 10(e)] 1,146,551 1,066,551 149,852
========= ========= ========
(D) WEIGHTED AVERAGE NUMBER OF SHARES
- CANADIAN G.A.A.P 1,146,551 1,066,551 149,852
========= ========= ========
</TABLE>
(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.
31
<PAGE>
(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.
11. 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 $6,587,180 (1998 - $7,079,031) available for
deduction against future years' earnings, the benefit of which has not
been recognized in these financial statements.
These losses expire as follows:
<TABLE>
<CAPTION>
YEAR CANADIAN U.S. TOTAL
---- -------- ---- -----
<S> <C> <C> <C> <C>
2000 .......................$2,230,000 $ -- $2,230,000
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
---------- ---------- ----------
$4,657,180 $1,930,000 $6,587,180
========== ========== ==========
</TABLE>
12. 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.
32
<PAGE>
13. MAJOR CUSTOMER
Sales to specific major customers of the Company were as follows:
<TABLE>
<CAPTION>
Percentage Percentage
Percentage of Accounts Percentage of Accounts
of Sales Receivable of Sales Receivable
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
SALES THROUGH ONE RETAIL
COMPANY (U.S.) 40% 54% 28% 32%
== == == ==
SALES THROUGH ONE ART
PUBLISHING AGENT (U.S.) 25% 22% 50% 41%
== == == ==
</TABLE>
During the year, the publishing agent who is a major customer underwent a
financial restructuring and as a result approximately $62,000 of accounts
receivable were written off. Management no longer considers the customer
to be a financial risk.
14. SUPPLEMENTAL DISCLOSURE - STATEMENT OF CASH FLOWS
Interest in the amount of $30,000 and income taxes of $ Nil were paid
during the 1999 year, whereas there were no interest or income tax
payments made for the fiscal years ended November 30, 1998 and 1997.
15. SUBSEQUENT EVENTS
On December 15, 1999, the Company executed an agreement with 1375400
Ontario Limited, operating its business as "The Buck a Day Company"
{hereinafter collectively referred to as "Buck"}, whereby the Company has
the right to purchase a 40% interest in Buck for $400,000. The Company has
until March 30, 2000 to complete its investment. As of February 17, 2000,
the Company had paid Buck $300,000, being the minimum capital required to
secure the investment. Under the agreement, the Company has the right to
require Buck to repurchase all the shares from the Company at 120% of the
amount originally paid if a third party wishes to purchase Buck.
The Company funded the purchase of Buck shares from the sale of common
shares under the Regulation S offering authorized by the Company in
August, 1999. As of February 17, 2000, the Company had issued 1,000,000
common shares from treasury for $0.20 per share for total cash proceeds of
$200,000 and, had received another $100,000 in subscriptions for an
additional 500,000 common shares to be issued from treasury forthwith.
33
<PAGE>
PART III
Item 9. Not applicable.
Item 10. Directors and Executive Officers of the Registrant.
On July 14, 1998, 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 Scarr, Michel van
Herreweghe, Francoise Jacquel and Roger Kirby.
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
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.
Roger Scarr is President of Zynex Corporation from 1989 to August 1997. He
is also President of HR Capital from 1995 to date.
Michel van Herreweghe 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 1998;
Director Creditanstalt Bank of Switzerland, A.G. 1996 to present.
Francoise Jacquel 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 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.
Compliance With Section 16(a) of the Exchange Act
34
<PAGE>
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 including C.E.O. during
each fiscal year.
<TABLE>
<CAPTION>
(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 ($) Options (#) Compensation ($)
--- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Simon Meredith 1999 -- -- 85,000(1) -- -- --
President 1998 -- -- 85,000(1) -- -- --
1997 -- -- 75,000(1) -- -- --
Roger Scarr -- -- -- -- -- -- --
Michel van Herreweghe -- -- -- -- -- -- --
Francoise Jacquel -- -- -- -- -- -- --
Roger Kirby -- -- -- -- -- -- --
</TABLE>
(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 five-year consulting agreement
with The Merrick Group Limited, a company beneficially owned by Simon
Meredith. Under the terms of the contract, Mr. Meredith provides management
services to the Company for up to 100 hours per month as President and
Chief Operating Officer.
Stock Options
In July 1998, a Stock Option Plan (the "Plan") was approved by the
Shareholders. The Plan was designed to provide an added incentive for
effective service and performance to participating key employees (including
officers) and directors of the Company by affording them an opportunity to
increase their proprietary interest in the Company's success through
increased stock ownership.
The maximum number of Common Shares for which options may be granted under
the Plan is 10% of the total common shares outstanding (subject to
adjustment in the event of a stock dividend, stock split or other change in
corporate structure).
35
<PAGE>
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. No options were granted in fiscal 1998.
Subsequent to the year-end, pursuant to the option plan, subject to and
conditional upon any necessary regulatory approval or ruling, the Company
authorized the issue of up to 105,000 stock options to employees, officers
and directors. The number of options that may be granted to anyone is
subject to the approval of the Board of Directors. To date, no stock
options have been granted to any employee, officer or director. The options
commence December 1, 1998 and expire December 1, 2004, and at the option
exercise price of $US 0.25 per share.
Aggregate Option/SAR Exercises In Last Fiscal Year And Fiscal Year-End
Option/SAR Values None.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
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.
36
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.
(a) Exhibits
(b) Financial Statement Schedules.
Not applicable.
(c) Reports on Form 8-K.
None.
37
<PAGE>
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 29 Feb. 2000
Simon P. Meredith President Date 29 Feb. 2000
38
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> CANADIAN
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> NOV-30-1999
<EXCHANGE-RATE> 1.47
<CASH> 10,861
<SECURITIES> 0
<RECEIVABLES> 171,546
<ALLOWANCES> (50,000)
<INVENTORY> 175,641
<CURRENT-ASSETS> 277,306
<PP&E> 1,080,779
<DEPRECIATION> (1,020,148)
<TOTAL-ASSETS> 376,585
<CURRENT-LIABILITIES> 1,192,290
<BONDS> 0
0
6,487,437
<COMMON> 2,298,961
<OTHER-SE> 11,775,000
<TOTAL-LIABILITY-AND-EQUITY> 376,585
<SALES> 1,043,550
<TOTAL-REVENUES> 0
<CGS> 696,124
<TOTAL-COSTS> 403,612
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,226
<INCOME-PRETAX> (102,412)
<INCOME-TAX> 0
<INCOME-CONTINUING> (102,412)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (102,412)
<EPS-BASIC> (0.090)
<EPS-DILUTED> (0.090)
</TABLE>
