Art In Motion Income Fund
TSX : AIM.UN

Art In Motion Income Fund

March 22, 2005 08:03 ET

Art In Motion Income Fund Announces 2004 Annual and 4th Quarter Results

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - March 22, 2005) - Art In Motion
Income Fund (the "Fund") (TSX:AIM.UN) today reported its financial results
for the period ended December 31, 2004. The Fund's audited consolidated
financial statements for the period from its initial public offering on
August 3, 2004 to December 31, 2004 are included in this press release.
The Fund's financial statements and Management's Discussion and Analysis are
posted on the SEDAR website (www.sedar.com) and on the Fund's investor website
at www.aimincomefund.com.

"We have encountered some unexpected challenges, particularly in the
retail home dÚcor market and with ongoing devaluation of the US Dollar," says
Paul Wagler, CEO. "Given these circumstances, we are satisfied with the
results achieved during the period but we are undertaking steps to improve our
results in 2005 and beyond. Although our cash position and profit margins are
strong, we need to focus on building up our sales volume."

Management will host a conference call on Tuesday, March 22, 2005 at
10:00 am (PST) to discuss the Fund's financial results for the period ended
December 31, 2004. Paul Wagler, Chief Executive Officer, and
Allan Achtemichuk, Chief Financial Officer will host the call. Following
management's presentation, there will be a question and answer session.

To participate in the teleconference, the numbers are 416.405.9328 or
1.800.387.2616.

A replay of the call will be available approximately one hour after the
end of the conference call by accessing Art In Motion's web site at
www.aimincomefund.com. This call will be archived on the web site until
June 22, 2005 at midnight.



Summary Results of Operations

-------------------------------------------------------------------------
(in thousands of dollars August 3, 2004 - 3 months ended
except per unit amounts) December 31, 2004 December 31, 2004
-------------------------------------------------------------------------
Revenue 34,781 19,283
Gross profit 11,237 6,000
Gross margin 32.3% 31.1%
-------------------------------------------------------------------------
Net earnings 4,856 2,228
-------------------------------------------------------------------------
EBITDA(1) 5,650 3,370
Distributable cash(1) 5,079 2,966

Distributions on Fund units 4,129 2,509
Distributions on unsubordinated
non-controlling interest(2) 275 167
Distributions on subordinated
non-controlling interest(2) 432 -
--------------------------------------
4,836 2,676
--------------------------------------

-------------------------------------------------------------------------
Outstanding units and per unit amounts
-------------------------------------------------------------------------
Total units outstanding 10,706,760 10,706,760
Distributable cash per unit $0.47437 $0.27702
Distributions paid per unit $0.45168 $0.24994
Distribution ratio 95.2% 90.2%
-------------------------------------------------------------------------

(1) EBITDA and Distributable Cash are not recognized measures under
Canadian generally accepted accounting principles (GAAP). See our
discussion on "Non-GAAP Measures".
(2) See our prospectus dated July 22, 2004 for a discussion of the terms
related to the subordinated non-controlling (retained) interest.


Forward Looking Statements

This report contains "forward looking statements". These statements
relate to future events or future performance and reflect our expectations
regarding our growth, results of operations, performance, business prospects
or opportunities or industry performance or trends. These forward-looking
statements reflect our current internal projections, expectations or beliefs
and are based on information currently available to us. In some cases, forward
looking statements can be identified by terminology such as "may", "will",
"should", "expect", "intend", "plan", "anticipate", "believe", "predict",
"potential", "continue" or the negative of these terms or other comparable
terminology. A number of factors could cause actual events or results to
differ materially from those discussed in the forward-looking statements. You
should specifically consider these factors including the risks and
uncertainties described under "Risk Factors" elsewhere in this report.
Although we believe that the forward-looking statements contained herein are
based on reasonable assumptions, you cannot be assured that actual results
will be consistent with such statements. Forward-looking statements are made
as of the date hereof and we assume no obligation to update or revise them to
reflect new events or circumstances.

Overall Performance

This report covers the period from August 3, 2004 to December 31, 2004. A
detailed discussion of our results is presented in the sections that follow.
The following points present the highlights of our performance.
- We operate in a single reportable segment as a publisher, framer and
licensor of images and fine-art reproductions.
- We distribute our products to over 70 countries around the world.
- Approximately 90% of our sales are denominated in US dollars.
- The Fund's revenue for the period was $34.8 million.
- Gross profit for the period was $11.2 million for a gross margin of
32.3%.
- Net earnings were $4.9 million for the period.
- Basic and diluted earnings per unit were $0.6093 based on 7,970,393
weighted average units outstanding(1).
- The Fund generated $6.3 million in cash flow from continuing
operations.
- The Fund generated distributable cash (see Non-GAAP Measures) of
$0.47437 per unit on the total 10,706,760 units outstanding.
The Fund's payout ratio for the period was 95.2%.
- The Fund had total assets of $130.3 million and $56.9 million in
current and long-term liabilities.

Note
(1) In addition to the 8,030,070 outstanding Fund units, there are
535,338 unsubordinated units of AIM LP and 2,141,352 subordinate
units of AIM LP held by the non-controlling interest. These
subordinated and unsubordinated units of AIM LP are currently held by
GVP and represent GVP's retained interest in our business.

Non-GAAP Measures

References to EBITDA are to our net earnings that have been adjusted for:
Non-controlling interest, interest expense, income taxes, amortization,
unrealized gains and losses related to our forward foreign exchange contracts
and interest rate swap, and charges related to the Founders' Employee
Participation Plan (FEPP). See "Financial Instruments" for our discussion on
foreign exchange. See "Transactions with Related Parties" for a discussion on
the FEPP.

EBITDA is a measure used by many investors to compare issuers on the
basis of ability to generate cash flows from operations. EBITDA is not a
recognized measure under Canadian GAAP and is not intended to be
representative of cash flows or results of operations determined in accordance
with Canadian GAAP or cash available for distribution. We believe that EBITDA
is the appropriate measure from which to make adjustments to determine our
Distributable Cash. Since we intend to distribute substantially all of our
available cash on an ongoing basis, we believe that EBITDA is a useful
supplemental measure in evaluating our performance. You are cautioned,
however, that EBITDA should not be construed as an alternative to net earnings
(as determined in accordance with Canadian GAAP) as an indicator of our
performance or to cash flows from operating activities as a measure of our
liquidity and cash flows. Our methods of calculating EBITDA may differ from
methods used by other issuers and, accordingly, our EBITDA may not be
comparable to similarly titled amounts presented by other issuers.

Distributable cash is not a recognized measure under Canadian GAAP.
Canadian open-ended income trusts, such as the Fund, use distributable cash as
an indicator of financial performance. We define Distributable Cash as EBITDA
less interest expense and sustaining capital expenditures.

Distributable cash may differ from similar computations as reported by
other issuers and, accordingly, may not be comparable to distributable cash as
reported by such issuers. We believe that Distributable cash is a useful
supplemental measure that tracks the performance of the business, excluding
the effect of non-cash items. As such, we believe the most directly comparable
GAAP measure is net earnings.



Selected Annual Consolidated Financial Information

-------------------------------------------------------------------------
(audited) (unaudited)
The Fund Pre-Fund(1)
(in thousands of dollars August 3, 2004 - 5 months ended
except per unit amounts) December 31, 2004 December 31, 2003
-------------------------------------------------------------------------
Revenue 34,781 38,164
Cost of sales(2) 23,544 25,395
--------------------------------------
Gross profit 11,237 12,769
32.3% 33.5%
Operating expenses(2)(3) 5,465 7,870
Non-controlling interest(2) 916 -
--------------------------------------
Net earnings for the period(2) 4,856 4,899
14.0% 12.8%
Add (deduct)
Non-controlling interest 916 -
Founders' employee participation
plan(2) 759 -
Interest 464 119
Amortization 3,030 514
Unrealized (gains) losses on
hedges (4,375) -
--------------------------------------
EBITDA(4) 5,650 5,532
16.2% 14.5%
--------------------------------------
Basic and diluted earnings
per unit 0.6093 n/a
-------------------------------------------------------------------------

(1) The values for the five-month period ended December 31, 2003 are for
the combined entities of NW Art In Motion Inc. and AIM Land Holdings
Inc. These are the predecessor companies that were amalgamated prior
to the IPO to form GVP. To provide comparable amounts we have
eliminated shareholder bonuses and income taxes from the 2003
amounts. The 2003 amounts have not been adjusted for our $20 million
term loan or the amortization of our identifiable intangible assets.
(2) In our final prospectus we described the Founders' Employee
Participation Plan (FEPP) to be established by GVP for the benefit of
the employees of AIM LP. Under the FEPP, GVP will provide bonus
payments to employees based on the notional interest in a portion of
its non-controlling interest in AIM LP. Employees are entitled to
bonus payments based on the quarterly distributions paid on Class C
units of AIM LP. The employees are also entitled to the notional
value of these units subject to certain vesting and subordination
provisions (see our prospectus dated July 22, 2004 at www.sedar.com).
The costs of the FEPP are recorded as a charge against the Fund but
are funded by GVP. For the five months ended December 31, 2004, the
Fund recorded charges of approximately $759,000 of which
approximately $378,000 was charged to Cost of Sales and $381,000 was
charged to Selling & Administrative expenses. These charges are then
offset against the non-controlling interest resulting in no impact to
our net earnings.
(3) Operating Expenses are the combined net total of Expenses and Other
Earnings as shown in our Financial Statements.
(4) See "Non-GAAP Measures" for our definition of EBITDA.


Results of operations - August 3, 2004 to December 31, 2004

US dollar denominated sales were up 3% compared to the same period last
year, largely on sales outside of North America, as US dollar denominated
sales in North America were flat. Revenue for the five-month period ended
December 31, 2004 was $34.8 million compared to $38.2 million for the
five-month period ended December 31, 2003. Revenue was down 8.9% in Canadian
dollar terms as any growth in US dollar sales was offset by the declining
USD/CAD exchange rate.

Approximately 90% of our sales are denominated in US dollars while the
majority of our expenses are denominated in Canadian dollars. Immediately
before the closing of our initial public offering, the USD/CAD exchange rate
was 1.3295 (Bank of Canada closing rate July 30, 2004). The closing rate at
December 31, 2004 was 1.2020 or a drop of 9.6% over the five months since the
fund was launched. We use forward foreign exchange contracts to hedge our
currency risks.

Our sales were also impacted by a new program rollout for a major
customer. New large format items with complex framing treatments were not
standing up to stacking and handling in the stores. Instead of recalling the
entire shipment, we provided the customer with a discount of $758,000 to clear
the inventory from their stores. We have identified and resolved the quality
problem but this unusual discount has impacted our sales revenue and margins
for the period.

Gross margin was 32.3% for the five-month period ended December 31, 2004
compared to 33.5% for the five-month period ended December 31, 2003. Gross
profit for the five-month period ended December 31, 2004 was $11.2 million
compared to $12.8 million for the five-month period ended December 31, 2003.
Our gross margin is impacted by the lower USD/CAD foreign exchange rate and
non-cash charges from the FEPP.

The current period includes approximately $759,000 of charges related to
the FEPP. Approximately $381,000 is charged to cost of sales and $378,000 is
charged to selling and administrative expenses. These costs are funded by GVP
and do not impact net earnings or distributable cash. Excluding these charges,
our gross margin was 33.4% or comparable to the same five-month period last
year.

Operating expenses were $5.5 million for the five-month period ended
December 31, 2004 compared to $7.9 million for the five-month period ended
December 31, 2003. The net reduction in current year expenses is largely a
result of a $4.4 million increase in foreign exchange and interest rate hedge
gains, which is offset by increased amortization of $2.4 million on our
intangible assets.

Net earnings for the five-month period ended December 31, 2004 were
$4.9 million, which is equal to the five-month period ended December 31, 2003.

EBITDA (see Non-GAAP Measures) of $5.7 million for the five months this
year compares favourably to $5.5 million for the five months last year. The
current period EBITDA margin of 16.2% exceeded the 14.5% EBITDA margin for the
comparable period last year.



Selected 4th Quarter Consolidated Financial Information

-------------------------------------------------------------------------
(audited) (unaudited)
The Fund Pre-Fund(1)
(in thousands of dollars 3 months ended 3 months ended
except per unit amounts) December 31, 2004 December 31, 2003
-------------------------------------------------------------------------
Revenue 19,283 22,463
Cost of sales(2) 13,283 14,930
--------------------------------------
Gross profit 6,000 7,533
31.1% 3.5%
Operating expenses(2)(3) 3,375 4,345
Non-controlling interest(2) 397 -
--------------------------------------
Net earnings for the period(2) 2,228 3,188
11.6% 14.2%
Add (deduct)
Non-controlling interest 397 -
Founders' employee participation
plan(2) 379 -
Interest 302 55
Amortization 1,818 252
Unrealized (gains) losses on
hedges (1,754) -
--------------------------------------
EBITDA(4) 3,370 3,495
17.5% 15.6%
--------------------------------------
Basic and diluted earnings
per unit 0.2774 n/a
-------------------------------------------------------------------------

(1) The values for the three-month period ended December 31, 2003 are for
the combined entities of NW Art In Motion Inc. and AIM Land Holdings
Inc. These are the predecessor companies that were amalgamated prior
to the IPO to form GVP. To provide comparable amounts we have
eliminated shareholder bonuses and income taxes from the 2003
amounts. The 2003 amounts have not been adjusted for our $20 million
term loan or the amortization of our identifiable intangible assets.
(2) In our final prospectus we described the Founders' Employee
Participation Plan (FEPP) to be established by GVP for the benefit of
the employees of AIM LP. Under the FEPP, GVP will provide bonus
payments to employees based on the notional interest in a portion of
its non-controlling interest in AIM LP. Employees are entitled to
bonus payments based on the quarterly distributions paid on Class C
units of AIM LP. The employees are also entitled to the notional
value of these units subject to certain vesting and subordination
provisions (see our prospectus dated July 22, 2004 at www.sedar.com).
The costs of the FEPP are recorded as a charge against the Fund but
are funded by GVP. For the quarter ended December 31, 2004, the Fund
recorded charges of approximately $379,000 of which approximately
$196,000 was charged to Cost of Sales and $183,000 was charged to
Selling & Administrative expenses. These charges are then offset
against the non-controlling interest resulting in no impact to our
net earnings.
(3) Operating Expenses are the combined net total of Expenses and Other
Earnings as shown in our Financial Statements.
(4) See "Non-GAAP Measures" for our definition of EBITDA.


Results of operations - 4th Quarter

Revenue for the quarter ended December 31, 2004 was $19.3 million
compared to $22.5 million for the quarter ended December 31, 2003 or a
decrease of 14.2%. Revenue in North America was below expectations for the
quarter. Gross sales to our International distributors and retailers were up
15% while sales in North America were down 17% compared to the fourth quarter
last year. Approximately half of the decrease is related to the increased
value of the Canadian dollar in the quarter compared to the US dollar.

Approximately 90% of our sales are denominated in US dollars. The
exchange rate for US dollars has dropped by approximately 7.2% during the
fourth quarter 2004 compared to the fourth quarter 2003. Although the drop in
foreign exchange rates has impacted our gross sales, we use forward foreign
exchange contracts to hedge our currency risks and protect our margins.

Gross margin was 31.1% for the quarter ended December 31, 2004 compared
to 33.5% for the quarter ended December 31, 2003. Gross profit for the quarter
ended December 31, 2004 was $6.0 million compared to $7.5 million for the
quarter period ended December 31, 2003.

The current period includes approximately $379,000 of charges related to
the FEPP (see Transactions with Related Parties). Approximately $183,000 is
charged to cost of sales and $196,000 is charged to selling and administrative
expenses. These costs are funded by GVP and do not impact net earnings.
Excluding these charges, our gross margin was 32.1% for the quarter. The
reduction in gross margin compared to the prior year is largely a result of
lower net revenue.

Operating expenses were $3.4 million for the quarter ended December 31,
2004 compared to $4.3 million for the same period in 2003. The net reduction
in current year expenses is largely a result of an increase in foreign
exchange gains offset by increased amortization related to our identifiable
intangible assets.

Net earnings for the quarter ended December 31, 2004 were $2.2 million
compared to $3.2 million for the same period in 2003.

EBITDA (see Non-GAAP Measures) was $3.4 million for the quarter this year
compared to $3.5 million for the same quarter last year. The current period
EBITDA margin of 17.5% exceeded the 15.6% EBITDA margin for the comparable
period last year.

Outlook

We are facing a number of factors that will challenge us in the near
term. Several of our key customers are reporting little to no growth or even
declines in comparable same store sales. Some have indicated that their
current inventory levels are higher than they expected after the November and
December holiday season. Their sales trends are good but their replenishment
orders will be lower as they work through their inventory over the next two
quarters.

Our new collection of images and products released in January is
receiving good reviews although the sales pace is slower than we hoped. Some
of our customers have selected larger collections to rollout in their stores
but are testing the new products in fewer stores.

High oil prices continue to put pressure on a number of our raw material
suppliers both in terms of input costs and transportation surcharges. We
continue to work with our suppliers on new designs and waste recycling
programs to contain our costs.

The US dollar relative to the Canadian dollar remains at levels well
below a year ago. This will continue to have a negative affect on our revenue
compared to prior periods. The first quarter of 2004 was an unusually high
quarter for gross sales for the predecessor company. We do not expect to
repeat this performance in the first quarter of 2005.

In an effort to maintain our margins and to build up our sales volume, we
are increasing our attention to product development, sales and marketing. We
have recently signed agreements with new customers that we expect will help
our sales volume in future quarters. We expect that our efforts will improve
our results later in 2005.



Consolidated Financial Statements of

ART IN MOTION INCOME FUND

Period from August 3, 2004 to December 31, 2004



AUDITORS' REPORT
To the Board of Directors of Art In Motion Income Fund

We have audited the consolidated balance sheet of Art In Motion Income
Fund as at December 31, 2004 and the consolidated statements of operations and
cash flows for the period from August 3, 2004 to December 31, 2004. These
financial statements are the responsibility of the management of the Fund. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We have conducted our audit in accordance with Canadian 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 consolidated financial statements present fairly,
in all material respects, the financial position of the Fund as at December
31, 2004 and the results of its operations and its cash flows for the period
from August 3, 2004 to December 31, 2004 in accordance with Canadian generally
accepted accounting principles.


(signed)
KPMG LLP
Chartered Accountants

Vancouver, Canada
March 17, 2005



ART IN MOTION INCOME FUND
Consolidated Balance Sheet
(Expressed in Canadian dollars)

December 31, 2004
-------------------------------------------------------------------------

Assets

Current assets:
Cash and cash equivalents $ 1,880,878
Accounts receivable 12,325,166
Forward foreign exchange contracts 4,780,567
Inventories (note 3) 6,469,762
Prepaid expenses 1,326,167
-----------------------------------------------------------------------
26,782,540

Forward foreign exchange contracts 2,332,761

Property, plant and equipment (note 5) 19,652,331

Deferred financing costs 43,050

Intangible assets (note 6) 17,281,903

Goodwill 64,209,680
-------------------------------------------------------------------------

$130,302,265
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Liabilities and Unitholders' Equity

Current liabilities:
Bank indebtedness (note 7) $ 662,030
Accounts payable and accrued liabilities 7,341,446
Distributions payable (note 4) 892,258
Due to related party (note 4) 57,180
-----------------------------------------------------------------------
8,952,914

Interest rate swap 171,149

Long-term debt (note 7) 20,000,000

Non-controlling interest (note 9) 27,736,182

Unitholders' equity (note 8) 73,442,020
-------------------------------------------------------------------------

$130,302,265
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Commitments (note 12)
Contingencies (note 13)

See accompanying notes to consolidated financial statements.



ART IN MOTION INCOME FUND
Consolidated Statement of Operations
(Expressed in Canadian dollars)

Period from August 3, 2004 to December 31, 2004
-------------------------------------------------------------------------

Revenue:
Sales $ 32,968,837
Royalties 1,812,323
-----------------------------------------------------------------------
34,781,160
Cost of goods sold 23,543,796
-------------------------------------------------------------------------
11,237,364

Expenses:
Amortization 2,675,778
General and administrative 2,541,876
Image and product development 690,293
Interest and bank charges 585,600
Selling 3,734,485
-----------------------------------------------------------------------
10,228,032
-------------------------------------------------------------------------

Earnings before undernoted items 1,009,332

Other earnings (expenses):
Interest rate swap (171,149)
Foreign exchange gain 4,912,692
Gain on disposal of property, plant and equipment 1,364
Interest and miscellaneous 20,254
-----------------------------------------------------------------------
4,763,161
-------------------------------------------------------------------------

Earnings before non-controlling interest 5,772,493

Non-controlling interest 916,186
-------------------------------------------------------------------------

Net earnings $ 4,856,307
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Basic and diluted earnings per unit $ 0.6093
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Weighted average number of units outstanding 7,970,393
-------------------------------------------------------------------------
-------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.



ART IN MOTION INCOME FUND
Consolidated Statement of Cash Flows
(Expressed in Canadian dollars)

Period from August 3, 2004 to December 31, 2004
-------------------------------------------------------------------------

Cash provided by (used in):

Operations:
Net earnings $ 4,856,307
Items not involving cash:
Amortization 3,030,191
Gain on disposal of property, plant and equipment (1,364)
Non-controlling interest 916,186
Founders' Employee Participation Plan expenses (note 14) 658,613
Loss on Interest rate swap 171,149
Unrealized foreign exchange gain on contracts (4,545,655)
-----------------------------------------------------------------------
5,085,427
Change in non-cash operating working capital (note 16) 1,173,512
-----------------------------------------------------------------------
6,258,939

Investments:
Purchase of property, plant and equipment (107,061)
Proceeds from sale of property, plant and equipment 4,010
Acquisition of business assets (note 1) (87,730,855)
Acquisition of non-controlling interest (note 1) (4,982,658)
-----------------------------------------------------------------------
(92,816,564)

Financing:
Bank indebtedness 662,030
Distributions paid or payable to unitholders (4,128,500)
Distributions paid or payable to non-controlling interest (706,973)
Due to related party (203,722)
Contributions received for Founders' Employee
Participation Plan (note 14) 101,455
Long-term debt 20,000,000
Net proceeds from issuance of units 72,714,213
-----------------------------------------------------------------------
88,438,503
-------------------------------------------------------------------------

Increase in cash, being cash and cash equivalents,
end of period $ 1,880,878
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Interest paid $ 498,091
-------------------------------------------------------------------------
-------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.



ART IN MOTION INCOME FUND
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)

Period from August 3, 2004 to December 31, 2004
-------------------------------------------------------------------------

1. Organization, nature of operations and acquisition:

(a) Organization and nature of operations:

Art In Motion Income Fund (the "Fund") is an unincorporated
open-ended limited purpose trust established under the laws of
the Province of British Columbia and governed by a Declaration
of Trust dated June 1, 2004. The Fund was created to acquire,
indirectly, an interest in the business of publishing, framing
and licensing of images and fine-art reproductions. The Fund
commenced active operations on August 3, 2004 when it completed
an initial public offering and the acquisition. The Fund holds,
indirectly, a 75% interest in the units of Art In Motion
Limited Partnership ("AIM LP"), a partnership established under
the laws of the Province of Manitoba. The partnership is
managed by Art In Motion GP Ltd., the general partner, over
which the Fund has indirect control. The financial statements
include the consolidated operations of AIM LP.

(b) Acquisition:

On August 3, 2004, the Fund completed an initial public
offering of 7,500,000 units of the Fund (the "Offering") for
gross proceeds of $75,000,000. The Fund, indirectly, invested
the net proceeds of $67,730,855 to acquire a 70% interest in
AIM LP by acquiring 7,500,000 class A LP units.

AIM LP then acquired the publishing, framing and licensing of
images and fine-art reproductions business from GVP Holdings
Inc. for $119,480,413. The purchase was funded by cash
consideration of $87,730,855 (net proceeds from the offering
plus bank debt of $20,000,000) and the balance of $31,749,558,
through the issuance of 1,065,408 class B LP units and
2,141,352 class C LP units to GVP Holdings Inc.

The purchase agreement included a working capital adjustment to
the purchase price. The working capital adjustment required
that the difference between the working capital delivered on
the initial acquisition and $12,800,000 be settled through a
cash payment. The working capital excess delivered on initial
acquisition of $260,902 has been reflected as due to related
party in the purchase equation.

The acquisition is accounted for using the purchase method with
the results of the business reflected in the Fund's financial
statements commencing August 3, 2004. The fair value of the
assets acquired is as follows:

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

Net working capital, excluding foreign
exchange contracts $ 13,060,902
Due to related party (260,902)
Property, plant and equipment 20,182,058
Deferred financing fee 50,000
Foreign exchange contracts 2,567,675
Intangible assets 19,671,000
Goodwill 64,209,680
Non-controlling interest (31,749,558)
---------------------------------------------------------------

$ 87,730,855
---------------------------------------------------------------
---------------------------------------------------------------

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

The purchase was funded by:
Cash $ 67,730,855
Long-term debt 20,000,000
---------------------------------------------------------------

$ 87,730,855
---------------------------------------------------------------
---------------------------------------------------------------

Included in intangible assets are $501,000 for the image bank,
$8,290,000 for artist agreements and $10,880,000 for the
customer base.

On August 20, 2004, the Fund issued 530,070 units for net
proceeds of $4,982,658 and used the proceeds to acquire 530,070
class B LP units, representing an additional 5% interest in AIM
LP, from the non-controlling interest.

2. Significant accounting policies:

(a) Basis of presentation:

These financial statements have been prepared in accordance
with Canadian generally accepted accounting principles and
include the accounts of the Fund and its majority owned
subsidiaries.

(b) Cash and cash equivalents:

Cash and cash equivalents include deposits in banks and short-
term investments with original maturities of three months or
less when acquired.

(c) Prepaid expenses:

Included in this amount are costs to produce product
catalogues, which are expensed to selling expenses over their
estimated useful lives.

(d) Inventories:

Inventories are valued at the lower of cost and net realizable
value. Cost includes attributable direct costs and applicable
share of manufacturing overhead. The Fund periodically reviews
its inventories for potential slow-moving or obsolete items and
records inventories net of any obsolescence provisions.

(e) Revenue recognition:

Revenue on the sale of products is recognized when goods are
shipped and title to the goods has passed to the customer and
collection is reasonably assured. The Fund makes a provision
for estimated returns at the date of sale.

The Fund earns royalty income by assigning its rights to
reproduce certain images on retail merchandise to third
parties. Royalty income is recognized when a third party has
sold goods that include the images and collection is reasonably
assured.

(f) Property, plant and equipment:

Property, plant and equipment are stated at cost less
accumulated amortization. The Fund periodically reviews its
property, plant and equipment and an impairment charge is
recorded when it is determined that the carrying amount of the
assets is not recoverable and exceeds their fair value.
Amortization is provided for over the estimated useful lives of
the assets using the following methods and rates:

---------------------------------------------------------------
Asset Basis Rate
---------------------------------------------------------------

Buildings Declining balance 4%
Production equipment Declining balance 20%
Office and warehouse equipment Declining balance 20%
Computer hardware Declining balance 30%
Computer software Straight-line 5 years
Automobiles Declining balance 30%
Leasehold improvements Straight-line Lease term
---------------------------------------------------------------
---------------------------------------------------------------

(g) Deferred financing costs:

Financing costs incurred to obtain credit facilities are
deferred and amortized on a straight-line basis over the life
of the related debt.

(h) Goodwill:

Goodwill is recorded at cost. Management reviews the carrying
value of goodwill for impairment annually, or more frequently
if events or changes in circumstances indicate that the asset
may be impaired. Any excess in carrying value of goodwill over
fair value will be charged to income in the period in which the
impairment is determined.

(i) Intangible assets:

Intangible assets are comprised of an image bank, artist
agreements and customer base. Amortization is provided for on a
straight-line basis over the estimated useful lives of the
assets as follows:

---------------------------------------------------------------
Asset
---------------------------------------------------------------

Image bank 2 years
Artist agreements 3 years
Customer base 4 years
---------------------------------------------------------------
---------------------------------------------------------------

Management reviews the carrying value of intangible assets for
impairment whenever events or changes in circumstances indicate
that their carrying value may not be recoverable. An impairment
loss is recorded when it is determined that the carrying amount
of these assets is not recoverable and exceeds their fair
value.

(j) Foreign currency translation:

The Fund's functional currency is the Canadian dollar. Monetary
assets and liabilities denominated in a foreign currency are
translated at the prevailing rate of exchange at the balance
sheet date and non-monetary assets and liabilities are
translated at their historic exchange rates. Revenue and
expenses denominated in foreign currencies are translated at
the average exchange rates for the period.

(k) Derivative financial instruments:

Derivative financial instruments are utilized by the Fund in
the management of its foreign currency exposures.

The Fund enters into forward foreign exchange contracts to
hedge net U.S. dollar cash flows. The forward contracts are
marked to market with the current fair value recorded on the
balance sheet and the change included in other earnings on the
statement of operations. The value is allocated between current
and long-term portions based on the settlement date of the
related contracts.

The Fund entered an interest rate swap agreement, which
effectively fixed the variable interest rate for long-term debt
at 5.4% per annum for the three-year term of the loan. The
interest rate swap is subject to fluctuations in the bankers'
acceptance rate. It is marked to market with its fair value
recorded on the balance sheet and the change included in other
earnings on the statement of operations.

(l) Income tax:

As the Fund allocates all of its taxable income and taxable
capital gains to unitholders, the Fund itself will not be
subject to income taxes.

(m) Use of estimates:

The preparation of the financial statements requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial
statements. Significant areas requiring the use of management
estimates relate to the determination of the collectibility of
accounts receivable, net realizable value of inventories,
useful lives of property, plant and equipment, valuation of
goodwill and intangible assets and provisions for current
liabilities. Actual results could differ from these estimates.

(n) Earnings per unit:

Basic earnings per unit is calculated by dividing the net
earnings by the weighted average number of units outstanding
during the reporting period commencing August 3, 2004. Diluted
earnings per unit is calculated by dividing the net earnings by
the sum of the weighted average number of units outstanding
used in the basic earnings per unit calculation and the number
of units that would be issued assuming conversion of all
potentially dilutive convertible securities using the treasury
stock method.

(o) Stock-based compensation:

The employees of the Fund receive remuneration from GVP
Holdings Inc., the founder of the Art In Motion business, based
on distributions to and market value of certain class C LP
units (note 14). The Fund expenses and accrues for
distributions to be made to employees under the plan when it is
likely that such distributions will be made. Cash entitlements
under the plan are accounted for over their vesting period
based on the value of the entitlement at each reporting date.
The Fund recognizes a charge attributable to the class C LP
units granted under the plan over their vesting period based on
their fair value at grant date. The resulting compensation
expense is charged to the statement of operations with any
amounts received or to be received from GVP Holdings Inc.
recognized as an offset to non-controlling interest.

3. Inventories:

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

Artprints $ 2,432,113
Framing materials 3,182,732
Finished goods 854,917
---------------------------------------------------------------------

$ 6,469,762
---------------------------------------------------------------------
---------------------------------------------------------------------

4. Related party transactions:

The amount due to GVP Holdings Inc. is non-interest bearing and
without specific terms of repayment.

The amount due represents the balance owing to settle the purchase
agreement for the acquisition of AIM LP. Transactions with related
party primarily consisted of the receipt and payment of cash
distributions due under the Founders' Employee Participation Plan
(note 14).

Included in distributions payable is $55,766 which represents class B
distributions for December 2004 which were paid January 15, 2005 to
GVP Holdings Inc.

5. Property, plant and equipment:

---------------------------------------------------------------------
Accumulated Net book
Cost amortization value
---------------------------------------------------------------------

Land $ 4,310,000 $ - $ 4,310,000
Buildings 11,500,000 191,665 11,308,335
Production equipment 2,264,986 186,190 2,078,796
Office and warehouse
equipment 651,008 54,250 596,758
Computer hardware 497,358 60,312 437,046
Computer software 1,022,293 137,336 884,957
Automobiles 25,441 3,205 22,236
Leasehold improvements 15,234 1,031 14,203
---------------------------------------------------------------------

$ 20,286,320 $ 633,989 $ 19,652,331
---------------------------------------------------------------------
---------------------------------------------------------------------

6. Intangible assets:

---------------------------------------------------------------------
Accumulated Net book
Cost amortization value
---------------------------------------------------------------------

Image bank $ 501,000 $ 104,375 $ 396,625
Artist agreement 8,290,000 1,151,389 7,138,611
Customer base 10,880,000 1,133,333 9,746,667
---------------------------------------------------------------------

$ 19,671,000 $ 2,389,097 $ 17,281,903
---------------------------------------------------------------------
---------------------------------------------------------------------

7. Bank indebtedness and long-term debt:

The Fund has available a $15,000,000 364-day committed operating
facility available in Canadian dollars ("Operating Loan"). The
Operating Loan is available by way of banker's acceptances up to Cdn.
$12,000,000, by U.S. dollar advances to a maximum of US$10,500,000,
or by Canadian or U.S. dollar bank guarantees or letters of credit on
behalf of AIM LP. The Operating Loan bears interest at a floating
rate based on the Canadian or US dollar prime rate depending on the
currency borrowed. At December 31, 2004, $662,030 was outstanding
under the Operating Loan.

The Fund has a US$22,800,000 364-day committed line to allow AIM LP
to enter into a maximum of US$60,000,000 in forward foreign exchange
contracts (note 10).

The Fund has a $20,000,000 non-revolving term loan ("Capital Loan").
The Capital Loan bears interest at bank's prime rate plus 0.25% per
annum and has a three-year term with interest only payable during the
term. On August 20, 2004, the Fund entered an interest rate swap
agreement, which effectively fixed the interest rate for the Capital
Loan at 5.4% per annum for the three-year term.

The credit facilities are secured by a general security agreement
creating a first security interest in the personal property of the
partnership, a first charge over the land and buildings and a
floating charge over all other acquired real property of the
partnership. The credit facilities are subject to customary terms and
conditions, leverage and interest coverage ratios.

8. Unitholders' equity:

---------------------------------------------------------------------
Number of units Amount
---------------------------------------------------------------------

Unitholders' equity issued on initial
public offering, net of expenses 7,500,000 $ 67,731,555
Units issued, net of expenses 530,070 4,982,658
---------------------------------------------------------------------
72,714,213
Earnings for the period 4,856,307
Distributions declared (4,128,500)
---------------------------------------------------------------------

Unitholders' equity, end of period 8,030,070 $ 73,442,020
---------------------------------------------------------------------
---------------------------------------------------------------------

9. Non-controlling interest:

The class B LP units (535,338 units) are exchangeable into units of
the Fund after January 30, 2005 on the basis of one class B LP unit
for each Fund unit.

The class C LP units (2,141,352 units) are exchangeable into units of
the Fund after the Subordination End Date and in other limited
circumstances at the option of GVP Holdings Inc. on the basis of one
class C LP unit for each Fund unit.

Non-controlling interest is credited with their share of net earnings
as well as full charges for the Founders' Employee Participation Plan
(note 14), offset by distributions made against class B and class C
LP units.

10. Financial instruments:

Risk management activities:

The Fund enters into forward foreign exchange contracts to hedge its
foreign currency exposure on export sales. The contracts oblige the
Fund to sell US dollars in the future at predetermined exchange
rates. At December 31, 2004, the Fund had forward foreign exchange
contracts to sell $51,500,000 in US dollars expiring at various dates
to December 2006. The rates on the forward contracts range from
1.1989 to 1.4072.

The Fund entered into an interest swap to hedge its exposure on the
interest rate on the long- term debt. The contract exchanges the
floating rate of interest on the debt with a fixed rate of 5.4% per
annum over the three-year term.

Fair values:

The carrying values of cash and cash equivalents, accounts receivable
and accounts payable and accrued liabilities and bank indebtedness
approximate their fair values due to the relatively short periods to
maturity of the instruments.

The carrying value of the long-term debt approximates its fair value
as the debt has a floating rate of interest. The forward foreign
exchange contracts and interest rate swap are carried at fair value
on the consolidated balance sheet. The fair value of the amount due
to related party approximates its fair value as the amount was repaid
subsequent to the period end.

11. Concentration of credit risk:

For the period from August 3, 2004 to December 31, 2004,
approximately 30% of gross sales were earned from two customers (16%
and 14% respectively).

As at December 31, 2004, approximately 91% of the trade accounts
receivable were denominated in United States dollars. Subsequent to
the balance sheet date, the value of the United States dollar
relative to the Canadian dollar has increased from $1.202 at December
31, 2004 to approximately $1.234 as at February 28, 2005.

12. Commitments:

The Fund has entered into an operating lease for certain equipment
and premises. The annual operating lease obligations over the
remaining term of the leases are approximately as follows:

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

2005 $ 550,713
2006 619,371
2007 621,113
2008 445,661
2009 348,842
2010 and thereafter 143,339
---------------------------------------------------------------------

$ 2,729,039
---------------------------------------------------------------------
---------------------------------------------------------------------

13. Contingencies:

At December 31, 2004, the Fund had $78,403 in letters of credit
outstanding, issued in relation to inventory in transit.

14. Founders' Employee Participation Plan (the "FEPP"):

GVP Holdings Inc., the founder of the Art In Motion business,
established the FEPP to remunerate employees of the Fund and will
compensate the Fund for all payments under the FEPP.

Under the FEPP, 503,200 of the class C LP units are allocated to
employees from which the quarterly payments to employees are based on
distributions received on those units by GVP Holdings Inc. As the
class C LP units are subordinated in favour of distributions on the
class A and class B LP units, distributions on class C units are
reduced to the extent necessary to meet the distribution targets for
class A and class B LP units. Any accumulated deficiency in
distributions or advances on class C LP units not satisfied within 12
months from the date it arose will cease to be payable. These class C
LP units vest to the employees at the end of three years from the
date of grant, subject to subordination provisions. As of
December 31, 2004, 29,000 of these units have been forfeited and are
available for reassignment at a later date. During the period, the
Fund recognized compensation expense relating to these class C LP
units in the amount of $759,100, which was offset by a credit to non-
controlling interest.

In addition, under the FEPP, 209,000 of the class C LP units are
allocated to employees under the FEPP from which the quarterly
payments are made if the distributions on the class C LP units exceed
$0.3125 per unit, providing all deficiencies in the preceding four
prior quarters have been paid. For this portion of the class C LP
units, the employees will receive a cash payment at the end of five
years equal to the excess of market value of the unit over $10. No
payments on these class C LP units have been made to date and no
compensation expense has been recognized based on the value of the
units. As of December 31, 2004, none of these units have been
forfeited; however, any future forfeited units will be available for
re-assignment at a later date.

15. Segmented information:

The Fund operates in a single reportable operating segment as a
publisher, framer and licensor of images and fine-art reproductions.

The Fund's gross sales are derived from four main categories as
follows:

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

Artprints $ 4,167,535
Framed and other 17,641,673
Decographs 11,450,186
Transfers 1,955,156
---------------------------------------------------------------------

Gross sales 35,214,550
Discounts and allowances (2,245,713)
---------------------------------------------------------------------

Sales 32,968,837
Royalties 1,812,323
---------------------------------------------------------------------

$ 34,781,160
---------------------------------------------------------------------
---------------------------------------------------------------------

The Fund sells to customers located in the following regions:

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

Canada $ 3,428,555
United States 27,363,815
Europe 3,783,912
Other 638,268
---------------------------------------------------------------------

Gross sales 35,214,550
Discounts and allowances (2,245,713)
---------------------------------------------------------------------

Sales $ 32,968,837
---------------------------------------------------------------------
---------------------------------------------------------------------

Royalty income is earned almost entirely from customers located in
the United States.

As at December 31, 2004, $58,729 of the Fund's assets were located in
the United States and the remainder of the assets were located in
Canada.

16. Supplemental information:

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

Change in non-cash operating working capital:
Accounts receivable $ (467,892)
Inventories 1,076,366
Prepaid expenses 279,468
Accounts payable and accrued liabilities (606,688)
Distributions payable 892,258
---------------------------------------------------------------------

$ 1,173,512
---------------------------------------------------------------------
---------------------------------------------------------------------


The Fund is an unincorporated, open-ended limited purpose trust
established under the laws of British Columbia to hold, indirectly, the
securities of Art In Motion Limited Partnership. Art In Motion is a leading
global publisher, framer and licensor of images and fine-art reproductions.
Art In Motion designs, manufactures and markets fine-art reproductions based
on proprietary artwork.

Contact Information

  • Art In Motion Income Fund - Investor information
    Allan Achtemichuk
    Chief Financial Officer
    877-AIM-3233 (877-246-3233)
    www.aimincomefund.com