UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 2009
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM ______________ TO ______________
COMMISSION FILE NUMBER: 000-49676
ARTFEST INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 03-0390855 |
| (State or jurisdiction | (IRS Employer |
| of incorporation or organization) | Identification No.) |
| | |
13342 Midway Road, Suite 250 Dallas, TX | 75244 |
| (Address of Principal Executive Offices) | (Zip Code) |
Issuer's telephone number: 1-877-278-6672
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [ X]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [ ].
As of August 15, 2009, the Registrant had 712,852,963 shares of common stock outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
Table of Contents
| PART I. | FINANCIAL INFORMATION | F-1 |
| | | |
| Item 1. | Financial Statements | F-1 |
| | | |
| Item 2. | Management's Discussion and Analysis and Plan of Operation | 4 |
| | | |
| Item 4T. | Controls and Procedures. | 4 |
| | | |
| PART II. | OTHER INFORMATION | 5 |
| | | |
| Item 1. | Legal Proceedings | 5 |
| | | |
| Item 2. | Unregistered Sales of Securities and Use of Proceeds | 5 |
| | | |
| Item 3. | Defaults Upon Senior Securities | 5 |
| | | |
| Item 4. | Submission of Matters to a Vote of Security Holders | 5 |
| | | |
| Item 5. | Other Information | 5 |
| | | |
| Item 6. | Exhibits and Reports on Form 8-K | 7 |
| | | |
| Signatures | | 8 |
| | | |
| CERTIFICATIONS | | |
| PAGE |
| | |
| FINANCIAL STATEMENTS | |
| | |
| Balance Sheets | F-1 |
| | |
| Statements of Operations | F-2 |
| | |
| Statements of Cash Flows | F-3 |
| | |
| Notes to Financial Statements | F-4 |
| | |
ARTFEST INTERNATIONAL, INC.
(A Development Stage Company)
BALANCE SHEETS
(Unaudited)
| | | June 30, | | | December 31, | |
| | | 2009 | | | 2008 | |
| Current Assets: | | | | | | |
| Cash | | $ | (9,137 | ) | | $ | (2196 | ) |
| Prepaid Expenses | | | - | | | | - | |
| Accounts Receivable | | | 351,000 | | | | 351,000 | |
| | | | | | | | | |
| Total Current Assets | | | 341,863 | | | | 348,804 | |
| | | | | | | | | |
| Non-Current Assets | | | | | | | | |
| Inventory | | | 543,624 | | | | | |
| Other Assets | | | 130,217 | | | | 130,217 | |
| | | | | | | | | |
| | | | | | | | | |
| Total Non-current Assets | | | 673,841 | | | | | |
Property and Equipment, at cost less | | | | | | | | |
| accumulated depreciation | | | 49,978 | | | | 58,464 | |
| | | | | | | | | |
| TOTAL ASSETS | | | 1,065,682 | | | | 537,485 | |
| | | | | | | | | |
| | | | | | | | | |
| Current Liabilities: | | | | | | | | |
| Accounts Payable and Accrued Liabilities | | $ | 1,641,412 | | | $ | 675,840 | |
| Note Payable - Current Portion (Note 8) | | | - | | | | 460,873 | |
| Deferred Revenue | | | 351,000 | | | | 351,000 | |
| Loans Payable (Note 8) | | | - | | | | 475,317 | |
| | | | | | | | | |
| Total Current Liabilities | | | 1,992,412 | | | | 1,963,074 | |
| | | | | | | | | |
| Non-current Liabilities | | | | | | | | |
| Loans Payable (Note 8) | | | 661,976 | | | | 784,497 | |
| | | | | | | | | |
| TOTAL LIABILITIES | | | 2,654,388 | | | | 2,747,571 | |
Stockholders' Equity: Preferred Stock - $.001 par value – 2,000,000 shares authorized, no shares issued and outstanding, | | | | | | | | |
| Common Stock - $.001 par value – 500,000,000 | | | | | | | | |
| shares authorized, 448,763,003 and 168,763,003 | | | 448,763 | | | | 168,763 | |
| shares issued and outstanding | | | - | | | | - | |
| Additional Paid-in Capital | | | 1,123,092 | | | | 671,198 | |
| Accumulated deficit | | | (3,160,561 | ) | | | (3,050,047 | ) |
TOTAL SHAREHOLDERS EQUITY | | | (1,588,706 | ) | | | (2,210,086 | ) |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | | $ | 1,065,682 | | | $ | 537,485 | |
(A Development Stage Company)
(Unaudited)
| | | For the Three | |
| | | Months ended | |
| | | June 30 | |
| | | | | | | |
| | | 2009 | | | 2008 | |
| | | | | | | |
| Revenues | | $ | 36,900 | | | $ | 24,724 | |
| | | | | | | | | |
| Cost of Revenue | | | 12,300 | | | | 2,670 | |
| | | | | | | | | |
| Gross Profit (Loss) | | | 24,600 | | | | 22,054 | |
| | | | | | | | | |
| Sales, General and Administrative Expenses | | | 417,389 | | | | 130,090 | |
| | | | | | | | | |
| Net (Loss) From Operations | | | (392,789 | ) | | | (108,036 | ) |
| | | | | | | | | |
| Other Income (Expense) , Net | | | - | | | | 8,078 | |
| | | | | | | | | |
| | | | | | | | | |
| (Deficit) - Development Stage | | $ | (392,789 | ) | | $ | (99,958 | ) |
| | | | | | | | | |
| Weighted average number of common shares | | | | | | | | |
| outstanding - basic and fully diluted | | | 369,131,502 | | | | 66,775,630 | |
| | | | | | | | | |
| Net (Loss) per share - basic and fully diluted | | $ | 0 | | | $ | 0 | |
| | | | | | | | | |
(A Development Stage Company)
STATEMENT OF CASH FLOWS
(Unaudited)
| | | For the Six | |
| | | Months ended | |
| | | June 30, | |
| | | | | | | |
| | | 2009 | | | 2008 | |
| | | | | | | |
| Cash Flows from Operating Activities: | | | | | | |
| Net Income (Loss) | | $ | (392,789 | ) | | $ | (845,834 | ) |
| Adjustments to reconcile net (loss) to | | | | | | | | |
| net cash (used) by operating activities: | | | | | | | | |
| Depreciation | | | 8,486 | | | | 8,251 | |
| Amortization | | | - | | | | 234 | |
| (Increase) Decrease in other assets | | | - | | | | - | |
| Increase in loan receivable | | | - | | | | - | |
| Decrease in Rewards Payable | | | - | | | | (10,000 | ) |
| Inventory | | | (543,624 | ) | | | - | |
| Increase in accounts payable and accrued expenses | | | 965,572 | | | | 260,535 | |
| Increase in prepaid expenses | | | - | | | | - | |
| Net Cash (Used) by Operating Activities: | | | 37,645 | | | | (586,814 | ) |
| | | | | | | | | |
| Cash Flows From Investing Activities: | | | | | | | | |
| Intangible Assets | | | - | | | | (21,500 | ) |
| Decrease in Notes Receivables | | | | | | | (91,500 | ) |
| (Purchase ) Disposal of Equipment | | | - | | | | (22,228 | ) |
| Net Cash Used by Investing Activities: | | | - | | | | (135,228 | ) |
| | | | | | | | | |
| Cash Flows From Financing Activities: | | | | | | | | |
| | | | | | | | | |
| Issuance of Common Stock | | | 280,000 | | | | 30,545 | |
| Increase/(Decrease) in Notes payable | | | (- | ) | | | 234,253 | |
| Increase in loans payable | | | (776,480 | ) | | | 16,994 | |
| Increase in contributed capital | | | 451,894 | | | | 450,455 | |
| | | | | | | | | |
| Net Cash Used by Financing Activities: | | | (44,586 | ) | | | 732,247 | |
| | | | | | | | | |
| Net Decrease in Cash | | | (6,941 | ) | | | 10,205 | |
| | | | | | | | | |
| Cash at Beginning of Period | | | (2,196 | ) | | | 315 | |
| | | | | | | | | |
| Cash at End of Period | | $ | (9,137 | ) | | $ | 10,518 | |
(A Development Stage Company) (Unaudited)
Note 1 - History and organization of Artfest International, Inc. (the “Company” or “Artfest”)
The Company was incorporated on February 21, 2002 (Date of Inception) under the laws of the State of Delaware. Artfest International Inc. provides sales, marketing, financial and e-commerce systems to the Arts, Antiques, Collectibles and Luxury Goods industries. The markets are serviced by artists, dealers, galleries, and manufacturers of reproductions and luxury goods.
On December 28, 2007, pursuant to an Acquisition Agreement dated December 28, 2007, the Company acquired 100% of The Art Channel, Inc. in exchange for 28,000,000 shares of Artfest International, Inc. stock, which were issued to the former shareholders of The Art Channel, Inc. of which 8,000,000 shares were issued as of December 28, 2007 and 20,000,000 shares were issued as of March 28, 2008 subsequent to the Company’s annual meeting at which time the shareholders of the Company voted to increase the number of the authorized shares of the Company’s common stock to 500,000,000.
In addition, the Company agreed to issue an additional 1,500,000 shares of stock to the Company’s former Chairman and CEO, Larry Ditto pursuant to the terms in the Acquisition Agreement.
Note 2 - Accounting policies and procedures
Cash and cash equivalents
The Company has a cash balance in a non-interest-bearing account that currently does not exceed federally insured limits. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. There were no cash equivalents as of June 30, 2009.
Property and equipment are recorded at historical cost. Minor additions and renewals are expensed in the year incurred. Major additions and renewals are capitalized and depreciated over their estimated useful lives. Depreciation is calculated using the straight-line method over the estimated useful lives as follows:
| Computer equipment | 3 years |
| Office equipment | 4 years |
| Proprietary Software | 3 years |
| Furniture and Fixtures | 7 years |
Property and Equipment consist of the following:
| | | $ | - | |
| Office equipment | | $ | 3,240 | |
| Proprietary software | | $ | 60,500 | |
| Furniture and Fixtures- Art | | $ | 41,095 | |
| Less-accumulated depreciation | | | (54,857 | ) |
Total PP&E (net of depreciation) | | $ | 49,978 | |
Total Depreciation Expense for the three months ended June 30, 2009 was $4,243.
Intangible Assets
With respect to the acquisition of The Art Channel Inc. on December 28, 2007, the Company issued shares of common stock whose total value exceeded the net assets of The Art Channel Inc. by $29,500. The excess amount of $29,500 was booked to the parent company (Artfest International Inc.) as Goodwill and listed under “Other Assets/Intangible Assets.” This will be amortized over a period of 40 years beginning January 1, 2008.
Impairment of long-lived assets
Long-lived assets held and used by the Company are reviewed for possible impairment whenever events or circumstances indicate the carrying amount of an asset may not be recoverable or is impaired. No such impairments have been identified by management at June 30, 2009.
The Company recognized revenue and gains when earned and related costs of sales and expenses when incurred.
Advertising costs
The Company expenses all costs of advertising as incurred. There were nominal advertising costs included in selling, or general and administrative expenses in 2009 and 2008.
Loss per share
Net loss per share is provided in accordance with Statement of Financial Accounting Standards No. 128 (SFAS # 128) "Earnings Per Share". Basic loss per share is computed by dividing losses available to common stockholders by the weighted average number of common shares outstanding during the period. The Company had no dilutive common stock equivalents, such as stock options or warrants as of June 30, 2008.
Reporting on the costs of start-up activities
Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-Up Activities", which provides guidance on the financial reporting of start-up costs and organizational costs, requires most costs of start-up activities and organizational costs to be expensed as incurred. SOP-98-5 is effective for fiscal years beginning after December 15, 1998. With the adoption of SOP-98, there has been little or no effect on the Company's financial statements.
Estimates
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 disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Fair value of financial instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of June 30, 2009 and 2008 respectively. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash and accounts payable. Fair values are assumed to approximate carrying values for cash and payables because they are short term in nature and their carrying amounts approximated fair values or they are payable on demand.
Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable on the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
Segment reporting
The Company follows Statement of Financial Accounting Standards No. 130, "Disclosures About Segments of an Enterprise and Related Information". The Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations.
Dividends
The Company has not yet adopted any policy regarding payment of dividends. No dividends have been paid or declared since inception.
Recent pronouncements
In June 2001, SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets", were issued. SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for using the purchase method of accounting, and that identifiable intangible assets acquired in a business combination be recognized as an assets apart from goodwill if they meet certain criteria. The impact of the adoption of SFAS No. 141 on our reported operating results, financial position and existing financial statements disclosure is not expected to be material.
SFAS No. 142 applies to all goodwill and identified intangible assets acquired in a business combination. Under the new standard, all goodwill and indefinite-lived intangible assets, include the acquired before initial application of the standard, will not be amortized but will be tested for impairment at least annually. The new standard is effective for fiscal years beginning after December 15, 2001. The impact of the adoption of SFAS No. 142 on our reported operating results, financial position and existing financial statement disclosure is not expected to be material.
In July 2001, SFAS No. 143, "Accounting for Asset Retirement Obligations", was issued which requires the recognition of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the carrying amount of the related long-lived asset is correspondingly increased. Over time, the liability is accreted to its present value and the related capitalized charge is depreciated over the useful life of the asset. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The impact of the adoption of SFAS No. 143 on the Company's reported operating results, financial position and existing financial statement disclosure is not expected to be material.
In August 2001, SFAS No. 144, "Accounting for the Impairment of Disposal of Long-lived Assets", was issued. This statement addresses the financial accounting and reporting for the impairment of disposal of long-lived assets and broadens the definition of what constitutes a discontinued operation and how results of a discontinued operation are to be measured and presented. The provisions of SFAS No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001. The impact of the adoption of SFAS No. 144 on our reported operating results, financial position and existing financial statement disclosure is not expected to be material.
Stock-Based Compensation
The Company accounts for stock-based awards to employees in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations and has adopted the disclosure only alternative of SFAS No. 123, "Accounting for Stock-Based Compensation". Options granted to consultants, independent representatives and other non-employees are accounted for using the fair value method as prescribed by SFAS No. 123.
Year End
The Company has adopted December 31 as its fiscal year end.
Note 3 - Going concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has incurred a net loss of $3,160,561 for the period from February 21, 2002 (inception) to June 30, 2009. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the development of its new business opportunities. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amount of the classification of liabilities that might be necessary in the event the Company cannot continue in existence.
Note 4 - Income taxes
The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109), which requires use of the liability method. SFAS No. 109 provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences. Deferred tax assets and liabilities at the end of each period are determined using the currently enacted tax rates applied to taxable income in the periods in which the deferred tax assets and liabilities are expected to be settled or realized.
The provisions for income taxes differs from the amount computed by applying the statutory federal income tax rate to Income before provision for income taxes. The source and tax effects of the differences are as follows:
| U.S. federal statutory rate | 34.00 % |
| | |
| Valuation reserve | 34.00 % |
| | |
| Total | 0.00 % |
As of June 30, 2009, the Company has a net operating loss carryforward of approximately $3,160,561 for tax purposes, which will be available to offset future taxable income. This carry forward will expire in various years through 2027.
Note 5 - Stockholders' Equity
The Company was authorized to issue 500,000,000 shares of its $0.001 par value common stock and 2,000,000 shares of its $0.001 par value preferred stock as of June 30, 2009.
The Company intends upon obtaining appropriate stockholder approval and complying with requisite corporate and Securities and Exchange Commission procedures to merge into a newly formed subsidiary of the Company formed in the State of Nevada (the “Subsidiary”), which has one billion (1,000,000,000) shares of common stock authorized for issuance. In anticipation of the merger into the Subsidiary, during the quarter ended June 30, 2009 the Company issued 249,500,000 common shares to debt holders, investors, consultants and advisors in lieu of cash compensation.
Note 6 - Warrants and options
As of June 30, 2009 and 2008, there were no warrants outstanding; there are 1,600,000 options outstanding to acquire additional shares of common stock.
Note 7 - Related party transactions
The officers and directors of the Company are involved in other business activities and may, in the future become involved in other business opportunities. If a specific business opportunity becomes available, such person may face a conflict in selecting between the Company and their other business interest. The Company has not formulated a policy for the resolution of such conflicts.
Note 8 - Loans and Notes Payable
On January 5, 2003, the Company purchased a 2002 Chevrolet Avalanche through GMAC for $29,717. The note calls for a term of 5 years at a rate of 5.9% beginning on February 24, 2003, and maturing on December 24, 2007. As of the report date, the Company had defaulted on the note and the vehicle was returned to GMAC for sale. GMAC has sold the vehicle and credited the Company with $10,491 leaving a balance due of $ 8,315.
The Company has $690,103 in loans payable to shareholders and $460,873 in short-term notes. The notes call for varying interest rates ranging from 1% to 12% per annum, and contain a stock payment option payable at the lender's discretion.
As of the report date, the Company is in default on all of its short term notes payable to shareholders and non-shareholders. Management has not formulated a repayment plan, and no contingency plan has been established in the event that the lenders seek legal remedies.
On July 5, 2007, the Company signed a loan payable to Brothers Realty & Investment Group, LLC for $35,000 due on July 5, 2008. This loan accrues interest at 12% per annum.
On August 26, 2007, the Company signed a loan payable to Andy Haase in the amount of $30,000 due on August 26, 2008. The loan accrues interest at 10% per annum. The original amount was $35,000, with a $5,000 payment having been made in July 2007.
On April 3, 2007, the Company signed a loan payable to Dale Bagwell for $20,000 with no fixed due date. The loan is non-interest bearing. The original amount was $25,000, with a $5,000 payment having been made in July 2007.
On December 7, 2007 the Company signed a loan payable to Patrick Haxton in the amount of $15,000 with no fixed due date. The loan is non-interest bearing.
On January 31, 2008, the Company signed a Promissory Note payable to the TBF Charitable Trust Foundation for $50,000 due on July 31, 2008. The loan accrues an interest at 1.5% per month, or 18% per annum, and with interest and penalties the total due pursuant to the Note was $190,000. The Company then entered into an Amended Agreement with TBF Charitable Trust Foundation, dated as of April 30, 2009, which amended the Note so that as of April 30, 2009, the outstanding principal amount of the Note was $220,000.
On March 17 2008, March 24, 2008, and March 25, 2008 the Company received an advance on a loan prior to the execution of loan agreements in the amounts of $10,000, $7,200 and $7,800 respectively for a total of $25,000 from a third party source (See Note 9 for further details). On April 4, 2008, the Company received an advance on a loan prior to the execution of loan agreements in the amount of $25,000 from a third party source. Pursuant to the terms of a Securities Purchase Agreement, the third party has agreed to advance the Company an aggregate of $300,000, to be paid in twelve payments of $25,000 each over a period of fifteen weeks, with each advance to be evidenced by a Convertible Debenture. Such payments have not been received on a timely basis.
Note 9- Other Income
None.
2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
Results of Operations
(a) Revenues
We generated operating revenues of $36,900 for the three months ended June 30, 2009, as compared to $24,724 for the same period in 2008. We had a net operating loss $392,789 for the three months ended June 30, 2008, as compared to a net operating loss of $109,685 for the same period in 2008.
We generated operating revenues of $505,900 for the six months ended June 30, 2009, as compared to $24,736 for the same period in 2008. We had a net operating loss of $422,514 as compared to a net operating loss of $849,114for the same period in 2008.
(b) Costs and Expenses
We had $417,389 of selling general and administrative expenses in the three months ended June 30, 2009 as compared to $131,739 of selling, general and administrative expenses for the three months ended June 30, 2008. .
We had $773,060 of selling general and administrative expenses in the six months ended June 30, 2009 as compared to $858,600 of selling, general and administrative expenses for the six months ended June 30, 2008.
Significant expenses in the three and six months ended June 30, 2008 consisted of accounting and professional fees related to financial reporting and compliance, fees in developing our business model and operating plans, and of interest accrued on notes and loans payable
(c) Depreciation, Depletion and Amortization
Depreciation expense totaled $4,243 as for the three months ended June 30, 2009.
(e) Net Loss
The Company had a net loss of $392,789 for the three months ended June 30, 2009 and a net loss of $112,014 for the six months ended June 30, 2009. The Company had a net loss of $96,613 and $842,490 for the three months and six months ended June 30, 2008, respectively. The increase in net loss is the result of increased operating costs.
Forward Looking Statements
The foregoing Management’s Discussion and Analysis or Plan of Operation and comments elsewhere herein may contain “forward looking statements” within the meaning of Rule 175 under the Securities Act of 1933, as amended, and Rule 3b-6 under the Securities Act of 1934, as amended, or may be amended, including statements regarding, among other items, business strategies, continued growth in markets, projections, and anticipated trends in business and the industry in which it operates. The words “believe,” “expect,” “anticipate,” “intends,” “forecast,” “project,” and similar expressions identify forward-looking statements. These forward-looking statements are based largely on expectations and are subject to a number of risks and uncertainties, certain of which are beyond control. The Company cautions that these statements are further qualified by important factors that could cause actual results to differ materially from those in the forward looking statements, including, among others, the following: reduced or lack of increase in demand for products, competitive pricing pressures. In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained herein will in fact transpire or prove to be accurate. We disclaim any intent or obligation to update “forward looking statements.”
ITEM 4T. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our principal executive and financial officer, after evaluating the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report (the "Evaluation Date"), has concluded that as of the Evaluation Date, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate to allow timely decisions regarding required disclosure, and (ii) is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms.
There has been no change in our internal control over financial reporting identified during the period covered by this report which have materially affected or is likely to materially affect our internal control over financial reporting.
ITEM 1. LEGAL PROCEEDINGS.
There were no legal proceedings during the three months ended June 30, 2009.
ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS
Equity Securities Sold Without Registration
During the three months ended June 30, 2009, the Company issued 249,500,000 restricted common shares to debt holders, investors, consultants and advisors in lieu of cash compensation pursuant to available exemptions pursuant to the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
In April 2009 the Company relocated its offices in the Expo Center, located in the prestigious North Dallas design district. The Company has leased 52,000 square feet of office and gallery space and the Expo Center will host gallery events, charity auctions, retail sales, artistic shows and be used as a gathering center for retail in the central Texas region. The Company negotiated a three year lease term with payments beginning in September 2009 through December 2009 at $15,000.00 per month. Monthly payments will escalate to $22,208.33 for the period January 2010 to August 2012.
On April 6, 2009 the Company entered into a twelve month consulting agreement with Big Apple Consulting USA, Inc. The total cash value of the consulting agreement is $600,000.00 and will be paid monthly in Artfest common shares.
In June 2009 the Company secured the licensing rights to the ostrich character, Rhupert, created by D. Arthur Wilson. Rhupert has been approved to be the official logo and D. Arthur Wilson, the official artist, for World Peace Project. Art Channel Galleries, owned by Artfest, will fund and produce four, 30 minute, pilot episodes of Rhupert. The release of the children’s book titled, “Little Red Rhupert,” which was written and illustrated by D. Arthur Wilson, was officially at the Arfest Expo Center in June at one of the Company’s Sizzling Summer Saturday event in June 2009.
Artfest agreed on June 19, 2009 to utilize the investment banking services of Delaney Equity Group, LLC (“Delaney”). Delaney has secured a $5,000,000 equity line (12% Convertible Preferred Stock) , and an investor to purchase $500,000 of convertible debt. At the closing, Delaney will receive 100% warrant coverage for every drawdown by the Company pursuant to a put notice. All warrants shall be exercisable for 5 years from the issuance date, with 50% of the warrants with an exercise price equal to $0.05 per share and 50% of the placement agent's warrants are exercisable at a price of $0.10 per share. All warrants shall contain certain antidilution provisions, a piggyback registration right, and a cashless exercise provision.
On June 24, 2009, Artfest entered into a financing arrangement with Sunny Isles Venture, LLC (the “Investor”). Pursuant to the terms of an Investment Agreement, the Investor has agreed to purchase from Artfest 12% Convertible Preferred Stock from time to time in traunches of a minimum of fifty thousand ($50,000) dollars and a maximum of two hundred thousand ($200,000) dollars up to an aggregate of five million ($5,000,000) dollars. Artfest may, in its sole discretion, deliver a put notice to the Investor which states the dollar amount which Artfest intends to sell to the Investor. The Investor’s obligation to purchase the Convertible Preferred Stock is subject to certain conditions, including, but not limited to, a minimum bid price sufficient authorized shares and minimum average trading volume of Artfest’s Common Stock.
The Company has the option to buyback the preferred stock at any time until February 1, 2010 with a 25% prepayment premium, together with accrued and unpaid dividends.
The Investor shall also purchase and assume from a holder of Artfest’s debt, The Ditto Family Trust, a four hundred fifty-four thousand nine hundred sixty-seven ($454,967) dollar obligation of Artfest (the “Debt”), provided that Artfest agrees to convert the Debt at the higher of $0.001 or 10% of the lowest closing bid price for 10 trading days prior to conversion. As consideration for such assignment, the Investor has agreed to pay or require Artfest to pay to The Ditto Family Trust the amount of four hundred fifty-four thousand nine hundred sixty-seven ($454,967) dollars.
Charity Sports Distributor Acquisition
On June 30, 2009 the Company completed the acquisition of Charity Sports Distributor, Inc. (d.b.a. CSD Sports Framing and Memorabilia; “CSD”) which was founded in 1996. CSD is a vertically integrated Texas based custom framing company which specializes in the design, production, and distribution of authentic framed autographed sports and entertainment collectibles and art pieces. CSD’s distribution avenues include B2B and B2C sales, charity fundraising auctions, professional and college sports team’s pro shops, e-stores, online auctions and a revolutionary in-game silent auction concept known as Home Game Auction. CSD’s thirteen (13) year experience in the professional and college sports marketplace has developed an extensive client list which consists of hundreds of private charities and over forty (40) professional and college teams, including the Dallas Cowboys, Washington Redskins, Oakland Raiders, Houston Rockets, Dallas Mavericks, Cleveland Cavaliers, Phoenix Suns, Arizona Diamondbacks, Dallas Stars, Ohio State, Texas, Texas A&M, Oklahoma, Alabama, Georgia, Auburn, Florida State and UCLA. Artfest will be in a position to launch the distribution of CSD’s product line through Art Channel Galleries, the marketing arm and wholly owned subsidiary of Artfest International, Inc., during the Third Quarter 2009. The addition of CSD’s product line will complement and expand Artfest’s ongoing product promotions and special purchase packages that are directed towards introducing a select number of acclaimed artists to our members.
CSD recorded revenues in calendar year 2008 of $3.3 million. CSD will operate as a wholly owned subsidiary of Artfest, and Artfest will consolidate results beginning with the Third Quarter 2009.
The Company believes that with the acquisition of CSD it will result in the immediate expansion and enhancement of our current product offerings and will lead to an expansion of the Company’s current audience. Furthermore the acquisition will enable the Company to vertically integrate framing and canvas stretching operations and enable the Company to increase the overall profitability of our existing product lines.
CSD’s innovative framing is widely regarded as the premier quality brand in the autographed memorabilia marketplace, and by teaming with Artfest International, CSD would posses one of the most expansive product portfolios in the autographed collectibles industry.
As of June 30, 2009 the Company has signed Licensing Agreements with 51 artists and are in various stages of signing Licensing Agreements with an additional 113 artists.
Noteholder Discussions
During the quarter ending June 30, 2009 the Company converted $489,967.00 of notes into common shares of the Company at an average price of $.10 per share.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A). Exhibits.
Exhibits included or incorporated by reference herein are set forth in the attached Exhibit Index.
None
(B) Reports on Form 8-K.
1. Filed Form 8-K on June 30, 2009, the Company announced that it entered into a financing agreement with Sunny Isles Venture, LLC.
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | |
| | Artfest International, Inc. |
| | | |
| Date: August 19, 2009 | By: | /s/ Eddie Vakser |
| | Chairman and CEO (principal executive officer and principal financial officer) |
| Number | Description |
| | |
| 3.1 | Articles of Incorporation [1] |
| | |
| 3.2 | Articles of Amendment of the Articles of Incorporation [3] |
| | |
| 3.3 | Bylaws [1] |
| | |
| 10.1 | Agreement and Plan of Reorganization, Soldnet, Inc. and Artfest, Inc. [2] |
| | |
| 10.2 | Loan Agreement (form) with Promissory Note (form), December, 2005 [3] |
| | |
| 31 ** | Certifications pursuant to Sarbanes - Oxley Act of 2002 |
| | |
| 32 ** | Certifications of Officers pursuant to Section 1350, of the Sarbanes - Oxley Act of 2002 |
** Filed Herewith
[1] Incorporated by reference to the Company’s filed Form 10SB with the SEC, February, 2002.
[2] Incorporated by reference to the Company’s filed Form 8K with the SEC, November, 2002.
[3] Incorporated by reference to the Company’s filed Form 10KSB with the SEC, for the year ended December 31, 2002.
