UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10

 

GENERAL FORM FOR REGISTRATION OF SECURITIES

 

Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934

 

CAPITAL ART, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   27-0746744

(State or other jurisdiction of incorporation

or organization)

  (IRS Employer Identification No.)
     

6445 South Tenaya Way, B-130

Las Vegas, Nevada

89113 702-722-6113
(Address of principal executive office) (Zip Code) (Registrant’s telephone number, Including area code)

 

Copies to:

 

Marcelle Balcombe, Esq.

61 Broadway, 32 nd Floor

New York, New York 10006

(212) 930-9700

 

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

 

Securities registered pursuant to Section 12(g) of the Act:  Common Stock.

 

Title of each class Name of each exchange on which registered
Common Stock, $0.0001 par value N/A

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨  Accelerated filer ¨
Non-accelerated filer   ¨  Smaller reporting company x
(Do not check if a smaller reporting company)  

 

 
 

 

Table of Contents

 

 

 

      Page  
Item 1 Description of Business     3  
Item 1A Risk Factors     6  
Item 2 Financial Information     10  
Item 3 Properties     20  
Item 4 Security Ownership of Certain Beneficial Owners and Management     20  
Item 5 Directors and Executive Officers     21  
Item 6 Executive Compensation     23  
Item 7 Certain Relationships and Related Transactions, and Director Independence     23  
Item 8 Legal Proceedings     24  
Item 9 Market Price of and Dividends on Registrant’s Common Equity and Related Stockholder Matters     24  
Item 10 Recent Sales of Unregistered Securities     25  
Item 11 Description of Registrant's Securities to be Registered     27  
Item 12 Indemnification of Directors and Officers     28  
Item 13 Financial Statements and Supplementary Data     28  
Item 14 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure     29  
Item 15 Financial Statements and Exhibits     29  

 

 

 

 

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Forward Looking Statements

 

The statements contained in this document that are not purely historical are “forward-looking statements.” Although we believe that the expectations reflected in such forward-looking statements, including those regarding future operations, are reasonable, we can give no assurance that such expectations will prove to be correct. Forward-looking statements are not guarantees of future performance and they involve various risks and uncertainties. Forward-looking statements contained in this document include statements regarding our proposed products, market opportunities and acceptance, expectations for revenues, cash flows and financial performance, and intentions for the future. Such forward-looking statements are included under Item 1. “Business” and Item 2. “Financial Information - Management’s Discussion and Analysis of Financial Condition and Results of Operation.” All forward-looking statements included in this document are made as of the date hereof, based on information available to us as of such date, and we assume no obligation to update any forward-looking statement. It is important to note that such statements may not prove to be accurate and that our actual results and future events could differ materially from those anticipated in such statements. Among the factors that could cause actual results to differ materially from our expectations are those described under Item 1. “Business,” Item 1A. “Risk Factors” and Item 2. “Financial Information - Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this section and other factors included elsewhere in this document. You should assume that the information contained in this document is accurate as of the date of this Form 10 only.

 

Item 1.              Business.

 

Company Overview

 

Capital Art, Inc. (the “Company,” “we,” “us,” “our” or “Capital Art”) was incorporated on September 20, 2004, in the State of Delaware under the name “Blog8.” Since incorporation, the Company changed its name to Securiteyes on December 2, 2004, to Medify Solutions Limited on February 11, 2005, to Petel Incorporated on April 30, 2007, to Gleeworks, Inc. on December 7, 2009 and to Capital Art, Inc. on April 28, 2011.

 

The Company sells and manages classic and contemporary, limited edition photographic images and reproductions, with a focus on iconic celebrity images. We acquire editions and manage some of the most valuable iconic photographic images and internationally market limited editions and reproductions created from the original negatives. The Company also makes available images for publications and merchandizing.

 

The Company markets and distributes photographs that we own or manage to the art, editorial and commercial markets. We also sell limited editions of our photographs through third-party galleries, art consultants, interior decorators and direct to consumers.

 

Our aim is to become a leading global photography marketing and distribution company by acquiring rights and ownership to collections of iconic photographs, and to establish worldwide wholesale and retail outlets as well as representations to sell our product lines through any channel of distribution the Company believes to be advantageous.

 

In June 2011, the Company opened a 1,500 square foot commercial gallery location in Culver City, CA to display and sell copies of the photographic images owned by the Company. There was insufficient sales generated at the location and it was closed in September 2012.

 

We maintain a website at www.capitalart.com. The contents of our website are not part of this prospectus.

 

Gleeworks, Inc., Acquisition of Capital Art, LLC

 

On May 9, 2011, Gleeworks, Inc. (“Gleeworks”) acquired Capital Art, LLC, pursuant to a business combination (the “Gleeworks Agreement”) whereby the entire outstanding member interest of Capital Art LLC was exchanged for 7.498 million shares of restricted common stock of Gleeworks on a one share for two units basis, representing approximately 51% of the issued and outstanding shares of Gleeworks. Prior to the acquisition, Gleeworks operated a business engaged in the apparel industry.

 

Commensurate with the acquisition, Gleeworks changed its name to “Capital Art, Inc.” In addition, the Company assumed the business of Capital Art, LLC, in photographic images. Following the acquisition, Capital Art, LLC, became a wholly-owned and operating subsidiary of Capital Art, Inc.

 

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Frank Worth Photographic Reproduction and Marketing Rights Agreement

 

On October 10, 2011, the Company entered into a memorandum of understanding (the “Frank Worth MOU”) as an interim agreement with the Estate of Frank Worth (the “Frank Worth Estate”) whereby the Frank Worth Estate agreed to exclusively grant the Company all rights in perpetuity to reproduce prints from Frank Worth negatives, to use of the Frank Worth name, signature and intellectual property in exchange for a 7.5% royalty on all revenue received by Capital Art from the sale of any and all Frank Worth prints, products and use whatsoever of Frank Worth’s name, likeness, story and biography. In connection with the Frank Worth MOU, the Company paid an aggregate of $50,000 in installments to the Frank Worth Estate to settle funds owed by the previous licensee, International Images Ltd., a UK company (“Images”).

 

Subsequently, on November 18, 2011, the Company and the Frank Worth Estate entered into a Photographic Reproduction and Marketing Rights Agreement (the “Frank Worth Reproduction Rights Agreement”). Pursuant to the Frank Worth Reproduction Rights Agreement, the Frank Worth Estate granted to the Company exclusive global reproduction rights to all negatives, prints, products and other materials from the Frank Worth collection, including the use of the Frank Worth Seal, Frank Worth’s name, likeness, publications and biography, plus merchandising and product selling rights as well as exclusive rights to the signature of the Frank Worth Estate’s executor (the “Executor”) in conjunction with any and all Certificates of Authenticity printed by the Company that accompany limited edition prints (the “Frank Worth Archive”). In consideration for the exclusive rights, the Company paid to the Frank Worth Estate a purchase price of $50,000 and agreed to make continuous payments of a monthly royalty amount of 7.5% of all net sales, with an annual minimum guarantee of $50,000. In June 2014, the Frank Worth Estate agreed to a reduced minimum royalty guarantee payment for 2013 and 2014 to the amount of $30,000 for each year. The Frank Worth Reproduction Rights Agreement also granted the Company a right to buyout the exclusive agreement from the Frank Worth Estate at any time for $250,000.

 

On November 12, 2014, the Frank Worth Estate agreed to accept $155,000 and 200,000 shares of the Company’s common stock, $30,000 payable on execution and the remainder payable on or before May 31, 2015, in exchange for sole and exclusive, world-wide, royalty free rights to all negatives, prints, products and other materials the Company possesses including the use of the Frank Worth seal, Frank Worth’s name, likeness, publications and biography plus merchandising and selling rights.

 

Frank Worth Collection and Daniel Furon Collection Purchase Agreement

 

On December 21, 2011, the Company entered into an agreement (the “Worth and Furon Purchase Agreement”) with International Images and Birchley Limited, a UK company (“Birchley”) whereby the Company obtained from Images rights to the negatives, images, photographs and all other interests in (i) approximately 7,500 images and approximately 5,500 negatives of the Frank Worth Collection (the “Frank Worth Collection”) and 50 Daniel Furon images (the “Daniel Furon Collection,” and together with the Frank Worth Collection, the “Collections”) in exchange for 1,000,000 shares of the Company’s common stock. Also pursuant to the Worth and Furon Purchase Agreement, Birchley, which held a security interest in the Collections, consented to the acquisition on the condition that Birchley would retain title until receipt of $200,000 (of an aggregate of $400,000) and 600,000 shares of common stock in the Company.

 

Subsequently on February 28, 2013, the Company, Images and Birchley entered into a deed of variation (the “Amendment”) of the Worth and Furon Purchase Agreement whereby Birchley repaid $100,000 of $150,000 paid to the Company under the Worth and Furon Purchase Agreement and the Company issued an additional 400,000 shares of common stock to Birchley. Upon receipt of such shares, Birchley released the title to the Collections.

 

Movie Star News, LLC, Acquisition

 

On October 8, 2014, the Company entered into an Asset Purchase Agreement with Movie Star News, LLC (“MSN”) pursuant to which the Company acquired a collection consisting of approximately 100,000 negatives, certain other negatives including the Bettie Page collection and approximately 1 million 8" by 10" Black & White Photographs, including all copyrights owned by MSN for the collection in exchange for 256,400,226 shares of common stock of the Company.

 

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Products and Services

 

We offer our customers a variety of photographic images in different mediums such as select photographs that are limited in the number of copies, each copy with a unique number and certificate of authenticity signed by the Frank Worth Estate, with a premium price and mass reproductions of different photographic negatives sold at a lower price.

 

Our customers operate in a variety of industries such as galleries, hotels, magazines and other publications, interior decorating and direct to consumers through third party online merchandising companies. For fiscal year 2013, the revenue from one customer comprised 17.9% of the Company’s total revenue. This account made up 0% of the total accounts receivable balance at December 31, 2013. For fiscal year 2012, the revenue from three major customers comprised 27.2%, 14.8% and 10.6% of the Company’s total revenue.  Those three major customers made up 0%, 0%, and 0% of the total accounts receivable balance at December 31, 2012, respectively.  The major customer for the year ending December 31, 2013 was not necessarily one of the major customers for the year ending December 31, 2012.  There is significant financial risk associated with a dependence upon a small number of customers. The Company periodically assesses the financial strength of these customers and establishes allowances for any anticipated bad debt. At December 31, 2013 and 2012, no allowance for bad debt or bad debt expense has been recorded for the major customers.

 

The Company works with different third party manufacturers and suppliers to produce our photographic products.

 

Marketing

 

We reach our customers through diverse marketing channels including our website, events and interactive campaigns. Marketing activities aim to build awareness for our brands and drive revenue by promoting newly acquired images as well as images existing in our collection.

 

Sales and Distribution

 

The Company selects certain photographs from its collection that are reproduced in limited number, with each individual print assigned a unique number and a certificate of authenticity signed by the Frank Worth Estate. The Company sells these as limited editions through third-party galleries, art consultants, interior decorators and directly to consumers. The Company also reproduces mass quantities of different photographs from its collection and sells through deal for a day sites such as Groupon and Fab.com. The Company ships the products either directly to the customer via small parcel carriers or to the third party organizations through common carrier.

 

The Company has hired a development company to build a website that will act not only as a site for retail clients to purchase our prints but also as a portal for our interior decorator, third party gallery and charity partners. We are exploring the possibility of opening company owned galleries in Las Vegas and other major cities like Los Angeles. However, the Company has no definitive plans or arrangements with respect to operating galleries. We are adding relationships with third party galleries, websites and interior decorators that can sell our images to their clients. We are also creating a charity sales plan whereby charities can use our photos for fund raising activities. We intend to make over 20,000 images available during 2015 for publication on a world-wide basis for print and online articles in arrangement where the Company is paid royalties when our owned photographs are used. We are also looking at partnerships with major companies who can sell our prints to their client base on a revenue-split basis.

 

Competition

 

The market for iconic photographic images and related services is highly competitive. We believe that the principal competitive factors include name recognition, company reputation, the quality, relevance and breadth of the content in a company’s collections and the quality of contributing photographers and other partners under contract with a company. Additionally, we also face competition in connection with factors relating to the business and our infrastructure such as effective use of current and emerging technology, customer service and customer relationships, pricing and licensing models, policies and practices and accessibility of content and speed and ease of search and fulfillment.

 

Some of our current and potential significant competitors include other general visual content providers such as Corbis Corporation. We also face significant competition from specialized visual content companies that are well established in their local, content or product-specific market segments such as Reuters Group, the Associated Press, and ZUMA Press, Inc.

 

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There are also hundreds, if not thousands, of small photography agencies, image content aggregators and individual photographers throughout the world with whom we compete.

 

Our competition includes retail photography galleries and websites selling photography such as art.com, artspace.com and rockpaperphoto.com. We believe that we are highly competitive because we own our photographic negatives and do not have to split sales proceeds with photographers who own their intellectual property rights, which is the industry standard.

 

Intellectual Property

 

Although some of the images in our collection are obtained through reproduction or licensing agreements, most of our collection of iconic photographic images were acquired and are owned by the Company.

 

Employees

 

As of February 10, 2015, we had 7 employees, of which 3 are full-time.

 

Item 1A. Risk Factors.

 

Risks related to our Business and our Industry

 

We have a history of operating losses.

 

We have generated net losses since we began operations, including $54,743 for the year ended December 31, 2013 and $1,745,800 for the nine months ended September 30, 2014. Our ability to generate revenue and achieve profitability will depend on, among other things, our ability to complete our website in a timely manner so that we can sell directly to retail clients and on our ability to sign up a significant number of galleries, third party websites, interior decorators and charities that will sell our prints to their clients and that will use our prints for their fund raising activities. Furthermore, we need to make more images available to our publication rights partner in order to obtain a meaningful monthly revenue stream. If we are unsuccessful at some or all of these undertakings, our business, prospects, and results of operations may be materially adversely affected.

 

We may need to secure additional financing.

 

We anticipate that we will incur operating losses for the foreseeable future. We may require additional funds for our anticipated operations and if we are not successful in securing additional financing, we may be required to delay significantly, downsize our general and administrative infrastructure, or seek alternative measures to avoid insolvency, including arrangements with collaborative partners or others that may require us to relinquish rights to certain of our technologies, product candidates or products.

 

Increased competition could reduce our revenues, margins and operating results.

 

The photographic art industry is and has been intensely competitive, and we expect competition to intensify in the future. We expect competition to increase because of changes in the media industry, changing advertising practices, technological advances leading to relatively inexpensive creation, marketing and distribution of visual content, and a lack of substantial barriers to entry. Our competitors range in size from significant media companies to individual visual content and digital media content producers. While we believe the breadth of our businesses and product and service portfolio offers benefits to our customers that are a competitive advantage, our current or potential competitors may develop products, licensing models, technology or services comparable or superior to those that we develop or may adapt more quickly than we do to new or emerging technologies or evolving industry trends. Increased competition or more effective competitors could result in lost market share, having to reduce prices or otherwise having reduced revenue, lower margins, increased capital expenditures, or otherwise negatively impact our operating results. There can be no assurance that we will be able to compete successfully against current and future competitors.

 

6
 

 

Any future litigation could have a material adverse impact on our results of operations, financial condition and liquidity, particularly since we do not currently have director and officer insurance. Our lack of D&O insurance may also make it difficult for us to retain and attract talented and skilled directors and officers.

 

From time to time we may be subject to litigation, including potential stockholder derivative actions. Risks associated with legal liability are difficult to assess and quantify, and their existence and magnitude can remain unknown for significant periods of time. We have not obtained directors and officers liability (“D&O”) insurance to cover such risk exposure for our directors and officers. Such insurance generally pays the expenses (including amounts paid to plaintiffs, fines, and expenses including attorneys’ fees) of officers and directors who are the subject of a lawsuit as a result of their service to the Company. Without D&O insurance, the amounts we would pay to indemnify our officers and directors should they be subject to legal action based on their service to the Company could have a material adverse effect on our financial condition, results of operations and liquidity. Further, our lack of D&O insurance may make it difficult for us to retain and attract talented and skilled directors and officers, which could adversely affect our business.

 

Our business and prospects would suffer if we are unable to protect and enforce our intellectual property rights.

 

We rely upon copyright law and license agreements to protect our proprietary images and other intellectual property. The steps we might take may not be adequate to protect against infringement and misappropriation of our intellectual property by third parties. The unauthorized reproduction or other misappropriation of our intellectual property rights could enable third parties to benefit from our technology, imagery and digital media content without paying us for it. If this occurs, our business and prospects could be materially and adversely affected. In addition, disputes concerning the ownership or rights to use intellectual property could be costly and time-consuming to litigate, may distract management from other tasks of operating the business, and may result in our loss of significant rights and the impairment of our ability to operate our business.

 

Risks Related to Our Common Stock

 

There is not an active liquid trading market for the Company’s common stock.

 

There is no regular active trading market in the Company’s common stock, and we cannot give an assurance that an active trading market will develop. If an active market for the Company’s common stock develops, there is a significant risk that the Company’s stock price may fluctuate dramatically in the future in response to any of the following factors, some of which are beyond our control:

 

variations in our quarterly operating results;
announcements that our revenue or income are below analysts’ expectations;
general economic slowdowns;
sales of large blocks of the Company’s common stock; and
announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments.

 

Our common stock is subject to the “penny stock” rules of the Securities and Exchange Commission, which may make it more difficult for stockholders to sell our common stock.

 

The SEC has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require that a broker or dealer approve a person’s account for transactions in penny stocks, and the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

 

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience objectives of the person, and make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

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The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form sets forth the basis on which the broker or dealer made the suitability determination, and that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

 

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of the Company’s common stock if and when such shares are eligible for sale and may cause a decline in the market value of its stock.

 

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.

 

Applicable regulatory requirements, including those contained in and issued under the Sarbanes-Oxley Act of 2002, may make it difficult for the Company to retain or attract qualified officers and directors, which could adversely affect the management of its business and its ability to obtain or retain listing of its common stock.

 

The Company may be unable to attract and retain those qualified officers, directors and members of board committees required to provide for effective management because of the rules and regulations that govern publicly held companies, including, but not limited to, certifications by principal executive officers. The enactment of the Sarbanes-Oxley Act has resulted in the issuance of a series of related rules and regulations and the strengthening of existing rules and regulations by the SEC, as well as the adoption of new and more stringent rules by the stock exchanges. The perceived increased personal risk associated with these changes may deter qualified individuals from accepting roles as directors and executive officers.

 

Further, some of these changes heighten the requirements for board or committee membership, particularly with respect to an individual’s independence from the corporation and level of experience in finance and accounting matters. The Company may have difficulty attracting and retaining directors with the requisite qualifications. If the Company is unable to attract and retain qualified officers and directors, the management of its business and its ability to obtain or retain listing of our shares of common stock on any stock exchange (assuming the Company elects to seek and are successful in obtaining such listing) could be adversely affected.

 

If the Company fails to maintain an effective system of internal controls, it may not be able to accurately report its financial results or detect fraud. Consequently, investors could lose confidence in the Company’s financial reporting and this may decrease the trading price of its stock.

 

The Company must maintain effective internal controls to provide reliable financial reports and detect fraud. The Company has been assessing its internal controls to identify areas that need improvement. It is in the process of implementing changes to internal controls, but has not yet completed implementing these changes. Failure to implement these changes to the Company’s internal controls or any others that it identifies as necessary to maintain an effective system of internal controls could harm its operating results and cause investors to lose confidence in the Company’s reported financial information. Any such loss of confidence would have a negative effect on the trading price of the Company’s stock.

 

Our financial results and stock price may fluctuate.

 

We expect our revenues and operating results to vary from quarter to quarter due to a number of factors, both within and outside of our control. Some of the factors that may affect our revenues and operating results include the following:

 

a recession in the U.S. economy, or the economy of any other country where we our customers operate, should one occur;
demand for our existing and new images and related services, and those of our competitors;
changes in our pricing models, policies and practices and those of our competitors;
our ability to attract and retain customers;
our ability to manage the costs of our business, including the costs associated with maintaining and developing our websites and international and product line expansion;
costs related to potential acquisitions and the development and/or use of technology, services or products; and
the termination or expiration of certain image partner, distributor or other material agreements.

 

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Because of these risks and others, it is possible that our future results may differ from our expectations and the expectations of analysts and investors, causing our stock price to fluctuate. You should not rely on the results for any period as an indication of future performance.

 

Our acquisition strategy may be dilutive to existing shareholders and we may not be successful in acquiring or integrating businesses.

 

As part of our business strategy, we have in the past acquired and invested in, and may in the future seek to acquire or invest in businesses or photographic images that could complement or expand our business. Acquisitions may require significant capital infusions or investments, and may negatively impact our results of operations. Further, the evaluation and negotiation of potential acquisitions, as well as the integration of acquired businesses, may divert management time and other resources. Certain other risks related to acquisitions that may have a material impact on our business or prevent us from benefiting from an acquisition or investment include:

 

costs incurred in performing due diligence and professional fees relating to potential acquisitions;
use of cash resources, incurrence of debt or stockholder dilution through issuances of our securities to fund acquisitions;
assumption of actual or contingent liabilities, known and unknown;
amortization expense related to acquired intangible assets, impairment of any goodwill acquired and other adverse accounting consequences;
difficulties and expenses in integrating the sales, marketing, operations, products, services, technology, financial and information systems of an acquired company; and
retention of key employees, customers, and suppliers of an acquired business.

 

You may experience dilution of your ownership interests because of the future issuance of additional ordinary shares.

 

In the future, we may issue additional authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our shareholders. We may also issue additional shares of our securities that are convertible into or exercisable for ordinary shares, as the case may be, in connection with hiring or retaining employees, future acquisitions, future sales of its securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares may create downward pressure on the value of our securities. There can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with any capital raising efforts, including at a price (or exercise prices) below the price at which our shares may be valued or are trading in a public market.

 

As an issuer of “penny stock,” the protection provided by the federal securities laws relating to forward looking statements does not apply to us.

 

Although federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, we will not have the benefit of this safe harbor protection in the event of any legal action based upon a claim that the material provided by us contained a material misstatement of fact or was misleading in any material respect because of our failure to include any statements necessary to make the statements not misleading. Such an action could hurt our financial condition.

 

Compliance with the reporting requirements of federal securities laws can be expensive.

 

As a public reporting company in the United States, we are subject to the information and reporting requirements of the Exchange Act and other federal securities laws, and the compliance obligations of the Sarbanes-Oxley Act. The costs of preparing and filing annual and quarterly reports as well as other information with the SEC and furnishing audited reports to shareholders is significant.

 

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Our preferred stock may have rights senior to those of our common stock which could adversely affect holders of common stock.

 

Our Articles of Incorporation give our Board of Directors the authority to issue additional series of preferred stock without a vote or action by our stockholders. The Board also has the authority to determine the terms of preferred stock, including price, preferences and voting rights. The rights granted to holders of preferred stock in the future may adversely affect the rights of holders of our common stock.  Any such authorized class of preferred stock may have a liquidation preference – a pre-set distribution in the event of a liquidation – that would reduce the amount available for distribution to holders of common stock or superior dividend rights that would reduce the amount of dividends that could be distributed to common stockholders. In addition, an authorized class of preferred stock may have voting rights that are superior to the voting right of the holders of our common stock.

 

Certain of our stockholders can exercise significant influence over our business and affairs.

 

Some of our stockholders own substantial percentages of the outstanding shares of our common stock. As a result of their share ownership, these stockholders have significant influence over all matters requiring approval of our stockholders, including the election of directors and the approval of business acquisitions. The substantial percentage of our common stock held by these stockholders also could make us a less attractive acquisition candidate or have the effect of delaying or preventing a third party from acquiring control over us at a premium over the then-current price of our common stock.

 

Item 2.              Financial Information.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This Management Discussion and Analysis (“MD&A”) contains “forward-looking statements”, which represent our projections, estimates, expectations or beliefs concerning among other things, financial items that relate to management’s future plans or objectives or to our future economic and financial performance. In some cases, you can identify these statements by terminology such as “may”, “should”, “plans”, “believe”, “will”, “anticipate”, “estimate”, “expect” “project”, or “intend”, including their opposites or similar phrases or expressions.

 

You should be aware that these statements are projections or estimates as to future events and are subject to a number of factors that may tend to influence the accuracy of the statements. These forward-looking statements should not be regarded as a representation by the Company or any other person that the events or plans of the Company will be achieved. You should not unduly rely on these forward-looking statements, which speak only as of the date of this MD&A. Except as may be required under applicable securities laws, we undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this MD&A or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks we describe under “Risk Factors” in this report. Actual results may differ materially from any forward-looking statement.

 

Overview

 

We were initially incorporated in State of Delaware on September 21, 2004 as “Blog8.” Since that time, the Company has changed its name to better reflect its changing business purpose. Our company name changed to Securiteyes on December 2, 2004, to Medify Solutions Limited on February 11, 2005, to Petel Incorporated on April 30, 2007, to Gleeworks, Inc. on December 7, 2009 and to Capital Art, Inc. on April 28, 2011.

 

We sell and manage classic and contemporary, limited edition photographic images and reproductions, with a focus on iconic celebrity images. We acquire editions and manage some of the most valuable iconic photographic images and internationally markets limited editions and reproductions created from the original negatives. The company also makes available images for publications and merchandizing. The Company markets and distributes photographs that we own or manage to the art, editorial and commercial markets. We sell limited editions of its photographs through third-party galleries, art consultants, decorators and directly to consumers.

 

In June 2011, the Company opened a 1,500 square foot commercial gallery location in Culver City, CA to display and sell copies of the photographic images owned by the Company. There was insufficient sales generated at the location and it was closed in September 2012.

 

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Emerging Growth Company

 

We qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

 

have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

 

comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

 

submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and

 

disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation.

 

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

 

We will remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

 

Results of Operations

 

Following is a summary of our revenues, assets and net losses for our two most recent fiscal years ended December 31, 2013 compared to December 31, 2012

 

 

    2013     2012  
             
Total Revenue   $ 218,766     $ 220,406  
                 
Net Loss   $ (54,743 )   $ (297,966 )
                 
Total Assets   $ 2,940,034     $ 2,936,026  
                 
Total Liabilities   $ 772,713     $ 1,067,759  
                 
Accumulated Deficit   $ (7,701,203 )   $ (7,646,460 )

 

11
 

 

Our summary results are presented below:

 

    2013     2012     Change     % Change  
Revenues   $ 218,766     $ 220,406     $ (1,640 )     -0.7%  
Costs and Operating Expenses     (261,618 )     (393,651 )     132,033       -33.5%  
Loss from Operations     (42,852 )     (173,245 )     130,393          
                                 
Interest Expense     (50 )     (12,343 )     12,293       -99.6%  
Interest Expense - Related Party     (11,841 )     (10,654 )     (1,187 )     11.1%  
Loss on settlement of debt           (106,250 )     106,250       100.0%  
Gain on Director's Loan           4,526       (4,526 )     100.0%  
Net Other Income (Expense)     (11,891 )     (124,721 )     112,830          
                                 
Net Loss   $ (54,743 )   $ (297,966 )   $ 243,223          
                                 
Net Loss per common share   $ (0.00 )   $ (0.02 )                
                                 
Weighted average shares outstanding     18,583,716       17,227,428                  

 

Revenues.   Revenues by category and for the Company as a whole were as follows:

 

    2013     2012     Change     % Change  
Product Sales   $ 218,766     $ 211,646     $ 7,120       3.4%  
Other Revenue           8,760       (8,760 )     -100.0%  
Total Revenue   $ 218,766     $ 220,406     $ (1,640 )        

 

Capital Arts product sales represent products in which the Company holds intellectual property rights such as negative photographic images and copyrights, whether registered or unregistered, to the photographic reproductions and which are manufactured and sold by the Company either directly at wholesale to retail stores or direct to consumers through daily deal sites. The increase of $7,120 (3.4%) for the twelve month period ended December 31, 2013 versus the twelve month period ending December 31, 2012, was due in part to closure of the gallery in California offset by increased online sales.

 

The Other Revenue category includes rental of gallery space for events and royalties paid to the Company for publication rights.  During the twelve month period ended December 31, 2013 compared to December 31, 2012 this category had decreased revenue in total of $8,760 (100.0%) as a result of the closure of the gallery.

 

Our products compete in retail photography galleries and websites selling photography such as art.com, artspace.com and rockpaperphoto.com . We continue to market direct to retailers and are exploring new domestic and international opportunities. We are investigating additional relevant photographic image collections adding to the diversity of our product line.

 

The 2015 economic outlook is uncertain. However, we anticipate but cannot guarantee, continued sales growth through our actions to improve our existing products, maintaining highly competitive price points, adding content to our product offerings and adding additional channels of distribution.

 

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Costs and Operating Expenses.   Costs and operating expenses consisting primarily of cost of sales, marketing and sales expenses, and general and administrative costs, decreased $132,033 (33.5%) for the twelve month period ended December 31, 2013 compared to the twelve month period ended December 31, 2012.

 

    2013     2012     Change     % Change  
Cost of Sales   $ 120,946     $ 140,629     $ (19,683 )     -14.0%  
General and Administrative     119,424       199,904       (80,480 )     -40.3%  
Marketing and Sales     21,248       53,118       (31,870 )     -60.0%  
Total Costs and Operating Expenses   $ 261,618     $ 393,651     $ (132,033 )     -33.5%  

 

Cost of Sales decreased $19,683, or 14.0%, during the twelve months of 2013 compared to the same period of 2012. The decrease was a result of decreased royalty costs of $20,245 due to an agreement with the Frank Worth Estate to reduce the minimum guarantee for 2013, outsourced fulfillment costs of $11,600 and shipping costs of $9,304, offset by increased reproduction costs due to increased product sales.

 

Operating expenses consist primarily of salaries as well as other expenses associated with executive management, finance, legal, facilities, marketing, rent, and other professional services. Costs associated with these categories are detailed as follows:

 

General and administrative costs for 2013 decreased $80,480 (40.3%). The aggregate decrease for the category includes decreases of $7,470 in salaries and related costs, $48,690 for professional services relating to setting up a London sales office that was terminated, $14,497 for rent and $23,180 for other general and administrative costs. The decrease in rental expense is due to the termination of our Culver City, CA gallery lease.

 

Salary expenses for 2013 were decreased due to the closure of our gallery and outsourcing fulfillment services previously done by our employees.

  

Marketing and sales expenses decreased $31,870 (60.0%) primarily due to the decrease in outside advertising and marketing initiatives with increased reliance on marketing activities provided by daily deal sales sites and reduced trade show participation. Marketing activities include trade shows, public relations firms, and personal contact.  

   

Interest Expense and Interest Expense – Related Party.  Interest expense resulted from the debenture issued and other related party interest expense.

 

    2013     2012     Change     % Change  
Interest expense on debenture payable to holder   $     $ (12,343 )   $ 12,343       -100.0%  
Interest expense on related party note     (9,044 )     (8,603 )     (441 )     5.1%  
Imputed interest expense on related party loan     (2,797 )     (2,051 )     (746 )     36.4%  
Other operating interest expense     (50 )           (50 )     100.0%  
Interest Expense   $ (11,891 )   $ (22,997 )   $ 11,106       -48.3%  

 

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During 2011 and 2012, the company sold $300,000 and $40,000, respectively, of 10% convertible debentures (the “Debentures”), each of which was convertible into shares of the issuer’s common stock at a rate of one (1) share per each $0.80 converted. The Company had the right to call for the conversion if the share price met or exceeded a market price of $3.25 per share. The Debentures were sold to accredited investors only pursuant to Rule 506 of the Securities Act. The Company made an offer to each investor for a voluntary conversion of the outstanding principal at a rate of 1 share per each $0.40 converted. Investors holding $330,000 of the Debentures agreed and on May 3, 2012, these Debentures were converted into 825,000 shares of common stock. In accordance with ASC 470-20-40-26, an expense was recognized for the value of the inducement of conversion of these shares in the amount of $206,250 at the time of conversion. On May 16, 2012, the market price of the Company’s shares reached $3.25 and the Company called the remaining $10,000 outstanding Debenture, resulting in an additional issuance of 12,500 shares. Interest was paid in the amounts of $0 and $12,343 for the twelve months ended December 31, 2013 and 2012, respectively.

 

On September 15, 2009, Klaus Moeller, a shareholder, loaned $150,000 to the Company at an interest rate equal to 5% per annum as a long term note payable.  The funds were borrowed from Mr. Moeller in order to provide working capital to the Company. Subsequent agreements extended the maturity date to September 14, 2014. The amount due to Mr. Moeller as of December 31, 2013 and December 31, 2012 includes $33,321 and $24,277 in accrued but unpaid interest, respectively. On July 14, 2014, Mr. Moeller converted the principal of $150,000, plus accrued but unpaid interest in the amount of $38,184, to 4,000,000 shares of the Company’s common stock at an average price of $0.047 per share.

 

Mr. Moeller provided short term, interest free, loans to the Company at various times during the years 2009 through 2013. The amount due to Mr. Moeller on these loans as of December 31, 2013 and 2012 is $7,973 and $42,427, respectively. In accordance with Topic 835 - Imputation of Interest, imputed interest was calculated for a market rate of 5% for the twelve months ended December 31, 2013 and 2012, resulting in Additional Paid in Capital contribution of $2,797 and $2,051, respectively.

 

Liquidity and Capital Resources

 

Fiscal Year Ended December 31, 2013 Compared to December 31, 2012

 

Cash totaled $2,188 and $14,520 at December 31, 2013 and December 31, 2012, respectively.  The change in cash is as follows:

 

    2013     2012     Change  
Cash provided (used) by operations   $ (102,878 )   $ (297,357 )   $ 194,479  
Cash provided (used) in investing activities                  
Cash provided (used) in financing activities     90,546       277,111       (186,565 )
Increase (decrease) in cash   $ (12,332 )   $ (20,246 )   $ 7,914  

 

Cash used by operations in the twelve months ended December 31, 2013, compared to the same period of 2012, decreased by $194,479 due to a decrease in accounts receivable, accrued expenses and a decrease in accounts payable. The cash provided by financing activities for the twelve months ended December 31, 2013 compared to the same period of 2012, decreased by $186,565 as a result of the proceeds from a debenture and increased sales of common stock in 2012 compared to 2013.

 

During 2012, the Company sold $40,000, respectively, of 10% convertible debentures (the “Debentures”), each of which was convertible into shares of the Company’s common stock at a rate of one (1) share per each $0.80 converted.

 

Mr. Moeller provided short term, interest free, loans to the Company at various times during the years 2009 through 2013. The amount due to Mr. Moeller on these loans as of December 31, 2013 and 2012 is $7,973 and $42,427, respectively.

 

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Mr. Moeller paid expenses on behalf of the Company, which resulted in related party accounts payable on December 31, 2013 and December 31, 2012 in the amounts of $38,738 and $21,039, respectively.

 

On September 27, 2012, the Company issued 20,000 shares of common stock to an accredited investor for $16,000 in cash, or a per share price of $0.80.

 

In October 2012, the Company issued a total of 50,000 shares of common stock to accredited investors for $15,000, a share price of $0.30 per share.

 

On November 20, 2012, the Company issued 600,000 shares of common stock to an accredited investor for cash of $150,000 at a per share price of $0.25. The funds were paid to the estate of Frank Worth as part of the acquisition cost for the rights to the photographs owned by the estate.

 

On November 20, 2012, the Company received $10,000 in cash for 60,000 shares of its common stock from an accredited investor, or $0.167 per share.

 

On December 28, 2012, an accredited investor was issued 40,000 shares of common stock for $10,000 in cash, or a per share price of $0.25.

 

During March and August, 2013, the Company conducted a private placement offering to certain accredited investors under Rule 506.  As a result of the offering, the Company received subscriptions in the total amount of $125,000 and 500,000 shares were issued.

 

Following is a summary of our revenues, assets and net losses for our two most recent fiscal periods ended September 30, 2014 compared to September 30, 2013

 

    Nine Months Ended September 30,  
    2014     2013  
             
Total Revenue   $ 92,889     $ 157,619  
                 
Net Loss   $ (1,745,800 )   $ (32,107 )
                 
Total Assets   $ 3,422,816     $ 2,931,513  
                 
Total Liabilities   $ 42,801     $ 964,546  
                 
Accumulated Deficit   $ (9,447,003 )   $ (7,678,568 )

 

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Results of Operations

 

Three and Nine Month Periods Ended September 30, 2013 Compared to September 30, 2012

 

Our summary results are presented below:

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2014     2013     Change     % Change     2014     2013     Change     % Change  
Revenues   $ 31,943     $ 35,471     $ (3,528 )     -9.9%     $ 92,889     $ 157,619     $ (64,730 )     -41.1%  
Costs and Operating Expenses     (700,514 )     (69,465 )     (631,049 )     908.4%       (1,777,551 )     (181,678 )     (1,595,873 )     878.4%  
Loss from Operations     (668,571 )     (33,994 )     (634,577 )     1866.7%       (1,684,662 )     (24,059 )     (1,660,603 )     6902.2%  
                                                                 
Other Income     8             8       100%       8             8     100%  
Interest Expense     (169 )     (2,367 )     2,198       -92.9%       (5,500 )     (8,048 )     2,548       -31.7%  
Loss on settlement of debt     (55,646 )           (55,646 )     100.0%       (55,646 )           (55,646 )   100%  
Net Other Income (Expense)     (55,807 )     (2,367 )     (53,440 )     2257.7%       (61,138 )     (8,048 )     (53,090 )     659.7%  
                                                                 
Net Loss   $ (724,378 )   $ (36,361 )   $ (688,017 )     1892.2%     $ (1,745,800 )   $ (32,107 )   $ (1,713,693 )     5337.4%  
                                                                 
Net Loss per common share   $ (0.03 )   $ (0.00 )                   $ (0.09 )   $ (0.00 )                
                                                                 
Weighted average shares outstanding     21,484,030       18,188,921                       19,763,463       18,496,247                  

 

Revenues. Revenues by category and for the Company as a whole were as follows:

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2014     2013     Change     % Change     2014     2013     Change     % Change  
Product Sales   $ 31,360     $ 34,325     $ (2,965 )     -8.6%     $ 88,392     $ 152,155     $ (63,763 )     -41.9%  
Other Revenue     583       1,146       (563 )     -49.1%       4,497       5,464       (967 )     -17.7%  
Total Revenue   $ 31,943     $ 35,471     $ (3,528 )     -9.9%     $ 92,889     $ 157,619     $ (64,730 )     -41.1%  

 

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Our product sales represent products in which the Company holds intellectual property rights such as negative photographic images and copyrights, whether registered or unregistered, to the photographic reproductions and which are manufactured and sold by the Company either directly at wholesale to retail stores or direct to consumers through daily deal sites and our website.  The decrease of $2,965 (8.6%) for the three month period ended September 30, 2014 versus the three month period ending September 30, 2013, was due to a reduction in deal for a day site sales. The decrease of $63,763 (41.9%) in product sales revenue for the nine month period ended September 30, 2014 compared to the same period of 2013 is due to the reduction in sales to deal for a day sites. Sales by these sites are scheduled by them based on a selection of items and prices proposed by the Company and there is no guarantee that the proposal will be accepted at the time the Company makes the offer.

 

The other revenue category includes royalties paid to the Company for publication rights.  During the three month period ended September 30, 2014 compared to September 30, 2013 this category had decreased revenue in total of $563 (49.1%) and for the nine month period ended September 30, 2014 compared to the same period in 2013 the revenue decreased $967 (17.7%) as a result of the lower royalty revenue from publication of photographs owned by the Company.

 

Our products compete in retail photography galleries and websites selling photography such as art.com, artspace.com and rockpaperphoto.com . We continue to market direct to retailers and are exploring new domestic and international opportunities. We are investigating additional relevant photographic image collections adding to the diversity of our product line.

 

The 2015 economic outlook is uncertain, however, we anticipate but cannot guarantee continued sales growth through our actions to improve our existing products, maintaining highly competitive price points, adding content to our product offerings and adding additional channels of distribution.

 

Costs and Operating Expenses. Costs and operating expenses consisting primarily of cost of sales, marketing and sales expenses, and general and administrative costs, increased $631,049 (908.4%) and $1,595,873 (878.4%) for the three and nine month periods ended September 30, 2014 compared to the three and nine month periods ended September 30, 2013, respectively.

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2014     2013     Change     % Change     2014     2013     Change     % Change  
Cost of Sales   $ 28,409     $ 36,755     $ (8,346 )     -22.7%     $ 61,910     $ 85,719     $ (23,809 )     -27.8%  
General and Administrative     663,015       28,486       634,529       2227.5%       1,695,538       85,321       1,610,217       1887.2%  
Marketing and Sales     9,090       4,224       4,866       115.2%       20,103       10,638       9,465       89.0%  
Total Costs and Operating Expenses   $ 700,514     $ 69,465     $ 631,049       908.4%     $ 1,777,551     $ 181,678     $ 1,595,873       878.4%  

 

Cost of Sales decreased $8,346 (22.7%) during the three months ended September 30, 2014 compared to the same period of 2013. The decrease was a result of decreased reproduction and fulfillment costs due to decreased product sales. Cost of Sales decreased $23,809 (27.8%) during the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013, as a result of decreased reproduction and fulfillment costs due to lower product sales.

 

Operating expenses consist primarily of salaries as well as other expenses associated with executive management, finance, legal, facilities, marketing, rent, and other professional services. Costs associated with these categories are detailed as follows:

 

17
 

 

 

General and administrative costs for the three months ended September 30, 2014 compared to the same period in 2013 increased $634,529 (2227.5%). The increase is primarily due to professional services relating to general business and accounting services provided in support of the asset purchase agreement with Movie Star News and the preparation of this Registration Statement.  For the nine month period ended September 30, 2014 compared to the nine months ended September 30, 2013, general and administrative expenses increased $1,610.217 (1887.2%). The increase is due to an increase in professional services of $936,374 and salaries of $679,427. The professional services include general business consulting, legal consulting and accounting services. These services were paid through equity issuances as described in Note 4: Stockholder’s Equity of the Financial Statements for the period. The increase in salaries was due to bonuses paid to employees and officers of the Company through the issuance of 3,380,000 shares of common stock with a market value of $676,000. 

  

Marketing and sales expenses increased $4,866 (115.2%) for the three month period ended September 30, 2014 compared to the same three month period in 2013 primarily due to travel and website expenses.  Marketing activities include trade shows, public relations firms, and personal contact. For the nine month period ended September 30, 2014 compared to the nine month period ended September 30, 2013, marketing and sales expenses increased $9,465 (89.0%) due to increased travel and website expense.

   

Interest Expense – Related Party. Interest expense resulted from related party interest expense.

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2014     2013     Change     % Change     2014     2013     Change     % Change  
Interest expense on related party debt   $ 169     $ 2,367     $ (2,198 )     -92.9%     $ 5,500     $ 8,048     $ (2,548 )     -31.7%  
Interest Expense   $ 169     $ 2,367     $ (2,198 )     -92.9%     $ 5,500     $ 8,048     $ (2,548 )     -31.7%  

 

On September 15, 2009, Klaus Moeller, a shareholder, loaned $150,000 to the Company at an interest rate equal to 5% per annum as a long term note payable.  The funds were borrowed from Mr. Moeller in order to provide working capital to the Company. Subsequent agreements extended the maturity date to September 14, 2014. The amount due to Mr. Moeller as of September 30, 2014 and December 31, 2013 includes $0 and $33,321 in accrued but unpaid interest, respectively. On July 14, 2014, Mr. Moeller converted the principal of $150,000, plus accrued but unpaid interest in the amount of $38,184, to 4,000,000 shares of the Company’s common stock at an average price of $0.047 per share.

 

Mr. Moeller provided short term, interest free, loans to the Company at various times during the years 2009 through 2013. The amount due to Mr. Moeller on these loans as of September 30, 2014 and December 31, 2013 is $0 and $7,973, respectively. In accordance with Topic 835 - Imputation of Interest, imputed interest was calculated for a market rate of 5% for the three months ended September 30, 2014 and September 30, 2013, resulting in Additional Paid in Capital contribution of $0 and $92, respectively. For the nine months ended September 30, 2014 and September 30, 2013, imputed interest was calculated resulting in Additional Paid in Capital contribution of $637 and $1,307, respectively.

 

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Liquidity and Capital Resources

 

Nine Months Ended September 30, 2014 Compared to September 30, 2013

 

Cash totaled $177,816 and $3,526 at September 30, 2014 and September 30, 2013, respectively.  The change in cash is as follows:

 

    Three Months Ended September 30,        
    2014     2013     Change  
Cash provided (used) by operations   $ (211,197 )   $ (94,159 )   $ (117,038 )
Cash provided (used) in investing activities                  
Cash provided (used) in financing activities     386,825       83,165       303,660  
Increase (decrease) in cash   $ 175,628     $ (10,994 )   $ 186,622  

 

Cash used by operations in the nine months ended September 30, 2014, compared to the same period of 2013, increased by $117,038 due to a decrease in accrued salaries and taxes payable and related party payables in addition to an increase in prepaid expenses. The cash provided by financing activities for the nine months ended September 30, 2014 compared to the same period of 2013 increased by $386,825. The Company received proceeds from the sale of common stock from an accredited investor in the nine months ended September 30, 2014 in the amount of $250,000 and a related party loan of $136,825 compared to $125,000 and $33,165 in the same period of the prior year.

 

On August 1, 2014, the Company agreed to issue 20,000,000 shares of common stock for $1,000,000 in cash, or $0.05 per share, with payment made in four tranches of $250,000 each on specific dates. On August 29, 2014 and October 15, 2014, payments of $250,000 each were received and 5,000,000 shares were issued on each date. On November 24, 2014, an additional payment of $200,000 was received and 4,000,000 shares were issued. An additional payment of $209,000 was received in January 2015, with the remaining balance of $91,000 not yet received.

 

Mr. Moeller paid expenses on behalf of the Company which resulted in related party accounts payable as of September 30, 2014 and December 31, 2013 in the amounts of $0 and $38,738, respectively.

 

A company related to Mr. Moeller made short term advances of cash to the Company in 2014. The amount due as of September 30, 2014 and December 31, 2013 was $8,603 and $0, respectively.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

Critical Accounting Policies and Estimates

 

The Company’s accounting policies are described in the notes to the financial statements, which are incorporated by reference. Below is a summary of the critical accounting policies, among others, that management believes involve significant judgments and estimates used in the preparation of its financial statements.

 

Financial Statement Preparation

 

The Company’s Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America. These require the use of estimates and assumptions that affect the assets, liabilities, revenues and expenses reported in the financial statements, as well as amounts included in the notes thereto, including discussion and disclosure of contingent liabilities. Although the Company uses its best estimates and judgments, actual results could differ from these estimates as future confirming events occur.

 

Principles of Consolidation

 

The consolidated financial statements include the financial statements of the Company, and its 100% owned subsidiary: Capital Art LLC. All inter-company balances and transactions have been eliminated in consolidation. 

 

19
 

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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 and the reported amounts of revenues and expenses during the reporting periods.

 

Revenue Recognition

 

The Company recognized revenue related to product sales when (i) the seller’s price is substantially fixed, (ii) shipment has occurred causing the buyer to be obligated to pay for product, (iii) the buyer has economic substance apart from the seller, and (iv) there is no significant obligation for future performance to directly bring about the resale of the product by the buyer as required by Revenue Recognition Topic 605 of the FASB Accounting Standards Codification.

 

Revenues associated with the sale of products are recorded when shipped to customers pursuant to approved customer purchase orders resulting in the transfer of title and risk of loss. Cost of sales, rebates and discounts are recorded at the time of revenue recognition or at each financial reporting date.

 

The Company’s other revenue represents payments based on net sales from brand licensees for content reproduction rights. These license agreements are held in conjunction with third parties that are responsible for collecting fees due and remitting to the Company its share after expenses. Revenue from licensed products is recognized when realized or realizable based on royalty reporting received from licensees.

 

Intangible Assets

 

Intangible Assets acquired, either individually or with a group of other assets, are initially recognized and measured based on fair value. In the acquisition of the assets from the Frank Worth Estate, fair value was calculated using an independent appraisal conducted by a qualified third party.

      

The Company reviews all intangible assets with an indefinite useful life annually in accordance with ASC 350-35-18 to determine if the value might be impaired by comparing the fair value of the intangible asset to its carrying value.

     

Item 3.              Properties.

 

Our principal executive office and headquarters is located at 6445 South Tenaya Way, B-130, Las Vegas, Nevada 89113 where we lease 4,606 square feet of commercial space for a monthly rental payment of $2,993 per month effective October 10, 2014. We also lease storage space locally to house art and photography stock. Our printing, framing, packing and shipping facilities are provided by third-parties. We also rent office space on a month-to month basis in Brooklyn, NY.

 

Item 4.              Security Ownership of Certain Beneficial Owners and Management.

 

The following table sets forth certain information, as of the date of filing of this report, with respect to the beneficial ownership of the outstanding common stock by (i) any holder of more than five (5%) percent; (ii) each of the Company’s executive officers and directors; and (iii) the Company’s directors and executive officers as a group. Except as otherwise indicated, each of the stockholders listed below has sole voting and investment power over the shares beneficially owned.

 

20
 

 

The address for each Beneficial Owner named is the address of the Company’s principal executive office.

 

Name of Beneficial Owner Directors and Officers:     Number of Common Stock Beneficially Owned     Percentage of Common Stock Beneficially Owned (1)  
             
Sean Goodchild, Chief Executive Officer and Director     2,241,500       1%  
                 
David Morton, Chief Financial Officer and Director     1,958,431       1%  
                 
Adam David Lynd 1, LLC (2)     17,850,000       6%  
                 
Movie Star News LLC (3)     256,400,226       82%  
                 
All directors and executive officers as a group (2 persons)     4,199,931       1 %  

 

(1) The percentages are calculated based on 311,973,283 shares of common stock outstanding as of February 10, 2015.
  (2) Michael Lynd, Sr., Trustee, has the voting and dispositive power over the shares held by the shareholder.
  (3) Stuart Scheinman has the voting and dispositive power over the shares held by the shareholder.

 

Item 5.              Directors and Executive Officers.

 

Name Age Position
     
Sean Goodchild 54 Chief Executive Officer and Director
     
David Morton 49 Chief Financial Officer and Director

 

Sean Goodchild , the Chief Executive Officer of Capital Art, has served as CEO since June 2010. Prior to serving as CEO, Mr. Goodchild served as the Chief Financial Officer and a Director since August 2009. Before joining Capital Art, he was a director of Pro Stars, Inc., and Celebrity, Inc., from June 2001 through August 2009.

 

The Board of Directors believes that Mr. Goodchild’s is qualified to serve as a director because of his long standing service to the Company and his understanding of the Company’s business and the industry in which the Company operates.

 

David Morton , the Chief Financial Officer and a Director of Capital Art, has served as the Chief Financial Officer since appointment in April 2011. Prior to then, Mr. Morton had served as President of the Company under its former name Gleeworks, Inc., from June 2010 through April 2011. Between December 2009 and June 2010, Mr. Morton was a consultant to the Company.

 

The Board of Directors has concluded that Mr. Morton is qualified to serve on the Board of Directors because of his understanding of the Company’s business and the industry in which the Company operates.

 

21
 

 

Board Leadership Structure and Role in Risk Oversight

 

We have not appointed a Chairman of the Board of Directors. Our executive officers also serve on our Board of Directors and are responsible for both risk management and day to day risk management processes.

 

The Company has no nominating, audit or compensation committees at this time. As we do not have an audit or compensation committee comprised of independent directors, the functions that would have been performed by such committees are performed by our Board of Directors (the “Board”). Thus, there is a potential conflict of interest in that our directors have the authority to determine issues concerning management compensation, in essence their own, and audit issues that may affect management decisions. We are not aware of any other conflicts of interest with any of our executives or directors.

 

There are no family relationships among any of our officers or directors.

 

Involvement in Certain Legal Proceedings

 

To our knowledge, our directors and executive officers have not been involved in any of the following events during the past ten years:

 

  1. any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
     
  2. any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
     
  3. being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities; 
     
  4. being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a Federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
     
  5. being subject of, or a party to, any Federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any Federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
     
  6. being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

 

 

22
 

 

Item 6.              Executive Compensation.

 

The following table sets forth all compensation paid in respect of the Company’s principal executive officer (“PEO”) and the two (2) most highly compensated executive officers other than the PEO who received compensation in excess of $100,000 per year for the last two fiscal years.

 

Summary Compensation Table

 

Name and
Principal
    Salary     Bonus     Option
Awards
    All Other Compensation     Total  
Position   Year   ($)     ($)     ($)     ($)     ($)  
Sean Goodchild   2012     2,500 (1)                       2,500  
Chief Executive Officer   2013     2,500 (1)                       2,500  
                                             
David Morton   2012     6,000 (2)                       6,000  
Chief Financial Officer   2013     6,000 (2)                       6,000  

 

(1) Represents imputed compensation of $625 per quarter for the periods ended December 31, 2012 and 2013. Cash paid for compensation was $5,000 in 2013.
(2) Represents imputed compensation of $1,500 per quarter for the periods ended December 31, 2012 and 2013.  Cash paid for compensation was $3,000 in 2012 with the remaining compensation recorded as additional paid in capital

 

There are no employment or other agreements with our executive officers.

 

Outstanding Equity Awards at Fiscal Year-End

 

Our officers and directors do not have unexercised options, stock that has not vested, or equity awards. There were no outstanding equity awards to our named executive officer as of December 31, 2013. 

 

Director Compensation

 

Our directors did not receive compensation for the years ended December 31, 2013 and December 31, 2012 in consideration for their services rendered in their capacity as directors and no other arrangements are presently in place regarding compensation to directors for their services as directors or for committee participation or special assignments. 

 

Risk Management

 

The Company does not believe risks arising from its compensation policies and practices for its employees are reasonably likely to have a material adverse effect on the Company.

 

Item 7.              Certain Relationships and Related Transactions, and Director Independence.

 

Certain Relationships and Related Transactions

 

Other than as set forth below, during the last two fiscal years, there have been no transactions, or proposed transactions, which have materially affected or will materially affect us in which any director, executive officer or beneficial holder of more than 5% of the outstanding common, or any of their respective relatives, spouses, associates or affiliates, has had or will have any direct or material indirect interest. We have no policy regarding entering into transactions with affiliated parties.

 

23
 

 

On September 15, 2009, the Company issued to Klaus Moeller, a former director of the Company, a promissory note (the “Moeller Note”) in principal amount of $150,000 at a rate of five percent (5%) interest per annum with a maturity date of September 14, 2011. The funds were borrowed from Mr. Moeller in order to provide working capital to the Company. The maturity dates were subsequently amended on September 14, 2011 to September 15, 2013 and on September 14, 2013 to September 15, 2014. The amount due to Mr. Moeller as of December 31, 2013 and December 31, 2012 includes $33,321 and $24,277 in accrued but unpaid interest, respectively. Then effective July 14, 2014, Mr. Moeller converted the principal of $150,000, plus accrued but unpaid interest in the amount of $38,184, to 4,000,000 shares of the Company’s common stock at an average price of $0.047 per share.

 

Mr. Moeller provided short term, interest free, loans to the Company at various times during the years 2009 through 2013. The amount due to Mr. Moeller on these loans as of December 31, 2013 and 2012 is $7,973 and $42,427, respectively. In accordance with Topic 835 - Imputation of Interest, imputed interest was calculated for a market rate of 5% for the twelve months ended December 31, 2013 and 2012, resulting in Additional Paid in Capital contribution of $2,797 and $2,051, respectively.

 

Mr. Moeller paid expenses on behalf of the Company which resulted in related party accounts payable as of September 30, 2014 and December 31, 2013 in the amounts of $0 and $38,738, respectively.

 

On July 31, 2014, Mr. Moeller agreed to convert up to $200,000 in outstanding short term loans for the issuance of 4,000,000 shares of the Company’s common stock. The amount of the loan converted is $136,195.

 

A company related to Mr. Moeller made short term advances of cash to the Company in 2014. The amount due as of September 30, 2014 and December 31, 2013 was $8,603 and $0, respectively.

 

Director Independence

 

We are not subject to the listing requirements of any national securities exchange or national securities association and, as a result, we are not at this time required to have our Board comprised of a majority of “independent directors.” None of our directors are independent as that term is defined under the Nasdaq Marketplace Rules.

 

Item 8.              Legal Proceedings.

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

 

There are no pending material legal proceedings to which the Company is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. The Company’s property is not the subject of any pending legal proceedings.

 

Item 9.              Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.

 

Our common stock is quoted on the over the counter pink sheets under the trading symbol “CAPA.” The following table shows the high and low last sale prices for our common shares on the pink sheets for periods indicated. The following prices reflect inter-dealer prices, without retail mark-up, mark-down or commission:

 

24
 

 

Quarter Ending   Quarter High     Quarter Low  
             
3/31/2012   $ 1.65     $ 0.25  
6/30/2012   $ 3.25     $ 0.11  
9/30/2012   $ 1.25     $ 0.22  
12/31/2012   $ 0.90     $ 0.22  
3/31/2013   $ 0.50     $ 0.05  
6/30/2013   $ 0.49     $ 0.05  
9/30/2013   $ 0.49     $ 0.25  
12/31/2013   $ 0.40     $ 0.20  

 

Our transfer agent is Island Stock Transfer located at 15500 Roosevelt Boulevard, Suite 301, Clearwater, Florida 33760.

 

As of February 10, 2015, there were approximately 194 holders of record of the Company’s common stock.

 

As of February 10, 2015: (i) no shares of common stock are subject to outstanding securities convertible into common stock; (ii) 2,260,786 shares of common stock can be sold pursuant to Rule 144 under the Securities Act; and (iii) no shares of common stock are being, or has been publicly proposed to be, publicly offered by the Company.

 

Dividends

 

The Company has never declared or paid any cash dividends on its common stock. The Company currently intends to retain future earnings, if any, to finance the expansion of its business. As a result, the Company does not anticipate paying any cash dividends in the foreseeable future.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

As of the date of the filing of this report, the Company does not have any equity compensation plan.

 

Item 10. Recent Sales of Unregistered Securities.

 

The transactions described in this section were exempt from securities registration as provided by Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D as promulgated under the Securities Act for transactions not involving a public offering.

 

Debentures

 

During 2011 and 2012, the Company sold $300,000 and $40,000, respectively, of 10% convertible debentures (the “Debentures”), each of which was convertible into shares of the Company’s common stock at a rate of one (1) share per each $0.80 converted. The Company had the right to call for the conversion if the share price met or exceeded a market price of $3.25 per share. The Company made an offer to each investor for a voluntary conversion of the outstanding principal at a rate of 1 share per each $0.40 converted. Investors holding $330,000 of the Debentures agreed and on May 3, 2012, these Debentures were converted into 825,000 shares of common stock. On May 16, 2012, the market price of the Company’s shares reached $3.25 and the Company called the remaining $10,000 outstanding Debenture, resulting in an additional issuance of 12,500 shares.

 

25
 

 

Common Stock

 

2012

 

On May 3, 2012, we issued 825,000 shares of common stock to holders of Debentures with outstanding principal in the amount of $330,000 who accepted an offer to convert to common stock at a per share price of $0.40.

 

On May 16, 2012, we issued 12,500 shares of common stock to the holder of the remaining outstanding Debenture with a principal amount of $10,000 at the contractual conversion rate of $0.80 per share pursuant to the mandatory conversion term of the Debenture taking effect when the market price of the Company’s common stock was $3.25.

 

On September 27, 2012, we issued 20,000 shares of common stock to an accredited investor for $16,000 in cash, or a per share price of $0.80.

 

In October 2012, we issued an aggregate of 50,000 shares of common stock to accredited investors in consideration for an aggregate investment of $15,000 in cash, a per share price of $0.30.

 

On November 20, 2012, we issued 600,000 shares of common stock to an accredited investor for cash of $150,000 at a per share price of $0.25. The funds were paid to the estate of Frank Worth as part of the acquisition cost for the rights to the photographs owned by the estate.

 

On November 20, 2012, we issued 60,000 shares of common stock to an accredited investor in consideration for an investment of $10,000 in cash, or $0.167 per share.

 

On December 28, 2012, we issued 40,000 shares of common stock to an accredited investor in consideration for an investment of $10,000 in cash, or $0.25 per share.

 

2013

 

During March and August, 2013, the Company conducted a private placement offering to certain accredited investors. As a result of the offering, the Company received subscriptions in the total amount of $125,000 and 500,000 shares were issued.

 

On October 21, 2013, we issued 200,000 shares of common stock in exchange for commissions related to the acquisition of the rights to photographs owned by the Frank Worth Estate with a valuation of $220,000, or $1.10 per share.

 

2014

 

On February 1, 2014, we issued 500,000 shares of common stock valued at a market price of $0.20 for a value of $100,000 to a consultant pursuant to a consulting agreement whereby we may also issue 3,500,000 shares for the introduction of a strategic business partner to the Company. On each of August 29, 2014 and October 15, 2014, 875,000 shares were issued at a market price of $0.16 per share. On November 24, 2014, an additional issuance of 875,000 shares was made with a market price of $0.20 per share. A final issuance of 875,000 shares is due to be issued in 2015.

 

In February 2014, we issued an aggregate of 1,000,000 shares of common stock to consultants as compensation for services valued at $200,000, or $0.20 per share.

 

In February 2014, we issued 3,380,000 shares of common stock to directors and employees as compensation for their services rendered at a market price of $0.20 per share.

 

On February 7, 2014, we issued 400,000 shares of common stock a market price of $0.20 to Norman Solomon, a former officer of the Company, and $440,000 of accrued expenses were extinguished.

 

On February 7, 2014 we issued 4,000 shares of common stock as a charitable donation valued at $800, or $0.20 per share.

 

26
 

 

In July 2014, we issued 8,000,000 shares of common stock to Klaus Moeller upon the conversion of a promissory note and short term loans made to the Company. (For further details, see “Certain Relationships and Related Transactions.”)

 

In July 2014, an employee agreed to convert outstanding amounts recorded as accounts payable in the aggregate amount of $8,183.21 to 163,664 shares of common stock at a conversion rate of $0.05 per share. The market price of the shares on the date of the agreement was $63,828, or $0.39 per share.

 

On August 1, 2014, we issued 200,000 shares of common stock to a consultant for services valued at $78,000, or $0.39 per share.

 

On August 1, 2014, we agreed to issue 20,000,000 shares of common stock for $1,000,000 in cash, or $0.05 per share, with payment made in four tranches of $250,000 each on specific dates. On August 29, 2014 and October 15, 2014, payments were received and 5,000,000 shares were issued on each date. On November 24, 2014, an additional payment of $200,000 was received and 4,000,000 shares were issued.

 

On August 14, 2014, we issued 2,000,000 shares of common stock for a consulting contract with a term of twelve (12) months valued of the services is $320,000, or $0.16 per share.

 

On August 15, 2014, we issued 100,000 shares of common stock to a consultant for services valued at $16,000, or $0.16 per share.

 

On August 16, 2014, we executed a consulting agreement for strategic management services payable with up to 5,500,000 shares of the Company’s common stock over the term of the agreement. On each of August 29, 2014 and October 15, 2014, the Company issued 1,375,000 shares with a value of $220,000, or $0.16 per share. On November 24, 2014, the Company issued 1,100,000 shares valued at $220,000, or $0.20 per share.

 

On September 3, 2014, we issued 250,000 shares of common stock for legal services with a value of $40,000, or $0.16 per share.

 

On September 30, 2014, an officer and director of the Company agreed to convert $10,574 of expenses incurred by him on behalf of the Company to 211,472 shares of common stock, a conversion rate of $0.05 per share. The market value of the stock issuance was $82,474, or $0.39 per share on the date of the agreement.

 

On October 8, 2014, we issued 256,400,226 shares of common stock pursuant to the MSN Purchase Agreement.

 

Item 11.            Description of Registrant’s Securities to be Registered.

 

The Company’s authorized capital stock of 500,000,000 consists of (i) 450,000,000 shares of common stock, par value $0.001 and (ii) 50,000,000 shares of preferred stock, par value $0.001. As of February 10, 2015, there are 311,973,283 shares of the Company’s common stock issued and outstanding.

 

The holders of common stock are entitled to one non-cumulative vote for each share held on all matters submitted to a vote of stockholders. Holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of funds legally available. Upon a liquidation, dissolution or winding up the Company, the holders of common stock are entitled to receive ratably the net assets available after the payment of all debts and other liabilities, and subject further only to the prior rights of any outstanding preferred stock.

 

The holders of common stock have no preemptive, subscription, redemption or sinking fund conversion rights. Holders of shares of our common stock do not have cumulative voting rights, which means that the holders of more than 50% of the outstanding shares, voting for the election of directors, can elect all of the directors to be elected, if they so choose, and, in that event, the holders of the remaining shares will not be able to elect any of our directors.

 

Our certificate of incorporation  provides that our board of directors is authorized to provide for the issuance of shares of preferred stock in one or more series and, by filing a certificate of designations pursuant to the applicable law of the State of Delaware (hereinafter referred to as a “Preferred Stock Designation”), to establish from time to time for each such series the number of shares to be included in each such series and to fix the designations, powers, rights and preferences of the shares of each such series, and the qualifications, limitations and restrictions thereof.

 

27
 

 

Item 12.            Indemnification of Directors and Officers.

 

Subsection (a) of Section 145 of the General Corporation Law of the State of Delaware (“DGCL”) empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

 

Subsection (b) of Section 145 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification may be made in respect to any claim issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

 

Section 145 further provides that to the extent a director or officer of a corporation has been successful on the merits or otherwise in the defense of any such action, suit or proceeding referred to in subsections (a) and (b) of Section 145 or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith; that the indemnification provided for by Section 145 shall not be deemed exclusive of any other rights which the indemnified party may be entitled; that indemnification provided by Section 145 shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of such person's heirs, executors and administrators; and empowers the corporation to purchase and maintain insurance on behalf of a director or officer of the corporation against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liabilities under Section 145.

 

Section 102(b)(7) of the DGCL provides that a certificate of incorporation may contain a provision eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provision shall not eliminate or limit the liability of the director (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed hereby in the Securities Act and we will be governed by the final adjudication of such issue.

 

Item 13.            Financial Statements and Supplementary Data.

 

The financial statements of the Company begin on Page F-1.

 

28
 

 

Item 14.            Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None.

 

Item 15.            Financial Statements and Exhibits.

 

(a) Financial Statements

 

(b) The exhibits listed below are filed as part of this Form 10. 

 

Exhibit

Number

Description
   
3.01 Certificate of Incorporation, dated September 20, 2004
   
3.02 Certificate of Amendment to Certificate of Incorporation, dated December 2, 2004
   
3.03 Certificate of Amendment to Certificate of Incorporation, dated February 11, 2005
   
3.04 Certificate of Amendment to Certificate of Incorporation, dated April 30, 2007
   
3.05 Certificate of Amendment to Certificate of Incorporation, dated December 7, 2009
   
3.06 Certificate of Amendment to Certificate of Incorporation, dated April 28, 2011
   
3.07 Bylaws
   
10.01 Promissory Note Issued to K. Moeller, dated September 15, 2009
   
10.02 Amendment to Promissory Note Issued to K. Moeller, dated September 15, 2011
   
10.03 Amendment to Promissory Note Issued to K. Moeller, dated September 14, 2013
   
10.04 Membership Interest Purchase Agreement by and between the Members of Capital Art, LLC and Gleeworks, Inc., dated April 25, 2011
   
10.05 Memorandum of Understanding by and between the Estate of Frank Worth and Capital Art, Inc., dated October 10, 2011
   
10.06 Photographic Reproduction and Marketing Rights Agreement by and between Capital Art, Inc. and the Estate of Frank Worth, dated November 18, 2011
   
10.07 Purchase Agreement by and among Capital Art, Inc., International Images Ltd. and Birchley Limited, dated December 21, 2011
   
10.08  Deed of Variation by and among Capital Art, Inc., International Images Ltd. and Birchley Limited, dated February 28, 2013
   
10.09 Form of Securities Purchase Agreement (10% Convertible Debentures)
   
10.10 Form of 10% Convertible Debenture (Expiring December 2015)
   
10.11 Asset Purchase Agreement by and between Capital Art, Inc. and Movie Star News, LLC, dated October 8, 2014
   
21 Subsidiaries

 

     

 

29
 

 

SIGNATURES

 

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf buy the undersigned, thereunto duly authorized.

 

Date: February 10, 2015

 

 

  CAPITAL ART, INC.
     
  By:  /s/ Sean Goodchild
    Sean Goodchild
    Chief Executive Officer

 

 

 

 

30
 

 

INDEX TO FINANCIAL STATEMENTS

 

  Page
   
Report of Independent Registered Public Accounting Firm F-2
   
Audited Financial Statements:  
Consolidated Balance Sheets as of December 31, 2013 and 2012 F-3
Consolidated Statements of Operations for the years ended December 31, 2013 and 2012 F-4
Consolidated Statements of Changes in Stockholders’ Deficiency for the years ended December 31, 2013 and 2012 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012 F-6
   
Notes to the Consolidated Financial Statements F-7
   
Consolidated Balance Sheets as of September 30, 2014 (unaudited) and December 31, 2013 F-16
Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and September 30, 2013 (unaudited) F-17
Consolidated Statement of Changes in Stockholders’ Deficiency for the year ended December 31, 2013 (audited) and for the nine months ended September 30, 2014 (unaudited) F-18
Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and September 30, 2013 (unaudited) F-19
 
Notes to the Consolidated Financial Statements F-20

 

F- 1
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors
Capital Art, Inc.


We have audited the accompanying consolidated balance sheets of Capital Art, Inc. and subsidiaries as of December 31, 2013 and 2012, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Capital Art, Inc. and subsidiaries as of December 31, 2013 and 2012, and the results of its their operations and its their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

 

 

/s/ HJ Associates & Consultants, LLP

 

HJ Associates & Consultants, LLP

Salt Lake City, Utah

February 10, 2015

 

F- 2
 

Capital Art, Inc.

Consolidated Balance Sheets

December 31, 2013 and December 31, 2012

 

 

 

ASSETS   12/31/2013     12/31/2012  
             
Current Assets:                
Cash   $ 2,188     $ 14,520  
Accounts Receivable, net     22,846       6,506  
Total Current Assets     25,034       21,026  
                 
Intangible Assets     2,915,000       2,915,000  
Total Assets   $ 2,940,034     $ 2,936,026  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                
Current Liabilities:                
Accounts Payable   $ 14,923     $ 41,454  
Accrued Expenses     455,968       738,359  
Accrued Salaries and Taxes Payables     230,032       216,743  
Related Party Payables     191,294       216,704  
Total Current Liabilities     772,713       1,067,759  
                 
Total Liabilities     772,713       1,067,759  
                 
Stockholders’ Equity (Deficit)                
Common Stock, $0.0001 par value, 450,000,000 shares authorized; 18,888,921 and 18,188,921 shares issued and outstanding, respectively     1,889       1,819  
Preferred Stock, $0.0001 par value, 50,000,000 shares authorized; 0 and 0 shares issued and outstanding, respectively            
Additional Paid in Capital     9,866,635       9,512,908  
Accumulated Deficit     (7,701,203 )     (7,646,460 )
Total Stockholders’ Equity (Deficit)     2,167,321       1,868,267  
                 
Total Liabilities & Stockholders’ Equity (Deficit)   $ 2,940,034     $ 2,936,026  

 

The accompanying notes are an integral part of these consolidated financial statements

 

F- 3
 

Capital Art, Inc.

Consolidated Statements of Operations

Years Ended December 31, 2013 and 2012

 

       

 

       
      2013       2012  
Revenues:                
Product Sales   $ 218,766     $ 211,646  
Other Revenue           8,760  
Total Revenues     218,766       220,406  
                 
Cost of Sales     120,946       140,629  
                 
Gross Profit     97,820       79,777  
                 
Operating Expenses:                
Professional Services     5,295       53,986  
Rent Expense     17,787       32,284  
Marketing & Sales     21,248       53,118  
Salaries and Related Expenses     66,364       76,835  
Other General & Administrative     29,978       36,799  
Total Operating Expenses     140,672       253,022  
                 
Loss from Operations     (42,852 )     (173,245 )
                 
Other Income (Expense):                
Interest Expense     (50 )     (12,343 )
Interest Expense – Related Parties     (11,841 )     (10,654 )
Gain (loss) on extinguishment of debt           (106,250 )
Gain (loss) on Director's Loan           4,526  
Net Other Income (Expense)     (11,891 )     (124,721 )
                 
Loss before Income Tax Expense     (54,743 )     (297,966 )
                 
Income Tax Expense            
                 
Net Loss     (54,743 )     (297,966 )
                 
Basic and diluted Loss per common share   $ (0.00 )   $ (0.02 )
                 
Weighted average shares outstanding     18,583,716       17,227,428  

 

The accompanying notes are an integral part of these consolidated financial statements

 

F- 4
 

Capital Art, Inc.

Consolidated Statements of Stockholders’ Equity (Deficit)

Years Ended December 31, 2013 and 2012

 

           

 

    Common Stock     Additional Paid in     Accumulated        
    Shares     Amount     Capital     Deficit     Total  
Balance, December 31, 2011     16,581,421     $ 1,658     $ 8,760,768     $ (7,348,494 )   $ 1,413,932  
                                         
Common Stock Issued for Cash     770,000       77       200,923             201,000  
Common Stock Issued for Conversion of Debt     837,500       84       546,166             546,250  
Imputed Salary Expense                 3,000             3,000  
Imputed Interest Expense                 2,051             2,051  
Net Loss                       (297,966 )     (297,966 )
Balance, December 31, 2012     18,188,921       1,819       9,512,908       (7,646,460 )     1,868,267  
                                         
Common Stock Issued for Cash     500,000       50       124,950             125,000  
Common Stock Issued for Asset     200,000       20       219,980             220,000  
Imputed Salary Expense                 6,000             6,000  
Imputed Interest Expense                 2,797             2,797  
Net Loss                       (54,743 )     (54,743 )
                                         
Balance, December 31, 2013     18,888,921     $ 1,889     $ 9,866,635     $ (7,701,203 )   $ 2,167,321  

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

 

 

 

F- 5
 

Capital Art, Inc.

Consolidated Statements of Cash Flows

Years Ended December 31, 2013 and 2012

 

         

 

Cash Flows from Operating Activities:   12/31/2013     12/31/2012  
Net Loss   $ (54,743 )   $ (297,966 )
Adjustments to reconcile net loss to net                
cash provided in operating activities:                
Imputed Related Party Interest     2,797       2,051  
Imputed Officer Compensation     6,000       3,000  
Gain on Extinguishment of Debt           106,250  
                 
Decrease (increase) in operating assets:                
Accounts Receivable     (16,340 )     7,634  
Prepaid Expenses & Other Assets           3,900  
                 
Increase (decrease) in operating liabilities:                
Accounts Payable     (47,970 )     8,193  
Accrued Salaries and Taxes Payable     21,987       23,246  
Accrued Interest           (6,472 )
Related Party Payables     47,782       19,226  
Accrued Expenses     (62,391 )     (166,419 )
Net cash provided/(used) in operating activities     (102,878 )     (297,357 )
                 
Cash Flows from Investing Activities:                
Net cash provided/(used) by investing activities            
                 
Cash Flows from Financing Activities:                
Sale of Common Stock     125,000       201,000  
Proceeds from Debenture           40,000  
Payments on Related Party Debt     (75,000 )     (13,520 )
Proceeds from Related Party Debt     40,546       49,631  
Net cash provided/(used) by financing activities     90,546       277,111  
                 
Net increase/(decrease) in cash     (12,332 )     (20,246 )
Beginning Cash Balance     14,520       34,766  
Ending Cash Balance   $ 2,188     $ 14,520  
                 
Supplemental disclosures of cash flow information:                
Cash paid for income taxes   $     $  
Cash paid for interest   $     $ 12,343  
Schedule of non-cash financing and investing activities:                
Conversion of Debt to Common Stock   $     $ 340,000  
Issuance of Common Stock for Intangible Asset   $ 220,000     $  

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

F- 6
 

 

Capital Art, Inc.

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

 

Note 1:  The Company and Significant Accounting Policies

 

Organization and Nature of Business

 

Capital Art, Inc. (“CAPA”) sells and manages classic and contemporary, limited edition photographic images and reproductions, with a focus on iconic celebrity images. CAPA acquires editions and manages some of the most valuable iconic photographic images and internationally markets limited editions and reproductions created from the original negatives. The company also makes available images for publications and merchandizing.

 

The Company markets and distributes photographs that we own or manage to the art, editorial and commercial markets. CAPA also sells limited editions of its photographs through third-party galleries, art consultants, interior decorators and direct to consumers.

 

Our aim is to become a leading global photography marketing and distribution company by acquiring rights and ownership to collections of iconic photographs, and to establish worldwide wholesale and retail outlets as well as representations to sell our product lines through any channel of distribution the Company believes to be advantageous.

 

In June 2011, the Company opened a 1,500 square foot commercial gallery location in Culver City, CA to display and sell copies of the photographic images owned by the Company. There was insufficient sales generated at the location and it was closed in September 2012.

 

On May 9, 2011, Gleeworks, Inc. (“Gleeworks”) acquired (the “Acquisition”) Capital Art, LLC, pursuant to a business combination (the “Gleeworks Agreement”) whereby the entire outstanding member interest of Capital Art LLC was exchanged for 7.498 million shares of restricted common stock of Gleeworks on a one share for two units basis, representing approximately 51% of the shares issued and outstanding of Gleeworks. Prior to the Acquisition, Gleeworks operated a business engaged in the apparel industry.

 

Commensurate with the acquisition, Gleeworks changed its corporate name to “Capital Art, Inc.,” which became effective April 28, 2011. In addition, the Company assumed the business of Capital Art, LLC, in photographic images. Following the acquisition, Capital Art, LLC, became a wholly-owned and operating subsidiary of Capital Art, Inc.

 

Frank Worth Photographic Reproduction and Marketing Rights Agreement

 

On October 10, 2011, the Company entered into a memorandum of understanding (the “Frank Worth MOU”) as an interim agreement with the Estate of Frank Worth (the “Frank Worth Estate”) whereby the Frank Worth Estate agreed to exclusively grant the Company all rights in perpetuity to reproduce prints from Frank Worth negatives, to use of the Frank Worth name, signature and intellectual property in exchange for a 7.5% royalty on all revenue received by Capital Art from the sale of any and all Frank Worth prints, products and use whatsoever of Frank Worth’s name, likeness, story and biography. In connection with the Frank Worth MOU, the Company paid an aggregate of $50,000 in installments to the Frank Worth Estate to settle funds owed by the previous licensee, International Images Ltd., a UK company (“Images”).

 

Subsequently, on November 18, 2011, the Company and the Frank Worth Estate entered into a Photographic Reproduction and Marketing Rights Agreement (the “Frank Worth Reproduction Rights Agreement”). Pursuant to the Frank Worth Reproduction Rights Agreement, the Frank Worth Estate granted to the Company exclusive global reproduction rights to all negatives, prints, products and other materials from the Frank Worth collection, including the use of the Frank Worth Seal, Frank Worth’s name, likeness, publications and biography, plus merchandising and product selling rights as well as exclusive rights to the signature of the Frank Worth Estate’s executor (the “Executor”) in conjunction with any and all Certificates of Authenticity printed by the Company that accompany limited edition prints (the “Frank Worth Archive”). In consideration for the exclusive rights, the Company paid to the Frank Worth Estate a purchase price of $50,000 and agreed to make continuous payments of a monthly royalty amount of 7.5% of all net sales, with an annual minimum guarantee of $50,000. In June 2014, the Frank Worth Estate agreed to a reduced minimum royalty guarantee payment for 2013 and 2014 to the amount of $30,000 for each year. The Frank Worth Reproduction Rights Agreement also granted the Company a right to buyout the exclusive agreement from the Frank Worth Estate at any time for $250,000.

 

On November 12, 2014, the Frank Worth Estate agreed to accept $155,000 and 200,000 shares of the Company’s common stock, $30,000 payable on execution and the remainder payable on or before May 31, 2015, in exchange for sole and exclusive, world-wide, royalty free rights to all negatives, prints, products and other materials the Company possesses including the use of the Frank Worth seal, Frank Worth’s name, likeness, publications and biography plus merchandising and selling rights.

 

Frank Worth Collection and Daniel Furon Collection Purchase Agreement

 

On December 21, 2011, the Company entered into an agreement (the “Worth and Furon Purchase Agreement”) with International Images and Birchley Limited, a UK company (“Birchley”) whereby the Company obtained from Images rights to the negatives, images, photographs and all other interests in (i) approximately 7,500 images and approximately 5,500 negatives of the Frank Worth Collection (the “Frank Worth Collection”) and 50 Daniel Furon images (the “Daniel Furon Collection,” and together with the Frank Worth Collection, the “Collections”) in exchange for 1,000,000 shares of the Company’s common stock. Also pursuant to the Worth and Furon Purchase Agreement, Birchley, which held a security interest in the Collections, consented to the acquisition on the condition that Birchley would retain title until receipt of $200,000 (of an aggregate of $400,000) and 600,000 shares of common stock in the Company.

 

Subsequently on February 28, 2013, the Company, Images and Birchley entered into a deed of variation (the “Amendment”) of the Worth and Furon Purchase Agreement whereby Birchley repaid $100,000 of $150,000 paid to the Company under the Worth and Furon Purchase Agreement and the Company issued an additional 400,000 shares of common stock to Birchley. Upon receipt of such shares, Birchley released the title to the Collections.

 

F- 7
 

Capital Art, Inc.

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

 

Movie Star News, LLC, Acquisition

 

On October 8, 2014, the Company concluded an Asset Purchase Agreement with Movie Star News, LLC (“MSN”) to acquire a collection consisting of approximately 100,000 negatives, certain other negatives including the Bettie Page collection and approximately 1 million 8" by 10" Black & White Photographs, including all Copyrights owned by MSN for the collection. 

 

Financial Statement Preparation

 

The Company’s Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America. These require the use of estimates and assumptions that affect the assets, liabilities, revenues and expenses reported in the financial statements, as well as amounts included in the notes thereto, including discussion and disclosure of contingent liabilities.  Although the Company uses its best estimates and judgments, actual results could differ from these estimates as future confirming events occur.

 

Principles of Consolidation

 

The consolidated financial statements include the financial statements of the Company, and its 100% owned subsidiary: Capital Art LLC.  All inter-company balances and transactions have been eliminated in consolidation.

 

Liquidity

 

Historically, the Company has incurred net losses. As of December 31, 2013, the Company had an accumulated deficit of $7,701,203 and total stockholders’ equity of $2,167,321. At December 31, 2013, the Company had current assets of $25,034, including cash of $2,188, and current liabilities of $772,713, resulting in a working capital deficit of $747,679, including $440,000 in commission expenses accrued for the acquisition of the rights to the Frank Worth collection that was paid by the issuance of common stock in 2014. For the year ended December 31, 2013, the Company reported a net loss of $54,743 and net cash used by operating activities of $102,878. As discussed in Note 10: Subsequent Events, the Company has received $909,000 from sales of equity to an accredited investor in 2014 and 2015. Management believes that its sales, cash provided by operations, together with funds available from investors, will be sufficient to fund planned operations for the next twelve months.   However, there can be no assurance that operations and operating cash flows will continue at the current levels or improve in the near future.  If the Company is unable to obtain profitable operations and positive operating cash flows sufficient to meet scheduled debt obligations, it may need to seek additional funding or be forced to scale back its development plans or to significantly reduce or terminate operations.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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 and the reported amounts of revenues and expenses during the reporting periods.

 

Cash Equivalents

 

The Company considers all highly liquid debt instruments with initial maturities of three months or less to be cash equivalents.

 

Revenue Recognition

 

The Company recognized revenue related to product sales when (i) the seller’s price is substantially fixed, (ii) shipment has occurred causing the buyer to be obligated to pay for product, (iii) the buyer has economic substance apart from the seller, and (iv) there is no significant obligation for future performance to directly bring about the resale of the product by the buyer as required by Revenue Recognition Topic 605 of the FASB Accounting Standards Codification.

 

Revenues associated with the sale of products are recorded when shipped to customers pursuant to approved customer purchase orders resulting in the transfer of title and risk of loss. Cost of sales, rebates and discounts are recorded at the time of revenue recognition or at each financial reporting date.

 

The Company’s other revenue represent payments based on net sales from brand licensees for content reproduction rights. These license agreements are held in conjunction with third parties that are responsible for collecting fees due and remitting to the Company its share after expenses. Revenue from licensed products is recognized when realized or realizable based on royalty reporting received from licensees.

 

F- 8
 

Capital Art, Inc.

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

 

Shipping and Handling

 

The Company records shipping and handling expenses in the period in which they are incurred and are included in the Cost of Goods Sold.

 

Inventories

 

Inventories are stated at the lower of cost (average) or market and consist of finished goods. There is no inventory on hand.

 

Intangible Assets

 

Intangible Assets acquired, either individually or with a group of other assets, are initially recognized and measured based on fair value.  In the acquisition of the assets from the Frank Worth Estate, an independent appraisal conducted by a qualified third party.

      

The Company reviews all intangible assets with an indefinite useful life annually in accordance with ASC 350-35-18 to determine if the value might be impaired by comparing the fair value of the intangible asset to its carrying value At September 30, 2014 and December 31, 2013, it was determined that no impairment existed.

    

Income Taxes

 

Deferred income tax assets and liabilities are recognized based on differences between the financial statement and tax basis of assets and liabilities using presently enacted tax rates. At each balance sheet date, the Company evaluates the available evidence about future taxable income and other possible sources of realization of deferred tax assets, and records a valuation allowance that reduces the deferred tax assets to an amount that represents management’s best estimate of the amount of such deferred tax assets that more likely than not will be realized.

 

Advertising Costs

 

The Company’s marketing and sales costs are primarily related to advertising, trade shows, public relation fees and production and distribution of collateral materials. In accordance with the FASB Topic 720-35 regarding Advertising Costs, the Company expenses advertising costs in the period in which the expense is incurred. Marketing and Sales costs incurred by licensees are borne fully by the licensee and are not the responsibility of the Company. Advertising expense for the year ended December 31, 2013 and December 31, 2012 was $3,455 and $19,390, respectively.

  

Allowance for Sales Returns

 

An Allowance for Sales Returns is estimated based on average sales during the previous year.  Based on experience, sales growth, and our customer base, the Company concluded that the allowance for sales returns at December 31, 2013 and December 31, 2012 should be $0 and $0, respectively.

 

Concentration of Risk

 

The Company’s cash and cash equivalents are maintained at one financial institution and from time to time the balances for this account exceed the Federal Deposit Insurance Corporation’s (“FDIC’s”) insured amount. Balances on interest bearing deposits at banks in the United States are insured by the FDIC up to $250,000 per institution. As of December 31, 2013 and 2012, there were no uninsured balances.

 

For fiscal year 2013, the revenue from one customer comprised 17.9% of the Company’s total revenue. This account made up 0% of the total accounts receivable balance at December 31, 2013.   For fiscal year 2012, the revenue from three major customers comprised 27.2%, 14.8% and 10.6% of the Company’s total revenue.  Those three major customers made up 0%, 0%, and 0% of the total accounts receivable balance at December 31, 2012, respectively. The major customer for the year ending December 31, 2013 is not necessarily the same as one of the major customers at December 31, 2012. There is significant financial risk associated with a dependence upon a small number of customers.  The Company periodically assesses the financial strength of these customers and establishes allowances for any anticipated bad debt.  At December 31, 2013 and 2012, no allowance for bad debt or bad debt expense has been recorded for the major customers.

 

Earnings Per Share

 

Basic earnings (loss) per common share (“EPS”) is calculated by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted EPS is calculated by dividing net loss by the weighted average number of common shares outstanding, plus the assumed exercise of all dilutive securities using the treasury stock or “as converted” method, as appropriate. During periods of net loss, all common stock equivalents are excluded from the diluted EPS calculation because they are antidilutive. The Company had no dilutive securities outstanding as of December 31, 2013.

 

Fair value of financial instruments

 

The carrying amounts of cash, receivables and accrued liabilities approximate fair value due to the short-term maturity of the instruments.

  

F- 9
 

Capital Art, Inc.

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

 

Litigation

 

We are not a party to any legal or administrative proceedings, other than routine legal activities incidental to our business that we do not believe, individually or in the aggregate, would be likely to have a material adverse effect on our financial condition or results of operations.

 

Note 2:  Intangible Assets

 

The Company has intangible assets used in the creation of revenue is as follows as of December 31:

 

    2013     2012  
Frank Worth Collection   $ 2,915,000     $ 2,915,000  
Intangible Assets   $ 2,915,000     $ 2,915,000  

 

Pursuant to FASB Accounting Standards Codification regarding Topic 350, Intangible Assets, intangible asset(s) acquired, either individually or with a group of other assets shall be initially recognized and measured based on fair value.  In the acquisition of the rights obtained to assets from the Frank Worth Estate, fair value was calculated using an independent appraisal conducted by a qualified third party.  The assets were recorded at $2,915,000, the total purchase price. The rights purchased for the Frank Worth collection are perpetual as long as the terms of royalty payments are met. As a result, the Company has determined these assets have an indefinite useful life and are not subject to amortization.

   

The Company reviews all intangible assets with an indefinite useful life annually in accordance with ASC 350-35-18 to determine if the value might be impaired by comparing the fair value of the intangible asset to its carrying value. At year end December 31, 2013 and 2012, it was determined that no impairment existed.

 

Note 3:  Accrued Expenses

 

Accrued but unpaid salaries and payroll taxes total $72,190 and $50,203 as of December 31, 2013 and 2012, respectively. Other accrued liabilities totaling $455,968 in 2013 and $738,359 in 2012 are as follows:

 

    2013     2012  
Royalties Payable     12,966       22,966  
Accrued Frank Worth collection commission expense     440,000       705,000  
Other Accrued Expenses     3,002       10,393  
Total Accrued Expenses   $ 455,968     $ 738,359  

 

Note 4:  Debentures

 

During 2011 and 2012, the Company sold $300,000 and $40,000, respectively, of 10% convertible debentures (the “Debentures”), each of which was convertible into shares of the Company’s common stock at a rate of one (1) share per each $0.80 converted. The Company had the right to call for the conversion if the share price met or exceeded a market price of $3.25 per share. The Debentures were sold to accredited investors only pursuant to Rule 506 of the Securities Act. The Company made an offer to each investor for a voluntary conversion of the outstanding principal at a rate of 1 share per each $0.40 converted. Investors holding $330,000 of the Debentures agreed and on May 3, 2012, these Debentures were converted into 825,000 shares of common stock. In accordance with ASC 470-20-40-26, an expense was recognized for the value of the inducement of conversion of these shares in the amount of $206,250 at the time of conversion. On May 16, 2012, the market price of the Company’s shares reached $3.25 and the Company called the remaining $10,000 outstanding Debenture, resulting in an additional issuance of 12,500 shares. Interest was paid in the amounts of $0 and $12,343 for the twelve months ended December 31, 2013 and 2012, respectively.

 

F- 10
 

Capital Art, Inc.

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

 

Note 5:  Related Party Payables

 

As of December 31, 2013 and 2012, the Company had the following related party payables outstanding:

 

    2013     2012  
Note Payable - Related Party; 5% interest   $ 150,000     $ 150,000  
Accrued Interest - Related Party Note Payable     33,321       24,277  
Loan Payable - Related Party; imputed interest at 5%     7,973       42,427  
Accounts Payable - Related Party     38,738       21,039  
Total Notes Payable     230,032       237,743  
Less:  Current Portion     (230,032 )     (237,743 )
Long Term Portion   $     $  

 

On September 15, 2009, Klaus Moeller, a shareholder, loaned $150,000 to the Company at an interest rate equal to 5% per annum as a long term note payable.  The funds were borrowed from Mr. Moeller in order to provide working capital to the Company. Subsequent agreements extended the maturity date to September 14, 2014. The amount due to Mr. Moeller as of December 31, 2013 and December 31, 2012 includes $33,321 and $24,277 in accrued but unpaid interest, respectively. On July 14, 2014, Mr. Moeller converted the principal of $150,000, plus accrued but unpaid interest in the amount of $38,184, to 4,000,000 shares of the Company’s common stock at an average price of $0.047 per share.

 

Mr. Moeller provided short term, interest free, loans to the Company at various times during the years 2009 through 2013. The amount due to Mr. Moeller on these loans as of December 31, 2013 and 2012 is $7,973 and $42,427, respectively. In accordance with Topic 835 - Imputation of Interest, imputed interest was calculated for a market rate of 5% for the twelve months ended December 31, 2013 and 2012, resulting in Additional Paid in Capital contribution of $2,797 and $2,051, respectively.

 

Mr. Moeller paid expenses on behalf of the Company which resulted in related party accounts payable on December 31, 2013 and December 31, 2012 in the amounts of $38,738 and $21,039, respectively.

 

On July 31, 2014, Mr. Moeller agreed to convert up to $200,000 in outstanding related party loan and accounts payable for the issuance of 4,000,000 shares of the Company’s common stock. The amount converted was $136,195.

 

Note 6:  Stockholders’ Equity

 

The total number of authorized shares of common stock is 450,000,000 shares of $0.001 par value. As of December 31, 2013 and December 31, 2012, there were 18,888,921 and 18,188,921 shares of common stock outstanding, respectively.

 

The Company has 50,000,000 shares of preferred stock authorized with a par value of $0.001. The Board of Directors is authorized, subject to any limitations prescribed by law, without further vote or action by our stockholders, to issue from time to time shares of preferred stock in one or more series. Each series of preferred stock will have such number of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges as shall be determined by our board of directors, which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights. As of December 31, 2013, no shares were outstanding and the Board of Directors has not authorized issuance of preferred shares.

 

On May 3, 2012, holders of Debentures with outstanding principal in the amount of $330,000 accepted an offer to convert to common stock at a per share price of $0.40 and 825,000 shares of common stock was issued.

 

On May 16, 2012, the market price of the Company’s common stock was $3.25, and pursuant to the terms of the Debenture, the Company called the conversion of the remaining outstanding Debenture with a principal amount of $10,000 at the contractual conversion rate of $0.80 per share. 12,500 shares of common stock was issued to the holder.

 

F- 11
 

Capital Art, Inc.

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

 

On September 27, 2012, the Company issued 20,000 shares of common stock to an accredited investor for $16,000 in cash, or a per share price of $0.80.

 

In October 2012, the Company issued a total of 50,000 shares of common stock to accredited investors for $15,000, a share price of $0.30 per share.

 

On November 20, 2012, the Company issued 600,000 shares of common stock to an accredited investor for cash of $150,000 at a per share price of $0.25. The funds were paid to the estate of Frank Worth as part of the acquisition cost for the rights to the photographs owned by the estate.

 

On November 20, 2012, the Company received $10,000 in cash for 60,000 shares of its common stock from an accredited investor, or $0.167 per share.

 

On December 28, 2012, an accredited investor was issued 40,000 shares of common stock for $10,000 in cash, or a per share price of $0.25.

 

During 2013 and 2012, a shareholder made short term, interest free advances to the Company. The Company recorded imputed interest at a rate of 5% on these amounts and recorded a total of $2,797 and $2,051, respectively, to Additional Paid in Capital.

 

During 2013 and 2012, officers of the Company waived compensation for their services. The Company imputed compensation in the amounts of $6,000 and $3,000 for these periods, respectively, recorded to Additional Paid in Capital.

 

During March and August, 2013, the Company conducted a private placement offering to certain accredited investors under Rule 506.  As a result of the offering, the Company received subscriptions in the total amount of $125,000 and 500,000 shares were issued.

 

On October 21, 2013, 200,000 shares of commons stock were issued in exchange for commissions related to the acquisition of the rights to photographs owned by the Frank Worth estate with a valuation of $220,000, or $1.10 per share.

 

Note 7:  Income Taxes

 

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences.  Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

 

Net deferred tax liabilities consist of the following components as of December 31, 2013 and December 31, 2012: 

 

    2013     2012  
Deferred tax assets:                
NOL Carryover   $ 191,000     $ 186,600  
Allowance for Doubtful Accounts            
Related Party Accruals     13,000        
Deferred tax liabilities                
Depreciation and Amortization            
                 
Valuation Allowance     (204,000 )     (186,600 )
Net deferred tax asset   $     $  

 

F- 12
 

Capital Art, Inc.

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

 

The income tax provision differs from the amount of income tax determined by applying the U.S. federal tax rate to pretax income from continuing operations for the years ended December 31, 2013 and December 31, 2012 due to the following:

 

    2013     2012  
             
Book Loss   $ (21,300 )   $ (116,200 )
Meals and Entertainment     900       1,700  
Debt Conversion Expense           80,400  
Penalties     2,700       3,600  
Other     3,400       2,000  
Related Party Interest     3,500       3,400  
Gain on Settlement of Debt           (39,000 )
Valuation Allowance     10,800       64,100  
    $     $  

 

At December 31, 2013, the Company had net operating loss carry forwards of approximately $490,000 that may be offset against future taxable income from the year 2014 through 2034. No tax benefit has been reported in the December 31, 2013 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.

 

Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry forwards may be limited as to use in future years.

 

The Company accounts for income taxes in accordance with Accounting Standards Codification Topic 740, Income Taxes (“Topic 740”), which requires the recognition of deferred tax liabilities and assets at currently enacted tax rates for the expected future tax consequences of events that have been included in the financial statements or tax returns.  A valuation allowance is recognized to reduce the net deferred tax asset to an amount that is more likely than not to be realized.

 

Topic 740 provides guidance on the accounting for uncertainty in income taxes recognized in a company’s financial statements.  Topic 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.

 

At the adoption date of January 1, 2008, the Company had no unrecognized tax benefit which would affect the effective tax rate if recognized.

 

The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operation in the provision for income taxes.  As of December 31, 2013, the Company had no accrued interest or penalties related to uncertain tax positions.

 

The Company files income tax returns in the U.S. federal jurisdiction and in the state of Delaware.  The Company is currently subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities since inception of the Company. The Company has not filed federal income tax returns from inception, including the years ended December 31, 2013 and 2012.

 

Note 8:  Lease Commitments

 

The Company has no capital leases subject to the Capital Lease guidelines in the FASB Accounting Standards Codification.  Rental expenses incurred for operating leases during 2013 and 2012 were $17,787 and $32,284.  The Company had one operating lease for office space of approximately 1,500 square feet in Culver City, CA that was terminated August 1, 2012.   The Company rents office space on a month-to-month basis in Brooklyn, NY.

 

F- 13
 

Capital Art, Inc.

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

 

Note 9: Recent Accounting Pronouncements

 

The Company reviews all of the Financial Accounting Standard Board’s updates periodically to ensure the Company’s compliance of its accounting policies and disclosure requirements to the Codification Topics. The Company has determined there were no new accounting pronouncements issued during the twelve months ended December 31, 2013 and December 31, 2012 that the Company believes are applicable or would have a material impact on the consolidated financial statements of the Company.

 

Note 10:  Employment Agreements

 

On October 3, 2013, the Company entered into an Employment Agreement with an employee for a term of twenty-six months, expiring on December 31, 2015.  The agreements specified increasing annual salary amounts, car allowances, participation in benefit plans, vacations, and stock option plans, and severance benefits.

 

The following is a schedule by year of the future minimum salary payments related to this employment agreement:

 

  2013     $ 50,000  
  2014       55,000  
  2015       70,000  
  Total     $ 175,000  

 

Note 11:  Subsequent Events

 

The Company evaluated subsequent events pursuant to ASC 855 and has determined there are the following events to disclose:

 

On February 1, 2014, the Company executed a consulting agreement for services. The agreement specifies issuance of 500,000 shares of common stock for execution of the agreement and 3,500,000 shares for introduction of a strategic business partner. On February 1, 2014, the shares for execution were issued and valued at a market price of $0.20, for a value of $100,000. On each of August 29, 2014 and October 15, 2014, 875,000 shares were issued at a market price of $0.16 per share and professional services expense was recorded in the amount of $140,000 for each issuance. On November 24, 2014, an additional issuance of 875,000 shares was made and an expense recorded in the amount of $175,000, or a market price of $0.20. A final issuance of 875,000 shares is due to be issued in 2015.

 

On February 7, 2014, the board of directors authorized issuance of shares of common stock to certain directors and employees in recognition of their service for projects. A total of 3,380,000 shares were issued at a market price of $0.20 per share and compensation expense was recorded in the amount of $676,000.

 

On February 7, 2014, 400,000 shares of common stock was issued to Norman Solomon, a former officer of the Company as services for the acquisition of the rights to photographs owned by the Frank Worth estate. The shares were valued at a market price of $0.20 and $440,000 of accrued expenses were extinguished.

 

On February 7, 2014, 1,000,000 shares of common stock were issued for services valued at $200,000, or $0.20 per share.

 

On February 7, 2014 the Company issued 4,000 shares of common stock as a charitable donation valued at $800, or $0.20 per share.

 

As discussed in Note 5: Related Party Payables, a shareholder of the Company has various notes and advances outstanding for loans made to the Company that were unpaid as of December 31, 2013. The shareholder agreed to convert the outstanding amounts for 8,000,000 shares of common stock in July 2014.

 

F- 14
 

Capital Art, Inc.

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

 

In July 2014, an employee agreed to convert outstanding amounts recorded as accounts payable in the aggregate amount of $8,183 to 163,664 shares of common stock at a conversion rate of $0.05 per share. The market price of the shares on the date of the agreement was $63,828, or $0.39 per share, and a $55,645 loss on settlement of debt was recorded.

 

On August 1, 2014, the Company issued 200,000 shares of common stock for services valued at $78,000, or $0.39 per share.

 

On August 1, 2014, the Company agreed to issue 20,000,000 shares of common stock for $1,000,000 in cash, or $0.05 per share, with payment made in four tranches of $250,000 each on specific dates. On August 29, 2014 and October 15, 2014, payments of $250,000 each was received and 5,000,000 shares were issued on each date. On November 24, 2014, an additional payment of $200,000 was received and 4,000,000 shares were issued. An additional payment of $209,000 was received in January 2015 and no shares have been issued. The remaining $91,000 has not yet been received.

 

On August 14, 2014, 2,000,000 shares were issued for a consulting contract with a term of twelve months. The value of the services is $320,000, or $0.16 per share.

 

On August 15, 2014, the Company issued 100,000 shares for services valued at $16,000, or $0.16 per share.

 

On August 16, 2014, the Company executed a consulting agreement for strategic management services payable with up to 5,500,000 shares of the Company’s common stock over the term of the agreement. On each of August 29, 2014 and October 15, 2014, the Company issued 1,375,000 shares with a value of $220,000, or $0.16 per share. On November 24, 2014, the Company issued 1,100,000 shares valued at $220,000, or $0.20 per share. The total expense recognized for the contract to date is $660,000.

 

On September 3, 2014, 250,000 shares of common stock were issued for legal services with a value of $40,000, or $0.16 per share.

 

On September 30, 2014, an officer and director of the Company was issued 211,472 shares of common stock for services. The market value of the stock issuance was $82,474, or $0.39 per share on the date of the issuance and the full amount was recognized as expense.

 

On October 8, 2014, the Company concluded an Asset Purchase Agreement with Movie Star News, LLC (“MSN”) to acquire a collection consisting of approximately 100,000 negatives, certain other negatives including the Bettie Page collection and approximately 1 million 8" by 10" Black & White Photographs, including all Copyrights owned by MSN for the collection in exchange for 256,400,226 shares of common stock of the Company.

 

On October 10, 2014, the Company leased approximately 4,606 square feet of commercial space in Las Vegas, NV for a term of 60 months beginning November 1, 2014. The monthly base rent, on a triple net basis, is $0.71 per square foot for the first twelve months, increasing 3% each year on the anniversary date.

 

On November 12, 2014, the Frank Worth Estate agreed to accept $155,000 and 200,000 shares of the Company’s common stock, $30,000 payable on execution and the remainder payable on or before May 31, 2015, in exchange for sole and exclusive, world-wide, royalty free rights to all negatives, prints, products and other materials the Company possesses including the use of the Frank Worth seal, Frank Worth’s name, likeness, publications and biography plus merchandising and selling rights. No payments have been made and no stock has been issued to date.

 

 

 

F- 15
 

 

Capital Art, Inc.

Consolidated Balance Sheets

September 30, 2014 (unaudited) and December 31, 2013 (audited)

 

ASSETS   9/30/2014     12/31/2013  
Current Assets:                
Cash   $ 177,816     $ 2,188  
Accounts Receivable, net           22,846  
Prepaid Expenses     330,000        
Total Current Assets     507,816       25,034  
                 
Intangible Assets     2,915,000       2,915,000  
Total Assets   $ 3,422,816     $ 2,940,034  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                
Current Liabilities:                
Accounts Payable   $ 10,264     $ 14,523  
Accrued Expenses     23,934       455,968  
Accrued Salaries and Taxes Payable           72,190  
Related Party Payables     8,603       230,032  
Total Current Liabilities     42,801       772,713  
                 
Total Liabilities     42,801       772,713  
                 
Stockholders’ Equity (Deficit)                
Common Stock, $0.0001 par value, 450,000,000 shares authorized; 42,348,057 and 18,888,921 shares issued and outstanding, respectively     4,235       1,889  
Additional Paid in Capital     12,822,783       9,866,635  
Accumulated Deficit     (9,447,003 )     (7,701,203 )
Total Stockholders’ Equity (Deficit)     3,380,015       2,167,321  
                 
Total Liabilities & Stockholders’ Equity (Deficit)   $ 3,422,816     $ 2,940,034  

 

The accompanying notes are an integral part of these consolidated financial statements

 

F- 16
 

 

Capital Art, Inc.

Consolidated Statements of Operations

Periods Ended September 30, 2014 and 2013 (unaudited)

 

    Three Months Ending     Nine Months Ending  
    9/30/2014     9/30/2013     9/30/2014     9/30/2013  
Revenues:                                
Product Sales   $ 31,360     $ 34,325     $ 88,392     $ 152,155  
Licensing & Royalties     583       1,146       4,497       5,464  
Total Revenues     31,943       35,471       92,889       157,619  
                                 
Cost of Sales     28,409       36,755       61,910       85,719  
                                 
Gross Profit     3,534       (1,284 )     30,979       71,900  
                                 
Operating Expenses:                                
Professional Services     633,416       (208 )     938,938       2,564  
Rent Expense     3,415       4,087       13,665       11,082  
Marketing & Sales     9,090       4,224       20,103       10,638  
Salaries and Related Expenses     22,050       17,495       729,429       50,002  
Other General & Administrative     4,134       7,112       13,506       21,673  
Total Operating Expenses     672,105       32,710       1,715,641       95,959  
                                 
Loss from Operations     (668,571 )     (33,994 )     (1,684,662 )     (24,059 )
                                 
Other Income (Expense):                                
Other Income     8             8        
Interest Expense – Related Parties     (169 )     (2,367 )     (5,500 )     (8,048 )
Gain (loss) on extinguishment of debt     (55,646 )           (55,646 )      
Net Other Income (Expense)     (55,807 )     (2,367 )     (61,138 )     (8,048 )
                                 
Loss before Income Tax Expense     (724,378 )     (36,361 )     (1,745,800 )     (32,107 )
                                 
Income Tax Expense                        
                                 
Net Loss   $ (724,378 )   $ (36,361 )   $ (1,745,800 )   $ (32,107 )
                                 
Net Loss per common share   $ (0.03 )   $ (0.00 )   $ (0.09 )   $ (0.00 )
                                 
Weighted average shares outstanding     21,484,030       18,188,921       19,763,463       18,496,247  

 

The accompanying notes are an integral part of these consolidated financial statements

 

F- 17
 

 

Capital Art, Inc.

Consolidated Statement of Stockholders' Equity (Deficit)

Year Ended December 31, 2013 (audited) and the Period Ended September 30, 2014 (unaudited)

 

    Common Stock     Additional     Accumulated        
    Shares     Amount     Paid in Capital     Deficit     Total  
Balance, December 31, 2012     18,188,921     $ 1,819     $ 9,512,908     $ (7,646,460 )   $ 1,868,267  
                                         
Common Stock Issued for Cash     500,000       50       124,950             125,000  
Common Stock Issued for Asset     200,000       20       219,980             220,000  
Imputed Salary Expense                 6,000             6,000  
Imputed Interest Expense                 2,797             2,797  
Net Loss                       (54,743 )     (54,743 )
Balance, December 31, 2013     18,888,921       1,889       9,866,635       (7,701,203 )     2,167,321  
                                         
Common Stock Issued for Cash     5,000,000       500       249,500             250,000  
Common Stock Issued for Other Liabilities     563,664       56       503,773             503,829  
Common Stock Issued for Compensation     3,380,000       338       675,662             676,000  
Common Stock Issued for Related Party Debt Conversion     8,000,000       800       323,579             324,379  
Common Stock Issued for Services     4,511,472       451       876,023             876,474  
Common Stock Issued for Prepaid Expenses     2,000,000       200       319,800               320,000  
Common Stock Issued for Donation     4,000       1       799               800  
Imputed Salary Expense                 6,375             6,375  
Imputed Interest Expense                 637               637  
Net Loss                       (1,745,800 )     (1,745,800 )
                                         
Balance, September 30, 2014     42,348,057     $ 4,235     $ 12,822,783     $ (9,447,003 )   $ 3,380,015  

 

The accompanying notes are an integral part of these consolidated financial statements

 

F- 18
 

 

Capital Art, Inc.

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2014 and 2013 (unaudited)

 

Cash Flows from Operating Activities:   9/30/2014     9/30/2013  
Net Loss   $ (1,745,800 )   $ (32,107 )
Adjustments to reconcile net loss to net cash provided in operating activities:                
Issuance of Common Stock for Services     876,474        
Issuance of Common Stock for Donation     800        
Stock Compensation Expense     676,000        
Gain on Extinguishment of Debt     55,646        
Imputed Officer Compensation     6,375       4,500  
Imputed Related Party Interest     637       1,307  
                 
Decrease (increase) in operating assets:                
Accounts Receivable     22,846       (6,481 )
Prepaid Expenses & Other Assets     (10,000 )      
                 
Increase (decrease) in operating liabilities:                
Accounts Payable     (4,259 )     (12,772 )
Accrued Salaries and Taxes Payable     (72,190 )     15,635  
Related Party Payables     (33,875 )     6,741  
Other Accrued Expenses     16,149       (70,982 )
Net cash provided/(used) in operating activities     (211,197 )     (94,159 )
                 
Cash Flows from Investing Activities:                
Net cash provided/(used) by investing activities            
                 
Cash Flows  from Financing Activities:                
Sale of Common Stock     250,000       125,000  
Proceeds from Related Party Debt     136,825       33,165  
Payment of Related Party Debt           (75,000 )
Net cash provided/(used) by financing activities     386,825       83,165  
                 
Net increase/(decrease) in cash     175,628       (10,994 )
Beginning Cash Balance     2,188       14,520  
Ending Cash Balance   $ 177,816     $ 3,526  
                 
Supplemental disclosures of cash flow information:                
Cash paid for income taxes   $     $  
Cash paid for interest   $     $  
Schedule of non-cash financing and investing activities:                
Related party note converted to common stock   $ 324,379     $  
Conversion of other liabilities into common stock   $ 448,183     $  
Issuance of common stock for prepaids   $ 320,000     $  

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

F- 19
 

 

Capital Art, Inc.

Notes to Consolidated Financial Statements

September 30, 2014

 

Note 1:  The Company and Significant Accounting Policies

 

Organization and Nature of Business

 

Capital Art, Inc. (“CAPA”) sells and manages classic and contemporary, limited edition photographic images and reproductions, with a focus on iconic celebrity images. CAPA acquires editions and manages some of the most valuable iconic photographic images and internationally markets limited editions and reproductions created from the original negatives. The company also makes available images for publications and merchandizing.

 

The Company markets and distributes photographs that we own or manage to the art, editorial and commercial markets. CAPA also sells limited editions of its photographs through third-party galleries, art consultants, interior decorators and direct to consumers.

 

Our aim is to become a leading global photography marketing and distribution company by acquiring rights and ownership to collections of iconic photographs, and to establish worldwide wholesale and retail outlets as well as representations to sell our product lines through any channel of distribution the Company believes to be advantageous.

 

In June 2011, the Company opened a 1,500 square foot commercial gallery location in Culver City, CA to display and sell copies of the photographic images owned by the Company. There was insufficient sales generated at the location and it was closed in September 2012.

 

On May 9, 2011, Gleeworks, Inc. (“Gleeworks”) acquired (the “Acquisition”) Capital Art, LLC, pursuant to a business combination (the “Gleeworks Agreement”) whereby the entire outstanding member interest of Capital Art LLC was exchanged for 7.498 million shares of restricted common stock of Gleeworks on a one share for two units basis, representing approximately 51% of the shares issued and outstanding of Gleeworks. Prior to the Acquisition, Gleeworks operated a business engaged in the apparel industry.

 

Commensurate with the acquisition, Gleeworks changed its corporate name to “Capital Art, Inc.,” which became effective April 28, 2011. In addition, the Company assumed the business of Capital Art, LLC, in photographic images. Following the acquisition, Capital Art, LLC, became a wholly-owned and operating subsidiary of Capital Art, Inc.

 

Frank Worth Photographic Reproduction and Marketing Rights Agreement

 

On October 10, 2011, the Company entered into a memorandum of understanding (the “Frank Worth MOU”) as an interim agreement with the Estate of Frank Worth (the “Frank Worth Estate”) whereby the Frank Worth Estate agreed to exclusively grant the Company all rights in perpetuity to reproduce prints from Frank Worth negatives, to use of the Frank Worth name, signature and intellectual property in exchange for a 7.5% royalty on all revenue received by Capital Art from the sale of any and all Frank Worth prints, products and use whatsoever of Frank Worth’s name, likeness, story and biography. In connection with the Frank Worth MOU, the Company paid an aggregate of $50,000 in installments to the Frank Worth Estate to settle funds owed by the previous licensee, International Images Ltd., a UK company (“Images”).

 

Subsequently, on November 18, 2011, the Company and the Frank Worth Estate entered into a Photographic Reproduction and Marketing Rights Agreement (the “Frank Worth Reproduction Rights Agreement”). Pursuant to the Frank Worth Reproduction Rights Agreement, the Frank Worth Estate granted to the Company exclusive global reproduction rights to all negatives, prints, products and other materials from the Frank Worth collection, including the use of the Frank Worth Seal, Frank Worth’s name, likeness, publications and biography, plus merchandising and product selling rights as well as exclusive rights to the signature of the Frank Worth Estate’s executor (the “Executor”) in conjunction with any and all Certificates of Authenticity printed by the Company that accompany limited edition prints (the “Frank Worth Archive”). In consideration for the exclusive rights, the Company paid to the Frank Worth Estate a purchase price of $50,000 and agreed to make continuous payments of a monthly royalty amount of 7.5% of all net sales, with an annual minimum guarantee of $50,000. In June 2014, the Frank Worth Estate agreed to a reduced minimum royalty guarantee payment for 2013 and 2014 to the amount of $30,000 for each year. The Frank Worth Reproduction Rights Agreement also granted the Company a right to buyout the exclusive agreement from the Frank Worth Estate at any time for $250,000.

 

On November 12, 2014, the Frank Worth Estate agreed to accept $155,000 and 200,000 shares of the Company’s common stock, $30,000 payable on execution and the remainder payable on or before May 31, 2015, in exchange for sole and exclusive, world-wide, royalty free rights to all negatives, prints, products and other materials the Company possesses including the use of the Frank Worth seal, Frank Worth’s name, likeness, publications and biography plus merchandising and selling rights.

 

Frank Worth Collection and Daniel Furon Collection Purchase Agreement

 

On December 21, 2011, the Company entered into an agreement (the “Worth and Furon Purchase Agreement”) with International Images and Birchley Limited, a UK company (“Birchley”) whereby the Company obtained from Images rights to the negatives, images, photographs and all other interests in (i) approximately 7,500 images and approximately 5,500 negatives of the Frank Worth Collection (the “Frank Worth Collection”) and 50 Daniel Furon images (the “Daniel Furon Collection,” and together with the Frank Worth Collection, the “Collections”) in exchange for 1,000,000 shares of the Company’s common stock. Also pursuant to the Worth and Furon Purchase Agreement, Birchley, which held a security interest in the Collections, consented to the acquisition on the condition that Birchley would retain title until receipt of $200,000 (of an aggregate of $400,000) and 600,000 shares of common stock in the Company.

 

Subsequently on February 28, 2013, the Company, Images and Birchley entered into a deed of variation (the “Amendment”) of the Worth and Furon Purchase Agreement whereby Birchley repaid $100,000 of $150,000 paid to the Company under the Worth and Furon Purchase Agreement and the Company issued an additional 400,000 shares of common stock to Birchley. Upon receipt of such shares, Birchley released the title to the Collections.

 

F- 20
 

Capital Art, Inc.

Notes to Consolidated Financial Statements

September 30, 2014

 

Movie Star News, LLC, Acquisition

 

On October 8, 2014, the Company concluded an Asset Purchase Agreement with Movie Star News, LLC (“MSN”) to acquire a collection consisting of approximately 100,000 negatives, certain other negatives including the Bettie Page collection and approximately 1 million 8" by 10" Black & White Photographs, including all Copyrights owned by MSN for the collection.

 

Financial Statement Preparation

 

The Company’s Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America. These require the use of estimates and assumptions that affect the assets, liabilities, revenues and expenses reported in the financial statements, as well as amounts included in the notes thereto, including discussion and disclosure of contingent liabilities. Although the Company uses its best estimates and judgments, actual results could differ from these estimates as future confirming events occur.

 

Principles of Consolidation

 

The consolidated financial statements include the financial statements of the Company, and its 100% owned subsidiary: Capital Art LLC.  All inter-company balances and transactions have been eliminated in consolidation. 

 

Liquidity

 

Historically, the Company has incurred net losses. As of September 30, 2014, the Company had an accumulated deficit of $9,477,003 and total stockholders’ equity of $3,380,015. At September 30, 2013, the Company had current assets of $507,816, including cash of $177,816, and current liabilities of $42,801, resulting in a working capital of $465,015. For the nine months ended September 30, 2014, the Company reported a net loss of $1,745,800, including loss on conversion of debt to equity of $55,646 and consulting services paid with issuance of common stock in the amount of $876,474, and net cash used by operating activities of $211,197. As discussed in Note 9: Subsequent Events, the Company has received an additional $659,000 from sales of equity to an accredited investor. Management believes that its sales, cash provided by operations, together with funds available from investors, will be sufficient to fund planned operations for the next twelve months. However, there can be no assurance that operations and operating cash flows will continue at the current levels or improve in the near future. If the Company is unable to obtain profitable operations and positive operating cash flows sufficient to meet scheduled debt obligations, it may need to seek additional funding or be forced to scale back its development plans or to significantly reduce or terminate operations.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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 and the reported amounts of revenues and expenses during the reporting periods.

 

Cash Equivalents

 

The Company considers all highly liquid debt instruments with initial maturities of three months or less to be cash equivalents.

Revenue Recognition

 

The Company recognized revenue related to product sales when (i) the seller’s price is substantially fixed, (ii) shipment has occurred causing the buyer to be obligated to pay for product, (iii) the buyer has economic substance apart from the seller, and (iv) there is no significant obligation for future performance to directly bring about the resale of the product by the buyer as required by Revenue Recognition Topic 605 of the FASB Accounting Standards Codification.

 

 Revenues associated with the sale of products are recorded when shipped to customers pursuant to approved customer purchase orders resulting in the transfer of title and risk of loss.  Cost of sales, rebates and discounts are recorded at the time of revenue recognition or at each financial reporting date.

 

The Company’s other revenue represent payments based on net sales from brand licensees for content reproduction rights.  These license agreements are held in conjunction with third parties that are responsible for collecting fees due and remitting to the Company its share after expenses. Revenue from licensed products is recognized when realized or realizable based on royalty reporting received from licensees.

 

F- 21
 

Capital Art, Inc.

Notes to Consolidated Financial Statements

September 30, 2014

 

 

Shipping and Handling

 

The Company records shipping and handling expenses in the period in which they are incurred and are included in the Cost of Goods Sold.

 

Inventories

 

Inventories are stated at the lower of cost (average) or market and consist of finished goods.  There is no inventory on hand.  

 

Intangible Assets

 

Intangible Assets acquired, either individually or with a group of other assets, are initially recognized and measured based on fair value.  In the acquisition of the assets from the Frank Worth Estate, an independent appraisal conducted by a qualified third party.

      

The Company reviews all intangible assets with an indefinite useful life annually in accordance with ASC 350-35-18 to determine if the value might be impaired by comparing the fair value of the intangible asset to its carrying value At September 30, 2014 and December 31, 2013, it was determined that no impairment existed.

    

Income Taxes

 

Deferred income tax assets and liabilities are recognized based on differences between the financial statement and tax basis of assets and liabilities using presently enacted tax rates. At each balance sheet date, the Company evaluates the available evidence about future taxable income and other possible sources of realization of deferred tax assets, and records a valuation allowance that reduces the deferred tax assets to an amount that represents management’s best estimate of the amount of such deferred tax assets that more likely than not will be realized.

 

Advertising Costs

 

The Company’s marketing and sales costs are primarily related to advertising, trade shows, public relation fees and production and distribution of collateral materials. In accordance with the FASB Topic 720-35 regarding Advertising Costs, the Company expenses advertising costs in the period in which the expense is incurred. Marketing and Sales costs incurred by licensees are borne fully by the licensee and are not the responsibility of the Company. Advertising expense for the three months ended September 30, 2014 and 2013 were $455 and $454, respectively. For the nine months ended September 30, 2014 and 2013, the expense recognized was $809 and $1,878, respectively.

  

Allowance for Sales Returns

 

An Allowance for Sales Returns is estimated based on average sales during the previous year.  Based on experience, sales growth, and our customer base, the Company concluded that the allowance for sales returns at September 30, 2014 and December 31, 2013 should be $0 and $0, respectively.

 

Concentration of Risk

 

The Company’s cash and cash equivalents are maintained at one financial institution and from time to time the balances for this account exceed the Federal Deposit Insurance Corporation’s (“FDIC’s”) insured amount. Balances on interest bearing deposits at banks in the United States are insured by the FDIC up to $250,000 per institution. As of September 30, 2014 and December 31, 2013, there were no uninsured balances.

 

For nine months ended September 30, 2014, the revenue from three customers comprised 14.5%, 11.7% and 11.7%, respectively, of the Company’s total revenue. These accounts made up 0%, 0% and 0% of the total accounts receivable balance at September 30, 2014.   For nine months ended September 30, 2013, the revenue from two customers comprised 26.5% and 11.3% of the Company’s total revenue. Those two major customers made up 0% and 26.1% of the total accounts receivable balance at September 30, 2013, respectively. The major customer for the nine months ended September 30, 2014 is not necessarily the same as one of the major customers at September 30, 2013. There is significant financial risk associated with a dependence upon a small number of customers. The Company periodically assesses the financial strength of these customers and establishes allowances for any anticipated bad debt. At September 30, 2014 and December 31, 2013, no allowance for bad debt or bad debt expense has been recorded for the major customers.

 

Earnings Per Share

 

Basic earnings (loss) per common share (“EPS”) is calculated by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted EPS is calculated by dividing net loss by the weighted average number of common shares outstanding, plus the assumed exercise of all dilutive securities using the treasury stock or “as converted” method, as appropriate. During periods of net loss, all common stock equivalents are excluded from the diluted EPS calculation because they are antidilutive. The Company had no dilutive securities outstanding as of September 30, 2014.

 

F- 22
 

 

Capital Art, Inc.

Notes to Consolidated Financial Statements

September 30, 2014

 

 

Fair value of financial instruments

 

The carrying amounts of cash, receivables and accrued liabilities approximate fair value due to the short-term maturity of the instruments.

 

Litigation

 

We are not a party to any legal or administrative proceedings, other than routine legal activities incidental to our business that we do not believe, individually or in the aggregate, would be likely to have a material adverse effect on our financial condition or results of operations.

 

Note 1:  Intangible Assets

 

The Company has intangible assets used in the creation of revenue is as follows as of September 30, 2014 and December 31, 2013:

 

    9/30/2014     12/31/2013  
Frank Worth Collection   $ 2,915,000     $ 2,915,000  
Intangible Assets   $ 2,915,000     $ 2,915,000  

 

Pursuant to FASB Accounting Standards Codification regarding Topic 350, Intangible Assets, intangible asset(s) acquired, either individually or with a group of other assets shall be initially recognized and measured based on fair value.  In the acquisition of the rights obtained to assets from the Frank Worth Estate, fair value was calculated using an independent appraisal conducted by a qualified third party. The assets were recorded at $2,915,000, the total purchase price. The rights purchased for the Frank Worth collection are perpetual as long as the terms of royalty payments are met. As a result, the Company has determined these assets have an indefinite useful life and are not subject to amortization.

   

The Company reviews all intangible assets with an indefinite useful life annually in accordance with ASC 350-35-18 to determine if the value might be impaired by comparing the fair value of the intangible asset to its carrying value. At September 30, 2014 and December 31, 2013, it was determined that no impairment existed.

 

Note 2:  Accrued Expenses

 

Accrued but unpaid salaries and payroll taxes total $0 and $72,190 as of September 30, 2014 and December 31, 2013, respectively. Other accrued liabilities totaling $23,934 and $455,968 as of September 30, 2014 and December 31, 2013 are as follows:

 

 

 

    9/30/2014     12/31/2013  
Royalties Payable   $ 22,500     $ 12,966  
Accrued Frank Worth collection commission expense           440,000  
Other Accrued Expenses     1,434       3,002  
Total Accrued Expenses   $ 23,934     $ 455,968  

 

F- 23
 

 

Capital Art, Inc.

Notes to Consolidated Financial Statements

September 30, 2014

 

 

Note 3:  Related Party Payables

 

As of December 31, 2013 and 2012, the Company had the following related party payables outstanding:

 

 

    9/30/2014     12/31/2013  
Note Payable - Related Party; 5% interest   $     $ 150,000  
Accrued Interest - Related Party Note Payable           33,321  
Loan Payable - Related Party; imputed interest at 5%           7,973  
Accounts Payable - Related Party           38,738  
Advance Payable     8,603        
Total Notes Payable     8,603       230,032  
Less:  Current Portion     (8,603 )     (230,032 )
Long Term Portion   $     $  

 

 

On September 15, 2009, Klaus Moeller, a shareholder, loaned $150,000 to the Company at an interest rate equal to 5% per annum as a long term note payable.  The funds were borrowed from Mr. Moeller in order to provide working capital to the Company. Subsequent agreements extended the maturity date to September 14, 2014. The amount due to Mr. Moeller as of September 30, 2014 and December 31, 2013 includes $0 and $33,321 in accrued but unpaid interest, respectively. On July 14, 2014, Mr. Moeller converted the principal of $150,000, plus accrued but unpaid interest in the amount of $0, to 4,000,000 shares of the Company’s common stock at an average price of $0.047 per share.

 

Mr. Moeller provided short term, interest free, loans to the Company at various times during the years 2009 through 2014. The amount due to Mr. Moeller on these loans as of September 30, 2014 and December 31, 2013 is $0 and $7,973, respectively. In accordance with Topic 835 - Imputation of Interest, imputed interest was calculated for a market rate of 5% for the nine months ended September 30, 2014 and 2013, resulting in Additional Paid in Capital contribution of $637 and $1,307, respectively.

 

Mr. Moeller paid expenses on behalf of the Company which resulted in related party accounts payable as of September 30, 2014 and December 31, 2013 in the amounts of $0 and $38,738, respectively.

 

On July 31, 2014, Mr. Moeller agreed to convert up to $200,000 in outstanding related party payables for the issuance of 4,000,000 shares of the Company’s common stock. The amount converted was $136,195.

 

A company related to Mr. Moeller made short term advances of cash to the Company in 2014. The amount due as of September 30, 2014 and December 31, 2013 was $8,603 and $0, respectively.

 

Note 4:  Stockholders’ Equity

 

The total number of authorized shares of common stock is 450,000,000 shares of $0.001 par value. As of September 30, 2014 and December 31, 2013, there were 42,348,057 and 18,888,921 shares of common stock outstanding, respectively.

 

The Company has 50,000,000 shares of preferred stock authorized with a par value of $0.001. The Board of Directors is authorized, subject to any limitations prescribed by law, without further vote or action by our stockholders, to issue from time to time shares of preferred stock in one or more series. Each series of preferred stock will have such number of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges as shall be determined by our board of directors, which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights. As of September 30, 2014, no shares were outstanding and the Board of Directors has not authorized issuance of preferred shares.

 

F- 24
 

Capital Art, Inc.

Notes to Consolidated Financial Statements

September 30, 2014

 

 

During 2013 and 2012, a shareholder made short term, interest free advances to the Company. The Company recorded imputed interest at a rate of 5% on these amounts and recorded a total of $637 for the nine months ended September 30, 2014 and $2,797 for the year ended December 31, 2013 to Additional Paid in Capital.

 

During the nine months ended September 30, 2014 and the twelve months ended December 31, 2013, officers of the Company waived compensation for their services. The Company imputed compensation in the amounts of $6,375 and $6,000 for these periods, respectively, recorded to Additional Paid in Capital.

 

During March and August, 2013, the Company conducted a private placement offering to certain accredited investors under Rule 506.  As a result of the offering, the Company received subscriptions in the total amount of $125,000 and 500,000 shares were issued.

 

On October 21, 2013, 200,000 shares of commons stock were issued in exchange for commissions related to the acquisition of the rights to photographs owned by the Frank Worth estate with a valuation of $220,000, or $1.10 per share.

 

On February 1, 2014, the Company executed a consulting agreement for services. The agreement specifies issuance of 500,000 shares of common stock for execution of the agreement and 3,500,000 shares for introduction of a strategic business partner. On February 1, 2014, the shares for execution were issued and valued at a market price of $0.20, for a value of $100,000. On each of August 29, 2014 and October 15, 2014, 875,000 shares were issued at a market price of $0.16 per share and professional services expense was recorded in the amount of $140,000 for each issuance. On November 24, 2014, an additional issuance of 875,000 shares was made and an expense recorded in the amount of $175,000, or a market price of $0.20. A final issuance of 875,000 shares is due to be issued in 2015.

 

On February 7, 2014, the board of directors authorized issuance of shares of common stock to certain directors and employees in recognition of their service for projects. A total of 3,380,000 shares were issued at a market price of $0.20 per share and compensation expense was recorded in the amount of $676,000.

 

On February 7, 2014, 400,000 shares of common stock was issued to Norman Solomon, a former officer of the Company as services for the acquisition of the rights to photographs owned by the Frank Worth estate. The shares were valued at a market price of $0.20 and $440,000 of accrued expenses were extinguished.

 

On February 7, 2014, 1,000,000 shares of common stock were issued for services valued at $200,000, or $0.20 per share.

 

On February 7, 2014 the Company issued 4,000 shares of common stock as a charitable donation valued at $800, or $0.20 per share.

 

As discussed in Note 3: Related Party Payables, a shareholder of the Company has various notes and advances outstanding for loans made to the Company that were unpaid as of December 31, 2013. The shareholder agreed to convert the outstanding amounts for 8,000,000 shares of common stock in July 2014.

 

In July 2014, an employee agreed to convert outstanding amounts recorded as accounts payable in the aggregate amount of $8,183 to 163,664 shares of common stock at a conversion rate of $0.05 per share. The market price of the shares on the date of the agreement was $63,828, or $0.39 per share, and a $55,645 loss on settlement of debt was recorded.

 

On August 1, 2014, the Company issued 200,000 shares of common stock for services valued at $78,000, or $0.39 per share.

 

On August 1, 2014, the Company agreed to issue 20,000,000 shares of common stock for $1,000,000 in cash, or $0.05 per share, with payment made in four tranches of $250,000 each on specific dates. On August 29, 2014 and October 15, 2014, payments of $250,000 each was received and 5,000,000 shares were issued on each date. On November 24, 2014, an additional payment of $200,000 was received and 4,000,000 shares were issued. An additional payment of $209,000 was received in January 2015 and no shares have been issued. The remaining $91,000 has not yet been received.

 

On August 14, 2014, 2,000,000 shares were issued for a consulting contract with a term of twelve months. The value of the services is $320,000, or $0.16 per share.

 

On August 15, 2014, the Company issued 100,000 shares for services valued at $16,000, or $0.16 per share.

 

On August 16, 2014, the Company executed a consulting agreement for strategic management services payable with up to 5,500,000 shares of the Company’s common stock over the term of the agreement. On each of August 29, 2014 and October 15, 2014, the Company issued 1,375,000 shares with a value of $220,000, or $0.16 per share. On November 24, 2014, the Company issued 1,100,000 shares valued at $220,000, or $0.20 per share. The total expense recognized for the contract to date is $660,000.

F- 25
 

Capital Art, Inc.

Notes to Consolidated Financial Statements

September 30, 2014

 

 

On September 3, 2014, 250,000 shares of common stock were issued for legal services with a value of $40,000, or $0.16 per share.

 

On September 30, 2014, an officer and director of the Company was issued 211,472 shares of common stock for services. The market value of the stock issuance was $82,474, or $0.39 per share on the date of the issuance, and the full amount was recognized as expense.

 

Note 5:  Income Taxes

 

The Company accounts for income taxes in accordance with Accounting Standards Codification Topic 740, Income Taxes (“Topic 740”), which requires the recognition of deferred tax liabilities and assets at currently enacted tax rates for the expected future tax consequences of events that have been included in the financial statements or tax returns.  A valuation allowance is recognized to reduce the net deferred tax asset to an amount that is more likely than not to be realized.

 

Topic 740 provides guidance on the accounting for uncertainty in income taxes recognized in a company’s financial statements.  Topic 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position.  If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.

 

At the adoption date of January 1, 2008, the Company had no unrecognized tax benefit which would affect the effective tax rate if recognized.

 

The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operation in the provision for income taxes.  As of September 30, 2014 and December 31, 2013, the Company had no accrued interest or penalties related to uncertain tax positions.

 

The Company files income tax returns in the U.S. federal jurisdiction and in the state of Delaware. The Company is currently subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities since inception of the Company. The Company has not filed federal income tax returns from inception, including the years ended December 31, 2013 and 2012.

 

Note 6:  Lease Commitments

 

The Company has no capital leases subject to the Capital Lease guidelines in the FASB Accounting Standards Codification.  Rental expenses incurred for operating leases during the three months ended September 30, 2014 and 2013, the expense totaled $$3,415 and 4,087, respectively, and for the nine months ended September 30, 2014 and 2013 was $13,665 and $11,082. The Company rents office space on a month-to-month basis in Brooklyn, NY.

 

On October 10, 2014, the Company leased approximately 4,606 square feet of commercial space in Las Vegas, NV for a term of 60 months beginning November 1, 2014. The monthly base rent, on a triple net basis, is $0.71 per square foot for the first twelve months, increasing 3% each year on the anniversary date.

 

Note 7: Recent Accounting Pronouncements

 

The Company reviews all of the Financial Accounting Standard Board’s updates periodically to ensure the Company’s compliance of its accounting policies and disclosure requirements to the Codification Topics. The Company has determined there were no new accounting pronouncements issued during the nine months ended September 30, 2014 and the twelve months ended December 31, 2013 that the Company believes are applicable or would have a material impact on the consolidated financial statements of the Company.

 

Note 8:  Employment Agreements

 

On October 3, 2013, the Company entered into an Employment Agreement with an employee for a term of twenty-six months, expiring on December 31, 2015. The agreements specified increasing annual salary amounts, car allowances, participation in benefit plans, vacations, and stock option plans, and severance benefits.

 

F- 26
 

Capital Art, Inc.

Notes to Consolidated Financial Statements

September 30, 2014

 

 

The following is a schedule by year of the future minimum salary payments related to this employment agreement:

 

2014   $ 17,500  
2015     70,000  
Total   $ 87,500  

 

Note 9:  Subsequent Events

 

The Company evaluated subsequent events pursuant to ASC 855 and has determined there are the following events to disclose:

 

As discussed in Note 4: Stockholders’ Equity, on August 1, 2014, the Company agreed to issue 20,000,000 shares of common stock for $1,000,000 in cash, or $0.05 per share, with payment made in four tranches of $250,000 each on specific dates, $250,000 of which was received on August 29, 2014. On October 15, 2014, a payment of $250,000 was received and 5,000,000 shares were issued. On November 24, 2014, an additional payment of $200,000 was received and 4,000,000 shares were issued. In January 2015 a payment of $209,000 was received and no shares have been issued. The remaining $91,000 has not been received.

 

As discussed in Note 4: Stockholders’ Equity, on August 16, 2014, the Company executed a consulting agreement for strategic management services payable with up to 5,500,000 shares of the Company’s common stock over the term of the agreement, of which 1,375,000 shares was issued for $220,000 on August 29, 2014. On October 15, 2014, the Company issued 1,375,000 shares with a value of $220,000, or $0.16 per share. On November 24, 2014, the Company issued 1,100,000 shares valued at $220,000, or $0.20 per share. The total expense recognized for the contract to date is $660,000.

 

On October 8, 2014, the Company concluded an Asset Purchase Agreement with Movie Star News, LLC (“MSN”) to acquire a collection consisting of approximately 100,000 negatives, certain other negatives including the Bettie Page collection and approximately 1 million 8" by 10" Black & White Photographs, including all Copyrights owned by MSN for the collection in exchange for 256,400,226 shares of common stock of the Company.

On October 10, 2014, the Company leased approximately 4,606 square feet of commercial space in Las Vegas, NV for a term of 60 months beginning November 1, 2014. The monthly base rent, on a triple net basis, is $0.71 per square foot for the first twelve months, increasing 3% each year on the anniversary date.

On February 1, 2014, the Company executed a consulting agreement for services. The agreement specifies issuance of 500,000 shares of common stock for execution of the agreement and 3,500,000 shares for introduction of a strategic business partner. On October 15, 2014, 875,000 shares were issued at a market price of $0.16 per share and professional services expense was recorded in the amount of $140,000. On November 24, 2014, an additional issuance of 875,000 shares was made and an expense recorded in the amount of $175,000, or a market price of $0.20. A final issuance of 875,000 shares is due to be issued in 2015.

On November 12, 2014, the Frank Worth Estate agreed to accept $155,000 and 200,000 shares of the Company’s common stock, $30,000 payable on execution and the remainder payable on or before May 31, 2015, in exchange for sole and exclusive, world-wide, royalty free rights to all negatives, prints, products and other materials the Company possesses including the use of the Frank Worth seal, Frank Worth’s name, likeness, publications and biography plus merchandising and selling rights. No payments have been made and no stock has been issued to date.

 

F- 27

 

Exhibit 3.01

 

DELAWARE

The First State

 

I, HARRIET SMITH WINDSOR, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED ARE TRUE AND CORRECT COPIES OF ALL DOCUMENTS ON FILE OF “MEDIFY SOLUTIONS LIMITED” AS RECEIVED AND FILED IN THIS OFFICE.

THE FOLLOWING DOCUMENTS HAVE BEEN CERTIFIED:

CERTIFICATE OF INCORPORATION, FILED THE TWENTIETH DAY OF SEPTEMBER, A.D. 2004, AT 9:34 O’CLOCK A.M.

CERTIFICATE OF AMENDMENT, CHANGING ITS NAME FROM “BLOG8, INC.” TO “SECURITEYES INTERNATIONAL INC.”, FILED THE SECOND DAY OF DECEMBER, A.D. 2004, AT 3:04 O’CLOCK P.M.

CERTIFICATE OF AMENDMENT, CHANGING ITS NAME FROM “SECURITEYES INTERNATIONAL INC.” TO “MEDIFY SOLUTIONS LIMITED”, FILED THE ELEVENTH DAY OF FEBRUARY, A.D. 2005, AT 2:21 O’CLOCK P.M.

AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESAID CERTIFICATES ARE THE ONLY CERTIFICATES ON RECORD OF THE AFORESAID CORPORATION, “MEDIFY SOLUTIONS LIMITED”.

 

/s/ Harriet Smith Windsor

Harriet Smith Windsor, Secretary of state

 

DATE: 04-24-07

 

 
 

 

CERTIFICATE OF INCORPORATION

 

 

FIRST: The name of this corporation shall be: BLOG8, INC.

 

SECOND: Its registered office in the State of Delaware is to be located at 2711 Centerville Road, Suite 400, in the City of Wilmington, County of New Castle and its registered agent at such address is THE COMPANY CORPORATION.

 

THIRD: The purpose or purposes of the corporation shall be:

 

To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware

 

FOURTH: The total number of shares of stock which this corporation is authorized to issue is: 450,000,000 shares of common stock with a par value of ($.0001), and 50,000,000 shares of preferred stock with a par value of ($.0001).

 

The powers, preferences and rights and the qualifications, limitations or restrictions thereof shall be determined by the board of directors.

 

FIFTH: The name and address of the incorporator is as follows:

 

Angela Norton

2711 Centerville Road

Suite 400

Wilmington, Delaware 19808

 

 

SIXTH: The Board of Directors shall have the power to adopt, amend or repeal the by-laws. SEVENTH: No director shall be personally liable to the Corporation or its stockholders for monetary damages for any branch of fiduciary duty by such director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law, (i) for breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this Article Seventh shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omission of such director occurring prior to such amendment,

 

IN WITNESS WHEREOF , the undersigned, being the incorporator herein before named, has executed signed and acknowledged this certificate of incorporation this 20th day of September, 2004.

 

 

  /s/ Angela Norton
Name: Angela Norton
Incorporator

 

Exhibit 3.02

 

CERTIFICATE OF AMENDMENT

OF

CERTIFICATE OF INCORPORATION

 

 

BLOG8, INC.

 

a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware,

DOES HEREBY CERTIFY;

 

FIRST: That a meeting of the Board of Directors of BLOG8, INC. resolutions were duly adopted setting forth proposed amendments of the Certificate of Incorporation of said corporation, declaring said amendments to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolutions setting forth the proposed amendments is as follows:

 

RESOLVED, that the Certificate of Incorporation of this corporation be, and it is hereby is,amended by changing the article thereof numbered “FIRST” to read as follows:

 

“The name of this Corporation shall be

 

SECURITEYES INTERNATIONAL INC.

 

RESOLVED: that the Certificate of Incorporation of the corporation be, and it hereby is amended by changing the article of numbered “SECOND” to read as follows: “Its registered office in the State of Delaware is to be located at 3511 Silverside Road, Suite 1405, in the City of Wilmington, County of New Castle. The Registered Agent in charge thereof is DELAWARE REGISTRY, LTD., 3511 Silverside Road, Suite 105, Wilmington, Delaware USA 19810.”

 

SECOND: That thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of said corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment.

 

THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

 

FOURTH: That the capital of said corporation shall not be reduced under or by reason of said amendments.

 

 

DATED: 12/2/04 BY: /s/ George Matazarro
  Signature of Authorized Officer
   
  George Matararro
  Print/Type Name and Title (PRESIDENT)

 

 

State of Delaware          

Secretary of State        

Division of Corporations   

Delivered 03:!2 PM. 12/02/2004

FILED 03:04 PM 12/02/2004   

SRV 040867527 - 3856268 FILE

 

Exhibit 3.03

 

CERTIFICATE OF AMENDMENT

OF

CERTIFICATE OF INCORPORATION

 

 

SECURITEYES INTERNATIONAL, INC.

 

a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware,

DOES HEREBY CERTIFY;

 

FIRST: That a meeting of the Board of Directors of SECURITEYES INTERNATIONAL, INC. resolutions were duly adopted setting forth proposed amendments of the Certificate of Incorporation of said corporation, declaring said amendments to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolutions setting forth the proposed amendments is as follows:

 

RESOLVED, that the Certificate of Incorporation of this corporation be, and it is hereby is, amended by changing the article thereof numbered “FIRST” to read as follows:

 

THE NAME OF THIS CORPORATION SHALL BE MEDIFY SOLUTIONS LIMITED

 

SECOND: That thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of said corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment.

 

THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

 

FOURTH: That the capital of said corporation shall not be reduced under or by reason of said amendments.

 

 

DATED: February 8, 2005 BY: /s/ Stewart Garner
  Signature of Authorized Officer
   
  STEWART GARNER    PRESIDENT
  Print/Type Name and Title

 

 

State of Delaware          

Secretary of State        

Division of Corporations   

Delivered 02:59 PM. 02/11/2005

FILED 02:21 PM 02/11/2005   

SRV 050115581 - 3856268 FILE

 

Exhibit 3.04

 

DELAWARE

The First State

 

 

I, HARRIET SMITH WINDSOR, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF "MEDIFY SOLUTIONS LIMITED", CHANGING ITS NAME FROM "MEDIFY SOLUTIONS LIMITED" TO "PETEL INCORPORATED", FILED IN THIS OFFICE ON THE THIRTIETH DAY OF APRIL, A.D. 2007, AT 8:57 O'CLOCK A.M.

 

 

 

 

 

/s/ Harriet Smith Windsor

Harriet Smith Windsor, Secretary of state

 

DATE: 04-30-07

 

 
 

 

STATE OF DELAWARE

CERTIFICATE OF AMENDMENT

OF CERTIFICATE OF INCORPORATION

 

The corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware does hereby certify:

 

FIRST: That at a meeting of the Board of Directors of Medify Solutions Limited resolutions were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof The resolution setting forth the proposed amendment is as follows:

 

RESOLVED, that the Certificate of Incorporation of this corporation be amended by changing the Article thereof numbered "FIRST' so that, as amended, said Article shall be and read as follows:

 

THE NAME OF THIS CORPORATION SHALL BE PETEL INCORPORATED

 

SECOND: That thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of said corporation was duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment.

 

THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

 

IN WITNESS WHEREOF, said corporation has caused this certificate to be signed this 26th day of April, 2007.

 

By: /s/ Ian O’Reilly

Authorized Officer

 

Title: President and CEO

 

Name: Ian O’Reilly

 

Print of Type

 

State of Delaware          

Secretary of State        

Division of Corporations   

Delivered 9:01 AM .04/30/2007

FILED 08:57 AM 04/30/2007   

SRV 070492338 - 3856268 FILE  

 

Exhibit 3.05

 

State of Delaware         

Secretary of State        

Division of Corporations   

Delivered 04:20 p.m. 12/07/2009

FILED 04:18 PM 12/07/2009   

SRV 091075612 - 3856268 FILE

 

CERTIFICATE OF AMENDMENT

OF

CERTIFICATE OF INCORPORATION

 

 

PETEL INCORPORATED

 

a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware,

DOES HEREBY CERTIFY;

 

FIRST: That a meeting of the Board of Directors of PETEL INCORPORATED resolutions were duly adopted setting forth proposed amendments of the Certificate of Incorporation of said corporation, declaring said amendments to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolutions setting forth the proposed amendments is as follows:

 

RESOLVED, that the Certificate of Incorporation of this corporation be, and it is hereby is, amended by changing the article thereof numbered “FIRST” to read as follows:

 

“The name of this Corporation is Gleeworks, Inc.

 

SECOND: That thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of said corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment.

 

THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

 

FOURTH: That the capital of said corporation shall not be reduced under or by reason of said amendments.

 

 

DATED: December 7, 2009 BY: /s/ David Morton
  Signature of Authorized Officer
   
  David Morton, CEO
  Print/Type Name and Title

 

 

Exhibit 3.06

 

           State of Delaware

          Secretary of State

    Division of Corporations

Delivered 10:49 AM 04/28/2011

 FILED 10:43 AM 04/28/2011

SRV 110465971 - 3856268 FILE

 

 

CERTIFICATE OF AMENDMENT

OF

CERTIFICATE OF INCORPORATION

 

 

GLEEWORKS,INC.

 

a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware,

DOES HEREBY CERTIFY;

 

FIRST: That a meeting of the Board of Directors of GLEEWORKS, INC. resolutions were duly adopted setting forth proposed amendments of the Certificate of Incorporation of said corporation, declaring said amendments to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolutions setting forth the proposed amendments is as follows:

 

RESOLVED, that the Certificate of Incorporation of this corporation be, and it is hereby is, amended by changing the article thereof numbered “FIRST” to read as follows:

 

“The name of this Corporation is CAPITAL ART, INC.

 

SECOND: That thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of said corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment.

 

THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

 

FOURTH: That the capital of said corporation shall not be reduced under or by reason of said amendments.

 

 

DATED: April 26, 2011 BY: /s/ David Morton
  Signature of Authorized Officer
   
  David Morton, President
  Print/Type Name and Title

 

 

Exhibit 3.07

 

BYLAWS

 

OF

 

CAPITAL ART, INC.

 

(a Delaware corporation)

 

ARTICLE I

 

STOCKHOLDERS

 

1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock in the corporation shall be signed by, or in the name of, the corporation by the chairperson or Vice-Chairperson of the Board of Directors, if any, or by the President or a Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the corporation. Any or all the signatures on any such certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before before certificate is issued, it may be issued by the corporation with the same effect as if such person were such officer, transfer agent, or registrar at the date of issue.

 

Whenever the corporation shall be authorized to issue more than one class of stock or more than one series of any class of stock, and whenever the corporation shall issue any shares of its stock as partly paid stock, the certificates representing shares of any such class or series or of any such partly paid stock shall set forth thereon the statements prescribed by the General Corporation Law. Any restrictions on the transfer or registration of transfer of any shares of stock of any class or series shall be noted conspicuously on the certificate representing such shares.

 

The corporation may issue a new certificate of stock or uncertificated shares in place of any certificate theretofore issued by it, alleged to have been lost, stolen, or destroyed, and the Board of Directors may require the owner of the lost, stolen, or destroyed certificate, or such owner’s legal representative, to give the corporation a bond sufficient to indemnify the corporation against any claim that may be made against it on account of the alleged loss, theft, or destruction of any such certificate or the issuance of any such new certificate or uncertificated shares.

 

2. UNCERTIFICATED SHARES . Subject to any conditions imposed by the General Corporation Law, the Board of Directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of the stock of the corporation shall be uncertificated shares. Within a reasonable time after the issuance or transfer of any uncertificated shares, the corporation shall send to the registered owner thereof any written notice prescribed by the General Corporation Law.

 

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3. FRACTIONAL SHARE INTERESTS . The corporation may, but shall not be required to, issue fractions of a share. If the corporation does not issue fractions of a share, it shall (1) arrange for the disposition of fractional interests by those entitled thereto, (2) pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined, or (3) issue script or warrants in registered form (either represented by a certificate or uncertificated) or bearer form (represented by a certificate) which shall entitle the holder to receive a full share upon the surrender of such scrip or warrants aggregating a full share. A certificate for a fractional share or an uncertificated fractional share shall, but scrip or warrants shall not unless otherwise provided therein, entitle the holder to exercise voting rights, to receive dividends thereon, and to participate in any of the assets of the corporation in the event of liquidation. The Board of Directors may cause scrip or warrants to be issued subject to the conditions that they shall become void if not exchanged for certificates representing the full shares or uncertificated full shares before a specified date, or subject to the conditions that the shares for which script or warrants are exchangeable may be sold by the corporation and the proceeds thereof distributed to the holders of scrip or warrants, or subject to any other conditions which the Board of Directors may impose.

 

4. STOCK TRANSFERS . Upon compliance with provisions restricting the transfer or registration or transfer of shares of stock, if any, transfers or registration of transfers of shares of stock of the corporation shall be made only on the stock ledger of the corporation by the registered holder thereof, or by the registered holders’ attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation or with a transfer agent or a registrar, if any, and, in the case of shares represented by certificates, on surrender of the certificate or certificates for such shares of stock properly endorsed and the payment of all taxes due thereon.

 

5. RECORD DATE FOR STOCKHOLDERS . In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting: provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. In order that the corporation may determine the entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining the stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by the General Corporation Law, shall be the first date on which a signed written consent setting for the action taken or proposed to be taken is delivered to the corporation by delivery to its principal place of business or an officer or agent of the recorded. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by the General Corporation Law, the record date for determining the stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion, or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

 

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6. MEANING OF CERTAIN TERMS . As used herein in respect of the right to notice of a meeting of stockholders or a waiver thereof or to participate or vote thereat or to consent or dissent in writing in lieu of a meeting, as the case may be, the term “share” or “shares” or “share of stock” or “shares of stock” or “stockholder” or “stockholders” refers to an outstanding share or shares of stock and to a holder or holders of record of outstanding shares of stock when the corporation is authorized to issue only one class of shares of stock, and said references is also intended to include any outstanding share or shares of stock and any holder or holders of record of outstanding shares of stock of any class upon which or upon whom the certificate of incorporation confers such rights where there are two or more classes or series of shares of stock or upon which or upon whom the General Corporation Law confers such rights notwithstanding that the certificate of incorporation may provide for more than one class or series of shares of stock, one or more of which are limited or denied such rights thereunder; provided, however, that no such right shall vest in the event of an increase or a decrease in the authorized number of shares of stock of any class or series which is otherwise denied voting rights under the provisions of the certificate of incorporation, except as any provision of law may otherwise require.

 

7. STOCKHOLDER MEETINGS .

 

-      TIME . The annual meeting shall be held on the date and at the time fixed, from time to time, by the directors, provided, that the first annual meeting shall be held on a date within thirteen months after the organization of the corporation, and each successive annual meeting shall be held on a date within thirteen months after the date of the preceding annual meeting. A special meeting shall be held on the date and at the time fixed by the directors.

 

-      PLACE . Annual meetings and special meetings may be held at such place, either within or without the State of Delaware, as the directors may, from time to time, fix. Whenever the directors shall fail to fix such place, the meeting shall be held at the registered office of the corporation in the State of Delaware. The board of directors may also, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the Delaware General Corporation discretion, and subject to guidelines and procedures as the board of directors may adopt, stockholder and proxyholders, not physically present at a meeting of stockholders and be deemed present in person and vote at a meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (a) the corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (b) the corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (c) if any stockholder of proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the corporation.

 

-      CALL . Annual meetings and special meetings may be called by the directors or by an officer instructed by the directors to call the meeting.

 

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-      NOTICE OR WAIVER OF NOTICE . Written notice of all meetings shall be given, which shall state the place, if any, date, and hour of the meeting, the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called. The notice of an annual meeting shall state that the meeting is called for the election of directors and for the transaction of other business which may properly come before the meeting, and shall (if any other action which could be taken at a special meeting is to be taken at such annual meeting) state the purpose or purposes. The notice of any meeting shall also include, or be accompanied by, any additional statements, information, or documents prescribed by the General Corporation Law. Except as otherwise provided by the General Corporation Law, the written notice of any meeting shall be given not less than ten days nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the corporation. If a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time, place, if any, thereof, and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Whenever notice is required to be given under the Delaware General Corporation Law, certificate of incorporation or bylaws, a written waiver signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a stockholder at a meeting of stockholders shall at a meeting of stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the certificate of incorporation or these bylaws.

 

-      STOCKHOLDER LIST . The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane in the meeting for a period of at least ten days prior to the meeting on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting or during ordinary business hours at the principal place of business of the corporation. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. If the meeting is to held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with notice of the meeting. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section or the books of the corporation, or to vote in person or by proxy at any meeting of stockholders.

 

-      CONDUCT OF MEETING . Meetings of the stockholders shall be presided over by one of the following officers in the order of seniority and if present and acting – the Chairperson of the Board, if any, the Vice-Chairperson of the Board, if any, the President, a Vice-President, or, if none of the foregoing is in office and present and acting, by a chairperson to be chosen by the stockholders.

 

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-      PROXY REPRESENTATION . Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after 3 years from its date, unless the proxy provides for a longer period. A stockholder may execute a writing authorizing another person or persons to act for such stockholder as proxy. Execution may be accomplished by the stockholder or such stockholder’s authorized officer, director, employee or agent signing such writing or causing such person’s signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature. A stockholder may also authorize another person or persons to act for such stockholder as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the prxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram or other means of electronic transmissions must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder. If it is determined that such telegrams, cablegrams or other electronic transmissions are valid, the inspectors or, if there are no inspectors, such other persons making the determination shall specify the information upon which they relied. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to Section 212(c) of the Delaware General Corporation Law may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. A duly executed proxy shall be irrevocable if it states that it is irrevocable and, if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally.

 

-      INSPECTORS . The directors, in advance of any meeting, may, but need not, appoint one or more inspectors of election to act at the meeting or any adjournment thereof. If an inspector or inspectors are not appointed, the person presiding at the meeting may, but need not, appoint one or more inspectors. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, if any, before entering upon the discharge of duties of inspector, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of such inspector’s ability. The inspectors if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots, or consents, hear and determined all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots, or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspector or inspectors, if any, shall make a report in writing of any challenge, question, or matter determined by such inspector or inspectors and execute a certificate of any fact found by such inspector or inspectors. Except as may otherwise be required by subsection (e) of Section 231 of the General Corporation Law, the provisions of that Section shall not apply to the corporation.

 

-      QUORUM . The holders of a majority of the outstanding shares of stock shall constitute a quorum at a meeting of stockholders for the transaction of any business. The stockholders present may adjourn the meeting despite the absence of a quorum.

 

 

 

 

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-      VOTING . Each share of stock shall entitle the holder thereof to one vote. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Any other action shall be authorized by a majority of the votes cast except where the General Corporation Law prescribes a different percentage of votes and/or a different exercise of voting power, and except as may be otherwise prescribed by the provisions of the certificate of incorporation and these Bylaws. In the election of directors, and for any other action, voting need not be by ballot.

 

8. STOCKHOLDER ACTION WITHOUT MEETINGS . Except as any provision of the General Corporation Law may otherwise require, any action required by the General Corporation Law to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders, of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. A telegram, cablegram or other electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxy holder, shall be deemed to be written, signed and dated for the purposes of this section, provided that any such telegram, cablegram or other electronic transmission sets forth or is delivered with information from which the corporation can determine that the telegram, cablegram or other electronic transmission was transmitted by the stockholder or proxy holder or by a person or persons authorized to act for the stockholder or proxy holder and the date on which such stockholder or proxy holder or authorized person or persons transmitted such telegram, cablegram, or electronic transmission. The date on which such telegram cablegram or electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. No consent given by telegram, cablegram, or other electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper shall be delivered to the corporation by delivery to its principal place of business or an officer or agent of the corporation having custody of the book in which the proceedings of meetings of stockholders are recorded, to the extent and in the manner provided by resolution of the board of directors of the corporation. Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing. Prompt notice of the taking of the corporate action without meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Action taken pursuant to this paragraph shall be subject to the provision of Section 228 of the General Corporation Law.

 

 

 

 

 

 

 

 

 

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ARTICLE II

 

DIRECTORS

 

1. FUNCTIONS AND DEFINITION . The business and affairs of the corporation shall be managed by or under the direction of the Board of Directors of the corporation. The Board of Directors shall have the authority to fix the compensation of the members thereof. The use of the phrase “whole board” herein refers to the total number of directors which the corporation would have if there were no vacancies.

 

2. QUALIFICATIONS AND NUMBER . A director need not be a stockholder, a citizen of the United States, or a resident of the State of Delaware. The initial Board of Directors shall consist of persons. Thereafter the number of directors constituting the whole board shall be at least one. Subject to the foregoing limitation and except for the first Board of Directors, such number may be fixed from the number shall be . The number of directors may be increased or decreased by action of the stockholders or of the directors.

 

3. ELECTION AND TERM . The first Board of Directors, unless the members thereof shall have been named in the certificate of incorporation, shall be elected by the incorporator or incorporators and shall hold office until the first annual meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal. Any director may resign at any time upon notice given in writing or by electronic transmission to the corporation. Thereafter, directors who are elected at an annual meeting of stockholders, and directors who are elected in the interim to fill vacancies and newly created directorships and newly created directorships, shall hold office until the next annual meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal. Except as the General Corporation law may otherwise require, in the interim between annual meetings of stockholders or of special meetings of stockholders called for the election of directors and/or for the removal of one or more directors and for the filling of any vacancy in that connection, newly created directorships and any vacancies in the Board of Directors, including the unfilled vacancies resulting from the removal of directors for cause or without cause, may be filled by the vote of a majority of the remaining directors then in office, although less than a quorum, or by the sole remaining director.

 

 

 

 

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4. MEETINGS

 

-      TIME . Meetings shall be held at such a time as the Board shall fix, except that the first meeting of a newly elected Board shall be held as soon after its election as the directors may conveniently assemble.

 

-      PLACE . Meetings shall be held at such a place within or without the State of Delaware as shall be fixed by the Board.

 

-      CALL . No call shall be required for regular meetings for which the time and place have been fixed. Special meetings may be called by or at the direction of the Chairperson of the Board, if any, the Vice-Chairperson of the Board, if any, of the President, or of a majority of the directors in office.

 

-      NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER . No notice shall be required for regular meetings for which the time and place have been fixed. Written, oral, or any other mode of notice of the time and place shall be given for special meetings in sufficient time for the convenient assembly of the directors thereat. Whenever notice is required to be given under the Delaware General Corporation Law, certificate of incorporation or bylaws, a written waiver signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of any such person at a meeting shall constitute a waiver of notice of such meeting, except when such person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called of convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors need be specified in any written waiver of notice.

 

-      QUORUM AND ACTION . A majority of the whole Board shall constitute a quorum except when a vacancy or vacancies prevents such majority, whereupon a majority of the directors in office shall constitute a quorum, provided, that such majority shall constitute at least one-third of the whole Board. A majority of the directors present, whether or not a quorum is present, may adjourn a meeting to another time and place. Except as herein otherwise provided, and except as otherwise provided by the General Corporation Law, the vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board. The quorum and voting provisions herein stated shall not be construed as conflicting with any provisions of the General Corporation Law and these Bylaws which govern a meeting of directors held to fill vacancies and newly created directorships in the Board or action of disinterested directors.

 

Any member or members of the Board of Directors or of any committee designated by the Board, may participate in a meeting of the Board, or any such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other.

 

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-      CHAIRPERSON OF THE MEETING . The Chairperson of the Board, if any and if present and acting, shall preside at all meetings. Otherwise, the Vice-Chairperson of the Board, if any an if present and acting, or the President, if present and acting, or any other director chosen by the Board, shall preside.

 

5. REMOVAL OF DIRECTORS . Except as may otherwise be provided by the General Corporation Law, any director of the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors.

 

6. COMMITTEES . The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of any member of any such committee or committees, the member of members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation with the exception of any power or authority the delegation of which is prohibited by Section 141 of the General Corporation Law, and my authorize the seal of the corporation to be affixed to all papers which may require it.

 

7. WRITTEN ACTION . Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of committee, as the case may be, consent thereto in writing or electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board of committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

 

 

 

 

 

9

 

Exhibit 10.1

 

PROMISSORY NOTE

 

 

 

$150,000   San Diego, California

 

September 15th, 2009

 

 

 

 

1.        Principal; Interest; Due Date . Petel Incorporated , a Delaware corporation (“Petel”) for value received, hereby promises to pay to Klaus Moeller , (“Moeller”), in lawful money of the United States at the address of Moeller set forth below, the principal amount of One Hundred and Fifty Thousand Dollars ($150,000.00). Interest on the outstanding principal amount of this Note at a rate of five percent (5%) per annum shall accrue from September 15th, 2009 until the Note (principal and interest) has been fully repaid. Interest will be computed on the basis of a 360-day year of twelve (12) 30-day months. The note is payable in full by no later than September 14th, 2011.

 

2.        Defaults and Remedies . An “Event of Default” shall mean the occurrence of one or more of the following described events: (a) any default in the payment when due of principal or of interest on this Note whether at maturity or otherwise; (b) a Corporate Transaction; (c) the commencement of any proceeding in a court seeking a decree or order for relief in respect of Petel in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of Petel or for any substantial part of its property, or for the winding-up or liquidation of its affairs, which proceeding shall not have been stayed or dismissed within sixty (60) days after the commencement thereof; or (d) the commencement by Petel of any voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or Petel’s consent to the entry of an order for relief in an involuntary case under any such law; or Petel’s consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of Petel or for any substantial part of its property, or Petel making a general assignment for the benefit of creditors, or Petel’s failure generally to pay its debts as they become due, or Petel taking any action in furtherance of any of the foregoing.

 

If any Event of Default occurs, Moeller may at any time thereafter declare all of this Note to be due and payable immediately by written notice to Petel. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency described in clauses (c) and (d) above, this Note will become due and payable immediately without further action or notice. Moeller may waive any existing Event of Default, provided that any such waiver must be in writing in order to be effective.

 

1
 

 

A “ Corporate Transaction ” shall mean a merger or consolidation in which Petel is not the surviving entity, except for a transaction, the principal purpose of which, is to change the State in which Petel is incorporated; (ii) the sale, transfer or other disposition of all or substantially all of the assets of Petel; (iii) the liquidation or dissolution of Petel involving all or substantially all Petel’s assets; (iv) any reverse merger or series of related transactions culminating in a reverse merger (including, but not limited to, a tender offer followed by a reverse merger), in which Petel is the surviving entity, but in which securities possessing more than forty percent (40%) of the total combined voting power of Petel's outstanding securities are transferred to a person or persons different from those who held such securities immediately before such merger or the initial transaction culminating in such merger; or (v) acquisition in a single or series of related transactions, by any person or related group of persons (other than Petel or by a Petel- sponsored employee benefit plan) of beneficial ownership, (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of Petel's outstanding securities.

 

3.        Attorneys’ Fees . If the indebtedness represented by this Note or any part thereof is collected in bankruptcy, receivership or other judicial proceedings, or if this Note is placed for collection after an Event of Default, Petel agrees to pay all reasonable fees and costs incurred by Moeller for the collection of payment under this Note.

 

4.        Amendment, Supplement and Waiver . This Note may be amended only with the written consent of both Petel and Moeller.

 

5.        Notices . All notices, requests, demands or other communications required or permitted under this Note shall be sent to the parties hereto by courier, express delivery or facsimile transmission to the parties’ respective addresses set forth below, and notice shall be deemed given as of the date the notice is received if sent by courier or when transmitted if sent by facsimile:

 

If to Petel:

David Morton, CEO

Petel Ltd

9 Lydden Road

London, SW18 4LT

   
With a copy to: Sean Goodchild, CFO
   
If to Moeller:

Klaus Moeller

9958 Durant Drive

Beverly Hills, CA 90212

   
With a copy to:  
   

 

 

2
 

 

 

Each of the above parties may change its address for purposes of this Paragraph 5 by giving to all other parties written notice of such new address in conformance with this paragraph.

 

6.        Waivers . To the fullest extent permitted by law, Petel hereby waives presentment, demand for performance, notice of non-performance, protest, notice of protest and notice of dishonor. No delay on the part of Moeller in exercising any right hereunder shall operate as a waiver of such right or any other right.

 

7.        Governing Law; Consent to Jurisdiction . This Note shall be governed by, and construed in accordance with, the laws of the State of California (without giving effect to its choice of law principles). Each of the parties hereto irrevocably submits to the exclusive jurisdiction of (a) the Supreme Court of the State of California, and (b) the United States District Court for the Southern District of California, for the purpose of any Action arising out of this Note or any matter referred to in this Note. Each of the parties hereto agrees to commence any Action relating hereto either in the United States District Court for the Southern District of California or in the Supreme Court of the State of California. Each of the parties hereto further agrees that service of any process, summons, notice or document by U.S. registered mail to such party’s respective address set forth in paragraph 5 shall be effective service of process for any Action in California with respect to any matters to which it has submitted to jurisdiction in this paragraph 7. Each of the parties hereto irrevocably and unconditionally waives any objection to the laying of venue of any Action arising out of this Note or any transaction contemplated hereby in (i) the Supreme Court of the State of California, or (ii) the United States District Court for the Southern District of California, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such Action brought in any such court has been brought in an inconvenient forum.

 

8.        Parties in Interest . This Note shall bind Petel and its successors and assigns. Nothing in this Note, whether expressed or implied, is intended to confer any rights or remedies under or by reason of this Note on any Persons other than the parties to it and their respective successors, legal representatives and assigns, nor is anything in this Note intended to relieve or discharge the obligation or liability of any third Persons to any party to this Note, nor shall any provisions give any third Persons any rights of subrogation or action over or against any party to this Note.

 

9.        Paragraph Headings, Construction . The headings of paragraphs in this Note are provided for convenience only and will not affect its construction or interpretation. All references to “paragraph” or “paragraphs” refer to the corresponding paragraph or paragraphs of this Note unless otherwise specified.

 

3
 

 

10.        Severability . If any provision of this Note is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Note will remain in full force and effect. Any provision of this Note held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.

 

13.        Attorney-in-Fact . Petel will, upon Moeller’s request, execute, acknowledge and deliver to Moeller such additional, further and other documents as Moeller may reasonably deem necessary to evidence and/or effectuate Moeller's rights hereunder, and Petel hereby appoints Moeller as Petel's irrevocable attorney-in-fact to execute, acknowledge, deliver and record any and all such documents if Petel shall fail to execute the same within five (5) days after being so requested by Moeller, the foregoing appointment being a power coupled with an interest.

 

All words used in this Note will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the words “hereof” and “hereunder” and similar references refer to this Note in its entirety and not to any specific paragraph or subparagraph hereof.

 

 

IN WITNESS WHEREOF, Moeller has executed and delivered this Note as of the date first above written.

 

 

/s/ David Morton

Petel Inc.

By: David Morton

Its: CEO

 

ACCEPTED AND AGREED TO:

 

/s/ Klaus Moeller

Klaus Moeller

 

 

4

 

Exhibit 10.02

PROMISSORY NOTE

 

 

 

$150,000 San Diego, California

 

September 15th, 2009

 

 

ADDENDUM

 

 

September 14th, 2011

 

 

Moeller hereby agrees to extend the payable date to September 15th, 2013

 

IN WITNESS WHEREOF, Moeller has executed and delivered this Note Addendum as of September 14th, 2011.

 

 

 

/s/ Sean Goodchild

Capital Art, Inc.

By: Sean Goodchild

Its: CEO

 

 

ACCEPTED AND AGREED TO:

 

 

/s/ Klaus Moeller

Klaus Moeller

 

 

Exhibit 10.03

PROMISSORY NOTE

 

 

 

$150,000 San Diego, California

 

September 15th, 2009

 

 

ADDENDUM

 

 

September 14th, 2013

 

 

Moeller hereby agrees to extend the payable date to September 15th, 2014

 

IN WITNESS WHEREOF, Moeller has executed and delivered this Note Addendum as of September 14th, 2013.

 

 

 

/s/ Sean Goodchild

Capital Art, Inc.

By: Sean Goodchild

Its: CEO

 

 

ACCEPTED AND AGREED TO:

 

 

/s/ Klaus Moeller

Klaus Moeller

 

 

Exhibit 10.04

 

MEMBERSHIP INTEREST PURCHASE AGREEMENT

 

 

THIS MEMBERSHIP INTEREST PURCHASE AGREEMENT (which together with the attached exhibits, are referred to herein as (the "Agreement"), is entered into this 25 th day of April 2011, by and between Gleeworks Incorporated, a Delaware corporation (the "Company"), and the Members of Capital Art, LLC a California corporation with company registration number 03510128 ("CAL”) who agree to become parties to this Agreement ("Selling Members") listed in Exhibit B as evidenced by their signatures in Exhibit C hereto.

 

WHEREAS, the Selling Members wish to sell and the Company desires to purchase One Hundred Percent (100%) of the Membership Interests of Capital Art, LLC . (the "CAL Interests"), as defined herein, in exchange for Seven Million, Five Hundred Thousand (7,500,000) shares of the Company's common stock as defined herein (the "Acquisition Shares"), upon the terms and conditions set forth in this Agreement.

 

NOW, THEREFORE, in consideration of and in reliance on the mutual promises and representations and warranties contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Selling Members and the Company agree as follows:

 

1. Definitions

 

1.1 "Associate" means with respect to any person, (i) any member of the immediate family of such person, (ii) any entity of which such person, or any member of the immediate family of such person, directly or indirectly, owns any equity interest, (iii) any entity of which such person, or any member of the immediate family of such person, serves as a director or executive officer, and (iv) any entity that directly or indirectly controls, or that is directly or indirectly controlled by or under common control with, such person or any member of the immediate family of such person.

 

1.2 "Company Disclosure Documents" means the Company Financials (as defined herein), material agreements and corporate documents, and other information related to the Company material to its operations including but not limited to the Company Financials as listed in Exhibit A to this Agreement and any and all interim data or filings through the date hereof to be provided by the Company pursuant to this Agreement.

 

1.3 "Liabilities" means liabilities, obligations, or commitments of any nature, absolute, accrued, contingent, or otherwise, known or unknown, whether matured or unmatured.

 

1.4 "CAL Interests" means all the Membership Interests of Capital Art, LLC., a US corporation, comprising of Forty (40) Members having One Hundred Percent (100%) of the right, title and interests in Capital Art, LLC.; provided however that unless the holders of more than eighty percent (80%) of the CAL Interests become parties to this Agreement then it shall automatically terminate notwithstanding any terms contained herein to the contrary.

 

1.5 "CAL Disclosure Documents" means the Capital Art, LLC . Financials (as defined in Section 5.4 herein) and the disclosure documents listed in Exhibit A to this Agreement.

 

1.6 “CAL Financials” means the Capital Art, LLC. Financials (as defined in Section 5.4 herein).

 

1.7 "CAL Assets" means assets (excluding the books and records of the Selling Members), properties, leases, contracts, agreements, and rights of Capital Art, LLC. of every type and description, real, personal, and mixed, tangible and intangible, including without limitation, all cash on hand and in banks, trade accounts receivable, other accounts receivable, deposits, prepaid items, furniture and fixtures, office equipment and supplies, real property and improvements, leases and leasehold improvements, trademarks, other tangible properties, and its business as an ongoing concern, goodwill and proprietary computer software and systems, as contained in the CAL Financials and more fully described in Exhibit A hereto.

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1.8 "Person" means any individual, corporation, professional corporation, limited partnership, association or any other legal entity through which an individual or business might organize himself or itself.

 

1.9 "Subsidiary" means any corporation, joint venture or entity which is partly or wholly owned by either the Company or CAL as the context permits.

 

1.10 "Tax" or "Taxes" mean any federal, state, local, or foreign income, gross receipts, profits, franchise, doing business, transfer, sales, use, payroll, occupation, real or personal property, excise and similar taxes (including interest, penalties, or additions to such taxes).

 

1.11 "Tax Returns" or "Tax Reports" mean all returns, reports, estimates, information returns and statements of any nature with respect to Taxes.

 

2. Purchase and Sale of CAL Interests

 

2.1 Purchase and Sale. Upon the terms and subject to the conditions of this Agreement, on the Closing Date, as defined in Paragraph 3.1, the Selling Members listed in Exhibit B agree to sell and transfer the CAL Interests to the Company and the Company agrees to purchase the CAL Interests for the Purchase Price and other consideration set forth in this Agreement.

 

2.2 Purchase Price. In exchange for the CAL Interests, the Company shall issue the Acquisition Shares, in denominations and in the names of such Selling Members as defined in Exhibit B.

 

3. Closing

 

3.1 Date and Place. The closing of the delivery and transfer of the CAL Interests (the "Closing") shall occur on a date ("Closing Date") to be mutually agreed upon by the Selling Members and the Company after exchange of all books, records, financial information, documents and other materials reasonably deemed necessary for completion of the transaction contemplated under this Agreement. Exchange of documents under this Agreement shall begin as soon as possible after execution. In any case, the Closing Date shall be no later than 30 days from date of this agreement, unless otherwise agreed upon by the parties, and the effective date of this transaction shall be the date of Closing (the "Effective Date").

 

3.2 Transactions and Document Exchange at Closing. At the Closing, the following transactions shall occur and documents shall be exchanged, all of which shall be deemed to occur simultaneously.

 

3.3 By the Selling Members. If requested, the Selling Members will deliver, or cause to be delivered to the extent such documentation and information exists, to the Company:

 

3.4 The documents necessary to transfer the CAL Interests to the Company pursuant to this Agreement, in proper form and substance reasonably acceptable to the Company; and,

 

3.5 The Certificate of Representations and Warranties executed by the President of CAL , as defined in Paragraph 7.1; and,

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3.6 The information as set forth in Paragraph 7.6; and,

 

3.7 Such other documents, instruments, and/or certificates, if any, as are required to be delivered pursuant to the provisions of this Agreement, or which are reasonably determined by the parties to be required to effectuate the transactions contemplated in this Agreement, or as otherwise may be reasonably requested by the Company to further the intent of this Agreement; and,

 

3.8 Financial statements of CAL dated as of its most recent year end prior to the Closing Date covering all operations since the inception of CAL. The Selling Members shall also deliver or cause to be delivered all books and records of CAL to the extent available and necessary to perform an audit of its books as of its most recent month end prior to the Closing Date in accordance with Regulation S-X, which books and records shall present fairly the financial condition and results of operations of CAL since the date of its audited financial statements, in accordance with generally accepted accounting principles applied on a basis consistent with prior accounting period; and,

 

3.9 Any federal and state income payroll tax and sales tax returns filed by CAL and all correspondence related thereto.

 

3.10 By the Company. If requested in writing, the Company will deliver, or cause the following to be delivered to the extent such documentation and information exists, to the Selling Members;

 

3.11 The Acquisition Shares, as calculated according to Paragraph 2.2;

 

3.12 Stock certificate(s) in the name of the Selling Members of the Company's Common Stock and a Certificate of Representations and Warranties, as defined in Paragraph 6.1;

 

3.13 The opinion of counsel as set forth in Paragraph 6.4;

 

3.14 Such other documents, instruments, and/or certificates, if any, as are required to be delivered pursuant to the provisions of this Agreement, or which are reasonably determined by the parties to be required to effectuate the transactions contemplated in this Agreement, or as otherwise may be reasonably requested by the Selling Members in furtherance of the intent of this Agreement.

 

3.16 Post-Closing Documents. From time to time after the Closing, upon the reasonable request of any party, the party to whom the request is made shall deliver such other and further documents, instruments, and/or certificates as may be necessary to more fully vest in the requesting party the consideration provided for in this Agreement or to enable the requesting party to obtain the rights and benefits contemplated by this Agreement, including but not limited to delivery of records of all books and records of CAL since inception.

 

4. Representations and Warranties of the Company

 

The Company represents and warrants to the Selling Members that:

 

4.1 Organization and Authority. The Company is incorporated in Delaware with the corporate power and authority to carry on its business as now being conducted. The execution and delivery of this Agreement and the consummation of the transactions contemplated in this Agreement have been, or will be prior to Closing, duly authorized by all requisite corporate actions on the part of the Company. This Agreement has been duly executed and delivered by the Company and constitutes the valid, binding and enforceable obligation of the Company.

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4.2 Ability to Carry Out Agreement. To the best of the Company's knowledge and belief, the execution and performance of this Agreement will not violate, or result in a breach of, or constitute a default in, any provisions of applicable law, any agreement, instrument, judgment, order or decree to which the Company is a party or to which the Company is subject. No consents of any persons under any contract or agreement required to be disclosed pursuant to this Agreement are required for the execution, delivery and performance by the Company of this Agreement.

 

4.3 The Shares. The Shares to be issued pursuant to this Agreement will be issued at Closing, free and clear of liens, claims and encumbrances, subject to a One (1) Year Restriction and the Company has all necessary right and power to issue the Shares to the Selling Members as provided in this Agreement without the consent or approval of any person, firm, corporation or governmental authority.

 

4.4 Capitalization of the Company . As of April 25th, 2011, the authorized capital of the Company is comprised of Four Hundred and Fifty Million (450,000,000) shares of $.0001 par value common stock (the “Common Stock”) and Fifty Million (50,000,000) preferred shares, of which Seven Million and Fifty Two Thousand, One Hundred and Seventy Two (7,052,172) shares of Common Stock are issued and outstanding, and none of the shares of the Preferred shares are issued and outstanding.

 

At Closing, the Company will have approximately Fourteen Million, Five Hundred and Fifty Two Thousand, One Hundred and Seventy Two (14,552,172) shares of Common Stock issued and outstanding. Except as set forth herein and on, Exhibit A, at Closing the Company will not have any other derivative securities issued and outstanding or subject to any issuance at future date pursuant to any contract or agreement now in force and effect, including but not limited to options, warrants, convertible securities, or other rights, or any instrument, exchangeable or exercisable for or convertible into securities of the Company.

 

4.5 Financial Information . The Selling Members have had access to and received copies of the Company's Annual Reports (included in the attached Exhibit A and styled as the "Company Disclosure Documents"). The Company has no obligations or liabilities (whether accrued, absolute, contingent, liquidated or otherwise which are not fully disclosed and adequately provided for in the Company Financials, excepting liabilities incurred and obligations under agreements entered into in the usual and ordinary course of business since the date of the Company Financials ("Subsequent Debt"), none of which (individually or in the aggregate) are material except as may be identified on Exhibit A attached hereto. Except as indicated in the Company Disclosure Documents, there exists no default under the provisions of any instrument evidencing such indebtedness or of any agreement relating thereto.

 

4.6 Litigation. To the best knowledge and belief of the Company, except as disclosed pursuant to this Agreement and the attached Exhibit A, there is neither pending nor threatened, any action, suit or arbitration to which its property, assets or business is or is likely to be subject and in which an unfavorable outcome, ruling or finding will or is likely to have a material adverse effect on the condition, financial or otherwise, or properties, assets, business or operations, which would create a material liability on the part of the Company, or which would conflict with this Agreement or any action taken or to be taken in connection with it.

 

4.7 Contracts. Except as described in the Company Disclosure Documents (Exhibit A hereto), there are no contracts, actual or contingent obligations, agreements, franchises, license agreements or other commitments between the Company or other third parties which are material to the business, financial condition or results of operation of the Company, taken as a whole. For purposes of the preceding sentence, the term "material" refers to any obligation or liability which by its terms calls for aggregate payments of more than Ten Thousand Dollars ($10,000).

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4.8 Material Contract Breaches; Defaults. Except as described in Exhibit A hereto, to the best of the Company's knowledge and belief, except as disclosed in the Company Disclosure Documents, it has not materially breached, nor has it any knowledge of any pending or threatened claims or any legal basis for a claim that it has materially breached, any of the terms or conditions of any agreements, contracts or commitments to which it is a party or is bound and which might give rise to a claim by anyone against the Acquisition Shares. Except as described in Exhibit A to the best of its knowledge and belief except as disclosed herein or in the Company Disclosure Documents, the Company is not in default in any material respect under the terms of any outstanding contract, agreement, lease or other commitment which might give rise to a claim against the Acquisition Shares, and there is no event of default or other event which, with notice or lapse of time or both, would constitute a default in any material respect under any such contract, agreement, lease, or other commitment which might give rise to a claim against the Acquisition Shares in respect of which the Company has not taken adequate steps to prevent such a default from occurring.

 

4.9 Securities Laws . The Company is not a public company and represents that, except as disclosed herein or in the Company Disclosure Documents, the Company does not have any existing or threatened liabilities, claims, lawsuits, or basis for the same with respect to its original stock issuance to its founders, its initial public offering, any other issuance of stock, or any dealings with its stockholders, the public, the brokerage community, the SEC, any state regulatory agencies, or other persons. The Company is currently exempt from filing periodic reports under Section 12(g) of the '34 Act.

 

THE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT; (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE); OR (3) PURSUANT TO ANOTHER EXEMPTION AVAILABLE UNDER THE SECURITIES ACT, IN EACH CASE, IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE UNITED STATES AND OTHER JURISDICTIONS.

 

4.10 Brokers. The Company has not agreed to pay any brokerage fees, finders' fees or other fees or commissions with respect to the transactions contemplated in this Agreement which could give rise to a claim against the Acquisition Shares or any portion thereof. The Company further agrees to indemnify and hold harmless the Selling Members against liability to any other broker claiming to act on behalf of the Company.

 

4.11 Corporate Records. Copies of all corporate books and records, including, but not limited to, any other documents and records of the Company relating to the business of its shareholders and directors to the extent the Company has such, will be provided to CAL at Closing at the written request of CAL. All such records and documents are and will be complete, true and correct.

 

4.12 Approvals. Except as otherwise provided in this Agreement, no authorization, consent, or approval of, or registration or filing with, any governmental authority or any other person is required to be obtained or made by the Company in connection with the execution, delivery or performance of this Agreement.

 

4.13 Full Disclosure. The information concerning the Company, set forth in this Agreement and in the Company Disclosure Documents, is, to the best of the Company's knowledge and belief, complete and accurate in all material respects and does not contain any untrue statement of a material fact or omit to state a material fact required to make the statements made, in light of the circumstances under which they were made, not misleading.

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5. Representations and Warranties of the Selling Members

 

To the best of their knowledge and belief and save as Disclosed in the CAL Disclosure Documents the Selling Members represent and warrant to the Company that:

 

5.1 Organization and Authority. CAL is a corporation duly organized, validly existing and in good standing under the laws of California with the power and authority to carry on its business as now being conducted. The execution and delivery of this Agreement and the consummation of the transactions contemplated in this Agreement have been, or will be prior to Closing, duly authorized by all requisite action on the part of CAL as required, or otherwise, to the extent, if any, that such authorizations are necessary. This Agreement has been duly executed and delivered by CAL and constitutes the valid, binding, and enforceable obligation of CAL, subject to equitable principles and laws of bankruptcy and similar laws.

 

5.2 Ability to Carry out Agreement. The execution and performance of this Agreement will not violate, or result in a breach of, or constitute a default in, any provisions of applicable law, any agreement, instrument, judgment, order or decree to which CAL is a party or to which CAL is subject, other than such violations, breaches, or defaults which, singly or in the aggregate, do not have a material adverse effect on its business as a whole or on the enforceability or validity of this Agreement. No consents of any persons under any contract or agreement required to be disclosed or disclosed pursuant to this Agreement are required for the execution, delivery, and performance by the Selling Members of this Agreement.

 

5.3 Capitalization: Title to Units. As of the date of execution of this Agreement, the CAL Interests, expressed by a total of Fifteen Million (15,000,000) Units, are One Hundred percent (100%) held by the Selling Members in the amounts opposite their names on Exhibit B hereto. Other than the Selling Members, CAL does not have any New or proposed Members and only the Selling Members defined herein on Exhibit B are party to this agreement.

 

5.4 Financial Information. The Selling Members have provided to the Company, or if requested, will provide prior to Closing, financial statements of CAL for all fiscal years ended since the inception of CAL and reports for such interim periods ending since the latest fiscal year ended, and such other documents and information relating to CAL's current financial condition including but not limited to its purchase, operation and disposition, if any, of any CAL assets and liabilities. Such financial statements and other financial information shall be referred to as the "CAL Financials". If not audited, the Selling Members represent that all financial statements and reports included in the CAL Financials have been prepared from the books and records of CAL (subject to normal year-end adjustments) and present fairly the financial condition of CAL and the results of its operations for the periods therein specified, all in accordance with generally accepted accounting principles applied on a basis consistent with prior accounting periods. Except as set forth in the CAL Financials, CAL has no obligations or liabilities (whether accrued, absolute, contingent, liquidated or otherwise, including without limitation any tax liabilities due or to become due) which are not fully disclosed and adequately provided for, excepting current liabilities incurred and obligations under agreements entered into in the usual and ordinary course of business since the date hereof, none of which (individually or in the aggregate) are material.

 

Page 6 of 23
 

5.5 Conduct of Business. Since inception, except as disclosed in the CAL Disclosure Documents, CAL has not (i) discharged or satisfied any liens other than those securing, or paid any obligation or liability other than, current liabilities shown on the CAL Financials and current liabilities incurred since the date of the CAL Financials, in each case in the usual or ordinary course of business, (ii) mortgaged, pledged or subjected to lien any of its tangible or intangible assets (other than purchase money liens incurred in the ordinary course of business for such assets not yet paid for), (iii) sold, transferred or leased any of its assets except in the usual and ordinary course of business, (iv) canceled or compromised any material debt or claim, or waived or released any right of material value, (v) suffered any physical damage, destruction or loss (whether or not covered by insurance) materially adversely affecting its properties, business or prospects, (vi) entered into any transaction other than in the usual and ordinary course of business, except as contemplated by this Agreement, (vii) encountered any labor difficulties or labor union organizing activities, (viii) made or agreed to any wage or salary increase or entered into any employment agreement, (ix) issued or sold any securities or granted any options with respect thereto, except as disclosed pursuant to this Agreement, (x) amended its Articles of Organization, (xi) agreed to declare or pay any distributions with respect to its Selling Members, or (xii) suffered or experienced any change in, or condition affecting, the condition (financial or otherwise) of its properties, assets, liabilities, business, operations or prospects, other than changes, events or conditions in the ordinary course of its business none of which has (individually or in the aggregate) been materially adverse, except as disclosed in the CAL Disclosure Documents.

 

5.6 Litigation. To the best knowledge and belief of CAL, except as disclosed in the CAL Disclosure Documents, there is neither pending nor threatened, any action, suit or arbitration to which CAL's property, assets or business is or is likely to be subject and in which an unfavorable outcome, ruling or finding will or is likely to have a material adverse effect on the condition, financial or otherwise, or properties, assets, business or operations of CAL, or create any material liability on the part of CAL or conflict with this Agreement or any action taken or to be taken in connection herewith.

 

5.7 Contracts and Options. Except as disclosed in the CAL Disclosure Documents, there are no contracts, actual or contingent obligations, agreements, franchises, license agreements, or other commitments to which CAL is a party or by which it or any of its properties or assets are bound which are material to the business, financial condition, or its results of operation. For purposes of the preceding sentence, the term "material" refers to any obligation or liability which by their terms calls for aggregate payments of more than Ten Thousand Dollars ($10,000).

 

5.8 Material Contract Breaches; Defaults. Except as disclosed herein or in the CAL Disclosure Documents, to the best of the knowledge and belief of the Selling Members, CAL has not materially breached, nor have they any knowledge of any pending or threatened claims or any legal basis for a claim that CAL has materially breached, any of the terms or conditions of any agreements, contracts, or commitments to which it is a party or is bound and which are material to the business, financial condition, or results of CAL’s operations, taken as a whole. Except as disclosed by the CAL Disclosure Documents or as reserved for therein, to the best of their knowledge and belief, neither the Selling Members nor CAL are in default in any material respect under the terms of any outstanding contract, agreement, lease, or other commitment which is material to the business, operations, properties, assets, or condition of CAL, and there is no event of default or other event which, with notice or lapse of time or both, would constitute a default in any material respect under any such contract, agreement, lease or other commitment in respect of which CAL has not taken adequate steps to prevent such a default from occurring.

 

5.9 Selling Members. Exhibit B hereto accurately sets forth the identity of the Selling Members and their relationship with CAL, and the names and titles of the persons serving as directors and officers of a Selling Shareholder, if any such Selling Shareholder is a corporation.

Page 7 of 23
 

 

5.10 Employee and Labor Matters. The CAL Disclosure Documents accurately set forth the names, positions, and annual salary of each person employed by CAL, including officers, whose annual salary including bonuses exceed Ten Thousand Dollars ($10,000). Except as disclosed in the CAL Disclosure Documents, CAL has no employment agreement that cannot be canceled on a thirty (30) day notice or collective bargaining agreement covering any of its employees and has encountered no material labor difficulties. The CAL Disclosure Documents also set forth a complete and accurate list of all employee benefit plans, including all profit sharing, bonus, pension or similar plans to which CAL is a party or by which CAL is bound. If requested, the Selling Members will deliver or cause to be delivered to the Company prior to Closing, complete and correct copies of all the agreements, plans, or other written materials identified in the CAL Disclosure Documents. There is no existing default by CAL under any of the agreements, plans, or arrangements identified in the CAL Disclosure Documents, and there exists no condition or circumstance which, with notice or lapse of time or both, would constitute such a default. Except as disclosed in the CAL Disclosure Documents, there is no pending or threatened labor dispute, strike, slowdown, or work stoppage, no unfair labor practice pending against CAL before the National Labor Relations Board, CAL is not engaged in any unfair labor practice, and there is no grievance or arbitration proceeding pending against, or threatened to be asserted or commenced against CAL under any collective bargaining agreement or other labor contract. All Taxes relating to CAL which it is required by law to withhold or collect have been duly withheld or collected and have been timely paid over to the proper authorities to the extent due and payable.

 

5.11 Real Properties. Except as disclosed pursuant to this Agreement, CAL has full legal and beneficial title to all of the real properties owned by it, including without limitation those reflected in the CAL Disclosure Documents, free and clear of any liens or encumbrances except for current local property taxes not yet payable and any utility or other easements that do not and will not affect operations upon or about such real properties or the economic value or marketability thereof.

 

5.12 Other Properties and Equipment. Except as disclosed pursuant to this Agreement, CAL has good title, subject to no security interests, liens, encumbrances, or claims of others, to all structures, facilities, machinery and equipment, supplies, raw materials, vehicles, tools, parts, office equipment, furniture, furnishings, and all items of personal property and equipment in, at, on or about such real properties owned or leased by it, or used or necessary in its operations or business, including without limitation those reflected in the CAL Disclosure Documents. Each in it’s “as is, where is” actual state and condition at Closing.

 

5.13 Trademarks . CAL does not own or use any trademark, service mark, trade name, copyright or patent, or any registration or application for registration of any of the foregoing. Further, to the best of CAL's knowledge and belief, and that of the Selling Members, CAL has not infringed on and is not infringing upon any trademark, service mark, trade name, copyright or patent that is owned or used by any other person.

 

5.14 Leaseholds and Executory Contracts. Except as disclosed pursuant to this Agreement, each and every lease or executory contract to which CAL is a party is valid and enforceable. CAL has not received any notice of default by it under the terms of any such lease or executory contract which default remains uncured, and it is not in material breach or default by them under the terms of any such lease or executory contract, except as disclosed on the CAL Disclosure Documents.

 

5.15 Investments. CAL has provided, or if requested will provide to the Company, prior to Closing, a complete and accurate description of the CAL Assets, including but not limited to a list of all investments of CAL, which accurately sets forth the nature of CAL's interest or ownership in each investment and, if applicable, the jurisdictions in which the respective investments have been incorporated, organized, and are currently doing business. Except for the entities identified on the list to be provided to the Company, there is no corporation, limited partnership, joint venture, association, trust, or other entity or organization which CAL directly or indirectly controls or in which CAL directly or indirectly owns any equity interest or any other interest.

Page 8 of 23
 

 

5.16 Permits. Except as disclosed pursuant to this Agreement, CAL has obtained and maintains in full force and effect all franchises, permits, certificates, authorizations, licenses and other similar authority required by law or governmental regulations from all applicable federal, state or local authorities and any other regulatory authorities, which are necessary for the conduct of its business as now being conducted by it and as planned to be conducted, and it is not in default or noncompliance in any material respect under any of such franchises, permits, certificates, authorizations, licenses or other similar authority.

 

5.17 Compliance with Laws, Rules, Etc. The capitalization, business and operations of CAL is and has been conducted in compliance with all applicable federal, state, and local laws, rules and regulations, and it is not in violation of any terms of any mortgage, indenture, contract, agreement, instrument, judgment, decree, order, statute, rule or regulation to which it is subject, except to the extent any violation or noncompliance would not materially and adversely affect its business, operations, properties, assets, or financial condition, except to the extent that any violation or noncompliance would not result in the incurring of any material liability. Further, CAL has not been notified by any regulatory or governmental authority that it is now in violation of any law, rule, regulation, ordinance or order.

 

5.18 Conflict of Interest Transactions. Except as disclosed in the CAL Disclosure Documents, no past or present Member or employee of CAL, or any affiliate, and no Associate of any past or present shareholder or employee of CAL or any affiliate, (i) is indebted to, or has any financial, business, or contractual relationship or arrangement with CAL or any affiliate, (ii) has any direct or indirect interest in any property, asset, or right which is owned or used by CAL or any affiliate or (iii) has been directly or indirectly involved in any transaction with CAL or any affiliate.

 

5.19 Corporate Records. If requested, copies of all corporate books and records, including but not limited to the Operating Agreement, and any other documents and records of CAL will be provided to the Company at Closing. All such records and documents are complete, true and correct in all material respects.

 

5.20 Brokers. CAL has not agreed to pay any brokerage fees, finders' fees or other fees or commissions with respect to the transactions contemplated in this Agreement which could give rise to a claim against the Acquisition Shares or any portion thereof. CAL further agrees to indemnify and hold harmless the other parties to this Agreement against liability to any other broker claiming to act on behalf of CAL.

 

5.21 Approvals. Except as otherwise provided in this Agreement, to the best knowledge and belief of the Selling Members, no authorization, consent, or approval of, or registration or filing with, any governmental authority or any other person is required to be obtained or made by the Selling Members or CAL in connection with the execution, delivery, or performance of this Agreement.

 

5.22 Full Disclosure. The information concerning CAL set forth in this Agreement, in the CAL Disclosure Documents, and in the CAL Financials is, to the best of the Selling Members' knowledge and belief, complete and accurate in all material respects and does not contain any untrue statement of a material fact or omit to state a material fact required to make the statements made, in light of the circumstances under which they were made, not misleading.

 

5.23 Date of Representations and Warranties. Each of the representations and warranties of the Selling Members set forth in this Agreement are joint and several, and are true and correct at and as of the Closing Date, with the same force and effect as though made at and as of the Closing Date, except for changes permitted or contemplated by this Agreement.

Page 9 of 23
 

 

6. Conditions Precedent to Obligations of the Selling Members

 

All obligations of the Selling Members under this Agreement are subject to the fulfillment, prior to or as of the Closing Date, of each of the following conditions:

 

6.1 Representations and Warranties. The representations and warranties by the Company set forth in this Agreement shall be true and correct at and as of the Closing Date, with the same force and effect as though made at and as of the Closing Date, except for changes permitted or contemplated by this Agreement. If requested, the Company shall deliver on the Closing Date a certificate to this effect, referred to as the Company Certificate of Representations and Warranties.

 

6.2 No Breach or Default. The Company shall have performed and complied with all covenants, agreements, and conditions required by this Agreement to be performed or complied with by it prior to or at the Closing.

 

6.3 Company Disclosure Documents . If requested before Closing, the Company will have delivered to the Selling Members, or caused the delivery of the Company Disclosure Documents.

 

6.4 Opinion of Counsel. If requested in writing, the Company shall have delivered to the Selling Members an opinion of counsel dated the Closing Date to the effect that:

 

The Company is duly organized, validly existing, and in good standing under the laws of the United States, State of Delaware.

 

The Company has the corporate power to conduct its business as set forth in its Articles of Incorporation, as amended, and to carry on its business as now being conducted.

 

All corporate actions and director approvals have been properly obtained and completed by the Company, to the extent, if any, that they are necessary, for all actions required under this Agreement prior to Closing.

 

This Agreement has been duly authorized, executed, and delivered by the Company and is a valid and binding obligation of the Company and, in this regard, the Company shall provide the Selling Members at Closing with a certified copy of the resolution or resolutions of the Board of Directors of the Company, approving and authorizing the issuance by the Company of the Shares upon the terms and conditions herein set forth.

 

7. Conditions Precedent to Obligations of the Company

 

All obligations of the Company under this Agreement are subject to the fulfillment, prior to or as of the Closing Date, of each of the following conditions:

 

7.1 Representations and Warranties. The representations and warranties executed by the Members of CAL, and documents signed by the Selling Members pursuant to this Agreement, shall be true and correct at and as of the Closing Date, with the same force and effect as though made at and as of the Closing Date, except for changes permitted or contemplated by this Agreement. The Selling Members shall cause to be delivered on the Closing Date the certificate to this effect, referred to in this Agreement as the Certificate of Representations and Warranties executed by the Members of CAL.

Page 10 of 23
 

 

7.2 No Breach or Default. The Selling Members shall have performed and complied with all covenants, agreements and conditions required by this Agreement to be performed or complied with by them prior to or at the Closing.

 

7.3 Action to Transfer CAL Interests. The Selling Members shall have taken all action necessary to deliver and execute all necessary documentation required by the Company’s to transfer the CAL Interests to the Company pursuant to this Agreement.

 

In this regard, the Operating Agreement and Members Vote of the CAL Interests shall contain with all requisite documentary stamps, if any, affixed, as shall be required or as may be appropriate in order effectively to vest in the Company good, title to the CAL Interests free and clear of all liens, mortgages, conditional sales and other title retention agreements, pledges, assessments, covenants, restrictions, reservations, easements and all other encumbrances of every nature.

 

In addition to the Operating Agreement and Members Vote and delivery of the CAL Interests, the Selling Members shall have taken all action necessary to deliver all of CAL's corporate books and records, including but not limited to its files, documents, papers, agreements, formulas, books of account and records pertaining to its business, and evidence of compliance with the California statutory and related regulatory rules and regulations with respect to its Membership Interests, if reasonably required and requested by the Company's counsel.

 

7.4 CAL Financials. Before Closing, the Selling Members will have delivered all CAL Disclosure Documents, including but not limited to the CAL Financials, to the Company. The CAL Disclosure Documents shall specifically include income statements related to the operations of CAL’s business interests up to and including the end of April 2011; 04/30 and as updated through the date of Closing.

 

7.5 Approval of Other Instruments and Documents by the Company. All instruments and documents delivered to the Company pursuant to the provisions of this Agreement shall be reasonably satisfactory to the Company and its legal counsel.

 

7.6 Opinions, Affidavits and Declarations by the Selling Members. The Selling Members shall have delivered to the Company evidence reasonably satisfactory to the Company, and their counsel and auditors, dated as at the Closing Date, that:

 

CAL is duly organized, validly existing, and in good standing under the laws of the state of California and that the CAL Interests are free and clear of any and all liens, encumbrances or contingent liabilities except as disclosed pursuant to this Agreement.

 

CAL has the corporate power to carry on its business as now being conducted and is duly qualified to do business in he California and in any other jurisdiction where required or where the non-qualification to do business would have a material adverse affect on the value of its business.

 

All actions and approvals required in connection with the transfer of the CAL Interests to the Company have been properly taken, completed or obtained by the Selling Members, to the extent, if any, that they are necessary.

Page 11 of 23
 

 

This Agreement has been duly authorized, executed, and delivered by the Selling Members and is a valid and binding obligation of the Selling Members.

 

8. Covenants and Agreements of the Selling Members

 

Up to and including the Closing Date, the Selling Members covenant that:

 

8.1 Access and Information. After the execution of this Agreement, the Selling Members will cause CAL to permit the Company to have reasonable access to all information necessary to verify the representations and warranties made herein. After the Closing, the Selling Members will cause CAL to continue to permit the Company access to such additional documentation and information as is reasonably necessary to complete the transactions contemplated under this Agreement.

 

8.2 Conduct of Business as Usual. Up until the Closing Date, the Selling Members shall insure that CAL's operations shall be conducted only in the usual and ordinary course, and that no change will be made to such operations which might adversely effect the value of the CAL Interests to be transferred to the Company.

 

8.3 Best Efforts. The Selling Members shall use their best efforts to fulfill all conditions of the Closing including the timely solicitation of affirmative consent of all third parties necessary to effect a Closing under this Agreement.

 

8.4 Assent to Sale of CAL Interests. In the event the sale of CAL Interests is consummated, then each of the Selling Members agrees to such sale, and waives surrenders and agrees not to exercise any rights which such Selling Members might have to purchase any CAL Interests or have CAL redeem any CAL Interests.

 

9. Covenants and Agreements of the Company

 

Up to and including the Closing Date, applicable to the period after Closing in accordance with its terms, the Company covenants that:

 

9.1 Changes in the Company Directors. The Company's Board of Directors currently consists of four (4) seats, three (3) of which are vacant. At Closing, the Company agrees that one (1) vacant seat on the Company's Board may be filled by up to one (1) new director to be chosen by the Selling Members. Neither the Company nor its Board shall recommend the election of any new outside director or other candidate to fill a subsequently created seat on the Board unless such candidate has been approved by the CAL representatives, or the Board or the Selling Members as a group, such consent not to be unreasonably withheld or delayed.

 

9.2 Maintenance of Capital Structure. Up until the Closing Date, or termination hereof, whichever is the earlier, except as disclosed herein or required under the terms of this Agreement, no change shall be made in the Articles of Incorporation or Bylaws of the Company or the authorized capital stock of the Company.

 

9.3 Avoidance of Distributions. Up until the Closing Date, the Company shall not declare any dividends, make any payments or distributions to its stockholders or purchase for cash or redeem any of its shares of capital stock.

 

9.4 Conduct of Business as Usual. Up until the Closing Date, the Company Shareholders shall conduct the Company’s operations only in the usual and ordinary course, and no change will be made to such operations which might adversely affect the value of the Company.

Page 12 of 23
 

 

9.5 Access and Information. After the execution of this Agreement, the Company will permit the Selling Members to have reasonable access to all information necessary to verify the representations and warranties of the Company. After the Closing, the Company will continue to permit the Selling Members access to such additional documentation and information regarding the Company as is reasonably necessary to complete the transactions contemplated under this Agreement.

 

9.6 Best Efforts. The Company shall use its best efforts to fulfill or obtain the fulfill- ment of all conditions of the Closing, including the timely solicitation of affirmative consent of all third parties necessary to effect a Closing under this Agreement.

 

10. Termination

 

10.1 Termination without Cause. This Agreement may be terminated at any time prior to the Closing Date without cost or penalty to either party by mutual consent of the Selling Members and the Company.

 

10.2 Actions or Proceedings. By the Selling Members or the Company (unless the action or proceeding referred to is caused by a breach or default on the part of the Selling Members or the Company of any of their representations, warranties, or obligations under this Agreement) if there shall be any actual or threatened action or proceeding by or before any court or any other governmental body which shall seek to restrain, prohibit, or invalidate the transactions contemplated by this Agreement and which, in the judgment of the Selling Members or the Company, made in

good faith and based upon the advice of legal counsel, makes it inadvisable to proceed with the transactions contemplated by this Agreement.

 

10.3 Less than 80% of CAL Interests Participate. By the Company, if less than eighty percent (80%) of the Members of CAL's votes are tendered to the Company at the Closing.

 

10.4 Termination with Cause. This Agreement may be terminated, with the terminating party to be reimbursed by the other party of all expenses and costs related to this Agreement, if:

 

10.5 Breach or Noncompliance by the Selling Members. The Selling Members shall fail to comply in any material aspect with any of their representations, warranties or obligations under this Agreement, or if any of the representations or warranties made by the Selling Members, or any one of them, under this Agreement shall be inaccurate in any material respect which is not cured within ten (10) business days of notice of such breach.

 

10.6 Breach or Noncompliance by the Company. The Company shall fail to comply in any material aspect with any of its representations, warranties or obligations under this Agreement, or if any of the representations or warranties made by the Company under this Agreement shall be inaccurate in any material respect and is not cured within ten (10) business days of notice of such breach.

 

11. Securities Registration; Disclosure

 

11.1 Private Transaction. The Selling Members understand that the Shares issued pursuant to this Agreement, have not been nor will they be registered under the Act, but are issued pursuant to exemptions from registration including but not limited to Regulation D and Section 4(2) of the Act, and the Company's reliance on such exemptions in issuing the Shares is predicated in part on the representations of the Selling Members set forth herein and in the Investment Letter attached hereto as Exhibit D (the "Investment Letter"), to be executed by each of the Selling Members and delivered to the Company at Closing.

Page 13 of 23
 

 

11.2 Access to Information. Each of the Selling Members represents that, by virtue of his, her or its respective economic bargaining power or otherwise, he/she/it has had access to or has been furnished with, prior to or concurrently with Closing, the same kind of information that would be available in a registration statement under the Act should registration of the Shares issued pursuant to this Agreement have been necessary, and that he, she or it has had the opportunity to ask questions of and receive answers from the Company's officers and directors, or any party acting on their behalf, concerning the business of the Company and that he, she or it has had the opportunity to obtain any additional information, to the extent that the Company possesses such information or can acquire it without unreasonable expense or effort, necessary to verify the accuracy of information obtained or furnished by the Company.

 

12. Indemnification

 

As provided herein, the Selling Members and the Company shall each indemnify and hold harmless the other for one (1) year following the date of Closing under this Agreement against and in respect of any liability, damage, or deficiency, all actions, suits, proceedings, demands, assessments, judgments, costs and expenses resulting from any misrepresentations, breach of covenant or warranty, or from any misrepresentation contained in any certificate furnished hereunder. In this regard, the Selling Members agree that the Company is held harmless from and indemnified against any loss, damage, or expense resulting from the falsity or breach of any of the representations, warranties, or agreements of the Selling Members contained herein under which the Shares hereunder are transferred to the Selling Members. Likewise, the Company agrees that the Selling Members shall be held harmless from and indemnified against any loss, damage, or expense resulting from the falsity or breach of any of the representations, warranties, or agreements of the Company contained herein under which the Shares hereunder are transferred to the Selling Members. The Company's right of indemnification shall be limited exclusively to the right of offset of any loss, damages and expenses incurred against sums due Selling Members under the Shares.

 

13. Confidential Information

 

Notwithstanding any termination of this Agreement, the Company, CAL and the Selling Members, and their representatives, agree to hold in confidence any information not generally available to the public received by them from the Company, CAL or the Selling Members pursuant to the terms of this Agreement. If this Agreement is terminated for any reason, the Company, CAL and the Selling Members and their representatives will continue to hold such information as to CAL in confidence and will, to the extent requested by the Selling Members, promptly return to them all written material and all copies or abstracts thereof furnished to the Company, CAL and the Selling Members pursuant hereto. Notwithstanding any termination of this Agreement, the Selling Members and their representatives agree to hold in confidence any information not generally available to the public received by them from the Company pursuant to the terms of this Agreement. If this Agreement is terminated for any reason, the Selling Members and their representatives will continue to hold such information in confidence and will, to the extent requested by the Company, promptly return to the Company all written material and all copies or abstracts thereof given to them or their representatives pursuant thereto.

 

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14. Conditions Subsequent to Closing

 

In the event the Company cannot deliver the Acquisition Shares to the CAL Shareholders at Closing, the parties to this Agreement shall proceed with the Closing in which event the Company shall, as soon as legally permitted, cause to be delivered the Acquisition Shares to the CAL Shareholders.

 

15. Miscellaneous Provisions

 

15.1 Survival of Representations and Warranties. All representations, warranties and covenants made by any party in this Agreement shall survive the Closing hereunder and the consummation of the transactions contemplated hereby for three (3) years from the Closing Date. The Selling Members and the Company are executing and carrying out the provisions of this Agreement in reliance on the representations, warranties, and covenants and agreements contained in this Agreement or at the Closing of the transactions herein provided for including any investigation upon which they might have made or any representations, warranty, agreement, promise or information, written or oral, made by the other party or any other person other than as specifically set forth herein.

 

15.2 Approval of the Selling Members. The Company and the Selling Members understand that this Agreement requires approval and participation by the Selling Members holding at least eighty percent (80%) of the CAL Interests, and thus that all rights and obligations hereunder are subject to securing such approval. Each Selling Shareholder, by its execution hereof, hereby gives its consent to the transaction contemplated by this Agreement. In the event that the requisite number of Selling Members shall fail to approve this Agreement, then notwithstanding anything contained herein to the contrary, this Agreement shall be terminated without liability to either the Selling Members or the Company.

 

15.3 Costs and Expenses. Each party has been represented by its own attorney(s) in this transaction and shall pay the fees of its own attorney(s), except as may be expressly set forth herein to the contrary and its own costs and expenses.

 

15.4 Further Assurances. At any time and from time to time, after the Closing Date, each party will execute such additional instruments and take such action as may be reasonably requested by the other party to confirm or perfect title to any property transferred hereunder or otherwise to carry out the intent and purposes of this Agreement.

 

15.5 Waiver. Any failure of any party to this Agreement to comply with any of its obligations, agreements or conditions hereunder may be waived in writing by the party to whom such compliance is owed. The failure of any party to this Agreement to enforce at any time any of the provisions of this Agreement shall in no way be construed to be a waiver of any such provision or a waiver of the right of such party thereafter to enforce each and every such provision. No waiver of any breach of or non-compliance with this Agreement shall be held to be a waiver of any other or subsequent breach or non-compliance.

 

15.6 Notices. All notices and other communications hereunder shall either be in writing and shall be deemed to have been given if delivered in person, sent by overnight delivery service or sent by facsimile transmission, to the parties hereto, or their designees, as follows:

 

 

  To the Selling Members:

As their names and addresses appear on the signature page hereto registered office is at

Capital Art, LLC.

6150 Washington blvd

Culver City

California

90232

USA

 

 

Page 15 of 23
 

 

 

  To the Company:

Gleeworks, Inc. .

345 North Canon Drive

Beverley Hills

California

90210

USA

 

15.7 Headings. The paragraph and subparagraph headings in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.

 

15.8 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

15.9 Governing Law. This Agreement shall be governed by the laws of the State of Delaware.

 

15.10 Binding Effect. This Agreement shall be binding upon the parties hereto and inure to the benefit of the parties, their respective heirs, administrators, executors, successors and assigns.

 

15.11 Entire Agreement. This Agreement contains the entire agreement between the parties hereto and supersedes any and all prior agreements, arrangements, or understandings between the parties relating to the subject matter of this Agreement. No oral understandings, statements, promises, or inducements contrary to the terms of this Agreement exist. No representations, warranties, covenants or conditions, express or implied, other than as set forth herein, have been made by any party.

15.12 Severability. If any part of this Agreement is deemed to be unenforceable, the balance of the Agreement shall remain in full force and effect.

 

15.13 Amendment. This Agreement may be amended only by a written instrument executed by the parties or their respective successors or assigns.

 

15.14 Facsimile Counterparts. A facsimile, telecopy or other reproduction of this Agreement may be executed by one or more parties hereto and such executed copy may be delivered by facsimile or similar instantaneous electronic transmission device pursuant to which the signature of or on behalf of such party can be seen, and such execution and delivery shall be considered valid, binding and effective for all purposes. At the request of any party hereto, all parties agree to execute an original of this Agreement as well as any facsimile, telecopy or other reproduction hereof.

 

15.15 Time is of the Essence. Time is of the essence of this Agreement and of each and every provision hereof.

 

 

 

 

[Balance of page Intentionally Left Blank]

Page 16 of 23
 

IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written.

 

 

 

GLEEWORKS, INC. (the “Company”)

 

By: /s/ Sean Goodchild

Sean Goodchild, CEO, Gleeworks, Inc.

 

 

 

SELLING MEMBERS

 

 

On behalf of Capital Art, LLC

 

By: /s/ Norman Solomon

Norman Solomon, CEO, Capital Art, LLC.

 

Individual or Joint Members each signed hereto as Exhibit C

 

Page 17 of 23
 

EXHIBIT "A"

Disclosure documents to the

Membership Interest Purchase Agreement

Dated April 25 th 2011

 

 

 

 

A1: COMPANY DISCLOSURE DOCUMENTS

 

A1.1 - Certificate of Incorporation

A1.2 - Bylaws

A1.3 - Stockholders Equity Statement

A1.4 - FYE 2010 Financial statement

 

 

 

 

 

A2: CAL DISCLOSURE DOCUMENTS

 

A2.1 - Certificate of Organization

A2.2 - Operating Agreement

A2.3 - Member Vote

A2.4 - License Agreements

A2.5 - Financial Statements

A2.5.1 Balance Sheet

A2.5.2 Asset list

 

Page 18 of 23
 

EXHIBIT B

to the

Membership Interest Purchase Agreement

Dated April 25 th 2011

 

Selling Members

 

Name, Address and Relationship of Selling Members Total CAL
Units Held
1:2 INC
SHARES

Luis Fok

 

54,500 27,250

Bo Y and Kim Soo Kim

 

10,000 5,000

Daniel B Anguaino Living Trust

 

30,000 15,000

Dak K Shin and Hae J Shin

 

10,000 5,000

Myoung Ja Kim

 

20,000 10,000

Micheal Meeker and Jacqueline Meeker

 

30,000 15,000

John R. Meeker and Urusula Meeker

 

14,000 7,000

William A. Denny and Sharon G. Denny

 

15,000 7,500

Robert Englander trustee fbo Robert L. Englander trust

 

5,000 2,500

M. Pedote and D. Pedote ttees fbo Pedote family trust dtd 12/12/03

 

5,000 2,500

Daniel Edmundson

 

30,000 15,000

Leonardo Rastelli

 

60,000 30,000

Lorenzo Rastelli

 

60,000 30,000

Noeleen and Brendan Lynch

 

100,000 50,000

Paul Goodchild

 

40,000 20,000

M Goodchild

 

60,000 30,000

S M Towson

 

60,000 30,000

Sarah O'Donnell

 

200,000 100,000

Isabel Moeller

 

70,000 35,000

James Hurwitz

 

30,000 15,000

 

Page 19 of 23
 

 

 

 

Name, Address and Relationship of Selling Members Total CAL
Units Held
1:2 INC
SHARES

John Schnepf

 

7,500 3,750

Kathleen Dallas Orr

 

5,000 2,500

Kevin Mabbutt

 

4,000 2,000

Robert Bear

 

80,000 40,000

Norman Solomon

 

3,960,000 1,980,000

Gregory Amerson

 

200,000 100,000

Irina Hill

 

100,000 50,000

Ken Dunn

 

120,000 60,000

Neal Handel

 

50,000 25,000

Eileen Davidson

 

50,000 25,000

Micheal Gelardi

 

50,000 25,000

Kai Panholtzer

 

40,000 20,000

Alberto Giraldo

 

120,000 60,000

Cara Tompkins

 

40,000 20,000

David Steiner

 

200,000 100,000

Bill Cameron

 

50,000 25,000

Gerald Freeman

 

20,000 10,000

Sean Goodchild

 

500,000 250,000

Western Canon Ltd

 

6,500,000 3,250,000

Angel Consultants, Inc.

 

2,000,000 1,000,000
TOTAL 15,000,000 7,500,000
EXCHANGE RATIO 2 1

 

 

Page 20 of 23
 

 

EXHIBIT C

 

to the

Membership Interest Purchase Agreement

Dated April 25 th , 2011

 

Selling Member

 

IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written.

 

 

 

______________________________________

(Signature)

 

Name: _________________________________

 

Date: 25 th of April 2011

 

 

 

 

______________________________________

(Signature)

 

Name: _________________________________

 

Date: 25 th of April 2011

Page 21 of 23
 

 

EXHIBIT D

To the

Membership Interest Purchase Agreement

Dated April 25 th 2011

 

Investment Letter

 

The Undersigned hereby represents to Gleeworks, Incorporated (the “Company"):

 

(1) The Seven Million, Five Hundred Thousand (7,500,000) shares of the Company common stock acquired by the undersigned on April 25 th 2011 (the "Shares"), were acquired by the Undersigned, for the Undersigned's own account and for investment. Upon receipt of the shares, the Undersigned may be deemed an affiliate of the Company and may be required to file Schedule 13-D and Form 3 pursuant to the requirements of the Securities Exchange Act of 1934 (the "Act").

 

(2) The Undersigned acknowledges that the Shares are being issued by the Company and in reliance on exemptions from registration, including but not limited to Section 4(2) and 4(1) of the Security Act of 1933, as amended (the "Act") and applicable state securities laws, and the Undersigned agrees not to sell, transfer or otherwise dispose of the Shares except in compliance with the Act and applicable state securities laws. The representations and warranties by the Undersigned in this Investment Letter will be used and relied upon by the Company to issue the Shares to the Undersigned pursuant to Section 4(2) of the Act and Regulation D thereunder, and applicable state securities laws and the Undersigned will notify the Company immediately of any material changes to the representations made herein.

 

(3) The Undersigned acknowledges that it has been furnished with disclosure documents which it feels adequate and necessary to make an economic decision to acquire the Shares, including but not limited to the Company's most recent Annual Report.

 

(4) The Undersigned further acknowledges that it has had an opportunity to ask questions of and receive answers from duly designated representatives of the Company concerning the terms and conditions pursuant to which the Shares are being purchased. The Undersigned has had the opportunity to obtain any additional information which it possesses or can acquire without unreasonable effort or expense necessary to verify the accuracy of information furnished by the Company. The Undersigned has been afforded an opportunity to examine such documents and other information which it has requested for the purpose of verifying the financial stability of the Company.

 

(5) The Undersigned is fully aware that there is no market for the Shares. The Undersigned is also aware of the applicable limitations on its resale of any securities such as the Shares, and that the Shares and any and all certificates issued in replacement thereof or in exchange therefore, will bear a restrictive transfer legend in the following form:

 

THE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT; (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE); OR (3) PURSUANT TO ANOTHER EXEMPTION AVAILABLE UNDER THE SECURITIES ACT, IN EACH CASE, IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE UNITED STATES AND OTHER JURISDICTIONS.

 

(6) By reason of the Undersigned's knowledge and experience in financial and business matters in general, and investments in particular, the Undersigned is capable of evaluating the merits and bearing the economic risks of an investment in the Shares and fully understands the speculative nature of the Shares and the possibility of loss of the Undersigned's entire investment in the securities used to acquire the Shares.

 

(7) The present financial condition of the Undersigned is such that it is under no present or contemplated future need to dispose of any portion of the Shares to satisfy an existing or contemplated undertaking, need or indebtedness.

 

Very truly yours,

 

 

 

/s/ Sean Goodchild

Sean Goodchild

CEO, Gleeworks, Inc.

 

 

 

 

 

______________________________________

(Signature)

Name: ________________________________

Date: 25 th of April 2011

 

 

 

 

 

______________________________________

(Signature)

Name: ________________________________

Date: 25 th of April 2011

 

 

 

Page 22 of 23

Exhibit 10.05

 

Stuart Harris, Executor

The Frank Worth Estate

135 First Street

Suite 3E

Keyport, NJ 07735

(732) 264-6845

stu732@gmail.com

 

 

October 10, 2011

 

Memorandum of Understanding

 

To the President and Directors of Capital Art, Inc.

 

As Executor of the Frank Worth Estate I have accepted a settlement of $50,000 (fifty thousand dollars) on behalf of the Estate to be paid by Capital Art, Inc. for the funds owed to the Estate by International Images, Ltd..and understand that Capital Art, Inc will make this payment on the schedule agreed in this MOU. Therefore, as Executor of the Frank Worth Estate I agree to exclusively grant Capital Art, Inc all rights in perpetuity to reproduce prints from Frank Worth negatives, to use of the Frank Worth name, signature, and intellectual property in exchange for a Royalty Consideration from Capital Art, Inc. of 7.5% to be paid on all revenue received by Capital Art, Inc. derived from the sale of any and all Frank Worth prints, products and use whatsoever of Frank Worth’s name, likeness, story and biography. Although these rights previously granted International Images were terminated for non payment of royalties owed to the Frank Worth Estate, we have permitted Norman Solomon to have these rights based on his assurance that the agreed settlement would be made on the schedule agreed and by his making a deposit of $10,000 in May, 2011 which we understand was done on behalf of Capital Art, Inc.

 

Norman Solomon paid the Estate $10,000 as a deposit against the $50,000 due which triggered the settlement agreement. He has promised a second payment by October 10, 2011 and the Estate has agreed to schedule the $20,000 balance due over a five month period at $4,000 per month commencing Dec 1, 2011. Although we agree to officially grant Capital Art, Inc. the rights as stated upon receipt of the $20,000 payment on October 11, 2011 (notification of a wire transfer will suffice), and a formal agreement will soon be legally generated to that effect, this MOU will serve as the interim agreement.

 

If this payment schedule is not kept, and/or Royalty payments to the Frank Worth Estate are not made on the 15 th of each month, based on the previous months revenue, the Frank Worth Estate reserves the right to terminate the Royalty Agreement with Capital Art, Inc. given a 30 day notice to Capital to cure any money due the Estate. Whether or not revenue is generated, Capital Art, Inc agrees to provide the Frank Worth Estate with a monthly statement detailing all activity regarding the Frank Worth Collection.

 
 

 

In concert with adhering to the Settlement payment schedule and the Royalty Consideration, this agreement gives Capital Art, Inc, the right to use Frank Worth’s signature with the Estate seal and other collaterals in any context, including embossing Frank Worth prints, and also grants Capital Art, Inc. all Frank Worth publishing and merchandising rights.

 

In closing, the Frank Worth Estate recognizes that Capital Art, Inc. has exclusive ownership and all rights to the asset known as the Frank Worth photographic collection and can market, use it as collateral, or 'sell' it at Capital Art's discretion with all Estate rights 'included. If Capital Art, Inc decides to sell the Frank Worth Collection 'all royalty rights ' can be conveyed by CA to a buyer or purchased, at anytime, for $250,000.

 

 

Very truly yours,

 

 

/s/ Stuart Harris

Stuart Harris

Executor

Exhibit 10.06

 

ESTATE OF FRANK WORTH

STUART HARRIS

135 FIRST STREET, 3E

KEYPORT, NEW JERSEY 07735

732 -264- 6845

Stu732@gmail.com

 

November 18, 2011

 

Mr. Sean Goodchild                                                      Via email

Chief Executive Officer,

Capital Art, Inc.

6150 Washington Blvd.,

Culver City, Ca. 90232

 

RE: Estate of Frank Worth and Capital Art, Inc. – Exclusive global Photographic Reproduction and Marketing Rights agreement regarding the Frank Worth Collection

 

Dear Sean,

 

This agreement shall incorporate our prior understanding as modified inclusive of any and all correspondence, acknowledges my receipt in behalf of the Estate of Frank Worth (hereinafter referred to as “ESTATE”) of your prior, partial payment(s) from Capital Art, Inc. (hereafter referred to as “CAPITAL”) aggregating $20,000 (twenty thousand dollars), together with certain monthly payments that permits CAPITAL, under the terms of this agreement, to obtain exclusive Reproduction Rights to any and all Frank Worth photographs/images from Frank Worth negatives in CAPITAL’s possession wherever they may to kept or stored. These rights are inclusive of rights to the Frank Worth name, ESTATE authorized Worth biography, ESTATE authorized Worth likeness, the ESTATE Seal, the ESTATE authorized Worth signature and the ESTATE Executor authorized signature, to be employed conditionally as described in this agreement, plus worldwide publication, merchandising and selling rights.

 

RIGHTS

 

1. Effective and commencing as of November 15, 2011, the ESTATE agrees, and has agreed to sell and CAPITAL agrees, and has agreed to purchase the sole and exclusive Reproduction Rights to all negatives, prints, products and other materials from the Frank Worth (FW) collection that CAPITAL possesses, including the use of the FW Seal, Frank Worth’s name, likeness, publications and biography, plus merchandising and product selling rights all in consideration of, and subject to the purchase price of $50,000, $20,000. of which has heretofore been paid, and the continuous payment of the agreed upon monthly royalty payment of 7.5% (as hereinafter defined). Although in force as of the date of this agreement, final acceptance by the ESTATE of all terms memorialized in this agreement shall be granted in perpetuity with satisfaction of the $30,000 (thirty thousand dollars) outstanding balance amount owed to the ESTATE, and the continuous payment of the agreed upon monthly royalty payment of 7.5% and annual $50,000 minimum payment (as hereinafter defined) all relating to the Frank Worth photographs/images in CAPITAL’s possession.

1
 

 

2. I also grant CAPITAL exclusive rights to my signature, as Executor of the FW Estate, in conjunction with any and all Certificates of Authenticity printed by CAPITAL that accompany FW lithographic printed products. For Certificates of Authenticity that accompany limited edition prints I will personally sign every Certificate. I will sign these certificates in a timely manner in batches of 25, 50, or 100 as requested by CAPITAL. It is CAPITAL’s option, for each other individual product whether I will either sign each certificate personally, or sign one that CAPITAL will reproduce for a specific product.

 

 

PAYMENT

 

3. The balance of the acquisition price in the amount of $30,000 shall be paid to the ESTATE commencing December 1,2011 in the amount of $6,000 (six thousand dollars) with 4 (four) subsequent, monthly installment payments each in the amount of $6,000. CAPITAL may also decide to pay whatever balance is owed the ESTATE at any time prior to the scheduled date that the final payment is due and in doing so shall immediately trigger unconditional acceptance by the ESTATE of all terms and stipulations memorialized in this agreement

 

4. CAPITAL agrees to, and shall promptly pay to the ESTATE a monthly royalty payment computed at the rate of 7.5% of all FW Net Sales generated and received by CAPITAL or paid to CAPITAL by its partners, associates or licensors by the use of the enumerated rights and any other consideration received or derived by CAPITAL or anyone else in its behalf in connection therewith;

 

a. Net Sales shall be defined as an amount received by CAPITAL after bona fide and reasonable reproduction costs, discounts, and commissions/fees, each of which is paid to third parties relating to all transactions involving all products produced with the Frank Worth Collection, including all limited edition prints and reproductions.
b. Royalty payments and statements shall be made and provided by CAPITAL to the ESTATE on or before the 15 th day of each month representing the previous month’s sales and any other consideration received or derived by CAPITAL in regard to the Frank Worth collection.
c. CAPITAL also agrees to pay the ESTATE a minimum guarantee of $50,000 (fifty thousand dollars) per annum commencing on January 1, 2012, If applicable, the minimum guarantee, or any portion of which that has not been paid to the ESTATE via monthly royalty payments in any one year, shall be paid to the ESTATE with 15 days following the end of any year, in connection therewith. All payments shall be made to Stuart Harris in behalf of the ESTATE.

 

2
 

 

d. CAPITAL shall provide the ESTATE with an accurate, quarterly accounting of the previously derived and related net sales, and net sales as described, starting January 15, 2012 for all applicable transactions prior to January 1, 2011 dating back to June 1, 2011 and for every three months forward on the 15 th of the proceeding month for all transactions the previous quarter,
e. CAPITAL shall use diligent efforts to market products produced from the Frank Worth negatives;
f In the unlikely event that a dispute shall arise with respect to any of the above, CAPITAL agrees that its books and records shall be made available to a Certified Public Accountant or any other party selected by the ESTATE or any other party upon reasonable notification to CAPITAL In the event the shortfall exceeds $10,000 CAPITAL shall pay bone fide and reasonable accounting costs ;
g. Exclusive of the payments aggregating $30,000, in the event of any default by CAPITAL with respect to any payments provided hereunder, CAPITAL shall have a 60 day period to cure said default after Notice of said default is sent to it by certified, registered or overnight mail. The 60 days shall be computed from the date of the transmittal of said notice by or in behalf the ESTATE.
h. CAPITAL is also be granted the right to buyout this exclusive agreement from the ESTATE at any time for $250,000 (two hundred fifty thousand dollars) and in doing so CAPITAL will retain all rights and benefits memorialized in this agreement in perpetuity but be relieved of all future financial and royalty obligations to the ESTATE. When the buyout is exercised by full payment, CAPITAL shall be obligated to pay the ESTATE all royalties due the ESTATE until the buyout is fully consummated or if other terms are negotiated and accepted by the ESTATE. Once the Royalty buyout is completed by CAPITAL and should the Frank Worth Collection be sold to a third party, CAPITAL would then have the right to separately negotiate a royalty agreement with the third party without factoring in any consideration for the ESTATE.

 

5. Subject nevertheless to CAPITAL’S continued obligations for payment of the specified Royalties and any other payments under this agreement inclusive of its liability and compliance with the terms of this agreement, this agreement shall automatically terminate in the event of CAPITAL’S failure to make timely payments as set forth in this agreement; and/or provide an accurate accounting of its sales and royalty payment to the ESTATE;

3
 

 

6. Subject to the terms and provisions of this agreement and upon the written consent of the ESTATE, provided that CAPTAL shall not be in default of this agreement, CAPITAL shall have all rights assigned by the ESTATE under this agreement

 

CHOICE OF LAW

 

7. In the unlikely event that any controversy, claim or dispute shall arise out of, or relate to this agreement, or the breach thereof, we agree that this shall be resolved by binding arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules, and any judgment rendered by the arbitrator (s) may be entered in any Court having jurisdiction thereof. Rules and forms of the American Arbitration Association may be obtained and all claims shall be filed at any office of the American Arbitration Association;

 

a. Service of any process shall be by personal notice and/or by using United States Registered , certified mail, and/or overnight mail, and shall be effective service of process for any litigation; This agreement shall be governed by the Laws of the State of California. Each of the parties hereby unconditionally consent to submit to the Jurisdiction of the America Arbitration Association in the City and County of Los Angeles, California;

 

ADDITIONAL PROVISIONS

 

8. This agreement will remain in full force and effect in perpetuity unless sooner terminated by agreement of both parties or if one party can demonstrate cause via a legal action that is adjudicated in their favor. Any notice regarding termination of this agreement, in regard to non compliance with the stipulations herein, or for any other reason, must be made by certified mail and provide a minimum of twenty (20) days for a response before any other action can be taken. All costs for any action by CAPITAL or the ESTATE shall be borne individually.

 

9. This agreement shall be binding upon the successors and assigns of the parties, their legal representatives, heirs, and permitted assigns, but neither of the parties hereto shall assign this Agreement without the prior, written consent of the other party.

 

10. This agreement may be executed in counterparts, each of which shall be deemed to be an original, all of which, taken together shall constitute one and the same agreement and have the same legal effect;

 

11. This agreement shall not be modified except in writing signed by all parties.

 

12. Each party acknowledges that they have read and fully understand the terms and provisions of this agreement; each has had the opportunity to have the same reviewed by independent counsel;

4
 

 

13. Any notice required to be delivered shall be in writing and delivered personally, overnight mail or by certified mail;

 

If there is any question regarding any of the above, please do not hesitate to communicate with me. Looking forward to a continued and mutually profitable relationship,

 

Cordially,

 

/s/ Stuart Harris

STUART HARRIS

 

 

Dated; November 18, 2011

 

Agreed and Consented to:

 

/s/ Stuart Harris /s/ Sean Goodchild
ESTATE OF FRANK WORTH CAPITAL ART, INC.
BY:  Stuart Harris BY:   Sean Goodchild, CEO

 

 

 

 

 

 

 

 

5

Exhibit 10.07

 

 

Dated 21st December 2011

 

 

International Images Ltd.

 

and

 

Birchley Ltd.

 

and

 

Capital Art Inc.

 

 

 

 

 

AGREEMENT

 

 

 

 

 

 

 
 

 

 

THIS AGREEMENT is made the 21 st day of December 2011

 

BETWEEN:

 

INTERNATIONAL IMAGES LTD (hereinafter called the Company) who registered office is 1 st Floor, 65 Knightsbridge, London SW1X 7RA of the first part;

 

BIRCHLEY LIMITED ( hereinafter called the Debenture Holder) whose registered office is at 52 Bluebridge Road, Brookmans Park, Herts AL9 7SA of the second part; and

 

CAPITAL ART INC ( hereinafter called Capital) of 6150 Washington Boulevard, Culver City, California 90232, USA of the third part

 

WHEREAS:

 

(a) The Company is the owner of the Frank Worth Collection and the Daniel Furon Collection meaning all rights of property which the company owns pertaining to the negatives, images, photographs and all other interests whatsoever in seven thousand five hundred images (approx) and negatives (5,500 approx) forming part of the Frank Worth Collection and 50 Daniel Furon images. A listing of the photographs, negatives and materials forming the Frank Worth Collection and the Daniel Furon Collection together with their location is provided in the Schedule hereto
(b) On the 14 th September 2007 the company entered into a Debenture with the Debenture Holder charging it’s assets to the Debenture Holder in consideration of £195,455.89 advanced by the Debenture Holder to the company on the terms and conditions set out in the Debenture and the facility letter dated 12 th September 2007 and as confirmed in the Companies Accounts to 31 December 2010. Particulars of the Debenture have been registered at Companies House.
(c) The Debenture Holder has demanded repayment of monies due to it from the Company.
(d) The Company has agreed with the consent of the Debenture Holder to sell the Frank Worth Collection and the Daniel Furon Collection to Capital on the terms and conditions set out hereunder.

 

Now this Deed witnesseth as follows:

 

1. The Company agrees with the consent of the Debenture Holder to sell its interest in the Frank Worth Collection and the Daniel Furon Collection to Capital in consideration of $400,000 payable to the Debenture Holder but under the Condition Precedent that title and possession to all the Frank Worth and Daniel Furon photographs and negatives is retained by the Debenture Holder until the sum of $200,000 is paid in full as directed below and all Capital Art, Inc shares are issued to the Debenture Holder as provided by clause 3 hereof above and to the Company as provided by clause 7 hereof.
 
 
2. The sum of $400,000 shall be paid to the Debenture Holder or as it directs as to
i) $50,000 on or before the 15 th May 2011
ii) $50,000 on or before the 15 th June 2011
iii) $50,000 on or before the 15 th July 2011
iv) $50,000 on or before the signing of this Agreement.
v) $200,000 on or before the 30 th June 2012

 

3. Capital will issue on the signing hereof 600,000 shares of its common stock in Capital Art Inc to the Debenture Holder or as it directs.
4.
a) After issue and receipt of the 600,000 shares in Capital and on signature of the Agreement including payment of the first $200,000 in cash the Debenture holder will release its Charge over the assets of the Company and will file a Memorandum of Satisfaction at Companies House.
b) As a consequence of any default by Capital in making any payment due under this Agreement to the debenture holder the Company will not have to repay to the Debenture Holder any monies that Capital has not paid out under this Agreement.
5. Retention of Title is absolute and extends not only to the physical photographs, negatives and materials but also to any income streams payable now or in the future from the Frank Worth Collection and the Daniel Furon Collection AND FURTHER all such photographs and negatives shall be kept at The Producers Film Centre in Los Angeles (Frank Worth Collection) and A&I Printers, Highland Avenue, Los Angeles, USA (Daniel Furon Collection) to the order of the Company and the Debenture Holder, until all Capital shares are issued to the Company and the Debenture Holder and the Debenture holder has received the first $200,000 in cash.
6. The Debenture Holder will make a contribution of $20,000 towards monies owing by the Company to the Executor(s) of the Frank Worth Estate and a further contribution of $50,000 towards the creditors and other loan providers of the Company payable at the rate of $10,000 a month commencing on the January 2012 which will be paid into the Company’s Account at Coutts & Co. The Company will provide a list of such creditors and/or lenders showing the amount claimed and after agreement by both Directors of the Company as to payment the Company will pay monies due to any such creditor up to the amount of the Debenture Holder’s contribution of $50,000. Further, Capital is held free and harmless from and of any and all royalty, creditor, loan provider and any other claims that may be or arise in the course of the business of the Company.
7. Capital will issue on the signing hereof 1,000,000 shares of its common stock in Capital Art Inc to the Company or to such shareholders of the Company who elect to have such shares issued in their own name (subject to this being lawful, in accordance with the UK Companies Acts and generally accepted accounting principles), and the Company will transfer any and all rights to the Frank Worth Archive and Collection and the Daniel Furon Collection with clear Title and ownership to Capital and provide complete reports on any and all Collection transactions throughout the Company’ prior period of ownership.
 
 
8.1 This Agreement represents the entire understanding between the parties relating to the subject matter hereof and shall not be varied in its terms other than in writing signed by the duly authorised representatives of the Company, the Debenture Holder and Capital.
8.2 Nothing in this Agreement shall create a partnership or joint venture between the parties hereto.
8.3 In the event that any provision of this Agreement may prove to be void illegal or unenforceable the relevant provision shall be deemed not to be or never to have been or formed a part of this Agreement and the remaining provisions of this Agreement shall continue in full force and effect.
8.4 A person or company who or which is not a party to this Agreement cannot enforce or enjoy the benefit of any term of this Agreement under the Contracts (Rights of Third Parties) Act 1999
9.1 This Agreement and any disputes or claims arising out of or in connection with its subject matter are governed by and construed in accordance with the law of England.
9.2 The parties irrevocable agree that Courts of England have exclusive jurisdiction to settle any dispute that arises out of or in conjunction with this Agreement.

 

Schedule

 

The Frank Worth Collection:

All items lodged at PFC Los Angeles as evidenced in part on a disk held by the parties hereto and endorsed “Frank Worth – Items at PFC (LA) – 22 nd November 2010

 

The Daniel Furon Collection:

All images as itemised in the attached ‘Furon Collection 50 images.doc’.

 

In witness whereof this Agreement has been signed by a duly authorised officer of the Company, the Debenture Holder and Capital

 

 

 

/s/ Alan Judd

Officer of the Company: Alan Judd

 

 

 

/s/ Philip Englefield

Officer of the Debenture Holder: For and on behalf of Birchley Ltd.

 

 

/s/ Sean Goodchild

Officer of Capital: Sean Goodchild, CEO

 

Exhibit 10.08

 

DATED 28th February 2013

 

 

 

 

 

 

   

International Images Ltd (1)

 

 

 

Birchley Ltd (2)

 

 

 

Capital Art Inc (3)

 

 

 

   
  Deed of Variation
   
   
   
   

 

 

 

 
 

 

 

THIS DEED OF VARIATION is made the 28th day of February 2013 BETWEEN INTERNATIONAL IMAGES LTD whose registered office is at 1 st Floor, 65 Knightsbridge, London SW1X 7RA (“the Company) of the first part BIRCHLEY LTD whose registered office is at 52 Bluebridge Road, Brookmans Park, Herts AL9 7SA (“the Debenture Holder) of the second part and CAPITAL ART INC of 6150 Washington Boulevard, Culver City, California 90232, USA (“Capital”) of the third part

 

 

WHEREAS:-

 

1. On the 21 st December 2011 the parties entered into an Agreement (“the Agreement”) a copy of which is annexed hereto.

 

2. The parties now wish to vary the terms of the Agreement on the terms set out hereunder.

 

NOW THIS DEED WITNESSETH as follows:-

 

1. The Company has failed to pay monies due to the Frank Worth Estate and as a consequence the Estate has reclaimed Title to the assets defined in recital A of the Agreement over which the Debenture Holder had registered a Charge as further defined in recital B of the Agreement.
2. The Company is unable to comply with the terms of the Agreement and is unable to sell the assets of the Frank Worth Estate and Daniel Furon Collection to Capital on the basis as set out in the Agreement.
3. Capital had paid to the Debenture Holder $150,000 and the Debenture Holder will repay $100,000 to Capital upon the issue to it or as it directs of a further 400,000 shares in Capital.
4. The parties agree they have no further claims against each other and upon receipt of the further 400,000 shares in Capital the Debenture Holder will release the Company from its Charge and file a Memorandum of Satisfaction at Companies House to reflect such release.

 

IN WITNESS hereof this Agreement has been signed by a duly authorised officer of the Company, the Debenture Holder and Capital

 

 
 

 

 

 

Officer of the company

/s/ Alan Judd

  Director
   
Officer of the Debenture Holder /s/ Philip Englefield
  For and on Behalf of Birchley Ltd
   
Officer of Capital /s/ Sean Goodchild
  Sean Goodchild CEO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 10.09

 

SECURITIES PURCHASE AGREEMENT

 

THIS SECURITIES PURCHASE AGREEMENT, dated as of ___,  _________, 2012, is entered into by and between CAPITAL ART, INC., a Delaware corporation, with headquarters located at 6150 Washington Blvd, Culver City, CA – 90232 (the "Company"), and _____________________________________ (the "Buyer") located at

 

_____________________________________________________________________.

 

W I T N E S S E T H:

 

WHEREAS, the Company is conducting a private placement (the “Offering”) of its 10% Convertible Debentures (the “Debentures”) pursuant to an exemption from securities registration afforded, inter alia , by Rule 504 under Regulation D ("Regulation D") as promulgated by the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "Securities Act"), and/or Section 4(2) of the Securities Act; and

 

WHEREAS, in consideration of the foregoing, the Buyer desires to purchase, and hereby agrees to purchase, upon the terms and subject to the conditions of this Agreement, a Debenture in the principal amount of $_______________ subject to acceptance of this Agreement by the Company;

 

NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

 

1. AUTHORIZATION AND ISSUANCE OF DEBENTURES.

 

1. AUTHORIZATION. The Company has authorized the sale and issuance of up to $1,000,000 (no minimum) of its Debentures, which shall be convertible into shares of the Company’s common stock, $0.0001 par value, on the terms provided in the form of Debenture attached hereto as Exhibit A and incorporated herein by this reference.

 

a. PAYMENT FOR DEBENTURE; CERTAIN DEFINITIONS.

 

(i)             Concurrently with the issuance of the Debenture to the Buyer, and in full consideration for the Debenture, the Buyer agrees to pay the sum of $____________ in good U.S. funds to be transmitted to the Company’s bank account via wire-transfer on the date the parties agree to execute the Debenture, in accordance with instructions of the Company. The parties acknowledge that time is of the essence with respect to such payment and failure by the Buyer to make such payment promptly shall allow the Company to cancel this Agreement.

 

Page 1 of 12
 

 

(ii)           As used herein, the term "Securities" collectively refers to the Debenture and the Common Stock issuable upon conversion of the Debenture.

 

2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION; INDEPENDENT INVESTIGATION.

 

Buyer represents and warrants to, and covenants and agrees with, the Company as follows:

 

a.       This Agreement is made with the Buyer in reliance upon the Buyer’s representation to the Company, which by the Buyer’s execution of this Agreement the Buyer hereby confirms, that the Debenture received by the Buyer will be acquired for investment for the Buyer’s own account, not as a nominee or agent, and not with a view to resale or distribute any part thereof, and that the Buyer has no present intention of selling, granting any participation in or otherwise distributing the same. By executing this Agreement, the Buyer further represents that the Buyer does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to the Debenture or any portion thereof. The Buyer represents that it has the full power and authority to enter into this Agreement.

 

b.         As evidenced by a completed Investor Questionnaire in the form attached hereto as Exhibit B, the Buyer and each of its Members is (i) an "accredited investor" as that term is defined in Rule 501 of the General Rules and Regulations under the Securities Act by reason of Rule 501(a)(3), (ii) experienced in making investments of the kind described in this Agreement and the related documents, (iii) able, by reason of the business and financial experience of its officers (if an entity) and professional advisors (who are not affiliated with or compensated in any way by the Company or any of its affiliates or selling agents), to protect its own interests in connection with the transactions described in this Agreement, and the related documents, and (iv) able to afford the entire loss of its investment in the Securities. The Buyer has adequate means of providing for current needs and personal contingencies and has no need for liquidity in this investment.

 

c.         The Buyer understands that the Securities being purchased are characterized as “restricted securities” under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such Securities may not be resold without registration under the Securities Act of 1933 (the “Act”) except in certain limited circumstances. Without in any way limiting the representations set forth above, the Buyer further agrees not to make any disposition of all or any portion of the Debentures or the underlying Common Stock unless:

 

(i)       There is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with such registration statement;

 

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(ii)       The Buyer shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition, and if requested by the Company, the Buyer shall have furnished the Company with either (i) an unqualified written opinion of counsel who shall be reasonably satisfactory to the Company addressed to the Company and reasonably satisfactory in form and substance to the Company’s counsel to the effect that the proposed transfer may be effected without registration under the Act or (ii) a “No Action” letter from the U.S. Securities and Exchange Commission to the effect that the transfer of such securities without registration will not result in a recommendation by the staff of the U.S. Securities and Exchange Commission that action be taken with respect thereto, whereupon the holder of such Securities shall be entitled to transfer such Securities in accordance with the terms of the notice delivered by the holder to the Company; or

 

(iii)     The Buyer shall not have sold, assigned, transferred, pledged or otherwise disposed of the Debentures or underlying Common Stock in a transaction involving the distribution without consideration of the Securities by the Buyer to any of its members or retired members, or to the estate of any of its members or retired members, or in a transaction involving the transfer or distribution of the securities by a corporation to any subsidiary, parent or affiliated corporation of such corporation unless, in each case, the Buyer shall give written notice to the Company of such Buyer’s intention to effect such transfer, sale, assignment, pledge or other disposition. The Buyer will cause any such proposed purchaser, assignee, transferee or pledgee of any Debentures or Common Stock held by the Buyer to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Agreement.

 

d.       The Buyer understands that the Debenture is being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer's compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein and in the Investor Questionnaire in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Debenture.

 

e.       The Buyer and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Debenture, which have been requested by the Buyer. The Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company and have received complete and satisfactory answers to any such inquiries.

 

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f.       The Buyer understands that its investment in the Securities involves a high degree of risk. The Buyer has carefully reviewed and understands the risks of, and other considerations relating to, a purchase of the Debentures and understands that there are substantial risks in an investment in the Company. The Buyer also understands that certain principals of the Company are involved in business activities with the Company for which they will receive payment or other compensation, and that certain principals are also principals or affiliates of other entities which have or will have business dealings with the Company and which therefore may involve conflicts of interest. At no time has the percentage of profit and/or amount of or type of consideration, profit or loss to be realized, if any, as a result of Company’s business ever been represented, guaranteed or warranted to the Buyer by the Company, its agents or any other person, expressly or by implication. The Buyer is not purchasing the Securities as a result of any advertisement or general solicitation.

 

g.       The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities.

 

h.       This Agreement has been duly and validly authorized, executed and delivered on behalf of the Buyer and is a valid and binding agreement of the Buyer enforceable in accordance with its terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium and other similar laws affecting the enforcement of creditors' rights generally

 

i.       Notwithstanding the provisions hereof or of the Debenture, in no event (except with respect to an automatic conversion of the Debenture as provided therein) shall Buyer be entitled to convert any Debenture to the extent that, after such conversion, the sum of (1) the number of shares of Common Stock beneficially owned by Buyer and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Debenture), and (2) the number of shares of Common Stock issuable upon the conversion of the Debenture with respect to which the determination of this proviso is being made, would result in beneficial ownership by Buyer and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Any issuance by the Company to the Buyer in excess of the limit contained in this Paragraph 2.i. shall be null and void, ab initio , and upon notice of such invalid issuance, the Company shall correct its books and cause its transfer agent's books to be corrected forthwith to reflect that the Buyer's ownership of Common Stock is within the limit set forth herein. Buyer shall immediately deliver any certificates for invalidly issued Common Stock to the Company. The Company further agrees to (i) immediately reissue certificates for Common Stock to the extent that a portion of the Common Stock represented by said certificates have been validly issued and (ii) immediately reissue all or a portion of those shares which were deemed invalidly issued (at a price set forth in the original conversion notices applicable to such shares) upon notice from the Buyer that the reissuance of such shares would not cause such Buyer to have a beneficial ownership interest in excess of 4.99%.

 

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j.       It is understood that the certificates evidencing the Securities will bear the following legend:

 

“THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A OF SUCH ACT.”

 

k.       Buyer represents that it neither is nor will be obligated for any finders' fee or commission nor is it aware of any such fee or commission payable in connection with this transaction. Buyer agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which such Buyer or any of its officers, partners, employees, or representatives is responsible.

 

l.       Buyer understands that the number of Shares issuable upon conversion of the Debentures may increase substantially in certain circumstances. In addition, Buyer understands that the Company may, in the future, issue additional shares of its Common Stock and that, upon such issuance, Buyer’s position in the Company’s outstanding Common Stock may be reduced.

 

m.       Buyer understands that the tax consequences of ownership of Debentures are not susceptible to prediction, and audit adjustments to Company’s income tax returns, new rulings of the Internal Revenue Service, court decisions or legislative changes may have an adverse effect on one or more of the tax consequences of an investment in the Company, including its status as a corporation for federal income tax purposes, and Buyer thereby might experience serious adverse tax effects. BUYER ACKNOWLEDGES THAT BUYER HAS BEEN ADVISED TO CONSULT BUYER’S OWN ATTORNEY CONCERNING THE COMPANY, THE DEBENTURES AND THIS AGREEMENT, AND ALL THE OTHER RELATED DOCUMENTATION, AND TO CONSULT WITH INDEPENDENT TAX COUNSEL REGARDING THE TAX CONSEQUENCES OF PARTICIPATING IN THE COMPANY AS A HOLDER OF THE DEBENTURES.

 

n.       The Buyer recognizes that the transfer of the Debenture to Buyer will be based on the representations and warranties set forth herein. Buyer hereby acknowledges that Buyer understands the meaning and legal consequences of the representations, warranties and covenants in this Agreement and that the Company and its officers, directors, controlling persons, agents, investors and attorneys have relied upon such representations, warranties and covenants, and the Buyer hereby agrees to indemnify and hold harmless the Company and all of its shareholders, all affiliates of the Company and the management of the Company, their affiliates, and each partner, investor, agent, attorney, investor, officer, and/or director thereof from and against any and all loss, expense, damage or liability, including costs and reasonable attorneys’ fees due to or arising out of (a) the Buyer’s breach of any such representations, warranties or covenants; (b) the Buyer’s transfer or distribution of any Debenture in violation of the Securities Act, or any applicable state securities or Blue Sky laws; and/or (c) any and all claims made by or involving any person or entity other than the Buyer, claiming any interest, right, title, power or authority regarding the Buyer’s purchase of the Debentures. Notwithstanding the foregoing, however, no representation, warranty, acknowledgment or agreement made herein by the Buyer shall in any manner be deemed to constitute a waiver of any rights granted to such Buyer under applicable federal or state securities laws. All representations, warranties and covenants contained in this Agreement and the indemnification contained in this paragraph, shall survive the effective date of this Agreement and the issuance of the Debenture by the Company.

 

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3. COMPANY REPRESENTATIONS, ETC.

 

The Company represents and warrants and hereby covenants and agrees with Buyer that:

 

a.       CONCERNING THE DEBENTURE AND THE SHARES. The Debentures have been duly authorized and, when issued, will be duly and validly issued, fully paid and non-assessable and will not subject the holder thereof to personal liability by reason of being such holder. There are no preemptive rights of any stockholder of the Company, as such, to acquire the Securities.

 

b.       COMPANY STATUS. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power to own its properties and to carry on its business as now being conducted.

 

c.       AUTHORIZED SHARES. The Company has of December 31st, 2012, 450,000,000 authorized shares of Common Stock, 17,583,421 of which are outstanding as of the date hereof. There also 50,000,000 authorized shares of Preferred Stock, none of which are outstanding.

 

d.       AUTHORIZATION. This Agreement, the Debenture and the transactions contemplated hereby and thereby, have been duly and validly authorized by the Company, this Agreement has been duly executed and delivered by the Company and this Agreement and the Debenture, when executed and delivered by or on behalf of the Company, will be, valid and binding agreements of the Company enforceable in accordance with their respective terms, subject, as to enforceability, to general principles of equity and to bankruptcy, insolvency, moratorium, and other similar laws affecting the enforcement of creditors' rights generally.

 

e.       APPROVALS. No authorization, approval or consent of any court, governmental body, regulatory agency, self-regulatory organization, or stock exchange or market or the stockholders of the Company is required to be obtained by the Company for the issuance and sale of the Securities to the Buyer as contemplated by this Agreement.

 

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f.       ABSENCE OF CERTAIN CHANGES. Except as set forth in the Company Disclosure Schedule attached hereto, there has been no material adverse change and no material adverse development in the business, properties, operations, condition (financial or otherwise), or results of operations of the Company and its subsidiaries, taken as a whole. The Company has not (i) incurred or become subject to any material liabilities (absolute or contingent) except liabilities incurred in the ordinary course of business consistent with past practices; (ii) discharged or satisfied any material lien or encumbrance or paid any material obligation or liability (absolute or contingent), other than current liabilities paid in the ordinary course of business consistent with past practices; (iii) declared or made any payment or distribution of cash or other property to stockholders with respect to its capital stock, or purchased or redeemed, or made any agreements to purchase or redeem, any shares of its capital stock; (iv) sold, assigned or transferred any other tangible assets, or canceled any debts or claims, except in the ordinary course of business consistent with past practices; (v) suffered any substantial losses or waived any rights of material value, whether or not in the ordinary course of business, or suffered the loss of any material amount of existing business; (vi) made any changes in employee compensation, except in the ordinary course of business consistent with past practices; or (vii) experienced any material problems with labor or management in connection with the terms and conditions of their employment.

 

g.       ABSENCE OF LITIGATION. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body pending or, to the knowledge of the Company, threatened against or affecting the Company, wherein an unfavorable decision, ruling or finding would have a material adverse effect on the properties, business or financial condition, results of operation or prospects of the Company and its subsidiaries taken as a whole or the transactions contemplated by this Agreement or the Debenture or which would adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, any of the Transaction Agreements.

 

h.       ABSENCE OF EVENTS OF DEFAULT. There is no Event of Default (or its equivalent term), and no event which, with the giving of notice or the passage of time or both, would become an Event of Default (or its equivalent term, as so defined in such agreement), has occurred and is continuing, which would have a material adverse effect on the Company's financial condition or results of operations.

 

i.       NO DEFAULT. The Company is not in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust or other material instrument or agreement to which it is a party or by which it or its property is bound.

 

j.       USE OF PROCEEDS. The proceeds from the sale of the Debentures will be used by the Company to purchase the Frank Worth Archive and/or other iconic photography assets and for general capital purposes.

 

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k.       BROKERS FEE. The Company represents that it neither is nor will be obligated for any finders' fee or commission nor is it aware of any such fee or commission payable in connection with this transaction The Company agrees to indemnify and to hold harmless the Buyer from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, partners, employees, or representatives is responsible.

 

l.       FILINGS. The Company agrees to make all necessary filings in connection with the sale of the Debentures under any federal and state securities laws and regulations.

 

4. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

 

The Buyer understands that unless one or more of such conditions is waived by the Company, the Company's obligation to sell the Debenture on the Closing Date to the Buyer, pursuant to this Agreement, is conditioned upon:

 

a.       The receipt and acceptance by the Buyer of this Agreement as evidenced by execution of this Agreement by the Buyer for ________________________ Dollars ($___________) in aggregate principal amount of the Debenture;

 

b.       Completion and delivery to the Company by the Buyer of an Investment Questionnaire in the form attached hereto as Exhibit B;

 

c.       Delivery by the Buyer to the Company of good funds as payment in full of an amount equal to the Purchase Price for the Debenture.

 

d.       The accuracy on the Closing Date of the representations and warranties of the Buyer contained in this Agreement as if made on the Closing Date, and the performance by the Buyer on or before the Closing Date of all covenants and agreements of the Buyer required to be performed on or before the Closing Date;

 

e.       The Company shall have obtained all necessary Blue Sky law permits and qualifications, or secured an exemption therefrom, required by any state for the offer and sale of the Debentures except as such permits, qualifications or filings for exemption may be made following the Closing; and

 

f.       There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained.

 

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5. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.

 

The Company understands that unless one or more of such conditions is waived by the Buyer, the Buyer's obligation to purchase the Debenture on the Closing Date is conditioned upon:

 

a.       Acceptance by the Company of this Agreement for the sale of the Debenture, as indicated by execution of this Agreement;

 

b.       Delivery by the Company to the Buyer of the Debenture, in accordance with this Agreement; and

 

c.       The accuracy in all material respects on the Closing Date of the representations and warranties of the Company contained in this Agreement as if made on the Closing Date and the performance of or compliance with all covenants and agreements of the Company required to be performed or complied with on or before the Closing Date.

 

6. GOVERNING LAW; MISCELLANEOUS.

 

a.       This Agreement and all agreements entered into in connection herewith shall be governed by and interpreted in accordance with the laws of the State of California for contracts to be wholly performed in such state and without giving effect to the principles thereof regarding the conflict of laws. Any litigation based thereon, or arising out of, under, or in connection with, this agreement or any course of conduct, course of dealing, statements (whether oral or written) or actions of the Company or Buyer shall be brought and maintained exclusively in the state or Federal courts of the State of California, sitting in the City of Los Angeles. The Company hereby expressly and irrevocably submits to the jurisdiction of the state and federal Courts of the State of California for the purpose of any such litigation as set forth above and irrevocably agrees to be bound by any final judgment rendered thereby in connection with such litigation. The Company further irrevocably consents to the service of process by registered mail, postage prepaid, or by personal service within or without the State of California. The Company hereby expressly and irrevocably waives, to the fullest extent permitted by law, any objection which it may have or hereafter may have to the laying of venue of any such litigation brought in any such court referred to above and any claim that any such litigation has been brought in any inconvenient forum. To the extent that the Company has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution or otherwise) with respect to itself or its property, the Company hereby irrevocably waives such immunity in respect of its obligations under this Agreement and the related agreements entered into in connection herewith.

 

b.       A facsimile transmission of this signed Agreement shall be legal and binding on all parties hereto.

 

c.       This Agreement may be signed in one or more counterparts, each of which shall be deemed an original.

 

d.       The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.

 

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e.       If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction.

 

f.       This Agreement may be amended only by an instrument in writing signed by the party to be charged with enforcement thereof.

 

g.       This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof.

 

7. NOTICES.

 

Any notice or communication required or permitted by this Agreement shall be given in writing addressed as follows:

 

COMPANY:

CAPITAL ART, INC.

6150 Washington BLVD

Culver City, CA 90232

ATTN: Klaus Moeller

Telephone No.: (310) 202-7166

Fax No.: (310) 202-7156

 

BUYER:

_____________________________

 

 

 

 

_____________________________

 

_____________________________

 

ATTN: _______________________

 

Telephone No.: _______________________

 

Telephone No.: _______________________

 

All notices shall be served personally by Fax, by overnight express mail service or other overnight courier, or by first class registered or certified mail, postage prepaid, return receipt requested. If served personally, or by telecopy, notice shall be deemed delivered upon receipt (provided that if served by telecopy, sender has written confirmation of delivery); if served by overnight express mail or overnight courier, notice shall be deemed delivered forty-eight (48) hours after deposit; and if served by first class mail, notice shall be deemed delivered seventy-two (72) hours after mailing. Any party may give written notification to the other parties of any change of address for the sending of notices, pursuant to any method provided for herein.

 

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8.       SURVIVAL OF REPRESENTATIONS AND WARRANTIES.

 

The Company's and the Buyer's representations and warranties herein shall survive, for a period of two (2) years the execution and delivery of this Agreement and the delivery of the Debenture and the Purchase Price, and shall inure to the benefit of the parties and their respective successors and assigns.

 

PURCHASE PRICE OF THE DEBENTURE: $_____________

 

SIGNATURES

 

IN WITNESS WHEREOF, the undersigned represents that the foregoing statements are true and correct and that it has caused this Securities Purchase Agreement to be duly executed on its behalf as of this ___,  __________, 2012.

 

 

________________________

 

 

 

 

By: _______________________

 

Name: _____________________

 

Title: ______________________

 

Date: ______________________

 

 

 

As of the date set forth below, the undersigned hereby accepts this Agreement and represents that the foregoing statements are true and correct and that it has caused this Securities Purchase Agreement to be duly executed on its behalf.

 

 

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Capital Art, Inc., a Delaware corporation

 

 

 

By: _______________________________

 

Name: ____________________________

 

Title: ______________________________

 

Date: _______________________________

 

 

 

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Exhibit 10.10 

 

DEBENTURE

 

THIS DEBENTURE HAS BEEN ACQUIRED FOR INVESTMENT AND NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF (“SECURITIES”) HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THE SECURITIES MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THIS DEBENTURE IS SUBJECT TO THE TERMS AND CONDITIONS OF A SECURITIES PURCHASE AGREEMENT BETWEEN CAPITAL ART, INC. AND THE HOLDER HEREOF AND DATED AS OF EVEN DATE HEREWITH.

 

US $_________

 

CAPITAL ART, INC.

 

10% CONVERTIBLE DEBENTURE DUE DECEMBER 31 st , 2015

 

FOR VALUE RECEIVED, between CAPITAL ART, INC., a Delaware corporation (the "Company") promises to pay to _______________________, the registered holder hereof (the "Holder"), the principal sum of _________________ Dollars (US $_________) on December 31 st , 2015 (the "Maturity Date") and to pay interest on the principal sum outstanding from time to time in arrears (i) prior to the Maturity Date, quarterly, on the last day of March, June, September and December of each year, (ii) upon conversion as provided herein or (iii) on the Maturity Date, at the rate of ten percent (10%) per annum accruing from ____,  __________, 2012, the date of the issuance of this Debenture (the “Issuance Date”). Accrual of interest shall commence on the first such business day to occur after the Issuance Date and shall continue to accrue on basis of a 365-day year for actual days elapsed until payment in full of the principal sum has been made or duly provided for, or the full amount of the principal has been converted and there is no remaining principal balance to be paid. The Holder understands and acknowledges that this Debenture is one in a series of up to $1,000,000 (no minimum) of Debentures being sold by the Company on the terms set forth herein.

This Debenture is subject to the following additional provisions:

 

1. The Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be made for such registration or transfer or exchange.

 

2. The Company shall be entitled to withhold from all payments of principal of, and interest on, this Debenture any amounts required to be withheld under the applicable provisions of the United States income tax laws or other applicable laws at the time of such payments, and Holder shall execute and deliver all required documentation in connection therewith.

 

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3. This Debenture has been issued subject to investment representations of the original purchaser hereof and may be transferred or exchanged only in compliance with the Securities Act of 1933, as amended (the "Act"), and other applicable state and foreign securities laws. In the event of any proposed transfer of this Debenture, the Company may require, prior to issuance of a new Debenture in the name of such other person, that it receive reasonable transfer documentation, including but not limited to legal opinions, that the issuance of the Debenture in such other name does not and will not cause a violation of the Act or any applicable state or foreign securities laws. Prior to due presentment for transfer of this Debenture, the Company and any agent of the Company may treat the person in whose name this Debenture is duly registered on the Company's Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture be overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

 

4.     A. Optional Conversion . At any time from the Issuance Date through the Maturity Date, the Holder may opt to convert all or any portion of the principal balance of the Debenture into shares of Common Stock of the Company, $0.0001 par value per share ("Common Stock") by submitting the original Debenture for cancellation on the books and records of the Company together with a Notice of Conversion in the form annexed hereto as Exhibit A (the “Notice of Conversion”) setting forth the amount of principal being converted. Upon submission of the original Debenture and demand for conversion by the Holder, the Company shall issue shares of its Common Stock to Holder at a rate of $0.80 per share (the "Conversion Rate").

 

B. Automatic Conversion/Early Repayment . On the condition that the Company is not then in default hereunder, any portion of the principal balance of the Debentures not previously converted as of the Maturity Date shall be deemed to be automatically converted on the Maturity Date, and, upon delivery of certificates representing Common Stock issued upon such conversion to the Holder, the Debenture shall terminate and, with the exception of accrued but unpaid interest, the Company shall have no further obligation to repay the Debenture. Upon receipt of certificates representing the Common Stock issued to the Holder upon such automatic conversion, the Holder shall deliver the terminated Debenture to the Company for cancellation; provided, however, that failure of the Holder to deliver the original Debenture to the Company shall have no effect on the termination of the Debenture. The company at its sole option can force conversion if the shares trade at or above $3.00 on any trading day. The company at its sole discretion can also opt to repay the debenture at which time the principle amount, a 10% prepayment penalty and all accrued interest is due to the Debenture holder.

 

C. The Company shall, at its expense, take all actions and use all means necessary and diligent to transmit the certificates representing the Common Stock issuable upon conversion of the Debenture to the Holder via express courier, by electronic transfer or otherwise, within three (3) business days after receipt by the Company of the original Debenture and the Notice of Conversion, or the Maturity Date in the case of automatic conversion. In the event of a partial conversion of this Debenture under subsection A above, the Company shall also deliver a new Debenture to the Holder in an amount equal to the principal balance less the amount converted under the Notice of Conversion. The maturity date of any such Debenture reissued shall be the same as the Maturity Date. In no event will fractional shares be issued on any conversion. In lieu of any fraction of a share, the Company shall deliver its check for the dollar amount of the less than full share remainder.

 

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5. If the Company merges or consolidates with another corporation or sells or transfers all or substantially all of its assets to another person and the holders of the Common Stock are entitled to receive stock, securities or property in respect of or in exchange for Common Stock, then as a condition of such merger, consolidation, sale or transfer, the Company and any such successor, purchaser or transferee agree that the Debenture may thereafter be converted on the terms and subject to the conditions set forth above into the kind and amount of stock, securities or property receivable upon such merger, consolidation, sale or transfer by a holder of the number of shares of Common Stock into which this Debenture might have been converted immediately before such merger, consolidation, sale or transfer, subject to adjustments which shall be as nearly equivalent as may be practicable. In the event of any proposed merger, consolidation or sale or transfer of all or substantially all of the assets of the Company (a "Sale"), the Holder hereof shall have the right to convert by delivering a Notice of Conversion to the Company within fifteen (15) days of receipt of notice of such Sale from the Company. In the event the Holder hereof shall elect not to convert, the Company may but is not required to prepay all outstanding principal and accrued interest on this Debenture by paying the Redemption Amount contemplated by Section 5 hereof, less all amounts required by law to be deducted, upon which tender of payment following such notice, the right of conversion shall terminate. If the Company determines not to prepay all outstanding principal and accrued interest on this Debenture, lawful and adequate provision shall be made whereby the Holder of this Debenture shall thereafter have the right to purchase, upon the basis and on the terms and conditions specified in this Debenture, in lieu of the shares of common stock of the Company theretofore purchasable upon conversion of this Debenture, an equal number of shares of stock of the surviving corporation in such consolidation or merger, at the same price per share, regardless of the market value of such shares, and upon the same terms as would apply upon the conversion of this Debenture had such consolidation or merger not taken place. Notwithstanding anything which may be or appear to be to the contrary herein, Holder shall have no right to approve or disapprove any merger or proposed merger of Company.

 

6. The Company covenants that it will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issue upon conversion of the Debentures, such number of shares of Common Stock as shall then be issuable upon the conversion of all of the outstanding Debentures. The Company covenants that all shares of Common Stock which shall be so issuable shall be duly and validly issued and fully paid and nonassessable.

 

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7. The Company may deem and treat any person in whose name this Debenture is registered on its records as the absolute owner of this Debenture for the purpose of making payments and giving notices hereunder, and for all other purposes. The Company shall not be affected by any notice to the contrary. A Holder of this Debenture, or such person’s address of record, may be changed only upon prior written notice to the Company and a showing of compliance with Section 11 below. The Company shall reflect any such change no later than ten (10) business days after its receipt of such written notice and showing of compliance with Section 11, whichever is the last to occur.

 

8. This Debenture constitutes an unsecured, general obligation of the Company. The payment of any amounts owing on this Debenture shall be pari passu in right of payment to the payment in full of all other unsecured debt of the Company, whether outstanding on the Issuance Date or thereafter created, incurred or guaranteed.

 

9. All payments contemplated hereby to be made "in cash" shall be made in immediately available good funds in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. All payments of cash and each delivery of shares of Common Stock issuable to the Holder as contemplated hereby shall be made to the Holder at the address last appearing on the Debenture Register of the Company as designated in writing by the Holder from time to time; except that the Holder may designate, by notice to the Company, a different delivery address for any one or more specific payments or deliveries.

 

10. The Holder may transfer this Debenture, or any interest therein, only in the event that either (i) all the Debentures are registered under the Securities Act of 1933, or (ii) there exists an exemption from registration under federal or applicable state securities laws for such transaction. In the event Holder asserts such an exemption, the Company may request an opinion of legal counsel at the expense of Holder. This Debenture may be transferred only on the records of the Company upon written request to transfer in the form specified by the Company, delivered to the Company at its principal business offices, together with this facsimile of the Debenture. Transfer of the Debenture or any interest therein may be denied by the Company if, in its sole discretion, it determines the foregoing restrictions on transfer have not been satisfied.

 

11. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction, or mutilation of any Debenture, and of indemnity satisfactory to it, and upon reimbursement to the Company of all expenses incidental thereto, and upon surrender and cancellation of any such Debenture if mutilated, the Company will make and deliver a new Debenture of like tenor in lieu of any such Debenture so lost, stolen, destroyed, or mutilated. Any new Debenture made and delivered in accordance with the provisions of this Section 12 shall be dated as of the date from which unpaid interest has then accrued on the Debenture so lost, stolen, destroyed, or mutilated.

 

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12. This Debenture may be amended or supplemented only by a writing signed by the Company and the Holder.

 

13. This Debenture and all agreements entered into in connection herewith shall be governed by and interpreted in accordance with the laws of the State of California for contracts to be wholly performed in such state and without giving effect to the principles thereof regarding the conflict of laws. Any litigation based thereon, or arising out of, under, or in connection with, this agreement or any course of conduct, course of dealing, statements (whether oral or written) or actions of the Company or Holder shall be brought and maintained exclusively in the state or Federal courts of the State of California, sitting in the City of Los Angeles. The Company hereby expressly and irrevocably submits to the jurisdiction of the state and federal Courts of the State of California for the purpose of any such litigation as set forth above and irrevocably agrees to be bound by any final judgment rendered thereby in connection with such litigation. The Company further irrevocably consents to the service of process by registered mail, postage prepaid, or by personal service within or without the State of California. The Company hereby expressly and irrevocably waives, to the fullest extent permitted by law, any objection which it may have or hereafter may have to the laying of venue of any such litigation brought in any such court referred to above and any claim that any such litigation has been brought in any inconvenient forum. To the extent that the Company has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution or otherwise) with respect to itself or its property, the Company hereby irrevocably waives such immunity in respect of its obligations under this Agreement and the related agreements entered into in connection herewith.

14. In case any provision of this Debenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

 

15. The terms and conditions hereof shall be binding upon the Holder, its heirs, assigns and successors in interest to the same extent and in the same manner as the terms and conditions are binding on all Holders.

 

16. Should a dispute arise from this Debenture, the parties agree that the prevailing party or parties shall be entitled to recover from the non-prevailing party or parties their costs, including reasonable attorneys’ fees and expert witness fees.

 

17. The following shall constitute an "Event of Default":

 

a.       The Company shall default in the payment of principal or interest on this Debenture and same shall continue uncured for a period of thirty (30) business days after its receipt of written notice thereof; or

 

b.       The Company fails to issue shares of Common Stock to the Holder upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Debenture, fails to transfer any certificate for shares of Common Stock issued to the Holder upon conversion of this Debenture and when required by this Debenture, and such transfer is otherwise lawful, and any such failure shall continue uncured for five (5) business days; or

 

5
 

 

c.       The Company shall fail to perform or observe, in any material respect, any other covenant, term, provision, condition, agreement or obligation of this Debenture and such failure shall continue uncured for a period of twenty (20) days after written notice from the Holder of such failure; or

 

d.       The Company shall (1) admit in writing its inability to pay its debts generally as they mature; (2) make an assignment for the benefit of creditors or commence proceedings for its dissolution; or (3) apply for or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part of its property or business; or

 

e.       A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without its consent and shall not be discharged within sixty (60) days after such appointment; or

 

f.       Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Company and custody or control is not reacquired by the Company within sixty (60) days thereafter; or

 

g.       Any money judgment, writ or warrant of attachment, or similar process in excess of Two Hundred Thousand ($200,000) Dollars in the aggregate shall be entered or filed against the Company or any of its properties or other assets and shall remain unpaid, unvacated, unbonded or unstayed for a period of sixty (60) days or in any event later than five (5) days prior to the date of any proposed sale thereunder; or

 

h.       Bankruptcy, reorganization, insolvency or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Company and, if instituted against the Company, shall not be dismissed within sixty (60) days after such institution or the Company shall by any action or answer approve of, consent to, or acquiesce in any such proceedings or admit the material allegations of, or default in answering a petition filed in any such proceeding; or

 

6
 

 

Then, or at any time thereafter, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holder's sole discretion, the Holder may, at its option, consider this Debenture immediately due and payable in cash (and not by conversion into Common Stock), without presentment, demand, protest or notice of any kinds, all of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding, and the Holder may immediately enforce any and all of the Holder's rights and remedies provided herein, or any other rights or remedies afforded by law.

 

18. Nothing contained in this Debenture shall be construed as conferring upon the Holder the right to vote or to receive dividends or to consent or receive notice as a shareholder in respect of any meeting of shareholders or any rights whatsoever as a shareholder of the Company, unless and to the extent converted in accordance with the terms hereof.

 

19. Time is of the essence as to the performance of each and every obligation of the Company and Holder pursuant to this Debenture.

 

20.       A. On the conditions that the Company (i) is not in default under this Debenture (and no event has occurred that would ripen into a default with the passage of time), and (ii) has previously honored all prior Redemption Notices, the Company may, at its option, repay, in whole or in part, the then outstanding principal balance of this Debenture on the Redemption Date (defined below) set by the Redemption Notice (after deducting the principal subject to outstanding Conversion Notices) at the Redemption Price (as defined below). This Debenture is redeemable, in whole or in part, by the Company by providing written notice (the "REDEMPTION NOTICE") to the Holder via facsimile at its address set forth herein or on the Company’s Debenture Register between the hours of 6:30 a.m. and 3:00 p.m. Pacific Time (the "REDEMPTION NOTICE DATE"). Within ten (10) business days after the Redemption Notice Date, the Company shall make payment of the Redemption Price (as defined below) in immediately available funds to the Holder (such date of payment referred to as the "REDEMPTION DATE”).

 

B. In the event the Company serves a Redemption Notice, the Redemption Price shall be equal to 110% of the outstanding principal balance of the Debenture. The debenture owner will have the right at such time to convert the outstanding amount into common shares of the Company at $0.80 per share provided that the Notice of Conversion must be received within five (5) business days following the Redemption Notice Date.

 

C. The Notice of Redemption shall set forth (i) the Redemption Date and the place fixed for redemption, (ii) the Redemption Price, (iii) a statement of or reference to the conversion right set forth herein, and (iv) confirmation that the Company has the full Redemption Price reserved. The notice shall specify the principal balance hereof to be redeemed. If the Company fails to comply with the redemption provisions set forth herein by the Redemption Date, the redemption will be declared null and void and the Company shall not be permitted to serve another Redemption Notice.

 

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(a)  the full amount of the Redemption Price in cash, available in a demand or other immediately available account in a bank or similar financial institution, specifically allotted for such redemption;

 

(b)  immediately available credit facilities, in the full amount of the Redemption Price, with a bank or similar financial institution specifically allotted for such redemption; or

 

(c)  combination of the items set forth in (i) and (ii) above, aggregating the full amount of the Redemption Price.

 

Notwithstanding the foregoing, in the event the redemption is expected to be made contemporaneously with the closing of a public offering of the Company's securities for an amount in excess of the Redemption Price, the Company shall not be required to have the full amount of the Redemption Price available to it as set forth above.

 

IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by an officer thereunto duly authorized.

 

Dated: as of ___, ___________, 2012.

 

  CAPITAL ART, INC., a Delaware Corporation
   
  By: ____________________
   
   
  (Print Name)
   
   
  (Title)

 

8
 

 

EXHIBIT A

 

NOTICE OF CONVERSION

 

(To be Executed by the Registered Holder in order to Convert the Debenture)

 

The undersigned hereby irrevocably elects to convert $ ________________ of the principal amount of the above Debenture No.  ___ into Shares of Common Stock of CAPITAL ART, INC., a Delaware corporation (the "Company") according to the conditions hereof, as of the date written below.

 

Conversion Date*

 

____________________

 

Applicable Conversion Price

 

$0.80

 

 

 

Signature

 

____________________

          [Name]

 

Address:

 

_________________

_________________

 

* This original Debenture must be received by the Company by the third business day following the Conversion Date.

 

 

9

Exhibit 10.11

 

 

ASSET PURCHASE AGREEMENT

 

This Asset Purchase Agreement is entered into on October 8, 2014, between Capital Art, Inc., a Delaware Corporation (the “ Buyer ”), and Movie Star News LLC, a Nevada Limited Liability Company (the “ Seller ”), which is owned by Iconz Art, LLC and David Elkouby (the “ Owner ”).

 

The Seller has agreed to sell and the Buyer has agreed to purchase the Purchased Assets as defined below.

 

The Owner owns 100% of the outstanding equity of the Seller and has agreed to join in this agreement for the purpose of making certain representations and agreements.

 

Therefore, the parties agree as follows:

 

1. Sale of the Purchased Assets. Subject to the provisions set forth in this agreement, as of midnight at the beginning of the date of this agreement (the “ Effective Time ”), the Seller hereby sells, conveys, assigns, and transfers to the Buyer the assets set forth on Schedule 1 (the “ Purchased Assets ”) free and clear of any and all liens and encumbrances, and the Buyer hereby accepts the sale, conveyance, assignment, and transfer of the Purchased Assets.

 

2. No Other Assumption of Liabilities. The Buyer does not assume any obligation or liability of the Seller or the Owner, and the Seller or the Owner or both, as applicable, will continue to be liable for any and all liabilities of the Seller or the Owner or both. The Buyer does not assume any liability under the Assumed Contracts arising before the Effective Time. The Seller will not be responsible for any liability that arises from the Buyer’s operation of the Business after the Effective Time.

 

3. Purchase Price. The purchase price is 256,400,226 shares of restricted common stock of the Buyer for a value of $600,000 (the “ Purchase Price ”). The Buyer shall pay the Purchase Price by issuing the shares within three (3) days of execution of this agreement.

 

4. Representations and Warranties of Seller and Owner. The Seller and the Owner, jointly and severally, represent and warrant to the Buyer that all of the representations and warranties set forth on Schedule 2 are true and correct in all respects as of the date of this agreement.

 

5. Representations and Warranties of Buyer. The Buyer represents and warrants to the Seller and Owner that all of the representations and warranties set forth on Schedule 3 are true and correct in all respects as of the date of this agreement.

 

6. Survival. Except as otherwise provided in this agreement, the representations and promises of the parties contained in this agreement will survive (and not be affected in any respect by) the Effective Time for the applicable statute of limitations as well as any investigation conducted by any party and any information which any party may receive.

 

7. Further Actions. At any time and from time to time after the date of this agreement: (1) the Seller shall execute and deliver or cause to be executed and delivered to the Buyer such other instruments and take such other action, all as the Buyer may reasonably request, in order to carry out the intent and purpose of this agreement; and (2) the Buyer shall execute and deliver or cause to be executed and delivered to the Seller such other instruments and take such other action, all as the Seller may reasonably request, in order to carry out the intent and purpose of this agreement.

 
 

 

8. Governing Law; Venue. This agreement and the transactions contemplated hereby will be construed in accordance with and governed by the internal laws (without reference to choice or conflict of laws principles) of the State of Nevada. Any suit, action, or other proceeding brought against any of the parties to this agreement or any dispute arising out of this agreement or the transactions contemplated hereby must be brought either in the courts sitting in Clark County, Nevada and by its execution and delivery of this agreement, each party accepts the jurisdiction of such courts and waives any objections based on personal jurisdiction or venue.

 

9. Assignment. No party may assign either this agreement or any of its rights, interests, or obligations hereunder without the prior written approval of each other party, except that the Buyer may assign any or all of its rights under this agreement, in whole or in part, without obtaining the consent or approval of any other party, (1) to any current or future affiliate of the Buyer, (2) to any entity into which the Buyer may be merged or consolidated, (3) in connection with any acquisition, restructuring, merger, conversion, or consolidation to which the Buyer may be a party, or (4) to a lender to the Buyer or its affiliates as collateral security for current or future obligations owed by the Buyer or its affiliates to the lender.

 

10. Notices. All notices and other communications under this agreement must be in writing and given by first class mail, return receipt requested, nationally recognized overnight delivery service, such as Federal Express, or personal delivery against receipt to the party to whom it is given, in each case, at the party’s address set forth in this section 9 or such other address as the party may hereafter specify by notice to the other parties given in accordance with this section. Any such notice or other communication will be deemed to have been given as of the date the applicable delivery receipt for such communication is executed as received or in the case of mail, three days after it is mailed.

 

If to the Seller or: _____

 

the Owner _____

 

_____

 

Attention: _____

 

If to the Buyer

Capital Art, Inc.

25 Quarterdeck

Marina del Rey, CA 92127

 

 
 

 

 

11. Miscellaneous. This agreement contains the entire agreement between the parties with respect to the subject matter hereof and all prior negotiations, writings, and understandings relating to the subject matter of this agreement are merged in and are superseded and canceled by, this agreement. This agreement may not be modified or amended except by a writing signed by the parties. This agreement is not intended to confer upon any person or entity not a party (or their successors and permitted assigns) any rights or remedies hereunder. This agreement may be signed in any number of counterparts, each of which will be an original with the same effect as if the signatures were upon the same instrument, and it may be signed electronically. The captions in this agreement are included for convenience of reference only and will be ignored in the construction or interpretation hereof. If any date provided for in this agreement falls on a day which is not a business day, the date provided for will be deemed to refer to the next business day. Any provision in this agreement that is held to be invalid, illegal, or unenforceable in any respect by a court of competent jurisdiction will be ineffective only to the extent of such invalidity, illegality, or unenforceability without affecting in any way the remaining provisions hereof; provided, however, that the parties will attempt in good faith to reform this agreement in a manner consistent with the intent of any such ineffective provision for the purpose of carrying out such intent. The Exhibits and Schedules to this agreement are a material part of this agreement and are incorporated by reference herein.

 

[Signature page follows.]

 

 

 

 

 

 

 

 

 

 

 

 

 
 

 

Each of the undersigned has caused this bill of sale and assignment and assumption agreement to be duly executed and delivered as of the date first written above.

 

 

BUYER:

 

/s/ Sean Goodchild

By: Sean Goodchild

Chief Executive Officer

 

 

 

SELLER:

 

/s/ Stuart Scheinman

By:      Movie Star News, LLC

Title:   Managing Partner

 

 

 

OWNER:

 

/s/ Stuart Scheinman

By:     Iconz, LLC

Title:   Managing Partner

 

 

 

 

 

 
 

 

 

Schedule 1

 

Purchased Assets

 

Purchased Assets ” means The Movie Star News Archive consisting of approximately 100,000 negatives, certain other negatives including the Bettie Page collection and approximately 1 million 8" by 10" Black & White Photographs.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

 

Schedule 2

 

Representations and Warranties of Seller and Owner

 

1. Consents. The Seller is not required to obtain the consent of any party to a contract or any governmental entity in connection with the execution, delivery, or performance by it of this agreement or the consummation of the transactions contemplated in this agreement.

 

2. Compliance with Laws. With respect to the Purchased Assets of the Seller before the Effective Time, the Seller and its employees and officers are, and at all times have been, in compliance in all material respects with each law applicable to the Seller related to the Purchased Assets.

 

3. Litigation. There are no claims or suits pending or, to the Seller’s knowledge, threatened by or against the Seller (1) relating to or affecting the Purchased Assets or (2) by or against any employee of the Seller relating to or affecting the Purchased Assets. There are no judgments, decrees, orders, writs, injunctions, rulings, decisions, or awards of any court or governmental body to which the Seller is a party or is subject with respect to any of the Purchased Assets is subject.

 

4. Title; Condition of Purchased Assets. The Seller has good and marketable title to all of the Purchased Assets free and clear of all liens and encumbrances. Pursuant to this agreement, the Seller conveys to the Buyer good and marketable title to all of the Purchased Assets, free and clear of all liens and encumbrances. The Inventory is salable in the ordinary course of business and consists of items that are current, standard, and first-quality.

 

5. Product Warranties. The Seller provides no express or implied warranty, indemnification, or guarantee to any of its customers at any time. Each product sold relating to the Purchased Assets by the Seller is and has been sold or rendered, as applicable, in conformity with all applicable contractual commitments and all express and implied warranties, and the Seller does not have any liability (and there is no basis for any present or future proceeding) for replacement or repair thereof or other damages, liabilities, or obligations in connection therewith.

 

 

 

 

 

 

 

 

 

 

 
 

 

Schedule 3

 

Representations and Warranties of Buyer

 

1. Consents. The Buyer is not required to obtain the consent of any party to a contract or any governmental entity in connection with the execution, delivery, or performance by it of this agreement or the consummation of the transactions contemplated in this agreement.

 

2. Litigation. There are no claims or suits pending or, to the Buyer’s knowledge, threatened by or against the Buyer. There are no judgments, decrees, orders, writs, injunctions, rulings, decisions, or awards of any court or governmental body to which the Buyer is a party or is subject.

 

3. Organization And Standing; Certificate And Bylaws . The Company is a corporation duly organized and existing under, and by virtue of, the laws of the State of Delaware and is in good standing under such laws. The Company has requisite corporate power to own and operate its properties and assets, and to carry on its business as presently conducted and as proposed to be conducted.

 

4. Consulting Agreements. Buyer has entered into a consulting agreement with ROAR LLC and ADL1 LLC pursuant to which such consultants will receive 4,000,000 and 5,500,000 shares of Buyer’s Common Stock, respectively as full payment of all services, copies of which are attached as Exhibits A and B, respectively.

 

5. Stock Purchase Agreement. Buyer has executed an agreement, attached as Exhibit C, with ADL1 LLC to purchase 20,000,000 shares of common stock of Buyer according to specific tranche dates.

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 21

 

 

SUBSIDIARIES OF THE REGISTRANT

 

Listed below are all subsidiaries of Capital Art, Inc., with their jurisdictions of organization shown in parentheses.

 

 

Capital Art, LLC (California)