UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2015 |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ to ____________. |
Commission File Number: 000-1527844
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) |
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. o Yes
x No
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). o Yes x No
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 o |
Accelerated filer o |
Non-accelerated filer o |
Smaller reporting company x |
|
|
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
As of January 14, 2016, the registrant had outstanding
325,341,224 shares of common stock, 0.0001 par value.
CAPITAL ART, INC.
QUARTERLY REPORT ON
FORM 10-Q
FOR THE QUARTER ENDED
JUNE 30, 2015
TABLE OF CONTENTS
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Page |
PART I – FINANCIAL INFORMATION |
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Item 1. |
Financial statements (unaudited) |
4 |
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Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014 (unaudited) |
4 |
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Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months and six months ended June 30, 2015 and June 30, 2014 (unaudited) |
5 |
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Condensed Consolidated Statement of Changes in Shareholders’ Equity for the six months ended June 30, 2015 and June 30, 2014 (unaudited) |
6 |
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Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and June 30, 2014 (unaudited) |
7 |
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Notes to the Consolidated Financial Statements (unaudited) |
8 |
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Item 2. |
Management’s Discussion and Analysis |
16 |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk. |
22 |
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Item 4. |
Controls and Procedures |
22 |
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PART II – OTHER INFORMATION |
23 |
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Item 6. |
Exhibits |
23 |
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SIGNATURES |
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24 |
FORWARD-LOOKING STATEMENTS
Certain statements made
in this Quarterly Report on Form 10-Q are “forward-looking statements” regarding the plans and objectives of management
for future operations and market trends and expectations. The words “expect,” “believe,” “plan,”
“intend,” “estimate,” “anticipate,” “propose,” “seek” and similar words
and variations thereof, when used, are intended to specifically identify forward-looking statements. Such statements involve known
and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking
statements included herein are based on current expectations that involve numerous risks and uncertainties, including but not limited
to those set forth in our Form 10, as amended, filed with the SEC pursuant to Rule 12(b) under the Securities Act of 1934. Our
plans and objectives are based, in part, on assumptions involving the continued expansion of our business. Assumptions relating
to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and
future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control.
Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could
prove inaccurate and, therefore, we cannot assure you that the forward-looking statements included in this report will prove to
be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion
of such information should not be regarded as a representation by us or any other person that our objectives and plans will be
achieved. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s
analysis only as of the date hereof. We do not undertake any obligation to publicly revise these forward-looking statements to
reflect events or circumstances that arise after the date hereof.
The terms the “Company”,
“we,” “us,” “our” “Capital Art” or “CAPA”, and derivatives thereof,
as used herein refer to Capital Art, Inc., a Delaware corporation.
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
CAPITAL ART, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE
30, 2015 and December 31, 2014
(UNAUDITED)
| |
6/30/2015 | | |
12/31/2014 | |
ASSETS | | |
Current Assets: | |
| | | |
| | |
Cash | |
$ | 61,039 | | |
$ | 340,523 | |
Accounts receivable | |
| 3,647 | | |
| 13,691 | |
Inventory | |
| 53,927 | | |
| 59,034 | |
Stock subscription receivable | |
| – | | |
| 300,000 | |
Due from related parties | |
| 109,430 | | |
| 93,316 | |
Prepaid expenses and other | |
| 109,696 | | |
| 9,613 | |
Total current assets | |
| 337,739 | | |
| 816,177 | |
| |
| | | |
| | |
Archival images, and property and equipment, net | |
| 3,220,766 | | |
| 3,341,552 | |
| |
| | | |
| | |
Security deposits | |
| 6,356 | | |
| 6,356 | |
TOTAL ASSETS | |
$ | 3,564,861 | | |
$ | 4,164,085 | |
| |
| | | |
| | |
LIABILITIES AND SHAREHOLDERS’ EQUITY
| | |
| |
| | | |
| | |
Current Liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 129,113 | | |
$ | 108,694 | |
Accrued liabilities | |
| 366,609 | | |
| 650,031 | |
Due to related parties | |
| 30,892 | | |
| 64,274 | |
Short-term notes payable to related parties | |
| 41,000 | | |
| 41,000 | |
Total current liabilities | |
| 567,614 | | |
| 863,999 | |
| |
| | | |
| | |
Related party note payable | |
| 100,000 | | |
| 100,000 | |
Total liabilities | |
| 667,614 | | |
| 963,999 | |
| |
| | | |
| | |
Commitments and contingencies | |
| | | |
| | |
Shareholders’ equity: | |
| | | |
| | |
Preferred stock, $0.0001 par value; 50,000,000 shares authorized; none issued and outstanding at June 30, 2015 and December 31, 2014 | |
| – | | |
| – | |
Common stock, $0.0001 par value; 450,000,000 shares
authorized; 324,988,283 and 311,973,283 shares issued and outstanding at June 30, 2015 and December 31, 2014,
respectively | |
| 32,499 | | |
| 31,197 | |
Additional paid-in capital | |
| 3,931,909 | | |
| 3,239,961 | |
Common stock subscribed | |
| – | | |
| 300,000 | |
Retained deficit | |
| (1,067,161 | ) | |
| (371,072 | ) |
Total Shareholders’ equity | |
| 2,897,247 | | |
| 3,200,086 | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | |
$ | 3,564,861 | | |
$ | 4,164,085 | |
The accompanying notes are an integral part
of the condensed consolidated financial statements.
CAPITAL ART, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(UNAUDITED)
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
Revenues | |
$ | 35,040 | | |
$ | 62,100 | | |
$ | 376,282 | | |
$ | 163,168 | |
| |
| | | |
| | | |
| | | |
| | |
Cost of revenues | |
| 42,378 | | |
| 41,993 | | |
| 116,276 | | |
| 81,070 | |
| |
| | | |
| | | |
| | | |
| | |
Gross profit | |
| (7,338 | ) | |
| 20,107 | | |
| 260,006 | | |
| 82,098 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Product development, sales and marketing | |
| 197,131 | | |
| 5,900 | | |
| 350,206 | | |
| 15,462 | |
General and administrative | |
| 197,219 | | |
| 45,807 | | |
| 412,243 | | |
| 80,760 | |
Depreciation and amortization expense | |
| 94,406 | | |
| 18,138 | | |
| 187,606 | | |
| 35,405 | |
Total operating expenses | |
| 488,756 | | |
| 69,845 | | |
| 950,055 | | |
| 131,627 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (496,094 | ) | |
| (49,738 | ) | |
| (690,049 | ) | |
| (49,529 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income (expense): | |
| | | |
| | | |
| | | |
| | |
Interest and other income | |
| 4 | | |
| – | | |
| 660 | | |
| – | |
Interest expense | |
| (1,830 | ) | |
| (1,886 | ) | |
| (6,700 | ) | |
| (2,672 | ) |
Total other income (expense) | |
| (1,826 | ) | |
| (1,886 | ) | |
| (6,040 | ) | |
| (2,672 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss before income taxes | |
| (497,920 | ) | |
| (51,624 | ) | |
| (696,089 | ) | |
| (52,201 | ) |
| |
| | | |
| | | |
| | | |
| | |
Income taxes | |
| – | | |
| – | | |
| – | | |
| – | |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (497,920 | ) | |
$ | (51,624 | ) | |
$ | (696,089 | ) | |
$ | (52,201 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic and diluted loss per common share | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | |
| |
| | | |
| | | |
| | | |
| | |
Weight average basic and diluted shares outstanding | |
| 322,010,151 | | |
| 256,400,226 | | |
| 320,383,974 | | |
| 256,400,226 | |
The accompanying notes are
an integral part of the condensed consolidated financial statements.
CAPITAL ART, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS’ EQUITY
JUNE
30, 2015 and JUNE 30, 2014
(UNAUDITED)
|
| |
| |
Additional | |
Common | |
Retained | |
Total | |
|
Common Stock | |
Paid-in | |
Stock | |
Earnings | |
Shareholders' | |
|
Shares | |
Amount | |
Capital | |
Subscribed | |
(Deficit) | |
Equity | |
|
| |
| |
| |
| |
| |
| |
BALANCE DECEMBER 31, 2013 |
| 256,400,226 | |
$ | 25,640 | |
$ | 466,865 | |
$ | – | |
$ | 9,255 | |
$ | 501,760 | |
|
| | |
| | |
| | |
| | |
| | |
| | |
Net loss |
| – | |
| – | |
| – | |
| – | |
| (52,201 | ) |
| (52,201 | ) |
BALANCE JUNE 30, 2014 |
| 256,400,226 | |
$ | 25,640 | |
$ | 466,865 | |
$ | – | |
$ | (42,946 | ) |
$ | 449,559 | |
|
| | |
| | |
| | |
| | |
| | |
| | |
|
| | |
| | |
| | |
| | |
| | |
| | |
BALANCE DECEMBER 31, 2014 |
| 311,973,283 | |
$ | 31,197 | |
$ | 3,239,961 | |
$ | 300,000 | |
$ | (371,072 | ) |
$ | 3,200,086 | |
|
| | |
| | |
| | |
| | |
| | |
| | |
Common shares issued for services |
| 2,470,000 | |
| 247 | |
| 165,753 | |
| – | |
| – | |
| 166,000 | |
Common shares issued to related party for finder's fee |
|
200,000 |
|
|
20 |
|
|
9,980 |
|
|
– |
|
|
– |
|
|
10,000 |
|
Common shares issued for settlement of accrued liabilities |
|
2,525,000 |
|
|
253 |
|
|
125,997 |
|
|
– |
|
|
– |
|
|
126,250 |
|
Common shares issued for cash |
| 7,820,000 | |
| 782 | |
| 390,218 | |
| (300,000 | ) |
| – | |
| 91,000 | |
Net loss |
| – | |
| – | |
| – | |
| | |
| (696,089 | ) |
| (696,089 | ) |
BALANCE JUNE 30, 2015 |
| 324,988,283 | |
$ | 32,499 | |
$ | 3,931,909 | |
$ | – | |
$ | (1,067,161 | ) |
$ | 2,897,247 | |
The accompanying notes are
an integral part of the condensed consolidated financial statements.
CAPITAL ART, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
(UNAUDITED)
| |
June 30, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Cash flows from operating activities: | |
| | | |
| | |
Net income (loss) | |
$ | (696,089 | ) | |
$ | (52,201 | ) |
Adjustments to reconcile net income (loss) to net cash used by operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 187,606 | | |
| 35,405 | |
Stock-based compensation to non-employees | |
| 176,000 | | |
| – | |
Loss on sale of fixed assets | |
| 2,942 | | |
| | |
Changes in assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| 10,044 | | |
| 147 | |
Inventory | |
| 5,107 | | |
| 10,552 | |
Prepaids and other | |
| (100,083 | ) | |
| 1,515 | |
Accounts payable | |
| 20,419 | | |
| (6,941 | ) |
Accrued liabilities | |
| (157,172 | ) | |
| 15,687 | |
| |
| | | |
| | |
Net cash (used in) provided by operating activities | |
| (551,226 | ) | |
| 4,164 | |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Purchase of archival images, property and equipment | |
| (69,762 | ) | |
| (51,941 | ) |
| |
| | | |
| | |
Net cash used by investing activities | |
| (69,762 | ) | |
| (51,941 | ) |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Short-term advances from related parties, net | |
| (49,496 | ) | |
| (2,992 | ) |
Proceeds from sale of common stock | |
| 391,000 | | |
| – | |
Distributions to members | |
| – | | |
| – | |
Proceeds notes payable to related parties | |
| – | | |
| 30,000 | |
| |
| | | |
| | |
Net cash provided by financing activities | |
| 341,504 | | |
| 27,008 | |
| |
| | | |
| | |
Net decrease in cash | |
| (279,484 | ) | |
| (20,769 | ) |
| |
| | | |
| | |
Cash at beginning of year | |
| 340,523 | | |
| 20,919 | |
| |
| | | |
| | |
Cash at end of period | |
$ | 61,039 | | |
$ | 150 | |
| |
| | | |
| | |
| |
| | | |
| | |
SUPPLEMENTAL CASH FLOW INFORMATION: | |
| | | |
| | |
Cash paid for interest to related party | |
$ | 5,480 | | |
$ | 2,027 | |
Common shares issued for settlement of accrued liabilities | |
$ | 126,250 | | |
$ | – | |
The accompanying notes are
an integral part of the condensed consolidated financial statements.
CAPITAL ART, INC.
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| 1. | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES |
The accompanying
unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles
in the United States (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim
financial reporting. Certain information and note disclosures normally included in the consolidated financial statements prepared
in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included
in the condensed consolidated financial statements for the three and six months ended June 30, 2015 should be read in conjunction
with the consolidated financial statements and accompanying notes included in the Company’s Form 10, as amended, filed with
the SEC pursuant to Rule 12(b) under the Securities Act of 1934.
The condensed
consolidated balance sheet as of December 31, 2014, included herein was derived from the audited financial statements as of that
date, but does not include all disclosures including notes required by GAAP.
The accompanying
unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the
financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results
of operations to be anticipated for the full year ending December 31, 2015.
The accompanying
condensed consolidated financial statements represent the results of operations, financial position and cash flows of Capital Art,
Inc. (formerly Movie Star News, LLC), and its 100% owned subsidiary Capital Art, LLC for the three and six months ended June 30,
2015. All inter-company balances and transactions have been eliminated.
The preparation
of financial statements in conformity with accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and also requires 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. Actual results could differ from those estimates.
Reverse Merger
On October
8, 2014, Capital Art, Inc. (“CAPA”) a Delaware Corporation and Capital Art, LLC, a California Limited Liability Company
and wholly owned subsidiary of Capital Art, Inc. (collectively “CAPA” or “pre-merger CAPA”), CAPA entered
into an Asset Purchase Agreement with Movie Star News, LLC. (“MSN”), a Nevada Limited Liability Company. The Agreement
was effectively a contract to merge the three companies to combine assets of rare images. Refer to the consolidated financial statements
and accompanying notes as of December 31, 2014.
The following
unaudited pro forma information is presented to reflect the operations of the Company as if the reverse merger had been completed
on January 1, 2015 and 2014, respectively:
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
(Unaudited) | |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
Supplement pro forma combined results of operations: | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Net sales | |
$ | 35,040 | | |
$ | 110,245 | | |
$ | 376,282 | | |
$ | 246,925 | |
Net loss | |
| (497,919 | ) | |
| (152,727 | ) | |
| (696,089 | ) | |
| (463,585 | ) |
Basic and diluted loss per common share | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | |
CAPITAL ART, INC.
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
Going Concern
The accompanying
condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business.
Management
evaluated all relevant conditions and events that are reasonably known or reasonably knowable, in the aggregate, as of the date
the condensed consolidated financial statements are issued and determined that substantial doubt exists about the Company’s
ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on the Company’s
ability to generate revenues and raise capital. The Company has not generated sufficient revenues from product sales to provide
sufficient cash flows to enable the Company to finance its operations internally. As of June 30, 2015 the Company had $61,039 cash
on hand. At June 30, 2015 the Company has a retained deficit of $1,067,161. For the six months ended June 30, 2015 the Company
had a net loss of $696,089 and cash used in operations of $551,226. These factors raise substantial doubt about the Company’s
ability to continue as a going concern.
Over the next
twelve months the Company intends to invest its working capital resources in sales and marketing in order to increase the distribution
and demand for its products. If the Company fails to generate sufficient revenue and obtain additional capital to continue at its
expected level of operations, the Company may be forced to scale back or discontinue its sales and marketing efforts. However,
there is no guarantee the Company will generate sufficient revenues or raise capital to continue operations.
Inventory
The Company’s
inventory is comprised of rare photos of movie stars and other famous people. Direct labor and raw material costs associated with
the process of making the photos available for sale are also included in inventory at cost. These costs are expensed to cost of
sales pro-ratably as sold.
Impairment of Long-Lived
Assets
Long-lived
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may
not be recoverable. In such situations, long-lived assets are considered impaired when future undiscounted cash flows resulting
the use of the asset and its eventual disposition are less than the asset’s carrying amount. In such situations, the asset
is written down to the present value of the estimated future cash flows. Factors that are considered when evaluating long-lived
assets for impairment include a current expectation that it is more likely than not that the long-lived asset will be sold significantly
before the end of its useful life, a significant decrease in the market price of the long-lived asset, and a change in the extent
of manner in which the long-lived asset is being used. Based on management’s assessment there were no impairments at June
30, 2015 and December 31, 2014.
Recent Accounting Pronouncements
In May 2014,
the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09 – Revenues from Contracts with Customers,
which introduces a new five-step framework for revenue recognition. The core principle of the standard is that entities should
recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
for which the entity expects to be entitled for those goods or services. The ASU also requires enhanced disclosures regarding the
nature, amount, timing, and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The
standard, as amended in ASU No. 2015-14, is effective for annual reporting periods after December 15, 2017. Management does not
believe the adoption of ASU No. 2014-09 will have a material impact on the Company’s consolidated financial statements.
In August 2014,
the FASB issued ASU No. 2014-15, Presentation of Financial Statements–Going Concern, (Subtopic 204-40), Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going Concern. This ASU requires management to evaluate each annual and interim
reporting period, whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s
ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year
after the date that the financial statements are available to be issued when applicable). ASU No. 2014-15 is effective for the
annual period ending after December 15, 2016, and for annual and interim periods thereafter. Management does not believe the adoption
of ASU No. 2014-15 will have a material effect on the consolidated financial statements.
CAPITAL ART, INC.
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
In July 2015,
the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. ASU No. 2015-11 clarifies that inventory should be held
at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling price, less the estimated
costs to complete, dispose and transport such inventory. ASU No. 2015-11 will be effective for fiscal years and interim periods
beginning after December 15, 2016. ASU No. 2015-11 is required to be applied prospectively and early adoption is permitted. The
Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements.
In September
2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805), Simplifying the Accounting for Measurement–Period
Adjustments. The amendments in ASU No. 2015-16 require that an acquirer recognize adjustments to provisional amounts that are identified
during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in ASU No.
2015-16 require that an acquirer record, in the same period’s financial statements, the effect on earnings of changes in
depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as
if the accounting had been completed at the acquisition date. The amendments in ASU No. 2015-16 require an entity to present separately
on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line
item that would have been reported in previous reporting periods if the adjustment to the provisional amounts had been recognized
as of the acquisition date. ASU No. 2015-16 is effective for financial statements issued for annual periods beginning after December
15, 2015, including interim periods within those fiscal years. Management does not believe the adoption of ASU No. 2015-16 will
have a material effect on the Company’s consolidated financial statements
In November
2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740), Balance Sheet Classification of Deferred Tax. ASU No. 2015-17
was issued by the FASB as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative).
Current GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a
classified statement of financial position. To simplify the presentation of deferred income taxes, the amendments in ASU 2015-17
require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The
current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as
a single amount is not affected by the amendments of ASU 2015-17. ASU No, 2015-17 is effective for financial statements issued
for annual periods beginning after December 15, 2016. Management does not believe the adoption of ASU No. 2015-17 will have a material
effect on the Company’s consolidated financial statements.
| 2. | Basic and Diluted
Income and Loss per Share |
The Company
computes income and loss per share in accordance with ASC 260 - Earnings per Share. ASC 260 requires presentation of both basic
and diluted earnings per share (“EPS”) on the face of the condensed consolidated statements of operations. Basic EPS
is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares
outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during
the period using the treasury stock method and convertible preferred stock using the if-converted method. Diluted EPS excludes
all dilutive potential shares if their effect is antidilutive. During periods of net loss, all common stock equivalents are excluded
from the diluted EPS calculation because they are antidilutive.
A reconciliation of weighted-average
basic shares outstanding to weighted-average diluted shares outstanding follows:
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Basic weighted average common shares outstanding | |
| 322,010,151 | | |
| 256,400,226 | | |
| 320,383,974 | | |
| 256,400,226 | |
| |
| | | |
| | | |
| | | |
| | |
Effect of dilutive securities | |
| – | | |
| – | | |
| – | | |
| – | |
| |
| | | |
| | | |
| | | |
| | |
Diluted weighted average common and potential common
shares outstanding | |
| 322,010,151 | | |
| 256,400,226 | | |
| 320,383,974 | | |
| 256,400,226 | |
CAPITAL ART, INC.
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
The Company
is required to reserve and keep available of its authorized, but unissued shares of common stock an amount sufficient to effect
shares due in connection with the Stock Purchase Agreement and Stock-Based Compensation to Non-Employees. As of June 30, 2015,
shares reserved for future issuance comprised of the following:
| |
Shares | |
| |
Reserved | |
Shares to be issued to consultants | |
| 340,000 | |
Shares to be issued to Frank Worth Estate | |
| 200,000 | |
| |
| 540,000 | |
These shares
were excluded from the calculation of diluted earnings per share as their effect was anti-dilutive.
| 3. | ARCHIVAL IMAGES, AND PROPERTY AND EQUIPMENT |
Archival images,
and property and equipment as of June 30, 2015 and December 31, 2014 comprise of the following:
| |
June 30, | | |
December 31, | | |
Estimated | |
| |
2015 | | |
2014 | | |
Useful Lives | |
Frank Worth Collection | |
$ | 2,770,000 | | |
$ | 2,770,000 | | |
| 10 years | |
Other archival images | |
| 707,051 | | |
| 676,215 | | |
| 10 years | |
Leasehold improvements | |
| 12,446 | | |
| 12,446 | | |
| 7 years | |
Computer and other equipment | |
| 48,350 | | |
| 40,204 | | |
| 3 – 5 years | |
Furniture and fixtures | |
| 83,666 | | |
| 56,416 | | |
| 7 years | |
| |
| 3,621,513 | | |
| 3,555,281 | | |
| | |
Less accumulated deprecation | |
| (400,747 | ) | |
| (213,729 | ) | |
| | |
Total archival images, property and equipment, net | |
$ | 3,220,766 | | |
$ | 3,341,552 | | |
| | |
On November
12, 2014, the Frank Worth Estate agreed to accept $155,000 and 200,000 common shares, with a fair value of $0.05 per share ($10,000),
of the Company’s common stock 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. $30,000 due under the agreement for royalties was paid in January
2015. The remainder of $125,000 and 200,000 ($10,000) shares of common stock were due and payable on or before May 31, 2015, which
is being held by the Company until a dispute between the Estate and an unrelated party of the Company is settled. The Company has
no involvement in the dispute.
Accrued liabilities at June 30, 2015 and December
31, 2014 comprise of the following:
| |
June 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
Accrued payroll and related | |
$ | 17,441 | | |
$ | 8,242 | |
Accrued management fee due to related party | |
| 5,781 | | |
| 5,781 | |
Due to Frank Worth Estate | |
| 135,000 | | |
| 135,000 | |
Interest payable to related parties | |
| 2,381 | | |
| 748 | |
Accrued royalties due to Frank Worth Estate | |
| – | | |
| 30,000 | |
Stock-based compensation due to non-employees | |
| 102,000 | | |
| 126,250 | |
Fair value of limited edition prints due to consultant | |
| – | | |
| 250,000 | |
Contingent liability for taxes assumed in reverse merger | |
| 91,000 | | |
| 91,000 | |
Other | |
| 13,006 | | |
| 3,010 | |
Total accrued liabilities | |
$ | 366,609 | | |
$ | 650,031 | |
CAPITAL ART, INC.
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
On August 15,
2014, pre-merger CAPA entered into a four-month agreement for strategic management services with a consultant. In connection with
the agreement, the consultant is to receive compensation of 5,500,000 shares of the Company’s common stock (See Note 8 –
Shareholders’ Equity) and limited edition photographs for aggregate retail fair value of $250,000. The Company evaluated
the transaction under the guidance in ASC 845-Nonmonetary Transactions. ASC 845 requires fair value of nonmonetary exchanges be
recorded based on fair value inherent in the transaction. The Company determined the aggregate retail fair value of the prints
totaling $250,000 represented the fair value of the reciprocal transfer between the Company and the consultant. The prints were
earned upon execution of the agreement, and were delivered in March 2015, and included in revenues in the Company’s unaudited
condensed consolidated statement of operations as of June 30, 2015.
In connection
with the reverse merger on October 8, 2014, the Company determined a liability contingency for income taxes existed as of the merger
date. The liability is to be reimbursed by a related party of pre-merger CAPA. This contingency has been accounted in accordance
with ASC 805, which states that a liability from a contingency recognized as of the acquisition date is in the scope of ASC 450
– Contingencies, is not acquired or assumed in a business combination, shall continue to be recognized by the acquirer at
its acquisition-date fair value. As of June 30, 2015 and December 31, 2014, contingent liability for income taxes totaled $91,000
which has been accounted for in accrued liabilities and due from related party.
| 6. | NOTES PAYABLE TO RELATED PARTIES |
On August 1,
2013 the Company entered into an unsecured promissory note agreement with related party Dino Satallante for $100,000. The loan
bears interest at 5%. The loan matured on July 14, 2014 and was extended to July 31, 2016. As of June 30, 2015 and December 31,
2014, $100,000 was outstanding under the unsecured promissory note agreement. Interest expense for the three and six months ended
June 30, 2015 was $1,225 and $2,485, respectively. For the three and six months ended June 30, 2014 interest expense was $1,241
and $2,027, respectively.
Effective September
11, 2014 the Company entered into two separate unsecured promissory note agreements for $20,500 each with two related parties,
Dreamstar and Dino Satallante, both beneficial interest shareholders of the Company, for working capital purposes. The loans bear
interest at 6% per annum. The loans mature on September 10, 2015, and were extended to December 31, 2016. See Note 10 – Subsequent
Events. As of June 30, 2015, $20,500 and $20,500 was outstanding to Dino Satallante and Dreamstar, respectively. Total interest
expense in connection with the two unsecured promissory note agreements for the three and six months ended June 30, 2015 was $605
and $1,220, respectively.
As of June
30, 2015 and December 31, 2014, interest payable in connection with the unsecured promissory note agreements with related parties
was $2,381 and $748, respectively, and is included in accrued liabilities in the Company’s condensed consolidated balance
sheets.
CAPITAL ART, INC.
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| 7. | RELATED PARTY TRANSACTIONS |
Due From/To Related Parties
The following
table summarizes amounts due to the Company from related parties for funds advanced by the Company on behalf of related parties
and funds advanced from related parties for short-term working capital purposes as of June 30, 2015 and December 31, 2014. These
amounts have been included in the condensed consolidated balance sheets as current assets due from related parties and current
liabilities due to related parties, respectively, and are due on demand.
| |
June 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
Due from related parties: | |
| | | |
| | |
Dino Satallante, beneficial interest shareholder | |
$ | 1,350 | | |
$ | 1,350 | |
ICONZ Art, LLC, beneficial interest shareholder | |
| 13,735 | | |
| – | |
Sam Battistone, beneficial interest shareholder | |
| 966 | | |
| 966 | |
Stuart Scheinman, President of the Company and beneficial interest shareholder | |
| 2,379 | | |
| – | |
Klaus Moeller, related party of pre-merger CAPA and beneficial interest shareholder | |
| 91,000 | | |
| 91,000 | |
Total due from related parties | |
$ | 109,430 | | |
$ | 93,316 | |
| |
| | | |
| | |
Due to related parties: | |
| | | |
| | |
ICONZ Art, LLC, beneficial interest shareholder | |
$ | 2,014 | | |
$ | 2,014 | |
Klaus Moeller, related party of pre-merger CAPA | |
| 521 | | |
| 4,562 | |
MSN Holding Co., beneficial interest shareholder | |
| 28,272 | | |
| 28,272 | |
Premier Collectibles, beneficial interest shareholder | |
| 85 | | |
| 85 | |
Stuart Scheinman, President of the Company and beneficial interest shareholder | |
| – | | |
| 29,341 | |
Total due to related parties | |
$ | 30,892 | | |
$ | 64,274 | |
Preferred Stock
The Company is authorized
to issue up to 50,000,000 shares of preferred stock authorized with a par value of $0.0001. The Board of Directors is authorized,
subject to any limitations prescribed by law, without further vote or action by the Company’s 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 the board of
directors, which may include, among others, dividend rights, voting rights, liquidation preferences, and conversion rights. As
of June 30, 2015, there were no shares of Preferred Stock issued and outstanding.
Stock Purchase Agreement
On
August 14, 2014 pre-merger CAPA entered into a Stock Purchase Agreement with an investor for sale of 20,000,000 of the Company’s
common stock at $0.05 per share, for total of $1,000,000 payable in installments in August 2014 through December 31, 2014. As of
December 31, 2014, 6,000,000 ($300,000) common shares remained outstanding under the terms of the agreement, which has been
included in the condensed consolidated balance sheets in current assets – stock subscription
receivable and equity – common stock subscribed. As of June 30, 2015, $300,000 was received in connection with the outstanding
stock subscription receivable for 6,000,000 shares.
CAPITAL ART, INC.
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
Private Placement
In March 2015,
the former president of pre-merger CAPA closed a private placement comprising of individuals related to the former president for
1,820,000 shares of common stock at a $0.05 per share for aggregate proceeds of $91,000.
In connection
with the private placement, the former president received 200,000 shares of the Company’s common stock in lieu of cash for
payment of finder’s fee total stock-based compensation of $10,000 based on fair value of the Company’s common stock
of $0.05 per share.
Stock-based and Other Compensation
to Non-Employees
On February
1, 2014, pre-merger CAPA executed a consulting agreement for services. The agreement specifies issuance of 500,000 shares of common
stock at execution of the agreement and 3,500,000 shares upon introduction of a strategic business partner. As of December 31,
2014 875,000 shares of common stock with a fair value of $43,750 were unissued and included in accrued liabilities in the Company’s
condensed consolidated balance sheets. The shares were issued as of June 30, 2015.
On August 15,
2014, pre-merger CAPA entered into a four-month agreement for strategic management services with a consultant. In connection with
the agreement, the consultant is to receive compensation of 5,500,000 shares of the Company’s common stock payable in four
equal installments. As of December 31, 2014, 1,650,000 shares of common stock with a fair value of $82,500 were unissued and included
in accrued liabilities in the Company’s condensed consolidated balance sheets. The shares were issued as of June 30, 2015.
On January
1, 2015 the Company entered in a 12-month agreement for non-exclusive investment banking advisory services for total consideration
of 2,000,000 shares of the Company’s common stock. The shares are payable within 14 days of the effective date of the agreement
and deemed earned in full upon execution of the agreement. The shares were issued in May 2015 in connection with the agreement
with a fair value determined by the Company of $0.05 per share, for total $100,000. The agreement may be renewed for an additional
12-month term whereby the Company at its discretion shall pay the investment banking advisor $400,000 cash or an equivalent amount
in the Company’s common stock based upon the thirty day volume weighted average price for thirty trading days prior to renewal.
On January
2, 2015 the Company entered into a fixed price agreement with a consultant for website development services for total contract
price of $193,000 payable in cash of $40,000 and 510,000 shares of the Company’s common stock with a stated fair value of
$0.30 per share. As of June 30, 2015, 170,000 shares of common stock with fair value of $51,000 were issued. 340,000 shares of
common stock were unissued for $102,000 which is included in accrued liabilities in the unaudited condensed consolidated balance
sheets. See Note 5 – Accrued Liabilities.
On June 9,
2015 the Company entered into a management consulting agreement for total monthly compensation of $17,500. In addition, the consultant
received 300,000 shares of common stock at fair value of $0.05 per share, for total $15,000.
| 9. | Concentrations
of Credit Risk and Financial Instruments |
Financial instruments
that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable.
The Company’s
cash balances are placed at financial institutions, which at times, may exceed federally insured limits. Generally, these deposits
may be redeemed upon demand and, therefore, bear minimal risk. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant risk on cash.
On August 15,
2014, pre-merger CAPA entered into a four-month agreement for strategic management services with a consultant. In connection with
the agreement, the consultant is to receive compensation limited edition photographs for aggregate retail fair value of $250,000.
The Company evaluated the transaction under the guidance in ASC 845-Nonmonetary Transactions. ASC 845 requires fair value of nonmonetary
exchanges be recorded based on fair value inherent in the transaction. The Company determined the aggregate retail fair value of
the prints totaling $250,000 represented the fair value of the reciprocal transfer between the Company and the consultant. See
Note 5 – Accrued Liabilities. The Company delivered the limited edition prints to the consultant in March 2015, which accounted
for 66% of total revenues for the six months ended June 30, 2015. No other distributor or customer accounted for over 10% of total
revenues for the three and six months ended June 30, 2015 and 2014.
CAPITAL ART, INC.
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
On May 11,
2015 the Company entered into an exclusive marketing agreement with a distributor to distribute the Company’s vintage original
fine art prints to fine art dealers and collector auction houses, as well as private third party collectors. Under the terms of
the agreement the distributor is to receive 50% of the gross receipts from sales generated by the distributor.
As of June
30, 2015, and December 31, 2014, accounts receivable balances were not material to the Company’s condensed consolidated financial
statements. There is significant financial risk associated with a dependence upon a small number of distributors and customers
which could have an adverse effect on the Company’s future consolidated financial statements if these distributors were to
leave. The Company’s intends to continue its investment in sales and marketing in order to increase distribution and demand
for its products and adding content to its product lines, along with adding additional channels of distribution.
Management has
evaluated subsequent events, as defined by ASC 855, Subsequent Events, through the date on which the financial statements were
available to be issued.
Asset Purchase Agreement
On July 22,
2015, the Company entered into an Asset Purchase Agreement with Globe Photos, Inc. (“Globe”), a New York corporation,
for purchase of substantially all of the assets, which principally comprises of photographer contracts granting the Company the
right to exploit copyrights, digital and tangible photographs, and related copyrights and trademarks, of Globe Photo for total
purchase price of $400,000 payable in $250,000 cash and $150,000 common stock of the Company.
Per the agreement,
$180,000 in cash shall be held in reserve by the Company against Globe’s full performance and compliance with all terms of
the agreement. This amount is to be released to Globe at the rate of $10,000 per month beginning August 22, 2015.
The Common
stock is to be transferred to Globe sixty (60) days after closing subject to satisfaction of successful termination of certain
subagent agreements by Globe. The seller retained these certain subagent agreements, but was not able to successfully terminate
these agreements. As such, the amount payable in common stock of the Company was reduced by $30,000, thereby reducing the total
purchase price of the assets acquired from $400,000 to $370,000. Under the terms of the Agreement the Company issued 352,941 shares
of its common stock based on the closing price of the Company’s common shares as traded on the OTC market on the measurement
date July 22, 2015 of $0.34 per share for total of $120,000.
The Company
evaluated the Asset Purchase Agreement in accordance with ASC 805 – Business Combinations which notes the threshold requirements
of a business combination that includes the expanded definition of a “business” and defines elements that are to be
present to be determined whether an acquisition of a business occurred. No “activities” of Globe were acquired. Instead,
the Company obtained control of a set of inputs (the acquired assets). Thus the Company determined agreement is an acquisition
of assets, not an acquisition of a business in accordance with ASC 805.
As a form of
liquidity protection, Globe shall have limited put options in connection with the common stock beginning eighteen (18) months after
the closing date, whereas the Company shall have up to fifteen (15) successive monthly options, with no less than thirty (30) days
notice for each, which requires the Company to repurchase from Globe up to 1/15th of the shares of common stock in Globe’s
possession that were granted in connection with the agreement, at a price per share equity to the market price per share ($0.34)
on the effective date of the original share transfer to Globe. The exercise of any put option is not conditioned upon exercise
of any prior put option.
Note Payable
On September
28, 2015, the Company entered into an unsecured promissory note agreement for working capital purposes with an unrelated party
for total proceeds of $150,000. The note matures on September 28, 2016. Interest accrues at the rate of 10% per annum and is payable
monthly beginning October 28, 2016.
Notes Payable to Related Parties
Effective July
21, 2015, the Company entered into a promissory note agreement with related party Dino Satallante, a beneficial interest shareholder
of the Company, for total proceeds of $160,000. The Company utilized $80,000 of the proceeds for payments due in connection with
the Globe Photo assets acquired. The remainder of the proceeds was used for working capital purposes. The note matures on July
20, 2016, with monthly interest only payments commencing beginning August 20, 2015 at the rate of 12% per annum. The note is secured
by the Globe Photo Assets. Per the terms of the agreement the Company incurred loan fees totaling $8,000 to be amortized over the
term of the loan.
Effective
September 11, 2014 the Company entered into two separate unsecured promissory note agreements for $20,500 each with two related
parties, Dreamstar and Dino Satallante, both beneficial interest shareholders of the Company, for working capital purposes. The
loans matured on September 10, 2015, and were extended to December 31, 2016.
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition
and results of operations should be read in conjunction with the consolidated financial statements and related notes included
elsewhere in this report. Certain statements in this discussion and elsewhere in this report constitute forward-looking statements
within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended. See “Forward Looking Statements”
on page 3 of this report. Because this discussion involves risk and uncertainties, our actual results may differ materially from
those anticipated in these forward-looking statements.
Our consolidated financial statements included
elsewhere in this report have been prepared assuming that we will continue as a going concern. Management evaluated all relevant
conditions and events that are reasonably known or reasonably knowable, in the aggregate, as of the date the condensed consolidated
financial statements are issued and determined that substantial doubt exists about the Company’s ability to continue as a
going concern. The Company’s ability to continue as a going concern is dependent on the Company’s ability to generate
revenues and raise capital. The Company has not generated sufficient revenues from product sales to provide sufficient cash flows
to enable the Company to finance its operations internally. These factors raise substantial doubt about the Company’s ability
to continue as a going concern. Over the next twelve months the Company intends to invest its working capital resources in sales
and marketing in order to increase the distribution and demand for its products. If the Company fails to generate sufficient revenue
and obtain additional capital to continue at its expected level of operations, the Company may be forced to scale back or discontinue
its sales and marketing efforts. However, there is no guarantee the Company will generate sufficient revenues or raise capital
to continue operations.
Business Overview
The Company sells and manages classic and contemporary,
limited edition photographic images and reproductions, with a focus on iconic celebrity images, by acquiring ownership or rights
to collections of rare iconic negatives and photographs. The Company also makes available images for publications and merchandizing
by third parties. The Company intends to become the largest repository of archival pop culture photography in the online world.
To this end, the Company has been and continues to search for photographic archives. The market is unknown and has not been tested,
making this business similar to a start-up business. These archives may be purchased outright or the Company may enter into reproduction
or licensing agreements with the owners of the archives. These opportunities are typically (1) photographers who are looking to
monetize their archives, or (2) media companies that are either seeking to dispose of the archive or seeking a method to derive
revenues from the archive. These opportunities exist both in the United States and abroad and the Company continues to search for
value wherever it may be geographically located. However, the Company’s ability to acquire such depository is dependent on
its ability to raise additional capital in order to have funds to make such acquisitions.
Such photographic assets are the basis for the
Company’s competitive advantage and the company takes steps to protect such assets, including but not limited to maintaining
insurance to protect against loss or theft of more than 5 times the actual value.
Significant Transaction
On July 22, 2015, the Company entered into an
Asset Purchase Agreement with Globe Photos, Inc. (“Globe”), a New York corporation, for purchase of substantially all
of the assets of Globe for total purchase price of $400,000 payable $250,000 in cash and $150,000 in common stock of the Company
at said market price . The common stock was to be transferred to Globe sixty (60) days after closing subject to satisfaction of
successful termination of certain subagent agreements by Globe, which occurred on one deal and not the other resulting in a reduction
of $30,000 less in stock, resulting in a final 352,941 shares ($120k of stock at $0.34/share). Per the agreement $180,000 in cash
shall be held in reserve by the Company against Globe’s full performance and compliance with all terms of the agreement.
This amount is to be released to Globe at the rate of $10,000 per month beginning August 22, 2015.
Sales and Distribution
The Company sells its photographic images and reproductions 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 third party on-line retailers. For the twelve months ended December
31, 2014, through on-line retailer’s sales accounted for 94% of total revenues. The Company is continuing to pursue contracts
to diversify revenues, and to develop its own website 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. The downside is that there are a limited number of interior
decorators, galleries and charity partners, which produce higher revenues than on-line sales, and while the Company is actively
pursuing such contracts, its success will depend upon its ability to obtain such contracts for sales and also upon its ability
to acquire a larger depository.
Intellectual Property
Most of our collection of iconic photographic
images were acquired and are owned by the Company. A small percentage of the images in our collection are obtained through reproduction
or licensing agreements, wherein we pay a royalty based on the percentage of revenues we receive from the use of the licensed images.
Results of Operations
Our business is in its early stages and consequently
our financial results are difficult to compare from one period to the next. We expect such period-to-period differences to continue
to be significant over the next several quarters, until we have a number of full years of operations.
Results of Operations
Three and Six Month Periods Ended June 30,
2015 Compared to June 30, 2014
Our summary results are presented below:
|
Three Months Ended June 30, | |
Six Months Ended June 30, | |
|
2015 | |
2014 | |
Change | |
% Change | |
2015 | |
2014 | |
Change | |
% Change | |
Revenues |
$ | 35,040 | |
$ | 62,100 | |
$ | (27,060 | ) |
| (43.57 | )% |
$ | 376,282 | |
$ | 163,168 | |
$ | 213,114 | |
| 130.61.% | |
Costs and operating expenses |
| (531,134 | ) |
| (111,838 | ) |
| 419,296 | |
| 374.91 | % |
| (1,066,331 | ) |
| (212,697 | ) |
| 853,634 | |
| 401.34% | |
Loss from operations |
| (496,094 | ) |
| (49,738 | ) |
| 446,356 | |
| 897.41% | |
| (690,049 | ) |
| (49,529 | ) |
| 640,5200 | |
| 1,293.22% | |
|
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Interest income (expense), net |
| (1,826 | ) |
| (1,887 | ) |
| (61 | ) |
| (3.23 | )% |
| (6,040 | ) |
| (2,672 | ) |
| 3,368 | |
| 126.05% | |
|
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Net loss |
$ | (497,920 | ) |
$ | (51,625 | ) |
$ | 446,295 | |
| 864.49% | |
$ | (696,089 | ) |
$ | (52,201 | ) |
$ | 643,8888 | |
| 1,233.48% | |
|
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Basic and diluted loss per common share |
$ | – | |
$ | – | |
| | |
| | |
$ | – | |
$ | – | |
| | |
| | |
|
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Weighted average basic and diluted shares outstanding |
| 322,010,151 | |
| 256,400,226 | |
| | |
| | |
| 320,383,974 | |
| 256,400,226 | |
| | |
| | |
Revenues. Revenues by category and for the Company as a whole
were as follows:
|
Six Months Ended June 30, | |
| |
| |
|
2015 | |
2014 | |
Change | |
% Change | |
Revenues |
$ | 376,282 | |
$ | 163,168 | |
$ | 213,114 | |
| 130.61% | |
The Company derives its revenues from sales of its classic and contemporary
limited edition photographic images and reproductions, with a focus on iconic celebrity images, through specialized fine art dealers
and distributors, which includes, but is not limited to, third-party galleries, art consultants, and interior decorators, or directly
to end consumers.
During the three months ended June 30, 2015, revenues decreased
$27,060 (43.57%) to $35,040 from $62,100 for the same period in 2014. Product sales from third party on-line retailers accounted
for 73% and 100%, respectively, of total sales for the three months ended June 30, 2015 and 2014. Sales to private end consumers
accounted for 13% of total revenues for the three months ended June 30, 2015, while sales from private auction houses accounted
for 8%. The remaining 6% of total revenues were derived from third party licensing fees.
For the six months ended June 30, 2015 total revenues increased
$213,114 (130.61%) to $376,282 from $168,168 for the same period in 2014. For the six months ended June 30, 2015, product sales
from third party on-line retailers and private end consumers accounted for 73% and 14%, respectively, of total revenues.
On August 15, 2014, pre-merger CAPA entered into a four-month agreement
for strategic management services with a consultant. In connection with the agreement, the consultant received compensation of
limited edition photographs for an aggregate retail fair value of $250,000. The Company evaluated the transaction under the guidance
in ASC 845-Nonmonetary Transactions. ASC 845 requires fair value of nonmonetary exchanges be recorded based on fair value inherent
in the transaction. The Company determined the aggregate retail fair value of the prints totaling $250,000 represented the fair
value of the reciprocal transfer between the Company and the consultant. The prints were earned upon execution of the agreement,
and were delivered in March 2015, and accounted for 66% of total revenues for the six months ended June 30, 2015.
100% of total revenues for the six months ended June 30, 2014 were
product sales generated from third party on-line retailers.
For the three and six months ended June 30, 2015 total revenues
excluding the fair value of the limited edition photographs to the consultant were $35,040 and $126,282, respectively, compared
to total revenues for the three and six months ended 2014 of $62,100 and $163,168, total revenues decreased $27,060 and $36,886,
respectively. The Company’s product sales are generated through sale of limited edition or reproductions from it’s
a diverse collection of classic and contemporary limited edition photographic images and reproductions, with a focus on iconic
celebrity images, which each sale is unique and driven by customer demand for certain, and often obscure, images. In private and
online auction sales the Company stimulates buyer interest through marketing and sells the item to the highest bidder. In the case
of generic photographs or reproductions, the Company sells the print at a fixed price which is based on the popularity and demand
of the celebrity in the image. Excluding the fair value of the prints to the consultant, the decrease in revenues for the three
and six months ended June 30, 2015 compared to the same period in 2014 was in part as a result of decreased volume of items sold
due to the transition and integration of operations due to the reverse merger. The Company continues to invest its working capital
resources in sales and marketing in order to increase the distribution and demand for its products and in adding content to its
product along with adding additional channels of distribution, resulting in increases in volumes of goods being sold.
Fees paid to third party on-line retailers for the three months
ended June 30, 2015 and 2014 were $6,041 and $12,629, respectively. For the six months ended June 30, 2015, fees paid to third
party on-line retailers were $16,212 and $30,536, respectively. Selling and auction fees are included in cost of revenues and will
vary depending on the online or auction house fee structure.
However, there is no guarantee the Company will generate sufficient
revenues to continue operations. The Company estimates it will need approximately $1,000,000 in annual revenues to continue operations
at its current operating level, without consideration given to investment in new sales and marketing channels. For the immediate
future the Company plans to achieve this revenue target by ramping up fees earned from licensing imagery to media companies growing
a network of global sales agents. The Company expects to continue incurring significant operating losses for the near future. If
the Company is not successful in achieving revenues required to continue operations at its current operating levels within three
to four months, or obtain additional financing, the Company’s operations will be significantly impacted, and the Company
will be required to eliminate its headcount, and significantly scale back its operations, including up to the possibility of seeking
a buyer for its vast collections and winding down its operations.
Costs and Operating Expenses.
Costs and operating expenses consisting primarily
of cost of revenues, marketing and sales expenses, general and administrative costs, and depreciation expense, increased $419,296
and $853,634 for the three and six month periods ended June 30, 2015 compared to the same period in 2014, respectively.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2015 |
|
|
2014 |
|
|
Change |
|
|
% Change |
|
|
2015 |
|
|
2014 |
|
|
Change |
|
|
% Change |
|
Cost of revenues |
|
$ |
42,378 |
|
$ |
|
41,993 |
|
|
$ |
385 |
|
|
|
0.92% |
|
|
$ |
116,276 |
|
|
$ |
81,070 |
|
|
$ |
35,206 |
|
|
|
43.43% |
|
Product development, sales and marketing |
|
|
197,131 |
|
|
|
5,900 |
|
|
|
191,231 |
|
|
|
3,241.20% |
|
|
|
350,206 |
|
|
|
15,462 |
|
|
|
334,744 |
|
|
|
2,164.95% |
|
General and administrative |
|
|
197,219 |
|
|
|
45,807 |
|
|
|
151,412 |
|
|
|
330.54% |
|
|
|
412,243 |
|
|
|
80,760 |
|
|
|
331,483 |
|
|
|
410.45% |
|
Depreciation expense |
|
|
94,406 |
|
|
|
18,138 |
|
|
|
76,268 |
|
|
|
420.49% |
|
|
|
187,606 |
|
|
|
35,405 |
|
|
|
152,201 |
|
|
|
429.89% |
|
Total costs and operating expenses |
|
$ |
531,134 |
|
|
$ |
111,838 |
|
|
$ |
419,296 |
|
|
|
374.91% |
|
|
$ |
1,066,331 |
|
|
$ |
212,697 |
|
|
$ |
853,634 |
|
|
|
401.34% |
|
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2015 | | |
2014 | | |
Change | | |
% Change | | |
2015 | | |
2014 | | |
Change | | |
% Change | |
Prints, framing and related costs | |
$ | 11,079 | | |
$ | 6,937 | | |
$ | 4,142 | | |
| 59.71% | | |
$ | 48,911 | | |
$ | 15,579 | | |
$ | 33,332 | | |
| 213.95% | |
Selling and auction fees | |
| 6,041 | | |
| 12,629 | | |
| (6,588 | ) | |
| (52.17% | ) | |
| 16,212 | | |
| 30,536 | | |
| (14,324 | ) | |
| (46.91% | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cost of fulfillment and shipping | |
| 25,258 | | |
| 22,427 | | |
| 2,831 | | |
| 12.62% | | |
| 51,153 | | |
| 34,955 | | |
| 16,198 | | |
| 46.34% | |
Total cost of revenues | |
$ | 42,378 | | |
$ | 41,993 | | |
$ | 385 | | |
| 0.91% | | |
$ | 116,276 | | |
$ | 81,070 | | |
$ | 35,206 | | |
| 43.43% | |
Costs of revenues increased $385 (0.91%) to
$42,378 for the three months ending June 30, 2015 compared to $41,993 for the same period in 2014. For the six months ended June
30, 2015, cost of revenues increased $35,206 (43.43%) to $116,276 from $81,070 for the same period 2014.
Gross profit as a percentage of total revenues
was (21%) and 32% for the three months ended June 30, 2015 and 2014. For the six months ended June 30, 2015 and 2014, gross profit
as a percentage of total revenues was 69% and 50%. Cost of sales mix will vary depending on the Company’s revenue mix.
The Company’s negative gross profit as
a percentage of total revenues for the three months ended June 30, 2015 compared to the same period in 2014 is due to payroll costs
associated with fulfillment labor costs on total revenues of $35,040. As the Company works with various channels to distribute
its product, it continues to negotiate deals to reduce its overall fulfillment costs.
For the six months ended June 30, 2015 and
2014, gross profit as a percentage of revenues was 69% and 50%, respectively. Cost of revenues for the six months ended June 30,
2015 compared to 2014 increased due to costs associated with the limited edition photographs for an aggregate retail fair value
of $250,000 delivered to the consultant in March 2015.
Prints, framing and related costs comprise
of product cost associated with the Company’s sales of its classic and contemporary limited edition photographic images,
costs associated with reproduction of archival images for sale, framing and other related costs. For the three months ended June
30, 2015 costs associated with prints, framing and related costs increased $4,142 to $11,079 (59.71%) from $6,937 during the same
three month period in 2014. Costs associated with prints, framing and related costs increased $33,332 (213.95%) to $48,911 for
the six months ended June 30, 2015 compared $15,579 during the same period in 2014.
Fees paid to third party on-line retailers
for the three months ended June 30, 2015 and 2014 were $6,041 and $12,629, respectively. For the six months ended June 30, 2015
and 2014, selling and auction fees were $16,212 and $30,536, respectively. Selling and auction fees will vary depending on the
online or auction house fee structure.
Product development, sales and marketing expenses
increased $191,231 (3,241.20%) to $197,131 for the three months ending June 30, 2015 compared to $5,900 for the same period in
2014. For the six months ended June 30, 2015 product development, sales and marketing expenses increased $334,744 (2,164.95%) to
$350,206 compared to $15,462 for the same period in 2014. Product development, sales and marketing expenses primarily consists
of website development costs, sales and marketing salaries, as well as other expenses associated with marketing. The Company continues
to utilize its working capital resources in sales and marketing in order to increase the distribution and demand for its products
and to add content to its product lines along with adding additional channels of distribution.
On October 8, 2014 the Company entered into
a reverse merger transaction. The operating expenses presented for the three and six months ended June 30, 2014 represent Movie
Star News, LLC that operated as a private company prior to the reverse merger transaction, as compared to the combined company
presented for the three and six months ended June 2015.
General and administrative costs increased
$151,412 (330.54%) to $197,219 for three months ended June 30, 2015 compared to $45,807 in the same period 2014. The increase for
the three months ended June 30, 2015 compared to 2014 comprise primarily of costs associated with the reverse merger, legal and
accounting fees ($64,000); costs associated with investor relations, including fees, expenses and stock compensation ($25,000);
and management consultants, administrative payroll and related costs ($34,000); and stock compensation to non-employee consultants
totaling $15,000. The remainder of the increase is primarily due to general administrative expenses and increased costs associated
with the Company’s facilities, insurance and other supplies during the three months ending June 30, 2015 compared to the
same period in 2014.
For the six months ended June 30, 2015, general
and administrative costs increased $331,483 (410.45%) to $412,243 from $80,760 in the same period 2014. The increase for the six
months ended June 30, 2015 is primarily due to costs associated with the reverse merger, legal and accounting fees ($145,000);
costs associated with investor relations, including fees, expenses and stock compensation ($80,000), management consultants, administrative
payroll and related costs ($58,000); and stock compensation to non-employee consultants totaling $15,000. The remainder of the
increase is primarily due to general administrative expenses and increased costs associated with the Company’s facilities,
travel expenses, insurance and other supplies in 2015 over the same period in 2014.
Depreciation expense increased $76,268 (420.49%)
and $152,201 (429.89%) for the three and six months ended June 30, 2015, respectively, from $18,138 and $35,405 in the same period
2014, respectively. The increase in depreciation expense for the three and six months ended June 30, 2015 compared to the same
period in 2014 is primarily due to depreciation of the Company’s archival images, comprising primarily of the Frank Worth
Collection acquired in the reverse merger transaction entered into on October 8, 2014. Depreciation expense related to the Frank
Worth Collection for the three months ended June 30, 2015 was $69,250. For the six months ended June 30, 2015, depreciation expense
related to the Frank Worth Collection was $138,500. The Company records archival images, and property and equipment at cost for
purchases over $500. Archival images, property and equipment are depreciated using the straight-line method over the estimated
useful lives ranging from three to ten years. The Company capitalizes direct costs associated with improvements to archival images,
and property and equipment in accordance with ASC 360 – Property, Plant, and Equipment. Leasehold improvements are amortized
on a straight-line basis over the shorter of their useful life or the term of the related lease.
Interest Expense – Related Party.
Interest expense resulted from related party interest expense.
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2015 | | |
2014 | | |
Change | | |
% Change | | |
2015 | | |
2014 | | |
Change | | |
% Change | |
Interest income (expense), net | |
$ | (1,826 | ) | |
$ | (1,887 | ) | |
$ | (61 | ) | |
| (3.23)% | | |
$ | (6,040 | ) | |
$ | (2,672 | ) | |
$ | 3,368 | | |
| 126.05% | |
On August 1, 2013 the Company entered into
an unsecured Promissory Note agreement with a related party for $100,000. The loan bears interest at 5%. The loan matured
on July 14, 2014 and was extended to July 31, 2016. For the six months ended June 30, 2015 and 2014 total interest expense
under the agreement was $2,485 and $2,027, respectively.
Effective September 11, 2014 the Company entered
into two separate unsecured promissory note agreements for $20,500 each with two related parties for working capital purposes.
The loans bear interest at 6% per annum. The loans matured on September 10, 2015 and were extended to December 31, 2016.
Total interest expense in connection with the two unsecured promissory note agreements for the six months ended June 30, 2015 is
$1,220.
As of June 30, 2015 and December 31, 2014,
interest payable in connection with the unsecured promissory note agreements with related parties was $1,968 and $748, respectively,
and is included in accrued liabilities in the Company’s condensed consolidated balance sheets.
Liquidity and Capital Resources
Six Months Ended June 30, 2015 Compared
to June 30, 2014:
Cash totaled $61,039 and $150 at June 30, 2015
and 2014, respectively. The change in cash is as follows:
| |
Six Months Ended June 30, | | |
| |
| |
2015 | | |
2014 | | |
Change | |
Cash (used in) provided by operating activities | |
$ | (551,226 | ) | |
$ | 4,164 | | |
$ | (555,390 | ) |
Cash used in investing activities | |
| (69,762 | ) | |
| (51,940 | ) | |
| (17,822 | ) |
Cash provided by financing activities | |
| 341,504 | | |
| 27,008 | | |
| 314,496 | |
Net decrease in cash | |
$ | (279,484 | ) | |
$ | (20,768 | ) | |
$ | (258,716 | ) |
As of June 30, 2015, the Company’s principal
source of liquidity consisted of $61,039 in cash. Working capital, defined as net current assets minus net current liabilities,
was a deficit of $229,875 as of June 30, 2015. Total cash used in operations during the six months ended June 30, 2015 was $551,226
compared to cash provided by operations of $4,164 during the six months ended June 30, 2014. Cash used in investing activities
for the six months ending June 30, 2015 and 2014 was $69,762 and $51,940, respectively, for additions to the Company’s archival
images, which consists of the Frank Worth Collection and other images, and direct costs associated with improvements to the archival
images. Cash from financing activities totaled $391,000 in connection with proceeds from sale of common stock and settlement of
stock subscription receivable during the six months ending June 30, 2015. This was offset by repayment of short-term advances totaling
$49,496 to related parties. For the six months ended June 30, 2014, cash provided by financing activities totaled $27,008 due to
proceeds from notes payable to related parties of $30,000, offset by repayment of short-term advances of $2,992.
Management evaluated all relevant conditions
and events that are reasonably known or reasonably knowable, in the aggregate, as of the date the condensed consolidated financial
statements are issued and determined that substantial doubt exists about the Company’s ability to continue as a going concern.
The Company’s ability to continue as a going concern is dependent on the Company’s ability to generate revenues and
raise capital. The Company has not generated sufficient revenues from product sales to provide sufficient cash flows to enable
the Company to finance its operations internally. As of June 30, 2015 the Company had $61,039 cash on hand. At June 30, 2015 the
Company has a retained deficit of $1,067,161. For the six months ended June 30, 2015 the Company had a net loss of $696,089 and
cash used in operations of $551,226. These factors raise substantial doubt about the Company’s ability to continue as a going
concern.
Over the next twelve months the Company intends
to invest its working capital resources in sales and marketing in order to increase the distribution and demand for its products.
If the Company fails to generate sufficient revenue and obtain additional capital to continue at its expected level of operations,
the Company may be forced to scale back or discontinue its sales and marketing efforts. As part of increasing its product offerings,
the Company has been and continues to search for photographic archives that are undervalued by the market. These archives may be
acquired outright or the Company may enter into representation or consignment agreements with the owners of the archives. These
opportunities are typically (1) aging photographers who are looking to monetize their archive while still alive via a single large
transaction, or (2) media companies that have aggregated assets (or rights to assets) and are seeking to dispose of the archive
or a partner who can help them grow cash flows related to the archive. These opportunities exist both in the United States and
abroad and the Company continues to search for value wherever it may be geographically located.
However,
there is no guarantee the Company will generate sufficient revenues to continue operations. The Company estimates it will need
approximately $1,000,000 in annual revenues to continue operations at its current operating level, without consideration given
to investment in new sales and marketing channels. For the immediate future the Company plans to achieve this revenue target by
ramping up fees earned from licensing imagery to media companies by growing a network of global sales agents. The
Company expects to continue incurring significant operating losses for the near future. If the Company is not successful in achieving
revenues required to continue operations at its current operating levels within three to four months, or obtain additional financing,
the Company’s operations will be significantly impacted, and the Company will be required to eliminate its headcount, and
significantly scale back its operations, including up to the possibility of seeking a buyer for its vast collections and winding
down its operations.
A reconciliation of weighted-average basic
shares outstanding to weighted-average diluted shares outstanding follows:
| |
For the six months ended June 30, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Basic weighted average common shares outstanding | |
| 320,383,974 | | |
| 256,400,226 | |
| |
| | | |
| | |
Effect of dilutive securities | |
| – | | |
| – | |
| |
| | | |
| | |
| |
| | | |
| | |
Diluted weighted average common and potential | |
| | | |
| | |
common shares outstanding | |
| 320,383,974 | | |
| 256,400,226 | |
The Company is required to reserve and keep
available of its authorized, but unissued shares of common stock an amount sufficient to effect shares due in connection with the
Stock Purchase Agreement and Stock-Based Compensation to Non-Employees. As of June 30, 2015, shares reserved for future issuance
comprised of the following:
| |
Shares | |
| |
Reserved | |
Shares to be issued to consultant | |
| 340,000 | |
Shares to be issued to Frank Worth Estate | |
| 200,000 | |
| |
| 540,000 | |
These shares were excluded from the calculation
of diluted earnings per share as their effect was anti-dilutive.
Item 3. Quantitative
and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls
and Procedures
| (a) | Evaluation of Disclosure Controls and Procedures. The Company's management, with the participation of the chief executive
officer and the chief financial officer, has been assessing its internal controls to identify areas that need improvement, and
as part of this process has retained new outside auditors, outside securities counsel, and is in the process of restructuring management,
all with emphasis on improving financial reporting and accounting procedures. As the Company starts to report and operate as a
reporting company, new procedures have become and will continue to be implemented to ensure compliance, and as part of such procedures,
the Company will continue to assess its intended controls. Failure to implement these changes to the Company’s internal controls,
or any changes as necessary to maintain an effective system of internal controls, could result in misleading or inadequate financial
reports and failure to comply with applicable securities laws as well as cause investors to lose confidence in the Company’s
reported financial information. Any such loss of confidence would have a significant negative effect on the value of the Company’s
stock. |
| (b) | Changes in Internal Control over Financial Reporting. There were no changes in the Company’s internal control
over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably
likely to materially affect, the Company's internal control over financial reporting. |
PART II – OTHER INFORMATION
Item 6. Exhibits
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 |
10.12 |
Asset Purchase Agreement, between Globe Photos, Inc. and Capital Art, Inc., effective July 22, 2015 |
21. |
Subsidiaries |
31.1 |
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 |
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 |
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS |
XBRL Instances Document* |
101.SCH |
XBRL Taxonomy Extension Schema Document* |
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document* |
101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document* |
101.LAB |
XBRL Taxonomy Extension Label Linkbase Document* |
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document * |
* Filed herewith
SIGNATURES
Pursuant to the requirements the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf buy the undersigned, thereunto duly authorized.
Date: January 21, 2016
|
CAPITAL ART, INC. |
|
|
|
|
By: |
/s/ Sean Goodchild |
|
|
Sean Goodchild |
|
|
Chief Executive Officer |
EXHIBIT 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a),
AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002
I, Sean Goodchild, certify that:
1. I have reviewed this Quarterly Report on
Form 10-Q of Capital Art, Inc.;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements,
and other financial information included in this Report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s)
and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. The registrant's other certifying officer(s)
and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date:January 21, 2016
|
/s/ Sean Goodchild |
|
|
Sean Goodchild |
|
|
CHIEF EXECUTIVE OFFICER |
|
|
(PRINCIPAL EXECUTIVE OFFICER ) |
|
EXHIBIT 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a),
AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002
I, David Morton, certify that:
1. I have reviewed this Quarterly Report on
Form 10-Q of Capital Art, Inc.;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements,
and other financial information included in this Report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s)
and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. The registrant's other certifying officer(s)
and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: January 21, 2016
|
/s/ David Morton |
|
|
David Morton |
|
|
CHIEF FINANCIAL OFFICER |
|
|
(PRINCIPAL FINANCIAL OFFICER ) |
|
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION
1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002
In connection with the Quarterly
Report of Capital Art, Inc. (the “Registrant”) on Form 10-Q for the period ended June 30, 2015 as filed with
the Securities and Exchange Commission on the date hereof, I, Sean Goodchild, Chief Executive Officer, and David Morton, Chief Financial officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. Based on my knowledge, the Quarterly
Report on Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended,
and
2. The information contained in such Quarterly
Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations.
|
|
Dated: January 21, 2016 |
/s/ Sean Goodchild |
|
Sean Goodchild |
|
Chief Executive Officer |
|
|
Dated: January 21, 2016 |
/s/ David Morton |
|
David Morton |
|
Chief Financial Officer |
v3.3.1.900
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v3.3.1.900
Condensed Consolidated Balance Sheets - USD ($)
|
Jun. 30, 2015 |
Dec. 31, 2014 |
Current Assets: |
|
|
Cash |
$ 61,039
|
$ 340,523
|
Accounts receivable |
3,647
|
13,691
|
Inventory |
53,927
|
59,034
|
Stock subscription receivable |
0
|
300,000
|
Due from related parties |
109,430
|
93,316
|
Prepaid expenses and other |
109,696
|
9,613
|
Total current assets |
337,739
|
816,177
|
Archival images, and property and equipment, net |
3,220,766
|
3,341,552
|
Security deposits |
6,356
|
6,356
|
TOTAL ASSETS |
3,564,861
|
4,164,085
|
Current Liabilities: |
|
|
Accounts payable |
129,113
|
108,694
|
Accrued liabilities |
366,609
|
650,031
|
Due to related parties |
30,892
|
64,274
|
Short-term notes payable to related parties |
41,000
|
41,000
|
Total current liabilities |
567,614
|
863,999
|
Related party notes payable |
100,000
|
100,000
|
Total liabilities |
$ 667,614
|
$ 963,999
|
Commitments and contingencies |
|
|
Shareholders' equity: |
|
|
Preferred stock, $0.0001 par value; 50,000,000 shares authorized; none issued and outstanding at June 30, 2015 and December 31, 2014 |
$ 0
|
$ 0
|
Common stock, $0.0001 par value; 450,000,000 shares authorized; 324,988,283 and 311,973,283 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively |
32,499
|
31,197
|
Additional paid-in capital |
3,931,909
|
3,239,961
|
Common stock subscribed |
0
|
300,000
|
Retained deficit |
(1,067,161)
|
(371,072)
|
Total Shareholders' equity |
2,897,247
|
3,200,086
|
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |
$ 3,564,861
|
$ 4,164,085
|
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v3.3.1.900
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
|
Jun. 30, 2015 |
Dec. 31, 2014 |
Statement of Financial Position [Abstract] |
|
|
Preferred stock, par value |
$ 0.0001
|
$ .0001
|
Preferred stock, shares authorized |
50,000,000
|
50,000,000
|
Preferred stock, shares issued |
0
|
0
|
Preferred stock, shares outstanding |
0
|
0
|
Common stock, par value |
$ 0.0001
|
$ .0001
|
Common stock, shares authorized |
450,000,000
|
450,000,000
|
Common stock, shares issued |
324,988,283
|
311,973,283
|
Common stock, shares outstanding |
324,988,283
|
311,973,283
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X |
- DefinitionFace amount or stated value per share of common stock.
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v3.3.1.900
Condensed Consolidated Statements of Operations and Comprehensive Loss - USD ($)
|
3 Months Ended |
6 Months Ended |
Jun. 30, 2015 |
Jun. 30, 2014 |
Jun. 30, 2015 |
Jun. 30, 2014 |
Income Statement [Abstract] |
|
|
|
|
Revenues |
$ 35,040
|
$ 62,100
|
$ 376,282
|
$ 163,168
|
Cost of revenues |
42,378
|
41,993
|
116,276
|
81,070
|
Gross profit |
(7,338)
|
20,107
|
260,006
|
82,098
|
Operating expenses: |
|
|
|
|
Product development, sales and marketing |
197,131
|
5,900
|
350,206
|
15,462
|
General and administrative |
197,219
|
45,807
|
412,243
|
80,760
|
Depreciation and amortization expense |
94,406
|
18,138
|
187,606
|
35,405
|
Total operating expenses |
488,756
|
69,845
|
950,055
|
131,627
|
Loss from operations |
(496,094)
|
(49,738)
|
(690,049)
|
(49,529)
|
Other income (expense): |
|
|
|
|
Interest and other income |
4
|
0
|
660
|
0
|
Interest expense |
(1,830)
|
(1,886)
|
(6,700)
|
(2,672)
|
Total other income (expense) |
(1,826)
|
(1,886)
|
(6,040)
|
(2,672)
|
Net loss before income taxes |
(497,920)
|
(51,624)
|
(696,089)
|
(52,201)
|
Income taxes |
0
|
0
|
0
|
0
|
Net loss |
$ (497,920)
|
$ (51,624)
|
$ (696,089)
|
$ (52,201)
|
Basic and diluted loss per common share |
$ 0.00
|
$ 0.00
|
$ 0.00
|
$ 0.00
|
Weighted average basic and diluted shares outstanding |
322,010,151
|
256,400,226
|
320,383,974
|
256,400,226
|
X |
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v3.3.1.900
Condensed Consolidated Statement of Changes in Shareholders' Equity - USD ($)
|
Common Stock |
Additional Paid-In Capital |
Common Stock Subscribed |
Retained Earnings / Accumulated Deficit |
Total |
Beginning balance, shares at Dec. 31, 2013 |
256,400,226
|
|
|
|
|
Beginning balance, value at Dec. 31, 2013 |
$ 25,640
|
$ 466,865
|
$ 0
|
$ 9,255
|
$ 501,760
|
Net loss |
|
|
|
(52,201)
|
(52,201)
|
Ending balance, shares at Jun. 30, 2014 |
256,400,226
|
|
|
|
|
Ending balance, value at Jun. 30, 2014 |
$ 25,640
|
466,865
|
0
|
(42,946)
|
449,559
|
Beginning balance, shares at Dec. 31, 2013 |
256,400,226
|
|
|
|
|
Beginning balance, value at Dec. 31, 2013 |
$ 25,640
|
466,865
|
0
|
9,255
|
501,760
|
Ending balance, shares at Dec. 31, 2014 |
311,973,283
|
|
|
|
|
Ending balance, value at Dec. 31, 2014 |
$ 31,197
|
3,239,961
|
300,000
|
(371,072)
|
3,200,086
|
Common shares issued for services, shares |
2,470,000
|
|
|
|
|
Common shares issued for services, value |
$ 247
|
165,753
|
|
|
166,000
|
Common shares issued to related party for finder's fee, shares |
200,000
|
|
|
|
|
Common shares issued to related party for finder's fee, value |
$ 20
|
9,980
|
|
|
10,000
|
Common shares issued for settlement of accrued liabilities, shares |
2,525,000
|
|
|
|
|
Common shares issued for settlement of accrued liabilities, value |
$ 253
|
125,997
|
|
|
126,250
|
Common shares issued for cash, shares |
7,820,000
|
|
|
|
|
Common shares issued for cash, value |
$ 782
|
390,218
|
(300,000)
|
|
91,000
|
Net loss |
|
|
|
(696,089)
|
(696,089)
|
Ending balance, shares at Jun. 30, 2015 |
324,988,283
|
|
|
|
|
Ending balance, value at Jun. 30, 2015 |
$ 32,499
|
$ 3,931,909
|
$ 0
|
$ (1,067,161)
|
$ 2,897,247
|
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v3.3.1.900
Condensed Consolidated Statements of Cash Flows - USD ($)
|
6 Months Ended |
Jun. 30, 2015 |
Jun. 30, 2014 |
Cash flows from operating activities: |
|
|
Net loss |
$ (696,089)
|
$ (52,201)
|
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
|
|
Depreciation and amortization |
187,606
|
35,405
|
Stock-based compensation to non-employees |
176,000
|
0
|
Loss on sale of fixed assets |
2,942
|
0
|
Changes in assets and liabilities: |
|
|
Accounts receivable |
10,044
|
147
|
Inventory |
5,107
|
10,552
|
Prepaids and other |
(100,083)
|
1,515
|
Accounts payable |
20,419
|
(6,941)
|
Accrued liabilities |
(157,172)
|
15,687
|
Net cash (used in) provided by operating activities |
(551,226)
|
4,164
|
Cash flows from investing activities: |
|
|
Purchase of archival images, property and equipment |
(69,762)
|
(51,941)
|
Net cash used in investing activities |
(69,762)
|
(51,941)
|
Cash flows from financing activities: |
|
|
Short-term advances to related parties, net |
(49,496)
|
(2,992)
|
Proceeds from sale of common stock |
391,000
|
0
|
Net cash provided by (used in) financing activities |
341,504
|
27,008
|
Net decrease in cash |
(279,484)
|
(20,769)
|
Cash at beginning of year |
340,523
|
20,919
|
Cash at end of period |
61,039
|
150
|
SUPPLEMENTAL CASH FLOW INFORMATION: |
|
|
Cash paid for interest to related party |
5,480
|
2,027
|
Common shares issued for settlement of accrued liabilities |
$ 126,250
|
$ 0
|
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v3.3.1.900
1. Basis of Presentation and Significant Accounting Policies
|
6 Months Ended |
Jun. 30, 2015 |
Accounting Policies [Abstract] |
|
Basis of Presentation and Significant Accounting Policies |
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting
principles in the United States (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding
interim financial reporting. Certain information and note disclosures normally included in the consolidated financial statements
prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information
included in the condensed consolidated financial statements for the three and six months ended June 30, 2015 should be read in
conjunction with the consolidated financial statements and accompanying notes included in the Companys Form 10, as amended,
filed with the SEC pursuant to Rule 12(b) under the Securities Act of 1934.
The
condensed consolidated balance sheet as of December 31, 2014, included herein was derived from the audited financial statements
as of that date, but does not include all disclosures including notes required by GAAP.
The
accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present
fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative
of the results of operations to be anticipated for the full year ending December 31, 2015.
The
accompanying condensed consolidated financial statements represent the results of operations, financial position and cash flows
of Capital Art, Inc. (formerly Movie Star News, LLC), and its 100% owned subsidiary Capital Art, LLC for the three and six months
ended June 30, 2015. All inter-company balances and transactions have been eliminated.
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and also requires
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. Actual results could differ from those estimates.
Reverse
Merger
On
October 8, 2014, Capital Art, Inc. (CAPA) a Delaware Corporation and Capital Art, LLC, a California Limited Liability
Company and wholly owned subsidiary of Capital Art, Inc. (collectively CAPA or pre-merger CAPA), CAPA
entered into an Asset Purchase Agreement with Movie Star News, LLC. (MSN), a Nevada Limited Liability Company. The
Agreement was effectively a contract to merge the three companies to combine assets of rare images. Refer to the consolidated
financial statements and accompanying notes as of December 31, 2014.
The
following unaudited pro forma information is presented to reflect the operations of the Company as if the reverse merger had been
completed on January 1, 2015 and 2014, respectively:
| |
Three
Months Ended June
30, | | |
Six
Months Ended June
30, | |
(Unaudited) | |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
Supplement pro forma combined results of operations: | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Net sales | |
$ | 35,040 | | |
$ | 110,245 | | |
$ | 376,282 | | |
$ | 246,925 | |
Net loss | |
| (497,919 | ) | |
| (152,727 | ) | |
| (696,089 | ) | |
| (463,585 | ) |
Basic and diluted loss per common share | |
$ | | | |
$ | | | |
$ | | | |
$ | | |
Going
Concern
The
accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction
of liabilities and commitments in the normal course of business.
Management
evaluated all relevant conditions and events that are reasonably known or reasonably knowable, in the aggregate, as of the date
the condensed consolidated financial statements are issued and determined that substantial doubt exists about the Companys
ability to continue as a going concern. The Companys ability to continue as a going concern is dependent on the Companys
ability to generate revenues and raise capital. The Company has not generated sufficient revenues from product sales to provide
sufficient cash flows to enable the Company to finance its operations internally. As of June 30, 2015 the Company had $61,039
cash on hand. At June 30, 2015 the Company has a retained deficit of $1,067,161. For the six months ended June 30, 2015 the Company
had a net loss of $696,089 and cash used in operations of $551,226. These factors raise substantial doubt about the Companys
ability to continue as a going concern.
Over
the next twelve months the Company intends to invest its working capital resources in sales and marketing in order to increase
the distribution and demand for its products. If the Company fails to generate sufficient revenue and obtain additional capital
to continue at its expected level of operations, the Company may be forced to scale back or discontinue its sales and marketing
efforts. However, there is no guarantee the Company will generate sufficient revenues or raise capital to continue operations.
Inventory
The
Companys inventory is comprised of rare photos of movie stars and other famous people. Direct labor and raw material costs
associated with the process of making the photos available for sale are also included in inventory at cost. These costs are expensed
to cost of sales pro-ratably as sold.
Impairment
of Long-Lived Assets
Long-lived
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset
may not be recoverable. In such situations, long-lived assets are considered impaired when future undiscounted cash flows resulting
the use of the asset and its eventual disposition are less than the assets carrying amount. In such situations, the asset
is written down to the present value of the estimated future cash flows. Factors that are considered when evaluating long-lived
assets for impairment include a current expectation that it is more likely than not that the long-lived asset will be sold significantly
before the end of its useful life, a significant decrease in the market price of the long-lived asset, and a change in the extent
of manner in which the long-lived asset is being used. Based on managements assessment there were no impairments at June
30, 2015 and December 31, 2014.
Recent
Accounting Pronouncements
In
May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09 Revenues from Contracts
with Customers, which introduces a new five-step framework for revenue recognition. The core principle of the standard is that
entities should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration for which the entity expects to be entitled for those goods or services. The ASU also requires enhanced disclosures
regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from an entitys contracts with
customers. The standard, as amended in ASU No. 2015-14, is effective for annual reporting periods after December 15, 2017. Management
does not believe the adoption of ASU No. 2014-09 will have a material impact on the Companys consolidated financial statements.
In
August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial StatementsGoing Concern, (Subtopic 204-40), Disclosure
of Uncertainties about an Entitys Ability to Continue as a Going Concern. This ASU requires management to evaluate each
annual and interim reporting period, whether there are conditions or events, considered in the aggregate, that raise substantial
doubt about the entitys ability to continue as a going concern within one year after the date that the financial statements
are issued (or within one year after the date that the financial statements are available to be issued when applicable). ASU No.
2014-15 is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Management
does not believe the adoption of ASU No. 2014-15 will have a material effect on the consolidated financial statements.
In
July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. ASU No. 2015-11 clarifies that inventory
should be held at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling price, less
the estimated costs to complete, dispose and transport such inventory. ASU No. 2015-11 will be effective for fiscal years and
interim periods beginning after December 15, 2016. ASU No. 2015-11 is required to be applied prospectively and early adoption
is permitted. The Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements.
In
September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805), Simplifying the Accounting for MeasurementPeriod
Adjustments. The amendments in ASU No. 2015-16 require that an acquirer recognize adjustments to provisional amounts that are
identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments
in ASU No. 2015-16 require that an acquirer record, in the same periods financial statements, the effect on earnings of
changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts,
calculated as if the accounting had been completed at the acquisition date. The amendments in ASU No. 2015-16 require an entity
to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period
earnings by line item that would have been reported in previous reporting periods if the adjustment to the provisional amounts
had been recognized as of the acquisition date. ASU No. 2015-16 is effective for financial statements issued for annual periods
beginning after December 15, 2015, including interim periods within those fiscal years. Management does not believe the adoption
of ASU No. 2015-16 will have a material effect on the Companys consolidated financial statements
In
November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740), Balance Sheet Classification of Deferred Tax. ASU No.
2015-17 was issued by the FASB as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative).
Current GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in
a classified statement of financial position. To simplify the presentation of deferred income taxes, the amendments in ASU 2015-17
require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position.
The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented
as a single amount is not affected by the amendments of ASU 2015-17. ASU No, 2015-17 is effective for financial statements issued
for annual periods beginning after December 15, 2016. Management does not believe the adoption of ASU No. 2015-17 will have a
material effect on the Companys consolidated financial statements.
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v3.3.1.900
2. Basic and Diluted Income and Loss Per Share
|
6 Months Ended |
Jun. 30, 2015 |
Earnings Per Share [Abstract] |
|
Basic and Diluted Income and Loss Per Share |
The
Company computes income and loss per share in accordance with ASC 260 - Earnings per Share. ASC 260 requires presentation of both
basic and diluted earnings per share (EPS) on the face of the condensed consolidated statements of operations. Basic
EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares
outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during
the period using the treasury stock method and convertible preferred stock using the if-converted method. Diluted EPS excludes
all dilutive potential shares if their effect is antidilutive. During periods of net loss, all common stock equivalents are excluded
from the diluted EPS calculation because they are antidilutive.
A
reconciliation of weighted-average basic shares outstanding to weighted-average diluted shares outstanding follows:
| |
Three Months Ended
June 30, | | |
Six Months Ended
June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Basic weighted average common
shares outstanding | |
| 322,010,151 | | |
| 256,400,226 | | |
| 320,383,974 | | |
| 256,400,226 | |
| |
| | | |
| | | |
| | | |
| | |
Effect of dilutive securities | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Diluted
weighted average common and potential common shares outstanding | |
| 322,010,151 | | |
| 256,400,226 | | |
| 320,383,974 | | |
| 256,400,226 | |
The
Company is required to reserve and keep available of its authorized, but unissued shares of common stock an amount sufficient
to effect shares due in connection with the Stock Purchase Agreement and Stock-Based Compensation to Non-Employees. As of June
30, 2015, shares reserved for future issuance comprised of the following:
| |
Shares | |
| |
Reserved | |
Shares to be issued to consultants | |
| 340,000 | |
Shares to be issued to Frank Worth Estate | |
| 200,000 | |
| |
| 540,000 | |
These
shares were excluded from the calculation of diluted earnings per share as their effect was anti-dilutive.
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v3.3.1.900
3. Archival Images, and Property and Equipment
|
6 Months Ended |
Jun. 30, 2015 |
Property, Plant and Equipment [Abstract] |
|
Archival Images, and Property and Equipment |
Archival
images, and property and equipment as of June 30, 2015 and December 31, 2014 comprise of the following:
| |
June 30, | | |
December 31, | | |
Estimated | |
| |
2015 | | |
2014 | | |
Useful Lives | |
Frank Worth Collection | |
$ | 2,770,000 | | |
$ | 2,770,000 | | |
| 10
years | |
Other archival images | |
| 707,051 | | |
| 676,215 | | |
| 10
years | |
Leasehold improvements | |
| 12,446 | | |
| 12,446 | | |
| 7
years | |
Computer and other equipment | |
| 48,350 | | |
| 40,204 | | |
| 3
5 years | |
Furniture and fixtures | |
| 83,666 | | |
| 56,416 | | |
| 7
years | |
| |
| 3,621,513 | | |
| 3,555,281 | | |
| | |
Less accumulated deprecation | |
| (400,747 | ) | |
| (213,729 | ) | |
| | |
Total archival images, property and equipment,
net | |
$ | 3,220,766 | | |
$ | 3,341,552 | | |
| | |
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v3.3.1.900
4. Frank Worth Collection
|
6 Months Ended |
Jun. 30, 2015 |
Investments, All Other Investments [Abstract] |
|
Frank Worth Collection |
On
November 12, 2014, the Frank Worth Estate agreed to accept $155,000 and 200,000 common shares, with a fair value of $0.05 per
share ($10,000), of the Companys common stock 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 Worths
name, likeness, publications and biography plus merchandising and selling rights. $30,000 due under the agreement for royalties
was paid in January 2015. The remainder of $125,000 and 200,000 ($10,000) shares of common stock were due and payable on or before
May 31, 2015, which is being held by the Company until a dispute between the Estate and an unrelated party of the Company is settled.
The Company has no involvement in the dispute.
|
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- DefinitionThe entire disclosure for investments accounted for under the cost-method. The carrying amount of such investments may be adjusted, for example, distributions in excess of cost (return of capital) or for other-than-temporary impairments. The cost method and lower-of-cost or market, an adaptation of the cost method, is generally followed for most investments in noncontrolled corporations, in some corporate joint ventures, and to a lesser extent in unconsolidated subsidiaries in which the entity does not have the ability to exercise significant influence.
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v3.3.1.900
5. Accrued Liabilities
|
6 Months Ended |
Jun. 30, 2015 |
Payables and Accruals [Abstract] |
|
Accrued Liabilities |
Accrued
liabilities at June 30, 2015 and December 31, 2014 comprise of the following:
| |
June 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
Accrued payroll and related | |
$ | 17,441 | | |
$ | 8,242 | |
Accrued management fee due to related party | |
| 5,781 | | |
| 5,781 | |
Due to Frank Worth Estate | |
| 135,000 | | |
| 135,000 | |
Interest payable to related parties | |
| 2,381 | | |
| 748 | |
Accrued royalties due to Frank Worth Estate | |
| | | |
| 30,000 | |
Stock-based compensation due to non-employees | |
| 102,000 | | |
| 126,250 | |
Fair value of limited edition prints due to consultant | |
| | | |
| 250,000 | |
Contingent liability for taxes assumed in reverse merger | |
| 91,000 | | |
| 91,000 | |
Other | |
| 13,006 | | |
| 3,010 | |
Total accrued liabilities | |
$ | 366,609 | | |
$ | 650,031 | |
On
August 15, 2014, pre-merger CAPA entered into a four-month agreement for strategic management services with a consultant. In connection
with the agreement, the consultant is to receive compensation of 5,500,000 shares of the Companys common stock (See Note
8 Shareholders Equity) and limited edition photographs for aggregate retail fair value of $250,000. The Company
evaluated the transaction under the guidance in ASC 845-Nonmonetary Transactions. ASC 845 requires fair value of nonmonetary exchanges
be recorded based on fair value inherent in the transaction. The Company determined the aggregate retail fair value of the prints
totaling $250,000 represented the fair value of the reciprocal transfer between the Company and the consultant. The prints were
earned upon execution of the agreement, and were delivered in March 2015, and included in revenues in the Companys unaudited
condensed consolidated statement of operations as of June 30, 2015.
In
connection with the reverse merger on October 8, 2014, the Company determined a liability contingency for income taxes existed
as of the merger date. The liability is to be reimbursed by a related party of pre-merger CAPA. This contingency has been accounted
in accordance with ASC 805, which states that a liability from a contingency recognized as of the acquisition date is in the scope
of ASC 450 Contingencies, is not acquired or assumed in a business combination, shall continue to be recognized by the
acquirer at its acquisition-date fair value. As of June 30, 2015 and December 31, 2014, contingent liability for income taxes
totaled $91,000 which has been accounted for in accrued liabilities and due from related party.
|
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- DefinitionThe entire disclosure for accounts payable and accrued liabilities at the end of the reporting period.
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v3.3.1.900
6. Notes Payable to Related Parties
|
6 Months Ended |
Jun. 30, 2015 |
Notes to Financial Statements |
|
Notes Payable to Related Parties |
On
August 1, 2013 the Company entered into an unsecured promissory note agreement with related party Dino Satallante for $100,000.
The loan bears interest at 5%. The loan matured on July 14, 2014 and was extended to July 31, 2016. As of June 30, 2015 and December
31, 2014, $100,000 was outstanding under the unsecured promissory note agreement. Interest expense for the three and six months
ended June 30, 2015 was $1,225 and $2,485, respectively. For the three and six months ended June 30, 2014 interest expense was
$1,241 and $2,027, respectively.
Effective
September 11, 2014 the Company entered into two separate unsecured promissory note agreements for $20,500 each with two related
parties, Dreamstar and Dino Satallante, both beneficial interest shareholders of the Company, for working capital purposes. The
loans bear interest at 6% per annum. The loans mature on September 10, 2015, and were extended to December 31, 2016. See Note
10 Subsequent Events. As of June 30, 2015, $20,500 and $20,500 was outstanding to Dino Satallante and Dreamstar, respectively.
Total interest expense in connection with the two unsecured promissory note agreements for the three and six months ended June
30, 2015 was $605 and $1,220, respectively.
As
of June 30, 2015 and December 31, 2014, interest payable in connection with the unsecured promissory note agreements with related
parties was $2,381 and $748, respectively, and is included in accrued liabilities in the Companys condensed consolidated
balance sheets.
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v3.3.1.900
7. Related Party Transactions
|
6 Months Ended |
Jun. 30, 2015 |
Related Party Transactions [Abstract] |
|
Related Party Transactions |
Due
From/To Related Parties
The
following table summarizes amounts due to the Company from related parties for funds advanced by the Company on behalf of related
parties and funds advanced from related parties for short-term working capital purposes as of June 30, 2015 and December 31, 2014.
These amounts have been included in the condensed consolidated balance sheets as current assets due from related parties and current
liabilities due to related parties, respectively, and are due on demand.
| |
June 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
Due from related parties: | |
| | | |
| | |
Dino Satallante, beneficial interest shareholder | |
$ | 1,350 | | |
$ | 1,350 | |
ICONZ Art, LLC, beneficial interest shareholder | |
| 13,735 | | |
| | |
Sam Battistone, beneficial interest shareholder | |
| 966 | | |
| 966 | |
Stuart Scheinman, President
of the Company and beneficial interest shareholder | |
| 2,379 | | |
| | |
Klaus
Moeller, related party of pre-merger CAPA and beneficial interest shareholder | |
| 91,000 | | |
| 91,000 | |
Total due from related
parties | |
$ | 109,430 | | |
$ | 93,316 | |
| |
| | | |
| | |
Due to related parties: | |
| | | |
| | |
ICONZ Art, LLC, beneficial interest shareholder | |
$ | 2,014 | | |
$ | 2,014 | |
Klaus Moeller, related party of pre-merger CAPA | |
| 521 | | |
| 4,562 | |
MSN Holding Co., beneficial interest shareholder | |
| 28,272 | | |
| 28,272 | |
Premier Collectibles, beneficial interest shareholder | |
| 85 | | |
| 85 | |
Stuart
Scheinman, President of the Company and beneficial interest shareholder | |
| | | |
| 29,341 | |
Total due to related
parties | |
$ | 30,892 | | |
$ | 64,274 | |
|
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v3.3.1.900
8. Shareholders' Equity
|
6 Months Ended |
Jun. 30, 2015 |
Equity [Abstract] |
|
Shareholders' Equity |
Preferred
Stock
The
Company is authorized to issue up to 50,000,000 shares of preferred stock authorized with a par value of $0.0001. The Board of
Directors is authorized, subject to any limitations prescribed by law, without further vote or action by the Companys 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 the board of directors, which may include, among others, dividend rights, voting rights, liquidation preferences, and conversion
rights. As of June 30, 2015, there were no shares of Preferred Stock issued and outstanding.
Stock
Purchase Agreement
On
August 14, 2014 pre-merger CAPA entered into a Stock Purchase Agreement with an investor for sale of 20,000,000 of the Companys
common stock at $0.05 per share, for total of $1,000,000 payable in installments in August 2014 through December 31, 2014. As
of December 31, 2014, 6,000,000 ($300,000) common shares remained outstanding under the terms of the agreement, which has been
included in the condensed consolidated balance sheets in current assets stock subscription receivable and equity
common stock subscribed. As of June 30, 2015, $300,000 was received in connection with the outstanding stock subscription receivable
for 6,000,000 shares.
Private
Placement
In
March 2015, the former president of pre-merger CAPA closed a private placement comprising of individuals related to the former
president for 1,820,000 shares of common stock at a $0.05 per share for aggregate proceeds of $91,000.
In
connection with the private placement, the former president received 200,000 shares of the Companys common stock in lieu
of cash for payment of finders fee total stock-based compensation of $10,000 based on fair value of the Companys
common stock of $0.05 per share.
Stock-based
and Other Compensation to Non-Employees
On
February 1, 2014, pre-merger CAPA executed a consulting agreement for services. The agreement specifies issuance of 500,000 shares
of common stock at execution of the agreement and 3,500,000 shares upon introduction of a strategic business partner. As of December
31, 2014 875,000 shares of common stock with a fair value of $43,750 were unissued and included in accrued liabilities in the
Companys condensed consolidated balance sheets. The shares were issued as of June 30, 2015.
On
August 15, 2014, pre-merger CAPA entered into a four-month agreement for strategic management services with a consultant. In connection
with the agreement, the consultant is to receive compensation of 5,500,000 shares of the Companys common stock payable
in four equal installments. As of December 31, 2014, 1,650,000 shares of common stock with a fair value of $82,500 were unissued
and included in accrued liabilities in the Companys condensed consolidated balance sheets. The shares were issued as of
June 30, 2015.
On
January 1, 2015 the Company entered in a 12-month agreement for non-exclusive investment banking advisory services for total consideration
of 2,000,000 shares of the Companys common stock. The shares are payable within 14 days of the effective date of the agreement
and deemed earned in full upon execution of the agreement. The shares were issued in May 2015 in connection with the agreement
with a fair value determined by the Company of $0.05 per share, for total $100,000. The agreement may be renewed for an additional
12-month term whereby the Company at its discretion shall pay the investment banking advisor $400,000 cash or an equivalent amount
in the Companys common stock based upon the thirty day volume weighted average price for thirty trading days prior to renewal.
On
January 2, 2015 the Company entered into a fixed price agreement with a consultant for website development services for total
contract price of $193,000 payable in cash of $40,000 and 510,000 shares of the Companys common stock with a stated fair
value of $0.30 per share. As of June 30, 2015, 170,000 shares of common stock with fair value of $51,000 were issued. 340,000
shares of common stock were unissued for $102,000 which is included in accrued liabilities in the unaudited condensed consolidated
balance sheets. See Note 5 Accrued Liabilities.
On
June 9, 2015 the Company entered into a management consulting agreement for total monthly compensation of $17,500. In addition,
the consultant received 300,000 shares of common stock at fair value of $0.05 per share, for total $15,000.
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v3.3.1.900
9. Concentrations of Credit Risk and Financial Instruments
|
6 Months Ended |
Jun. 30, 2015 |
Risks and Uncertainties [Abstract] |
|
Concentrations of Credit Risk and Financial Instruments |
Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable.
The
Companys cash balances are placed at financial institutions, which at times, may exceed federally insured limits. Generally,
these deposits may be redeemed upon demand and, therefore, bear minimal risk. The Company has not experienced any losses in such
accounts and believes it is not exposed to any significant risk on cash.
On
August 15, 2014, pre-merger CAPA entered into a four-month agreement for strategic management services with a consultant. In connection
with the agreement, the consultant is to receive compensation limited edition photographs for aggregate retail fair value of $250,000.
The Company evaluated the transaction under the guidance in ASC 845-Nonmonetary Transactions. ASC 845 requires fair value of nonmonetary
exchanges be recorded based on fair value inherent in the transaction. The Company determined the aggregate retail fair value
of the prints totaling $250,000 represented the fair value of the reciprocal transfer between the Company and the consultant.
See Note 5 Accrued Liabilities. The Company delivered the limited edition prints to the consultant in March 2015, which
accounted for 66% of total revenues for the six months ended June 30, 2015. No other distributor or customer accounted for over
10% of total revenues for the three and six months ended June 30, 2015 and 2014.
On
May 11, 2015 the Company entered into an exclusive marketing agreement with a distributor to distribute the Companys vintage
original fine art prints to fine art dealers and collector auction houses, as well as private third party collectors. Under the
terms of the agreement the distributor is to receive 50% of the gross receipts from sales generated by the distributor.
As
of June 30, 2015, and December 31, 2014, accounts receivable balances were not material to the Companys condensed consolidated
financial statements. There is significant financial risk associated with a dependence upon a small number of distributors and
customers which could have an adverse effect on the Companys future consolidated financial statements if these distributors
were to leave. The Companys intends to continue its investment in sales and marketing in order to increase distribution
and demand for its products and adding content to its product lines, along with adding additional channels of distribution.
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v3.3.1.900
10. Subsequent Events
|
6 Months Ended |
Jun. 30, 2015 |
Subsequent Events [Abstract] |
|
Subsequent Events |
Management
has evaluated subsequent events, as defined by ASC 855, Subsequent Events, through the date on which the financial statements
were available to be issued.
Asset
Purchase Agreement
On
July 22, 2015, the Company entered into an Asset Purchase Agreement with Globe Photos, Inc. (Globe), a New York
corporation, for purchase of substantially all of the assets, which principally comprises of photographer contracts granting the
Company the right to exploit copyrights, digital and tangible photographs, and related copyrights and trademarks, of Globe Photo
for total purchase price of $400,000 payable in $250,000 cash and $150,000 common stock of the Company.
Per
the agreement, $180,000 in cash shall be held in reserve by the Company against Globes full performance and compliance
with all terms of the agreement. This amount is to be released to Globe at the rate of $10,000 per month beginning August 22,
2015.
The
Common stock is to be transferred to Globe sixty (60) days after closing subject to satisfaction of successful termination of
certain subagent agreements by Globe. The seller retained these certain subagent agreements, but was not able to successfully
terminate these agreements. As such, the amount payable in common stock of the Company was reduced by $30,000, thereby reducing
the total purchase price of the assets acquired from $400,000 to $370,000. Under the terms of the Agreement the Company issued
352,941 shares of its common stock based on the closing price of the Companys common shares as traded on the OTC market
on the measurement date July 22, 2015 of $0.34 per share for total of $120,000.
The
Company evaluated the Asset Purchase Agreement in accordance with ASC 805 Business Combinations which notes the threshold
requirements of a business combination that includes the expanded definition of a business and defines elements
that are to be present to be determined whether an acquisition of a business occurred. No activities of Globe were
acquired. Instead, the Company obtained control of a set of inputs (the acquired assets). Thus the Company determined agreement
is an acquisition of assets, not an acquisition of a business in accordance with ASC 805.
As
a form of liquidity protection, Globe shall have limited put options in connection with the common stock beginning eighteen (18)
months after the closing date, whereas the Company shall have up to fifteen (15) successive monthly options, with no less than
thirty (30) days notice for each, which requires the Company to repurchase from Globe up to 1/15th of the shares of
common stock in Globes possession that were granted in connection with the agreement, at a price per share equity to the
market price per share ($0.34) on the effective date of the original share transfer to Globe. The exercise of any put option is
not conditioned upon exercise of any prior put option.
Note
Payable
On
September 28, 2015, the Company entered into an unsecured promissory note agreement for working capital purposes with an unrelated
party for total proceeds of $150,000. The note matures on September 28, 2016. Interest accrues at the rate of 10% per annum and
is payable monthly beginning October 28, 2016.
Notes
Payable to Related Parties
Effective
July 21, 2015, the Company entered into a promissory note agreement with related party Dino Satallante, a beneficial interest
shareholder of the Company, for total proceeds of $160,000. The Company utilized $80,000 of the proceeds for payments due in connection
with the Globe Photo assets acquired. The remainder of the proceeds was used for working capital purposes. The note matures on
July 20, 2016, with monthly interest only payments commencing beginning August 20, 2015 at the rate of 12% per annum. The note
is secured by the Globe Photo Assets. Per the terms of the agreement the Company incurred loan fees totaling $8,000 to be amortized
over the term of the loan.
Effective
September 11, 2014 the Company entered into two separate unsecured promissory note agreements for $20,500 each with two related
parties, Dreamstar and Dino Satallante, both beneficial interest shareholders of the Company, for working capital purposes. The
loans matured on September 10, 2015, and were extended to December 31, 2016.
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- DefinitionThe entire disclosure for significant events or transactions that occurred after the balance sheet date through the date the financial statements were issued or the date the financial statements were available to be issued. Examples include: the sale of a capital stock issue, purchase of a business, settlement of litigation, catastrophic loss, significant foreign exchange rate changes, loans to insiders or affiliates, and transactions not in the ordinary course of business.
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v3.3.1.900
1. Basis of Presentation and Significant Accounting Policies (Policies)
|
6 Months Ended |
Jun. 30, 2015 |
Accounting Policies [Abstract] |
|
Basis of Presentation |
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting
principles in the United States (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding
interim financial reporting. Certain information and note disclosures normally included in the consolidated financial statements
prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information
included in the condensed consolidated financial statements for the three and six months ended June 30, 2015 should be read in
conjunction with the consolidated financial statements and accompanying notes included in the Companys Form 10, as amended,
filed with the SEC pursuant to Rule 12(b) under the Securities Act of 1934.
The
condensed consolidated balance sheet as of December 31, 2014, included herein was derived from the audited financial statements
as of that date, but does not include all disclosures including notes required by GAAP.
The
accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present
fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative
of the results of operations to be anticipated for the full year ending December 31, 2015.
The
accompanying condensed consolidated financial statements represent the results of operations, financial position and cash flows
of Capital Art, Inc. (formerly Movie Star News, LLC), and its 100% owned subsidiary Capital Art, LLC for the three and six months
ended June 30, 2015. All inter-company balances and transactions have been eliminated.
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and also requires
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. Actual results could differ from those estimates.
|
Reverse Merger |
Reverse
Merger
On
October 8, 2014, Capital Art, Inc. (CAPA) a Delaware Corporation and Capital Art, LLC, a California Limited Liability
Company and wholly owned subsidiary of Capital Art, Inc. (collectively CAPA or pre-merger CAPA), CAPA
entered into an Asset Purchase Agreement with Movie Star News, LLC. (MSN), a Nevada Limited Liability Company. The
Agreement was effectively a contract to merge the three companies to combine assets of rare images. Refer to the consolidated
financial statements and accompanying notes as of December 31, 2014.
The
following unaudited pro forma information is presented to reflect the operations of the Company as if the reverse merger had been
completed on January 1, 2015 and 2014, respectively:
| |
Three
Months Ended June
30, | | |
Six
Months Ended June
30, | |
(Unaudited) | |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
Supplement pro forma combined results of operations: | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Net sales | |
$ | 35,040 | | |
$ | 110,245 | | |
$ | 376,282 | | |
$ | 246,925 | |
Net loss | |
| (497,919 | ) | |
| (152,727 | ) | |
| (696,089 | ) | |
| (463,585 | ) |
Basic and diluted loss per common share | |
$ | | | |
$ | | | |
$ | | | |
$ | | |
|
Going Concern |
Going
Concern
The
accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction
of liabilities and commitments in the normal course of business.
Management
evaluated all relevant conditions and events that are reasonably known or reasonably knowable, in the aggregate, as of the date
the condensed consolidated financial statements are issued and determined that substantial doubt exists about the Companys
ability to continue as a going concern. The Companys ability to continue as a going concern is dependent on the Companys
ability to generate revenues and raise capital. The Company has not generated sufficient revenues from product sales to provide
sufficient cash flows to enable the Company to finance its operations internally. As of June 30, 2015 the Company had $61,039
cash on hand. At June 30, 2015 the Company has a retained deficit of $1,067,161. For the six months ended June 30, 2015 the Company
had a net loss of $696,089 and cash used in operations of $551,226. These factors raise substantial doubt about the Companys
ability to continue as a going concern.
Over
the next twelve months the Company intends to invest its working capital resources in sales and marketing in order to increase
the distribution and demand for its products. If the Company fails to generate sufficient revenue and obtain additional capital
to continue at its expected level of operations, the Company may be forced to scale back or discontinue its sales and marketing
efforts. However, there is no guarantee the Company will generate sufficient revenues or raise capital to continue operations.
|
Inventory |
Inventory
The
Companys inventory is comprised of rare photos of movie stars and other famous people. Direct labor and raw material costs
associated with the process of making the photos available for sale are also included in inventory at cost. These costs are expensed
to cost of sales pro-ratably as sold.
|
Impairment of Long-Lived Assets |
Impairment
of Long-Lived Assets
Long-lived
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset
may not be recoverable. In such situations, long-lived assets are considered impaired when future undiscounted cash flows resulting
the use of the asset and its eventual disposition are less than the assets carrying amount. In such situations, the asset
is written down to the present value of the estimated future cash flows. Factors that are considered when evaluating long-lived
assets for impairment include a current expectation that it is more likely than not that the long-lived asset will be sold significantly
before the end of its useful life, a significant decrease in the market price of the long-lived asset, and a change in the extent
of manner in which the long-lived asset is being used. Based on managements assessment there were no impairments at June
30, 2015 and December 31, 2014.
|
Recent Accounting Pronouncements |
Recent
Accounting Pronouncements
In
May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09 Revenues from Contracts
with Customers, which introduces a new five-step framework for revenue recognition. The core principle of the standard is that
entities should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration for which the entity expects to be entitled for those goods or services. The ASU also requires enhanced disclosures
regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from an entitys contracts with
customers. The standard, as amended in ASU No. 2015-14, is effective for annual reporting periods after December 15, 2017. Management
does not believe the adoption of ASU No. 2014-09 will have a material impact on the Companys consolidated financial statements.
In
August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial StatementsGoing Concern, (Subtopic 204-40), Disclosure
of Uncertainties about an Entitys Ability to Continue as a Going Concern. This ASU requires management to evaluate each
annual and interim reporting period, whether there are conditions or events, considered in the aggregate, that raise substantial
doubt about the entitys ability to continue as a going concern within one year after the date that the financial statements
are issued (or within one year after the date that the financial statements are available to be issued when applicable). ASU No.
2014-15 is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Management
does not believe the adoption of ASU No. 2014-15 will have a material effect on the consolidated financial statements.
In
July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. ASU No. 2015-11 clarifies that inventory
should be held at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling price, less
the estimated costs to complete, dispose and transport such inventory. ASU No. 2015-11 will be effective for fiscal years and
interim periods beginning after December 15, 2016. ASU No. 2015-11 is required to be applied prospectively and early adoption
is permitted. The Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements.
In
September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805), Simplifying the Accounting for MeasurementPeriod
Adjustments. The amendments in ASU No. 2015-16 require that an acquirer recognize adjustments to provisional amounts that are
identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments
in ASU No. 2015-16 require that an acquirer record, in the same periods financial statements, the effect on earnings of
changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts,
calculated as if the accounting had been completed at the acquisition date. The amendments in ASU No. 2015-16 require an entity
to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period
earnings by line item that would have been reported in previous reporting periods if the adjustment to the provisional amounts
had been recognized as of the acquisition date. ASU No. 2015-16 is effective for financial statements issued for annual periods
beginning after December 15, 2015, including interim periods within those fiscal years. Management does not believe the adoption
of ASU No. 2015-16 will have a material effect on the Companys consolidated financial statements
In
November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740), Balance Sheet Classification of Deferred Tax. ASU No.
2015-17 was issued by the FASB as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative).
Current GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in
a classified statement of financial position. To simplify the presentation of deferred income taxes, the amendments in ASU 2015-17
require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position.
The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented
as a single amount is not affected by the amendments of ASU 2015-17. ASU No, 2015-17 is effective for financial statements issued
for annual periods beginning after December 15, 2016. Management does not believe the adoption of ASU No. 2015-17 will have a
material effect on the Companys consolidated financial statements.
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v3.3.1.900
1. Basis of Presentation and Significant Accounting Policies (Tables)
|
6 Months Ended |
Jun. 30, 2015 |
Accounting Policies [Abstract] |
|
Pro forma information |
| |
Three
Months Ended June
30, | | |
Six
Months Ended June
30, | |
(Unaudited) | |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
Supplement pro forma combined results of operations: | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Net sales | |
$ | 35,040 | | |
$ | 110,245 | | |
$ | 376,282 | | |
$ | 246,925 | |
Net loss | |
| (497,919 | ) | |
| (152,727 | ) | |
| (696,089 | ) | |
| (463,585 | ) |
Basic and diluted loss per common share | |
$ | | | |
$ | | | |
$ | | | |
$ | | |
|
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v3.3.1.900
2. Basic and Diluted Income and Loss Per Share (Tables)
|
6 Months Ended |
Jun. 30, 2015 |
Earnings Per Share [Abstract] |
|
Schedule of weighted average shares outstanding |
| |
Three Months Ended
June 30, | | |
Six Months Ended
June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Basic weighted average common
shares outstanding | |
| 322,010,151 | | |
| 256,400,226 | | |
| 320,383,974 | | |
| 256,400,226 | |
| |
| | | |
| | | |
| | | |
| | |
Effect of dilutive securities | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Diluted
weighted average common and potential common shares outstanding | |
| 322,010,151 | | |
| 256,400,226 | | |
| 320,383,974 | | |
| 256,400,226 | |
|
Schedule of shares reserved for future issuance |
| |
Shares | |
| |
Reserved | |
Shares to be issued to consultants | |
| 340,000 | |
Shares to be issued to Frank Worth Estate | |
| 200,000 | |
| |
| 540,000 | |
|
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v3.3.1.900
3. Archival Images, and Property and Equipment (Tables)
|
6 Months Ended |
Jun. 30, 2015 |
Property, Plant and Equipment [Abstract] |
|
Schedule of archival images, property and equipment |
| |
June 30, | | |
December 31, | | |
Estimated | |
| |
2015 | | |
2014 | | |
Useful Lives | |
Frank Worth Collection | |
$ | 2,770,000 | | |
$ | 2,770,000 | | |
| 10
years | |
Other archival images | |
| 707,051 | | |
| 676,215 | | |
| 10
years | |
Leasehold improvements | |
| 12,446 | | |
| 12,446 | | |
| 7
years | |
Computer and other equipment | |
| 48,350 | | |
| 40,204 | | |
| 3
5 years | |
Furniture and fixtures | |
| 83,666 | | |
| 56,416 | | |
| 7
years | |
| |
| 3,621,513 | | |
| 3,555,281 | | |
| | |
Less accumulated deprecation | |
| (400,747 | ) | |
| (213,729 | ) | |
| | |
Total archival images, property and equipment,
net | |
$ | 3,220,766 | | |
$ | 3,341,552 | | |
| | |
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5. Accrued Liabilities (Tables)
|
6 Months Ended |
Jun. 30, 2015 |
Payables and Accruals [Abstract] |
|
Schedule of accrued liabilties |
| |
June 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
Accrued payroll and related | |
$ | 17,441 | | |
$ | 8,242 | |
Accrued management fee due to related party | |
| 5,781 | | |
| 5,781 | |
Due to Frank Worth Estate | |
| 135,000 | | |
| 135,000 | |
Interest payable to related parties | |
| 2,381 | | |
| 748 | |
Accrued royalties due to Frank Worth Estate | |
| | | |
| 30,000 | |
Stock-based compensation due to non-employees | |
| 102,000 | | |
| 126,250 | |
Fair value of limited edition prints due to consultant | |
| | | |
| 250,000 | |
Contingent liability for taxes assumed in reverse merger | |
| 91,000 | | |
| 91,000 | |
Other | |
| 13,006 | | |
| 3,010 | |
Total accrued liabilities | |
$ | 366,609 | | |
$ | 650,031 | |
|
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7. Related Party Transactions (Tables)
|
6 Months Ended |
Jun. 30, 2015 |
Related Party Transactions [Abstract] |
|
Schedule of related party transactions |
| |
June 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
Due from related parties: | |
| | | |
| | |
Dino Satallante, beneficial interest shareholder | |
$ | 1,350 | | |
$ | 1,350 | |
ICONZ Art, LLC, beneficial interest shareholder | |
| 13,735 | | |
| | |
Sam Battistone, beneficial interest shareholder | |
| 966 | | |
| 966 | |
Stuart Scheinman, President
of the Company and beneficial interest shareholder | |
| 2,379 | | |
| | |
Klaus
Moeller, related party of pre-merger CAPA and beneficial interest shareholder | |
| 91,000 | | |
| 91,000 | |
Total due from related
parties | |
$ | 109,430 | | |
$ | 93,316 | |
| |
| | | |
| | |
Due to related parties: | |
| | | |
| | |
ICONZ Art, LLC, beneficial interest shareholder | |
$ | 2,014 | | |
$ | 2,014 | |
Klaus Moeller, related party of pre-merger CAPA | |
| 521 | | |
| 4,562 | |
MSN Holding Co., beneficial interest shareholder | |
| 28,272 | | |
| 28,272 | |
Premier Collectibles, beneficial interest shareholder | |
| 85 | | |
| 85 | |
Stuart
Scheinman, President of the Company and beneficial interest shareholder | |
| | | |
| 29,341 | |
Total due to related
parties | |
$ | 30,892 | | |
$ | 64,274 | |
|
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1. Basis of Presentation (Details) - USD ($)
|
3 Months Ended |
6 Months Ended |
Jun. 30, 2015 |
Jun. 30, 2014 |
Jun. 30, 2015 |
Jun. 30, 2014 |
Business Acquisition, Pro Forma Information [Abstract] |
|
|
|
|
Pro forma net sales |
$ 35,040
|
$ 110,245
|
$ 376,282
|
$ 246,925
|
Pro forma net loss |
$ (497,919)
|
$ (152,727)
|
$ (696,089)
|
$ (463,585)
|
Pro forma basic and diluted loss per common share |
$ 0.00
|
$ 0.00
|
$ 0.00
|
$ 0.00
|
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|
3 Months Ended |
6 Months Ended |
|
|
Jun. 30, 2015 |
Jun. 30, 2014 |
Jun. 30, 2015 |
Jun. 30, 2014 |
Dec. 31, 2014 |
Dec. 31, 2013 |
Accounting Policies [Abstract] |
|
|
|
|
|
|
Cash |
$ 61,039
|
$ 150
|
$ 61,039
|
$ 150
|
$ 340,523
|
$ 20,919
|
Retained deficit |
(1,067,161)
|
|
(1,067,161)
|
|
$ (371,072)
|
|
Net loss |
$ (497,920)
|
$ (51,624)
|
(696,089)
|
(52,201)
|
|
|
Cash used in operations |
|
|
$ (551,226)
|
$ 4,164
|
|
|
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2. Basic and Diluted Income and Loss Per Share (Details - shares) - shares
|
3 Months Ended |
6 Months Ended |
Jun. 30, 2015 |
Jun. 30, 2014 |
Jun. 30, 2015 |
Jun. 30, 2014 |
Accounting Policies [Abstract] |
|
|
|
|
Basic weighed average common shares outstanding |
322,010,151
|
256,400,226
|
320,383,974
|
256,400,226
|
Effect of dilutive securities |
0
|
0
|
0
|
0
|
Diluted weighted average common and potential common shares outstanding |
322,010,151
|
256,400,226
|
320,383,974
|
256,400,226
|
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v3.3.1.900
3. Archival Images, and Property and Equipment (Details) - USD ($)
|
6 Months Ended |
|
Jun. 30, 2015 |
Dec. 31, 2014 |
Property and equipment gross |
$ 3,621,513
|
$ 3,555,281
|
Less accumulated deprecation |
(400,747)
|
(213,729)
|
Total archival images, property and equipment, net |
3,220,766
|
3,341,552
|
Leasehold Improvements |
|
|
Property and equipment gross |
$ 12,446
|
12,446
|
Estimated useful lives |
7 years
|
|
Computer and other equipment |
|
|
Property and equipment gross |
$ 48,350
|
40,204
|
Estimated useful lives |
3-5 years
|
|
Furniture and fixtures |
|
|
Property and equipment gross |
$ 83,666
|
56,416
|
Estimated useful lives |
7 years
|
|
Frank Worth Collection |
|
|
Property and equipment gross |
$ 2,770,000
|
2,770,000
|
Estimated useful lives |
10 years
|
|
Other archival images |
|
|
Property and equipment gross |
$ 707,051
|
$ 676,215
|
Estimated useful lives |
10 years
|
|
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v3.3.1.900
5. Accrued Liabilities (Details) - USD ($)
|
Jun. 30, 2015 |
Dec. 31, 2014 |
Payables and Accruals [Abstract] |
|
|
Accrued payroll and related |
$ 17,441
|
$ 8,242
|
Accrued management fee due to related party |
5,781
|
5,781
|
Due to Frank Worth Estate |
135,000
|
135,000
|
Interest payable to related parties |
2,381
|
748
|
Accrued royalties due to Frank Worth Estate |
0
|
30,000
|
Stock-based compensation due to non-employees |
102,000
|
126,250
|
Fair value of limited edition prints due to consultant |
0
|
250,000
|
Contingent liability for taxes assumed in reverse merger |
91,000
|
91,000
|
Other |
13,006
|
3,010
|
Total accrued liabilities |
$ 366,609
|
$ 650,031
|
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v3.3.1.900
6. Notes Payable to Related Parties (Details Narrative) - USD ($)
|
3 Months Ended |
6 Months Ended |
|
Jun. 30, 2015 |
Jun. 30, 2014 |
Jun. 30, 2015 |
Jun. 30, 2014 |
Dec. 31, 2014 |
Unsecured Debt |
|
|
|
|
|
Interest payable |
$ 2,381
|
|
$ 2,381
|
|
$ 748
|
Dino Satallante | Unsecured Debt [Member] |
|
|
|
|
|
Debt maturity date |
|
|
Jul. 31, 2016
|
|
|
Interest expense |
1,225
|
$ 1,241
|
$ 2,485
|
$ 2,027
|
|
Note payable related party |
100,000
|
|
100,000
|
|
$ 100,000
|
Dino Satallante | Unsecured Debt -2 [Member] |
|
|
|
|
|
Debt interest rate |
|
|
|
|
6.00%
|
Interest expense |
605
|
|
1,220
|
|
|
Note payable related party |
20,500
|
|
20,500
|
|
$ 20,500
|
Dreamstar | Unsecured Debt -2 [Member] |
|
|
|
|
|
Interest expense |
605
|
|
1,220
|
|
|
Note payable related party |
$ 20,500
|
|
$ 20,500
|
|
|
X |
- DefinitionContractual interest rate for funds borrowed, under the debt agreement.
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v3.3.1.900
7. Related Party Transactions (Details) - USD ($)
|
Jun. 30, 2015 |
Dec. 31, 2014 |
Due from related parties |
$ 109,430
|
$ 93,316
|
Due to related parties |
30,892
|
64,274
|
Dino Satallante |
|
|
Due from related parties |
1,350
|
1,350
|
Sam Battistone |
|
|
Due from related parties |
966
|
966
|
ICONZ Art, LLC |
|
|
Due from related parties |
13,735
|
0
|
Due to related parties |
2,014
|
2,014
|
Scheinman |
|
|
Due from related parties |
2,379
|
0
|
Due to related parties |
0
|
29,341
|
Klaus Moeller |
|
|
Due from related parties |
91,000
|
91,000
|
Due to related parties |
521
|
4,562
|
MSN Holding Co. |
|
|
Due to related parties |
28,272
|
28,272
|
Premier Collectibles |
|
|
Due to related parties |
$ 85
|
$ 85
|
v3.3.1.900
8. Shareholders' Equity (Details Narrative) - USD ($)
|
6 Months Ended |
12 Months Ended |
Jun. 30, 2015 |
Dec. 31, 2014 |
Stock subscription receivable |
$ 0
|
$ 300,000
|
Common shares issued for cash, value |
91,000
|
|
Common shares issued to related party for finder's fee, value |
10,000
|
|
Common shares issued for services, value |
166,000
|
|
Private Placement |
|
|
Stock subscription receivable |
0
|
|
Proceeds from sale of stock |
$ 300,000
|
|
Private Placement | Former President |
|
|
Common shares issued for cash, shares |
1,820,000
|
|
Common shares issued for cash, value |
$ 91,000
|
|
Common shares issued to related party for finder's fee, shares |
200,000
|
|
Common shares issued to related party for finder's fee, value |
$ 10,000
|
|
Consulting agreement |
|
|
Common stock to be issued for services, shares |
875,000
|
875,000
|
Common stock to be issued for services, value |
$ 43,750
|
$ 43,750
|
Management Services |
|
|
Common stock to be issued for services, shares |
1,650,000
|
1,650,000
|
Common stock to be issued for services, value |
$ 82,500
|
$ 82,500
|
Investment banking advisory services |
|
|
Common shares issued for services, shares |
2,000,000
|
|
Common shares issued for services, value |
$ 100,000
|
|
Website development services |
|
|
Common shares issued for services, shares |
170,000
|
|
Common shares issued for services, value |
$ 51,000
|
|
Common stock to be issued for services, shares |
340,000
|
|
Common stock to be issued for services, value |
$ 102,000
|
|
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- DefinitionEquity impact of the value of new stock issued during the period. Includes shares issued in an initial public offering or a secondary public offering.
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- DefinitionFor an entity that discloses a concentration risk in relation to quantitative amount, which serves as the "benchmark" (or denominator) in the equation, this concept represents the concentration percentage derived from the division.
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