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UNITED STATESSECURITIES AND EXCHANGE COMMISSION
  Washington, D.C. 20549

FORM 10-K

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended August 31, 2010

[   ]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: 005-85426

PASSPORT ARTS INC.(Exact name of registrant as specified in its charter)

|Nevada                                   | 90-0529190                          
|---------------------------------------- | ------------------------------------
|(State or other jurisdiction of          | (I.R.S. Employer Identification No.)
|incorporation or organization)           |                                     
|                                         |                                     
|5147 Mountain Sights                     |                                     
|Montreal, Quebec, Canada                 | H3W 2Y1                             
|(Address of principal executive offices) | (Zip Code)                          

Registrants telephone number, including area code: (514)
961-0140

Securities registered under Section 12(b) of the Act:

|Title of each class | Name of each exchange on which registered
|------------------- | -----------------------------------------
|None                | N/A                                      

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

**Common Stock**(Title of class)

Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined by Rule 405 of the Securities Act Yes
[   ]    No [X]

Indicate by check mark if the registrant is not required to file
reports pursuant to Rule 13 or Section 15(d) of the Act Yes [ 
 ]    No [X]

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X]    No
[   ]

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Indicateby 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 Rule 405 of
Regulation S-T (§220.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such
files. Yes [   ]    No [   ] Not
applicable.

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in definitive proxy or
information statement incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. [X]

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 the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.

|Large accelerated filer [   ] |                                                     | Accelerated
      filer                 
      [   ]
|----------------------------- | --------------------------------------------------- | ----------------------------------------------------
|Non-accelerated filer   [   ] | (Do not check if a smaller
      reporting company) | Smaller reporting company [X]                       

Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act).Yes [   ]   
No [X]

State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the price at which
the common equity was sold, or the average bid and asked price of such common
equity, as of the last business day of the registrants most recently completed
second fiscal quarter.

$133,375 based on a price of $0.25 per share multiplied by
533,500 common shares held by non-affiliates. The common shares of our
company have not traded to date. As a result, aggregate market value has been
determined by the issue price per share of the last private placement of our
company, whereby 18,500 common shares were issued at $0.25 per common share on
April 23, 2009.

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable date.

3,893,600 common shares issued and outstanding as of October
25, 2010.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by
reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which
the document is incorporated: (1) Any annual report to security holders; (2) Any
proxy or information statement and (3) Any prospectus filed pursuant to Rule
424(b) or (c) under the Securities Act of 1933. The listed documents should be
clearly described for identification purposes (e.g., annual report to security
holders for fiscal year ended December 24, 1980). Not applicable.

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TABLE OF CONTENTS

|CAUTIONARY STATEMENT
      REGARDING FORWARD-LOOKING STATEMENTS                                                                  | 4 
|-------------------------------------------------------------------------------------------------------------------------------- | --
|                                                                                                                                 |   
|PART I                                                                                                                           | 4 
|Item 1. Business                                                                                                                 | 4 
|Item
      1A Risk Factors                                                                                                       | 10
|Item 1B. Unresolved
      Staff Comments.                                                                                        | 17
|Item
      2. Properties                                                                                                         | 18
|Item 3. Legal
      Proceedings                                                                                                  | 18
|Item
      4. (Removed and Reserved)                                                                                             | 18
|                                                                                                                                 |   
|PART II                                                                                                                          | 18
|Item 5.
      Market for Registrants Common Equity, Related Stockholder Matters and
      Issuer Purchases of Equity Securities | 18
|Item
      6. Selected Financial Data.                                                                                           | 19
|Item 7. Managements
      Discussion and Analysis of Financial Condition and Results of Operations.                             | 19
|Item
      7A. Quantitative and Qualitative Disclosures About Market Risk                                                        | 23
|Item 8. Financial
      Statements and Supplementary Data                                                                        | 23
|Item
      9. Changes in and Disagreements With Accountants on Accounting and
      Financial Disclosure.                        | 34
|Item 9A(T). Controls
      and Procedures                                                                                        | 34
|Item
      9B. Other Information.                                                                                                | 35
|                                                                                                                                 |   
|PART
      III                                                                                                                   | 35
|Item
      10. Directors, Executive Officers and Corporate Governance                                                            | 35
|Item
      11. Executive Compensation.                                                                                           | 38
|Item
      12. Security Ownership of Certain Beneficial Owners and Management and
      Related Stockholder Matters.             | 40
|Item
      13. Certain Relationships and Related Transactions, and Director
      Independence                                   | 41
|Item
      14. Principal Accounting Fees and Services                                                                            | 42
|                                                                                                                                 |   
|PART
      IV                                                                                                                    | 43
|Item
      15. Exhibits, Financial Statement Schedules.                                                                          | 43
|                                                                                                                                 |   
|SIGNATURES                                                                                                                       | 44

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS

This annual report contains forward-looking statements. These
statements relate to future events or our future financial performance.
Forward-looking statements are often identified by words like: believe,
expect, estimate, anticipate, intend, project and similar expressions
or words which, by their nature, refer to future events. In some cases, you can
also identify forward-looking statements by terminology such as may, should,
plan, predict, potential or continue or the negative of these terms or
other comparable terminology. These statements are only predictions and involve
known and unknown risks, uncertainties and other factors, including the risks in
the section entitled Risk Factors, that may cause our or our industrys actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Except as required by
applicable law, including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform these
statements to actual results.

Our financial statements are stated in United States Dollars
(US$) and are prepared in accordance with United States Generally Accepted
Accounting Principles. References to common shares refer to common shares in our
capital stock.

As used in this annual report, the terms we, us, and our
refer to Passport Arts Inc., a Nevada corporation, and/or its wholly-owned
subsidiary, Passport Arts Inc., a Quebec corporation, as the context may
require.

PART I

Item 1. Business.

Overview

We were incorporated in the state of Nevada on December 2,
2008. Our wholly-owned subsidiary, Passport Arts Inc., was incorporated in the
province of Quebec, Canada on December 10, 2008.

We are in the business of selling artworks through the
Internet. We procure artworks from emerging artists working primarily in the
Caucasus and Central Asia for sales in developed art markets like the United
States, the United Kingdom, Europe, and Canada and, in future expansion,
developing art markets including Russia and China. Through our subsidiary,
Passport Arts Inc., incorporated in the province of Quebec, Canada, we operate
our primary sales vehicle, passportarts.com, and we showcase artworks in an
online gallery located at that website. Artworks range in price from $300 to
$10,000.

Our business is located in Montreal, Canada, but we intend to
serve a clientele base worldwide through our current and future operating
partners. We have establishedand intend to continue to establishrelationships
with art professionals in strategic regions around the world who can, through
their expertise, source and nurture relationships with artists to develop our
business. We depend on our Vice-president, Procurement, Hasmik Ginoyan, who is
also Director of Exhibitions at the National Gallery of Armenia to use her
extensive contacts throughout the Caucasus and Central Asia to establish
relationships directly with artists or art professionals like herself who will
source unique and undiscovered artists in their respective regions to showcase
on PassportArts.com.

In order to be profitable, we need to grow and expand our
product offering. Initially we had 150 artworks for sale. In mid-January 2010,
we added another 50 artworks from four new artists. By the end of February 2010
we added another 48 pieces from five new artists to bring our total to 248
artworks. We still need to significantly increase that number in order to offer
something for everyone. Also in January 2010, to increase interaction with
consumers and induce sales, we introduced a new feature called Best Offer.
This allows a consumer to make an offer on an artwork whereas the artist can
accept the offer or make a counter offer within 72 hours. We are also
negotiating with various suppliers to offer lower-cost products such as
poster reproductions from the original art to supplement revenue. We will need
to translate the site to other major languages like French, Spanish, Chinese and
Russian in order to reach more potential buyers. To accommodate these future
initiatives, our website must be able to handle the larger product offering and
increased traffic.

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As a result of our failure to generate substantial revenues
from our current business, we are simultaneously seeking compatible or alternate
business opportunities with established business entities for the merger of a
target business with our company. In certain instances, a target business may
wish to become a subsidiary of us or may wish to contribute assets to us rather
than merge. We have not entered into any definitive agreements to enter into a
business acquisition or opportunity to date and there can be no assurance that
we will be able to enter into any definitive agreements. When any such agreement
is reached, we intend to disclose such an agreement by filing a current report
on Form 8-K with the Securities and Exchange Commission.

The search for new business opportunities, and any due
diligence required in connection with such business opportunities, is expected
to be undertaken by Asbed Palakian, our president and chief executive officer,
who is not a professional business analyst. In seeking or analyzing prospective
business opportunities, Mr. Palakian may utilize the services of outside
consultants or advisors. Management does not have the capacity to conduct as
extensive an investigation of a target business as might be undertaken by a
venture capital fund or similar institution. As a result, management may elect
to merge with a target business which has one or more undiscovered shortcomings
and may, if given the choice to select among target businesses, fail to enter
into an agreement with the most investment-worthy target business.

In implementing a structure for a particular business
acquisition or opportunity, we may become a party to a merger, consolidation,
reorganization, joint venture, or licensing agreement with another corporation
or entity. We may also acquire stock or assets of an existing business. Upon the
consummation of a transaction, it is likely that our present management will no
longer be in control of our company. In addition, it is likely that our officer
and director will, as part of the terms of the acquisition transaction, resign
and be replaced by one or more new officers and directors.

We anticipate that any new acquisition or business opportunity
by our company will require additional financing. There can be no assurance,
however, that we will be able to acquire the financing necessary to enable us to
pursue such an acquisition or opportunity. If our company requires additional
financing and we are unable to acquire such funds, our business may fail.

Business Developments

Initially we are focusing procurement of artworks from the
countries of the Caucasus: Armenia, Georgia, Nagorno-Karabakh, and the Black Sea
region of Russia. Presently there are approximately 248 pieces of artworks
available on passportarts.com. In the next three to five years, our goal is to
offer over 1,000 paintings, photographs and sculptures on passportarts.com from
over a dozen countries including Ukraine, Belarus, Kyrgyzstan, Kazakhstan,
Moldova, Azerbaijan, Turkmenistan, Tajikistan, Chechnya and Uzbekistan.

For the initial phase beginning in July 2009, we had a soft
launch of our website, passportarts.com. A soft launch signifies that although
the site was up and running, we chose not to promote the site to the general
public until all bugs in the website were worked out and any usability issues
were resolved using a small group of testers comprised of friends and family.
Building on that launch, we are seeking listings on various web directories and
refining search engine optimization/meta tags to increase page ranking in
organic searches.

In September 2009, we conducted a public relations campaign to
over 400 art critics, art writers, and art magazines in the United States,
Canada and Europe to raise our profile within the existing contemporary art
community. We used the services of Arts Media Contact, an art press directory
and contact service to distribute our press releases
(www.artsmediacontacts.com). As well, we created journalistic content to promote
our company and submitted them to several article syndication sites such as
www.goarticles.com, www.articlesbase.com, www.articleblast.com and others.
Syndication sites essentially offer free advertising space to marketers who
provide them with content, much like an online advertorial.

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In January 2011, resources allowing, we plan to direct our
marketing efforts to specific ethnic communities in the United States and
Canada. We plan to target these communities through a combination of low-cost
public relations and email campaigns. We have already begun sending news
releases to the churches, newspapers and community organizations of our ethnic
target markets in the United States and Canada. We may use opt-in email list
providers in the United States and Canada such as www.listservice.com which can
provide email addresses of Armenian, Georgian and Russian ethnic consumers in
the United States. For example, 128,248 promotional emails to ethic Armenian
consumers in the United States can be sent for $1,500 per transmission. If our
resources allow, we may purchase a highly targeted opt-in email list to proven
art buyers in the United States through Marigold Technologies for the purpose of
reaching our discerning buyers segment.

Since the launch of our website in July 2009, we have collected
hundreds of email addresses from people around the world who have visited our
site. In 2010, we plan to develop a monthly online newsletter as a mechanism to
pull users back to passportarts.com.

In early 2011, resources allowing, we intend to begin paid
search campaigns through Google AdWords to increase traffic to the site. We also
intend to develop an affiliate program through Clickbank.com and their network
of 100,000 affiliates to offer compensation to drive buyers to passportarts.com.
Also in early 2011, we plan to launch French and Spanish parallel sites to
passportarts.com. By the end of 2011, we plan to launch Russian and Chinese
parallel sites to passportarts.com to better penetrate into these two growing
art markets.

Seven Arts Ltd.

Currently, we have an online marketing and sales agreement with
Seven Arts Ltd., a company incorporated in Armenia, which handles the logistics
of procurement and shipment of artworks from the Caucasus and Central Asia.
Seven Arts through its principal, Hasmik Ginoyan is well-known in the art
circles of the region. They have organized extensive exhibitions to present and
sell Caucasian artworks globally in regions including the Middle East,
Australasia, North America and Europe. Seven Arts network of artist contacts is
extensive throughout the Caucasus and Central Asia. In addition, Seven Arts Ltd.
is the publisher of a leading art periodical in the Caucasus entitled Armenian
Art Magazine, which is distributed world-wide and is published in Armenian,
English and French.

We facilitate the sale of artwork to a buyer while Seven Arts
fulfills the order by working with the artist to dispatch the artwork. We
contain costs by having artwork shipped directly from artist to buyer without
having to carry inventory. As a result, we do not have direct agreements with
artists in these regions but transact with artists through Seven Arts. We hold
the exclusive right for online sales for the artworks which artists supply
through contract with Seven Arts. According to the terms of our online marketing
and sales agreement, Seven Arts (and not our company) is liable for damage to or
loss of artwork during transit to the buyer.

Pursuant to the online marketing and sales agreement that we
entered into with Seven Arts, Seven Arts and our company agreed to agree upon
the retail price for each piece of artworks to be sold via our website at the
time that we agree to market and sell such artworks on our website. We retain
the final word on the determination of the retail price and the decision to
display the artwork. We are to earn an average profit of 25% of the retail
price, and we are to forward the rest of the retail price plus applicable costs
for shipping, taxes, tariffs, customs and levies received from a buyer to Seven
Arts.

Recently we have also initiated discussions directly with
artists who also live in the Caucasus and Central Asia region in the hope of
entering into purchase agreements with them. Although we expect Seven Arts to
remain the linchpin of our procurement efforts in the Caucasus and Central Asia,
we foresee initiating and completing other such direct agreements with artists
as the situation sees fit. Whomever the agreement is with, be it a third party
or directly with the artist, we expect that our four basic tenets will always
remain the same.

- We will not pre-buy or carry any inventory;
- We have final say on the price;

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- The artist or third party is responsible to package and deliver the
  artworks safely to the consumer; and
- The artist or third party must abide by our 14-day unconditional guarantee.

Vasgen Degirmentas

Effective May 20, 2009, we entered into another online
marketing and sales agreement with Vasgen Degirmentas, an Armenia artist.
Pursuant to the online marketing and sales agreement, we agreed to use our
commercially reasonable efforts to market, promote, and sell the prints of Mr.
Degirmentass original photographs and to solicit orders via our website for the
purchase of the prints of these photographs. Mr. Degirmentas will retain the
copyright of these photographs. We agreed to pay $100 to Mr. Degirmentas for
each print ordered, exclusive of all applicable sales, exercise taxes, and all
shipping, and we agreed to set the retail price of each print on our website at
our discretion.

Upon receiving a buyers order and payment, we agreed to
promptly notify Mr. Degirmentas of what print has been purchased and Mr.
Degirmentas agreed to arrange for the shipment of the print directly to the
buyer.

Mr. Degirmentas agreed that all risk relating to the loss,
destruction or damage of the purchased print will remain with him until the
purchased print has arrived and been safely unloaded at the buyers specified
address.

Mr. Degirmentas agreed that the title to the purchased print
will pass from him to a buyer at the time when the purchased print is received
by the buyer, and agreed to abide by our 14-day money-back guarantee.

The sales model for a Passport Arts transaction is as
follows:



Our Products

We showcase artworks in an online gallery located at
passportarts.com, which was launched in July 2009. Initially we are focusing
procurement of artworks from the countries of the Caucasus: Armenia, Georgia,
Nagorno-Karabakh, and the Black Sea region of Russia. Presently there are
approximately 248 pieces of artworks available at passportarts.com. Artworks
range in price from $300 to $10,000. As a showcase for contemporary art,
passportarts.com allows users to create their own personal galleries for viewing
and engages art buyers in the acquisition process. From initial searching
through artworks to carrying through to purchase, we believe that
passportarts.com is accessible to expert and novice art buyers alike.

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We offer art aficionados works they might otherwise never see.
We believe that our on-the-ground network of artists combined with a
user-friendly but tech-savvy online showcase make us different from our
competition. The online gallery at passportarts.com provides an engaging
experience for both experienced and beginner art collectors. We believe that the
artworks exhibited on the site is difficult, if not impossible, to find
elsewhere as artists of these regions live and work in small, often isolated
areas. We believe that while these artists are rich in talent, few possess the
kind of marketing resources to drive sales of their work outside the boundaries
of their home countries. The lack of online connectivity to artists of the
Caucasus and Central Asia provides us an opportunity to be first in the market
of exhibiting their works outside the boundaries of their home countries.

Customer Service

We guarantee 100% buyer satisfaction through a 14-day
unconditional return policy. If, for any reason, the customer is unhappy with
his or her purchase, it can be returned for a full refund, provided that the
work is returned to the country of origin in its original condition. The buyer
is responsible for the cost of the return shipping but will not be charged any
return or restocking fees by us. We believe that this level of customer service
satisfaction is rare for any online art dealer and that it will be a point of
marked differentiation from our competitors.

Target Markets

We have three target markets: shared-ethnicity buyers, affinity
buyers, and discerning buyers:

- Shared-ethnicity buyersare defined as expatriates of the same
  ethnic ancestry as an artist whose artwork is sold through us but who reside
  outside of that country, e.g. Armenian buyers living outside of Armenia who
  purchase Armenian artwork from us;
- Affinity buyersare defined as former residents and visitors of an
  area where we procure artworks. Assuming a positive experience during their
  stay in that region, these art patrons could be expected to have a high
  affinity for the artworks from that country or region; and
- Discerning buyersare defined as art buyers worldwide who seek
  high-quality, rare international artworks.

We believe that the global contemporary art market is still
developing and pushing out into new territory in pace with the economic growth
of domestic economies. As such, we plan to continue to expand our gallery of
offerings and increase the diversity of ethnic artistry therein. Growth
opportunities also include launching parallel multilingual websites to serve
French, Spanish, Russian and Chinese markets. Future growth may also involve
product extensions of art-related products, such as licensed apparel,
reproduction art, greeting cards, Giclées and so on.

Competition

We compete in a market that is highly competitive and expect
competition to intensify in the future. We currently or potentially compete with
a variety of companies, both the traditional brick-and-mortar galleries and
online art dealers. Many of our competitors have significantly greater
financial, technical, and marketing resources. Those that have established a
presence on the Internet have already begun to establish a customer base and
their brand. Many of these companies have existed for a longer period, have
greater financial resources, and have established marketing relationships with
leading manufacturers, strategic partners, and advertisers, and have secured
greater presence in distribution channels. We believe there are also numerous
other smaller entrepreneurial companies that are focusing on developing websites
to market and sell artworks on the Internet that will compete directly with our
website.

However, we believe that we have a competitive advantage over
our competitors in some areas, as described below.

Traditional Galleries in Countries Where Our Artists
Reside

There are several brick-and-mortar galleries in the countries
where we procure artworks at which buyers could purchase artworks from the
artists contracted by Seven Arts. Shared-ethnicity buyers, the first priority
target market, who are visiting the land of their ancestry, for example, could
purchase artworks directly from a gallery. Similarly, affinity buyers may also
be present in person to make a purchase.

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It is possible that this can become an advantage to us as
buyers can touch and feel the art but may not be ready to buy. At a later
date, once they have had time to think through what could be a significant
financial investment, they can then purchase that artists artworks through
passportarts.com from the comfort and security of their own home.

As an additional edge over traditional galleries, our business
model allows for an average mark-up of 25% on artworkswhich we believe is
significantly lower than the traditional gallery mark-up of between 50 to 100%.
This provides a price-point advantage to us. In addition, we believe that our
artists prices are less expensive than comparable works by artists residing in
the United States or Canada which may also vie for our buyers attention.

Online Art Dealers

Though there are numerous online art dealers and virtual
galleries on the Internet, only a few have similar artworks as we do and would
target a similar buyer. In general, we believe that these online galleries fail
to impress and none take a buyer from arrival on-site to completed purchase as
in our sales model. The two most likely contenders for competition are assessed
below:

- Roslin Gallery (www.roslin.com) - This is an unsophisticated website with
  an extensive inventory of Armenian art only. No prices are displayed nor can a
  buyer purchase online. Anyone wanting to know the price of particular work
  must send an inquiry by email and pay by cheque.
- Russian Art Gallery (www.russianartgallery.com) - Although it is an
  extensive site with artworks from the Caucasus region, Russia and the Ukraine,
  similar to our website, it seems to serve largely as a lead generator and is
  not intended to complete the purchase online. For the majority of artworks, a
  buyer must inquire by contacting the company thus complicating the transaction
  and likely resulting in lower conversion rates of browsers to buyers.

It is possible one of these competitors could improve its
online sales approach and imitate our approach. However, we utilize three key
organizational strengths to create a competitive advantage: 1) our existing
access to hard-to-reach artists; 2) savvy promotion and buyer engagement through
passportarts.com; and 3) exceptional customer service guaranteeing 100% buyer
satisfaction. While competitors may be able to imitate one of those three key
strengths, we do not believe that it is likely that they will be able to imitate
all three and capture the synergy that we can exploit through our business
model.

Intellectual Property

We own the domain name passportarts.com. Asbed Palakian, our
president and chief executive officer, purchased the domain name on our behalf
for a period of two years at a cost of $23.74. The domain name is renewable at
any time. The website is hosted by Google App Engine, free of charge.

We intend to register Passport Arts as a trademark in Canada.
We have conducted initial searches on the registrability of Passport Arts as a
trademark and found there to be no conflicting prior marks. As a result of these
searches, we have determined that registration is feasible. We intend to file a
trademark application for Passport Arts for the registration in Canada and
expect that this trademark application will take 16 to 20 months from filing to
registration.

We are not aware that our services or proprietary rights
infringe the proprietary rights of third parties. However, from time to time, we
may receive notices from third parties asserting that we have infringed their
trademarks, copyrights or other intellectual property rights. In addition, we
may initiate claims or litigation against third parties for infringement of our
proprietary rights or to establish the validity of our proprietary rights. Any
such claims could be time-consuming, result in costly litigation, cause service
stoppages or lead us to enter into royalty or licensing agreements rather than
disputing the merits of such claims. An adverse outcome in litigation or similar
proceedings could subject us to significant liabilities to third parties,
require expenditure of significant resources to develop non-infringing opportunities, require disputed rights to be
licensed from others, or require us to cease the marketing or use of our
website, any of which could have a material adverse effect on our business,
operating results and financial condition.

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Governmental Regulations

There are two aspects of our business which face significant
governmental regulation or are likely to face such regulation: our sales
offering via the Internet and laws and regulations regarding the sale of
artworks in various countries.

Within the United States and Canada, the legal landscape for
Internet privacy is new and rapidly evolving. Collectors and users of customer
information over the Internet face potential liability for public disclosure of
private information. Due to the increasing popularity and use of the Internet,
it is likely that a growing number of laws and regulations will be adopted at
the international, federal, state, local, and foreign levels relating to the
Internet covering issues such as user privacy, pricing, content, copyrights,
distribution, antitrust and characteristics and quality of services.
Furthermore, if more stringent customer protection laws are imposed, additional
burdens will be placed on those companies conducting business online. Moreover,
the applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes, libel and
personal privacy is uncertain and may take years to resolve. Any such new
legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to our business or the
application of existing laws and regulations to the Internet could harm our
business.

We are also subject to certain laws and regulations regarding
the sale of artworks in various countries, including import and export laws.
Also sellers of retail art and collectibles are particularly susceptible to
unscrupulous individuals selling forged or stolen goods. There are significant
federal, state, foreign, and local penalties for merchants who sell forged or
stolen goods, or goods that violate existing copyright interests. Although we
intend to make an effort to insure that our supply of goods comes from reputable
artists and sources, we may nevertheless be liable under these regulations for
sales of such articles. Liability can include civil and criminal penalties, as
well as forfeiture of the artworks without compensation. We may be able to
insure against the costs of some, but not all of these regulations, but do not
currently maintain such insurance. Liability under existing criminal or civil
regulations for such sales could have a material, adverse impact on our
business.

Employees

Our president, chief executive officer, secretary, treasurer,
and one of our directors, Asbed Palakian, and our vice-president, procurement,
Hasmik Ginoyan, are the only employees of our company. We contract with
consultants, advisors and service providers as needed but, as a cost-containment
measure, do not maintain administrative employees.

Item 1A Risk Factors

Risks Associated with Our Financial Condition

Our independent auditors have expressed substantial doubt
about our ability to continue as a going concern.

We incurred a net loss of $107,058 for the period from December
2, 2008 (date of inception) to August 31, 2010. On August 31, 2010, we had cash
of $551. Because we are in the development stage and are yet to attain
profitable operations, in their report on our financial statements for the year
ended August 31, 2010, our independent auditors included an explanatory
paragraph regarding the substantial doubt about our ability to continue as a
going concern.

Our ability to continue as a going concern is depending upon
our ability to generate future profitable operations and/or to obtain the
necessary financing to meet our obligations and repay our liabilities arising
from normal business operations when they come due. We have not generated
significant revenues since our inception on December 2, 2008. Since we only
recently commenced business operations, we will, in all likelihood, continue to
incur operating expenses without significant revenues for the foreseeable
future. We cannot assure that we will be able to generate enough interest in our artworks. If we cannot
attract a significant customer base, we will not be able to generate any
significant revenues or income. In addition, if we are unable to establish and
generate significant revenues, or obtain adequate future financing, our business
will fail and you may lose some or all of your investment in our commons stock.

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We do not have sufficient cash on hand to satisfy all of
our cash requirements for the next 12 months and we do not anticipate that we
will generate sufficient funds from operations to satisfy all of our cash
requirements for the next 12 months.

We anticipate that our cash on hand and the revenue that we
anticipate generating going forward from our operations will not be sufficient
to satisfy all of our cash requirements for the next twelve month period. Our
primary source of funds has been loans from Asbed Palakian, our president, chief
executive officer, secretary, treasurer, and one of our directors, and from the
sale of our common stock. Mr. Palakian has not committed to provide additional
financing to our company and we do not currently have any arrangement for
financing from any other sources. For the short term, we intend to fund our
operations and capital expenditures from limited cash flow and our cash on
hand.

Management anticipates that our capital resources are
insufficient to cover costs for the next 12 month period. As a result, we
anticipate we will have to raise additional funds for the continued development
of our business and the marketing of our products. Such additional funds may be
raised through the sale of additional stock, stockholder and director advances
and/or commercial borrowing. There can be no assurance that a financing will
continue to be available if necessary to meet these continuing development costs
or, if the financing is available, that it will be on terms acceptable to us.
The issuance of additional equity securities by us will result in a significant
dilution in the equity interests of our stockholders. Obtaining commercial
loans, assuming those loans would be available, will increase our liabilities
and future cash commitments. If we are unable to obtain financing in the amounts
and on terms deemed acceptable to us, we may not be able to expand or continue
our operations and developments and so may be forced to scale back or cease
operations or discontinue our business and you could lose your entire
investment.

Risks Associated with Our Business

Our limited operating history makes evaluation of our
business difficult.

We were incorporated in the state of Nevada on December 2, 2008
and our wholly-owned subsidiary, Passport Arts Inc., was incorporated in the
province of Quebec, Canada on December 10, 2008. Our limited operating history
makes it difficult to evaluate our business and prospects. We have encountered,
and expect to continue to encounter, many of the difficulties and uncertainties
frequently encountered by early stage companies, including limited capital,
insufficient customer base, and limited inventory resulting in delays in
implementing effective marketing strategies, inability to gain customer
acceptance of our products and inability to attract new artists to provide
inventory for our business. We cannot be certain that we will successfully
address these risks. If we are unable to address these risks, our business may
not grow, our stock price may suffer and/or we may be unable to stay in
business.

We currently depend on a limited number of third parties
for procuring artworks, therefore, if they do not perform, we may not be able to
complete orders effectively.

We rely on third parties to supply artworks and fulfil and ship
orders. Currently, the sales of the artworks from Seven Arts Ltd. account for
approximately 65% of our total sales, while the sales of the prints of Vasgen
Degirmentass photographs account for approximately 35% of our total sales. If
our existing relationship with Seven Arts or Vasgen Degirmentas deteriorates or
is terminated in the future, and we are not successful in establishing a
relationship with an alternative supplier at prices and products currently
offered by Seven Arts or Vasgen Degirmentas, our results of operations could be
adversely affected. In addition, a significant decline in the financial
condition of Seven Arts or Vasgen Degirmentas, a material rise in their prices
or a reduction in the number of products currently available from them could
adversely affect our results of operations.

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To generate the significant customer traffic, volume of
purchases and repeat purchases that we believe are crucial to obtaining sufficient revenues, we must develop and maintain
customer trust in the timing and accuracy of our product deliveries. If for any
reason any of these providers fails to perform, we may not be able to service
our customers and thereby may lose customers or damage our reputation. In
addition, the success of our business requires that we establish relationships
with art professionals in strategic regions around the world who can, through
their expertise, source and nurture relationships with artists to develop our
business. If we are unable to establish such relationships, we may be unable to
procure artworks on terms acceptable to us, and our business may fail.
Currently, our online marketing and sales agreements with Seven Arts and Mr.
Degirmentas are the only relationships that we have established for procuring
artworks.

Our executive officers devote only part time efforts to
our business which may not be sufficient to successfully develop our business.

The amount of time which each of our executive officers devote
to our business is limited. Asbed Palakian, our president, chief executive
officer, secretary and treasurer, and Hasmik Ginoyan, our vice-president,
procurement, currently devote approximately 40% and 30%, respectively, of their
working time to our company. All of our executive officers have other business
interests. While we expect them to increase the percentage of the working time
they devote to our company if our operations increase, the amount of time which
they devote to our business may not be sufficient to fully develop our business.

Our executive officers have potential conflict of
interests with our company and we have no agreements with our executive officers
as to how they allocate either their time to our company or how they handle
corporate opportunities.

Potential conflicts of interest exist between our company and
our executive officers including, among other things, time, effort, and
corporate opportunity involved with participating in the business entities other
than our company. Effective January 20, 2009, we entered into an online
marketing and sales agreement with Seven Arts Ltd. Seven Arts is owned and
controlled by Hasmik Ginoyan, our vice-president, procurement. On December 15,
2008, we entered into an office rental agreement with Lumisculpt Productions
Inc., a company of which Asbed Palakian is the founder and principal. We have no
agreements with our executive officers as to how they allocate either their time
to our company or how they handle corporate opportunities. As a result, we may
be unable to implement our plan and our business might ultimately fail.

Customers may not adopt the Internet as a way of buying
artworks, which would prevent us from becoming profitable.

If we do not attract and retain a high volume of online
customers to our website at a reasonable cost, our business will not succeed. We
may not be able to convert a large number of customers from traditional shopping
methods to online shopping for artworks and as a result may never achieve
widespread customer acceptance of shopping for artworks online. Specifically,
customers may not wish to change the way they purchase artworks and may feel it
is necessary to view the actual artworks rather than pictures before purchasing
them. In addition, customers may not be willing to make orders online due to
perceived security issues or pricing that does not meet customer expectations.
As a result we may never drive sufficient revenues from our operations in order
to become a profitable enterprise.

We may not be able to compete effectively against other
companies that have existed for a longer period and have greater financial
resources.

We compete in a market that is highly competitive and expect
competition to intensify in the future. We currently or potentially compete with
a variety of companies, both the traditional brick-and-mortar galleries and
online art dealers including auction sites such as eBay. Many of our competitors
have significantly greater financial, technical, and marketing resources. Those
that have established a presence on the Internet have already begun to establish
a customer base and their brand. Many of these companies have existed for a
longer period, have greater financial resources, and have established marketing
relationships with leading manufacturers, strategic partners, and advertisers,
and have secured greater presence in distribution channels. We believe there are
also numerous other smaller entrepreneurial companies that are focusing on
developing websites to market and sell artworks on the Internet that will
compete directly with our website. We may not be able to compete successfully
against these competitors. If we are unable to effectively compete in the art
industry, our results would be negatively affected, we may be unable to implement our plan and our business might
ultimately fail.

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Any significant economic downturn or any future changes
in consumer spending habits could have a material adverse effect on our
financial condition and results of operations.

Demand for artworks is affected by the general economic
conditions in the United States, Europe, and Canada. When economic conditions
are favorable and discretionary income increases, purchases of non-essential
items like artworks generally increase. When economic conditions are less
favorable, sales of artworks are generally lower. In addition, we may experience
more competitive pricing pressure during economic downturns. Therefore, any
significant economic downturn or any future changes in consumer spending habits
could have a material adverse effect on our financial condition and results of
operations.

If the United States dollars gain significantly in value
against the foreign currencies, our artworks could become prohibitively
expensive for the customers outside the United States resulting in lower sales
and revenues.

All transactions on our website are in United States dollars.
Because our clientele is based around the world, the relationship between their
currency and United States dollar is an influencing factor on our future sales.
If the United States dollar gains significantly in value against the foreign
currencies, then our artworks could become prohibitively expensive for the
customers outside the United States resulting in lower sales and revenues. A
significant increase in the value of the United States dollars relative to the
value of the foreign currencies may force us to reduce our pricing in order to
maintain our competitiveness. Such reduction in our pricing could reduce our
profit margin, adversely affecting our results of operations and financial
condition.

The inability to respond quickly to market changes could
have a material adverse effect on our financial condition and results of
operations.

The markets for our products are subject to changing customer
tastes and the need to create and market new products. Demand for artworks is
influenced by the popularity of certain themes, cultural and demographic trends,
marketing and advertising expenditures and general economic conditions. Because
these factors can change rapidly, customer demand also can shift quickly. The
changes in customer tastes are likely to affect the markets for our products
significantly because of our limited selection of artworks. Currently, we depend
on only Seven Arts Ltd. or artists with whom Seven Arts contracts, or Vasgen
Degirmentas for procuring artworks. Even if we introduce new products from other
sources, the success of new product introductions depends on various factors,
including product selection and quality, sales and marketing efforts, timely
production and delivery and customer acceptance. We may not always be able to
respond quickly and effectively to changes in customer taste and demand due to
the amount of time and financial resources that may be required to bring new
products to market. If we were to materially misjudge the market, certain of our
artworks may remain unsold. The inability to respond quickly to market changes
could have a material adverse effect on our financial condition and results of
operations.

Because we do not have sufficient insurance to cover our
business losses, we might have uninsured losses, increasing the possibility that
you may lose your investment.

We may incur uninsured liabilities and losses as a result of
the conduct of our business. We do not currently maintain any comprehensive
liability or property insurance. Even if we obtain such insurance in the future,
we may not carry sufficient insurance coverage to satisfy potential claims. We
do not carry any business interruption insurance. Should uninsured losses occur,
any purchasers of our common stock could lose their entire investment.

We may be subject to intellectual property rights claims
in the future, which may be costly to defend, could require the payment of
damages and could limit our ability to use certain intellectual properties in
the future.

Our trademark and other intellectual property rights are
important assets to us. Even though we intend to register Passport Arts as a
trademark in Canada, we may not be able to register it as our trademark. Even if
we register it as our trademark, the protections provided by such trademark may
not be adequate to prevent our competitors from misappropriating our trademark.
Large internet-based companies and media industries own large numbers of
patents, copyrights, trademarks and trade secrets and frequently enter into
litigation based on allegations of infringement or other violations of intellectual property
rights. As we face increasing competition, the possibility of intellectual
property rights claims increases. Our intellectual properties may not be able to
withstand any third-party claims or rights against their use. Any intellectual
property claims, with or without merit, could be time consuming, expensive to
litigate or settle and could divert management resources and attention. An
adverse outcome in litigation or similar proceedings could subject us to
significant liabilities to third parties, require expenditure of significant
resources to develop non-infringing opportunities, require disputed rights to be
licensed from others, or require us to cease the marketing or use of our
website, any of which could have a material adverse effect on our business,
operating results and financial condition.

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We may have liabilities to affiliated or unaffiliated
third parties incurred in the regular course of our business.

As we conduct business, we become subject to the risk of
litigation from customers, employees, suppliers or other third parties. Although
the majority of artists from whom we procure artworks do not have direct
agreements with our company, the artists may be forced to sue us if they are
unable to get restitution from Seven Arts Ltd.for example if Seven Arts is in
default of payment to the artists or makes any misrepresentation. Litigation
could cause us to incur substantial expenses and, negative outcomes of any such
litigation could add to our operating costs which would reduce the available
cash from which we could fund our ongoing business operations and take
management time away from running the business.

Our technical systems are vulnerable to interruption and
damage that may be costly and time-consuming to resolve and may harm our
business and reputation.

As an internet-based company conducting all sales through our
website, a disaster could interrupt our services for an indeterminate length of
time and severely damage our business, prospects, financial condition and
results of operations. Our systems and operations are vulnerable to damage or
interruption from fire, floods, network failure, hardware failure, software
failure, power loss, telecommunication failures, break-ins, sabotage, computer
viruses, denial of service attacks, penetration of our network by unauthorized
computer users and hackers and other similar events, and other unanticipated
problems.

Any of these occurrences could cause material interruptions or
delays in our business, result in the loss of data or render us unable to
provide services to our customers. In addition, if anyone can circumvent our
security measures, he or she could destroy or misappropriate information or
disrupt our operations. If we fail to address these issues in a timely manner,
we may lose the confidence of our customers, and our revenue may decline and our
business could suffer.

We rely on an outside firm to host our server, and a
failure of service by this provider could adversely affect our business and
reputation.

We rely upon a third party provider to host our main server. In
the event that this provider experiences any interruption in operations or cease
operations for any reason or if we are unable to agree on satisfactory terms for
continued hosting relationships, we would be forced to enter into a relationship
with other service providers or assume hosting responsibilities ourselves. If we
are forced to switch hosting facilities, we may not be successful in finding an
alternative service provider on acceptable terms or in hosting the computer
server ourselves. We may also be limited in our remedies against this provider
in the event of a failure of service.A failure or limitation of service
or available capacity by this third party provider could adversely affect our
business and reputation.

Due to the international nature of our business,
political or economic changes in the countries in which we do our business could
harm our future sales, expenses, operations and financial condition.

Initially we are focusing procurement of artworks from the
countries of the Caucasus: Armenia, Georgia, Nagorno-Karabakh, and the Black Sea
region of Russia. As in any emerging market, these countries are subject to
greater risks than more developed markets, including in some cases significant
legal, economic and political risks. Our future sales, costs, expenses could be
adversely affected by various factors affecting our business in those countries,
including:

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- changes in a countrys or regions political or economic conditions;
- changes in foreign currency exchange rates and inflation or deflation;
- the closing of borders or other trade restrictions imposed by foreign
  countries relating the imports and exports of the artworks; and
- potentially negative consequences from changes in regulatory requirements.

For example, if export taxes are suddenly increased in one of
the countries we procure our artworks from making the price prohibitive or a
decision was made by a government banning cultural treasures such as artworks to
be exported from the country, this would negatively impact our business. We
cannot predict what economic, political, legal or other changes may occur in
those emerging markets, but such changes could adversely affect our ability to
carry out our business in those countries. In addition, following the end of the
Soviet Union, Georgia, Azerbaijan and Armenia became independent in 1991. The
Caucasus region is subject to various territorial disputes since the collapse of
the Soviet Union.

Risks Associated with Our Company

Our senior management has never managed a public company.

The individuals who now constitute our senior management have
never had responsibility for managing a public company prior to managing our
company. Such responsibilities include complying with federal securities laws
and making required disclosures on a timely basis. There can be no assurance
that our senior management will be able to implement programs and policies in an
effective and timely manner that adequately respond to such increased legal,
regulatory compliance and reporting requirements. Further, this could impair our
ability to comply with legal and regulatory requirements such as those imposed
by the Sarbanes-Oxley Act of 2002. Our failure to do so could lead to the
imposition of fines and penalties and further result in the deterioration of our
business.

The loss of the services of our executive officers would
disrupt our operations and interfere with our ability to compete.

We depend upon the continued contributions of our executive
officers. We only have two employees, our president, chief executive officer,
secretary, treasurer, and one of our directors, Asbed Palakian, and our
vice-president, procurement, Hasmik Ginoyan. They handle all of the
responsibilities in the area of corporate administration and business
development. We do not carry key person life insurance on any of their lives and
the loss of services of any of these individuals could disrupt our operations
and interfere with our ability to compete with others.

All of our assets and all of our directors and officers
  are outside the United States, with the result that it may be difficult for
  investors to enforce within the United States any judgments obtained against
  us or any of our directors or officers.

All of our assets are located outside the United States and we
do not currently maintain a permanent place of business within the United
States. In addition, all of our directors and officers are nationals and/or
residents of countries other than the United States, and all or a substantial
portion of such persons assets are located outside the United States. As a
result, it may be difficult for investors to enforce within the United States
any judgments obtained against us or any of our directors or officers, including
judgments predicated upon the civil liability provisions of the securities laws
of the United States or any state thereof. Consequently, you may be effectively
prevented from pursuing remedies under United States federal and state
securities laws against us or any of our directors or officers.

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Because Asbed Palakian, our president, chief executive
officer, secretary, treasurer, and one of our directors, controls a large
percentage of our common stock, he has the ability to influence matters
affecting our stockholders.

Asbed Palakian, our president, chief executive officer,
secretary, treasurer, and one of our directors, beneficially owns 74.2% of the
issued and outstanding shares of our common stock. As a result, he has the
ability to influence matters affecting our stockholders, including the election
of our directors, the acquisition or disposition of our assets, and the future
issuance of our shares. Because he controls such shares, investors will find it
difficult to replace our management if they disagree with the way our business
is being operated. Because the influence by Mr. Palakian could result in
management making decisions that are in his best interest and not in the best
interest of the investors, you may lose some or all of the value of your
investment in our common stock.

Risks Associated with Our Common Stock

There is no active trading market for our common stock
  and if a market for our common stock does not develop, our investors will be
  unable to sell their shares.

There is currently no active trading market for our common
stock and such a market may not develop or be sustained. We cannot provide our
investors with any assurance that our common stock will be traded on the OTC
Bulletin Board or, if traded, that a public market will materialize. Further,
the OTC Bulletin Board is not a listing service or exchange, but is instead a
dealer quotation service for subscribing members. If a public market for our
common stock does not develop, then investors may not be able to resell the
shares of our common stock that they have purchased and may lose all of their
investment.

Since our common stock has never been traded and, if a
market ever develops for our common stock, the price of our common stock is
likely to be highly volatile and may decline in the future. If this happens,
investors may have difficulty selling their shares and may not be able to sell
their shares at all.

If an active trading market for our common stock does develop,
the market price of our common stock is likely to be highly volatile. The market
price of our common stock may also fluctuate significantly in response to the
following factors, most of which are beyond our control:

- variations in our quarterly operating results;
- changes in market valuations of similar companies;
- announcements by us or our competitors of significant new products; and,
- the loss of key management.

The equity markets have, on occasion, experienced significant
price and volume fluctuations that have particularly affected the market prices
for the shares of development stage companies and that have often been unrelated
to the operating performance of these companies. Any such fluctuations may
adversely affect the market price of our common stock, regardless of our actual
operating performance. As a result, our stockholders may be unable to sell their
shares, or may be forced to sell them at a loss.

Because we can issue additional shares of our common
stock or preferred stock, purchasers of our common stock may experience dilution
in their ownership of our company in the future.

We are authorized to issue up to 100,000,000 shares of common
stock and 100,000,000 shares of preferred stock. As of October 25, 2010, there
were 3,893,600 shares of our common stock issued and outstanding and no shares
of our preferred stock issued and outstanding. Our board of directors has the
authority to cause our company to issue additional shares of common stock or
preferred stock without the consent of any of our stockholders. Consequently,
our stockholders may experience dilution in their ownership of our company in
the future.

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We do not intend to pay any dividends on our common stock
in the foreseeable future.

We do not currently anticipate declaring and paying dividends
to our stockholders in the foreseeable future. It is our current intention to
apply net earnings, if any, in the foreseeable future to increasing our working
capital. We currently have no material revenues and a history of losses, so
there can be no assurance that we will ever have sufficient earnings to declare
and pay dividends to the holders of shares of our common stock, and in any
event, a decision to declare and pay dividends is at the sole discretion of our
board of directors, which currently do not intend to pay any dividends on shares
of our common stock for the foreseeable future.

Our stock is a penny stock. Trading of our stock may be
restricted by the Securities and Exchange Commissions penny stock regulations
which may limit a stockholders ability to buy and sell our stock.

Our stock is a penny stock. The Securities and Exchange
Commission has adopted Rule 15g-9 which generally defines penny stock to be
any equity security that has a market price (as defined) less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exceptions. Our securities are covered by the penny stock rules, which impose
additional sales practice requirements on broker-dealers who sell to persons
other than established customers and accredited investors. The term
accredited investor refers generally to institutions with assets in excess of
$5,000,000 or individuals with a net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document in a form prepared by the Securities and Exchange Commission which
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customers
account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information, must be given to the customer orally or in writing
prior to effecting the transaction and must be given to the customer in writing
before or with the customers confirmation. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from
these rules; the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchasers written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in and limit the marketability of our common stock.

The Financial Industry Regulatory Authority sales
practice requirements may also limit a stockholders ability to buy and sell our
stock.

In addition to the penny stock rules described above, the
Financial Industry Regulatory Authority, which we refer to as FINRA, has adopted
rules that require that in recommending an investment to a customer, a
broker-dealer must have reasonable grounds for believing that the investment is
suitable for that customer. Prior to recommending speculative low priced
securities to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customers financial status,
tax status, investment objectives and other information. Under interpretations
of these rules, the FINRA believes that there is a high probability that
speculative low priced securities will not be suitable for at least some
customers. The FINRA requirements make it more difficult for broker-dealers to
recommend that their customers buy our common stock, which may limit your
ability to buy and sell our common stock and have an adverse effect on the
market for shares of our common stock.

Item 1B. Unresolved Staff Comments.

Not applicable.

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Item 2. Properties.

Principal Office

Our principal executive offices are located at 5147 Mountain
Sights, Montreal, Quebec H3W 2Y1, Canada. We rent the 300 square foot offices
from Lumisculpt Productions, Inc. at a monthly rent of CDN$1,000, including
G.S.T. (General Sales Tax of 5%), together with all outstanding charges and
disbursements, to pay interest of 2.0% per month on any invoiced charges,
disbursements or service fees, including interest on interest charges which are
outstanding for more than 30 days, and to pay any taxes or license fees assessed
against us or that portion of the premises occupied by us as additional rent.
The agreement is for a term of 12 months commencing on December 15, 2008 and
thereafter on a month-to-month basis. The agreement may be terminated by
Lumisculpt by giving one months clear written notice to us, or immediately for
cause. The agreement may be terminated by us by giving two months clear written
notice to Lumisculpt, following the six month term, provided, however, that all
terms of the agreement have been complied with by us to Lumisculpts
satisfaction. Lumisculpt Productions Inc. is a company of which Asbed Palakian
is the founder and principal. Also Mr. Palakian owns and controls Lumisculpt. We
believe our current premises are adequate for our current operations and we do
not anticipate that we will require any additional premises in the foreseeable
future.

Item 3. Legal Proceedings.

We know of no material, existing or pending legal proceedings
against us, nor are we involved as a plaintiff in any material proceeding or
pending litigation. There are no proceedings in which any of our directors,
officers or affiliates, or any registered or beneficial shareholder, is an
adverse party or has a material interest adverse to our company.

Item 4. (Removed and Reserved).

PART II

Item 5. Market for Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our shares of common stock are quoted on the OTC Bulletin Board
under the symbol PPOR. Our CUSIP number is 702848 102. There have been no
trades of our shares of common stock reported on the OTC Bulletin Board.

Holders of our Common Stock

As of the date of this report the shareholders' list of our
common shares showed 42 registered shareholders holding 3,893,600 shares; there
are no shares held by broker-dealers. There are 3,893,600 shares
outstanding.

Dividends

We have not declared any dividends since incorporation and do
not anticipate that we will do so in the foreseeable future. Although there are
no restrictions that limit the ability to pay dividends on our common shares,
our intention is to retain future earnings for use in our operations and the
expansion of our business.

Securities Authorized for Issuance under Equity Compensation
Plans

We do not have any equity compensation plans in place.

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Recent Sales of Unregistered Securities; Use of Proceeds
from Registered Securities

Since the beginning of the fourth quarter of our fiscal year
ended August 31, 2010, we have not sold any equity securities that were not
registered under the Securities Act of 1933 that were not previously reported in
a quarterly report on Form 10-Q or in a current report on Form 8-K.

Purchases of Equity Securities by the Issuer and Affiliated
Purchasers

None.

Item 6. Selected Financial Data.

Not applicable.

Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations.

Overview

Because we are in the development stage and are yet to attain
profitable operations, in their report on our financial statements for the year
ended August 31, 2010, our independent auditors included an explanatory
paragraph regarding the substantial doubt about our ability to continue as a
going concern.

The following discussion should be read in conjunction with our
audited consolidated financial statements for the year ended August 31, 2010 and
the related notes that appear elsewhere in this annual report. The following
discussion contains forward-looking statements that reflect our plans, estimates
and beliefs. Our actual results could differ materially from those discussed in
the forward looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and elsewhere
in this annual report, particularly in the section entitled Risk Factors
beginning on page 10 of this annual report.

Our audited financial statements are stated in United States
dollars and are prepared in accordance with United States generally accepted
accounting principles.

Overview

We were incorporated in the state of Nevada on December 2,
2008. Our wholly-owned subsidiary, Passport Arts Inc., was incorporated in the
province of Quebec, Canada on December 10, 2008.

We are in the business of selling artworks through the
Internet. We procure artworks from emerging artists working primarily in the
Caucasus and Central Asia for sales in developed art markets like the United
States, the United Kingdom, Europe, and Canada and, in future expansion,
developing art markets including Russia and China. Through our subsidiary,
Passport Arts Inc., incorporated in the province of Quebec, Canada, we operate
our primary sales vehicle, passportarts.com, and we showcase artworks in an
online gallery located at that website. Artworks range in price from $300 to
$10,000.

Our business is located in Montreal, Canada, but we intend to
serve a clientele base worldwide through our current and future operating
partners. We have establishedand intend to continue to establishrelationships
with art professionals in strategic regions around the world who can, through
their expertise, source and nurture relationships with artists to develop our
business. We depend on our Vice-president, Procurement, Hasmik Ginoyan, who is
also Director of Exhibitions at the National Gallery of Armenia to use her
extensive contacts throughout the Caucasus and Central Asia to establish
relationships directly with artists or art professional like herself who will
source unique and undiscovered artists in their respective regions to showcase
on PassportArts.com.

In order to be profitable, we need to grow and expand our
product offering. Currently we have approximately 248 artworks for sale. We will
need to significantly increase that number in order to offer something for
everyone. As well, we will need to offer lower-cost products such as poster
reproductions from the original art to supplement revenue. We will need to translate the site to other major
languages like French, Spanish, Chinese and Russian in order to reach more
potential buyers. To accommodate these future initiatives, our website must be
able to handle the larger product offering and increased traffic.

19

---

As a result of our failure to generate substantial revenues
from our current business, we are simultaneously seeking compatible or alternate
business opportunities with established business entities for the merger of a
target business with our company. In certain instances, a target business may
wish to become a subsidiary of us or may wish to contribute assets to us rather
than merge. We have not entered into any definitive agreements to enter into a
business acquisition or opportunity to date and there can be no assurance that
we will be able to enter into any definitive agreements. When any such agreement
is reached, we intend to disclose such an agreement by filing a current report
on Form 8-K with the Securities and Exchange Commission.

The search for new business opportunities, and any due
diligence required in connection with such business opportunities, is expected
to be undertaken by Asbed Palakian, our president and chief executive officer,
who is not a professional business analyst. In seeking or analyzing prospective
business opportunities, Mr. Palakian may utilize the services of outside
consultants or advisors. Management does not have the capacity to conduct as
extensive an investigation of a target business as might be undertaken by a
venture capital fund or similar institution. As a result, management may elect
to merge with a target business which has one or more undiscovered shortcomings
and may, if given the choice to select among target businesses, fail to enter
into an agreement with the most investment-worthy target business.

In implementing a structure for a particular business
acquisition or opportunity, we may become a party to a merger, consolidation,
reorganization, joint venture, or licensing agreement with another corporation
or entity. We may also acquire stock or assets of an existing business. Upon the
consummation of a transaction, it is likely that our present management will no
longer be in control of our company. In addition, it is likely that our officer
and director will, as part of the terms of the acquisition transaction, resign
and be replaced by one or more new officers and directors.

We anticipate that any new acquisition or business opportunity
by our company will require additional financing. There can be no assurance,
however, that we will be able to acquire the financing necessary to enable us to
pursue such an acquisition or opportunity. If our company requires additional
financing and we are unable to acquire such funds, our business may fail.

Sources of Revenue

We generate revenue by selling artworks showcased in an online
gallery located at our website, passportarts.com. Currently, the sales of the
artworks from Seven Arts account for approximately 65% of our total sales, while
the sales of the prints of Vasgen Degirmentass photographs account for
approximately 35% of our total sales. While we anticipate selling more prints of
Mr. Degirmentass photographs than the artworks from Seven Arts, we anticipate
that we will generate more cash from selling the artworks from Seven Arts than
from selling the prints of Mr. Degirmentass photographs because of the
differences in retail price.

If our existing relationship with Seven Arts or Vasgen
Degirmentas deteriorates or is terminated in the future, and we are not
successful in establishing a relationship with an alternative supplier at prices
and products currently offered by Seven Arts Ltd. or Vasgen Degirmentas, our
results of operations could be adversely affected. In addition, a significant
decline in the financial condition of Seven Arts Ltd. or Vasgen Degirmentas, a
material rise in their prices or a reduction in the number of products currently
available from them could adversely affect our results of operations. In order
to reduce our reliance on Seven Arts or Vasgen Degirmentas, we need to identify
greater sources of artwork to offer to our customers. It is not known whether we
will be able to identify such sources.

In order to be successful, we need to attract and retain a high
volume of online customers to our website at a reasonable cost. We may not be
able to convert a large number of customers from traditional shopping methods to
online shopping for artworks and as a result may never achieve widespread
customer acceptance of shopping for artworks online. Specifically, customers may
not wish to change the way they purchase artworks and may feel it is necessary
to view the actual artworks rather than pictures before purchasing them. In
addition, customers may not be willing to make orders online due to perceived
security issues or pricing that does not meet customer expectations. As a result
we may never drive sufficient revenues from our operations in order to become a
profitable enterprise. In order to increase our customer base, we plan to increase our
marketing efforts, but it is not known whether our efforts can lead to the
increased customer base to make our company profitable.

20

---

Demand for artworks is affected by the general economic
conditions in the United States and Canada. When economic conditions are
favorable, management expects purchases of non-essential items like artworks to
increase, and therefore expects our revenue to increase. When economic
conditions are less favourable, management expects sales of artworks to be
lower. Therefore, any significant economic downturn could have a material
adverse effect on our financial condition and results of operations.

The fluctuations in United States dollar can have a favorable
or unfavorable impact on our future net sales and revenues. All transactions on
our website are in United States dollars. However, because our clientele is
based around the world, the relationship between their currency and United
States dollar is an influencing factor on our future sales.

Results of Operations

For the year ended August 31, 2010 and for the period
from December 2, 2008 (Date of Inception) to August 31, 2009

The following table summarizes our operating results for the
year ended August 31, 2010 and for the period from December 2, 2008 (Date of
Inception) to August 31, 2009:

From December 2, 2008(Date of Inception) toAugust 31, 2010
    
    
    August 31, 2009Revenue
    $
    10,141
    
    $
    2,516Cost of Sales
    $
    4,766
    
    $
    1,417Gross Margin
    $
    5,375
    
    $
    1,099Expenses
    $
    76,321
    
    $
    37,423Gain/Loss on Sale of Assets
    $
    (212
    )
    $
    -Net
      Loss
    $
    70,734
    
    $
    36,324


During the year ended August 31, 2010, we generated revenues of
$10,141 with cost of sales of $4,766, resulting in gross maring of $5,375. We
generated revenues primarily from the sale of artwork through our website. The
cost of sales primarily consisted of the artwork itself.

During the period from December 2, 2008 (date of inception) to
August 31, 2009, we generated revenues of $2,516 with cost of sales of $1,417,
resulting in gross margin of $1,099. We generated revenues primarily from the
sale of artwork through our website. The cost of sales primarily consisted of
the artwork itself.

There are minimal revenues and management cannot offer any
assurance that we will continue to generate revenues as our revenues are
affected by factors such as the success of our marketing efforts, the size of
our customer base, the number of the sources of artwork and general economic
conditions.

During the year ended August 31, 2010, we incurred expenses of
$76,321, entirely consisting of general and administrative expenses. Our general
and administrative expenses primarily consisted of legal and accounting fees,
rent and website construction. Initially, a significant portion of our expenses
were attributed to one-time legal fees for the preparation of contracts and fees
related to the preparation of the registration statement for the public offering
of the shares of our common stock held by some of our stockholders.

During the period from December 2, 2008 (date of inception) to
August 31, 2009, we incurred expenses of $37,423, entirely consisting of general
and administrative expenses. Our general and administrative expenses primarily
consisted of legal and accounting fees, rent and website construction.

21

---

Management anticipates expenses to rise over the foreseeable
future as marketing expenses increase as a result of our efforts to increase our
revenues. Beginning January 2011, we plan to increase our marketing efforts
including directing our marketing efforts to specific ethnic communities in the
United States and Canada. In early-2011, we plan to launch French and Spanish
parallel sites to passportarts.com. By the end of 2011, we plan to launch
Russian and Chinese parallel sites to passportarts.com to better penetrate into
these two growing art markets. Management also anticipates expenses to rise as
we face increased professional costs from being a public company.

Since we only recently commenced business operations,
management does not believe past performance is indicative of future
performance.

Liquidity and Capital Resources

Working Capital

As at August 31,
    
    
    As at August 31,2010
    
    
    2009Current assets
    $
    551
    
    $
    18,577Current liabilities
    $
    92,584
    
    
    39,876Working capital (deficiency)
    $
    (92,033
    )
    $
    (21,299
    )


As at August 31, 2010, we had cash of $551 and working capital
deficit of $92,033. We have incurred operating losses since inception, and this
is likely to continue in the foreseeable future.

We require funds to enable us to address our minimum current
and ongoing expenses. Presently, our revenue is not sufficient to meet our
operating and capital expenses. Management projects that we may require an
additional $55,600 to fund our operating expenditures for the next twelve month
period as follows:

Legal, audit and accounting fees
    $
    24,000Trademark expenses
    
    2,000Advertising expenses
    
    15,000Rents
    
    9,600Miscellaneous expenses
    
    5,000Total
    $
    55,600


We anticipate that our cash on hand and the revenue that we
anticipate generating going forward from our operations will not be sufficient
to satisfy all of our cash requirements for the next twelve month period. We
currently do not have committed sources of additional financing and may not be
able to obtain additional financing, particularly, if the volatile conditions in
the stock and financial markets persist. If we require any additional financing,
we plan to raise any such additional capital primarily through equity financing
and loans from our directors, provided that such funding continues to be
available to our company. We plan to continue to seek additional funds from our
directors to fund our day-to-day operations until equity financing can be
pursued. We have no guarantee that our directors will continue to fund our
day-to-day operations. The issuance of additional equity securities by our
company may result in a significant dilution in the equity interests of our
current stockholders. There is no assurance that we will be able to obtain
further funds required for our continued operations or that additional financing
will be available to us when needed or, if available, that it can be obtained on
commercially reasonable terms. If we are not able to obtain additional financing
as required on a timely basis, we will not be able to meet certain obligations
as they become due and we will be forced to scale down or perhaps even cease our
operations.

Because we are in the development stage and are yet to attain
profitable operations, in their report on our financial statements for the year
ended August 31, 2010, our independent auditors included an explanatory
paragraph regarding the substantial doubt about our ability to continue as a
going concern. We have not yet achieved profitable operations, have accumulated
losses since our inception and expect to incur further losses in the development
of our business, all of which raise substantial doubt about our ability to
continue as a going concern. Our ability to continue as a going concern is
dependent upon our ability to generate future profitable operations and/or to
obtain the necessary financing to meet our obligations and repay our
liabilities arising from normal business operations when they come due. The
issuance of additional equity securities by us could result in a significant
dilution in the equity interests of our current stockholders. Obtaining
commercial loans, assuming those loans would be available, will increase our
liabilities and future cash commitments.

22

---

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that is material to
investors.

Item 7A. Quantitative and Qualitative Disclosures About
Market Risk.

Not applicable.

Item 8. Financial Statements and Supplementary Data.

Our financial statements are stated in United States Dollars
(US$) and are prepared in accordance with United States Generally Accepted
Accounting Principles.

The Report of the Independent Registered Public Accounting Firm
by MaloneBaily, LLP for the audited financial statements for the year ended
August 31, 2010 are included herein immediately preceding the audited financial
statements.

23

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM



To the Stockholders and Board of Directors,Passport Arts
Inc. (A Development Stage Company) 
  Vancouver, British Columbia, Canada

We have audited the accompanying balance sheets of Passport
Arts Inc. (A Development Stage Company) as of August 31, 2010 and 2009 and the
related statements of operations, cash flows, and stockholders equity for the
year ended August 31, 2010 and for the period from December 2, 2008 (date of
inception) through August 31, 2010 and 2009. These financial statements are the
responsibility of the Passport Arts management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, these financial statements referred to above
present fairly, in all material respects, the financial position of Passport
Arts Inc. as of August 31, 2010 and 2009 and the results of their operations and
their cash flows for the year ended August 31, 2010 and the period from December
2, 2008 (date of inception) through August 31, 2010 and 2009, in conformity with
accounting principles generally accepted in the United States of America.

The accompanying financial statements referred to above have
been prepared assuming that Passport Arts Inc. will continue as a going concern.
As discussed in Note 2 to the financial statements, Passport Arts Inc. is in the
development stage and is yet to attain profitable operations which raise
substantial doubt about the its ability to continue as a going concern.
Managements plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.



/s/ MaloneBailey, LLP
  MaloneBailey, LLP 
  www.malone-bailey.comHouston, TX

  October 25, 2010

24

---

PASSPORT ARTS INC. (A Development Stage Company) 
  BALANCE SHEETS

|                                                                                                                                |   | August 31, |   |   | August 31, |  
|------------------------------------------------------------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                                                                                                |   | 2010       |   |   | 2009       |  
|ASSETS                                                                                                                          |  
|                                                                                                                                |   |            |   |   |            |  
|Current assets                                                                                                                  |   |            |   |   |            |  
|Cash                                                                                                                            | $ | 551        |   | $ | 16,577     |  
|Prepaid fees
      and expenses                                                                                                 |   | -          |   |   | 2,000      |  
|                                                                                                                                |   |            |   |   |            |  
|                                                                                                                                |   |            |   |   |            |  
|Total current assets                                                                                                            | $ | 551        |   | $ | 18,577     |  
|                                                                                                                                |   |            |   |   |            |  
|                                                                                                                                |   |            |   |   |            |  
|LIABILITIES AND STOCKHOLDERS
      DEFICIT                                                                                     |  
|                                                                                                                                |   |            |   |   |            |  
|Current liabilities                                                                                                             |   |            |   |   |            |  
|Accounts payable and accrued
      liabilities                                                                                  | $ | 28,711     |   | $ | 15,384     |  
|Related party
      loan                                                                                                        |   | 63,873     |   |   | 24,492     |  
|                                                                                                                                |   |            |   |   |            |  
|                                                                                                                                |   | 92,584     |   |   | 39,876     |  
|                                                                                                                                |   |            |   |   |            |  
|Stockholders Deficit                                                                                                           |   |            |   |   |            |  
|Preferred
      stock, $0.01 par value, 100,000,000 shares             
      authorized, -0- shares issued and outstanding     |   |            |   |   |            |  
|Common
      Stock, $0.001 par value; 100,000,000 shares             
      authorized, 3,893,600 shares issued and outstanding |   | 3,894      |   |   | 3,984      |  
|Additional paid in capital                                                                                                      |   | 11,131     |   |   | 11,131     |  
|Deficit accumulated during development stage                                                                                    |   | (107,058   | ) |   | (36,324    | )
|                                                                                                                                |   |            |   |   |            |  
|Total stockholders deficit                                                                                                     |   | (92,033    | ) |   | (21,299    | )
|                                                                                                                                |   |            |   |   |            |  
|Total liabilities and stockholders deficit                                                                                     | $ | 551        |   | $ | 18,577     |  

See summary of accounting policies and notes to financial
statements.

25

---

PASSPORT ARTS INC.(A Development Stage Company)

  STATEMENT OF OPERATIONS

|                                                           |   |            |   |   | December 2,   |   |   | December 2,   |  
|---------------------------------------------------------- | - | ---------- | - | - | ------------- | - | - | ------------- | -
|                                                           |   |            |   |   | 2008 (Date of |   |   | 2008 (Date of |  
|                                                           |   | Year ended |   |   | Inception) to |   |   | Inception) to |  
|                                                           |   | August 31, |   |   | August 31,    |   |   | August 31,    |  
|                                                           |   | 2010       |   |   | 2009          |   |   | 2010          |  
|                                                           |   |            |   |   |               |   |   | (Cumulative)  |  
|                                                           |   |            |   |   |               |   |   |               |  
|Revenue                                                    | $ | 10,141     |   | $ | 2,516         |   | $ | 12,657        |  
|Cost of Sales                                              |   | 4,766      |   |   | 1,417         |   |   | 6,183         |  
|                                                           |   |            |   |   |               |   |   |               |  
|                                                           |   |            |   |   |               |   |   |               |  
|Gross Margin                                               |   | 5,375      |   |   | 1,099         |   |   | 6,474         |  
|                                                           |   |            |   |   |               |   |   |               |  
|Expenses                                                   |   |            |   |   |               |   |   |               |  
|General and
      administrative                           |   | 76,321     |   |   | 37,423        |   |   | 113,532       |  
|                                                           |   |            |   |   |               |   |   |               |  
|Gain/Loss on Sale of
      Assets                          |   | (212       | ) |   | -             |   |   | (212          | )
|                                                           |   |            |   |   |               |   |   |               |  
|                                                           |   |            |   |   |               |   |   |               |  
|Net loss for the period                                    | $ | (70,734    | ) | $ | (36,324       | ) | $ | (107,058      | )
|                                                           |   |            |   |   |               |   |   |               |  
|Basic and diluted loss per
      common share              | $ | (0.02      | ) | $ | (0.03         | ) |   | n/a           |  
|                                                           |   |            |   |   |               |   |   |               |  
|Weighted average number of
      common shares outstanding |   | 3,893,600  |   |   | 1,443,660     |   |   | n/a           |  

See summary of accounting policies and notes to financial
statements.

26

---

PASSPORT ARTS INC. (A Development Stage Company)

  STATEMENT OF CASH FLOWS

|                                                                                  |   | Year       |   |   | December    |   |   | December 2,     |  
|--------------------------------------------------------------------------------- | - | ---------- | - | - | ----------- | - | - | --------------- | -
|                                                                                  |   | Ended      |   |   | 2, 2008     |   |   | 2008(Inception) |  
|                                                                                  |   | August 31, |   |   | (Inception) |   |   | through         |  
|                                                                                  |   | 2010       |   |   | through     |   |   | August 31, 2010 |  
|                                                                                  |   |            |   |   | August 31,  |   |   |                 |  
|                                                                                  |   |            |   |   | 2009        |   |   |                 |  
|Cash Flows From Operating Activities:                                             |   |            |   |   |             |   |   |                 |  
|Net loss                                                                          | $ | (70,734    | ) | $ | (36,324     | ) | $ | (107,058        | )
|Adjustments to reconcile net loss to net
      cash used in operating activities: |   |            |   |   |             |   |   |                 |  
|Prepaids                                                                          |   | 2,000      |   |   | (2,000      | ) |   | -               |  
|Accounts payable and accrued liabilities                                          |   | 13,327     |   |   | 15,384      |   |   | 28,711          |  
|                                                                                  |   |            |   |   |             |   |   |                 |  
|Net cash used in operating activities                                             |   | (55,407    | ) |   | (22,940     | ) |   | (78,347         | )
|                                                                                  |   |            |   |   |             |   |   |                 |  
|Cash Flows From Financing Activities:                                             |   |            |   |   |             |   |   |                 |  
|Proceeds from related party loan                                                  |   | 39,381     |   |   | 24,492      |   |   | 63,873          |  
|Proceeds from common stock sales                                                  |   | -          |   |   | 15,025      |   |   | 15,025          |  
|                                                                                  |   |            |   |   |             |   |   |                 |  
|Cash provided by financing activities                                             |   | 39,381     |   |   | 39,517      |   |   | 78,898          |  
|                                                                                  |   |            |   |   |             |   |   |                 |  
|Net change in cash                                                                |   | (16,026    | ) |   | 16,577      |   |   | 551             |  
|                                                                                  |   |            |   |   |             |   |   |                 |  
|Cash, Beginning of Period                                                         |   | 16,577     |   |   | -           |   |   | -               |  
|                                                                                  |   |            |   |   |             |   |   |                 |  
|Cash, End of Period                                                               | $ | 551        |   | $ | 16,577      |   | $ | 551             |  
|                                                                                  |   |            |   |   |             |   |   |                 |  
|Supplemental Disclosures of Cash FlowInformation:                                 |   |            |   |   |             |   |   |                 |  
|                                                                                  |   |            |   |   |             |   |   |                 |  
|Interest paid                                                                     | $ | -          |   | $ | -           |   | $ | -               |  
|                                                                                  |   |            |   |   |             |   |   |                 |  
|Income taxes paid                                                                 | $ | -          |   | $ | -           |   | $ | -               |  

See summary of accounting policies and notes to financial
statements.

27

---

PASSPORTARTS INC. (A Development Stage
Company) STATEMENT OF STOCKHOLDERS' DEFICIT 
  From December 2, 2008 (Date of Inception) to August 31, 2010

|                                                                            |  |              |  |   |                 |  |   | Additional         |  |   | Deficit           |   |   |         |  
|--------------------------------------------------------------------------- |  | ------------ |  | - | --------------- |  | - | ------------------ |  | - | ----------------- | - | - | ------- | -
|                                                                            |  | Common Stock |  |   | Paid- In        |  |   | Accumulated during |  |   |                   |  
|                                                                            |  | Shares       |  |   | Par
      value |  |   | Capital            |  |   | Exploration Stage |   |   | Total   |  
|                                                                            |  |              |  |   |                 |  |   |                    |  |   |                   |   |   |         |  
|Common stock issued for cash at initial capitalization
      - at $0.001    |  | 3,150,100    |  | $ | 3,150           |  | $ | -                  |  | $ | -                 |   | $ | 3,150   |  
|                                                                            |  |              |  |   |                 |  |   |                    |  |   |                   |   |   |         |  
|Common stock issued for cash pursuant to private
      placement - at $0.01 |  | 725,000      |  |   | 725             |  |   | 6,525              |  |   | -                 |   |   | 7,250   |  
|                                                                            |  |              |  |   |                 |  |   |                    |  |   |                   |   |   |         |  
|Common stock issued for cash pursuant to private
      placement - at $0.25 |  | 18,500       |  |   | 19              |  |   | 4,606              |  |   | -                 |   |   | 4,625   |  
|                                                                            |  |              |  |   |                 |  |   |                    |  |   |                   |   |   |         |  
|Net Loss                                                                    |  |              |  |   |                 |  |   |                    |  |   | (36,324           | ) |   | (36,324 | )
|                                                                            |  |              |  |   |                 |  |   |                    |  |   |                   |   |   |         |  
|Balance at August 31, 2009                                                  |  | 3,893,600    |  |   | 3,894           |  |   | 11,131             |  |   | (36,324           | ) |   | (21,299 | )
|                                                                            |  |              |  |   |                 |  |   |                    |  |   |                   |   |   |         |  
|Net Loss                                                                    |  |              |  |   |                 |  |   |                    |  |   | (70,734           | ) |   | (70,734 | )
|                                                                            |  |              |  |   |                 |  |   |                    |  |   |                   |   |   |         |  
|Balance at August 31, 2010                                                  |  | 3,893,600    |  | $ | 3,894           |  | $ | 11,131             |  | $ | (107,058          | ) | $ | (92,033 | )

See summary of accounting policies and notes to financial
statements.

---

Passport Arts Inc. (A Development Stage Company)
  Notes to the Financial Statements

|Note 1 | Description of Business and Significant Accounting
      Policies                                                                                                                                                                                                                                                                                                                                                                                                                         
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       | Passport Arts Inc. (Passport Arts) incorporated in the
      State of Nevada on December 2, 2008 and Passport Arts wholly-owned
      subsidiary was incorporated in the province of Quebec, Canada on December
      10, 2008. Passport Arts intends to sell artwork from an on-line gallery.
      Passport Arts procures artwork directly from artists working primarily in
      the Caucasus and Central Asia for sales in developed art markets like the
      US, UK and Canada.
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       | At August 31, 2010, substantially all of Passport Arts
      assets and operations are located and conducted in Canada.                                                                                                                                                                                                                                                                                                                                                                   
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       | Summary of Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                

| | a) | Development Stage                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | Passport Arts is a development stage company as defined
      in ASC 915-15, as it is devoting substantially all of its efforts to
      developing markets for its product and there have been no significant
      revenues from planned principal operations from inception through August
      31, 2010. Consequently accumulated amounts are shown from the commencement
      of this development stage, December 2, 2008.                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | b) | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | 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 amount of assets and liabilities and disclosures of
      contingent assets and liabilities at the date of the financial statements
      and the reported amounts of revenues and expenses during the reporting
      period. While it is believed that such estimates are reasonable, actual
      results could differ significantly from those estimates.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | c) | Cash and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | For statement of cash flows purposes, Passport Arts
      considers all cash on hand and in banks, certificates of deposit and other
      highly-liquid investments with maturities of three months or less, when
      purchased, to be cash and cash equivalents.                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | d) | Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | Passport Arts recognizes revenue in accordance with the
      criteria outlined in the Securities Exchange Commission Staff Accounting
      Bulletin No. 104 (SAB 104) Revenue Recognition. Revenues will be
      recognized when persuasive evidence of an arrangement exists, services
      have been rendered, the sales price is fixed or determinable, and
      collectability is reasonably assured.                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | e) | Web Site Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | The Company accounts for web site costs maintenance with
      ASC 350, Accounting for Costs of Computer Software Developed or Obtained
      for Internal Use, ASC 985, Accounting for the Costs of Computer Software
      to be Sold, Leased, or Otherwise Marketed and ASC 350, Accounting for
      Web Site Development Costs. Accordingly web site development costs that
      are incurred during the application and web site infrastructure stage and
      the graphic and content development stages are
  capitalized.                                                        

---

Passport Arts Inc. (A Development Stage Company)
  Notes to the Financial Statements

| |    | The Companys management has also determined that it is
      probable the project will be completed and the software will be used as
      intended. The capitalized costs of web site development will be amortized
      over three years on a straight-line basis upon completion of its
      development and commencement of its use.                                                                                                                                                                                                                                                                                                                                                                                                               
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | Web site costs incurred during the planning stage and
      pre-operating stage are expensed as incurred. From inception through
      August 31, 2010, $5,475 ($5,700 CDN) was expensed as website development
      costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | f) | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | Passport Arts uses the assets and liability method of
      accounting for income taxes pursuant to ASC 740 Accounting for Income
      Taxes. Under the assets and liability method of ASC 740, deferred tax
      assets and liabilities are recognized for the future tax consequences
      attributable to temporary differences between the financial statements
      carrying amounts of existing assets and liabilities and their respective
      tax bases. Deferred tax assets and liabilities are measured using enacted
      tax rates expected to apply to taxable income in the years in which those
      temporary differences are expected to be recovered or settled.                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | Effective December 2, 2008, Passport Arts implemented the
      ASC 740, Accounting for Uncertainty in Income Taxes. The interpretation
      clarifies the accounting for uncertainty in income taxes recognized in a
      companys financial statements in accordance with ASC 740. Specifically,
      the pronouncement prescribes a recognition threshold and a measurement
      attribute for the financial statement recognition and measurement of a tax
      position taken or expected to be taken in a tax return. The interpretation
      also provides guidance on the related derecognition, classification,
      interest and penalties, accounting for interim periods, disclosure and
      transition of uncertain tax position.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | g) | Basic Loss Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | Passport Arts reports basic loss per share in accordance
      with ASC 260, Earnings Per Share. Basic earnings (loss) per share is
      computed by dividing the net income (loss) available to common
      shareholders by the weighted average number of common shares outstanding
      during the respective period presented in our accompanying financial
      statements. Fully diluted earnings (loss) per share is computed similar to
      basic income (loss) per share except that the denominator is increased to
      include the number of common stock equivalents (primarily outstanding
      options and warrants). At August 31, 2010, Passport Arts had no
      outstanding common stock equivalents.                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | h) | Stock based compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | Passport Arts recognizes stock based compensation under
      ASC 718 requires companies to measure the cost of employee services
      received in exchange for an award of an equity instrument based on the
      grant-date fair value of the award. Passport Arts accounts for
      non-employee share-based awards in accordance with ASC 505-50, Accounting
      for Equity Instruments That Are Issued to Other Than Employees for
      Acquisition, or in Conjunction with Selling, Goods or
  Services.                                                                                                                                                                                                                                    

---

Passport Arts Inc. (A Development Stage Company)
  Notes to the Financial Statements

| | i) | Currency Translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | Passport Arts functional and reporting currency is the
      United States dollar. Monetary assets and liabilities denominated in
      foreign currencies are translated into United States dollars at rates of
      exchange in effect at the balance sheet date in accordance with ASC 830,
      Foreign Currency Translation. Non-monetary assets, liabilities and items
      recorded in income arising from transactions denominated in foreign
      currencies are translated at rates of exchange in effect at the date of
      the transaction. Foreign currency transactions are primarily undertaken in
      Canadian dollars. Passport Arts has not, to the date of these financial
      statements, entered into derivative instruments to offset the impact of
      foreign currency fluctuations. As of August 31, 2010, the impact of
      foreign currency translations were nominal.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | j) | Recently Issued Accounting
Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | We do not expect the adoption of recently issued
      accounting pronouncements to have a significant impact on our results of
      operations, financial position or cash flow.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|Note 2 | Going Concern                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|       | These financial statements have been prepared in
      accordance with generally accepted accounting principles applicable to a
      going concern, which assumes that Passport Arts will be able to meet its
      obligations and continue its operations for its next fiscal year.
      Realization values may be substantially different from carrying values as
      shown and these financial statements do not give effect to adjustments
      that would be necessary to the carrying values and classification of
      assets and liabilities should Passport Arts be unable to continue as a
      going concern. At August 31, 2010, Passport Arts had not yet achieved
      profitable operations, has accumulated losses since its inception and
      expects to incur further losses in the development of its business, all of
      which raise substantial doubt about Passport Arts ability to continue as
      a going concern. Passport Arts ability to continue as a going concern is
      dependent upon its ability to generate future profitable operations and/or
      to obtain the necessary financing to meet its obligations and repay its
      liabilities arising from normal business operations when they come due.
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Note 3 | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|       | The Company uses the asset and liability method of
      accounting for deferred income taxes wherein deferred tax assets and
      liabilities are determined based on the expected future tax consequences
      of temporary differences between the carrying amounts of assets and
      liabilities for financial and income tax reporting purposes at rates
      expected to be in effect when the differences are realized. During fiscal
      2010, the Company incurred net losses and therefore has no current tax
    liability.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

---

Passport Arts Inc. (A Development Stage Company) 
  Notes to the Financial Statements

|Note 3 | Income Taxes(continued)                                                                                                                                                                                                                                                                             
|------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                     
|       | The net deferred tax asset generated by the Companys net operating loss carry-forwards
      has been fully reserved. The cumulative net operating loss carry-forward
      is approximately $106,000 at August 31, 2010. At August 31, 2010, deferred
      tax assets consisted of the following:

August 31, 2010
    
    
    August 31, 2009Deferred tax assetsNet operating losses
    $
    36,290
    
    
    5,500Less: valuation allowance
    
    (36,290
    )
    
    (5,500
    )Net deferred tax assets
    $
    -
    
    $
    -


|Note 4 | Related Party Loan                                                                                                                                             
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                
|       | The loan is payable to Asbed Palakian, the President of
      the Company and is unsecured, non-interest bearing and has no specific
      terms for repayment.
|       |                                                                                                                                                                
|Note 5 | Related Party Transactions                                                                                                                                     

| | (a) | On December 2, 2008, the Company issued 2,887,500 shares
      of common stock to the President of the Company at $0.001 per share for
      cash proceeds of $2,888.                                                                                                        
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                              
| | (b) | On December 2, 2008, the Company issued 131,250 shares of
      common stock to a director of the Company at $0.001 per share for cash
      proceeds of $131.                                                                                                               
| |     |                                                                                                                                                                                                                                                                              
| | (c) | The President provides office premises to the Company at
      $960 ($1,000 CDN) per month. During the year ended August 31, 2010, rent
      of $11,472 ($12,000 CDN) was charged to operations. On September 1, 2010,
      the lease was extended in month to month basis.
| |     |                                                                                                                                                                                                                                                                              
| | (d) | Included in accounts payable and accrued liabilities is
      an amount of $19,551 ($20,500 CDN) due to the President of the Company for
      unpaid rent. The amount is unsecured, non-interest bearing and has no
      specific terms for repayment                      

|Note 6 | Common Stock
|------ | ------------

| | (a) | On December 2, 2008 the Company issued 131,250 shares of
      common stock to a non-US person at $0.001 per share for cash proceeds of
      $131.                  
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                      
| | (b) | On December 2, 2008, the Company issued 2,887,500 shares
      of common stock to the President of the Company at $0.001 per share for
      cash proceeds of $2,888.
| |     |                                                                                                                                                                      
| | (c) | On January 20, 2009, the Company issued 131,250 shares of
      common stock to a director of the Company at $0.001 per share for cash
      proceeds of $131.       
| |     |                                                                                                                                                                      
| | (d) | In February 2009, the Company issued 725,000 shares of
      common stock to non-US persons at $0.01 per share for cash proceeds of
      $7,250.                    
| |     |                                                                                                                                                                      
| | (e) | In April 2009, the Company issued 18,500 shares of common
      stock to non-US persons at $0.25 per share for cash proceeds of
    $4,625.                          

---

Passport Arts Inc. (A Development Stage Company) 
  Notes to the Financial Statements

|Note 7 | Subsequent Events
|------ | -----------------

| | (a) | On September 15, 2010, the President of the company
      advanced $8,000 and the loan is unsecured, bearing no interest, and due on
      demand.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------

---

Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.

None.

Item 9A(T). Controls and Procedures.

Disclosure Controls and Procedures

Under the supervision and with the participation of our
management, including our principal executive officer and our principal
financial officer, we evaluated the effectiveness of our disclosure controls and
procedures in ensuring that the information required to be disclosed in our
filings under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commissions rules and forms, including ensuring that such information
is accumulated and communicated to our managementas
appropriate to allow timely decisions regarding required disclosure. Based on
this evaluation, our principal executive officer and our principal financial
officer concluded that our disclosure controls and procedures were not effective
as of the end of the period covered by this report, being August 31, 2010. The
ineffectiveness of our disclosure controls and procedures were due to a lack of
segregation of duties and not having an audit committee.

Managements Annual Report on Internal Control Over Financial
  Reporting

Our management is responsible for establishing and maintaining
adequate internal control over financial reporting and for the assessment of the
effectiveness of internal control over financial reporting. Internal control
over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated
under the Securities Exchange Act of 1934 as a process designed by, or under the
supervision of, our principal executive officer and our principal financial
officer and effected by our board of directors, management and other personnel,
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. Our internal control over
financial reporting is supported by written policies and procedures that: (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of our assets; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles and that receipts and expenditures of our company are
being made only in accordance with authorizations of our management and
directors; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our assets that
could have a material effect on the financial statements.

Our internal control system was designed to provide reasonable
assurance to our management and board of directors regarding the preparation and
fair presentation of published financial statements. All internal control
systems, no matter how well designed, have inherent limitations which may not
prevent or detect misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to financial
statement preparation and presentation. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

Management conducted an evaluation of the effectiveness of our
internal control over financial reporting as of the end of our most recent
fiscal year, being August 31, 2010. In making this assessment, management used
the framework set forth in the report entitled Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission, or (COSO). The COSO framework
summarizes each of the components of a companys internal control system,
including (i) the control environment, (ii) risk assessment, (iii) control
activities, (iv) information and communication, and (v) monitoring. Based on
this evaluation, management concluded that our internal control over financial
reporting was not effective as of August 31, 2010. The ineffectiveness of our
internal control over financial reporting was due to a lack of segregation of
duties and not having an audit committee.

Management believes that this material weakness did not have an
effect on our financial results due primarily to the transparency of, ready
access to and periodic review of the bank accounts and bank statements by our
management and directors.

---

This annual report does not include an attestation report of
our registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by our registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit us to provide only management's report in this
annual report.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over
financial reporting that occurred during our fourth fiscal quarter ended August
31, 2010 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

PART III

Item 10. Directors, Executive Officers and Corporate
Governance.

The following individuals serve as the directors and executive
officers of our company as of the date of this annual report. All directors of
our company hold office until the next annual meeting of our shareholders or
until their successors have been elected and qualified. The executive officers
of our company are appointed by our board of directors and hold office until
their death, resignation or removal from office.

Our directors and executive officers, their ages, positions
held, and durations of such are as follows:

Name
      Position Held with Our Company
      Age
      Date First Elected or AppointedAsbed Palakian
    President, Chief Executive
      Officer, Secretary, Treasurer, and Director
    52
    December 2, 2008Constantina Kefallinos
    Director
    49
    December 2, 2008Hasmik Ginoyan
    Vice-President, Procurement
    47
    January 20, 2009


Business Experience

The following is a brief account of the education and business
experience of our directors and executive officers during at least the past five
years, indicating their principal occupations and employment during the period,
and the name and principal business of the organization in which such
occupations or employment were carried on.

Asbed Palakian, President, Chief Executive Officer,
Secretary, Treasurer, and Director

Asbed Palakian has over 30 years experience in cutting edge
media promotion, marketing and advertising. He is the founder of Lumisculpt
Productions Inc. and has been its principal since 1980. Lumisculpt is a
multimedia company that has provided services to world-renowned companies and
individuals for over 25 years. Lumisculpts state-of-the-art production house is
fully digital and consistently produces projects that illuminate, captivate and
entertain. His diverse client roster includes Bombardier, Rolls Royce, Imperial
Tobacco (BAT), Pfizer, Microsoft, Christian Dior, Estee Lauder, Standard Life,
Ferrari, and many more international corporations.

Mr. Palakian has been our president, chief executive officer,
secretary, treasurer, and one of our directors since our incorporation on
December 2, 2008. Mr. Palakian provides executive oversight and strategic
leadership to our company as well as manages the day-to-day operations.

We believe Mr. Palakian is qualified to serve on our board of
directors because of his knowledge of our companys history and current
operations, which he gained from working for our company as described above, in
addition to his business experiences as described above.

---

Constantina (Dina) Kefallinos, Director

Over the past 18 years Dina Kefallinos has developed progressively more senior levels of expertise in global logistics. During her tenure at Domtar Inc., she managed relocation policy and the complete in-house administration of over 250 top
executive transfers throughout North America annually. She then joined Royal LePage Relocation Services Ltd where, for several years, she held a key position in government services overseeing a large staff, nearly half of whom were on-site at the
Department of National Defense headquarters in Ottawa, Canada. Under her administration, the transfer of the highest military personnel on a national and international basis was ensured. She most recently joined Crown Worldwide Group, a global
leader in relocation services, information management and high value logistics, as manager of Canadian corporate accounts.

In addition, Ms. Kefallinos shares both a personal and professional passion for excellence in art management. From 1999 to 2004, she applied her management expertise to the art world as co-owner of two art galleries in Montreal: Le Monde d’Art
and La Boite d’Artiste. She exploits her expertise in both executive global logistics management and her experience in the art world through involvement in our procurement, contractual arrangements, negotiating and strategic
decision-making.

From June 2002 to April 2006, Ms. Kefallinos was a consultant for Ward O’Farrel Consultants in Montreal, Quebec. From April 2006 to September 2008, she was a regional manager, government services, Quebec and National Capital Region, for Royal
LePage Relocation Services in Montreal, Quebec. Since September 2008, she has been an account manager, Eastern Canada, for Crown Relocations in Montreal, Quebec.

Ms. Kefallinos has been one of our directors since our incorporation on December 2, 2008.

We believe Ms. Kefallinos is qualified to serve on our board of directors because of her knowledge of our company’s history and current operations, which she gained from serving our company as one of our directors, in addition to her business
experiences as described above.

Hasmik Ginoyan, Vice-President, Procurement

Hasmik Ginoyan received her certificate in Art Management
  from Harvard University. Since 1980, she has worked at the National Gallery
  of Armenia – one of the most important art galleries of the former Soviet
  Union–and is currently the Director of Exhibitions for the gallery. In
  that role she has organized extensive exhibitions to present and sell Caucasian
  artworks globally in regions including the Middle East, Australasia, North America
  and Europe. Her network of artist contacts is extensive throughout the Caucasus
  and Central Asia. In addition, since 2002, she has been the president of the
  art marketing company Seven Arts Ltd, which functions as one of our global operating
  partners. Seven Arts Ltd. is the publisher of a leading art periodical in the
  Caucasus entitled "Armenian Art Magazine", which is distributed world-wide
  and is published in Armenian, English and French.

Ms. Ginoyan has been our vice-president, procurement since January 20, 2009. Ms. Ginoyan intends to use her existing comprehensive network of contacts to source artworks, contract with artists and arrange for dispatch to buyers.

Directorships of Other Reporting Companies

None of our directors and officers are directors and officers of other reporting companies.

Family Relationships

There are no family relationships between our directors and executive officers.

Involvement in Certain Legal Proceedings

During the past ten years, none of our executive officers or directors have had any of the following events occur:

- a bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

---

- conviction in a criminal proceeding or being subject to a pending criminal
  proceeding, excluding traffic violations and other minor offenses;
- being subject to any order, judgment or decree, not substantially reversed,
  suspended or vacated, of any court of competent jurisdiction, permanently
  enjoining, barring, suspending or otherwise limiting his or her involvement in
  any type of business, securities or banking business;
- being found by a court of competent jurisdiction, in a civil action, the
  SEC or the Commodity Futures Trading Commission to have violated a federal or
  state securities or commodities law, and the judgment has not been reversed,
  suspended or vacated;
- Being the subject of, or a party to, any federal or state judicial or
  administrative order, judgment, decree, or finding, not subsequently reversed,
  suspended or vacated, relating to an alleged violation of: (i) any federal or
  state securities or commodities law or regulation; or (ii) any law or
  regulation respecting financial institutions or insurance companies including,
  but not limited to, a temporary or permanent injunction, order of disgorgement
  or restitution, civil money penalty or temporary or permanent cease-and-desist
  order, or removal or prohibition order; or (iii) any law or regulation
  prohibiting mail or wire fraud or fraud in connection with any business
  entity; or
- being the subject of, or a party to, any sanction or order, not
  subsequently reversed, suspended or vacated, of any self-regulatory
  organization (as defined in Section 3(a)(26) of the Securities Exchange Act of
  1934), any registered entity (as defined in Section 1(a)(29) of the Commodity
  Exchange Act), or any equivalent exchange, association, entity or organization
  that has disciplinary authority over its members or persons associated with a
  member.

Compliance with Section 16(a) of the Securities Exchange Act
of 1934

Section 16(a) of the Exchange Act requires our executive
officers and directors and persons who own more than 10% of our common stock to
file with the SEC initial statements of beneficial ownership, reports of changes
in ownership and annual reports concerning their ownership of our common stock
and other equity securities, on Forms 3, 4 and 5 respectively. Executive
officers, directors and greater than 10% shareholders are required by the SEC
regulations to furnish us with copies of all Section 16(a) reports that they
file.

Based solely on our review of the copies of such forms received
by us, or written representations from certain reporting persons, we believe
that during the fiscal year ended August 31, 2010, all filing requirements
applicable to our officers, directors and greater than 10% percent beneficial
owners were complied with.

Code of Ethics

Our board of directors on October 12, 2010, adopted a formal
written Code of Ethics and Busines Conduct for our directors, senior officers
and employees.

Audit Committee and Audit Committee Financial Expert

Our board of directors has determined that we do not have an
audit committee financial expert as defined in Item 407(d)(5)(ii) of
Regulation S-K under the Exchange Act.

We believe that the members of our board of directors are
collectively capable of analyzing and evaluating our financial statements and
understanding internal controls and procedures for financial reporting. We
believe that retaining an independent director who would qualify as an audit
committee financial expert would be overly costly and burdensome and is not
warranted in our circumstances given the early stages of our development and the
fact that we have not generated any material revenues to date. In addition, we
currently do not have an audit committee or committee performing similar
functions nor do we have a written audit committee charter. Our board of
directors does not believe that it is necessary to have such committees because
it believes the functions of such committee can be adequately performed by our
board of directors.

---

Nominating and Compensation Committees

We do not have nominating or compensation committees, or
committees performing similar functions. Our board of directors believe that it
is not necessary to have a compensation committee at this time because the
functions of such committee are adequately performed by our board of directors.
Our board of directors has not adopted a charter for the compensation committee.

Our board of directors also is of the view that it is
appropriate for us not to have a nominating committee because our board of
directors has performed and will perform adequately the functions of a
nominating committee. Our board of directors has not adopted a charter for the
nomination committee. There has not been any defined policy or procedure
requirements for shareholders to submit recommendations or nomination for
directors. Our board of directors does not believe that a defined policy with
regard to the consideration of candidates recommended by shareholders is
necessary at this time because we believe that, given the early stages of our
development, a specific nominating policy would be premature and of little
assistance until our business operations are at a more advanced level. There are
no specific, minimum qualifications that our board of directors believes must be
met by a candidate recommended by our board of directors. The process of
identifying and evaluating nominees for director typically begins with our board
of directors soliciting professional firms with whom we have an existing
business relationship, such as law firms, accounting firms or financial advisory
firms, for suitable candidates to serve as directors. It is followed by our
board of directors review of the candidates resumes and interview of
candidates. Based on the information gathered, our board of directors then makes
a decision on whether to recommend the candidates as nominees for director. We
do not pay any fee to any third party or parties to identify or evaluate or
assist in identifying or evaluating potential nominee.

Item 11. Executive Compensation.

General

The particulars of the compensation paid to the following
persons:

| | (a) | our principal executive officer;                                                                                                                                                                                                                                                                                           
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                            
| | (b) | each of our two most highly compensated executive
      officers who were serving as executive officers at the end of the year
      ended August 31, 2010 and for the period from December 2, 2008 (Date of
      Inception) to August 31, 2009; and                                                                      
| |     |                                                                                                                                                                                                                                                                                                                            
| | (c) | up to two additional individuals for whom disclosure
      would have been provided under (b) but for the fact that the individual
      was not serving as our executive officer at the end of the year ended
      August 31, 2010 and for the period from December 2, 2008 (Date of
      Inception) to August 31, 2009,

whom we will collectively refer to as the named executive
officers of our company, are set out in the following summary compensation
table, except that no disclosure is provided for any named executive officer,
other than our principal executive officers, whose total compensation did not
exceed $100,000 for the respective fiscal year.

---

Summary Compensation Table  Fiscal Years Ended August 31,
2010 and 2009

Name and Principal
      Position
      Year
      Salary ($)
      Bonus ($)
      Stock Awards ($)
      Option Awards ($)
      Non- Equity IncentivePlan Compensa- tion ($)
      Nonqualified Deferred
      **Compensation**Earnings ($)
      All Other
      **Compensa-** tion ($)
      Total ($)Asbed Palakian 
      President, Chief
      Executive       Officer, Secretary,       Treasurer, and
      Director(1)
    2010 
      2009(2)
    Nil Nil
    Nil Nil
    Nil Nil
    Nil Nil
    Nil Nil
    Nil Nil
    Nil Nil
    Nil NilHasmik Ginoyan 
      Vice-      President,
      Procurement(3)
    2010 
      2009(2)
    Nil Nil
    Nil Nil
    Nil Nil
    Nil Nil
    Nil Nil
    Nil Nil
    Nil Nil
    Nil Nil


|(1) | Asbed Palakian was appointed as our president, chief
      executive officer, secretary, treasurer and one of our directors on
      December 2, 2008.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                       
|(2) | For the period from December 2, 2008 (Date of Inception)
      to August 31, 2009                                                                     
|    |                                                                                                                                                       
|(3) | Hasmik Ginoyan was appointed as our vice-president,
      procurement on January 20, 2009.                                                            

Options Grants During the Last Fiscal Year / Stock Option
Plans

We do not currently have a stock option plan in favor of any
director, officer, consultant or employee of our company. No individual grants
of stock options, whether or not in tandem with stock appreciation rights known
as SARs or freestanding SARs have been made to any executive officer or director
since our inception; accordingly, no stock options have been granted or
exercised by any of the officers or directors since we were founded.

Aggregated Options Exercises in Last Fiscal Year

No individual grants of stock options, whether or not in tandem
with stock appreciation rights known as SARs or freestanding SARs have been made
to any executive officer or any director since our inception; accordingly, no
stock options have been granted or exercised by any of the officers or directors
since we were founded.

Long-Tem Incentive Plans and Awards

We do not have any long-term incentive plans that provide
compensation intended to serve as incentive for performance. No individual
grants or agreements regarding future payouts under non-stock price-based plans
have been made to any executive officer or any director or any employee or
consultant since our inception; accordingly, no future payouts under non-stock
price-based plans or agreements have been granted or entered into or exercised
by any of the officers or directors or employees or consultants since we were
founded.

Compensation of Directors

No director received or accrued any compensation for his or her
services as a director since our inception.

We have no formal plan for compensating our directors for their
services in their capacity as directors. Our directors are entitled to
reimbursement for reasonable travel and other out-of-pocket expenses incurred in
connection with attendance at meetings of our board of directors. Our board of
directors may award special remuneration to any director undertaking any special
services on our behalf other than services ordinarily required of a
director.

---

Employment Contracts, Termination of Employment,
Change-in-Control Arrangements

We have not entered into any employment (or consulting)
agreements or arrangements, whether written or unwritten, with our directors or
executive officers since our inception.

Indebtedness of Directors, Senior Officers, Executive
Officers and Other Management

None of our directors or executive officers or any associate or
affiliate of our company during the last two fiscal years is or has been
indebted to our company by way of guarantee, support agreement, letter of credit
or other similar agreement or understanding currently outstanding.

Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.

Security Ownership of Certain Beneficial Owners and
Management

The following table sets forth, as of the date of this report,
the total number of shares owned beneficially by each of our directors, named
executive officers and current executive officers, individually and our
directors and current executive officers as a group, and the present owners of
5% or more of our total outstanding shares. The shareholder listed below has
direct ownership of his or her shares and possesses sole voting and dispositive
power with respect to the shares.

Name and Address of Beneficial Owner
      Title of Class
      Amount and Nature of Beneficial
        Ownership(1)
      Percentage of Class(2)Asbed Palakian 
        5147 Mountain Sights 
        Montreal, Quebec H3W 2Y1 
        Canada
      Common Stock
      2,887,600
      Direct
      74.2%Constantina Kefallinos 
        5147 Mountain Sights 
        Montreal, Quebec H3W 2Y1 
        Canada
      Common Stock
      341,250
      Direct
      8.8%Hasmik Ginoyan 
        5147 Mountain Sights 
        Montreal, Quebec H3W 2Y1 
        Canada
      Common Stock
      131,250
      Direct
      3.4%Directors and Executive Officers 
        (3  as a group)
      Common Stock
      3,360,100
      86.3%


Notes:

|(1) | Beneficial owner of a security includes any person who,
      directly or indirectly, through any contract, arrangement, understanding,
      relationship, or otherwise has or shares: (i) voting power, which includes
      the power to vote, or to direct the voting of shares; and (ii) investment
      power, which includes the power to dispose or direct the disposition of
      shares. Certain shares may be deemed to be beneficially owned by more than
      one person (if, for example, persons share the power to vote or the power
      to dispose of the shares). In addition, shares are deemed to be
      beneficially owned by a person if the person has the right to acquire the
      shares (for example, upon exercise of an option) within 60 days of the
      date as of which the information is provided. In computing the percentage
      ownership of any person, the amount of shares outstanding is deemed to
      include the amount of shares beneficially owned by such person (and only
      such person) by reason of these acquisition rights. As a result, the
      percentage of outstanding shares of any person as shown in this table does
      not necessarily reflect the persons actual ownership or voting power with
      respect to the number of shares of common stock actually outstanding on
      the date of this report as of which there were 3,893,600 shares of our
      common stock issued and outstanding.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(2) | Based on 3,893,600 number of shares of common stock
      issued and outstanding as of the date of this
report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

Changes in Control

We are unaware of any arrangement the operation of which may at
a subsequent date result in a change of control of our company.

---

Item 13. Certain Relationships and Related Transactions, and
Director Independence.

Transactions with Related Persons

Other than as disclosed below, there has been no transaction,
since our inception on December 2, 2008, or currently proposed transaction, in
which we were or are to be a participant and the amount involved exceeds the
lesser of $120,000 or one percent of the average of our total assets at year end
for the last two completed fiscal years, and in which any of the following
persons had or will have a direct or indirect material interest:

| | (i)   | Any director or executive officer of our
  company;                                                                                                                        
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                            
| | (ii)  | Any person who beneficially owns, directly or indirectly,
      shares carrying more than 5% of the voting rights attached to our
      outstanding shares of common stock;
| |       |                                                                                                                                                                            
| | (iii) | Any of our promoters and control persons; and                                                                                                                              
| |       |                                                                                                                                                                            
| | (iv)  | Any member of the immediate family (including spouse,
      parents, children, siblings and in- laws) of any of the foregoing
      persons.                               

On December 2, 2008, we issued 100 shares of our common stock
to Asbed Palakian, our president, chief executive officer, secretary, treasurer,
and one of our directors, and a beneficial owner of 74.2% of outstanding shares
of our common stock, at $0.001 per share for gross proceeds of $0.10. On
December 2, 2008, we issued 2,887,500 shares of our common stock to Mr. Palakian
at $0.001 per share for gross proceeds of $2,887.50.

On December 2, 2008, we issued 131,250 shares of our common
stock to Constantina Kefallinos, one of our directors, at $0.001 per share for
gross proceeds of $131.25.

On January 20, 2009, we issued 131,250 shares of our common
stock to Hasmik Ginoyan, our vice-president, procurement, at $0.001 per share
for gross proceeds of $131.25.

On December 15, 2008, through our subsidiary, Passport Arts
Inc., a Quebec corporation, we entered into an office rental agreement with
Lumisculpt Productions Inc., a company of which Asbed Palakian is the founder
and principal. Also Mr. Palakian owns and controls Lumisculpt. Pursuant to the
office rental agreement, Lumisculpt agreed to provide us the office space at
5147 Mountain Sights, Montreal, Quebec H3W 2Y1, Canada, where our principal
executive offices are located, and other office related services. We agreed to
pay monthly rent of CDN$1,000, including G.S.T., together with all outstanding
charges and disbursements, to pay interest of 2.0% per month on any invoiced
charges, disbursements or service fees, including interest on interest charges
which are outstanding for more than 30 days, and to pay any taxes or license
fees assessed against us or that portion of the premises occupied by us as
additional rent. The agreement was for a term of 12 months commencing on
December 15, 2008 and thereafter on a month-to-month basis. The agreement may be
terminated by Lumisculpt by giving one months clear written notice to us, or
immediately for cause. The agreement may be terminated by us by giving two
months clear written notice to Lumisculpt, following the six month term,
provided, however, that all terms of the agreement have been complied with by us
to Lumisculpts satisfaction. We owe Lumisculpt Productions Inc. CDN$20,500 for
unpaid rent. The amount is unsecured, non-interest bearing and has no specific
terms for repayment.

Effective January 20, 2009, through our subsidiary, Passport
Arts Inc., a Quebec corporation, we entered into an online marketing and sales
agreement with Seven Arts Ltd. Seven Arts is owned and controlled by Hasmik
Ginoyan, our vice-president, procurement. We agreed to pay Seven Arts $7,000 in
consideration of the entry into this agreement by Seven Arts. The term of this
agreement is 5 years from January 20, 2009, unless terminated earlier by either
party or renewed upon the agreement of both parties.

Pursuant to the online marketing and sales agreement, Seven
Arts agreed to use its commercially reasonable efforts to enter into consignment
agreements with artists, whereby the artists will, among other things, grant
Seven Arts an exclusive license to market and sell their artworks on the
Internet for a six-month term, and renewable thereafter, and Seven Art agreed to
grant us a partial assignment of its exclusive license under the consignment
agreements such that we will be the sole Internet marketer and seller of the
artists artworks. We agreed to use our commercially reasonable efforts to
market, promote and sell the artworks and to solicit orders via the website for
the purchase of the artworks. We have the final approval as to what artworks
will be displayed on our website.

---

Pursuant to the online marketing and sales agreement, Seven
Arts and we agreed to agree upon the retail price for each piece of artworks to
be sold via our website at the time that we agree to market and sell such
artworks on our website. We are to earn an average profit of 25% of the retail
price, and we are to forward the rest of the retail price plus applicable costs
for shipping, taxes, tariffs, customs and levies received from a buyer to Seven
Arts. Upon receiving a buyers order for an artwork and payment of the retail
price plus applicable costs for shipping, taxes, tariffs, customs and levies
through our website, we must promptly notify Seven Arts what artwork has been
purchased and Seven Arts must arrange for the shipment of the purchased artwork
directly to the buyer. All risks relating to the loss, destruction, or damage of
the purchased of artwork were agreed to remain with Seven Arts until the
purchased artwork has arrived and been safely unloaded at the buyers specified
address.

As at August 31, 2010, Mr. Palakian advanced us a total of
$63,873. This loan is unsecured, non-interest bearing and has no specific terms
of repayment. On September 15, 2010, Mr. Palakian also advanced us $8,000. This
loan is unsecured, bearing no interest and due on demand. Since our
incorporation on December 2, 2008, we have not repaid any amount of principal of
these loans to Mr. Palakian.

Director Independence

Our board of directors consists of Asbed Palakian and
Constantina Kefallinos. Our securities are quoted on the OTC Bulletin Board
which does not have any director independence requirements. According to the
definition of independent director used in NASDAQ rule 5605(a)(2), Mr. Asbed
Palakian is not independent an director as he is our President, Chief Executive
Officer, Secretary and Treasurer and Ms. Kefallinos is independent.

Item 14. Principal Accounting Fees and Services.

The aggregate fees billed for the most recently completed
fiscal year ended August 31, 2010 and for period from December 2, 2008 (Date of
Inception) to August 31, 2009 for professional services rendered by the
principal accountants for the audit of our annual financial statements and
review of the financial statements included in our quarterly reports on Form
10-Q and services that are normally provided by the accountants in connection
with statutory and regulatory filings or engagements for these fiscal periods
were as follows:

Period fromDecember 2, 2008(Date of Inception)August 31,
    
    
    to August 31,2010
    
    
    2009Audit Fees
    $
    12,500
    
    $
    6,000Audit Related Fees
    
    -
    
    
    -Tax Fees
    
    -
    
    
    -All Other Fees
    
    -
    
    
    -Total
    $
    12,500
    
    $
    6,000


Policy on Pre-Approval by Audit Committee of Services
Performed by Independent Registered Public Accounting Firm

Our board of directors, which acts as our audit committee,
pre-approves all services provided by our independent registered public
accounting firm. All of the above services and fees were reviewed and approved
by our board of directors before the respective services were rendered.

Our board of directors has considered the nature and amount of
fees billed by our independent registered public accounting firm and believes
that the provision of services for activities unrelated to the audit is
compatible with maintaining its independence.

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PART IV

Item 15. Exhibits, Financial Statement Schedules.

|Exhibit |                                                                                                                                              
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------
|Number  | Description                                                                                                                                  
|        |                                                                                                                                              
|(3)     | Articles of Incorporation and
      Bylaws                                                                                                   
|        |                                                                                                                                              
|3.1(1)  | Articles of Incorporation                                                                                                                    
|        |                                                                                                                                              
|3.2(1)  | Bylaws                                                                                                                                       
|        |                                                                                                                                              
|(10)    | Material Contracts                                                                                                                           
|        |                                                                                                                                              
|10.1(1) | Subscription Agreement between
      our company and Asbed Palakian                                                                          
|        |                                                                                                                                              
|10.2(1) | Subscription Agreement between
      our company and Constantina Kefallinos                                                                  
|        |                                                                                                                                              
|10.3(1) | Subscription Agreement between
      our company and Hasmik Ginoyan                                                                          
|        |                                                                                                                                              
|10.4(1) | Form of Subscription Agreement
      used in private placement offerings that closed on February 7, 2009 and
      April 23, 2009            
|        |                                                                                                                                              
|10.5(1) | Office Rental Agreement dated
      December 15, 2008 between Passport Arts Inc., a Quebec corporation, and
      Lumisculpt Productions Inc.
|        |                                                                                                                                              
|10.6(1) | Online Marketing and Sales Agreement
      dated January 20, 2009 between Passport Arts Inc., a Quebec corporation,
      and Seven Arts Ltd.
|        |                                                                                                                                              
|10.7(1) | Online Marketing and Sales Agreement
      dated May 20, 2009 between Passport Arts Inc. and Vasgen Degirmentas                              
|        |                                                                                                                                              
|(14)    | Code of Ethics                                                                                                                               
|        |                                                                                                                                              
|14.1*   | Code
      of Ethics and Business Conduct                                                                                                    
|        |                                                                                                                                              
|(21)    | Subsidiaries                                                                                                                                 
|        |                                                                                                                                              
|21.1(2) | Subsidiary List                                                                                                                              
|        |                                                                                                                                              
|(31)    | Section 302 Certifications                                                                                                                   
|        |                                                                                                                                              
|31.1*   | Section
      302 Certification of Asbed Palakian                                                                                            
|        |                                                                                                                                              
|(32)    | Section 906 Certifications                                                                                                                   
|        |                                                                                                                                              
|32.1*   | Section
      906 Certification of Asbed Palakian                                                                                            

* Filed herewith.

(1)Incorporated by reference from our registration
statement on Form S-1 filed on October 26, 2009.

(2)Incorporated by reference from our registration
statement on Form S-1/A filed on January 8, 2010.

---

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

PASSPORT ARTS INC.

/s/ Asbed
PalakianAsbed
PalakianPresident, Chief Executive Officer, Secretary, Treasurer, and
Director(Principal Executive Officer, Principal Financial Officer,and
Principal Accounting Officer)
Date: October 26, 2010

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.

/s/ Asbed
PalakianAsbed
PalakianPresident, Chief Executive Officer, Secretary,Treasurer, and
Director(Principal Executive Officer, Principal Financial Officer,and
Principal Accounting Officer)
Date: October 26, 2010

/s/ Constantina
KefallinosConstantina
KefallinosDirector
Date: October 26, 2010

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