UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-QSB
 
 (Mark
One)
 
 [X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES
EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDEDSeptember 30, 2009
 
 OR
 
 [ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
 FROM
______________ TO ______________
 
 
 COMMISSION
FILE NUMBER: 000-49676
 
 ARTFEST
INTERNATIONAL, INC.
 (Exact
name of registrant as specified in its charter)
 
  Nevada
              E 0260612009-0(State
      or jurisdiction
              (IRS
      Employerof
      incorporation or organization)
              Identification
      No.)
 
 13342
      Midway Road, Suite 250
                Dallas,
      TX
              75244(Address
      of Principal Executive Offices)
              (Zip
      Code)
 
 Issuer's
telephone number: 1-877-278-6672
 
 Securities
registered pursuant to Section 12(b) of the Act: None
 
 Securities
registered pursuant to Section 12(g) of the Act: Common Stock
 
 Check whether the Issuer (1) filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the registrant was
required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes
[X ] No [ ] Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X]
 
 As
of   November 15, 2009, the Registrant had 
47,295,646    shares of common stock
outstanding.
 
 Transitional
Small Business Disclosure Format (Check one): Yes [ ] No [X]
  
 
 Table of
Contents
 
 
 
  PART
      I.
                    FINANCIAL
      INFORMATION
                    PageItem
      1.
                    Financial
      StatementsBalance
      Sheets
                    F-1Statements
      of Operations
                    F-2Statements
      of Cash Flows
                    F-4Notes
      to Financial Statements
                    F-5Item
      2.
                    Management's
      Discussion and Analysis and Plan of Operation
                    3Item
      3.
                    Controls
      and Procedures.PART
      II.
                    OTHER
      INFORMATION
                    4Item
      1.
                    Legal
      Proceedings
                    4Item
      2.
                    Unregistered
      Sales of Securities and Use of Proceeds
                    4Item
      3.
                    Defaults
      Upon Senior Securities
                    4Item
      4.
                    Submission
      of Matters to a Vote of Security Holders
                    4Item
      5.
                    Other
      Information
                    4Item
      6.
                    Exhibits
      and Reports on Form 8-K
                    7Signatures
                    
                    8Exhibit
      Index
                    
                    9CERTIFICATIONS
 
  
  ARTFEST
INTERNATIONAL, INC.
 (A
Development Stage Company)
 BALANCE SHEETS
 (Unaudited)
 September
      30,
                                    
                                    
                                    December
      31,2009
                                    
                                    
                                    2008Current
      Assets:Cash
                                    
                                    $
                                    141,384
                                    
                                    
                                    $
                                    (2196)
                                    )Other
      current assets
                                    
                                    
                                    535,614
                                    
                                    
                                    
                                    -Accounts
      Receivable
                                    
                                    
                                    897,169
                                    
                                    
                                    
                                    351,000Total
      Current Assets
                                    
                                    
                                    1,574,167
                                    
                                    
                                    
                                    348,804Non-Current
      AssetsInventory
                                    
                                    
                                    1,639,185Other
      Assets
                                    
                                    
                                    159,189
                                    
                                    
                                    
                                    130,217Total
      Non-current Assets
                                    
                                    
                                    1,798,374
                                    
                                    
                                    
                                    130,217Property and Equipment,
      net
                                    
                                    
                                    48,478
                                    
                                    
                                    
                                    58,464TOTAL
      ASSETS
                                    
                                    $
                                    3,421,019
                                    
                                    
                                    $
                                    537,485Current
      Liabilities:Accounts
      Payable and Accrued Liabilities
                                    
                                    $
                                    882,373
                                    
                                    
                                    $
                                    675,884Note
      Payable
                                    
                                    
                                    610,261
                                    
                                    
                                    
                                    460,873Deferred
      Revenue
                                    
                                    
                                    351,000
                                    
                                    
                                    
                                    351,000Loans
      Payable
                                    
                                    
                                    629,719
                                    
                                    
                                    
                                    475,317Total
      Current Liabilities
                                    
                                    
                                    2,473,353
                                    
                                    
                                    
                                    1,963,074Non-current
      LiabilitiesLoans
      Payable
                                    
                                    
                                    -
                                    
                                    
                                    
                                    784,497TOTAL
      LIABILITIES
                                    
                                    
                                    2,473,353
                                    
                                    
                                    
                                    2,747,571Stockholders'
      Equity:Preferred
      stock - $.001 par value – 2,000,000 shares authorized, no shares issued
      and outstanding,
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Common
      Stock - $.001 par value – 1,000,000,000 shares authorized, 863,000,000
      shares issued and outstanding
                                    
                                    
                                    863,000
                                    
                                    
                                    
                                    168,763Additional
      Paid-in Capital
                                    
                                    
                                    3,586,444
                                    
                                    
                                    
                                    671,198Accumulated
      deficit
                                    
                                    
                                    (3,501,778
                                    )
                                    
                                    
                                    (3,050,047
                                    )TOTAL STOCKHOLDERS
      EQUITY
                                    
                                    
                                    947,666
                                    
                                    
                                    
                                    (2,210,086
                                    )TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                    
                                    $
                                    3,421,019
                                    
                                    
                                    $
                                    537,485
   F-1
 ARTFEST
INTERNATIONAL, INC.
 (A
Development Stage Company)
 STATEMENT
OF OPERATIONS
 (Unaudited)
  CONDENSED
      & CONSOLIDATEDFor
      the
                            Three
      Months Ended
                            9/30/2009
                          
                          
                          For
      the
                            Three
      Months Ended
                            9/30/2008Revenues
                          
                          $
                          896,404
                          
                          
                          $
                          4,000Cost
      of Revenue
                          
                          
                          318,446
                          
                          
                          
                          432Gross
      Profit
                          
                          
                          577,958
                          
                          
                          
                          3,568Sales,
      General and Administrative Expenses
                          
                          
                          570,561
                          
                          
                          
                          33,430Net
      Income (Loss)
                          
                          $
                          7,397
                          
                          
                          $
                          (29,862
                          )Weighted
      average number of common shares outstanding – basic and fully
      diluted
                          
                          
                          775,284,321
                          
                          
                          
                          127,122,006Net
      (Loss) per share - basic and fully diluted
 
 
 
 F-2
 ARTFEST
INTERNATIONAL, INC.
 (A
Development Stage Company)
 STATEMENT
OF OPERATIONS
 (Unaudited)
  CONDENSED
      & CONSOLIDATEDFor
      the NineMonths
      endedSeptember
      30,2009
                  
                  
                  2008Revenues
                  
                  $
                  2,257,884
                  
                  
                  $
                  28,736Cost
      of Revenue
                  
                  
                  986,772
                  
                  
                  
                  15,682Gross
      Profit
                  
                  
                  1,271,112
                  
                  
                  
                  13,054Sales,
      General and Administrative Expenses
                  
                  
                  2,033,343
                  
                  
                  
                  882,790Net
      Loss From Operations
                  
                  
                  (762,231
                  )
                  
                  
                  (869,736
                  )Other
      Income
                  
                  
                  310,500
                  
                  
                  
                  -Net
      Loss
                  
                  $
                  (451,731
                  )
                  
                  $
                  (869,736
                  )Weighted
      average number of common sharesoutstanding
      - basic and fully diluted
                  
                  
                  379,714,555
                  
                  
                  
                  96,425,931Net
      (Loss) per share - basic and fully diluted
                  
                  $
                  0
                  
                  
                  $
                  0
  
 
 
 F-3
 ARTFEST
INTERNATIONAL, INC.
 (A
Development Stage Company)
 STATEMENT
OF CASH FLOWS
 (Unaudited)
 For
      the NineMonths
      endedSeptember 30,2009
                        
                        
                        2008Cash
      Flows from Operating Activities:Net
      Loss
                        
                        $
                        (451,731
                        )
                        
                        $
                        (869,736
                        )Adjustments
      to reconcile net (loss) tonet
      cash used in operating activities:Depreciation
                        
                        
                        11,803
                        
                        
                        
                        12,377Decrease
      in other assets
                        
                        
                        1,103
                        
                        
                        
                        351Increase
      in accounts receivable
                        
                        
                        (443,239
                        )
                        
                        
                        (91,500
                        )Increase
      in inventory
                        
                        
                        (517,096
                        )
                        
                        
                        (9,568
                        )(Decrease)
      Increase in accounts payable and accrued expenses
                        
                        
                        (116,252
                        )
                        
                        
                        254,638Increase
      in other current assets
                        
                        
                        (464,500
                        )
                        
                        
                        -Net
      Cash Used in Operating Activities:
                        
                        
                        (1,979,912
                        )
                        
                        
                        (703,438
                        )Cash
      Flows From Investing Activities:Acquisitions
      of Assets and Liabilities, net of cash
                        
                        
                        (252,096
                        )
                        
                        
                        -Intangible
      Assets
                        
                        
                        -
                        
                        
                        
                        (91,500
                        )Purchase
      of Property and Equipment
                        
                        
                        (1,817
                        )
                        
                        
                        (22,228
                        )Net
      Cash Used in Investing Activities:
                        
                        
                        (253,913
                        )
                        
                        
                        (113,728
                        )Cash
      Flows From Financing Activities:Issuance
      of Common Stock
                        
                        
                        694,237
                        
                        
                        
                        (30,545
                        )(Decrease)
      Increase in Loans and Notes payable
                        
                        
                        (175,000
                        )
                        
                        
                        364,428Increase
      in contributed capital
                        
                        
                        1,858,168
                        
                        
                        
                        476,320Net
      Cash Provided by Financing Activities:
                        
                        
                        2,377,405
                        
                        
                        
                        810,203Net
      Increase in Cash
                        
                        
                        143,580
                        
                        
                        
                        (6,963
                        )Cash
      at Beginning of Period
                        
                        
                        (2,196
                        )
                        
                        
                        315Cash
      at End of Period
                        
                        $
                        141,384
                        
                        
                        $
                        (6,648
                        )
 
 
 
 F-4
 
 ARTFEST
INTERNATIONAL, INC.
 (A
Development Stage Company)
 NOTES TO FINANCIAL STATEMENTS
 (Unaudited)
  
 
 Note 1 - History and
organization of the company
  Artfest
International, Inc. (the “Company”) was incorporated on February 21, 2002 (Date
of Inception) under the laws of the State of Delaware.  The Company
provides sales, marketing, financial and e-commerce systems to the industries of
Arts, Sports and memorabilia , Antiques, Collectibles and Luxury Goods. The
markets are serviced by artists, dealers, galleries, and manufacturers of
reproductions and luxury goods.
  On
December 28, 2007,  pursuant to an Acquisition Agreement dated
December 28, 2007, the Company acquired 100% of The Art Channel, Inc. in
exchange for 28,000,000 shares of the Company’s common stock.  The
shares were issued on December 28, 2007 and March 28, 2008 in the amounts of
8,000,000 shares and 20,000,000shares, respectively.
 
 Subsequent
to the Company’s annual meeting, the shareholders of the Company voted to
increase the number of the authorized shares of the Company’s common stock to
500,000,000.
  In
addition, the Company agreed to issue an additional 1,500,000 shares of stock to
the Company’s former Chairman and CEO pursuant to the terms in the Acquisition
Agreement.
 
 On
July 8, 2009, the board of directors and a majority of shareholders of the
Company voted and adopted to re domicile to Nevada, and reverse merge into a
Nevada corporation.
 A
majority of the Company’s shareholders then elected to increase
the  Company’s authorized common stock  to 1,000,000,000
shares.
 
 Note 2 - Accounting policies
and procedures
 
 Cash and cash
equivalents
  The
Company maintains a cash balance in a non-interest-bearing account that
currently does not exceed federally insured limits. For the purpose of the
statements of cash flows, all highly liquid investments with an original
maturity of three months or less are considered to be cash equivalents. There
were no cash equivalents for the periods presented.
  Fixed
Assets
  Property
and equipment are recorded at historical cost. Minor additions and renewals are
expensed in the year incurred. Major additions and renewals are capitalized and
depreciated over their estimated useful lives. Depreciation is calculated using
the straight-line method over the estimated useful lives as
follows:
  Computer
      equipment
              3
      yearsOffice
      equipment
              4
      yearsProprietary
      Software
              3
      yearsFurniture
      and Fixtures
              7
      years
 
  F-5
 Property
and Equipment consist of the following:
 Machinery
      and Office equipment
              
              $
              100,268Proprietary
      software
              
              
              60,500Furniture
      and Fixtures-
              
              
              71,308Less-accumulated
      depreciation
              
              
              (183,598)Property
      and equipment, net
              
              $
              48,478
  Total
depreciation expense for nine months ended September 30, 2009 was
$11,803
 
 Intangible
Assets
  With the
acquisition of The Art Channel Inc. on December 28, 2007, the Company paid
$29,500 in excess of the net assets acquired and, therefore, recognized goodwill
of said amount.  The goodwill was recorded in “Other Assets” on the
accompanying Balance Sheet as of September 30, 2009.  The goodwill
will be amortized over a period of 40 years beginning January 1,
2008.
  Impairment of long-lived
assets
  Long-lived
assets are reviewed for possible impairment at least annually or whenever events
or circumstances indicate the carrying amount of an asset may not be recoverable
or is impaired. No such impairments have been identified by management as of
September 30, 2009.
 
 Revenue
recognition
  The
Company recognizes revenue when earned and related costs of sales and expenses
when incurred.
  Advertising
costs
  The
Company expenses all costs of advertising as incurred. There were nominal
advertising costs included in Sales, general and administrative expenses for the
three and nine months ended September 30, 2009 and 2008.
  Loss per
share
  Net loss
per share is provided in accordance with Statement of Financial Accounting
Standards No. 128 (SFAS # 128) "Earnings Per Share". Basic loss per share is
computed by dividing losses available to common stockholders by the weighted
average number of common shares outstanding during the period. The Company had
no dilutive common stock equivalents as of September 30, 2009.
  Reporting on the costs of
start-up activities
  Statement
of Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-Up Activities",
which provides guidance on the financial reporting of start-up costs and
organizational costs, requires most costs of start-up activities and
organizational costs to be expensed as incurred. SOP-98-5 is effective for
fiscal years beginning after December 15, 1998. With the adoption of SOP-98,
there has been little or no effect on the Company's financial
statements.
  Estimates
  The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
  Fair value of financial
instruments
  Fair
value estimates discussed herein are based upon certain market assumptions and
pertinent information available to management as of  September 30,
2009 and December 31, 2008. The respective carrying value of certain
on-balance-sheet financial instruments approximated their fair values.
These financial instruments include cash and accounts payable. Fair values
are  assumed to approximate carrying values for cash and
accounts payable because they are short term in nature and their carrying
amounts approximated fair values or they are payable on demand.
 
  F-6
 Income
Taxes
  Deferred
income tax assets and liabilities are computed annually for differences between
the financial statement and tax basis of assets and liabilities that will result
in taxable or deductible amounts in the future based on enacted tax laws and
rates applicable on the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
  Segment
reporting
  The
Company follows Statement of Financial Accounting Standards No. 130,
"Disclosures About Segments of an Enterprise and Related Information". The
Company operates as a single segment and will evaluate additional segment
disclosure requirements as it expands its operations.
  Dividends
  The
Company has not yet adopted any policy regarding payment of dividends. No
dividends have been paid or declared since inception.
  Recent Accounting
pronouncements
 In
December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 123 (Revised 2004), “Share-Based Payment” (SFAS 123R). SFAS 123R
requires all share-based payments to employees, including grants of employee
stock options, to be recognized as compensation expense in the consolidated
financial statements based on their fair values.  That expense will be
recognized over the period during which an employee is required to provide
services in exchange for the award, known as the requisite service period
(usually the vesting period). The Company will follow the guidance of SFAS 123R
for all stock based compensation awards.
 
 In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations ("SFAS 141R").  SFAS 141R establishes the
principles and requirements for how an acquirer: 1) recognizes and measures in
its financial statements the identifiable assets acquired, the liabilities
assumed, and any non-controlling interest in the acquiree; 2) in a business
combination achieved in stages, sometimes referred to as a step acquisition,
recognizes the identifiable assets and liabilities, as well as the
non-controlling interest in the acquiree, at the full amounts of their fair
values; 3) recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase. SFAS 141R establishes
disclosure requirements to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. This Statement is
to be applied prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period on or
after December 15, 2008.  The adoption of SFAS 141R will
have an impact on our accounting for future business combinations; however, the
materiality of that impact cannot be determined.
  In April
2008, the FASB issued FASB Staff Position (“FSP”) FAS 142-3, Determination of
the Useful Life of Intangible Assets. FSP FAS 142-3 amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FASB Statement
No. 142, Goodwill and Other Intangible Assets.  FSP FAS 142-3 is
effective for fiscal years beginning after December 15, 2008 and early
adoption is prohibited.  The adoption of this statement will not have
a material effect on the Company’s financial statements.
 
 In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles. SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with accounting principles generally accepted in the
United States of America.  It is effective sixty days following the
Securities and Exchange Commission’s (“SEC”) approval of the Public Company
Accounting Oversight Board amendments to AU Section 411, The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting
Principles.  The adoption of this statement will not have a material
effect on the Company’s financial statements.
    In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial
Assets” - An Amendment of FASB Statement No. 140 ("SFAS 166") [ASC860], which
requires entities to provide more information regarding sales of securitized
financial assets and similar transactions, particularly if the entity has
continuing exposure to the risks related to transferred financial assets. SFAS
166 eliminates the concept of a "qualifying special-purpose entity", changes the
requirements for derecognizing financial assets and requires additional
disclosures. SFAS 166 is effective for fiscal years beginning after November 15,
2009. The adoption of this statement will not have a material effect on the
Company’s financial statements.
 In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)” ("SFAS 167") [ASC 810-10], which modifies how a company determines when
an entity that is insufficiently capitalized or is not controlled through voting
(or similar rights) should be consolidated. SFAS 167 clarifies that the
determination of whether a company is required to consolidate an entity is based
on, among other things, an entity's purpose and design and a company's ability
to direct the activities of the entity that most significantly impact the
entity's economic performance. SFAS 167 requires an ongoing reassessment of
whether a company is the primary beneficiary of a variable interest entity. SFAS
167 also requires additional disclosures about a company's involvement in
variable interest entities and any significant changes in risk exposure due to
that involvement. SFAS 167 is effective for fiscal years beginning after
November 15, 2009. The Company has not completed its assessment of the impact
SFAS 167 will have on its financial condition, results of operations or cash
flows.
 
 F-7
 In
June 2009, the FASB issued Accounting Standards Update (“ASU”)
No. 2009-01, Topic 105 - Generally Accepted Accounting Principles -
amendments based on Statement of Financial Accounting Standards No. 168,
the FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles. This Accounting Standards This ASU includes
Statement 168 in its entirety, including the accounting standards update
instructions contained in Appendix B of the Statement. The Codification
does not change current Accounting Principles Generally accepted in the United
States of America (USGAAP), but is intended to simplify user access to all
authoritative USGAAP by providing all the authoritative literature related to a
particular topic in one place. The Codification is effective for interim and
annual periods ending after September 15, 2009, and as of the effective
date, all existing accounting standard documents will be superseded. The
Codification is effective for us as of September 30, 2009, and accordingly, this
Form 10-Q for the quarter ended September 30, 2009 and all subsequent
public filings will reference the Codification as the sole source of
authoritative literature. The adoption of this ASU will not have a material
effect on the Company’s financial statements.
  In
September 2009, the FASB issued ASC Topic 740, “Income Taxes”.  This
update was issued to address the need for additional implementation guidance on
accounting for uncertainty in income taxes. The guidance answers the following
questions: (i) Is the income tax paid by the entity attributable to the entity
or its owners? (ii) What constitutes a tax position for a pass-through entity or
a tax-exempt not-for-profit entity? (iii) How should accounting for uncertainty
in income taxes be applied when a group of related entities comprise both
taxable and nontaxable entities? In addition, this update decided to eliminate
the disclosures required by paragraph 740-10-50-15(a) through (b) for nonpublic
entities. The implementation guidance will apply to financial statements of
nongovernmental entities that are presented in conformity with USGAAP. The
disclosure amendments will apply only to nonpublic entities as defined in
Section 740-10-20. For entities that are currently applying the standards for
accounting for uncertainty in income taxes, the guidance and disclosure
amendments are effective for financial statements issued for interim and annual
periods ending after September 15, 2009.  The adoption of this
statement will not have a material effect on the Company’s financial statements.
In September 2009, the FASB issued ASC Topic 820, “Fair Value Measurement and
Disclosures”, an ASU, overall for the fair value measurement of investments in
certain entities that calculates net asset value per share (or its
equivalent).  The amendments in this update permit, as a practical
expedient, a reporting entity to measure the fair value of an investment that is
within the scope of the amendments in this update on the basis of the net asset
value per share of the investment (or its equivalent) if the net asset value of
the investment (or its equivalent) is calculated in a manner consistent with the
measurement principles of Topic 946 as of the reporting entity’s measurement
date, including measurement of all or substantially all of the underlying
investments of the investee in accordance with Topic 820. The amendments in this
update also require disclosures by major category of investment about the
attributes of investments within the scope of the amendments in this update,
such as the nature of any restrictions on the investor’s ability to redeem its
investments at the measurement date, any unfunded commitments (for example, a
contractual commitment by the investor to invest a specified amount of
additional capital at a future date to fund investments that will be made by the
investee), and the investment strategies of the investees. The major category of
investment is required to be determined on the basis of the nature and risks of
the investment in a manner consistent with the guidance for major security types
in USGAAP on investments in debt and equity securities in paragraph
320-10-50-lB. The disclosures are required for all investments within the scope
of the amendments in this update regardless of whether the fair value of the
investment is measured using the practical expedient. The amendments in this
update apply to all reporting entities that hold an investment that is required
or permitted to be measured or disclosed at fair value on a recurring or non
recurring basis and, as of the reporting entity’s measurement date, if the
investment meets certain criteria.  The amendments in this update are
effective for the interim and annual periods ending after December 15,
2009.  Early application is permitted in financial statements for
earlier interim and annual periods that have not been issued.  The
adoption of this statement will not have a material effect on the Company’s
financial statements.
 
 Other
recent accounting pronouncements issued by the FASB (including its EITF), the
AICPA and the SEC did not or are not believed by management to have a material
effect on the Company’s financial statements.
  Stock-Based
Compensation
  The
Company accounts for stock-based awards to employees in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations and has adopted the disclosure only
alternative of SFAS No. 123, "Accounting for Stock-Based Compensation". Options
granted to consultants, independent representatives and other non-employees are
accounted for using the fair value method as prescribed by SFAS No.
123.
 F-8
 Year End
  The
Company has adopted December 31 as its fiscal year end.
  Note 3 - Going
concern
  The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. As shown in the accompanying financial statements,
the Company has incurred a net loss of $3,501,778 for the period from February
21, 2002 (inception) to September 30, 2009. The future of the Company is
dependent upon its ability to obtain financing and upon future profitable
operations from the development of its new business opportunities. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded assets, or the amount of the classification of
liabilities that might be necessary in the event the Company cannot continue in
existence.
 
 Note 4 - Income
taxes
  The
Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109), which requires
use of the liability method. SFAS No. 109 provides that deferred tax assets and
liabilities are recorded based on the differences between the tax bases of
assets and liabilities and their carrying amounts for financial reporting
purposes, referred to as temporary differences. Deferred tax assets and
liabilities at the end of each period are determined using the currently enacted
tax rates applied to taxable income in the periods in which the deferred tax
assets and liabilities are expected to be settled or realized.
  The
provisions for income taxes differ from the amount computed by applying the
statutory federal income tax rate to Income before provision for income taxes.
The source and tax effects of the differences are as follows:
   U.S.
      federal statutory rate
              34.00
      %Valuation
      reserve
              34.00
      %Total
              0.00
      %
 
  As of
September 30, 2009, the Company has a net operating loss carryforward of
approximately $3,364,333 for tax purposes, which will be available to offset
future taxable income. This carryforward will expire in various years through
2027.
  Note 5 - Stockholders'
Equity
  The
Company was authorized to issue 1,000,000,000 shares of its $0.001 par value
common stock and 2,000,000 shares of its $0.001 par value preferred stock as of
September 30, 2009.
  Note 6 - Warrants and
options
  As of
September 30, 2009 there are 2,000,000 warrants outstanding and there are no
options outstanding to acquire additional shares of common stock.
  F-9
 Note 7 - Loans and Notes
Payable
   The
Company has $486,000 in short-term notes. The notes call for varying interest
rates ranging from 1% to 12% per annum and contain a stock payment option
payable at the lender's discretion.
  As of the
report date, the Company is in default on all of its short term notes payable to
shareholders and non-shareholders. Management has not formulated a repayment
plan, and no contingency plan has been established in the event that the lenders
seek legal remedies.  However, management believes that an amicable
agreement will be reached with the noteholders and, therefore, continues to
carry the effected notes as short and long term based on the cureent agreement
for each note.
  On August
26, 2007, the Company signed a loan payable in the amount of $30,000 originally
due on August 26, 2008.  The loan accrues interest at 10% per
annum.  The original amount was $35,000, with a $5,000 payment having
been made in July 2007.
  On April
3, 2007, the Company signed a loan payable of $20,000 with no fixed due
date.  The loan is non-interest bearing. The original amount was
$25,000, with a $5,000 payment having been made in July 2007.
  On
December 7, 2007 the Company signed a loan payable in the amount of $15,000 with
no fixed due date.  The loan is non-interest bearing.
  On
January 31, 2008, the Company signed a Promissory Note payable to the TBF
Charitable Trust Foundation for $50,000 originally due on July 31, 2008. The
loan accrues an interest at 1.5% per month or 18% per annum.  Together
with interest and certain penalties, the note balance increased to
$190,000. In 2009 the note was re-negotiated, including a conversion of a
portion of the note for (Insert number of shares, if applicable), resulting in a
balance due at September 30, 2009 of $ 100,000.
  On March
17, 2008, March 24, 2008, and March 25, 2008 the Company received an advance on
a loan prior to the execution of loan agreements in the amounts of $10,000,
$7,200 and $7,800, respectively for a total of $25,000 from a third party
source. Additionally, on April 4, 2008, the Company received an advance on
a loan prior to the execution of loan agreements in the amount of $25,000 from a
third party source. Pursuant to the terms of a Securities Purchase Agreement,
the third party has agreed to advance the Company an aggregate of $300,000, to
be paid in twelve payments of $25,000 each over a period of fifteen weeks, with
each advance to be evidenced by a Convertible Debenture.  Such payments
have not been received on a timely basis.
  Note 8- Other
Income
 
 In March
of 2009, the Company relocated to its new warehouse facility and office and
conducted an extensive inventory of its portfolio of domestic and international
art and discovered its inventory had been understated by $310,500. The Company
reflected this inventory adjustment in Other Income during the quarter ended
June 30, 2009.
 
 
  F-10
 ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
 
 Results
of Operations
  (a)
Revenues
  We
generated operating revenues of $2,257,884 for the nine months ended September
30, 2009, as compared to $28,736 for the same period in 2008.  We
had a net operating loss of $451,731 for the nine months ended September 30,
2009, as compared to a net operating loss of $869,736 for the same period
in 2008.
  Artfest
direct sales model, Artchannel Galleries, increased sales due to sports and
memorabilia territory rights and inventory sales to its new members. An average
sale of $ 50,000 per territory, resulted in over $ 300,000 in Q3
sales.
  (b) Costs
and Expenses
  We
had $2,033,343 of selling general and administrative expenses in the nine months
ended September 30, 2009 as compared to $882,790 of selling, general and
administrative expenses for the nine months ended September 30,
2008.
  Significant
expenses in the nine months ended September 30, 2009 consisted of accounting and
professional fees related to financial reporting and compliance, fees in
developing our business model and operating plans, and of interest accrued on
notes and loans payable.
  Artfest
overhead and operational cost increased due to higher sales, new gallery
expansion,  inventory acquisition and acquisition of CSD
sports.
  (c)
Depreciation, Depletion and Amortization
  Depreciation expense
totaled $11,803 for the nine months ended September 30, 2009.
 
 (e) Net
Loss
 
 The
Company had a net loss of $451,731 for the nine months ended September 30, 2009
and a net loss of $869,736 for the same period in the previous year. The
decrease in net loss is the result of increased revenues.
 
 Forward
Looking Statements
 
 The
foregoing Management’s Discussion and Analysis or Plan of Operation and comments
included elsewhere herein may contain “forward looking statements” within the
meaning of Rule 175 under the Securities Act of 1933, as amended, and Rule 3b-6
under the Securities Act of 1934, as amended, or may be amended, including
statements regarding, among other items, business strategies, continued growth
in markets, projections, and anticipated trends in business and the industry in
which it operates. The words “believe,” “expect,” “anticipate,” “intends,”
“forecast,” “project,” and similar expressions identify forward-looking
statements. These forward-looking statements are based largely on expectations
and are subject to a number of risks and uncertainties, certain of which are
beyond management’s control. The Company cautions that these statements are
further qualified by important factors that could cause actual results to differ
materially from those in the forward looking statements, including, among other
things, reduced or lack of increase in demand for products and competitive
pricing pressures.  In light of these risks and uncertainties, there
can be no assurance that the forward-looking information contained herein will
in fact transpire or prove to be accurate. We disclaim any intent or obligation
to update “forward looking statements.”
  -3-
 ITEM 4T. CONTROLS AND
PROCEDURES
  Evaluation of Disclosure
Controls and Procedures
  Our
principal executive and financial officer, after evaluating the effectiveness of
our "disclosure controls and procedures" (as defined in the Securities Exchange
Act of 1934 Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by
this report (the "Evaluation Date"), has concluded that as of the Evaluation
Date, our disclosure controls and procedures were effective to provide
reasonable assurance that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act (i) is accumulated and
communicated to our management, including our Chief Executive Officer, as
appropriate to allow timely decisions regarding required disclosure, and (ii) is
recorded, processed, summarized and reported within the time periods specified
in the Commission's rules and forms.
  There has
been no change in our internal control over financial reporting identified
during the period covered by this report which have materially affected or is
likely to materially affect our internal control over financial
reporting.
  
 PART II -
OTHER INFORMATION
 
 ITEM 1.
LEGAL PROCEEDINGS.
 
 There
were no legal proceedings during the nine months ended September 30,
2009.
 
 ITEM 2.
UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS
  Equity
Securities Sold Without Registration
 
 During
the nine months ended September 30, 2009, the Company issued 793,926,561
restricted common shares to debt holders, investors, consultants and advisors in
lieu of cash compensation pursuant to available exemptions contained
in the Securities Act of 1933, as amended.
  ITEM 3.
DEFAULTS UPON SENIOR SECURITIES.
 
 Not
Applicable.
  ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
 On
July 8,,2009, The board of directors and a majority of shareholders of the
Company voted and adopted to re domicile to Nevada, and reverse merge into a
Nevada corporation.
 
 A
majority of the Company’s shareholders then elected to increase
the  Company’s authorized common stock  to 1,000,000,000
shares.
  ITEM 5.
OTHER INFORMATION.
 
 In June
2009 the Company secured the licensing rights to the ostrich character, Rhupert,
created by D. Arthur Wilson.  Rhupert has been approved to be the
official logo and D. Arthur Wilson, the official artist, for World Peace
Project.  Art Channel Galleries, a wholly owned subsidiary of the
Company, began funding and producing four, 30 minute, pilot episodes of Rhupert
in the third quarter.  The release of the children’s book titled,
“Little Red Rhupert,” which was written and illustrated by D. Arthur Wilson, was
officially released at the Arfest Expo Center in June at one of the Company’s
Sizzling Summer Saturday event in June 2009.
 
 On June
30, 2009 the Company completed the acquisition of Charity Sports Distributor,
Inc. (d.b.a. CSD Sports Framing and Memorabilia; “CSD”) which was founded in
1996.  CSD is a vertically integrated Texas based custom framing
company which specializes in the design, production, and distribution of
authentic framed autographed sports and entertainment collectibles and art
pieces.  CSD’s distribution avenues include B2B and B2C sales, charity
fundraising auctions, professional and college sports team’s pro shops,
e-stores, online auctions and a revolutionary in-game silent auction concept
known as Home Game Auction.  CSD’s thirteen year experience in the
professional and college sports marketplace has developed an extensive client
list which consists of hundreds of private charities and conducts home game
auctions at various professional and college teams, including the Dallas
Cowboys, Washington Redskins, Atlanta Falcons, Saint Louis Rams, Houston
Rockets, Dallas Mavericks, Cleveland Cavaliers, Phoenix Suns, Washington
Wizards, Dallas Stars, Ohio State, Texas, Oklahoma and Auburn. The Company
has begun the process of launching CSD’s product line through Art Channel
Galleries, the marketing arm and wholly owned subsidiary of the Company. The
addition of CSD’s product line will complement and expand the Company’s ongoing
product promotions and special purchase packages that are directed towards
introducing a select number of acclaimed artists to our members.
  -4-
 CSD
recorded revenues in calendar year 2008 of $3.3 million.  CSD is
operating as a wholly owned subsidiary of the Company and the Company has
consolidated CSD’S results in its third quarter ended September 30,
2009.  CSD’S revenues for this period were $402,304.
  The
acquisition of CSD has resulted in the expansion and enhancement of the
Company’s current product offerings and has lead to an expansion of the
Company’s current audience.  Furthermore the acquisition is enabling
the Company to vertically integrate framing and canvas stretching operations and
should enable the Company to increase the overall profitability of its existing
product lines.
  CSD’s
innovative framing is widely regarded as the premier quality brand in the
autographed memorabilia marketplace and by teaming with the Company, CSD now has
one of the most expansive product portfolios in the autographed collectibles
industry.
  On July
14, 2009, CSD executed a Letter of Intent with CBS College Sports to provide
custom framed alumni player autographed memorabilia for the online auctions at
CBS college partner teams including Auburn, Iowa, Florida State, South Carolina,
TCU, and UCLA. CSD's memorabilia is college licensed and comes with a
certificate of authenticity and is offered for sale through bi-weekly online
auctions featured on both CBS College Sports Network online auction home page
and through the applicable athletic department's home page.
  On July
16, 2009, CSD signed an agreement with Jump TV USA Holding Company to provide
major college alumni player autographed memorabilia for Jump TV's online
auctions. Some of Jump TV's college partner teams include The Ohio State
University and the University of Georgia, amongst others.
  On August
7, 2009, CSD signed an agreement with Winspire, Inc. to distribute highly sought
after and unique experience packages, such as attending major sporting or
entertainment events, for charity auctions both domestically and
internationally. The addition of the "experience" packages to Charity Sports
Distributor's product portfolio will position the Company with the most
extensive product offering in the charity auction market place. Charity Sports
Distributor's premium quality products include custom framed sports and
entertainment memorabilia, etched crystal designs, human interest, home decor,
jewelry, art, and experience packages. Some examples of experience packages
include: taking a culinary class in Paris, France, US Tennis Open tickets,
Masters Golf Tournament tickets, fighter pilot for a day, or tickets to "The
Tonight Show."
  On
September 3, 2009, The Company’s Board of Directors has authorized its officers
and directors to exchange up to 250,000,000 shares of their common stock for a
preferred stock valued at $5.00 per share.
 
 On
September 14, 2009, the Company entered into a Marketing/Distribution Agreement
with Nature’s Sleep Inc. and Mattress 4 You to distribute Nature’s Sleep’s Visco
Memory Foam Mattress and the Company will assume the responsibility for the
production of a Nature’s Sleep Visco Memmory Foam mattress
Infomercial.  The production of the Infomercial will be in November
2009. In addition the Company and Mattress 4 You will have the exclusive rights
to market Nature’s Sleep’s Visco Memory Foam Mattress Infomercial. The Company
and Mattress 4 You will also have the exclusive rights for the direct sales and
marketing of the Nature’s Sleep Visco Memory foam Mattress Infomercial though a
call center to be established and through a dedicated website to be established
and associated with the Infomercial.  All final customer sales orders
will be processed and the product will be shipped directly to the customer by
Nature’s Sleep.  It is anticipated that a Beta Test site will be
launched in the fourth quarter of 2009 and a further expansion of the Beta Test
site is anticipated to occur in the first quarter of 2010.
 
 In
October 2009, the Company entered into agreements to convert approximately $1.2
million in accrued salaries, expenses and accounts payable into restricted
shares of the Company’s common stock.  It is expected that the common
shares will be issued in the fourth quarter of 2009.
 
 On
October 28, 2009, the Company completed the acquisition of 100% of the assets of
Luxor International, Inc. of Frisco, Texas, a privately held company, for
$5,000,000.  The terms of the acquisition include 4 million shares of
the Company’s common stock valued at $1.00 per share, plus an additional
$1,000,000 in cash. The assets being acquired include approximately 750 works of
art expected to have an appraised value of approximately $9 million to $12
million.
 
 -5-
 Artists Licensing
Agreements
  As of
September 30, 2009 the Company has signed Licensing Agreements with 51 artists
and is in various stages of signing Licensing Agreements with an additional 113
artists.  Through the Company’s wholly owned subsidiary, CSD, they
have added licensing agreements with 14 professional and college sports
teams.
   
 Forward
Looking Statements
 
 The
foregoing Management’s Discussion and Analysis or Plan of Operation and comments
included elsewhere herein may contain “forward looking statements” within the
meaning of Rule 175 under the Securities Act of 1933, as amended, and Rule 3b-6
under the Securities Act of 1934, as amended, or may be amended, including
statements regarding, among other items, business strategies, continued growth
in markets, projections, and anticipated trends in business and the industry in
which it operates. The words “believe,” “expect,” “anticipate,” “intends,”
“forecast,” “project,” and similar expressions identify forward-looking
statements. These forward-looking statements are based largely on expectations
and are subject to a number of risks and uncertainties, certain of which are
beyond management’s control. The Company cautions that these statements are
further qualified by important factors that could cause actual results to differ
materially from those in the forward looking statements, including, among other
things, reduced or lack of increase in demand for products and competitive
pricing pressures. In light of these risks and uncertainties, there can be no
assurance that the forward-looking information contained herein will in fact
transpire or prove to be accurate. We disclaim any intent or obligation to
update “forward looking statements.”
           
 -6-
  
 ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K.
  Exhibits.
 
 Exhibits
included or incorporated by reference herein are set forth in the attached
Exhibit Index.
 
                -7-
 SIGNATURES
 
 In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned thereunto duly
authorized.
  Artfest
      International, Inc.Date: November
      19, 2009
              By:
              /s/ Eddie
      VakserChairman
      and CEO
                (principal
      executive officer and principal financial officer)
 
 
 
               
 -8-
 
 ITEM 6. EXHIBITS AND REPORTS ON FORM
8-K.
 
 
 EXHIBIT INDEX
 
 Number
              Description3.1
                
                3.2
                
                3.3
              Articles
      of Incorporation [1]
                
                Articles
      of Amendment of the Articles of Incorporation [3]
                
                Bylaws
      [1]10.1
                
                10.2
              Agreement
      and Plan of Reorganization, Soldnet, Inc. and Artfest, Inc.
      [2]
                
                Loan
      Agreement (form) with Promissory Note (form), December, 2005
      [3]31
      **
                
                32
      **
              Certifications pursuant to
      Sarbanes - Oxley Act of 2002
                
                Certifications of Officers
      pursuant to Section 1350, of the Sarbanes - Oxley Act of
      2002
 ** Filed
Herewith
 [1]
Incorporated by reference to the Company’s filed Form 10SB with the SEC,
February, 2002.
 [2]
Incorporated by reference to the Company’s filed Form 8K with the SEC, November,
2002.
 [3]
Incorporated by reference to the Company’s filed Form 10KSB with the SEC, for
the year ended  December 31, 2002.
  
  
 
  -9-