**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-K**

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

For the fiscal year ended December 31, 2009

**[  ]  ****TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934**
 

For transition period ___ to ____

Commission file number: 000-30951

**SILVERGRAPH INTERNATIONAL, INC.**

(Exact name of registrant as specified in its charter)

Nevada

67-0695367

(State or other jurisdiction of incorporation or organization)

 (I.R.S. Employer Identification No.)

 

 

1875 Century Park  East, Ste. 1460, Los Angeles, CA

90067

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code:   (562) 693-3737

Securities registered under Section 12(b) of the Exchange Act:   None

Securities registered under Section 12(g) of the Exchange Act:   Common Stock

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. 

Yes [   ]   No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  

Yes [   ]   No [X]

Indicate by check mark whether the registrant (1) 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 [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 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 [   ]

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 statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.      [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company:

Large accelerated filer [  ]

 

Accelerated filer [  ]

Non-accelerated filer [  ]

 

Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  

Yes [X]   No [  ]

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 last sold, or the average bid and asked price of such common equity, as of June 30, 2009 was approximately $819.

The number of shares outstanding of the registrant’s common stock as of March 31, 2010, was 2,262,200, including a total of 994,632 shares issuable under contractual commitments.

Documents incorporated by reference:  See Item 15.

**FORM 10-KFor the Year Ended December 31, 2009**

**INDEX**

PART I

Item 1.  

Business

1

Item 1A.  Risk Factors

4

Item 1B.  Unresolved Staff Comments

7

Item 2.  

Properties

7

Item 3.  

Legal Proceedings

7

Item 4.  

[Removed and Reserved]

7

PART II

Item 5.  

Market for Registrant’s Common Equity, Related Stockholder Matters 

and Issuer Purchases of Equity Securities

7

Item 6.  

Selected Financial Data

9

Item 7.  

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

9

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

13

Item 8.  

Financial Statements and Supplementary Data

13

Item 9.  

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

13

Item 9A.  Controls and Procedures 

13

Item 9B.  Other Information

14

PART III

Item 10. 

Directors, Executive Officers and Corporate Governance

14

Item 11. 

Executive Compensation

16

Item 12. 

Security Ownership of Certain Beneficial Owners and Management 

and Related Stockholder Matters

16

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

19

Item 14.  Principal Accountant Fees and Services

19

PART IV

Item 15.  Exhibits, Financial Statement Schedules

20

Signatures

21

*In this annual report the words "we," "us," "our," and the "Company" refer to Silvergraph International, Inc. and New Era Studios, Inc. (as statutory successor in interest to Silvergraph LGT, LLC).*

**FORWARD LOOKING STATEMENTS**

When used in this report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “intend,” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 regarding events, conditions, and financial trends that may affect the Company’s future plans of operations, business strategy, operating results, and financial position.  Persons reviewing this report are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and that actual results may differ materially from those included within the forward-looking statements as a result of various factors.

Statements made in this Form 10-K that are not historical or current facts are  "forward-looking  statements" made pursuant to the safe harbor  provisions of Section 27A of the  Securities Act of 1933, as amended, and Section 21E of the Securities  Exchange Act of 1934, as amended.  We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made.  Any forward-looking statements represent our best judgment as to what may occur in the future.  These forward-looking statements include our plans and objectives for our future growth, including plans and objectives related to the consummation of acquisitions and future private and public issuances of our equity and debt securities.   The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties.  Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control.  Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Form 10-K will prove to be accurate.   In light of the significant uncertainties inherent in the forward-looking statements included herein, you should not regard the inclusion of such information as our representation or the representation of any other person that we will achieve our objectives and plans.  We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

**PART I**

**ITEM 1.  BUSINESS**

***Historical Development***

On March 7, 1986, Hystar Aerospace Marketing Corporation of Nebraska (“Hystar”) was incorporated in Nebraska as a wholly-owned subsidiary of Nautilus Entertainment, Inc., a Nevada corporation.  On February 10, 1999, Pinecrest Services, Inc. (“Pinecrest”) was incorporated in Nevada and Hystar completed a change of domicile merger with Pinecrest solely to change the domicile of Hystar from Nebraska to Nevada.  We changed our name from Pinecrest Services, Inc. to Silvergraph International, Inc. on June 23, 2006 in connection with the share exchange, described below.

Silvergraph LGT, LLC, was formed on January 18, 2002 to develop and distribute wall art.  Silvergraph LGT, LLC completed a change of domicile merger with New Era Studios, Inc., a Nevada corporation, on June 9, 2006.  The purposes of this merger were to change the domicile of Silvergraph LGT, LLC, from Delaware to Nevada, and to change Silvergraph LGT, LLC, from a limited liability company to a corporation.  The officers and directors of New Era were the sole members of each of the limited liability companies that served as managers of Silvergraph LGT, LLC.  Until 2009, the business of New Era was the same as the business of the Company; in 2009, we became largely inactive.   

On June 23, 2006, Silvergraph and New Era Studios, Inc., a Nevada corporation and successor in interest by merger to Silvergraph LGT, LLC, a Delaware limited liability company, executed an Agreement and Plan of Share 

1

Exchange, pursuant to which the shareholders of New Era exchanged their issued and outstanding shares of New Era common stock for shares of restricted Silvergraph International common stock.  Effective as of June 23, 2006 New Era is our wholly-owned subsidiary.  We treated this transaction as a recapitalization for accounting purposes, with New Era deemed the accounting acquirer and Silvergraph International the legal acquirer.  

In accordance with the closing of the share exchange agreement on June 23, 2006, we issued 490,909 shares of our common stock to the former shareholders of New Era in exchange for all of the 224 issued and outstanding shares of New Era common stock.   The management of Silvergraph resigned and management connected with New Era was appointed to fill the vacancies.  

We had 545,455 shares of common stock issued and outstanding as of June 26, 2006, as a result of the retirement of 227,273 shares of common stock held by VIP WorldNet, Inc., which resulted in a reduction of our issued and outstanding common stock, and the subsequent issuance of the 490,909 shares of our common stock to the former shareholders of New Era in connection with the share exchange.  As a consequence of the retirement of our common stock and the issuance of shares in the share exchange, the former shareholders of New Era held approximately 90% of our issued and outstanding common stock.  The share exchange was deemed to be a recapitalization for accounting purposes.  We have expected the share exchange agreement and the transactions contemplated under that agreement to qualify as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code.  

On September 14, 2006, we incorporated a wholly-owned subsidiary, TxTura, Inc. in the state of Nevada (“TxTura”).   TxTura’s business purpose was to offer a compelling business opportunity to home based businesses to represent and sell our patent-pending products.   However, TxTura became inactive in October 2007.

On December 5, 2008, stockholders holding a majority of shares entitled to vote authorized by written consent a reverse stock split of the Company’s outstanding common stock in the range of from 1:30 to 1:66, as determined in the sole discretion of the Board of Directors.  On February 24, 2009, the Board of Directors authorized by written consent to effect a 1-for-66 reverse split of the Company’s issued and outstanding shares.  The reverse stock took effect at the open of business on March 24, 2009.  As a result of the reverse stock split, the outstanding shares of common stock issued and outstanding, were reduced to 1,067,440 shares.  Except where the context indicates otherwise, all share figures in this Form 10-K give effect to the stock split.

***Our Business***

Since 2009, we have been relatively inactive, after deciding to wind up the business of its subsidiary, New Era.  Up until 2009, through our operating subsidiary, New Era, we developed and distributed wall art to the $12.5 billion U.S. mass wall art market.  From inception through 2004, we focused our activity on developing and refining our patent-pending and proprietary technology with only modest, non-strategic, sales and revenue.  

Based on the 2006 report by Unity Marketing entitled “The Art, Wall Décor, Custom Framing & Picture Frame Market”, the United States art industry was an approximately $21.8 billion market, including the $12.5 billion U.S. art reproduction market.  The United States art industry includes unframed prints (open and limited editions), framed prints (open and limited editions), canvas, giclée, originals and custom frames.  The U.S. art industry is highly fragmented, commoditized and leaderless.  The predominant style of art reproduction currently sold in the industry is a paper art print framed behind glass.  Our patent-pending technology enabled us to introduce to the industry a collection of textured fine art prints on multiple surfaces at prices similar to those which currently exist in the market.  We believe consumers desire high quality textured fine art at prices similar to that which they have historically paid for décor paper prints under glass.

In 2005, we successfully “soft launched” our product with an established home décor company that sells through 100,000 independent sales representatives throughout the United States, Canada and Mexico.  This customer expanded the program by adding new stock keeping units and ordered 60,000 units in the first 12 months.

2

In 2006 we expanded our operations, to meet increased demand from our existing clients and to develop product targeting the home furnishings market.  With respect to product development, we partnered with Applejack Art Partners, an art publishing company in Manchester, Vermont, to help develop and select new trend oriented images with the goal of releasing a series of exclusive art collections utilizing our patent-pending technology. In December 2006, we soft launched our first exclusive art collection in the United States. 

In 2007, we experienced significant challenges due to the unexpected contraction of our business with our largest client.  In response, we attempted to accelerate the development of our in-house sales channel to home furnishings and accessory retailers.  To that end, in July 2007 we hired an art sales, marketing and design company based in Seattle which brought to us an existing client base.  To service and grow the Seattle group’s client base, we needed to raise capital which we were unable to accomplish on terms acceptable to us.  Accordingly, we terminated our contract with the Seattle group in December 2007.   Separately, without sufficient resources we were forced to cease our investment in the development of TxTura.  Given the challenges we were experiencing in developing sales channels and the unexpected contraction of our largest client, in December 2007, the board of directors determined that we should seek to merge with a larger art company with established sales channels which could benefit from our technology.  

In 2008, we evaluated various strategies to best enhance value for our shareholders including the sale to or merger with a larger art or printing organization that would benefit from our technology.   To that end, we entered into discussions with multiple potential targets but were unable to reach definitive agreement with any such target.  Our largest client, Home Interior & Gifts, representing over 70% of our sales in 2007, declared bankruptcy in 2008 and, as a result, we don’t expect material future revenue from the customer.  In the second half of 2008, we began to sell assets of our subsidiary, New Era Studios, Inc. (New Era), to pay down New Era’s debts and to provide working capital for the company.  All sales were arms length and to non-affiliated entities.  We also raised $190,000 in interim bridge capital to support our operations and took steps to significantly lower our cost of operations.   

In 2009, the Company was largely inactive, after deciding to wind down the business of New Era.  

In 2010 and beyond, we are continuing to pursue and evaluate strategies to enhance shareholder value including the merger with a private company in industries outside the art and printing industries.  We are actively winding down New Era.  We continue to take steps to lower our operating costs and continue to sell New Era assets to pay down New Era debts and help fund our working capital needs. However, we cannot guarantee that these actions will ensure our continued operations.

The Company will attempt to locate and negotiate with a business entity for the merger of that target company into the Company. In certain instances, a target company may wish to become a subsidiary of the Company or may wish to contribute assets to the Company rather than merge. No assurances can be given that the Company will be successful in locating or negotiating with any target company. The Company will provide a method for a foreign or domestic private company to become a reporting (“public”) company whose securities are qualified for trading in the United States secondary market.

The selection of a business opportunity in which to participate is complex and extremely risky and will be made by management in the exercise of its business judgment. There is no assurance that we will be able to identify and acquire any business opportunity which will ultimately prove to be beneficial to our company and shareholders.

Because we have no specific business plan or expertise, our activities are subject to several significant risks. In particular, any business acquisition or participation we pursue will likely be based on the decision of management without the consent, vote, or approval of our shareholders.

***Patents and Intellectual Property***

We were prosecuting Application No. PCT/US2005/028501 filed with the USPT on February 8, 2007 (“Application).  The Application describes and claims the mechanical deposit of ink to emulate hand painted original works of art.  This application claims priority to U.S. Provisional Patent Application Serial No. 60/600,192 

3

filed on August 10, 2004.  The applications cover the process and technology used to mechanically deposit ink in a way that emulates hand-applied brushstrokes and other artistic techniques.

Given our limited resources, we do not intend to continue prosecuting the Application.

***Employees***

We currently have two part-time employees.  We believe that our employee relations are good.  We intend to continue to conduct business primarily using our employees and consultants.  However, some consultants may become employees in the future. We have no union employees.

**ITEM 1A.  RISK FACTORS**

*The business, financial condition and operating results of Silvergraph International could be adversely affected by any of the following factors, in which event the value of the equity securities of Silvergraph International could decline, and investors could lose part or all of their investment. The risks and uncertainties described below are not the only ones that we face. Additional risks and uncertainties not presently known to management, or that management currently thinks are immaterial, may also impair future business operations.  For purposes of the discussion of the following risk factors, references to “we” and “our”  shall include, unless otherwise indicated, Silvergraph International, Inc. as well as New Era Studios, Inc. (as statutory successor in interest to Silvergraph LGT, LLC) as it existed prior to the share exchange.*

**We have a history of losses and nominal operating results.**

Silvergraph International, formerly known as Pinecrest Services, Inc., commenced operations as a shell in 1986, but has had no significant business prior to the share exchange.  New Era has, since inception through December 31, 2009, incurred an accumulated deficit of $6,307,448.   As we are winding down New Era, we were not engaged inactive business operations in 2009.  It is unlikely we will generate positive cash flow in the future as a stand-alone company, although we may decide to re-start operations when business conditions, in our opinion, improve. 

If we re-start operations, our results will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history.  We can give no assurance that we will operate on a profitable basis which may lead to the entire loss of an investment in our common stock.

Due to the nature of our business, an investment in our securities is highly speculative. We have not realized a profit from our historical operations and there is little likelihood that we will realize any profits in the short or medium term.  In addition, our independent registered public accountants have raised substantial doubts in connection with their opinion related to our audited financial statements as to our ability to continue as a going concern.

We expect to continue to incur administrative and, should we re-start operations, operating costs.  Consequently, we expect to incur operating losses and negative cash flows until we restart operations and are profitable, or, until we locate and enter into another business that operates profitably, of which there is no assurance.  

**We have had negative cash flows from operations since inception. We will require significant additional financing, the availability of which cannot be assured, and if we are unable to obtain such financing, our business may fail.**

To date, we have had negative cash flows from operations and have depended on sales of our equity securities and debt financing to meet our cash requirements. Our ability to restart the business or enter into another business through merger or otherwise, will be dependent upon our ability to raise significant additional financing. If we are unable to obtain such financing, we will not be able to fully develop our business. In addition, our 

4

independent registered public accountants have raised substantial doubts in connection with their opinion related to our audited financial statements as to our ability to continue as a going concern. 

We may not be able to obtain additional equity or debt financing on acceptable terms as required. Even if financing is available, it may not be available on terms that are favorable to us or in sufficient amounts to satisfy our requirements. If we require, but are unable to obtain, additional financing in the future, we may be unable to implement our business plan and our growth strategies, respond to changing business or economic conditions, withstand adverse operating results and compete effectively.

**We hold no patents on our proprietary technology and if we are not able to protect our proprietary technology.**

On February 8, 2007, we filed Application No. PCT/US2005/028501 with the USPT (“Application).  We have since abandoned the Application because we had insufficient resources to continue prosecuting the application.  As such, there is substantial risk that a competitor may use our technology which could have a material adverse effect on our ability to re-start operations if so decided by the Board. 

**Our board has determined to wind down New Era Studios, Inc.**

 

The board has determined it in the best interest of the shareholders to wind down New Era Studios, Inc., the Company’s only operating subsidiary.  To that end, we are actively seeking to sell New Era’s assets to pay off New Era’s debts.  There is no guarantee the proceeds of the asset sales will be sufficient to pay off all of New Era’s debts.  While we are not contractually obligated to pay for New Era debts, we may determine it is in the shareholders’ interest to settle with New Era debt holders by offering consideration in the form of common stock.  

**Our board has not made a determination of fairness regarding related-party transactions.**

Our board has entered into a loan transaction with certain persons who are now principal shareholders pursuant to amendments to the original loan transaction.  (See Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operation – Convertible Promissory Notes).  Our board has not made a determination as to whether these related-party transactions were made on terms no less favorable than terms we could have obtained from unaffiliated third parties.  Our board has adopted a policy that any future transactions between us and our officers, directors or principal stockholders will require the approval of a majority of the disinterested directors and will be on terms no less favorable than we could obtain from an unaffiliated third party.

**Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could lead to loss of investor confidence in our reported financial information.**

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with this annual report we are required to furnish a report by our management on our internal control over financial reporting.  If we cannot provide reliable financial reports or prevent fraud, then our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our stock could drop significantly.  In order to achieve compliance with Section 404 of the Act within the prescribed period, we have engaged in a process to document and evaluate our internal control over financial reporting, which has been challenging.  We cannot assure you as to our independent auditors’ conclusions at December 31, 2009 with respect to the effectiveness of our internal control over financial reporting.  There is a risk that our independent auditors will not be able to conclude at December 31, 2009 that our internal controls over financial reporting are effective as required by Section 404 of the Act. 

If we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act.  Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. 

5

**Investors in our common stock may suffer future dilution from warrant exercises.**

Future dilution to our shareholders may occur from warrant exercises. To date, we have granted warrants to purchase 212,663 shares of our common stock.  These warrants have a weighted average exercise price of $1.29 and have registration rights.  

**If we issue additional shares in the future, it will result in dilution for our existing shareholders**.

Our articles of incorporation authorize the issuance of up to 100,000,000 shares of common stock.  Our board of directors may choose to issue some or all of such shares to acquire one or more businesses or to provide additional financing in the future.  The issuance of any such shares will result in a reduction of the book value and market price of the outstanding shares of our common stock.  If we issue any such additional shares, such issuance will cause a reduction in the proportionate ownership and voting power of all current shareholders. 

**The SEC's penny stock regulations may restrict trading of our stock, which may limit a stockholder's ability to buy and sell our stock.**

The SEC has adopted regulations which generally define "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.  The penny stock rules, which initially govern our securities, 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 incomes for the last two years and anticipated incomes for this year 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 SEC, 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.  A broker-dealer must provide to a customer orally or in writing the bid and offer quotations, and the broker-dealer and salesperson compensation information prior to effecting the transaction.  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.

**FINRA sales practice requirements may also limit a stockholder's ability to buy and sell our stock.**

In addition to the penny stock rules, the Financial Industry Regulatory Authority (“FINRA,” formerly the NASD) 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, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers.  FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit an investor’s ability to buy and sell our stock and may have an adverse effect on the market for our shares.

**Our common stock is illiquid and factors unrelated to our operations may negatively impact the price of our common stock.**

Our common stock currently trades on a limited basis on the Pink Sheets.  Trading of our stock through the Pink Sheets is frequently very thin and highly volatile. There can be no assurances that a sufficient market will 

6

develop in the stock, in which case it could be difficult for shareholders to sell their stock.  The market price of our common stock could fluctuate substantially due to a variety of factors, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us.  In addition, the stock market is subject to extreme price and volume fluctuations.  This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.

**ITEM 1B.  UNRESOLVED STAFF COMMENTS**

None.

**ITEM 2.  PROPERTIES**

The Company does not currently own or lease any properties.  

**ITEM 3.  LEGAL PROCEEDINGS**

No legal proceedings are threatened or pending against the Company or any of our officers or directors.  Further, none of our officers, directors or affiliates are parties against the Company or have any material interests in actions that are adverse to the Company’s interests.

**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 common stock was previously listed, but was delisted from the OTC Bulletin Board on approximately May 20, 2009, due to failure to file the 2008 Form 10-K timely and was subsequently re-listed on the OTC Bulletin Board.  Our common stock is now on the OTC Bulletin Board under the symbol “SVGP.”  The common stock is highly illiquid with the last trade occurring on March 10, 2010, at a sales price of $0.1110 per share.  Prior to this sale, the bid price was $0.0001 per share of common stock.  We do not have access to historical prices of the stock for 2009 and 2008.  

Our shares are subject to Section 15(g) and Rule 15g-9 of the Securities and Exchange Act, commonly referred to as the “penny stock” rule.  The rule defines penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions.  The rule provides that any equity security is considered to be a penny stock unless that security is: 

·

registered and traded on a national securities exchange meeting specified criteria set by the SEC; 

·

issued by a registered investment company; 

·

excluded from the definition on the basis of price (at least $5.00 per share) or the issuer’s net tangible assets.  

Trading in the penny stocks is subject to additional sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors.  Accredited investors, in general, include certain institutional investors and individuals with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse.  

For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of our securities and must have received the purchaser’s written consent to the transaction prior to the purchase.  Additionally, for any transaction involving a penny stock, the rules require the delivery, prior to the first 

7

transaction, of a risk disclosure document relating to the penny stock.  A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the security.  Finally, monthly statements must be sent to the purchaser disclosing recent price information for the penny stocks.  Consequently, these rules may restrict the ability of broker-dealers to trade or maintain a market in our common stock and may affect the ability of shareholders to sell their shares. 

***Holders***

As of March 31, 2010, there were approximately 150 shareholders of record holding 2,262,200 shares of common stock, including 994,632 shares issuable under contractual commitments. The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Holders of the common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock.

***Dividends***

We have not paid, nor declared, any dividends since our inception and do not intend to declare any such dividends in the foreseeable future. Our ability to pay dividends is subject to limitations imposed by Nevada law.  Under Nevada law, dividends may be paid to the extent that a corporation’s assets exceed its liabilities and it is able to pay its debts as they become due in the usual course of business.

***Recent Sales of Unregistered Securities***

In February, 2008, the Company entered into a loan transaction with certain accredited investors.  Subsequently, the Company has entered into multiple amendments.  During the twelve months ended December 31, 2009, as part of the 7th amendment to the loan transaction dated in May, 2009, the Company received proceeds of $14,480 which has been recorded as common shares issuable in the accompanying consolidated balance sheet.  The pro rata common shares of 724,632 shares to be issued have been included in the weighted average shares outstanding calculation for the twelve months ended December 31, 2009.  In connection with the 8th amendment to the loan transaction dated March 9, 2010, the Company received loans totaling $14,493, in exchange for an obligation to issue 270,000 shares of common stock.  The proceeds will be used for working capital purposes.  The 270,000 shares of common shares to be issued will either be issued in full or be included in the weighted average shares outstanding calculation for the twelve months ending December 31, 2010.    (See Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operation -– Convertible Promissory Notes).  

On November 9, 2009, the Company received $10,000 through the sale of 200,000 shares of common stock and warrants that entitle the holder to purchase 200,000 shares of common stock for a period of five years at a price equal to $0.50 per share of common stock.   The proceeds will be used for working capital purposes. The common shares to be issued will be included in the weighted average shares outstanding calculation for the twelve months ending December 31, 2009.

For the transactions described above, we relied on an exemption from registration for a private transaction not involving a public distribution provided by Section 4(2) of the Securities Act.

***Issuer Purchase of Securities***

None.

8

**ITEM 6.  SELECTED FINANCIAL DATA**

 

Years ended December 31

SUMMARY OF BALANCE SHEET

2009

2008

Cash and cash equivalents

$

4,114 

$

39,539 

Total current assets

4,114 

39,539 

Total assets

4,114 

39,539 

Total current liabilities

530,585 

544,013 

Total liabilities

530,585 

544,013 

Accumulated deficit

(6,307,448)

(6,260,971)

Total stockholders’ deficit

$

(526,471)

$

(504,474)

 

 

 

SUMMARY OF OPERATING RESULTS

 

 

Revenues, net

$

- 

$

120,963 

Cost of sales

- 

23,640 

Gross profit (loss)

- 

97,323 

Total operating expenses

42,167 

523,239 

Operating loss

(42,167)

(425,916)

Total other expense

4,310 

1,592,473 

Net loss

$

(46,477)

$

(2,018,389)

Net loss per share

$

(0.03)

$

(2.45)

**ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION**

***Executive Overview***

In 2007, we experienced significant challenges due to the unexpected contraction of our business with our largest client.  In response, we attempted to accelerate the development of our in-house sales channel to home furnishings and accessory retailers.  To that end, in July 2007 we hired an art sales, marketing and design company based in Seattle which brought to us an existing client base.  To service and grow the Seattle group’s client base, we needed to raise capital which we were unable to accomplish on terms acceptable to us.  Accordingly, we terminated our contract with the Seattle group in December 2007.   Separately, without sufficient resources we were forced to cease our investment in the development of TxTura.  Given the challenges we were experiencing in developing sales channels and the unexpected contraction of our largest client, in December 2007, the board of directors determined that we should seek to merge with a larger art company with established sales channels which could benefit from our technology.  

In 2008, we evaluated various strategies to best enhance value for our shareholders including the sale to or merger with a larger art or printing organization that would benefit from our technology.   To that end, we entered into discussions with multiple potential targets but were unable to reach definitive agreement with any such target.  Our largest client, Home Interior & Gifts, representing over 47% of our sales in 2007, declared bankruptcy in 2008 and, as a result, we have not expected material future revenue from the customer.  In the second half of 2008, we began to wind down our subsidiary New Era Studios, Inc. (“New Era”), and to sell its assets, to pay down its debts and to provide working capital for the Company.  All sales were arms length and to non-affiliated entities.  We also raised $190,000 in interim bridge capital to support our operations and took steps to significantly lower our cost of operations.   

In 2009, after deciding to wind down the business of New Era, we were largely inactive except for efforts to sell assets and to seek a possible business combination.

9

In 2010 and beyond, we are continuing to pursue and evaluate strategies to enhance shareholder value including the merger with a private company in industries outside the art and printing industries and we are actively winding down New Era.  We continue to take steps to lower our operating costs and continue to sell New Era assets to pay down New Era debts and help fund our working capital needs. However, we cannot guarantee that these actions will ensure our continued operations.

***Liquidity and Capital Resources***

We derived our primary source of funds during the twelve months ended December 31, 2009 from the sale of equipment and additional equity and debt securities.  Working capital as of December 31, 2009 was negative $526,471 as compared to negative working capital of $504,474 as of December 31, 2008.  The cash balance at December 31, 2009 was $4,114 compared to $39,539 at December 31, 2008. 

Net cash used in operating activities was $87,648 for the twelve months ended December 31, 2009, as compared to $189,441 for the twelve months ended December 31, 2008.  During each period presented, we used net cash principally to fund our net losses.

Net cash provided by investing activities was $11,820 for the twelve months ended December 31, 2009, as compared to $52,499 for the twelve months ended December 31, 2008.  During each period presented, we used net cash principally to fund our net losses.

Net cash provided by financing activities was $40,403 during the twelve months ended December 31, 2009, as compared to net cash provided by financing activities of $158,744 for the twelve months ended December 31, 2008.  Net cash provided by financing activities during 2009 was principally related to the sale of additional equity securities.  

We have suffered recurring losses from operations and have an accumulated deficit of approximately $6,307,448 at December 31, 2009.  Additionally, as of December 31, 2009, we had cash and cash equivalents of $4,114.  Primarily as a result of our recurring losses and our lack of liquidity, we have received a report from our independent auditors for our financial statements for the year ended December 31, 2009 that includes an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern. To continue our operations and to grow our current operations and to make acquisitions, if any, under our current business model during the next twelve months, we will need to secure additional working capital, by way of equity or debt financing, or otherwise.  After this twelve month period, we may need additional financing for working capital, and in the case of acquisitions for payment of seller notes and future earned cash to sellers of acquired companies. There can be no assurance that we will be able to secure sufficient financing or on terms acceptable to us. If adequate funds are not available on acceptable terms, we would need to delay, limit or eliminate some or all of our proposed operations, and we may be unable to successfully promote our products or develop new or enhanced products or prosecute acquisitions, any of which could lower our revenues and net income, if we achieve profitability in the future.  If we raise additional funds through the issuance of convertible debt or equity securities, the percentage ownership of our current stockholders is likely to be diluted, unless some of our current stockholders were to invest in subsequent convertible debt or equity financings, and some of the newly issued securities may also have rights superior to those of the common stock.  Additionally, if we issue or incur debt to raise funds, we may be subject to limitations on our operations.

***Convertible Promissory Notes***

In February 2008 the Company issued 7% convertible promissory notes (the “Notes”) in the aggregate principal amount of $150,000 pursuant to a subscription agreement, dated January 25, 2008, as amended, between Silvergraph and certain accredited investors.  The subscription agreement provided that the subscribers would purchase a minimum of $100,000 and a maximum of $400,000 of the Notes.  In April, 2008, the Company issued an additional $40,000 of the Notes to two accredited investors.    During the twelve months ended December 31, 2009, the Company issued an additional $6,052 of these notes.  The aggregate amount outstanding at December 31, 2009 was $196,052 plus accrued interest of $22,207. 

10

The obligations represented by the Notes have been amended by a 1st Amendment dated May 31, 2008; a 2nd Amendment dated June 20, 2008; a 3rd Amendment dated August 31, 2008; a 4th Amendment dated October 31, 2008, a 5th Amendment dated December 15, 2008, a 6th Amendment dated January 31, 2009, a 7th Amendment dated in May, 2009, and an 8th Amendment dated March 9th, 2010 (the “Prior Amendments”) which are incorporated herein by reference.   

As of December 31, 2009 and after incorporating the Prior Amendments, the significant terms of the Notes are as follows:

1.

 Payments:  The Company will pay all interest due and owing by adding such amounts to the outstanding principal balance of each Note, thereby increasing the outstanding principal balance of each Note.  All the payments-in-kind shall accrue interest as though such amounts were original principal indebtedness. The Company will not pay any principal payments in cash prior to maturity. 

2.

 Maturity:  The principal and all accrued interest shall become immediately due and payable upon receipt by the Company of written notice from a majority of the Holders.

3.

Event of Default:  In the event of an occurrence of any event of default specified below, the principal and all accrued interest shall become immediately due and payable without notice.  The occurrence of any of the following events shall constitute an event of default under this Note:

a.

The Company fails to make any payment when due and which failure has not been cured within fifteen (15) days following such failure.

b.

If the Company shall default in the payment or performance of any other material obligation of this Note or other debt of the Company.  

c.

If the Company or an operating wholly-owned subsidiary of the Company shall file a petition to take advantage of any insolvency act; make an assignment for the benefit of its creditors; commence a proceeding for the appointment of a receiver, trustee, liquidator or conservator of itself of a whole or any substantial part of its property; file a petition or answer seeking reorganization or arrangement or similar relief under the federal bankruptcy laws or any other applicable law or statute of the United States of America or of any state.

4.

Conversion Rights:

*a.*

*Optional Conversion*.  On or before the payment of a Note in full, the Holder may convert the principal amount owing on this Note, together with all accrued and unpaid interest, into fully paid and nonassessable shares of Common Stock at a conversion price per share equal to the lower of $0.045 per share of common stock or the price per share of common stock (referred to as “X”) derived from the following equation:  X=.95/Y where X is defined as the price per share of common stock and Y is defined as the reverse split ratio declared by the Company’s board of directors.   Given that the reverse split ratio determined by the board of directors in March, 2009, was one for sixty-six, the exercise price would be $0.0139 (X=.95/66 = $0.0139).

*b.*

*Mandatory Conversion*.  If the Company does not complete a merger transaction with a private company approved by the board of directors (“Private Company”), by the Maturity Date whereby the Private Company owns up to 96% of the surviving entity, the Conversion Price shall automatically be reduced to the lower of (i) $0.002 or (ii) the conversion price that would cause the majority holder of the Notes to own upon conversion the number of shares of common stock of the Company determined to be 59% of the outstanding Common Stock on a fully-diluted basis, and the remaining holders of the Notes to own a pro rata number of common shares of common stock of the Company.  

5.

Security:  The notes are secured by all of the assets of New Era Studios, Inc., the Company’s wholly-owned subsidiary, under a security agreement.  Silvergraph may not prepay the notes and so long as the notes are outstanding, the Company must obtain written approval from the note holders for certain actions identified in the notes, including, but not limited to, the issuance of debt, acquisition or sale of a material asset and issuance of 

11

dividends to common stockholders.  The security agreement will be null and void if the notes convert into a majority of Silvergraph’s common stock.  In addition, the holders of the Notes have a right of first refusal on all equity financings contemplated by Silvergraph.

 

Consideration for Amendments:

As part of the 7th amendment dated in May 2009, certain Note holders agreed to loan up to an additional $25,000, to be used for working capital purposes.  Upon receipt of the full $25,000, the Company agreed to issue a total of 1,250,000 shares of Common Stock; however, if the Company had not received a total of $25,000, then the Company agreed to issue common shares on a pro rata basis.  During the twelve months ended December 31, 2009, the Company received proceeds of $14,480 which has been recorded as common shares issuable in the accompanying consolidated balance sheet.  The pro rata common shares of 724,632 shares to be issued have been included in the weighted average shares outstanding calculation for the twelve months ended December 31, 2009.  

As part of the 8th amendment dated March 9, 2010, the Company received from certain Note holders, loans totaling $14,493, in exchange for an obligation to issue 270,000 shares of common stock.  The proceeds will be used for working capital purposes.  The 270,000 shares of common shares to be issued will either be issued in full or be included in the weighted average shares outstanding calculation for the twelve months ending December 31, 2010.   

***Results of Operations for Years ended December 31, 2009 and 2008***

*Revenues.*    We had no revenues during the year ended December 31, 2009.  We continue to explore new opportunities that will generate revenue and enhance shareholder value.  In 2008, our revenues decreased $140,072 or 54%, to $120,963 due primarily to the lack of orders by our largest customer who filed for bankruptcy.

*Gross profit.*    Cost of sales consists primarily of raw material and component costs, manufacturing and supervisory labor, manufacturing overhead costs and royalties.  We had no revenues or related costs of revenues for the year December 31, 2009.  Our gross profit for the twelve months ended December 31, 2008 was $97,323.   

*Operating expenses.*    Operating expenses consist of selling and marketing expenses, which are primarily salaries, commissions and promotional expenses, and general and administrative expenses, which are primarily salaries and bonuses, rent expense, depreciation and professional services such as legal and accounting fees.  Operating expenses decreased by $481,082 or 92% to $42,167 for the year ended December 31, 2009 versus $523,239 for the year ended December 31, 2008.  The decrease in operating expenses was principally due to the elimination of operating costs resulting from our decision to wind down the business of New Era.    

*Other expense.*    Other expense principally consists of interest income and expense, as well as non-operational revenues or expenses earned or incurred by us.  We had other expenses of $4,310 during the year ended December 31, 2009 versus other expense of $1,592,473 during the year ended December 31, 2008.  The significant charges in calendar year 2008 were due to the modification of the conversion rates for outstanding debt and the Company recognized financing costs of $1,170,000 when 136,364 common shares were issued to extend the maturity date on its convertible promissory note.

***Critical Accounting Policies***

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires us to make judgments, assumptions and estimates that affect the amounts reported. Note 1 of the Notes to Consolidated Financial Statements describes the significant accounting policies used in the preparation of the consolidated financial statements. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below. On a regular basis, we review the accounting policies we use in reporting our financial results. 

12

A critical accounting policy is one that is both material to the presentation of our combined financial statements and requires us to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: 

·

we have to make assumptions about matters that are highly uncertain at the time of the estimate; and 

·

different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on the our financial condition or results of operations. 

We cannot make estimates and assumptions about future events or determine their effects with certainty. We base our estimates on historical experience and on various other assumptions that we believe to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as we obtain additional information and as our operating environment changes. These changes have historically been minor and we have included them in the combined financial statements as soon as they became known.  In addition, we periodically face uncertainties, the outcomes of which are not within our control and we will not know for prolonged periods of time. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, we believe that our combined financial statements are fairly stated in accordance with accounting principles generally accepted in the United States of America, and present a meaningful presentation of our financial condition and results of operations. 

We believe that the following are our critical accounting policies: 

*Revenue Recognition  *

We recognize revenue from gross product sales, including freight charges, and revenues from the license of products, in compliance with Staff Accounting Bulletin No. 101 and No. 104 which require that:

·

title and risk of loss have passed to the customer;

·

there is persuasive evidence of an arrangement;

·

delivery has occurred or services have been rendered;

·

the sales price is fixed and determinable;

·

collectability is reasonably assured; and 

·

customer acceptance criteria, if any, have been successfully demonstrated. 

**ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

**ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

Our financial statements appear at the end of this report beginning with the Index to Financial Statements on page F-1.

**ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

We have not had a change in, or disagreement with our independent registered public accounting firm for the past two fiscal years.

**ITEM 9A.  CONTROLS AND PROCEDURES**

***Disclosure Controls and Procedures***

Under the supervision and with the participation of our management, including our Chief Executive Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Securities and 

13

Exchange act of 1934 Rules 13a-15(f).  Based on this evaluation, our Chief Executive Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2009.

***Management’s Annual Report on Internal Control over Financial Reporting***

Our Chief Executive Officer and Chief Financial Officer are responsible to design or supervise a process to be effected by our board of directors that provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  The policies and procedures include:

·

maintenance of records in reasonable detail to accurately and fairly reflect the transactions and dispositions of  assets,

·

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 are being made only in accordance with authorizations of management and directors, and 

·

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.

For the year ended December 31, 2009, management has relied on the framework of the Committee of Sponsoring Organizations of the Treadway Commission (COSO), to evaluate the effectiveness of our internal control over financial reporting and based upon that framework, management has determined that our internal control over financial reporting is effective.  A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Our management determined that there were no changes made in our internal controls over financial reporting during the fourth quarter of 2009 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting. 

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 the our registered public accounting firm pursuant to temporary rules of the SEC that permit the company to provide only management’s report in this annual report.

**ITEM 9B.  OTHER INFORMATION**

None.

**PART III**

**ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**

***Directors and Executive Officers***

The following table sets forth the name, age, position and office term of each executive officer and director of the Company.  The initial terms of office of our directors will expire upon the election and qualification of directors at our next annual meeting of stockholders.  All directors serve until the next annual stockholders meeting or until their successors are duly elected and qualified.  All officers serve at the discretion of the Board of Directors.

Name

Age

Position

Term of Director

James R. Simpson

40

Chief Executive Officer, Secretary and Director

From June 2006 until our next annual meeting.

William W. Lee

56

President and Director

From June 2006 until our next annual meeting.

14

Set forth below is certain biographical information regarding each of the Company's executive officers and directors:

*James R. Simpson*became the chief executive officer, secretary and a director of Silvergraph International in June 2006.  Mr. Simpson has also served as the chief executive officer and a director of New Era since its inception in June 2006.  As one of the founding members of Silvergraph LLC, Mr. Simpson formulated our strategic direction, namely gallery quality prints at decor prices.  Prior to founding Silvergraph LLC, where his wholly-owned entity served as one of the Silvergraph LLC managers from April 2005 until Silvergraph LLC’s merger into New Era, Mr. Simpson was a founding member of Brown Simpson Asset Management, LLC, a $450 million New York based private equity investment organization.  During his 6-year tenure through 2001, he was responsible for over $250 million in private investment in domestic technology companies.  From 1999 to 2001, Mr. Simpson served as a director of Pointconnect Inc., a technology services company targeting the financial services industry.  Mr. Simpson has over 12 years of investment banking, private equity, legal and senior corporate management experience.  Mr. Simpson received a B.A. from the University of Colorado, Boulder and a J.D. from California Western School of Law in San Diego, California where he served as managing director of the law review. 

*William W. Lee* became the president and a director of Silvergraph International in June 2006.  Mr. Lee has also served as the president, treasurer and a director of New Era since its inception in June 2006.  A wholly-owned entity of Mr. Lee served as one of the Silvergraph LLC managers from April 2005 until the merger of Silvergraph LLC into New Era.  He possesses over 30 years of experience in the screen-printing industry, with technical proficiency in art manufacturing from film processing through volume production and quality control.  Mr. Lee developed all of our patent-pending and proprietary technologies related to pre-press and press operations. 

***Compliance with Section 16(a) of the Exchange Act***

Section 16(a) of the Securities Exchange Act of 1934 requires officers and directors of the Company and persons who own more than ten percent of a registered class of its equity securities to file reports of ownership and changes in their ownership on Forms 3, 4, and 5 with the SEC, and forward copies of such filings to the Company. Based on the copies of filings received by the Company during the most recent fiscal year the directors, officers, and beneficial owners of more than ten percent of the equity securities of the Company registered pursuant to Section 12 of the Exchange Act have filed on a timely basis all required Forms 3, 4, and 5 and any amendments thereto.  

***Code of Ethics***

We adopted a Code of Ethics for the Chief Executive Officer, the President and Financial Executives in June 2006. Upon written request we will provide a copy of the Code of Ethics to any person without charge.  Address your request to: 

Shareholder Communications

Silvergraph International, Inc.

1875 Century Park East, Ste. 1460

Los Angeles, California 90067

***Committees***

In June 2006 our board of directors considered establishing an audit, nominating and compensation committee; however, the board of directors decided to delay such action until the Company seeks listing on the Nasdaq Stock Market and /or these committees are required by regulation.  Therefore, we do not currently have an audit committee; accordingly, we do not have an audit committee financial expert serving on an audit committee. 

15

**ITEM 11.  EXECUTIVE COMPENSATION**

***Executive Officer Compensation***

The following tables show the compensation paid to our named executive officers in all capacities during the years ended December 31, 2009 and 2008.  

**Name and Principal Position**

**Year**

**Salary**

**Non-equity Incentive**

**Plan Compensation**

**All Other**

**Compensation**

**Total**

James R.  Simpson

CEO, Secretary

2009

$           -

-

-

$           -

2008

$   36,308

-

-

$   36,308

William W. Lee

President

2009

$           -

-

-

$           -

2008

$   47,615

-

-

$   47,615

***Employment Contracts and Termination of Employment and Change in Control Arrangements***

On April 11, 2008 William W. Lee and James R. Simpson terminated their employment agreements with New Era.  The Termination Agreement provided that each executive’s unpaid salary as of the date of the agreement would remain an outstanding obligation on the books and records of the Company until the salary was paid or Silvergraph merged with a separate company unaffiliated with any of the executives.   In the case of a merger each executive’s unpaid salary would be converted into common stock at $5.28 per share.  

***Retirement or Change of Control Arrangements***

We do not offer retirement benefit plans to our executive officer, nor have we entered into any contract, agreement, plan or arrangement, whether written or unwritten, that provides for payments to the named executive officer at or in connection with the resignation, retirement or other termination of the named executive officer, or a change in control of the company or a change in the named executive officer’s responsibilities following a change in control.

***Outstanding Equity Awards***

At December 31, 2009, Gary Freeman, our former Chief Financial Officer, held a warrant to purchase 7,397 shares of Silvergraph common stock at an exercise price of $9.17, exercisable through January 26, 2011**.**

***Compensation of Directors* **

We do not have any standard arrangement for compensation of our directors for any services provided as director, including services for committee participation or for special assignments.  

**ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**

***Securities Authorized Under Equity Compensation Plans***

The following table lists the securities authorized for issuance under any equity compensation plans approved by our shareholders and any equity compensation plans not approved by our shareholders as of December 31, 2009.   This chart also includes individual compensation agreements.

16

**EQUITY COMPENSATION PLAN INFORMATION**

 

 

 

Number of securities

 

 

 

remaining available for

 

Number of securities to

Weighted-average

future issuance under

 

be issued upon exercise

exercise price of

equity compensation plans

 

of outstanding options,

outstanding options,

(excluding securities

 

warrants and rights

warrants and rights

reflected in column (a))

Plan category

(a)

(b)

(c)

Equity compensation plans

 

 

 

   approved by security holders

0

$  0.00

0

Equity compensation plans not

 

 

 

   approved by security holders

14,178(1)

$17.42

15,152

Total

14,178

$17.42

15,152

(1) Represents options to purchase 1,515 common shares and warrants to purchase12,663 common shares under individual compensation plans.

***Stock Option Plan***

Our board of directors approved a stock option plan on June 26, 2006.  The purpose of the 2006 stock option plan is to promote our interests by attracting key employees and directors, providing each of our key employees and directors with an additional incentive to work to increase the value of our common stock and providing key employees and directors with a stake in our future, which corresponds to the stake of the stockholders.  Our Board reserved for issuance a total of 15,152 shares of common stock under the 2006 stock option plan.  We have not granted any options to date.  Our Board in approving the 2006 stock option plan has recommended that the shareholders approve this 2006 stock option plan.  The stock option plan has not been approved by the Company’s shareholders.  

Each stock option granted under the 2006 stock option plan will entitle the holder to purchase the number of shares of common stock specified in the grant at the purchase price specified.  The 2006 stock option plan authorizes the Compensation Committee to grant:

·

incentive stock options within the meaning of Section 422 of the Internal Revenue Code to key employees, and

·

non-qualified stock options under the Internal Revenue Code to key employees or non-employee directors.

If an option granted under the 2006 stock option plan expires, is cancelled or is exchanged for a new option before a holder exercises the option in full, the shares reserved for the unexercised portion of the option will become available again for use under the 2006 stock option plan. Shares underlying an option that a holder surrenders and shares used to satisfy an option price or withholding obligation will not again become available for use under the 2006 stock option plan.

***Warrant***

New Era and Bandari Beach Lim & Cleland LLP are parties to a letter of understanding dated in June, 2006, governing Gary Freeman’s employment on a part-time basis as New Era’s chief financial officer.  Pursuant to this letter of understanding, New Era granted to Mr. Freeman a warrant to purchase 7,397 shares of Silvergraph common stock at an exercise price of $9.17.  The warrant has a term of five years through January 26, 2011.  

17

***Beneficial Ownership***

The following table sets forth as of March 31, 2010, the name and the number of shares of our common stock, par value, $0.001 per share, held of record or beneficially by each person who held of record, or was known by the Company to own beneficially more than 5% of the 2,262,200 common shares which includes the 1,267,568 issued and outstanding shares of our common stock and the 994,632 common shares issuable, and the name and shareholdings of each director and of all officers and directors as a group.

**CERTAIN BENEFICIAL OWNERS**

 

**Name and Address of**

**Amount and Nature of**

**Percentage**

**Title of Class**

**Beneficial Owner**

**Beneficial Ownership**

**of Class**

Common

Antaeus Capital Partners, LLC

776,327

34.33

 

1875 Century Park  East, Ste. 1460

 

 

 

Los Angeles, CA 90067

 

 

 

 

 

 

Common

Ideal Growth, LLC

200,000

8.84

 

2855 Cottonwood Pkwy #340

 

 

 

Salt Lake City, UT 84121

 

 

 

 

 

 

Common

Thomas G. Schuster

346,366

15.32

 

1421 W. Westport Circle

 

 

 

Mequon, WI 53092

 

 

**MANAGEMENT**

 

**Name and Address of**

**Amount and Nature of**

**Percentage**

**Title of Class**

**Beneficial Owner**

**Beneficial Ownership**

**of Class**

Common

James R. Simpson * (1)

125,158

5.53

 

 

 

 

Common 

William W. Lee * (2)

123,700

5.47

 

 

 

 

 

Total Officers and Directors 

 

 

 

as a Group (2 persons)

248,858

10.99

(*) Officer and/or director, 22541 Parkfield, Mission Viejo, CA 92692.

(1)  As the sole member of Hock-Simpson, James R. Simpson has the sole voting and investment power of the shares of common stock held by Hock-Simpson.  Thus, Mr. Simpson is deemed to be the beneficial owner of the 122,728 shares of common stock held by Hock-Simpson.  

(2)  As the sole member of Lion’s Head, William W. Lee has the sole voting and investment power of the shares of common stock held by Lion’s Head.  Thus, Mr. Lee is deemed to be the beneficial owner of the 122,728 shares of common stock held by Lion’s Head.  

18

**ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE**

***Related Transactions***

In February, 2008, the Company entered into a loan transaction with certain accredited investors.  Subsequently, the company has entered into multiple amendments with such investors with the result that such investors are now principal shareholders of the Company.  (See Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operation -– Convertible Promissory Notes).  

***Director Independence***

We do not have any independent directors serving on our board of directors.

**ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES**

***Audit Fee***

The aggregate fees billed for each of the last two fiscal years for professional services rendered by the independent registered public accounting firm for the audit of Silvergraph’s annual financial statement and review of financial statements included in the Company’s periodic reports and services normally provided by the accounting firm in connection with statutory and regulatory filings or engagements were $8,129 for fiscal year ended 2009 and $31,150 for fiscal year ended 2008.

***Audit-Related Fees***

We did not have fees for other audit related services for fiscal years ended 2009 and 2008.

***Tax Fees***

We did not have fees for tax compliance, tax advice and tax planning for the fiscal years 2009 and 2008.

***All Other Fees***

There were no other aggregate fees billed in either of the last two fiscal years for products and services provided by the independent registered public accounting firm, other than the services reported above.

***Pre-approval Policies***

We do not have a standing audit committee currently serving and as a result our board of directors performs the duties of an audit committee.  Our board of directors will evaluate and approve in advance, the scope and cost of the engagement of an accounting firm before the accounting firm renders audit and non-audit services.  We do not rely on pre-approval policies and procedures.

19

**PART IV**

**ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES**

***Exhibits***

3.1(i) 

Articles of Incorporation (Incorporated by reference to Exhibit 3.1(i) to Form 10-SB filed on July 6, 2000)

3.1(ii) 

Amendment to Articles of Incorporation (Incorporated by reference to Exhibit 3.1(ii) to Form 8-K filed on June 23, 2006)

3.1(iii) 

Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to Form 8-K filed on March 24, 2009)

3.2 

Bylaws (Incorporated by reference to Exhibit 3.3 to Form 10-SB filed on July 6, 2000)

10.1 

Form of Conversion Agreement, dated January 18, 2008 (Incorporated by reference to Exhibit 10.1 to Form 10-K filed on April 15, 2008)

10.2 

Subscription Agreement between Silvergraph and Subscribers, dated January 25, 2008 (Incorporated by reference to Exhibit 10.1 to Form 8-K filed February 7, 2008)

10.3 

Form of Convertible Promissory Notes between Silvergraph and Holders, dated February 1, 2008 (Incorporated by reference to Exhibit 10.3 to Form 10-K filed on April 15, 2008)

10.4 

Consulting Agreement between Silvergraph and Mirador Consulting, Inc., effective February 6, 2008 (Incorporated by reference to Exhibit 10.4 to Form 10-K filed on April 15, 2008)

10.5 

1stAmendment to the 7% Notes Due May 31, 2008 between Silvergraph and Holders, dated April 4, 2008 (Incorporated by reference to Exhibit 10.5 to Form 10-K filed on April 15, 2008)

10.6  

Termination Agreement between Silvergraph, New Era and Executives, dated April 11, 2008 (Incorporated by reference to Exhibit 10.6 to Form 10-K filed on April 15, 2008)

10.7 

2ndAmendment to the 7% Notes between Silvergraph and Holders, dated June 30, 2008 (Incorporated by reference to Exhibit 10.1 to Form 8-K filed July 7, 2008)

10.8 

3rdAmendment to the 7% Notes between Silvergraph and Holders, dated August 31, 2008 (Incorporated by reference to Exhibit 10.1 to Form 8-K/A filed September 4, 2008)

10.9 

Amendment to Loan Transaction Agreement between Silvergraph and Holders, effective October 31, 2008 (Incorporated by reference to Exhibit 10.1 to Form 8-K filed November 17, 2008

10.10 

Amendment to Loan Transaction Agreement between Silvergraph and Holders, effective December 29, 

2008 (Incorporated by reference to Exhibit 10.1 to Form 8-K filed December 31, 2008 

10.11

8th Amendment to Loan Transaction Agreement between Silvergraph and Holders, effective March 10, 2010*

14.1

Code of Ethics (Incorporated by reference to Exhibit 14.1 to Form 8-K filed on June 26, 2006)

21 

Subsidiaries of Silvergraph (Incorporated by reference to Exhibit 21 to Form 10-K filed on June 12, 2009)

31.1 

Certification of the Principal Executive and Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

32.1 

Certification of the Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

*Filed herewith

20

**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. 

SILVERGRAPH INTERNATIONAL, INC.

Date:  April 14, 2010

By

/s/ James R. Simpson

James R. Simpson, Chief Executive Officer, Chief Financial Officer and Director

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. 

Date:  April 14, 2010

/s/ James R. Simpson

James R. Simpson, Chief Executive Officer, Chief 

Financial Officer and Director

Date:  April 14, 2010

/s/ William W. Lee

William W. Lee, President and Director

21

**INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**

 

**Page**

 

 

Report of Independent Registered Public Accounting Firm

F-2

 

 

Consolidated Balance Sheets as of  December 31, 2009 and  2008

F-3

 

 

Consolidated Statements of Operations for the Years Ended December 31, 2009 and 2008

F-4

 

 

Consolidated Statements of Changes in Stockholders’ Deficit for the Years Ended

 

    December 31, 2009 and 2008

F-5

 

 

Consolidated Statements of Cash Flows for the Year Ended December 31, 2009 and 2008

F-6

 

 

Notes to the Consolidated Financial Statements

F-7

F-1

**Report of Independent Registered Public Accounting Firm**

To the Board of Directors and Stockholders

Silvergraph International, Inc.  

We have audited the consolidated balance sheets of Silvergraph International, Inc. and Subsidiary as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ deficit and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated 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 audit 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Silvergraph International, Inc. and Subsidiary as of December 31, 2009 and 2008, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses and negative cash flows from operating activities, which have resulted in a negative working capital and a stockholders' deficit. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

*/s/ Weinberg & Company, P.A.*

Weinberg & Company, P.A.

Los Angeles, California 

March 26, 2010

F-2

**SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY**

**CONSOLIDATED BALANCE SHEETS**

 

December 31, 2009

 

December 31, 2008

**ASSETS**

 

 

 

Current Assets:

 

 

 

    Cash and cash equivalents

$

4,114 

 

$

39,539 

        Total Current Assets

4,114 

 

39,539 

            Total Assets

$

4,114 

 

$

39,539 

 

 

 

 

**LIABILITIES AND STOCKHOLDERS’ DEFICIT**

 

 

 

Current Liabilities:

 

 

 

    Accounts payable

$

191,651 

 

$

192,831 

    Accrued expenses

5,404 

 

46,875 

    Accrued compensation

50,000 

 

50,000 

    Convertible promissory notes

218,259 

 

198,907 

    Other Debt

41,716 

 

41,699 

    Due to shareholder

23,555 

 

13,701 

        Total Current Liabilities

$

530,585 

 

$

544,013 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ deficit

 

 

 

    Common Stock, $0.001 par value, 100,000,000 shares authorized:

 

 

 

        1,067,440 shares issued and outstanding, respectively

1,067 

 

1,067 

    Additional paid-in capital

5,755,430 

 

5,755,430 

    Common shares issuable ( 924,632 shares)

24,480 

 

- 

      Accumulated deficit

(6,307,448)

 

(6,260,971)

        Total stockholders’ deficit 

(526,471)

 

(504,474)

 

 

 

 

        Total liabilities and stockholders’ deficit

$

4,114 

 

$

39,539 

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

F-3

**SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

 

**Year ended**

 

**Year ended**

 

**December 31,**

 

**December 31,**

 

**2009**

 

**2008**

 

 

 

 

Revenues

$

- 

 

$

120,963 

Cost of revenues

- 

 

23,640 

Gross profit

- 

 

97,323 

 

 

 

 

Operating expenses

$

42,167 

 

$

523,239 

Operating loss

(42,167)

 

(425,916)

Other expenses:

 

 

 

    Interest expense

16,130 

 

333,375 

    Financing costs on extension of convertible notes payable

- 

 

1,170,000 

    (Gain) loss on sale of fixed assets

(11,820)

 

40,362 

    Other

- 

 

48,736 

Net loss

$

(46,477)

 

$

(2,018,389)

Net loss per share, basic and fully diluted

$

(0.03)

 

$

(2.45)

Weighted average shares outstanding, basic and fully diluted

1,664,683 

 

824,267 

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

F-4

**SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY**

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT**

 

 

 

**Additional**

**Common**

 

 

 

**Common**

**Stock**

**Paid-in**

**Shares**

**Accumulated**

 

 

**Shares**

**Amount**

**Capital**

**Issuable**

**Deficit**

**Total**

**Balance, January 1, 2008**

546,307

$

546

$    2,331,134

$

-

$

(4,242,582)

$

(1,910,902)

Fair value of stock issued to Consultant

33,994

34

144,452

-

- 

144,486 

Imputed interest on modification of conversion

 

 

 

 

 

 

   rates for convertible debt

-

-

333,375

-

- 

333,375 

Conversion of convertible debt and notes

 

 

 

 

 

 

    payables into common stock

347,151

347

1,764,041

-

- 

1,764,388 

Fair value of common stock issued for 

 

 

 

 

 

 

    settlement of accounts payable

3,624

4

12,564

-

- 

12,568 

Shares issued upon extension of convertible note

136,364

136

1,169,864

-

- 

1,170,000 

Net loss

-

-

-

-

(2,018,389)

(2,018,389)

**Balance, December 31, 2008**

1,067,440

1,067

5,755,430

-

(6,260,971)

(504,474)

Common shares issuable

-

-

-

24,480

- 

24,480 

Net loss

-

-

-

-

(46,477)

(46,467)

**Balance, December 31, 2009**

1,067,440

$

1,067

$    5,755,430

$

24,480

$

(6,307,448)

$

(526,471)

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

F-5

**SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 

**December 31,**

 

**December 31,**

 

**2009**

 

**2008**

**Operating Activities:**

 

 

 

Net loss

$

(46,477)

 

$

(2,018,389)

Adjustment to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

    Depreciation

- 

 

56,985 

    Non-cash interest expense

13,300 

 

333,375 

    Non-cash financing costs

- 

 

1,170,000 

    (Gain) loss on fixed asset disposals

(11,820)

 

40,362 

    Equity based compensation expense

- 

 

144,486 

Changes in assets and liabilities:

 

 

 

    Accounts receivable

- 

 

21,092 

    Accounts payable and accrued expenses

(42,651)

 

62,648 

        Net cash used in operating activities

(87,648)

 

(189,441)

 

 

 

 

**Investing activities:**

 

 

 

Net cash received on sale of fixed assets

11,820 

 

52,499 

        Net cash provided by investing activities

11,820 

 

52,499 

 

 

 

 

**Financing activities:**

 

 

 

Proceeds from issuance of common shares to be issued

24,480 

 

- 

Debt principal payments

17 

 

(1,894)

Principal payments on capital leases

- 

 

(21,362)

Proceeds from issuance of convertible notes

6,052 

 

190,000 

Related party advances (repayment)

9,845 

 

(8,000)

        Net cash provided by financing activities

40,403 

 

158,744 

 

 

 

 

Change in cash and cash equivalents

(35,425)

 

21,802 

Cash and cash equivalents, beginning of period

39,539 

 

17,737 

Cash and cash equivalents, end of period

$

4,114 

 

$

39,539 

 

 

 

 

Supplemental cash flow information:

 

 

 

    Cash paid for interest

$

- 

 

$

24,384 

    Cash paid for income taxes

$

- 

 

$

- 

 

 

 

 

Non Cash Investing and Financing Activities

 

 

 

    Conversion of convertible debt, accrued interest and notes

 

 

 

        payable to common stock

- 

 

1,764,388 

    Conversion of accounts payable to common stock

- 

 

12,568 

*The accompanying notes are an integral part of these consolidated financial statements.
F-6

**SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**TWELVE MONTHS ENDED DECEMBER 31, 2009 AND 2008**

**NOTE 1—THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES**

**Nature of Operations**

Through 2009, Silvergraph International, Inc. ("Silvergraph" or the “Company”) was a designer, manufacturer, marketer and branded retailer of fine-art reproductions, art-based home decorative accessories, collectibles and gift products.  In 2007, we experienced significant challenges due to the unexpected contraction of our business with our largest client which cause us in 2008 to evaluate various strategies to best enhance value for our shareholders including the sale to or merger with a larger art or printing organization that would benefit from our technology.  In the second half of 2008, we began to wind down our subsidiary New Era Studios, Inc. (“New Era”), and to sell its assets, to pay down its debts and to provide working capital for the Company.  We also raised $190,000 in interim bridge capital to support our operations and took steps to significantly lower our cost of operations.   In 2010 and beyond, we are continuing to pursue and evaluate strategies to enhance shareholder value including the merger with a private company in industries outside the art and printing industries and we are actively winding down New Era.  We continue to take steps to lower our operating costs and continue to sell New Era assets to pay down New Era debts and help fund our working capital needs. However, we cannot guarantee that these actions will ensure our continued operations.

**Basis of Consolidation**

The consolidated financial statements include the accounts of Silvergraph and our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated. 

**Use of Estimates**

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate our estimates, including those related to the accounts receivable and sales allowances, fair values of financial instruments, fair values of prepaid revenue share, intangible assets and goodwill, useful lives of intangible assets and property and equipment, fair values of stock-based awards, and income taxes, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. 

***Going Concern***

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses from its operations since its inception and has an accumulated deficit of $6,307,448, and a working capital and stockholders’ deficiency of $526,471 at December 31, 2009.  The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should the Company be unable to continue its existence. The recovery of the Company’s assets is dependent upon continued operations of the Company.  In addition, the Company's recovery is dependent upon future events, the outcome of which is undetermined. The Company intends to continue to attempt to raise additional capital, but there can be no certainty that such efforts will be successful.

Primarily as a result of our recurring losses and our lack of liquidity, we have received a report from our independent registered public accounting firm for our financial statements for the year ended December 31, 2009 that includes an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern. 

F-7

 To continue our operations and to grow our current operations and to make acquisitions, if any, under our current business model during the next twelve months, we will need to secure additional working capital, by way of equity or debt financing, or otherwise.  After this twelve month period, we may need additional financing for working capital, and in the case of acquisitions for payment of seller notes and future earned cash to sellers of acquired companies. There can be no assurance that we will be able to secure sufficient financing or on terms acceptable to us. If adequate funds are not available on acceptable terms, we would need to delay, limit or eliminate some or all of our proposed operations, and we may be unable to successfully promote our products or develop new or enhanced products or prosecute acquisitions, any of which could lower our revenues and net income, if we achieve profitability in the future.  If we raise additional funds through the issuance of convertible debt or equity securities, the percentage ownership of our current stockholders is likely to be diluted, unless some of our current stockholders were to invest in subsequent convertible debt or equity financings, and some of the newly issued securities may also have rights superior to those of the common stock.  Additionally, if we issue or incur debt to raise funds, we may be subject to limitations on our operations.

***Reverse Stock Split***

On December 5, 2008, stockholders holding a majority of shares entitled to vote authorized by written consent a reverse stock split of the Company’s outstanding common stock in the range of from 1:30 to 1:66, as determined in the sole discretion of the Board of Directors.  The Company mailed to its shareholders on or about January 14, 2009, an Information Statement, which included information regarding the reverse stock split.  The Company had a total of 70,450,976 shares of common stock issued and outstanding, and authorized capital of 100,000,000 shares of common stock, par value $0.001 per share before the reverse split.  On February 24, 2009, the Board of Directors authorized by written consent to effect a 1-for-66 reverse split of the Company’s issued and outstanding shares.  The reverse stock split took effect at the open of business on March 24, 2009.  As a result of the reverse stock split, the outstanding shares of common stock issued and outstanding were reduced to 1,067,440 shares (every 66 shares of the Company’s common stock that were issued and outstanding as of March 23, 2009 were automatically combined into one issued and outstanding share of common stock).  The consolidated financial statements are retroactively adjusted to reflect the reverse stock split as if the split occurred at the beginning of the earliest period presented.  

***Revenue Recognition***

The Company recognizes revenue from gross product sales, including freight charges, and revenues from the license of products, in compliance with current guidance from Financial Accounting Standards Board which require that title and risk of loss have passed to the customer, there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the sales price is fixed and determinable, collectability is reasonably assured, and customer acceptance criteria, if any, have been successfully demonstrated. 

***Equity-based compensation***

The Company periodically issues stock options and warrants to employees and non-employees in capital raising transactions, for services and for financing costs.  Stock-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite service period.  Options vest and expire according to terms established at the grant date.

***Use of Estimates***

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are used in the accounting for revenues, allowance for doubtful accounts, product returns and other sales allowances, inventory reserves, depreciation and amortization, lease guarantees, long-lived assets and income taxes. Actual results could differ from those estimates. 

F-8

***Significant customers***

The Company made sales to one customer, comprising 73% of total sales during the year ended December 31, 2008.   The customer has subsequently gone bankrupt.

***Earnings (loss) per share***

Diluted earnings per share reflects the potential dilution, using the treasury stock method, that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.  In computing diluted earnings per share, the treasury stock method assumes that outstanding options and warrants are exercised and the proceeds are used to purchase common stock at the average market price during the period.  Options and warrants will have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options and warrants. As the Company had a loss in the twelve months ended December 31, 2009 and 2008, basic and diluted loss per share are the same.  At both December 31, 2009 and 2008, potentially dilutive securities consisted of outstanding common stock purchase warrants to acquire an aggregate of 14,178 common shares. 

**Fair Value of Financial Instruments**

The carrying amounts of our financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities, approximate fair value because of their generally short maturities. 

***Effect of Recent Accounting Pronouncements***

In June 2009, the FASB issued a new accounting standard* *which changes the consolidation rules as they relate to variable interest entities. Specifically, the new standard makes significant changes to the model for determining who should consolidate a variable interest entity, and also addresses how often this assessment should be performed. We adopted this standard in the first quarter of 2010 and the adoption did not have a material impact on our consolidated financial statements. 

In August 2009, the FASB issued a new accounting standard which provides additional guidance on the measurement of liabilities at fair value. Specifically, when a quoted price in an active market for the identical liability is not available, the new standard requires that the fair value of a liability be measured using one or more of the valuation techniques that should maximize the use of relevant observable inputs and minimize the use of unobservable inputs. In addition, an entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of a liability. We adopted this standard in the fourth quarter of 2009 and the adoption did not have a material impact on our consolidated financial statements. 

In October 2009, the FASB issued a new accounting standard which provides guidance for arrangements with multiple deliverables. Specifically, the new standard requires an entity to allocate consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices. In the absence of the vendor-specific objective evidence or third-party evidence of the selling prices, consideration must be allocated to the deliverables based on management’s best estimate of the selling prices. In addition, the new standard eliminates the use of the residual method of allocation. In October 2009, the FASB also issued a new accounting standard which changes revenue recognition for tangible products containing software and hardware elements. Specifically, tangible products containing software and hardware that function together to deliver the tangible products’ essential functionality are scoped out of the existing software revenue recognition guidance and will be accounted for under the multiple-element arrangements revenue recognition guidance discussed above. Both standards will be effective for us in the first quarter of 2011. Early adoption is permitted. We adopted these new accounting standards in the first quarter of 2010 using the prospective method and the adoption did not have a material impact on our consolidated financial statements. Had we adopted these new standards in 2009, the impact on our consolidated financial statements would have been immaterial. 

F-9

**NOTE 2—CONVERTIBLE PROMISSORY NOTES**

In February 2008 the Company issued 7% convertible promissory notes (the “Notes”) in the aggregate principal amount of $150,000 pursuant to a subscription agreement, dated January 25, 2008, as amended, between Silvergraph and certain accredited investors.  The subscription agreement provided that the subscribers would purchase a minimum of $100,000 and a maximum of $400,000 of the Notes.  In April, 2008, the Company issued an additional $40,000 of the Notes to two accredited investors.    During the twelve months ended December 31, 2009, the Company issued an additional $6,052 of these notes.  The aggregate amount outstanding at December 31, 2010 was $196,052 plus accrued interest of $22,207. 

 The obligations represented by the Notes have been amended by a 1st Amendment dated May 31, 2008; a 2nd Amendment dated June 20, 2008; a 3rd Amendment dated August 31, 2008; a 4th Amendment dated October 31, 2008, a 5th Amendment dated December 15, 2008, a 6th Amendment dated January 31, 2009, and a 7th Amendment dated in May, 2009 (the “Prior Amendments”) which are incorporated herein by reference.   

As of December 31, 2009 and after incorporating the Prior Amendments, the significant terms of the Notes are as follows:

1.

 Payments:  The Company will pay all interest due and owing by adding such amounts to the outstanding principal balance of each Note, thereby increasing the outstanding principal balance of each Note.  All the payments-in-kind shall accrue interest as though such amounts were original principal indebtedness. The Company will not pay any principal payments in cash prior to maturity. 

2.

Maturity:  The principal and all accrued interest shall become immediately due and payable upon receipt by the Company of written notice from a majority of the Holders.

3.

Event of Default:  In the event of an occurrence of any event of default specified below, the principal and all accrued interest shall become immediately due and payable without notice.  The occurrence of any of the following events shall constitute an event of default under this Note:

a.

The Company fails to make any payment when due and which failure has not been cured within fifteen (15) days following such failure.

b.

If the Company shall default in the payment or performance of any other material obligation of this Note or other debt of the Company.  

c.

If the Company or an operating wholly-owned subsidiary of the Company shall file a petition to take advantage of any insolvency act; make an assignment for the benefit of its creditors; commence a proceeding for the appointment of a receiver, trustee, liquidator or conservator of itself of a whole or any substantial part of its property; file a petition or answer seeking reorganization or arrangement or similar relief under the federal bankruptcy laws or any other applicable law or statute of the United States of America or of any state.

4.

Conversion Rights:

*a.*

*Optional Conversion*.  On or before the payment of the Note in full, the Holder may convert the principal amount owing on this Note, together with all accrued and unpaid interest, into fully paid and nonassessable shares of Common Stock at a conversion price per share the lower of $0.045 per share of common stock or the price per share of common stock (referred to as “X”) derived from the following equation:  X=.95/Y where X is defined as the price per share of common stock and Y is defined as the reverse split ratio declared by the Company’s board of directors. 

*b.*

*Mandatory Conversion*.  If the Company does not complete a merger transaction with a private company approved by the board of directors (“Private Company”), by the Maturity Date whereby the Private Company owns up to 96% of the surviving entity, the Conversion Price shall automatically be reduced to the lower of (i) $0.002 or (ii) the conversion price that would cause the majority holder of the Notes to own upon conversion the number of shares of common stock of the Company determined to be 59% of the outstanding Common Stock on 

F-10

a fully-diluted basis and the remaining holders of the Notes to own a pro rata number of common shares of common stock of the Company.  

5.

Security:  The notes will be secured by all of the assets of New Era Studios, Inc., the Company’s wholly-owned subsidiary, under a security agreement.  Silvergraph may not prepay the notes and so long as the notes are outstanding, the Company must obtain written approval from the note holders for certain actions identified in the notes, including, but not limited to, the issuance of debt, acquisition or sale of a material asset and issuance of dividends to common stockholders.  The security agreement will be null and void if the notes convert into a majority of Silvergraph’s common stock.  In addition, the holders of the Notes have a right of first refusal on all equity financings contemplated by Silvergraph.

Consideration for Amendments:

As part of the 7th amendment dated in May 2009, the Company will receive from certain Note holders, up to $25,000 which will be used for working capital purposes.  Upon receipt of an aggregate $25,000, the Company shall issue a total of 1,250,000 shares of Common Stock.  If by September 20, 2009, the Company has not received a total of $25,000, then the Company shall issue common shares on a pro rata basis.  During the twelve months ended December 31, 2009, the Company received proceeds of $14,480 which has been recorded as common shares issuable in the accompanying condensed consolidated balance sheet.  The pro rata common shares of 724,632 shares to be issued have been included in the weighted average shares outstanding calculation for the twelve months ended December 31, 2009.  

As part of the 8th amendment dated March 9, 2010, the Company received from certain Note holders $14,493 in exchange for 270,000 shares of common stock.  The proceeds will be used for working capital purposes.  The common shares to be issued will be included in the weighted average shares outstanding calculation for the twelve months ending December 31, 2010.   

**NOTE 3 – OTHER DEBT**

Included in the Company’s December 31, 2009 and 2008 balance sheet is approximately $41,476 and $41,699 of debt that was reflected in the balance sheet upon the company’s purchase of assets transaction with Lee Graphics that was consummated in October 2004.  The Company is currently determining whether the Company entered into a contract as a borrower or guarantor under the debt.  If no evidence of such liability is found then the Company may write off the debt in the future. 

**NOTE 4 – DUE TO SHAREHOLDER**

During 2007, the Company received a total of $31,555 of advances from shareholders.  This amount is due upon demand from such shareholders, and bear interest at a rate of ten percent (10%) per annum.  The balances of such advances were $23,555 and $13,701 at December 31, 2009 and December 31, 2008, respectively.  

**NOTE 5 – EQUITY**

** **

Shares issued for services

During the year ended December 31, 2008, the Company issued 18,842 shares of its common stock valued at $99,486 to various consultants.  Such costs are included in operating expenses in our accompanying statement of operations for the year ending December 31, 2008.

The Company entered into consulting agreement with a consultant that was effective January 10, 2008.  For a term of one year, the consultant will provide consulting services in connection with management consulting, corporate finance and shareholder communications and will use it best efforts to introduce the Company to various members of the financial community.  In consideration for the consultant’s services the Company agreed to pay $1,000 per month until April 30, 2008 and $3,000 a month thereafter for the remainder of the one year term.  In accordance with the agreement, the Company issued 15,152 shares to the consultant valued at $45,000 upon the 

F-11

signing of the agreement and agreed to issue 12,121 shares to the consultant upon the closing of the Company’s combination with a private company.  As the Company has not yet completed the combination with a private company, the Company has not accounted for the 12,121 shares.  These shares are restricted and have “piggy back” registration rights.  In the event that the consultant introduces the Company to an institution or individual that provides funding to the Company, then the Company will pay five percent of the total amount of the net transaction to the consultant.

Conversion of Debt to Equity

During 2006 the Company issued convertible notes payable (the “Notes”) in the aggregate principal amount of $325,000 and warrants to purchase 143,000 shares of our common stock to five accredited investors. Each holder of a Note could convert in whole or in part the outstanding principal plus accrued but unpaid interest into the Company’s common stock at a conversion price of $0.45 per share. During 2007, the Company issued $465,000 of additional convertible notes and 204,600 warrants.  These notes had the same characteristics as the notes discussed above, except that they convert into common shares at a price of $0.22 per. As such, the conversion rates of the notes issued during 2006 were reset to $0.22 per share resulting in a beneficial conversion feature of $75,055 which was charged to interest expense during the quarter ended June 30, 2007.  Subsequent to the issuance of the securities discussed above, the Company issued Mandatory Convertible Notes Payable (See below).  These notes had the characteristics discussed above, including the right to convert into common shares at a price of $0.10 per share.  As such, the conversion rates of all the Convertible Notes Payable reset to $0.10 per share, resulting in an additional beneficial conversion feature of $430,909 which was charged to interest expense during the quarter ended June 30, 2007. At December 31, 2007, $790,000 was outstanding under these notes. On April 29, 2008 $790,000 of convertible notes payable plus accrued interest thereon of $91,557 was converted into 180,711 shares common stock (at $.074 per share).  As the actual conversion rate of $.074 was less than the conversion terms of the note, the Company recognized an additional interest charge of $248,907 during the year ended December 31, 2008 relating to the modification of the conversion terms.

During 2007 the Company issued mandatory convertible notes payable (the “New Notes”) in the aggregate principal amount of $543,500, which was outstanding as of December 31, 2007. The notes bear interest at a rate of ten percent (10%) per annum. On April 29, 2008 the $543,500 notes plus accrued interest of $25,031 was converted into 107,492 common shares (at $.08 per share). As the actual conversion rate of $.08 was less than the conversion terms of the note, the Company recognized an additional charge of $112,731 during the year ended December 31, 2008 relating to the modification of the conversion terms.

One of our shareholders loaned $280,000 to the Company in June 2006. During May 2007, the Company and the note holder agreed that upon the closing of a New Notes capital raise with net proceeds of at least $500,000, the note holder has agreed to receive a cash payment of 10% of the net proceeds of the New Notes and convert the remaining balance to the New Notes or other security containing materially similar characteristics. On April 2008, the $280,000 note and $34,300 of accrued interest was converted into 58,949 common shares (at $.08 per share). 

Conversion of accounts payable to common stock

The Company issued 3,624 shares of its common stock in exchange for the settlement of $12,568 of accrued expenses during the twelve months ended December 31, 2008.

Common shares issuable

As part of the 7th amendment dated in May 2009, the Company will receive from certain Note holders, up to $25,000 which will be used for working capital purposes.  Upon receipt of an aggregate $25,000, the Company shall issue a total of 1,250,000 shares of Common Stock.  If by September 20, 2009, the Company has not received a total of $25,000, then the Company shall issue common shares on a pro rata basis.  During the twelve months ended December 31, 2009, the Company received proceeds of $14,480 which has been recorded as common shares issuable in the accompanying consolidated balance sheet.  The pro rata common shares of 724,632 shares to be issued have been included in the weighted average shares outstanding calculation for the twelve months ended December 31, 2009.  

F-12

As part of the 8th amendment dated March 9, 2010, the Company received from certain Note holders $14,493 in exchange for 270,000 shares of common stock.  The proceeds will be used for working capital purposes.  The common shares to be issued will be included in the weighted average shares outstanding calculation for the twelve months ending December 31, 2010.   

            On or about November 9, 2009, the Company received proceeds of $10,000 through the sale of 200,000 shares of its common stock and warrants to purchase 200,000 common shares that took place in January 2010. The proceeds received have been recorded as common shares issuable in the accompanying consolidated balance sheet.  The 200,000 shares to be issued have been included in the weighted average shares outstanding calculation for the twelve months ended December 31, 2009.

Warrants Outstanding

A summary of warrant activity and changes during the years ended December 31, 2009 and 2008 is presented below:

Warrants

 

Shares

 

Weighted-

Average

Exercise

Price

 

Weighted-

Average

Remaining

Contractual

Term (Years)

 

Outstanding at January 1, 2008

 

 

12,663

 

$

13.82

 

 

1.7

 

     Granted

 

 

-

 

 

-

 

 

-

 

     Cancelled

 

 

-

 

 

-

 

 

-

 

Outstanding at December 31, 2008

 

 

12,663

 

$

13.82

 

 

1.7

 

     Granted

 

 

200,000

 

$

0.50

 

 

5.0

 

     Cancelled

 

 

-

 

 

-

 

 

-

 

Outstanding and exercisable at December 31, 2009

 

 

212,663

 

$

1.29

 

 

4.8

 

Additional information regarding warrants outstanding as of December 31, 2009 is as follows:

Exercise Price

Number 

Outstanding

Weighted 

Average Remaining Contractual Life 

(Years)

Number 

Exercisable

Intrinsic Value

 of Warrants at 

December 31,

 2009

$0.50

200,000

5.0

200,000

-

$9.17

7,397

1.1

7,397

-

$23.10

5,266

2.3

4,432

-

$0.50 - $23.10

212,663

4.8

211,829

-

**NOTE 6 – INCOME TAXES**

The Company did not provide for any Federal or state income tax expense during the year ended December 31, 2009 and 2008 as a result of the availability of net operating loss carryforwards.  As of December 31, 2008, the Company had provided a 100% valuation allowance with respect to such Federal and state net operating loss carryforwards, as it cannot determine that it is more likely than not that it will be able to realize such deferred tax assets.  This valuation allowance represents the difference in the Company’s effective income tax of 0% and the Federal statutory income tax rate of 34% for the year ended December 31, 2009.

As of December 31, 2009, for Federal and state income tax purposes, the Company had approximately $2,000,000 in net operating loss carryforwards expiring through 2016.   Internal Revenue Code Section 382 substantially restricts the ability of a corporation to utilize existing net operating losses in the event of a defined "ownership change".  The Company has determined that there will likely be significant limitations on its ability to utilize its net operating loss carryforwards in future periods for Federal income tax purposes due to such ownership changes. 

F-13

Effective January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes (“FIN 48”) —an interpretation of FASB Statement No. 109, Accounting for Income Taxes.” The Interpretation addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. At the date of adoption, and as December 31, 2009, the Company does not have a liability for unrecognized tax benefits.

 

The Company files income tax returns in the U.S. federal jurisdiction and various states. The Company is subject to U.S. federal or state income tax examinations by tax authorities for five years after 2003. During the periods open to examination, the Company has net operating loss and tax credit carry forwards for U.S. federal and state tax purposes that have attributes from closed periods. Since these NOLs and tax credit carry forwards may be utilized in future periods, they remain subject to examination.

The Company’s policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of December 31, 2009, the Company has no accrued interest or penalties related to uncertain tax positions.

**NOTE 7 – COMMITMENTS AND CONTINGENCIES**

From time to time, the Company is involved in various legal proceedings arising from the normal course of its business activities. Any adverse outcome from these matters is currently not expected to have a material adverse impact on the results of operations, cash flows or financial position of the Company, either individually or in the aggregate.

F-14*