Our unaudited consolidated financial statements
included in this Form 10-Q are as follows:
These interim, unaudited consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial
information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair
presentation have been included. Operating results for the interim period ended September 30, 2019, are not necessarily indicative
of the results that can be expected for the full year.
The accompanying notes are an integral part of these unaudited consolidated financial statements
The accompanying notes are an integral part of these unaudited consolidated financial statements
The accompanying notes are an integral part of these unaudited consolidated financial statements
GLOBE PHOTOS, INC.
Consolidated Statements of Cash Flows
|
|
For the nine months ended
|
|
|
|
September 30, 2019
|
|
|
September 30, 2018
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(14,326,484
|
)
|
|
$
|
(1,567,109
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,001,158
|
|
|
|
342,200
|
|
Amortization of debt discount
|
|
|
4,550,066
|
|
|
|
517,075
|
|
Noncash operating lease expense
|
|
|
48,960
|
|
|
|
–
|
|
Stock option expense
|
|
|
964,168
|
|
|
|
14,999
|
|
Shares issued for services
|
|
|
212,100
|
|
|
|
–
|
|
Warrants issued for services
|
|
|
312,000
|
|
|
|
–
|
|
Warrants issued for debt extinguishment
|
|
|
2,238,065
|
|
|
|
–
|
|
Loss of settlement of accrued liabilities
|
|
|
10,000
|
|
|
|
208,322
|
|
Change in fair value of embedded derivative
|
|
|
–
|
|
|
|
(9,195
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
304,820
|
|
|
|
2,349
|
|
Prepaid expenses
|
|
|
(54,234
|
)
|
|
|
(29,962
|
)
|
Deposits
|
|
|
(12,722
|
)
|
|
|
–
|
|
Deferred revenue
|
|
|
50,000
|
|
|
|
(232,228
|
)
|
Repayment of lease liability
|
|
|
(45,960
|
)
|
|
|
–
|
|
Accounts payable and accrued liabilities
|
|
|
1,589,072
|
|
|
|
218,567
|
|
Net Cash Used In Operating Activities
|
|
|
(2,158,991
|
)
|
|
|
(534,982
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of archive images
|
|
|
(137,500
|
)
|
|
|
(12,923
|
)
|
Purchase of software
|
|
|
(31,570
|
)
|
|
|
–
|
|
Deposit on acquisition
|
|
|
–
|
|
|
|
(865,000
|
)
|
Payment of liability related to acquisition of Photo File, Inc.
|
|
|
(485,000
|
)
|
|
|
–
|
|
Net Cash Used In Investing
Activities
|
|
|
(654,070
|
)
|
|
|
(877,923
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Repayment of loans payable
|
|
|
(22,464
|
)
|
|
|
(5,303
|
)
|
Proceeds from related party advances
|
|
|
–
|
|
|
|
140,342
|
|
Proceeds from notes payable
|
|
|
–
|
|
|
|
150,000
|
|
Repayment of note payable
|
|
|
(25,000
|
)
|
|
|
(170,000
|
)
|
Proceeds from note payable - related party
|
|
|
250,000
|
|
|
|
–
|
|
Repayment of note payable - related party
|
|
|
(11,220
|
)
|
|
|
(29,320
|
)
|
Proceeds from convertible notes payable, net
|
|
|
892,924
|
|
|
|
1,821,434
|
|
Proceeds from convertible notes payable, net – related party
|
|
|
–
|
|
|
|
500,000
|
|
Advances from related party
|
|
|
441,691
|
|
|
|
–
|
|
Proceeds from the sale of common stock
|
|
|
1,291,285
|
|
|
|
25,000
|
|
Purchase of treasury stock
|
|
|
–
|
|
|
|
(32,000
|
)
|
Net Cash Provided By Financing Activities
|
|
|
2,817,216
|
|
|
|
2,400,153
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash
|
|
|
4,155
|
|
|
|
987,248
|
|
|
|
|
|
|
|
|
|
|
Cash - Beginning of Period
|
|
|
304,267
|
|
|
|
1,297
|
|
|
|
|
|
|
|
|
|
|
Cash - End of Period
|
|
$
|
308,422
|
|
|
$
|
988,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash Paid During the Period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
11,879
|
|
|
$
|
11,219
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Debt discount related to warrants issued with debt and beneficial
conversion feature on convertible debt
|
|
$
|
4,094,162
|
|
|
$
|
2,309,800
|
|
Options issued to settle accrued liabilities
|
|
$
|
8,000
|
|
|
$
|
104,167
|
|
Purchase of third party notes by related party
|
|
$
|
–
|
|
|
$
|
212,500
|
|
Note payable issued to settle loan payable
|
|
$
|
95,000
|
|
|
$
|
–
|
|
Assets acquired under operating leases
|
|
$
|
186,250
|
|
|
$
|
–
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements
Globe Photos, Inc.
Notes to Consolidated Financial Statements
September 30, 2019 and 2018
(Unaudited)
1.
|
ORGANIZATION AND BUSINESS OPERATIONS
|
Globe Photos, Inc. (“we”, “our”,
the “Company”) sells and manages classic and contemporary, limited edition photographic images and reproductions, with
a focus on iconic celebrity images. The Company also makes available its images for publications and merchandizing. The Company
aims to become a leading global photography marketing and distribution company by acquiring rights and ownership to collections
of rare iconic negatives and photographs, and to establish worldwide wholesale and retail sales channels.
On June 6, 2018, we filed a Certificate
of Merger with the Secretary of State of Delaware in order to effectuate a merger with our wholly-owned subsidiary, Globe Photos,
Inc. Shareholder approval was not required pursuant to the Delaware General Corporation Law. As part of the merger, our board of
directors authorized a change in our name to “Globe Photos, Inc.” and our Certificate of Incorporation has been amended
to reflect this name change.
On October 11, 2018, we acquired substantially
all of the assets of Photo File, Inc. (“Photo File”), a New York corporation, a 30-year-old New York-based licensed
sports photography company. As part of the Photo File transaction, we acquired licenses to produce and sell licensed sports prints,
lithographs and other related items for major U.S. sports leagues, including the NFL, NBA, MLB, and NHL Properties and their respective
player associations, as well as most major college sports teams. We also gained licenses from thousands of individuals and organizations,
including Babe Ruth, Joe Namath, Vince Lombardi, Marvel Entertainment, Nickelodeon and others. The acquisition also significantly
expanded our collection of company-owned iconic sports photography.
On July 20, 2019, we formed Globe Photos
Retail, LLC a Nevada corporation for the primarily purpose of the marketing and selling authentic high-end luxury goods and elite
vintage collectibles.
Going Concern
The accompanying unaudited consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the
normal course of business.
Management evaluated all relevant conditions
and events that are reasonably known or reasonably knowable, in the aggregate, as of the date the consolidated financial statements
are issued and determined that substantial doubt exists about the Company’s ability to continue as a going concern. The Company’s
ability to continue as a going concern is dependent on the Company’s ability to generate revenues and raise capital. The
Company has not generated sufficient revenues from product sales to provide sufficient cash flows to enable the Company to finance
its operations internally. As of September 30, 2019, the Company had $308,422 cash on hand. At September 30, 2019 the Company has
an accumulated deficit of $18,045,098. For the nine months ended September 30, 2019, the Company had a net loss of $14,007,326
and cash used in operations of $2,158,991. These factors raise substantial doubt about the Company’s ability to continue
as a going concern.
The Company intends to invest its working
capital resources in sales and marketing in order to increase the distribution and demand for its products. If the Company fails
to generate sufficient revenue and obtain additional capital to continue at its expected level of operations, the Company may be
forced to scale back or discontinue its sales and marketing efforts. However, there is no guarantee the Company will generate sufficient
revenues or raise capital to continue operations. The consolidated financial statements do not include any adjustments that might
be necessary if the Company is unable to continue as a going concern.
Globe Photos, Inc.
Notes to Consolidated Financial Statements
September 30, 2019 and 2018
(Unaudited)
2.
|
SIGNIFICANT ACCOUNTING POLICIES
|
Basis of Presentation
The accompanying unaudited consolidated
financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP)
and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain
information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have
been condensed or omitted pursuant to such rules and regulations. As such, the information included in the consolidated financial
statements for the three and nine months ended September 30, 2019 should be read in conjunction with the consolidated financial
statements and accompanying notes included in the Company’s Form 10-K for the Company’s fiscal year ended December
31, 2018, as filed with the SEC.
The consolidated balance sheet as of December
31, 2018, included herein was derived from the audited financial statements as of that date, but does not include all disclosures
including notes required by GAAP.
The accompanying unaudited consolidated
financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations,
and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the
year ending December 31, 2019.
The accompanying unaudited consolidated
financial statements represent the results of operations, financial position and cash flows of the Company prepared on the accrual
basis of accounting and conform to accounting principles generally accepted in the United States of America. The consolidated financial
statements include the financial statements of the Company, and its 100% owned subsidiaries Capital Art, LLC, Globe Photos, LLC,
Globe Photos Retail, LLC and Photo File, LLC. All inter-company balances and transactions have been eliminated.
Reclassifications
Certain prior year amounts have been reclassified
for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations.
Use of Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and also requires disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Revenue Recognition
On January 1, 2018, the Company adopted
Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results
for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted
and continue to be reported in accordance with our historic accounting under Topic 605.
We did not have a cumulative impact as
of January 1, 2018 due to the adoption of Topic 606 and there was not an impact to our consolidated statement of operations for
the year ended December 31, 2018 as a result of applying Topic 606.
Globe Photos, Inc.
Notes to Consolidated Financial Statements
September 30, 2019 and 2018
(Unaudited)
We recognize revenue in accordance with
generally accepted accounting principles as outlined in the Financial Accounting Standard Board’s (“FASB”) Accounting
Standards Codification (“ASC”) 606, Revenue From Contracts with Customers, which requires that five basic criteria
be met before revenue can be recognized: (i) identify the contract with the customer; (ii) identity the performance obligations
in the contract; (iii) determine the transaction price; (iv) allocate the transaction price; and (v) recognize revenue when or
as the entity satisfied a performance obligation.
Revenue recognition occurs at the time
product is shipped to customers, when control transfers to customers, provided there are no material remaining performance obligations
required of the Company or any matters of customer acceptance. We only record revenue when collectability is reasonably assured.
The Company’s other revenue represent
payments based on net sales from brand licensees for content reproduction rights. These license agreements are held in conjunction
with third parties that are responsible for collecting fees due and remitting to the Company its share after expenses. Revenue
from licensed products is recognized when realized or realizable based on royalty reporting received from licensees.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02,
“Leases” (“ASC 842”). The guidance requires lessees to recognize almost all leases on their balance sheet
as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases
to be classified as either operating or finance. Lessor accounting is similar to the current model, but updated to align with certain
changes to the lessee model and the new revenue recognition standard. Existing sale-leaseback guidance, including guidance for
real estate, is replaced with a new model applicable to both lessees and lessors. ASC 842 is effective for fiscal years beginning
after December 15, 2018.
We adopted ASC 842 effective January 1,
2019 using the optional transition method of recognizing a cumulative-effect adjustment to the opening balance of retained earnings
on January 1, 2019. Therefore, comparative financial information was not adjusted and continues to be reported under the prior
lease accounting guidance in ASC 840. We elected the transition relief package of practical expedients, and as a result, we did
not assess 1) whether existing or expired contracts contain embedded leases, 2) lease classification for any existing or expired
leases, and 3) whether lease origination costs qualified as initial direct costs. We elected the short-term lease practical expedient
by establishing an accounting policy to exclude leases with a term of 12 months or less, as well as the land easement practical
expedient for maintaining our current accounting policy for existing or expired land easements.
In June 2018, the FASB issued ASU 2018-07,
"Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting," which modifies
the accounting for share-based payment awards issued to nonemployees to largely align it with the accounting for share-based payment
awards issued to employees. ASU 2018-07 is effective for us for annual periods beginning January 1, 2019. Management evaluated
ASU 2018-07 and determined that the adoption of this new accounting standard did not have a material impact on the Company’s
consolidated financial statements.
|
3.
|
FAIR VALUE OF FINANCIAL INSTRUMENTS
|
The Company measures fair value in accordance
with Accounting Standards Codification (“ASC”) 820 – Fair Value Measurements. ASC 820 defines fair value and
establishes a three-level valuation hierarchy for disclosures of fair value measurements. ASC 820 establishes a framework for measuring
fair value in generally accepted accounting principles and expands disclosures about fair value measurements. To increase consistency
and comparability in fair value measurements and related disclosures, ASC 820 establishes a fair value hierarchy which prioritizes
the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest
priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable
inputs. The three (3) levels of fair value hierarchy defined by ASC 820 are:
Level 1 — Inputs are unadjusted,
quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2 — Inputs (other than quoted
market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation
with market data at the measurement date and for the duration of the instrument’s anticipated life.
Globe Photos, Inc.
Notes to Consolidated Financial Statements
September 30, 2019 and 2018
(Unaudited)
Level 3 — Inputs reflect management’s
best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is
given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Valuation of instruments
includes unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
As defined by ASC 820, the fair value of
a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale, which was further clarified as the price that would be received to sell an asset or
paid to transfer a liability (“an exit price”) in an orderly transaction between market participants at the measurement
date.
The reported fair values for financial
instruments that use Level 2 and Level 3 inputs to determine fair value are based on a variety of factors and assumptions. Accordingly,
certain fair values may not represent actual values of the Company’s financial instruments that could have been realized
as of September 30, 2019 or that will be recognized in the future, and do not include expenses that could be incurred in an actual
settlement. The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, receivables
from related parties, prepaid expenses and other, accounts payable, accrued liabilities, and related party and third-party notes
payables approximate fair value due to their relatively short maturities. The Company’s notes payable to related parties
approximates the fair value of such instrument based upon management’s best estimate of terms that would be available to
the Company for similar financial arrangements at September 30, 2019 and December 31, 2018.
4.
|
PHOTO FILE ASSET PURCHASE AGREEMENT
|
On October 11, 2018, the Company entered
into a definitive Asset Purchase Agreement with Photo File, Inc., a New York corporation along with it related entity Sportphotos.com
and Charles Singer, its CEO and principal shareholder (collectively, the “Seller”) wherein the Company acquired certain
assets and assumed certain liabilities of the Seller in exchange for $2,000,000. In connection with the agreement, the Company
paid $1,515,000 to the Seller as of December 31, 2018 toward the purchase price of the Asset Purchase Agreement. The final payment
of $485,000 which was recorded as a payable to Photo File, Inc. as of December 31, 2018 in the consolidated balance sheet was paid
during the nine month period end September 30, 2019. The Company has also recorded an additional liability due to the Seller related
to a final working capital adjustment of the acquisition as of September 30, 2019 and December 31, 2018 in the amount of $631,634
and $201,943, respectively.
As additional consideration the seller
also received the following:
|
·
|
A royalty to Seller that commences upon the initial $6,000,000 in sales from the Nevada subsidiary, with a fair value of $4,279,000.
|
|
|
|
|
·
|
10% interest in the Nevada subsidiary that we have formed to house the assets
|
Additionally, the seller will endeavor
to sell its Vintage Photographic Collection over time after Closing. If at the completion of the sale of the Vintage Photographic
Collection, proceeds from net sales but before any expenses other than commissions are less than $2,000,000, the Company will pay
the difference between the proceeds and $2,000,000 within 30 days. Any proceeds above $2,000,000 will be divided equally between
Seller and the Company with the Seller remitting 50% of the net proceeds after expenses of those sales within 30 days of their
receipt. As of December 31, 2018, the Company has recorded the entire $2,000,000 as a contingent purchase consideration. This remains
outstanding as of September 30, 2019.
The transaction was deemed to be an acquisition
of a business and was accounted for under the acquisition method of accounting in accordance with the guidance in ASC 805 - “Business
Combinations”.
Globe Photos, Inc.
Notes to Consolidated Financial Statements
September 30, 2019 and 2018
(Unaudited)
The following table summarizes the acquisition
date fair value of the consideration paid, identifiable assets acquired and liabilities assumed.
Cash
|
|
$
|
2,000,000
|
|
10% noncontrolling interest in subsidiary
|
|
|
2,750,000
|
|
Royalty payments
|
|
|
4,279,000
|
|
Contingent consideration
|
|
|
2,000,000
|
|
Total Purchase Price
|
|
|
11,029,000
|
|
|
|
|
|
|
Accounts Receivable
|
|
|
313,257
|
|
Memorabilia
|
|
|
3,600,000
|
|
Copyright Image library
|
|
|
4,100,000
|
|
Trade name
|
|
|
340,000
|
|
Non-Compete agreement
|
|
|
90,000
|
|
Outbound license agreement
|
|
|
9,000,000
|
|
Customer relationships
|
|
|
2,330,000
|
|
Total Identifiable assets
|
|
|
19,773,257
|
|
|
|
|
|
|
Liabilities
|
|
|
(1,447,491
|
)
|
Total liabilities assumed
|
|
|
(1,447,491
|
)
|
|
|
|
|
|
Total net assets acquired
|
|
$
|
18,325,766
|
|
|
|
|
|
|
Total bargain purchase gain
|
|
$
|
(7,296,766
|
)
|
Globe Photos, Inc.
Notes to Consolidated Financial Statements
September 30, 2019 and 2018
(Unaudited)
Pro Forma
The following table below shows the unaudited
pro-forma information which assumes that the acquisition had been completed as of January 1, 2018.
|
|
For the
three months
ended
|
|
|
|
September 30, 2018
|
|
|
|
|
|
Total revenue
|
|
$
|
1,394,402
|
|
Cost of revenue
|
|
|
742,283
|
|
Gross margin
|
|
|
652,119
|
|
Total operating expenses
|
|
|
(1,740,994
|
)
|
Other income (expenses)
|
|
|
(570,728
|
)
|
Net loss
|
|
$
|
(1,659,603
|
)
|
|
|
For the
nine months
ended
|
|
|
|
September 30, 2018
|
|
|
|
|
|
Total revenue
|
|
$
|
6,097,190
|
|
Cost of revenue
|
|
|
3,169,817
|
|
Gross margin
|
|
|
2,927,373
|
|
Total operating expenses
|
|
|
(4,227,788
|
)
|
Other income (expenses)
|
|
|
(950,937
|
)
|
Net loss
|
|
$
|
(2,251,352
|
)
|
Globe Photos, Inc.
Notes to Consolidated Financial Statements
September 30, 2019 and 2018
(Unaudited)
|
5.
|
PROPERTY AND EQUIPMENT, NET
|
|
|
September 30,
|
|
|
December 31,
|
|
|
Estimated
|
|
|
2019
|
|
|
2018
|
|
|
Useful Lives
|
|
|
|
|
|
|
|
|
|
Frank Worth Collection
|
|
$
|
2,770,000
|
|
|
$
|
2,770,000
|
|
|
10 years
|
Other archival images
|
|
|
4,714,268
|
|
|
|
4,576,768
|
|
|
5 - 10 years
|
Leasehold improvements
|
|
|
12,446
|
|
|
|
12,446
|
|
|
7 years
|
Computer and other equipment
|
|
|
72,687
|
|
|
|
72,687
|
|
|
3 - 5 years
|
Furniture and fixtures
|
|
|
83,666
|
|
|
|
83,666
|
|
|
7 years
|
|
|
|
7,653,067
|
|
|
|
7,515,567
|
|
|
|
Less accumulated deprecation
|
|
|
(2,812,119
|
)
|
|
|
(1,981,887
|
)
|
|
|
Total property and equipment, net
|
|
$
|
4,840,948
|
|
|
$
|
5,533,680
|
|
|
|
Depreciation expense was $830,232 and $309,575
for the nine months ended September 30, 2019 and 2018, respectively, of which $830,932 and $282,618 are reported in cost of revenue,
respectively.
|
6.
|
INTANGIBLE ASSETS, NET
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Net book value
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Net book value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets with determinable lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Content provider and photographic agreements
|
|
$
|
400,000
|
|
|
$
|
170,000
|
|
|
$
|
230,000
|
|
|
$
|
400,000
|
|
|
$
|
140,000
|
|
|
$
|
260,000
|
|
Copyrights
|
|
|
35,000
|
|
|
|
14,876
|
|
|
|
20,124
|
|
|
|
35,000
|
|
|
|
12,250
|
|
|
|
22,750
|
|
Internal use software
|
|
|
58,666
|
|
|
|
8,800
|
|
|
|
49,866
|
|
|
|
27,096
|
|
|
|
–
|
|
|
|
27,096
|
|
Copyrighted Image Library
|
|
|
4,100,000
|
|
|
|
410,000
|
|
|
|
3,690,000
|
|
|
|
4,100,000
|
|
|
|
102,500
|
|
|
|
3,997,500
|
|
Non-Compete and Non-Solicitation Covenants
|
|
|
90,000
|
|
|
|
30,000
|
|
|
|
60,000
|
|
|
|
90,000
|
|
|
|
7,500
|
|
|
|
82,500
|
|
Trade name
|
|
|
340,000
|
|
|
|
–
|
|
|
|
340,000
|
|
|
|
340,000
|
|
|
|
–
|
|
|
|
340,000
|
|
License agreements
|
|
|
9,000,000
|
|
|
|
600,000
|
|
|
|
8,400,000
|
|
|
|
9,000,000
|
|
|
|
150,000
|
|
|
|
8,850,000
|
|
Customer relationships
|
|
|
2,330,000
|
|
|
|
466,000
|
|
|
|
1,864,000
|
|
|
|
2,330,000
|
|
|
|
116,500
|
|
|
|
2,213,500
|
|
Total
|
|
$
|
16,353,666
|
|
|
$
|
1,699,676
|
|
|
$
|
14,653,990
|
|
|
$
|
16,322,096
|
|
|
$
|
528,750
|
|
|
$
|
15,793,346
|
|
Total amortization expense for the
nine months ended September 30, 2019 and 2018 was $1,170,926 and $32,625 respectively and is included in cost of revenue in
the consolidated statements of operations. Estimated amortization expense over the next five years is $1,561,233 per
year.
Globe Photos, Inc.
Notes to Consolidated Financial Statements
September 30, 2019 and 2018
(Unaudited)
On April 1, 2016, the Company entered into
an unsecured promissory note agreement with unrelated parties for working capital purposes for total proceeds of $25,000. The promissory
notes matured on December 1, 2017 and on March 30, 2018 was extended through June 30, 2018 and on June 30, 2018 was further extended
to December 31, 2018, and on December 31, 2018, the note was further extended to September 30, 2019, and was paid in full during
the three months ended September 30, 2019.
On December 20, 2017, the Company entered
into an on demand unsecured note with an unrelated party for working capital purposes for total proceeds of $10,000. As of September
30, 2019, the note was still outstanding.
On April 13, 2018, the Company entered
into an unsecured promissory note agreement with an unrelated party for total proceeds of $150,000 of which is still outstanding
as of September 30, 2019. The note is due upon demand and carried an interest rate of 15% and is guaranteed by a shareholder and
director of the Company. Accrued interest payable due under the unsecured note agreement was $22,500 and $22,500 as of September
30, 2019 and December 31, 2018, respectively.
On July 23, 2019, the Company entered into
an unsecured promissory note agreement with an unrelated party $95,000 for the repurchase of a royalty interest (See Note 10).
The note matured on September 30, 2019, is currently past due and accrues interest at a rate of 10% upon default.
Accrued interest payable due under the
unsecured note agreement was $875 as of September 30, 2019.
The Company evaluated the modification
of the notes resulting from the extensions in maturity dates under ASC 470-50 and determined that the modifications were not considered
substantial and would not qualify for extinguishment accounting under such guidance.
From July 2018 to December 31,
2018, we issued secured convertible promissory notes in the aggregate principal amount of $2,782,050 to several accredited
investors through a private placement. This includes the convertible note of $50,000 issued to settle an existing account
payable. During the nine months ended September 30, 2019, we issued an additional $651,050 notes under the same private
placement.
The convertible notes bear interest at
a rate of 10% per annum, matured on April 30, 2019, are payable within ten days of written notice, and are secured by certain archival
images owned by the Company. The maturity date of the convertible notes were extended to October 31, 2019, as disclosed below.
The notes and accrued interest are convertible at the option of the noteholder into our common stock at $4.00 per share but will
mandatorily convert to common stock at the same price upon an up list to a national exchange and will have piggyback registration
rights to register the shares of common stock underlying the conversion of the notes.
The Company evaluated the convertible debentures
under ASC 470-20 and recognized a debt discount of $3,029,628 related to the beneficial conversion feature (“BCF”),
of which $572,924 was recorded during the nine months ended September 30, 2019, with a corresponding credit to additional paid-in
capital. The debt discount is being accreted to interest expense over the term of the notes.
As part of the private placement, the Company
paid a consultant financing fees equivalent to 12% of the gross proceeds received from the issuance of convertible notes or $403,472,
of which $78,126 was recorded during the nine months ended September 30, 2019 and was recorded as a debt discount and accreted
to interest expense over the term of the notes.
During the three months ended September
30, 2019, the Company granted 295,051 3-year warrants with exercise prices of $9.00 valued at $2,238,065 to the noteholders to
extend the maturity date of the notes through October 31, 2019. The Company evaluated the adjustment of the maturity and consideration
given under ASC 470, and determined that the modification was substantial and should be accounted for as a debt extinguishment.
The Company recorded a loss on extinguishment of debt of $2,238,065 related to difference between the reacquisition price of the
debt and the carrying value of the debt. Additionally, the Company evaluated the conversion feature associated with the new debt
and recorded a beneficial conversion feature amounting to $3,258,100 with a corresponding credit to additional paid-in capital.
Globe Photos, Inc.
Notes to Consolidated Financial Statements
September 30, 2019 and 2018
(Unaudited)
During the nine months ended September
30, 2019 and 2018, the Company recorded interest expense of $4,390,724 and $452,261 of which $4,373,474 and $419,359 was related
to the accretion of the debt discount and financing cost, respectively. As of September 30, 2019, the convertible notes are shown
net of unamortized debt discount and financing cost of $1,160,932.
On August 16, 2018, we issued a convertible
promissory note with a principal amount of $500,000 to a company managed by one of our former directors. The note bear interest
at a rate of 10% per annum, matured on April 30, 2019, payable within ten days of written notice and is secured by certain archival
images owned by the Company. The note and accrued interest are convertible at the option of the noteholder into our common stock
at $4.00 per share but will mandatorily convert to common stock at the same price upon an up list to a national exchange and will
have piggyback registration rights to register the shares of common stock underlying the conversion of the notes.
The Company evaluated the convertible debentures
under ASC 470-20 and recognized a debt discount of $500,000 related to the BCF with a corresponding credit to additional paid-in
capital. The debt discount is being accreted to interest expense over the term of the note.
During the nine months ended September
30, 2019, the Company recorded interest expense of $270,860 related to this note, of which $233,463 was related to the accretion
of the debt discount. As of September 30, 2019, the convertible note is shown net of unamortized discount of $0.
During the three months ended September
30, 2019, we issued secured convertible promissory notes (“Note”) in the aggregate principal amount of $320,000 to
several accredited investors through a private placement.
The Note bears interest at a rate of 12%
per annum, and is secured by the Company’s assets. The Note matures on October 31, 2019, are payable within ten days of written
notice. The principal and accrued interest therein is convertible at the option of the noteholder into the Company’s common
stock at $6.00 per share, subject to certain price adjustments as set forth in the Note. Additionally, the noteholders received
a warrant to purchase common stock of the Company equivalent to twenty-five percent (25%) of the convertible number of shares of
common stock the noteholder is entitled to under the note, which amounted to 13,333 warrants during the three months ended September
30, 2019.
The Warrant allows the investor to purchase
shares of common stock of the Company at $6.00 per share, subject to certain price adjustments as set forth in the warrant and
shall be exercisable for a period of three (3) years from the anniversary of the grant date of such warrant. Cashless exercise
is available under the terms of the warrant.
The Company evaluated the convertible notes
and warrants under ASC 470-20 and recognized a debt discount of $263,138 related to the beneficial conversion feature and the relative
fair value of the warrants issued with the convertible notes with a corresponding credit to additional paid-in capital. The debt
discount is being accreted to interest expense over the term of the note.
During the nine months ended September
30, 2019, the Company recorded interest expense of $175,611, related to the notes, of which $168,722 was related to the accretion
of the debt discount. As of September 30, 2019, the convertible note is shown net of unamortized discount of $94,416.
|
9.
|
RELATED PARTY TRANSACTIONS
|
Notes payable to related parties
In December 2015, the Company entered into
a secured promissory note agreement with an unrelated party for working capital purposes for total proceeds of $120,000. The note
bears interest at the rate of 10% per annum and is payable on the 1st day of each month commencing in February 2016. On February
15, 2016, the Company entered into an additional promissory note agreement with the same unrelated party for additional proceeds
of $62,500 and under the same terms as the first note. As of September 30, 2019, and December 31, 2018, a balance of $162,500 on
these two notes remains outstanding. Both notes are secured by certain inventory and archival images of the Company in the amount
of up to $200,000. Accrued interest payable due under the unsecured note agreement was $62,849 and $34,412 as of September 30,
2019 and December 31, 2018, respectively. The notes matured on December 31, 2017; however, on January 22, 2018, the outstanding
balance on the notes was purchased by a related party (ICONZ Art, LLC, beneficial interest shareholder) and the notes were extended
to June 30, 2018 and on June 30, 2018 was extended indefinitely and will now be considered due on demand. All the accrued interest
through December 31, 2017, was still due to the original noteholder.
On April 5, 2016, the Company entered into
an unsecured promissory note agreement with unrelated parties for working capital purposes for total proceeds of $50,000. The promissory
notes matured in December 2017 and bear interest at the rate of 6% per annum. However, on January 22, 2018, the outstanding balance
on the notes was purchased by a related party and the notes were extended to June 30, 2018 and on June 30, 2018 was extended indefinitely
and will now be considered due on demand. Accrued interest payable due under the unsecured note agreement was $10,395 and $8,277
as of September 30, 2019 and December 31, 2018, respectively. All the accrued interest through December 31, 2017, was still due
to the original noteholder.
On August 1, 2013 the Company entered into
an unsecured promissory note agreement with a related party Dino Satallante for $100,000. The loan bears interest at the rate of
5% per annum. During the nine months ended September 30, 2019, the Company made payment of $11,220. As of September 30, 2019, and
December 31, 2018, $34,955 and $46,175 was outstanding under the unsecured promissory note agreement, respectively. Interest expense
for the nine months ended September 30, 2019 and 2018 was $1,452 and $1,872 respectively. The loan matured on July 14, 2014 and
was extended to July 31, 2016. Effective March 30, 2018, the note agreement was extended to June 30, 2018 and on June 30, 2018,
the note was further extended to December 31, 2018 and on February 11, 2019 the note was further extended to December 31, 2019.
On September 11, 2014, the Company entered
into an unsecured promissory note agreement for $20,500 with Dino Satallante, a beneficial interest shareholder which bear interest
at a rate of 6% per annum. Total interest expense in connection with the secured promissory note agreement for the nine months
ended September 30, 2019 and 2018 is $923 and $941, respectively. The loan matured on September 10, 2015 and has been extended
multiple times up to December 31, 2018. On February 11, 2019, the note was further extended to December 31, 2019.
Effective July 21, 2015, the Company entered
into a promissory note agreement with a related party Dino Satallante, a beneficial interest shareholder of the Company, for total
proceeds of $160,000. The Company utilized $80,000 of the proceeds for payments due in connection with the Globe Photo assets acquired.
The remainder of the proceeds were used for working capital purposes. The note matured on July 20, 2016, with monthly interest
only payments commencing July 22, 2015. Interest accrues at the rate of 12% per annum. The note is secured by the Globe Photo Assets.
Total interest expense in connection with the secured promissory note agreement for the nine months ended September 30, 2019 and
2018 is $14,400. Effective March 30, 2018 the note was extended to June 30, 2018, and on June 30, 2018, the note was further extended
to December 31, 2018, and on February 11, 2019 the note was further extended to December 31, 2019.
Globe Photos, Inc.
Notes to Consolidated Financial Statements
September 30, 2019 and 2018
(Unaudited)
On April 4, 2016 the Company entered into
a secured promissory note agreement with Premier Collectibles, a beneficial interest shareholder for total proceeds of $65,000
to be used for acquisition of archive agreement. The promissory note bears interest at the rate of 8% per annum, is secured by
the archive collection which the proceeds were used and matured on April 1, 2017. On March 30, 2018, the note was extended to June
30, 2018 and on June 30, 2018 was extended indefinitely and will now be considered due on demand. Interest expense on the note
was 3,900 each of the nine months ended September 30, 2019 and 2018, respectively.
On April 15, 2016, the Company entered
into an unsecured promissory note agreement with Sean Goodchild, a beneficial interest shareholder, for total proceeds of $50,000.
The promissory note bears interest at the rate of 6% per annum and matured on December 15, 2017, however, on January 22, 2018,
the outstanding balance on the notes was purchased by another related party (ICONZ Art, LLC, beneficial interest shareholder) and
the notes were extended to June 30, 2018 and on June 30, 2018 was extended indefinitely and will now be considered due on demand.
Interest expense was $2,250 for each of the nine months ended September 30, 2019 and 2018, respectively. All the accrued interest
through December 31, 2017, was still due to the original noteholder.
On October 3, 2016, the Company entered
into an unsecured promissory note agreement with Sean Goodchild, a beneficial interest shareholder, for total proceeds of $50,000.
The promissory note bears interest at the rate of 6% per annum and matured on December 31, 2017, however, on January 22, 2018,
the outstanding balance on the notes was purchased by another related party (ICONZ Art, LLC, beneficial interest shareholder) and
the notes were extended to June 30, 2018 and on June 30, 2018 was extended indefinitely and will now be considered due on demand.
Interest expense was $2,250 for each of the nine months ended September 30, 2019 and 2018, respectively.
On December 2, 2016, the Company entered
into an unsecured promissory note agreement with Sean Goodchild, a beneficial interest shareholder, for total proceeds of $31,500.
The promissory note bears interest at the rate of 6% per annum and matured on December 31, 2017, however, on January 22, 2018,
the outstanding balance on the notes was purchased by another related party (ICONZ Art, LLC, beneficial interest shareholder) and
the notes were extended to June 30, 2018 and on June 30, 2018 was extended indefinitely and will now be considered due on demand.
Interest expense was $1,418 for each of the nine months ended September 30, 2019 and 2018, respectively.
The Company evaluated the modification
of the notes resulting from the extensions in maturity dates under ASC 470-50 and determined that the modifications were not considered
substantial and would not qualify for extinguishment accounting under such guidance.
Due to Related Parties
The following table summarizes amounts
due to related parties for advances and expenses paid for on the behalf of the Company as of September 30, 2019 and December 31,
2018. The amounts due are non-interest bearing and due upon demand. These amounts have been included in the consolidated balance
sheets as current liabilities due to related parties, respectively.
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Due to related parties:
|
|
|
|
|
|
|
|
|
ICONZ Art, LLC, beneficial interest shareholder
|
|
$
|
256,423
|
|
|
$
|
259,423
|
|
MSN Holding Co., beneficial interest shareholder
|
|
|
12,947
|
|
|
|
12,947
|
|
Premier Collectibles, beneficial interest shareholder
|
|
|
15,085
|
|
|
|
15,085
|
|
Dino Satallante, beneficial interest shareholder
|
|
|
250,000
|
|
|
|
–
|
|
Total due to related parties
|
|
$
|
534,455
|
|
|
$
|
287,455
|
|
Globe Photos, Inc.
Notes to Consolidated Financial Statements
September 30, 2019 and 2018
(Unaudited)
10.
|
COMMITMENTS AND CONTINGENCIES
|
Proceeds from Auctions of Royalty Rights
On March 8, 2016, the Company entered into
a Listing Agreement with Royalty Network, LLC, doing business as Royalty Exchange for auction of a 50% ownership of photographic
copyrights of certain celebrity archival images owned by the Company. In addition, the sale also assigns the winning bidder the
right to receive 50% of the future share of income derived from the assigned images.
During 2016, the Company received gross
proceeds of $396,000, less 12.5% auction broker fee, from five separate auctions of these rights. The Company retains all exclusive
licensing authority over the images and may exercise a buyback option to buy back the 50% ownership of the rights for two times
the original auction proceeds over a period ranging from 1 to 2 years.
The Company accounted for the 50% profit
consideration for the above agreement in accordance with ASC 470-10-25 and 470-10-35 which requires amounts recorded as debt to
be amortized under the interest method as described in ASC 835-30, Interest Method. The Company determined an effective interest
rate based on future expected cash flows to be paid to the loan holders. This rate represents the discount rate that equates estimated
cash flows with the initial proceeds received from the loan holders and is used to compute the amount of interest to be recognized
each period. Estimating the future cash outflows under this agreement requires the Company to make certain estimates and assumptions
about future revenues and such estimates are subject to significant variability. Therefore, the estimates are likely to change
which may result in future adjustments to the accretion of the interest expense and the amortized cost based carrying value of
the related loans.
Accordingly, the Company has estimated
the cash flows associated with the images and determined a discount of $151,316 which is being accounted as interest expense over
a 10-year estimated life of the asset based on expected future revenue streams. On July 23, 2019, The Company repurchased the 50%
royalty rights sold in one of the agreements above for $115,000. The Company made a payment of $20,000 and issued a $95,000 note
that matured on September 30, 2019. The note accrues interest at a rate of 10% upon default.
For the nine months ended September 30,
2019 and 2018, interest expense related to these loans amounted to $30,362 and $10,167, respectively, which has been included in
interest expense and a corresponding increase in loans payable. During the nine months ended September 30, 2019 and 2018, the Company
made payments of $22,464 and $5,303 to the loan holders, respectively. As of September 30, 2019, loan payable net of unamortized
debt discount amounted to $170,147.
Asset purchase agreement
On March 3, 2017, the Company entered into
an agreement to sell 20% of its ownership in a certain photographic archive asset for $200,000. As part of the agreement the buyer
received preferential distributions of their entire purchase price of the asset. If, however the entire purchase price is not paid
back after 24 months then all net revenues from the Company will be paid to the buyer until the full purchase price has been paid.
On March 30, 2018, the Company entered into an addendum to the agreement to remove the preferential distributions clause from the
agreement. Additionally, on May 1, 2018, the Company entered into a second addendum to the agreement whereby the Company agreed
to repay the seller the total purchase price of $200,000 and 25,000 shares of common stock within 120 days of the effective date
of the agreement. The Company valued the 25,000 shares at $100,000 as of the agreement date and recorded the value as interest
expense during the year ended December 31, 2018.
The Company accounted for the above transaction
as debt and recognized the amount received as a loan payable. As of September 30, 2019, other debt, net of unamortized debt discount
amounted to $200,000.
Globe Photos, Inc.
Notes to Consolidated Financial Statements
September 30, 2019 and 2018
(Unaudited)
License Agreements
Effective June 1, 2016 the Company entered
into three separate non-exclusive license agreements use of licensed images and trademarks through December 31, 2019. Under the
terms of the agreements, the Company is required to pay royalties of 10% on net sales. The agreements call for combined annual
guaranteed minimum royalties per year of $150,000 based on combined minimum sales of $1,500,000 per year. As of September 30, 2019,
the Company has paid $63,750 toward the guaranteed royalties associated with these agreements.
With the acquisition of the assets of Photo
File, Inc we acquired multiple license agreement with royalty rates rating between 6 – 16% and terms extending through December
31, 2021. As of September 30, 2019, the Company has incurred $997,221 in royalty expenses associated with these agreements which
has been included in cost of sales.
Operating Lease Agreements
The Company has entered into lease agreements
as a lessee for the use of land and office space. These lease agreements are classified as operating leases and the liability and
right-of-use asset are recognized on the balance sheet at lease commencement. Leases with an initial term of 12 months or less
are not recorded on the balance sheet and are recognized as lease expense on a straight-line basis over the lease term. As a result
of the adoption of ASC 842, the Company recognized an operating lease liability of $112,480 and a corresponding right-of-use asset
of $87,830, net of deferred rent of $3,508 and the cumulative effect adjustment to retained earnings of $21,142 as a result of
applying hindsight in determining the lease term.
The Company determines whether or not a
contract contains a lease based on whether or not it provides the Company with the use of a specifically identified asset for a
period of time, as well as both the right to direct the use of that asset and receive the significant economic benefits of the
asset. The Company elected the transition relief package of practical expedients, and as a result, we did not assess 1) whether
existing or expired contracts contain embedded leases, 2) lease classification for any existing or expired leases, and 3) whether
lease origination costs qualified as initial direct costs. We elected the short-term lease practical expedient by establishing
an accounting policy to exclude leases with a term of 12 months or less, as well as the land easement practical expedient for maintaining
our current accounting policy for existing or expired land easements.
The discount rate utilized for classification
and measurement purposes as of the inception date of the lease is based on each company's collateralized incremental interest rate
to borrow of 10%, as the rate implicit in the lease is not determinable.
On September 6, 2012 the Company entered
into a 25-month operating lease agreement for approximately 4,606 square foot warehouse and office facilities located in Las Vegas,
NV. Monthly base rent due under the agreement is $3,270, plus common area maintenance fees. The agreement calls for 3% annual increase
in base rental payments. On October 10, 2014, the Company entered into a First Amendment to Lease agreement extending the lease
term for 60-months, beginning November 1, 2014. All other terms of the agreement remain unchanged. On February 19, 2019 the Company
extended the operating lease agreement for the lease originally entered into September 6, 2012 for an additional 24 months. During
the nine months ended September 30, 2019, the Company recorded noncash lease expense associated with the right of use asset of
$20,254 and made payment on the lease liability of $26,035.
On February 26, 2019 the Company entered
into a 24-month operating lease agreement for approximately 4,672 square foot warehouse and office facilities located in Las Vegas,
NV. Monthly base rent due under the agreement is $4,437, plus common area maintenance fees. The agreement calls for 3% annual increase
in base rental payments. The Company determined this lease to be an operating lease and recorded a right-of-use asset and lease
liability during the nine month period ended September 30, 2019 of $98,420 for this new lease. During the nine months ended September
30, 2019, the Company recorded noncash lease expense associated with the right to use asset of $28,706 and made payments on the
lease liability of $19,925.
Globe Photos, Inc.
Notes to Consolidated Financial Statements
September 30, 2019 and 2018
(Unaudited)
Undiscounted Cash Flows
As of September 30, 2019, the right of
use asset and lease liability were shown on the consolidated balance sheet at $134,295 and $158,437, respectively. The table below
reconciles the fixed component of the undiscounted cash flows and the total remaining years to the operating lease liability recorded
on the consolidated balance sheet as of September 30, 2019:
Amounts due as of September 30, 2019
|
|
Operating Leases
|
|
|
|
|
|
2019
|
|
$
|
28,520
|
|
2020
|
|
|
100,088
|
|
2021
|
|
|
43,234
|
|
Total minimum lease payments
|
|
$
|
171,842
|
|
Less: effect of discounting
|
|
|
(13,405
|
)
|
Present value of future minimum lease payments
|
|
$
|
158,437
|
|
Less: current obligations under leases
|
|
|
(42,820
|
)
|
Long-term lease obligations
|
|
$
|
115,617
|
|
The Company also leases various corporate
housing from unrelated third parties for terms that range from month-to-month to one year. The Company also rents office space
on a month-to-month basis in New York at rate of $850 per month.
As part of our acquisition of Photo File,
while we did not assume the lease we assumed its existing lease payments as follows: we will pay 100% of the lease payments through
December 31, 2018, and after December 31, 2018 we will pay 50% of the lease until the end of the lease term or until the lease
may be terminated. The Company paid $530,816 in rent related to the lease for the nine months ended September 30, 2019.
Total rent expense for the nine months
ended September 30, 2019 and 2018 was $557,390 and $40,930, respectively, in connection with short term operating lease agreements.
Preferred Stock
The Company is authorized to issue up to
50,000,000 shares of preferred stock authorized with a par value of $0.0001. The Board of Directors is authorized, subject to any
limitations prescribed by law, without further vote or action by the Company’s stockholders, to issue from time to time shares
of preferred stock in one or more series. Each series of preferred stock will have such number of shares, designations, preferences,
voting powers, qualifications and special or relative rights or privileges as shall be determined by the board of directors, which
may include, among others, dividend rights, voting rights, liquidation preferences, and conversion rights. As of September 30,
2019, there were no shares of Preferred Stock issued and outstanding.
Common Stock
On June 18, 2018, the Company’s stockholders
voted to give discretionary authority to the Board of Directors of the Company, to effect a reverse split of our issued and outstanding
common stock in a range of not less than 1-for-5 and not more than 1-for-500, Effective as of June 6, 2019, FINRA approved the
effectiveness of a 1-for-40 reverse stock split of the Company’s common stock. Unless otherwise noted, impacted amounts and
share information included in the financial statements and notes thereto, have been retroactively adjusted for the Reverse Stock
Split as if such Reverse Stock Split occurred on the first day of the first period presented.
Globe Photos, Inc.
Notes to Consolidated Financial Statements
September 30, 2019 and 2018
(Unaudited)
The Company is authorized to issue up to
450,000,000 shares of common stock with a par value of $0.0001. As of September 30, 2019, and December 31, 2018, there were 8,588,679
and 8,161,679 shares of common stock (post-split) issued and outstanding, respectively.
On June 4, 2019, the Company sold 407,500 shares of common stock
for net proceeds of $1,291,285.
On April 22, 2019, the Company issued 5,000 shares for services
with a fair value of $99,600.
On May 23, 2019, the Company issued 2,000
shares of common stock valued at $18,000 for the settlement of $8,000 in accrued liabilities. The Company recorded the difference
between the fair value of common stock and accrued liability as loss on settlement of accrued liabilities in the amount of $10,000.
On July 29, 2019, the Company issued 12,500
shares of common stock valued at $112,500 for services.
STOCK WARRANTS
On January 30, 2019, we granted 20,000
5-year warrants with exercise prices of $4.00 valued at $312,000 for services. The warrants above were valued using the Black-Scholes
option pricing model. Assumptions used in the valuation include the following: a) market value of stock on measurement date of
$15.60; b) risk-free rate of 2.49%; c) volatility factor of 242%; d) dividend yield of 0%.
During the three months ended September
30, 2019, we granted 295,051 3-year warrants with exercise prices of $9.00 valued at $2,238,065 to our convertible noteholders
as consideration to extend the maturity date of our debt. The warrants above were valued using the Black-Scholes option pricing
model. Assumptions used in the valuation include the following: a) market value of stock on measurement date of $8.00; b) risk-free
rate of 1.49%-1.55%; c) volatility factor of 244-249%; d) dividend yield of 0%.
During the three months ended September
30, 2019, we granted 13,333 3-year warrants with exercise prices of $6.00 valued at $103,553, in connections with convertible notes
issued during the period. The warrants above were valued using the Black-Scholes option pricing model. Assumptions used in the
valuation include the following: a) market value of stock on measurement date of $8.00; b) risk-free rate of 1.44%-1.89%; c) volatility
factor of 245.00%; d) dividend yield of 0%.
The following is a summary of stock warrant
activity during the nine months ended September 30, 2019.
|
|
Number of
Shares
|
|
|
Weighted Average Exercise Price
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
162,500
|
|
|
$
|
4.00
|
|
Warrants granted and assumed
|
|
|
328,384
|
|
|
$
|
8.57
|
|
Warrants expired
|
|
|
–
|
|
|
|
–
|
|
Warrants canceled
|
|
|
–
|
|
|
|
–
|
|
Warrants exercised
|
|
|
–
|
|
|
|
–
|
|
Balance outstanding, September 30, 2019
|
|
|
490,884
|
|
|
$
|
6.93
|
|
Balance exercisable, September 30, 2019
|
|
|
490,884
|
|
|
$
|
6.93
|
|
As of September 30, 2019, the outstanding
warrants have a weighted average remaining term of was 2.41 years and an intrinsic value of $756,670.
Globe Photos, Inc.
Notes to Consolidated Financial Statements
September 30, 2019 and 2018
(Unaudited)
STOCK OPTIONS
On June 24, 2019, we granted, 12,500 5-year
options with an exercise price of $7.00 valued at $92,629 for services. The options above were valued using the Black-Scholes option
pricing model. Assumptions used in the valuation include the following: a) market value of stock on measurement date of $9.00;
b) risk-free rate of 1.92%; c) volatility factor of 254.67%; d) dividend yield of 0%.
On August 14, 2019, we granted, 225,000 unvested 10-year options
with an exercise price of $8.00 valued at $1,800,000 for services. The options above were valued using the Black-Scholes option
pricing model. Assumptions used in the valuation include the following: a) market value of stock on measurement date of $8.00;
b) risk-free rate of 1.59%; c) volatility factor of 393.00%; d) dividend yield of 0%. The options vest as follows:
100,000 options which shall vest and become exercisable on the
earlier of (1) the first anniversary of the effective date of the Prior Agreement, or (2) the consummation of an underwritten public
offering and listing with Nasdaq;
125,000 options of which vest in $12,500 increments beginning
the first fiscal quarter in which the Company’s trailing twelve month revenues exceed $10,000,000 and completely vest when
trailing twelve month revenues exceed $30,000,000.
During the three months ended September 30, 2019, we granted,
8,750 10-year options with an exercise price of $2.00 valued at $87,850 for services. The options above were valued using the Black-Scholes
option pricing model. Assumptions used in the valuation include the following: a) market value of stock on measurement date of
$10.04; b) risk-free rate of 2.52%; c) volatility factor of 307.59%; d) dividend yield of 0%. The options vest in 20,000
share increments through April 1, 2021 and the Company has recognized option expense of $52,609 for these options for the nine
months ended September 30, 2019.
During the nine months ended September 30, 2019, the Company
recognized stock option expense of $818,930 for options granted in the prior year.
The following is a summary of stock option
activity during the nine months ended September 30, 2019:
|
|
Number of
Shares
|
|
|
Weighted Average Exercise Price
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
500,833
|
|
|
$
|
2.80
|
|
Options granted and assumed
|
|
|
246,250
|
|
|
$
|
7.74
|
|
Options expired
|
|
|
–
|
|
|
|
–
|
|
Options canceled
|
|
|
–
|
|
|
|
–
|
|
Options exercised
|
|
|
–
|
|
|
|
–
|
|
Balance outstanding, September 30, 2019
|
|
|
747,083
|
|
|
$
|
4.52
|
|
Balance exercisable, September 30, 2019
|
|
|
495,083
|
|
|
$
|
2.97
|
|
As of September 30, 2019, the outstanding
options have a weighted average remaining term of was 6.97 years and an intrinsic value of $2,589,833.
On October 2, 2019, the Company issued
an unsecured convertible promissory note for $220,000, consisting of net proceeds of $200,000 and an original issue discount of
$20,000. The promissory note bears interest at the rate of 12% per annum and matures on December 31, 2019 and is convertible at
the sole option of the noteholder at a price of 80% of the price per share of Company’s pending public offering. Additionally,
the noteholder received a three year warrant exercisable at the conversion price of the note to purchase common stock of the Company
equivalent to one hundred percent (100%) of the convertible number of shares of common stock the noteholder is entitled to under
the note.
On October 10, 2019, the Company issued
an unsecured convertible promissory note for $440,000, consisting of net proceeds of $400,000 and an original issue discount of
$40,000. The promissory note bears interest at the rate of 12% per annum and matures on December 31, 2019 and is convertible at
the sole option of the noteholder at a price of 80% of the price per share of Company’s pending public offering. Additionally,
the noteholder received a three year warrant exercisable at the conversion price of the note to purchase common stock of the Company
equivalent to one hundred percent (100%) of the convertible number of shares of common stock the noteholder is entitled to under
the note but not less than 79,200 warrants.